Market volatility is cooling off and we’re starting to settle a bit more into a range. At current prices, the S&P looks to be without a distinct edge– either to the short side or long side.
Several catalysts are out of the way. The spectre of rising yields seem to be a “known known” now and aren’t really spooking markets. And the collapse of XIV has started to play out and there aren’t (currently) any panics in the volatility markets.
The new risk is the introduction of steel tarriffs by the US administration. The media is presenting it as a warning shot for a new trade war which would significantly hamper stocks as input costs rise and margins get squeezed. I’m not sure how long that narrative can persist… because the most powerful force in this market is still FOMO — the fear of missing out.
If volatility continues to stay calm, the players with sideline cash will start looking into earnings season. Can you afford to miss out on, say, Facebook’s stock going sideways for 6 months and start to run in anticipation of earnings? After all, that’s what helped drive stocks higher in January… if that sideline cash comes off the table, it feeds on itself and creates a positive momentum feedback loop higher.
We’re already seeing the FOMO trade play out in tech stocks… Semiconductor stocks already broke to new highs, and the Nasdaq is not too far away.
The theme for today is looking at some Dow stocks that have not participated in this rally… that are breaking down or about to. If we get a flush those will be great candidates for selling some put spreads.
Trade #1: C
Citigroup is not “coming off the mat.” It nearly retested its recent lows and hasn’t had any kind of price recovery over the past several trading sessions.
What we want to see here is a breakdown, and a flush sub 70. If that happens quick (and it will be quick) that will be great risk reward for selling some put spreads.
Trade Setup
Expected Price: 69
Sell to Open C Apr 65/60 Put Spread
Tier 1: Enter at 0.70, Exit at 0.20
Tier 2: Enter at 1.00, Exit at 0.50
Tier 3: Enter at 1.30, Exit at 0.80
Trade #2: HD
Same setup as Citigroup. Stock retested lows, and looks ready to breakdown. Look for the flush to the low 170’s to start scaling in. It will be pretty oversold by then and ready to start a new range.
Trade Setup
Expected Price: 172
Sell to Open HD Apr 165/160 Put Spread
Tier 1: Enter at 0.60, Exit at 0.10
Tier 2: Enter at 0.90, Exit at 0.40
Tier 3: Enter at 1.20, Exit at 0.70
Trade #3: XOM
Now *this* is hot garbage. You’re actually looking at a weekly chart, where the stock has already broken down, while the rest of the market is holding up. I’ve been watching this one since the beginning of February for an entry. There was a decent bounce up to 80 but it has given it all up. I don’t want to play it here… I want the move to the lows of 205, down at 72.
Trade Setup
Expected Price: 72
Sell to Open XOM Apr 70/67.50 Put Spread
Tier 1: Enter at 0.30, Exit at 0.05
Tier 2: Enter at 0.45, Exit at 0.20
Tier 3: Enter at 0.60, Exit at 0.30