Today I’ve got something new…
Something I haven’t discussed with you yet.
But I want to share it because what I’ve found using my newly developed trading tactic is showing me huge gains in a surprising stock, and it’s going to pop right in time for the Fourth of July fireworks.
So with June now in full swing, let’s focus our “eyes” on it now…
A Fourth of July Rally is Ahead
Thanks to an algorithm contained in my proprietary trading tool, I have developed a “Third Eye” for my analysis, and it’s leading me to some very exciting opportunities.
The algorithm can look back day-by-day at up to 18 years of market data for the most popular stocks and ETF’s. That’s over 1 million calculations a day.
The algorithm tells me based on past history the BEST day to enter and exit any stock or ETF, ranked by historical accuracy and average move during its timeframe!
It’s a virtual crystal ball on the market that I call The Money Calendar, and it’s so incredible, I had to immediately file for, and receive a US provisional patent.
Now I am not here to gloat about the Money Calendar, or even offer it for sale. It’s not for sale, anywhere! BUT I am bringing this up to highlight an interesting pattern that is turning the corner this week… in the SPDR S&P 500 ETF Trust (NyseArca:SPY).
You see, for the past number of years after we exit Memorial Day and head into mid-July the US stock market gets an historical lift.
There are very few corporate earnings reports that come out, and even Washington gets quiet.
So how good is this summer SPY pattern?
Take a look at the chart below. It represents the last 5 years of data over the period, and the Money Calendar drilled into a 27 day pattern that netted $22.78 of profit over the period.
That’s an average of over $4.50 of profit during each 27-day period. To give you an idea of what this does for the overall market, $4.50 SPY points is equal to $45.00 S&P500 points. (The SPY trades at 1/10th the S&P500)
This equates to about 400-500 DJIA points.
What I am saying is that it’s a pretty big deal…
Now let’s take a look at the next two charts, which shows 1) the gains (in green) for the last 5 years during each of the 27 trading days, and 2) the OHLC chart from 2014, showing the 27-day move from start to finish.
Notice how it moves, with higher lows and higher highs… like watching summer grass grow.
It’s boring and slow…but boring works in trading.
So how do you spice up a boring and slow pattern like the one we see before us?
It’s easy with options! Lets take last years SPY pattern, and see what would have happened by applying a simple call option to it….
The Low-Risk Way to Gain 78% on Your Money
Remember, a call option is like renting a stock. You don’t actually own the stock; you have the right to own it at a set price for a set period of time.
Typically, option traders like to sell that right for a higher price to someone else rather than exercise the right and physically take the stock.
So let’s look at how the pattern we found played out last year assuming we use options to make our trade.
Keep in mind the pattern is from the 2nd trading day in June, to the 10th trading day in July.
I set the date back to June 2, 2014 and I will look at the July Options, as they don’t expire until the 3rd Friday in July, offering plenty of time for my pattern.
Here’s one option example during this time frame:
Click to Enlarge
On June 2nd, the July SPY 190 calls were trading at a mid-price of $4.30 per contract. That’s $430 for a contract as one contract buys 100 shares.
Now let’s fast forward to the options expiration, a few days after the pattern completed…
As you can see, on July 17th 2014 the SPY 190 calls were now showing a profit of $337 per contract, equating to a 78% return. Compare that to the SPY itself, which moved up a maximum of 5 points between the low to the high during the pattern.
Click to Enlarge
Which would you prefer?
A $5 return on a $195investment?
A $3.37 return on a $4.30 investment?
You’re starting to get the picture.
Options, when used properly in short-term trades as well as long-term investments aren’t risky. In fact, they can offer lower risk, higher reward scenarios, and when timed right also give you a built in exit strategy.
Here’s to June!
Until next time,
America’s #1 Trader