Part of my daily and weekly review of the markets includes monitoring which sectors have outperformed and underperformed. The ones that have been the best out-performers or underperformers for the week get the immediate attention. Those are the big movers and where the money is flowing into and out of.
I will then check those in multiple time frames to see if the move is just getting started or might be getting climactic. From there, I will then go and look at individual stocks that make up that sector. Many times, the big movers have already moved too far to take a position at the moment.
However, if the move is just getting started from a higher time frame, that means that the move should continue after some retracement or consolidation in a shorter time frame. So, the sector must be monitored and the easiest way to do that is to set an alert at a logical reference point.
Then I will look at stocks within that sector to look for tradable patterns, relative strength or relative weakness. Doing this, I came across a stock that I had made a note in and set an alert at a higher price not that long ago. The alert never triggered, so I did not look at the stock again until now.
Seeing it, I thought I would share with you why I made the note and alert.
The worst performing sector on my list for last week was the Telecom sector, ETF symbol XTL. It was down just over 4% last week. On the weekly time frame, the sector broke down from a Head and Shoulders top and it has room to fall. It is a little extended short-term, so I will have to monitor.
Looking through the individual stocks within the Telecom sector, I came across the stock CenturyLink Inc. (CTL). I had made a note on October 20 of this year that a commentator on CNBC reported that there was huge call buying in the stock at a higher strike price.
This commentator often reports on unusual options volume in a stock and will disclose that based on that information he is doing the same thing. It’s a frequent practice to see what unusual call volume activity there is in a stock. The assumption is that anyone that would make the decision to use a leveraged instrument that is going to expire and eventually lose value would not do so without good reason.
I don’t disagree with that assumption, but in my opinion, it would be foolish to act on that information by itself. In this case, the technical set up on the chart wasn’t great but it was interesting. So I set an alert at a slightly higher price that I was willing to act on if the stock was able to reach that level. It did not, but the drop in the Telecom sector as explained made me look at it.
Above is the chart of CenturyLink (CTL) with my note from October 20th. Prices did get above some resistance, but then backed off from the next level of resistance which was in alignment with the 50-period moving average. On the day that I made the notation, CTL had formed a bullish reversal around the prior low and volume did pick up as prices approached that area.
For that reason, I thought this was a pattern where prices could begin to move higher from — and someone was betting big on that. So, if prices did start moving higher, the technical set up would make sense with that options trader’s bullish bets.
That never happened, and we can assume that the options trader now holding those options incurred a substantial loss. I don’t know why the trader initiated that position nor do I care.
The interest was that someone – – that supposedly knew “something” — was willing to make a big bet and the technical pattern, which wasn’t great, was semi-aligned with that bet.
Two lessons to take away from this story are: (1) never risk your money for someone else’s reason for the trade, and (2) big money bets that “know something” can be as wrong as anyone else.
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that we review each week. Prices moved higher again last week after a small period of consolidation. This left a small reference point of support below, marked by the horizontal green line just above 23,200.
However, a move under last Thursday’s Bottoming Tail (BT) would likely result in prices moving under that green line and the rising 20-period moving average (blue moving average).
The only Dow stock that will be reporting earnings this week is Disney (DIS), which is on Thursday after the market’s close. Maybe this recent “Dog of the Dow” will make a move one way or the other going into earnings. Apple (AAPL) was up almost 6% last week and has a clear void above to move higher.
Some of the strongest stocks in the Dow are extended, but we don’t care about extended anymore in this market. That is not true, of course, and it’s inevitable that stocks like Microsoft and Intel, which have been leading the charge higher, are going to pull back. Intel does look incredibly bullish on the monthly time frame with room to go higher but needs a rest. I would not enter without a small correction.
One of the Dow stocks that looks interesting right here that might be one to push the Dow higher is Nike (NKE). Last week it pulled back to its 200-MA that it had recently moved above on big volume. It did reverse higher from there on Friday and the pattern suggests that it can move up from there. If it does start moving higher above Friday’s high, it should not trade back under Thursday’s low.
Cisco (CSCO) is knocking on the door of new highs with Friday’s Bottoming Tail (BT), which ideally would have had bigger volume, but the pattern suggests it’s ready to move up.
Genital Electric (GE) formed the Climactic Buy Setup (CBS) with a Bottoming Tail on Thursday. We are looking for it to hold this area at least for a while and ideally move up a bit. Our bull put credit spread trade idea triggered Friday.
There are much more earnings to report this week unrelated to the Dow and of course too many to list. One to take note of is Nvidia (NVDA), which every institution must own at this point. It reports on Thursday after the close.
One that could move before it reports on Wednesday is Equifax (EFX). Recall that it fell hard on news in September that its database was broken into. It recovered a bit from the low and is been going sideways for a month. The trend is down so if it breaks these recent lows it could fall hard.
BROADER MARKETS
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TREND MATRIX AND INTERNALS
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New Trade Ideas
Below is a daily chart of The Progressive Corporation (PGR).
Trade: Over $50.27, consider (a) buying the stock, or (b) shorting Dec (12/15) $49/45 bull put spread (39 DTE) for at least $.50/share (closed at $.55/share).
Technical Setup: +WRB Breakout daily and weekly in strong uptrend all time frames.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $48.97.
Below is a daily chart of Energy Select Sector SPDR ETF (XLE).
Trade: Over $69.00, consider buying Jan (1/19) $63 calls (74 DTE) for a limit of $6.41 (which is only $.40/share of time value). Because of the bullish longer time frames, we will look to sell calls against it when momentum stalls.
Technical Setup: Breakout daily and weekly with bullish +123 continuation monthly following failed breakdown.
Option Strategy: Long Calls.
Stop Loss: $67.29.
Below is a daily chart of American Express Company (AXP).
Trade: Over $96.57, consider buying stock for swing trade.
Technical Setup: Continuation Breakout daily and strong uptrend weekly and monthly.
Stop Loss: $95.38.
Below is a daily chart of Visa Inc. (V).
Trade: Over $111.42, consider buying Nov (11/17) $108/114 bull call spread (11 DTE) for a limit of $3.37/share (the premium from the long and short call net each other but still receiving small time decay credit).
Technical Setup: Bullish breakout daily, strong weekly and monthly to new highs.
Option Strategy: Bull Call Debit Spread (BCS).
Stop Loss: $110.18.
Below is a daily chart of Citrix Systems, Inc. (CTXS).
Trade: Consider shorting Dec (12/15) $80/75 bull put spread (39 DTE) for mid-point but a limit of $.55/share (closed at $.57/share but spready).
Technical Setup: Bullish Pro Gap Breakout daily, bullish weekly and monthly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $80.28.
Below is a daily chart of Flex Ltd. (FLEX).
Trade: Over $18.33, consider buying stock.
Technical Setup: Bullish Breakout daily, bullish weekly and monthly.
Stop Loss: $17.74.
Below is a daily chart of The Allstate Corporation (ALL).
Trade: Over $98.21, consider (a) shorting Dec (12/15) $95/87.5 bull put spread (39 DTE) for mid-point but a limit of $.71/share (closed at $.77/share), or (b) buying Nov (11/17) $95 calls (11 DTE) for a limit of $3.48/share (reflecting no more than $.26/share time value).
Technical Setup: Bullish +123 Continuation after Pro Gap Breakout from consolidation daily and weekly.
Option Strategy: Bull Put Credit Spread (BPS); Long Calls (LC).
Stop Loss: $95.38 on BPS; $96.68 on LC.
Below is a daily chart of Marsh & McLennan Companies, Inc. (MMC).
Trade: Under $82.32, consider shorting stock.
Technical Setup: Bearish 2-bar reversal and Sell Setup at d20-MA daily.
Stop Loss: $83.76.
Below is a daily chart of Delek US Holdings, Inc. (DK).
Trade: Over $28.35, consider buying stock.
Technical Setup: Bullish Breakout daily, weekly and monthly.
Stop Loss: $26.88.
Below is a daily chart of NIKE, Inc. (NKE).
Trade: Over $55.72, consider shorting Nov (11/17) $54.5/50.5 bull put spread (11 DTE) for a limit of $.30/share (closed at $.33/share). ROI 6.4% if expires worthless.
Technical Setup: Pullback to 200MA after bullish breakout and rounding bottom.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $54.48.
Below is a daily chart of Yum! Brands, Inc. (YUM).
Trade: Over $ 80.68, consider buying half lot of stock.
Technical Setup: Bullish Pro Gap Earnings Breakout daily, bullish weekly and monthly.
Stop Loss: $77.79.
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Managing Director of Master Trader
Pristine’s Founder and Creator of the Pristine Method
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Chief Options Strategist
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