More Moves to New Highs?

Happy Friday Traders!

The action in the market this week was a mirror image of the action we saw last week. During the session Wednesday (5/19), we saw the volatility index (VIX) spike 2+ average true range (ATR) on the daily chart (just like last week), and as a result we saw the indexes slide to -1 and -2 ATR on the daily charts (again, just like last week).

As tends to be the case, however, once the VIX fizzled out and began to fade back down toward its 21 exponential moving average (EMA) during sessions yesterday and today, the indexes made a strong recovery with a bounce back to the mean and finished the week with a solid structure to the daily charts.

 

With a bullish structure (positively stacked EMAs plus support above the 21 EMA) to the daily squeeze for the SPY/ES (chart above), we will be looking for this squeeze to fire long over the next few weeks, offering a lot of momentum-driven opportunities in our favorite setups. As for our favorite setups right now, we’ll be covering those in-depth in the Sunday  e-letter video. Until then, here are a few we’ve got our eyes on (and a few we already have positions in).

1. GOOGL DAILY SQUEEZE (chart below):

• Though tech hasn’t been our favorite as of late, the index is looking much better here on the daily charts and we believe as long as it can hold support above the 21 EMA, we could see a 2+ ATR move toward the upside over the next few weeks
• GOOGL is our favorite setup within tech right now (FB is a close second) as it held bullish structure in its daily squeeze while the index broke down. 
• We’ve opened a long position here with a 6/18 -2990p/+2970p put credit spread, and are looking for this daily squeeze to lead to a move toward $2,400 (2+ ATR) over the next two to three weeks.

 

2. CAT DAILY SQUEEZE (chart below):

• While we do think tech and semiconductors could join the party to the upside, we also believe that the sectors that have been leading the way (XLI, XLE, XLF, IYT) could continue to move higher.
• We like the industrial sector (XLI) here, and the daily squeeze in CAT is one of our favorite setups in the group. We like it so much, in fact, we added to our Jan 11 expiration put credit spreads this week. 
• Like we do with every long setup we take, we’ll be looking for a move into 2+ ATR to upside around $248/share. 

While CAT is our personal pick in the industrial stocks, we think MMM has just as beautiful of a structure to its chart as well! Just remember, be careful getting too much exposure in one single sector, as it’s essentially the same setup looking for the same move.

 

3. IYR DAILY SQUEEZE (chart below):

• The daily squeeze in the real estate sector (IYR) is picture perfect here and we have an order working to take an entry on a June monthly expiration put credit spread.
• Aside from the structure of IYR itself, we love how the individual stocks within the group are set up just as nicely, signs of a potential group move (which are often the strongest moves).

 

We’ll cover a few more setups with you this Sunday, but for now here are a few of our favorites! As for closed trades this week, things fared pretty well!

1. SPX iron condor (chart below):

• On Monday morning, we sold an iron condor on SPX for expiration, looking to benefit from range-bound chop. After a bit of a “gut check” early Wednesday, the market was able to bounce nicely as volatility died down and the bounce was good enough for us to buy back the condor at 80% of max profit (a $1,300 profit on 10 contracts).
• As nice as these condors can be, they can become risky when the market is squeezing on the daily chart. With that being said, we’ll hold off on taking new condors for now with a bigger focus on allocating that capital to directional trades.

 

2. NFLX Call Credit Spread (chart below):

• With a bearish structure to the weekly chart and daily chart, we sold a call credit spread on NFLX a couple of weeks ago looking for a flush into -2 ATR on the daily chart, and that’s just what we got! 
• As VIX spiked and the markets slid on Wednesday, we took advantage of the fade and bought back the NFLX spread at 50% of max profit (a $3,800 profit).
• We think there is more downside left for NFLX, but we are going to avoid shorting it again (for now) as the overall market looks promising for some nice upside.

 

3. NVDA Put Credit Spread (chart below):

• Somehow, some way, the NVDA (5/21) 605/595 put credit spread we sold in late April came back to break even (after being at max loss for weeks!) this morning after the company announced a stock-split. This was simply pure luck, but we were more than delighted to close this at break-even after buying the spread back at $3.50 this morning.
• If there’s anything that can be taken from this, it’s that once a position is at 90% of max loss there is not much left to salvage by closing the position. Though it’s rare, every now and then lightning can strike and the position can come back in your favor. We don’t hope or expect for this to be the outcome, but we certainly don’t complain when it does!
• We’ll continue to avoid NVDA until earnings pass and the chart looks better.

 

Another week in the books, and the potential for some great opportunity over the next few weeks looks promising! We’ll be reaching out on Sunday with the Focus List video and we’ll jump into the details of all our favorite setups. Until then, rest up, and have a safe weekend.

Stay Focused!