Despite a dull lack luster market, trading has been fantastic for our traders this week. Similar to last week, the markets traded relatively flat, and concentrating on moves in select stocks to make our plays was how we paid ourselves. But, as John has always taught us, “You don’t need to know everything there is to know about the markets to make money.” The lesson here couldn’t be more true. All you need is a few key setups that work, and trade them properly. What are those setups? The squeeze, earnings setups, pinning plays and high short interest plays.
NVIDIA Corperation (NVDA) was particularly interesting, and the bullish bets John and Henry made prior to earnings worked out well with the 13% jump after-hours trading. One of our favorite plays is buying calls directly after an announcement like that, and we rode those as (NVDA) continued to climb over the next three days. Short interest plays in Restoration Hardware (RH), Veeva Systems (VEEV), and Children’s Place, Inc (PLCE) also made our week. Be on the lookout later in the week for a blog post detailing how our traders identify and trade these short squeeze plays. With our sideways action, Bruce killed it in his SPX monthly butterfly, in addition to several weekly butterflies and several in the RUT butterflies. Listen in for more tips on how to learn how to trade these setups.
Sentiment for Next Week
Our traders always consider their overall feelings in the market before placing their trades. Let’s check in with our traders to see where their heads are at going into next week.
John – After another solid week of directional trading, it is time to start thinking about chop and premium selling as we go into monthly expiration. With the exception of high short interest earnings trades for next week Alibaba Group Holding Ltd (BABA), (PLCE), my focus will be on selling iron condors on the indexes and larger stocks, looking for everything to stay within their expected ranges.
Bruce – Next week, I’m looking for it to be a choppy, range bound market. We are winding down our earnings season, and waiting on the next big catalyst, which could be the June Fed meeting. I’m not expecting much either way, and the despite the media’s efforts to shake things around, the market just doesn’t care. From my perspective, this is perfect for my market neutral income strategies.
Henry – Directional trading has been working well for the past couple of weeks, but I too think it could be time to trade a bit sideways. The various Squeezes in the indexes suggest we could push higher, so I’m thinking more in terms of put credit spreads as opposed to iron condors. A few of my favorite stocks include Facebook, Inc. Common Stock (FB) and Tesla Inc (TSLA). I’m giving them both room to trade sideways, but expect them to be higher in two weeks. NVDA has some great premium and I’ve got a few spreads there that I’d be willing to add to. In the big picture, I’ve completed my bullish swing position in iShares Russell 2000 Index (IWM) – it has 100 days to prove itself off the weekly Squeeze.
Raghee – I’m long euro and short dollar as the ECB prepares to begin tapering monthly asset purchases…think the greenback circa mid 2014…that’s the potential trajectory for the euro. I am also now bearish the gold and 40-year on bounces. The long play had some productive action earlier this year and now with two major central banks having either turned off of turning off the spigot it’s not going to endear gold or bonds to anyone. Unless there’s panic in the air. Macron cursed to an easy victory in France (euro bullish) and we bought euro while shorting IGOV and BWZ…European and U.K. bonds are looking good for downside too. I am short the Dow but not excessively bearish. Just being opportunistic off the 21,000 ceiling on the YM as long as it holds. Oh yeah, random play: I’m shorting cotton in the aftermath of the crop report…
Chris – “SPX 2350 in the next week.”
David – After insisting since April that the S&P 500 had another new all-time high ahead of it, near-term objectives have been met for the time being. Long-term objectives, however, remain even higher. That doesn’t mean that the S&P 500 needs to pull back from here, it could continue its path to higher levels immediately without much of a pause. That makes this a tough spot to think about initiating anything new. Waiting for pullbacks is safer (if they come).
Carolyn – I have to consider myself a cautious bull. I want to have tight stops on any long positions due to the timing factors I’m seeing on both the WEEKLY SPX chart along with the daily timing factors for the recent high. Many of the FANG stocks are also in a bullish mode but more extended where protection of profits is very important!
John Clayburg – Longer term trend still higher but we’ll probably be sideways for a week or two before it begins again.
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: Henry Gambell
Trade Date: May 8th, 2017
Setup: Long call butterfly in (AAPL)
Strategy: Henry is setting up a long call butterfly, which focuses on next week’s expiration – monthly expiration. He sets his strikes based on the psychological area of $150, and places the body of the butterfly there, while taking into consideration the high open interest at $147, $150 and $152.50.
Target Exit Price: Target is 50% return, so paying $1.00 for the trade, he would like to get out at $1.50. Ideally, AAPL trades a bit sideways and hovers near $150, but he isn’t looking for an exact pin.
Stop loss: Risking the debit paid.
Check out the chart below to see the open interest that affected Henry when he selected the strikes of his butterfly: