I mean, do I really know my risk?

Stocks and Futures traders like to talk about how they use stop-loss orders to define their risks, and that’s smart.

A lifetime ago I managed a small, independent hedge fund that traded commodities with a trend-following strategy. This strategy entered positions that I’d attempt to hold for weeks or months (if they were working).

Every position I had on had a resting stop-loss order working in the market, giving me comfort that I knew the most I could lose if I was wrong.

All that comfort I was enjoying changed one day after a trip to my clearing firm’s office in downtown Chicago.

I sat down with one of the firm’s risk managers for a simple “get-to-know-you” chat. He was curious about my trading and just wanted to get to know me a little better and see if there were any ways in which he could help me get to the next level.

We got into the weeds of my trading strategy and he was nodding along in agreement that he was in favor of what I was doing and he thought the returns I was earning were impressive and better than average for accounts of similar size with that firm.

From the Desk of Ian Culley @IanCulley

The Federal Reserve handed down a 25-basis-point rate increase on Wednesday.

And Fed Chair Jerome Powell implied an impending pause in the hiking cycle.

You know what this means...

It’s time to buy the four "Bs" – Bonds, Bitcoin, Big-Tech, and Bullion.

JC and Strazza talked about it on Pardon the Price Action earlier this week.

Today, I’ll highlight bonds with a couple key levels to trade against as we add these assets to our portfolios.

First up is the 7-10 Year US Treasury ETF $IEF:

It’s not there yet. But if and when IEF reclaims the critical shelf of former lows at approximately 100, we’re long!

If you would've told me a few months ago that we'd see a large crypto exchange (FTX) go bust and later a number of big banks become insolvent and collapse to zero, I would've laughed you out of the room if you followed up with: "...and bitcoin will rally."

I mean, there is no way I would've agreed with that sentiment.

Thankfully, I don't get paid for my opinions. Because the market couldn't care less about what I think.

The strength in Bitcoin (and crypto in general) has truly been a sight to behold in recent months and in particular over the last few weeks.

The poster child instrument to play bitcoin in the equities market is via Microstrategy $MSTR. For those with their head in the sand on all thing bitcoin, this software services company has transformed itself into essentially a bitcoin ETF, having invested all of its working capital into bitcoing, and taking loans to leverage into even more bitcoin.

We'll leave the discussion on whether or not this is crazy to another blog post. But for now, MSTR offers us a great way to participate in continued strength in bitcoin and we're going to do it with a defined risk options spread.

We don't have bull markets without Financials.

Go back and check for yourself.

So this one, by definition, has to be the chart that matters the most.

Look at the Financial Sector Index currently retesting its former highs from before the Great Financial Crisis:

From the Desk of Steve Strazza @Sstrazza

When investing in the stock market, we always want to approach it as "a market of stocks."

Regardless of the environment, there are always stocks showing leadership and trending higher.

We may have to look harder to identify them depending on current market conditions. But there are always stocks that are going up.

The same can be said for weak stocks. Regardless of the environment, there are always stocks that are going down, too. 

We already have multiple scans focusing on stocks making all-time highs, such as Hall of Famers, Minor Leaguers, and the 2 to 100 Club.

We filter these universes for stocks that are exhibiting the best momentum and relative strength characteristics. 

Clearly, we spend a lot of time identifying and writing about leading stocks every week, via multiple reports.

Now, we're also highlighting lagging stocks on a recurring basis.

Welcome to the Short Report.

From the Desk of Ian Culley @IanCulley

Fed Chair Jerome Powell spoke this afternoon after the central bank announced a 25-basis-point rate hike. 

The fed funds futures were all over the place, from pricing in a 25-basis-point increase to a double-hike. They settled in around a single hike, with a slim chance of a pause.

Exhausting!

It’s clear we can expect increased volatility going forward.

But, instead of guessing the Fed’s next step or parsing Powell's words, I’ll rather sit back, wait, and prepare to trade a decisive breakout.

When I think about the latter stages of the hiking cycle or a potential pause, my mind immediately turns to one currency in particular…

The Japanese yen.

Since the Fed began raising rates last spring, the yen has been one of the strongest trending markets. It stands to reason it could experience a significant trend reversal as the Fed changes course.

Luckily, we have a clear level to set our alerts and define risk. 

Check out the chart of yen futures:

The shorter my timeframe, the shittier the market. ~ Brian Lund @bclund

That quote was uttered during a Twitter spaces I hosted yesterday in which we discussed the emergence of “0-DTE” options and the opportunities and challenges they are spawning.

As Brian brought up, the phrase “0-DTE” which stands for “zero days until expiration” is a bit of a misnomer as options that are expiring today were not necessarily first listed for trading on the same day that they expire. Regarding SPY or SPX options, some of these “daily” options are first listed for trading as far as two weeks from expiration day. So if you were to look at the options chain for SPY, you would see options expiring every day over the next two weeks.

This is the video recording of the March 2023 Mid-month Conference Call.

Buyers taking control of a market heading into the weekend exude confidence. And Gold bugs have done it two weeks in a row now and counting, as they reclaimed the former 2011 highs.

So what’s next for precious metals?

Well, if Gold priced in other major currencies is any indication (which I think it is), it looks like new all-time highs.

From the Desk of Steve Strazza @sstrazza and Alfonso Depablos @Alfcharts

This is one of our favorite bottom-up scans: Follow the Flow.

In this note, we simply create a universe of stocks that experienced the most unusual options activity — either bullish or bearish, but not both.

We utilize options experts, both internally and through our partnership with The TradeXchange. Then, we dig through the level 2 details and do all the work upfront for our clients.

Our goal is to isolate only those options market splashes that represent levered and high-conviction, directional bets.

From the desk of Steve Strazza @Sstrazza.

Welcome back to Under the Hood, where we're covering all the action for the week ended March 17, 2023. This report is published bi-weekly and rotated with The Minor Leaguers.

What we do here is analyze the most popular stocks during the week and find opportunities to either join in and ride these momentum names higher, or fade the crowd and bet against them.

We use a variety of sources to generate the list of most popular names.

There are so many new data sources available that all we need to do is organize and curate them in a way that shows us exactly what we want: a list of stocks that are seeing an unusual increase in investor interest.

From the Desk of Ian Culley @IanCulley

Precious Metals are back on track, with Gold leading the way.

Gold bugs closed out last week with another strong showing, absorbing overhead supply at a critical level – the former 2011 highs.

With momentum on their side, let’s see how precious metal bulls are faring in other areas of the world.