Find an uptrend, find a squeeze, find a setup, take a position, and let it fly. That’s our mindset for the week.
In our opinion, we think this uptrend will continue into December and January. That isn’t to say we won’t expect any pullbacks as we saw in last week’s small dip. We could easily see the S&P 500 (ES) pullback and test the 21 exponential moving average (EMA).
With the market extended, if we do pull back a bit we want to set up our trades to be able to sit through those pullbacks. We’ll review key setups we’re keeping an eye on this week, including our NFLX put credit spread in the Compounding Growth Mastery.
While there are a handful of great looking trends and squeezes setting up in the market, it would be foolish of us to ignore that the indexes and almost every major sector Exchange-Traded Funds (ETF) are extended here. When it comes to building swing positions in an extended market, here are a few of our favorite tips.
1. Find a trend, find a squeeze.
In an overall extended market we become very strict as to the setups we’ll trade. Our goal is to find setups that can continue their upward trajectory over the course of weeks or months even in the event the markets pull back a bit. Often uptrends and squeezes on bigger time frames, like the weekly and 3-day charts, offer the trend and structure needed to survive a short-term selloff.
2. Give your trades plenty of time till expiration.
When the indexes are extended we will look for weekly, 3-day, and daily squeezes to begin scaling in to our max position size. We like to give our swings five to eight or more weeks until expiration as this allows us to comfortably sit through any “short-term” downside while still being positioned for the bigger picture move.
3. Premium decay is your friend.
Buying calls on trending stocks works great when the market is rallying but can quickly turn troublesome in the event of a pullback. When the market is extended we opt to sell credit spreads on our setups as they are much more forgiving than long options. When the market is closer to the daily 21 exponential moving average (EMA) we are more open minded to getting long calls/long debit spreads.
These are just a few simple tips and adjustments we like to make in our trading when the indexes are trading at 3+ average true ranges (ATR). When the market is this “cooked” there is increasing potential for a short-term pullback, one which may only last a few days. Our goal is to get positioned for the continuation of bigger picture trends while at the same time being able to hold through short lived downside.
AMZN with its monthly, weekly, 3-day, and daily squeezes is a prime candidate for this kind of swing trading right now, and we are looking to slowly scale in to January expiration swings.
AMZN Weekly Chart
Our game plan for GOOGL with its solid 3-day squeeze is exactly the same, and we have already started building positions in both AAPL and NFLX in the Compounding Growth Mastery with January expiration put credit spreads.
GOOGL 3-Day Chart
AAPL Weekly Chart
In Sunday’s premium video, we’ll take a look at the exact spreads we are looking to initiate on these setups, our current open positions, along with a look at this week’s Focus Scans results!
In this video, we’ll be reviewing the market conditions, mainly focusing on the major indices and the Volatility index (VIX) to close out the week strong. The S&P 500 (ES) is showing the market is very extended as we’re ripping to all-time highs and trading at 3+ average true ranges (ATR) away from the daily mean for the second time this year. This calls for technical exhaustion, where we can continue to grind higher but this could also signal a pullback. It’s important to remember to listen and react to the market rather than expect a huge pullback.
Let’s build a watchlist in this extended market and look at a few swing trading setups into December and January expiration. We’ll be taking a look at stocks like NFLX, AAPL, and GOOGL.
The biggest focus point this week is on the 4-hour squeeze printing on the S&P 500 (ES), as the ES traded lower toward the 4-hour Ichimoku Cloud and Point of Control (POC) near $4,619. For the rest of the week we’ll watch to see if the ES can push up to the Ichimoku Cloud top at $4,673 or drop through the Ichimoku Cloud bottom to POC.
We can use the hourly squeeze to determine which direction we can expect the market to move next.
The Volatility Index (VIX) popped from 18 to 20 on Wednesday and retreated to 18 on Thursday.
If VIX breaks through 18, we can expect a pullback and the squeeze to fire to the downside.
If VIX stays below 18, the market will likely fire the squeeze to the upside.
Remember to focus on what is in front of you and react to the market. Watch the video above for squeeze setups we’re watching on GOOGL, NVDA, and BNTX.
The market is extended ever since its reversal, rallying off the lows for about 37 days now with the S&P 500 (ES) up about 400+ points. The S&P 500 is trading above the 3+ average true range (ATR) which is the second time we’ve seen these types of exhaustion levels this year.
Be patient with the market and look for the squeezes to give you some direction. While we would love to take advantage of a pullback, the market has continued to rally higher so we need to continue to react according to what the market gives. Avoid having a strong bias of one direction or another.
Here is our focused list:
GOOGL — Strong push to all-time highs (ATH) last week and continued on Monday. Squeeze starting to form, looking for it to pop. Use the 1-hour Ichimoku Cloud as an indicator to watch along with the $2,973 zone. Look for the squeeze to pop to the upside and for GOOGL to break $3,000 up to $3,050.
NVDA — Very extended, trading above 3+ ATR at around 5+ ATR, while point of control (POC) increased to $308. The Artificial Intelligence conference on Tuesday could be a catalyst for either direction. The 2-hour squeeze and hourly squeeze are forming, so we could see a short-term breakout through $314 as long as NVDA continues squeezing tight.
SHOP — Had a strong rally last week but sold off at the end of day on Monday. The weekly squeeze is showing strong momentum and compression which could lead to a move higher. Be patient to see if SHOP pulls back to $1,500 for a dip-buy opportunity.
QCOM — Huge breakout to ATH on Friday and chopped near the highs on Monday. If QCOM keeps trading below the highs with a squeeze, keep an eye out for a breakout to $170.
At this point the market is very extended with an overwhelmingly bullish trend.
For the first time since September, 2020, the S&P 500 (ES) is trading above the 3+ average true range (ATR) on a daily chart. While we’re expecting this bullish trend to continue into the new year, expect shorter-term pullbacks and use them as buying opportunities.
For our swing trades, we’re looking for longer-term expiration in December and into January 2022. Ideally we’re looking for positions in the strongest trends with squeezes on multiple time frames, the patience to pick our spots wisely, and our setups to ride into early 2022.
Watch the video above for our watchlist of setups that we’ll be looking to take heading into the end of this year.
Though the markets are (very) extended to the upside, our thought process is that this uptrend will continue into December and early 2022.
While we know there will likely be a handful of pullbacks over the next three to four months, we’ll view each as buying opportunities in the strongest trends so long as the market maintains its bullish structure.
We’re building positions with patience here, and our number one goal is to pick our spots wisely.
We are dying to build a position in GOOGL as its 3-day squeeze looks poised for some action, but the stock is a bit too extended to offer a great entry here.
On the other hand, NFLX is the first trend we’ve started to “nibble on” as it pulled back to its daily 21 exponential moving average (EMA) on Friday. We are slowly scaling into positions with the understanding that we may take some short-term heat in the event the market does pull back.
NFLX Daily Chart
We are completely fine taking any heat in the short-term and would look to continue scaling-in as we think these trends will result in higher prices over the next five to 10 weeks.
Another setup we are looking to build a position in is AAPL, which has a weekly, 3-day, and 195-minute squeeze. Any dip to the 21 EMA is a buying opportunity in our opinion.
AAPL Daily Chart
We’ll be giving all our swing trades plenty of time to work here going out to December and January expiration.
When we look at recent explosive moves like in TSLA, NFLX, and IWM, each of these moves were triggered by a weekly squeeze. When a squeeze fires we tend to get five to eight bars of momentum, meaning a weekly squeeze can produce five to eight weeks of momentum.
Our goal at the moment is to build positions in some of these bigger squeezes to benefit in the months to come from the potential five- to eight-week burst to the upside.
There are a few more setups that fit this bill that we’ll be covering in Sunday’s video, so be sure to keep an eye on your inbox for that!
