We’re finally starting to see some acceleration to the upside.
Two key patterns have happened over the past few months.
The first is the failed breakdown under 2250 in December. That was the first indication that there were willing buyers holding this market up.
The second is the FBF (failed breakout failure) pattern that happened at the end of January. The market cleared 2280 but pulled back… the fact that we couldn’t rollover and retest the range lows showed that the buyers were willing to accept higher and higher prices.
I expect this grind higher to continue– it won’t be parabolic. More like a stairstep pattern. Push higher, then sideways for a week.
In terms of catalyst risk, the next big event I’m watching is the March Fed meeting… and that’s a month away. Until investors have an excuse to sell, there’s no technical reason for the market to drop.
Trade #1: AAPL
After a good earnings report, the stock is running hard into key resistance levels.
Now in a “textbook” situation, I think this would be an obvious short. However, given the strength of the markets, I suspect that after a small consolidation the stock will breakout, sucking the momentum buyers in… but after that it will start to fade.
Again we face the problem with getting short through call spreads… the premium available and the strike distance make it a tough trade. We’ve got to run stops on this.
Trade Setup
Expected Price: 135
Sell to Open AAPL Apr 140/145 Call Spread
Tier 1: Enter at 0.85, Exit at 0.35
Tier 2: Enter at 1.35, Exit at 0.85
No Tier 3
Additional Risk Management: Exit on Close Above 140
Trade #2: IBM
The stock has a clear continuation setup with the next levels coming into play at 190. I like selling put spreads here and running a stop.
Trade Setup
Expected Price: 178
Sell to Open IBM Apr 165/160 Put Spread
Tier 1: Open at 0.55, Close at 0.15
Tier 2: Open at 0.85, Close at 0.55
Tier 3: Open at 1.15, Close at 0.85
Extra Risk Management: Close for loss if stock closes under 165