Weekly vs. Daily
Right now, it’s a “weekly charts versus daily charts” type of market. After a few weeks of solid momentum, we have found ourselves in a situation where many daily charts are extended, trading well above 2+ ATR from their 21EMA. Generally this points toward an increasing probability of a pull back to the 21 EMA, and while I am typically very cautious of being aggressive taking long positions at these extensions, it’s the weekly charts that point towards the potential for a big-time continuation of the recent strength over the next handful of months..
The two charts I have been focusing on as of late, and will continue to focus on, are the weekly squeezes for $QQQ and $AMZN. These charts go hand-in-hand, as a weekly squeeze in the Q’s is bullish for all of tech, and the fact that Amazon has its own weekly Squeeze makes it an ideal candidate, should that weekly squeeze for index fire.
Because we are so extended on the daily charts, we do have to take into consideration the potential of a dip, and the potential for better entries in the names like Amazon compared to where it’s currently trading. With this being said though, I do not think we will get a pull back to the 21 EMA as there is too much pent-up energy in the weekly squeezes. Better entries may come in the form of a pull back to the rising 8EMA (still questionable) or after a consolidation that creates a lower time frame squeeze. We will have to wait and see what the market has to offer in regards to a pullback entry, but here is the potential trade I am stalking for the Amazon weekly squeeze.
SWING TRADE IDEA: $AMZN 5/21 ITM PUT CREDIT SPView Blog PostREAD
One component of trading this weekly squeeze is that in order to give the trade ample time to unfold, we may have to sit through earnings, with the quarterly announcement scheduled for April 29. My plan is to open a put credit spread for the May monthly expiration, of course ideally on any potential flush. Though I like to typically focus on the OTM put credit spreads (which certainly put the odds of profit in our favor) I believe we have timing here with these weekly squeezes for a bit more of an aggressive trade.
The previous all-time high for Amazon falls around $3550. Should this weekly squeeze fire, I believe the stock to be trading north of $3700 over the next 30 to 60 days. With this being said, to position ourselves for a big potential return, I am looking to sell an ITM put credit spread with a short strike of $3500. This will give us a 1: 2 risk-reward ratio (or better), but of course will require Amazon trading above $3500 as we approach expiration.
Again, this is different than our typical trade, but I believe based on the structure of these weekly squeezes, a little bit more aggressiveness is warranted. Because of the great risk-reward on this potential trade, I do suggest scaling down in position sizing a bit in comparison to your typical size. Doing so will make it much easier to sit through any potential drawdowns or chop, and you will mentally be able to give the trade enough time to unfold.
For those of you who have been following my work, this weekly squeeze on Amazon has been a huge focus of ours this year, and despite the squeeze not yet firing, it has been a highly profitable endeavor. With the accompanying squeeze in the QQQ, I think now is the time to buckle down and focus on getting positioned in this weekly squeeze for the potential move that could unfold.
Keep in mind as the QQQ goes, so do all of our favorite tech stocks. You could seek entries in names like Google, Apple, and Microsoft, but my preference here will be Amazon because of the structure of this weekly squeeze, which has been squeezing since August of last year!!
I’ll be keeping a close eye on Amazon for any potential dips to the 5 or 8EMA, but if those opportunities aren’t presented, I will take serious consideration to initiating this trade once we set up in a lower time frame squeeze.
As always, make sure you are utilizing appropriate position sizing! Give yourself the peace of mind to detach yourself from the day-to-day results of the position and allow the move enough time to unfold. If you take this trade on with too much size, it will be much harder mentally and emotionally to sit through any sloppiness.
As always, I will keep you all posted on any action I take with this idea, and we will continue to cover it daily during my options room sessions. The last few weeks of momentum have presented us with a lot of profitable opportunities, and if these weekly squeezes can begin to fire, I believe the party will continue. Let’s stay focused and prepared to take advantage of whatever the market has to offer!