Before I discuss this week's trade of the week and outlook, I want to do a quick check on Urban Outfitters, (April 1 Trade of the week). We were looking to take out $37.48 and it did. $URBN made a high of $38.70 and the daily squeeze is just now firing long. I am still in this position to the long side.
On to this week outlook. I'm watching Apple $AAPL. My thoughts are as $AAPL goes so does the market. Why is that? Apple is heavily weighted in the Nasdaq ETF QQQ, the biggest holding in SPY and 15% of the Technology ETF XLK. Click the images below to see.
If $AAPL breaks the Darvas box on the daily time frame at $165 we can head lower. If you look at the weekly Darvas box you'll see that $165 was resistance in a prior box and $AAPL is in a weekly squeeze.
Apple current IV is 32% with and IV rank of 80%. At the current IV level we can determine what option strategy works best to play this to the downside. Want the IV Rank indicator? Just ask me in the King's Chat.
We have been discussing the pre-earnings strategy with Apple and the results are shown below buying 3 various deltas. This is empirical data that has been traded and tested, not something we pulled out our butt. I promise you this too, we're not buying deep in the money, high delta positions. If we wanted to do that, we'd buy the stock but we want the benefit of buying options cheap and let implied volatility help us make the options even juicier! The actual results are posted inside our Earnings room. The goal is to get Apple at a discount this week by buying it at new lows if the $165 level breaks.
What are my targets for Apple? What does that do the Nasdaq and S&P? What strategy to use based on this IV? See more in the members blog. To sign up for the members blog, CLICK HERE.
Apple Implied Volatility
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While Ruger $RGR may not be my first choice of weapon to buy (I prefer Glock and my conceal carry of choice is my Glock 27), I have traded the stock before at technical levels but this time it wasn't as much technicals when I traded it. Is this a wise choice to do? Probably not but I felt like getting my inner Axelrod on. You know the hit show series "Billions"? Were you mad when he shorted airline, hotel and shipping stocks at 9/11? Then the next plane hit and he doubled down? *SPOILER* What about season 3 when he received the alert of an earthquake and it hurt his funds positions because of a Tsunami? Sometimes these catastrophes can cause situations in the market place that we can predict as well. Same case is with Ruger. What happens whenever innocent Americans are targeted with mass shootings? Gun stocks always go up. Without getting political, gun control always becomes a topic and seems like those who are pro-gun go out and stock up in supplies and guns. Don't believe me? Chart doesn't lie. I'm looking at the Orlando shooting, Las Vegas shooting and the Florida shooting.
Orlando the price before the incident closed at $57.41. The high after the incident $63.57
Las Vegas price before the incident closed at $51.17. The high after the incident $55.13.
Florida School shooting price before the incident closed at $48.75. The high after the incident $50.25.
So some short term trades here but I want to look at a bigger picture and not trade off of news related events like this. Can we get a larger move? Let's dive into the technicals!
My latest position was after Florida incident and it also had some technicals that I considered. Let's take a look below.
We hit a 100 Fibonacci level and the red arrow shows you the day after the shooting. Now why did RGR go up but stop? That last swing high to low is a half way back (HWB) move as shown below.
So sure, after the event we hit a R level. Look at other clues here. What do you notice? We hit the 100% level and bounced back to the 50%, failed back to the 100% level and back to the 50. What happens next? A case of symmetry! We fail that 50% level and create a new low to a new 100% level. Beauty. Look at those two RED daily candles followed by a GREEN candle. Is this a reversal off the 100%? Does it do a HWB move higher? If you add additional Fibonacci levels to the previous wave you'll notice they create a cluster at the new 100% level. This area should be a good area of support and looking for a longer term buy opportunity here.
Plan the trade, trade the plan
Maybe you've heard that term before. If you haven't check this out. Contrary to popular belief this isn't something someone at some educational firm says and owns the saying to and says I can't re-create or be silenced about. It's information that a quick Google search can your friend in learning more! As we bounced off this new low at $43, we see the daily candle is green and from there we are looking to take out the previous days high before entering. You can see the red arrow that shows the candle where we entered this position on March 2, 2018.
Planning the trade and trading the plan doesn't end there. What are the targets? We can see below the targets from taking the last two swing highs and running Fibonacci levels. Entry around $46.20 and our first conservative target would be the HWB move we've been seeing around $47.25 and $49.33 depending on which wave you look at. I want to focus on the Fibonacci Clusters around $49.33 - $50.82. That's my initial target. As you can see we hit this area. We took profits here but in a swing account I continued to hold.
Swing for the fence
In our chat, we took profits around this area however I continued to hold in another account and as of this post, I continue to hold. I will sell end of the day today. Let's look at what played out and one of my new favorite price action patterns that I'm looking at. The bull flat pattern below has played out. What makes this a unique pattern and how does it work? I'll discuss below but let's look at the chart.
You can see our entry level above $46.20. We hit the fib clusters mentioned and had some down to sideways action setting up this bull flag. We stayed inside the tight range and broke out. How does a bull flag work? You have the initial advance of price that we found off of Fibonacci levels. We had the flag form and then we broke out higher. So to find a target using this pattern you take the first initial advance low to high and draw a trend line. Then you duplicate it and go from the lowest point before the break and start it there. You can see these YELLOW lines on the chart above and how we have hit targets based on this pattern.
Now if you know me and how I trade you should know that I'm not using a flat pole I drew on a chart as an exit. I'm using Fibonacci! Remember those levels from the last swing high to low. The purple ones on a few charts ago? If we remove those and use our cheat codes we know we also have levels for additional upside targets. Let's take a look below.
Here you can see the daily candle slow at the first target after the bull flag at $53.81. Then it stop twice at the next level at $55.41. Then last and at the top of our bull flag pole we hit the $56.75. So a $10 point over 1 month and you can see again, at the time of this post we are currently down after hitting the upper level. Do I take profits here or do I look to hit the larger wave high to low target at $59? I may close out today or continue to hold as I own April monthly options.
I spent $350 a contract ($1,050) of risk and currently at a profit of $2,052. I've almost doubled my money and if I had sold yesterday I would have. Great trade hitting first targets and taking profit or waiting for the continuation and hitting these upside targets.
So sure a sketchy play off some horrendous acts in the US but if we throw in technicals and plan our trade and trade the plan you can do great things when trading options. Don't trade off news but learn to analyze a chart and what is it telling you? If you want to sign up for our community chat room and get these alerts you need to JOIN NOW!