The Alchemy of Technology and Trading the Haystack

Hey there, Power Profit Traders!

Good morning! It was great to be back in action yesterday, following a feverish couple of weeks in bed, and I’m excited to hunt stock, option, and cyber-coin trading opportunities with you.

PLUS, my LIVE trading sessions are BACK, starting at 9:30 a.m. ET right here! Hop in the room and watch me teach and trade the opening bell. (And don’t forget to bookmark this page for REPLAYS of my sessions.)


Did you catch the DOW trade I gave you LIVE on Monday?
 

Today, I want to reiterate my old “trade the haystack, not the needle” philosophy. It essentially means that sometimes it’s wiser to trade a sector you like via a corresponding exchange-traded fund (ETF), rather than a handful of stocks within that sector,

That said, two heavily followed and widely traded technology stocks really dominated the markets yesterday, despite not landing on the Unusually High Call Volume watchlist.

Apple (AAPL) gained 2.5%, and for yet another day, hit the mega market capitalization level of $3 trillion. And while that level ultimately dipped – at $3 trillion, that makes AAPL worth as much or more than the entire stock market capitalization of a few Group of Twenty ( G20) nations, including Germany.

Then Tesla (TSLA) rose by a whopping 13.53%, putting its market capitalization at over $1.2 trillion.

Think about that: just two technology stocks are worth over $4.2 trillion combined… and they are likely not stopping there.

Tech stocks are a lot like the ancient pseudo-science of alchemy.

Alchemy, of course, was the attempt to transform base metal into precious gold. And one industry, in particular, takes basic materials such as silicon – one of the more common elements on the planet – and turns it into items that are worth their weight or more in gold.

Stock traders love this sort of modern alchemy; it provides hyper growth that generally leads to higher share prices.

So when I’m hunting bullish option trades, technology stocks are a fertile field for my Money Calendar Pro subscribers.

In fact, I want to focus your attention on one “haystack trade” setting me up for an excellent start to 2022.

Chips: More Than Just a Side Dish

My Money Calendar Pro tool identifies bullish or bearish trading opportunities based on seasonal patterns that have repeated at least nine of the past 10 years. Further, I only screen for the BEST, most established stocks and ETFs, because I’m looking for quality over quantity with my proprietary tools.

And if you take a look at the S&P Information Technology Index chart, there is a great deal of positive historical trading for the sector over the past few years, giving me lots of stocks to draw from.

The index has nearly doubled over the trailing two years, and the coronavirus-related drop in February-March 2020 barely appears to be more than just a bad few days.


S&P Information Technology Index Total Return – Source: Bloomberg
 

Drilling down even deeper, chips – not the potato variety, but rather the semiconductor kind – continue to shine day in and day out.

What’s more, demand far exceeds supply. Every company from automakers to appliance makers needs chips. And last year with economic lockdowns, many companies cut their chip orders, thinking the economy was going to slow down demand.

Well, that lasted for a few weeks or so… and we’re still feeling the supply aftershocks, which makes for some strong price action in that sector.

Just take a look at the Philadelphia Semiconductor Index (SOX). Since the dip in March 2020, SOX has returned over 207%.


SOX & MVIS Semiconductor Index since 2020 – Source: Bloomberg

As such, I recently initiated two bullishly skewed Money Calendar Pro trades in the chip sector, after they generated seasonality signals.While I reserve the details of the positions for members of that service, I want to show you how I traded the haystack instead of the needle – and how I limited my risk on the options play.

Breaking Down a Green Loophole ETF Trade

My proprietary tools identified a Green Loophole Trade on one particular semiconductor ETF, telling me it was a good time of year to own these particular shares.

This ETF has a history of outperforming between now and Feb. 11, moving higher 90% of the time over the past decade.


Money Calendar Pro traders were alerted to this trade
 

By putting on a bullish trade on an ETF, it allowed me to play the sizzling semiconductor sector as a whole – trading the haystack, so to speak.

And by adding a second leg to my bullish options trade, it also allowed me to limit my risk and initial cost of entry.

I put on a call debit spread – also called a bull call spread – which entailed buying a call option expiring in February, at a strike price near the current ETF price…

And to reduce the cost of the overall trade, I simultaneously sold a call with a higher strike price and the same expiration date. The premium received for the sold leg of the spread helped to lower my cost of entry on the long call, which represented my maximum risk.

And with today’s surging technology market, my trade is already moving very much in the right direction for me and my Money Calendar Pro team.

So, kids, that’s your Power Profit Trades lesson for today! Be sure to tune into this morning’s Power Profit Trades session at 9:30 a.m. ET right here!

Have a great day!


Tom Gentile
America’s #1 Pattern Trader

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