Trade Alert: Buy the ProShares UltraPro QQQ (TQQQ)
Hey, Trade Cycles traders – today is an urgent alert because I really want to catch what I think is going to be a swift (and unexpectedly strong) bounce in the Nasdaq 100 (QQQ).
Tomorrow, I'll have our usual weekly report on all open positions at the close of market tomorrow.
In the meantime, please let me know if you have any questions by emailing me at tradecycles@tradesmith.com, and also don't forget to share your wins on Qualcomm (QCOM) and the ProShares UltraPro Short QQQ ETF (SQQQ)! Let me give you a big shout-out in tomorrow's issue.
In our model portfolio, our short on QQQ nabbed 15.4%, and our corresponding QCOM puts closed out at 33.8%.
Now I want to turn right around and not only get long the Nasdaq 100 – but juice the move by opening a call option on a 3x leveraged ETF: the ProShares UltraPro QQQ (TQQQ).
Here's Why We'll Get Long The Nasdaq So Soon After Our Short
Remember, I shared a Chart Book here earlier in the month explaining why I was bearish into about mid-May.
But if you'll look at some of the most correlated years, many of them had swift drops followed by crazy big rallies.
Let's look at the most correlated year, which is 1936. 2024's price action is 91% correlated with 1936 (which was also an election year). The blue line below is 1936's price action, and the green/red line is the current year:
You can clearly see how well they match up. And when we got into our shorts, I was leery of this. I wanted to be ready to take the trade off if I saw the first sign of momentum change due to the correlating years showing a big, swift drop – followed by an almost immediate rebound.
So, when Nasdaq dropped relentlessly – pretty much a week straight, for a peak-to-trough drop of a little over 8%... and hit my target faster than I thought it would:
Source: TradingView
I figured it's time to get out and switch it around. Because I believe that there's an almost immediate (and just as swift) rebound about to occur.
Let's dig a little deeper into this idea. I'm not saying a rebound is going to automatically move up to new highs. I think one of two things is going to happen.
1. The price moves up to about $438, where you see that red line below. That is a high-volume area; in fact, it is the Point of Control (POC) where the most amount of volume traded at those recent highs. That's about a 4% jump from current prices:
Source: TradingView
In this first scenario, the price gets up there, stalls out, and starts dropping again.
If that happens, it will be in line with my general bearish window into the middle/end of May, and we may take off our long and go back short.
2. Second scenario is that the price blows straight through that, makes new highs, and stays elevated until that bearish window ends at the end of May and the new bullish window begins.
I'll be prepared for either scenario.
Of course, the third scenario is that it just doesn't go up at all, obviously.
But when you've got such beautiful BIG sharp moves in the index, you've just got to play on them, because you can pick up nice, quick cash if you get it right.
Remember, we did something similar between July and October last year where we really played these ups-and-downs on the Nasdaq 100:
Source: TradingView
If anybody has been here since then, you know how much fun that was. We'd go short, get long, go short, get long. And each time, it resulted in some great, fast gains.
So, because this move could be just a quick bounce that stalls out – I want to juice the move as much as we can.
TQQQ is a leveraged ETF on the Nasdaq 100 that's going to 3x your return. You can either just buy the shares, or you can buy a call option to add even more leverage on this potential move.
Two Ways to Trade the TQQQ
BUY THE STOCK OUTRIGHT: Buy shares of TQQQ at market on Tuesday, April 23.
OPTIONS TRADE: Buy to open the TQQQ May 31, 2024 $50 Calls at market on Tuesday, April 23.
Note: No matter what you choose, ensure that you are never risking greater than 5% of your account. For an option, this means the total cost of the option should not exceed 5%. If the option goes to $0, it should NOT give you a greater than 5% hit to your account.
According to OptionStrat, if TQQQ hits around $60 (which is about where that POC is on QQQ I showed you earlier), that will represent about a 150% gain on this option.
It's a good trade, but it's also a risky one – so please manage your risk. This is a situation where if we're right – we're right big. If we're wrong, we're wrong small. (And also, it will be evident quickly if we're wrong, and we can bail out.)
That's it! Let's see if we can nail a quick bounce.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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