Over the past two weeks we have seen a time-based correction in the market. This tends to be the “healthiest” kind of correction, where the market churns and rotation happens underneath the surface as different sectors and stocks keep the market afloat.
The big news was this past Wednesday, with a Fed rate hike that was all but priced in.
So far, the bullish trend remains in tact. And a LOT needs to happen for the trend to show any sign of a change.
What I would like to see is a test of 2350. If we knife under it but find responsive buyers, that would be the signal that the overall market still has plenty of buyers.
And if we test 2350 but it doesn’t hold, then we’ve got open space down to 2300.
Now keep in mind, that’s not a super bearish prediction. That would be about a 3% pullback. Going all the way back to 2009, the average pullback is right around 7% so it’s not we should prep for the end of the world.
Yet a pickup in vol… it sure would be nice. Premium is scarce and you have to stick around in trades for longer because of the lack of actual volatility.
If we do manage a pullback, you should see a lot of alerts trigger, possibly all at once. This may be wishful thinking. We could just chop sideways some more then head into earnings season with more legs to this market.
Just be prepared in case we do get a decent shakeout.
Trade #1: AMGN
AMGN had a large gap down on volume as the results from their drug Repatha came out.
Apparently, the news wasn’t what the market wanted to hear.
The stock is currently at key support, from the earnings gap open. I don’t expect this to hold… I never fade the first move.
So instead we’ll be looking for a push down to about 160 before getting an entry. That is the earnings gap fill from February, and there are a handful of other levels for potential buyers to come into from there.
Expected Price: 160
The May options just got listed, so we don’t have any pricing data to work with.
Odds are the best setup will be in the May 150/145 Put Spread. Look for your first tier to be around 0.60 and scale in at 0.30 intervals.
Trade #2: FB
Facebook’s stock has been undergoing a momentum divergence since 2017 started. It has been slowly grinding higher with a slower rate of change, and compressed volatility.
I want to see a rug-pull here. A retest of 134 would make it a great pullback to breakout (PB2BO) pattern.
Expected Price: 134
Sell to Open FB May 125/120 Put Spread
Tier 1: Enter at 0.80, Close at 0.30
Tier 2: Enter at 1.10, Close at 0.80
Tier 3: Enter at 1.40, Close at 1.10