Sunday Setups - 10/13

Happy Sunday,

To make your Monday more enjoyable, we’ve prepared some Fresh Trade Ideas for you. They go nicely with a freshly squeezed glass of lemonade!

What is the Sunday Setup?

It’s a short review of the market, trades from last week and a detailed overview of trade ideas for this week. Build your trading strategy for the week in the time it takes to finish a glass of lemonade.

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Alright, is that sugar kicking in? Let’s find some edge!

Market Review

Before we dive in to the individual trades that I am looking to take, I want to do a quick review of where the markets stand. Understanding the overall market trend will help guide us with how we approach these trades.

The /ES sold off a bit Monday, had a spike low in the overnight session, and continued it’s march into new all time highs the end of the week.

You can see that a couple hourly squeezes gave us great signals this past week. One was Wednesday before the open, which led to a 40 pt rise. The other lasted most of Thursday and Friday, resulting in a new all time high Friday afternoon.

Inflation came and went, and the markets continued along it’s bullish trend.

The Thursday CPI report came in hotter than expected. The initial selloff was short lived, followed by some chop. PPI Friday was in line with estimates….and, the market continued along it’s bullish trend!

There is a lot of hype / headlines around these releases, but if you took that out of the equation, it’s clear that following the market structure (how the EMAs are positioned) and a reliable signal, like the squeeze, provides great results.

Trading can be an emotional rollercoaster, if you’re not careful. Distilling it down into simple rules makes it so much easier.

Also- remember all the headlines last week about the airstrikes, etc? Old news now apparently…

Anyways, I can’t hate on the mainstream media too much - they’ve got a make a living afterall…

Now, lets discuss what might come next. /ES Daily chart below.

We came right into that 127.2% fib extension Friday. So, is that all she wrote, or are we heading higher?

The market structure is still bullish - the 8 EMA is above the 21 EMA, which is above the 34 EMA. So, I will continue to look higher and keep my bullish bias.

Also, there is a daily squeeze forming on the /ES (red dot at the bottom right hand of the chart). Given the bullish market structure (8 EMA > 21 EMA > 34 EMA) on both the daily and weekly (longer term) chart, my bias needs to be that this will push us higher.

However, the squeeze is a measure of volatility and tends to form during periods of consolidation. So, the /ES could consolidate for a bit before heading higher. Let’s take a look at the past few squeezes:

First, the blue box - this daily squeeze in january led to about 5-6 days of consolidation. Price sold off to the 21 EMA before finding support and making new highs.

Second, the red box - this daily squeeze in April led to consolidation for 4 days, but it was prety wide chop. Important to note that price had pierced the 21 EMA to the downside prior, and could not close back above the 8 EMA. So, that was a flag that this might not fire long, despite the bullish structure (8 EMA > 21 EMA > 34 EMA). Then, the final confirmation was the close below the 34 EMA. That led to the 8 EMA crossing below the 21 EMA.

Finally, the green box - strong trend leading into the sqeeze, and only two days of consolidation before firing long and taking price to new highs.

So, what is going to happen this time? Well, again, this is a strong bullish trend, so I am looking to the upside. Though, I think that we might get some consolidation here, and maybe a test of the 21 EMA before firing long.

Though, I will let price guide me. Given the strength of this market, we could chop around these levels, while the 21 EMA rises and catches up to price. Then, maybe be get a day or two of weakness, which would be a buying opportunity to get long.

What would need to be true to be bearish?

Well, first of all, an important reminder - New All Time Highs are NOT bearish, they are extremely bullish. Shorting something because it is “too high” is a fool’s errand. You trade with the trend until it ends. Then, when it ends, you might lose on a trade or two, but all the money you made trading with the trend makes up for those few losses. This is the way…

BUT, I’ll outline three primary signals that I look for to determine if the near-term trend might be changing.

A) If we get a daily close below the LOW of the HIGH bar in this chart. The high bar is Friday, so a daily close below $5816 (the low of Friday’s bar), would lead me to believe that the futures are headed lower - first target being the daily 21 EMA.

B) If the price of the /ES dips below the 21 EMA, it opens the door to the 34 EMA below it. If there is a daily close below the 21 EMA, it could be a sign that lower prices are coming. A daily close below the 34 EMA would confirm that, until we got two daily closes above the 34 EMA.

C) Finally, if we get an extreme reading in the Put/Call Ratio. Something like a close below the recent range we have seen - see chart below - this would be roughly 0.5.

At the end of the day, the trend is bullish (how many times is he going to say this?). So, I’ll continue to focus on strong names, with squeezes, and look to enter near the 21 EMA. I’ll use normal position size, and only lighten up if more sell signals present themselves.

Alright, here is what I’m trading this week.

This week’s Trade Ideas

1.) WMT  Long

Reasoning:

• Bullish Trend (8 EMA > 21 EMA > 34 EMA) on the daily and weekly charts - trading with the trend

• Squeeze on the Daily chart, which increase the probability for a bigger move over the next few weeks.

• This has been trending nicely - no huge moves either way, just clear reversion to the mean and continuation of it’s bullish trend.

My Levels:

Entry Zone: $78 - $80

• 34 EMA (green line in daily chart) up to the 8 EMA (blue line in the daily chart)

• Entries priced at current level, which is just above the 8 EMA. Ideal entry is 21 EMA on the daily, if you want to be patience. I’m fine entering at the 8 on this one, as it is not as volatile.

Targets: $83 - $86

• T1: $83

  • The 161.8% fibonacci extension from prior swing high to low.

• T2: $86

  • 261.8% fibonacci extension from prior swing high to low & 423.6% extension from another swing high to low.

WMT Options Strategies

**exits are theoretically priced for 2 weeks out, but the price of the underlying is the primary trigger for taking the trade off. In other words, if price gets close to $83, I look to sell the calls as close to the MID price as possible.

Long Calls (55 Delta, $80 Strike, 68 Days to Expiration)

• Entry: BUY +1 WMT 100 20 DEC 24 80 CALL @3.55 LMT

• Exit T1: SELL -1 WMT 100 20 DEC 24 80 CALL @5.00 LMT

• Exit T2: SELL -1 WMT 100 20 DEC 24 80 CALL @7.00 LMT

2.) TSLA  Long

Reasoning:

• Bullish Trend (8 EMA > 21 EMA > 34 EMA) on the Monthly and Weekly charts - trading with the trend.

  • The daily trend is not ideal, but my signal is on the monthly chart.

• Squeeze on the monthly chart, which increase the probability for a bigger move in the near future. I think TSLA is a $500 stock within the next year, but I’ll be targeting closer targets in the near-term.

My Levels:

Entry Zone: $217 - $220

• Current levels, which is right above the 144 period EMA on the daily

• Entries priced at $217

Targets: $300

• T1: $300

  • 127.2% fibonacci extensions from prior swing

TSLA Options Strategies

**reminder: exit on the call debit spread is 2/3rd the width of the spread. Given the width is 50, the target is 30. This spread would be priced around there when trading slightly above $300.

Call Debit Spread (Buying the $250 Strike Calls & Selling the $300 Strike Calls, 131 Days to Expiration)

• Entry: BUY +1 VERTICAL TSLA 100 21 FEB 25 250/300 CALL @10.00 LMT

• Exit T1: SELL -1 VERTICAL TSLA 100 21 FEB 25 250/300 CALL @30.00 LMT

I’ll keep you posted on any trades I take!

Open Trades Review

Week of 8/18 Trade Ideas

• LOW (8/21 entry)

  • I am still holding half the position for T3: $290, T4: $320. Acts great - monthly squeeze is really pushing this higher.

Week of 9/1 Trade Ideas

• META (CLOSED)

  • Got $600 and closed them all out - great trade!

Week of 9/8 Trade Ideas

• TTD (CLOSED)

  • Ran out of time for $118, but still closed out at $110 after an entry at $99. Great trade!

Week of 9/15 Trade Ideas

• NFLX (CLOSED)

  • Closed the rest out at $730ish after a $690 entry. Don’t want to hold through earnings. Great trade!

• FTNT (CLOSED)

  • Got out at $83. Great trade!

Week of 9/22 Trade Ideas

• UBER (CLOSED)

  • This popped on the TSLA sell the news event. Out at about $85. Great trade! What a way to finish the week.

• ADI (10/8 entry)

  • Waiting for squeeze to play out - still looks good.

Week of 9/29 Trade Ideas

• AON (CLOSED)

  • Took everything off this week, as earnings are coming up. Don’t want to hold through that. Still a great trade, just not as big as I would have wanted.

• CPAY (CLOSED)

  • Flat just under $340. Great trade!

• MRVL (9/30 entry)

  • Holding and waiting for the squeeze to play out. Targeting $80

Week of 10/6 Trade Ideas

• CTAS (10/8 entry)

  • Got it above the 8 EMA - missed the entry Monday near the 21, but so far so good. Looking for 214 and 222 as targets

• CAVA (10/7 entry)

  • Got in with a dip to the 8 EMA. This acts great - looking for $140.

• ED (10/7 entry)

  • Got in a bit below the 21 EMA, but this is not looking great trading below the EMAs. If it can’t recover the EMAs & trade above them this week, we’ll cut this loose.

That’s it, that’s all. Let me know what you thought of this week’s Sunday Setups!