Sunday Setups - 12/22

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.

Somebody turn up the vol!

Ka-Powell brought on some good movement with some hawkish comments. Early on, all eyes were on the Federal Reserve’s December 18th decision to cut rates by 0.25%. While that move was in-line with expectations, Chair Jerome Powell hinted that we shouldn’t bank on too many rate cuts in 2025—a more hawkish tone than most hoped for. Add in the looming threat of a government shutdown, and the result was a swift sell-off in the S&P 500 and Nasdaq, sending investor confidence for a spin.

But Thursday brought an interesting twist: the Put/Call Ratio hit 0.9, which is a fairly extreme reading relative to recent readings. That was a reliable signal that the market might be oversold. Sure enough, Friday saw a solid rebound as buyers stepped in, helping major indices recoup some of the week’s earlier losses.

At the end of the day, the SPX just reverted to it’s mean (the 21 EMA) on the weekly chart.

Now, the big question is whether we’ll see a traditional “Santa Claus rally” in the remaining trading days of December. Historically, the odds are pretty good—around an 80% chance for a modest gain of about 1.4%. Yet, between the Fed’s resolve to fight inflation and ongoing geopolitical worries, it’s hard to know if Santa’s truly on his way this year.

It’s worth staying nimble, but I have to remain trading with the prevailing trend, which is bullish.

If we get a daily close above the 21 EMA in the SPX, that will be confirmation for higher prices in the near-term.

If prices close below last week’s low, we could trade as low as the 34 EMA on the weekly chart. I think this is less likely in the near-term, given we closed the week strong, but will be open to both scenarios.

I will continue to focus on the stronger names trading above their EMAs until there are more clear signs that the trend is shifting.

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

This week’s Trade Ideas

1.) GME  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 couple weeks.

• Good overall pattern - rise in prices, consolidation above the 21 EMA, building momentum for the next move.

My Levels:

Entry Zone: $28.3 - $29.2

• 21 Daily EMA (red line in daily chart) up to the 8 Daily EMA (blue line in the daily chart)

• Entries priced at current prices, slightly above the Daily 8 EMA. Ideal entry is near the daily 21 EMA, but willing to enter here

Targets: $34 - $36

• Target 1: $34

• Target 2: $36

  • Fibonacci extensions from recent swings

GME Options Strategies

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