I want to share the alert I sent to my Real Income Trader subscribers yesterday. It was in the “random thoughts” format I use on occasions when there is a lot of interesting stuff going on but nothing that I find immediately actionable.
To set the stage, we took a few call option positions in late May and closed them all as the market rallied into last week. We’re not holding any trades right now. We’re waiting for a few good setups to fully materialize.
We’re still waiting for a 50-day moving average (MA) test so we can take another run at Gilead Sciences (NASDAQ: GILD) after that sweet three-day, 400% gain we took on June 4. The 50-day MA is still falling, and today the 50-day sits at $70.55.
But here’s the thing: In three of the last four days, GILD shares have rallied off lows around $71. This action may be a *good enough* approximation of the 50-day MA test to bring out the buyers…
At ~$101, Microsoft (NASDAQ: MSFT) looks pretty extended off its 50-day MA right now. A pullback to ~$99 would fix that and set up another trade (we knocked down 116% on our first MSFT trade, closed on June 1). But I suspect it won’t be so easy. More likely, we get a sideways move for price that gives the 50-day a chance to move higher and close the big gap.
So, if the three-year retail bear market (the retail-pocalypse) is over, what’s wrong with Walmart (NYSE: WMT)? It’s moving sideways in the mid-$80s, well off its $109 highs from late January. Currently at $83.70, there is strong support at $82.50, and the 50-day MA sits at $85.40.
Now that WMT has consolidated for four months, it’s on the watch list for a rally. I will happily buy WMT calls at support. I’d still buy calls if WMT ignores the test of support and instead makes a breakout over the 50-day MA, but I’d be less happy about it. A good rally should take WMT up to ~$90. Options are pretty cheap for WMT, so you can double your money with even a 5% move for the stock.
My partner at The Wealth Advisory, Jason Williams, does a monthly Top 10 list from the Wealth Advisory portfolio. The idea is to let readers know which stocks we think will do best in the near term. We’ve done well. So we recently decided to turn it into a video and make it a competition, with a fantasy draft-style format. We just posted the first one.
I took Twitter (NYSE: TWTR) with my final pick. (We’ve got a 143% gain on Twitter in The Wealth Advisory, and I’ve recommended it here in Wealth Daily, too.) In fantasy drafts, you’re supposed to take long shots with your late picks.
Don’t get me wrong; I like the stock. But Twitter made a huge 40% run in February–March, so I wasn’t sure it was ready to roll even higher. But it started acting bullish in the mid-$30s eight days ago, so I went for it. Now it’s over $44 on a JPM upgrade.
I’ve recommended call options on Twitter several times in Real Income Trader (50%, 175%, and 310%), and I am sad to miss this move. But I’ve got 11% gains on it in the Wealth Advisory Top 10 competition, so I’m basically kicking the youngster’s backside. And with a young person’s stock, too!
Fitbit (NYSE: FIT) is now well over $7. It ran 15% higher on Monday. I knew this would happen.
Back in January, I recommended out-of-the-money calls for May because the stock looked washed out at $5 and there was a solid bullish story developing. I thought four months was enough for the stock to get cooking. Nope. It was five. Dammit. We missed a big one here…
One of the first lessons I learned about trading options was to always give yourself enough time for the play to work. This is easier said than done. And that’s part of the reason my trading strategy is pretty short term, with holding periods of usually just a few days.
The reason for this is that I don’t like holding calls through sell-offs (or puts through rallies). If you’re going to hold a call for a month, you will have to hold it through some down days. I don’t have the stomach for that — I prefer the “get in, get out, no one gets hurt” method. You have to adapt your strategy to fit what you’re good at, not the other way around. Short-term trades and a small universe of stocks is what works best for me.
That said, I’m not going to simply ignore longer-term holds (the recent +266% trade on UNIT is decent example); there just won’t be too many.
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I’m a little scared of Micron (NASDAQ: MU) right now. OK, I’m not scared of the company itself. Or the stock. That would be weird. But I’m scared to risk any cash on which way the stock moves next. Best guess is a drop to support at $56.50, which would also close the most recent gap.
For the S&P 500, it seems to me it’s in a digestive phase after the run off the 50-day MA that started on May 29. The Fed announces its next policy decision later today. Consensus is that we get another quarter-point hike. I’d say that’s priced in, so the market mover will be the language in the statement.
I’m already on record saying that we only get one more hike this year, and I’m probably wrong. Fading a hawkish Fed and inflation expectations has been the way to go for years. I’m starting to think maybe that’s changed — this Fed seems committed to higher rates.
Canada votes on legal cannabis in a little over a month from now, July 21. This is a big deal. And we’re not getting very much news coverage about it at all. I think there is a reason for this.
For the U.S., legal cannabis is projected to generate $50 billion in annual revenue. That’s based on what is known about the black market and about California. I think revenue will be a lot more. If there’s one thing companies are good at, it’s keeping prices high. And if there’s one thing big investors are good, it’s not tipping their hand while they are getting positioned. So if you ask me, that’s why we aren’t hearing much about legal weed just yet.
I could go further and tell you I think this is why Jeff Sessions was picked to be the U.S. Attorney General. I think big investors asked for Sessions because of his wingnut attitude about marijuana (it’s fine with me if you don’t think it should be legal, but to seriously compare marijuana to heroin is profoundly stupid). Sessions’ agenda is helping to keep a somewhat negative bias on marijuana stocks while the big boys continue to solidify their positions.
Once Canada goes legal and there’s some sales data, marijuana stocks are going to launch, Sessions will get canned, and the whole “legal cannabis for the U.S.” debate gets fast-tracked.
That’s what I’ve got for now. I’ll talk to you on Monday.
Until next time,
Briton Ryle
@BritonRyle on Twitter
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
