Proactive Spreads, January 4th 2017

The market just can’t find any downside followthrough.

In technical analysis, so many people look for patterns that are successful. Yet it’s just important to understand pattern failure.

So over the past two weeks, the market has been correcting between 2250 and 2275… a 25 handle range. Not a ton of volatility.

And into the end of the year, the market cleared under that support level, indicating a breakdown of support and potential to the downside.

But on Tuesday, when the markets opened for 2017, we saw a failed breakdown. This tends to be bullish and leads to followthrough towards the upper end of the range.

Core thesis remains the same. It will be a grind, most likely higher, with rotation in and out of different pockets of the market. Our job is to simply identify the best risk/reward when trending stocks go out of favor in the short term.

Trade #1: BA

Not sure this will be a possible trade unless earnings dissapoints, but there are a handful of key pivot levels from 150 to 145 that haven’t been tested since the big rally. If we come into those, then I want to sell some put spreads.

Trade Setup

Expected Stock Price: 150

Sell to open BA Feb 135/130 Put Spread

Tier 1: Enter at 0.55, exit at .15

Tier 2: Enter at 0.85, exit at .55

Tier 3: Enter at 1.20, exit at .85

Trade #2: UNP

UNP is showing signs of a breakdown from its most recent range, and didn’t participate in the afternoon rally with the rest of the market. 100 is a big pivot level, along with the rising 50 day moving average. The low 90’s should act as a floor on this stock as well.

Trade Setup

Expected Stock Price: 100

Sell to open UNP 92.5/90 Put Spread

Tier 1: Enter at 0.40, exit at .10

Tier 2: Enter at 0.60, exit at .40

Tier 3: Enter at 0.80, exit at .60

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Trade #1: BA

Trade #2: UNP

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