Yikes … this market is brutal!
But before we get into my ‘sea of red’ strategies, I’ve got a VERY EXCITING announcement to make…
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I’m ready to give you more in 2022. But you may be wondering … how will this benefit you?
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Now, let’s talk about what’s going on with the stock market…
Navigating the Sea of Red
As someone who thrives on taking short positions, you may think I relish times such as these.
But in reality, I don’t approach my trading in a bear market much differently from my trading in a bull market.
If executed correctly, my strategy works under any market conditions. But let’s be honest … The past month or so has been very kind to put traders.
If you had studied your history (and knew what to look for) — you might’ve seen this coming yourself.
After all, my mentor Tim Sykes predicted this market crash in mid-December — right before it happened…
Here's part of my watchlist that I sent to https://t.co/fljCJN8USq students as I've been warning of a #marketcrash & #Bitcoin crash not because the fundamentals are so bad but because too many undisciplined newbies are gambling too aggressively & following irresponsible promoters pic.twitter.com/pHjrOCwIVM
— Timothy Sykes (@timothysykes) January 24, 2022
But remember that the stock market can reverse faster than a Tesla.
Just watch. As soon as the foolish newbies think the bear market is bottomless, that’s when it’ll reverse to the upside.
With that in mind, I’m starting to see the risk/reward on puts getting skewed. Let me explain…
The Risk/Reward on Put Options
The good news? It’s hard to lose right now if you’re playing puts. When 80% of the names in the major indexes are down — that’s a good time to be short.
But think about this — hundreds of charts are already down 30%–50% in a few weeks. Some stocks are so far off of their highs that I think now is the time to re-evaluate the risk/reward on playing puts in this market.
I prefer to buy puts into strong bounces (and we’re not seeing many of those in this environment).
We’re likely closer to a bullish relief rally than we are to another violent market dump. If there’s further downside in the markets, I expect a bottom to form sometime this week.
With that in mind, I’d like to elaborate on a few of my weekly watchlist picks…
Nvidia Corporation (NASDAQ: NVDA)
Retail traders’ favorite semiconductor manufacturer — NVDA — is becoming very oversold in this bottomless bear market.
But whenever popular stocks get oversold, a reversal is usually right around the corner. I think NVDA will see a serious bounce once the market calms down a bit.
If we see a first green day, I’d consider a small call position while keeping my sizing small.
WARNING: NVDA isn’t a stock to trade aggressively in this ugly market. Size your positions conservatively.
Key Price Levels: $220 (support) and $250 (resistance)
ProShares Bitcoin Strategy ETF (NYSE: BITO)
My favorite optionable bitcoin (BTC) fund — BITO — gapped down once again this morning on overall crypto market weakness.
Last Friday, I absolutely nailed the 10% dump in BITO for a gain of nearly $30,000. But I should’ve held (or re-bought) some contracts to hold through the weekend…
In hindsight, this morning’s gap-down was so predictable. I should’ve continued to press my advantage on BITO — just like I did a few weeks ago — and held some contracts longer than I normally would.
But now, it’s time to look forward. And since such a big chunk has already been taken out of the BITO chart, I’ll sit on the sidelines for now.
BITO bounced hard off of the $21 level this morning, but I need to see a stronger rally before going short again.
Bottom line: I’ll consider re-buying puts into a massive BTC rally — ideally back near the $40,000 area.
Key Price Levels: $21 (support) and $23 (resistance)
Honorable Mentions: Potential Bounce Plays
Netflix (NASDAQ: NFLX)
I’m watching streaming giant NFLX because it dropped almost 25% last week following a weak earnings report.
I’m really intrigued looking at the call options — the upside is enormous now if NFLX can get a rally going.
Key Price Levels: $350 (support) and $400 (resistance)
Amazon.com Inc. (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), and Tesla Inc. (NASDAQ: TSLA)
These three tech titans are fading hard. And just like NFLX, the call options are too cheap to ignore.
I’ve got all three on watch as potential bounce plays — but don’t underestimate how far they can drop!
Congrats to any Evolvers who capitalized on last week’s volatile bear market!
We’re starting to see some bottoming signs in the broader market, but I’m not rushing out to buy calls — or re-enter puts — until I get the confirmation I’m looking for in the charts.
Be cautious, trade your plan, and keep an eye out for big shifts in price action.