A Market Rally For The Record Books - Market Outlook (Ep. 27)

The stock market surged during the week of April 13–17 with the S&P 500 and Nasdaq hitting record highs.  Markets rallied on hopes of a peace deal between the U.S. and Iran, which intensified after Iran indicated it would reopen the Strait of Hormuz following a ceasefire. This news reversed previous oil price surges, providing relief to global markets.  Banks began reporting solid first-quarter results, indicating economic resilience despite geopolitical tensions.  The tech sector was incredibly strong last week, with Tesla leading the way with a much needed 15% rally, while Microsoft hit its highest weekly increase since 2007.  The tech-heavy Nasdaq experienced its longest winning streak since 1992, rising for thirteen consecutive days.  The S&P 500 officially closed above 7,100.  Already this month, the S&P 500 has climbed almost 10 percent, which would be the best monthly gain since 2020 when markets were rebounding from the pandemic-induced sell-off. 

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Transcript

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Welcome to this week's edition of Market Outlook. I'm your host, Derek Taylor, also known as DT. Market Outlook is a weekly podcast where I take a look at last week in the market as well as previewing the week ahead. I will also share with you some potential options trades that I think are interesting for this week. But first, what were the major stories in the stock market this past week, Monday, April 13th through Friday, April 17th? Well, the stock market surged during the week, with the SP 500 and the Nasdaq hitting record highs. Markets rallied on hopes of a peace deal between the U.S. and Iran, which intensified after Iran indicated it would reopen the Strait of Hormuz following a ceasefire. This news reversed previous oil price surges, providing some relief to global markets. Banks began reporting solid first quarter earnings results, indicating economic resilience despite some of the geopolitical tensions. The tech sector was incredibly strong last week, with Tesla leading the way with a much-needed 15% rally, while Microsoft hit its highest weekly increase since 2007. The tech heavy NASDAQ experienced its longest winning streak since 1992. That was 13 consecutive updays in the NASDAQ. The SP 500 officially closed above 7,100, and already this month, the SP 500 has climbed almost 10%. That would be the best monthly gain since 2020. That would be the COVID rally after the COVID crash, right? This has just been an incredible market rally, one for the record books. Now this rally was spurred on because of the news of a potential ceasefire and an end to the hostilities in the Middle East. So following some of this news about the Strait of Hormuz, oil prices saw a sharp decline, with CL oil futures falling to $84 a barrel, BZ oil futures fell to $91 a barrel. And these things were trading well above $100 a barrel just a couple of weeks ago. So we have seen just a dramatic drop in oil prices. And with these oil prices dropping like a rock, the market naturally breathes a sigh of relief as lower oil prices means easing inflation concerns. And it's all about inflation, right? The market still has those inflation worries. And anytime the market thinks inflation could be ticking up, that's when the market pulls back in a dramatic way. And this is something that's been following us really ever since COVID. COVID kind of messed up the global market. And until we know we're clear of this inflation problem, that will always kind of linger in the back of the minds of investors. Netflix reported earnings last week, which caused it to drop around 9% on some weak guidance. The travel and transportation stocks, such as cruise lines and airlines, they saw huge gains on the week as lower prices as far as oil prices. That means lower fuel costs for those particular sectors. That's a major expense for those kinds of industries, right? When it comes to cruise ships and airlines, fuel costs are possibly the biggest expense that they have to deal with. To summarize the past two weeks, I would say it's been one of the strongest market rallies in history. Objectively, it's been one of the strongest market rallies in history. And I want to hammer this point home. If you're still leaning primarily bearish in this market, you're missing out on what is likely to be one of the biggest gains in a short time span that you'll ever see. At least that you'll see in a decade or more, right? These kinds of quick, hard, fast rallies, they don't come along that often. And if you've missed this move or most of this move, you're going to regret it. So if you're leaning primarily bullish in this kind of market, you're not just missing out on the gains. You're actually probably also getting run over by this market by having all of those bearish trades on. So, in my humble opinion, start closing all those short calls and short call spreads and start selling more puts and more put spreads, or buy some leaps calls if you prefer getting long that way, or load up on some shares of some quality stocks and market ETFs. However, you choose to do it, you need to get some long deltas right now. If you're still primarily bearish, you are in a world of hurt. And I don't want to see this because I see this every time we have one of these big market rallies, one of these big run-ups, like the AI boom of 2023. You know, the NASDAQ was up somewhere like 45% or so, whatever, in 2023. And most traders lost money that year. Most traders lose money every year, right? But you know, it's especially sad when you see a market that is very strong and that just rips higher, and then you see people that couldn't eke out a profit at all. And if you can't squeeze out a positive PL on a year like that, then it's likely that you were stubbornly holding on to some of those bearish trades. You were stuck in that bearish mindset long after sentiment changed. So let's jump into the charts and see what the major market indexes did last week. Let's start with the S P 500 index, the SPX. And if I zoom out, you can see here is the move down as the Iran war was kicking off. You know, this is a pretty steep decline, but this rally, again, just this record-setting rally, this was crazy because we recovered. Uh we didn't just recover, we more than recovered, right? We are setting all-time highs now in the SP 500, again, in about a 13-day span from the bottom. This is just an incredible rally. Now, last week the SP 500 gained 4.5% on the week overall in the last couple of weeks. We're up, you know, almost 10% probably. This is again, just if you were able to put on some bullish deltas, you know, back here, uh, most people probably couldn't have have jumped in on the bull bandwagon, you know, at the very bottom, but at least about halfway up, you know, toward here, you know, these candles here, for those watching the video portion of the podcast, maybe you missed the first six or seven days. But after that, if you did not switch from that bear mindset to that bull mindset, I would say you're being a little stubborn because you you're gonna miss this entire move. Even if you finally get some of your bearish trades right, you should have had some bullish trades to catch this move on those trades. Uh, so you know, I again, I think you need to have some long deltas. In fact, I would say you probably need to have a lot of long deltas on right now. If we zoom in a little bit and take a look at the close of the Friday, two Fridays ago to the close of this past Friday, we saw a gain in the SPX of $309. Again, that's a 4.5% increase, just an incredible move. Moving over to the NDX, the Nasdaq. Now, tech leads the way higher. We know that. And the Nasdaq is very tech heavy. So on a percentage basis, the NASDAQ was actually up in that time span, uh, 6.2%. If we go from the close of the previous Friday to the close of last Friday, the NASDAQ saw a gain of about 1,556 points. That is just an incredible move. You don't see that very often. The Rut, the Russell 2000 index, also uh lowering oil prices really helps small cap stocks, maybe much more so than the like the large caps and the mega caps, right? The small caps really were getting hurt by those oil prices. So now that oil is coming back down. The Russell saw a huge gain on the week, up 5.6% on the week. And then DJX, let's take a look at the Dow Jones index. The Dow Jones finished the week up 3.2% on the week. And then finally, one more index to look at the VIX, the volatility index. This is the volatility of the SP 500. And after having months of volatility slowly creeping up and expanding, here in the last two weeks, you can see a very clear trend to the downside, right? We are just in full-blown crash mode as far as volatility. Volatility is getting sucked out of this market. VIX closed on Friday at 1748, which is by far the lowest it's been in several months. So you've got to go back at least to the beginning of February of this year to get a VIX that low. Now, how did each of the major market sectors do last week? Well, most of them finished in positive territory, but there was a couple that actually finished negative on the week. And the obvious one that you know would be negative on the week is XLE, the energy sector ETF. Now, with oil prices basically coming crashing down, that's gonna hurt the oil companies. You know, the major uh uh energy companies here are not gonna love oil coming down in such a big way. So XLE saw a 3.4% decline. If we take a look at the close of the Friday, two Fridays ago to close of this past Friday, we saw a drop of almost $2 here in the XLE ETF. Again, that's a 3.4% decline. XLU, which is the utilities ETF here in the utilities sector, it also was not loving, probably that move in oil. So we saw a decline of about 1.7% in the utilities sector. XLB, which is the materials sector, also had a small decline on the week. It was down about 0.2% on the week, basically kind of an unchanged week, but you know, on a week where your major market indices were up, you know, 5-6%. And the fact that this sector didn't see a gain at all, it's definitely one of the underperformers, some other underperformers. XLP, which is consumer staples. Consumer staples tends to outperform when the market's doing bad. It tends to underperform when the market's doing good. The market was doing very good this past week. So consumer staples uh did nothing. It basically was unchanged on the week. We take a look at the close of the previous Friday to the close of this past Friday, basically the same price. So an unchanged week in consumer staples, XLI, the industrials, saw a modest gain of 1.2% on the week. And then XLV, healthcare, also a bit of an underperformer, it saw a very modest gain of about uh 1% on the week as well. So these were the underperformers. Let's talk about the sectors that had great weeks. Let's start with the driving force, right? And that's going to be XLK, which is the tech sector ETF. This was up 8.2% on the week. This chart just looks absolutely insane. This thing is going straight to the moon. Other sectors that really outperformed. XLY, Consumer Discretionary, had a great week. This was up 6.7% on the week. XRT, which is the retail sector ETF, had a nice week. This was up 5.1%. Look at that candle on Friday. It gapped up in a big way and then ran up from the gap up as well. That's an insane move on Friday. XLC, which is the communications sector. Communications sector, there is some overlap with a lot of tech stocks as well. So this had a nice week, up 4.5% on the week. XLF, the financial sector, had a pretty good week as well. Financials were up 3.3%. And some of that also had to do with some of the bank earnings. We actually started the new earnings season this past week, and most of the major banks reported earnings last week. And a lot of those earnings reports were positive. XLRE, the real estate sector, had an okay week. I say an okay week, look at this chart. This is an insane last two weeks in this sector. But this past week, XLRE finished the week up around 4% on the week. And looking at some of the uh industries within some of these major sectors, let's take a look at biotech. Because biotech is one that, you know, the chart has been very strong for about a year, but the last couple of weeks in biotech have been pretty insane. Last week, XBI finished the week up 7.1% on the week. And finally, XHB, which is the home builder's sector, it also finished positive on the week. This was up 3.3% on the week. Let's take a look at what some of the big tech stocks did last week. Let's start with Coinbase. So Coinbase obviously very heavily tied to crypto, and crypto has been rallying with everything else, right? As oil comes down, as inflation fears come down, as people get into a more risk-on mindset where they want to speculate a little bit. A lot of people are getting back into things like Bitcoin and Ethereum. So Coinbase had a really strong week. It was up 22.9% on the week. You won't hear uh a number like that very often, will you? And then AMD. AMD was up 13.6% on the week. AVGO, Broadcom, really all these uh AI-related names, semiconductor names, they had outstanding weeks. Broadcom was up 9.4% on the week. And of course, the big dog, NVIDIA, NVIDIA was up around 7% on the week. Google also had a very strong week. Google was up 7.7% on the week. Meta, which has kind of been languishing here in recent months, but Meta has had a strong two weeks now. And this past week, Meta was up 9.3% on the week. Micron, which is uh MU, is the ticker. Micron was up around $34 on the week. That is an 8.2% move in Micron. Microsoft, which has been badly beaten up. You know, like this chart, I kept saying this chart looked like death on the way down. You know, I did not want to touch Microsoft at all, but Microsoft, something has changed now that the market, the broader market is rallying. Microsoft is rallying hard. Microsoft was up $52 from the close of the previous Friday to the close of this past Friday. That is a 14% gain in Microsoft. That is an incredible move. Tesla also saw a similar gain. Tesla was up nearly 15% on the week. And just like Microsoft, it had been just looking bad for several months. But now that the market is rallying, it's like uh because Microsoft and Tesla were the things that were most beaten up on the way down, they seem like they're gonna lead the way back up. So, you know, maybe it's time to go ahead and start nibbling on the bullish side as far as uh Microsoft and Tesla. And then Palantir also had a very nice week. I've actually got a short put right now on in Palantir, and it was up 14.3%. So that's helping my position quite a bit. Uh some tech stocks that yeah, I would say underperformed a little bit, considering some of these moves. I mean, we had moves of 15 to 20 percent in some of these stocks, but Apple, Apple only had a gain of about 3.7 percent in that five-day span, which was, hey, uh, it's a nice week. You'll take it, but it's not the 15% move that some of these stocks were seeing. Amazon also, you know, it had a up week. It was up uh 5.1% on the week. But again, you know, with some of the moves the other stocks were making, you know, it's uh maybe lagging behind. But if you look at the previous week, Amazon had a monster week the previous week as well. Amazon, though, is trading near its highs, uh, actually really close to its all-time high. So Amazon, even though it might have lagged a little bit as far as on a percentage gain this week, it's it looks the stock chart of this company looks very, very strong. Netflix also underperformed because it actually finished negative on the week. Netflix had an earnings report and it went down in a significant way on earnings, which kind of killed it for the week. It actually finished the week down about 5.5% on the week, but again, that was mainly due to earnings. Let's move over to some of the futures and commodities. The one to start with is oil. I'm gonna take a look at USO, which is the oil ETF. Uh, this thing saw a monster decline. Oil was down 7% from the close of the previous Friday to the close of this past Friday. For those following the futures, if we take a look at the CL M6 contract, which is the WTI crude futures, uh CLM6 traded all the way down to $79 a barrel at one point on Friday. It ended up closing the day on Friday, trading around uh $84 a barrel. For those that play around with Brent Crude, if we take a look at /BZ, the Brent Crude futures traded all the way down to $86 a barrel at one point on Friday before rallying a little bit and closing uh around $91 a barrel. And that really is the story with the market, really, for the past two weeks. As oil comes down, everything else goes up because it becomes at that point risk back on, right? Hey, I was getting out of speculative things. I wasn't gonna speculate with the stock market or crypto or gold or silver. Yeah, I was getting out of all that stuff and going to cash and to bonds, you know, because I was worried that this Middle East thing was gonna, you know, that's the way most investors think. They get into that risk-off mindset, but now it's risk back on. Uh netty gas, let's take a look at UNG, the natural gas ETF. Netty gas finished the week up slightly, it was up about 0.6% on the week. Moving over to crypto, since we're talking about crypto, let's take a look at iBit, which is the Bitcoin ETF. And you can see something changed this past week. We have been stuck in this range for a while, but this last week, we actually broke out of that range and we're starting to head back up. So iBit finished the week up 5.7% on the week. And I think now is probably the time that I need to start nibbling a little bit on iBit, getting back in on the long side with this, maybe selling some puts, uh, buying some calls, buying some shares, however, I end up playing this. Uh, I think now is the time to go ahead and jump back in on the bullish side of that trade. Moving over to ETHA, which is the Ethereum ETF. This had a very similar week. Uh, Ethereum, as you can see, was trading in a range just like uh Bitcoin was for a long time. And then finally this week it broke out of it. Uh Ethereum, ETHA, was up 7.8% on the week. Moving over to the precious metals, let's take a look at GLD. GLD finished the week up 2% on the week, and I do have some gold-related positions. Actually, I have a position in GLD itself. I also have a position in GDX, the gold miners ETF as well. And I'm primarily bullish on those. So this has been a good trade for me the past couple of weeks. I'm also in silver as well. Let's move over to SLV, the silver ETF. Silver was up 6.6% on the week, and that's great for right now. I am in a uh, well, let me collapse my positions here. I was in a covered strangle. I took off the short put that was part of the covered strangle because it would already uh it was more than a 50% winner. So I took off the short put. Still have the short call plus the 100 shares. So this is a covered call type position, but uh everything right now is working well on that. Let's take a look at what the currencies did this past week. So I'm gonna take a look at UUP, which is the dollar index ETF. Um, the main components of the dollar index are the euro, the British pound, and the yen. So it's those currency pairs. But the dollar this week fell 0.3% on the week, a small little down move. And if the dollar was down, you probably would expect the euro, the pound, the yen to be up a little bit. Let's take a look at FXE, which is the euro. And sure enough, FXE was up 0.4% on the week. FXB, which is the British pound, was also up 0.4% on the week. And FXY, the Japanese yen. We take a look at the close of the previous Friday to the close of this past Friday, was also up 0.4% on the week. So, yeah, very similar moves in all of those currencies. And then lastly, let's take a look at bonds. I'm gonna take a look at TLT, which is the 20 plus year treasury bond ETF. TLT finished the week up 0.7%. If we take a look at the futures, let's take a look at the ZB M6 contract. The ZB futures, uh, you can see uh since we hit the bottom a couple of weeks ago, they have been trending higher. They're clearly stair-stepping up here. If we take a look at ZN, which is the 10-year note futures, they very similar chart. Uh, they've just been stair-stepping up the last couple of weeks. Hopefully, bonds start rallying because we are well off the highs on both the bonds as and the notes, because this was the day the war started, right? That was the high. And then they saw they were basically in full-blown crash mode when the war started. Bonds and notes came down hard. And I don't know how long it'll take before they get back to those highs they were at, but it it may take a minute for us to get back here in the ZN. We we would need to get back to 114.05, and currently we're trading all the way down at 111.20 and a half. So, still well off their highs. So, let's talk about some of the earnings that are coming up for this week because we are in the middle of a new earnings season. There's a lot of stuff you could play this week. Monday before the bell, Cleveland Cliffs reports earnings. Now, if you wanted to play Cleveland Cliffs, you need to already be in a trade because it's reporting before the bell on Monday. So if you're not already in a trade, well, you missed out on that. Monday after the bell, nothing of note really reports. Tuesday before the bell, you have United Healthcare, GE, Raytheon, 3M, DR Horton, and Halliburton all reporting before the bell on Tuesday. Tuesday after the bell, you have Intuitive Surgical, United Airlines, Capital One Financial, Interactive Brokers, and EQT all reporting after the bell on Tuesday. Wednesday before the bell, we have Boeing, we have AT ⁇ T and Philip Morris all reporting. Wednesday after the bell, Tesla, ServiceNow, IBM, Lamb Research, Love, which is Southwest Airlines, and then Texas Instruments all report. Thursday before the bell, we have Nokia, Lockheed Martin, Dow, and that's Dow Chemical, FCX, we have American Airlines and Curig Dr. Pepper all reporting before the bell on Thursday. Thursday after the bell, we have Intel and Newmont Mining, and Friday before the bell, Procter and Gamble report, Friday after the bell, nothing of note reports. So let's talk about some trade ideas for this week. So I mentioned many times over the course of this podcast now that it might be time to get some long deltas. It's time to put on some bullish trades. What bullish trades do I think maybe you should consider if you're not already in them? Well, I think you need to be playing some of the major market indices, market index ETFs, something like a SPY or a QQQ or a IWM. Let's take a look at SPY. So if you want to get long SPY or a QQQ or a IWM, any of those market ETFs, I think one of the smart ways to play it is with a put credit spread. I would go to the 61-day cycle and I would sell somewhere around the 35 delta put and I would buy the put $5 below. You're going to get somewhere around a 115, maybe a 120 credit, depending on which of those products you play and what their volatility happens to be. You're going to risk about 380 to make 120. Very high probability trade, though, these 60 DTE put credit spreads at a 35 delta short. You're going to have a pop somewhere around 65%. You're going to have a P50 number somewhere around 90%. And if you backtest these things, they do very well over the long term. They do especially well if you're playing them in bull markets, right? And that's clearly what we're in right now. So I like these put credit spreads on a SPY, a QQQ, or an IWM. Another way to play these indice kind of products, I like doing the actual indexes like an XSP, which is the mini SPX. Basically, it's like a SPY, except it's an index. So those there's no assignment, no shares. And for these, what I like to do is I like to go out three weeks. So a 21 DTE trade. Uh and you know, typically I'll put this on on a Friday to expire three Fridays from now, 21 days from now. And what I'll do is I will go and sell the expected move call twice, and then I will buy some wings. I will buy a wing eight dollars below and buy a wing eight dollars above, forming a broken wing butterfly. So I broke the wing to the downside. I made the uh debit spread portion of this butterfly bigger than the credit spread portion. This is typically not the way people break call butterflies, but I like doing this in very strong bull markets. And the reason I like breaking the wing that way is because it gives you a chance not to lose to the upside, right? Typically you do that you break the wing so you can't lose to the downside, but in a strong bull market, there is a chance that this market is so strong it blows past your butterfly to the upside and you end up losing to the upside. So the way I form it is I can't lose to the upside. I'm good on the upside. To the downside, I lose. But again, I'm looking for bullish trades. I'm looking for some bullish deltas. So this trade here is a great way to get those bullish deltas. And then finally, one other trade I want you to consider a post-earnings trade. Sometimes people want to avoid earnings because of the earnings risk. You know, a stock can make a big move on an earnings report. Well, this last week, Citigroup reported earnings, and you know, it didn't really make much of a move, but it kept a lot of its IV rank. It still has an IV rank of 37 and it's already reported earnings. Why not go into Citigroup, go to the 61-day cycle, and if you want long deltas, why not sell the 15 delta but you get a 168 credit on a buying power reduction of $1,100. That's a pretty nice trade, and it's a fairly safe trade because the banks typically they don't make crazy moves like tech stocks. And even if the trade went against you, you could certainly run the wheel on a stock like Citigroup. It's a real company, like it's a very large bank, it's not going anywhere. You could just take the shares and begin selling covered calls. So that's certainly a viable trade. If you want to actually play both sides of Citigroup, you certainly could sell the 15 Delta call too. So a 15 Delta Strangle, you get a 284 credit on a buying power reduction of $1,300. Both of those trades, I think, are fine trades. Again, if you're looking for a trade and you want to put on something in a company that's already reported earnings, because this was one of the first things to report. So, you know, most everything else has earnings coming up. So this is one of the few stocks that's already reported earnings and it still has a little bit of IV left in it. So for me, I consider this a pretty safe trade. So that's it for this week's edition of Market Outlook. For those listening to the audio only version of the podcast on Apple or on Spotify, please give the show a five-star rating. Help us grow in the algorithms. For those that are watching the video portion of the podcast on YouTube, please like, subscribe, share. Also, check the description. You'll find a link to my book, The Super Wheel Option Strategy. This book is about one of my favorite option strategies, the wheel option strategy. This book is published on Amazon. And again, you'll find a link in the description below. Also consider subscribing to the DT Options Patreon slash Discord. I have a members only Discord where I hold a live voice chat every trading day. Every day that the stock market is open. I have a live voice chat. We have a video conference call where I share my screen. You get to see all the trades I'm in. You get to see me manage trades. You get to see me put on potential trades, you know, check out things. Oh, is this a good trade? Is this not a good trade? You guys get to bounce ideas off of me. I get to bounce ideas off of you. We got a nice little trading community there, and we'd love to have you. All right, guys. Peace.