The monthly charts are complete. All of the broader markets and most sectors look like they’re going higher. Looking at the daily charts in the moves from last week, it’s reasonable to think that they will be some retracement. Hopefully, there will be. A continued strong advance without that would set up a larger correction and I will show you why when we look at the internals.
Last week, I said we should see if the prior leaders (S&P 500 and NASDAQ 100) that were lagging are ready to break out of their consolidation. I also said that further advancement of that prior week’s leaders without some correction would be unusual.
The unusual did happen last week in the Transportation Index and the Russell 2000 Index, which continued to lead. Both are a bit extended now short-term, but look extremely bullish on the monthly time frame.
Biotech stocks were a big contributor to the move in the Russell. Also, regional banks (KRE), some of which are in the Russell 2000, were up over 4% last week.
In last Monday’s trend sector video, I showed you the relationship between financials and bonds. Bonds continued lower and the financials (XLF) broke out to new 52-week highs. As long as bonds are stable to lower, the expectation is for financials to continue showing relative strength and move higher.
The S&P 500 was able to break out of its consolidation, making a new all-time high. The NASDAQ 100 continues to under perform but is near its prior all-time high. Apple (AAPL) and Amazon (AMZN) — which had been the leaders — have been a drag on this Index as they are down 8 and 10% respectively from their highs.
Amazon has formed a large Head and Shoulders top over the last 4 to 5 months and is at a critical point. These topping patterns can fail and when they do, the move to the upside can be quite large.
If the pattern is going to fail, I think it’s going to do it within the next week, so if you’re interested in being a buyer of Amazon I suggest watching for a daily time frame sell setup failure as a possible entry point. However, should the Head and Shoulders pattern follow-through lower with a break and close below the $934 area, it’s likely to drag the NASDAQ 100 Index lower with it. I will review this in a video.
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that we review each week. Prior to last week, the Dow was pushing higher and making all-time highs by itself. Last week, it started the week lower and pulled back into the first support level shown in the 9-25 letter.
In that letter, I said that price should not pull back to minor Support (mS) based on the prior strong advance. It did exactly what it was supposed to do. The rest of the week, it inched higher but under performed the other broader markets.
If prices can make a new closing high above the September high, then last week’s low will become our new reference point of Major Support (MS). Ideally, the move above that high (assuming that happens) will exceed the September high with conviction.
An example of that would be getting into the area of 22,600. If it does and closes above the September high, that high will become our new reference point of Minor Support (mS).
Now let’s consider a second scenario — as we always do. Let’s consider the possibility that Monday turns out to be a down day and prices move below last week’s low. This would then form a lower high and a lower low; however, that pullback would not violate Major Support and would be buyable in the area of the first unfilled gap (Minor Support).
Master Trader Tip: A lower high and lower low that forms within an uptrend — and above Major Support — will be a Master Trader Buy Setup (MTB) on the weekly time frame (i.e., an advance that pulls back from a new high toward support and then forms a bullish reversal pattern).
I’ll be setting alerts on the unfilled gaps below and monitor them.
BROADER MARKETS
[s3mv fileName=’October+2017+Letter/10_2_17_Broader_Markets.mp4′ fileType=’video’ source=’s3′ width=’800′ height=’480′ splashImage=” preLoad=’Y’ autoPlay=’N’ belowVideoHTML=” cuePoint=” redirectURL=” pauseAtCuePoint=’N’ fixedSizeVideo=’N’ isSecure=’N’ bucketname=”]
TREND MATRIX AND INTERNALS
[s3mv fileName=’October+2017+Letter/10_2_17_Trends.mp4′ fileType=’video’ source=’s3′ width=’800′ height=’480′ splashImage=” preLoad=’Y’ autoPlay=’N’ belowVideoHTML=” cuePoint=” redirectURL=” pauseAtCuePoint=’N’ fixedSizeVideo=’N’ isSecure=’N’ bucketname=”]
[s3mv fileName=’October+2017+Letter/10-2-17_Internals.mp4′ fileType=’video’ source=’s3′ width=’800′ height=’480′ splashImage=” preLoad=’Y’ autoPlay=’N’ belowVideoHTML=” cuePoint=” redirectURL=” pauseAtCuePoint=’N’ fixedSizeVideo=’N’ isSecure=’N’ bucketname=”]
New Trade Ideas
Below is a daily chart of Health Care Select Sector SPDR ETF (XLV).
Trade: Over $81.77, consider buying the stock.
Technical Setup: Master Trader Buy (MTB) setup in between the rising 20/40-MA and Minor Support on the daily chart, bullish weekly/monthly charts.
Target: $83 area.
Stop Loss: $80.84.
Below is a daily chart of Citigroup Inc. (C).
Trade: Over $72.90, consider shorting Oct (10/20) $71/67 bull put spread (18 DTE) for mid-point (closed at $.51/share). Note: Earnings 10/12, but we plan on holding since want bullish exposure to sector.
Technical Setup: Breakout from consolidation on the rising 200-MA daily chart, strong sector (although it is lagging the sector, which is why this is an option income trade and not a bullish directional).
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $70.38.
Below is a weekly chart of JPMorgan Chase & Co. (JPM).
Trade: Over $93.52, consider buying Nov (11/17) $87.5 calls (46 DTE) and selling Oct (10/6) $65 calls (5 DTE) for around current mid-point of $9.93/share. Note: Earnings 10/12, but we plan on holding since want bullish exposure to sector.
Technical Setup: Bullish Breakout all time frames following Breakdown Failure weekly, bullish sector.
Option Strategy: Bull Call Diagonal (BCD).
Stop Loss: None. We will take assignment of stock if assigned and manage over time with covered calls.
Below is a daily chart of bluebird bio, Inc. (BLUE).
Trade: Over 30-Min. high, consider shorting Oct (10/20) $125 naked puts (18 DTE) for mid-point but limit of $3.00/share (closed at $3.30/share).
Technical Setup: Consolidation day following Bullish Wide Range Bar (+WRB) Breakout on daily chart, bullish weekly/monthly charts.
Option Strategy: Short Naked Puts (SP).
Stop Loss: $126.28.
Below is a daily chart of Bristol-Myers Squibb Company (BMY).
Trade: Provided it does not gap down below $63.40, consider buying Nov (11/17) $57.5 calls (46 DTE) and selling Oct (10/20) $65 calls (18 DTE) for around current mid-point of $5.80/share or better.
Technical Setup: Bullish Breakout from consolidation into rising 20-MA on daily chart, bullish weekly/monthly with Price Void above.
Option Strategy: Bull Call Diagonal (BCD).
Stop Loss: $62.38.
Below is a weekly chart of The Goldman Sachs Group, Inc. (GS).
Trade: Provided it does not gap down below $235, consider buying a half lot of Oct (10/13) $227.5 calls (11 DTE) for closing mid-point of $10.45/share or better. Note: Earnings 10/17, but we plan on trading as swing trade into earnings and will close before.
Technical Setup: Breakout from multi-week bullish consolidation, bullish sector.
Option Strategy: Long Calls (LC).
Stop Loss: $227.98. Note: We are starting with a large stop and will add on bullish retracements. Because of the high price of the stock, share size accordingly for the risk and stop.
Below is a daily chart of Constellium N.V (CSTM).
Trade: Over $10.43, consider buying the stock.
Technical Setup: Bullish W-Formation Breakout on the rising 50-MA on daily chart, bullish weekly/monthly charts.
Target: $15 area because of Multiple Time Fames in bullish alignment.
Stop Loss: $9.78.
Below is a daily chart of PulteGroup, Inc. (PHM).
Trade: Consider shorting Oct (10/20) $26.5 naked puts (18 DTE) for a limit of $.30/share (closed at $.16 x .21/share).
Technical Setup: Bullish Breakout all time frames (but is extended, so our trade is based on a pull back).
Option Strategy: Short Naked Puts (SP).
Stop Loss: None. We will take assignment of stock if assigned and manage over time with covered calls.
Adjustments and Comments on Open Advisory Letter Trades Note: Our Trade Updates are timely posted in a separate Report in the Member’s Area. Please see that document for a current reflection on all Open and Closed Trades since the spreadsheet updates immediately and will always be more current than this e-mail update. Thank you.
NOTE: Please see Master Trader Guidelines for Trading the Open and Gaps in Member’s Area for rules on trade entry, gaps, etc.
Below is a link to individual videos explaining in greater detail the definitions of the main option trading strategies used in the Master Trader Option Strategies Series for Investors and Active Traders to generate wealth and income.
Description of Master Trader Directional and Income Option Trades can be seen HERE
Please Sign Up for Text Alert Service for Timely Trade Updates!
As a subscriber to the Master Trader Advisory Letter, we would like to text you alerts for updates to open positions and or new ones in a timely manner. These will also be posted to the Spreadsheet in the Member’s Area and new recommendations will also be emailed.
However, a text message to your mobile device will happen within seconds. To get our text alerts, please text the word mastertrader (one word) to 33222
Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
All the best,
Greg Capra
Managing Director of Master Trader
Pristine’s Founder and Creator of the Pristine Method
Dan Gibby
Chief Options Strategist
Follow Greg on Twitter, YouTube, and StockTwits to get real-time updates and education:
Twitter: @GregCapra
Stocktwits: Greg_Capra
youtube.com/c/mastertrader (please subscribe to receive all the timely stock market updates)
NOTE: Master Trader will show opening and closing prices of all stock and option trades. We do not recommend proper share size for your particular trading style, risk tolerance, or account balance. We urge you to calculate your own share size based on your individualized risk parameters, Trading Plan, and familiarity with the proposed trade strategy and risk.
NOTE: Master Trader and its representatives might have existing positions in these and other trade recommendations before or after suggested herein. Additionally, we often manage them differently for internal purposes based on different risk parameters than noted herein.
