With monthly expiration this week, much of the week was about options expiring and the unwinding of option related trades instead of looking for directional exposure. This meant our traders were looking for pinning plays, hoping the manipulation around expiration would lead to price to act like a magnet to our targets. Pinning occurs frequently on options expiration due to the affect that options have on stock prices. Hedge funds and institutions create a lot of back-and-forth action in the stock that results in stock prices pinning around high open interest strikes. As a result, so far, this week we have been in a choppy range bound market. We have traded from 2330 to 2360 over the last 5 days, but have had a lot of swings in between. Expiration looks to be quiet and uneventful so far today.
How do our traders use that knowledge to their advantage? Chris loves trading options expiration, and typically does it by placing butterflies or buying cheap options the day of expiration. Bruce utilizes calendars, butterflies and diagonals. John prefers to sell premium, including iron condors and spreads, while Henry likes to use his signature unbalanced butterfly strategy.
Sentiment for Next Week:
Let’s check in with our traders to see where their heads are at going into next week. With many companies reporting earnings and the French elections on their minds, let’s see where they stand.
JC – The markets shook off their nerves on Thursday and pushed higher, ending the week on a quiet note. With everyone freaking out now about the NTTBNA (next thing to be nervous about) in the French elections, my best is that, once again, markets will shake off any jitters and push higher.
Henry – The strength we saw during the week of expiration has the swing charts looking better. I thought I might have to wait a few weeks before getting bullish again, but I’ve started working long ideas in $IWM today. It may take another week for $SPY to show the same signals. Inside that, finding honey badgers like $CMG and $VEEV have been helpful, while working iron condors in post-earnings moves like $NFLX.
Bruce – I’m bullish into next week’s earnings, but simply cautious of the weekend risk. I’m hedging my overall portfolio over the weekend ahead of the French election. This vote could be a big deal as the candidates are polar opposite in direction and a surprise outcome can shake the markets. One of the leading candidates is a pro France exit like Brexit. This could possibly be a big deal. I added a hedge today and will take it off Monday if nothing happens. But, remember what happened to the ES on the Brexit vote.
Neil – Barring geopolitical developments (French Elections) that cause unanticipated vols, I like the market as continuing higher. I’d prefer to buy the dip versus sell the rip for a 2440 S&P target.
Tony– All the President’s men are very smart people. While all the bears are looking for a place to get short, I remain bullish looking for a place to be long. I continue to believe we will see new all-time highs in the other sectors. Not just $NDX. French elections on Sunday are a coin toss.
Carolyn – The S&P has continued to hold above the most recent timing low and has potential to make new highs, but only if we can clear the 2360.50 area of resistance on the way up. If we do that, the initial upside targets in the ES futures comes in at the 2389.25 area. A failure to do so leaves this market vulnerable to another swing down instead.
Tucker – Yes, the S&P 500 and the other major indexes had a nice move on Thursday of this week. However, it ran right into resistance and stopped. Looking for the markets to continue the sideways choppy environment into next week, unless there is some big global event over the weekend.
Raghee – I’m a bull!
David – It is looking more and more likely that the S&P 500’s low for the decline from March 1st is already in place. It could already be turning back up, or might need to continue a sideways consolidation first. Establishing support above the Voodoo treeline near 2361 would favor the immediate upside. If, for some reason, the index does fall below the March 27th low, I’ll still maintain the same view I’ve had for weeks, this move down is just corrective and should turn back up. But more downside might need to reach down to the 2250-2300 range for support.
John Clayburg. – The bear caught up with the bull this week; they decided to pull up a log, sit down and watch the world go by for a while. The bull pointed out the great numbers from many companies’ earnings this week and pointed to the long-term uptrend while the bear kept mentioning all the political and world unrest issues. So, they decided to rest a while & let the dust settle and take it all up next week. In other words, neutral for now.
Trade of the Week Follow-up
As we look back on the week, let’s check out how our Simpler Trading Trade of the Week is playing out. Reviewing why the traders have chosen these trades, the method behind how they read the charts, and how they played out over time is one of the best ways to become familiar with the setups we use and why we use them. Check out the summary below.
In case you missed it, click here to check out our Trade of the Week.
Expert: Carolyn Boroden
Trade Date: April 17th, 2017
Setup: Bullish daily chart with pattern of higher highs and higher lows, symmetrical pullbacks to create zone of support at $89.37-90.2. Potential to resume the rally from here to head to 1.272 target of $96.83.
Strategy: Traders can choose to use Carolyn’s support zones either for day trades or swing trades, and trade them either with stock or a variety of options strategies. Please check out her Welcome Packet for more information to help you use her work.
Confluence: A confluence in our traders’ opinions and various strategies strengthens Carolyn’s Fibonacci setups. Carolyn’s parameters fit the parameters of Neil’s trend continuation setup that he uses for swing trading. He uses the overall trend and candlestick patterns to define trend continuation entries that line up well with Carolyn’s Fibonacci work. MAR also has a 195-minute squeeze, and fits Henry and John’s criteria for a bullish trend continuation setup. Chris and Henry also pointed out the probable run into earnings due to Marriot’s earnings release in the beginning of May.
Target Exit Price: Initial target is $96.89
Stop loss: A break in price below the lower end of the support zone at $89.37 signals that this trade setup is no longer valid.
So how did the trade play out?
$MAR Daily Chart – April 17th, 2017
As you can see, though price triggered and fluctuated, it never broke the lower end of the setup zone, and is still trending higher.
Click on the image below to enlarge.
One of the best aspects of trading with Fibonacci is that you have such defined risk zones and know exactly where to get out. Even though price fell, since it never broke our zone, there was no need to exit. As you can see on the chart, we have resistance that needs to be broken up ahead ($93.35 & $94.26) to reach our 1.272 extension target of $96.89. This trade is still playing out positively. Please continue to watch targets with resistance ahead in mind.