Simpler Summary 11/24/17

2017-11-24 | Danielle Shay Gum

I think it’s safe to say that everybody was looking for a slow week this week, but in the end, we got a nice, solid trading week in which we continued to trade higher in the indexes. I for one, am happy I stuck around to trade it! On Monday morning, the S&P Futures hit their low for the week at $2567.57, and as of this writing we are trading at $2602.75. Today gave us a Black Friday, new S&P Futures high this morning, breaching the new high made on Tuesday, and, also a 35-point range for this short week. The Nasdaq and Dow weren’t far behind with new highs made today and Wednesday afternoon, respectively. The S&P Futures and Dow Futures are still consolidating in daily squeezes. Where will it go from here? I for one am betting on continued upside.
In other news this week, the move higher in Amazon.com, Inc (AMZN) on the back of the 195-minute squeeze that began on Tuesday sent AMZN skyrocketing to new highs that reached $1186.84 by market close on Friday. Raghee and Henry both expertly got a piece of that move. Earnings season has been dying down, but we traded Salesforce.com Inc (CRM), Dollar Tree, Inc (DLTR) and Deere and Company (DE) earnings, and still have a few pre-earnings plays on Guidewire Software Inc (GWRE) and VMWare, Inc (VMW) for next week. We have added new long positions in Baidu Inc (BIDU), UnitedHealth Group Inc (UNH), Facebook, Inc (FB), SPDR Gold Trust EFT (GLD), Alphabet Inc Class A (GOOGL), Caterpillar Inc. (CAT) and United States Steel Corporation (X).

Simpler Sentiment

What are we thinking, as we head into next week?

John – I’ve had a few people ask me if it’s time to load up for the Santa Clause rally. If you’ve known me for more than a week, you would probably guess that a question like that makes me cringe with every fiber of my being. It doesn’t mean that the assumption is wrong. It’s just that typically when something is obvious, it’s over. That’s how perceptive the general public and the financial press is when it comes to the markets. That said, the question was asked to me by smart traders, not the general public. Since I hang around traders all day, it is sometimes hard to remember what “those other people” think about during the day. Enter the holidays.

I spent part of Thanksgiving Day getting lectured on 3 basic themes: 1) Bitcoin is a fraud and a bubble created by con men, 2) Why it’s time to get out of stocks and 3) Sugar isn’t bad for you it’s a misunderstood nutrient.  Based on these enlightening Thanksgiving Day dialogues, I’m doing the following 3 things: 1) Tripling down on cryptocurrencies, 2) Ignore all opinions on the markets and just staying on the path of least resistance and 3) Continuing to avoid sugar more than ever.  Have a great weekend.

Henry – Markets held true to their seasonal trends with SPX closing the week up 1% and NDX leading the way, up just shy of 2%. The rising yen has brought up a lot of questions on the resilience in stocks, and I tend to side with what John shared in Wednesday night’s video on this. It’s more of a reaction to what’s happening in the dollar, and at the very least I don’t see it as a reason to be trying to short stocks. AMZN traded well this week and I could’ve done better by just sitting on my hands. I love Voodoo Lines for key targets, but when you’ve got stocks like AMZN trading near lifetime highs it makes sense to give them a little room to work. I’ve been working the same concept in WDAY and it also printed a new lifetime high on Friday. Other points of focus have been BA and AVGO, both of which I still like, and new areas like NFLX and GOOGL who I see poised for the next leg higher. I also started building up my position in GLD today in anticipation of the daily Squeeze firing long, then I’ll look at getting into some longer dated positions.

Danielle – I for one am surprised that we got the 2603 target in the S&Ps that I was looking for this week, as I thought things would be a bit slower than they were in the indexes. However, I went into to the week positioned for a continued move higher in the S&Ps and I’m glad that I did. I was able to take profits in BABA, NTAP and partial profits in FB and MA. I’m still looking for the daily squeeze in the ES and YM to fire long, and hopefully help along the remaining longs I have in UNH, BA, FB and NOW. I added an additional position in V today, as I couldn’t resist the daily squeeze setting up there. GWRE and VMW earnings are next week, and I remained positioned there. As the S&Ps met my first target, my secondary target is the 161.8% extension on the daily chart, at $2616. I too, continued to trade the path of least resistance.

David – The S&P 500 made another new all-time high today.  Meanwhile, cumulative NYSE breadth remains below its peak from October.  This is a warning sign that this advance doesn’t look healthy right now.  Another warning sign is that the Elliott wave patterns I watch would allow for a turn down from here.  But neither of this says we will turn.  A warning is just a warning.  I remain long the U.S. equity market.  I also have my finger on the trigger ready to act if I see signs of weakness.  Nimble traders might want to try something on a break below 2600 in the S&P 500, but nimble means get right back out if it doesn’t continue.  Otherwise, below the Voodoo skyline just above 2580 or the snowline near 2540 would be more significant indications that a bigger pullback is in progress.  Bottom line is that the warning signs are real, but one bout of stronger buying could erase divergences and provide technical confirmation for the ongoing uptrend.  So this is a time to be prepared and know concrete trade parameters.

Neil – There are currently 71% of the S&P & 69% of the NDX names above the 200SMA.  With this you have to be in the correct few select names, otherwise youre looking for that proverbial needle in the haystack.  The 5yr yield is @ 2.1% while the 10yr is @ 2.37% and the 30yr yields a whopping 2.77%.  The yield curve is not impressive, but rather flat.  Someone asked me about the banks in a session last week and as we looked I didn’t like what we found.  Maybe a few names within the regionals, but otherwise no.  I’m not in the business of picking tops but I do see the symmetry in this current uptick as it relates to the last.  If you measure the moves and consider the opening statement, it suggests a move to approximately 2608 in the SPX where we then correct.  The last correction was about 40 SPX handles and that is what I will look for again at a minimum for the next.  Bottom line is that we need Tech and Financials to remain firm and the XLF looks questionable with the yield curve in its current state.  This all tells me to look for more volatility in the immediate forecast.  Next week the SPX to 2608 and I see another correction looming from there.  From there and 40 or so lower in the SPX we can look to once again buy the dip as November does historically kick off the best performing 6 month period of the year,  through the end of April.

Trade of the Week Follow Up

CLICK HERE to see the original set-up if you missed.

Expert: Henry Gambell
Ticker: Dollar Tree, Inc (DLTR)
Trade: Unbalanced put butterfly trade placed for earnings
Idea: Looking for the daily squeeze and monthly squeeze to fire long and a continued move higher in DLTR, however he is going to place an unbalanced fly in the event that the stock initially pulls back directly after the earnings report. As it is a put unbalanced butterfly, there is no risk to the upside but will collect max profit in a slight pullback.
Result: On this trade, Henry was able to collect the initial credit because DLTR pushed higher after their earnings report. As DLTR didn’t end up pulling back to the level that Henry suggested in the Trade of the Week video, he collected the credit without upside risk. As DLTR moved up throughout the course of the day on Monday before the earnings announcement, Henry updated and added some additional exposure in DLTR surrounding the idea in our trading room. This is a great example of an unbalanced fly where you can still collect a credit, covering your commissions that still gives you a bit of cash if it doesn’t hit your exact level.

Conclusion

That’s about all for now, folks. I hope everyone has an excellent holiday weekend!

Interested in learning more? Check out this blog about trading directional setups using more conservative options strategies such as credit and debit spreads. We also have an upcoming class taught by two experts of our trading team, Bruce Marshall and Raghee Horner. Check it out!