Transcription
What is going on traders and investors? It's Z. I was away for a couple of weeks. Apologize for that.
Now I'm back and I'm ready to keep you updated and ready for what's to come because it looks like volatility is starting to heat up, folks. Now, of course, we're going to get into these stocks and the levels to make sure that you are ready for the weeks to come. But I just want to give you guys a little bit of a warning. You guys are going to see a lot of this in the media in the next couple of months. Obviously, there's going to be chatter around interest rates, whether the Fed is going to cut, how much they're going to cut by, is that going to appease the Trump administration. Is the Fed still in the hot seat?
But more importantly with regards to stocks itself, you're going to see this chatter about whether the AI trade is overplayed, whether companies have spent too much on AI, whether the whether even AI as as an idea is something that companies can profit from. A couple weeks back, I sent out this tweet and I said, "I'm old enough to remember the dotcom bubble. The next 10% correction will be spurred by questions about whether the AI hype is overblown. You'll start to hear things like, "Besides LLMs, what has AI given us so far? Who actually uses chatbots that much? My life wouldn't be different if they didn't exist." And other questions like, "Did companies spend too much on AI too quick or or prematurely?"
Now, this happened multiple times in the dot bubble before the bubble actually burst. And from that tweet to God's ears, lo and behold, this segment just came out on CNBC on Friday. Uh, but we do wrap up this week, I think, with new questions about the state of the AI trade. Following the Wall Street Journal reporting today, Alibaba has a new chip to fill the Nvidia void in China. You had obviously Nvidia not trading well since its earnings. Other chips are down today. Broadcom reports next week. Micron's down. AMD is down. The SMH is having its worst day since April. Stephanie Link.
Now, this is the type of stuff that you typically hear as tops get exhausted. So, if you look at XLK, which is the technology sector of the S&P 500, you can see that it hit a top, but now we are consolidating and it looks like we are potentially forming a head and shoulders here. Now, not only are we hearing reports now questioning whether the AI trade is overextended, but you're seeing stuff like Deep Seek 2.0, I know Alibaba supposedly creates an AI chip to help China fill the void of Nvidia which is restricted from selling China most of its chips. Do we really think that Alibaba has the ability to create a chip that rivals Nvidia? If companies like AMD and Intel try as hard as possible to come up with chips to compete with Nvidia, do you think that Alibaba is just going to come out of nowhere having no experience in chip design and create something that rivals Nvidia? No, of course not. But these are the types of stories that you're going to continue to see here. And further to that, because companies like Nvidia have risen so high so quick, they now need to be perfect on every earnings report or they will likely suffer a pullback as you see here. Now the market is nitpicking on its data center sales mi miss. It missed data center sales forecast by a little bit even though it beat earnings and revenue by a wide margin.
So, let's dive into the rest of the data and then I will get into the charts and do a deep dive for you technical analysis nerds so that we can navigate the markets and potentially come up with money-making plays because with volatility you expect to make money handover fist or at least have the opportunity to do so. And our job as traders and investors is to be ready. It's not to be it's not to predict, but it's to be ready based on probabilities and possibilities of what could happen.
Now, first, let's talk about seasonality. As I've shared with you guys, September is the worst month for stocks ever. If you look at it since 1950, September ranks 12th, meaning the worst. If you look at it in the past 10 years, September ranks 12th. Past 20 years, September ranks 12th. In post-election years, September is the 10th worst month. And let's dive into seasonality further. If we look at post-election years since 1950, this black line is the S&P 500. It it's it combines all of the data from 1950 during post-election years. And obviously, the blue is this current year. And you could see that we are tracking along pretty similarly to what we typically see in post-election years. And you can see this drop off here in September and October.
Now, another reason for volatility besides the chatter around the overextended AI trade, you're obviously going to see discussions about whether the Fed is doing enough. So, in the Jackson Hole meeting, remember that the Fed was on break for August. In the Jackson Hole meeting, Jerome Powell said that the the conditions may warrant an interest rate cut as Fed proceeds carefully. But we are already seeing a more divided Fed than ever. As we know that Jerome Powell's job is up for grabs next year. And there are a few Fed members that are trying to, in my opinion, cozy up to the administration so that they could be selected as the Fed chair next.
Now, this is the most divided Fed ever since the 1990s. And if you could see here, some are worried about inflation, others are worried about the labor market. Now the reason that this is an issue is because these are diametrically opposed concerns because if you are worried about the labor market then obviously you want to cut rates. If you are worried about inflation then obviously you don't want to cut rates right because you don't want to cut rates uh in in an inflationary environment if you think that inflation is an issue because cutting rates will make inflation worse. But if you're worried about the labor market and unemployment going higher, then you want to cut rates to help combat that. So, in my opinion, no matter what the Fed does, it will either be seen as not enough or will be seen as too much and that will cause volatility in my opinion.
Now, the Fed meets on September 17th, and as of now, it looks like the consensus is that the Fed will cut by 25 basis points. Now, before I get into the charts and the trades and tell you a little bit about how I'm planning so that I can help you navigate for yourselves, when we see that the Fed waits for a long time between cuts, 5 to 12 months between cuts, we typically tend to see quite a bit of red in the near term. So, in the next month, you can see here that we have had a few big drops when the Fed has waited quite a bit of time for the cuts. And same thing for the next 3 months. Now, a year later, we've only been read one time a year later after the Fed has waited a period of 5 to 12 months between cuts. And the last time that the Fed cut was actually 9 months ago. So, assuming that the Fed cuts in September, it will be 9 months in between cuts.
Now, the first chart I want to look at is the VIX. The VIX really has been downtrending all summer. We did have a little bit of a spike August 1st when we spiked to about 22, but the VIX has never gone through a period all the way to October without having a significant spike. You can go back as far as you like. So, in my opinion, this downtrending VIX here looks like it is ready to pop off within the next couple of months. Now, another thing that I highlighted is $14.5 million worth of VIX 31 calls expiring October 22nd came in on Friday as of the time of this recording. Now, I personally have a VIX hedge out and I'm going to continue rolling that until October comes around or until we get a significant spike in the VIX. In my opinion, it is a very cheap way to hedge and I'll get into that play in a second.
But if we take a look at the divergence between the SPY and the triple Q's. So spy on the left, triple Q's on the right. You can see here that the spy made a higher high, did slightly make an all-time high in August, and the triple Q's made a lower high. We're also seeing a pretty similar pattern to XLK, which is the technology sector of the S&P 500, as you can see here. But this head and shoulders is not confirmed yet unless we break below the neckline which will be at around 560 on QQQ. One other thing that I pointed out before was this divergence on spy on the spy monthly chart. You could see here a higher high on the spy monthly chart. The RSI made a lower high. This is bearish divergence. Now if the RSI does not get above 74.82 82 on the monthly, then this divergence will remain and will likely result in a pullback. Obviously, this would be ample timing because of the September October seasonality that we discussed and continue to discuss.
Another thing that's interesting to me here, and this might be a play uh as well, is gold. So, gold is making an ascending triangle here. It really has been consolidating since April and it has tapped this resistance level f four times already and it's about to be a fifth time. This is the gold futures chart. You could take a look at the GLD chart if you like, but the gold futures chart is a lot cleaner in my opinion. But we've seen times before where it has consolidated for a long time. Actually, last April it consolidate it consolidated a very similar time frame and hit resistance a very similar number of times. all the way until August before then popping off and rallying again. So because of the volatility, the uncertainty that I was discussing, because of the implications as it relates to the Fed funds rate, because of the fact that the dollar in and of itself, if interest rates go down, then the dollar can suffer uh even more downside and drop by another eight or nine points to the low 90s, high80s level. that would likely mean that gold can go on another run.
So, what is my plan for preparation for a potential pullback? How am I playing this? Well, you guys know that I don't really believe in being uninvested in the market. As Peter Lynch famously said, far more money has been lost by investors preparing for corrections than has been lost in corrections themselves. But that same guy recently said the stock market has been the best place to be, but if you need money in one or two years, you shouldn't be buying stocks.
Now, what does he mean by this? It doesn't mean that he's anticipating a crash in 1 to two years, but there are times when it is more lucrative to be fully invested or start investing. And there are times when if you needed liquidity within the the next couple of years or shortly, then you likely shouldn't be investing in the stock market here. Now, I believe that if you need liquidity within the next 1 to two years, you shouldn't be in the stock market anyway, regardless of what's happening in the market. But to me, all that means is we have to have a plan and we have to understand expectations. So, when you are investing in the market, you should have a long-term horizon. I tell people this all the time because I get questions from people saying, "Should I sell my stocks now?" And I tell them all the time, "Would you go back to 2010 and buy up all of the meggaap stocks that you can? Would you have sold it at any point since 2000? And if you did sell, would you have regretted it?" And the answer is, of course, you would have regretted it if you bought stocks in the year 2000 and say you sold them a few years later and didn't hold them to 2025. And that is the exact same scenario now when I get DMs from people saying, "Should I sell my Nvidia stock? Should I sell my Google stock?" Well, if you can go back 10, 20 years, you wish that you would have held that stock and not sold. The same thing now. If you go in the future 10, 20 years, you're going to say, "Man, why did I sell my stocks in 2025?"
So, if you're an investor, your job is to find long-term investments and quality companies at prices that you think are undervalued based on the potential of the stock, aka its valuation. If you are a trader, your number one goal is to make money while minimizing your risk, keeping your losses small and maximizing your gains. your goal is not to invest like a trader, but if you do have some trading experience and some charting experience, then you can maximize your potential even further. So, all of those stocks that we bought in April that I've been making video after video about, including when I told you that Google was the the the narrative around Google was overblown and it would eventually catch up and we were able to catch Google to an all-time high. You really think that I'm going to sell my Google or the Nvidia that I bought below 90 when I told you guys that it was a steal? No, I'm not looking to sell any of that stuff. But as I said, if you do have shorter term positions such as SO XL, which I did have, I said that those are positions that you likely want to take profits on.
So, in terms of hedges, here's what I'm doing. I'm buying VIX call spreads. Now, the reason that I'm buying VIX call spreads as opposed to VIX calls is because it's a lot cheaper. Yes, you cap the upside, but I don't sustain theta decay in the same way that I would if I buy VIX calls. So, if you bought the 20 call on the VIX and you sold the 25 call on the VIX expiring October 22nd, this is going to cost you $118. Now, if the VIX spikes above 25 by October 22nd, you'll be making $ 3.82, 82, which is basically $5 cuz this is a $5 wide call spread minus what you pay for it, which is a $118, meaning you're left with a profit of 382. That is a 2 to 3x trade right there. And in my opinion, based on where the VIX is at, this is a really good way to hedge as opposed to trying to buy expensive puts or trying to buy expensive VIX calls. And by the way, shout out to public. in my opinion, the best trading and investing platform that is regulated in the United States. Not only are options trades fee free, but they actually give you a rebate on the trade. So, so far, I've made $36 in rebates trading options this year.
All right, the next trade that I'm looking at, I want to see if gold breaks this resistance here on gold futures above 3553. If we get a break in a retest, then I think that we can see a similar runup to what we saw last year when gold broke out from 2700 all the way up to almost 3,000.
Now, in terms of the technology sector of the S&P 500 XLK, I'm looking to potentially open a short on this. So if we confirm a close below the neckline of 258 and we get a retest then I will likely take this short on XLK to this previous consolidation level here around 242 243. Now I will likely do this with puts or I will simply open a debit put spread in the same way that I showed you with the VIX call spread. So, this would entail for in in this instance, even though the prices will be different if XLK breaks that neckline, but it'll be longing the 255 put and selling the 250 put in this case for a total of $2. And remember that the full value of the spread is $5 because it's a the difference or the width in the strikes, which means that your total profit would be $3 in this case. But of course, the prices will be different if and when XLK does confirm that head and shoulders here.
Now, one thing that I did do, and I posted this on X, is I did already sell calls against my holdings. Like I said, I'm I'm not really particularly interested in selling my holdings that I bought for cheap, but I do want to make money off them when I see that the market is stagnating or I do see signs of volatility up ahead. So, I sold calls against Nvidia, Tesla, QQQ. This is something that I also sent out in the Traveling Trader Academy. I sold calls on AMD, Nvidia, Tesla. You can see here 90%, 91%, 78% when the market is showing consolidation at all-time highs. This is literally free money in my opinion. And while I do love investing, as I said, that trading can help you maximize your gains. And trading doesn't have to be risky yolos on out of the money calls. In this case, this is a very sensible position of selling calls against my shares.
Now, I'm personally not interested in shorting the market outright, meaning shorting SPY or shorting QQQ unless we get a break of structure on the daily. I personally don't like to short tops in the market unless we do get a break of structure. So, on the S&P 500 would be something like this and then a retest breaking that structure right there. Otherwise, I'm just not interested in it. Like I I used to do that when I was younger and the times that it's actually succeeded at all-time highs is less than half. It's really not a great strategy. And selling calls against your shares, for instance, is not the same or or shorting a specific sector or a specific stock is not the same as shorting the actual market at all-time highs even though we do have this divergence here. But if we do break market structure, then at that point I might explore something that where I can risk a minimal amount for a potential large gain.
Now, one thing that I believe you should be doing here is already planning a list of stocks that you want to buy in case we see a dip. Remember, I'm not trying to be Nostradamus. I'm not trying to predict anything. I'm just looking at what are the probabilities and possibilities based on data and based on price action and behaviors that I see in the market and if we get a pullback or a correction then I want to be ready just like I was in April. I didn't I you know I didn't predict that April would turn out the way that it did. I don't think anybody saw that after liberation day even though we expected some weakness. Nobody saw that the market would drop the the top five most violent drop that we've ever seen in the market.
So, here are some things that I want to buy. I want to get back in SOXL. This is a stock that we entered at 7 and I ended up selling this near 30. This has literally been my best gainer this year, especially because I do see a lot of the fear-mongering that that will likely come in the next couple of months as it relates to the AI trade. As I said, is the AI trade overextended? Is Nvidia going to be beat by Alibaba? I own a huge amount of Nvidia. Obviously, it would be on a short list of stocks to get if you don't have Nvidia. And as I've told you before, even if you're not a great chartist, one easy thing that you could do in terms of levels, right? Even though you should be evaluating these companies based on due diligence and uh figuring out what these companies are worth, obviously if you need help with that, you can join the Traveling Trader Academy. But in this case, if you see old highs like these old highs on Nvidia for instance at 153, that is likely a key level right there in terms of a dollar cost average level. One thing you could do is also draw a fib from the low to the high. And when stocks hit the 50% retracement mark, if they are quality companies, if they are quality mega cap companies, that has historically always been a great buy point. So in Nvidia's case, for instance, it would be 150 would be my my next buy point if we see a correction followed by 135. It doesn't mean that that's the absolute bottom. It just means that based on historical pricing, that is a good price compared to all-time high.
One stock that you guys know that I'm bullish on is Google. And Google has paid off. I gave you guys Google multiple times. And I told you guys that the search is dead narrative is literally a gift in the stock market or a gift for Google in the stock market. And Google just recently made a new all-time high. Now, in my opinion, Google has even a trillion dollars worth more of valuation to go. If you look at its business valuations, you can see here that if you combine all of this, it would be around $3.5 trillion. Google's currently not even valued at $3 trillion. and all of these businesses are growing.
One other stock that I really want to get in if we get a discount is Robin Hood. Now, I don't own Robin a lot of Robin Hood currently, but I do think that Robin Hood is going to join the S&P 500. And in the Discord, I showed what happened after coin jo when there was an S&P 500 announcement for coin and after was added to the S&P 500. You could see the rally that coin had. Same thing to Palunteer when the S&P 500 announce was announced. You can see the big jump and then after was added to the S&P 500. Same thing will happen to Robin Hood in my opinion, especially because there is a lot of hype and it is a stock that trades with a lot of volume.
Another stock that I'm looking at is Bitmine Immersion Technologies. Now, this to me might be a midterm investment. Not sure yet if if this is a long-term investment for me, but looking at BMR here, this is the the Ethereum fund that Tom Lee chairs. This is the largest amount of volume that we saw in August, right? When we saw this jump in August to 72 and then as the price starts dropping here precipitously, you can see that volume starts dropping off as well. This to me is a sign for a potential major boom here, especially if Ethereum and crypto in general starts breaking to the upside. So, I'm looking for a potential position in BMR.
And just to wrap it up with spying QQQ, I'm not looking to short them unless we get a confirmed head and shoulders on QQQ below around 560 and or we get a break of structure and a close on SPY below 632. As always, everything that I'm looking at, all of the swing trades, all of the investments, all of my hedges will be sent out in the Traveling Trader Academy. Now, we are going to be raising prices since we've had so many people join this year. And thanks to everyone who joined, we're going to be raising prices to try to keep the room as manageable as possible and and try to to make sure that people who want to be there are there. But I will be giving you guys a code if you want to join for a full year and lock in a cheaper price. That code will be here. That code will expire on September 2nd at midnight Eastern. So, make sure that you use that code. And hopefully you see this before. Make sure that you use that code before if you want to join for the full year.
I day trade live every single morning. So, we're not one of thesemies that, you know, are are only long-term investing focused and don't interact with you otherwise and say, "Hey, just buy this and hold it for the next 10 years and be patient." So, obviously, there is a a huge investing portion of the traveling trader discord, but there's also a swing trading and day trading section, and I day trade live every single morning. So, you get to interact with me every single morning and watch me trade. you're watching my screen, watching me execute trades. There's no hiding that. Other than that, it's good to be back and I hope to see you guys more regularly. Sign up for a public account below where options trades are fee free and it is the only platform that actually gives you a rebate on the money that they make off of your backs unlike some of the other guys. Subscribe to the channel, hit that notification bell, stay safe out there, traders. Peace.
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