Monday, June 7th, 2021
NASDAQ ETF Climbing Toward All-Time-Highs
Happy Marvelous Monday!
I help teach people to earn money trading options. It isn’t hard. I explain in easy-to-understand terms when I teach or write a book—like we are talking across the kitchen table.
Last week had Memorial Day on Monday where the market was closed and then, Tuesday and Wednesday were bullish up days and Thursday was a bearish down day and Friday back up making up the earlier loss. Friday ended being up 227 points for the week.
For updates on previous trades, please scroll down.
I am going to focus on the NASDAQ on Mondays and call it “QQQ Monday”. I will focus on QQQ which is the ETF covering companies traded within the NASDAQ Exchange Traded Fund.
For today’s discussion, we will be looking at Invesco QQQ Trust, symbol (QQQ).
Before analyzing QQQ’s charts, let’s take a closer look at the ETF and its services.
Invesco QQQ is an exchange-traded fund that tracks the Nasdaq-100 Index™. The Index includes the 100 largest non-financial companies listed on the Nasdaq based on market cap. These companies are often cut-edge tech stocks and trendier companies.
This chart image is courtesy of FINVIZ.com a free website and gives a quick view of each day’s movement.
This is an image from Friday. It opened the day with a gap up and continue a slow steady rise for the rest of the day, closing the day at a high point.
Fibonacci Exponential Moving Averages (EMA)
Exponential moving averages (EMAs) reduce the lag seen in simple moving averages by applying more weight to recent prices. The weighting applied to the most recent price depends on the number of periods in the moving average. We are applying 8, 21, and 55 weekly periods for our entry signals. EMAs differ from simple moving averages in that a given day’s EMA calculation depends on the EMA calculations for all the days prior to that day. You need far more than 10 days of data to calculate a reasonably accurate 10-day EMA.
There are three steps to calculating an exponential moving average (EMA). First, calculate the simple moving average for the initial EMA value. An exponential moving average (EMA) has to start somewhere, so a simple moving average is used as the previous period’s EMA in the first calculation. Second, calculate the weighting multiplier. Third, calculate the exponential moving average for each day between the initial EMA value and today, using the price, the multiplier, and the previous period’s EMA value.
Charting services like Stockcharts.com and your broker’s chart service figure these calculations for you.
As mentioned, entry signals are based on the use of 8, 21, and 55 weekly averages. (8, 21 and 55 are Fibonacci numbers which are a special sequence of numbers which are added together- 1+1= 2, 2+1=3, 2+3=5, 5+3= 8, etc. 13, 21, 34, 55, 89, 144, 233, 377, 600… As mentioned, we are zeroing in on 8 EMA (short term), 21 EMA (medium term) and 55 EMA (long term).
The details below show why this trade signal could produce a profitable trade opportunity.
Let’s See Why This Signal Potentially Offers An Awesome Trade
Each candle on the chart represents price movement over a 5-day (week) period. QQQ is apt to continue rising as long as the EMAs remain in uptrending order, showing upward bullish trend strength. In April this year, price pulled back toward the 21 EMA and has now bounced up off that area.
As long as the 8 EMA remains above the 21 EMA and the 8 and 21 EMA both remain above the 55 EMA, said to be in uptrending order, its current uptrend should remain intact and price should continue to rise. We will keep an eye on QQQ’s movement over the course of the next few weeks.
Its target over a short period is $340.
Potential Profit Play for QQQ
The 8 EMA nearly touched the 21 EMA and bounced and if both remain above the 55 EMA, the uptrend will be confirmed.
Let’s discuss a trade over a short period of time. The QQQs are near an all-time-high and may struggle to get beyond as it nears that area, so let’s discuss a trade that may last just a week or two. For this discussion, we won’t buy as much time.
To buy shares of QQQ today would cost approximately $336 per share. If price rises to the target or $340, the profit would be $4 per share or 2%. Not bad for a move that may happen over a short period of time.
Option trading offers the potential of a lower initial investment and higher percentage gain. Let’s take a look.
If you bought 2 shares of QQQ at $336, you would invest a total of $672. If it increased in price to $4, you would earn a profit of $4 or $8 for the 2 shares or 2% – not bad if it rises in a few weeks.
If you bought one option contract covering 100 shares of QQQ with a June 18th expiration date (just 2 weeks from now) for the 340 strike and premium would be approximately $2.25 today as I write, or $225 per contract. If price increased the expected $4 over the next number of weeks, the premium would increase approximately $3 to $5.25. This is a gain of $3 or $300 for the contract or 133%. That is pretty amazing in a short period of time and shows the leverage of option trading.
For the same approximate investment, you could purchase 3 contracts. $225 x 3 equals $675 which would earn a profit of $900 versus the stock profit of $8.
Options often offer a smaller overall investment, covering more shares of stock and potential for greater profits.
Remember, you can take profit anywhere along the line, you don’t have to wait for the expiration date to sell. It is often wise to take profit when it is earned, especially in a volatile market.
If price drops below the support line, it can be wise to sell to reduce loss. As the expiration date nears, the premium will lose an increasing time value.
EMAs and line crosses are at the heart of most of my strategies. Many strategies come with a weekly newsletter listing numerous potential trade candidates.
I love teaching and sharing. It is my “thing”.
PS-I have created this daily letter to help you see the great potential you can realize by trading options. Being able to recognize these set ups are a key first step in generating wealth with options. Once you are in a trade, there is a huge range of tools that can be used to manage the many possibilities that can present themselves. If you are interested in learning how to apply these tools and increase the potential of each trade, click here to learn more.
Past trade update:
Nine weeks ago, we studied Activision (ATVI). Dropped and is now rising. Its target is 105 and it has until June 18th. It is at 96.84 down .41 from last week as I type on Saturday.
Six weeks ago, we checked out Apple (AAPL). It rose as high as 135.50 with a 140 strike and then pulled back 5 weeks and now up again. 3 weeks remained at virtually the same level. It has a 140 strike and June 18th expiration.
Five weeks ago, Tilray, Inc. (TLRY) did not move as expected. By week’s end, it rose. It has risen 3 weeks. It has until June 18th to reach its 25 strike but its price went below the support line drawn on the chart which suggested failure as of a couple weeks ago. It is now heading up and is at $22.14.
Four weeks ago, we looked at FedEx (FDX). It rose to 318.54 last week and closed at 302.12. Its expiration is June 18th with a 330 strike.
Three weeks ago, we zeroed in on Schlumberger (SLB). Its target is 40 with a June 25th expiration. It rose as high a 36.42 and then pulled back a little.
Two weeks ago, we studied TEVA. It closed exactly where it opened with a zero move and closed at 10.40. It has a July 16th and a 12 strike.