Note from Ashley Cassell, Managing Editor, TradeSmith Daily: Remember the days when the Consumer Price Index (CPI) report was boring? Inflation was a little above 2%, or a little below 2%; either way, it was just another news item.
Nowadays, it’s more like: “Buckle up, another CPI report is coming!”
Well, luckily the days of 5%, 7%, 9% inflation seem to be in the rearview once more.
In fact, we’re embarking on a whole new economic cycle, as Jonathan Rose of Masters in Trading argues in today’s TradeSmith Daily.
Jonathan once served as a market maker for the Chicago Board Options Exchange (CBOE) and brings 25 years of experience in futures and bond trading as well as options – which are the types of trades he shares with subscribers in his Advanced Notice trading room, Clearly, trading is his passion, and he loves to “talk shop” with everyone who logs on with him each day to chat and learn as well as trade.
And with Jonathan’s system for detecting unusual options activity, he’ll be on the lookout for the stocks where the “smart money” appears to be moving in.
Read on for more on the opportunity Jonathan sees shaping up in the market now. |
The Latest Inflation Beat Signals a New Era for Traders BY JONATHAN ROSE, FOUNDER, MASTERS IN TRADING A few years ago, I found an incredible opportunity in the stock market that wasn’t really on anyone’s radar. It all happened back in January 2021. That’s when I discovered a massive short squeeze covering more than the available float of GameStop (GME) stock. You see, back then I was working full time with the Chicago Board Options Exchange (CBOE). It was my job to find those untapped corners of the market where huge trades regularly changed hands. I simply noticed the high volume of unusual options trading around the stock. Eventually, so too did regular traders stuck in their homes at the height of the pandemic. And once they did, the reaction was swift… Day traders started buying up shares en masse, killing institutional investors’ shorts on the stock. At its height, GME hit an extraordinary pre-market value of more than $500 per share – a seismic run for a stock that had been trading for less than $20 for most of its lifetime. Of course, a run like GME’s couldn’t last forever. Eventually, GameStop came back down to Earth. As the stock started falling, the rush to cover positions had massive financial consequences for hedge funds and brokerages like Robinhood (HOOD), which simply couldn’t cover the trading volume on the stock. All that unusual activity around GME was the catalyst that tipped an unexpected rally for a stock no one was watching. And this whole episode proved a very important point… When we see a lucrative opportunity the markets simply aren’t paying attention to – or that greedy hedge fund managers are trying to keep under wraps for themselves – we need to seize it. These are the opportunities that move markets and create generational wealth for us. I’ve found opportunity after opportunity cornering the market on stock moves that no one else sees coming. That’s how I made my name as a trader. And it’s not all “meme stocks” I look for either… Right now, I see another unique opportunity taking shape in the stock market that Wall Street is hoping you don’t notice. However, the smart money is already betting on something big – the start of a whole new economic cycle that will boost the markets for months to come… The Inflation Offensive Is Cooling GME’s run represented an unexpected turn for most investors -- an untapped part of the market that turned into a market-beating stock run nearly overnight. I see a similar situation taking shape when I look at the latest beat on inflation. No doubt many of you have been keeping an eye on the Consumer Price Index (CPI). We certainly feel the effects of inflation in our daily lives even if we’re not caught up on all the gory details. For market makers like myself, the CPI is one of the most important tools we use to predict where the economy is heading next. And this week’s CPI report was a doozy. It saw inflation rise 2.5% in August from a year earlier. That’s down from 2.9% in July… and a whopping 9.1% back in August 2022. So how has the market reacted to all this news? Well, the picture becomes clearer when we analyze where all the major indexes are trending right now. Looking at the Nasdaq this week, it’s now trading over $452, and we’re seeing support maintain well below that price level at $447. This is significant when we consider that the Nasdaq has been retracing its highs since the August sell-off, which sent many indexes crashing. That’s not an isolated move. If we look at some of the key volatility indexes, the opportunity here becomes even clearer… Last week’s QQQ chart hovered around a low of $448. This is a key support level for us. Consider that five weeks ago the low was also around $448. The index is sticking to this price level despite all the market noise over the last few months. And if we look at the price level on the VIX chart, we’ll also see support around $19.76 this week. So why is all this important to us? Put all that information together and we can see a clear correlation between the levels I’ve mentioned. If the VIX falls below $19.76, we should expect a stock market rally. Conversely, the higher the VIX goes, the more bearish the markets will likely turn. Now I don’t think that latter scenario will play out… How can I be so sure, you might ask? We already know cooling inflation will provide a boost to the economy and encourage investors to deploy more dry powder into the stock market. After all, as inflation cools, investors will finally gain the appetite for more risk after a few years of caution. The Fed will also take the latest news as more proof that significant rate cuts are necessary to keep up all this positive momentum. Using all this data as our guide, I’m more optimistic than ever that the markets are due for their own “Rip Your Face Off” rally as we near the end of the year. Now I get that we’re still seeing a lot of bearish noise in the markets. I don’t have a crystal ball that tells me exactly how the markets will churn. However, it would be foolish to not call a rally a rally. And that’s what I see happening from here in the long term. Look, no one expected a thinly traded meme stock like GME to suddenly become a major market catalyst. Lots of strange things happen in the stock market when investors’ backs are turned. We simply can’t rule out those untapped, hidden opportunities to benefit from this new economic cycle I see taking shape. After all, they might emerge anywhere that investors aren’t looking… One Tool to Play the Stock Market Surge I’m still looking for those untapped stocks with the potential to rally higher. And in a market like this, we’re already starting to see where the smart money is placing their bets. For months, I’ve been preparing for this exact moment to play out… And I’ve discovered a unique way to capitalize on the largest trades moving hands in the stock market using options right now… With this market-beating strategy, I’ve helped my readers close out several trades with gains over 100% – including 245% on Criteo and 463% on C3.ai. I know what some of you might be thinking… Options are too risky and expensive.I don’t want to risk it all betting on the stock market when there’s still so much volatility. I get it. Many traders just starting out will think it’s a no-go. After all, options often require us to lock up more capital than we would simply day trading a small batch of stocks in any brokerage. But that doesn’t mean options are too risky or expensive to dive into. My regular readers over at Masters in Trading know that options can often be inexpensive, and they don’t typically carry the level of risk that many believe. With options, we can control exactly how much capital we have at risk with any given trade, allowing traders a lot of room to manage an options trade to great success. Even dedicating a small amount of capital when we spot any unusual options activity in the markets can help us collect market-beating gains month-over-month. That’s the beauty of options trading – and it’s key to stick to a proven strategy no matter what amount of capital we start with. The markets are hitting an inflection point right now. There are untapped corners of the stock market that all the positive price action we’re seeing will drive higher. And whether we find the next meme stock or some other untapped pick that no one is paying attention to, my system will help you find it and make a profit. If you’re interested in learning more about my unique strategy, please follow this link and learn all about how to maximize your earnings potential with options. Remember, the creative trader wins, Jonathan Rose
Founder, Masters in Trading
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