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Proactive Spreads, March 6th 2017 - AMZN, CAT

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Stocks are working off their overbought conditions by a lack of buyers coming in to followthrough, as well as a handful of profit takers.

In other words, don't expect an apocalypse anytime soon. So far this is a normal pullback, and actually a very tame one.

There's a gap fill support at 2363 along with a rising 20 day moving average. That should be the first line where the market holds. More major support levels come into play at 2300 and 2270.

I expect any kind of pullback to be rotational in nature. Tech stocks did not participate in the most recent rally, so it's a good bet to start anticipating lower prices and planning some spread sales into those.

Trade #1: AMZN

The stock is undergoing a failed breakout. Previous resistance from October was taken out, but no followthrough and then a lower high while the overall market was making higher highs.

Expect this one to head towards the lower end of this year's range, testing the rising 50 day moving average.

Trade Setup

Expected Price: 820

Sell to Open AMZN Apr 760/755 Put Spread

Tier 1: Open at 0.60, Close at 0.20

Tier 2: Open at 0.90, Close at 0.60

Tier 3: Open at 1.20, Close at 0.90

Trade #2: CAT

This is a news-related play.

The company got raided on a Federal tax probe. That's why you saw the high volume selling from last week.

Now when you see news like this, it's rarely a one-off event. There's still plenty of uncertainy surrounding the investigation, and I'm pretty sure that the 4 month range the stock has been in will be lost.

What I'm looking for is a swift move to 85. That's the gap fill from back in November, and there are some support levels just underneath it.

Now this is important! The speed at which we hit that level is crucial. If it's a slow bleed lower and we eventually test 85 in a month, then it's not a good trade. But if we see aggressive selling and capitulation, that's where you want to get involved.

Trade Setup

Expected Price: 85

Sell to Open Apr 80/75 Put Spread

Tier 1: Open at 0.80, Close at 0.30

Tier 2: Open at 1.10, Close at 0.80

Tier 3: Open at 1.40, Close at 1.10

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