On Sunday, I emailed you asking about questions or concerns you may have about any financial advice you’ve seen or heard recently – particularly since Election Day.
And this is what you sent me…
Q) Please comment on how to financially handle the gloom and doom of derivatives, massive debts, sluggish global economies, interest rate hikes, and a potential stock market crash versus the continuance of the stock market surge. Also, do you see greater profit potential in U.S. infrastructure and the military in light of the new incoming administration?
A)I trade what I see and not what I think or hear. So although there’s a lot of doom and gloom out there, the markets are trending higher and we’re seeing new all-time highs. I don’t expect that to continue; however, what I see using my proprietary tool, Money Calendar, is that we’ve got green for the rest of the month before it starts getting sluggish in December. January is when we can expect to see a potential pullback for equities from where they are now. But these are short-term things. I do see infrastructure and military/defense going higher with the incoming administration. But keep in mind that a new President’s first four years in office is typically the worst for Wall Street based on the presidential election pattern.
So if you’re too nervous about the markets because you think there will be a correction or even a crash and don’t want to keep all of your money in equities, one consideration is to move away from them and trade shorter term moves – and get very familiar with options. Here’s a good starting point…
Q) I keep hearing that China’s currency will become the world standard (to some degree) and that gold prices will rise to $5,000, $10,000, or possibly even $15,000 per ounce. Do you think this will really happen? And if so… when?
A)Ithink silver and gold are great places to be. And don’t feel bad… nearly everybody got it wrong. Keep in mind that these are knee-jerk reactions. In the short-term, I see the markets continuing to trend higher. And we’re heading into the holiday season, which has typically treated Wall Street very well – especially for the past 10 years. But remember that January is a “correction month” (where the markets typically correct from all-time highs or lows). I went and looked at SPDR Gold Shares (NYSE: GLD) using Money Calendar…
And all of this red you’re looking at here tells us that gold has up to an 81% chance of moving lower between now and December 25th. So we could see some potential pullbacks in gold, but there are still plenty of great buying opportunities.
Q) I was advised to put 10% in silver and gold in order to survive an impending market crash. But recently, they’re all down. What are your thoughts on gold and silver being a “safe haven” for your money in the event of a market crash or recession?
A) Based on what I just showed you for GLD, I don’t see that happening in the next month. But January is typically very good for gold. Actually, gold tends to go up the 24 to 25 days after Christmas. In fact, GLD went up as high as 4.81% the 24 days after December 25th. Gold has a resistance level up around 1,900. So I think we can get there, but we’d have to see the strong dollar pull back a bit, bond prices go up a bit, and commodity assets get more valuable. And that won’t happen if the dollar continues to stay strong.
Q) There’s a statistic out there about options trading, and more specifically, people who only buy puts: 70% of options traders “lose.” Is this true? And is that why you seem to be more of a calls buyer instead of a puts buyer?
A)I believe this is close because statistically, all time value goes away by expiration. If a stock moves away from the option, the option will lose value. But if it moves in favor of the option, that time value will turn into real value (money). Keep in mind that this statistic is also missing something big: option sellers are obligated to deliver, meaning they take unlimited risk.
Remember… when you use options the right way, they can offer you a variety of ways to profit from a rise or fall in the underlying market. And in times of high market volatility, they’re an especially excellent way to provide leverage and reduce your risk – all for very little money.
I trade more calls than puts because I’m a rules-based trade and have got more green (bullish) signals than red (bearish) ones.
Q) I applied for Level 3 margin trading through TD Ameritrade but was denied. How can I place options trades without it?
A) If you’re unable to get Level 3 options clearance, which lets you trade with unlimited risk, you could try for both Level 1 and Level 2 clearance. Level 1 clearance will allow you to buy simple calls and puts, and Level 2 clearance will let you trade most spreads. And that’s all you need for both of my services, Money Calendar Alert and Weekly Cash Clock.
These were excellent questions, so keep them coming. You can post them in the Comments section at powerprofittrades.com, or via Facebook and Twitter.
Have a great holiday weekend – and safe travels!
America’s #1 Trader