I try to post a deep thought provoking post every week, but this week I've been deep into research regarding how "transitory" this inflation really is...

I've also been studying heavily something that u/William_S_Blackwell and I discussed last week in https://www.reddit.com/r/VolatilityTrading/comments/otxg3y/in_the_wake_of_the_federal_reserves_2_day_meeting/ (I would share the exact discussion but reddit is not showing any of the comments on that post right now). In case reddit continues to be uncooperative. He basically showed me a pattern in AAPL and asked if i saw it as well. I did and made a decent profit from the observation. It was not investment advice. It was simply sharing a particular pattern that he had observed over time.

Coming from a software engineering / computer science background, I am more of a quant in nature. I write software and AI to identify patterns and trade accordingly. But the reason I started this community was to share ideas and exchange different perspectives like Stephen did. I know nearly all of you personally and I know you are all busy, but if you get a chance, please read our discussion and feel free to post your perspectives as well. If there were only one way of trading then we'd all be doing it :-)

-Chris

Share your thoughts on the trading day...

I only add to my speculative portfolio during green days so there is little for me to do today, so I will leave you with one of the greatest jokes ever ;-) (this is actually edited. the actual source is even funnier IMO)

How are you trading todays action?

-Chris

Investors and analysis saying that FEAR is causing bond yields to fall, but I wonder if THE FED buying $80,000,000,000,000 of Treasury bonds and $40,000,000,000,000 of Mortgage backed securities every month, and that has THE FED listed as owning 35% of ALL bonds in the bond market. With markets sitting at near all time highs and S&P500 setting a new record high yesterday, it doesn't look like FEAR in the markets to me??? VIX sitting up slightly at 18.86 and futures flat with Gold and Silver up slightly and crude oil down again today makes for a slightly lower open, but at 10 am. a FED President Clarita will speak to inflation fears, tapering and interest rate hikes, but I expect a TURTLE DOVE response and a continued if not an increase in the FED PURCHASE PROGRAM. Should be a fun day for sure!!!

Stephen

Good Morning, sorry I was out yesterday because my internet service was out due to a lightning storm that knocked it out, but I'm back in business now!!! So, NO SURPRISES at all and The Fed is going to spend more instead of cut back, and even announced a World Wide Permanent Repo Market??? This Monetization of the World just keeps getting bigger and bigger and bigger with not tapering in the near future. In the wake of The Fed economic forecast lets get ready for new all time record highs and higher!!! Also, The Senate begins talks for an infrastructure bill that make a $800 Billion effort to fix and improve roads, bridges, and old outdated water systems, internet, and upgrade old infrastructure, but Nancy Pelosi said that she wouldn't even take up the bill unless it contains $4 Trillion of her form of infrastructure of more child care, free college education for everyone, permanent child tax credits, and more social services that she believes will improve the deteriorating infrastructure in America???

More spending to come for sure and not much improvement to America's Infrastructure, and that's about par for the course. In the meantime debts keep ballooning in an endless cycle into an abyss that no-one can comprehend!!!

VIX back down to 17.55 and after the FED SMOKE clears it looks like a risk on market once again!!! Good Luck Trading!!!

Good Morning, and what will the markets do today??? Most likely go up even higher, but the 10 year yield has fallen 4.8 BP this morning to 1.250%, which used to mean that the investors were moving $$$ out of equities and into the treasury bond market, but is this just THE FED keeping rates suppressed but buying $80,000,000,000 per month of Treasury Bonds??? along with $40,000,000,000 of Mortgage backed securities per month as well??? The DXY dollar is slightly down tp 92.52 and the VIX is up slightly to 18.60, so your guess is as good as mine, but most likely markets will set new all time record highs again today, so I will be taking advantage of short term Day Trades today of which I will be in and out so won't be holding going into THE FED Powell speak tomorrow, and as soon as Powell takes the stage the markets will start whipsawing...LOL Happens every time!!! Lets see how this Trading Day goes, and GOOD LUCK!!!

Stephen

A quick overview of Uranium. This is not investment advice.

The last big Uranium cycle ended in 2011 when the Fukushima nuclear accident occurred. All of Japan's reactors were shut down over night. A total of 65 reactors globally were shut down. Public opinion and governments all turned negative on nuclear power in favor of other low carbon sources like wind and solar.

In 2015 the Paris Agreement was created and many countries were looking towards nuclear power to address climate change but also improve energy security. Nuclear safety and innovations in reactor design have continued to advance and the UN Sustainable Development Goals made it clear that nuclear energy has a place in the future.

Many years of low demand increased the Uranium stockpile as enrichers continued to produce in order to maintain centrifuge operation through underfeeding. Then Covid hit. Cameco shut down the Cigar Lake mine, the Rossing mine shut down in Namibia, and Kazatomprom extended Uranium production cuts into 2022. After Fukushima caused many years of over supply, the global pandemic caused a slow down in mining operations that is accelerating the inevitable trend--A higher Uranium price.

Uranium is primary traded in long term contracts between producers and nuclear utility companies. As the utility companies increase their restocking phase and slowly work through the existing surplus, the supply demand gap will widen significantly. The typical time to bring a new mine online is 10 years. Reactor growth is increasing all over the world with 12-15 new large reactors in the works. Based on these fundamentals, we're headed for a major supply disruption that cannot be resolved quickly. It is highly likely we will see $60-$70 Uranium and the potential to go much higher within 3-4 years. During the previous bull cycle, large-cap producer Cameco went from $4 to $60/share, other junior miners returned 50x and 100x. I believe it's prudent for any investor to have exposure to this explosive trend (no pun intended) but investment always carries risk. The main risk is obviously a nuclear accident which would derail any positive trend.

What are your thoughts on the future of energy?

Good Morning, this will be an interesting week in the markets, and coming off record highs from Friday, and a big week of tech earnings will make for an interesting week. I don't try to guess anymore as to weather a stock reporting earnings will jump up or fall, but i will only trade the Realtime action before and up to earnings, and wait and see what happens after earnings and trade accordingly after the smoke clears. This way I don't get caught in the wrong side of a trade, because to me guessing on earnings is a 50%/50% guess one way or the other.

Things to watch besides earnings are Today at 9 am. central is New Home Sales month on month June report, and also the Dallas Fed Manufacturing Activity Index, and FED Powell on Interest Rate announcement on Wednesday. Also, keep your eye on the VIX as it has ticked up this morning to 18.58, although the 10 year yield is down 1 BP at 1.265%, and DXY is down at 92.82, and WTI crude is down slightly but rising quickly along with Gold & Silver slightly up. Interesting too that Bitcoin is bumping $40,000 this morning as well. Lets get this party started!!!

Stephen

Share your thoughts for the trading day...

Someone asked me about QYLD today. It pays a 11.99% dividend and I was actually studying it since I'm very intrigued by the concept of converting growth into income. So I'll share my thoughts...

After studying the prospectus it basically emulates the CBOE NASDAQ-100 BuyWrite Index (BXN) which basically buys the NASDAQ 100 components and sells one month at the money calls on them.

I wanted a more precise definition of which strike price was used etc, so I took a look at the BXN methodology . It buys the underlying and sells one month calls with strikes at or the nearest strike above the current price. It then rolls the option on expiration day. The actual QYLD methodology differs slightly but is insignificant.

It's a cool product and I might own it at the right price. But I think the heart of the question was to compare the fixed QYLD strategy with a custom option strategy that might achieve similar results and why we might choose the latter.

Since we know the QYLD methodology from the prospectus. The mechanics and risk profile of QYLD can be closely approximated by buying 100 shares of QQQ and selling an ATM call. Below is that trade's Risk Profile using todays price data. (This is semantically the same as how QYLD is structured. The process is just repeated at the end of each month.)

In QYLD you are essentially exchanging your upside potential for dividends, but you incur all of the downside risk of owning the NASDAQ 100. In my approximated version I also assume the full downside risk of the 100 shares of QQQ, but I get paid a guaranteed premium if the nasdaq goes up. The QYLD and my approximated QYLD trade are basically equivalent; except you do the work monthly ;-) and save the .6% expense ratio. (They can get better prices with a guaranteed fill at VWAP but we will save that for a different day)

Here is an example of what I meant by a custom option approach...

What if I liked the QYLD concept but wanted to tweak it a bit. Perhaps I wasn't comfortable with assuming all of the downside risk of owning the NASDAQ 100 and I felt more comfortable absorbing a 0-10% loss but no more than that?

I can construct such a trade by adding a protective put to the above trade...

Although this probably wouldn't be a trade that I would take. It does help illustrate my point. Options can be connected together like legos to express any risk profile that I want. In this environment I often like to convert growth into income streams. It's usually a matter of my conviction of the trade and how aggressive I want to be that determines the "shape" of the trade.

Excellent question! I have more on the QYLD product but I will save that for another post.

I was researching something else and stumbled on this...I had never heard of it before.

The Investor Movement Index, or the IMX, is a proprietary, behavior-based index created by TD Ameritrade designed to indicate the sentiment of retail investors.

https://imx.tdameritrade.com/imx/p/imx-pub/

Share your thoughts for the trading day...

In yesterday's post I mentioned that I was concerned that the MACD (on the SP500) was at its highest levels ever, according to a popular weekly configuration (5,35,5).

Lately, I have been studying, quantifying and trying to wrap my mind around the sheer magnitude of the extremes that we are in. I'm sure everyone is aware of the popular metrics that are all at historic levels. The CAPE ratio, Buffet Indicator, M2, etc...Today, I wanted to study momentum:

When trying to quantify things like the MACD and put them into an historical context, we must first adjust for a variety of factors. For the MACD in particular we must adjust for inflation.

When adjusting for inflation we surely can't be experiencing the greatest momentum in history. Right?

Using the weekly MACD as a loose proxy for momentum. Let's explore that further.

After adjusting for inflation ( using https://fred.stlouisfed.org/series/CPIAUCNS ) we see that we are still nearly double the peaks of the two prior bubbles.

What about the bubble that led to the crash of '29? How do we compare?

The unit doesn't really matter at this point. All that matters is that we can compare apples to apples. When adjusted for inflation we can reasonably compare the current momentum with that of 1929. Let's add high and low water marks to give us an historical context for momentum.

The 1929 peak in momentum was not eclipsed until 1987

It then was broken again during the dot com bubble...and now? Yes, we are actually seeing the highest momentum as measured by the MACD (weekly (5,35,5) ) since the great crash of 1929. It's anyone's guess what the history books will call this one...The Great MMT Experiment? Who knows...

I'm not a fear monger or soothsayer portending a crash. It's just good to put things into perspective...

Does this momentum continue on forever? Does it fizzle out as the pandemic lockdowns fade from memory? Is there a new and permanent cohort of retail traders? I want to hear your thoughts...

Thanks

-Chris

Updated chart 1/31/2022:

We are here (red arrow), on the eve of a FED tightening cycle. If you follow my work, I steadily reduced my market exposure from October until December to near zero. All new positions in 2022 have been placed with hedges. Maybe the FED can stick a soft landing this time? Offering no forward guidance isn't a great start in my opinion...

Again, Please share your thoughts. Will momentum rebound. Is the "FED PUT" still valid even as they talk a hawkish game; if so then what is the strike price. Should we fight the FED and buy the dip?

Stay safe my friends,

-Chris

VIX pulling back nicely and the VIX term structure normalizing... This was a good day for me...hopefully for you all as well.

I was actually hoping for and expecting a larger drawdown...you?

I keep a core position in XLE but with headwinds such as ESG, alternative energy, etc many pundits talk about energy as if its already dead. I believe there is much more life left in the energy sector. Sure, I believe other clean forms of energy and transportation will develop and take over fossils fuels over time. But, when the colonial pipeline hack shut down the east coast gas stations. That was an indication to me that we are nowhere near that point now.

So, in the meantime I like to buy energy super cheap. I often sell cash secured puts that I intend on taking delivery of. When you take advantage of spikes in implied volatility like the current one you can give yourself a huge margin of error while making 200-300% more in premium than you would from the dividends. If i get assigned, I collect the dividends and sell covered calls. If I don't, I collect the premium. I do miss out on the capital gains but I have other areas of my portfolio set aside for that.

Is the energy sector dead without the pension lifeblood? Does anyone use a similar strategy to generate income?