Countdown Test

00days 00hours 00minutes 00seconds 2020-12-25 12:00 AM     00days 00hours 00minutes 00seconds 2020-10-25 12:00…

If I could give you one indicator to use for the rest of your life, it’s would be the 200-period moving average. I don’t think there’s any other indicator out there that gives you better insight into a stock or overall market.

It’s what I call my ‘Gravitational Line.’

Today, I want to explain how I use it to my advantage—from understanding trends to using it as a key level. More importantly, I’m going to share with you the most crucial aspect of making it work—context.

You see, many traders look at the 200-period moving average as an absolute indicator. They don’t realize that you have to step back and look at how the stock traded recently relative to the gravitational line.

Did the stock cross multiple times? How long has it been since the last touch? How far away is it?

All of these questions are essential to effectively using the 200-period moving average in your trading…

 

Gravitational Lines Calculations


Before we get to the fun part and how we can use the gravitational line as a trading tool, we’ll need to see how it’s actually calculated—
don’t worry though, you don’t need to do any math whatsoever.

The 200-period moving average refers to the simple moving average. The calculations are pretty straightforward. You take the closing price for the last 200 periods and average them. This creates a point for that period. Connect the dots, and you get the 200-period simple moving average.

You can find them on most stock charting software as a standard indicator. They may be labeled as SMA for simple moving average.

When you pop it into a chart, it will look something like the green line in this SPY chart.

 

SPY Daily Chart

 

Traders like using the 200-period moving average as a guidepost. It takes a long time to turn around. Shorter time-frame moving averages like the 13-period moving average react quickly to price change. When you get sustained trends, you’ll start to seem them play out on the 200-period moving average over time. 

 

Understanding Trends

 

The first step to identifying reversal patterns is to figure out the overriding trend. You want to find a setup where the long-term trend remains intact, but the stock makes a retracement within that framework.

Here’s an example with ROKU.

 

ROKU Daily Chart

 

Even with the recent pullback, the stock remains in a bullish trend overall.

How can I tell? First, I look to the 200-period moving average on the daily chart. ROKU not only hasn’t hit it since the beginning of 2019 but remains solidly above that indicator. Many traders, not just myself, use the 200-period moving average as a line-in-the-sand for determining trends.

Now, the key is that the stock needs to be trading above the 200-period moving average consistently. Stocks that waffle back and forth, crossing it multiple times, aren’t necessarily bullish.

Check out the daily chart of Delta (DAL), and you will see what I mean.

 

DAL Daily Chart

 

Overall the stock looks more bullish than bearish. However, I wouldn’t say there is a clear, overriding bull trend here. Nor would I use the gravitational line to trade against. You can see how the stock crosses the line multiple times. This reduces its importance.

On the flip side, the gravitational line can become resistance. Stocks with protracted downtrends will often bounce off the 200-period moving average on spikes.

Check out how this plays out with JC Penny.

 

JCP Daily Chart

 

Selecting Your Time-Frame

 

The charts I’ve shown you so far are for daily periods. However, the gravitational line really works on any time-frame. The key is to understand how it lands in context to the larger trend.

For example, let’s use the ROKU daily chart from before. We had a clear, uptrend that’s still intact. However, let’s break it down to the hourly chart.

 

ROKU Hourly Chart

 

Right now, the stock is trading under the 200-period moving average and looks rather bearish. If I want to play short-term, I can be short against the 200-period moving average all the way down to the daily moving average at $114. However, down there, I would expect the longer-term gravitational line to outweigh the short-term one.

Ideally, I want both the long and short term trends to align. However, we don’t always get that lucky. The key is to avoid trading against the longer-term averages using short-term time-frames. Otherwise, you run the risk of the trade reversing in your face.

 

The Right Amount of Time Since It Touched

 

I’ll share a little secret with you. Ideally, I want the stock not to have touched the gravitational line for about 25-30 periods of whatever time-frame I’m looking at. The longer it’s been since the touch, the more likely the gravitational line becomes a trade level.

That doesn’t mean it works every time. But trading is about probabilities. Create the right conditions, and you’ll generate more wins than losses.

 

This Is How I Identify My Bullseye Trades

 

Many of my Bullseye Trades use this exact method as an entry, a stop out, or a target. These are trades I aim to get a +100% return each week. So with one trade idea for the week, I want to make these the best ones possible.

You can learn more about Bullseye Trades by clicking here.

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

Brace yourself, earnings season is upon us—and I can’t wait.

Financial institutions are first on tap, so let’s begin this week’s Intermarket Analysis with the bond market.  

 

Bond’s Ready To Break Out?


Since the bond market peaked back in August, bonds have been trading in a downward, narrowing price channel.

 

TLT Daily Chart

 

It appears that time may be running out. The channel should collapse within the next month at the same time as the 200-period moving average reaches the price.

When I see these two factors coming together, and price still in a long-term uptrend, I think bonds may be signaling another break higher.

That would be an incredible feat. But, it could spell doom for the stock market.

 

Are stocks Ready To Roll Over?

They say it’s hard to kill a bull. This market proves that is certainly the case. Since October the market climbed nearly every day, other than a short pullback to end November.

 

SPY Daily Chart

 

The moving averages remain the same distance from one another, if not widening a touch. Yet, this move is beginning to get into the unsustainable category.

I reckon that if bank earnings, don’t stir the pot, the next set afterward will. Banks rely heavily on the spread between the short-term and long-term bond yields.

This creates their profit margin known as ‘net-interest margin.’ With bond prices up, yields go down. While there is still a spread, it generally gets smaller the higher bond prices go.

That makes the bank outlooks interesting given that they should expect low-rates for the foreseeable future.

 

Gold’s Run Isn’t Done

At first, I thought that the pop-off in gold might have been a top. We saw prices spike overnight on the U.S.-Iranian conflict before they came off sharply the next day.

 

GLD Daily Chart

 

Recent price action suggests to me that gold is instead resuming its previous breakout. When you flip to the monthly chart for the yellow metal, you’ll see what I’m talking about.

 

GLD Monthly Chart

 

Gold’s monthly candle has started to break out above the previous consolidation. That leaves it a lot of runway to move up towards the old highs put in almost a decade ago, nearly 30% higher from where we are now.

It’s also likely we see silver make its run with gold, though not as far.

 

SLV Daily Chart

 

Silver isn’t anywhere near the old highs from a decade ago, nor the recent highs. However, the moving averages all turned higher, and I think this could test the recent highs up at $18.35 without much of a problem.

 

Will The Dollar Make A Comeback?

Up until September, the dollar had been on an absolute tear. It looked like it was going to hit par ($100 on the dollar index). However, it’s backed off a good way and the question is – will it bust through?

 

UUP Daily Chart

 

The dollar has a similar look to bonds, without the tightening channel. It’s already found support off the 200-period moving average once. Yet, until it breaks out one way or the other, we won’t know where it wants to go.

 

Crude Oil Ready To Rally Again

When news of the U.S.-Iranian conflict hit the wire, oil prices shot through the roof. But, like gold, they pulled back shortly thereafter. Now, they’re set up again to make another run.

 

USO Daily Chart

 

I’ve got my eye on two places for support. The first would be the 200-period moving average on the daily chart. That moving average tends to remain important across all charts and time-frames.

The second would be a gap fill from the rally in December. I wouldn’t mind that area, as that would bring down the oil and drilling stocks (XOP) to a sweet retracement level to buy.

 

The VIX Says Not So Fast

Friday was a bit of a nail-biter for the VIX. I wasn’t sure whether it would close into the range of the previous day.

 

VIX Daily Chart

 

The index closed a full two pennies above the previous day’s close. It is enough to keep things interesting. That’s why I wanted to look at the VVIX for additional clues.

 

VVIX Daily Chart

 

So much for any help here. When I compare these two charts and the SPY chart, I don’t get anything that says the market rally will be derailed. But, things certainly have a toppy look to them.

 

The Best Play For the Week

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Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

We are almost to the main event you’ve been waiting for…earnings season. 

This week we get a deluge of corporate reports starting with our financial institutions. Will the banks confirm the Fed’s rosy outlook or will they be a bunch of Debby Downers?

This week’s jump begins with our favorite banks from Citigroup to Goldman Sachs giving their annual reports. 

Unlike the quarterly earnings reports— annual reports give us more insight into a company’s performance and outlook.

The question we all have to ask – will earnings results reflect a market that is near all-time highs?

With the surge in equities we’ve seen over the last two months, things had better be smelling like roses. 

Otherwise, we’re in for a blistery winter.

 

The Impact of Low Rates

Banks need to face the reality of lower interest margin spreads for probably the next few years. Given this is a major source of income, plus any of them that dropped trading commission revenues, we have to ask how they plan on making any money?

When you yank back on the normal sources of profits, good old greed tends to take over and push players to bad actions. We need to look no further than the financial crisis from ten years prior. In fact, we’ve already seen an uptick in interest for those esoteric financial products.

Analysts currently forecast 7.3% earnings growth for Q4 with revenues growing at 1.2%. Through 2019, the S&P 500 Financial Sector (XLF) largely kept pace with the S&P 500 itself (SPY).

 

 

SPY (Purple) vs XLF (Orange) Daily Chart

 

I’ll be especially interested to hear commentary on lending towards oil and gas drillers in the U.S. With reports that projects aren’t turning the production originally forecasted, I want to know if this is both true, the expected contraction in lending, as well as any banks with excessive exposure.

The other area of interest will be trading revenues. This helps me understand the shape of the trader’s market and the scale of passive investments. 

The more money tossed into these follow-the-market ETFs, the more exposure I see to the downside.

 

How Bad Are The Transports

Normally, transportation stocks accelerate in a booming economy (or at least Dow Theory says so). Yet, this sector barely topped half the gains achieved by the S&P 500 in 2019.

 

 

SPY (purple) vs IYT (orange)

 

Maybe it’s the hangover from the Amazon effect. But everything from rail to airlines fails to make headway, even when their oil input costs are at historic lows.

Something seems amiss here for me. We certainly haven’t become less of a consumer nation. Yet, the policy failed to help the manufacturing decline in the country, and I haven’t seen anything other than bustling airports.

I know of the driver shortage that’s plagued trucking for the last decade. But, either the transports are plagued by similarly inept management, there is some structural change affecting completely different areas all at the same time…or as I suspect, it’s the only sector telling us the truth.

 

Inflationary Data

Markets will retain their bullish tone until the Fed decides that their two-year experiment that’s grown into a decade long project needs to come to an end. Every piece of possible inflation brings us a look at how close we are getting.

With Consumer and Producer Price Indexes delivering data this week, I want to see how high they go, as well as how high the Fed is willing to take it. The 2% target now seems to be a suggestion, as Powell noted his willingness to let inflation push beyond the red-line.

 

And Lest We Forget…

There is always an opportunity for politicians home and abroad to screw up the markets with a tweet or a grand feat. While impeachment shouldn’t bring any surprises, everyone was caught off guard by the U.S.-Iranian conflict to start the year. 

I don’t expect that we see any major kerfuffles from Brexit to Congress. But, that’s the thing about unknown events…you don’t see them coming!

Stocks on watch

 

Call spreads

NFLX, AMZN, AAPL, TEAM, FB, AMD, CRM, SWKS

 

Put spreads

TWTR, FANG, EXAS, TPX, BIIB, COST, ULTA, ZS, CMG, IWM, AMZN, HUBS, DIS, MJ, AYX, TLT, CVNA, PLNT, UVX

 

Want even more trade ideas?

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Next Week’s Calendar

 

Monday, January 13th 

  • Nothing to see here…

 

Tuesday, January 14th  

  • 7:45 AM EST – ICSC Weekly Retail Sales
  • 8:30 AM EST – Consumer Price Index December
  • 4:30 PM EST – API Weekly Inventory Data 
  • Major earnings: Citigroup (C), Delta Airlines (DAL), JP Morgan (JPM), Wells Fargo (WFC), First Republic Bank (FRC)

 

Wednesday, January 15th

  • 7:00 AM EST – MBA Mortgage Applications Data
  • 8:30 AM EST – Empire Manufacturing Index for January
  • 8:30 AM EST – Producer Price Index for December
  • 10:30 AM EST – Weekly DOE Inventory
  • Major earnings: Bank of America (BAC), Goldman Sachs (GS), PNC Bank (PNC), United Healthcare (UNH), US Bankcorp (USB), Alcoa (AA), Blackrock (BLK), 

 

Thursday, January 16th 

  • 8:30 AM EST – Weekly Jobless & Continuing Claims
  • 8:30 AM EST – Import Prices, Retail Sales for December
  • 10:00 AM EST – Business Inventories November
  • 10:30 AM EST – EIA Natural Gas Inventory Data
  • Major earnings: Bank of New York Mellon Corp (BK), Home Bancshares (HOMB), Morgan Stanley (MS), PPG Industries (PPG), CSX (CSX), Ozark Bank (OZK), People’s United Financial (PBCT)

 

Friday, January 17th

  • 8:30 AM EST – Housing Starts & Building Permits for December
  • 9:15 AM EST – Industrial Production and Capacity Utilization for December
  • 10:00 AM EST – U. of Michigan Confidence
  • 1:00 PM EST – Baker Hughes Weekly Rig Count
  • Major earnings: Citizens Financial Group (CFG), Fastenal (FAST), J.B. Hunt Transport (JBHT), Kansas Southern Rail (KSU), Regions Financial (RF), Schlumberger (SLB), State Street (STT)

 

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.