Forgotten Profits Trade Setup Archive
Below you'll find Ian's setups stacked up and ordered chronologically. As this service once resided at another home, the alerts only go back to mid July. For a full track record, see the portfolio.November 19, 2024
Understanding Building Permits and Housing Starts
Understanding Building Permits and Housing Starts Reports and Their Economic Implications
The monthly Building Permits and Housing Starts reports are critical indicators of the health and direction of the housing market and the broader economy. Released by the U.S. Census Bureau and the Department of Housing and Urban Development, these reports provide insight into the construction sector, consumer confidence, and future economic activity.
Both metrics are seasonally adjusted annual rates (SAAR), meaning they project what the figures would look like over an entire year if the current month’s trends continued, adjusted for seasonal fluctuations.
What Are Building Permits and Housing Starts?
- Building Permits: This metric measures the number of permits issued by local jurisdictions for new residential construction. Since permits are required before construction can begin, this report acts as a leading indicator of future housing starts and the broader housing market’s health.
- Housing Starts: This metric tracks the number of new residential construction projects that have begun during the reporting period. It reflects builders’ confidence in the housing market and demand for new homes.
Building Permits and Housing Starts provide a snapshot of current and future activity in the housing sector. These metrics are key indicators for economists, investors, and policymakers looking to understand the health of this critical segment of the economy.
Economic Significance of Building Permits and Housing Starts
Both reports are vital for gauging economic activity in the housing sector, which is significant in overall economic growth. The housing market drives demand for materials, labor, and services, creating a ripple effect across manufacturing, retail, and finance industries.
- A rise in Building Permits suggests increased future construction, indicating optimism among builders about market conditions.
- A strong Housing Starts figure reflects immediate construction activity, translating to job creation and economic momentum.
These reports are also sensitive to economic factors such as interest rates, mortgage rates, and overall consumer confidence. As leading indicators, Building Permits and Housing Starts offer valuable insight into how the economy responds to Federal Reserve policies and macroeconomic conditions.
Potential Market Impacts of Tomorrow’s Reports
The market’s reaction to the Building Permits and Housing Starts data will depend on how the reported numbers align with expectations. Here’s what to anticipate in three scenarios:
If the Numbers Are In-Line with Expectations
- Stock Market: Equity markets may show little reaction as in-line data confirms the market’s existing outlook on the housing sector.
- Bond Market: Yields are likely to remain steady, as the data matches expectations and doesn’t significantly alter economic forecasts.
- Housing-Related Stocks: Homebuilders and housing supply companies could remain stable, with minimal movement in stock prices.
If the Numbers Are Better than Expected
- Stock Market: A positive surprise could boost broader market sentiment, reflecting strength in a key economic sector. Consumer confidence in the economy may also rise.
- Bond Market: Yields may tick up slightly, as stronger-than-expected housing data could be interpreted as inflationary or suggest resilience in the economy.
- Housing-Related Stocks: Homebuilders and retailers like Home Depot and Lowe’s may rally as better data signals increased demand for housing-related products and services.
If the Numbers Are Worse than Expected
- Stock Market: Disappointing data may weigh on equities, particularly sectors tied to the housing market, as concerns about an economic slowdown grow.
- Bond Market: Treasury yields could drop, reflecting a flight to safety as investors anticipate slower economic activity.
- Housing-Related Stocks: Homebuilder stocks may decline, as weaker data could suggest reduced future demand and tighter margins.
Broader Implications
The Building Permits and Housing Starts reports reveal the state of the housing market and offer insights into broader economic trends. Weak data could reinforce concerns about the impact of high mortgage rates and tightening financial conditions. On the other hand, strong data could bolster the narrative of economic resilience, even in a high-rate environment.
Investors and policymakers will closely watch tomorrow’s release of Building Permits and Housing Starts. Whether the numbers meet, exceed, or fall short of expectations, the data will provide valuable clues about the economy’s direction and the housing market’s role in shaping it.
Good Trading,
Adrian Manz
NAHB Housing Market Index
Understanding the NAHB Housing Market Index and Its Economic Implications
The NAHB Housing Market Index (HMI) is a critical measure of the sentiment among homebuilders regarding the state of the housing market. The index is released monthly and is based on a survey conducted by the National Association of Home Builders (NAHB) in collaboration with Wells Fargo, where builders rate current and future sales expectations and buyer traffic. The HMI is a weighted composite of three components:
- Current single-family home sales (60%)
- Sales expectations for the next six months (20%)
- Traffic of prospective buyers (20%)
Each component is rated on a scale from 0 to 100, with readings above 50 indicating that more builders view conditions as good than poor. The overall NAHB Housing Market Index serves as a leading indicator for the housing market and, by extension, the broader economy due to the housing sector’s significant impact on economic activity.
Economic Significance of the NAHB Housing Market Index
The housing market is a cornerstone of economic growth, influencing construction, banking, retail, and manufacturing industries. A strong NAHB Housing Market Index reading suggests robust builder confidence, signaling increased homebuilding activity, higher construction employment, and greater demand for materials and services. Conversely, a weak HMI reflects builder caution, often stemming from high interest rates, limited buyer affordability, or unfavorable economic conditions.
Economists and market participants closely watch the index because it can provide early clues about shifts in economic momentum. Changes in builder sentiment often precede adjustments in housing starts, permits, and broader economic activity, making it a valuable tool for forecasting.
Potential Market Impacts of the NAHB HMI on Monday
The reaction to the NAHB HMI in the financial markets depends largely on how the reported number compares to expectations. Here’s how the stock and bond markets, as well as housing-related equities, might respond in different scenarios:
If the Number is In-Line with Expectations
- Stock Market: A neutral reaction is likely, as the report confirms the market’s current outlook on the housing sector. Broader equity markets may look to other data for direction.
- Bond Market: Little to no impact, as in-line data is already priced into yields.
- Housing-Related Stocks: Homebuilders like Lennar, D.R. Horton, and PulteGroup may experience minimal movement, maintaining recent trends.
If the Number is Better than Expected
- Stock Market: Positive sentiment could lift equities, as a strong HMI would imply resilience in the housing sector despite potential economic headwinds like high mortgage rates.
- Bond Market: Yields may rise slightly on fears of inflationary pressures from an active housing market.
- Housing-Related Stocks: Homebuilders and housing supply companies (e.g., Home Depot, Lowe’s) could rally, as improved confidence suggests higher future revenues.
If the Number is Worse than Expected
- Stock Market: Equity markets could face downward pressure, particularly if the report exacerbates concerns about a broader economic slowdown.
- Bond Market: Treasury yields might fall as investors seek safe-haven assets, reflecting expectations of slower economic growth.
- Housing-Related Stocks: Homebuilder stocks would likely decline, with investors anticipating reduced activity and tighter margins in the housing market.
Broader Implications
The NAHB Housing Market Index doesn’t just reflect homebuilder sentiment; it offers a snapshot of consumer affordability and confidence. If affordability challenges—such as elevated mortgage rates and home prices—are reflected in the index, it could signal broader economic fragility. Conversely, strength in the HMI would bolster the narrative of economic resilience.
As market participants anticipate the next release, the NAHB Housing Market Index will serve as a bellwether for the housing market and its ripple effects across the economy. Whether the outcome confirms or challenges current economic expectations, its influence on Monday’s market movement will provide valuable insight into investor sentiment and the state of the housing sector.
Good Trading,
Adrian Manz
Kennedy, Biotech and Pharmaceutical Stocks
The Impact of Robert Kennedy’s Appointment on
Day Trading Opportunities in Biotech and Pharmaceutical Stocks
The recent appointment of Robert Kennedy to a critical regulatory or political position has sent ripples across the financial markets, particularly in sectors tied to healthcare, biotechnology, and pharmaceuticals. This development presents opportunities and risks for day traders, as these industries often experience heightened volatility in response to policy shifts and leadership changes. Kennedy’s new role might shape the landscape and create trading opportunities in Kennedy – Biotech and Pharmaceutical Stocks.
Understanding Kennedy’s Stance on Healthcare
Robert Kennedy is known for his outspoken views on public health policies, regulatory oversight, and pharmaceutical practices. His previous statements and positions suggest he might advocate for increased scrutiny of drug approvals, pricing policies, and corporate accountability within the pharmaceutical sector. If his appointment signals a shift toward tighter regulation, traders can expect significant movement in stocks across the sector, especially in Kennedy – Biotech and Pharmaceutical Stocks.
Key Catalysts for Day Trading Volatility
1. Regulatory Changes
- Short-Term Volatility: If Kennedy’s policies aim to reform the FDA’s drug approval process or emphasize stricter safety standards, biotech companies in the middle of trials could see their stock prices react dramatically. Watch for headlines about regulatory changes or delays in approval timelines.
- Opportunities: Companies with drugs nearing approval could experience increased volatility, creating intraday opportunities for traders who closely monitor news flows and price action.
2. Public Sentiment Shifts
- Short-Term Volatility: Kennedy’s leadership might amplify public scrutiny of “big pharma.” As public perception shifts, stocks of larger pharmaceutical companies may exhibit increased sensitivity to news about drug pricing or lawsuits.
- Opportunities: Short-term pullbacks or rallies driven by media narratives could present scalping or breakout trading opportunities, especially in companies with high-profile drugs.
3. Innovation Incentives
- Short-Term Volatility: If Kennedy pushes for funding or incentives toward alternative medicine or new areas of research, companies operating in these niches might experience speculative buying.
- Opportunities: Look for sector-wide momentum when announcements are made about government grants, subsidies, or support for specific biotech initiatives.
Trading Strategies to Consider
1. News-Based Scalping
Reacting swiftly to breaking news about Kennedy’s policies can create intraday trading opportunities. Use tools like news scanners to stay ahead of market-moving announcements.
2. Volatility Breakouts
Biotech stocks often move sharply on regulatory or trial updates. Focus on pre-market solid-volume stocks and use volatility breakout strategies to capitalize on sudden price movements.
3. Sentiment Analysis
Monitor market sentiment by analyzing social media trends, press releases, and interviews with Kennedy. Stocks aligned with perceived favorable policies may rally, while those under regulatory scrutiny could plummet.
4. Sector ETFs
For traders looking to mitigate individual stock risk, biotech or pharmaceutical ETFs like IBB (iShares Biotechnology ETF) or XLV (Health Care Select Sector SPDR Fund) can offer opportunities to trade broader sector trends.
Stocks and Sectors to Watch
- Small-Cap Biotech Companies: These are particularly sensitive to changes in FDA approval processes or funding announcements.
- Big Pharma: Watch companies facing pricing scrutiny or patent expirations, as they might react sharply to Kennedy’s policy discussions.
- Alternative Medicine Firms: This niche could see speculative interest if Kennedy emphasizes alternative healthcare approaches.
Final Thoughts
Robert Kennedy’s appointment represents a pivotal moment for the healthcare sector. For day traders, the heightened volatility in Kennedy – Biotech and Pharmaceutical Stocks offers a fertile ground for opportunity. However, the uncertainty surrounding potential policy changes underscores the importance of disciplined risk management and a solid trading plan.
Stay vigilant for announcements, watch how the market reacts to his initial policies, and be prepared to adjust your strategies accordingly. As always, volatility is a trader’s best friend and worst enemy—use it wisely.
Tesla Volatility Trade
Tesla Volatility Trade Framework
The video in today’s post focuses on leveraging volatility bands to navigate Tesla’s (TSLA) often unpredictable market movements. Adrian provided detailed insights into managing Tesla’s opening volatility, crafting a personalized approach based on individual trading style and risk tolerance.
Key Concepts of Tesla Volatility Trade
The strategy begins with identifying Tesla’s opening range and pivot points. An “inline open,” where Tesla’s price opens within the previous day’s closing range, becomes a pivotal moment for initiating trades. If Tesla opens below the central pivot, the strategy involves watching for price movement toward resistance above the entry level, followed by a rollover through the entry price, signaling a short trade. Traders are cautioned to adapt stops just above the pivot to minimize risks.
Entry timing is critical, especially during volatile opening bars. For traders uncomfortable with first-bar volatility, patience is advised, waiting for more stable setups. For instance, the Tesla Volatility Trade recommends observing whether subsequent bars test and reject the pivot, confirming the trend before executing trades. A second entry opportunity often arises when Tesla’s price retests and fails at the pivot, enabling another short trade.
Target and Risk Management
Profit-taking and risk management are essential to the Tesla Volatility Trade strategy. Initial targets are set at support levels below the entry point. Trailing stops lock in profits while providing flexibility if Tesla’s price retraces. Adrian underscores avoiding trades on oversized bars that diminish the risk-reward ratio, instead focusing on setups with manageable targets within Tesla’s typical range during less volatile parts of the trading day.
Broader Application
This approach is structured for high volatility periods, particularly the first hour after the market opens. After the initial session, the focus shifts to re-evaluating Tesla and other stocks (the “Magnificent 7”) for potential afternoon setups. The Tesla Volatility Trade thus integrates a disciplined methodology to handle both morning and afternoon trading opportunities while adapting to Tesla’s unique price action.
Adrian concludes by encouraging traders to develop their rationale and apply these principles to achieve consistency with the Tesla Volatility Trade. This systematic method balances risk and reward, offering traders a robust strategy for effectively navigating Tesla’s dynamic market conditions.
Those are my notes on what Adrian covered in the video. Now, have a look and see what your takeaways are.
For a recap of today’s War Room trades, click here.
Good Trading,
Julie Manz
November 15, 2024
