Last week, the market became a bit overbought. We ran into the upper Bollinger band (not shown) and the Nasdaq blasted off to new highs on the back of good earnings reports.
Instead of correcting through price, the S&P 500 is correcting through time, consolidating gains and we’re seeing sector rotation underneath the surface. This is healthy market action, and as long as the market holds above 2370 (blue line) we need to expect the trend to continue.
Trade #1: GOOGL
This is a post earnings announcement drift (PEAD) trade.
The stock had a good earnings report, and a good reaction into new highs. The normal action for this stock is for it to “drift” sideways and higher over the intermediate term.
Expected Price: 930
Sell To Open GOOGL Jun 890/885 Put Spread
Tier 1: Open at 0.80, Close at 0.20
Tier 2: Open at 1.30, Close at 0.80
Tier 3: Will Roll Tiers 1 and 2 down and out if needed
Trade #2: CAT
CAT is a similar PEAD trade, but has already retraced a little into the gap. Looking for these levels to hold as new support is established post earnings.
Expected Price: 101
Sell To Open CAT Jun 97.50/95 Put Spread
Tier 1: Open at 0.48, Close at 0.15
Tier 2: Open at 0.75, close at 0.50
Tier 3: Roll spreads down and out if 98 is tested.