The S&P managed to clear the awful range that has been in place for nearly two months.
And it did it on a breakaway gap higher. This is a wonderful lesson here. By the time you see confirmation and all perceived risks are off the table… the market has already priced it in!
That’s what it feels like right now. And unless the market can take back 2923 it’s reasonable to assume that the market will attempt a test of the all time highs.
It’s not all sunshine and rainbows. With the drop in volatility comes the drop in market correlations.
That means stock rotation.
Industrials and energy have seen massive moves higher, while all those stupid-crowded high-flyers have been cut down.
This is a normalizing market. Some sectors move, some sectors don’t… overall volatility stays low and then the market just grinds higher.
Which is fine. There are names I’ve been hoping for a pullback in for MONTHS that are finally coming into better risk/reward for my trading style. You’ll see a few of those today.
Trade #1: SBUX
SBUX has just filled its gap from the previous earnings report, and has other key support levels coming into play.
Could it go back to $80? Sure. Within a month? Not so much. I like fading it at this price.
Expected Price: 91.25
Sell to Open SBUX Oct 85/82.50 Put Spread
Tier 1: Enter at 0.30, Exit at 0.05
Tier 2: Enter at 0.50, Exit at 0.10
Tier 3: Enter at 0.70, Exit at 0.15
Trade #2: SHOP
Ah, SHOP. My white whale. I’ve tried to buy the dip on this sucker so many times over the past year… I think I managed it once back in June.
This is the crowdiest of crowded trades right now. Way too many funds have been chasing performance, and I think more pain will take place before it all washes out.
The obvious support is right here, at the rising 50 day moving average and previous resistance which is potential support. It might bounce here, but I think… again… it’s too crowded and you’ll see much more supply come into play. Instead I want to play the price support level put in prior to the previous earnings event. If we get there, especially quickly, that’s the best risk reward setup.
Expected Price: 321.39
Sell to Open SHOP Oct 265/260 Put Spread
Tier 1: Enter at 0.70, Exit at 0.20
Tier 2: Enter at 1.00, Exit at 0.30
Tier 3: Enter at 1.30, Exit at 0.40
Trade #3: CAT
This is a China-Global-Growth Proxy play. It has not done well over the past year, and has rebounded… hard… off the lows.
CAT is pricing in optimism in global trade. All it takes is a tweet and this will revert hard.
On a technical basis, you have a stock with a declining 50 day moving average and it’s now 3 days above its upper Bollinger Band (not shown on chart).
This is a good place to take on some short exposure.
Expected Price: 128.65
Sell to Open CAT Oct 135/140 Call Spread
Tier 1: Enter at 1.06, Exit at 0.36
Tier 2: Enter at 1.36, Exit at 0.46
Tier 3: Enter at 1.66, Exit at 0.56
STOP OUT ON CLOSE ABOVE 135