Remember… what’s the base case I’ve been talking about for weeks (months?) now…
The market is attempting to find the highs and lows of a multimonth range, and that range will probably hold into the summer.
Now think about back to the beginning of April. “Trade wars” were the big headline, and yet here we are nearly 150 points higher and those headlines have seemed to go to the wayside.
I’m a believer that narratives drive price, but usually price moves before the market zeitgeist attaches a narrative to it.
There are some bullish signs underneath the surface. The cumulative Advance-Decline for multiple indexes has already hit new highs, which tells us that breadth is super strong underneath the surface. This is confirmed when we look at how the RUT has moved compared to the Dow or the S&P.
Two new setups– a post earnings gap fill in NFLX, and a parabolic short in XLE.
Trade #1: XLE
Large cap energy stocks have seen a massive run over the past two weeks.
The 10 day returns are above 7%, the largest we’ve seen since the beginning of the year. That kind of return rarely happens for the index.
Is this the start of a new, sustainable bull trend for energy? It’s possible, but that bottom has taken years to form. Right now, it’s short term overbought and I expect the momentum to slow starting now and headed into the gap fill levels in the mid 70s.
Expected Price: 71.86
Sell to Open XLE Jun 78/81 Call Spread
Tier 1: Enter at 0.44, Exit at 0.14
Tier 2: Enter at 0.64, Exit at 0.34
Tier 3: Enter at 0.84, Exit at 0.54
Trade #2: NFLX
There was an earnings gap higher, yet it’s already lost some of its momentum. I’m looking for a test of the pre-earnings high to enter. If it runs without me– fine, I’ll find another setup yet I think the best risk/reward is on a deeper pullback.
Expected Price: 316
Sell to Open NFLX Jun 275/270 Put Spread
Tier 1: Enter at 0.70, Exit at 0.20
Tier 2: Enter at 1.00, Exit at 0.50
Tier 3: Enter at 1.30, Exit at 0.80