Depending on where your focus was this week, the price movements were relatively quiet and near unchanged. Elsewhere, there were some wild rides or continuations of the prevailing trend. We will look at those when we review the broader markets and sectors.
Earnings announcements will begin to slow down this week, but there are still some big focal stocks to report like Home Depot (HD), Cisco (CSCO), Walmart (WMT), and Applied Materials (AMAT).
The sector that will be on center stage with a large clustering of earnings reports coming is the Retail Sector (XRT), which is down just over 8% on the year. There are many stocks within the Retail Sector down considerably more than that.
JCPenney (JCP) which is down almost 62% for the year and 96% from its 2007 high of $87 jumped almost 34% from its low of $2.35. The majority of the gain came on Friday when it reported earnings. The trends are down in multiple time frames.
Stocks like JCPenney, which have been trending down for quite some time, often rebound near the end of the year as the tax loss selling completes itself. We will come up with a list of what we refer to as “Trash Can Stocks” to consider soon.
There were a large number of retailing stocks that had a good week, and it’s possible that the worst is behind them. As mentioned, many retail stocks will report this week, so check your earnings calendar.
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that we review each week. The recent strong upward momentum slowed last week and prices have pulled back to the rising 20-period moving average.
The Bottoming Tail (BT) that formed on Thursday was unable to follow through to the upside on Friday. In the YouTube video that I recorded on Friday morning before the market open, I explained what is needed to come into alignment intraday with the Bottoming Tail. If you didn’t watch the video, here is the link.
Last week’s slowing momentum and pull back has left a small rounding top above in the Dow. I have marked the previous small rounding top on the chart and the ideal type of price action for the continuation of an uptrend — that being a small rounding bottom or cup which is made up of several days where prices have made minor attempts to move lower and have recovered.
There is a difference between then and now, the main one being that then the move was just beginning from a consolidation or correction. This small rounding top is coming after multiple weeks of advances and from a small sideways consolidation. See the difference?
That doesn’t mean prices cannot get through the small rounding top, especially if it forms a small cup over the next several days. The other possibility is that prices just take out the high of the Bottoming Tail and push higher. My goal here is to give you a few possibilities so that you can take advantage of what may happen.
The other possibility is that prices took out the low of the Bottoming Tail and pushed down into one of the unfilled gaps below, which are marked. As I’m sure you know, there’s no way to know what will happen with ultimate certainty; however, having several scenarios within your plan is how we prepare.
BROADER MARKETS
The major broader market averages were little changed on Friday, which ended with a trading range inside of Thursday’s range (i.e., an inside day). Besides that, there are some big differences, which I review in the video below.
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TREND MATRIX AND INTERNALS
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As explained in the video, the internals just came into the adjusted for bull markets area. The timing of this seems counter-intuitive to the recent trend and weakness in the Transports, but many things to in the markets. As always, we will wait to see if the price patterns provide a signal.
New Trade Ideas
Below is a daily chart of The Travelers Companies, Inc. (TRV).
Trade: Over $135.66, consider (a) shorting Dec (12/15) $130/125 bull put spread (32 DTE) for mid-point but minimum of $.64/share (closed at $.67/share but spready), or (b) consider buying Dec (12/15) $130/140 bull call spread (32 DTE) as swing trade for a limit of $5.67/share. Note: Trade (b) is higher reward-risk since more directional.
Technical Setup: Breakout daily and weekly with strong uptrend monthly chart.
Option Strategy: Bull Put Credit Spread (BPS), Bull Call Debit Spread (BCS).
Stop Loss: $132.48 for BPS; $133.28 for BCS.
Below is a daily chart of Yum China Holdings, Inc. (YUMC).
Trade: Over $41.76, consider shorting Dec (12/15) $40/37.5 bull put spread (32 DTE) for a limit of current mid-point of $.40/share (closed at $.40/share). ROI 19% if expires worthless.
Technical Setup: Bullish multi-week consolidation above r50-MA daily, bullish weekly and monthly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $39.88.
Below is a daily chart of Red Hat, Inc. (RHT).
Trade: Over $124.56, consider shorting Dec (12/15) $120/110 bull put spread (32 DTE) for a limit of $1.35/share (closed at $1.45/share). ROI 15.6% if expires worthless.
Technical Setup: Breakout from bullish multi-week consolidation above r20-MA daily, bullish weekly and monthly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $119.88.
Below is a daily chart of CME Group Inc. (CME).
Trade: Over $139.00, consider shorting one of the following short put spreads: (a) Dec (12/15) $130/120 bull put spread (32 DTE) for a limit of $.52/share (closed at $.60/share). ROI 5.5% if expires worthless with 89% Probability of Profit.
(b) Consider shorting Dec (12/15) $135/125 bull put spread (32 DTE) for a limit of $1.50/share (closed at $1.55/share), which gives ROI 18.3% if expires worthless with 61% Probability of Profit (because the closer short strike gives less “Cushion” to be wrong).
Both are viable strategies with the chart. It is a personal decision for your reward-risk comfort zone. Selling the tighter strike generates more premium (maximum gain) but results in a higher long directional exposure (Delta) which may hurt if the stock falls.
Technical Setup: Pull back to 20MA after +WRB Breakout daily, bullish weekly and monthly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $135.68.
Below is a daily chart of EQT Corporation (EQT).
Trade: Over $66.03, consider shorting Dec (12/15) $60/55 bull put spread (32 DTE) for a limit of $.50/share (closed at $.55/share). ROI 11.1% if expires worthless.
Technical Setup: Breakout all time frames after Breakdown Bar Failure daily.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $50.98.
Below is a daily chart of General Electric Company (GE).
Trade: Consider shorting Nov (11/24) $19.5 naked puts (12 DTE) for a limit of $.26/share.
Technical Setup: Bullish Double Bottom following Climactic Buy Setup daily.
Option Strategy: Short Naked Puts (SP).
Stop Loss: $19.68.
Below is a daily chart of TE Connectivity Ltd. (TEL).
Trade: Over $93.75, consider shorting Dec (12/15) $90/85 bull put spread (32 DTE) for a limit of $.52/share (closed at $.57/share). ROI 11.5% if expires worthless.
Technical Setup: Breakout daily, strong uptrend weekly and monthly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $90.48.
Below is a daily chart of Twitter, Inc. (TWTR).
Trade: Over 10-Min. high, consider shorting Dec (12/15) $19/17 bull put spread (32 DTE) for a limit of $.31/share (closed at $.34/share). ROI 18.3% if expires worthless.
Technical Setup: Bullish consolidation to r20-MA after +WRB daily, bullish bottoming action on weekly and monthly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $19.08.
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Greg Capra
Managing Director of Master Trader
Pristine’s Founder and Creator of the Pristine Method
Dan Gibby
Chief Options Strategist
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