I think the past two weeks of price action perfectly showcase the trading theme I have for this year.
Where we get a shakeout, but not a big enough one to trigger proper oversold readings. Just enough to shake a few weak hands out of the market… and then we continue on the trend higher.
So if you’ve been waiting for a deeper pullback, it’s been frustrating. We have seen a market correction — the correction took place over time instead of over price. Remember, markets can work off overbought readings simply by going sideways and having a rotational correction.
The next catalyst we have coming up is earnings. Odds are we will grind higher into that, as some of the larger market cap stocks start to run in anticipation of this next earnings cycle. Hopefully after earnings we get some stocks that have some good volatility to take advantage of.
Let’s take a look at two setups…
Trade #1: UNP
Still looking for 100 on this stock. It’s possible we don’t get it and buyers come back in force, but I want to make sure I get the best prices.
100 is the big pivot level from a few months ago, along with a rising 50 day moving average. Into that I want to put on some risk.
Now this stock does have earnings coming up in 10 calendar days, so consider keeping size low and if the stock runs lower then you really take advantage of it. Past adverse earnings have taken the stock down -8% but have faded back higher… that’s another setup to consider if we don’t get this one.
Expected Price: 100
Sell to Open UNP Feb 90/85 Put Spread
Tier 1: Sell to Open @0.50, Buy to Close @0.10
Tier 2: Sell to Open @0.80, Buy to Close @0.50
Tier 3: Sell to Open @1.20, Buy to Close @0.80
Trade #2: XOM
XOM finally filled the gap from last month. It’s also come into previous resistance at 87.50, which is now potential support. There’s also a double bottom pattern that formed over the past few months that should act as levels of resistance.
Now crude oil has been a little soft. It had an ugly fading day on Jan 3rd, and if it continues to sell off I expect $50/bbl and oil stocks should follow. However, this is good risk/reward to initiate a position.
Expected Price: 100
Sell to Open XOM Mar 82.50/80 Put Spread
Tier 1: Sell to Open @0.35, Buy to Close @0.10
Tier 2: Sell to Open @0.50, Buy to Close @0.35
Tier 3: Sell to Open @0.65, Buy to Close @0.50