Dear reader,
Last week, we focused on AI stocks ahead of the presidential election – and for good reason.
No industry has been more important to the strength of the markets over the last two years than artificial intelligence.
It’s no secret that the so-called Magnificent 7 buoyed the entire market with their incredible performance…
In 2023, the Mag 7 represented 75% of the gains of the entire S&P 500.
And in the first half of this year, that number was still 64%.
So that small group of stocks is still a major bellwether for the broader markets.
Now, as I’ve been saying for weeks, we’ve got a major convergence on our hands…
Seasonal bullishness is about to set in as we head into October and November (and don’t forget, November is the start of the Best Six Months seasonal pattern).
On top of that, the Fed just announced a half-point interest rate cut, with more to come before the end of the year.
On top of that, we’ve got a 90% Money Calendar pattern in the Technology Select Sector SPDR Fund (XLK) – the ETF that represents the entire tech sector – that stretches into December.
And on top of that we’ve got a 90% Money Calendar pattern on the hottest AI stock in the world.
So today, I want to take a moment and talk about some of the opportunities we’ve shown you recently…
NVDA Three Ways
Like a Michelin-starred chef, we prepared an Nvidia trade three ways, giving you the opportunity to trade on your terms – whichever trade worked for you, your risk tolerance, and your overall financial goals.
Here’s where we stand, just one week later.
If you bought shares of NVDA, you’re up 8.3% in seven days (as you can see above, the average move during this pattern is 8.5%).
That’s a pretty incredible return on a blue-chipper like NVDA in just a week.
But we’re not done – the NVDA at-the-money calls with the November 15 expiration are also up 25% in the last week.
I also gave you possible“Loophole trade” idea, which is currently showing a profit.
But that’s not the only trade we’re watching right now.
Tech’s Strength is More than Just AI
This week, we took a step back to look at the broader tech sector.
Because as we approach the convergence of those factors we’ve been focusing on for weeks – general seasonal bullishness, the presidential election cycle, bullishness in tech, etc.-
Earlier this week, I showed you that the Money Calendar was showing a 90% pattern the tech ETF XLK.
If you want to get in on the seasonal bullishness in tech, instead of looking for that “perfect” tech stock that’s headed to the moon, you can lock in some safer, more consistent (though a bit more conservative) gains using ETFs.
And rather than sifting through over 750 tech stocks, you can make a single trade on the entire sector.
Again, I gave you a couple of ideas on how to play the 90% Money Calendar pattern on XLK….
Obviously, you could buy shares. Had you done so on September 23 when the pattern began, you’d already be up 3.3% on an ETF in less than 3 days.
We also looked at the XLK December 20, 2024, $225 call, trading for $11.35. Right now, they’re trading at around $11.60.
It isn’t much, but these trades are just a few days old – and the tech sector’s seasonal bullishness is just getting underway.
We’ll be checking back on both Nvidia and XLK in the coming weeks – so stay tuned
One More Thing
The XLK trade is brand new – so we’re still waiting for the play to develop.
But the Nvidia trade? That might require some consideration on your part.
The question is: do you take the money and run? After all, you’re just about at the average gain for the length of the pattern, which is a great place for a profit target.
On the other hand, this is a longer-term pattern. There’s plenty of time left to capture more upside.
My advice: stick to your discipline. For example, if you set a profit target based on that average 8.5%, you’re closing in on your target and should get ready to take profits!
Of course, it’s entirely up to you. You can hang on to see how high it will go – and it might work out – this time.
I don’t recommend this approach. A better idea would be to take your profits, reload, and take aim at another tech trade.
That’s all for today!
I’ll be back with you tomorrow to answer your biggest questions of the week in the Friday Mailbag.
Good trading,
Tom Gentile
America’s Pattern Trader