Defining Stronger & Weaker Stocks Before Making Trading Decisions | Technically Speaking

well it's earnings week that mean we're going to trade in the earnings today but it does give us a little bit of idea as to where the streak lies and guess what strength is still continuing to be where we've seen it and weaknesses where we've seen it we're going to make some sample trades based on those two things to stick around good afternoon everyone and welcome to technically speaking technical analysis and options my name is pat milali i'm joined in the chats by all of you as well as brent moore's very very good friend of mine and yours as well if not then you need to get to know brent on all of his great webcasts because brent is also a td ameritrade education coach and he's been doing this for a few decades and knows enormous about things enormous amount about a lot of things uh and so fundamentals technicals get with get with brent and that will extend your knowledge all right so what we're going to talk about today uh is uh some of the action we've seen you know continued action in both directions both bullish and bearish before we jump into any of that we're going to talk about this the important information that we're doing this for educational informational purposes only not for recommendations options are not suitable for all investors there's there are special risks inherent to options and that means that that can expose traders to potentially in rapid substantial losses any multi-legged option strategies can entail extra transaction cost short options can be assigned at any time up to expiration regardless of the in the money amount and then the money option of course has a higher risk of being assigned early paper money virtual trading application will not assign short option positions early very importantly understand that which is going to be different from a real trading account any probabilities discussed in the analysis probabilities is just are theoretical in nature and not guaranteed all investing involves risk including the risk of loss and past performance mini security does not guarantee future results and that means that any investment decision you make in your self-directed account is solely your responsibility now while we're going to talk about technical analysis there are other approaches including fundamental analysis that can and may assert very different views so we're going to do a market review and then what we're going to do is we're going to get into uh inside of that market we're going to look at some sectors and some sub-sectors really that are moving today opposite of what we've seen and we're going to look at some sectors uh sub sectors that are continuing to move either to the upside and or to the downside and then with that we're going to take this these technical concepts for option strategies such as how uh how where should we enter where should we exit where do we think it's going to move to whether it's moving in our in the direction we've uh that we have assumed or if it has not and of course we'll make some sample trades along with that all right let's get out there and get rolling here so first we will talk about the s p 500 uh the s p 500 of course uh holding uh support that we've talked about for a while we're just now getting to it from last from last week and when i say support it's really just these january low or excuse me these january highs so this zone in here is starting to become somewhat important and i'm going to draw a rectangle through here and get the idea that this zone in here or at these highs here this goes back in time to let's put a year chart up here i think i've got to do something real quick here quit something before it starts making too much noise all right so we can see that going back in time the importance of this pink line here uh or this pink rectangle here if i activate that and draw that back here in time and we can see that's been a zone of support and resistance previously here in here uh support and resistance over in here again the january the january lows where it chopped around so we're back to that area and we're holding doesn't mean we won't see price move lower now price could move down into these lows here and perhaps see a bounce and head back uh to the upside this would be if it does this this is going to be a completion of a when i say completion it doesn't mean it's all over but just the completion of an inverted head and shoulders if it does something like that even if it does something like this it won't be as symmetrical as we as some people would like to see but a completion of a head and shoulders pattern this is important to understand about if you're new to technical analysis just because you see something that might be doesn't mean it is so it has to complete the pattern which means that this right shoulder here has to complete meaning it has to have some upward push into the neckline which is this i'm going to call this dotted line in here so that's when we'll see a completed head and shoulders and then from there we'll see if it follows through and breaks out to the upside which could uh be charged with some fairly strong uh fairly strong uh price action now we've got a lot of news out there uh we've got geopolitical news wars we've got economic news china struggling uh and we've got our own economic news uh supply chains all different types of things going on out there and so that's something we need to take into uh take into account that if we see price action doing something that is not uh in sync if you will with the the news the market in other words if it's bad news and we think the market should be go ahead and down but it's heading up strongly then that means that uh possibly a different there's a difference of opinion in the overall market versus what uh the news might be saying or what are what are expected what our expected price move our assumptions of expected price move might be so we want to watch that fairly closely in here right now the market is sitting at this support area struggling to move lower today struggling uh to move higher we're not getting a lot of information at all from the uh internals whether it's advancers decliners the up down volume amount of stocks trading above their 50 and 200 day moving average aren't really giving us any kind of information today but price is telling us it's struggling to move lower if we look at the nasdaq ndx we're going to see similarities other than the fact that the nasdaq gapped down two times in a row the ndx nasdaq 100 two times in a row and has found that january support now it's trying to push below that january support i think what an interesting price pattern short term very short term price pattern uh that has developed if i can get this to draw in here why is this i'm going to blame it on the mouse obviously it's probably the mouse user we have what we call a broadening pattern setting up in here but just it's like a reverse pennant meaning we're seeing longer range days as price moves to the right and what does that mean it means that each day engulfs the previous day and oftentimes that's a condition that sets up for a possible change but it's a possible because nothing's 100 percent we could see this breakdown and recheck these lows and this is the one of the important things we want to make sure that everybody understands is that technical analysis is about levels it's not necessarily about prediction but what are you going to do if price breaks down in below these the the february lows here the march lows over in here and uh and continues lower the importance about the march low on the nasdaq on the ndx and the february low is two things that february low is considered a reversal candlestick they sold they gapped it down they came in and bought demand came in here again as price price let me get a price level here i'm going to draw it at the lows of this red day here and uh remove that line there so we can see the lows of the 14th of march were below the lows of january 24th so from there we saw a complete change in character and demand up until we saw price run into the january or excuse me the february highs over in here we rolled back over this is more of a if this if the nasdaq can find some support we're going to this is going to be one of the sub-sectors we're going to look at here shortly and that is if the nasdaq can uh hold on and move to the upside that's the largest candlestick this is not a volume weighted candlestick here but if it can move up into the neckline over in here then we might have a a inverted head and shoulders building that is more symmetrical meaning that the left shoulder and the right shoulder are in pretty much the same area so that's for some folks the the symmetry of the patterns is very important i don't know that's uh we'll well we'll certainly see uh i don't know that it's a a make or break uh situation and then of course the russell 2000 which is the weakest today and that brings us to an issue of uh somewhat still of a bifurcated market where the small caps are not moving uh together with the large caps we would rather see all the markets moving together one market's up all markets should be moving higher for bullishness if if we're going to maintain bearishness all markets need to be moving to the downside but this bifurcation is not something that a lot of technicians want to see let's draw this um a channel line in over in here up to old support and we can see we are at kind of the midpoint of the the channel where we have some kind of a fulcrum type move where price uh fell when it rallied into that area bounced as it ran ran into that zone so we are back in that zone and failing so far to the downside so need to see some strength in the russell 2000 okay now that uh takes us to our next discussion part of our discussion and that is when we look at the when we look at uh the the concepts for option strategies and so where do we find where might somebody find strength or weakness and uh maybe some nascent strength or something that might uh say to you hmm make you say hmm why why is that doing that so we want to look at the market watch tab or actually let's pop over here to let's pop this back open and take a look at the sectors and see how things are faring things looking a little bit weaker than when we started but we're going to start with information tech versus energy is it a surprise to anybody that energy is still strong is it a surprise to anybody that materials is still strong we're still in that um we're still in that phase where we're in a late where we're looking at possible late cycle rotation in the in the markets which means materials energy commodities those types of things have a tendency to remain strong so if you're looking for outperformance then you may want to stick with the materials and energy sector there's no recommendation here but the interesting thing today is information information text i'm going to highlight this and hit click information tech here and it's going to look a lot like ndx so we're down here at these january lows but beyond that what i want to look at is i'm going to pop over here to the market watch tab and i've got a lot of i've got year-to-date returns and five-day three-month and relative strength but we've also just by clicking on uh the percent change for the day what do we see this should often times across the longer term you know three month return year-to-date returns we should can see continued strength in those energy areas those material areas and that's what we see we see oil and gas refinery copper oh finance is picking up banks are picking up but we see metals in mining but here's the here's the interesting thing the semiconductor equipment in semiconductor industry itself finding some strength today so this is something that people may watch we're not going to necessarily make any uh whoops didn't want to do that make any trades on this today but it's something that you may want to consider or what some people may want to consider to start watching we're just going to look at these sub industry which is going to be dollar sign sp 500 number 45 30 10 20. 45 30 10 20. so what we're going to do is we can come over here and take a look at this industry and then we're going to look at a couple of stocks in the industry and the reason this is it may be interesting to some is the structure of what we're seeing here the pullback in the total that the semiconductor sub industry sub sector building this sideways consolidation now this could be total this whole area in here i just hi that i just drew the channel lines around could be distributive in nature so the importance of what we're seeing right now may give somebody a chance to exit out of exit out of their trades of any semiconductors as it moves back up and starts to fail again it may allow them to enter in if they believe that the worst is over and that the things are going to rotate back into these maybe start to pick up some shares and look for strength up around the midpoint look for some stutter and then ultimately a rally out and above here which will then look for some kind of a check back into the this whole pink area in here and then a rally out of that so those are two things that uh two things bearish and bullish that you might consider but i find it interesting that semiconductors are doing this and so let's take a look at nvidia one of the big ones out there looks very similar pulling back to old support areas in here news coming from some downgrades from banks from some of the banks out there uh in their analysts in the semiconductor area so interesting that we've got aw amd finding some supporting or findings a breakdown and then finding some old support over in here where we saw definitely a marked change on the right side or excuse me the left side after it broke out the last time pulling all the way back down into the support area right there where those arrows are so looking for this to create that pocket that we talk about that we look for so often could mean uh that we're seeing a little nascent strength so if we see this develop where we have this little uh where a little bit of a pocket starts to form in here maybe shaking out some weak positions so we'll watch that uh fairly fairly closely now that being said uh that is part of a possible change right a possible change uh and maybe just a normal reaction back in the opposite direction of the establi the now established downtrend where we have lower lows and lower highs lower lows and lower highs just now breaking out of this uh consolidated this consolidation pattern more of a triangular triangle style pattern in here breaking down finding support might be an opportunity to sell more on a rally or an opportunity to buy in on a rally on a rally that holds showing that the weakness is is dissipating in amd or nvidia or many of the many of the others out there all right with that let's move on to something that we have some news coming out on uh tomorrow and that is let's go up to the market watch tab here uh and go over to calendar and i'm going to click off of earnings and i'm going to put in econo day no i'm not need to open up something i didn't mean to open up and see if i can get this week's looks like i'm not going to get this week's economic news but we have uh where i'm going with this is we have home uh construction news home starts housing starts we have building permits coming out this week and so that takes us to our first possible uh trade in here and this is lennar now this there's a two reasons to to take a look at this and i'm going to back up a little bit and we'll talk about amd because this might be pertinent to your visualization of what might happen with amd now remember we talked about this forming some kind of a pocket down in here like this a failure up in here could mean amd might see further downside so we're looking at uh at lennar in in a similar fashion as we watch this pocket develop over in here we saw failure and then again an attempt to break back to the upside and failure again on lennar now home starts are and building permits are coming out we've got a a a downtrend failing to actually even make it back up to the 20-period exponential moving average but also kind of stuttering around here big volume push here as price breaks down from the old uh the old support area so this red line dash line in here so we're seeing a possible let's put this on a weekly chart and kind of get a a a little bit different view so we've got so far now we've got a lot of a lot of week left to go and it may not even make it back up uh it may break down but we're it's kind of coiling up in here not really on on a weekly basis failing at the halfway up mark of two weeks ago pushing back down failing uh so far today struggling to move off of that so if somebody was looking at this from a price action well it's looking fair it's looking somewhat weak uh if we look at it from a momentum using the rsi weekly well we can see it's in the the bearish regime meaning it has uh broken down if i can activate this get this to move the whole thing up here there we go uh it has been sitting below 60 down below 40 percent if we look at this on back on a daily chart to help make us uh help us make some decisions and we see that failing again at 40 perhaps we'll see this push to the to the downside checking the chats here uh so rajit says how do you add a center line the center line here if i right click on this uh on the the channel click edit here we go just check mark that uh that little uh box right there and then i just make it a dash give it a certain weight over in here and uh that's up to you uh how what you want it to look like that's how you put a midline on there or even even other you can even bifurcate it or like you can either chop it up into quarters or halfway so up to you what you want to do all right so this so what do we do with this well if we think that if somebody thought that this was going to fail and move down there's a couple things that uh that you might that you might consider like getting rid of that line instead of redrawing it there we go and that is how far do we think this could drop how far do we think this could move to the downside let's back off a little bit and take a look at where price is and how it and where it came from and so i'm going to grab a level here and draw a line across here and that says well somewhere around 69 is this old support over in here another thing we can do is put this back on a weekly chart and come over here and grab a fibonacci tool okay fibonacci's retracement and then what we're going to do is we're just going to go from where the buying i'm going to i'm going to draw this not from the lows over here to the highs up here which you can see are going to match with that at 61 percent down into our old support area that's one thing you can do another way you can do this is if you think this is more bearish than bullish then you want to project project not look for retracement per but project to the downside a couple of different and look for a couple different methods so we're just gonna go from where we uh saw buying on a weekly basis the buying step in to place draw it up to where the selling started over here and then look at the results and the results say well we could see down into uh 65 we could see it get down into 56 so we know by doing that that a a retracement would take us into this zone over here right so let's uh back out of this and that's or not back out of it let's widen this out and i guess i got to put it on a little bit bigger time frame and see how things stack up so if we look at this 61 percent down here around 57 and draw a line over here let's you know wait a minute let's not i don't want to do that either let's not do it this way let's do it with a price and we'll just draw and see if this makes any sense whatsoever notice that 161.8 comes into

a place where people bought before on the on the pre pandemic rally and then the post pandemic rally so we've got these two areas in here possible targets uh to the to the downside so that's positive so that's possibly where it could go no guarantees at all it could it could move totally the opposite direction on any news tomorrow uh taking into account taking into account uh some of the struggles that home construction may be seeing meaning there's a lot of houses being started but maybe not a lot being completed so let's take a look at this and look at a directional trade buying a put but looking at this price action right here so this day here this is this is kind of the interesting thing we've seen recently is it pushed down below this low and then it rallied back out and it failed so some people may want to see momentum pick back up and see price to put a trade on today see price action uh fall below the lows of last thursday that green bar there so what we'll do is we'll check and see what that low is and that low is 75.68 so we'll uh compare that to this low over here which was 75.97 so we'll look at entering a possible long put trade long put trade as price drops below the low of thursday the reason that is is that was there was a uh uh it it didn't keep going on thursday it gapped down and then rallied back up so we'd probably look for more uh confirmation that price is weakening below that low where we found strength the you know on thursday so that low is 75 68 so what we're going to do is make that 7560. we'll come over to the trade tab and we'll go out 60 days but we're going to buy a put we're going to do a couple of things here before we buy this before we buy this put i have in the layout i have the field price and mark okay so theo price and mark so the theoretical price uh and this is going to be and making an assumption that price moves in a certain direction if it does will the price that we pay for the premium of this option will it match will it make sense as far as a risk and reward scenario so we can buy this put for four dollars and sixty cents right now four dollars and sixty cents let's say in the stocks trading 70 76 53 so let's say that it can move to our uh that the target of 68 somewhere around that area those fibonacci targets so how much would that in theory generate from a theoretical price so if it dropped to 68 that's going to be about eight dollars worth of downside moves so what i'm gonna do here is after i put theo price mark in i'm gonna come over here and pop this down and i'm going to adjust some of the some of the parameters that go into pricing of an option time price and volatility so right now today's the 18th that's the date up in here and then i'm going to put in a negative eight dollars so if price drops down eight dollars uh between now and let's say a month on a on uh sixty dollars worth or sixty days worth of time okay 60 days worth of time not adjusting for volatility but adjusting for time let's say we go out to the 18th of may so out a month and let's see what that that gets us so we have uh if we if we pay four dollars and fifty cents for this in theory if it drops eight dollars in a month it's going to be worth seven dollars and sixty three cents so not a total two for one but uh not too terribly bad that's just a 68 if it goes further uh to those lower price uh to the to the lower price points that we were looking at down uh so that's 66 down in the 68 zone but down into here you know all the way down to 56 then that's going to in theory obviously be further away intrinsically and make for a stronger uh stronger trade but what we don't want to do right now is just go and put the trade on what we're going to do is put a trade on with a condition that it's below thursday's low hitting 7568 so let's pop back over here to the trade tab hit the ask price on the just slightly out of the money option then i'm going to come over here to the widget i'm going to buy on a market order a put good to cancel on lennar make sure or we have the right symbol in here i'm going to do it at the mark less than or equal to and this is where we put in uh 75.6 in unless it doesn't hit enter double check everything hit save and then come back over it double check your 75.6 that would be the low come back to

the trade tab hit confirm and send and double check everything so not getting in this trade in theory until it hits uh until it's the mark is at 75 60 or below okay so there's no guarantee uh that it'll activate uh or or at the uh at the execution price or the execute at the activation price of 75.60 it could actually be a little bit lower than that or maybe a lot lower we'll see but that's a condition in there we're going to buy one contract for the june uh 2275 put and that's going to cost four dollars and 40 cents which would be the max loss plus any transaction fees and we'll send that off and we'll see if it fills all right so that's lennar on the flip side though uh with the time we have left we're going to go to something that's already in an uptrend something that has relative strength and that's energy so relative strength outperforming the s p 500 we'll look at oxy now there's a reason what i want to do with oxy here with the time we have left let's talk about a couple of things first and foremost we want to talk about this pattern here and then we're going to look at a a stock that's had a similar pattern not saying that this will follow that uh follow that pattern but we're seeing kind of this upward wedge now a lot of people are going to look at that and say that's bearish it's you need to think more often times you don't need to you can do whatever you want some people are reactionary and some people are assumptive and if they're their assumption ours this is bearish they may take a bearish trade here if they're if they're reactive and they're looking for the outperformance of the energy to continue to move up they may look for this to break out and break out to wear well they may look back at the past bounce and breakout the the flagpole of this upward sloping uh longer term abc style flag to the upside now to do that what we're going to before we do this what i want to do is pop over here not to zip to a material stock what was it great somehow that got changed let's take a look at um oh i had a great example for you and somehow i moved that i moved maybe check over here nope nope all right in any event what we're going to look for is look for price to break to the upside i just wanted to show you an example of similar uh price structure uh as uh to give you an idea of what we're looking for but i think you get the idea that we're just looking for this to a continuation of this move here on a break to the upside a open sloping consolidation and then a breakout to the upside uh brad says oxy produces a a fairly large amount of natural gas and natural gas is that well many many year highs over in here this is the future price of natural gas futures are not suitable for everybody please be aware of that but you can also dabble in uh possible individual companies that benefit from that so what we're going to do here is we're going to measure this distance so from 38 up to the top of this flag pole so we're going to call this a flag pole here and so from 38 to about 58 so about 20 move so that for some that's the expectation that price breaks out and moves up 20 dollars so somewhere around 60 break out of around 65 to around 75 so somewhere up in here can that be attained well excuse me not 65.85 can that be obtained well who knows only time will tell one other thing you can do is you come down here and grab the trend line and draw from bottom to top right click and duplicate that drawing come over here and grab it and draw it from the top and then you can see that it goes up to around 86 or you can come off for the lows and that's going to be around 79. let's come back over to oxy in the trade tab and do a bullish trade long directional trade on oxy and we'll perform basically the same type of action if we think it can move twenty dollars using the theo price and then changing this to twenty dollars and nothing says it's going to move say in 30 days you can buy more time which is probably more appropriate than trying to put yourself your back up against the wall but if it moves 20 and you and and we were to pay uh five dollars and ten cents how much would it uh over here if we were to pay not five dollars and ten cents if we were to pay six dollars at 65 cents then this would have a theoretical value in 30 days of 21.56 so what does that mean it means that if we divide 21 56 by 6.65 that that's a three to one reward to risk a lot better than the lennar trade in other words but either one can work out here's the danger that people fall into the trap that people fall into and that is that um they see a they see a price they see a trade that looks just perfect and they have one that's not so perfect and so but they both meet certain criteria to make that trade and then what do they do uh they take the one that's uh possibly the most perfect when they in fact they could have taken both and what what happens well you know the story it's happened to many people perhaps in in the one that wasn't so perfect works out the one that was perfect doesn't so don't get caught up in that if it meets the parameters then make you should probably think about following your rules and that's up to you so what we're going to do here is we're going to left click here we're going to uh we'll pop back over to the chart and look at price we're going to do very similar things we're going to look at price high today of 63.01 so we're going

to look for this to jump to say 6310 and then buy the uh buy this uh 60 call option we're going to do the same thing buy market good till cancel oxy mark but here we're going to go equal to greater than or equal to and then we're going to look at 63 10 to be our momentum entry and why do i say momentum a lot of momentum investors historically have said well if it's breaking out momentum is changing and so then we'll save that and then we'll come over here to confirm and send double check everything don't do anything until don't buy any options until price of the stock gets to 6310 or higher and of course that's going to be the risk is going to be the cost of the option and plus our transaction fees and we'll send that off all right and then i'll just sit and wait and see what uh see what occurs all right so what have we done did we complete what we were looking at well technical concepts those technical concepts are going to be in nature what has the what is has lower highs and lower lows and that would have been the lennar uh trade lower highs and lower lows is there a target area that you can look to and make assumptions and say if it reaches this how do i is this option going to be suitable do i make can i make enough off of this option two to one three to one type of reward to risk to make that trade and then we look for the correct option strategy to cover that and we did the same thing with oxy looking for a bearish trade on lennar looking for a bullish trade on oxy looking for strong rewards based off of the off of the risk and why both of those are directional trades directional trades are going to have a lower probability remember probabilities are theoretical in nature but those are the trades uh the market is staying about where it was when we started so with that hopefully um everybody's going to have a great day if there's a if there is a survey please fill out the survey uh and uh as well as if you will please not only follow us on twitter but subscribe to the trade the trader talks channel it's easier for you to find all of our great webcasts that that brent and all the other great td ameritrade education coaches uh develop for you every single day so we really appreciate that so with that everybody have a great rest of your day and remember this for educational purposes only not for recommendations and you're responsible for the decisions you make in your self-directed account thanks a lot everyone we'll talk to you soon you

2022-04-20 17:33

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