Sunday Setups - 9/29

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.

New all time highs…with very little excitement. The /ES (S&P futures) traded within an 85 point range all week, on relatively low volume. The /ES eeked out a new high of $5830 Wednesday night, but that was sold at the open on Thursday. We then traded around $5800 most of Friday before a WHOLE 15pt selloff into the close (can you feel the drama?)

There is an hourly squeeze on the /ES as you can see above, and there is also a squeeze on the 4 hour chart (below).

These will likely dictate the immediate direction - if they fire long, we could head up into $5840-$5890 in the /ES (see fib extensions in chart below)

If they fire short, we could see prices down into $5660 (38.2% retracement level, which is near the 21 Daily EMA). However, given the larger movement we have seen the past two months, we should also be open to the idea that prices could revert all the way down to about $5500.

Why $5500? There is a 78.6% retracement level from the recent swing low to swing high, for one. Additionally, this lines up with the 21 EMA on the weekly chart of the /ES (see below - thick black line is the retracement & the red line is the 21 EMA):

So, do we continue to new highs or do we fall apart?

Well, the path of least resistance continues to be higher.

The exponential moving averages are stacked positively (the 8 EMA is higher than the 21 EMA, which is higher than the 34 EMA) on both the daily and weekly charts. This indicates a bullish trend, as it is effectively a visual representation of price action. We have seen a pattern of higher highs and higher lows, which is the definition of a bullish trend.

Let’s also take a look at the cash index - SPX:

There are clear targets up at $5800 and $6000, which could come to fruition into the end of the year.

However, we need to be prepared for a pull-back, as we are extended above the exponential moving averages on both the daily and weekly charts.

In other words, I continue to lean bullish, but I am patiently waiting a pullback to the 21 EMA on the daily chart to place any entries long.

The other piece of information worth discussing is the Put/Call Ratio (chart below):

The 10 day simple moving average is now at 0.69 - which is in line with some of the recent lows that we have seen in this indicator. Now, there are examples where this has gone lower, and the /ES has continued higher. So, take this with a grain of salt - this is not a “sell everything” flag. BUT, it does mean to warrant caution at these levels. The chance of a pullback is increasing.

Last time it was here (8/26), we chopped around for a week, and then sold off. Prior to that, in July, we rose for two weeks, and then sold off. In May, we sold off a few days later.

So, not the time to put your whole portfolio long - particularly in the indices. However, it does not mean that everything is going to follow the indices.

Like always, I will continue to find names that have strong setups with potential for bigger moves (see below - there are some great setups in this market, that are NOT extended).

How does that impact my trading? Well, a few key takeaways:

1. It just tells me not to chase momentum names

2. I should stay away from shorter time frame setups, like 30 minute, 1 hr charts. I should zoom out, and build out entries around the Exponential Moving Averages on the Daily or Weekly charts. This puts risk/reward in my favor.

3. Net - be patient (as hard as it is)!

Last piece of data, that I think is interesting. Last week we talked about seasonality, and how the week after triple witching expiration tends to sell off. That clearly did not come to fruition this year. However, if we zoom out a bit, looking at October in election years, it tends to underperform. Data from the Stock Traders Almanac below.

Again, not saying it will - BUT, I think it’s interesting that we are coming into October, with a slight indication that the indices might see some downward chop.

At the end of the day, the /ES is trying to break out from the chop it has seen the past 3 months. Ideally, it would have closed the week above last week’s high to confirm that breakout. Because it did not, I have to stay patient and let price guide me a bit more. Given we have not gotten the confirmation, we have to stay cautious.

If we get a daily close below the low of the high candle (9/26), which is $5778.25, then I’ll be looking for the 21 EMA on the daily as the first level of support. From there, I’ll look to go long and stop out with a close below the 21 EMA on the daily and then start looking for the 21 EMA on the weekly.

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

This week’s Trade Ideas

1.) AON  Long

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 over the next few weeks.

• There is also a squeeze on the MONTHLY chart, which increase the probability for a bigger move over the next 6-8 months.

My Levels:

Entry Zone: $340 - $348

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

• Entries priced at $348 - current level between 8 and 21 EMA. Ideal entry is 21 EMA on the daily.

Targets: $370 - $400

• T1: $370

  • Confluence of several fibonacci extensions from prior swings.

• T2: $400

  • Confluence of several fibonacci extensions from prior swings.

AON Options Strategies

**exits are theoretically priced for 2 weeks out, but the price of the underlying is the primary trigger for taking the trade off. In other words, if price gets close to $370, I look to sell the calls as close to the MID price as possible.

Long Calls (65 Delta, $340 Strike, 47 Days to Expiration)

• Entry: BUY +1 AON 100 15 NOV 24 340 CALL @16.35 LMT

• Exit T1: SELL -1 AON 100 15 NOV 24 340 CALL @30.00 LMT

• Exit T2: SELL -1 AON 100 15 NOV 24 340 CALL @59.00 LMT

2.) CPAY  Long

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.

• Just about 10% off of life-time highs, so potential for that to be breached with little resistance.

My Levels:

Entry Zone: $303 - $309

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

• Entries priced at $307 (round number between the 8 & 21 EMAs).

Targets: $330

• T1: $330

  • Cluster of fibonacci extensions from prior swings.

CPAY 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 (56 Delta, $300 Strike, 48 Days to Expiration)

• Entry: BUY +1 CPAY 100 15 NOV 24 300 CALL @17.50 LMT

• Exit T1: SELL -1 CPAY 100 15 NOV 24 300 CALL @41.50 LMT

3.) MRVL  Long

Reasoning:

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

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

My Levels:

Entry Zone: $70.75 - $72

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

• Entries priced at current levels, as this is right in the buy zone.

Targets: $80 - $82

• T1: $80

• T2: $82

  • Confluence of several Fibonacci extensions from prior swings.

MRVL Options Strategies

**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 $82, I looke to sell the options as close to the active MID price as possible.

Long Calls (60 Delta, $70 Strike Price, 82 Days to Expiration)

• Entry: BUY +1 MRVL 100 20 DEC 24 70 CALL @7.40 LMT

• Exit T1: SELL -1 MRVL 100 20 DEC 24 70 CALL @14.50 LMT

• Exit T2: SELL -1 MRVL 100 20 DEC 24 70 CALL @16.00 LMT

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

Open Trades Review

Week of 8/18 Trade Ideas

• LOW (8/21 entry)

  • This still looks great - higher highs, higher lows, and holding the EMAs on the way up. This one is a longer term trade, with a monthly squeeze. Looking for T2: $270, T3: $290, T4: $320. Inching closer to T2: $270.

• PAYX (CLOSED)

  • Took off the remaining 2/3rds position at around $133, as earnings are next week. Will not hold through earnings. If it pops, T2 & T3 are likely going to be hit, but too much of a coin flip for me. Good trade! Flat PAYX.

Week of 8/25 Trade Ideas (CLOSED)

• CRS (CLOSED)

  • Came about 50 centsshy of our T2: $167, which is close enough! Took profits - great trade! Flat CRS.

Week of 9/1 Trade Ideas

• SPOT (CLOSED)

  • Took off the rest of this up near $385, as it couldn’t break $390. Great trade!

• ROP (9/4 entry)

  • Holding and waiting for this to play out. May take longer with the daily squeeze that started to form. Momentum is slowing. If we get a close below the 34 EMA, I will cut it loose.

• META (9/6 entry)

  • Still holding this - this acts great. Weekly squeeze looks great. Looking for this to continue higher - target around $600.

Week of 9/8 Trade Ideas

• TTD (9/9 entry)

  • This still looks great - holding half for T2: $118.

Week of 9/15 Trade Ideas

• NFLX (9/16 entry)

  • Took off 1/4th of the position at $720 (about $5 shy of $725). Close enough in a 700ish product, and I wanted to take some risk off the table. Holding 3/4ths for T2: $742, T3: $765, T4: $795. Again, earnings are on 10/17, a couple weeks out. So, those targets above 742 might be a stretch, as I don’t like to hold through earnings. Though, we’ll take this one week at a time. Holding for now - looks good.

• GEHC (CLOSED)

  • Closed out the rest of this around $92, as it was going to close lower than the low of the high bar set on last Friday. This might be fine, but happy to take profits. Great trade!

• FTNT (9/19 entry)

  • Looks great. Holding and waiting for the squeeze to play out. Targeting T1: $79, T2: $86.

Week of 9/22 Trade Ideas

• INTU (9/25 entry)

  • Entered on weakness below the 21 EMA, and this quickly went the wrong way on Friday. I’ll exit this on Monday if it can’t regain the EMAs.

• UBER (no entry yet)

  • Have not entered yet, as I am waiting for a dip to the 21 EMA.

• ADI (no entry yet)

  • Missed the entry on 9/26 - being patient for an entry at the 21 EMA.

• TSLA (no entry yet)

  • Have not entered yet, as I am waiting for a dip to the 21 EMA.

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