Last week, I said:
“I’ve still got 2540 as my “failed breakout” indicator that would tell us short term weakness is setting up. And the recent highs, well, odds are we’ll just grind higher into that anyways.”
So far, that prediction has come true. Good earnings coming out of many large cap stocks have helped the S&P 500 break to new highs… until we see something to the contrary, we need to assume trend is higher.
This market also has the highest dispersion we’ve seen in 20 years. That means the performance on different stocks and sectors are extremely “disperse.” What that means is, even if the market is a bore, there’s lots of excitement underneath the surface.
Trade #1: BIDU
This is a combination of a few setups. Basically, the stock is gapping down on earnings into previous support levels. Any secondary move lower is going to be a good setup to fade.
Trade Setup
Expected Price: 235
Sell to Open BIDU Dec 210/205 Put Spread
Tier 1: Enter at 0.65, Exit at 0.15
Tier 2: Enter at 0.95, Exit at 0.45
Tier 3: Enter at 1.25, Exit at 0.75
Trade #2: MSFT
MSFT had a huge gap up but is fading hard after a good day’s worth of trading. A push into a half gap fill makes for a good entry for a long.
Trade Setup
Expected Price: 82.50
Sell to Open MSFT Dec 80/77.50 Put Spread
Tier 1: Enter at 0.50, Exit at 0.10
Tier 2: Enter at 0.65, Exit at 0.35
No Tier 3, Save Dry Powder to roll down and out to Jan options