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Here is a Daily chart of $NTAP that shows the gap down move post-Earnings:

NTAP

Buying the stock on a touch of RSI at 30 has been a mixed bag of results:

  • October, a very nice bounce
  • Jan this year, several false starts
  • And now in May you have a dip to RSI 24.4

 

Disclosure:  I am short the May 22w 32/31 Strangle. Options Net: $.73

– DM 10:00 AM CST

 

 

Pricey Stocks

One of the scans I do frequently involves what I term as “pricey” stocks. These companies have a share price that is over $100 a share. This doesn’t mean they are expensive or over-priced. Currently I have 273 tickers that meet that criteria (as well as my Avg Volume criteria):

Pricey_stocks

Courtesy of Finviz

Interesting to see after a day of trading, many show very little movement from the yesterday (5/18) close.

– DM 4:20 PM CST

 

Quick Sand?

One of the more common trade setups that I look for is a pullback to Support. Here is a Daily chart on $LVS that shows a dip into the Support Box this morning:

LVS_B
Note the mild RSI divergence as price makes a new low versus the March low. It is also worth noting however that the CMF has made a new low versus the March low.

– DM 9:15 AM CST

 

Look Both Ways

Sometimes I see a chart that clearly shows the potential to make a move in either direction. I noticed this potential in $BWLD today with the 2 Gap Fill areas:

BWLD_C

So, how about a trade idea? This is one approach to consider:

  • Long the September 175/140 Strangle
  • Short the December 175/140 Strangle
  • This is called a Strangle Swap
  • Cost: $7.70 credit (that’s right, get paid)
  • Pro: protected until September expiry on any sudden UP or DOWN move beyond the chosen strikes
  • Con: takes margin

Some scenarios to consider:

1)  Price is $185 at September expiration. The long Sep $140 Puts go poof. Take the stock at $175. Now plan for adjusting the short December $175 Calls any time before the December expiration. If the short December $140 Puts are real cheap, BtC

2)  Price is $135 at September expiration. The long Sep $175 Calls go poof. Take the stock short at $140. Now plan for adjusting the short December $140 Puts any time before the December expiration. If the short December $175 Calls are real cheap, BtC. Might want to consider buying Calls to protect the short stock too, use some of the credit

– DM 1:00 PM CST

 

A discussion on “probabilities”

I often receive negative feedback from traders regarding a perspective that I show on a particular chart. Although this should be expected – people see what they want sometimes – I wanted to focus on the topic of probability.

When I consider the price action in a stock I want to consider what traders are thinking on both sides of the fence. When I use RSI to keep things simple, I am looking to answer this one question:

What is the probability of price movement now?

To illustrate I want to use a Daily chart of GMCR to show what some traders used to enter this stock last week:

GMCR_B

When you consider the history of price, what happened each time RSI touched 30? From a probability stand point, it seems easy to follow this. Could it have remained weak, gotten weaker? Sure. The point here is: what is the probability for price movement next?

– DM 1:10 PM CST