Ep. 312 Use These Professional Grade Defensive Strategies To Navigate Market Jitters
52:39 Share

This IBD podcast is brought to you by Directions Daily Leveraged and Inverse ETFs. Whether you are a bull or a bear, you choose the direction. Visit direction.com.

Investing in the funds involves significant risk and should only be utilized by investors who understand the impact of leverage and actively monitor their portfolio. They are not designed to track the underlying index for more than a day. Before investing, carefully consider a fund's investment objectives, risks, charges, and expenses contained in the prospectus available at direction.com. Read carefully. Distributor, Alps Distributors, Inc.

Hello and welcome to another episode of the Investing with IBD podcast. It's Justin Nielsen here, your host. It is March 19th, 2025, and we are coming to you live at 5 p.m. Eastern as we typically do on Wednesdays. And it's a pleasure for me to be joined by a new guest today. We've got Joe Mazzola. He is from Charles Schwab. He is the head trading and derivative strategist there.

And it's your first time on the show, so so glad you could be with us here today. And we picked a Fed Day for you, so we could just really kind of test how things are going. Hey, Justin, thanks for having me, and a pleasure to be with you and all of your viewers here. Yeah, so Joe, just since, again, this is your first time on the podcast, why don't you give people a little bit of a background and a little bit of what does it mean to be the head...

head trading and derivatives strategist at Charles Schwab. Yeah, you bet. So...

Our trader group is basically made up of, as you would imagine, stocks, futures, derivatives, right, in terms of options. My background, about 25 years ago, I was a market maker in Chicago. The Chicago Board of Options Exchange was kind of how I made my way in the business and kind of grew from there. Worked for a company called Thinkorswim a while ago that ended up getting bought out by TD Ameritrade, which ended up

you know, becoming part of Charles Schwab. And so what I do here is we really develop a lot of the educational content, a lot of the strategy-based, any of the articles and any of the videos and things like that that we use to help

our clients feel more confident and competent in terms of their trading strategies. And like I said, that runs the full gamut from stock trading all the way to options, futures, and even Forex. And, you know, since you have this background and you've

you know, very familiar with derivatives and everything like that. How, how would you say that kind of helps you with stock trading? Because I think there are a lot of ways in which you can use derivatives and the trading there to better inform what's happening in the stock market. How are you using that?

So the way I actually use options is a way to kind of get in and get out of equity positions, right? I actually treat options differently amongst the accounts. So if you're talking about a margin account, I'm probably a bit more active in terms of how I trade the options. You know, buying and selling, I'll do a lot of spreads. But when it comes to something like an IRA account where I tend to be a little bit more conservative, I mean, Justin, I sell puts as a way to buy stock.

Once I take delivery of those shares, if I take delivery of those shares, then I'll use a cover call strategy. Once I think that they're fully priced, I'll use that as a way to exit. It seems boring, but it's a way to generate income. It's a way to give yourself an opportunity to buy stock at a discount by selling puts, and it gives you the opportunity to generate income while you're looking to maybe exit those positions by selling the cover calls.

Like I said, I know it sounds boring, but sometimes boring is good when it comes to trading. Yeah.

Yeah. And you know what? I should disclose that I do have a relationship with Charles Schwab. I do have my – I have two – actually, four IRAs, two traditional, two Roth, and that's because I use the backdoor Roth strategy that Charles Schwab allows me to do. And then I do have a margin account with Schwab as well. And that's where I kind of do a little bit more of dabbling with futures and things like that typically in that margin account. But yeah, usually I'm –

I don't want too much excitement in my Roth IRA. That's where I do most of my trading because, I mean, why not take advantage of the tax-deferred strategy? Or not tax-deferred, tax-advantaged, I should say. Tax-advantaged, yeah. So, yeah, maybe you could describe this a little bit more because we do have at investors.com, we do have an options column. And Gavin McMaster, who is our...

One of our freelance writers for us, he does talk about selling puts as a way to either generate income or get stocks at a discount or sometimes as a repair strategy. And I know that was something that you talk a little bit about as well.

Well, I mean, let's just look at the market environment right now. You get a 10% pullback in the S&P 500. And Justin, I look at it like this. You walk into an apartment store and, you know, do you want to go to look for a suit on the sales rack or do you want to go pay full price, right? And if you have the opportunity to go get it at a discount, right?

and actually collect money. See, that to me is the biggest takeaway. Sometimes we think about, okay, well, if I put a limit order out there, 5%, 10% below where the market is currently trading, a limit order, a good till cancel to buy it if it pulls back, you're not getting paid to put that order out there. If anything, you're tying up buying power, you're tying up margin to buy those shares, and you might not ever get a chance to have the stock pull back. However,

If you start incorporating a strategy where you sell a put, whether it's cash secured in an IRA or something like, you know, just a regular short put in a margin account, you know, it gives you an opportunity to maybe optimize that outlay of capital a little bit better because you are collecting a premium. You are collecting a credit while you're waiting for that stock to pull back. And I mean, look, for the last two years, we haven't had much of a pullback. We started a little bit. Maybe it started a little bit back in July when you started to see

some of the underperformance of some of the big mega caps. And that's really kind of carried forward into what we've seen so far in 2025. Now, you might have some of your viewers who have been waiting for the opportunity to buy some of those mega caps at much lower prices. Well, when you think about the fact that five of the seven of the MAG-7 are in bear territory, where they pulled back 20% from their high,

They're getting that opportunity now. It's just a matter of how do you want to accumulate those shares? Do you want to go out there and buy them in the open market, or do you want to use something like a cash-secured put strategy as a way to potentially buy those shares at a discount?

Yeah. And I guess, Joe, I'll be honest with you. One of the things that I think sometimes happens is, again, I'm with you there. Why not get income while you're waiting or, again, get the stock at a discount? But I guess the one scenario that I sometimes struggle with is when a stock comes down in a big way, then it's kind of like, oh, now I don't want it anymore. Right.

So I got it at a discount, but I don't want it anymore. So what do you do in that situation where it comes down either a lot more deeper, faster, almost like in a broken way? So I think rule number one has to be this.

Is it a stock that you want to own? Right. And I know that sounds trite, but it's really true. When you are looking to incorporate the strategy, you've got to be comfortable owning the shares and you've got to be comfortable owning them at that strike. Now, there's plenty of times where some something maybe fundamentally changes with the company.

They lose a big customer or earnings come out and their guidance for the upcoming year changes. And that maybe changes your outlook for the company. But if it's just a matter of a pullback in the stock and fundamentally your outlook on that

and that company hasn't changed, then I think you really need to consider whether or not you want to take delivery of those shares. Now, there are other ways for you to kind of move things around and move them down. It's called rolling, right? I can always buy back that strike and then shift it out a month or two, roll it down a couple strikes. And if I can continue to do that at a credit or at least maybe even money where I'm buying one back for a couple bucks and selling it back at that same price, I think it's probably...

worth that consideration. What I don't like doing is paying a debit to roll something out because at that point now, what are you doing? You're paying money to extend for an extra 30 days risk or something. That doesn't make sense. That kind of kills the strategy right there. If you do take delivery of the shares,

One of the things that you were talking about is that stock repair strategy you kind of hinted at. And that is one way for people who start incorporating options into their portfolios. Let's say you bought 100 shares and now that stock's down maybe 10% from where you bought it. You can start incorporating stock repair strategies, which is basically –

It's a combination of a call vertical and then also a covered call. So it's like a ratio spread, right? You buy one slightly in the money call, you sell two out of the money calls. And what that does is it helps lower that break even of where you purchase those shares at.

So if the stock rallies, not only do you have the potential to make money on the rally from the shares, but then that call spread that you bought can expand in value as well, too. And that helps you recoup some of those losses. So there's a lot of different ways that you can add derivatives. And when I think back to the beginning of my career, that's why I got so interested in options is because literally of all the different myriads of choices that you can use in your portfolio. A lot of options.

There you go.

Do you do a shift in strategy or do you kind of back away and wait for the dust to settle? I mean, I would imagine that you're getting maybe a higher premium because the implied volatility has risen in a number of options. But what's your strategy when the market pulls back like this? So once again, I think it depends on the account, right? For an IRA account, more often than not, I'm not putting on bearish strategies just because, I mean, if you look at...

If you look at over time, right, I think 65, 70 percent of the time the market rallies. Right. So, you know, you don't want to be counter trend. Now, you know, we do have different short term, intermediate term trends where, you know, the things that things have shifted. But in an IRA account, like I said, to me, it's mostly just kind of using puts as a way to get in and selling calls as a way to get out. Now, you can hedge.

Right. Like you can buy you could buy puts against an IRA account or you can buy puts in an IRA account to hedge against the portfolio. I think that's a fair way to do it. Otherwise, if you're in something like a margin account,

And what you're kind of seeing right now is interesting because you've had that pullback, you've had the correction, and now you're looking at different levels in the market where there might start, you might start to see, you know, some weakness, right? I mean, we've seen the weakness, but on a rally back, where do people start selling shares? This is a question that we haven't asked in a long time, right? Because when you have two years of 20% plus gains, you don't really start thinking about where are people going to start liquidating because you haven't had to think about that.

But what's interesting about this market, when you do get that pullback and if you start rallying back, I think one of the risks of this rally, if you do start to see some consecutive days here, is there are going to be levels where you might start to see market participants start to sell. And if you are somebody who's incorporating options,

You could do something like sell a call spread or buy a put spread if you think that the rally might get exhausted or if you think that it's just a short-term dead cap bounce. I'm not positive that that's the case right now. I don't think that we've seen enough data to suggest that. One of the things that I would look at, and you're looking at the NASDAQ right now,

is if we start to approach that 200-day moving average again, right? Is it going to go up and through, or are we looking at something like, you know, that could be like a bear flag, right, where it starts to get back up there, and then if it doesn't, if it fails, what happens? And then there's probably some more room to the downside. So it's going to be interesting to kind of see,

how the technicals kind of set up against, um, you know, some of the things that I follow, which as you mentioned is, you know, some of the things like volatility indicators, uh, we've seen a few things on the volatility side that tell me that maybe some of the selling is getting exhausted a little bit. You know, we saw the VIX come back down from high twenties, uh, down to about 20 today. We've seen something called the VVIX, uh,

which is basically the volatility of the volatility, that's gotten back down to 100. And what that means in layman's terms is for volatility traders,

They're thinking right now that the chances of really big moves, like out on what we call the tails, right, you know, the 5% chance here, the 5% chance there, they're not expecting those big moves as much as they were a couple weeks ago. They're expecting things to maybe settle down a little bit. So when you see things like that happen, that maybe tells you that there's, you know, the market is kind of maybe settling in for a little bit, maybe consolidating a little bit before it makes its next move, whether that's up or down, you know, time will tell. Yeah.

And you mentioned that there are a few levels and we'll get a little bit more into the markets and the Fed day and some stocks later. But since you mentioned it, I want to just kind of make sure that people understand what kind of levels are you talking about? You mentioned the 200-day moving average line here on the NASDAQ. Do you prefer the NASDAQ or the S&P 500 in terms of what you're looking at the most?

You know, to be honest with you, I think it depends on your portfolio. I probably look at the S&P 500 a little bit more than I do the NASDAQ. But I think because of the fact that, you know, the MAG 7 has moved the market as much as it has, I think you probably need to look at both. But looking at the S&P right now, I think it's really interesting because not only, you know, do you see that we're trying to rally back off that 5,500 level back towards that 200-day moving average that you see there.

But what's interesting is, and this kind of goes back to option theory a little bit, there's something called open interest. And that is where you have levels where there's a lot of open positions, whether they're short a lot of calls or long a lot of calls, short a lot of puts or long a lot of puts. And as an options trader, I tend to look at those as a short-term signal. So the end of March, March expiration,

for the quarterly cycle is March 31st. And where you see a good amount of open interest on those strikes is right around 57.50 on the call side and right around 56.25 on the put side. So what that could mean is something like this. It could mean that you see...

The S&P kind of stayed within that range all the way through to the end of the month. Now, what's interesting is if it can kind of get through those levels, whether it's to the upside or the downside, you might see that move start to exacerbate a little bit as some of the option traders kind of hedge some of those positions.

And this hasn't been something that we've talked a lot about over the last years or so. But in the last couple years, the last one or two years, as kind of that zero DTE, right, the short-term option training has become much more prevalent. These are some things that I think your viewers should be paying a little bit more attention to now is some of the things like open interest.

Yeah. Well, and how much is – this is a question that I've asked of John Najarian, who's kind of pounded the table a little bit on how Zero DTE has maybe skewed some of the VIX readings since it's not included in VIX readings. What is your take on –

Is it skewing that open interest? Is it providing more liquidity? Some would argue that that's a good thing. You're getting better spreads because there's just more participants in there, whether it's short term or not. What's kind of your take on that? I think the biggest thing that it's done is it's provided, as you talk about, more liquidity, but also shorter term hedges or shorter term movements for participants. In essence, what you used to have to do in the past is you would hold a position for weeks, if not months, if you wanted to hedge more.

for some type of event risk, right? And, you know, as we know, we've had quite a few event risks over the last couple weeks or so, you know, whether or not they've turned into real risk or not, or whether or not it's just kind of, you know, talk. The market's been moving off that. And so there has been some of that event risk. And so what

So participants have the option or the choice now is they can do a very short time frame in terms of where they want to kind of hedge that, as opposed to in the past where they would have to go out further in time, which would affect the VIX more than it does right now. So I think, you know, I think there's some truth to that and to what John was saying. But I also think that such things as like, you know, the ETFs, the short vol ETFs. I mean, there's a lot of different things that have kind of maybe skewed some of that some of that volatility regime that we've seen as of late.

This IBD podcast is brought to you by Directions Daily Leveraged and Inverse ETFs. Whether you are a bull or a bear, you choose the direction. Visit direction.com.

Investing in the funds involves significant risk and should only be utilized by investors who understand the impact of leverage and actively monitor their portfolio. They are not designed to track the underlying index for more than a day. Before investing, carefully consider a fund's investment objectives, risks, charges, and expenses contained in the prospectus available at direction.com. Read carefully. Distributor, Alps Distributors, Inc.

Yeah. And, you know, you mentioned some kind of sentiment, you know, and again, kind of getting a sense of where market participants are thinking, how the mood has changed. And I want to kind of transition into that a little bit, if you don't mind, Joe, because I think you have a lot of things that you have at your disposal to look at. So maybe you could share some of the ways in which you get a gauge of

What is the sentiment overall, and how much of that are you using as contrarian indicators? You know, a capitulation, you know, people are just too bearish. And we certainly have seen that recently if you're looking at investors' intelligence. I mean, this was, I feel like, one of the quickest turns to bearishness that I've seen in a very long time. So what are you using, and how do you use it?

So at Charles Schwab, we actually release a report on a monthly basis. It's called the STAX, the Schwab Trading Activity Index. And you can access that. Just go to CharlesSchwab.com forward slash STAX, S-T-A-X. It's free. You don't need to be a client to access it. But what it does is it gives us a behavioral sentiment indicator. So we have about 35 million accounts here at Schwab. And what we do is we take a sample of those accounts.

And we look at the behavior and we democratize it. So an account that has two thousand dollars is the same as the account that has two million. And what we do is we look at buys versus sells. And, you know, we we kind of aggregate that and say, OK, were there more buys versus sells on a monthly basis? What were the top five buys? What were the top five sells?

you know, what weeks did we see some of this activity really start to pick up? And what we found in February, and this is what's really interesting in my mind, is that there were more buys than sells, basically two to one. But,

The dollar value of the sales exceeded buys. And what that really means and how that translates is this. The smaller accounts were debt buyers. Larger accounts used, you know, used rallies as an opportunity to kind of de-risk. And I know it seems like it was forever ago, but just remember, it was just a month ago that we set an all time high on February 19th.

And here's a little tidbit for you. My colleague Lizanne pointed out in her most recent article that if you go back to 2020, right before COVID, February 19th was the high of the market at that year. So I don't know. We'll see. But what's interesting is that

like, like I said, you saw some of the smaller accounts really try to buy the dip on that pullback where the larger, larger accounts, uh, were really starting to liquidate. And, you know, nine of the 11 sectors that we follow actually saw, um, a decrease in, in terms of the dollar amount being allocated towards those sectors. The only two that actually saw, um, inflows were financials and materials. And now if you're looking at kind of, you know, what sector flows are showing. And one of the ways that I look at that, uh,

Justin, is through breadth indicators, right? So percentages of stocks above the 50-day moving average. You can look at that on the S&P 500. You can look at that on basically any index. But you can also, interestingly enough, kind of see that at the sector level as well, too. And what I find interesting is the sectors that are kind of leading the way right now, they're not exactly the soldiers that you want or the generals that you want leading the army. You're looking at utilities, real estate, staples. I mean, these aren't

These aren't sectors that you consider your high-growth sectors. And you know what none of those have in common? None of them have the MAG-7 because the MAG-7, they're tied up in discretionaries, they're tied up in communication services, and they're tied up in technology. And those three are some of the sectors that have the lowest market breadth just because of what you've seen, some of the technical damage that's been done.

And it's also worth mentioning that as opposed to the ones that you just mentioned, XLK, XLC, the tech and communication services, XLY, the consumer discretionary, not only is that where you find the Mag7, but that's where...

the MAG7 dominates. You know, you have 40% of the ETF is in two MAG7 stocks, you know, in all of those cases. So certainly something to just be aware of. But yeah, as you mentioned, you know, one of the things on, you know, utilities, for instance, as you said, not necessarily the general you want leading, but this relative strength line, this is just

XLU versus the S&P 500 when it's going up it means it's outperforming and it doesn't need to go up in price it just needs to do better than the S&P 500 and that's what we've been seeing lately but

But I guess the other part here is with all this kind of defensiveness, what a lot of people kind of wonder about is... And we see this sometimes. We were seeing it on a daily basis to a degree. It was like, oh, the market's doing well, and...

the money kind of comes out of the utilities and the defensive areas, the XLPs, the staples. And then it kind of, you have a bad day in the market and it rushes back there. So it was a really kind of, you know, just going back to the NASDAQ, for instance, you had a lot of these very strong days followed by very weak days. It was kind of like,

very difficult to make sense, header tails. And granted, it's been a market where news has been driving a lot of this, tariff, for instance. But when it's kind of that, a lot of price discovery, I guess, a lot of

uncertainty one day up one day down uh does that kind of change your your strategy at all do you just i mean for me a lot of times i'm just like okay i'm i'm gonna back away and stay in cash until i can figure out what's happening um but what what's kind of your take so it it's really hard right now to kind of guess where the market's heading and here's the reason why we have um

I'm sure you've seen these things like called sector quilts, right? Where, you know, you go to like an asset manager and they'll show you, okay, well, here is the year where bonds outperformed or here's a year where commodities outperformed and they have the different colored boxes and, you know, we call them quilts, whatever. Well, we run the same thing on a weekly basis for the sectors. And what we've seen, I mean, and this is wild, Justin, like basically since the beginning of the year, um,

The sector that's outperformed has been health care on a weekly basis, but it's never been number one. The highest it's been is number three or number four on a weekly basis, but it's the number one overall performer in terms of the first three months here.

which is really interesting because, you know, you've seen technology be number one one week. You've seen financials be number one another week. You've seen utilities be number one another week. But there's been so much volatility in terms of that performance that, you know, it's really hard to pick a sector with a lot of certainty right now. What I would suggest is this, and here's, you know, how I would look at the market. I think one of the reasons that you're seeing

maybe some of the outperformance in utilities, real estate, and staples right now is because you've seen interest rates pull back. You know, we were at 4.8%. Now we're back down to, you know, sub 4.2 or 4.2, I guess. And we're looking at the utilities basically are interest rate sensitive. Real estate's interest rate sensitive. And in terms of the staples, right, you know, those tend to be high dividend-paying stocks. So, you know, dividends tend to perform better.

outperform when interest rates are coming down because there's not as much competition for the dividend yields at that point. So

I think that's part of it. I think also, as you mentioned, there's a defensive lean as well to it as we're trying to kind of figure out, you know, what trade policy will mean for industrials. And because they've taken it on the chin, discretionaries, you know, they've taken it on the chin. You know, so I think the market's really just trying to figure out kind of what's going to outperform going forward, right?

And when it comes to that, you know, it's hard enough just to kind of think of it from a fundamental standpoint. But at that point, sometimes it's helpful just kind of go into the charts and seeing, as you mentioned, you know, the relative strength, I think is a great way to look at that. And if you're starting to see that, you know, OK, well, what are maybe some of the stocks that are outperforming within some of those sectors? It doesn't mean that those are the ones that you own by themselves, but maybe you start allocating a little bit more towards some of those outperforming sectors.

I also want to mention one other thing that you and I talked about, Joe, is kind of looking at the commodities and the commitment of traders. For some of our podcast listeners that have been with us for a while, you might remember Jason Shapiro, who is one of the market wizards that we've had on the show. He really looks at this and slices and dices the data. So you kind of look at that as well. And what...

How are you using the commitment of traders to kind of give you information about what's happening in the overall market? Well, so when the market is strong and there's a lot of bullish breadth to it, what you'll tend to see is the CTAs or, you know, as you mentioned, the commodity of traders or the commitment of traders, excuse me, they'll be long, you know, equity futures, right? So you'll see something like the E-minis show a lot of strength. Well, right now we're seeing positions that are showing short NASDAQ futures, short equity futures.

And they're moving more towards commodities. You're seeing outperformance from gold. You're seeing outperformance from silver. And a lot of the base metals are doing well. And so when you start seeing those shifts, same thing you're seeing in fixed income as well, too. When you're starting to see some of those shifts,

You know, you you want to see institutional money kind of flowing into the sectors of the markets that that you're participating in. Right. I mean, you know, that that that tide tends to lift all ships. Well, if that tide is flowing out, you know, that that's going to it's going to hurt, you know, the potential for some of these stocks to kind of go up now.

You know, there is a you can look at that from the standpoint of, OK, well, if everybody's short. Right. And then you get something as bullish. You can see a snapback pretty quickly. And we've seen that. Right. We've seen that where you've had a two percent up day when, you know, there was a lot of short futures out there. And then you get a positive report or report that's maybe not as negative from what we saw with the unemployment back on Friday.

where or two Fridays ago where you got that snapback rally fairly quickly because, you know, the unemployment data came out better than expected. So, you know, it does work two ways. I tend to follow it just to kind of keep it. It's not the one thing I trade off of, but it's something that kind of gives me a little bit more background in terms of maybe what some of the institutions are doing. This IBD podcast is brought to you by Directions Daily Leveraged and Inverse ETFs. Whether you are a bull or a bear, you choose the direction. Visit Direction.com.

Yeah.

Well, Joe, I think it's time to kind of transition to, since you brought up jobs, that kind of brings up economic reports. And certainly one of the things that has been on folks' mind this week is a Fed meeting. So it really kind of seems like after this – well, it seemed like –

Every Fed meeting was or every CPI report was the most important data item in the world for a while there. And then after September, once we got that first 50 basis points, it just seemed like it was like, oh, OK, we're back to normal. It's not it's not a big deal.

Then December 18th happened. And it was kind of like that was that was a big shock. You know, and again, I don't think anyone was shocked at the action. It was just some of the words that were maybe used, some of the uncertainty at the time. So can you contrast that with maybe the Fed, the Fed meeting that we had today and what what Powell was saying? Yeah, maybe a little bit more reassuring.

Yeah. So, you know, a couple of things happened today. I think, you know, Powell was a little bit careful in kind of guiding investors to say, look, he doesn't see a recession around the corner. And so I think that that helped calm some fears because...

We've kind of transitioned from this backdrop of inflation being the primary driver to, you know, what the markets are concerned about now to being slower growth and, you know, even potential stagflation, right, where you have almost zero growth, but yet you continue to see, excuse me, my earpiece.

But yet you continue to see, you know, inflation hold firm. And I think that that's the concern is that, you know, from the whether it's the Atlanta Fed GDP now showing that negative two percent expectations for current quarterly growth or some of maybe some of the hard data that we've seen recently that that's clearly showing a slowdown. You know, that's the biggest thing that the market's worried about right now. Now, of course, you know, tariff and trade policy, you can.

You can plug that in there as well, too, because we don't know what the ramifications will be with that and whether or not that will continue to affect growth. But when the market has pivoted to this fear of economic slowdown,

And it happened so quickly that, you know, Powell coming out today and saying that's not something that he sees. Plus, he's saying, and this is what I thought was interesting, he used the transitory word again today. Boy, oh boy, Justin. You know, it's got some negative connotations there. It sure does. And it did not work out well last time that he used it. So shocked to see that he used that one again. But, yeah, he sees the impact of tariffs on consumer prices to be transitory.

So who knows what that'll mean. But, you know, they also mentioned that they're going to slow down their path of, you know, reducing their balance sheet, which, you know, which is dovish, I guess, for the market. So the market responded well to that. I think it was more of a...

I don't think it was anything that he said that was extremely positive, whereas it wasn't as negative as maybe the market had been pricing in. Yeah. And to that end, so this is something that I think we all know happens a lot. It's a little tough sometimes because by the time the press conference is over, the market closes shortly after. And so there's kind of like this pent up like, oh, let's slice and dice his words every which way.

The algos kind of have first crack at it. Sure do. They look at stuff and then, you know, cooler heads start looking at it and there's often a different interpretation the next day. So we'll certainly see what happens tomorrow. But what's kind of your take right now in terms of

Does this do anything for a change in the market? Or is it kind of like we're still in that wait and see mode? As you mentioned, are we still just waiting to see if it gets above those levels, the 200 day? Or does it start cracking below here? You mentioned on the S&P 500 how important that 5500 level is. And I mean, if you just go to the left here, you can kind of see that this was an important area previously too. So I guess, does this change anything for you?

the Fed's stance? I think it took a little bit of maybe some of the pressure off the market today. And I say that because you saw the VIX come down and it continues to come down. Like I said, it was 29 last week. So we'll go to 29 down to 20. I think, if anything, the market just took a deep breath and just a sigh. But

But I didn't hear anything from Powell other than they're going to monitor and keep an eye on things. And if you look at maybe the probabilities of them making a move, they're still, in terms of the summary of economic projections, the dot plot, still pricing in two. And I think that there's a hope that there might be a third. But I always say this, and this brings me back to last year's, right, when we were 23 going into 24.

And everybody was predicting seven rate cuts. And when I said, you know, what I said at that time was this, careful what you wish for. What do you think seven rate cuts is going to connote, right? It means that there's problems. Yeah, it means that there's big problems. You don't want seven rate cuts, right? I never understood that. And, you know, sure enough, we didn't get them. But, you know, I think two is probably a likely scenario. And I think that the markets were, you know, kind of discounting that. And like I said, you know, when...

When Powell is very measured with his speech, he knows that his words have a lot of power. And so when he was able to kind of calm the market down, like I said, there was a kind of a collective sigh of relief. Whether or not that carries forward, you know, time will tell on that one. But anyway.

It'll be interesting to kind of see because I think at least through the end of the week, I don't think there's anything that's particularly market moving outside of that Fed announcement in terms of kind of a macroeconomic data that we need to kind of keep an eye on. But

It'll be interesting just to see as we kind of go forward, as we head towards that tariff date in early April, how markets respond to the news flashes as they come across. Yeah. And it certainly seems, again, there was such a wide disconnect between what the market was pricing in for a while there. As you said, seven and – or even when. For a long time, it was, oh, it's going to happen at the end of this. And it just kept on getting pushed when the cuts were going to start to happen again.

So do you feel like it's the market and or the market has kind of gotten back on the Fed side? Like, oh, yeah, we're kind of agreeing with your dot plot now as opposed to these very different expectations. Yeah, I haven't I haven't seen the the latest CME Fed watch, but I know coming into today was around 60 percent chance of a rate cut in June or into July. So.

I think the expectations, you're not going to see anything the first half of the year, but you might get one in June, maybe one in December, and there's your two. But a lot of it's going to depend upon kind of how the markets and the economy digest what happens in the next couple months. And I think Powell made that pretty clear, is that they're in a wait-and-see situation.

And one of the things that, like I said, I thought was really interesting is that he chose to use that word transitory again because he believes, or at least the Fed believes, that the tariffs might have a one-year effect.

But some of that, you know, some of that will kind of roll off as you get into the second year as prices adjust. Time will tell on that one, I guess. Yeah. I want to kind of shift over a little bit to some stocks. And because, of course, now the question is, OK, in this type of market environment, you've had the generals of utilities leading and everything. Yeah.

You gave me some stocks that were looking interesting to you, and I'm going to start with Monster Beverage. Of course, for those that remember 15 or so years ago when this was Hanson Natural, again, until they came out with the most unnatural drink ever. I said there's nothing natural about that, right? Exactly. So this had just a phenomenal move, and it's kind of fallen off the radar to a degree, but this is one of the few stocks that is...

Like, what correction? So what is it that you like about this one? So when you're looking at – when I start to look at stocks, like I said, I do kind of a top-down approach, right? You know, is this the type of company that could be affected by interest rates?

Probably not, right? I mean, it's basically a staple. And, you know, we know that people are drinking energy drinks, whether it's this or whether it's Celsius. You know, those are the two of the things that, you know, they're competing companies. But at the same time, when I look at the charts on this one and when I see that money is moving into that sector, I want to see one of two things. I'm looking for a stock that's polarizing.

pulling back towards a bounce area or I want to look at a stock that could be breaking out from a range in terms of if I'm taking a bullish position. This one looks like it has the potential to maybe breaking out. And maybe you wait on this one until you get that confirmation signal. But as you see...

It's getting pretty darn close. If you do get that breakout and you can see the relative strength, it's definitely outperforming. If you do get this breakout, it looks like there's some room for this thing to potentially run. That's kind of how I'm looking at that from a chart perspective.

Like I said, what did I do? I started off by kind of looking at the sector and say, okay, well, there's definitely outperformance in this sector right now. You see the relative strength there on the stock, and then you see that it is starting to form what could potentially be a bull flag if it does break out in this. And if that's the case, it has the potential to have some room to run to the upside. And so then how do you play it with your typical strategies, typically?

Yeah. So, you know, there's a couple different ways to do this. If you were looking at this from a stock perspective, you'd probably wait for it to break out above the high that you saw back at the beginning of March there. Or you can go back to that 56, 70 level. Yeah. If it breaks out of there, that could be a good entry signal. The other thing is you could use something like called the call spread. Right. If you're going to use an options, you know, buying something like an at the money option, like a

a 55 option and selling something like a 60 or 65 option. This is how I play debit spreads when I'm looking for a call vertical. I buy where it's at and I sell where I think it might be headed. And that's kind of how I was taught how to trade long debit spreads.

especially like a call vertical like this. You want to buy where it's at right now. You want to sell where you think it's going because if that's the case, if it does move to that, then it expands to its widest value. And you're also looking for a certain return on your risk too, right? If I'm paying $2 for this and I'm trying to probably look for a three to one, where a $2 spread, excuse me,

could expand to a value of $6 if I'm right on this. And, you know, if I'm going from 55 up to 60, that's $5 wide, or that's five bucks, so that's pretty darn close to that. And that's, you know, that's how I would be looking at kind of measuring this thing. Yeah, no, that's great. And another one that you gave me, and if you want to...

throw anything else in there feel free but here's one of those utility stocks XEL XEL Energy not sure how that's pronounced XEL the symbol is good enough for folks to find it but another one where relative strength is not looking bad at all and whereas so many stocks as you mentioned are below their 50 day moving average lines

This one came down, tested it, and found support. And so this is the opposite, right? The other one was a breakout. This is the pullback, you know, back towards that support line. Now, what I would look for on this one would be a close above the high of that low day, right? So...

You know, we've already started to get that if we can start to get a bounce. And this is this might be one where, you know, maybe you're looking to sell a put because the implied volatility. Well, it's still kind of relatively low. You're not let you're not at a breakout level where you're really trying to chase the upside. Maybe this is something where you're saying, hey, I think this thing could get back up above those levels.

of the 72.70 or the 73.38 that you saw before. And I wouldn't mind owning it around $70 and looking for an opportunity should it settle around this price. Maybe you sell it at the money put. If it settles below 70 at expiration, now you can take delivery of 100 shares of that stock. If it settles below there at expiration at $70, you got $7,000 now into that position. And if it does start to rally back, it

This is not showing like this is taking off, whereas Monster looked like it was kind of moving and had the potential to kind of break out. This looks like it's something that, you know, has tested that level twice, kind of pulled back, found some support around that 50-day. If it does move back up and you do take delivery of those shares, your entry is actually $70 minus the credit you would collect for selling that put. And that's a different way for you to kind of look at entry into this position.

So you're doing a really great job in terms of getting into the technical analysis. But one of the things I didn't ask you about is do you put fundamentals into this at all? Oh, absolutely. Certainly with utilities, I mean, it's a little bit tougher with cyclical type things. I mean, the last quarter of earnings and sales, not huge growth here. We have a negative 2% on the earnings, negative 9% on the sales.

And look, it's not that far off from the usual. So how do you kind of put that in? Again, do you kind of forgive the cyclicals because you know that it's not going to be as much of an issue? You're really kind of doing the sector play there. Or how are you using fundamentals? Yeah, I mean, for utilities, you're not looking for it to be a growth engine, right? I mean, you're looking, if anything, you're looking to see, okay, well, what is it?

What's the stability here? You know, look, utilities were hot for a while and there were growth stocks in the utilities. They were all the nuclear stocks that, you know, that did go nuclear before they all pulled back. So we call them AI adjacent. AI adjacent, right. Or AI ancillary. Yeah, exactly. Same thing. So, yeah. So, you know, there are ways for you to kind of play that. Yeah. But you always want to keep an eye on the fundamentals. Absolutely. For sure. Especially if this is something that's going to be a longer term hold in your portfolio. Something that, you know, you do want to keep an eye on for sure.

Yeah. So, you know, when we were talking about the sectors and we were talking about how, you know, certainly XLK, XLY, XLC are all dominated by two stocks. Well, the other one that's kind of dominated by two stocks is XLE, and that's Chevron and ExxonMobil, you know, accounting for 40% of XLE. And here we have Chevron, CVX, really, again, looking very different from the market. Relative strength looking very different from the market. Oil

Oil and gas is a tough business to kind of play sometimes because there's so many cross currents. So how do you kind of use options in something like Chevron, an oil and gas area, to maybe minimize some of those cross currents that you might face?

Yeah, so this would be one of those opportunities. And this is what's interesting is Chevron's kind of bucking the trend in terms of what you're seeing in terms of gasoline futures and oil futures, right? I mean, they've had a rough go last couple of months, but it is bucking the trend and it's pushing back up towards those highs. And it looks like it's pretty darn close to breaking out. This might be one of those choices where, you know, I want to say one of those options, right?

where you look at doing something like a leap option, where you're taking a longer-term view on this. You go out maybe about nine months, and you look to buy either at the money or slightly in the money leap option on maybe the January 2026 or something a little bit earlier. But leap options...

typically mean 270 days or more. And you're doing this because you believe in the longer-term prospects of it, but you don't want to pay the $164 for the stock right now. Because you do that on 100 shares, that's $16,400.

But if you can go out and use a leap option as a way to kind of replicate having something similar or simulate having something similar to that long equity position, now you have the ability to play the upside should the stock continue to break out. And it gives you more time.

to kind of wait for that breakout to occur. And here's, Justin, I think this is an important takeaway. When you're selling options, you want to kind of stick towards a short-term horizon, you know, anywhere between maybe 20 to 40, 20 to 50 days. When you're buying options, give yourself time. Because, you know, time decay is working against you. So, you know, extend it a little bit. Give yourself some time to see this position through.

And you can always make adjustments. That's the beauty of the options market. As long as the market's open, you can make adjustments on those. But this might be an opportunity to play a leap option in something like Chevron. Yeah, it's a good reminder. I mean, the theta is so – it just gets worse, right, as you get closer to that expiration. And so leap – and you know what? I'm struggling to even remember what it stands for. Long-term –

Anticipation? Yeah, exactly. You got it. I can't remember what the P is for. No, you got it. You got it. Anticipate product. It's been a while. I haven't traded a leap in a while. But yeah, so for those that aren't familiar, basically an option. You're giving yourself that gift of time. 270 days. Way in the future. Exactly.

Exactly. As you said, you would be looking at January 2026 in this case. So almost a full nine months out. And then I think you had one more. Was it CCI? Yeah. Crown Castle. Go ahead and walk us through your strategy here. Look at that. Again, not one of the generals you necessarily usually expect to be to be leading things. And I also wanted to ask you the same with the utility. Do you.

Do the yields ever come into play? You know, this has a 6% yield. Does that come into play at all? And how do you kind of determine the way you handle it with a yield? It does because you'd probably rather, you know, hold the stock for the dividend yield than you would actually own any option, right? Because remember, if you own a call option, you don't get the dividend. So I think that's important. That's a really important takeaway. And I'm glad you brought that up. But here's a stock that's trading 15 times forward earnings.

cheaper than the overall market, just broke up above its 200-day moving average, came back, tested it, and it's looking like it's trying to go back and move back up. And it's in a sector that has some relative strength to it. So, you know, you have a chance to collect that yield while you're starting to see

a breakout occur in the stock. And like I said, when it comes down to weighing your options, so to speak, you're not going to collect that dividend by holding the call option. So in this example, it might make more sense to look at the shares versus the call option.

Well, Joe, I got to say, that's been great having you on. As a first time guest, you passed with flying colors. So thank you so much for all of your insights. Really appreciate it. And I, again, loved hearing your thoughts on the Fed. Such an important kind of thing that we pay attention to. And as you said, there could be a lot of waiting and seeing still. But any final thoughts before you go?

You know, I guess this is my final takeaway, is that it's been a choppy month. But remember, guys.

This is think of think long term. Right. You can trade short term in the portfolio and you can use those short term positions as a way to maybe augment kind of your long term holdings. But don't let you know, don't let a one month kind of shake you out of, you know, what your long term positions are. You know, hold steady, hold fast and then, you know, use something like an option as a way to maybe augment some of those returns while you're waiting for the market to kind of recoup its footing.

Yeah. Well, again, so for folks that might want to follow kind of your thoughts on things, I know that you're on videos fairly frequently and also you are on X. So for folks that would like to get your handle, that's at Joe Mazzola, M-A-Z-Z-O-L-A-C-S. For Charles Schwab, of course. So C-S-S-O-L-A-C-S.

And they can follow you on X and see your content, right? Yeah, Justin, I appreciate it. And, yeah, I post a lot of option-related materials. I post a lot on technical analysis as well, too. And then every Wednesday and Friday, I actually put out an options market update report. And basically it looks at kind of unusual activity in the market. And then we do a lot. And then actually on Mondays, on Mondays, Justin, one of the highlights of my week is I get a chance to –

interview Lizanne Saunders every Monday at 12 Eastern, excuse me, 12 my time. So three o'clock Eastern. She has a show called Lizanne Live. It's on Schwab Coaching. So you can go check it out there. So appreciate it. Thanks for the plug. Thanks so much for coming on the show. Really appreciate it. All right. Have a great day.

You too. That's going to wrap it up for us this week. Thank you so much for watching. And I am going to be on vacation next week. I'm going to be bringing the family to Washington, D.C. My 10-year-old son is super excited about that. But never fear. We still have a podcast going on. Allie Corum, of course, she wears a lot of hats. Not everyone knows this, but we had our producer get sick today. And Allie is filling in as producer today. She's going to fill in as host next week.

Going to have Scott St. Clair on. He is our senior product coach, manager of the premium products at Investors Business Daily. So they're going to have a great conversation. So can't wait to watch that when I get back from vacation. But we will be live at five on Wednesday next week with Allie and Scott at 5 p.m. Eastern. So hope you tune in for that. Thanks a lot for watching. We'll see you next time. Bye bye now.

This IBD podcast is brought to you by Directions Daily Leveraged and Inverse ETFs. Whether you are a bull or a bear, you choose the direction. Visit direction.com.

Investing in the funds involves significant risk and should only be utilized by investors who understand the impact of leverage and actively monitor their portfolio. They are not designed to track the underlying index for more than a day. Before investing, carefully consider a fund's investment objectives, risks, charges, and expenses contained in the prospectus available at direction.com. Read carefully. Distributor, Alps Distributors, Inc.