End of Day Post

Interest rates remained the same after the FOMC announcement yesterday. The Fed referred to a possible rate hike in September if near-term risk continues to diminish. There was little to no reaction to this announcement since no change to policy was expected by the markets.

We continued to build a high base pattern in both the INDU and S&P. The Nasdaq has been enjoying a good round of earnings results – with AAPL, FB and AMZN all moving higher, to name a few.

Stay patient here...the markets will move when they are ready. Continue to take advantage of short-term, sideways price action.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The S&P and INDU closed flat on the session, regaining the majority of today's earlier losses. The Nasdaq posted a small gain today, which was enough to let it close above 5,100. Overall, we are still seeing a base form in the markets as directional opportunities are becoming scarce.

Technically, all three major markets are showing signs of basing, but in three very different ways. The S&P is creating a high base, but the INDU is forming more of a small pullback. The Nasdaq looks to still have a little bullish momentum (most likely driven by earnings) and continues to float higher.

Earnings have been mixed so far. We will see some of the bigger companies over the next week or so, starting with AAPL tonight. So far, the markets have absorbed both good and bad news, but that could change as more and more companies report. The FOMC announcement on Wednesday could shake things up; however, the markets are expecting no change in policy to be made.

Shorter-term sideways to bullish is still the play here. The more the markets base, the stronger the move out should be. Keep an eye on earnings results.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

Trading vs. Investing

Trading vs. Investing

From Our July 2016 E-mail Archives: Our Head Trader, Robb, replied to an e-mail from one of Maverick's traders who asked Robb for his thoughts on a trade idea.*

-----Original Message-----

From: Brian R.
Subject: Re: Market Foundations - Check

Hello Robb,

I just wanted to check in and get your thoughts on a trade idea. My wife and I went to Cabo for 10 days the week y'all went to Vegas for the annual Maverick Summit, then ended up moving mid-June. Our new home required some renovations, which has distracted me from my training a bit, but I am back progressing through my simulator trades and am about halfway through Maverick's training on range-bound patterns.

At work, we are looking at converting some of our platforms to SAP. Not sure if you're familiar with them, but I thought I would check out their stock as I know they have systems globally. Turns out they may be a decent candidate for some range-bound strategies.

Obviously, I'm not through the options training yet, so I have not looked that deep into them, but the chart pattern looks interesting to me. Volume might be a bit light for your taste from what I am learning from your videos, but thought I would send it your way to get your thoughts. Is this the kind of pattern I am looking for?

Thanks for all you guys are doing at Maverick, Robb. I wish I'd found you about 3 years ago.

No rush, my friend.
Brian

-----Reply Message-----

Hi Brian,

Thanks for the extra time. We just got back from Cabo as well and had a great time down there. Now, back to business...Haha.

I think SAP looks great on a chart as you have a nice break-out last week (off what I assume was an earnings report) with nice, bullish volume.

Whenever I see a break-out where the stock spent a lot of energy to break out (about a 13-14% move over the last 2 weeks), I typically see some consolidation above the break-out point ($82) to give the stock a chance to catch its breath and build energy for another move.

So, my stock outlook for the next few weeks would be a 0 (neutral) and my outlook for the next few months would be a +1 to +2 (mildly to moderately bullish). This is the setup that I like to use a Diagonal Call Spread on since I get to sell an August 85.00 short-term call for $1.30 and buy either the September 80.00 or 82.50 (I would probably choose the 82.50, which is trading for $3.60). Overall, the total net debit (and risk) of the trade would be $2.30.

Here are few of the possible outcomes:

• If the stock takes off and goes higher over the next few weeks, then you would probably have about a $0.90-$1.00 profit – or a 30% return for 4 weeks.

•  If the trade goes sideways on the August expiration, then the 85.00 will expire, you will keep the $1.30 and you will get to make a decision on the September 82.50 whether to hold or sell. My rule is that if I still like the trade and would enter it on that option expiration, then I keep the long call. If not, then I close the entire position for a small gain/break-even.

• The perfect scenario would be to close just below $85 on August expiration and then take off to $90+ after that, giving us both a profit on the Short Call (August 85.00) and the Long Call (September 82.50).

• The worst case scenario would be a loss of $2.30.

Now, that was my trading answer, but many of the points you made were investment questions. In Maverick Trading’s “Market Foundations” course, we talk about trading vs. investing and how people try to blend the two together and get some negative results.
I say that if you are trading, then everything is simply a ticker symbol and a price. What the company does – earnings, management, etc. – doesn’t matter AT ALL. In trading, the only thing that matters is trend and price.

Investing has everything to do about those things – earnings, management, etc. – and, in the end, has not as much to do about price, although you do want to use some measures to make sure you aren’t overpaying for assets. If you are looking at SAP as an investment, then you need to look out in the future to economic cycles, technology cycles and earnings/revenue growth. SAP has grown its revenues nicely over the past five years. However, as you can see, the earnings have been flat for the most part.

This tells me that the company is growing, but is investing much of the profits back into the business, which is quite bullish overall. I did make sure that there wasn’t an unusually high dividend since sometimes when you see this revenue growth with no earnings growth, it’s because they are either paying it all out to shareholders or buying back company stock. In this case, SAP has a 1.5% dividend and share count has been steady. So, overall, the fundamentals of the company are quite bullish and SAP saw revenue growth of +15%, which is generally very bullish.

The last thing in fundamentals is to make sure that you aren’t paying too much as far as price-to-earnings (P/E). SAP’s Trailing P/E is 25 and Forward P/E is 17, which are both likely in the normal ranges for a technology company growing at +10%. Thus, you could make the case fundamentally that the stock is “cheap” compared to historical valuations. However, as we teach in Market Foundations, what SAP does over the next 1-10 years is going to be determined by what the markets overall do over that period. If we have a bear market or two in the next five years, then we would expect that SAP will either go lower or flat. If we have a bullish economy, then SAP is looking like a stock that will do well in that environment.

Sorry for the long response, but you hit a sensitive spot since we at Maverick Trading don’t like to blend trading and investing like they do on CNBC, Fast Money, etc. “Trading” is trying to make money off a stock’s movement only. “Investing” is making money by buying a piece of the pie (shares) and having the entire pie get bigger (thus, making some money on it). Treat "Trading" and "Investing" as entirely different animals and you will do better in your trading and also better in your investments.

Thanks,
Robb


* NOTE: Some original wording may have been modified for legibility and/or clarification.

End of Day Post

The markets closed lower today, retracing all of yesterday's gains, but still remain positive for the week. We could see some more corrective action tomorrow, which would be welcome since it would open up more directional opportunity in the short term.

Don't be afraid to stick with sideways plays. Allow for enough room for small corrective action if you are going further out in time. Directional opportunities will come once we see a corrective action, so continue to stay patient and follow sentiment.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets appear to be stalling out at their current levels, but we have yet to see any selling. It is still early in the week, so we could see bearish momentum pick up. However, without a move lower, we probably won't see an increase in selling.

The VIX has dropped into lows not seen since August of last year, making it difficult to confirm a top. We are extended in the market charts, but sentiment remains bullish. There is not much to go on yet as we wait to see what tomorrow brings.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The bullish march continued today with yet another close to the upside. This bullish surge appears to be a little overextended on a technical level, but trying to guess a top can get a trader into some trouble. Yesterday's doji candle could have been a possible turning point for a corrective move, but it appears that the bulls had a little left in them.

We are moving into July's monthly option expiration tomorrow, so we should expect a little volatility in the morning. There is little to do with the markets at these current levels, so spend the majority of tomorrow addressing any of your open July positions.

Once this week comes to a close, we will need to take a good look at the overall market pattern. If a correction starts, then we will look to identify opportunities once a support level is found – basically, look for bullish setups during a market pull back. If the markets continue higher, then we can still take advantage of some short-term, sideways strategies.

Keep an eye out for earnings dates with any new trade setups and existing trades as we enter into this quarter's earnings season.

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets continued to move higher today, displaying some bullish confidence. All three majors pushed above resistance levels and into new highs for the year. The Brexit looked to do little except fuel a bullish surge in the U.S. markets.

Volatility is back down to levels not seen since August of last year. Complacency and bullish sentiment is indeed in control here. The next question is, "When will the markets take some profits?" Even a healthy bullish move needs a pullback. However, the worst thing that you can do is to guess when it will happen.

We are coming into earnings season and July monthly options expiration is this week, so we do have some things that could slow this move down here. Keep these events in mind, but don't take action until it needs to be taken. Don't get too aggressive to the bear side if we see a bull pullback over the next week or so.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team

End of Day Post

It appears the markets are not quite sure what to do at their current levels, showing hesitation once again today. This is a shortened holiday week, and maybe the markets are still a little tired from last week's rally, but we aren't seeing much conviction in either direction.

This is a stable area for the markets, in reference to the technicals, as long as they can hold above current support levels. During the Mid-Week Update class, we discussed the possibility of increasing sideways movement as we move deeper into the summer. There are great opportunities out there and they don't always have to be directional. Keep this in mind over the next couple of weeks...who knows how long the markets could consolidate for?

See you on this Sunday's live Trading Room class!

Have a great night,

Your Maverick Trading Team

End of Day Post

The markets gave back a little today as they come out of the extended holiday weekend. Today's move wasn't as volatile as we had seen last week, but volume was still decent. It is too early to tell where we go from here, although we should expect some hesitation or even a small correction after last week's huge up move.

Stay focused on price action remaining above support levels and MA's. If the markets can absorb a small pullback or stay above these levels, then we could see another move toward the highs.

See you on Wednesday's Mid-Week Trading Room Update class!

Have a great night,

Your Maverick Trading Team