Ep. 298 Come Prepared For Sector Rotations With Iron Condors, Call Walls And More
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Hello and welcome everyone to another episode of the Investing with IBD podcast. It's Justin Nielsen here. I'm your host and it's a pleasure to be with you. I had a wonderful vacation in Hawaii, so I'm all rested and relaxed and ready to go. And helping me today is Anne-Marie Band, who herself, she likes to join us.

She likes to go a lot of different places. She's always traveling, it seems like. Last time I think we spoke, you were in Finland, and I think you're on your way to Switzerland soon. So quite the world traveler. Welcome back to the show, Anne-Marie. Excited to spend time with you, Justin. Love talking stocks. Yes, absolutely. So now, for those of you that haven't met Anne-Marie before, she is actually one of our option content hosts.

creators she does an article usually on Fridays for us where she's taking a look at things and usually does like iron condors she was doing a lot of calendar wheels so we'll get into some of those things that she does on a regular basis and we'll also take a look at some of the things that are on her radar and specifically the market that we're in right now being so strong so you

Anne-Marie, of course, is also the author of a book, The Trading Book. Also, she has her own services that she can tell you a little bit about today. And you also find her on IBD Live as a frequent guest there. So maybe we get right into it, Anne-Marie, and have you take a look at the market. I'm going to pull up the NASDAQ composite real quick and have you take a look at that and tell me what you think.

Well, I think if you're trying to short it, you're having a really bad time, first of all. So if you short for more than a minute, you're in trouble. Yeah. We are seeing a really big extension. And, you know, you and I had talked a little bit ago about potential real sector rotation. But all of a sudden this week, the MAG-7 have just...

jumped right into the forefront again and of course that is leading the nas higher every single day it's just a continual by the dip event by the dip event by the dip event

Right. And so I'm showing FNGS right now. This is the Fang Plus. So it has those Magnificent 7 stocks. It's interesting because for a long time, here's the relative strength line right here on this kind of squiggly line. And for a long time, it really seemed like it wasn't so much about the Magnificent 7. We were actually looking at how the equal weighted S&P 500 RSP

how that was looking a little bit stronger. And then it just seems like that's been fizzled. And it's, again, back to that rotation. And it certainly seems like the MAG-7 is where it's been at. And the NASDAQ getting much stronger as a result of these big trillion dollar companies, you know, that have so much weight in the NASDAQ really kind of taking over.

Exactly. And you know, to me, what it's really told us is if we go hunting around for value, where we go, ooh, now these are picking up, let me go here and dip my finger into this pool, what we end up seeing that it's sort of a...

almost a fake out in terms of moving into other spaces. Like, well, let's take a look at the RTY or the Russell. Okay. The peak at the Russell. So I'm going to pull up IWM. So the Russell, yes, perfect, perfect. And so it did break out of a very solid sideways pressure event. But look at how tough it's been to trade if you try to buy the breakouts.

It's just been, you know, like stepping on glass. It's been really tough. So the big thing to notice there is that though this IWM,

ticker has shown that it's got some breakout potential, the better ads are when it comes back into these deeper moving averages and consolidates there. And so we almost get it before it breaks or else we end up sitting in a space where we have to endure a downdraft before it picks up. And that's

You know, that's painful. That's no fun. It is. It's been painful looking other places. Yeah. It's been painful looking for other places to find value and give us alpha. Yeah. And so this is the weekly on the IWM, the Russell 2000. And, you know, this is something we were talking about for a while there. It just seemed like it couldn't get going. Yeah.

And these last few times have seemed like, oh, well, finally. And then, as you said, it's kind of a breakout and then fizzle, breakout and then fizzle. So are you kind of looking at this 40 week moving average line? Are you looking at the 50 day moving average line, the 200? What's kind of your signal that, OK, maybe this is where it looks interesting again, if you're more interested in kind of the pullback areas to buy and the mean reversion?

So if I could, if you could indulge me and go back to that weekly chart. Yes, absolutely. What we can see on the weekly formation is that across way to the left, we've got ourselves a key area of resistance. And that looks like about December 21. If we drew a line straight across that high, uh,

we could see that we're just barely breaking out of this zone, right? We're just testing it. And so in my mind, and I will tell you this, I'm very biased against the Russell because of the way things in the Russell work.

are kept in the Russell. So essentially, if you get to doing really well and your numbers get bigger, they kick you out and they move you to another one, right? They move you to whatever index. But the ones that stay compressed in here tend to be the ones that have lower numbers.

Lower price to earnings, lower price to book, lower cash on hand, all of the things that make it generally weak because they're small, right? And so that puts it in a space where, you know, we can run for a hot minute, but we are going to fade. So in my mind, I would be looking for short in the Russell. Okay. Another reason that would make me do that is because look at the volume of

As it's moved up into the current target price, where it's sitting right now, that volume is just cratered.

But in fairness, the entire market is showing diminished volume like this right now. Everybody's on holiday. They're at St. Bart's. They're already wherever they go. And so volume is really dipped. So my thought would be don't touch...

Touch this until it comes back to the last breakout area, where is your diagonal and your box, the bottom of whatever that box is. That would be the first place I would look at to take any kind of long, the blue line.

buy zone area that you've got there. So this is kind of a 5% buy zone from this cup with handle breakout. And again, this is something that the pattern recognition on market surge automatically does. It's kind of programmed in. So yeah, this is a 5% zone. Yeah, I like that zone. And so what is it that you're looking at exactly in here? Okay. So if it pulls back into that zone...

Exactly. And it's because if you look to the near left, you'll see another spike of spaces where everybody said, all right, I'm going to sell right off of that. And if they can come back and consolidate where everybody said sell, and it begins to buy up there, that nice consolidation event says, all right, let me see if I can get two weeks down here. And it holds, but

I'll buy it and my stop will be very tight. It'll be very, very tight. Well, since the Russell 2000 isn't your favorite index, and again, it's not the first time I've heard this. It's one of those things where people are like, well, you know, once a stock gets successful, it basically gets out of the Russell, you know?

That's what's going to happen. But what about Spy? I mean, just looking at the S&P 500 here, you know, it still has a lot of those Mag 7, the heavyweights still carrying this very far. But, I mean, we're at all-time highs. This has been...

you know, kind of up at the 6,000 level that it's now broken above and it's holding. But I guess the question for a lot of people is, you know, is this extended? Are we due for kind of another 2022 because we've been running for so long? Well, I would say no, not yet.

But what I would say is don't buy a breakout. That for me, my thought would be if you went to the daily and I love those automated bars that market search puts up because they match my eyeballs and what I'm thinking. So I absolutely love that. So the bottom of that blue box right there is where I would look and why I

Because if you look to the left, you have two areas of resistance where people said, absolutely, I'm not buying it above there. Absolutely not. And then all of a sudden they said, well, I think I will buy it up there.

And so what it's doing is coming in, notice it went to the very top of that range, collapsed back down. The moving averages are getting further and further away from each other. But you'll notice whenever those moving averages that you've got plotted there get far away relatively, which I think they are far away from each other right now, they will start to come back to converge. So

I would like, again, pullback action. Now here's what I like to do. When I find a range that looks like the one you just drew where the buy points are, I'll choose the halfback. I'll go 50% down in the range and I'll say, you know what?

I'm not going to buy unless it gets into there. I'm not going to do it. And if it never comes, then it'll form another range and I'll go, all right, let's see how well it holds the top of the box when it comes in. And maybe I can use that halfback as my floor of support. And so I'm always waiting for, you know, the...

sale, as it were. I'm not going to chase it. And I'll tell you why I don't chase it. Because I've spent so many years in the market, right? More than a couple decades. And every time I do that, I end up sizing up

and then getting stopped out simply because I can't handle the pain of a drawdown that may or may not come. And I have no idea what the market's going to do. So as I get in, I'm going to wait for the cheap space, you know, choose that Warren Buffett approach that goes, no, I'm not going to buy it unless it's priced inside of my box. This is all I'm willing to pay. And if I...

If I don't get it, then I go, you know what? The buffet's open someplace else. I'll go see if I can get, you know, caviar over here or whatever.

Right. Now, one of the things... Not that there's ever caviar on a buffet that you'd want to eat. One of the things that was also interesting, I mean, the financial space, you know, this was an area that seemed like it was coming on strong. And, you know, this is heavily represented in the Russell. You have your...

your regional banks, you know, that were, that were looking strong. Um, and you know, the, the, the regular KBE, um,

Again, just a lot of these areas seem like they're pulling back. But I mean, notably, if you look at KBE, this is my 21 day moving average line right here on the green line. You know, a lot of these, I guess they're stopping where you'd want them to. So if you're kind of looking at that sector rotation and you're kind of looking at the pullbacks as your areas to focus on, you know, for some of these sectors, are you

I know with the Russell, you may be looking at some of those deeper moving average lines, but for some of these other ones, are you using shorter term moving average lines or how are you kind of looking at the pullbacks here?

Well, what I tend to do is stare down a range of motion. And so I try to find out where buyers go, yep, absolutely, I'm going to buy there. And when sellers go, absolutely, I'm going to sell there. Or the buyers go, I'm not buying it up there, right? And so we can see those in topping formations. Now, the thing I don't like about what this chart is doing is that it's got a gap that's pretty big.

And so my general thought is, you know, gaps have a tendency to fill. And so I'm going to look at the last mountain peaks to the left. There are four or five of them there. And here we are sitting at the valley. So ultimately...

I just am so enamored of these market surge areas because they're exactly where I would draw my own pictures. So that's fantastic. Anyways, so the base to the pullback of the top of the blue box says, all right, I might be interested in starting an introductory position there. My hope is,

is that regional banks do gain strength. My hope is that a little bit of change at the top level of banks would be an excellent thing for the country. Regional banks are the lifeblood of local business.

And so I would love to see this take hold. It would be very, very impressive if it did. And so my hope in the coming administration is that it will. And so I could start an introductory position right around where it's sitting right now. But I have to think to myself, okay, you're holding it because of a belief that

But literally, it would be at the bottom of that blue box that would make you go, all right, if it comes into 60, I think I'm going to put on a position that is going to be more sizable. And so if I enter up here, where's it sitting right now? 66. Am I going to be able to handle a 10% drawdown? And so I'm going to size according to that.

And that really would be how I would look at that piece. And so, again, just to kind of wrap a bow on the market segment here, getting back to the S&P 500, one of the problems with so many of these charts that we're looking at, so many of the sectors, is that you did have this big gap up, what we were calling kind of a lot of people offsides, right, before the election started.

Maybe they just didn't want to stick their necks out. They wanted to kind of take the wait and see approach. And then once the election was over, and again, a lot of people are saying it wasn't necessarily the result, but that we got a fast result and it didn't drag on. So that kind of caused this gap up in so many things. And now I guess the question is how much of this, you know,

Was that a buying opportunity or was it kind of the wait? I love this. So notice it gaps up for several days, but look at where it comes back into. It comes back into the top of the gap. And that top of the gap also matches relative resistance to the left. And so now what you have is a decision point where you go, okay, this is gapped up.

let's see how it behaves at the top of the gap because I've got prior resistance over to the left. If it holds for a couple of days there, I'm going to buy. So the question then becomes, okay, how long are you going to hold it for?

If it's a standard rotation of I move up a little bit, I pull back, I move up a little bit, I pull back, I move up a little bit, I pull back, or do we run straight for, you know, the moon? And so the question to me is going to be the peak that came right after election.

that is marked up there, the first hump before the pullback to support, I want that to be my new floor. If it's not, if it does not hold there, I'm going to start to trim.

And that number, I think, is about $598,600, something like that. Yeah. Because I've been staring this one down. Yeah, we're looking at the S&P 500 ETF. But if we were to look at the instrument itself, the S&P 500, you know, 6017 was the peak of that hump that you mentioned. And so we did get support.

On this day, the 29th, right there at 6,000. Nice round number. And it marks another buy zone. So here's a really fun thing that I do. Take the bottom of that range where we tested the top of the gap and measured the distance between that peak to trough. And it's going to give you a width.

That peak to trough, if it gives you a width, it'll be, what is that number? I can't tell. Down at the bottom here, about 58.53. Okay, so 58.53 and 60.17. What do we got? Let's just round it up and say 150 points. Okay. So if we add 158 points to the top of that 60.17,

or 150 points somewhere around there, we get 61.75 or something? Something like that? 61.60? That's going to be my next target with a halfback of 75 points. So I'm going to look at first 60.80 points.

six uh would it be 60 80 60 yeah which is which is right where we're at right now exactly i'd look at 60 80 and i'll go hmm if i don't hold that i'm going to start trimming some of my gains because again i would have been looking for the retest of the top of the gap to go long and so i would have all of that and i go you know what i'm going to trim some of that because i i don't like

Overall, I don't like the way this market feels at all. It just feels weird. And I know that's not a technical term. So I just, I can't quantify it. So I'm being very cautious. So I say, you know what? I'm taking some profit there. If it pulls back to 60-17 and it holds it,

I'll add back. But Anne-Marie, what if it really gaps up and you got to chase it and you have to add back at a higher price? Well, I'm not closing my entire position. I'm just going to take half of it off or a quarter of it off and I'll add back on the pullback into those areas. And if structurally it starts to break my halfway point in between 50, 50,

whatever, and 6,000, I'm going to go, you know what? I'm going to trim again. Because I like to think that gaps eventually fill. They don't always fill. Right. But many times they do. If your business needs a new application, then developers will have to write code. A lot of code. If an application needs to be modernized...

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And so you're prepared for it. Well, kind of shifting gears here, you mentioned how you're kind of feeling a little funny and not necessarily wanting to stick your neck out on some of these breakouts. So one of the things I've noticed, we all take turns at the office every

editing the options content. And so the last couple of Fridays, I've been editing yours and you've had two iron condors in a row. And we were talking a little bit before the show about why you're choosing iron condors right now.

Iron condors are generally thought of as more neutral option positions where you can... And this is what you've been doing with your option trades. You've been kind of setting these wide ranges where as long as it stays within that range, you're golden. You collect the premium. So...

Maybe talk a little bit about how the iron condor, how that structure, maybe walk through it a little bit for those of our folks that aren't as familiar with options. But also, why would you choose that when there's a lot of sector rotation out there? I love this question. So first of all, an iron condor is a short call spread and a short put spread taken at the same time.

And so it's called a delta neutral event because what it anticipates is that an instrument will stay in a range. And so the reason that I like using the iron condor right now is because we're seeing so many charts go up into resistance and fall back down into support and try to get up into resistance again.

And so what I look for is a chart that has that pattern. Oh, it moves up and then it moves down and then it moves up and then it moves down. So it might move in a cycle of going up and down. It might be grinding to the upside and

But I'm putting enough time and space inside of the iron condor to trap most of the noise inside. So I'm not going to be overly worried about

If the chart starts doing this, because at the end of the day, my ranges are out here. And one of the things that I really like to do to use that is to take a look at the ATR, the average true range on a weekly event. And then I go to the option chains and I see what the market makers have priced into the move.

And so if I look at something that's far away, let's say it's expiring in January, I look at those options and I'll see what the market makers are priced in at the straddle. And so that means I look at the call side and the put side to buy both of those options. And I add them together.

Yes, at the money. And I add them together and it tells me what the market makers are doing in terms of motion. Now, why would I do that? Well, if you think about it, market makers make money making a market. And so their goal is to...

price those options well enough for traders to engage, but at the end of the day, they win no matter what. And so that's really how they're looking at it. So I'll use the combination of what I'm seeing there and the ATR, and then I'll say, all right, I'm going to widen that by a little bit more, just in case, and I'm going to build something like that. But just about...

Every chart we are looking at right now is having these, it's grinding up for sure, many of them, but they're landlocked in terms of some big motion. And so what I look at is, okay, if the high is here and the market makers are saying there's another $20 move to the upside, I'm going to go out $30 and I'm going to sell the strike. Mm-hmm.

Yeah. And to be clear, the short strikes are kind of your range, right? That's where you get your maximum. Yes. And so by choosing 10 higher or 10 lower, you're kind of expanding that range in which that trade becomes profitable. Exactly. Exactly. Exactly. So, you know, another thing we were talking about and

You know, it's interesting that you bring in the market makers and kind of their motivations, right? I mean, at the end of the day, everyone's motivation is to make money, but the way in which they do it can be very different. A lot of us, you know, we typically think on the long side only, and we're just thinking of, okay, I buy something and I want it to go up.

You know, I want it to go up as much as possible and I want to ride it for as long as possible to capture as much of that gain. But the motivations are sometimes very different. You know, we talk about sometimes these market makers, they might be taking, you know, they might have to put a trade on in order to make a market. And then they're going to put another trade on to kind of counteract that because they don't want their neck sticking out. That's exactly right. Maybe you could talk a little bit about that.

Okay, there's a great example in today's price action for the Qs. So if you pull up the Qs, I'll tell you something about how the option chains were looking today. Okay. And so there's a concept that folks that follow option positioning, whether it's zero DTEs or zero days to expiration types of options or...

monthly options or weekly options. Everybody looks at how folks are positioning. And so in an options market, if I go to an options dealer and I say, hey, listen, I want to buy all of these calls, he will have to sell them to me.

So if he sells me the calls, he is short calls while I am long calls.

So let's say the market starts to rise. And today there was a wall that was sitting at somewhere around 507, I think was the number, 507. And so the price action started to run. No, no, it wasn't 507. It's 514.

And so the price action started to run. Now let's say I'm long all these calls. I am super excited, but the dealer is short the calls. So if price starts rising, he can't come back and take the calls that I bought because they're mine. And I don't, I have the right, right? He has the obligation. So because he has the obligation, he,

guess what he has to do? He has to go to the queues and he has to buy them because all of a sudden he's got negative delta. He makes money if the market goes down. I make money if the market goes up. The market starts going up. He's got to book a business that he's got to level out. And so it forces him into the market to buy it up.

And this area that you can see, it's called a call wall. And it tells you where all of the trading is primarily positioned for big price action. A breach of a call wall forces the dealers...

to buy the market so their delta becomes neutral. So they're not losing money as the stock goes up. They're not making money either when it goes up if they buy it, but at least they're not underwater with all these short...

positions that they hold. So that's a very big key thing to watch when we're staring down options and charts that can run very aggressively. Knowing where a call wall is, is very important. And the easy way to do that is going to your option chains and looking at

the ones that expire over the next day, your zero DTEs, and just see where the big strike is.

You know what? How about if I let you share your screen? How about if I let you share your screen and let you show us exactly how to do this? And I use Thinkorswim a lot myself, and I know that you are at expert level on Thinkorswim. So if you want to share that. After only 27 years. Right. Yeah, 27 years is a long time. All right. So let's go to the queues. And...

Let's look at the Analyze tab. And, oh, these options are gone. But let's see if we have the numbers attached to them anymore. Okay, so you'll notice here...

the charts started moving into 520. Okay, so you can see today, 70,000 was where the volume had peaked early in the afternoon. In the morning, this area around 514 to 517 was the key area to breach. So let's take a look at tomorrow.

You can use this for yourself. You can go and say, oh, okay, I see what's happening. Before the opening... And to be clear, you were looking at the volume there as opposed to the open interest. Yes, the volume. Okay, okay. Yeah. The open interest is just what got done today. The total volume will get aggregated. So tomorrow, before the market opens, it is telling us that the 522s...

Have a ton of call volume there, 52,000 of them at this point. Now, at about 9.45, you want to check it again to see if it's moved. 9.45, which time zone? Sorry, 9.45 Eastern. Sorry. Okay.

Yeah, I vote for universal time zone like our clocks have. My husband says that's a horrible idea. Who wants to eat breakfast at 2 a.m.? But I don't care. I'd get used to it. But in any case, so yeah, that's what you do. 15 minutes after the market is open, you go in there and you check it again because zero DTEs will have the most power on the frame.

And that's going to be the number that you watch. If it breaches it, you know that traders are going to have to buy to flatten out their delta. The long calls are sitting fat and happy. Same way. Now for the put side, you do the exact same thing. You go, I wonder where the floor is. Now, very interestingly, the floor is almost right on top

of the ceiling. This one's at 521 and 520, two of them together. So now it's holding a very tight pocket and we'll see. Now my thought is because we're coming into the employment numbers on Friday and so they're going to sort of flatten in a little bit and then expand as they position later. But that's how you can do it. There are some wonderful things out there

that actually mechanize this and make it much more detailed. But if you're just starting to learn, this is a great way to do it.

So now just so that I'm clear, because again, it seems like, okay, if you're talking about on the call side, you've got a call wall around 521 and the put wall is not that far away. Exactly. That's what I mean about compression. Yeah, that compression. So how do you kind of use that information, I guess? Okay, so trend is upside. Okay.

And so if we lose this wall, right, meaning if trend continues to go up, this wall, people will buy these back, right? The dealer will try to buy it back from somebody else and then sell something further down. So you'll see them move during the course of the day. Mm-hmm.

The same thing will happen here, right? If these guys continue to move up, you're going to see these numbers move down with it. Now, the reason that they're so tight together into the close, let me show you what price did. Let's go to a 15-minute chart into the end of the day, right? Now, take a look. That 15-minute chart into the end of the day, look at how price flattened out.

It just absolutely flattened out. And that will cause the call and the put lines to get very close together. But as the day moves, you'll see it expand. And so our starting point will be that 520. We put a line there and 522 will

will be the starting point that we look at. And those things will tell you, you'll see them expand and contract. There's a great Italian company that I use that adds all these pieces together for me so I don't have to stare down in the auction chains. And those are the guys that I go to. But this is a good way to open your eyes to what's actually happening in the market. Yeah. And so this is on the indexes.

So the market level. And again, you're using those zero DTEs, zero days. So this is every day there's kind of a new zero DTE, right? Exactly. So that's what you're saying with that whole check 15 minutes into the market. So do you use these call walls for individual stocks as well? Yes, I absolutely do. Okay, even though it's not a zero DTE. Absolutely. So let's look at NVIDIA because they have so much.

They have so much option behavior. We'll go to the Analyze tab first, and we'll take a look at NVIDIA here. It does the same thing. You go to the weekly option, and you just see where they're piling in. So this one is expiring in two days, and we can see, look at that. Somebody's got that $20,000 in open interest at the $90,000.

At the 90. Yeah. That's insane. Is there a split that happened that I'm not aware of? Yeah. You know, possibly, but still, I mean, craziness right there. Yeah. Okay. So right now, the put action seems to be, that's a very big open interest event right

volume today. So we've got about 50,000. We'll see tomorrow how big this number is because this volume is both long and short and open interest is just how many contracts total. So we'll see. 37,000 of them came today. I don't know whether those are sold or puts. Here's 155. So we're looking at 141 on the floor and

I'm going to guess that it's 150 on the ceiling. And so that's what the traders are thinking. Hey, I'm not going to get up over 150, but I should hold 141. That's what the traders are thinking. And so we can go here and we can say, all right, well, let's see where 141 is. That's a nice breakaway formation. And 150...

It's still the ceiling for this stock, right? I mean, it just can't seem to get up and over that ledge.

Right. It's just, it can't stay there. Right. It went to 150 and then immediately collapsed. So you can see, all right, this is where they're positioned. So it could move up, it could move down. But if I sell those two and take a look at how much you can make, really, if you sell the 150s, it's only 20 cents today.

If you sell the 141s, it's 26 cents. Tomorrow morning, it might be a fourth of that or half of that. And so, you know, at this juncture, they're not looking at much. But if you're selling 100,000 of them, it does matter. Right. Yeah. And as you're showing, there's a lot of volume in this options market for NVIDIA. Very, very liquid. Yes.

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You know, let's talk about some other stocks that are kind of on your radar. Since you brought up NVIDIA and, you know, while we're in the tech space, maybe you could talk a little bit about software. IGV is one that we were looking at earlier in the software space.

Again, one of the issues here, and we're going to kind of go through both sides here, some that are maybe setting up that could be trades and some where you're maybe in it already and you're thinking of where to take profits. So since we are on the tech, I'm going to go out of order and start with IGV. Maybe you could kind of show us, OK, for a lot of these stocks that we're maybe into,

How can we use some of this information to kind of gauge, you know, these boxes to gauge where we might be taking our profits? Okay. So here's something super interesting. I love this.

My favorite thing to do, because I joke around and say I'm a Forrest Gump trader, is to look at the pictures. What does the picture say? And so if we stare this down, we can see everybody that touched this area said, you know what, I'm buying. And if they tried to sell it, there was nobody there that was going to give them that ask. Nobody. They just came in, they went, yep, I'm buying.

By the same token, when it got to $88.89, everybody said, you know what? I'm not buying it up there. You want to buy it from me? Sure, I'll sell it to you. But I'm not buying higher. And so what this creates is a consolidation range where traders are actually saying, okay,

I agree that the price should be between $75 and $89. Now, interestingly, you'll see that in this volume profile right here. It tells us where the majority of trading is. So for me, because I like simple things, I will say, you know what? I'm going to draw around that box and I'm going to move it up. And so this is sort of like drawing a Fibonacci chart.

It only goes in 100 lots, 100, 200, 300. But it's a lot easier to mechanize in your brain. Wait a second. I'm going to do 1x of the range, 2x of the range, 3x of the range. Now, what I love to do is choose the halfway region in each of these boxes. So notice this. It breaks out here, and it tells me, whoa, okay.

I've got a potential buy zone. I don't know if it's going to hold. So if I'm chasing it. And that breakout, just real quick, that breakout is around what? Like 89? Yes. It is. It's 89. So I can look at that and go, all right, that's my daily 89. It closed the day above that area. It's never done that. I'm buying it. But as I mentioned before, when a breakaway happens, right?

It has a tendency to come back into the region. And so my thought is if I get in and I'm at 89.90, maybe I don't wait until the next day and I get it at 91, my goal will still be, hey, listen, I'm going to put an order out there at 90 to see if I can get it at this edge. And if it comes in, I now know my support floor.

My support floor is now 88. I don't have to lose any more than that because if I do, I'm very likely going to the middle of this box. And you can see the volume point of control, which is this red bar. It's telling us that that's a likely gravity point if that happens. And so now we moved up again. Look at this. I simply replicated this on the breakout.

And I eyeballed the halfway marker and there is the gap up. It's a gap up. And so now I go, okay, as long as I hold this. And that was post-election. Yes. Just for reference. Yeah, thank you. As long as I hold this, I am staying in my long. And my first target to take some profit is the top of the box.

That's the first place I'm going to go. You know what? I really want to hang on to this, but it's the top of the box. It's moved 2x from the base. I'm taking some profit. If it pulls back, but it doesn't go to the halfway point, then as it recovers, I go, all right,

I'm going to have to get in near the top of the box, just like I got out, or I will add to the trade. I will add back to the trade. Now, a lot of people who hate trading a lot going in and out, they'll go, listen, you should have just sat tight. You should have left your stop up here and you should have blah, blah, blah. Well, I am really far away from the

middle of my linear regression line. And so I don't really want to give up $9 of brand new motion. And so I'm okay to go, Hey, listen, I'm going to cover this half of this at 103. And I'm going to wait, hopefully comes back to 95 and I'll get it.

It stops at the big fat round number of 100, which I have to tell you, these round numbers, you know how they are. Big fat round number of 100. It gets back in. Maybe I get in at 102 at the open of the next day instead of my 103. And I ride it up as long as it doesn't break my 103 level.

that I got out at the last spot, that 103.50, I'm going to stay in the trade. If it does, I'm going to trim back again. And I'm going to trim back again. But it has now, here it is at the halfway spot. What would I do? My thought is, one, I'm going to raise my stop because I had another gap up. I'm going to raise my stop to the top of this area near 105. And I'll raise it for only half of it.

105. The rest of it, I'll leave it down here at the 100 lot. But if I reject this area, I anticipate that it'll come back to 103 and I'll be very happy if it holds my 105. If it breaks 105, I'm going to take half that profit and

And then I'm going to manage the trade if it comes into this noise right here, hoping that it doesn't hit my 103. So what it does is, one, keeps my risk level in terms of where I buy and sell in good shape. I'm not buying higher and then having a risk area way below. So I end up losing more on the flip side. And I'm not afraid to re-enter. That's why we have, you know,

Cheap trades, you know. Yeah. Commission free, right? Exactly. Right. So it doesn't matter if they're selling your order flow, just so long as you get your price. Right. Don't worry about that. You just get your price. And so what it does is it allows me to compress what I'm after very solidly because I don't know where the market's going. But what I want to do is manage my exposure and risk. Mm hmm.

That's awesome. So why don't we take a look at some other areas? We kind of spent our time on tech. One of the areas that's been a little bit out of favor has been energy. And so a lot of people are kind of wondering, okay, if we've been going so long this way, is it –

In the sense of fairness, is it time for something else to kind of get its turn in the sun? And so whether you're looking at some of these liquefied natural gas, the oil, you know, the direct oil plays, whether it's the explorers and producers or even, you know, solar, how do you kind of handle some of these that...

are in an area that has been unfavored and may be getting favored. Again, kind of with that sector rotation theme. All right. So let's look at first solar because I think this is one that is really shifting. And so notice the difference between the daily formations and the weekly ones. It'll tell you

How this chart has, I'm going to delete all my drawings here because I trade for solar quite a bit and it's very messy. Okay, so if we stare down a weekly chart, we can absolutely see that there was a time where nobody was going to pay more than $120 for a share of first solar, right?

And there was a time where nobody was allowed to trade for solar for any less than $62, right? So this is a big pocket and it created a breakout formation. And that breakout formation went to the top of the linear channel. It came back to the middle and now we're here. So the question is what gives? Now I am sitting in the macro notion of,

that what the U.S. is going to be after is energy independence, not so much the fossil fuel event or X, Y, Z. It's just going to be, can we find enough ways to

to make energy. Now, I'm a big proponent of nuclear. Please don't send me hate mail. I'm into that nuclear space. I believe it's incredibly efficient. And a lot of things can happen if we really focus on creating nuclear energy and using it wisely. So-

That being said, we have nuclear, we have gas, we have oil and its derivatives. We have solar, we have wind. Wind, you know, and solar...

You know, there's some things. I mean, there are certain things that we can harness for lighter terms, like my calculator on my desk. It's solar powered. But, you know, I'm not going to run on a solar powered car. I don't think. But in any case. We're not there yet. Yeah, not yet. So here we are at support. That was resistance. That became support.

That is tested as support again, and we just made a new high. So it's my circumspection, if I might use that big fat word, that what we're doing is trying to rotate to the north. What's the fly in the ointment here? Well,

Volume is kind of crummy, but volume has been crummy for the last couple of weeks. And I think volume is going to be crummy into the end of the year. That's being said, I think that solar is most definitely something to look at. And solar, first solar happens to have the number one ranking on the composite rating chart in IBD. And so, yeah,

I like the thought of selling put spreads down here at 150 way in the future. That would be the conservative bet. So let's see what volatility looks like just in case if we went to...

Me and my handy dandy. And just to be clear, when you're selling a put spread, you're selling a put and you're basically buying a put for protection. Exactly. So at the end of the day, it's bullish. If the stock goes up, you collect that premium. You keep that premium. Exactly. Exactly. And that is a very conservative way of anticipating that if the stock falls, it doesn't fall too far.

But if it rises, it's nothing to worry about. So if we look at February and we see option chains are a little bit thin there, but notice, look at the 15,000 puts, 10,000 calls. So people are more bearish on this, but that's recent past. I think they're thinking, oh, gee, look at this. This is a mess. We've got lower highs, lows.

And, you know, it doesn't look kind of crummy, but notice the trend is changing. See the steepness here? It's sort of tapering off. And the relative strength index on market surge is showing a little bit of a lift there. So I like this short put area. Would be a nice area to go. You know, even if you wanted to acquire it, you could go, yeah, you know, I'll sell the 150s.

The lowest it's been in a year is 135. If I sell the 150s, I might be able to make money and get it at 140 if I sell it out in February or March, right? I mean, if I sell this out in... Let's see what the 150 is here. Oh, yeah, 305, right? So...

If I was put to the stock, I'd actually be making – I'd be getting it at $146 and some change. And so I'm okay with that. And so, again, if folks are not as familiar with that concept, that's more of the cash secured put that you're talking about there? Yes. Yeah. So, yeah, it's – again, you have the cash available to buy the stock in case you're assigned. And the –

End result is instead of buying the stock outright, you actually end up purchasing it at a discount and reducing your risk a little bit. Not not you know, you still have if you are assigned the stock, you still have that stock risk, but it's a little less because you have the premium offset to a degree. Exactly.

So, well, Anne-Marie, this is, again, it's always fascinating as you go through your charts and look at these different levels, the way you approach it and everything. I'm a caveman. Yeah.

Yeah. And there's a I think there's value to looking at the picture. Exactly. You know, for folks that, you know, don't know. I mean, it's not like you're a simplistic person. I mean, you studied neuroscience. It's not like one of those things where you were you were you were doing the the easy stuff. You were getting into the hard maths and everything for a lot of what you did. Yeah.

But you can go ahead and turn your screen off and we'll kind of wrap it up here. Any kind of final thoughts? Again, because we covered a lot. We covered sector rotations. We covered these call walls. We covered iron condors, put spreads, cash secured puts, a lot of different ways to kind of approach this. But at the end of the day,

you're kind of saying, okay, beware of breakouts and really kind of identify those levels of where you can pick stock up at a, I don't want to say like a reasonable price, but at a level that makes sense with more potential upside. To everyone else participating. Yes, exactly. And so one of the big things we do is we go, oh, I don't know if it'll hold.

I don't know if it'll hold. Well, the simple thing would be saying, hey, listen, if I see resistance and it comes over as support, I'm going to anticipate that it will hold. But what I clearly know is my risk. And if it doesn't hold, it is going to break 170. And if I can't handle 170, then I need to size down.

And if it hits the level, you're out and you're done. But these levels of support and resistance, all they're telling us is, listen, this is where everybody decided to buy. They might change their mind in the future, but last time, this is what they said. And so we just have to go from that because, you know, we don't have any crystal balls or magic eight balls or whatever it is we might use. And, of course, past performance does not necessarily equal future results. Exactly.

It's what we have to go by. And it's amazing how a lot of times those levels, you know, whether it's the psychological round numbers, you know, 100 or what have you, or those levels where people have anchored to previously. Okay. It hit its head up here a number of times.

it'll probably do that again. And so until you see that change, you've got a kind of a roadmap. And I love the way that you use the pictures to kind of show that and, and, you know, use that as a proof point. So thank you very much for sharing that with our listeners as always. For those, again, that haven't read Anne-Marie's work, you can find it on Fridays. You,

really kind of digging deep. And I love that you go through multiple scenarios with, okay, if it does this, I'm going to do this. If it does this, then I'm going to do this. So you know exactly how you're going to handle each trade before you go in. I think it's a very useful thing for traders to look at and really kind of learn from those articles that you write on Friday. So I hope people check that out. And also check out your ex. You do some posting. That's at emerytrades, right? Yeah.

That's correct. That's great. Wonderful to have you, Anne-Marie, as always. Thank you so much for coming on. It's my pleasure. I enjoyed spending time with you, Justin. Okay, that's going to wrap it up for our show this week.

And again, remember, we're live on Wednesdays. You can always go to our YouTube channel. Check us out there. If you go to investors.com slash podcast, you can get us there. You can get us on whatever podcast platform you're using. We hope you join us next week. Next week, we're going to have a new guest on. Laosh Makulka. I practiced that, I promise.

But Laosh is going to be on. He is actually in the investing championship right now, the U.S. investing championship. And he's looking pretty good. One of the more competitive players in there on the leaderboard. So we're going to kind of get a little sense of how he's been doing that this year for the U.S. investing championship. And it'll be a pleasure to talk with him. So Laosh.

We hope that you join us for that. Get his thoughts on how he uses the IBD methodology to really do very well in that U.S. investing championship. Hope you join us and we will see you all next week. Take care now.