I’d like to point out something about technical “patterns.”
Sometimes, many times, the failure of a pattern is just as important as when it works.
The most recent example is the S&P 500 right around the 200 day moving average — that orange line.
This is one of those things where it becomes self-fulfilling. Get enough eyeballs on a level, and it starts to gain more importance. it feeds on itself.
The market has tested the 200 day twice over the past two months. And there were breakdowns…
But the breakdowns failed.
When we see breakdowns fail, what tends to happen is that the market will run to the other side of the range. I think that’s what we are seeing right now.
The market is still knocking out a large, multi-month trading range with higher odds of reversion. Odds are we won’t have price action like we did in 2017, so it’s reasonable to expect some kind of a pullback here.
Yet if that doesn’t happen… if the momentum just takes off…
Then we just need to be patient. Wait for the better setups. Don’t get stupid aggressive on selling call spreads.
Yet if we do manage to pull in, then we’ll get a few great setups on stocks we’ve been stalking for a week.
Trade #1: ADBE
Looking for a pullback to breakout setup. We’ve already traded this one successfully back in April and I want another crack at it.
Expected Price: 230
Sell to Open ADBE Jul 205/200 Put Spread
Tier 1: Enter at 0.65, Exit at 0.15
Tier 2: Enter at 0.95, Exit at 0.45
Tier 3: Enter at 1.25, Exit at 0.75
Trade #2: GOOGL
Looking to play the gap fill… IMPORTANT NOTE: if this level is not tested by May 18, then it is a “no trade.”
Expected Price: 1134.42
Sell to Open GOOGL Jul 1230/1240 Call Spread
Tier 1: Enter at 1.35, Exit at 0.35
Tier 2: Enter at 1.95, Exit at 0.95
Tier 3: Enter at 2.55, Exit at 1.55