The rotational correction is still going on. S&P looks healthy due to having exposure to energy, industrials, and banks. Nasdaq looks "OK" and the Russell 2000 has a key support level that's holding... for now.
Yet there is a new class of investor/trader that doesn't see it that way. Their portfolios have been cut by a massive amount due to overleverage in tech momentum, pot stocks, solar plays, and whatever their chat room pumper sent them.
Those names look tragic, and they probably won't get off the mat for a while.
To bookend the most recent drama, we find out over the weekend that a family office is overleveraged in tech CFDs... to the point that it represents a systemic risk to some banks.
Now, I don't think that news is super bearish. In fact, the news coming out probably means that the bloodbath is about over. Names like BIDU and VIPS already were smashed, and now we have a narrative to attach to price action.
With that news, I am OK putting risk on some of these broken momentum names. Our other two plays will be simple relative strength setups.
Trade #1: ARKK
ARKK is the tech momentum darling fund. And for the past few months, it's doing what tech momentum does best-- rally 50% then drop 50%.
We're coming back into the impulse lows, and the rising 200 day moving average just at 110. My feel here is that we can break the most recent low, do a stop run, and reverse higher. This is a classic "momentum divergence" setup and we will start scaling in here and adding into that.
Trade Setup
Expected Price: 111.3
Sell to Open ARKK 21May21 95/90 Put Spread
Tier 1: Enter at 1.00, Exit at 0.32
Tier 2: Enter at 1.4, Exit at 0.68
Tier 3: Enter at 1.8, Exit at 0.9
Stop Out If Close Under 94.89
Trade #2: TGT
Solid move off the lows in TGT, and the negative earnings reaction was swiftly taken out and the stock is now at new all time highs. I like entering here and scaling into pullbacks.
Trade Setup
Expected Price: 199.84
Sell to Open TGT 21May21 185/180 Put Spread
Tier 1: Enter at 1, Exit at 0.32
Tier 2: Enter at 1.4, Exit at 0.68
Tier 3: Enter at 1.8, Exit at 0.9
Stop Out If Close Under 184.89
Trade #3: CSCO
CSCO is another name that's hitting new local highs-- I'm not sure if it's all time highs because it's CSCO and there are levels back from 1999 that may be coming into play.
Either way, I want to play it on the first pullback. Due to the duration of our trade, there is the potential for earnings risk and we will keep an eye on it into earnings-- if we don't have enough of a cushion on the trade, then we will close out for breakeven to avoid that risk.
Trade Setup
Expected Price: 51
Sell to Open CSCO 21May21 48/46 Put Spread
Tier 1: Enter at 0.42, Exit at 0.15
Tier 2: Enter at 0.588, Exit at 0.29
Tier 3: Enter at 0.756, Exit at 0.4
Stop Out If Close Under 47.89