If the regional banking crisis and Fed policy weren’t enough to keep the market busy, a brand-new negative catalyst is getting the spotlight this week — the U.S. government debt ceiling.
It’s ‘one thing after another’ in the stock market right now. If you don’t stay on your toes and on top of the relevant news, you’ll fall behind the diligent traders who do.
And as the catalysts pile on top of each other, you need to make sure your game plan fits the moment.
If it does, you could discover a killer trading opportunity amid these catalysts. But if you fail to listen to the market, you could get caught off guard and take a big loss.
That’s why I’m keeping a few important trading lessons — ones that helped me build my $4 million fortune — on top of my mind this week.
And now, I want you to do the same. Keep reading and I’ll show you…
The Debt Default Threat
Everyone knows the U.S. has trillions of dollars in debt. To service this borrowing, the government pays its creditors every month.
But now, the government is at risk of running out of money and defaulting on its debt obligations as soon as June 1.
President Biden met with Congressional leaders yesterday in an attempt to strike a deal on potentially raising the debt ceiling, which would delay a default.
The outcome of this catalyst could have a major effect on the market and the stocks you trade.
Considering this, here are a few things to keep in mind this week…
Listen to What the Market is Telling You
When major events cause market volatility, some traders get caught flat-footed
But there’s an easy way to avoid this … listen to what the market is telling you.
The stock market has a personality. If you pay attention (and know what to look for), it’ll send you clear signals about where the price action might be headed.
With that in mind, here are two technical indicators I’m watching for right now:
- Volume. So far, the selling volume hasn’t been as large as the buying volume. I’m looking for a big-volume red day for the confirmation of a trend reversal. Until then, the bulls are still in control.
- The SPY’s $415 level. All eyes are on the $415 on the SPY chart. This has acted as a major resistance level throughout 2023. If the index can’t break this level soon, it’ll begin to look like a nasty double top.
On the same token, don’t fight trends … the trend is your friend!
If the major indexes stack a few more red days together, it’ll start to look like bullish momentum is dying out.
However, if the market rips higher in the face of several negative catalysts, that will be an incredible sign of strength.
All this to say, watch your charts closely and listen to what the market is saying.
Don’t try to fight the trend. Keep it simple.
Stick to ‘The 3-Item Checklist’
When considering what setups are worth trading in this crazy market, I recommend focusing on one set of criteria…
‘The 3-Item Checklist’ — volume, volatile chart, and catalyst.
I’ve gone over this before, but it’s worth repeating. This checklist has led me to some of the greatest trades of my career.
(It also pointed me toward my recent trade on Carvana Co. [NYSE: CVNA] — but more on that later this week…)
Let’s break it down…
First, let’s talk about volume — the total number of contracts traded on the day for that particular strike price and expiration date.
From an options trading perspective, a healthy amount of volume is important because it guarantees liquidity in the contracts.
Practically speaking, this means that when you’re ready to sell your calls or puts, there will be somebody on the other end willing to buy them.
The last thing you want is to get caught buying contracts with little or no volume because those contracts are illiquid.
Volatility, on the other hand, is the most important factor in options trading. It rings the register on massive options trades.
To lock in the 100%, 200%, or even 500% gains possible on weekly options, you’ve gotta find a stock with enough volatility to make it probable.
You can assess volatility easily by simply looking at the charts.
If you don’t see big enough swings in a short enough time frame, move on to the next chart!
After volume and volatility, a strong news catalyst should be the third and final box on your trading checklist.
This one’s simple. In this news-driven market, the headlines often dictate the near-term price action.
If you understand this, you’ll realize that making any trade with a major catalyst surrounding it is better than making a trade without one.
BOTTOM LINE: By focusing on this checklist, you’ll be setting yourself up to trade the best setups only.
In the wild game of trading, confidence is EXTREMELY important. But it’s also incredibly elusive.
As hard as you try to keep it consistent, if you trade for a long enough time, you’ll notice that personal confidence comes and goes. It’s unavoidable.
Take it from me. As I mentioned, I’ve been doing this professionally for 12 years.
Some days, nothing can sway my confidence. I’m firing on all cylinders, ready to pull the trigger whenever necessary.
(It’s no coincidence that it’s usually on days like these when I bag my biggest wins in the options market.)
But other times, I find my confidence is lacking…
I’ll second-guess a play, lose some of my conviction, and potentially miss a golden trading opportunity.
SPOILER ALERT: This happened twice last week!
I think every trader has, at one time or another, experienced the feeling I’m describing.
So, if you’re listening to what the market is telling you and seeing a setup that fits the ‘The 3-Item Checklist’ … be confident and pull the trigger.
After all, without confidence, trading success is impossible!
Later in the week, I’ll break down some of my recent trades.
That way, you can see some real-world examples of how I apply these lessons to my trading.
But for now, consider these pieces of advice as you navigate the onslaught of major news catalysts hitting the market this week.