That was a wild week. And it ended well for the bullish outlook.
The markets tanked hard on… who knows what headline anymore. The main thing was the gap and go on Wednesday that took the market underneath 2940. We then saw a hard continuation on Thursday… a breakdown on an ugly PMI number, but it’s as though traders remembered that bad data will force the Fed to remain accommodative and that led to buyers bringing the market back up.
Then on Friday, we see a breakaway gap higher an d a bullish harami to take us back to 2940. This was a massive failed breakdown and odds are this week’s lows will hold for quite sometime. Of course headlines and tweets can change things, but strictly on the technical side what we saw last week was incredibly aggressive responsive buying into lower prices.
Trade #1: TLT
What’s interesting is, during the entire market bounce in stocks, bond yields continue to fall… most likely in anticipation of a Fed cut at the end of the month and the possibility of a QE-lite program being started… this new QE-lite program, while not fully fleshed out, would most likely target shorter duration bonds to affect the yield curve. That’s a bit beyond what we need to know here yet it’s important that you have a general idea of the dynamics in the bond market.
On the technical side, I want to keep it simple… a test of resistance and I want to start scaling in to the short side.
Expected Price: 149
Sell to Open TLT Nov 155/158 Call Spread
Tier 1: Enter at 0.45, Exit at 0.04
Tier 2: Enter at 0.65, Exit at 0.14
Tier 3: Enter at 0.85, Exit at 0.24
Trade #2: NVDA
NVDA is a nice relative strength play. While the rest of the market was getting hit hard, the stock held its lows. It cleared some key long term resistance levels about a month ago and I expect continuation here.
Expected Price: 181.97
Sell to Open NVDA Nov 160/155 Put Spread
Tier 1: Enter at 0.87, Exit at 0.17
Tier 2: Enter at 1.17, Exit at 0.37
No Tier 3
Stop out on close under 163.25
Tarde #3: COST
This continues to be one of the best relative strength stocks in the market. Earnings are already out so look for a renewed push to 300.
Expected Price: 291.67
Sell to Open COST Nov 275/270 Put Spread
Tier 1: Enter at 0.80, Exit at 0.10
Tier 2: Enter at 1.10, Exit at 0.20
Tier 3: Enter at 1.40, Exit at 0.40
Stop out on close under 275