Sunday Setups - 11/10

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 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.

Before we get started, a friendly reminder that if you join Fresh Trade Ideas Community, you’ll unlock instant access to:

📈 All of our Premium Trade Ideas.

⏰ Real-time trade alerts throughout the week.

📗 Learn how to find the best setups on your own.

❓Ask any questions about setups, the market, or options.

And much more.

👉 Take advantage of our special deal for newsletter subscribers and join today for $1.

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.

What a difference a week makes?

We saw a small spike down below the low of the prior week in the /ES Monday morning. That is often a stop trigger for longs & can be a trigger to go short, but it was just enough to take out stops so that liquidity could enter the market and take it back up. Last week, we mentioned this might happen.

So, after a quick “head-fake”, the futures chopped around $5750 and then rallied into the close on Tuesday (election day). Prices just took off when there was an indication that Trump was going to win, with the /ES gaining nearly 150pts on Wednesday.

Whatever your political beliefs, it was nice being long this week!

We had some nice trades in last week’s recommendations and are mostly flat, after that incredible rally this week.

Should we take the rest of the year off?

Just kidding…

Let’s look forward and analyze where we go from here. Is it just straight up?

At the risk of sounding like captain obvious, we are now very extended. Price is well above the exponential moving averages, and if we look at the average true range chart of SPX, we are currently trading at 3 ATR:

This study basically takes the 21 period exponential moving average as the mean, and it uses the average true range (ATR) to calculate deviations from that mean.

So, when we get to these levels, the risk to reward of entering new longs in the indices shifts, and the likelihood of a retracement back to the mean increases.

Now, you might think, “oh ok, let’s short it.” Well, that is not always a great trade, especially in a strong market like this one. Take a look at the chart below - I’ll outline a few examples.

• Yellow Box in chart above- In January, we saw prices up at 3 ATR. They traded between 3 and 2 ATR for 4 days before reverting to the mean. Two days later, prices were back up at 3 ATR and continued there for 7 trading days until reverting.

• Green Box - In June, we saw prices reach 3 ATR and immediately revert to the mean.

• Red Box - in July, prices traded up and above 3 ATR for two weeks before a larger sell off.

What’s the takeaway?

As the old adage goes, “the market can stay irrational longer than you can stay solvent”. That’s why i like selling call debit spreads up here. Limited risk and little theta decay. You get a solid risk/reward, but you don’t get blown up waiting for a reversion.

So, I will not short the market - especially by way of short futures or short SPY - but I will not place any new longs on the indices until we revert back to at least the 8 period EMA on the daily (if not the 21 EMA). I may consider selling some call debit spreads.

That doesn’t mean we can’t enter new trades, but we have to focus on names with a bullish setup and be patient on entries.

It is dangerous to chase momentum up here, as one big down day can wipe you out.

After a big week, it’s important to lighten up, take profits, and then most importantly be patient for that next trade. Don’t worry, there are a few good setups that I like this week, which we’ll get into shortly!

However, let’s take a look at a few other data points that lead me to believe we might get a slight pullback in the indices.

First, the SPX reached a big level Friday. $6000 is a big psychological level, and it traded a bit above that into $6012. So, I would not be surprised if there is some digestion at this price (chop).

Secondly, $6009 is the 161.8% extension from the swing high of 7/17 to the swing low of 8/5 (red horizontal line in the chart). It’s possible that we could see price pause here.

This does not mean we sell off, but I think it might make sense that we see some consolidation while the EMAs catch up to price.

Now, what about the Nasdaq (/NQ)?

The / NQ is also near 3 ATR on the daily chart, and a confluence of two Fibonacci extensions. So, it’’s possible price might take a pause and catch its breath for a week or so.

However, I am still bullish the /NQ into the end of the year. For one, there is bullish structure on the daily and weekly chart (8 EMA > 21 EMA > 34 EMA). Additionally, there is a daily squeeze that just fired long - so, this should help keep prices moving up. Finally, there is a clear target at $22000, which is the 127.2% extension from the high on 7/11 to the low on 8/5 (the largest swing we’ve seen this year). Now that we have cleared the high from that swing, the next target is the 127.2%. I think it is just a matter of time.

I would be surprised if we went straight up after this week, but stranger things have happened. I’m planning for some consolidation before moving up there.

Net - I am bullish, but open to a short-term drop into the daily 8 or 21 EMA on the major indices (SPX / NDX).

Ok, here’s what I’m trading this week.

This week’s Trade Ideas

1.) OC  Long

Reasoning:

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

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

• Near all-time highs, so less resistance overhead.

My Levels:

Entry Zone: $180 - $185

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

• Entries priced at $185 - this is the 8 EMA. Ideal entry is 21 EMA on the daily, but given this just made a new high, I’m not sure we’ll get much of a pullback. Though, I don’t want to chase it with the indices extended.

Targets: $201 - $206

• Target 1: $201

  • 127.2% fibonacci extension from the august swing high to low. Also a 161.8% fibonacci extension from most recent swing high to low.

• Target 2: $206

  • Confluence of two 261.8% fibonacci extensions from prior swings.

OC Options Strategies

Subscribe to Full Access to read the rest.