Don’t Gamble on Your Next Big Trade

Some people think stock market trading is nothing but gambling.

But that couldn’t be further from the truth…

Sure, it’s fun to go out and throw a couple of bucks around at the horse track. Sometimes I talk a couple of buddies into going down to the harness races on a slow weekend. But picking winners is practically random — especially at the harness races where it seems they can slow down the cart behind the horse.

When I was younger, I used to make the pilgrimage to Las Vegas the first week of March Madness. I had a good analytical system to help place my bets — and it was quite a rush watching dozens of games simultaneously at the sportsbook.

However, the silliness of seeing a meaningless basket blow up the spread at the end of the game was an all-too-often reminder that even with a good system, this was strictly gambling

Of course, betting on 16 games on Thursday and Friday and another 8 games on Saturday and Sunday was exhausting! I was happy to go back to work Monday where I can quantify my odds and relax doing what I do best — trading the markets.

As you can see, I’m not much of a gambler. I like to control the odds and know I have an edge like we do with our options plays. Trading is all about probability and money management…not gambling!

Save your crazy bets for Vegas…

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: A virus-fueled housing boom

greg

Housing data points to a steady recovery off this year’s virus shutdown lows.

According to new numbers from the Commerce Department, housing starts increased in June to a seasonally adjusted annual rate of 1.19 million, MarketWatch reports, a 17% increase from May. Permits for new homes also rose 2.1% to a seasonally adjusted rate of 1.24 million.

The numbers didn’t knock our socks off — but they are showing improvement. Of course, you don’t even need to pay attention to any home construction data to know that housing is set to become a major market theme during the second half of 2020. All you need to do is take a look at the charts…

XHB

Even before we saw Friday’s numbers, the SPDR S&P Homebuilders ETF (NYSE:XHB) was breaking out above its early June highs. The homebuilder group has now quietly almost doubled off its March lows — and the current shutdown environment could lead it to additional gains this quarter and beyond.

The Fed has made it clear that it intends to keep rates low, while big city renters continue to flee urban centers in search of space and solace during the pandemic. The momentum we’re seeing in the homebuilders might just be getting started…

Trading Tip of the Day

Welcome to the summer doldrums…

Last week brought some choppy action to the stock market. Stocks drifted into the weekend on low volume. The momentum darlings in the tech sector continue to consolidate. And aside from Netflix’s earnings debacle, there wasn’t much market-moving news hitting the tape.

This type of action is typical during these hot summer weeks. The pros are out of their (home) offices and hitting the beach or visiting with family. The news is quieter. On some days, we’re treated to more fake-outs than breakouts…

Sometimes, less is more. During the quieter trading weeks, you’re better off not forcing trades. Keep your win rate up and take the time to “reset” your thought process. Run some fresh scans to see if any new names pop up. And most importantly, stay patient. The market will reveal new opportunities soon enough.

— Greg Guenthner

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

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