It's Starting To Look Like A Bubble - Market Outlook (Ep. 30)

This past week, U.S. stocks gained overall, with the S&P 500 rising 2.3% and the Nasdaq surging an astounding 5.5% on strong AI and tech momentum.  Markets navigated volatile oil prices driven by Middle East tensions, while semiconductor stocks saw significant gains following positive industry developments.  Technology led the gains, with the NASDAQ experiencing a strong week.  Key movers included chip stocks like MU, AMD and QCOM.  INTC shares jumped roughly 16% on reports of a preliminary deal to manufacture chips for AAPL, boosting the semiconductor sector on Friday. Earnings results have remained strong, with roughly 83% of S&P 500 companies beating expectations, alleviating concerns that higher energy costs or tariffs would hit profit margins. 

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Transcript

SPEAKER_00 0:10

Welcome to Market Outlook. I am your host, Derek Taylor, also known as DT. I'm going to be taking a look at last week in the market as well as previewing the week ahead in the stock market. I'm also going to take a look at some potential options trades that I think are interesting for this week. But first, what was the major stories in the stock market this past week? This past week, Monday, May 4th to Friday, May 8th, we saw some real strength in the market with the SP 500 rising 2.3% and the NASDAQ surging an astounding 5.5% on strong AI and tech momentum. The markets, they navigated some volatile oil pricing throughout the week, and of course the volatility in oil is driven by Middle East tensions. But the semiconductor stocks, they saw significant gains following positive industry developments. Also, some of them also had good earnings. Technology led the gains this week, with the NASDAQ experiencing a very strong week. Key movers included some of the chip names like Micron, AMD, and Qualcomm. Intel shares jumped roughly 6% on reports of a preliminary deal to manufacture chips for Apple, boosting the semiconductor sector on Friday. If you've been trading some of the semiconductor ETFs like SMH, for example, that thing had an incredible upweek. Earnings results have remained strong, with roughly 83% of the SP 500 companies beating expectations. And that kind of alleviates some of the concerns that higher energy costs and or tariffs could hit profit margins. Naturally, as we're unsure whether the war in the Middle East is over or not, oil prices continue to fluctuate. And this past week, initially, they surged early in the week due to escalating tensions in the Persian Gulf and fears of conflict. Of course, this affects energy and broader market sentiment. Is the war over? Is it not over? Who knows? But we can say one thing for sure is that the market does not care that the Strait of Hormuz is still closed. Oil prices seem to have stabilized around that $90 to $100 a barrel range. And I think most people expect this to be the new norm for oil for the next few months or possibly even a couple of years. We'll have to see how these higher oil prices affect inflation and growth. But while some analysts this past week noted that we may have a frozen labor market, investors kind of shrugged off those concerns, focusing on the potential for continued economic growth due to some of this overwhelming strength of the tech sector. For me personally, I'm carrying a lot of long deltas right now. I have been for a few weeks. I've been riding this wave up. I'm very long this market, and I will continue to ride the wave up until the market hints that it wants to pull back a little. But I gotta be honest, I'm a little concerned. I'm starting to be really concerned about the strength of this market. The explosion of the chip stocks, it seems too much, right? We've moved too far way too fast. I'm still long with the market, but I'm I'm lightening up a little bit. I think I'm gonna lighten up on some of my long deltas in the coming weeks, possibly put some hedges in place, especially if we get a sharp pullback on some of these tech names that I'm pretty long. You know, I need to start worrying about protecting myself a little bit. You know, on the way up, I'm just balls out long. There's no reason to hold hedges because I need to make as much money on the way up, especially after a big pullback where I lost a lot of money, right? So naturally, most of us are very long on the way up, but you don't want to get caught with your hand in the cookie jar. At some point, you need to start taking off some of those bullish deltas and you know, start putting on some more bearish trades or some neutral trades that don't really have a delta component. If you keep putting on all these long deltas, when we finally get that pullback, when these chip names come back down to earth, you're gonna get hurt a little bit. And when I talk about the market going up and the market having a pullback, I keep talking about the tech sector. I keep talking specifically about these chip stocks. And that's because for me, if you're looking at the market right now, it's the tech sector that is driving all of this. It is the only thing that is making this surge up. And that, again, has me concerned. I'm not saying that this is a bubble, but I think we need to start taking some profits. If you've been long this market for the last month or so, at some point you you've probably got some winning trades on. Go ahead, lock in some profits, take some stuff off the table, uh, diversify your trades a little bit. You know, if you've got a whole lot of undefined risk trades, maybe mix in some defined risk trades to protect yourself a little bit. Again, uh have some bullish, bearish, and neutral delta trades on, diversify by time frame as well. Don't have everything, if you're an options trader, don't have everything all in the same monthly cycle. Because if everything goes to hell all in that one cycle, you could be in trouble a little bit. So protect yourself a little bit. For me, you know, I think it's probably not a bad idea if you've been putting a lot of your buying power in play on the way up, which I did. You know, I was using well, 50%, sometimes a little more on the way up here. I think maybe it's probably time to downsize a little bit. So let's take a look at what the major market indexes did last week. Let me go ahead and switch over to the chart here. And first I'm gonna pull up SPX, which of course is the SP 500 index, and I'm gonna zoom in, but actually, let's zoom out first. Look at the run we've had the last month. This has been incredible. If I really zoom out, you can really see you don't get moves like this very often. We had a similar move back here after the market meltdown of last year, where the SP 500 was down around 20%. Uh, like this was this was starting to get nasty here. And a lot of times the recovery is sharp and violent after a big down move. And you know, we had a little bit of a down move here uh earlier this year, but the recovery has has been more than what you would expect. You would expect the recovery to get us back to where we were, but we have gone well past where we were uh for the meltdown of this year. So again, this has me a little concerned. Let me zoom in. If I take a look at the close of Friday, two Fridays ago, and the close of this past Friday, and I see a gain of around 168 points, and that is a 2.3% gain on the weekend SPX, a really nice week in the SPX. I certainly don't want to throw shade on the SP 500, but let's look at the NDX, the NASDAQ 100. This looks a little different, right? As crazy as that SPX chart looks. Look at this. I mean, it it is literally like the chart is going straight up. You know, not a diagonal line. The chart is literally going straight up. This is insane. And if I zoom in and take a look at the the previous Friday to this past Friday, we see a gain of around 1,500 points in the NDX. That is a 5.5% gain in a week. That is incredible, by far the uh biggest outperformer among the indices. If we take a look at the RUT, the Russell 2000, it had a good week. If we take a look from the close of the previous Friday to the close of this past Friday, we see a gain of around $48. That is a 1.7% gain and the RUT, which is nice. The DJX, which is the Dow Jones, now the Dow Jones is only 30 stocks. It's not very tech heavy either. So this is going to be the underperformer, but again, I don't really consider this. I have said this in the past, a good market indicator as far as a real index. A real index is the SP 500, 500 stocks. The NDX, 100 stocks, it's very tech heavy, but still, it's a good indicator of what the market does because most of the big mega cap tech stocks are tech stocks rather than the mega caps, right? The Russell 2000, I think, is a good uh index to pay attention to. But the DJX here, not really that concerned. It's basically unchanged on the week. We take a look at the close of the previous Friday, the close of this past Friday, it is up about 100 points or so. That is like 0.2% gain on the week. So not much going on with the Dow Jones. And then the VIX. Let's take a look at the volatility index of the SP 500. The VIX has been contracting for about a month. You know, on the way up, as the SPX has risen for the last month. Volatility naturally has fallen. This past week we saw a change of about 20 cents. If I go to the previous Friday to this past Friday, we see a slight uptick of about 20 cents. That's a 1.2% gain in the VIX in one week, but essentially uh unchanged uh VIX. The VIX right now currently trading at $17.19. That is exceptionally low when you consider that we had a VIX above 30 a month ago. So a serious ball contraction. Now let's take a look at what the major market sectors did last week. So I mentioned the biggest sector as far as the one that is driving this market is tech. So let's take a look at XLK, the tech sector ETF. And you can see this is the market, right? This looks very much like the NASDAQ chart because the NASDAQ, you know, about 60 to 70 percent of the companies in the NASDAQ are in the tech sector. So this is just a crazy move. Uh XLK had a 8.4% gain on the week this past week, and it's had similar gains in the previous weeks as well. This thing is out of control to the upside. In fact, because all the big mega cap stocks are mostly tech stocks, right? Now, this is really why the SP and the Nasdaq are up this week. And this is the only sector that is doing this. Most of the other major sectors were either unchanged on the week or down for the week. Uh XLK, the tech sector, was really the only thing up in a big way. Uh, there was one other sector that had a pretty good up week. XLY, which is consumer discretionary, had a gain of about 1.3% on the week. That's not an 8.4% gain like tech, but you know, it's an okay week, right? But that's it. Now that XLB, the materials sector, which has been trading sideways for the most part here in the last few weeks, XLB finished the week up about a half a percent on the week. And then once we get out of that, everything else, all the other major sectors were either unchanged or down for the week. Let's start with healthcare. XLV finished the week down 1.2% on the week. Uh, one thing I do want to mention is an industry within the healthcare sector. If you take a look at XBI, which is the biotech industry ETF, biotech was really strong over the past week. It actually had a gain of 3.3% on the week. So biotech did well, but overall the healthcare sector had a uh negative week. XLE was by far the biggest mover to the downside. That's the energy sector. And of course, with oil prices kind of stabilizing andor going down, XLE, the energy stocks within it, are gonna go down as well. XLE was down 5.4% on the week, so a really big move there. XLU, which is the utilities sector, also had a really big move down this past week. It moved down 3.9%. XLF, which is the financial sector, was also negative on the week. It was down 1.3%. It's also interesting when you look at the financial sector chart here. XLF, of course, you've got the big banks, you know, you JP Morgan, Goldman Sachs, and all of that stuff, Bank of America Citigroup. And you know, you would think in this strong market, those banks would be doing well. But XLF has not moved. This is not rallying with the rest of the market. That's another kind of concerning thing, you know, when I look at this chart. This has me worry. It's like, why are the banks not making any money? All right, it's kind of weird. If we move over to retail, which is XRT, the retail sector, ETF, retail was down one percent on the week. And then another industry ETF, home builders, XHB. Uh home builders had a pretty nasty week. It was down 2.5% on the week. And then we had four of the major market sectors that were pretty much unchanged for the week. XLC, the communications sector, was up 0.2%, uh, kind of a nothing move. XLI, the industrial sector, was up uh 0.1%, kind of a nothing move. XLP, the consumer staples ETF, was absolutely unchanged. And then XLRE, which is the real estate sector, uh, this was up 0.2%. And you can actually zoom out. Real estate has been doing well in the market rally. Uh in the last week or so, it's kind of uh tapered off a little bit, but early in the rally, you can see real estate did participate a little bit. Now let's take a look at what some of the big mega cap stocks did this past week. I think we have to start with some of the big movers. So I'm gonna start with AMD. AMD had earnings, it's just had a monster, really, even before earnings. AMD in the last month, part of the market rally, AMD is one of the driving forces behind this. This thing has gone from $200 a share to $460 a share in a month. It has more than doubled, and AMD is not a small company. You don't see large companies double like this, or more than double in such a short amount of time. Again, part of why I'm worried AMD, if I'm looking at the market cap here inside the Tasty Trade platform, AMD has a market cap of about $740 billion. So it's a very big company. Uh just a crazy move here in the last month. Now, week over week, what was the move? Well, it was a move if I go to the close of the previous Friday, which was $360, to the close of this past Friday, $460. That's a hundred dollar up move in one week. That's a 26% gain in one week. Another crazy chip name that I think everybody has been paying attention to for a while, Micron, ticker MU. Uh, for the last year, this thing has been on a run, but here in the last month, as the market has really rallied, this thing has been absolutely out of control. You can actually see I've got the last price from Friday, which was uh $747, and you can see the change on the day in that one day on Friday was up a hundred points in one day. What was it up on the week? Well, it was up around uh 205 points in one week. That is that's a 37% gain on a stock in one week, and just an absolutely incredible move. Now, AMD and Micron are kind of the the big performers. One other one I want to mention, Qualcomm, because Qualcomm also, I think it recently had earnings and its chart looks crazy. Uh Qualcomm wasn't one of these stocks that was going up for the like the last six months or the last year, it really just took off, really like in the last two weeks. But in the last two weeks, for whatever reason, this thing has gone from $135 a share to $220 a share. Nearly doubling, right? It's not quite a 100% gain in that time frame, but very, very close. Qualcomm, absolutely insane. And when you have stocks like AMD, Micron, Qualcomm, uh, the chip sector, if I take a look at SMH, the semiconductor ETF, this chart looks insane. Actually, for the last year, this chart has looked insane, but now it's really ramping up as some of these chip names are making their moves. Let's take a look at NVIDIA, the biggest in that space, right? Nvidia had a gain this past week of 8.4% on the week. Uh, some of the other big movers, uh, let's take a look at Tesla. Tesla obviously not a chip stock, but you know, it kind of is kind of in the tech AI space as well. Tesla was up nearly 10% on the week. Apple had a good week. Apple was up 4.7% on the week. Coinbase, which uh had earnings, but it didn't really do much on earnings, it really hasn't gone anywhere. Coinbase was up 5.2% this past week, but if you zoom out and look at the chart, it has been trading in a range here for the last month. So it has not really participated in this crazy rally. Google, though, has participated. If you look at the chart of Google, it's kind of crazy. Google this past week was up 3.9%, but the previous week was just a monster week for Google and really the whole month. In the last month, Google's gone from like $270 to $400. So uh it is actually now Google, I believe, is the biggest company in the world as far as market cap. I believe it's a $5 trillion company or very, very close. Uh, if it's not the biggest company, it's very near the top of the list. Amazon had an upweek this past week. It wasn't a crazy up week, but it was nice. Up 1.6%. AVGO, which is Broadcom, another chip name, so you would expect this did well this past week. It was up a respectable 2.1%. Now let's talk about some of the tech stocks that didn't do all that well. Let's start with Meta. Meta was basically unchanged on the week. Meta just has gone nowhere with the rest of the tech sector rallying hard. Meta's going nowhere. I don't love Meta as a company right now, as far as if I wanted to put on a bullish trade. Meta kind of looks sick to me. Microsoft also kind of looks a little sick. Microsoft didn't participate in this rally this week. It was up uh 0.2%, so just a very, very tiny up move. Some other big tech stocks that didn't do much this week. Netflix actually finished the week down 5%. Netflix is another one long term. I don't know if I I love putting on bullish trades in Netflix right now. Looks kind of sick. Palantir, I am bullish in. I uh sold some puts for earnings. Uh Palantir is down. It was down around 4.4% on the week. But again, that was mainly due to the earnings move here. And yeah, I think long-term Palantir is gonna be okay. I mean, it's up off its highs, but this is not the same kind of chart as like that Meta or that Microsoft or that Netflix chart, right? Those companies look like they're in some deep duty. I think long-term Palantir is gonna be fine. Uh so I'm holding some short puts there, and uh yeah, I feel comfortable being bullish in this particular company. So let's move over to some of the futures and commodities. Let's start with oil. So I'm gonna pull up USO, which is the oil ETF. Now, oil contracted this week, right? We we had a decline in oil, which was much needed, and that helped fuel the market rally as well. But USO was down around $9.21 on the week. That is a decline of 6.5% in oil in that week. UNG, which is the natural gas ETF, was down about 14 cents this week. That is a 1.3% decline in natty gas. That is in large part why the energy sector was very weak, that huge uh down move in oil, also natty gas not participating as well. Moving over to the crypto space, let's start with iBit, which is the Bitcoin ETF. iBit is one that I've been saying for a couple of weeks. Looks like it's in a bullish trend, and now I wouldn't mind getting long. I don't have a position right now, but it still looks great. Uh, iBit this past week was up 2.2% on the week. We move over to ETHA, which is the Ethereum ETF. This really didn't participate in the same rally that Bitcoin had. It was up only 0.3%, kind of a nothing move for Ethereum. Moving over to the metals, GLD gold, which I do have some bullish positions in. Uh, gold was up 2.5% on the week. Moving over to SLV, which is the silver ETF. Uh, this was actually really strong this past week, up nearly 7% in a week, which is great because I've got a lot of stuff going on in SLV. I've got 100 shares plus a short put, plus two short calls. So you can kind of think of this as a covered strangle. 100 shares plus short put plus a short call, actually, two short calls. One of the calls is covered by the shares, so it's really like a covered call plus an extra strangle. Uh, but I got a lot of long deltas, right? It's a very bullish kind of trade. So loved this past week in silver. SLV is the gift that keeps on giving as far as volatility is great in this thing. So if you've been selling options, puts andor calls, or both ideally, uh, go sell some strangles in SLV. I think you'll be happy because I mean, look at the range this thing has had in the last three months. Uh, strangles have been the gift that keeps on giving, right? Because you have opportunities to profit on both sides of the trade. You know, on the way up, you profit on the puts, on the way down, you profit on the calls, and you just keep cycling those puts and calls over and over again, in my case, around a lot of 100 shares as well. So, yeah, this has been really nice the last few months. Let's check out what the currencies did this week. I'm gonna pull up UUP, which is the dollar index ETF, and the dollar was down 0.3% on the week. If we take a look at the main components of the dollar, let's take a look at the euro. I'm gonna pull up FXE, which is a Euro ETF. The Euro was up this past week. It was up 0.6%. FXB, which is the British pound ETF, was also up on the week. It was up 0.4% on the week. And then finally, the other biggest component of the uh the dollar index, the three biggest components are the euro, the pound, and then the yen. The FXY ETF is the yen ETF, and the yen was up 0.3% on the week. Round things off, let's take a quick look at bonds. We're going to pull up TLT, which is the 20 plus year Treasury bond ETF, and we finally got a little bit of a rally in bonds this past week. Bonds were up 0.5%, and we needed it because we were making a low here. If I zoom out, you can see last week we were trading at lows that we hadn't seen until about September of last year. So the bonds really need a rally here. Got a little bit of a bounce this week. Hopefully, that continues. So let's talk about earnings for this week. So we're getting kind of later into the earnings cycle. There's not that many interesting plays left. A lot of the big mega cap stuff, they've already reported. And this week, I'm just gonna name maybe 10 or 12 tickers that I think are reasonably tradable. Monday before the bell, circle CEG, which is constellation energy, and B, which is Barrack Mining, Barrick Gold. They all report before the bell on Monday. Now you can't play Circle or Constellation Energy or Barrack Mining unless you already had a position on, because they report before the bell on Monday. Then Monday after the bell, you have Hems, you have Regetti, which is one of the quantum stocks, and Marathon Digital. So that's a uh crypto play for those wanting a crypto play. Tuesday before the bill, you have qubits, QBTS, another one of the uh uh quantum stocks. That's uh D-Wave is actually the name of the company. And then you have JD.com and then SC, which is uh C Limited. They all report before the bell on Tuesday. Tuesday after the bell, Ocklo is the only interesting company. Wednesday before the bell, you have Baba and Ticker DT, which is Dynatrace. I only mentioned Dynatrace, it's not very liquid for options. I only mention it because this particular company always screws me up when I'm doing a Google search for my YouTube channel, which is called DT Options, right? When I search for DT Options, you know what I often get? I get like an options chain for Dynatrace in this company because it's DT. And then the Google search thinks I want the options chain for that particular ticker. I they need to change their ticker to conform with my name and my YouTube channel. Wednesday after the bill, the biggest company probably this week reporting, Cisco. Thursday before the bill, nothing of note. And then Thursday after the bill, we have AMAT and Figma, and then Friday, both before and after the bill, nothing worth talking about. So let's talk about some trade ideas for this week. Well, I think if you're somebody that still needs to get long this market, I think you just go to one of your standard core kind of strategies that I think all of us probably at some time or another we employ, put credit spreads on things like SPY or QQQ. I'm gonna go to QQQ, and typically the way I put these on, I go to about the 60-day cycle. In this case, I'll go to the we'll go to the quarterly cycle, the 52-day cycle, and I sell the 35 delta put, and then I, in this case, I'll go $5 wide. You can size it however big or small you want it, but I'll do a $5 example here where I get a whopping 146 credit versus a max loss of 354. These are great trades, obviously defined risk, high probability. The pop on the trade 63%. The P50 number, if you manage at 50%, is 79%. I love selling put credit spreads and SPY and QQQ. My go-to metrics here is sell the 35 Delta and then go however wide you want, $5, $10, whatever you're comfortable with, and then manage them at 50% or 21 DTE, whichever one comes first. The next trade I want to mention is one I I'm already in. I we talked about it earlier. Palantir, which has kind of been trading sideways recently, has an IV rank of 20. So, you know, too low of an IV rank really to put on a neutral trade like a strangle. But if you want to be directional, if you're directional, if you have the same assumption that I do and you're bullish in Palantir, maybe go into the June monthly cycle, the 40-day cycle, and sell the 19 Delta put like I did. I've got uh a 237 credit on the trade versus a buying power of only $1,200. The pop on this 19 Delta put is a 79 pop, right? P50, 88%, very high probability trade. And for me, Palantir is a real company. It's like one of the Mag 10 stocks, right? So the Mag 7 plus, I think they add Palantir, Broadcom, and AMD to make the Mag 10 index, right? Palantir is a real company. I'll run the wheel if I need to. If something bad happens, this thing crashes hard, I'll take the shares because I know I can hold the shares and it'll probably come back to me, right? And this is again not a uh a risky kind of play to run the wheel on, in my opinion. Another stock I want to talk about is one we looked at the chart earlier and I didn't love it. Netflix. Netflix still has an IV rank of 30, the minimum I need for selling a strangle. So if I go to the 40-day cycle, the June cycle, and sell, let's sell the 17 Delta put, and then go sell the 17 Delta call, we get a 162 credit on a buying power reduction of just $1,000. The pop is 73%, the P50 is 87%. And this is one of the few stocks that I would be comfortable selling a strangle on in the tech sector because tech is right now so many things are exploding higher, and you you would worry about fighting the short calls on things like a AMD or a Qualcomm or a Micron. I'd never sell a naked call on those things right now. It's just way too risky. But Netflix is doing its own thing. So if you're looking for being able to put on a delta neutral trade, because maybe your portfolio, you've already got so many long deltas, you don't want to keep adding long deltas. Put on a delta neutral trade in something like a Netflix, because right now it's been trading sideways. I think that's going to continue. I don't see this thing rallying hard in the next 40 days. So that's it for this week's edition of Market Outlook. For those of you listening to the audio 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 of you watching the video podcast on YouTube, check out 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. You'll find a link to the book in the show description. Also consider joining the DT Options Patreon slash Discord. So I have a members only Discord where I hold a live voice chat every trading day. Every day the stock market is open. We get together and we have a voice chat. I share my screen, just like on this video here, right? I share my trading platform. You guys get to see all the trades I'm in. You get to see any new trades I make that morning, any closing trades, any rolling. Um, you guys get to bounce ideas off of me. I get to bounce ideas off of you. We've got a great community there, and we'd love to have you check out DT Options on Patreon. Sign up there, and you'll immediately be granted access to the DT Options Discord. All right, guys. Peace.