It is a big week for earnings and NVIDIA (NVDA) is at the top of the list! Erin gives you her view on whether to hold into earnings based on the technicals of the chart. She also reviewed other stocks reporting on Wednesday: CRM, CRWD, HPQ and OKTA.

Carl talks about the relationship between Gold and Gold Miners as he reviews his prior article from last week: “Gold Miners’ Performance vs. Gold — Does It Say Sell Gold?” (Link: https://www.decisionpoint.com/articles/decisionpoint/2024/08/gold-miners-performance-versus-266.html“)

Carl also gives us insight on the relationship between the SPY and equal-weight RSP. He discusses how they have performed over time and what to look for.

As always Carl gives us his insight into the market trend and condition as well as a targeted look at Bitcoin, the Dollar, Crude Oil, Yields and Bonds. He also discusses his thoughts on Gold moving forward.

Erin covers the earnings charts and then gets right into sector rotation. One sector is clearly topping and you need to know which it is!

Erin finishes the program with a look at the daily and weekly charts for symbol requests.

01:25 DecisionPoint Signal Tables

04:04 Market Analysis and Overview

09:30 Magnificent Seven

16:42 Gold v. Gold Miners

25:05 Earnings with spotlight on NVDA

31:05 Sector Rotation

33:42 Symbol Requests

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Technical Analysis is a windsock, not a crystal ball. –Carl Swenlin

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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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Bear Market Rules

Earlier this year, in April and June, I laid out a bullish thesis for PayPal Holdings, Inc. (PYPL)—the stock price was bottoming and had the potential to break out. Since then, PYPL has improved. Earlier this week, it finally broke out from its two-year consolidation, triggering a new bullish signal for investors to seek further exposure in PYPL.

 On the weekly chart below, you can see PayPal’s stock price has decisively broken through a major resistance at $68, a level it struggled with during its two-year consolidation phase. This breakout, coupled with improving momentum and outperformance relative to the market (see Relative Strength Index in the lower panel) suggests that PYPL is poised for a continuation higher. The next upside target for this bullish trend is around the $90 level.

5-YEAR WEEKLY CHART OF PYPL. The resistance level is displayed as a horizontal line drawn @ $68. The lower panel displays the Relative Strength Index (RSI), which is rising.Chart source: StockCharts.com. For educational purposes.

Despite past challenges, PYPL remains fundamentally undervalued. PYPL trades at only 15X forward earnings, which is attractive given its future EPS growth rate, 14% revenue growth rate of 8%, and competitive net margins of 14%. These metrics indicate that PYPL is not only undervalued relative to its growth potential, but well on its way for its turnaround.

The Call Vertical Strategy for PYPL

To capitalize on the breakout higher, I suggest buying the October 18, 2024, $70/$80 Call Vertical for a $3.63 debit. This entails the following:

Buying the Oct 18 $70 callsSelling the Oct 18 $80 calls

PYPL CALL VERTICAL STRATEGY RISK GRAPH. You’re risking $363 for a maximum reward of $637 for this position.Image source: OptionsPlay.

This call vertical spread allows you to benefit from the bullish trend while limiting risk. The total potential profit on this trade is $637 per contract if PYPL is above $80 at expiration, with a maximum risk of $363 per contract if PYPL is below $70 at expiration.

The strategy aligns with our bullish technical and fundamental thesis for PYPL. Explore the options chain for PYPL to view real-time prices.

Good morning and welcome to this week’s Flight Path. Equities continue their path out of the “NoGo” correction. The “Go” trend has returned for U.S. equities as we see first an aqua and then a blue “Go” bar. This came after a string of uncertain amber “Go Fish” bars. Treasury bond prices remained in a “Go” trend albeit painting weaker aqua bars at the end of the week. U.S. commodities stayed in a “NoGo” painting weaker pink bars and the dollar showed strong purple “NoGo” bars.

$SPY Continues to Rally and Flags “Go” Trend

The week finished strongly as we saw GoNoGo Trend paint a bright blue “Go” bar as prices rallied after a challenging Thursday. We now see that momentum is in positive territory but not yet overbought and we will watch to see if price can mount an attack on a new high over the coming days and weeks.

The longer time frame chart shows that the trend is strong. At the last high we saw a Go Countertrend Correction Icon (red arrow) that indicated prices may struggle to go higher in the short term. Indeed, we then saw consecutive lower weekly closes on pale aqua bars. During this time, GoNoGo Oscillator fell to test the zero line from above and it became important to see if it could find support at that level. It did, and as it bounced back into positive territory we saw a Go Trend Continuation Icon (green circle) under the price bar.

Treasury Prices Remain in Strong “NoGo”

Treasury bond prices remained in a “NoGo” trend this week with the indicator painting strong purple bars. We see that although we haven’t seen a new low we have seen consecutive lower highs in the last few weeks. GoNoGo Oscillator is testing the zero line from below once again and we will watch to see if gets rejected here or if it is able to break through into positive territory.

The Dollar’s “NoGo” Shows Renewed Strength

A strong message sent this week for the U.S. dollar. A string of purple “NoGo” bars took prices to new lows. GoNoGo Oscillator is back in oversold territory after briefly trying to move back toward neutral territory. Volume is heavy, showing strong market participation in this most recent move lower.

USO Stays in “NoGo” Trend

Price moved lower all week on strong purple bars. We didn’t see a new low though and on Friday price gapped higher and GoNoGo Trend painted a weaker pink bar. GoNoGo Oscillator is back testing the zero level from below where we will watch to see if it finds resistance. If it does, we can expect further downside pressure on price. If it is able to regain positive territory we may well see price try to rally out of the “NoGo”.

A review by Dr. Mark Holder.

“History repeats itself.” Never was a phrase (oft cited as Churchill quote) more apt in describing a text. The book, Investing with the Trend by Gregory L. Morris, is now more in tune with today than ever. As a trainer for new hires at investment banks and hedge funds, I have found one of the main purposes to this training is to relate past market scenarios to these new hires so they “don’t reinvent the wheel.” One story I relate is a passbook savings account I had that paid 14% annual interest! The events of 2007-08 are among many of the market situations that I relay to these groups to get them ready for their upcoming careers in finance. I also try to give them content and readings that they can use to continue their learning journeys. One of my highest recommended readings for these groups is Greg’s book, “Investing with the Trend.” It provides insight and reasoning behind the mathematics that is often used to explain how markets work. Every group I have trained has valued this text and I often receive feedback on how it helped them to get a better idea of markets, investing, and trading.

The first section on Market Fictions, Flaws, and Facts is a common sense look at the “rules of thumb” and outright fictions that permeate many texts in finance. I especially like Greg’s chart showing performance with and without the ten best return days in a year. This often shocks people the first time they see this. Another fallacy is that of standard deviation and the measures for risk. Perhaps part of this continued belief is that using skew and kurtosis makes the math intractable. But that shouldn’t be an excuse to simply use standard deviation as a risk measure (or its evil twin, volatility). Greg clearly dispels many myths that exist in finance. Mind you, he doesn’t throw them out entirely but puts them in context in terms what is useful and when to be much more careful in their use. While the mathematical concept of volatility has a place, what investors are truly concerned about, especially in today’s markets, is whether their portfolio at a gain or loss – drawdown. Greg carefully delineates these concepts and gives the math its due but provides readers with better insight on what really matters regarding investing and portfolio management.

Greg also provides readers with a quite complete coverage of the behavioral biases that inevitably creep into decision making regarding investing. The presentation is clear and straight forward without any of the typical circular reasoning I have often seen, particular with respect how to deal with these logic errors. He distills down prospect theory into just a few paragraphs that provide the reader with everything they need to know without any of the academic hypothesis testing. I found these sections to be very insightful and self-explanatory.

Chapter 11 on drawdown analysis can be extremely useful for readers in terms of really understanding what risk is. He covers not just depth, but breadth of drawdowns. There are countless charts and tables illustrating how to understand and measure drawdown. It is important to note that good readers will likely review Greg’s prior performance as a professional investor and his actual drawdown numbers. On seeing this, the reader will know that they are listening to the “Master’s Voice” (sorry RCA Victor records for that quote).

Chapter 16 is short and sweet. It uses interviews with solid professionals to ensure that readers really understand what it takes to put the contents of this book into practice. The book is especially useful in today’s investing world. History does seem to be repeating itself with 40-year highs in inflation, turmoil on the world stage, and forecasts (at least as of this writing) of a recession. The techniques and content provided by Greg are timeless, but especially important in the difficult investing environment today. Throughout the 2000’s investing and trading looked easy. But “never mistake a bull market for brains” is never truer than it is now. Investing today and earning solid returns requires more than luck now. Chapter 15 provides readers with practical knowledge on putting your investing on the right track in today’s marketplace. His advice on developing objective rules and discipline will be key to building your own system that works. The text has great advice and guidance on measuring risk and setting sell criteria to avoid large drawdowns. This chapter is replete with charts and tables that demonstrate these key tools.

In summary, you would be hard pressed to find a more well-written text that thoroughly explains why markets work the way they do. It provides readers with a solid understanding of the fallacies that exist about markets and instead provides a commonsense approach to truly understand, in an intuitive way, what is going on in the world of investing, markets and trading. The coverage of technical analysis avoids the faddish models often promoted by charlatans and instead gives readers a useful understanding of the real purposes of technical analysis. The last section of the book gives a practical and useful guide for building a rules-based trading system culminating in trend analysis and how to build your own successful system for investing. This book is full of great anecdotes, useful tips and is an easy read. It is a highly valuable read for everyone from part-time investors to highly experienced money managers. I am certain everyone will find practical and effective content that will change your thinking about markets and trading and enhance your performance. 

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Dr. Mark Holder is a consultant in financial markets, providing services to leading global Investment Banks, Exchanges, and Commodity Firms. He is also a lead partner for a proprietary trading firm located in Hong Kong. He has prior experience as the Director of Research and Product Development at two Exchanges, as well as Managing Director for a leading financial training company. His background also includes 14 years of teaching experience at the masters and PhD levels. While at the university he was the Chairman of the Department of Finance and Program Director of the Master Science in Financial Engineering program.

Dr. Holder has designed and conducted training programs for a wide range of clients including Goldman Sachs, Merrill Lynch, Barclays, Reuters, Dubai Financial Services Authority, CSRC, Guotai Junan, Aberdeen Asset Management and many other leading financial institutions for the past 15 years. These programs have covered a wide variety of topics, including Derivatives, Risk Management and Financial Modeling, for audiences such as Analysts and Associates to Managing Directors and Vice Chairs. He has also offered courses for Practical Training requirements and client-based courses as well.

Dr. Holder is also an accomplished author. His publication record includes more than 50 articles in leading journals. He was the Editor of the journal Review of Futures Markets, a leading academic journal covering the field of derivatives and markets for over 10 years. Mark has significant prior experience working in fixed incomes and derivatives from the CBOT and as a trader. He has firsthand knowledge of market practices and operations. His evaluations show he can convey this information is an intuitive way to participants to maximize their understanding and knowledge.