Hi Wealth Builders!
We had another drop in the markets this week due to some negative news. Let's see what happened:
Here's SPY:
Here's QQQ:
Here's DIA:
Why Did the Market Drop?😮
Last Thursday, the Labor Department released the latest consumer price index data, which showed that the rate of U.S. inflation rose again in January to 7.5%, which is a 40-year high.
Stocks fell sharply Friday after the White House said Americans should leave Ukraine "immediately" due to worries about an imminent invasion by Russia. After the Biden administration said it would be ready to respond if Russia invades, the markets sold off with the DOW30 falling 1.4%, the S&P 500 falling 1.9%, and the Nasdaq falling 2.8%.
The stock market is currently sensitive to any negative news and algorithms will trigger any reason to sell off their shares. Think of the stock market like a Jenga tower after 15 moves in.
Remember that many of these institutions invest and trade on margin, which is borrowed money. If there is any news that spooks the markets, these institutions will sell off their shares quickly, so they do not get margin-called and incur any more greater loss.
Your goal as an investor is to stay patient during this time and to keep a close eye on the companies that have fundamentally done well and retraced quickly in the past. Once the negative news are "shrugged off," you will see quick upward retracement in the markets.
Technical Analysis 📈📉
SPY:
It looks like SPY is having a challenging time getting past the $457 resistance level. I do still see us going through more volatility in the upcoming weeks with the first rate hike most likely being in March.
QQQ:
Like what we've been observing over the past several weeks, you can see that a lot of the stocks in the NASDAQ are struggling with getting back up compared to the S&P500 index.
DIA:
On the other hand, you can see that stocks in the DOW30 recently have higher highs and higher lows. This is why I feel more comfortable staying with companies in this index as many institutions may have a flight to quality stocks.
NKE:
NKE came back down to its $140 support level again. I am not investing anymore shares until I see an upward reversal.
MSFT:
Just like last week, I am waiting to see an upward trend with MSFT before buying any more. I am currently selling calls against my shares to collect premium.
AAPL:
AAPL is still resilient during this time of uncertainty.
AMD:
If AMD doesn't have a solid break out through the red resistance line, I wouldn't be too surprised if it started to drift back lower to the orange resistance line.
SBUX:
Lastly, SBUX is drifting lower again and I am not adding on anymore shares until I see an upward trend. If you have wheels on this stock, I would start selling more shares at your adjusted cost basis around 4-6 weeks out.
Trade of the Week:
Current Market Conditions: Again like last week, I don't necessarily recommend starting any new wheels at the moment and to only sell calls against the shares you already own to lower your cost basis. If you want to start new wheels, you can, but I would proceed with some caution. My pick for the wheel would include AAPL for now since it's holding up pretty well for the past several weeks.
Here are some trade recommendations and see what fits your personal risk-tolerance:
AAPL Monday Open: $172.86 Friday Close: $168.64 5-day change: -2.44%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $168.64 - Capital Needed: $16500.00 - Sell at the Expiration Date: 2022-03-11 - Select the Strike: $165 - Premium you'll receive: $415.00 - Cost Basis: $165.00 - $4.15 = $160.85
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $168.64 - Capital Needed: $16864.00 - Sell at the Expiration Date: 2022-03-11 - Select the Strike: $170 - Premium you'll receive: $468.00 - Cost Basis: $168.64 - $4.68 = $163.96
Earnings
DIS:
Disney reported first-quarter revenue of $21.8 billion, which is up 34% year-over-year.
The company's media and entertainment segment generated revenue of $14.6 billion, which is up 15% year-over-year.
The company’s parks, experiences, and resorts segment generated revenue of $7.2 billion, which is up over 100% year-over-year. This is the second consecutive quarter of the parks, experiences, and resorts segment having revenue growth of 99% or more on a year-over-year basis. Yeah, you read that right. 99%!
Domestic parks and experiences revenue generated $4.8 billion in the quarter, which is up from $1.5 billion in the same period last year.
As parks open up and people are more comfortable going back to visit Mickey and his friends, I see that revenue will continue to increase from the company’s parks, experiences, and resorts segment.
Disney+ subscribers grew to 129.8 million, which is up 37% year-over-year. 11.8 total million Disney+ subscribers were added in the first quarter.
Domestic Disney+ subscribers grew to 42.9 million, which is up 18%.
International Disney+ subscribers (excluding Hotstar) grew to 41.1 million, which is up 40%.
Disney reported average revenue per user of $4.41 for Disney+. The company reported a decline in average revenue per user for overall Disney+ users in the fourth quarter.
Hulu subscribers grew to 45.3 million subscribers in the first quarter, which is up 15% year-over-year, while ESPN+ ended the quarter with 21.3 million subscribers, which is up 76%.
Here is the 5-year chart of DIS:
Here is the short-term chart:
Though I am still bullish on DIS for the long-term and like the company's fundamentals, I am not adding anymore shares until I start to see a reversal and an upward trend with higher highs and higher lows. I would also like to see when Disney decides to reinstate their dividends again, which may attract more institutional buying. If you are already investing in this company, I recommend to be patient.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Shaun
Q: Hi Steve, Is it good to put a "stop price" on a CSP? If i see a stock falling a week before expiration date, should i buy it back?
A: We typically don’t buy back our CSPs we sold because prices fluctuate, we already want to own these shares for the long term and we sell covered calls on the 100 shares we acquire from our CSPs. This is the beauty of the wheel strategy :). If you really don’t want to own the shares for some reason, you can consider “buying back and rolling out”. You can find this video in our level 1 tutorials. If you’re a beginner however, we recommend letting your sold options go to expiration until you’re comfortable doing this more advanced trade.
Melody
Q: Hi Steve. I see a lot of stocks going down. Is this a good opportunity to buy?
A: From a long-term perspective, yes, many of these shares are considered to be on a "discount." However, I would be more patient with buying anymore shares since it's possible that these stocks continue to trend lower due to interest rate hike fears. Hang in there!
Tiffany
Q: Hi Steve! Should we still be depositing money into our accounts right now even with the market volatility going on?
A: I would keep depositing money because these rate hike fears will ultimately go away later on. When they do, I recommend having more capital to ride the wave up when institutions start to put their money back into the markets again. Right now, I would be patient and let your premiums, deposits, and dividends stay as cash in your account if you don't feel comfortable investing.
Submit Your Questions 🙋♂️🙋♀️
Have any other questions? Before asking me and my team, feel free to check out our Level 1 FAQ. This FAQ is located on the Dashboard. You might find what you're looking for. 😊
If you do have questions, make sure to ask them on our Dashboard, rather than asking us via email. We also encourage you to watch all of the core video content and some of the past archived videos, read past Membership Positions, and take all the quizzes before sending us your questions.
Join Our Discord 💬
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Make sure to check it out on the bottom of your "Dashboard" and follow the instructions on how to sign up. Coming from a teacher's perspective, I believe it's important to engage in conversations with people who are also seeking to reach financial freedom.
Remember that we are a community of wealth builders at all different levels, so be positive, kind, and helpful to others, so we can help each other get to financial freedom much faster.
What You Can't and Can Control
As much as you wish you can, you can't control the market direction.
I know it sometimes feels frustrating seeing your account not move as much as it did before a couple of months ago. I know it feels like a punch-in-the-gut seeing your favorite long-term holds drop more than 20+% even though they had spectacular earnings. Remember that we are all experiencing a broad-base sell-off, meaning that all stocks in the major indices are falling together.
Does this mean we panic and give up?
Absolutely not.
What you can control are your emotions and your discipline moving forward.
I've seen this movie play out many times. When the markets move up, everyone feels like a genius. They boast to friends and social media how much unrealized gains they "made." They go onto forums and describe themselves as "apes" with "diamond hands."
However, when there is volatility and uncertainty, many beginner investors and speculators panic and sell their shares for a loss because they don't hold a long-term perspective. And guess what always happens in the end?
Upward retracement.
It is always the patient turtle that gets rewarded in the end. Remember that we are not investing for just 3 or 6 months. We are investing for more than 5 to 10 years! Do you really think that the stock market is going to keep going down for that long of a duration, especially with all these companies increasing their revenue by the billions?
I don't think so.
Stay calm. Stay patient. Be the turtle.🐢
You got this Wealth Builders! 🙂
-Steve and the Call to Leap Team
The following article is strictly the opinion of the author and is to not be considered financial/investment advice. Call to Leap LLC and the author of this article does not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article.