The broader markets gaped lower last Monday and the selling continued until just before the close.
It looked like the markets were headed lower and could possibly break the intermediate-term trend, but the rest of the week was a lot of running in place.
By the end of the week, most markets — not all, ended where they were at on Monday’s close. Let’s review!
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Dow Jones Industrial Average
Above is the chart of the Dow Jones Industrial Average that we review each week. As mentioned above, after Monday closed, the ups and downs that followed finished pretty close to where Monday ended.
Wednesday’s big Topping Tail (TT) was ominous looking and suggested a continued selloff down to Major Support (MS). But on Thursday’s gap lower, the wrong way option traders started betting on a crash and by 10:30 ET the turn began to happen that sealed their fate.
Daily price pattern above rarely results in a significant move higher without more erratic price action. And while we still cannot ignore the possibility that the Dow could move lower toward that area of MS, the bullish seasonal tendency in front of a holiday and the fact that options traders are betting on that to happen, make that possibility less likely.
Until we see a convincing price pattern in one direction or the other, we suggest that you trade with a smaller size or simply start your Fourth of July holiday early.
ETF Market Overview Video
Trend Matrix
NEW ETF TRADE IDEAS
With this week being a holiday and the corrective action last week, we will be waiting until the latter part of the week or the next week to initiate new positions.
Below is a review of open and closed positions as well as our video review.
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OPEN ETF POSITIONS WITH TRADE UPDATES
6/25: XOP Trade – Bought the ETF at $43.11.
Original Technical Setup: Bullish Gap Breakout from multi-week consolidation above 20/50-MA on the daily, bullish engulfing on the weekly, and price void above on the monthly.
Trade Update: It triggered long and then had a second bullish breakout and is consolidating on Minor Support which is fine.
Nevertheless, if it trades under $42.44, we recommend selling the Jul (7/20 expiration) $44 call options (closed at $.79/share) to reduce the cost basis and give time decay cushion. Over time, options lose there “time value”, which is never coming back.
Selling the $44 call at $79 cents – if you have 1000 share long, you can sell 10 $44 strike contacts and bring in $790 dollars into your account.
This strategy is a Covered Call and is further defined below.
Stop Loss: $40.30. Under this price, the current bullish price pattern would be broken.
6/4: XLG – Trade: Bought the ETF at $195.01.
Original Technical Setup: Bullish consolidation at the high end of a Bullish +WRB, follow by a Bullish Breakdown Failure (+BDF) reversal.
Trade Update: Last week XLG retraced to Major Support with the market selloff. The monthly chart is still in a bullish uptrend so looks fine.
Stop Loss: $189.00 sell half — The 200-MA daily time frames is at $189.63 at this time
CLOSED POSITIONS
6/11: IYT – Trade: Bought IYT and sold Jul (7/20) $200 call options for a debit of $195.85/share.
Original Technical Setup: Breakout daily and weekly with price void above, with multiple bullish Bottoming Tails (BT) on the weekly chart.
Stop Loss: Stopped at $192.97.
6/20: XBI – Trade: Bought the ETF at $99.09.
Original Technical Setup: Breakout to all-time highs from bullish consolidation, great relative strength to the market.
Stop Loss: Stopped at $94.88.
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Here is a more detailed description of the Covered Call strategy:
Covered Call (CC). Defined as Long Stock + Short Call (1 contract for every 100 shares). The premium received lowers cost basis because selling Extrinsic Value (time decay). Done to take in money (Premium) which increases the probability of profit. For further discussion on the strategy, please see our video at https://mastertrader.com/option-strategies-series-definitions/
Master Trader and You Building Your Financial Future Together
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
Trading the Pristine Method — Origin and End
Dan Gibby
Chief Options Strategist
Follow Greg on Twitter, YouTube, and StockTwits to get real-time updates and education:
Twitter: @GregCapra
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For further discussion on the above option strategies, please see our video at https://mastertrader.com/option-strategies-series-definitions/
NOTE: Master Trader will show opening and closing prices of all stock and options trades. We recommend that all traders and investors use proper share sizing for positions and money management. However, we cannot recommend what that is for your particular trading style, risk tolerance, or account balance.
We urge you to calculate your own share/position size based on your individualized risk parameters, Trading Plan, and familiarity with the proposed trade strategy and risk. Advanced Management Strategies (AMS) covers in detail foundational and advanced position and money management.
NOTE: Master Trader and its representatives may have existing positions in actual or other trade recommendations before or after suggested herein. Additionally, we may manage them differently for internal purposes based on different risk parameters than noted herein.
All trade ideas and content are for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, option or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds. Investment or trading information provided may not be appropriate for all investors, and is provided without respect to individual financial sophistication, financial situation, investing time horizon or risk tolerance. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. Master Trader Consulting, Inc. is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardize Options and the Risk Disclosure for Futures and Options found here: CLICK HERE.
