Sunday Setups - 2/18

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 Lemonade?

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.

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

This week’s Trade Ideas

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.

/ES (S&P Futures)

Love a calm week….

Well, the risk I had been calling out the past few weeks finally reared it’s ugly head. Tuesday’s CPI number came in higher than expected, and the indices dropped fast and furious to their 21 emas. It was hard to put on a short, given the large gap down Tuesday AM. However, it did provide a few good entries on stronger names.

We had a pretty solid bounce Wednesday to the 61.8% retracement of the move down, and we rallied through it, up to the 78.6% retracement. It seemed like there was strength for a new high, but the options expiration forces took over - closing near the low on the day.

So, the million dollar question - where do we go from here? Well, the put/call ratio has not changed much and the historical seasonality of Feb lead me to believe that there is some more downside in the near future. This does not mean short the indices and walk away. I would expect general chop with a downward trend.

The good news is election years have historically shown a positive return for the stock market - 7% on average since 1952. Additionally, during a re-election year such as 2024, the average S&P 500 gain jumps to 12.2%.

With that in mind, how do we approach the market?

First, I’ll look to get short the indices (SPX, NDX). Two areas of focus here: 1) if we get a rally to the 8ema on the S&P or Nasdaq or 2) we break the 21ema, I’ll short a retracement rally to the falling 21 or 8 ema.

In scenario 1, I’ll hold these with lower conviction and take a stop at new highs. In scenario 2, I’ll have confirmation that the shorter term trend has changed.

I will look to buy put credit spreads or sell call debit spreads on the indices. Generally, these are easier to manage than specific equity names, where an upgrade or news can change the narrative in an instant. Clearly the narrative shifted quite a few times for the indices this week, but I prefer to short a basket of names vs one. I’ll look 2-4 weeks out, with the idea that we make our way back to the weekly 21ema, which is currently $4716. I’d expect this to rise slightly as we chop around.

For the long side, I am going to focus on strong names and conservative entries (near the 21ema), as any dips in the broader market should allow for good entries on outperforming equities.

If the indices get to the 21ema on the weekly and/or the put/call ratio moves higher, I will focus more on the long side.

To recap the put/call study - When the 10 day simple moving average of the Put/Call Ratio gets below 0.8, the probability of a pull-back increases. You can see this in action in the chart below. Top of the chart is the Put/Call Ratio, the purple line is the 10 day sma, & the bottom chart is the S&P Futures. Currently, the 10 day moving avg is at 0.71, suggesting that market participants have not shifted much, despite the selloff (aka, room for more downside).

Alright, let’s get back to the main show. Here is what I’m trading this week.

1.) AMD  Long

Reasoning:

• Bullish Trend (8 ema > 21 ema > 34 ema); trading with the trend

• Daily Squeeze with positive momentum, which means a higher probability of making a larger move.

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

• Held up pretty well while the indices fell.

My Levels:

Entry Zone: $164 - $174

• Current price to the 34 ema (green line in chart)

• The current price is in the entry zone, as it is near the 8 ema.

• I’d prefer to enter at the 21 ema, but I’m ok scaling into this one. Entries are priced at the current level.

Targets: $191 - $200

• T1: $191

• T2: $200

  • All of these are based on fibonacci clusters from prior swings

AMD Options Strategies

**reminder: exits are theoretically priced two weeks out, but the price of the underlying is the primary trigger for taking the trade off.

Long Calls (Delta 68, 40 Days to Expiration, $165 Strike)

• Entry: BUY +1 AMD 100 28 MAR 24 165 CALL @16.00 LMT

• Exit T1: SELL -1 AMD 100 (Weeklys) 28 MAR 24 165 CALL @28.00 LMT

• Exit T2: SELL -1 AMD 100 (Weeklys) 28 MAR 24 165 CALL @36.00 LMT

Long Call Debit Spread (Buying $175 & Selling $195 strikes, 40 Days to Expiration)

• Entry: BUY +1 VERTICAL AMD 100 (Weeklys) 28 MAR 24 175/195 CALL @5.95 LMT

• Exit T1: SELL -1 VERTICAL AMD 100 (Weeklys) 28 MAR 24 175/195 CALL @11.00 LMT

• Exit T2: SELL -1 VERTICAL AMD 100 (Weeklys) 28 MAR 24 175/195 CALL @13.00 LMT

2.) ISRG  Long

Reasoning:

• Bullish Trend (8 ema > 21 ema > 34 ema); trading with the trend

• Daily Squeeze, which means a higher probability of making a larger move.

• Near all-time highs, so less overhead resistance

My Levels:

Entry Zone: $367 - $381

• 8 ema down to the 34 ema (green line in chart)

• The current price is in the entry zone, near the 21ema, so will look to enter earlier this week. Entries are priced at current levels.

Targets: $405 - $420

• T1: $405

• T2: $420

  • All of these are based on fibonacci clusters from prior swings

ISRG Options Strategies

**reminder: exits are theoretically priced two weeks out, but the price of the underlying is the primary trigger for taking the trade off.

Long Calls (Delta 65, 40 Days to Expiration, $370 Strike)

• Entry: BUY +1 ISRG 100 (Weeklys) 28 MAR 24 370 CALL @19.60 LMT

• Exit T1: SELL -1 ISRG 100 (Weeklys) 28 MAR 24 370 CALL @37.50 LMT

• Exit T2: SELL -1 ISRG 100 (Weeklys) 28 MAR 24 370 CALL @47.00 LMT

Long Call Debit Spread (Buying $400 & Selling $420 strikes, 40 Days to Expiration)

• Entry: BUY +1 VERTICAL ISRG 100 (Weeklys) 28 MAR 24 400/420 CALL @3.25 LMT

• Exit T1: SELL -1 VERTICAL ISRG 100 (Weeklys) 28 MAR 24 400/420 CALL @8.40 LMT

• Exit T2: SELL -1 VERTICAL ISRG 100 (Weeklys) 28 MAR 24 400/420 CALL @11.00 LMT

3.) JEF  Long

Reasoning:

• Daily Squeeze with positive momentum, which means a higher probability of making a larger move.

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

My Levels:

Entry Zone: $40 - $40.8

• 8 ema down to the 34 ema

• The current price is right above the entry zone - entries priced at 21 ema $40.50

Targets: $43 - $48

• T1: $43

• T2: $44

• T3: $48

  • All of these are based on fibonacci clusters from prior swings

JEF Options Strategies

**reminder: exits are theoretically priced two weeks out, but the price of the underlying is the primary trigger for taking the trade off.

Long Calls (Delta 88, 62 Days to Expiration, $35 Strike)

• Entry: BUY +1 JEF 100 19 APR 24 35 CALL @6.10 LMT

• Exit T1: SELL -1 JEF 100 19 APR 24 35 CALL @8.30 LMT

• Exit T2: SELL -1 JEF 100 19 APR 24 35 CALL @9.30 LMT

• Exit T3: SELL -1 JEF 100 19 APR 24 35 CALL @13.00 LMT

4.) Others I’ll Be Watching  Long

ARM (hourly setup)

NVDA (hourly setup prior to earnings)

Reasoning:

• Bullish Trend (8 ema > 21 ema > 34 ema); trading with the trend

• Hourly Squeeze, which means a higher probability of making a larger move.

• Within 10% of all-time highs - so, less resistance overhead.

• Have outperformed the market recently

There will likely be a few more alerts this week, as there are a lot of setups that fit into my trading plan. I’ll keep you posted!

Open Trades Review

Week of 1/14 Trade Ideas (CLOSED)

• H (CLOSED)

  • Got a little pop on Thursday, which allowed us to exit with some decent profits. That was a nail-biter, but solid trade!

Week of 1/21 Trade Ideas (CLOSED)

• BLK (CLOSED)

  • Needed more time on this. Let them expire worthless, as it was taking up too much mental capital. Setup is still intact, so could roll into a later expiration, but I would rather focus on the other setups in my portfolio.

Week of 1/28 Trade Ideas

• UHS (1/29 entry)

  • Still holding 2/3rds position, looking for $170 next. Earnings are on 2/28, so will take of before then regardless.

• PVH (1/31 entry)

  • Took off 1/3rd position off on Monday with the strength. Still holding 2/3rd for $147 overhead. Chart still looks good.

Week of 2/4 Trade Ideas

• GS (2/5 entry)

  • Good entry, but no targets hit yet. Still holding - chart looks good, and nothing has changed. Just taking it’s time.

• CARR (2/5 entry)

  • These were cheaper entries with time, so willing to give them a bit of room. We’re at the 144 EMA on the daily, which is often support. If we close below that, I’ll exit, but still holding for now.

Week of 2/11 Trade Ideas

• LEN (2/13 entry)

  • Solid entry near the 21 EMA. It is at the 34 EMA, which needs to hold, if I am going to hold on to it. Setup still looks good, just want price to regain EMAs.

• ACM (2/13 entry)

  • Still looks good. Holding.

• IT (2/12 entry)

  • Still looks ok. Not a great close this week, but giving it a bit of room. Holding.

• ACM (2/13 entry)

  • Still looks good. Holding.

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