Weekly Market Overview February 7, 2021

The past few weeks have played out as we expected, with $NQ continuing within a bull quiet market regime to do what $NQ will always do in a bull quiet market regime. Go higher!

Since the March 2020 bottom through the top on September 1st we pounded the table about how to trade the powerful bull run, culminating with our warning August 31st to hedge, take profits and/or get short for a potential 8% (or greater pull back). The $NQ ended up taking an 11% dip which we were hedged nicely for, before we started reloading our long positions. 

By the end of September we began our second "campaign" of a bull quiet regime and since then we have bought $NQ Futures 12 times, that is we've added 11 times to our long position. 

Our strategy is simple, wait for the best looking sell setups to suck in all the permabears and scared longs. That happened the last week in January, as the environment got very pessimistic, we used that opportunity to get long...yet again in the Trading Lab.

There is a time to be bearish or cautious, but in a bull quiet market regime, it is absolutely not the time. 

he $NQ still has plenty of room to move higher from here, with a lot of people still cautiously sitting on the sidelines scared to jump in. That along with the permabears and their hundreds of thousands of Twitter followers constantly spewing fear is one of the biggest reasons that we still have such a long way to go. 

There are a pile of macro conditions that will help paint the picture such as this chart of M2 with the $SPX overlayed, where you can see the spike in M2 coinciding with the March COVID bottom and impressive rally since.

The Pandemic has been a forcing function for a tremendous amount of stagnant businesses that have been on life support the opportunity to reinvest in new technology. 

The Pandemic has also exposed the weakness of US Production of goods, remember how hard it was to get a mask back in March and April of 2020? Not to mention that auto manufacturers are pausing production on many of their automobiles due to lack of Semi-conductors, there literally aren't enough chips to go around. 

This leads me in to how I am looking at playing these longer term tail winds. 

Long Term (longer than 2 years out)

Intermediate Term (6 months to 2 years out)

Short Term (1day to 6 months out)

Long Term (2 Years +)

Technology is deflationary. As demand for technology increases, that brings in competition to make that technology, which forces companies to lower prices to compete, and the more companies compete innovation increases. 

While we look at the valuations of these big tech companies, we need to be thinking about increased competition to them.

I am on the lookout for companies that are acquiring new technology and capacity to expand their technological capabilities. 

A great example of this is in the incumbent automakers. 

All of the major automakers are making major investments in electric vehicles, machine learning/automation of manufacturing and autonomous vehicles. While $TSLA is currently dominating the EV space and their plans for the future are world changing, the incumbents are no longer standing by.

Now take that same framework and look at air travel.

Innovation in air travel is parallel to the price chart of the NYSE Airline Index. 


Peaking back in 1998, there has been very little innovation. The air travel experience has gotten incrementally, the same. The only changes really have been to squeeze in more people per square foot of cargo space, add screens, remove them, add internet (unless international) and hire stand up comedians for flight attendants. Other than the comfort changing for better or worse, not much has advanced. 

But when new technologies such as Sub Orbital air travel comes on line, a trip from LAX to Sydney Australia could take less than 1 hour, for reference, that flight currently takes over 15 hours. 

If you could travel to any where in the world for about as long as it would take to Uber to the airport and pass through security, the amenities on board the flight would be far less important.

This is my framework for long term investing. Identify companies that are investing in the future by using their balance sheet to acquire technical advantages, whether it is in personnel, products or even a change in leadership with the mindset of steering the ship into the future. 

Instead of investing in startups and pre-public markets, the public markets currently offer venture level opportunities with the safety of liquidity and transparency that you can't get in the startup space. 

A better way for me to frame this is, back in October of 2001 $AAPL released the very first iPod. This was less than a month after the 9/11 attacks on the World Trade Center, also a year after the Dot Com bubble. No one was bullish on technology and no one was guessing that we'd have autonomous cars driving in Phoenix, Arizona, and no one would have thought $AAPL would end up being the biggest company in the world, by market cap. 

On a split adjusted basis, you could have purchased $AAPL shares at $0.31 per share...today's price is $136.76

Apple had already been a public company for 20 years at that time, they were the "other" computer company, and Microsoft was currently the dominant player in the space. 

My point here is that venture level outcomes still exist in public markets. I am long term oriented here, and identifying  companies that are investing in the future, years out, not the next quarters earnings.

Intermediate Term (6 months to 2 Years)

This is where the Deep Out of the Money Calls (DOTM) strategy works. 

There is a unique opportunity here in macro type events, that may take 1-2 years to really pay off.

It is especially true in FX markets, commodities and different sectors, where options are over priced for the next 6 months and underpriced going out to 2 years. 

Additionally it is expensive to buy let's say Gold futures or $GLD and sit on it for 2 years to see how it plays out vs buying a DOTM call expiring January 2023 is just a few dollars per contract. 

Longer term analysis is actually much easier, and technical analysis works much better on weekly/monthly charts, than it does on daily, hourly or minute charts. 

We spent time in the Trading Lab this past week going over numerous ways to identify longer term trends, then finding a well priced DOTM call to take advantage of them instead of tying a large amount of cash to long term trades, that may not actually work out. 

I wrote about $XLE DOTM calls last week paying $0.93 for Sept 2020 $60 calls, while doing my analysis I identified very reasonable profit targets and a game plan for the trade. 

Those calls traded down to $0.38 per contract this past week and we pounced on them in the Trading Lab doubling up our position or for those that weren't in on the first trade we got them in the $55 calls giving our traders a 100%+ return in 4 days.

Nothing has changed from our initial analysis, other than price dipped a little bit in the underlying.

We know that nearly 80% of the time XLE will be trading in a Blended Bull Quiet regime, so getting long at a lower SQN reading gives us a lot of opportunity to capture upside, add that to a bull megacycle in commodities and you can guess what DOTM calls I will be buying this year. 

Short Term (1day to 6 Months) 

There isn't a lot more to say about this, look for $NQ to be weak within a bull quiet regime, buy it and continue to add as it works in my favor, using the markets money to finance it. As we roll into Bull Volatile I'll be a lot more tactical and look to identify places to take profits or hedge, but the absolute most amount of money to be made is to be long $NQ. 

The Long Term, Intermediate Term and Short Term topics are what we cover every day in the Trading Lab. We live stream for at least 1 hour every trading day going over these and other subjects, whether we are live trading and discussing what we're doing or working together building strategies, researching new strategies, sharing information and growing together. 

If you are serious about successful trading, you should join us in the Trading Lab

The past few weeks have played out as we expected, with $NQ continuing within a bull quiet market regime to do what $NQ will always do in a bull quiet market regime. Go higher!

Since the March 2020 bottom through the top on September 1st we pounded the table about how to trade the powerful bull run, culminating with our warning August 31st to hedge, take profits and/or get short for a potential 8% (or greater pull back). The $NQ ended up taking an 11% dip which we were hedged nicely for, before we started reloading our long positions. 

By the end of September we began our second "campaign" of a bull quiet regime and since then we have bought $NQ Futures 12 times, that is we've added 11 times to our long position. 

Our strategy is simple, wait for the best looking sell setups to suck in all the permabears and scared longs. That happened the last week in January, as the environment got very pessimistic, we used that opportunity to get long...yet again in the Trading Lab.

There is a time to be bearish or cautious, but in a bull quiet market regime, it is absolutely not the time. 

he $NQ still has plenty of room to move higher from here, with a lot of people still cautiously sitting on the sidelines scared to jump in. That along with the permabears and their hundreds of thousands of Twitter followers constantly spewing fear is one of the biggest reasons that we still have such a long way to go. 

There are a pile of macro conditions that will help paint the picture such as this chart of M2 with the $SPX overlayed, where you can see the spike in M2 coinciding with the March COVID bottom and impressive rally since.

The Pandemic has been a forcing function for a tremendous amount of stagnant businesses that have been on life support the opportunity to reinvest in new technology. 

The Pandemic has also exposed the weakness of US Production of goods, remember how hard it was to get a mask back in March and April of 2020? Not to mention that auto manufacturers are pausing production on many of their automobiles due to lack of Semi-conductors, there literally aren't enough chips to go around. 

This leads me in to how I am looking at playing these longer term tail winds. 

Long Term (longer than 2 years out)

Intermediate Term (6 months to 2 years out)

Short Term (1day to 6 months out)

Long Term (2 Years +)

Technology is deflationary. As demand for technology increases, that brings in competition to make that technology, which forces companies to lower prices to compete, and the more companies compete innovation increases. 

While we look at the valuations of these big tech companies, we need to be thinking about increased competition to them.

I am on the lookout for companies that are acquiring new technology and capacity to expand their technological capabilities. 

A great example of this is in the incumbent automakers. 

All of the major automakers are making major investments in electric vehicles, machine learning/automation of manufacturing and autonomous vehicles. While $TSLA is currently dominating the EV space and their plans for the future are world changing, the incumbents are no longer standing by.

Now take that same framework and look at air travel.

Innovation in air travel is parallel to the price chart of the NYSE Airline Index. 


Peaking back in 1998, there has been very little innovation. The air travel experience has gotten incrementally, the same. The only changes really have been to squeeze in more people per square foot of cargo space, add screens, remove them, add internet (unless international) and hire stand up comedians for flight attendants. Other than the comfort changing for better or worse, not much has advanced. 

But when new technologies such as Sub Orbital air travel comes on line, a trip from LAX to Sydney Australia could take less than 1 hour, for reference, that flight currently takes over 15 hours. 

If you could travel to any where in the world for about as long as it would take to Uber to the airport and pass through security, the amenities on board the flight would be far less important.

This is my framework for long term investing. Identify companies that are investing in the future by using their balance sheet to acquire technical advantages, whether it is in personnel, products or even a change in leadership with the mindset of steering the ship into the future. 

Instead of investing in startups and pre-public markets, the public markets currently offer venture level opportunities with the safety of liquidity and transparency that you can't get in the startup space. 

A better way for me to frame this is, back in October of 2001 $AAPL released the very first iPod. This was less than a month after the 9/11 attacks on the World Trade Center, also a year after the Dot Com bubble. No one was bullish on technology and no one was guessing that we'd have autonomous cars driving in Phoenix, Arizona, and no one would have thought $AAPL would end up being the biggest company in the world, by market cap. 

On a split adjusted basis, you could have purchased $AAPL shares at $0.31 per share...today's price is $136.76

Apple had already been a public company for 20 years at that time, they were the "other" computer company, and Microsoft was currently the dominant player in the space. 

My point here is that venture level outcomes still exist in public markets. I am long term oriented here, and identifying  companies that are investing in the future, years out, not the next quarters earnings.

Intermediate Term (6 months to 2 Years)

This is where the Deep Out of the Money Calls (DOTM) strategy works. 

There is a unique opportunity here in macro type events, that may take 1-2 years to really pay off.

It is especially true in FX markets, commodities and different sectors, where options are over priced for the next 6 months and underpriced going out to 2 years. 

Additionally it is expensive to buy let's say Gold futures or $GLD and sit on it for 2 years to see how it plays out vs buying a DOTM call expiring January 2023 is just a few dollars per contract. 

Longer term analysis is actually much easier, and technical analysis works much better on weekly/monthly charts, than it does on daily, hourly or minute charts. 

We spent time in the Trading Lab this past week going over numerous ways to identify longer term trends, then finding a well priced DOTM call to take advantage of them instead of tying a large amount of cash to long term trades, that may not actually work out. 

I wrote about $XLE DOTM calls last week paying $0.93 for Sept 2020 $60 calls, while doing my analysis I identified very reasonable profit targets and a game plan for the trade. 

Those calls traded down to $0.38 per contract this past week and we pounced on them in the Trading Lab doubling up our position or for those that weren't in on the first trade we got them in the $55 calls giving our traders a 100%+ return in 4 days.

Nothing has changed from our initial analysis, other than price dipped a little bit in the underlying.

We know that nearly 80% of the time XLE will be trading in a Blended Bull Quiet regime, so getting long at a lower SQN reading gives us a lot of opportunity to capture upside, add that to a bull megacycle in commodities and you can guess what DOTM calls I will be buying this year. 

Short Term (1day to 6 Months) 

There isn't a lot more to say about this, look for $NQ to be weak within a bull quiet regime, buy it and continue to add as it works in my favor, using the markets money to finance it. As we roll into Bull Volatile I'll be a lot more tactical and look to identify places to take profits or hedge, but the absolute most amount of money to be made is to be long $NQ. 

The Long Term, Intermediate Term and Short Term topics are what we cover every day in the Trading Lab. We live stream for at least 1 hour every trading day going over these and other subjects, whether we are live trading and discussing what we're doing or working together building strategies, researching new strategies, sharing information and growing together. 

If you are serious about successful trading, you should join us in the Trading Lab