Trading The Change In Direction With Relative Strength | Active Trading Strategies

breakdowns breakouts but not necessarily where you might think at least if you look at the past but we're going to look what's been occurring recently and see what changes might be a foot stick around good afternoon good afternoon good after good after evening yes it is it's also after morning somewhere and so but sometimes it's morning this is active trading strategies my name is pamela and i'm joined in the chat by all of you as well as by barb armstrong who is there to help out with any questions or burning desires that you may have today we're going to take a look at some possible changes going on make some trades around that make some possible trades around that uh but first before i do anything please recognize that you can follow me on twitter at pimalali underscore tda as well as barb armstrong uh at b armstrong underscore tda who again is in the chats to help out let's get going here our uh information that we're putting out today is uh for educational informational purposes only not investment advice or recommendation options are not suitable for all investors there are special risks that are inherent to option trading trading that can expose investors to potentially rapid and substantial losses short options can be assigned at any time up to expiration regardless of the in the money amount and then the money option has a higher risk of being assigned early paper money virtual trading application will not assign the short option position early which is going to be very different from a real trading account remember any probabilities discussed are exactly that theoretical in nature not guaranteed and we will discuss technical analysis but there are other approaches including fundamental analysis that can assert different views all investing involves risk including the risk of loss training stop loss orders uh will not guarantee an execution enter near the activation price past performance mini security or strategy does not guarantee re uh future results or success and remember that your decisions that you make in your self-directed account solely your responsibilities so today we're going to take a quick review of the market we're going to define technical strategies basically technical strategies based on you know breaking down out of some kind of a pattern or breaking to the upside out of some kind of a pattern and then we'll look to take some sample trades based on those ideas we're also going to review some of the trades we made last tuesday and see how they happen to be doing so here we go let's get rolling out there let me put it back on the full screen here boom all right here is the market started off uh in uh in a fashion uh that was a little bit worrisome to some again we talked about we talked about this pink square we've got in here that this push that we saw to the downside at the at the end of uh or the end of last month beginning of this month and then the ensuing rally may actually be just a condition after long drops short drops oftentimes may get met by some kind of sideways action again this was a pretty much shock events we can see that by the gaps that are in in uh that were in play there now we filled one gap we pulled down and we pulled back above the midline of the channel we met resistance were exactly where we talked about you know back here on these days back in here we met that resistance right there which were the may uh lows excuse me may lows and uh true to form often times we'll see resistance hold and then push back way as a matter of fact on that long down red down day we gave back everything that we had gained the friday before but price has just drifted along that midpoint of that downtrending channel so that may be an indication if we continue to the upside we are still down eight tenths of a percent on the s p but we might get a push back into the downtrend line we'll see what occurs it could roll right on over but we do have some interesting changes going on out there in the markets let's take a look at the nasdaq the nasdaq was the one that actually was in a little bit worse territory near the open and at the open but has since rallied up and is up six tenths of a percent again the same kind of price action here and why do we do this why do we look at the markets because the markets if we think about the top-down approach we have the markets in sectors and stocks where the markets are going to be the kind of the number one thing that we look at and then the sectors and then the stock so the markets if the markets are strong what sectors are strong or weak and then what stocks are strong or weak and are we seeing any rotation now the reason i bring up rotation is because tomorrow i write so well tomorrow we're going to talk about some some possible changes things to watch for not that there's any uh urgency to to jump into those changes today but these sector rotations and what we might see after being in a downtrend for a while in the weakest the weakest industries the weakest sectors and what happens to those going into a bull market coming out of a recession going into a recession where where we might want to be where we might not want to be those are things uh that we probably want to think about uh considering here so with that let's uh continue on russell 2000 strengthening as well they all look the same the markets are all moving in lock step together one goes down they all go down one goes up they all go up we look for those changes those in in those in the markets to define whether or not we're seeing near-term strength that could turn into longer term strength and or weakness all right let's start off with dollar tree first and the reason i bring this up is that if we pop over here and we look at the consumer discretionary that's this second sector right in here so we know the market is weak but we've got consumers uh discretionary some consumer discretionary stocks outperforming and we just so happen to have dollar tree on the price chart over in here and the reason we want to continue we want to think about looking at this is that the consumer discretionary area i'm going to hook this link this back together here here's dollar general which happens to be rallying as well but let's pop over here we're going to click on this take a look at consumer discretionary now it doesn't look too good right now trend followers are going to say nay not like a horse they're just going to say no but what we see here is a clear break of uh this the original beginning of this downtrend and so we broke down through that channel but this is the this is the interesting thing that we want to consider and let's let's get rid of this channel to uncomplicate things here but this kind of uh support action that we're seeing in here so the question becomes are we seeing changes in discretionary and which ones are stronger when you look at the discretionary sector strong volume rallies up sells off stronger volume rallies up weekly and it starts to make a a descending triangle in here right really a descending triangle zoom in on this but the other things when we start to look at this more grain in a more granular way and we saw price fall below previous support rally back up fall ball back into that support zone and so far uh in the last uh last friday and then today tuesday the fifth starting to push back to the upside so no radical changing changes here in consumer discretionary and again tomorrow we'll go deeper into why we might want to start watching not necessarily doing anything unless you have a real reason and that's the point for looking at looking at dollar tree today our dollar general or let's see cross stores bouncing t j x t let's try that again t j x bouncing so we're seeing some changes in these in these types of stores but we really want to go with the ones that are what the strongest now oftentimes when the when the markets rotate the the stocks the leading stocks oftentimes will break out ahead of the rest of the group now i'm not saying that this is the stock that's the strongest and or the biggest name in discretionary if we come over here to market watch and go to visualize pop industry indices down try that again you may not let me do it there we go and uh dollar tree and you can see with dollar tree down here that square is not as big as amazon so amazon tesla home depot mcdonald's those are the biggest names in this group so dollar tree definitely not anything that can necessarily move the the whole group itself right that's going to be that task is going to be the amazons and the teslas and stuff when things change but right now we've got some underlying strength here and when we look when we go back if we look to make a be active in our trading we look to for reasons why well what has occurred here let's pop this line here we're going to extend that line to the right old resistance becomes new support until it isn't anymore so what do we see here well we see price failing up into these areas in here finally breaking out coming back decisively gapping below ahead of earnings and then gapping back up after earnings so the demand supply equation if you will really leans towards presently towards the demand side and why would that be we're just looking at price price continues to hold recently continues to hold areas that it struggled getting above back in the past so we've got some support uh and when we have a trend that if we look at the lower left to the to the upper right is still moving to the upside let's take a quick look at this just yeah i'm just curious how this looks on a weekly chart now when we look at this from a weekly chart from a uh from a price from a price action standpoint one of the things and i've done i probably should go back and revisit this for everybody one of the things i've done in the past has talked about this pattern here these side by side two side-by-side bars one bearish one bullish and the second one uh actually is a what we call a suzuki line where it actually gaps up open at gaps to the upside and then follows all the way through that week and closes higher so that's a that's considered a bullish kind of a bullish candlestick what i don't particularly care about that about the that uh formation right here is it's really didn't come at the bottom of a trend kind of at the bottom of a trend uh but it's the it's the gaps the strength of the jump and the ability for price to hold old support and then follow through today so let's let's look at some of the volume indications as this was pulling back volume was dropping as it started to move to the upside volume was rising okay so that's price and volume trend support and resistance volume if we're looking at technical analysis those are oftentimes the priorities that some may use now if we look at relative strength this blue line in here compared to the s p 500 dollar tree price of dollar tree divided by the s p 500 if this line is rising it's outperforming the s p 500 it doesn't mean that the stock has to go is always going to be going up there's going to be some sideways action there could even be down downward action and it just drops less than the s p here kind of traded along with the s p but a little bit stronger as it uh pushed to the upside now we've got clear a clear signal here of a strength and price itself something to consider here let's remove that drawing something to consider is that as this drifts down sideways and down and then bounces we saw relative strength continue to be fairly strong that's one thing now the other thing is is that let me draw a downtrend line here we're starting to see a clear breakout of this short-term downtrend line get it put in the right place here a clear breakout of that and we have a clear breakout from the kind of the side with a sideways look if you will of the relative strength so relative strength from a sideways view if we put this on the trend line let's see where we are and breaking above the the steepening the uptrend here so we have it's pretty pretty strong relative strength and then we've got a change not a huge change because we are still in the that bearish zone in the rsi but we're seeing strength in the rsi running up against the 60 percent area but what do we know about 60 percent areas in 40 areas and 20 that's still in the bearish zone so that being said remember we talked about at the beginning wanted to wanting to uh define a tech to find the technicals and then define a sample trade to go along with that you know quick review of the market what's the market doing what does all this have to do with looking at dollar tree well if the market is still you know in that limbo area that that kind of that weak area still in a downtrend nothing's radically changed we're seeing strength in dollar tree do you want to take and it's it's up to you it's up to anybody what they want to take what kind of trade they want to take knowing that we're still we still need to see a strong push above the 60 area here on the rsi to show a change in momentum so we really need to see that get above 65 maybe pull back and hold and then break out would have rather seen this breaking out to the upside as price broke out that above that downtrend line we don't have that yet so might be part of the decision on might be part of the decision on uh how to uh you know what kind of trade you want to take by the way there is a survey in the uh chats uh if you are new what we do with those is you click on that uh you highlight that when and put that in a word doc or something so you can click on it afterwards don't do it now we're not done yet we'd like to get your comments things you'd like to see in the future things that uh you think we can do better at all those different types of things we look at those things and we try to we when we assess and we try to make these webcasts for you not not for us we want to make them for you so it'd be really great if you could uh uh fill those out it looks like um vj says they made it even shorter i don't know how they could have made it shorter it was only a few questions so maybe they've honed it down to what they want to see but we really appreciate that and i'll thank you ahead of time for filling out that uh filling out that survey it's just like vj says very short it doesn't take much time at all all right so what kind of a trade would we make on this well if the if you're if your bias is that that is going to continue moving upward then you know you might look to at a change in trend let's see what we've got above us though before we make any decisions so we have this area in here at old high it's not much of a resistance uh it was just there for a few days better than just one day one day peak doesn't give doesn't give a lot of resistance trend is still up so trend out out ranks that resistance area so that might be the case but it could easily run up into that and then roll back over right roll back over we've got earnings coming out over here and that those earnings are all the way out in if i can get this to all the way out the end of august so let's pop over here to the trade tab put in dollar tree take a look at a couple things if you were to look at um if you were to look to look at a shorter term version a couple of in me were really strongly bullish there's a couple things you could do if you were really strongly bullish you might go further out in time and perhaps buy a call option and we can see here the open interest is uh fairly strong uh here uh on the on dollar tree fairly strong uh we've got uh if you it's a 162 stock so if you've got 73 days and you just went to the at the money options stock trading at 162. so the at the monies are going to be either to be the 160 or the 165. since it's right smack dab in the middle 162 64. you could choose to buy an option that's fourteen dollars fourteen dollars there so fourteen dollars how how far does that have to go to get a a to get your money back and then make another fourteen dollars well that's going to be 28 dollars you just you know just the back of the thumb count or back of the thumb back of the napkin calculation i guess i'm looking at it with a rule of thumb here um is fourteen dollars plus fourteen dollars is twenty eight twenty eight dollars above where the price is right now 162 and a half basically is going to be right around 175 right on the strike prices so somewhere up around uh 175 180 zone uh and we'll come over here to the charts 175 180 guess what that's that upper resistance line there and that's going out 73 days there's a strong chance it could possibly make it that far uh i shouldn't say strong chance there's a always a possibility anything can happen tomorrow i mean you know i don't know how many people expected the gap down there and then how many of these people that were getting out or or buying puts expected the gap back to the upside apparently somebody did they bought down here uh probably that's just never mind uh in any event uh let's uh look at that kind of a trade so we know it's it all it has to do is move up into the resistance area given it's 73 days to do that or you if you really thought and you you really want to uh cheapen that up you could go out here to the to the uh 45 days here's the issue when you buy a short amount of time is if it doesn't run and get there right quickly you've got your back up against the wall now that being said where price is right now if we go back and just take a quick just just a quick look now again past performance no guarantee of future results and we look at the swings it's had in the past and of course this one has earnings involved i'm just going to grab the trend line well that was about a 35 move to the upside we only need we only need 28 right 28 dollars or so which is actually that i must have calculated that wrong 14 yeah i need 28 so there you go now i'm now i'm back on the math here so we need to get to 190 we need to get up to 190. so different picture there now we've got to get through resistance so 190 might be an idea so if we think about uh how far it can run well yeah it can do that in the amount of days that we have at 73 day or 73 days even 45 days if we look at this that took about 30 uh uh 13 days 13 trading days to get if you look at that box 13 trading days but here about that same distance what do we need we needed 28 dollars so about that same distance right about there that took 33 days okay so 33 days uh and uh you see you see the i you see that the the problem here that can that can evolve if you go 45 days out and price does any kind of a jiggle in other words it could start off great hit resistance before it gets going if that takes if that takes too long then that the the the price that you pay for those options uh may start to decay faster than price can then price can move remember um in but however this is seven dollars and forty cents so a double on this is only going to be fourteen dollars to get up to the 78 uh to get up to this uh resistance area so yes it could make half that move in half that time you want to be very careful though because you can look at this chart and you can see that yep it's in an uptrend but it can spend a lot of time going sideways and that's where we use that's why we're using the idea of the breakout and a possible run before we do anything else now the other thing you could do is you could go a shorter amount of time say try to find something with better open interest we the weekly on remember these are weekly options and they that we're looking at here and so they uh expire sooner than just the you know normal standard third friday of the month options but the idea behind doing something like this would be right click buy vertical 31 days out looking and that would cost two dollars and five cents and that would get you in theory if we look at the confirmation uh a max profit theoretical max profit of 295 theoretical loss of 205 so you're making more than 100 on your money right making more than 100 on your money so that's where the decision comes in the part of the decision comes in here because you can double your money uh you are not double your money you can get your money back that you paid for this two dollars and eight cents and then doubled or get the other two dollars and uh 80.

what was it two what was it 292 in theory on the other side remember there's bid ask spreads there's fees that go along with all of this that are going to impair that ability to get those max profits now this is a long call option long call spread excuse me uh which means that one's going to be sold one's going to be short if you have a sold option you are going to be uh you're going to have the possibility of being assigned before expiration okay so here's the thing though alls it has to do is get above 70 and be above 70 on expiration and 31 days versus if you bought a call option 45 days out is gonna have to move fourteen dollars versus just moving uh about seven dollars so that's the difference between those between those two myself uh i am going to go out back out to the 73 days and i am going to actually buy this one further out the reason for that is the strength that we're seeing here possible changes in uh the structure of the markets we'll talk about again we're going to talk more about that tomorrow and what what can happen in going into a recession coming out of a recession and being out of a recession where those where those uh things can how those things can change so we'll come out here and we'll go ahead and we will buy the uh 160 slightly in the money we're going to buy one of those hit confirm and send theoretical info infinite infinite infinite profits uh we're buying one 160 call 14 and five cents remember we have fees that go along with this the the theoretical loss is fourteen hundred and five dollars we say theoretical there's lots of things that can happen that can change that so you need to understand that options can like any stock those bid ask spreads can change if this drops really fast the bid ask spread can change can be very very wide and so that's what i want you to be very cognizant of this action here though bid ask spreads that day could have been really really wide so wide that if you had done a spread trade you could have and had some kind of a stop loss not guaranteed to fill it the activation price which is actually or not to uh not guaranteed to uh fill where you thought it was gonna what you wanted it to fill what can happen is you can actually lose more money in that spread so be very careful with using stop losses versus a stop limit to to trigger and take a profit okay so we've got that trade in let's look at another one here we'll move over and look at look at the energy sector why the energy sector well the energy sector is struggling mightily we'll pop down here here's energy it's just pulled the the sector itself is pulled down to its 200-day moving average we have the 20-period exponential moving average dropping below the 50-day and we're starting to see this flat now now this is the whole sector the whole sector is itself is it seems to be struggling it's been the hottest one out there uh together now if we are if people are no longer concerned with inflation and are more concerned with recession that means they're concerned with what they might be more concerned with growth of the economy if they're concerned with growth of the economy investors may not want to be in these in these stocks these sectors that are oftentimes work during inflation and not so much during recession so we may see some pullback here so what i did was i went and looked at the companies in the energy sector remember markets sectors stocks or market sectors industry stocks looked for ones that were actually looking for some that didn't have earnings coming up but also looking for certain things you know weakness relative to the rest of the market over the last month uh and uh which is this relative strength uh column we have right in here so we if we look at cop click on cop what do we notice well we notice it's dropping below the 200-day moving average if you look at slumberg we talked about this a few weeks ago dropping well below its 200-day moving average it happens to have earnings coming back up this would have been very similar to some of the stocks that we've uh one of the stocks we traded last tuesday this is that same look right would have preferred that but that's not happening so we'll look at cop it's another they say it's not happening because it's maybe a little bit ahead of itself cop dropping before below its 200-day moving average and we'll look at maybe a target down here at the old let me get rid of these drawings here at the old uh consolidation back here in time let's zoom in on that find a price level that could be a near-term target so that's going to put that around 75. about 15 14 or so or excuse me 10 or so lower than where we are 14 stuck in my head for some reason for 10 below where we are right now so let's pop over here to the trade tab uh before we do or we'll pop over the trade tab before we do that we want to take into uh we want to look at a couple of things and that is number one what's price doing well it's below its 200-day moving average we've got the bearish cross of the 20-day below the the 50-day it's breaking down below support if we draw another support line in here old support new resistance same kind of price action recently uh rallied back up failed so we have a lower lows and lower highs beginning of a trend possibly that could change if we look at this here so we've got this push to the downside now this again the for a for some folks the entry would have been back over in here this is starting to move to the downside uh maybe a little bit getting a little bit stretched so we may decide to do something a little bit different as this starts to break down from resistance here we'll come over here to cop now the other thing is that there's other ones out there that may um be uh have a little bit be a little bit more uh have a little bit more ability to move further but they're also very uh small price stocks and a lot of these grew and a lot of these energy stocks they are you know 20 30 dollars so what i'm looking at today is options and trying to use options as a method to define risk but to take some uh to take a little bit different approach and you can see that here uh that they're also oftentimes thinly traded now that that being said the bid ask spreads are interesting here because we've got 25 bid-ask spread there at 85 you go all the way to down to 80 you've got 20 cents so if we did a five dollar uh spread widespread on this maybe looking at something that's further in the money making a you know four or five dollar wide spread something of that nature and a shorter amount of time because the idea here is that price could drop down to 75 right and and if it does and we take a short amount of time to do that expecting some kind of a bounce well what we might think about doing is finding something that has some open interest so 85 to 80 right that would be about four dollars from where we are now if we buy a put vertical on this it's going to cost a change we're going to buy the 85 sell the 80 if you wanted to do a 5 wide spread you don't have to as a matter of fact let's look at a uh 83 two dollar wide spread is going to cost a dollar alls it has to do is be below 83 by on by expiration and time will decay 24 days out so we would look for price to drop below 83 that's where we're trading just we're trading a buck above that right now with the assumption that there's some rotation out of the energy sector lots of volume coming off the top right this is not like a bottoming process where we would look for lots of volume this is very close to the top and starting to starting to break down move moved up on lower volume now today with a lot of time left dropping on larger volume brad says there's lockdowns in china global recession uh lower demand for for oil lots of different things that you know there's lots of moving parts in here right now we're just looking at the charts and uh and in agreement the charts are kind of in agreement with that idea that that uh chat brad put in the in the chats then maybe there's a slowdown why well we're starting to see a loss of relative strength uh compared to the s p 500 we're below the 200-day moving average we've broken the uptrend line uh we've got big volume coming off the top we've got an rsi that is drifted into getting into that bearish zone down in here and volatility is picked up so if we bought a a put we'd be paying a lot of a lot in volatility for that so that's another reason to to think about credit spreads or debit spreads why because debit spreads have and let me analyze this trade over in here debit spreads have um open up the price slices and reset the slices there we go um we have theta in vega now you notice that the theta let me get rid of these is something that a very important thing to consider we get rid of these top and bottom slices very important thing to to consider that if if price continues down just a little ways from where it is right now this is our uh this is where the theoretical max gain comes in at this at this top line what happens is if this this vega is going to go away right that's going to is if price moves down that vega is going to drift away theta is going to become negative in our favor that's the one thing you got to understand that when we put this on theta is going to be positive we don't want theta to be positive this is a bearish trade so as this moves that theta becomes negative that goes into our pocket because it's that short strike is where the risk is so we want that theta become negative this vega the uh in the volatility the measure of volatility and we know there's a lot of volatility in there well that's going to that's that is that volatility that we see inherent in the pricing of these options right now just by the function of uh expiring that volatility is going to go down okay so theta goes up negative it goes in our pocket volatility goes down versus if you bought that if you bought a put that the the volatility is going to be an issue up until expiration again it's not that big a deal there's a lot of different things to consider but we're going to do this one here the two dollar wide spread we're going to do this uh we've got a hundred dollars a debit so we're risking a hundred dollars we will risk 500 and sell that off double checking to make sure we've got the uh the ones that we want the end of the month to july 29th theoretical profits and losses and our fees and there we'll send those off all right two different two different ideas right one you know one uh a month ago this one it was all about energy right all about energy the discretionary was all about uh was as a group sector the discretionary sector was not where everybody wanted to be it was the weakest sector out there so we picked the strongest stock that we could find here uh or one of the stronger stocks that we could find technically and then we also looked at one of the weaker ones without in cop there are weaker ones but ones that had a high enough price where the options made sense but also didn't have earnings coming up so those are the two ideas that we put forth today we'll see how they come out one quick look at um the same similar ideas here is uh broadcom it was it was it was uh we had about a 500 gain for the day here but broadcom this is where we want to be very careful i'm going to probably look to close this one out is it going to need more time on here i think yeah it's down into this old support area down in here we talked about that if it reached that level then it might be an opportunity to go ahead and close that out falls down rallies back up and that's what we're going to do here we're going to go ahead and take profits on the our active short-term trade on uh on broadcom from last week i'm going to create that closing order and we're going to send that off and take those profits all right we've got new trades that came into play today we'll see how those uh we'll see how those turn out remember that there is a survey and we in the chats if you could please fill out that survey um and the market strengthening uh so far in today and the market's not over yet but we define strategies about some possible changes in those markets and technically and then we looked at option trades because we uh the market is very uncertain right now we know that it's been chopping around so sample trades we used options uh more of a defined risk style of a trade to keep kind of keep our finger on the pulse and we'll see how they turn out with that remember if you will that there is a button right here if you haven't subscribed to trader talks you want to find all the great stuff that barb does barb does getting started with options i failed to mention that earlier getting started with options every tuesday at 11 o'clock eastern time so if this was new to you get with barb and she will uh she will show you all the ropes and she's she's got it down she's got it down pat all right with that uh uh please subscribe and everything we're doing here for educational purposes only you're responsible for the decisions that you make in your self-directed account see you soon

2022-07-08 16:05

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