Potential Bearish Trend Trades? | Technically Speaking: Trading the Trends | James Boyd | 4-2-20
Hello. And welcome to technically speaking on trading, the trends, weeks, to months my name is James Boyd today's. Date April, 2nd. Looks. Like we're good as far as sound, and video we'd like to welcome Sharon. Mike, George Dom Richard, Osborne, saw Michael. Bill, you did also get the participation award, yesterday, ok, /, pratik, we, welcome, you here as well all right little fun there so, just remember that you, can follow us on Twitter, and I'll mention that in just a moment about an announcement that we have for this Saturday want, to make sure you're aware of that also. Real quick you can follow any instructor. On Twitter you could just go to twitter.com typing. The instructor, you're looking for ken rose camera, May Pat Lally or myself James, Boyd, there's my handle also, just real quick remember if we talk about options here today remember. That options, are not suitable for all investors or, special risk inherited, trading options make, sure that you have read, the previously, provided copy of the characteristics, and risk of standardized. Options, also a quick reminder that the, paid money platform, is for, educational, purposes only we're going to be using that remember. That just because someone's, really good paper money trading doesn't. Necessarily mean in a real live. Situation, they, might, have. The same performance at, a later time period, also, remember when we talked about transaction. Costs we will state those when necessary and, also, when we talk about option, Greeks there's, the terminology, for the option Greece now, today, we're going to talk about market update marketers really struggled. Here about the last two days we'll, mention that we're. Going to talk about I've. Had a lot of questions, regarding. James. Wonder. If someone doesn't, think that the market is done going down how, can an investor maybe look to do a shorter. Term entry, in a, longer, term potential. Downward, trend we're, gonna spend some time looking at a couple stocks the, market, posture, as well with, why some individuals, might, be asking that question is there, opportunity, third. We're going to talk about some bullish examples, last week - this week we, talked about some bullish examples, how are they faring and also, what might be some other ones as well how, to learn outcome is to learn how to identify a, bearish, entry. In a. Downtrend. With, a target. Okay. Now, when, we bring up let's kind of take a look at a couple just. Real quick so. First, off when we take a look at let's say the I'm, gonna start. With. The doubt okay, and if you take a look at the Dow the. Here we're looking at the djx, okay. We're, taking a look at the. Just. The daily chart and you're, gonna notice that that shorter, term moving average the, red line it's. Down so it's kind of saying hey softening. Right price. Action wise today. Trying. To really stay up above okay. Trying. To really stay up above that 20-period, moving average having. A very difficult time staying up above that 20-period, moving average now. If you we look at the prior low right. The market, really went from about let's say 180 to went, up to about I don't know what was that 222, okay. Somewhere in that ballpark the. Idea is can the market flag. Now, here's the thing no, one knows if, it's. Gonna be a double, bottom no. One knows if it's going to be a higher low or a lower. Low right, it, takes, time, to see, where that's going to go in the, shorter term though kind. Of looks weaker, here as it's had the chance to bounce off that 20-period, moving average so. Far, not. Holding, very. Strong okay. Very. Weak price, action it's. Been President. Trump an announcement, on maybe, the co vid the, numbered s we. Had unemployment numbers, actually here today that we're really high also, we saw jobless.
Numbers Coming out unemployment, situation coming. Up tomorrow so kind, of seen some weaker economic data, that's, kind of not really given market participants, maybe a whole lot of bullish, optimism. Now when we take also take a look at let's say the SPX now, let's take a look at this on a weekly. Chart think, of this is what institutional. Investors look at well. If we take a look at what institutional, investors look at you. See that we're, kind of still on a weekly. Chart in this class trading trading, the trends weeks, to, months if, you, take a look at this we're, still seeing that it's in that red shade right. Longer-term. Kind. Of still seeing more of a bearish posture, longer. Term were not really seeing a crossover, not yet so. If we kind of go back to the daily chart what you'll notice is that was. A very, strong upward move in the short-term but, we. Need to recognize where. We are in that bigger picture which, is still kind. Of in a well. House of pain so to say where, you don't really see a higher. Low, yet or a double, bottom or a higher low or a moving. Average crossover, on the, weekly, charts, now. When we look at the volatility what you're going to take a look at here we're, still setting up the massive. Bull, flag, potential. Huge. Pull. Flag. Back, to the 30 period moving average that red line is the 30. Day and it. Is leaking down okay. Just. Not really breaking that third day VIX is still sitting here at 54. What. About maybe an index that might lead well, if you take a look at an index that might lead what. You're now going to notice is we. Saw the ndx, we, saw did get above about 75, 10 here, broke a level, resistance and it went to the next, level. Of resistance, which. Was, 7904. Now. Think of that as resistance. This. Is potential. Support, and what, you're seeing is when it pulled back over, about the last two days very. Weak, response, as, far. As holding, up at. That. 75 10 level now if you, look at where these intraday. Highs, are, you're. Going to see that it. Went to the 10 period moving average that blue line and then, today it went to the temporary moving average and they kind of fade it again now. If you're starting to kind of see that on the chart what does that represent to, you, how. Would you internalize that. Okay. Tell. Me well tell me what you're seeing there. So. The market rallies, and then, ADEs market. Rallies, and then fades and you're, seeing these bodies. Of the candles, up near the tenth period moving average or the highs. Up near the ten period moving average, some. Investors, are using the up moments, in the market, to, sell more of their stock that they might have, okay. I think, it institutional, investors that might have three million shares of Apple two, million, shares of Apple they're, probably not going to sell it all at once they're gonna try to use up moves in the market to, sell into. Some of that strength okay. Now. This is very important, so when we talk about the topic, we're, gonna bring up first off I'm gonna bring up an example here, and I'm, gonna bring up a stock called, Marion, okay, so, what we wanted to do and where we are we, want to talk about the market update just. Looked at the dow S&P, the Nasdaq we did said, the market is happening a weak response so, far on the. Higher, low, setup right. Kind. Of pulling, back not. Really seeing any bouncing, at these near-term. Support levels, the, major, thing, to take away out of what we just talked about is on the. Weekly charts still, seeing more of the red shade on that weekly chart which means, market. Might not be done going down it might, still be trying to put that low in or the double bottom in second. Thing we're going to talk about here is bearish, trend trade examples, now first off does, someone have to do a bearish trend do a bearish trade no they, don't have to but. If you said James if the, market goes up I want. To be able to know how how, to play the market second. If the market goes sideways. How, do I play the market third the, market, goes down how. Do I maybe try to capture, some, of that drop, so. I, want. You kind of think about something, if you're a sailor. If you've ever sailed, before you'll. Know that the wind does not just. Blow, one. Direction. The, job of the sailor is to. Identify, which way the wind is blowing and then. Set, the sail accordingly, now, even though they set the sail the, wind can eventually change let's. Say 15 30 minutes one hour down the road but, that moment, time where's. The wind blowing which direction set. The sail in other words pick a strategy, so, it's going to take a look at this I'm gonna bring up a stock like for example like Mariam right and. Let's go back, to where we were where the stock really know why Marion, right we. Know or there. Might be some speculation. I should say that. The longer, that the co vid goes on, some. Of the companies, that might be affected, such as Hospitality. Think. Of hotels resorts etc. It, could be Airlines, right it could be cruise ships etc, some.
Of These companies, might. Add the fundamentals, of the companies might. Deteriorate, and if. Those fundamentals, were to deteriorate and you've, already seen the stock go for 146. Down. To about 46. Sometimes. Technicians. And, fundamentalists. Will. Kind of forecast. Weakness. Now, the longer, that this goes on. It. Might mean that the company. Might. Further. Deteriorate. Fundamentally. And further, deteriorate. Technically. Speaking now. If you take a look at this we see in a long trend, right from 146. All the way down to 46 stock. Goes up near. The. Ten period moving average and let's just kind of take a look at the candles, right so. When the stock actually gets above the 10 period moving average what, you're now going to see on the chart is that right there the red candle, that. Is a bearish. Engulfing. Candle. The red candle, the. Very next day as I label, this as an X that's. What we call a gap, down. From. The previous. Day's, close. Ok. So. If you take a look at that, bearish. Engulfing. Very. Next day gaps down that means sellers, on the, open immediately we're, selling, the stock go. Forward really about one more day stock. Opened. Up lower and then closed lower again, stock. Actually kind of went, up to the 10 period moving average faded, back and actually. Closed, pretty much at the open hence, that's why we're seeing a flatline right, then. If we go to the very next day gap, down close, midsection. Go, the very next day and, I believe that's where we are right now now. If you take a look at this when investors, may be considering, bearish trades some. Investors, are saying look I'd like to maybe do a bearish trade where they're close, to. Then maybe the moving average, the. Resistance. This. Moving, average can act as a ceiling, and that investor, might want to try to set their stop. Above. That. Line that's. An option right now, if you take a look at this some, investors, might be saying you know what maybe this stock might come down to the previous low maybe. This stock might come down to this previous low think. Of those areas as, potential. Targets, okay. Where. The stock might drop. Down. To those areas so first off when. We look at a stock like this that has had a downward. Trend. Okay. Where, it went from a hundred and forty six down to forty six if, we take a look at that, we. Know the volatility, is probably going to be pretty high if. The, volatility. Is pretty high what. Type of strategies. Maybe could an investor, do here okay. Well get short the stock if, it was in a, margin. Account but, let's assume that it is, in a let's. Say a retirement, account can't short the stock if we, go to the trade page, and. What I'm gonna do here is gonna go the trade page I'm, gonna bring up and they are if, we bring up MA are what you're going to notice is here. When. An investor, if they were to do a vertical. Okay. And we're, gonna show an example of, a short, vertical. Number. One let's take a look at some differences, here so I want to make sure we really take a look at this so. If we look at let's say the 17th. Of April, we. Look at let's say the strikes of the 65, 68, 69, the. Spreads, there are tighter. If we. Go look out let's say to the May expiration. What should be obvious is. When. We go look at the spreads here, not. As, Nair. That. Means the fills could be worse so when the investor, picks, strikes. They. Might want to say look I'm gonna go look and see where the bid and ask spread is tighter. Where there's higher volume, there's, higher open, interest etc now. You might, choose to go maybe could we go out a little bit further don't, see anything there either go. Out a little bit further now, go. Out a little bit further no so, the ones that actually are probably the tightest that we're looking at might. Be let's say, these. Strike 65, 68, 69, now in this example let's right click okay. And I'm gonna open up the strikes just a little bit there, we go I'm gonna open these up and let's, say the investor, whatever strike, that the investor, sells. That's. Where, they want the stock to stay. Below, okay. Does that make sense so think. Of this almost like a covered call, okay. You, sell a call what do you want this what do you want the stock to do well you like it to close maybe perhaps below, that strike why. Well. That way you can keep the premium and still own the stock right but, in this case don't own the shares so, if you sell, a call. You're. Really, just trying to have, the stock, closed. Below. Or stay below, that's, 68, let's, right-click on that 380, sell. And then, go to vertical now here's the deal I want. You to kind of think about if. We saw the market, continue to go down are you. Practicing. Strategies. On learning, how to play, a downtrend, that's, very important, okay yesterday.
I Was teaching my daughter to play tennis she. Says dad hit. It to my forehead and I said no I don't want to do forehand I wanted it to hit it to your backhand she. Goes but my backhand, dad stinks. I said I know that's. Why I'm gonna keep hitting it to, your backhand so. The biggest thing is back. In 2001, people said next time I'm gonna be ready then o7o, a hit right, then, in Oh 708, they said next time I'm, gonna be ready, well. How long can people keep saying that right we want at least kind of say look if we see those Trent's can, you take a strategy. Or two and try. To trade, that trend now, if we go sell vertical, now, what we're gonna be showing in this case is let's say we pick let's say a two point wide strike, right to. Point wide strike where it's really the sixty-eight, call and the. Purpose, of the 70, is to, really, create a, maximum. Gain. Now. The. Purpose of the 70 is to create a maximum, loss where. It caps, the. Loss so. When the investor sells the 68, they're short, okay. That. Call they're. Long, the. 70 which creates the cap so when we go take a look at this what, we're now gonna see is the maximum, profit this, is per, contract. $80. Per contract, max, lost a hundred and twenty dollars if. This paper money portfolio. Could risk let's say a thousand, dollars a trade, in this. Example, we're going to change it and probably push this to about eight contracts. And. It did eight contracts, there's, the numbers now max. Loss is already built-in. Remember. With a this, eight contracts, higher, transaction. Fees because. We actually are doing more. Contracts. Okay, buying. Power effect is just assuming. Maximum. Loss, now. Let me kind of show this just if, we send that order now. What you're going to see is if that, stock, were to drop down to 52 or if, that stock order to drop down to 46, could. The investor, try to profit, take prior. To. Expiration. Yes. So. If that drop it let's say happens, more quickly. You. Might be able to get a, portion. Of that maximum gain maybe, not all the max gain but. It might be able to get a portion, of it okay. Now, you could bring that up on the analyze tab and, kind of see what happens there all, right now. First, off one of the questions is how can I see. The, short interest, in a stock okay. First off, and. I, believe so, this, is a really good question, so. If if the, investor, says I'm going to short, the. Stock. Right. Shorting. The stock is, not an option, position, so, if the investor says look I want to buy the stock there long if, the investor, says look I want to short the stock all they're, doing is they're just clicking. On the. Bid now, Cameron, May is with us as well we thank him for being here he, says you can go to TD, Ameritrade, com enter. A stock symbol and find. This short interest on the resulting, page okay. So camera, may kind of beat me to that all, right now, what else the thing I want to bring up just real quick is I. Don't want to make this all bearish, but it is our learning outcome, one. Of those also other stocks I want to really bring up here that. Might be underneath let's say a little, house of.
Potentially. Maybe a little house of pain is I'm. Going to kind of just show some examples, so if we look at the stock like Starbucks, you'll. Kind of see that it's kind of been that same process right, lower low comes. Back up drops, down and it. Again, like most stocks you have a previous low but, I'm going to take a look at another stock that. Might be let's say one that is lower and I'm going to choose this one on purpose, okay so. The one I'm going to look at here is where. There's kind of a second, option maybe. Where this is not let's say up near. The 10 day moving average but, you're gonna see that if this stock starts to take out the prior low. Which. Is $10, this, might feed, into, the. Selling, pressure. So. Some of these companies like, Mary it like airlines, like cruises, you're, seeing that they're under still still. Tremendous. Pressure. Now. The one that we will show in this example is a, stock, like Walgreens and, this, is an example where the stock has a. Horizontal. Support. Level and on. This stock we see that it has a downward. Sloping. Resistance. Line okay. Do you see that now, we're not nailing, all the tops, here, or here not we're not doing that okay but, you are seeing that the stock let's, verify the. Earnings. Was. Before, the market, so the stock today had, earnings, it. Beat, the earnings, but, what you're gonna notice is a gap. Down on the earnings and now, the earnings, has fallen down, below. The. Double, bottom area now, this kind of bleeds. In the question well if it breaks is support, what's. The next level, of support so, remember the investors, job is to, actually go look and see what the trend is well, the trend over time has. Really been in a downward. Trend. We're. Looking at a weekly. Chart and what I'm going to do is I'm going to bring up this. Chart in a different view let. Me show you what this looks like on a different, view so. When we take a look at let's say WBA. Where. We kind of have a little help from the shading, here you're, gonna kind of see that it's had, that.
Red Shade, for a while when. There has been an, up week the up weeks, don't last very long had, an up week doesn't. Last very long had, an up week doesn't. Last very long so, when the price action has had some up moves just, doesn't tend to last very long these. Are signs that there are, probably. Investors, to own the position, that are trying to sell out at higher prices, waiting. For an up move or some. Investors, are just trying to become more bearish, the. Stock now, let's go back to just real quick this chart let's. Take a look at this chart and say look if the stock were to break the support, what's. The next potential. Support. Level well. When we go back and take a look at this and I need to change this to let's say maybe a weekly, chart let's kind of see if that can help it ah there. We go so, we're looking at a ten-year. Weekly. Chart so if the stock were let's say break that support you. Kind of have some levels, that the investor, might be looking at prior. Tops, or support, that was about the 43, and if, the stock really breaks that level, probably. Going if we're saying old high. In 2011. 2012, was, about 36, and even. Getting down below there we're, talking, about 32, now. If. We take a look at that example. Let's go back okay. So, we kind of see where those longer, term support, levels are 32. 36. Okay, Eric. I'll mention that in just a moment so first. Off we're going to go to the trade page and let's. Just kind of verify. Kind of what we're seeing so we're. Going to look at the April expiration, we're, gonna look at the May expiration, and if, you look at the April expiration. They're. About 40 cents wide 20, cents wide 30. Cents wide if, you actually go down out let's say to the May expiration, it's, kind of interesting the Mays. They're. Actually, a tighter, bit, a spread, then, the April's, that we just saw okay. Now, wonder, if the investor, wanted, to be more, bearish. A short. Call spread has a defined. Gain, a defined. Loss so. If that's not where to go down $10, you're making, a small, portion. Of that drop, well. Wonder if you want a bigger portion of the drop potentially. Well. That's where the investor, might add one, piece to this so let's just kind of add that show. This example so, let's say the investor, sells a call a member. Of we're. Trying to sell a call where.
We Think this stock could stay, below, that okay. So. Let's say look the, investor, says I think, the investor saying I think, the stock is say below 42 and a half, that. Has a. 39. Delta, all, right so that investor, sells that call, 39. Delta, they're, selling, that call it because they think that's where the stock it's a below that, strike, is probably, up near. Resistance. All. Right now. That here's the option you. Want to do the 42, and a half and the 45 or do. You want to do the 42 and a half and the 47, 50, now. The difference, is here if you right-click on the bid go, to sell, go, right to vertical, well. If we take a look at this there's, the built-in Maxim, credit. Built-in. Maximum. Loss per contract, remember when you look at short verticals, it's. Always with the idea that it's. More probability. Based, it's. More, probable. Not, absolute, that. The stock could be above or below 42, and a half that's. Why the, max profit is not bigger than the max loss, now, if the investor, picks the 42, and a half and the 45, that's. A short vertical we already talked about that well, what if you want to add a little piece where could. The investor, maybe add a, bought. Hood, we. Know that if an investor buys a, put, that is more of a bearish, position, that. Means that the investor could try to capture a, bigger. Potential. Profit. Now the worst of the stock to do is go to zero so, there is a cap, okay. Because, the stock cannot, go lower than zero so here's let's take a look at these two pieces piece. Number one this. Is the short vertical okay. You're, gonna see that in this case there's, a 76. Cent credit well. Why don't investor, buy, puts well, they might not want to buy books because they don't want to pay for it okay, that's maybe one reason, well. Wonder. If we could use the short, call, credit, to, help pay for some. All. That. 155. About. 50 cents of that 155. Is being paid from the. Short, call, spread. Now, wonder. If the investor doesn't know what they're doing well, again, you don't need to necessarily. Think. That there's undefined. Risk. The. Most of the investor, can lose in the short call spread is, maximum. Loss the. Most of the investor, can lose on the put is what. They paid, for the, punt, okay. But. This is too, bearish. Trains so, short call spread with. A long, put, okay. Now. Remember the investor, might be trying to target, those. Longer-term. Areas. Of support. Maybe. As a way to say look if the if that stock were to fall down to the support, I want, to take those bears trades, off, okay. So. Think about this when an investor, is bullish. They. Say look if the stock were to break resistance, and go the next level resistance, they're, gonna try to take the profits up at resistance, well this is the opposite, if, the stock falls below, a floor and it, drops the next floor that, Bears trader is saying look we fell from a support, level to, the next support and that, gives, the investor, the opportunity. To. Profit take okay, now wonder. If the stock were to let's say go sideways well. Since we have a short, call spread. That. Is a fade. A positive. Trait, when. The investor buys the put faded negative, so, it's not going to be as bad since. There is some. Time. Or, theta. Income, okay, the position, though will still be slightly. Negative. Or negative, okay. Remember. For the short call spread a dollar, 30 okay. For. The. Single. Option, the long put, 65. Cents, there's. The debit, okay. There's. The odd, there's the total transaction, fee, okay. And. If that's what the investor wanted Swan to do send. The trade now. If that stock were to decline. Really. What the investor is trying to do is trying to capture some. Of that drop, all. Right now. In this case. Why. Doesn't an investor, maybe just short stock, well. They might not short stock because they might not have an account to do it needs to be done in a margin account one. Of the reasons why an investor might not short stock is whoever's, short the stock pays. For, the, dividend. Right, and the. Stock if it were let's say to go up and up and up and up and up if it does you're. Gonna see in that case is there's. Unlimited loss, at. Least, if the investor to consider, short, verticals. Or long. Puts. Defined. Risk. The, other thing goes back to not, all stocks are short herbal okay. All. Right now, if we take a look at this so. That, one actually gets filled so, I want to kind of bring up a couple. Stocks and one. Of them that, I'm gonna really bring up is I'm gonna bring up a stock like Lily okay.
Now. First off different. Stocks are acting differently, right, some, stocks may be like an Amazon may, be like a lily. Some. Of the stocks are actually doing better than, others but, if you looked in energy or you looked in some of these consumer discretionary some. Of the businesses, that have had to shut their doors those. Are the ones that have kind of really been more in the. Crosshairs of, negativity. Now. If you take a look at a company like let's say Eli, Lilly what. You really notice is a big, huge, upward. Move and then. What you're gonna really see on the chart is kind. Of like a flag, now this we're looking at a daily. Chart. So, here, and then. If you can I kind, of connect the dots maybe about right and, I'll draw two different ways maybe a little bot right there or, if you maybe drew one a little bit steeper, maybe, right there nevertheless. You. See that this stock kind of more in a longer, term upward. Trend maybe, and more like a flag when we say flag thing diagonal. Channel. Or, horizontal. Channel after a big. Move. To the upside now one, of the questions has, been asked. Quite a bit is why. Our investors. Waiting. To. Get in, where. Are these fundamentalists. Where are these technicians, where are these investors, I mean, show some guts it, was what some people are saying right well. Let's kind of talk about this right why, are some investors, shell-shocked, well, first. Off you, got to recognize even if you bought a stock, that, stock. Is on the ocean, of the, market, if. The, tide goes out and your boat was tied to the dock your. Boats going to drift down and, be. Pulled out to sea with. The overall market there's. Correlation, of, the stock right. To, the index, to, the sector, now the stock, that you're looking at maybe like Eli Lilly but you might say this is a great company but, the problem is it's in the neighborhood of health care it's, in the neighborhood of the, market, you get it now let's, go to bring up the second point so first off when, you go to let's say TD Ameritrade calm and I want you to do this as a takeaway and here's what I'm going to shift, gears as we talk about some bolus examples, and, some of the questions that have been, asked. To me as James, water maybe some stocks, that. Are actually trading maybe at longer-term fundamental, levels but also maybe some technical levels let's, gonna show one example of this, so first off if you go to let's say at so we're on the TD Ameritrade education, page. Okay. We're on TD Ameritrade comm I'm logged in I'm, gonna go to education and, we're gonna go right to stocks now, if we go to education safe, stocks now. What you're going to see is it's going to come up with two different courses now. This would be a great time to actually say have you gone through the courses fundamental, course technical. Course we're. Now going to go to the stocks, fundamental. Analysis. Course, mine. Says, continue, why, because. I already started it but I want to actually go ahead and click on where it says continue. Or start. So. If you have not started it just click on start ok if, you have started it yours might say continue. Let's. Go ahead and go into it now once, we actually log into it over on the right hand side you're, gonna see where it says. Resources. And one, of those areas that we're. Going to pick on is right there on this the intrinsic. Value calculator, now a lot, of companies, coming up with earnings in the next little bit we, saw in Walgreens there did it ok we, want to know where, they are but, that we also want to know where their guiding. The market, to, think. Fundamentally. In terms about their earnings, power, now. We're going to click on that earnings value, calculator, you, probably see me actually do this before I'm gonna bring up one, example, ok so. When we bring up this page and ask us for some very basic. Information and I know it's basic because it asked us for and really step for I like, to start at the bottom and it, asks us for, what, is the current stock price that. Shouldn't be too hard okay, and what, you're gonna now going to see is it says right on the summary, page on. TD. Ameritrade. Dot-com. What. Is the stock's earnings, per share remember. The price could, be driven, by, speculation. And/or, actual. Earnings power. If there, are no earnings like in energy stocks are very little, what's. Really driving the price right. Now if. We. Pulled up the summary page we'll just do that just real quick to kind of show you what, we're really grabbed. Focusing. On if, you pull it up just like it says pull up Eli Lilly you're, now gonna see that earnings per share is right there it.
Asked Us of what the bait of the stock is point to okay. It, asked us what the stock price is three, pieces of information come. Right. On this summary page now. It's. Going to ask us for the VIX and the tyx. VIX, you could just simply, type in the, VIX number, type. Pull. VIX if, it's 50 to type in 50 to tyx. That's the 30-year interest rate or what's known as the risk-free rate, we. Already did that so. We'll bring that up and when. I did this earlier about. 45. Minutes ago Vic's, who was at 53, and the, tyx, so the risk-free rate was, at twelve point five nine I just pulled them up on a chart typed. In the numbers now. One thing I want to come back to we, only need two more numbers is we're. Also looking let's say the earnings per share growth rate, which is on the fundamentals. Page and we're. Gonna look at the valuation, tab, and we're. Going to look at the industry, group P on the current year okay. Earnings. Per share the. Key is it's the end is, tree group P now, watch what we're going to go, now. If we take a look at this we're gonna go right to fundamentals, we. Come back to fundamentals, you're gonna see if I scroll down just right there you've already seen this page before we're. Just pulling that information. Seventeen. Point, three seven. Okay. I, type. That in on the Excel that but that's where I got it last. Thing, that we need which, is the valuation gonna go right to the valuation tab, so. These last two numbers come right here I'm. Going to click on the valuation tab, and remember, what we said is we're not looking for the p/e of the stock we're. Looking at the industry. Group P and that's, labeled, really as. Thirty. Three point three eight now. When. We type in these numbers, I mean the question, has to come into your mind are. These companies overvalued. Are. You holding, on to overvalued, stocks are some. Of the stocks that you own maybe are they coming, down to where longer. Term investors, might be considering, entry I mean, has to go across your mind right well, if we take a look at let's say a stock like Eli Lilly just in our example, when. We come down to the bottom now what you're going to see is it says the intrinsic, value. Of the stock is. Really 188. That's. The intrinsic value is defined as given. Complete. Understanding. Okay of where, the fundamental metrics are what, that stock could, be worth not what investors, are paying but. What could it be worth based upon current fundamental, metrics if, we. Look at the stock price it's at 140. Now, here's, the big deal. When. You have volatility. In the market, when, you have unknowns, the. Number we always talk about is, ah setting. This number to three but. How do you know, that, this company, can, keep growing, like this for. The next three years. Investors. If they don't really know if they think there's more, economic. Uncertainty, out there, volatility. Wise as well they. Cut the projection, down and watch. What happens to the margin of safety right, there take a good look if we. Cut that number down to let's say two - all. Of a sudden, which was a 25, margin of safety meaning, you're buying the stock, 25. Percent, below the intrinsic value the. Margin of safety went from 25, to 16. Well. Let's say the analysts. Or even, the company itself cannot, project if they. Can keep going they don't know, how they're going to be doing well. All of a sudden what you're gonna see is we're taking a very, very. Very. Pessimistic.
View. There's. No colors here just, black and white okay, slight, gray, well, what you'll now notice is if the investors, are only forecasting. Out a year. This. Is very negative, right trying, to be very negative trying to be realistic. Look. And also. We have to imagine maybe, do it does a company, does, the earnings, per share drop. Based. Upon. Maybe. That the company was able to do as well the overall economy co vid 19 things like that interest, rates oil prices, you, name it right well. All of a sudden let's say they weren't able to say or in, other words hold it five let's say they went to 450, well. If you go to 450, what you're now going to see is, margin. Of safety now becomes, negative. And that. Means the stock price is greater. Than. The, intrinsic value now. Here's what I want you to do I want, you to look at three stocks that you, own, I want. You to type. In these numbers on your. Stocks. I think. You'd be well. I think you'd be amazed how, many stocks. Like. Even, Apple, that, are still trading it pretty, high premiums. Considering. The market drop now. Just. Because it's trading at a premium doesn't, mean that it can't keep, trading in a premium or just because that stock is trading at a discount doesn't. Mean it can't keep trading at a discount but. The biggest thing is to understand, that if. Investors. Are gonna maybe look to get in or if they're going to be very selective of. What they're buying they're. Gonna probably really want to make sure the companies, that they pick have. A greater, likelihood, to. Hit the earnings per share and hold. The future projection, and a lot of investors right now are probably saying look I don't know where the company could be two or three years out I just, want I can only see one mile one year down the road that's. Probably how a lot of investors are thinking. Especially. In times of volatility, okay. Now. The one thing I want to kind of just take a look and I'm gonna go to questions, now just to spend the whole time in questions one. Thing I need you to understand and make sure you're listening right here you. Listening, if. You take, a company. That. That's for example you if you go to the fundamentals, page so if you pick like a stock like a, marijuana, stock, cannabis. Right or you. Go to let's say an energy stock, this. Is only looking at companies, that have a positive. Earnings. Per share so, if, you pick something that has negative. It's. Not gonna really give you a number this. Is only looking for positive earnings per share that's. The key now if. We take a look at this some M Curtis, says is there a recommendation for. Margin, of safety so, first off not all stocks will trade into margin of safety some, stocks maybe like an apple. Might. More. Often, than not not. All the time trade, at a premium think. About like real estate certain, areas of town might. Always trade it slightly at a premium right.
But. The thing is M Curtis is to know that but. If you're a value. Investor, you. Might say look I'm trying to actually buy as close as I can to. What. That intrinsic, value is okay. And you, might be trading within a band, of. 10%. 5%. Or, near. The, intrinsic value, it's, not that it has to be right at the intrinsic value but you might say look I'm trying to see, if I could, identify. Investing. Opportunity, I might, be trading near, that intrinsic, value in other words within a band now. The one other question that really came up so what I want you to do with what I just showed is I. Want you to go, into. Some. Of the stocks that you're actively looking at and you. Own in the paper money account and I'd like you to run those numbers are. Your stocks trading, at a discount. Positive. Margin of safety are, they trading, at the intrinsic value or, they still trading at a premium okay. What. You'll notice is this all links, back to technical. Analysis, the. Companies, that actually, really had a declining. Earnings. Per, share, Miriam. Boeing, Chevron. Exxon. Apache. American. Airlines they're, all companies, that have an earnings. Per share that. Is declining, and when, you get in this situation, where the earnings per share watch, this watch, when. You get in this situation where the earnings per share goes from five and now. It goes down to four and now. It goes down to three all, of a sudden the margin, of safety is gone. You're. Buying the stock at an, inflated, price, based. Upon what we're seeing current fundamentals, and of, a lot of investors now are kind of forecasting. That a can. These, stocks hold the. Trailing 12-month, earnings, of their earnings per share and, if. All of a sudden these earnings, per share are, not. Up to where the projection was and they. Cut, the forecasts and then they also cut, the dividend then. All of a sudden then you, start getting. Probably. A situation, where. Fundamentally. Margin. Safety becomes negative, and even more negative and but. Technically. Speaking this. Is where the investor, might start to see more. Support levels, breaking. And the, downtrend, may be continuing, okay so. I want to kind of think about that now a couple. Questions I want to get to just real quick so first off where do you get the sheet so, go, to TD Ameritrade calm go. To education if. We go to education we're gonna go right to where it says stocks if we, go to education, stocks. There's. A fundamental, analysis, course. It's. On the Left, go. To the course click, on start or continue on the fundamental analysis course once, you log into that course now. What you're going to see in this case is resources, over. To the right it will say the intrinsic, value. Calculator. Okay, and, we clicked on that right there now the other question was on Boeing, where. That question go so. First off. Now. God, kept the Boeing question got buried where, did that go. Okay. Ah gets. It okay there it is PS so. JB, could we look at a walk through a PA with a bearish outlook well, ba. Is, kind of like what we saw with for. Example with Marion, right so, what you're now seeing is the stock you. Know now. This morning they announced that they are offering. Early. Termination. Or. Early. With. Leasing. Of employees, getting. A payout right, now. What you're seeing us on this the stock went down to 89 ripped. Okay. To 181. Up a hundred dollars, okay just. Look six or seven days maybe, eight but. Now that stock is kind of maybe coming down potentially. Or me let's say could. It try to double, bottom and so, this is kind of why a lot of investors, are kind of looking at perhaps not. All stocks, may be looking, like Amazon. Or lily or some of these others you're. Seeing that on some of these stocks if we draw a downward. Diagonal, angle. Some. Of them kind of look like they're still in a downtrend, now. When you look at a stock like ba remember. If the stock is below the ten period moving average. Remember. What clubber lorette clubber, Lang said, okay. Mr.. T what's. Your prediction for, this fight prediction. Pain. Right. When. The price, is. Below that 10 day moving average, there. Might be a higher probability. Of pain if. An investor, is holding on to the stock not absolutely but there, could be more pain meaning. That there might be more sellers. Than bars. Even when the stock goes up that. Stock might have a short-term, rally. Only. To hit its head on the 10 period moving average and have, sellers, push it down again so, this is why you know Scott Durfee, at the in-person, events, talks about, number.
One Is that the market goes up have, a strategy, or two that you're comfortable with number two the, market goes more sideways, have, a strategy, or two that you could identify maybe, a covered call strategy that. If the market were to go sideways or the stock where to go Cyrus number three wonder. If the market, went down have. A strategy, or two that, you Pratt, okay. The what we talked about here today wasn't a short call spread number. Two thing we talked about is a adding. A long put to it okay, and that, really makes the trade more bearish nevertheless you, could, start at one if you, say I get that one I'm going to add the long put that gives you something the step to next to see how both strategies, really work okay but we're, seeing the very similar chart on Boeing as well okay, now, the one other thing I really want to bring up here is. Coming. Up let's say, coming. Up this weekend, okay so on Saturday, April 4 10 a.m. Eastern there, will be a virtual, town hall and this. Is where our veteran, traders will apply their experts insights towards, helping investors, understand, how. To adjust to, the current market volatility, okay, make. Sure you check that out a posted on the Twitter comm, on. My. Page James Boyd right. Up near the very top you. Can click on that and get some more information and how does someone maybe attend that also, if you had some questions regarding the shading, okay. Of the. Some of the charts I showed if you, scroll down in those I think goes February 24th. You'll, actually see that I gave the script of how to actually create the shading on the, charts as well okay, so. I'm out of my time here today. Today. We want tell about the market, update its the market a little softer, on the daily chart weekly. Charts, still. Showing some potential. Longer-term. Trends. Negative. Okay on the, longer-term. Bearish. Trend examples, we talked about those we brought it the example of Lille and kind of put a little fundamental. Twist in there and said why are investors, maybe a little cautious. In terms of buying talk. About that I want you as a day Quay to, look at at least three of your stocks and practice. Using that sheet we. Also talked about learning how to identify bearish. Entries, in a downward, trend with a target, we, talked about the example of Marriott and also. One, other one as well I like. You to practice that the, way you really pick, up what I talked about today is you, have to go out and pay for money and say I need to practice if you, don't practice you only pick got, 50%. Of what I said when. You actually go out and practice you, start, to, get it okay, but, it comes through practice, so. Memory not I asked you to 20 trades to, pay per trades where you're practicing a bearish, entry and a downward trend all, right so, also. Coming up just shortly we will be having a class on verticals. And also. Be having a class by, Michael Fairborn on growth. In value strategies. Make sure you take a look at the Twitter page I also, showed. You that coming up the Saturday the event we're having make, sure you take a look at that right on the Twitter page also, quick reminder, that's what we discuss here today, remember. That in order to demonstrate the function of the platform we did use actual symbols remember, that TD Ameritrade, does not make any recommendations. Determine. Suitability of any security, or strategies, it's. Up to you to decide what type of stock and strategy, you want to pick with, that said thank, you so much for your comments and your participation, Thank. You Cameron May for answering, the questions also in chat as well and, with. That said stay tuned for John McNichol, coming up on vertical. Spreads. Thank you so much take care bye bye. You.
2020-04-05 02:50
