After a solid push higher over the last few weeks, the indexes are showing signs of exhaustion as the daily squeezes that fired a few weeks back have lost their momentum. Last week, the market did nothing but consolidate near the 8 exponential moving average (EMA) and it’s lacking any sort of clear direction on low volume.
In the midst of all this chop, the QQQ has formed a new daily squeeze. While this daily squeeze could lead to our next high, the lack of volume, loss of momentum, and the fact the squeeze is new leads us to believe the markets could be generally choppy and soft this coming week.
In an effort to take advantage of any chop ahead, we sold an iron condor on NDX for this coming Friday (5/7) with short strikes at $14,200 on the call side and $13,500 on the outside. This trade should unfold nicely for some weekly income should the market trade sideways to lower.
With signs of exhaustion in the fresh daily squeeze in the QQQ, now is the time to take our foot off the gas pedal, protect the gains that we have made on this recent strong push, and focus on building a watchlist of high-probability setups that could benefit for the next move higher in the markets. In the meantime, we will keep position sizes small and focus on weekly income trades such as the iron condor mentioned above.
As far as setups to watch moving forward, NVDA has a great looking weekly squeeze and we already have a partial position in this one with a May 21 expiration put credit spread. We will be watching this one closely for a chance to add more should we hold up above the 21 EMA.
Along with NVDA, XPE and CAT offer very solid daily squeezes, but the only hold up here is that the stocks will announce earnings over the next few days. We will be watching them closely, and should the daily squeezes still be intact after the earnings we will be looking to take a position in each for a move to new highs.
Despite earnings for tech giants taking place this week, we saw very little action from the indexes as we continue to consolidate inside the 4-hour squeezes we have formed near the daily 8 exponential moving average (EMA).
Interestingly enough, the QQQ has consolidated to the point that we are now two days into a fresh daily squeeze forming. Ultimately, we think there’s a good probability of that daily squeeze firing to the upside, as we still have the bullish weekly squeeze setting up behind us. In the meantime, however, playing a deep out of the money (OTM) iron condor on NDX for next Friday’s expiration is something we’ll discuss in this Sunday’s newsletter, so keep an eye on your inbox for a breakdown of that potential trade.
NQ Daily Chart
While the markets chopped themselves silly this week, our focus was on the AMZN earnings announcement which took place last night. The company announced blowout numbers, which was good for a $100+ move to the upside in the after-hours, and if you’ve been following us for the last handful of months, you know this weekly squeeze in AMZN has been a big focus of ours. Last week, we discussed the 5/21 – 3,500/3,490 put credit spread that we sold in anticipation of this weekly squeeze finally getting something going.
The timing of how this move unfolded for us was “interesting” to say the least, as the weekly squeeze was finally looking ready to fire long into the night of the earnings announcement. Holding through an earnings announcement can always be a bit of a “gut-check” moment, but sitting through that potential “unknown” is a lot easier when you’ve truly accepted the risk you put on the table.
Running low on sleep, but excited to see how things unfold, our game plan heading into the open was to take profits on our positions into this strength. We got the gap higher we were looking for, and after a solid push we were able to close our put credit spread (and a few other AMZN positions, see below) for a combined net profit over $25,000. What a ride!
Closing AMZN Trade
Other AMZN Positions
This trade was a big test of patience and discipline, but ultimately it was a focus on the setup, and not the P&L, that allowed us to be in a position to take profits this morning. With this trade finally in the books, there’s no time to celebrate as we think there’s still some opportunity left here with this weekly squeeze (which still has yet to fire long!)
While the weekly structure of AMZN, along with the weekly squeeze in QQQ, suggests the potential for more upside over the next handful of weeks, this morning’s move brought AMZN to +3 average true range (ATR) on the daily charts, which in our book is a great spot to lock in gains and prepare for the next “ideal entry.”
AMZN Daily Chart
Amazon’s next move will likely be dictated by where the markets go from here, but as far as the next ideal entry, we’ll be looking for a pullback to the daily 8 EMA as our next “buy-zone.” A new entry at a daily buy-zone, with a daily/weekly squeeze setting up in the QQQ could certainly lead to our next big trade just around the corner. For now, we’ll discuss the potential of an iron condor in Sunday’s upcoming newsletter, and then dive a little bit deeper into what we’re seeing from the markets.
Congrats to all who practiced patience and took this trade along with us. NEXT!
Things were unfolding just as we wanted; however, the news affected the market and shook things up a bit. Now we must watch patiently to see what happens and plan ahead with our “if this, then that” mentality.
This week has been all about earnings and while a few stocks have made big moves after releasing their quarterly numbers, the indexes have “taken a breather” by consolidating nicely at their daily 8 Exponential Moving Average (EMA).
We like the idea of lower time frame squeezes (such as 1-hour and 4-hour) firing long off the 8 EMA to trigger the next move higher, but anytime heavily-weighted stocks such as the Facebook, Amazon, Apple, Netflix and Alphabet (FAANG) announce earnings, there can always be implications (good or bad) for the overall market. With this being said, we advise being patient over the next few days and letting things unfold before jumping on any moves.
Currently, NVDA, EPXE, and a few other solid squeezes are catching our attention, but they’ll need the overall market to continue its grind higher in order to be A+ opportunities (remember, our best trades will come when we have the “wind at our backs” with the indexes remaining strong).
GOOGL announced quarterly earnings this past Tuesday, and the numbers were met with a positive reaction as the stock opened up over $100 higher yesterday, before slightly fading into the close. You can’t ask for better results than GOOGL delivered, however the structure of the chart doesn’t make it the easiest to trade moving forward. It is well above 2+ Average True Range (ATR) on the daily chart, making an entry at these levels less than ideal. Remember, if QQQ can fire its weekly squeeze long, we should see almost all tech-related stocks grind higher. However, we still want to focus on the best structures and highest-probability entries we can get, and GOOGL just doesn’t offer that here at this extension.
On the other end, MSFT earnings weren’t met with as positive of a reaction as GOOGL. We saw the stock gap down by over $5 at the start of the session. On a positive note, the gap down did bring the stock back to its 21 EMA buy zone on the daily chart, and this is something we can work with. An entry at the buy-zone allows for “easier” upside should the Qs (QQQ) begin to heat-up again. We preach (and make a living) getting long at the buy zones and taking profits into 2+ ATR extensions. This is what makes MSFT a much more attractive entry than GOOGL at this point.
While GOOGL and MSFT kicked off earnings for Big-Tech, it was FB and AAPL who stepped to the batter’s box yesterday evening. Here’s how they’re behaving in the after-hours at the time of this writing:
FB is up over $20+ after earnings, surpassing the $12 expected move
AAPL is currently up $4+ in the after-hours, which was just about the expected move.
The initial reactions from both of these names bodes well for tech heading into today’s session.
AMZN announced earnings today (Thursday) after the close, and the results could certainly have an impact on tech along with the overall market. Should AMZN pull a move to the upside like GOOGL did, that could be all the QQQ needs to begin firing the weekly squeeze long. At the same time, should AMZN bomb earnings and sell off, that could “rain on our parade.”
We are still holding our 5/21 expiration 3,500/3,490 put credit spreads, and while our short strikes are not quite yet out of the money (OTM), it is turning out to be a profitable trade so far. Today, we have patiently observed how AMZN behaves heading into its earnings announcement. While the plan for this trade was to hold through earnings, a move into a new all-time-high above $3,550 may offer us an opportunity to take a good chunk of our max profits before the close. We’ll be patient and flexible, but should we have 60%+ of our max profit on the spread before the close, it may be wise to take some exposure off the table and lock in some gains.
Our Position on AMZN
As we discussed in the Simpler Trading Options Room yesterday, weeks like this are a good time to “take our foot off the gas,” and focus on refining our watch lists as opposed to forcing trades in the nasty chop. The markets are on standby here waiting for big earnings to pass, and since we need the wind of the markets behind us, we should have the same willingness to be on standby as well!
Stay tuned for our next newsletter on Friday, as we’re excited to update you on how our AMZN trade, as well as others, perform heading into the end of the week!
We have a wild week ahead with many big names set to report earnings. All three indexes are consolidating at an all-time high (ATH), so we need to be patient as we plan our moves. Our focus is on how “big money” reacts to the earning reports. If we have a good reaction, we should see a big move through highs.
Here is our focus list for the week:
SQ – This one is based at the daily mean. We are watching for a 4-hour squeeze to push through 255 and move toward 263/270
AMZN – There are rumors going around that Amazon will split its shares, so we need to keep an eye on how this might affect the stock. We are watching for continued push into earnings through 3,434 up toward 3,500
NVDA – We’re watching the 4-hour squeeze. If it breaks 620, then we’ll be looking for a push toward 630 or higher
ROKU – We’re watching the 4-hour squeeze on this one also to see if it makes a push toward 380 or higher
The markets are looking poised for another big run to go higher, after having taken a breather and modestly pulling back to the 8 Exponential Moving Average (EMA). This significant push could start sooner than expected, as evidenced by the squeezes on the weekly charts and the lower time frame squeezes forming at the 8 EMA or as we call it “the buy zone.”
As mentioned in last Sunday’s newsletter, our main focus has been on AMZN due to its beautiful weekly squeeze, which has a higher probability of firing long, because of the accompanying squeeze in QQQ.
This week, we opened the 5/21 3500/3490 put credit spread on AMZN that we discussed in that newsletter. I sold 38 contracts of this spread a $6.75, resulting in a max potential loss of $12,000 for a max potential gain of $25,000. In order for this trade to work, AMZN will have to be trading above $3,500 come expiration time, which is entirely possible if the weekly squeezes begin to fire long.
Please note that unlike our typical put credit spreads, we have shifted the risk-reward in our favor on this trade by selling In The Money (ITM) strikes as opposed to Out of The Money (OTM) strikes.
One thing to keep in mind is that AMZN is set to announce earnings this coming Wednesday, so open application through earnings is of course a potential risk. With that being said, as much as we love the setup, we are approaching this trade with a “set it and forget it” mentality, fully accepting 100% of the risk on the table.
Another week is in the books, and we hope that you all got a little bit better in your trading this week. After a few weeks of strong upside momentum in the market, the indexes “took a breather” this week, pulling back to and consolidating on top of the daily 8 Exponential Moving Average (EMA).
Typically, after a 2-3+ Average True Range (ATR) move to the upside, the market and leading stocks will tend to revert down to the daily 21 EMA. However, with the recent strength we’ve seen, and the giant weekly squeezes behind us, it may be possible that the modest dip to the 8 EMA is all we’re going to get here.
Should the markets fall to the mean, we would view this as an awesome buying opportunity. Vice-versa, if we race to new highs off the 8 EMA, we’ve got a few positions open that should thrive. As always, we’ll be prepared for whatever the market throws our way next week, and with that being said, let’s jump into our review of open and closed trades from this week.
NDX Call Credit Spread
After a big-time push to new highs, QQQ started showing signs of exhaustion, accompanied with lower time frame squeezes firing short early in the week. As a hedge for our long positions, and as a play for a reversion to the mean, we sold this call credit spread on NDX in the Options Room this past Monday.
As has been the theme, the markets proved their resiliency with a quick bounce back above the 8 EMA on Thursday. We don’t like going against “the path of least resistance,” and decided to buy back the spread for modest gains, and then reallocated that capital into AMZN.
Once a daily squeeze has fired and begins to show signs of exhaustion (represented by dark blue bars on the histogram, below), this can be a great time to open iron condors, as the markets can tend to chop back and forth for a bit before gearing up for their next directional move. That wasn’t the case this time around, as the markets are quickly running back toward the all-time-high (ATH) this (Friday) afternoon. In an effort to not be on the wrong side of the market, We decided to buy back the iron condor for a very modest gain, which is always better than taking a loss. We do not want to fight this market’s momentum, and closing the iron condor was an easy decision as that capital can be used much more efficiently on directional plays.
If you remember, for much of March the iron condors were the “perfect trade.” They were only “perfect” because that is what the market had to offer. As of right now, what the market has to offer is some serious momentum, and the iron condor is designed for just the opposite. The markets can change quickly, and this is a good example of why we must remain flexible in our ideas.
· 4/21 SOLD -6 IRON CONDOR SPX 100 (Weekly) 30 APR 21 4250/4260/4030/4020 @1.95
· 4/23 BOT -6 IRON CONDOR SPX 100 (Weekly) 30 APR 21 4250/4260/4030/4020 @1.55
· NET P&L = +$240
SPX Chart
SPY Iron Condor
For smaller accounts, we opened up an iron condor (see chart below) on the SPY with a similar structure to our SPX condor. For the reasons mentioned above, we canned this iron condor early Friday morning for break-even, which again, is always better than letting a trade turn into an unnecessary loser.
· 4/21 SOLD -3 IRON CONDOR SPY 100 (Weekly) 30 APR 421/423/403/401 @ 0.54
· 4/23 SOLD -3 IRON CONDOR SPY 100 (Weekly) 30 APR 421/423/403/401 @ .55
· NET P&L = $0
SPY Chart
APPS Put Credit Spread
Good old APPS! We decided to take the loss on this trade (see chart below) early this week, as we reached the point where the setup was clearly not “working.” Though it was a losing trade, we will swing at this kind of setup 10 times out of 10. It’s so important to remember that the results of one single trade are meaningless, and it’s the net result of 50 or 100 trades that we should grade ourselves on.
This time around, the setup did not work in our favor… but we are firm believers that if you take 100 trades with the same structure that APPS offered when we got long, then you will come out on top.
One good lesson we’ve taken from this trade is: before you trade a stock for the first time, take a moment to familiarize yourself with the natural “ebbs and flows” of that specific stock.
When it comes to APPS, in hindsight, it behaved as it typically behaves, making a nasty flush to -1 ATR. It was an ugly move to sit through, but in all reality it was a completely normal move for the stock that shook us up. A good example of how a losing trade can offer lessons that will make us more profitable down the road.
· 4/22 SOLD -38 VERTICAL AMZN 100 21 MAY 21 3500/3490 @ 6.75
· This trade is still open
For AMZN, the weekly squeeze (as discussed in last Sunday’s newsletter) is our favorite setup in the market right now. After a nice dip to the 8 EMA, AMZN has started to form some solid lower time frame squeezes, and this was enough for us to initiate our position (see below).
AMZN Chart
There’s a lot we have discussed about this trade/setup, but we’ll save that for Sunday’s newsletter, so be sure to keep an eye on your inbox.
The market made our expected pullback, breaking the 1-hour Ichimoku Cloud indicator and signaling a trip down toward the 4-hour Cloud and key zone of 4113. This unfolded perfectly and started a nice rally toward the highs, until negative tax news hit the media. The market dropped right back down to the 4-hour Cloud and that 4113 zone. The biggest thing we need to watch now is the possibility of traders panicking and selling into the weekend for a full reversion to the mean, or the possibility of this becoming another great “dip buy.”
We will continue to take each session day-by-day with the “if this, then that” mentality. Stalking names like SQ and NVDA as they near their daily mean with the overall market.
With the market super strong, but also very technically extended, we need to take it day-by-day. Right now we are focusing on the 1-hour cloud to start a reversal, and the 4-hour cloud is our first target. If we start to break below that, we could see a full Reversion to The Mean (RTM). Day-by-day and ready to buy the dip and short the move down! We always try to plan ahead by thinking in an “if this, then that” manner.
Here is my focus list for the week:
AAPL – We are watching intraday squeezes and for a hold above 130. If it breaks 136, it can potentially rally toward 138
NVDA – We are watching to see if it will hold 605, if it does, we start looking for a push up toward 650 with the weekly squeeze momentum
FB – We are watching for a RTM dip buy, which is right around 300. If it holds we would like to see a push up toward Point of Control (POC), which is sitting at 312.4
GOOGL – This ticker is looking very strong, we are watching intraday squeezes to break and push through 2300 for a move toward 2330/2350
SQ – We are watching for a RTM dip buy near the daily cloud and we’re also looking for move back up toward POC at 263
