so the stock market looks like it's

collapsing with no bottom inside and we

have yet another down week in the

markets

but something interesting happened if

you look at the s p 500 it went

within the bear market territory again

remember a bear market is officially

when the market closes 20 below the peak

so it went 20 below the peak and some of

the news media were already calling okay

a bear market has started bear market

started but interestingly before the

market closed on friday

it closed back above that 20

level

it's narrowly

avoiding that official bear market term

in the s p 500 so it's kind of like the

market's teasing us right it's like bear

market no bear market bear market no

bear market we'll see what's going to

happen but it formed a pattern which is

known as a classic bear trap

a bear trap what's a bear a bear trap is

when the market looks like it's going

into a bear market and when it went

below that 20 mark a lot of traders went

short right they started shorting the

market over here

and at the last moment the market

kind of like trapped them and closed

back above that 20 mark so if the market

rallies

next week these bears that went short

are gonna get

killed that's why we call that a bad

trap so what's the chances of that

happening we're gonna take a look in a

short while

so that's the s p 500 now if you look at

the nasdaq we had that same pattern

except for the nasdaq it is already

it's already been in a bear market for

quite a while

but we also had right it's 20 below the

peak in fact it's now like down you know

close to 30 below the peak

and again we had that bad trap pattern

right when below people went short close

back above

and we'll see what that means in a short

while now if you take a look at the

media uh there were two interesting

points that was made right number one

the dow jones is on its longest weekly

losing streak

since 1923 that's almost a hundred years

so if you look at the dow jones

it has gone down for eight weeks in a

row eight weekly bearish candles and

that's the longest losing streak since

1923 so it's pretty historic moment

right how about the nasdaq the nasdaq

and the s p have had seven

red weekly candles in a row seven weekly

declines in a row and is the longest

losing streak since the dot-com crash

back in 2000 so the market is so

extremely bearish that i'm actually

getting really bullish and i expect a

very strong rally in the markets within

the next couple of days now before

you're thinking adam what are you

smoking are you high

no i'm not right so you have to

understand that the market is kind of

like a pendulum it swings from one

extreme to another extreme and it's such

that when the market gets really bearish

that's when it turns bullish once it

gets really bullish that's when it turns

bearish

so what evidence is there the market is

kind of like reaching a tipping point

where it's going to flip over well a

couple of things that i'm looking at the

first thing i'm looking at is the fear

and greed index and right now we are at

the extreme fear level and historically

every time the fear and greed index goes

into extreme fear it has always marked

turning points in a market where the

market tends to flip

back upwards so that's one thing the

second thing is if you look at the

williams percentage r or you can look at

the stochastics or rsi

on the weekly basis is again at

extremely oversold levels as you can see

and this again has always coincided with

market reversal bottoms right right now

we are here

so again this is another sign that we

are deeply oversold markets extremely

bearish and there are signs that the

market is gonna flip really really soon

now in trading you don't just look at

one indicator one pattern that gets you

to form a thesis to go long to go short

you look at multiple

indicators of signals and you're

building a confluence case where many

signals tell you the same thing

the probabilities a lot higher so number

one we are oversold in the markets

we are at extreme fear levels and

something interesting has happened as

well if you take a look at the s p 500

as well as the nasdaq you will see

divergence between the price going down

and the advance and decline line so the

advance and decline line measures the

amount the number of stocks advancing

versus the stocks declining and for the

first time the advance and decline line

is going up when the market has gone

down

so that's a very very interesting

development now if you take a look at

the s p 500 and again

the same thing is happening on the

nasdaq as well right so notice that

again look at this advanced decline line

notice that when the market went down

from here it made a new low over here

the advanced decline line

went down as well

right when it went down from here this

low

to this low

the advanced decline line went down as

well

okay so every time the market went down

there are more

uh decliners that than advances right

whereas in this recent week although the

market went

lower but the advanced decline line for

the first time during this correction is

actually going higher so in other words

below the hood you can see that there

are stocks that are actually gaining

they are more gainers than decliners and

we call this a level of divergence in

the market which again could be another

point of confluence that a market is

going to start reversing soon now the

10-year yield in a way has been the

market's expectations of inflation so

because of

high inflation the 10-year yield has

been rising

now the moment the 10-year yield starts

to come down it's telling you that the

market is beginning to see inflation

come back down

once inflation comes back down and the

fed doesn't have to raise rates as

aggressively the market will have a huge

change in sentiment

now if you take a look at a 10-year

yield you notice that it's beginning to

look like it's topping off

so long term you can see this resistance

on the 10-year yield

all right

and it broke above that

trending resistance but there's a very

strong horizontal resistance over here

now if you take a look at what has

happened last week you'll notice

that

we hit that level of resistance

and we actually close with two bearish

candles on the 10-year yields on the

weekly candles right and this is this

looks really overbought so if this comes

down which i suspect you start to come

down that would signal that the market

is beginning to believe that inflation

has peak inflation is abating

so the fed doesn't have to be so

aggressive and that would mark a huge

change

in sentiment in the markets and a

strong bullish

rally would would be in place

once we see this tenure use starting to

break down so in the next couple of days

i expect a very strong rally in the s p

as well as the nasdaq so i'm going to

show you how i'm going to set up a

bullish trade

using options right so first of all i'm

expecting a strong rally now how high do

i think it's gonna go

well to kind of like pinpoint my target

price i'm using some fibonacci levels so

first of all if you take a look at the

wider

wave patterns right so we've got this

wave down

wave up

wave down and we're looking for the next

wave up over here right we call this a

to b right wave down b to c

wave up

next a to b wave down we're now looking

for the b to c wave up

now from the a to b you can see that

this is a fibonacci retracement and i

can draw this for you i'm going to click

on a

drag it to b

okay

and you can see very nicely

one more time this is a

this is b

this is c and usually it will retrace to

the fifty percent

or sixty one point eight percent

fibonacci level so you can see this is

the sixty one eight percent fibonacci

level so this is a classic 61.8

retracement

now once it retraces a b to c

it would then go to the next uh

wave down to the next

a level right so how do we know that

this is the bottom now again we can't

predict for certain but with fibonacci

we can kind of like mix up intelligent

statistical guesses so what we do with

fibonacci is we go to a fibonacci

extension tool which is this one

and again we click on a

go to b

go to c

and

boom you can see this is the

100

level so usually after an a

b

b to c

it will then reach the 100

target which is exactly where we are

right now so this gives me an additional

pattern of confluence that this is the

end of this wave pattern because it's at

100 level or at least near the end right

so the question is now

where is it going to retrace too so once

again we apply fibonacci

and let let's see what we get okay

so let's go back to our fibonacci

retracement tool

one more time a

to b so this becomes a b

all right so we are looking at a target

of 50

or 61.8 percent so this is our

target range of where we think the

market is going to go between

326 to 336 right but to be conservative

i'm going to target

uh to reach 326 and i'm going to show

you how i can set up a trade

uh to target that bounce in the triple

cubes

so if i expect that there's going to be

a strong bounce in the market whether

the sby or the triple q

how can i trade this now what's very

important to remember that as a trader

you can never be right all the time i

don't expect to be right all the time so

it's not whether you're right or wrong

it's how much you make when you're right

and how much you lose if you are wrong

so whenever i set up a trade i will

ensure that i always risk one dollar to

make more than one dollar so i risk one

dollar to make two dollars i risk one

dollar to make four dollars so even if

i'm wrong heck i make i lose just one

buck right but if i'm right i make two

three four dollars

so when you do that consistently as a

trader even if you're right half the

time

and you're wrong half the time you are

still profitable so it's all about money

management is all about controlling your

risk to reward ratios and not just

saying it has to go up no it doesn't

have to go up because the market you

can't predict it 100 you can only look

at what we call high probability

entries okay but you must always know

when to cut loss and get out when it's

not moving in the direction which you

anticipate right so i'm gonna show you

how i swing trade using options so i

like i love to use options because with

options i limit my risk

but i have got great rewards so again i

risk a dollar to make two dollars or i

risk a dollar to make four dollars

many people they just like to buy call

options

but i don't because i think if you just

buy call options they are very very

expensive so i'm gonna show you two

methods that we teach in our our classes

one method is what we call a bull call

spread and another method is known as a

back ratio spread and it's pretty

interesting pretty cool

so this is how it goes so first of all

i'm gonna start with a bull call spread

now what does that mean that means i'm

gonna buy a call option

just above the current price so right

now the price is at 289

right of course when the market opens

tomorrow it could go higher so i have to

adjust it when the market opens right so

i'm gonna buy a call option just above

that so for example i could buy a call

option at say 293 for example just

slightly out of the money okay

and simultaneously after i buy the call

option i will sell another call option

at my target price which is about 325

326 somewhere here so over here i will

sell

a call option

let's say 325

so why do i want to sell a call option

and buy a call option because when i

sell a call option i collect money i

collect premium

that will help to pay

for the call which i buy so this lowers

my cost makes it a lot cheaper than just

buying a call option right so this is

how i set it up

so first i have to decide on the

expiration date

i will just choose 30 days which is a

pretty standard uh for swing trade so 30

days

and i'm going to look for 293

which is over here

and this is a call option i'm going to

go to 293

right click and buy

vertical

vertical means a vertical spread right

so click on that

and there we are i'm going to buy a call

option at 293

right and i'm going to sell a call

option at my target price of 325.

let's look for 325 325

boom there we go okay so how much would

this trade cost me it will cost me

seven dollars and 85 cents

now one contract is a hundred shares so

multiply by a hundred that would be

785 dollars so that's the total cost of

this trade and that's also the maximum

loss so

the the most i can lose is 785 all right

now if i click on this you can see

that my maximum loss

is 785 if

right it drops and it expires worthless

but if it goes up to my target price

i could make a maximum profit of two

four one five

so in other words what's my risk to

reward ratio i'm risking seven eight

five

to make two four one five so two four

one five

divided by seven eight five

i'm risking one dollar

right i'm

essentially risking one dollar to make

three dollars

so is that a good trade to risk a dollar

to make three dollars not bad right if

i'm wrong i lose a dollar if i'm right i

make three bucks right so again if i can

just do this a few times

uh even if i'm right half the time i'm

still very profitable okay

now some of you could be thinking but

adam you know i could lose 785 that's a

lot of money for me it's too big so

don't worry i'm going to show you

another technique in a while

where it's a lot lower all right but for

this one it's 785 per contract now what

does the trade look like i'm gonna

show you the profit and loss

chart for this trade

okay so there we go this is the profit

and loss chart

now the date today is the

22nd of may

so if i enter the trade tomorrow it'll

be the 23rd of may i'm going to go to

23rd of may

right there we go okay

now so over here you can see on the

y-axis

we have the profit and loss

so

this is profit you make 500 bucks a

thousand bucks a thousand five right

below zero this is you're losing money

you lose 500 you lose a thousand dollars

right so that's the profit and loss

on the x axis you have got the stock

price

so the current stock price is here right

this is the current stock price right

about 289 okay my target price is for it

to go to 325

that's my target price

okay now if it drops

below the recent swing low i will cut

loss so my cut loss point

will be at 275

all right so over here i cut loss

this is my profit target

and this is the current price right here

right now

so you see two lines first you see

this green line the green line is

what happens at expiration expiration

will be on the 21st of june in 30 days

so on expiration this is how much i can

lose

and this is how much i can make right

the purple line that you see is the

profit and loss

based on the date here

which is

if i enter the trade tomorrow this will

be the profit and loss

of this trade now

i'm going to

um assume that the market is going to

move within the next about

20 days i think within the next 20 days

the market is going to start moving up

right so i'm gonna shift this

to about 20 days later roughly so about

10 of june i'm going to put it to 10 of

june

and notice what happens to the purple

line

when i go to the 10th of june boom you

can see that it shifts it shifts down

slightly right

so i can see that if

uh 20 days from now

if the market doesn't move if it stays

there all right if he stays here do i

lose money yes i do lose money how much

do i lose

now take a look at this box over here

and look at the purple number can you

see this purple number here

okay so if i put my mouse

here if the price remains here

what does the purple box is it says

minus 494.59

or 495. so in other words

in 20 days about roughly about 20 days

if the market doesn't move i will get

out right and if i get out i'll lose

about 495 dollars let me write this down

i'll lose

495 bucks

if the market doesn't move right

now if the market drops

to 275 i'm going to cut loss like i

mentioned so if i cut loss there

uh how much do i lose look at the purple

line i'll lose 756

0.86 so 757 right so if it drops i'll

lose

seven

uh

57

all right

now what if the market goes to my target

price so market goes to 325 which is

where i think it will go if the market

rallies so i will get

this point look at the box 1991

can you see 1991

yeah

so 1

9 9 1 over here right

so essentially again if i cut loss here

i lose about 700 bucks

if it goes here i get

about you know one nine nine one

thousand close to two thousand dollars

right of course if it goes higher

uh i will get the maximum of

2 000

uh two four one five right if it keeps

going up i'll get two four one five

okay

so if you take a look at this trade

again i'm risking uh a dollar right so

let's say i lose

757 but i could make this now if i take

1991

divided by 757

basically i'm risking 1 to make two

point

six of my

risk

if it goes higher i make three times

right so risk one to make two point six

risk one to make three

so is this

a valid trade setup yes so again in

trading as long as you risk one to make

more than one it's a good trade and

you don't have to be right all the time

you just have to be right

more than you're wrong and you'll be

really profitable so are there even

better strategies than this yes there

are now if there are enough of you who

are interested and you leave your

comments that you're interested to learn

i'll create another video to show you

how we use a back ratio strategy which

is something that we teach in our

options classes now using the back ratio

strategy the cost of entering the trade

is going to be a lot lower the risk is

going to be a lot lower at

less than 200

and you can get a risk to reward ratio

of one is to four or even more so once

again if you're interested tell me in

the comments if there's enough interest

i'll create another video to show you

how to trade with even lower risk and

higher reward using the back ratio

strategy so till then beta markets be

with you

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