The S&P is testing resistance levels for about the 7th time today… it looks like this one is going to hold. If we see a breakout, there are two gaps to target — 2710 and 2750.
The base case here is that the market is attempting to establish a large, multimonth trading range. It appears that the lows will hold, and until proven otherwise that’s the thesis to hold.
Right now we are “cleaning up” on the rest of the credit spreads put on during the most recent dip in the market. In terms of fresh entries, it really will come down to how the market acts over the next few days, as well as the change in catalysts that we’re going to have.
For me, personally, the ideal setup would be sellers to come back into play and many of these large tech stocks to get hit hard again. That’s a lot simpler of a trade, you just sell spreads into the blood and wait a few weeks for the fear to subside. It’s worked very well this year, so far.
Yet there’s another possibility… that these levels hold, we run higher, and then we’re back into the middle of the range… how are we going to get good risk/reward when we’re at a point in the market where it could go either way?
The solution comes with the introduction of new catalysts coming into play over the next few weeks– namely, earnings.
Single stock volatility will be picking up aggressively here soon. We can use that to our advantage, we just need to bide our time a bit to see what kind of setups we want to look for in our post-earnings plays.
Trade #1: BA
Just in case more “trade war” rumors hit the tape, we want to be ready. If the most recent lows don’t hold, look for a fast move to 300 for a play.
Trade Setup
Expected Price: 300
Sell to Open BA May 280/275 Put Spread
Tier 1: Enter at 0.90, Exit at 0.40
Tier 2: Enter at 1.20, Exit at 0.70
Tier 3: Enter at 1.50, Exit at 1.00
Trade #2: RUT
If there is a fast move to the upper Bollinger Band then it will be time for a fade. The ideal setup is for a move to that level *without* a pullback, so if the level isn’t hit within the next 5 trading days, then it’s a no-trade.
Trade Setup
Expected Price: 1586
Sell to Open RUT May 1645/1650 Call Spread
Tier 1: Enter at 0.90, Exit at 0.40
Tier 2: Enter at 1.20, Exit at 0.70
Tier 3: Enter at 1.50, Exit at 1.00