Last week, the broader markets rebounded from the prior week’s broad-based selling. Bullish traders quoted in the media touted a broad-based rally on Tuesday. While most sectors were up on that day, the volume was about half of what it was on the move down. Not what you want to see if bullish. The rest of the week was spent choppy, sideways inside of Tuesday’s range.
The correction that began at the end of July is still underway and last week was only a minor recovery within it. Looking at the week to week candlesticks, last week was the first green one, which suggests follow-through to it. However, the daily time frame is grinding lower and there is no alignment between the two time frames to suggest a bullish bias yet.
The broader markets and most sectors gave up the early gains they had on Friday morning, so bulls had little interest to hold over the weekend. This week we will see if the broader markets can grind any higher or whether they are ready to test last week’s low or lower. I rather lower than more chop sideways at this point.
Historically, August, September and October are highest probability months of the year for a correction of some significance. However, October is the one most quoted for crashes. There is nothing to suggest that’s a possibility at this time.
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that we review each week. Prices reversed higher right at the Minor Support (mS) marked last week. The advance stopped right in the area of Minor Resistance (mR) and then chopped sideways into weeks end.
Since Friday traded above the prior two-days highs but ended with a Topping Tail (TT), that suggests a move lower if prices will trade below Friday’s low. That being said, a move under Thursday’s low as well will be much more convincing that prices are likely to test last week’s low and Major Support (MS) below.
At the end of this week, we will be able to review the closed monthly charts of the broader markets and sectors and of course the weekly time frame. That will give us an insight into the continuation of the correction or the lack thereof.
BROADER MARKETS
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TREND MATRIX AND INTERNALS
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Below is a daily chart of General Motors Company (GM), $35.60.
Trade: Consider selling the following $1.50-wide Iron Condor: sell Sep (9/15) $36/37.5 bear call spread and sell Sep (9/15) $34.5/33 bull put spread (18 Days to Expiration (DTE)) for current mid-point of around $.51/share.
Technical Setup: Range bound daily with Topping Tail at Major Resistance (with Major Support $34.50), time decay strategy.
Option Strategy: Iron Condor (IC).
Max Gain: Credit received, 51.5% ROI ($.51/.99) if expires worthless.
Stop Loss: $34.48 on the downside; $36.02 on the upside, close losing position.
Below is a daily chart of The Kroger Co. (KR), $21.74.
Trade: Under $21.05, consider one of two trades: (a) shorting Sep (9/1) $22.5 naked calls (5 DTE) for a limit of $.15/share (closed at $.15 x .30); or (b) buying Sep (9/8) $24/20 bear put spread (12 DTE) at mid-point (closed at $2.13/share). Note: Earnings 9/8 so we will likely exit before then.
Technical Setup: Bearish 1-2-3 Continuation after Breakdown from bearish multi-week consolidation.
Option Strategy: Short Naked Calls (SC); Bear Put Spread (BPS).
Stop Loss: $22.06.
Below is a daily chart of W. R. Grace & Co. (GRA), $71.19.
Trade: Consider selling Sep (9/15) $75 naked calls and sell Sep (9/15) $67.5 naked puts (18 DTE) for current mid-point of around $.85/share.
Technical Setup: Rally to Major Resistance daily and weekly charts, range bound, time decay strategy.
Option Strategy: Short Strangle.
Stop Loss: $67.98 on the downside; $73.12 on the upside, close losing position.
Below is a daily chart of Tesla, Inc. (TSLA), $348.05.
Trade: Consider shorting Sep (9/15) $385 naked calls and sell Sep (9/15) $295 naked puts (19 DTE) for current mid-point of around $2.26/share.
Technical Setup: Multi-week trading range daily and weekly charts after extended move monthly, time decay strategy.
Option Strategy: Short Strangle.
Stop Loss: $306.48 on the downside; $373.12 on the upside, close losing position.
Below is a daily chart of ServiceNow, Inc. (NOW), $110.59.
Trade: Consider selling Sep (9/15) $117 naked calls and sell Sep (9/15) $100 naked puts (18 DTE) for current mid-point of around $1.15/share.
Technical Setup: Topping Tail from failed breakout daily, within large trading range daily and weekly charts, time decay strategy.
Option Strategy: Short Strangle.
Stop Loss: $102.98 on the downside; $116.02 on the upside, close losing position.
NOTE: 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 in the Master Trader Option Strategies Series for Investors and Active Traders to generate wealth and income.
Description of Master Trader Directional and Income Option Trades can be seen HERE
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
Pristine’s Founder and Creator of the Pristine Method
Dan Gibby
Chief Options Strategist
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