Nasdaq ETF Maintains Strong 'Buy' Signal

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October 14th, 2021 Nasdaq ETF Maintains Strong 'Buy' Signal Dear Reader, Yesterday, we looked at a Daily Price Chart for Salesforce.com, Inc. noting that the stock had retraced below the upper Keltner Channel in the ‘Buy Zone’. For today’s Trade of the Day e-letter we will be looking at a daily price chart for ProShares Ultra QQQ ETF symbol: QLD. Before breaking down QLD’s daily chart let’s first review the investment objective of the ETF. The QLD ETF seeks daily investment results, before fees and expenses, that correspond to two times the daily performance of the NASDAQ-100 Index. The index includes 100 of the largest domestic and international non-financial companies listed on The Nasdaq Stock Market based on market capitalization. Now, let’s begin to break down the Daily Price chart for the QLD ETF. Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for QLD. 50-Day EMA and 100-Day EMA ‘Buy’ Signal The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the ETF price is moving. 50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal 50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the ETF’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a ‘sell’ signal. Buy QLD ETF As the chart shows, on June 11th, 2020, the QLD 50-Day EMA, crossed above the 100-Day EMA. This crossover indicated the buying pressure for the QLD ETF exceeded the selling pressure. For this kind of crossover to occur, an ETF has to be in a strong bullish trend. Now, as you can see, the 50-Day EMA is still above the 100-Day EMA meaning the ‘buy’ signal is still in play. As long as the 50-Day EMA remains above the 100-Day EMA, the ETF is more likely to keep trading at new highs and should be purchased. Our initial price target for QLD stock is 80.00 per share. Profit if QLD Is Down 10% Now, since QLD’s 50-Day EMA is trading above the 100-Day EMA and will likely rally from here, let’s use the Optioneering calculator to look at the potential returns for a QLD covered call trade. Covered calls are also known as buy writes. The Buy Write Calculator will calculate the profit/loss potential for a covered call trade based on the price change of the underlying stock/ETF at option expiration in this example from a 10% increase to a 10% decrease in the QLD ETF at option expiration. The goal of this example is to demonstrate the ‘built in’ profit potential for covered calls and the ability of covered calls to profit if the underlying ETF is up, down or flat at option expiration. Out of fairness to our paid option service subscribers we don’t list the option strike price used in the profit/loss calculation. The prices and returns represented below were calculated based on the current ETF and option pricing for QLD on 10/13/2021 before commissions. Built in Profit Potential For this covered call, the calculator analysis below reveals the cost or the breakeven price is $5,454.00 (circled). The maximum risk for a covered call is the cost of the covered call. The analysis reveals that if QLD is flat at 73.69 or up at all at expiration the covered call will realize a $1,846.00 profit and a 33.8% return (circled). If QLD decreases 5.0% at option expiration, the covered call will realize a $1,546.55 profit and a 28.4% return. And if QLD decreases 10.0% at option expiration, the covered call will realize a $1,178.10 profit and an 21.6% return. Due to option pricing characteristics, this covered call has a ‘built in’ 33.8% profit potential when the trade was initiated. Covered call trades can result in a higher percentage of winning trades compared to a directional stock trade if you can profit when the underlying stock/ETF is up, down or flat. A higher percentage of winning trades can give you the discipline needed to become a successful trader. The Optioneering Team is here to help you identify winning trades just like this one. Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade. Get Chuck's Trades Sent to You! Do you want to start receiving hand-picked trades from 10-Time Trading Champion, Chuck Hughes? As a Trade of the Day subscriber, Chuck is offering you a special discount on his Weekly Option Alert Trading Service. Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join and use the code "Optioneering VIP" to receive special pricing!   Wishing You the Best in Investing Success, Chuck Hughes Editor, Trade of the Day Have any questions? Email us at dailytrade@chuckstod.com   If you didn't create an account using this email address, please ignore this email or unsubscribe. To ensure delivery of this email to your inbox and to enable images to load in future mailings, please add todaystrade@chuckstod.com to your e-mail address book or safe senders list. © 2021 Tradewins Publishing. 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