As expected, the market has been in a correction.
A time-based correction.
We’ve gone sideways for the past few weeks and instead of aggressive selling, money has simply floated and rotated from one sector to another.
I expect this kind of chop to continue as we are at the end of the year and volatility should stay low as institutional trade flow continues to be reduced.
This is a point in time where it doesn’t make sense to force your way into the market, but if we do see some kind of volatility we want to be prepared to take advantage of it.
Trade #1: FDX
Fedex is one stock that has been a relative strength stock for the entire fourth quarter of 2016.
That is until its earnings report.
The stock has seen a reasonable selloff as the good news was priced into the stock.
I’m looking for a lower low to get knocked out, and a pull into the 50 day moving average. If we get that, it will be good risk/reward to enter into the long side..
Expected Stock Price: 187
Sell to open FDX Jan 170/165 put spread
Tier 1: Enter at 0.50, exit at .20
Tier 2: Enter at 0.70, exit at .50
Tier 3: Enter at 1.00, exit at .70
Trade #2: LULU
After a solid earnings report, the stock has retraced nearly 50% of its earnings gap. There is also a rising 20 day moving average coming into play as well.
I’m expecting buyers to show up as we head towards the low 60s. Odds are we will not see the earnings gap get filled as there was a catalyst that moved it higher.
Expected Stock Price: 63
Sell to open LULU Feb 55/50 put spread
Tier 1: Enter at 0.53 exit at .23
Tier 2: Enter at 0.73, exit at .53
Tier 3: Enter at 1.03, exit at .73