Sunday Setups - 8/4

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!

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.

Boy, Wednesday was quite the head-fake, huh? A daily close above all the EMAs, and it looked like the 8 EMA on the weekly chart was going to hold.

Thursday was clear confirmation that lower prices were in store.

The week ended with some pretty significant selling. So, what does that mean for this coming week?

Well - high volume selling into the end of the week, going out near lows, does not usually bode well for high prices Monday morning. It’s possible we get a bounce, but we should be careful for some initial weakness. There can be follow through from other markets that weren’t open Friday afternoon OR from the participants that were long and held through the weekend. If prices open lower Sunday night, they could hit margin calls, which can lead to more liquidation.

That doesn’t mean we don’t see a “face-ripping” short-covering rally at any point, but I just say that to be wary of taking any large long positions first thing Monday.

Better to let the dust settle and see which names are holding up well compared to the market (more on this later).

Also, what does this mean for prices through the end of the year?

If we zoom out and look at the Monthly chart of /ES, there are a few levels that stand out:

There is a lot on this chart, but looking at the Fibanacci Retracements, there is some confluence around $4900, which also coincides with the 21 EMA on the monthly.

Where does that fall on the weekly chart? Well below the 34 EMA at $5185.

It’s not out of the realm of possibility, as we fell 300 pts from the high of this week, but I’m not sure if we are destined for that big of a pull back in the near-term. The primary reason being, that would be a breach of the low we saw in April. If that happens, we are approaching bear market territory, and I’m not fully convinced of that yet. Typically, we would see some distribution (wide chop) before a change in trend.

I have two primary levels I’m watching - one, is the 21 EMA on the weekly, which is effectively where we closed the week, and two, is the 34 EMA (~$5185).

As I mentioned earlier, I’m going to wait for another card before I make my decision. If prices get down to the 34 EMA, there is edge in going long. If Monday is strong, and we get a recovery of the 21 EMA on the daily, I’ll look long.

Last thing to point out….our favorite indicator - the put/call ratio.

We’re starting to get a more “extreme” reading up near 0.9 - 1.0. This could indicate we are nearing a bottom in the market.

Anything above 1.0 will give me more confidence in going long.

Net - higher is NOT the path of least resistance right now, but this is not the time to get short. I will wait for a rally to the falling EMAs to place a short trade.

There are still some good long setups in this market (as you will see with some of the trade ideas this week), and if there is a short covering rally, these could really move. The up moves in down markets tend to be fast and furious.

This is going to be an important week, as Friday’s close will give us a really good indication of the trend that should follow. If we close above the 21 EMA on the weekly, we should be presented with solid buying opportunities. If we close below that (or the 34 EMA), we will likely be focused on the short side of the market for the next month or so.

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

This week’s Trade Ideas

1.) CVNA  Long

Reasoning:

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

• Squeeze on the daily and weekly charts, which increase the probability for a bigger move in the near future.

• This has a decent amount of short interest, so could start to move if buying continues.

• This also held up really well with the down market - bullish structure in tact and trading above the 8 EMA.

My Levels:

Entry Zone: $127 - $134

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

• Entries priced at $130 (21 EMA on daily chart)

Targets: $163 - $190

• T1: $163

• T2: $180

• T3: $190

  • Fibonacci extensions from prior swings.

• There are larger targets above around $230 (see weekly chart), but I’m not targeting those, given the index risk.

CVNA Options Strategies

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

Long Calls (64 Delta, $130 Strike Price, 48 Days to Expiration)

• Entry: BUY +1 CVNA 100 20 SEP 24 130 CALL @12.85 LMT

• Exit T1: SELL -1 CVNA 100 20 SEP 24 130 CALL @35.50 LMT

• Exit T2: SELL -1 CVNA 100 20 SEP 24 130 CALL @51.50 LMT

• Exit T3: SELL -1 CVNA 100 20 SEP 24 130 CALL @61.00 LMT

2.) AVB  Long

Reasoning:

• Bullish Trend (8 EMA > 21 EMA > 34 EMA) in both the weekly and the daily charts

• Daily squeeze, which increases the probability of a larger move.

• This spiked after earnings, and reversed a bit. Might just be post-earnings shenanigans, but will want to make sure the 21 EMA holds as support.

My Levels:

Entry Zone: $205 - $208

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

• Entries priced at $206

Targets: $221 - $236

• T1: $221

• T2: $236

  • Fibonacci clusters from prior swings.

AVB Options Strategies

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

Long Calls (55 Delta, $210 Strike Price, 48 Days to Expiration)

• Entry: BUY +1 AVB 100 20 SEP 24 210 CALL @5.40 LMT

• Exit T1: SELL -1 AVB 100 20 SEP 24 210 CALL @13.50 LMT

• Exit T2: SELL -1 AVB 100 20 SEP 24 210 CALL @18.00 LMT

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

Open Trades Review

Week of 7/14 Trade Ideas

• HEI (CLOSED)

  • Got T2: $240 and we are flat. Great trade!

• GWRE (CLOSED)

  • Did not like that big gap down Friday, so I cut the other half of this position loose. We had a great entry on this, so we still eeked out some profit on the second half - just not what was initially intended. Good trade!

• WELL (7/15 entry)

  • This still looks good. Holding the other half, looking for $126. I don’t want to give this too much time and have theta decay take over. So, if we don’t start moving higher this week, I might just book the profits.

Week of 7/28 Trade Ideas

• SIG (7/31 entry)

  • The rare short trade on an equity name! I was really happy with the entry on this one near the 21 EMA. It can be hard to take the position when it is moving the opposite direction, but those entries typically lead to the least amount of stress later on. Was able to book half the position at T1: $78 (initially 80) 2 days later, with that big gap down. holding the other half for $73-$72 zone. Still looks good, but one big green candle can wipe these shorts out - tight leash on this one.

• ABT (7/30 entry)

  • What a great mover - a quick double on the first 1/3rd of the position, getting T1: $112. Holding the other 2/3rds for $114 and $117. Looks great

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