After running higher to test 2300, the market has pulled back under previous resistance. There is currently an “island” reversal formation, where the market gapped up above resistance, traded there for three days, and then gapped back below that range.
I wouldn’t read too much into it…
This market simply looks like a noisy grind. If you want to put a name on it, it’s an FBF Pattern– failed breakout failure. So far, this is pretty characteristic of how markets grind higher in the absense of news.
We’re in the middle of earnings season and that’s causing vol underneath the surface to pick up… and that’s where I’m finding the best setups.
Trade #1: UPS
UPS is getting hit with a one-two punch. First was a disappointing reaction on earnings, with the stock gapping down from 118 all the way down to under 112.
The second bit of news was that Amazon is building a distributing hub to compete directly with UPS. This sent the stock down to 105, key support.
This is a parabolic long setup, meaning we’ve already started to see strong capitulation. Selling put spreads here is a good odds trade.
Expected Price: 105
Sell to Open UPS Apr 100/95 Put Spread
Tier 1: Open at 0.95, close at 0.35
Tier 2: Open at 1.25, close at 0.95
Tier 3: Open at 1.55, close at 1.25
Trade #2: MSFT
The stock is undergoing a failed breakout, which often leads to a test of the lower end of the range.
That lower range also coincides with a rising 50 day moving average.
Expected Price: 62
Sell to Open MSFT Apr 57.50/55 Put Spread
Tier 1: Enter at 0.31, Exit at 0.11
Tier 2: Enter at 0.46, Exit at 0.31
Tier 3: Enter at 0.61, Exit at 0.46