Jeff Bishop’s Total Alpha Trading Program | Midweek Market Update (12/5/2019)

Congratulations, you’ve almost made it through the trading week…and what a roller coaster ride it’s been! Let’s get you squared away with where things stand after some wild market action with the midweek market update.

The SPY managed to fill the gap today left open from Monday’s massive decline. That comes after a sharp reversal Tuesday that took most of the day to play out.

SPY hourly chart

Earlier this week, I said I expected the market to make its way to the hourly 200-period moving average…which is exactly where it stopped. And I will put my money where my mouth is.

Total Alpha Portfolio midday yesterday.

That’s why I look at the other markets, including Bonds, Gold, and the Dollar, for additional information.

Equity winners – Small caps, energy, utilities, and consumer staples

As I outlined at the beginning of this week, I expected small caps to outperform the broader market. The weekly close above the trading range that bound it all year told me it wants to move higher.

IWM weekly chart

We’re already seeing the IWM outperform the SPY by 0.15% in the last three days. That’s come at the expense of the QQQ, which underperformed by 0.32%.

The real high flyer comes from the least likely of places. Energy stocks (XLE) are down a paltry 0.36% compared to the SPY 1.02%. Much of that comes on the back of rallies in both natural gas and crude oil.

XLE hourly chart

Crude oil itself is up 5.17% this week. However, it finished down 4.75% last week when the SPY gained 0.75%…so it’s really just playing catchup and adding a bit to the top.

Natural gas looks more like an oversold bounce. The commodity fell a whopping 17.09% last week, creating a pop this week of 3.97%. It’s got a very long way to go before it shows any semblance of strength.

Utilities continue to perform well alongside bonds. The cheap yields in treasuries force safety investors to search for return, which often drives them into high dividend stocks.

XLU hourly chart

Those with a little more risk tolerance tend to stick with consumer staples. They may have smaller dividends, but offer more exposure to growth.

XLP hourly chart.

Safety Trade Outperformance

Bond ETFs also performed exceptionally well off the back of equity declines, up 1.2% for the week.

TLT hourly chart

This is a crucial hint. For the majority of the year, bonds and stocks traded together. We only saw them decouple and trade opposite one another this week (historically normal behavior).

Following a close second are the gold ETFs. GLD climbed 1.17% this week so far.

GLD hourly chart

Poor performers – The Dow, transports, and the dollar

The biggest loser this week so far has been the Dow Industrials (DIA). Though a small index, it’s down 1.58% on the week.

DIA hourly chart

The real loser this week has been transports. They’ve been just obliterated. The IYT ETF is down 2.88%, nearly double the Dow’s performance.

IYT hourly chart

This could be a harbinger of doom for any Dow theorists.

The real head-scratcher is the dollar. No matter when you looked, the dollar had been the strongest performing area week after week, month after month. So it’s a bit shocking to see it down 0.68% on the week.

UUP hourly chart

That may not seem like much to you. But it’s almost a third of the monthly range.

Go no-where – Healthcare 

Here’s an oddball for you. Healthcare stocks are flat on the week. It’s impressive given all the political drag this sector has.

XLV hourly chart.

Most volatile – The VIX

Last week, the VIX printed prices under $12. That’s extraordinarily cheap…and it indicated complacency among investors. It’s not a surprise that the VIX shot up nearly 41.77% at its peak this week, while still settling up 16.63%.

VIX hourly chart

My analysis – we’re heading lower before we head higher

Let’s look at the facts:

  • Equities haven’t seen a selloff since…well it’s been a while
  • Investors didn’t buy enough protection
  • Stocks rose on little volume
  • Now, the VIX shoots through the roof, and all the safety trades outperform
  • But the dollar is noticeably weaker

It’s pretty clear that we’re seeing money move into the safety trades after a monster run. However, even though the volume on the downside was much higher than the upside, it’s still pretty light.

Outside of a news event, we’ll likely float sideways to higher through the end of the week. From there, I expect we’ll see one last push lower before we get our Santa Clause Rally.

How I plan to profit these next two weeks

That’s for me to know and Total Alpha members to find out. There’s plenty of egg nog…so pull up a chair.

Click Here to Join Total Alpha (watch this webinar – BEST OFFER HERE!!!)

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Jeff Bishop’s Total Alpha Trading Program | The Best Ways to Short Volatility

I wasn’t surprised to see volatility return after the signals the market was throwing last Friday – the VIX spiked over 7%, the markets had a mini-selloff, and a few stocks ran into liquidity issues on Wednesday.

Traders must have realized their mistakes, as they pushed the VIX up nearly 20% at one point yesterday.

A quick look at stock futures this morning, and it looks like we’re in for a potential bloodbath.

Yesterday’s VIX hourly chart

While the financial media might try to strike fear in you if the selling pressure continues. I want you to know one thing—this is the time experienced traders clean up.

I want to show you how I structure and enter my trades to short volatility at the highs.

My weapons of choice?

Volatility ETNs like VVIX, and UVXY.

And you know what else?

Today’s environment sets the table for a potential trade.

I use VVIX to time my entries into the market and play option trades on leveraged ETFs like the UVXY.

Most people don’t realize the VVIX’s forecasting power. I’ve used it over and over to time market lows and ride the strong bounces.

Combine this with options trading, and you’ve got a winning strategy.

Let’s get to it, shall we?

Why this trade works

I want to quickly explain the reasoning behind this strategy. It will help you understand how to put things together.

The VIX measures the annualized volatility expectations for the S&P 500. Its dollar value represents the expected percentage change. So, a $15 value equals a 15% change in the market. The CBOE derives the value from all of the put in call options on the S&P 500.

This doesn’t mean it expects a 15% move within 30 days. Rather, it says if you annualized the expected move over the next 30 days, it would equal 15%.

There is always an underlying assumption of volatility in the market. That’s why it always reverts back to its mean around $15.

You can see it on a quarterly chart below.

VIX quarterly chart

Timing the trade

The key to timing this trade is using the VVIX. This index measures the volatility of the VIX. Simply put, it measures option demand on the VIX.

Just like the VIX, the VVIX is mean reverting. You can see how this works on the monthly chart below.

VVIX monthly chart

Note: The VVIX isn’t as old as the VIX. Hence why there’s less data.

I look for the VVIX to enter a zone above $115.00. That is the signal that volatility is overbought, and I want to go short. This trade doesn’t set up all that often, maybe a few times a year if you are lucky. But it has an extremely high probability of success when you play it right.

Structuring the trade

I like to use leveraged ETF’s for my trade. They have a natural decay working against them on top of mean reversion. The UVXY works great for this strategy. It tracks 1.5x the movement of short-term volatility.

My trade of choice is to sell call spreads. This puts me in the driver’s seat for the entire trade. I control my risk, as well as put myself at a statistical advantage from the outset.

A call spread is easy to execute. You start by selling a call option at or above the current stock price. Then, you buy the same number of option contracts at a call strike that is higher than the first call strike. Both of these must have the same expiration date.

Here’s a quick example:

  • The UVXY trades at $35.
  • I want to sell 10 contracts of the UVXY for an expiration 30 days from now at the $36 strike price.
  • Then I buy 10 contracts of the UVXY for an expiration 30 days from now at the $37 strike price.

When you execute this trade, you receive a credit (payment) to open the trade. The goal is to have the UVXY trading below the lower strike price at expiration. You can also close the trade early for a portion of the total profit.

Let’s use the previous example to break down payments.

  • I sell 10 contracts of the UVXY for an expiration going out 30 days at the $36 strike price.
    I receive $2.00 for the sale.
  • Then I buy 10 contracts of the UVXY for an expiration 30 days from now at the $37 strike price.
    I pay $1.50 for the purchase.
  • My maximum possible profit is the difference between what I sold and what I paid.
    Max profit = $2.00 – $1.75 = $0.25 per contract
    This comes out to $0.25 x 10 contracts x 100 shares per contract = $250
  • My maximum possible loss is the difference between the strike prices less the amount I received.
    Max loss = $137 – $136 – $0.25 = $0.75
    This comes out to $0.75 x 10 contracts x 100 shares per contract = $750

So my maximum profit potential is $250 and my maximum possible loss is $750.

In this trade I like to have a risk to reward of 1 to 1. That means I want to set up the trade so that my maximum profit and maximum loss are equal.

I go for expirations that go out at least a month or more. That gives me time to take off the trade early at a portion of the maximum profit. Remember, you don’t have to wait for the maximum profit to close the trade. Getting 50% of your possible profit is great!

Want to see it in action?

Then check out Total Alpha. You get to watch my streamed trades live. This lets you follow along and learn in real-time.

Click Here to Join Total Alpha (watch this webinar – BEST OFFER HERE!!!)

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Jeff Bishop’s Bullseye Trades Strategy | One Great Idea – Every Single Monday!

Imagine this…

The moment most people dread. The alarm clock rings. It’s Monday morning.

Time to shake off the weekend, get out of bed, grab some coffee and a shower…

Time to rush off to that J.O.B. … again.

No wonder we all hate Mondays.

BUT THAT ALL CHANGES NOW!!!

Now Imagine This…

It’s Monday Morning. You’re sitting down with that hot cup of coffee.

You open your email and HERE IT IS

The single best options trading idea on Wall Street sitting right in your inbox. Delivered right to you from the world’s #1 Options Trading/Training Expert!

Jeff Bishop is a self-made millionaire with the options trading record that others only dream of. (Check It Out Here) Featured on Forbes, Wall Street Journal, U.S. News and many other outlets, Jeff has literally changed the way options traders view the markets.

Now as impressive as that is, the best news is that Jeff has now opened up his “Black Book” of trading knowledge to YOU!

Here is your chance to gain expert wisdom and insight into the options market each and every Monday morning with ONE SINGLE TRADE delivered right to you!

These are trades that Jeff executes using REAL MONEY. Not some rear-view ideas that “could have been”. Results like these happen all the time:

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Jeff Bishop’s Total Alpha Trading Program | How to Make $71,000 in One Trade

I love it when other traders leave early on Friday. The less competition, the better…that leaves more for me! They don’t know what they’re missing.

My highest profit trades often come when no one is looking—and last Friday was no exception.

Despite the anemic trading volume and the slow grind we were experiencing—my money pattern pointed me to an interesting opportunity in Biogen Inc (BIIB).

A setup that doesn’t come across too often… but one I pounce on whenever I see it.

Total Alpha members got to trade alongside me in real-time!

These trades happen all the time…most people just don’t know how to take advantage.

And while it takes discipline, patience, and practice to make them work. They become a lot easier to pull off—once you know what to look for.

But I’m here to tell you that anyone can flip trades like these. Let me walk you through how I analyzed and executed this trade and how you can harvest profits.

Watch for unusual price action

Friday’s trade came off atypical volume for Biogen (BIIB). While the rest of the market went to sleep for the remainder of the day, Biogen saw colossal interest in trading midday.

Shares rallied over 2% in a matter of minutes. That’s pretty unusual given the light volume and size of this stock.

BIIB 5-minute chart

Check out how shares jumped up on a tremendous amount of volume. There are some notable pieces here.

  • Shares spiked and retraced back from $300. Large numbers will often act as support and resistance. It’s no more complicated than people find it easy to place orders there.
  • Before the move, the stock had a strong uptrend. This is important as I wanted to trade with the stock and the broader market, not against them.
  • On the 5-minute time frame, price retraced back into the 13-period simple moving average. This was very close to the 30-period moving average, which should act as support.

I expected price to come off its high and retrace part of the move – then float higher into the end of the day. Ideally, that sucks out a lot of potential orders, leaving those that would mainly shove it higher.

So now that you’ve got the basic outline of the trade, let’s talk about how I set it up.

Scaling made this possible

I’ve said it before, and they’ll write it on my gravestone – risk management is the key to success!

Scaling into this trade is the only reason it worked. While my profits hit $71,000, my drawdown took me down $25,000 at one point.

If the numbers dazzle you think of it this way – I had a total risk to reward of 1 to 2.84. That’s a pretty standard trade. You don’t have to put big money into a trade like this. However, with multiple factors working in my favor, I felt that it had an extremely high probability of success.

Note, I didn’t plan to lose much more than the $25K drawdown in this case.

First, it’s important to note that I never want to do worse than a 1 to 1 risk to reward. Anything worse doesn’t mesh with my trading style and strategies. Scaling the trade lets me improve those odds.

For argument’s sake, let’s say the swing high was $302, and the breakout area was $294. That means I don’t want to enter the trade before the midpoint at $297. From there, I want to scale in all the way down to $294.

However, you don’t always want to stop out at the low point. Oftentimes (as happened here), the stock will pierce through the low before resuming its trend. So, I prefer to use one or two closes below the low on whatever time frame I’m trading.

In this case, you can see how I scaled both into and out of the trade:

My initial entry started at 80 contracts at $2.20. I added 100 contracts at $1.45. My final purchase of almost 100 contracts was about half the capital of the previous two trade sizes.

From there, I did the exact opposite scaling out at $3.20, $4.00, and $4.50. That allowed me to capture more of the move than if I simply sold at $3.20.

Scaling works because none of us know precisely where the stock will stop on the upside or downside. Instead, we assume we’ll get it wrong and adjust our trading accordingly.

Stuff your pockets with cash

It doesn’t matter whether you’re a new trader or have years of experience. Total Alpha will help you become a better trader and find big scores like these.

Click Here to Join Total Alpha (watch this webinar – BEST OFFER HERE!!!)

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