I hope you've had a great summer – as much as possible with everything that's going on.
My family and I have managed to have a lot of fun, particularly in our new Winnebago Boldt-KL. In a pandemic, it's a nice, safe way to travel long distances, like we did on our summer road trip from Florida to New York.
In fact, I love it so much I find I'm doing a lot of everyday driving in it, just running errands.
Since I'm spending so much time in the Winnebago, I thought…
"Hey – might as well do some trading in here while I'm at it."
So, I hooked it up. I'm good to go; now I have everything I need to scan markets and trade stocks in here.
With gold and stocks going through the roof, and the dollar falling through the floor, I've had my hands full; I sent five plays to my readers yesterday and let my microcurrency folks take two 75% and 90% profits off the table.
As fun and productive (and profitable) as it's been driving and hanging out in the "Winnie," it's only around three weeks to Labor Day, and after that, less than four weeks to October and our first-ever virtual Black Diamond conference. (You can learn how to register to attend here; I'll be there for sure.)
There's a lot going on! And the closer we get to the end of summer, the opportunities get faster and bigger. The time to prepare is right now; if you wait until Labor Day week, it'll be too late.
There Are Four Charts to Check Out
Let's take a quick look at where the market is right now and where it's positioned to go through the end of summer.
I like to use the SPDR S&P 500 Trust ETF (NYSEArca: SPY) as a proxy for the S&P 500 – it tracks the index, and it's a heckuvalot cheaper to buy and trade.
Looking at this chart since March, one word comes to mind: unstoppable. We've bounced off support and punched through resistance three times, and we just set a new intraday high. You've just got to be bullish on SPY right now.
The bond market, as tracked by the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT), has been chugging along since July, but with nowhere near the strength of the stock market – that's no surprise. It recently hit a roadblock at $172. That's an older resistance level, too, that we saw back in late April. TLT never really managed to spend much time above that.
Today, it's at $173, but there's no telling if it'll stay there. I wouldn't worry much about this; it's kind of a necessary pullback as people rotate out of low-yield bonds and into the much hotter stock market. TLT is ripe for a special, low-risk play I've got in mind – one where the shares don't have to move very far at all. More on that in a minute.
Lately I've been using the Invesco DB US Dollar Index Bullish Fund (NYSEArca: UUP) to track and play the good old greenback. Support is at $25.15, but UUP has fallen through support three times since late April.
No surprises there – with the Fed printing money in overdrive and the market floating on stimulus, the trend has been decidedly bearish, but that's not necessarily a bad thing; a weaker dollar is good for exports, for one, but it's also good if you're trading stocks or commodities or buying gold (which you should be).
And that brings me to the next "corner" of the market: oil. The United States Oil Fund LP (NYSEArca: USO) has been through hell and back since front-month contracts for crude oil went into negative territory in April. There was a reverse split, and a lot of frantic "re-calibration" from management. There was a period of time there when it wasn't necessarily even tracking correctly.
But since then, USO has been on a bit of a tear, nearly doubling since those crazy days. And what's good for oil is good for oil stocks, like Exxon Mobil Corp. (NYSE: XOM), which has packed on around 35% since April, throwing off plenty of trading opportunities.
So where do we go from here? I think for the moment, we're going up. Second-quarter earnings are, for the most part, out of the way, the trend is up, and the technical picture looks pretty good.
What's more, we're deep into "no news" August, where no news is good news for the Street – much of which is on vacation.
Here's What the Patterns Say About What to Play
With the Money Calendar, I track eight major "holiday" patterns in stocks and indexes: You've got New Year's Day, Martin Luther King Jr. Day, President's Day, Good Friday, Independence Day, Labor Day, Thanksgiving, and Christmas.
Traditionally, traders would buy two days before the holiday and sell the day after. This has historically been pretty effective; from 1950 to 1977, this pattern averaged better than 80%, though from 1977 on, its win rate has been in the 50% range.
But you do much better with these patterns using a system like the Money Calendar, which is actively poring over good, hard data for the best actual days to buy and the best days to sell.
The Money Calendar's telling me that a bullish play on the SPY today will pay off up to 80% of the time; it'll have moved up 1% by the day after Labor Day. That's looking at the last 20 years of data.
It's a similar story with TLT. Over the past 15 years, a bullish play made today will also pay off 80% of the time as it moves up nearly 2% by Labor Day.
In fact, I've got a low-risk trade opportunity on TLT in mind that uses the same pattern.
Now, Labor Day falls on Sept. 7 this year, so we're going to pick Sept. 11 as our expiration on a spread trade.
To set this up, buy TLT Sept. 11 2020 $170 calls and simultaneously sell the TLT Sept. 11 $172 calls. You're going to pay $0.62 a contract for the $170 calls, but you'll take in $0.37 per contract on the $172 calls, so you're risking $0.25, but your maximum reward is a cool $1.75. (Remember though, you've got to remember to multiply all this by $100 per option.)
If TLT gets up to or above $172 by Sept. 11, you're looking at maximum profit potential. Exit this trade the day after Labor Day, no matter what.
About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.