Markets are recovering further as the volatility-causing narratives are fading away over time.
The China-trade voodoo is easing as the US Administration is looking to reenter TPP and re-negotiate with China. The Syria mess hit a tipping point over the weekend, and markets reacted like they have in the past… when a “known-unknown” goes into a “known-known” then markets rally.
Regardless of the headlines, this is the kind of action to expect. Those who thought this was like 1929 or 1987 are disappointed, again… although they’ve thought EVERY year has been when “the big one” hits.
Yes… even with the massive selloffs, the market is acting fairly logical. You had the first bounce, the first pullback, the higher high that failed, and then a retest of the lows.
Now the market has finally held above the key pivot level right around 2675. I’m expecting the first gap fill at 2725 to get filled, and then possibly the second gap at 2750.
It’s too early to tell if a new bullish trend will form. Right now my thesis is that the market is in a large, multi-month range that will probably take the summer to resolve. I’d need to change that thesis if RUT retakes 1600 and if large cap tech earnings do well this quarter.
Right now my strategy is going to be focusing on trend-following. We haven’t seen enough volatility to the downside to be super aggressive with put sales. Instead, I’d like to focus on names that have been working well for me and continue to press those bets.
Trade #1: ADBE
Compression breakout setup. The stock rolled down to the 50 day moving average and it held. I’m looking for the breakout to happen and a move to $250.
Expected Price: 226.50
Sell to Open ADBE 1Jun18 (WEEKLY) 205/202.50 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 0.35
Trade #2: JPM
JPM reported earnings, and the gap higher was faded… hard. If markets do manage to selloff, I expect the April lows to be breached and a rollover down to the 200 day moving average.
Exepected Price: 103
Sell to Open JPM Jun 95/90 Put Spread
Tier 1: Enter at 0.70, Exit at 0.20
Tier 2: Enter at 1.00, Exit at 1.00
Tier 3: Enter at 1.30, Exit at 0.80
Trade #3: LULU
This stock is undergoing a massive, multi-year breakout to new highs. Short term, it’s overbought so into any pullback I want to sell some new spreads.
Expected Price: 91
Sell to Open LULU Jun 82.50/80 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