There’s Downside Ahead, But Income Opportunities Remain
Traders are competitive. That’s reflected in the games they play to relax.
One trader I know plays a game he calls “the next two points.”
Here’s how it goes: Whenever he has to wait somewhere, he logs into his brokerage account to trade e-mini S&P 500 futures.
Each one-point move in the index is worth $50. He waits for a pattern to form, takes his position and risks one point to make two. It fills his time. Plus, if he’s right even a third of the time, he makes money.
Two points is short term. We invest for a longer time frame than that, so I like to focus on the next 100 points in the S&P 500. For now, my opinion is that we are likely to see a significant downtrend before we reach new highs in the index.
The chart below shows that there is significant resistance ahead, represented by the dashed line. Toward the end of June, buyers attempted to push prices above this level three times, but with no success. After the third failed attempt, prices quickly moved further down, indicating traders are anxious to sell.
If prices break above resistance, we are likely to see a fresh wave of selling as traders who bought during that “Island Top” reversal pattern use the breakout to preserve capital.
In the bottom panel of the chart, I’ve included the Money Flow Index, an indicator that tracks buying pressure. Points A and B mark peaks in that indicator that coincide with short-term tops in prices. MFI shows that traders were buying during the decline (attempting to find bargains) but became less enthusiastic during the rally.
How I’m Trading Right Now
While there are downside risks in the market, there are still some opportunities. Especially when it comes to making short-term income trades, like we do over at my Income Trader premium service.
For example, Marriott International, Inc. (Nasdaq: MAR) is one of those opportunities.
MAR sold off as traders worried about the business during the pandemic. The stock remains volatile but has found support near $80. The stock is now likely to drift near the current level into its earnings announcement in August.
The next chart shows that MAR is on an Income Trader Volatility (ITV) “buy” signal, which confirms that short-term risks are low. ITV is the tool I developed to help select my regular weekly Income Trader recommendations. Of the weekly trades I’ve recommended, 90.5% have been winners going all the way back to 2013.
MAR is in the hotel business, and this industry faces a long road to recovery. Hotel occupancy rates were recently reported to be about 44%,. I would not be surprised if that represents a short-term peak as the virus makes a resurgence.
But MAR is unlikely to fall much, either, since traders understand the outlook is relatively bearish for the business. The stock is likely to remain in a relatively narrow trading range while traders wait to hear how bearish the outlook is. Earnings will likely create the next big move in the stock.
Action To Take
Based on the information I’ve outlined, it looks like MAR will be range-bound for a while. That’s of little use to most investors who simply buy stocks and call it a day. But over at Income Trader, this is absolutely tradeable information.
That’s why we’re making a quick, easy trade on MAR to generate income now — before the next earnings announcement. All told, we can expect to make about 4.6% in only 24 days. If we repeat a similar trade every 24 days, we would earn about 70% on our capital in 12 months.
That’s the power of my strategy — and you can put it to work for yourself in no time at all.