Right now, there is a ton of concern about the state of the economy and the effect it will have on the market – and the portfolios of traders like you and me in particular.
It’s easy to see why. Just a quick Google search brings up some pretty panic-inducing headlines, like…
That’s just two examples from a cacophony of alarm bells that are being rung right now.
In times like these, traders and investors tend to take their money out of the stock market and move it into securities like bonds and money markets that are viewed as safe havens.
And that’s exactly what’s been happening recently. As you can see below, billions of dollars are flowing out of equities markets as individual investors and hedge funds alike flee to “safety.”
But as rules-based traders, we don’t let our emotions dictate our trading.
So, before you go taking all of your money out of the market, let’s take a step back and examine how things really are – because following the herd on this could mean you lose your shot at one of the most potentially profitable periods the market will offer this year.
Today, I want to tell you why I don’t believe things are as dire as they may seem if you’re just scanning the headlines.
I’ll also break down the trading opportunity coming up soon that has me licking my chops because I know I have a proven trading strategy to capitalize on it and help give you the chance to put big gains in your pocket that you’d otherwise miss out on.
It’s a strategy that’s allowed those that have followed the recommendations I’ve made using it the chance to make 168% ROI on their money over the past year – and I’m looking to improve on that fantastic performance in 2023.
I’ve even got a few targets already picked out.
‘Tis the Season for Making Money
Over more than 30 years of trading in the market has taught me that volatile markets are ideal for making huge gains.
And few things cause more volatility in stocks than the release of that company’s earnings report.
Here’s a great example…
Just take a look at what happens to the Implied Volatility (IV) of Alphabet Inc. (GOOG) – otherwise known as Google – before every quarterly earnings announcement over the last year.
If you’re unfamiliar with Implied Volatility, don’t worry. I’m planning to provide a full breakdown of what it is and how you can use it to your advantage in the next Power Profit Trades article. Basically, it is a measure of how much a stock could potentially move over a specified period of time.
As you can see from the chart above, the chances of a significant move in the price GOOG stock spikes ahead of each earnings report release date.
This same type of pattern plays out with dozens and dozens of stocks throughout just about every sector of the market.
While IV doesn’t indicate the direction a stock will move, it’s incredibly useful in predicting when stock options will become more expensive.
Even in situations where it is unclear which direction a stock will move during times of elevated IV, traders can place Straddle trades which allow them to profit so long as the stock moves in either direction and does not remain flat.
Check out this guide on how to profit using Straddles for more information on how Straddles work.
Given the mixture of “the sky is falling” type of headlines that are so prevalent right now, along with some underlying reasons to actually be optimistic about certain sectors, I believe this could be one of the most volatile earnings seasons in years.
And that shouldn’t worry you. Instead, it should be reason to be very excited.
I’ve already got several specific industries picked out, along with the best trading strategy to reap profits from each as this earnings season ramps up in the coming days and weeks…
What I’m Targeting this Earnings Season
Despite all of the concerns hovering around, they may not be enough to drag the economy down.
Even though inflation remains elevated and the threat of a recession is very real after so much monetary tightening from the Federal Reserve, consumers are still buying expensive stuff. In fact, recent studies suggest that Americans are currently spending 23% more than they were before COVID-19 hit in 2020.
The job market has also remained strong and recent wage increases have contributed to greater spending over the first quarter of 2023.
Consumers must relax spending and the labor market would need to cool in order for inflation to abate. CPI, PPI and jobs reports that reveal inflation declining could result in strong moves up and vice versa.
While the Fed’s efforts are likely to yield results in calming inflation, it’s not going to have a significant impact on this earnings season’s results from the fist quarter.
As such, I have my eye on one sector in particular for a wealth of potential windfall profits this earnings season.
Tech stocks tend to do well in a high inflationary environment. The likes of Nvidia (NVDA) and Apple (AAPL) are perfect candidates for call option trades given the strength of the tech sector in these kinds of market conditions.
There are also some geopolitical catalysts we can look at to give us an indication of direction for a bevvy of stocks in the energy sector.
With the 1.1-million-barrel reduction in supply levied by OPEC last week, oil stocks look poised for further upside, and call option trades look poised to deliver outsized gains ahead of individual oil companies’ earnings reports.
But if you don’t have catalysts or indicators to give you an idea of which way a stock will move, picking direction (calls and puts) is extra risky at the moment, given market gap risk.
That makes for perfect conditions for the Straddle trades I mentioned earlier….
One industry I’ll most likely be trading this earnings season are Bank stocks, which are likely still in trouble after the recent crisis involving Silicon Valley Bank, Credit Suisse, and others.
Bank earnings may very well reveal losses due to a lack of interest rate hedges. Other banks are quite likely in the same hot water that SVB and Credit Suisse experienced recently due to their lack of interest rate hedging. At the same time, there are still many unknowns, and a number of banks could surprise during their earnings calls with expectations lowered so much for the industry as a whole.
In other words, lots of volatility expected at bank earnings over the next month, making them ideal straddle candidates.
So if you don’t want to miss out on these and other massive profit opportunities I didn’t have time to highlight right now, I’ve got just the thing…
Brutus, my proprietary brute-force algorithm was designed specifically to hunt down the stocks that have proven to be among the market’s most volatile before an earnings report.
Using that intel, combined with tailor-made trading strategies to maximize our odds of success and profitability, Brutus Alerts members that took each of the trades I recommended would have wound up with a remarkable 168% total profit over the last year.
And right now, you have the chance to test drive Brutus Alerts over the potentially MASSIVE upcoming earnings season I’ve just highlighted.
Check out all of the details right here.
I’ll be meeting with Brutus Alerts members on Tuesday at 1pm ET for our latest weekly trading room broadcast, and I hope to see you there!
Until next time,
Tom Gentile
America’s #1 Pattern Trader
