The broader markets are holding their respective trends or grinding higher. As we head into the final week before the Christmas holiday, I think the main question is, “Will the tax cut be under the tree before then?” The president says it’s a done deal — but who knows with this circus in Washington.
Based on the trends, an acceleration to the upside into year-end would fit. Of course, in all likelihood that would set up a larger pull back. Another scenario would be that the tax cut does not materialize and the broader markets pull back within this uptrend, and then buyers would likely step up again.
In other words, as long as the market continues to have shallow corrections and buyers step up on the dips, this trend is likely to continue until that accelerated move that becomes climactic ends — at least short-term.
Something that will be important to be watching next year is the Yield Curve, which has been narrowing all year. It is not to an area of concern, but if it does get there, history tells us that a significant correction in the market will not be far off.
If the broader markets can move higher this week, it’s possible that the beaten up tech sector might find some momentum to the upside. We’ll take a look at a few of those in the sector video.
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that we review each week. After a very shallow pull back that started the week before last, prices accelerated higher this week. On Thursday, there was a potent reversal to the downside, but there was no follow-through, which left the Red Bar Ignored (RBI).
Obviously, my ideal scenario outlined in last Monday’s letter for a buyable entry point — being a pull back below the 24,000 area — didn’t set up. The very shallow pull back that formed was preceded by an accelerated move higher, which is why I wanted the initial reversal to fail and move lower.
That would have formed a lower high and lower low within the existing uptrend. That pattern historically is an excellent entry point to get long. When prices accelerate from a shallow pull back as they did, which was preceded by a short move higher, that type of price action historically comes near the end of a move.
Assuming this tax plan does come through and the reaction is positive one, a continued and accelerated move higher toward the 25,000 level should be about all of the Christmas cheer anyone can handle.
Master Trader Technical Strategies Tip
As Master Traders, historical price patterns suggest future outcomes. They also tell us others’ expectations and how they are reacting to what occurs. I know where institutions were looking to buy the dip if it occurred. When it didn’t, they scrambled to buy, and prices accelerated higher last week.
As the saying goes, bull markets climb “a wall of worry.” Climbing that wall looks like controlled pull backs to Minor Support (mS) within an uptrend. However, when prices do not pull back — or pull back an insignificant amount and then accelerate higher — that pattern communicates that there is little to no worry.
When prices accelerate in a direction — in this case higher — it leaves a “Void of support” reference points to be a buyer in that area. Also, those that bought the accelerated move higher have a “light bulb moment,” and realize that they chased and better exit before they get caught holding the bag.
Master Trader Tip: if you chase prices higher — and, of course, you shouldn’t, but if you find yourself in that situation and prices start to reverse lower, be sure not to get caught holding the bag; hand off that hot potato quickly — smile.
BROADER MARKETS
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TREND MATRIX AND INTERNALS
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New Trade Ideas
Below is a daily chart of Apple Inc. (AAPL).
Trade: Over $174.17, consider buying Dec (12/29) $165/177.5 bull call debit spread (12 DTE) for mid-point (closed at $8.50/share which is giving at least $.40/share positive time decay).
Technical Setup: Breakout after failed breakdown and higher low consolidation daily, bullish weekly and monthly.
Option Strategy: Bull Call Debit Spread (BCS).
Stop: $171.59.
Below is a daily chart of KLA-Tencor Corporation (KLAC).
Trade: Over $106.32, consider shorting Jan (1/19) $100/95 Bull Put Credit Spread (32 DTE) for closing mid-point of $.72/share or better since spready.
Technical Setup: Bullish consolidation following No Follow through to 11/29 -WRB daily, major support daily and weekly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $99.98.
Below is a daily chart of Salesforce.com, Inc. (CRM).
Trade: Over $105.65, consider shorting Jan (1/19) $100/92.5 Bull Put Credit Spread (32 DTE) for mid-point but limit of $.43/share (closed at $.46/share).
Technical Setup: Breakout after 100% retracement of -WRB and Bottoming Tail daily, Master Trader Buy Setup weekly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $101.78.
Below is a daily chart of Intel Corporation (INTC).
Trade: Over $44.84, consider buying Dec (12/29) $42.5/46 bull call debit spread (12 DTE) for mid-point (closed at $2.01/share which is giving positive time decay).
Technical Setup: +WRB Breakout after consolidation on r50-MA daily.
Option Strategy: Bull Call Debit Spread (BCS).
Stop: $43.06.
Below is a daily chart of Ameriprise Financial, Inc. (AMP).
Trade: Over $169.05, consider shorting Jan (1/19) $160/155 Bull Put Credit Spread (32 DTE) for mid-point but limit of $.65/share (closed at $.70/share).
Technical Setup: Pull back in uptrend to r20-MA daily, bullish weekly and monthly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $160.78.
Below is a daily chart of Intuit Inc. (INTU).
Trade: Provided it opens over $158.75, over 5-Min. high consider shorting Jan (1/19) $155/145 Bull Put Credit Spread (32 DTE) for mid-point but limit of $1.15/share (closed at $1.07/share but spready).
Technical Setup: Bullish Wide Range Bar (+WRB) Breakout from bullish consolidation above r20-MA and failed breakdown daily, Breakout weekly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $154.00.
Below is a daily chart of PowerShares QQQ ETF (QQQ).
We will be monitoring for a bullish swing trade.
Miscellaneous Member Documents and Reminders:
Adjustments and Comments on Open and Closed trades in Master Trader’s Market Edge Advisory Letter. Note: Our Trade Updates are timely posted in a separate Report in the Member’s Area. Please CLICK HERE to 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.
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 by Master Trader in its advisory letters to generate wealth and income.
Description of Master Trader Directional and Income Option Trades can be seen HERE
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All the best,
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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