The equity markets have been tenacious this week, quickly rebounding from ever dip and ending the week essentially flat. The S&P 500 finishes off the week at 2360, just a couple of points lower. The Nasdaq 100 is now up on the day at 5428 after falling to 5400 in the morning.
The VIX sits at 12.77 with the VXST at 10.19. There has been some interesting moves in the VIX futures this week which reflect concern about a few announcements in the upcoming weeks.
The traders were mostly bullish at the start of the week, and are now looking forward to next week.
John: After the Syria bombings and poor employment numbers, the S&P 500 Futures are setting up for a flat open while bonds are trending higher. I’m looking for stocks to struggle today and into early next week. Unless Trump tweets out that he is invoking QE on Monday . . .
Henry: I continue to favor the long side of the market with the Nasdaq leading the way. I think we’re going to see new highs in $NFLX, $HD and $PCLN and that’s what I’ll be starting my week with on Monday.
Chris: The key is the Russell 2000 (IWM). As long as IWM holds here then the SPX is still stuck in the 2340-2375 range.
Carolyn: I am bullish as long as price holds above the 3/27 time/price low.
Tony: They have thrown everything they possibly could at the stock market and it refuses to sell off. Wall Street just opened and I am quite bullish looking for new all-time highs in the $DJIA by the end of April.
David: The S&P 500 shows a corrective structure in its move down from March 1st. That suggests that the index will eventually continue higher, consistent with my long-term view. However, we’re also seeing signs that the correction is incomplete. That would mean either that the S&P 500 returns to below the March 27th low with possible objectives to the 2300 area before turning up, or it wedges into a triangle before bulls regain control. If that outlook is wrong, then it is likely wrong because we resumed the uptrend earlier than expected. Based on all of this, I am remaining bullish, but won’t take any additional action on that view unless we correct further.
Tucker: The S&P 500 continues to be very choppy. It has traded right at the Voodoo tree line for almost two weeks. Price is also in the middle of the 8 and 21 MA’s. The 8 and 21 MA’s have turned horizontal and the there is no momentum on the Squeeze indicator. If price continues to stay in this tight range, we should see a Squeeze form and then give some insight to what direction the next move will be.
Doc: The bull managed to dodge the cruise missiles and the NFP report and is slowly picking his way around the debris on his way up the hill. Long term trend is higher but it could take a little longer to run as before. Never hurts to rest a bit on any journey.
The Method Behind the Madness – $AMZN
Understanding the terms, picking out which setups you like, and getting comfortable with the triggers ideally leads to one place – making money. Trading is all about identifying and acting on high probability setups and patterns that we see in the markets. And more importantly, how did they manage the trade and take profits? Over time, you will be able to identify high probability setups, and make money with them yourself.
How to Trade the Setups
Trader: Henry Gambell
Underlying & Entry Date: $AMZN – April 3rd, 2017
Setup: 15-minute squeeze + daily squeeze
Location of Setup: This setup was given out to Simpler Options Member’s through the Trade of the Week, and in the Live Trading Room.
The Trade: BOT +1 AMZN 100 (Weeklys) 13 APR 17 880 CALL @18.10 BATS [TO OPEN] FILLED
Stop Point: Price trading below $883, or 15-minute squeeze setup failure
Target: When entering the trade, Henry stated that he would take profits if AMZN went above $900. Henry typically targets the 1272 extension of the swing into the zone, and advocates for scaling out when taking profits.
Result: With an entry around $888.49, this setup was a huge winner overnight. Depending on where each trader decided to take profits, this setup was good for identifying a jump in price from $888.49 to where it peaked at $923.72 by Wednesday. Even taking profits at $900 would have given you a big winner with long calls.
Enter AMZN with long calls in preparation for the 15-minute squeeze to fire.
THE SETUP – A 15-minute squeeze backed by the power of a daily squeeze.
Henry likes to trade directional options when he has a high probability squeeze play setting up. How does he define high probability? Because the squeeze is a trend continuation indicator, he first looks at the overall trend of the stock in question. In the case of AMZN, it’s clearly a bullish stock. This is defined by having price above the moving averages, and ensuring that the stock is maintaining a pattern of higher highs and higher lows.
Check out the AMZN chart below. In this case, AMZN as a 15-minute squeeze that hasn’t fired yet. However, Henry knows that the daily squeeze has already fired, pushing prices higher. Always the conservative when it comes to entering positions, Henry likes to enter the trade when price is near the 21 EMA. He chooses delta .70 calls for his aggressive long play.
In Henry’s 15-minute AMZN chart above. As you can see, the squeeze has been in compression for quite some time, and price is near the 21 EMA.
When entering a trade, it’s always important to check price action on other time frames. This is also one of the main reasons why Henry chose this trade. A bullish 15-minute squeeze backed by the strength of a daily squeeze that’s already in process? This is a high probability setup. Please see the AMZN daily chart below. Because the squeeze typically has a duration of 8-10 bars, he makes the bet that he can enter based on the 15-minute squeeze, and price will continue to climb higher through the combination of the 15-minute and daily squeezes combined.
As Henry states, the AMZN chart is admittedly extended. However, as you can see from the squeeze, we are only 3 dots in at this point. That gives him the clue that it could still have more power. While the action in the markets overall isn’t very clear, he’s willing to play this to the long side if price holds the $883 level, and the 15-minute squeeze stays in-tact.
With an entry around $888.49, this setup was a huge winner overnight. Depending on where each trader decided to take profits, this setup was good for identifying a jump in price from $888.49 to where it peaked at $923.72 by Wednesday. Even taking profits at $900 would have given you a big winner with long calls.
Check out this AMZN daily chart below that shows the strength of the daily squeeze. As Henry mentioned on Monday, the daily squeeze still had several bars of power left in it.
The close-up view of the 15-minute chart shows how the 15-minute squeeze played out on a smaller time frame. Even after the squeeze lost momentum initially, price just kept climbing higher.
By studying how past setups played out, this will help you learn how to identify these moves going forward.
Hope it helps!
Danielle got into options trading after being introduced to Simpler Options by her father several years ago, when she needed a career change. She was determined to become a trader so she could work from home with her infant son, make money on her own terms and learn a skill that will last a lifetime. Trading was a rough road in the beginning, but with a lot of studying and hard work, she’s now exactly where she wants to be. She’s a former teacher and translator, having taught elementary school in Costa Rica, and ESL to refugee women in the US, and various youth programs. Teaching and helping others is her passion, and now she’s turned her attention to helping aspiring traders learn this amazing skill.