Hey guys! I've spent the last 4 weeks pretty much exclusively playing options to capitalize on the market chop and the volatility, first 3 weeks I did very well however last week I lost ~40% of what I made in those 3 weeks because I got cocky and played options based on speculation rather than charting. On Friday I decided to transition back into swing trading and I loaded up on ETSY, CRSP, SQ, & NNDM shares, and I added 02/19 expiration call options for FUBO and JMIA which will likely be some of my last options plays for the time being (this post will explain why this is all relevant). Aside from my big loss, I believe it's time to rotate back into swing trading, with focus on technology (FinTech, eCommerce, EV, Streaming, Cloud storage to list a few sectors)
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So, how does my misfortune tie into this FAANG chart and why do I believe it's time to buy tech again?
While analyzing my trades and determining my strategy for the coming quarter I noticed something interesting about FAANG and the market, I noticed that when comparing the peaks and troughs of FAANG to the general market over the last year, the former tends to lead the latter. After observing this I decided to investigate and look a little deeper into my personal experiences swing trading tech stock (SQ, AAPL, TSLA, MSFT, NFLX, BAIDU... etc.), holding a long term portfolio, and paper trading a portfolio of around 50 stocks when I made a few very important observations. We will begin with the most obvious observation.
Observation #1: FAANG outperforms the market when it's overbought
When FAANG is overbought, as indicated by the green boxes on my indicator, and represented by arrow's 1 and 2 it's blatantly obvious that FAANG outperforms the S&P 500. Moreover, my paper account composed primarily of tech stocks, banks, Pharma, and consumer cyclical performed best during 2nd arrow's timeframe.
Observation #2: The S&P 500 outperforms FAANG when the markets are volatile (not really)
Pointing your attention to the third arrow we can see FAANG and the S&P 500 both seem to be quite volatile and and aren't exactly trending upwards but rather sideways. This is confirmed by the volatility seen in the red box on my indicator. Now to get more specific I'll direct your attention to the below chart
Looking at the chart above we can clearly see that S&P 500 outperforms FAANG during high periods of volatility, we cannot *actually* conclude this due to a small sample size however for the sake of this idea lets say its so. Now more unique to my swing trading, my two worst weeks are highlighted in red; these are also local lows for FAANG, and my three best weeks are highlighted in green; these are local highs for FAANG. Assuming these touch points are indicative of future performance of my portfolio I observed that my best weeks in swing trading are from local lows to local highs (buy low sell high), and my best weeks trading options are from local highs to local lows (playing 5min and 15min day trades to capitalize on volatility).
Putting all this together I have concluded that (1) my swing trades are most profitable when I'm a buyer at local lows of FAANG, (2) my option trades are most profitable when FAANG goes from a local high to a local low; taking advantage of volatility, (3) FAANG outperforms when it stays overbought, and the final point I would like to make:
Seeing that FAANG is currently at a local low, right now is the best time to open swing positions. FAANG will be reporting earnings this month and I firmly believe this will be the catalyst to push big tech out of the coil, leaving it overbought and thus, outperforming the general market. I have already acted on this and will update this idea in 4-8 weeks. I would recommend you act on this and begin some positions in FAANG stocks or a mix, here are my holdings for this "experiment": SQ, ETSY, AAPL, NNDM, CRSP. As you can see I only have AAPL, but included a variety of other technology to see if these too will be lead/correlated to FAANG. I'd like to add MSFT and BABA but have no intention of owning these!
Some other takeaways: - Options do well in times of high volatility - Buy and hold does well throughout the entire cycle - Being an active investor will likely lead to superior returns if you include tech (for the time being) - My swing trades have outperformed in all 3 time frames
I hope you all enjoyed this!! probably the most work/research I put into any post thus far :)
This was very helpful, btw I share the same path I made money playing options onky to give back cause I gain confidence and used feelings and not the charts to buy options. I have lost 2000 already this year and bit disappointed in myself. I need to do my due diligence before I jump in, lesson learned.
I will follow you and play some of your plays and let's see how it will play out. Market is so unpredictable 😫not sure if we are going to have a pullback or not. Fear of market pullback. I had some great option plays added but sold them early due to fear of market downturn and now those same names have paid me big money 💰oh well
RaftoO
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@mannyjavaid, Yeah I fell off my game because I had cash to burn and was assuming certain stock like SPCE, PLTR, SQ and NVDA would rip higher... in addition too many fake breakouts caught me with small losses of 50-150 a few times a day... it all adds up. Let the chart do the talking and make sure you stick to the plan!