Sunday Setups - 8/25

Are we worried about inflation anymore?

August 25, 2024

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.

Hard to make a case for the bears after this week, as the bullish structure has now been repaired.

What do I mean by that? Well, take a look at these charts of the /ES (S&P Futures):

/ES Daily & Weekly Chart

The exponential moving averages are stacked positively, and the 8 EMA has crossed above the 21 and 34 EMAs - buy signal.

Let me explain…

The blue line is the 8 period exponential moving average. The red line is the 21 period exponential moving average, and the green line is the 34 period exponential moving average. These studies help to visualize the trend of the underlying asset.

When the shorter-term EMAs are below the longer-term EMAs, the trend is down, and the opposite is true as well - positively stacked EMAs (8 > 21 > 34), would indicate a bullish trend.

When the 8 crosses below the 21, this can be a sell signal - indicating that the trend has changed from bullish to bearish.

You can see from the daily chart of the /ES that we got a sell signal on 7/24, as the 8 EMA crossed below the 21 EMA. This proved meaningful for the following couple weeks, as selling continued. (see below)

The opposite is now true - the 8 EMA crossed above the 21 and the 34 EMAs, and the 21 EMA crossed above the 34 EMA. These are buy signals.

Additionally, the longer time frame chart (weekly) of the /ES has not changed structure throughout all of this. The 8 EMA has remained higher than the 21 EMA, which has remained higher than the 34 EMA. So, these sell-offs have just been healthy reversions to the mean (21 EMA), in a bull market.

It’s when the EMAs cross negatively on the weekly chart that could mean a more prolonged bear market….but that’s for another day.

So, whats next? $6,000?

I suppose we could just march on to new all time highs - that would not be a new phenomenon in this incredibly resilient market. Though, I think it might be wise to expect a bit of a pullback before heading up to the next fibonacci cluster of $5800 - $5900.

What does that look like? Well, we could have some consolidation or back-and-forth around $5500-$5600 before moving on to new higher levels. Maybe get a head fake sell-off down to the daily 21 EMA, where buyers might step in and take the indices higher.

I’m likely not going to be trading the SPX this week, which is why I am not looking at specific levels.

What’s more important to my strategy is identifying the overall trend - bullish, and gauging whether or not there is an immediate risk to the overall market - maybe some weakness, but not convinced of anything drastic.

So, that allows me to focus on equities with a strong bullish structure, squeezes, and recent prices near 52 week highs or all time highs.

This combo puts probability in our favor, and has proven successful many times over.

Now, in terms of the economic calendar, we have the Core PCE Price Index on Friday - the Fed’s preferred inflation measure. We just heard Powell talking about changing policy and potentially lowering rates, so I’m not expecting much from this, other than maybe some short term volatility in the futures Friday morning.

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

This week’s Trade Ideas

1.) CRS  Long

CRS Daily Chart

Reasoning:

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

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

My Levels:

Entry Zone: $133 - $143

  • 34 Day EMA up to the 8 Day EMA on the daily chart

  • Entries priced at $140 (round number near the 21 EMA on daily chart)

Targets: $156 - $167

  • T1: $156

  • T2: $167

    • Fibonacci extensions from prior swings.

CRS 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 (72 Delta, $135 Strike Price, 55 Days to Expiration)

  • Entry: BUY +1 CRS 100 18 OCT 24 135 CALL @11.75 LMT

  • Exit T1: SELL -1 CRS 100 18 OCT 24 135 CALL @22.75 LMT

  • Exit T2: SELL -1 CRS 100 18 OCT 24 135 CALL @33.00 LMT

2.) MTZ  Long

MTZ Daily Chart

MTZ Weekly Chart

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: $108 - $111

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

  • Entries priced at $111 (8 EMA), which is the most aggressive entry. This stock just traded at the 21 EMA two days ago, so could be patient.

Targets: $82 - $108

  • T1: $118 (conservative, but wise to take some chips off the table)

  • T2: $126

  • T3: $138

    • Fibonacci clusters from prior swings.

MTZ 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 - meaning, if the stock price reaches $98, you sell the options as close to the active MID price as possible.

Long Calls (70 Delta, $105 Strike Price, 55 Days to Expiration)

  • Entry: BUY +1 MTZ 100 18 OCT 24 105 CALL @10.25 LMT

  • Exit T1: SELL -1 MTZ 100 18 OCT 24 105 CALL @15.00 LMT

  • Exit T2: SELL -1 MTZ 100 18 OCT 24 105 CALL @22.00 LMT

  • Exit T3: SELL -1 MTZ 100 18 OCT 24 105 CALL @33.50 LMT

3.) META  Long

This is a longer-term trade that I’m watching. The weekly squeeze looks great, and I will be looking for a buying opportunity if the price on the daily chart pulls back to the 21 period EMA. No specific options priced out just yet, but I’ll be looking to go 90+ days out - either ITM options, which will be pricey, or an OTM call debit spread….or both!

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

Open Trades Review

Week of 7/28 Trade Ideas

  • ABT (7/30 entry)

    • Looking good - broke the resistance up at $112. Still looking higher for $114 and $117.

Week of 8/4 Trade Ideas

  • CVNA (8/5 entry)

    • This stalled out at ~$155, so took off 1/3rd at $153 to get some risk off the table. It still looks great, but don’t want theta decay to take too much out of these. We are in the money, so won’t be huge, but don’t want a winner to turn into a loser. Looking higher for T2: $180, T3: $190. We’ll see if this is all she wrote…

  • AVB (8/8 entry)

    • Slow and steady wins the race I guess. Solid close this week. Still holding. It hit T1: $221, but I missed an exit. Will likely take off half at the open Monday and hold the rest, looking for T2: $236.

Week of 8/11 Trade Ideas

  • AEM (8/12 entry)

    • Are we going to get $85 or is this all she wrote? Holding full position and it looks good, but I might book profits, given we are so close, just to take some risk off the table and make room for new entries.

  • LEN (8/14 entry)

    • Great close! Can we get $187-$188 this week? I’ll take it off there.

  • MPWR (8/12 entry)

    • Got the second target at $935 - booked 1/3rd of the position (2/3rds total now). Holding the other 1/3rds for $995, though, I’m wondering if $950 might be resistance.

Week of 8/18 Trade Ideas

  • LOW (8/21 entry)

    • Great entry, great move. This one is a longer term trade, with a monthly squeeze. Looking for T1: $260, T2: $270, T3: $290, T4: $320. Looks like T1 might come soon, as we’re trading near $250.

  • BLDR (no entry yet)

    • No entry yet - this is too strong. It already reached T1: $182. So, if I get en entry, I’ll just be looking for $196.

  • PAYX (8/20 entry)

    • Good entry near 21 EMA, good follow through. Holding, looking for T1: $132, T2: $136, T3: $144. We’re close on T1, so will be active on exits there.

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