Sunday Setups - 8/18

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 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.

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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 21 period exponential moving average proved itself as a solid buying opportunity once again. Last week, I mentioned that we had the potential to see a green week, given the strong close last Friday (/ES closed above the weekly 21 EMA). That came to fruition this week, basically going straight up all week.

The /ES (S&P Futures) closed above the 21 EMA last Friday (red line in the chart), after finding buyers at the 78.6% retracement of the prior low to high swing ($5125). This is a perfect example of why these (free) indicators are so useful for successfully entering / exiting a trade.

Also - the put/call ratio came in handy again. We saw extreme readings on 8/5, closing at 1.04 and bringing the 10 day moving average above 0.8 - more put buyers than call buyers. That was where we saw the market bottom.

Now, looking at the retracements from the high to low swing we saw over the past few weeks, we can see where there might be resistance - namely, the 61.8% and 78.6% retracement levels ($5500 and $5600, which can be seen in the daily and weekly charts below).

I thought we would see more resistance at $5500, given the confluence of the 78.6% retracement from 8/1-8/5 AND the 61.8% retracement from 7/15-8/5. That held for about 18hrs, until unemployment claims were released Thursday morning.

Where did we end up on the week? The 78.6% retracement of the larger down-swing (~$5,600).

The fibonacci retracements might be a self-fulfilling prophecy because many use them, but nonetheless, they sure are helpful!

So, are we just off to new all time highs again? Or, is this just another spot to get short?

Well, let’s poke around a bit.

For the bear case, failure to reach new highs can come at these retracement levels (61.8% or 78.6%). So, there is a possibility that we fail here. Another data point to note is the volume profile of the /ES from April (most recent low in /ES) to now. See chart below - the /es is coming into an area where the second most volume was traded over the past few months. This could also prove to be resistance.

For the bull case, let’s look at what happened April into May of this year. The 21 period moving average on the Weekly chart held, and we saw 4 straight green weeks, resulting in a new all time high. There was a bit of consolidation after that before heading up to ~$5,700.

History does not always repeat itself, but it often rhymes. (Mark Twain, for those wondering)

At the end of the day, I think taking both of these ideas into account is critical. I am more inclined to think that we see some consolidation before moving back up towards $5,700.

Powell is speaking at the end of this coming week, so I think we could see some sideways price action in the indices, while market participants wait to hear if there is any NEW news or information that he provides.

Looking at the target rate probabilities, it seems that the sentiment has already shifted towards a potential rate cut. So, unless he shocks the market (which he’s learned is not a good thing and I’m not expecting him to do), there will likely be some back and forth.

You will see a lot of headlines this week like “Market moved higher because of this or that”, but at the end of the day, those are often wrong, and it doesn’t really matter why the market moved.

Our job as traders is to weigh the probabilities, stick to a plan we know works, and follow the rules of that plan. So, that is what I will continue to do - buy strong names near the 21 EMA, and focus on low risk / high reward opportunities.

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

This week’s Trade Ideas

1.) LOW  Long

Reasoning:

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

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

• Given the monthly squeeze, I’m going out further in time and looking for higher targets.

My Levels:

Entry Zone: $234 - $238

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

• Entries priced at $238 (8 EMA on daily chart)

Targets: $260 - $320

• T1: $260

• T2: $270

• T3: $290

• T4: $320

  • Fibonacci extensions from prior swings.

LOW Options Strategies

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

Long Calls (57 Delta, $240 Strike Price, 216 Days to Expiration)

• Entry: BUY +1 LOW 100 21 MAR 25 240 CALL @20.00 LMT

• Exit T1: SELL -1 LOW 100 21 MAR 25 240 CALL @32.50 LMT

• Exit T2: SELL -1 LOW 100 21 MAR 25 240 CALL @40.00 LMT

• Exit T3: SELL -1 LOW 100 21 MAR 25 240 CALL @56.00 LMT

• Exit T4: SELL -1 LOW 100 21 MAR 25 240 CALL @83.50 LMT

Long Call Credit Spread (Buying $270 Calls & Selling $300 Calls, 153 Days to Expiration)

• Entry: BUY +1 VERTICAL LOW 100 17 JAN 25 270/300 CALL @4.50 LMT

• Exit T1: SELL -1 VERTICAL LOW 100 17 JAN 25 270/300 CALL @8.80 LMT

• Exit T2: SELL -1 VERTICAL LOW 100 17 JAN 25 270/300 CALL @11.60 LMT

• Exit T3: SELL -1 VERTICAL LOW 100 17 JAN 25 270/300 CALL @17.40 LMT

• Exit T4: SELL -1 VERTICAL LOW 100 17 JAN 25 270/300 CALL @24.00 LMT

2.) BLDR  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.

• Weekly squeeze fired, so expecting to see continuation higher for the next month or so

My Levels:

Entry Zone: $156 - $159

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

• Entries priced at $159 (8 EMA)

Targets: $182 - $196

• T1: $182

• T2: $196

  • Fibonacci clusters from prior swings.

BLDR 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 (58 Delta, $160 Strike Price, 90 Days to Expiration)

• Entry: BUY +1 BLDR 100 15 NOV 24 160 CALL @14.10 LMT

• Exit T1: SELL -1 BLDR 100 15 NOV 24 160 CALL @28.50 LMT

• Exit T2: SELL -1 BLDR 100 15 NOV 24 160 CALL @40.00 LMT

3.) PAYX  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.

My Levels:

Entry Zone: $124 - $125

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

• Entries priced at $125 (8 EMA)

Targets: $132 - $144

• T1: $132

• T2: $136

• T3: $144

  • Fibonacci clusters from prior swings.

PAYX 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 (68 Delta, $125 Strike Price, 90 Days to Expiration)

• Entry: BUY +1 PAYX 100 15 NOV 24 125 CALL @6.00 LMT

• Exit T1: SELL -1 PAYX 100 15 NOV 24 120 CALL @10.00 LMT

• Exit T2: SELL -1 PAYX 100 15 NOV 24 120 CALL @13.25 LMT

• Exit T3: SELL -1 PAYX 100 15 NOV 24 120 CALL @20.00 LMT

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

Open Trades Review

Week of 7/28 Trade Ideas

• SIG (CLOSED)

  • Booked the rest of this position Monday at $73. Great trade!

• ABT (7/30 entry)

  • Better action this past week - let’s see if it can break the resistance up at $112. Still looking higher for $114 and $117.

Week of 8/4 Trade Ideas

• CVNA (8/5 entry)

  • Looks great - closed out on the highs. Looking for follow through this week - T1 up at $163.

• AVB (8/8 entry)

  • Slowly ticking up - looks great so far. Holding, still looking for T1: $221.

Week of 8/11 Trade Ideas

• AEM (8/12 entry)

  • Aggressive entry on this one, above the 8 EMA, but so far so good. Closed at the highs - looking for follow through to our target of $85.

• LEN (8/14 entry)

  • Good entry near the 21 EMA - just holding and waiting for this to play out. Setup looks great. Looking for $187-$188.

• MPWR (8/12 entry)

  • These are the FUN ones! Entered near the EMAs, the 8 crossed above the 21 EMA, and it took off this week. Got the first target at $910 - booked 1/3rd of the position. Holding the other 2/3rds for $935 and $995.

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