Tiny Fish, HUGE Trades!

We were supposed to take the kids fishing…

But the universe had other plans.

Instead of heading out to the lake, I was stuck with an unexpected chore. A big tree fell in the woods, landing right across my lake compound’s driveway. So instead of relaxing by the lake, I spent the afternoon chopping and removing wood.

tree

When I did get to finally go fishing, I hit up my usual spot — which also happens to be a small lake that my Chicago trading buddy has had the most success. When we go, we’re usually the only people on whole lake. It’s amazing what we’ll catch in these quiet waters. We’ll pull bluegill, smallmouth bass, catfish, perch and sunfish…

This fishing spot is a lot like the market right now, full of great opportunities to catch a big trade. You just have to put yourself in position to succeed.

OK, enough with the cheesy market analogies for today. Back to the lake…

Since the fish are plentiful, my buddy and I also placed a side bet: whoever can catch the smallest fish on a hook wins.

Needless to say, he bested me this time…

fish

I think we have a solid strategy: stick to little fish at the lake — and fish for the big trades in the market.

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: Semiconductors lead the market higher

Greg Guenthner

When we last dove into the red-hot semiconductor sector, these stocks were helping to power the Nasdaq and the summer snapback rally.

We documented the big breakout in semiconductor stocks in July as the VanEck Vectors Semiconductor ETF (NYSE:SMH)  took out its February highs. If you were a Nasdaq bull, you were happy to see these stocks leading the market.

Why? Because the semis were market leaders before the coronavirus crash. And they retook their place on top of the tech food chain as the market recovered. We saw this same scenario play out in September. While many sectors (including tech stocks) were hit hard by sellers, the semis quickly found support. Then they bounced…

SMH

As you can see on the chart, SMH is already back to posting new all-time highs. As of Tuesday afternoon, the Nasdaq Composite is still about 1.5% off its high-water mark. Using recent history as our guide, we should expect the semis to continue to lead the market as we move deeper into the fourth quarter.

Trading Tip of the Day

Welcome to earnings season!

The first results are coming across the wire early this week. The bar has been set a little lower due to the pandemic, so we’ll probably see plenty of companies beating the number. But you shouldn’t focus much attention on these earnings reports…

As always, it’s the reaction to earnings that counts. I don’t really care about the details. We can learn much more about a stock watching its price action. We’ll find out if the bulls are excited and ready to buy additional shares — or if the bears are ready to take control and send the stock lower.

— 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.

Transitioning from a clerk to a floor...

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