{"id":10259,"date":"2018-01-08T12:07:15","date_gmt":"2018-01-08T16:07:15","guid":{"rendered":"https:\/\/trades.iwopremium.com\/?p=10259"},"modified":"2018-01-09T10:35:52","modified_gmt":"2018-01-09T14:35:52","slug":"proactive-spreads-january-8th-2018-lulu-cat-gs-qqq","status":"publish","type":"post","link":"https:\/\/trades.iwopremium.com\/proactive-spreads-january-8th-2018-lulu-cat-gs-qqq\/","title":{"rendered":"Full Time Profits, January 8th, 2018 – LULU, CAT, GS, QQQ"},"content":{"rendered":"

\"\"<\/p>\n

First things first…<\/p>\n

Take a look at the chart of SPX above… that blue sloping line is the upper end of the price channel started all the way back in April of 2016. Price has broken out above that level.<\/p>\n

What does that mean?<\/p>\n

The rate of change has increased to the upside. Buyers are coming into the market at a much faster click than what they have been historically (and this is both on an arithmetic and a log chart).<\/p>\n

In other words, the markets have gone parabolic. This is a blowoff.<\/p>\n

Now with individual stocks, this kind of thing happens all the time… normally there’s a catalyst like earnings that puts the stock on a new trajectory.<\/p>\n

But for markets… this really doesn’t happen very often.<\/p>\n

It’s not just the S&P 500… go take a look at how Russia (RSX) and Taiwan (EWT) have traded since the start of the year.<\/p>\n

This all feels like a massive reallocation into stocks as the new year starts.<\/p>\n

So we’re overbought. Statistically. What’s going to happen next?<\/p>\n

Odds are it will be like the other times where the market has been overbought… we correct through sideways action, and it’s rotational in nature. Some sectors fall out of favor as money shifts into new names. Earnings season is approaching and that will be the “reason” for the correction.<\/p>\n

Now it’s been months since I’ve even considered selling call spreads in names. And that was the right call as the second half of the year was basically a melt-up higher. Yet I think if we’re careful we can get away with doing it. Remember, call spreads trade COMPLETELY DIFFERENT compared to put spreads– they are more sensitive to price action and you have much less wiggle room. We need to make sure that we see a “whites of their eyes” trade setting up for it to work.<\/p>\n

Trade #1: LULU<\/h2>\n

\"\"<\/p>\n

This stock has been in rangebound hell for well over a year. They had a great earnings report, and this morning they guided higher on the back of good sales numbers.<\/p>\n

Now when you have a stock fade hard after good news, that tends to be the near term top. So I want to start looking for retracements of the recent rally. Retracing half of the rally puts the stock at 76, which seems to be a good place to initiate.<\/p>\n

Trade Setup<\/strong><\/p>\n

Expected Price: 76<\/p>\n

Sell to Open LULU Mar 70\/67.50 Put Spread<\/strong><\/p>\n

Tier 1: Enter at 0.45, Exit at 0.20<\/p>\n

Tier 2: Enter at 0.60, Exit at 0.35<\/p>\n

Tier 3: Enter at 0.75, Exit at 0.50<\/p>\n

Trade #2: CAT<\/h2>\n

\"\"<\/p>\n

CAT was and continues to be a market leader. The combination of tax reform (that increases capex, so other companies can buy more equipment) along with the reflation trade have helped this stock basically double in 18 months.<\/p>\n

I mean, if I had told you around Brexit that CAT would be a double… it would be laughable… but here we are.<\/p>\n

The gap higher today was on the back of an upgrade. This feels like an exhaustion gap as the stock has run hard in anticipation of good earnings. I like starting a small fade here, keeping position size low due to earnings at the end of the month.<\/p>\n

Trade Setup<\/strong><\/p>\n

Expected Price: 164.25<\/p>\n

Sell to Open CAT Mar 180\/185 Call Spread<\/strong><\/p>\n

Tier 1: Enter at 0.65, Exit at 0.15<\/p>\n

Tier 2: Enter at 0.90, Exit at 0.40<\/p>\n

No Tier 3 due to earnings<\/p>\n

Trade #3: GS<\/h2>\n

\"\"<\/p>\n

If rotation is going to come, it will be through some of the large cap financials. GS has been pretty weak yet this is more like momentum being shaken off. Earnings are due so we’ll keep size down.<\/p>\n

Trade Setup<\/strong><\/p>\n

Expected Price: 253<\/p>\n

Sell to Open GS Apr 225\/220 Put Spread<\/strong><\/p>\n

Tier 1: Enter at 0.65, Exit at\u00a00.15<\/p>\n

Tier 2: Enter at 0.90, Exit at 0.40<\/p>\n

No Tier 3 Until after Earnings<\/p>\n

Trade #4: QQQ<\/h2>\n

\"\"<\/p>\n

QQQ is up 5 days in a row, with 2 days above its upper Bollinger Band. This is a good spot to assume a fade.<\/p>\n

Trade Setup<\/strong><\/p>\n

Expected Price: 162.30<\/p>\n

Sell to Open QQQ Mar 170\/173 Call Spread<\/strong><\/p>\n

Tier 1: Enter at 0.45, Exit at 0.15<\/p>\n

Tier 2: Enter at 0.60, Exit at 0.40<\/p>\n

Tier 3: Enter at 0.75, Exit at 0.45<\/p>\n","protected":false},"excerpt":{"rendered":"

First things first… Take a look at the chart of SPX above… that blue sloping line is the upper end of the price channel started all the way back in April of 2016. Price has broken out above that level. What does that mean? The rate of change has increased to the upside. Buyers are […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_bbp_topic_count":0,"_bbp_reply_count":0,"_bbp_total_topic_count":0,"_bbp_total_reply_count":0,"_bbp_voice_count":0,"_bbp_anonymous_reply_count":0,"_bbp_topic_count_hidden":0,"_bbp_reply_count_hidden":0,"_bbp_forum_subforum_count":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":""},"categories":[24],"tags":[],"_links":{"self":[{"href":"https:\/\/trades.iwopremium.com\/wp-json\/wp\/v2\/posts\/10259"}],"collection":[{"href":"https:\/\/trades.iwopremium.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/trades.iwopremium.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/trades.iwopremium.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/trades.iwopremium.com\/wp-json\/wp\/v2\/comments?post=10259"}],"version-history":[{"count":4,"href":"https:\/\/trades.iwopremium.com\/wp-json\/wp\/v2\/posts\/10259\/revisions"}],"predecessor-version":[{"id":10270,"href":"https:\/\/trades.iwopremium.com\/wp-json\/wp\/v2\/posts\/10259\/revisions\/10270"}],"wp:attachment":[{"href":"https:\/\/trades.iwopremium.com\/wp-json\/wp\/v2\/media?parent=10259"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/trades.iwopremium.com\/wp-json\/wp\/v2\/categories?post=10259"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/trades.iwopremium.com\/wp-json\/wp\/v2\/tags?post=10259"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}