Archives for February 2017
Full Time Profits, February 6th 2017 AMZN, FB
We’re going to start off today with a look at some historical price action.
This chart shows us how the S&P 500 traded for the first 8 months of 2015.
No trend, all reversion. Buyers didn’t really show up… neither did sellers.
This is what we call “normal” in the markets. Periods of low volatility followed (eventually) by some very strong price movement.
And while I think we trade higher from here… it’s not going to be a ripper higher.
The one thing that this chart doesn’t show…
Was how during the entire year in 2015, there was a massive bear market underneath the surface in oil. The entire sector collapsed but you didn’t see it in the broad markets.
When correlations are this low, there’s still plenty of opportunities to be had out there.
Trade #1: AMZN
AMZN reported earnings and its revenue was light… this is leading to a gap down which potentially will take it to retest the previous resistance levels from November.
If we come into 790 then we want to start scaling into some put spreads.
Trade Setup
Expected Price: 790
Sell to Open AMZN Apr 720/715 Put Spread
Tier 1: Enter at 0.75, Exit at 0.25
Tier 2: Enter at 1.05, Exit at 0.75
Tier 3: Enter at 1.35, Exit at 1.05
Trade #2: FB
Very similar structure as the AMZN trade. Disappointing reaction to earnings may bring in some more sellers and come in to retest previous support levels.
Trade Setup
Expected Price: 124
Sell to Open FB Apr 115/110 Put Spread
Tier 1: Enter at 0.80, Exit at 0.30
Tier 2: Enter at 1.10, Exit at 0.80
Tier 3: Enter at 1.40, Exit at 1.10
Full Time Profits, February 2nd 2017
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.
Trade Setup
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.
Trade Setup:
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