We’re starting off today with a look at the Nasdaq 100 index. Specifically the QQQ’s.
On Friday, this market blew past two key levels I was watching. If you go back a few months, this market put in an “island top” reversal pattern. This is where a market gaps up, trades for a few days, then gaps down again.
In a weak market, this level would hold. And for a few weeks, it did. Yet price continued to be accepted and we saw a sideways correction.
Remember this kind of concept. When a market hits resistance and doesn’t have a massive selloff, that’s bullish. That gives the market a higher odds of a breakout.
So right now, tech is running. Large cap tech… FANG… the usual leaders are leading again. And after a multimonth range there’s the distinct possibility that we see trend continuation here.
This shift is important because it slightly changes our tactics. If all we do is anticipate deeper market pullbacks, it’ll be a while before any profitable trades go off and there will be an opportunity cost in the form of missed profits.
It means that we need to dial up the “pullback sensitivity” and use smaller pullbacks in market leaders, or start anticipating high-odds breakouts. Unless the markets see a huge reversal this week (and the S&P breaks 2700) that is the strategy I’ll be focusing on for the near term.
Trade #1: LULU
Absolutely monster move for LULU. Great numbers, great earnings reaction.
While I think that into next quarter perfection is getting priced in, we won’t see disappointing price action. Odds are we will see PEAD (post earnings announcement drift) for the next few weeks. I like scaling into bull put spreads here and into pullbacks.
Expected Price: 122.15
Sell to Open LULU Jul 115/110 Put Spread
Tier 1: Enter at 0.93, Exit at 0.23
Tier 2: Enter at 1.23, Exit at 0.73
Tier 3: Enter at 1.53, Exit at 1.03
Trade #2: MU
MU caught a downgrade and looks ready to fill the gap from a few weeks ago, as well as retest the inclining 20 day moving average.
Expected Price: 56.17
Sell to Open MU Jul 48/45 Put Spread
Tier 1: Enter at 0.49, Exit at 0.19
Tier 2: Enter at 0.69, Exit at 0.39
Tier 3: Enter at 0.89, Exit at 0.59
Trade #3: CAT
I like CAT here for an anticipatory breakout. The stock has a well established range, and if it manages to clear 160 then it’s open space up to 175.
Expected Price: 153.50
Sell to Open CAT Jul 140/135 Put Spread
Tier 1: Enter at 0.50, Exit at 0.05
Tier 2: Enter at 0.80, Exit at 0.30
Tier 3: Enter at 1.10, Exit at 0.60