Hey Wealth Builders!
We had a wonderful green week to kick start the month of July! On top of that, there is finally some interesting things to look out for in the technical charts, along with the upcoming Google stock split.
Technical Analysis 📈
SPY
With the rally we had this week, it seems like SPY may still have some obstacles ahead:
(1) There is resistance at around the $388 horizontal level.
(2) There may be a downward trending resistance line denoted in yellow.
(3) There is a downward trending resistance line denoted in magenta.
(4) There is resistance at around the $414 horizonal level.
Keep in mind that SPY is composed of the top 500 companies in the S&P500, with AAPL, MSFT, AMZN, and GOOGL as the main market leaders/movers. We can take a look at each one of the technical charts for these companies to see how it may affect the markets as a whole.
Also keep in mind that major corporate earnings are set to be released later this month. These earnings will most likely cause high volatile moves in the markets, especially with the high interest rate environment we are in right now.
QQQ
Looking at QQQ, we are nearing the resistance again.
DIA
On the other hand, it seems like DIA still has some ways to go before touching its downward trending magenta resistance.
AMD
As we expected from last week, AMD got a bounce off of the $73 level. However, there may be some horizontal resistance at the $84 level, resistance from the downward trending magenta line, and horizontal resistance at the $99 level.
AAPL
Woohoo! Like what we discussed last week, AAPL finally broke out and above its downward trending magenta resistance line. This is one of the main reasons why the major indices also had a rally. Please be mindful that the stock is coming close to its next resistance of $150.
AMZN
AMZN has been in sideways consolidation since May and is nearing its resistance line again. The stock will have to make a decision on what direction it wants to go soon as it's coming close to its triangular wedge between the magenta resistance line and the $101 horizontal support.
GOOGL Stock Split
Google is set to have their 20-for-1 stock split after hours on July 15. The stock will most likely be in trading in the low $100 levels, which means that it will be a great opportunity for us to either utilize the stock as a covered call or bear call spread candidate.
If we look at the recent price action, GOOGL has been trading between the $2110 and $2380 range. I'm still anticipating that there will be some headwinds ahead due to the environment we are in. This means that I am leaning towards setting up spreads on this stock post-split. However, this may change as we continue to see where the stock goes and collect more data points in the next couple of days. I will keep you updated in the upcoming Premium Position posts.
Hype Stocks
Being part of our Call to Leap Community, I strongly encourage you to be responsible investors and to understand the companies you buy. If you've been following me for a while, you know that I am strongly against meme stocks or stocks that are generally hyped up over social media.
Just a few months ago, Elon Musk was planning on purchasing Twitter, which caused many new retail investors to buy the stock. However, the excitement of this news slowly faded away and we even found out that this deal fell through this week, resulting in the decline of the stock price.
I know that investing in DOW30 stocks or S&P500 ETFs are "boring," but these are the companies that will make you wealthy over time. Always make sure that we understand a company's fundamentals (increasing revenue, moat, etc.) and follow the trend on the technical levels before investing in the company. We invest and trade based on data, not emotions (or whatever Elon likes to Tweet about 😉).
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Q1. I already own more than 100 of Amazon in my IRA. I want to set up a covered call. Which strike price would you recommend if I do not want to lose my shares? Delta .15? My cost basis is around $57. Thanks.
A1: You can consider selling delta 0.10 covered calls. This holds an approximate 10% chance that the underlying stock will hit a selected strike price by expiration. Please keep in mind that the stock market is very volatile and anytime you sell a covered call, there is a chance that your shares may get called away. If you absolutely don't want your shares to get called away, we would not recommend selling covered calls.
Q2. Would it be an option to sell a covered call with a strike price a lot lower and therefore a much higher premium when i don‘t expect the stock to rise to that strike price anyway in this bear market. or is this too risky?
A2: Selling below your cost basis can be risky as the stock can rise quickly and expire above your strike price, causing you to sell your shares for less than what you purchased them for. We don't necessarily recommend selling for lower than your cost basis if you are not comfortable taking a loss on your shares. If you are comfortable with selling for less than what you purchased them for, you can consider selling delta 0.10 covered calls on your shares.
Q3. Hello. I just joined and have completed level 1. I have set up an account on TD Ameritrade. I watched the the videos and read the FAQ and all. What should I start with as far as investing and/or trading?
A3: Welcome to our wealth building community! We hope our program will bring value to your financial freedom journey.
Great job on getting started and completing Level 1 already! You can consider checking out our previous membership positions to gain an understanding of how we are trading/investing right now. To recap, this year, the market has been on a downtrend. We are not buying and shares or starting new wheels right now. Instead, we are selling covered calls on shares we already own and setting up bear call spreads. In addition, we are also depositing money in our brokerage account each month and letting it sit as cash along with the premiums we receive.
Once the market has positive sentiment and we see higher highs and higher lows, we can consider SLOWLY investing our money into the market again and ride the wave up.
In the meantime, you can review Level 2 and 3 concepts. In this current market, setting up bear call spreads is a powerful trade.
You can also consider trading in a paper-trading account. You can start by selling a CSP and simultaneously set up a bear call spread on a stock like AAPL. Trading in a paper-trading account will allow you to observe how the numbers move around as time passes and get you more acquainted with the options Greeks. Trading in a paper-trading account will also allow you to use "play money" and not put your capital at risk.
📌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 💬
Investing, trading, and building wealth was a lonely journey for me. This is why my team and I created a Discord group for you and the other members to shares ideas and support one another. You don't have to go through it alone as we're all here to help. 😉
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.
📌Steve's Recommendations 💡
I'm going to pin this here since many people ask similar questions each week about why I'm hesitant with starting new positions. Until I see any trend changes or updates with the news, we will pivot our strategies. In the meantime...
I don't recommend starting any new wheel positions (selling new covered calls or cash-secured puts) until there is a trend reversal and positive market sentiment.
Through it may not matter in a long-term lens, I don't recommend buying any shares or ETFs for the long-term at the moment.
Continue to buy to close past covered call positions once they shrink down to around 50-80% of their values, and roll out to a further date to collect more premium. This is a great environment to sell short-term options as IV is high due to all the fear. I favor 30 to 45 day expirations. It's a boring and repetitive process, but it's like collecting "free money" or another "dividend" while 95% of other retail investors are panicking.
If you have more than 100 shares of long-term positions, you can consider selling 30 to 45 day covered calls at around a delta 0.10 to bring in cash.
Continue to deposit money into your account.
Continue to set up bear call spreads.
Let your capital stay as cash so we can have plenty of ammo when the bull market returns. And trust me, when it does, it will be glorious since we will be prepared.
Stay positive and patient. I know it's easier said than done, but keep in mind that you have knowledge on how to still generate income during a downward market. This is something that more than 95% of retail investors don't know how to do!
Have a wonderful weekend! 🙂
-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.
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