Dear Fellow Trader:
Happy Thunderbolt Thursday!
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I am in exactly the right place, attracting the right people and life is getting better and better every day. – Wendy Kirkland
Market Snapshot
Stocks remained mixed Thursday as the Dow Jones Industrial Average held a small gain while the S&P 500 weakened and the Nasdaq plunged. The drops occurred despite news that June Consumer Price Index readings show inflation is easing, as investors rotated out of technology and into other sectors on the stock market today. The Dow rose 0.2%, but the Nasdaq continued to weaken and plummeted 1.7%. The S&P 500 increased losses to 0.8%. The latter two indexes hit record highs Wednesday and completed a seven-day winning streak. The Nasdaq’s 1.2% jump Wednesday was wiped out with Thursday’s losses. Meanwhile, the small-cap Russell 2000 outperformed and surged 3.1%.
I am going to focus on the S&P on Thursdays as a part of our “Thunderbolt Thursday”. I will focus on SPY, which is the ETF covering companies traded within the SPX Exchange Traded Fund.
Before analyzing SPY’s charts, let’s take a closer look at the ETF and its services.
SPY, or the SPDR S&P 500 trust, is an exchange-traded fund that trades on the NYSE Arca under the symbol SPY. SPDR is an acronym for the Standard & Poor’s Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index. This fund is the largest ETF in the world and gives a good overall picture of the market. SPY includes shares from the top 500 companies.
The chart of the S&P below is a weekly chart with a PPO indicator at the bottom. The description coming up next explains how to use the PPO.
The image below is today’s price activity.
This chart image is courtesy of FINVIZ.com, a free website that gives a quick view of each day’s movement.
Percentage Price Oscillator or PPO
Stockcharts.com provides a great definition of the Percentage Price Oscillator (PPO), which “is a momentum oscillator that measures the difference between two moving averages as a percentage of the larger moving average”. The Percentage Price Oscillator is shown with a signal line, a histogram, and a centerline. Signals are generated with signal line crossovers, center line crossovers, and divergences, or surprising differences.
The PPO reflects the convergence and divergence of two moving averages. PPO is positive when the shorter moving average is above the longer moving average. The indicator moves further into positive territory as the shorter moving average distances itself from the longer moving average. This reflects strong upside momentum.
The PPO is negative when the shorter moving average is below the longer moving average. Negative readings grow when the shorter moving average distances itself from the longer moving average (goes further negative). This reflects strong downside momentum.
The histogram represents the difference between PPO and its EMA, the signal line. The histogram is positive when PPO is above its EMA and negative when PPO is below its EMA. The PPO-Histogram can be used to anticipate signal line crossovers in the PPO.
I am setting the PPO at 13,21,8.
Let’s See Why This Signal Could Offer Potential Trade Info
Each candle on the chart represents price movement over a 5-day (week) period.
The PPO is heading up, indicating a bullish trend. You can consider Calls. Next week’s candle will start with Monday’s price movement and then each consecutive day of the week will be added or subtracted to Monday’s number to create the weekly candle.
Options often offer a smaller overall investment, covering more shares of stock and potential for greater profits, as well as making money when the price of a stock drops.
Potential SPY trade:
The stock price in this example is $561.32. If price goes to $562 you could consider a CALL option.
Reminder: We have been using weekly charts to smooth out the current volatility of the market and to provide you time to consider your trade.
Check Out How an Option Trade Could Pay Out Big Time
The stock price in this example is $561.32. If the stock rose to $562, you would make about $0.68.
If you were trading options and selecteda 562 CALL option strike, you would pay a premium of around $9.00 for the Aug 16th expiration, or $900 for the 100-share option contract. If the stock price moves to 570 the premium is apt to go up about $4.00. Your premium of $900 plus $400= $1300. That is a profit of 44% over a short period of time.
Remember, you can take profit anywhere along the line, you don’t have to wait for the expiration date to sell. It is often wise to take profit when it is earned, especially in a volatile market.
For updates on previous potential trades we have discussed, scroll to the bottom of this message.
I love teaching and sharing. It is my “thing”.
Stay positive and know you can do this. Knowing creates positive results! A part of the abundance process is letting go of anything negative, which creates space to receive.
I wish you the very best,
Wendy
PS – I have created this daily letter to help you see the great potential you can realize by trading options. Being able to recognize these set ups is a key first step in generating wealth with options. Once you are in a trade, there is a huge range of tools that can be used to manage the many possibilities that can present themselves. If you are interested in learning how to apply these tools and increase the potential of each trade, there are books and videos listed on the Love Your Options website (https://loveyouroptions.com/).
Past potential trade update:
Last week we discussed buying Calls. On 7-5 the Aug 16th 552 call was $11.45. You could have sold on 7-10 for $16.47 which would have been a 44% profit.