Our 89% Winner Shows the Value of Patience By Larry Benedict, editor, The Opportunistic Trader Hi traders, welcome to this week’s update for The Opportunistic Trader. We’ll look at the markets and review our closed-out trade in just a moment. First, let’s look at this week’s action. We entered a new trade in the ProShares Bitcoin Strategy ETF (BITO) yesterday. I know it’s been a while since our last Bitcoin skimming trade, but the right setup finally presented itself. Our goal is to capture an extended down move in BITO. It recently traded around 16% below its March 13 high. We also opened another trade earlier this week on the Invesco QQQ Trust Series 1 (QQQ). It’s not just Bitcoin that has experienced lots of volatility. We’ve also seen that play out in stocks. A string of strong economic data and sustained inflation forced the Fed to walk back its stance that it was on track to cut rates in the second half of this year. But yesterday, we saw weaker-than-expected gross domestic product (GDP) data. So the Fed might be tempted to flip again… While it’s not the final revised number, the GDP showed annualized growth of just 1.6% for the first quarter of this year. That’s well below the 2.5% forecast and less than half the previous quarter’s annualized 3.4%. As the chart below shows, it was the lowest reading since Q1 and Q2 of 2022. United States GDP Growth Rate 
Source: U.S. Bureau of Economic Analysis, TradingEconomics.com The Fed is in a predicament. The much-touted “soft landing” might be slipping out of its hands. The economy keeps slowing while inflation remains stuck well above its long-term target rate of 2%. And we’ll see how it factors in today’s personal consumption expenditures (PCE) inflation data. PCE increased 2.7% from March 2023, above the 2.6% estimate. We’ll get further insight into Fed Chair Powell’s thoughts during the FOMC meeting next week. In the meantime, the rate uncertainty is playing out right as the market tests the valuations of Big Tech (the major drivers and beneficiaries of the rally). This week, Meta Platforms (META) felt the market’s wrath. Revenue and earnings-per-share (EPS) beat forecasts. But weaker Q2 sales guidance and big AI spending saw the stock take a beating. It was a similar story last week with Netflix (NFLX). It also beat both revenue and earnings per share (EPS) forecasts. Yet the company decided to stop reporting quarterly subscription numbers (which gained 16% this YoY). As a result, the stock took a drubbing. The market is increasingly scrutinizing stocks and punishing them for the slightest hint of weakness. All this adds to the current volatility and will continue to provide plenty of trading opportunities ahead. Now a look at our closed trade this week… Our Closed Trade In March, we opened a short position on Invesco QQQ Trust Series 1 (QQQ) by buying a put option. Stock valuations were stretched (particularly big tech). And QQQ was in overbought territory. So we wanted to capture a reversion to the mean. Let’s check it out… Trade: QQQ May 17 $415 Put In the chart of QQQ below, you can see that it was making higher highs while the Relative Strength Index (RSI) made lower highs (orange line). This diverging pattern is a common setup for a reversal. Plus, the MACD had also reversed and was rolling lower. The price reversed strongly off its highs on the day of our trade as well. These factors provided the setup for our short trade. Invesco QQQ Trust Series 1 (QQQ) 
Source: eSignal
(Click to Enlarge) The trade went our way right from the start. Although QQQ recovered into the Fed’s meeting on March 20, that rebound was short-lived. QQQ rolled over and continued to track lower. Adding to the bearish sentiment, the RSI and MACD fell into their lower bands. Our position was in good profit, and the RSI was touching oversold territory (lower grey dashed line). So we closed out our trade for a strong 88.8% gain. And with two new trades and lots of expected volatility, there’ll be plenty to keep us busy over the coming weeks. As always, I’ll be monitoring our trades closely and be in touch if we need to take any action. Regards, Larry Benedict
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