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DailyPlay Update – November 3, 2022

Fed Chairman Powell did exactly what I expected he would: Raise rates by 75 bps. and continue his hawkish stance to fighting inflation. I saw nor heard anything bullish for stocks in his press conference. Period. End of my statement.

In my opinion, stock investors have very little to look forward to between now and year’s end, and barring an exogenous event (like Putin unexpectedly ending the war, or keeling over, or something as unlikely as that), stocks will likely slide this year to make new 2022 lows – even in the face of the well-known seasonally-favorable period that we are now in.

I suspect that this week’s SPX high of 3912 (which was just 4 pts. above the weekly cloud model’s Base Line of 3908) was the top of Wave 4 of Wave III down from all-time highs. That suggests not only a high likelihood of new lows, but also that the bigger market move has well more downside to go before all is said and done. (This also means that it is still not too late to be exiting long stock positions – whether they be winners or losers.)

Looking into yesterday’s price action, I see two areas I’d like to use to sell into rallies: One is in the SPY $377 to $379 area; the other from ~ $381.50 to ~$383.50.

As far as our portfolio’s positions, I want to look to exit all tactical longs I’ve recently given you (that all expire no later than Nov. 18th.) We’ve already taken a good amount of them off, but let’s not get stubborn about exiting the rest.  You can do all today; some today and some tomorrow; or all tomorrow.  Your choice. But I do recommend being out of these bullish spreads by tomorrow’s close, as I will likely exclusively be looking to be a seller in the immediate future.

As mentioned in Wednesday afternoon’s monthly Q&A webinar, we will stay short the AIG call spread, using a close (or two, your choice) above $58.39 as our reason to exit the bearish trade.

AIG – Daily

$SPY, $AIG, $CNC, $UNP

DailyPlay – Partial Closing Trades (SPY, AIG, CNC, UNP) – November 2, 2022

Partial Closing Trade

Investment Rationale

I don’t know if you joined me or not, but yesterday I shorted the SPX (I used futures) when the SPX traded 3908, the weekly cloud model’s Base Line that I had labeled as the first meaningful resistance of the current rally from 2022 lows. It yielded about a 50-point gain on the day, which I was happy to take as we go into today’s FOMC announcement (with one major Wall Street firm expecting a MASSIVE move to take place between 2pm ET and today’s close — they just have no idea which direction it will be).

Today brings significant risk to all investors across the major asset classes. I have been steady in my call that the Fed will do a 75 bp. raise in rates. Bulls are expecting only a 50 bp. hike and a softer, kinder Fed. I say they can in no way afford to take their foot off the pedal – upcoming elections or not. For once, I think they will actually do the right thing and keep to their stated goal of reducing inflation – helping to unwind the prior large, easy-money environment they allowed for well too long that caused this mess in the first place.

In my continuous attempt to protect you and do what I think is the best course of action, I am not going to suggest putting on a new position today. (And based upon yesterday’s fairly tight range after the market made its morning drop, we’d not be alone in waiting to see what the Fed is going to do.) I’d expect a fairly tight range for most of today’s trading until the 2pm announcement. After that, it could be a free-for-all – in either direction.

I do want to reduce some of our holdings that expire within 17 days, as we have several of them. Some are gains, some losses. It doesn’t matter to me. Given the possible huge move coming from the Fed news today, let’s just cut overall exposure:

  • We’re short 3 SPY Nov. 9th $365/$361 call spreads, up 76%. Let’s take one off this morning.
  • We’re short 9 AIG Nov. 18th $54/$58 call spreads, down 44%. Let’s take 3 off this morning.
  • We’re short 3 CNC Nov. 18th $75/$72.5 put spreads, up 95%. Let’s take 1 off this morning.
  • We’re long 4 UNP Nov. 18th $197.50/$212.50 call spreads, up 2%. Let’s take 1 off this morning.

I have absolutely no idea what is going to transpire later today. So, it makes sense to reduce holdings because whatever analysis got us into the trades originally may not have any meaning come later today. I’d rather be safe than sorry. 

$V

DailyPlay – Opening Trade (V) – November 1, 2022

V Bearish Opening Trade

View V Trade

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish

Details: Buy to Open 4 Contracts Dec. 16 $205/185 Put Vertical Spreads @ $5.10 Debit.

Total Risk: This trade has a max risk of $2,040 (4 Contracts x $510).

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

1M/6M Trends: Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 141

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. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry.

Investment Rationale

I’ve been keeping an eye on Visa after taking a short position earlier this year, and I see a similar setup after earnings last week. Despite reporting “strong” earnings that beat analyst expectations, raising dividends and authorizing $12B in share buybacks, the stock has rallied up to two major resistance levels. I see this post earnings rally as an opportunity to seek short exposure on Visa rather than a reason to be a buyer.

There is no doubt that Visa is the dominate player in a world shifting to all digital, but the economic headwinds and the rich valuations are concerning. Trading at a 50% premium to the market (25x next year’s earnings) in an economic slowdown and expecting only 10% EPS growth next year is simply too high in my opinion. Couple this with the stock trading up against the Weekly Cloud bottom and its 16-month bearish trendline aligns the timing with my fundamental view. I’m using this opportunity to buy a Put Spread on Visa expiring in December to target a $185 target and cutting losses if we see Visa breaks above the trendline and weekly cloud model.

Buy to Open V Dec $205/$185 @ $5.10 Debit

Visa – Weekly

$SPY, $CNC, $SMH

DailyPlay – Partial Closing Trades (SPY, CNC, SMH) – October 31, 2022

Partial Closing Trade

Investment Rationale

I am in Orlando, FL today, speaking at the Money Show conference. Tony will be hosting the 8:45am weekly Technical Market Outlook in my place, and will be sharing with you my thoughts on the market, including that my belief that the SPX will hold up through next Tuesday’s Election Day, with a pullback going no lower than 3680 from the current 3901.

However, the SPX is also right up against its first real resistance level at 3908 – the weekly Base Line from the cloud model. It would not surprise me to see a pullback today (and I am writing this on Saturday afternoon, so I have no idea how futures are going to open and trade on Sunday night).

SPX – Weekly

As I mentioned on this past Friday’s Daily Play open trade position webinar, I said I would likely take some profits today in bullish plays we have on. To that end, let’s look to do the following:

  • We are short 6 SPY Nov. 9th $365/$361 put spreads that expire a week from Wednesday (the day after Election Day). We are up 81% on them so far; let’s take off 3 today.
  • We have 8 of 12 short CNC Nov. 18th $75/$72.5 put spreads remaining, having lifted 4 of them on Friday. We are now up 89% on the balance.  Let’s take another 3 off today, leaving us with a balance of 5 spreads.
  • We are short 4 SMH Nov. 18th $176/$168 put spreads. We’re up 65% on them.  Let’s take 2 off today.

$APPL, $CNC

DailyPlay – Closing Trade (APPL) Partial Closing Trade (CNC) – October 28, 2022

Closing Trade

Partial Closing Trade

Investment Rationale

Most big tech names continue to come under heavy pressure after earnings, with Amazon falling as much as 20% yesterday before recouping about a third of it going into this morning’s action. AAPL dropped over $5 too before recovering and is now about $1 higher than yesterday’s close. Today, we get over 1150 new earnings reports in the US, so keep a close eye on your portfolio because that means there’s a good chance that many names you own are involved.

We’ve been waiting for AAPL’s earnings to come out to cover our short Nov. 19th $145/$157.5 call spread. Now that they have, and the stock is still basically just where it was when we put this trade on, we will remove it today, as there’s no particular advantage to still holding it.

AAPL – Daily

Let’s also take off 4 of the 12 CNC short CNC Nov. 18th $75/$72.5 put spreads.

CNC – Weekly

$UNP

DailyPlay – Opening Trade (UNP) – October 27, 2022

UNP Bullish Opening Trade

View UNP Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 4 Contracts Nov. 18 $197.50/212.50 Call Vertical Spreads @ $4.37 Debit.

Total Risk: This trade has a max risk of $1,748 (4 Contracts x $437).

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

1M/6M Trends: Bearish/Bearish

Technical Score: 3/10

OptionsPlay Score: 93

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. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

Investors had a weak dollar and strengthening bonds to give a positive spin to yesterday’s price action, but MSFT and Alphabet earnings reports/guidance more than offset those potential tailwinds.  We’ve still got AMZN, AAPL, MA, MRK, MCD, TMUS, and Samsung and Shell earnings reports today, and other big cap names coming shortly to see if I’m right that stocks can hold up into (and possibly beyond) Election Day.

You’ll see that we completely removed commodity-related shorts (e.g., NEE and SLV) as I’ve anticipated dollar weakness which is playing out. And I’ve recently only been only playing bullish stock positions (until yesterday’s short play in AiG), as I was bullish from mid-October into elections on 11/08. I’m trying not to be too committed to either direction right now, but playing with near-term ideas while trying not to be prognosticating out several months.  Lots of things are going on – both here and abroad – to keep me from stubbornly sitting with positions that just aren’t working.

A new idea for today is to look to get long UNP Nov. 18th $197.5/$2.125 call spreads. Firstly, they reported earnings last week, so that’s not an issue we need to deal with over the next month. Secondly, the chart shows an Aggressive Sequential -13 signal on the lowest close day of the year (last week), and it’s been straight up since then. This spread closed yesterday at $4.38 mid, and is about $1.75 OTM to the lower call strike we’d be buying, making the current 29% differential paid between strikes theoretically cost a bit more because of the OTM strike. (I had actually preferred to sell the $195/$185 put spread, but they collect only 30% of the strike differential – making them priced far too cheaply for me to want to be a seller of them.)

UNP – Daily

$AIG

DailyPlay – Opening Trade (AIG) Partial Closing Trade (SPY) – October 26, 2022

Partial Closing Trade

AIG Bearish Opening Trade

View AIG Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 9 Contracts Nov. 18 $54/$58 Call Vertical Spreads @ $1.68 Credit.

Total Risk: This trade has a max risk of $2,088 (9 Contracts x $232).

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

1M/6M Trends: Bullish/ Mildly Bullish

Technical Score: 7/10

OptionsPlay Score: 104

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. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

Stocks again rallied sharply on Tuesday, pushing up through some important resistance at 3819. But before you get too bullish, that level is a prior weekly TDST support line, and we’re just today getting to the midpoint of the week, with stocks looking lower after Microsoft’s earnings miss and Google’s slowing sales growth. (In yesterday’s DP comments I alluded to my belief that major multi-nationals were likely to have troubled numbers this reporting season from the impact of the very high dollar.  The bottom line is that we haven’t yet seen a breakout above that level until we see where the SPX closes on Friday.

For a new trade idea today, I see that yesterday marked a daily Setup +9 count in AIG, while also stalling two days in a row against its TDST Line ($54.59) and the top of its daily cloud. This, to me, is a trader’s sale. (If it doesn’t work, so be it, but these are the type multiple unrelated indicators lining up in the same place that make sense to me to be looking at.)  So, let’s sell the Nov. 18th $54/$58 call spread. Yesterday this closed at $1.625 mid, or 41% of the strike differential. The firm reports earnings on Nov. 8th and we will likely be out of it by then.

AIG – Daily

As I write this Tuesday night, S&P futures are down some 35 points. Thus, with yesterday seeing the SPY reach its daily Propulsion Exhaustion level, let’s look to exit 2 of the 8 short Nov. 9th $365/$361 put spreads we have on. I’d likely do one of those two sometime this morning, and the other if the SPX approaches unchanged over the course of the day. Anything even with 10 pts. of becoming unchanged today would be a place I’d remove the second spread.

SPY – Daily

$NFLX

DailyPlay – Closing Trade (NFLX) – October 25, 2022

Closing Trade

NFLX -94.13% Loss: Sell to Close 3 Contracts Nov. 18th $205/$180 Put Verticals @ $0.49 Credit. DailyPlay Portfolio: By Closing all 3 of the 3 Contracts, we will be receiving $147. 

Investment Rationale

The S&P saw a solid rally yesterday and to its highest close (3797) since Sept. 20th. The immediate question becomes whether major earning reports this week can push and keep the SPX above its prior broken weekly TDST level (3819), the level I’ve identified for a month as being one of the more important resistance levels that investors will need to deal with.

In the meantime, there’s increased talk that the Fed is not only way behind raising rates as much as they need to do, but that continually doing so could spill a firm (or multiple ones) into some type of financial accident. When I put this all-together, along with upcoming key earnings reports this week (which I suspect will be mixed with several of the multi-nationals having worse than expected numbers because of dollar strength), I give the edge to the near-term bullish call (I went out with a couple of weeks ago) to continue. The bigger picture, however, is far less bullish, and when I feel as if this current rally has hit its peak, I will again play for another move down.

Let’s update the following two positions, for those that have not closed them out yet:

  • Short NEE Nov. 18th $205/$180 put spread: Given the -13 low; major support level holding; and my thinking that natgas is bottoming, let’s close this out completely.

NEE – Daily

  • Long Nov. 18th $18.5/$17 put spreads: With a triple bottom at ~$16.75, with two of them accompanied by either a -13 or -9, we will close this out completely.

SLV – Daily

AMD

DailyPlay – Opening Trade (AMD) – October 24, 2022

AMD Bullish Opening Trade

View AMD Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 6 Contracts Nov.18 $60/$75 Call Vertical Spreads @ $3.28 Debit.

Total Risk: This trade has a max risk of $1,968 (6 Contracts x $328).

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

1M/6M Trends: Bearish/Bearish

Technical Score: 2/10

OptionsPlay Score: 79

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. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

After the Nasdaq-100 completed the Weekly Setup – 9 Count for the 3rd time this year, it adds to the odds of a sustained rally into Election Day and potentially further beyond. One of the industries that have seen the largest declines and multiple contraction has been semiconductors.

The SOXX Semiconductor ETF also printed a Weekly Setup -9 Count last week, providing an opportunity to seek long exposure going into a tech heavy earnings week for semis. For today’s DailyPlay we are going to look at AMD, which also printed a Weekly Setup – 9 Count, targeting the $75 conversion line to the upside.

Trading at 15x next year’s earnings and 11x EV/EBIDTA valuation while expecting 8% EPS growth in 2023 translates to gaining long exposure to this stock at half of the valuation from 2021. With an IV Rank of 74 and earnings in 8 days I’m going to use a short dated Debit Vertical Spread structure to play for potential pop higher on earnings while risking only 5.5% of the stock’s price and a roughly 3.5x reward to risk potential.

Buy to Open 1 AMD Nov 18, 2022 60/75 Call Vertical @ $328.00

AMD – Weekly

$NEE

DailyPlay – Closing Trade (NEE) – October 21, 2022

Closing Trade

  • NEE -74.62% Gain: Buy to Close 2 Contracts Nov. 18th $77.50/$82.50 Call Verticals @ $0.50 Debit. DailyPlay Portfolio: By Closing the remaining 2 of the original 6 Contracts, we will be paying $100. We took partial profits for this trade on October 14 at a $1.12 Debit by closing 2 Contracts, and then again on October 18 at a @ $1.16 Debit by closing 2 Contracts. Therefore, the average gain on this trade is 52.96% and the average cost basis to exit this trade is $0.93 Debit.

Investment Rationale

The SPX is still teetering near the 3693 level. Not closing above it today actually locks the weekly Setup -9 signal, and gives a better reason to keep my view that the current low should hold up through Election Day on Nov. 8th.

This morning we’ll see earnings from Verizon, American Express, and Barclays. So far, peers on these three names have done well this reporting season. Today is also a weekly option expiration. The 3700 puts and calls open interest is the highest of any strike nearby, and has well more combined unclosed contracts than the 3650s.

With natgas still selling off, our Nextera short $77.50/$82.50 call spread keeps making more money. Given the decline into what was my target area when I put it on, and it also getting to near its 200-WMA, prior lows, and on a weekly Setup -8 count, I’m going to suggest that we close out the last two spreads today.

NEE – Weekly

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