This week in the indexes markets have been relatively flat, with the S&P 500 Index (SPX) only trading in a 11-point range, though the commodities markets showed big down moves in crude oil (CL) and gold (GC). Friday showed us range-bound chop, with a spike up in the ES before market open that fell right back down to pre-jobs report levels. Buffett sold IBM which gapped lower on the open and weighed heavily on the Dow.
Despite the lack of movement in the indexes, our traders were busy with a variety of earnings plays, honey badger stocks (those that don’t care what the overall market is doing) and short interest plays. We caught a nice gap up in Restoration Hardware (RH) based on a short interest play coupled with a squeeze and a run into earnings, a pop in in Veeva Systems Inc (VEEV) based on a daily squeeze setup, and played a variety of earnings and tech setups. Our traders were especially focused on a variety of earnings setups in IRobot Corporation (IRBT), Amazon (AMZN), Facebook (FB), Chipotle (CMG) and Activision Blizzard, Inc (ATVI).
Sentiment for Next Week
Let’s check in with our traders to see where their heads are at going into next week. After this choppy week, let’s check in with our traders to see which way they think the markets will go. As far as events go, the results of the French election will be announced on Sunday, but so far, political events haven’t seemed to have affected the market much this week.
JC – As we head into next week, the markets have the possibility of a French Revolution on their hands. What to do? Although I’m not a huge fan of “closing my eyes and buying the dip,” this market has shaken off all bad news, and I ain’t gonna fight it. This week has been solid and I will continue to hold “special situation longs” into the weekend. Stocks like Snap Inc (SNAP), Ulta Beauty (ULTA), Restoration Hardware (RH), Duke Energy (DUK) don’t appear too worried about the revolution. Have a great weekend.
Henry – As we head into the French elections, I honestly couldn’t care less. There is absolutely nothing I can do about the predictions or outcome, so I instead focus on the charts and controlling my risk on the way up. There is some degree of complacency out there, but I think you either play to the long side with money you can lose and position size you can work around or just stay in cash. Trying to short this is just asking for pain. Nvidia (NVDA) and Priceline Group In (PCLN) will be up for earnings and I’ll look to be long both prior to the report.
Bruce – My sentiment for next week is totally unknown because of French Election – if Le Pen wins, look out below, we are going lower. If Macron wins, it will probably be a non-event (as everyone expects him to win), and we probably go higher.
Carolyn – So far the SPX cash is super close to taking out the early March high which would then target 2422 on the upside. As long as the ES futures hold above the 2372 area, I’m still favoring the buy side with anticipating the upside breakout. If the key support if violated instead, I back off the buy side until I can take another look at the next key decisions.
Raghee – I have my eyes on the Bank of England and the French election next week. This could be a buy the rumor, sell the news type of situation. I’d like to fade the Euro strength on the elections but that’s very aggressive so I will wait for a pullback to buy.
I’m also short Nikkei (NK), short DOW (YM). I do believe that ultimately traders will begin to sell dollars into nonfarm payroll, I wouldn’t even call it a rally. There will be some opportunities where we might be start seeing some US dollar buys if we see some volatility on the Euro, I will be willing to step out and buy USDCAD. For the NSDUSD, I would love to sell this but I’m not sure it’s getting to a level that we can short on a daily. So, I’m going to be patient and holding out for it. I’m going into the weekend slightly bullish and optimistic.
Doc – While the bull was climbing the hill this week he paused a couple ties to avoid snakes in the sagebrush.
When the bear, chuckling under his bearbreath, caught up with him they talked things over and decided it was time for both to chew a little more wacky weed and see what happens.
Market looks sideways for a while.
Chris – I think the spike in weekly new lows in the NYSE is a bad omen. I see 2350 on the SPX.
Tony – With Wall Street due to open in five minutes, NDX is 5 points away from a new all-time high. SPX is 10 points away from a new all-time high. With interest rates at historically low levels for the past nine years and a Federal Reserve who intends on raising rates from historically low levels to historically low levels, the Fed induced rally on Wall Street is alive and well. I am looking for SPX at the end of the year to be at 2700.00.
David – The market generated a Hindenburg omen signal on Thursday. This isn’t as ominous as the name implies, it just means that the environment is such that a significant decline is more likely in the next 30 days than it usually is – it doesn’t mean that the decline will happen. Even when the signal fires, we only look for the increased risk in the 30-day period when the McClellan oscillator is negative and it is currently positive.
Overall, I still view the move down from last week’s S&P 500 high as corrective, as is the decline from March 1st, so I expect to eventually see both of those levels exceeded. Afterward, however, short-term objectives have been met, and we need to be aware that a bigger setback could occur before the larger bull-trend resumes. If the McClellan oscillator turns negative after that expected new high then it might be time to be cautious.
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: Bruce Marshall
Trade Date: May 1st, 2017
Setup: Bruce is looking for a grind higher in American Express Company (AXP), and is hopeful for a pin at $82.50.
Strategy: Bruce likes to place trades that involve risking relatively little to make a lot. In this case, he is risking $160 per ten lot to make a maximum of $1500 by expiration by utilizing a broken wing butterfly. Placing a butterfly with your short strike at a high open interest strike around all-time highs, gives you the optimal risk/reward scenario. He has minimal exposure to the downside, as he is placing this trade for a $0.16 debit. The downside risk is minimal, which is ideal for his
Target Exit Price: Ideally, the stock price will land around $82.50 near expiration, which would equate to a pin on the butterfly. However, Bruce notes that he would be satisfied with $1,000 profit on the trade.
Stop loss: Risking the debit paid on the downside. With a low debit, no stop loss is needed.
How did the trade play out?
AXP – Daily Chart – 5.5.17
Bruce’s plan to place a trade with minimal downside risk was accurate, as the market traded a bit sluggish this week. His broken wing butterfly is currently a bit underwater, but with the expiration date on May 19th far in the future, this trade has plenty of time to come around. No adjustments have been made to the trade, and so far, he is just holding steady without stress.