Happy Friday, traders!
This week was an interesting one, to say the least! We head into the weekend with a beautiful daily squeeze in the SPY (that looks like it’s preparing to fire long, first chart below) and on the other end the QQQ (second chart below) flushed to the downside earlier in the week even trading below it’s 21 exponential moving average (EMA). This was a bit of a sloppy week for tech stocks. Also worth noting is the Small-Cap Index (IWM, third chart below). Much like QQQ, the small caps were volatile to start the week with a flush under their 21 EMA, but were ultimately strong enough to regain their footing. We saw a bounce back above the 21 EMA to end the week.
As far as tech goes, we are going to hold off for a few days before jumping into any long exposure, as we would ideally like to first see a few solid closes above the 21 EMA. Should the Qs (QQQ) hold up and get back on their own two feet, we love the GOOGL daily squeeze for a push into new all-time highs. Remember though, GOOGL wasn’t able to get anything going out of its most recent daily squeeze until the QQQ started the party. If we are going to look for a similar move from GOOGL again, we will certainly need the wind at our backs from the tech index.
The structure of the SPY, on the other hand, looks promising for a solid push higher over the next week or so as the daily squeeze is just about ready to fire long. Think back a few weeks ago when the SPY fired its squeeze long, and remind yourself of all the directional opportunity it brought with it. Should this current squeeze once again fire long, it will be time to look for high-probability setups that we can jump into, with the momentum of the overall market providing wind at our backs.
Our trade in CAT (chart above) was a nice and easy one this week. We loved the daily squeeze in Caterpillar, along with the daily squeeze firing long for the industrial sector XLI, in which Caterpillar is a top holding. This is exactly what we mean by looking to have the wind at your back when swing trading. It wasn’t just a setup in CAT that led toward a high-probability of a solid push higher, but also the fact that the sector it belongs to had its own squeeze and was supportive of a move higher. For this trade, we sold a May 21 expiration -232.5/+272.5 put credit spread for $1.60 of credit. This afternoon, as the stock pushed through the 2+ average true range (ATR) extension on the daily chart we were able to buy back our spread at $.80 for a little more than 50% of max profit in a few short days. A nice trade, and a structure that we’ll look to trade over and over again.
For the iron condor we sold last Friday on the NDX (chart above), this turned out to be nothing more than a breakeven endeavor (which admittedly, is always better than a losing trade). Now, had we held this condor into today’s session it would have resulted in a max profit trade, but yesterday’s price action was sketchy to say the least. The NDX continued to chop around our short strike of 13,500 and at that point, we didn’t have much cushion going into today’s expiration.
We made the decision to cut the trade for a breakeven yesterday, mostly for peace of mind, as nobody enjoys going into the weekend after taking an unnecessary losing trade. Though this would’ve worked out perfectly had we held on, we don’t want to get caught up in the game of hindsight as traders. At the moment, we made the best decision regarding protecting not only the big profits we closed on Amazon last week, but also protecting our peace of mind. Not every trade is going to be a winning trade (obviously), but when we can get out of a setup that is going against us with no blood drawn — in our book that is good trading!
In Sunday’s newsletter, we will discuss our newest position in the LEN daily squeeze (chart below), along with a few other setups we are actively stalking. The SPY looks primed for a solid push higher. Until then, rest up, enjoy time with family, and be ready to get back to work on Monday. Stay Focused!
