October 2020 Video Call

Hello, and welcome to our October video. I've got a lot planned for today.

It should be a pretty good in depth call. If you've never been on one of these videos calls before, welcome. It's where we go through kind of the macro look at what's going on in our portfolios with our strategies and mainly the market overall. My goal is for you at the end of this video to understand what I'm looking at, where the market has been over the last month, and where that's taking us going forward. It's important that we understand where we've been to know where we're going forward. So I've got some slides for you I'll go through. I've got some reader questions that we can look at.

But really, if you've been on these calls for the last several months, you've noticed a theme. I've been recording these from right here in my home office, since I think April was the first time. And, again, I've been here longer than I expected. I'd love to get back in our office and get back interacted with our team, but COVID's heating up again. Regulations are heating up again related to that. And so really that's going to be a big market driver. That's something that you're going to hear from me a lot during this video.

So let's get to it. I'll share my screen with you so you can see exactly what I'm looking at. I've got some charts to show and I think it's going to be a good one. So let's get to it. Let me share my screen with you and we'll go from there.

All right. As long as I didn't break anything, you should be able to see my screen now. So let's start right where we ended last month. Here's the slide that I ended up with, kind of the big things that we needed to watch out for in the month of September and into early October.

So interest rates. If you know me, I'm always monitoring interest rates. Of course the elections. We'll get into that a little bit today, but I'll keep it to the bare minimum. I promise. Stimulus, always huge right now. And then really the big one here at the bottom, volume, volume, volume. We started to see a big uptick in and selling volume last month and that was kind of worrisome. And I'll show you what that looked like in a chart. But fortunately, that volume has waned in recent weeks and it's treated us well. So the idea of watching volume is still very, very important, but the volume seems to have turned back to buying volume and overall it has diminished.

Okay. So here's where we were last month. Again, this is not the current chart of the S&P 500. This is where we were last month. And you can see the small equal volume boxes here. Remember with equal volume, the width of the box. Here's a wider box, that means higher volume. And then here's the day's movement. So you can see, let's find one with some smaller volume. Well, one of these in here is pretty narrow. Here's one with fairly small volume and a small intraday move. Then we get over here to the right and we can see bigger intraday moves, some big volatility on significantly wider volume, definitely wider, probably twice, maybe two and a half times as wide as this.

So you can see when the market was in a bad mood, the sellers really piled on. But when it was in a good mood folks were a little more timid but yet the shares really went up. And here's what was kind of the real indicator we talked a fair amount about last month was this upper trend line. The S&P was really staying above that, which it tends to be worrisome because we usually get a correction, just like we did here, where it popped up, hit some levels here and then sold off and went below that mid-level trend. And if you remember, I was talking about this level right in here, the 3,400 level being support last time or resistance.

Fortunately, as you can see in this chart, it turned out to be a good support level. We went below it. Most of September was a bit of a wash for the markets. But if you look, as volume started to wane and slowed down, we went back up above this mid-level trend, and now we're healthily above it. You can see we went back up, tested these levels, the upper trend came down. And right where we're at these days is right where I like to see us, trending right above that mid-level trend line. That shows that things aren't overheated, that we're kind of right in the middle, and that we should, as long as that volume stays there, just do some nice, slow progressions higher. And that's ultimately where you make the big money. You don't get shaken out of positions and that sort of thing. That's what I like to see.

Looking deeper, you can see the Liberty Indicator taking money flow here went red at the end of September and early October. It just crossed into green. Again, that's a very, very bullish sign, a good time to be buying. And then RSI, as I mentioned in our call last month, was really, really high. Went back below the midline here. Then it's trending right at about a normal range now. So from a very high level technical level on the S&P 500, I think we're in pretty good shape.

But what I want to do is something I do pretty much every month is just go through some of the major indicators to see where we've been, where we're at. And of course I use, I think the one thing that CNN is good for is their fear and greed index. I'm going to use some of the graphs from that page. And we'll just go through that.

So I always joke about this devil horn formation. I'm going to be really sad when that falls off to the side of the chart in a few months, because I think it exemplifies the action of earlier this year so much. And so what this chart is telling us is you can see here the put and call ratio. So when we're up at one, the number of puts to number of calls is equal. So as many people are buying puts, betting the market's going to go down, as they are calls, betting the market's going to go up. That's when we're at one. But most often we're down here in this 0.6 to 0.8 range where more calls are selling than puts, which is pretty bullish. You can see as the markets got really hot in early September, the number of calls was far out selling the number of puts.

And of course, that usually reverts back to the mean and we went higher. And right now we're at the average spot for this trend. It's been coming down. I think from here, it'll flatline, we're back to about a historic level for the put to call ratio. And historic as in the last five or 10 years. That's important to know. Anything prior to 2008 was a different economy. There wasn't government stimulus, zero interest rates. So when I talk about historic, it's not all that long ago. We're going back to 2008, really 2010 timeframe.

All right. So here you can see where we were last month. This one was a critical one, critical chart. The light blue line here is 125 day moving average. And of course the dark blue line is the S&P 500. This gap right here was very notable last month. And you can see typically when we get above that, something happens and brings it down. So typically what needs to happen is the harder thing is this moving average tends to go up. And that's harder because it means a sustained move higher in stocks. Stocks just need to keep moving higher and higher and draw that line up. Most often what happens is that line curves up a bit, but then stocks come down, as we saw here, trying to get back to that mean. That's just the way the Wall Street's programs algorithms work. It's just the way math works. We try to go back to that long-term mean, longterm in this case is that 125 day moving average.

So what happened? Well, it was just what we expected. That line crept up and the S&P 500 came down. You can see where we headed back up and then we got right back into that. Again, this would be that mid trend line on that other chart we were looking at. So we're a little bit overbought in regards to that. Hopefully this 125 day moving average keeps coming higher. And looking at the chart, it sure should. We'll see some flattening here due to this action here, but I don't think we're going to see a huge dip lower.

And even if we went back to that trend line now, it wouldn't be the end of the world. Certainly wouldn't look like what we saw in March. So that's good. As long as the latest wave of coronavirus shutdowns and some of the hype surrounding it stays out of the headlines and stays a little more muted, we should be okay. And I think that's where we're going to go. I don't think any politicians really want to start shutting the government or the economy down right before the election. So I think we're in pretty good shape that way.

All right. So volatility. This is a good chart. I like what we're seeing here. You can see, of course, volatility spiked. But then we've just been bouncing above this 50 day moving average, the thinner light blue line here. We've been bouncing above that. Got a little bit below it in October. And of course we dipped right above it. And so the higher the VIX is, the more volatility, the more pricing movement the options market expects. And so we're right there into the short term trend is pretty even. I don't think we're going to come down below 20 for awhile on the VIX. Maybe post election, maybe post inauguration, but the COVID crisis will have to really peter out I think before we get that, and all the stimulus stuff and the market leading action from Washington will have to stop. So I think we're fine right where we're at.

And really what I'm seeing through all of these charts is just a continuation of the trend, a healthy continuation of the trend. We're not going to see those huge spikes that we saw that really shot things higher. I love the action going into options exploration last week. We took some really healthy, big profits, 400%, 600% on some thanks to that. I don't see that happening too much over the next few months where everything moves up. I think we have to continue shooting our rifle versus our shotgun at the market and really selecting the good stocks if we want to keep getting those big triple digit winners. Of course, that's exactly what my aim is. And we haven't ever just broadly shot at the market and tried to capture that. So we're in a good shape. And I think these charts are showing that our strategy is fine tuned right now and doing well. We're going to keep doing what we're doing because we've been playing it very well.

And if you've been reading the alerts, you know I've been writing a lot about how good of a time it is to be an investor right now. And so this is just a chart of the visualization of the last month's action across the S&P 500. You can see up here in the upper left, technology stocks doing very well. And then over on the right, the consumer side, interestingly, is doing fairly well. But again, it's still very tech driven. Amazon, Walmart is a lot of online sales there. And as we go smaller to the more traditional consumer stocks, we're not seeing quite as good moves. You can see some traditional retailers right in here, and they're pretty much flat lining.

But what's interesting, the way I look at this is the more traditional economy, again, longterm, even back before 2008, before 2010, the things that really drove the economy are down here, the smaller blocks at the bottom of this chart, the financials, the banks. And they haven't had a great month. The healthcare sector hasn't had that great of a month. Healthcare stocks, thanks to the election ... Not healthcare stocks, insurance stocks, that sort of thing, thanks to kind of a rotational swing as the market favors Biden, a Biden victory. They've done pretty well. But energy. Energy has been a real barometer of the economy for a long time, and it's not doing well at all. You can see a lot of red. Exxon, Chevron, a lot of red down there. And same with basic materials.

So what this is telling me is we have a huge tech boom, which certainly isn't news to anybody. And a lot of that fresh money is going into the tech side of things, but it's not necessarily going into the things that keep us sustained in the longterm. I don't know how high Apple can get. It's buying back a ton of shares so it can keep climbing. But Microsoft, where's the saturation point? Google's got some issues with the government now. So it's important to watch these and really to see if we're having a sustained economic recovery. Not a stock market recovery. Sustained economic recovery. I want to look at these.

When it comes to stock prices and whether the Dow can keep climbing, the S&P can keep climbing, that's really all up to the funny money being printed by the fed. I'm on record saying Dow 100K within a decade and I think that's being too conservative. I think if we keep printing money and stimulating the economy and furthering our addiction, five years for that figure isn't out of the equation. That's going to be driven by stocks, this technology thing, things like this where really the valuations are hard to put your thumb on. It's really hard to put a thumb on what Google's worth and what that data's worth. And even Amazon in many ways. So again, the economy and the stock market are largely unhinged. But for a good view of the economy, you can look right down and just kind of, call it a rainbow shaped section on the chart, financials, healthcare, and then really the basic materials and energy side of things down in here.

All right. So what did it look like for the last year? Basically the same thing, just a lot bigger numbers. Again, it's a great time to be an investor. Despite everything that's going on out there, Apple from $1 trillion to $2 trillion has doubled in the last year. Nvidia up almost 200%. Microsoft, Amazon having a crazy good year. But then down here, the guys that have traditionally driven the markets forward, the economy forward, the banks are suffering. It's because of the low interest rates. I've written a ton about that. Healthcare stocks with the baby boomers. 15 years ago, everybody was saying healthcare and Pfizer and all of these guys were going to be the big things. And there's a lot of big safe kind of widow and orphan money in these stocks. And they haven't done all that well.

And then energy, poor energy has just had a ridiculously tough year. And I don't think that's going to change anytime soon. There was a big sea change happening in that sector and we've played it and we'll get to that in the reader questions in a bit. But we've made some big, big money playing that rotation out of traditional, I guess you could call it "dirty" energy to more traditional or nontraditional renewable energy. So again, keep an eye on these guys to really see where the true economy is headed, not the stimulus driven economy.

Okay. So I've teased the election a little bit. I promised to keep it short on my comments, because I'm not a fan of politics. You know that. But where do I see things November 3rd and really November 4th? At this point, I see it's going to be, looking at the polls, we know the polls aren't always right. 2016, proved that. But right now the polls are showing, the market's showing a Biden landslide. I think November 4th is going to be a lot quieter than, maybe not the markets, but a lot quieter than the headline writers think, a lot quieter than a lot of the speculators think. I think it's going to be a pretty clear election. I think Trump is going to react fine to that. And we're going to move on.

Really, if you close your eyes and look at the true economy and what's really going on out there, none of it matters. Taxes might go up a little bit over the next four years. I don't think it's going to be the end of the world that so many folks expect. And again, the reason I say that is it's so important to keep our money out of the political realm. Washington controls so much of it, we have to react to it, but we can't let our political emotions get in the way. If you're a Trump fan, don't go out and sell all your stocks on November 4th if Biden wins. It'll end up biting you. Follow the numbers, follow the macro trends and make smart, emotionless investments.

We've been talking a lot about how stimulus and fed money printing are going to drive the economy and have driven the economy since 2008, 2009. That's going to continue. So the idea, if you've been reading about MAP theory, modern portfolio, you know that's a huge part of it. That's not going away. Low rates have driven things so fast and so significantly over the last decade, they're not going away with the election. That's really what I want to hit home.

So don't focus on the headlines on the 4th or the 3rd. Focus on those big macro trends that have gotten us here and stay there and your money will be treated very well. So that's really all I have to say about the elections.

So questions. I have compiled a few questions here that I've seen a lot recently. I want to get to them and hit the highlights here. So this is one, if you tuned it last month, I had this up on the screen last month and it's just as important this month, which is why I kept it there. The option is above your limit price. What should I do? I mean, it's simple. The answer is right there. It's a limit. Don't go above that limit. So many times, stocks, options, whatever, when we put it out a recommendation, Is say buy XYZ contracts at a dollar or less, we'll see a couple trades at a dollar and then immediately $1.10, $1.25. And A, if you're buying at a $1.25, you're getting burned. And B, you're keeping other people out of it. And then C, two or three days later, we're back below a dollar and you could have gotten a significant discount to what you paid if you were just patient.

So those trades, be patient. Most of our trades don't happen overnight. We've got weeks, sometimes months, to watch for them. So be patient and buy at that limit. It will really absolutely enhance your trading profits and just make you a better overall investor. So stick to that limit.

All right, rollover trades. This is specifically for Codebreaker subscribers. We just had a rollover trade last month. If I bought the stock related to the rollover trades, should I sell it with the options? So if you're not familiar with the rollover or if you're not 100% sure what this question is asking, rollover trades are based on the options market. As options come close to expiration each month, traders are kind of sitting on the fence with profits, maybe small profits, or they're on a small loss. They can either close out their position and just cancel it, or they can take their position, sell it, rollover to the next month. That rollover is what we're really looking at. And that happens typically, a lot of extra volume on that third Friday of the month as we get close to expiration.

So our rollover trades are specifically geared towards the options market. But I always issue a more conservative stock play. So if you buy that stock, you can hold it, but the official mandate is to sell it with that rollover trade the next month. That's what is going to be booked into our official portfolio. I won't be giving updates on those stocks anymore. So those rollover trades really are month to month. And sometimes we'll sell earlier in the month. I'll make that very clear we do that, but most of the time we're going to be selling towards option expiration and locking in our profits or dealing with the hopefully small losses at that time. So again, stocks and options sell them at the same time. That's the general rule. And if it's not the case, I will certainly let you know.

All right. So I bought some options following your recommendation. They expire 10/16. They are up 133%. Do I sell them? If I don't sell them, what happens on 10/16? So again, this is going into option expiration, the idea that you're sitting on a profit, your option is in the money going into expiration. What to do with it? Does it automatically get exercised? Do the profits automatically show up in your bank account? What happens?

And so most of the time, if you're sitting on XYZ call options that are in the money, they're going to be exercised and you're going to own shares of XYZ. And if you don't have that money, you're going to get a margin call and you're going to be told to pay that or to buy those shares. If not, then other things happen, not necessarily bad, but you're pushed out of the plane and your account will show accordingly.

But your best bet is not to get that far. So we always try to sell those options prior to expiration or even right at expiration so we don't have to worry about exercising or having to buy the underlying stock. Hopefully that makes sense. I don't know if I jumbled any of that, but the idea is that we sell the contract, bank our profits without getting into the stock, without being forced to buy shares of stock. That's not really our goal with options. We're not looking to get the stocks at a discount. We're looking to leverage our potential gains as the underlying stock moves up. So we try to sell prior to expiration.

All right. So I kind of mentioned this one a little bit ago. We've seen this question a lot. And a lot of people are super excited. I think both of our services, Alpha Money Flow and Codebreaker, we have at least one solar play and they're doing very well. I mentioned that 600% gain. That was from a solar play. But why are solar stocks soaring? Isn't oil and energy cheap?

Yeah. So if we go back to that chart that kind of shows various sectors and the stocks within them and how well they've done, you saw Exxon and the big boys of big oil are having a tough time. That's because oil is cheap. So therefore, why are solar stocks soaring? If oil is cheap, energy overall is typically cheap. Electricity is cheap. But solar is doing well.

And really it's back to the politics question and what's happening in Washington. The markets are focusing on a Biden win, a Democrat win. And while the massive and somewhat crazy Green New Deal that was proposed is highly unlikely, there's definitely going to be subsidies and that sort of thing for solar stocks, a continuation of subsidies and more pushing of that green industry. That's what's happening.

And the reason I bring that up here as our last question is that that rotation is something to really watch right now. The macro stuff is still there, but we're seeing some smaller tweaks within the market. And we're really having fun taking advantage of that, watching money flow into the solar sector and various sectors that could just see a little bit of a tweaking. And that's where it really takes a fine tooth comb to go through the market and find those. And what I've been doing to find them is, again, following that money flow. So alpha money flow is really set up to take advantage of this as we watch the stocks that go from a little bit more selling pressure to buying pressure. And we can really pinpoint what's happening in that sector rotation by using that strategy and it's worked very well for us. We've gotten several triple digit profits in the last few months based on that idea.

So solar is soaring higher. I don't see that changing. It could be a sell on the news kind of thing as we get into to the election. For right now, we're going to stick to our trailing stops and keep taking advantage of those profits. So to the folks that have followed those recommendations and have profited from them, congratulations. There were some very, very nice gains in there and I think they're going to keep up. So good job.

All right, I've talked long enough. That's enough that you need to hear me ramble on. But I want to keep those questions, your comments, keep it all coming. Send me an email at mailbag@manwardpress.com. I can't give personalized investment advice, so don't think I'm ignoring you if you don't hear back. But I read everything that comes through there and it really gives me a good sense of the questions that the readership and subscribers are having, what you're seeing, what you're happy about, what you're frustrated about with the markets and everything I can do to help with it. So send me an email, send me a comment, send me a word on how you're feeling. I love to read it and see how subscribers are doing.

Thank you very much for tuning in. I guess the next time we have this conversation will be post-election and maybe we'll talk a little more about politics then, but I don't think we'll have to. I don't see any big trouble on the horizon. Still the biggest catalyst out there is COVID and related to the shutdowns and the stimulus that comes with it. And right now the stimulus is keeping things moving higher, faster than things can go backwards. But keep an eye on the bottom of that chart I showed you, the energy sector, the big banks, healthcare stocks. That's what we really want to watch to see the true nature of the economy.

That's it. I'll stop rambling. Thanks for tuning in and I'll talk to you next month.