So far, nothing can hold this market back but on any given day it can act like the bull market is over.
Without a systematic method of trend analysis using multiple time frames like Master Trader Technical Strategies (MTS), it’s easy to get caught up in the day-to-day gyrations.
We were expecting new all-time highs in the S&P 500 and the NASDAQ and last week I wrote about the Dow Industrials following.
There were more new all-time highs for the S&P 500 and the Nasdaq did make it there too, but the Dow did underperform last week with only a minuscule gain of just over one-half percent.
The NASDAQ 100 led the way higher with just over a 2 ¼% gain — just over 169 points for the week!
You might think that it was Amazon (AMZN) that was the leader that drove it higher with its new all-time high close at 2012.17, just over 5 ½% on the week.
It was actually the biotechnology stock Regeneron Pharm (REGN) that was up just over 8% for the week.
REGN is also in the Biotechnology index ETF symbol (IBB). That ETF made a new 52-week high last week and looks headed to its all-time high near 133.
Unbelievably, REGN wasn’t even close to the top performer in IBB. There were over 30 stocks up over double digits percentage-wise in that ETF!
While the weekly gain in IBB was just over 4%, and seems minuscule compared to the top-performing stock that was up over 26%, they were stocks down over double digits.
Biotechnology stocks can provide incredible gains quickly, but they can lose them just as fast. You have to be willing to take the risk when trading them. We prefer trading the ETFs (IBB and XBI) for diversification and safety by reducing gap risk.
Also beating out Amazon’s percentage gain was Ultra Beauty (ULTA), which was up just over 7 ½%.
Following the Winners and Tips
Following stocks that are big winners on the week — or even a day — can provide ideas that you may want to focus on to buy that stock or using an options strategy.
However, if you don’t have your own trading plan, it can turn into a disaster.
Here’s an example where following a recommendation that was on CNBC about two weeks ago would’ve resulted in a huge loss.
Every week, and sometimes more than once a week, a regular commentator on CNBC will talk about a stock that has had huge buying activity in its options.
The commentator will then say because of this unusually large volume in those options, he’s going to do the same thing.
The thinking behind this piggyback trade is following the “big money bets.”
If anyone is willing to place such a large bet — especially with options, the belief is that they must know something or they wouldn’t do it.
Sounds reasonable but from what I’ve tracked, a large number of these mentioned don’t work.
What caught my attention in this particular example is that the same stock was touted as having this unusually large volume activity in call options of Electronic Arts (EA) on two different days.
What I do with this information is to first look at the chart pattern and see if the recommendation makes any sense whatsoever.
Then I make a note on my chart of the recommendation.
In the case of EA, the commentator was saying that there was a huge call buying in the 135 calls into January.
This was on August 10th and the 13th with EA at $131.
EA wasn’t a particularly looking good chart set up, but it was basing sideways just above its 200-day moving average.
So, I set an alert just above $134 and would consider a trade if it could trade above that area.
Maybe someone really did know something but I wanted proof in the chart.
EA never moved any higher from where it was on the day of that huge call buying.
As of Friday’s close, EA is down almost 14% and a closing price of $113.41.
EA now looks much worse than it did at the time of the recommendation.
It has broken down under the consolidation that it was trying to form above the 200-day moving average.
Those January calls? They went from about $10 dollars at the time of the news touting them to just above $2 dollars as of Friday.
Was there really huge call buying in EA?
We would think so since the commentator said it on CNBC, but could he have been fed some misleading information to bring attention to the stock? Did he confirm the information?
In reality, we don’t know and don’t care from our own trading point of view. The reason for that is, having a trading plan where the movement in the stock makes sense, you and I are protected from such news and tips.
The take away here is that whether it’s CNBC or some other media that is talking about how great a stock is or call buying or even insider buying, it can provide ideas to take advantage of.
News does bring a lot of attention to the stock and that means money can flow into it and move it higher — or out and lower. So why not look?
The technical analysis techniques that you are using — and your trading plan — will guide you as to whether the big money is right or wrong.
If big money equaled profitability, hedge funds and mutual funds wouldn’t lose money. They do. And they would outperform the broader markets. Most don’t.
Dow Jones Industrial Average
Above is the chart of the Dow Jones Industrial Average that we review each week.
The Dow and most broader market indices gapped higher last Monday morning and continued higher that day.
It was an impressive gain from Friday’s close and it looked like it would go higher,
it did go higher Tuesday and Wednesday but not with the momentum that it did on Monday, which isn’t unusual after a big day.
By Thursday, maybe traders were thinking about the long weekend ahead and began to take some profits. Or maybe it was just the old concern of trade tariffs or whatever else the news is touting.
In any event, the Dow pulled back Thursday and Friday and while it did manage a gain of just over 174 points on the week, a lot of that was the gap higher Monday.
From Monday’s close to Friday’s close, the Dow actually lost almost 85 points.
So, while the Dow did not hold onto all of its gains, it did make a gain on the week and progress toward the old all-time high from January.
The trend is up and I have updated our new reference point of Minor Support (mS), which ideally will hold on any more of a pullback.
And we have a new reference point of Major Support (MS), which if broken will violate the uptrend on the daily time frame.
Above last week’s high the Dow should be off to the races to attack the old all-time high. Stay tuned!
Market Overview Video
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NEW STOCK SWING TRADING IDEAS
Below is a daily chart Nordstrom, Inc. (JWN).
Trade: Over $63.03, consider buying stock.
Technical Setup: Breakout from bullish consolidation following Pro Gap +WRB Breakout all time frames.
Stop Loss: $59.88.
Below is a daily chart of HCA Healthcare, Inc. (HCA).
Trade: Over $134.19, consider buying stock.
Technical Setup: +WRB Breakout from multi-week bullish consolidation into r20-MA following Pro Gap +WRB Breakout all time frames.
Stop Loss: $130.77.
Below is a daily chart of Hortonworks, Inc. (HDP).
Trade: Over $22.95, consider buying stock.
Technical Setup: Pull back into +WRB Breakout from bullish consolidation above r20-MA daily, bullish weekly and monthly.
Stop Loss: $21.47.
NEW OPTIONS TRADING IDEAS
Below is a daily chart Nordstrom, Inc. (JWN).
Trade: Over $63.03, consider shorting Sep (9/21) $60/55 bull put credit spread (18 DTE) for a limit of $.48/share (closed at $.55/share).
Technical Setup: Breakout from bullish consolidation following Pro Gap +WRB Breakout all time frames.
Option Strategy: Bull Put Credit Spread (BPCS).
Stop Loss: $59.88.
VIDEO ON OPEN TRADES AND ADJUSTMENTS
Because your success is vital to you – and us.
Before selling options or credit spreads, we urge you to review the valuable and detailed information that we have provided for you in your Member’s Area.
You will find it by scrolling to the bottom of the page to Mastertrader Subscriber Resources.
The link is Money Management Considerations When Selling Option Credit Spreads for Income.
It explains Master Trader Money Management, Trade Management, understanding the use of Contingent Orders, and much more.
If You’re in a Rush to Start
A quick simplified approach to calculating contract size is to simply base your contract size based on the number of shares permitted in your Trading Plan as if you were trading the stock or ETF.
Simple Share Sizing = $ Risk / Stop Loss
The amount of money that you are willing to risk – divided by – the stop loss amount. For example, $100 / .20 = 500 shares
Credit Spread example, if your Trading Plan allowed you to trade 543 shares of AAPL based on the stop loss, then simply round down to the nearest hundred and short an equivalent number of contracts of the option.
Since 1 contract represents 100 shares of the underlying, this would be five (5) contracts.
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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
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Twitter: @GregCapra
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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.
