Rolling Price Action Wearing Down Bulls

October 4, 2019

Dear Hot Money Member,

We’re in the final stretch of 2019!

The major indexes sold off at the start of the week due to poor economic data.

The bulls stepped back in the last two days, and all signs show their days are numbered.

The market action we’ve seen over the last six months is known as a range-bound market.

Take a look at a daily chart of the S&P 500:

It looks like rolling hills.

What this means is that there’s a battle going on between buyers and sellers.

Since we are just off recent all-time highs and the longest bull run in history, the mutant bull the Fed created is breaking down.

Money is getting tighter and the appetite for risk has halted, with WeWork and Endeavor being tabled and other IPOs trading poorly.

The fear gauge for the S&P 500, known as the CBOE Market Volatility Index (VIX), continues to hang above our key level of 15, trading at 17 — which means these rolling hills aren’t going anywhere.

This time last year was when we saw the market break down and drop 20% before the snapback rally to kick off 2019.

Market environments like this are frustrating for everyone because we go up and then down just as fast.

Short-term traders keep getting whipsawed, which has been happening to us.

It’s frustrating, but we don’t make shots if we don’t take them.

Saving our emotional capital is important during market environments such as this because it’s what will hold you back from taking opportunities, which is when you miss the big moves.

That’s why it’s important we continue to be engaged, but during market environments like this, I’ve had success with playing a little loose to avoid getting whipsawed.

Since options we trade have a built-in stop loss, it’s best to risk the whole amount and let things play out.

This sideways action will resolve itself soon, but it’s not looking like it’s going to be higher.

Despite the rocky week, you were able to close your Ally Financial Inc (NYSE: ALLY) October 18, 2019, $33 puts for a 70% gain!

Let’s talk about our newest position.

Portfolio Update

On Tuesday, we bought to open Emerson Electric Co. (NYSE: EMR) November 15, 2019, $67.5 calls up to $1.55 per contract.

Right now, we’re holding:

  • Emerson Electric Co. (NYSE: EMR) November 15, 2019, $67.5 calls.
  • Toll Brothers Inc (NYSE: TOL) October 18, 2019, $41 calls.
  • Goodyear Tire & Rubber Co (NASDAQ: GT) November 1, 2019, $15 calls.
  • Barrick Gold Corp (NYSE: GOLD) October 18, 2019, $22 calls

As always, keep sending your questions and feedback to [email protected]

My team and I will have a new trade for you on Tuesday.

To your wealth, freedom and options!

Joshua M. Belanger
Joshua Belanger is founder of CounterVest and the editor of Hot Money Trader. He has been providing ordinary investors blockbuster returns since 2008. In 2018, the average return of Hot Money Trader beat the markets by over 15%