Broad markets looking solid here. I expect a “grind” pattern to come into play, where the market grinds higher and sectors/stocks rotate underneath the surface.
If you ignore the noise and the newsflow, the markets hitting all time highs is not a place where there is massive downside risk. I’ve got a line in the sand back at 2960– the October gap higher… but unless we see significant technical deterioration we need to expect higher equity prices.
Trade #1: MSFT
After months of sideways action, MSFT gapped higher on the weekend news that they caught a $10B defense contract. This is a breakout to new highs after months of consolidation, so I expect the stock to continue to jam higher.
Expected Price: 144.18
Sell to Open MSFT Dec 135/130 Put Spread
Tier 1: Enter at 0.58, Exit at 0.08
Tier 2: Enter at 0.88, Exit at 0.28
Tier 3: Enter at 1.18, Exit at 0.38
Stop Out On Close Under 135
Trade #2: CAT
CAT is jamming higher as a proxy to China deal flow and global growth. The stock is overbought and I expect rotation out of this name and into others. 140 has been key resistance from Jun/Jul and is a good place to put on some short risk.
Expected Price: 140.42
Sell to Open CAT Dec 150/155 Call Spread
Tier 1: Enter at 0.85, Exit at 0.35
Tier 2: Enter at 1.15, Exit at 0.45
Tier 3: Enter at 1.45, Exit at 0.55
Stop out on Close Above 150
Trade #3: NKE
Pullback to moving average and pullback to breakout. This is a good spot to expect sellers to calm down.
Expected Price: 90.72
Sell to Open NKE Dec 82.50/80 Put Spread
Tier 1: Enter at 0.31, Exit at 0.05
Tier 2: Enter at 0.46, Exit at 0.15
Tier 3: Enter at 0.61, Exit at 0.25
Stop out on close under 82.50