So far, this pullback has been benign. Selling is orderly, rotation is happening underneath the surface, and market leaders are still leading.
Yes, there’s still some macro hangovers – specifically in emerging markets. Yet the primary narrative continues to be company earnings and many stocks are holding up incredibly well.
Other stocks… yeah they’re running a little hot. AMZN hit $1 trillion in market value today… and while that is impressive, consider this:
Over the past 7 trading days, the value of AMZN has increased by $65 Billion.
Just that 7 day increase alone is larger than most of the S&P 500.
From my readings, a handful of tech stocks are getting ahead of themselves… deviating too strongly from their mean. And while that runup may be justified when we head into earnings, odds are some of those names are due for a pull.
Trade #1: SQ
SQ is 28% above it’s 50 day moving average. The last time it was that stretched was the parabolic run it had back in November of 2017. It’s also been above the Upper Bollinger band for 5 days in a row, which is a good place to start looking at short exposure.
Expected Price: 91.25
Sell to Open SQ Oct 105/110 Call 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
Softie hasn’t become super extended like some other large cap tech names. I’m looking for a pullback to the 20 day moving average to start some exposure.
Expected Price: 109.07
Sell to Open MSFT Oct 105/100 Put Spread
Tier 1: Enter at 0.78, Exit at 0.28
Tier 2: Enter at 1.08, Exit at 0.58
Tier 3: Enter at 1.38, Exit at 0.88