There is a lot of discussion lately that we are reaching the peak of a dreaded “triple top.”
Here are just a couple of the many warnings from market experts:
— If the S&P 500 and other major U.S. indexes are turned back at today's critical, even historic, juncture, we could see a significant upcoming decline in the U.S. stock market as history repeats and also rhymes. – MarketWatch, “Is this the biggest triple top ever?”
— A third top has now formed, and a 60% stock market drop is inevitable — and it could strike at any moment. – MoneyNews, “Market Collapse Predicted By Scientist”
That's just a sampling of the reports that are being released almost every day.
In 2000 and 2007, the S&P 500 peaked near current levels. The market then plummeted into long and agonizing bear markets. These crashes eliminated trillions of dollars in wealth and eroded investor confidence. J.P. Morgan Asset Management recently published this chart highlighting the S&P 500's inflection points over the past 16 years.
As you can see, the market ballooned from 1997 to 2000 and from 2002 to 2007. But both increases were answered with sharp tumbles from both the tech bubble burst (-49%) and the financial crisis (-57%). And the latest climb is even steeper than the previous two with a rise of 132%. That holds the potential for an even sharper drop.
But I'm not worried. In fact, you can reap immediate income without worrying about the market — because you won't have to own any shares to profit. In other words, Mr. Market can watch the news. He can watch the blog posts. He can soar to new highs or sink to new lows.
But this volatility won't make us panic or pull out of the market. In fact, this volatility should increase our returns.
I am talking about selling options.
I know many people are hesitant to dabble in the options market. After all, statistics show that 80% to 90% of investors lose money trading options. It's hard to blame anyone for avoiding options given this statistic, but it's actually not true.
What is true is that 80% to 90% of options buyers lose. But, if 80% to 90% of buyers lose money, then 80% to 90% of options sellers make money.
When we sell an option, we get money deposited in our brokerage accounts. It's called a premium, but I like to call it “Instant Income.” We get paid upfront for options that more than likely will expire worthless. That may sound like a bad thing, but it's actually what makes my strategy successful. When an option I am selling expires worthless, it means I keep that “Instant Income.” And so far, all of my trades have been winners.
And this is just one part of my strategy. There is a lot more I want to tell you about options and the potential triple top that could send the stock market tumbling. But regardless of what the market does, I'm confident my “Instant Income” strategy will continue to deliver winners. My team and I put together a new report to explain exactly how selling options works and how you can get started today.
Since I've started telling people about my strategy, I've helped investors make thousands of dollars.
One reader said: “When I first started using [Amber's] picks, my goal was to earn $500. Then I quickly realized I can earn at least $1,000 per month.”
View all closed trades here. Stock prices in this issue are as of the close of trading on August 9.
SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK) dipped slightly over the week. The fund is currently testing support at the downward sloping 50-day moving average. Daily RSI is clawing at the key 50 juncture. Daily stochastics seems to have bottomed and is turning higher. I purchased the fund at $39.94. I'm currently about breakeven on the trade. My stop-loss of $34.98 and target of $48.01 hold.
Procter & Gamble (NYSE: PG) made steady gains most of the week before retreating slightly Friday. The stock is currently approaching resistance at the upper Bollinger Band. Daily RSI is nearing the overbought 70 level but is not there yet. Daily MACD is on a buy signal. I purchased the stock at $76.25. I'm currently up about 7%. My stop-loss of $70.24 and target of $89.83 hold.
Hershey Company (NYSE: HSY) hit a new all-time high of $97.94 on Tuesday before retreating slightly Wednesday and Thursday and then hitting another new all-time high of $98 on Friday. The stock is currently trading slightly below resistance at the upper Bollinger Band. Daily RSI is in overbought territory; however, strong stocks can become and stay overbought for long periods. Daily MACD remains on a buy signal. I purchased shares at $87.35. I'm currently up nearly 12%. My revised stop-loss of $93.06 and target of $102.66 hold.
Coca-Cola (NYSE: KO) held about flat over the week. Traders appeared unmoved by investment firm UBS adding the soft-drink giant to its list of top 10 stocks based on quality and price. Shares of the beverage company are currently sitting between support at the lower Bollinger Band and resistance at the downward sloping 50-day moving average. Daily RSI is just below the key 50 juncture and flat. I bought the stock at $40.06. I'm currently about breakeven on the trade. My target of $44.30 and stop-loss of $37.49 hold.
Waste Connections (NYSE: WCN) remained relatively unchanged over the week. The stock is currently sitting between support at the middle Bollinger Band and resistance at the upper Bollinger Band. Daily RSI is well above the key 50 juncture and rising. I purchased the stock at $42.22. I'm currently up about 4%. My stop-loss of $38.12 and target of $48.95 remain.
Beazer Homes USA (NYSE: BZH) slid over the week. Traders seemed to discount news that the Institute for Supply Management's Non-Manufacturing index hit a five-month high in July. This data is positive for homebuilders since it shows continued economic acceleration. Shares of the homebuilding stock are currently testing support at the lower Bollinger Band. Daily RSI is just above the oversold 30 level. Daily stochastics appears to have bottomed and has just given a buy signal. I purchased the stock at $17.55. My stop-loss of $14.92 and target of $23.29 remain.
— Dr. Melvin Pasternak Co-Editor, Trade of the Week
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