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Proactive Spreads, March 13th 2017 – DIS, IBM

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I think it’s safe to say that the gap higher two weeks ago was an exhaustion gap. Jamming to new highs, spending a ton of energy to tag the whole number of 2400, only to start fading back down to fill the gap.

We’ve undergone an incredibly small correction. Given how strong this marke tis, it becomes a balancing act of trying to get into the market with low risk, even though we haven’t had a proper “dip.”

The market hasn’t had a 1% pullback in 103 days. That’s 5 months. I’ve not seen something like this.

Since the election back in November, the market has acted as like it needs to rally with as few people on board, and that on an institutional level the flight back into stocks became more of a mandate than a choice.

And to top it all off– we’ve been in a news vacuum since then. We know the outcome of the US election. We know the Fed is going to hike rates. There really hasn’t been any kind of a macro-driven narrative to really justify investors to cut their risk.

We are starting to see some chinks in the armor. Oil had a 4 standard deviation downside move and is still trading poorly. High yield debt markets (see HYG) have already had significant retracements. This “risk off” kind of action may spill over into stocks.

Trade #1: DIS

 

I’m looking for this stock to retrace to its first support levels– then break it. Initial support is 109-108, which should see an initial bounce then failrure. Once it sells off down to 107 is where I want to start getting interested in a trade.

Trade Setup

Expected Price: 107

Sell to Open DIS May 105/100 Put Spread

Tier 1: Open at 1.20, Close at 0.60

Tier 2: Open at 1.50, Close at 1.20

No Tier 3

Trade #2: IBM

IBM has already come into some initial weakness with a strong sell day this past Thursday. I’m expecting some followthrough as it comes into some key support levels– the rising trendline along with the pivot levels starting at 170.

Trade Setup

Expected Price: 170

Sell to Open IBM May 155/150 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

 

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