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Proactive Spreads, January 27th, 2020 – IBB, QQQ, SQ

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Markets were hit hard on Coronavirus news, and we saw a test of the range put in from the end of 2019.

Headlines aside, the market needed a pullback. It had been a while since some proper reversion, and there is nothing wrong with a “rug pull” in the market.

The question now is… will we see followthrough or is it a one-off event, like we saw back in early December?

We don’t know. Impossible to know, we can just align our risk with the best trades available. My gut here says that a correction will be sideways and constructive rather than an absolute bloodbath. Of course, things can change with headlines, and there’s a TON of stocks reporting earnings this week that will move markets.

3200 is a major support level. The longer the market holds that the more constructive  price action will get.

Trade #1: IBB

IBB is retesting the major pivot level put in from a few months ago. It was the strongest sector back in Nov/Dec and is also the first to test key levels.

This is a market-cap weighted ETF, so large companies will move the markets. Stocks like VRTX, BIIB, GILD, and AMGN are big in this etf, and they all report earnings this week. I like scaling into the dip here.

Trade Setup

Expected Price: 116

Sell to Open IBB Feb 110/107 Put Spread

Tier 1: Enter at 0.47, Exit at 0.16

Tier 2: Enter at 0.658, Exit at 0.258

Tier 3: Enter at 0.846, Exit at 0.306

Stop Out If Close Under 109.89

Trade #2: QQQ

Large cap tech has held up the market very well, and this is the first true weakness we’ve seen. AMZN, AAPL, GOOGL and FB all report this week so it will be a mover.

If we see a bigger dip, I want to be involved. I’m looking at a test of the rising 50 day moving average and the pivot level from the year’s open.

Trade Setup

Expected Price: 212.24

Sell to Open QQQ Feb 203/200 Put Spread

Tier 1: Enter at 0.45, Exit at 0.14

Tier 2: Enter at 0.63, Exit at 0.22

Tier 3: Enter at 0.81, Exit at 0.26

Stop Out If Close Under 202.89

Trade #3: SQ

This is a relative strength play as SQ breaks above major resistance and last week’s highs. To do that while the market is off over 1% signals that there are willing long term buyers who want to own it into earnings.

Trade Setup

Expected Price: 71.7

Sell to Open SQ Feb 67/65 Put Spread

Tier 1: Enter at 0.39, Exit at 0.19

Tier 2: Enter at 0.546, Exit at 0.296

Tier 3: Enter at 0.702, Exit at 0.372

Stop Out If Close Under 66.89

 

Disclaimer

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