DailyPlay Opening Trade Signal (QQQ) – April 28, 2022

View QQQ Trade

QQQ Bullish Opening Trade Signal

Strategy Details

Strategy: Call Debit Spread

Strategy Direction: Bullish

Details: Buy 1 Contract May 20 $320/$344 Call Vertical @ $9.45 Debit

Total Risk: This trade has a max risk of $945 (1 contract x $945 per contract). 

Counter Trend Signal: This is a bullish trade on a stock that is experiencing a bearish trend. 

1M/6M Trends: Bearish/Bearish

Technical Score: 4/10

OptionsPlay Score: 77

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

8 am Update:

With futures now up significantly more than they were last night, I would NOT chase after the QQQ trade UNTIL the QQQ gets back down to the $320 area so that the $320 call is the at-the-money call

Investment Rationale

Let’s start by looking at the technology market, of which the QQQ is a good proxy (as is XLK, even more specifically). The “Qs”, as they are known, saw its rally fail yesterday and actually close a bit beneath its open. In Japanese candle terms, that open and close at virtually the same price is known as a “doji”, and it usually suggests “indecision” when it shows up in a strongly trending market.

When we look at recent QQQ history, we see that a doji also showed up in early March – one that led to a 10% rally the balance of the month.  Now we see one again – virtually at the same level and also following a large down day the prior day. (See the two cyan-colored ellipses in the below chart.)  

Given that some major tech name earnings were better than expected yesterday, as I write this at 7pm Wednesday evening, it would appear as if the market will open decently higher on Thursday (Nasdaq futures are up 155 right now; ~+1.2%). 

Bulls clearly want to see yesterday’s low hold, as it was also the same low made back in May 2021.  Wednesday also happened to have marked a daily Aggressive Combo -13 signal.  So, let’s buy a one-half position (i.e., theoretical $1000 amount) in the QQQ May 20 $320/$344 call spread for about $10 based upon Wednesday’s closing mid price. (That’s 1 contract.)  If we see any major break of yesterday’s lows, we’ll exit.