As we gear up for this week, we need to be patient with tech stocks. The QQQ needs a few solid closes above the 21 exponential moving average (EMA) before we’re confident it can resume its bullish trend.
The SPY has a structure on the daily squeeze that leads us to believe we could have several weeks of solid upside, just like last month. Should the SPY fire this squeeze long, we’ll have the “wind of the overall market” at our backs for swing trades.
When a squeeze in the index is lining up, it is our time as swing traders to look for high-probability setups. We like LEN and GOOGL for swings to the upside here. We have a position in LEN, and will wait for QQQ to regain a bit more structure before jumping into GOOGL. Keeping an eye on indexes is always a wise way to plot our next moves.
This week was an interesting one, to say the least! We head into the weekend with a beautiful daily squeeze in the SPY (that looks like it’s preparing to fire long, first chart below) and on the other end the QQQ (second chart below) flushed to the downside earlier in the week even trading below it’s 21 exponential moving average (EMA). This was a bit of a sloppy week for tech stocks. Also worth noting is the Small-Cap Index (IWM, third chart below). Much like QQQ, the small caps were volatile to start the week with a flush under their 21 EMA, but were ultimately strong enough to regain their footing. We saw a bounce back above the 21 EMA to end the week.
SPY ChartQQQ ChartIWM Chart
As far as tech goes, we are going to hold off for a few days before jumping into any long exposure, as we would ideally like to first see a few solid closes above the 21 EMA. Should the Qs (QQQ) hold up and get back on their own two feet, we love the GOOGL daily squeeze for a push into new all-time highs. Remember though, GOOGL wasn’t able to get anything going out of its most recent daily squeeze until the QQQ started the party. If we are going to look for a similar move from GOOGL again, we will certainly need the wind at our backs from the tech index.
The structure of the SPY, on the other hand, looks promising for a solid push higher over the next week or so as the daily squeeze is just about ready to fire long. Think back a few weeks ago when the SPY fired its squeeze long, and remind yourself of all the directional opportunity it brought with it. Should this current squeeze once again fire long, it will be time to look for high-probability setups that we can jump into, with the momentum of the overall market providing wind at our backs.
CAT Chart
Our trade in CAT (chart above) was a nice and easy one this week. We loved the daily squeeze in Caterpillar, along with the daily squeeze firing long for the industrial sector XLI, in which Caterpillar is a top holding. This is exactly what we mean by looking to have the wind at your back when swing trading. It wasn’t just a setup in CAT that led toward a high-probability of a solid push higher, but also the fact that the sector it belongs to had its own squeeze and was supportive of a move higher. For this trade, we sold a May 21 expiration -232.5/+272.5 put credit spread for $1.60 of credit. This afternoon, as the stock pushed through the 2+ average true range (ATR) extension on the daily chart we were able to buy back our spread at $.80 for a little more than 50% of max profit in a few short days. A nice trade, and a structure that we’ll look to trade over and over again.
NDX Chart
For the iron condor we sold last Friday on the NDX (chart above), this turned out to be nothing more than a breakeven endeavor (which admittedly, is always better than a losing trade). Now, had we held this condor into today’s session it would have resulted in a max profit trade, but yesterday’s price action was sketchy to say the least. The NDX continued to chop around our short strike of 13,500 and at that point, we didn’t have much cushion going into today’s expiration.
We made the decision to cut the trade for a breakeven yesterday, mostly for peace of mind, as nobody enjoys going into the weekend after taking an unnecessary losing trade. Though this would’ve worked out perfectly had we held on, we don’t want to get caught up in the game of hindsight as traders. At the moment, we made the best decision regarding protecting not only the big profits we closed on Amazon last week, but also protecting our peace of mind. Not every trade is going to be a winning trade (obviously), but when we can get out of a setup that is going against us with no blood drawn — in our book that is good trading!
In Sunday’s newsletter, we will discuss our newest position in the LEN daily squeeze (chart below), along with a few other setups we are actively stalking. The SPY looks primed for a solid push higher. Until then, rest up, enjoy time with family, and be ready to get back to work on Monday. Stay Focused!
With all three major indexes squeezing, will tomorrow’s Nonfarm Payroll (NFP) jobs report get things moving?
We’re continuing to watch if YM will lead the way with the daily squeeze trying to fire to the upside, or if NQ will drag the market down with its daily squeeze starting to fire to the downside.
Choppy times call for patience.
To end the week, we’re going to focus on quick scalping at inflection points, getting our piece of the profits, and getting out. There is a big move coming, but we want to make sure we survive in the meantime.
As the three indexes linger near an all-time high (ATH), and with YM and NQ squeezing on the daily charts, the goal this week is to be very patient and see which way the market goes. Right now we are seeing clear rotation into YM and out of NQ to start the week, which is causing ES to be at a standstill. Every trading session we will get a glimpse of how they are rotating, and with these big picture squeezes, patience will pay off for the bigger move.
Just like last week, the 4-hour Ichimoku Cloud is the best compass for if/when the market could start to roll over. As long as the price stays above, the market can continue to squeeze or breakout higher. Be weary of “Sell in May and Go Away,” but also be ready to attack on the best opportunities each day. We’re keeping things tight with no plans of swing trading unless the market leaves current range, either above or below.
Here is our focus list for the week:
NVDA – Keeping an eye on descending wedge and reversion to the mean (RTM) while also watching for a bounce near 591 and breakout through the wedge back toward last month’s point of control (POC) of 619 and staying in a range between 619 and 626
FB – Looking for a big gap fill below or it can hold with a 2-hour squeeze then go for more with ATH above. We’ll be watching for a bounce at gap fill, but also be ready to short.
GOOGL – Watching a gap fill below just like FB and keeping an eye on bounce or short. Chart is looking very extended so we need to be mindful as stock could benefit from RTM and gap fill.
SQ and ROKU – Earnings are coming up for these stocks, so we will keep an eye on them but most likely wait until Friday to take any action
After a solid push higher over the last few weeks, the indexes are showing signs of exhaustion as the daily squeezes that fired a few weeks back have lost their momentum. Last week, the market did nothing but consolidate near the 8 exponential moving average (EMA) and it’s lacking any sort of clear direction on low volume.
In the midst of all this chop, the QQQ has formed a new daily squeeze. While this daily squeeze could lead to our next high, the lack of volume, loss of momentum, and the fact the squeeze is new leads us to believe the markets could be generally choppy and soft this coming week.
In an effort to take advantage of any chop ahead, we sold an iron condor on NDX for this coming Friday (5/7) with short strikes at $14,200 on the call side and $13,500 on the outside. This trade should unfold nicely for some weekly income should the market trade sideways to lower.
With signs of exhaustion in the fresh daily squeeze in the QQQ, now is the time to take our foot off the gas pedal, protect the gains that we have made on this recent strong push, and focus on building a watchlist of high-probability setups that could benefit for the next move higher in the markets. In the meantime, we will keep position sizes small and focus on weekly income trades such as the iron condor mentioned above.
As far as setups to watch moving forward, NVDA has a great looking weekly squeeze and we already have a partial position in this one with a May 21 expiration put credit spread. We will be watching this one closely for a chance to add more should we hold up above the 21 EMA.
Along with NVDA, XPE and CAT offer very solid daily squeezes, but the only hold up here is that the stocks will announce earnings over the next few days. We will be watching them closely, and should the daily squeezes still be intact after the earnings we will be looking to take a position in each for a move to new highs.
Despite earnings for tech giants taking place this week, we saw very little action from the indexes as we continue to consolidate inside the 4-hour squeezes we have formed near the daily 8 exponential moving average (EMA).
Interestingly enough, the QQQ has consolidated to the point that we are now two days into a fresh daily squeeze forming. Ultimately, we think there’s a good probability of that daily squeeze firing to the upside, as we still have the bullish weekly squeeze setting up behind us. In the meantime, however, playing a deep out of the money (OTM) iron condor on NDX for next Friday’s expiration is something we’ll discuss in this Sunday’s newsletter, so keep an eye on your inbox for a breakdown of that potential trade.
NQ Daily Chart
While the markets chopped themselves silly this week, our focus was on the AMZN earnings announcement which took place last night. The company announced blowout numbers, which was good for a $100+ move to the upside in the after-hours, and if you’ve been following us for the last handful of months, you know this weekly squeeze in AMZN has been a big focus of ours. Last week, we discussed the 5/21 – 3,500/3,490 put credit spread that we sold in anticipation of this weekly squeeze finally getting something going.
The timing of how this move unfolded for us was “interesting” to say the least, as the weekly squeeze was finally looking ready to fire long into the night of the earnings announcement. Holding through an earnings announcement can always be a bit of a “gut-check” moment, but sitting through that potential “unknown” is a lot easier when you’ve truly accepted the risk you put on the table.
Running low on sleep, but excited to see how things unfold, our game plan heading into the open was to take profits on our positions into this strength. We got the gap higher we were looking for, and after a solid push we were able to close our put credit spread (and a few other AMZN positions, see below) for a combined net profit over $25,000. What a ride!
Closing AMZN Trade
Other AMZN Positions
This trade was a big test of patience and discipline, but ultimately it was a focus on the setup, and not the P&L, that allowed us to be in a position to take profits this morning. With this trade finally in the books, there’s no time to celebrate as we think there’s still some opportunity left here with this weekly squeeze (which still has yet to fire long!)
While the weekly structure of AMZN, along with the weekly squeeze in QQQ, suggests the potential for more upside over the next handful of weeks, this morning’s move brought AMZN to +3 average true range (ATR) on the daily charts, which in our book is a great spot to lock in gains and prepare for the next “ideal entry.”
AMZN Daily Chart
Amazon’s next move will likely be dictated by where the markets go from here, but as far as the next ideal entry, we’ll be looking for a pullback to the daily 8 EMA as our next “buy-zone.” A new entry at a daily buy-zone, with a daily/weekly squeeze setting up in the QQQ could certainly lead to our next big trade just around the corner. For now, we’ll discuss the potential of an iron condor in Sunday’s upcoming newsletter, and then dive a little bit deeper into what we’re seeing from the markets.
Congrats to all who practiced patience and took this trade along with us. NEXT!
Things were unfolding just as we wanted; however, the news affected the market and shook things up a bit. Now we must watch patiently to see what happens and plan ahead with our “if this, then that” mentality.
This week has been all about earnings and while a few stocks have made big moves after releasing their quarterly numbers, the indexes have “taken a breather” by consolidating nicely at their daily 8 Exponential Moving Average (EMA).
We like the idea of lower time frame squeezes (such as 1-hour and 4-hour) firing long off the 8 EMA to trigger the next move higher, but anytime heavily-weighted stocks such as the Facebook, Amazon, Apple, Netflix and Alphabet (FAANG) announce earnings, there can always be implications (good or bad) for the overall market. With this being said, we advise being patient over the next few days and letting things unfold before jumping on any moves.
Currently, NVDA, EPXE, and a few other solid squeezes are catching our attention, but they’ll need the overall market to continue its grind higher in order to be A+ opportunities (remember, our best trades will come when we have the “wind at our backs” with the indexes remaining strong).
GOOGL announced quarterly earnings this past Tuesday, and the numbers were met with a positive reaction as the stock opened up over $100 higher yesterday, before slightly fading into the close. You can’t ask for better results than GOOGL delivered, however the structure of the chart doesn’t make it the easiest to trade moving forward. It is well above 2+ Average True Range (ATR) on the daily chart, making an entry at these levels less than ideal. Remember, if QQQ can fire its weekly squeeze long, we should see almost all tech-related stocks grind higher. However, we still want to focus on the best structures and highest-probability entries we can get, and GOOGL just doesn’t offer that here at this extension.
On the other end, MSFT earnings weren’t met with as positive of a reaction as GOOGL. We saw the stock gap down by over $5 at the start of the session. On a positive note, the gap down did bring the stock back to its 21 EMA buy zone on the daily chart, and this is something we can work with. An entry at the buy-zone allows for “easier” upside should the Qs (QQQ) begin to heat-up again. We preach (and make a living) getting long at the buy zones and taking profits into 2+ ATR extensions. This is what makes MSFT a much more attractive entry than GOOGL at this point.
While GOOGL and MSFT kicked off earnings for Big-Tech, it was FB and AAPL who stepped to the batter’s box yesterday evening. Here’s how they’re behaving in the after-hours at the time of this writing:
FB is up over $20+ after earnings, surpassing the $12 expected move
AAPL is currently up $4+ in the after-hours, which was just about the expected move.
The initial reactions from both of these names bodes well for tech heading into today’s session.
AMZN announced earnings today (Thursday) after the close, and the results could certainly have an impact on tech along with the overall market. Should AMZN pull a move to the upside like GOOGL did, that could be all the QQQ needs to begin firing the weekly squeeze long. At the same time, should AMZN bomb earnings and sell off, that could “rain on our parade.”
We are still holding our 5/21 expiration 3,500/3,490 put credit spreads, and while our short strikes are not quite yet out of the money (OTM), it is turning out to be a profitable trade so far. Today, we have patiently observed how AMZN behaves heading into its earnings announcement. While the plan for this trade was to hold through earnings, a move into a new all-time-high above $3,550 may offer us an opportunity to take a good chunk of our max profits before the close. We’ll be patient and flexible, but should we have 60%+ of our max profit on the spread before the close, it may be wise to take some exposure off the table and lock in some gains.
Our Position on AMZN
As we discussed in the Simpler Trading Options Room yesterday, weeks like this are a good time to “take our foot off the gas,” and focus on refining our watch lists as opposed to forcing trades in the nasty chop. The markets are on standby here waiting for big earnings to pass, and since we need the wind of the markets behind us, we should have the same willingness to be on standby as well!
Stay tuned for our next newsletter on Friday, as we’re excited to update you on how our AMZN trade, as well as others, perform heading into the end of the week!
We have a wild week ahead with many big names set to report earnings. All three indexes are consolidating at an all-time high (ATH), so we need to be patient as we plan our moves. Our focus is on how “big money” reacts to the earning reports. If we have a good reaction, we should see a big move through highs.
Here is our focus list for the week:
SQ – This one is based at the daily mean. We are watching for a 4-hour squeeze to push through 255 and move toward 263/270
AMZN – There are rumors going around that Amazon will split its shares, so we need to keep an eye on how this might affect the stock. We are watching for continued push into earnings through 3,434 up toward 3,500
NVDA – We’re watching the 4-hour squeeze. If it breaks 620, then we’ll be looking for a push toward 630 or higher
ROKU – We’re watching the 4-hour squeeze on this one also to see if it makes a push toward 380 or higher
