Last week, the leading broader market indices (S&P 500 and Nasdaq 100) marked time while the laggards (Transports and Russel 2000) led the way higher.
This week, we should see if the prior leaders are ready to break out of their consolidation. Further advancement of last week’s leaders without some correction would be unusual. The laggards should retake the lead again — or at least begin to show relative strength. I’ll cover each in the following video.
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that we review each week. In the September 11 letter, I said, “The area of Major Support is rising and Major Resistance is moving lower. These reference points getting closer typically precede a move in one direction or the other. The direction is often in the direction of the long-term term, which is still up.”
That morning, prices gapped up, rallied sharply, and were able to clear the first resistance area. The other resistance reference points were unable to stall the advance that week and last week there were three (3) more new all-time highs.
The DOW ended the week about where it started off the week, so there was a lot of “running in place overall.” With prices a bit extended after the recent advance, it’s logical to expect a pullback into the first green area above the 22,200 level.
Since prices corrected throughout the month of August, and created a relatively large Major Support (MS) level below, the last two-week’s advance appears to just have started a new move. For that reason, prices should not pullback to Minor Support (mS).
I say they “should not” pull back to mS because at the beginning of an advance, that typically does not happen. Keep in perspective that the beginning of this advance is only taking into consideration the correction through August and the beginning of September within the larger uptrend. Based on that larger, longer-term uptrend, a small correction should be all that is needed to continue that uptrend.
The failure to do what I have explained — that being a minor pullback, rather than a deeper pullback to or below mS — would be a short-term bearish event. In other words, what we want to see is the strong demand over the last two weeks to continue and “create” a new support area above that Minor Support area below. And, of course, it should never pull back to the Major Support (MS) area below any time soon. That would signal at least the end of the uptrend on the daily time frame. We’ll see what this week brings.
BROADER MARKETS
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TREND MATRIX AND INTERNALS
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Below is a daily chart of Palo Alto Networks, Inc. (PANW).
Trade: Consider selling the following $5.00-wide Iron Condor: sell Oct (9/20) $150/155 bear call spread and sell Oct (10/20) $130/125 bull put spread (25 Days to Expiration (DTE)) for current mid-point of around $.95/share.
Technical Setup: Range bound daily with tighter put spread because of bullish weekly, time decay strategy.
Option Strategy: Iron Condor (IC).
Max Gain: Credit received, 23.5% ROI ($.95/4.05) if expires worthless.
Stop Loss: $130 on downside; $149 on upside, close both positions.
Below is a daily chart of The Walt Disney Company (DIS).
Trade: Under $98.53, consider the following trades: (a) shorting Oct (10/20) $100/105 bear call spread (25 DTE) for mid-point (closed at $.84/share); or (b) shorting the stock.
Technical Setup: Anticipated Breakdown after bearish consolidation in the lower half of a Bearish Wide Range Bar (-WRB) breakdown on daily, and relative weakness to the Dow Jones Industrials.
Option Strategy: Bear Call Credit Spread (BCS); Short Stock.
Stop Loss: $99.52.
Below is a daily chart of Yandex N.V. (YNDX).
Trade: Over $33.52, consider shorting Oct (10/6) $32.5/30.5 bull put spread (11 DTE) for mid-point of $.32/share or better (closed at $.35/share).
Technical Setup: Continuation Breakout all time frames.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $32.48.
Below is a daily chart of Tesla, Inc. (TSLA).
Trade: Please Sign Up for Text Alert Service for Timely Trade Updates (see below) for our possible alert on a Bear Call Spread this week.
Technical Setup: Bearish sell off after rally to Major Resistance daily and weekly, closing the week with a bearish engulfing bar weekly.
Option Strategy: Bear Call Credit Spread (BCS).
Below is a daily chart of The Estée Lauder Companies Inc. (EL).
Trade: Consider shorting Oct (10/20) $110/120 bear call spread (25 DTE) for a minimum of the closing mid-point of $.97/share (extended hourly so should get price improvement).
Technical Setup: Selloff with sector daily, Climactic Sell Setup (CSS) weekly and monthly.
Option Strategy: Bear Call Credit Spread (BCS).
Stop Loss: $110.52.
Below is a weekly chart of Pinnacle Foods Inc. (PF).
Trade: Consider shorting Oct (10/20) $60 naked calls (25 DTE) for a minimum of $.50/share (closing mid-point is $.50/share but extended hourly so should get price improvement).
Technical Setup: Breakdown from multi-month consolidation weekly
Option Strategy: Short Naked Calls (SC).
Stop Loss: $60.02.
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Pristine’s Founder and Creator of the Pristine Method
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Chief Options Strategist
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