Note from Michael Salvatore, Editor, TradeSmith Daily:
If you’re going be a trader, you need a whole different set of information than what a long-term investor follows.
This stuff isn’t so easy to find. It’s not in company balance sheets or earnings calls. It’s in the money flows that drive stock prices in reaction to this information.
Understanding these flows is key to trading. And nobody understands that better than former CBOE market maker Jonathan Rose.
Today’s TradeSmith Daily is about the tool Jonathan uses to figure out what’s going on with stocks beneath the surface… and spot the ones likely to make big price swings – before it happens.
Using this tool, Jonathan’s options trade recommendations have gained 23.77% on average, winners and losers, over five months… including winners of 126%, 245%, even 463% or more, often in 30 days or less.
Jonathan loves “Fed week” because it’s the type of event that lights up his screen with unusual activity he can turn into great options trades. Read on for the conclusions he’s drawn from this first interest-rate cut… and, more importantly, how to benefit with specific trades. |
A Market Switch-Up Four Years in the Making By Jonathan Rose, Founder, Masters in Trading The stock market is undergoing its biggest transformation in over four years. And it all hinges on what may prove to be the most important course-correct of the decade… On Wednesday, Federal Reserve chair Jerome Powell announced the first significant interest rate cut since 2020 – a 0.50-percentage point decrease in the benchmark interest rate. The markets were anticipating anywhere between a reduction of 0.25 to 0.5 percentage points, with most of the talking heads leaning toward the lower end. With the possibility of yet another rate cut before the end of the year, investors essentially got the news they wanted… And after an initially soft reaction to the news, investors have finally started drinking the Kool-Aid. In just the last few days, the markets have been tracing new highs, with the Nasdaq 100 posting some of its highest peaks since July. My regular readers at Masters in Trading know that I’ve been calling this moment for months now. And if we just turn the clock back slightly, we’ll see that the markets have been preparing for this moment for a long time. Before a word was even uttered by any member of the Fed, speculation had already driven the markets to a fever pitch. Options trading volume around the Fed’s announcement ticked higher in the run-up to Powell’s verdict. In fact, one strategy that paid off if stocks swung sharply in either direction on “Fed Day” rose to its highest level since the central bank’s March 2023 meeting right before the announcement. And right now, even more big options trades are tipping the markets higher. It’s not just the Fed’s role reversal that’s pumping up the options markets right now… With the end of September in sight, I believe that we’re witnessing the start of a whole new economic cycle that’s poised to send equities soaring for months to come. Inflation is cooling. Now the Fed is throwing dynamite into the stock market. And if we look closely, there are a handful of sectors that will soar to new highs as the Fed de-escalates its inflation offensive… The Post-Fed Rally Is in Its Early Stage The markets are sending extremely bullish signals that we simply can’t ignore. And a handful of stocks are benefiting the most… Take, for example, Microsoft (MSFT). Microsoft recently enacted a huge, $60 billion-plus stock buyback shortly before the Fed’s announcement. Why? The C-suite was clearly anticipating a bullish reaction should the Fed make good on its desire to cut lending rates. They simply saw a little more breathing room to make their move pre-Fed… After all, they wouldn’t have been able to make that move after the Fed announcement with the same value proposition in mind. So how did the stock market react to this news? After falling to one of its lowest ebbs during the market sell-off in early August, the stock has steadily retraced its highs, and it’s primed to break out even higher from here. It’s clear what happened here… The C-suite took advantage of the weakness in the market prior to “Fed day,” ensuring that they’d be able to send more value down the shareholder chain as they reissued their suddenly more valuable stock in a refreshed stock market. Of course, it’s not just Microsoft that’s benefitting from all this momentum… I’m seeing similarly unusual trading volume around other tech stocks shortly after the Fed’s announcement. Investors have been heavily trading market-making plays on Apple and Tesla, with options trading volume surging as expectations rise around both companies’ upcoming earnings beats. Even a stock like Nvidia (NVDA), which we might recall saw some weakness after its recent earnings, finally began to rally higher in September. And just like with Microsoft, the options market has been a key player in fueling the renewed surge around this major AI player. If we look beyond tech, the opportunity becomes even clearer… Let’s consider precious metals – specifically, silver. Many of us probably already know that silver has historically shown weakness against gold – the classic gold/silver ratio. That said, it may surprise you to know that I’m long on silver. And I have a very simple reason for my bullishness. Some of us may already know how important silver is for fabricating AI-enabled chips. Its intrinsic value for chipmakers has been apparent to tech market makers all year… Right before the announcement, Goldman Sachs and a clutch of other banks had advised investors that silver was on the verge of a multi-month breakout. Speculation was already driving silver futures and options trading volume higher. Post-Fed, it’s the same story… The iShares Silver Trust (SLV) is tracing new highs, with the Fed bump driving the asset to its highest point since May. It’s all too clear what we’re seeing… This is the post-Fed stock boom in action. The smart money is fueling a whole trading boom in tech… in precious metals… and many other sectors that have been seemingly beaten down over the last year. Right now, the biggest market makers on the Street are looking for the next series of big trades to break out… and I think I have them all beat. And I’m opening up a new trading room specifically to prepare other traders for the opportunity – even if you’ve rarely or never traded options. An Untapped Instrument for Market-Beating Gains I know the biggest question on most readers’ minds… How do we benefit from those market-beating sectors poised to surge post-Fed? Well, the answer is simple – we must follow the market makers. I actually used to be one of those market makers working at the Chicago Board Options Exchange (CBOE). It was my job to find the untapped corners of the market where huge trades regularly changed hands. And I learned a valuable lesson that I love to remind my readers over at Masters in Trading about constantly… We don’t want to merely guess at where the markets will turn. Instead, we want to value how things have historically moved after interest-rate cuts in the past – not just trade on pure speculation. Let the market move, and the valuable trades will come to us. I’d like to leave you with a couple of major takeaways here… First… Investors finally have the breathing room they’ve been waiting for. We should expect to see even more dry powder that’s been held up for months – and even years – flood the stock market from here. Investors’ appetite for risk is suddenly coming back with a vengeance – and that’s great news for us. Second… The economy isn’t going to suddenly change overnight. It’s true that huge trades are already changing hands in the stock market. But a shift like this takes time to affect the broader markets. That means we need to be especially careful we don’t bet that we’re right and execute the wrong trades in whatever market emerges out of this policy shift. Right now, the smart money is placing its bets on which sectors will surge next. And whether it’s tech, precious metals, retail… I don’t want anyone reading this to think they can’t get in while the smart money is riding high. That’s why I’ve developed one options trading strategy that has the smart money beat. With all of our positions, we look for the same conditions… Find where the market makers are placing their bets and execute a trade setup that allows us to benefit wherever the stock runs. Using this system, I’ve helped my readers close out several trades with gains over 100% — including 245% on Criteo (CRTO) and 463% on C3.ai (AI). I’ve also helped my readers benefit from all the volatility leading up to this moment – to the tune of more than 155% trading options on one of the best volatility indicators out there, based on the Nasdaq 100: the ProShares QQQ Trust (QQQ) chart. The key to my system is finding those opportunities for regular trades like us to benefit from the corners of the market where big money trades are changing hands. And I’ve just recently put together a new trading room where, over five days, I’ll clue you in to the strategies I use to find these market-making trades. Time is short, and I really don’t want you to miss out on a proven system that could net you gains as high as 155%… and even one massive 1,306% gain… all while the markets are turning higher. This trading room opens up tomorrow, Sept. 23, so you’ll want to join up today. (After that, you’d be on a wait list for the next one.) Simply click here to find out more about my unique system and take my 5-Day Options Challenge. Remember, the creative trader wins. Jonathan Rose
Founder, Masters in Trading
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