Dan Passarelli, CEO - Market Taker Mentoring

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Little bit of a lackluster market here. The S&P 500 is able to eke out close to about half a percent. It's what I would call a mixed market where we had some stocks up, some stocks down. The health care sector was up about 1.6%, as were the financial sector stocks. Materials up about .9%. And we had some down too, like the communication services down about .6%, consumer staples and utilities down just a smidge as well. How does this play out going forward? Well, there's some important things to look at going forward. First of all, we're at the 400 level in the S&P 500, which is called a par level, those multiples of 100 or if it's a bigger thing like the NDX of 1000 or so, any number that ends with a few zeros and has few other digits in front of it, we call that par, we tend to see some support and resistance there.

It's an important pivot point, as you can see in the line I'm wiggling around on this chart here. Now in addition to that, we have resistance at the 50 day moving average at 401.64. So the market might have a hard time heading higher tomorrow. And if it does, we could probably get a little bit of follow through next week.

So let's talk about next week. Next week we have CPI and PPI, which is the most important number that we're going to be looking at because all the other numbers are Fed decision numbers based on what the Fed needs to do based on PPI and CPI or whatever inflation figure we're talking about. They prefer a slightly different one as their key metric. But CPI and PPI are very important. So that said, tomorrow will be a little bit of a pivotal day and we probably, I would imagine, we're going to see a little bit lower volume for the next couple of trading sessions until we get that inflation data out the middle of next week. I hope that helps.

Dan Passarelli, CEO - Market Taker Mentoring

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Today the stock market was up a fair amount. The S&P 500 closed close to up 2% on the day. Why? Well, because the economy is not doing great is basically the main takeaway.

We definitely go through these periods and we've talked about these in some videos in the past where bad news is good news and vice versa.When the Beige book, came out today, said that the market was expected to be a little bit weaker going forward and the market loves that. Why? Because, well, it kind of doesn't make any sense. But the rationale is that that means maybe the Fed won't raise interest rates quite as fast which when you think about the long term view of that is a little bit silly.

But we have to trade what we see and not what we think. Right. So with that said, what else are we seeing? Well, today in the market we had most of the sectors in the market were up today. We had the Utilities up over 3% today.

We can look here at the select sector Spider Trust which is the utilities, SBI, utilities ETF, whatever the full name is, XLU is what it is and man alive look at that, up over 3% today. Busted through the 20 day moving average which often has a lot of follow through when that's violated. We also have the consumer discretionaries had a really bomb day too here. So XLY and maybe it doesn't look quite as strong on the chart, but it is. That one was up about 3% as well today and that one is closing decisively above the 50 day moving average which typically is a pivot point.

So maybe we'll get some follow through through that. Now the one that really didn't work too well today was the energy sector, that is XLE. And in the energy sector a lot of what is held in the energy sector is oil which was down a little bit today. And we can see that if we pull up the indexes here. Crude was down $4.74 when I'm shooting this video a couple of minutes before the close.

Despite the fact that some of the renewable energy stocks had some pretty good days today. In particular SPWR which, well let's just take a quick look at that SPWR which, was up almost 14%. Just a teeny little pullback from the high we'll see tomorrow will be a pretty key day in there to see if it continues up. Which would be a violation of resistance which would indicate that they would probably have some follow through or if resistance holds and it has a pullback tomorrow. So the renewables had a good day but the actual XLE which again is much more fossil fuel heavy, it looks like it's going to close down right around 1% on the day.

So that's the goings ons, that's the happenings that's all the stuff that you need to know for this broad overview. Hope that helps

Dan Passarelli, CEO - Market Taker Mentoring

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You may have heard the news that Bed, Bath and Beyond [ BBBY ] CFO Gustavo Arnal died from from falling out a window in New York sending its shares down in Tuesday's trading. It closed down 18.42%.

It was down a wee bit more before that. And you know, that just stokes some concerns about whether everything with the finances with that company is okay. You know, on the up and up. or was this or what was the scenario? Right. Without even speculating. And so me being a trader of these short squeezes through our Options Raider system, I look at this news and for me, just from a pure street trading perspective, I want to keep my hands in my pockets, as they say. I want to wait and see what the rest of the news is and see what plays out and not put on any new trades, whether long or short.

Go on the Reddit threads where they talk about this, there are people that are saying that you should be holding, you should be buying in. There are some people saying you should be selling. And there's just a whole lot of back and forth. When we are in situations like those, the best thing to do is to sit and wait.

That being said, there's lots of other things to trade and lots of trades that that have been some short squeeze trades in the past might have more of an opportunity because there's only so much investing capital to go around in the community that's, you know, fights, short squeezes, if you will. And so what that means is I'm going to have my eye on Options Raider, just short squeezes in general, to watch for some opportunities in maybe some other stocks besides B, B, B, Y in the short term. So I hope that helps. 

Dan Passarelli, CEO - Market Taker Mentoring

⇐click the image to view the video and then watch fullscreen to see the charts (and the transcript below will be illustrated!)

On the phone this morning with a reporter from the Wall Street Journal chatting a little bit about the markets and he said he's been working on an article on why no one is buying puts (and he put it a little bit more eloquently than that). Specifically, what he was talking about is the volatility skew, the vertical skew among the stocks in the S&P 500 and the S&P 500 itself. So I got kind of curious and I took a look here at the VX Th, which is the CBOE tail hedge index. And if you look, over the past six months, it's a great deal lower.

In fact, let's expand this out to a year and it's a lot lower than it was a year ago. In fact, it's about two thirds lower than it was at the beginning of this year. Now, what exactly is this index? Well, it measures basically the demand for out of the money puts. So this is not just like a volatility index like the VIX where it's generals volatility.

It's very, very specifically to measure how expensive, basically how expensive, puts are relative to calls, right? And when that skew kind of tips in favor of more demand for puts and puts then being more expensive, it gives us some information from the market that people might be a little bit concerned about the markets, a little nervous and are hedging their investments with buying puts. As our conversation progressed, we ended up talking about some of the reasons why.

And here's what I was looking at. If we look at this chart, this is on Y charts, which is a very good service if you've never used it. The only thing is this chart only goes up to quarter one, but it's a chart of the PE ratio. Let's go to three years here. It's a chart of the PE ratio of the S&P 500. Now, at quarter one it was 22.89. That said, as of August 26, we're still looking about there 22.84 where a year ago it was 31.26.

Now, as far as the estimate, which is the forward twelve month PE ratio of the S&P 500, it's lower. It's 18.37. Although another source that I like to consult a lot, fact set, they put that number at 16.7%. So we don't want to split hairs too much. It's a couple of percentage.

So what is the long term PE ratio of the S&P 500? For the past 4 years it's been 21.92. So we go back and look at this and it's a little tiny bit above it today, less than 1% above it today. But when we're looking at future earnings estimates, it's a little bit lower.And so this tells us a couple of things. It tells us that stocks are not necessarily overpriced when it comes to earnings and when it comes to expected earnings. That means that some of the bad news is probably priced in the market. I think a lot of people know that. That's why they're not out there buying puts and creating all that demand and affecting the skew.

So I hope that helps. Have a great three day weekend. 

Dan Passarelli, CEO - Market Taker Mentoring

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I was looking at the market today and I was trying to determine what are the most important data points to inform you about. And you know, that's what I do in these videos, right? I look for, hey, what's working on certain data points, what is more likely to happen? And you know what?

I'm sick of doing that. How about if we trade? How about if you tell me what you think is going to happen! Now, I'm just joking. Or at least I'm kind of joking.

There's actually an element of truth there. What we're going to start doing in the very near future is we're going to start doing a quarterly survey of our flock here, of our audience, right? And we want to know the things that you're watching, the things that you think are most affecting the market, where the Dow Jones or S&P 500 will be at the end of the quarter, what option strategies are working. And we're going to take that survey that you will contribute to and we're going to disseminate it to everyone who is on our list, who is one of our listeners, who is one of our student traders so that it can help you understand what's working in the market. What other people are doing that they've found success with. What people think is important. Fundamental factors driving the market. Where the market might go.

So that said, I threw out some ideas of what we're going to have in the survey. I would love if you email me and tell me what you think are some important data points that you would like to see on a quarterly basis of what the general public of traders and investors think might happen and are looking at and are having some success with. So email me what you would like to see in that quarterly survey at [email protected] and share your ideas with me so that we can make this community stronger together.

I hope that helps. And I know this is gonna help. This is Dan Passarelli, Trade Smart!

Dan Passarelli, CEO - Market Taker Mentoring

⇐click the image to view the video and then watch fullscreen to see the charts (and the transcript below will be illustrated!)

With the market having fallen over the past maybe about two weeks here now, really and seeing the VIX up at 25.87 to close the day today, fairly high number, that sort of begs the question: is right now a good time to be selling puts?

It's kind of a lot to unpack there, but let's talk about this now. A lot of people look at selling puts as a very risky strategy because you have limited profit potential and potentially really big downside risk if the market heads a lot lower. And in a market like this with some of the news that we're seeing, it's possible that the market could head a lot lower. It's possible that, well, maybe it doesn't.

That sort of begs the question here do we try and capitalize by selling some of the very rich premiums, meaning high iv, aka expensive, in some cases, overpriced, options and run the risk of the market really falling out of bed and losing a lot on those? So it's kind of a matter of perspective. Now, some folks hedged their S & P 500 positions or their portfolios using S & P options or even for that matter, bot puts the hedge in individual stocks and may have made some money on those hedges. Some people even sold out of some of their positions at higher prices.

Now, at some point it makes sense to scale back in. Look, over time, the market does go up. Even if we end up in a recession and it lasts a year, eventually the market trades higher than it does now, right? At least it has over the past couple of hundred years, right? So selling puts at very high premiums might make sense for people who want to start scaling back in.

If the stock or the S & P 500 doesn't fall and you end up keeping those rich premiums - great, then what traders would want to do is go back in and sell them again. And then at the time you finally get assigned, then you'd be holding shares of spiders or the individual stocks for the long haul. So getting back in if you've gotten out already could be something that makes sense. I've done that in the past rather successfully.

If you're fully invested in the market and you're riding out the storm, that might be a little bit of a more precarious scenario because that's a scenario in which you'd want to skate and not get assigned. Put credit spreads might make a little bit more sense. But we always want to make sure that we have something on our side, that we have some support, whether that's horizontal support connecting low prices like we have here. But this is way down at about 375 or maybe even here at about 390 or maybe if it's using some of the longer term moving averages. Now, yesterday we closed below the 50 day. And today we traded almost the entire day below the 50 day, and we confirmed we had a confirmation candle below the 50 day.

So I would be looking for a little bit more move to the downside before I would start selling put spreads myself. But then again, if you have a different way of looking at it, the important part of this conversation is that premiums are very rich right now, and that means that options are overpriced. They're ripe for selling as long as we don't run into trouble from a directional standpoint. I hope that helps.