Good Day Traders,
Overview & Highlights: Markets could go either higher or stall this week. At this point any pullback should be considered a buy opportunity until pullbacks stop working.
Webinars: At Active Trend Trading we offer two webinars per week to provide training plus trade and market updates. See the schedule below for the next webinars.
How to Make Money Trading Stocks on Thursday, March 24th
Next Training Webinar: March 23rd
For Premium Members our Wednesday evening training is developing some fantastic traders!
Mid-Week Market Sanity Check Topic: Tying it all together for High Probability Entries
Managing Existing Trades: Only Strategy III trades open.
Strategy I Portfolio Building: No Open Trades.
Strategy II Income Generation: No Open Trades—if you trade options this is a good strategy to send up trial trades to see if the market’s direction may be changing. 1-5 contracts of one of the Index ETFs may provide less downside risk than long position in the underlying Index ETF. Trading options is not for everyone and I strongly encourage members to first become successful trading stocks and ETFs.
Strategy II stocks of interest for this week: AMZN, TSLA, AZO, SBUX, NFLX & BIDU.
For members wanting to better understand this Strategy there is a very good training video at: http://activetrendtrading.com/basic-option-strategy/
Strategy III Wealth & Income Generation Trades: Two Foundational Positions are in place to sell weekly options against. The recalculated weekly revenue needed from these foundational positions was forward in an update report earning last week. My objective with this Strategy is to collect enough weekly premium during the life of the LEAPS Strangle on both SPY and TSLA to both pay for the capital invested and gain between 50% – 100%.
Tip for Experienced Option Traders: Occasionally after a weekly trade goes against me but the trend appears to be changing I will add one naked contract over and above my foundation position and close this out after it gains at least half of the premium I’ve collected. Doing naked options is not for everyone and I keep my risk small by only doing one contract above my covered limit. In other words if I can sell 4 contract covered by my long leaps I’ll sell one additional. This helps hedge the losses a bit but it this tactic is not without risk and must maintain a tighter stop than I would normally use with the regular position.
Note: We do our best to get both text alerts and email alerts out in a timely manner, occasionally there will be trades that are missed because of delay in the Text or Email alert applications. Additionally please double check with your broker to assure they allow spread trades like we do with Strategy III. Some do and some don’t.
Last Week’s Trades:
SPY: Loss – $114
TSLA: Loss -$490
Trade 1: Foundation Position is 4 contracts of SPY Jan17 205C and 4 contracts of SPY Jan17 200P Current Trade—Currently Down -5%; Premium Collected since opening trade on 1/4/16 = $1381
Opened 2 contracts SPY Mar4 202 for a 2.96 Credit–$592 potential Profit
Opened 2 contracts SPY Mar4 204.5C for a 1.18 Credit–$236 potential Profit
(Expecting a pullback to approximately the 8 day EMA, will close out both Mar4 call positions at that point regardless of value and look to short the Put side.)
Trade 2: Long TSLA Jan17 250C & Long Jan17 220—Current Trade—Currently Up 34%; Premium Collected since opening trade on 9/28/15 = $7222
Waiting for new entry—TSLA has been on a tear with a price target around $240, pullbacks have been primarily intraday so expect text and email alerts intraday. Until the uptrend line is violated and prices close below this level I will sell ITM Puts on pullbacks. Until we are sure we have a top in place. Watch for a pullback to the 227 level.
Several members have asked about this strategy and a more detailed explanation is available at: http://activetrendtrading.com/wealth-and-income-strategy/
I posted a video about how to choose the weekly options to short for this strategy. It can be viewed at: http://activetrendtrading.com/videos/
Additionally some of these trade may be selling weekly puts on up trending stocks. If you are interested in parallel trading this strategy register at this link: http://forms.aweber.com/form/99/1278533099.htm
Pre-Earnings Trade: Only a few more weeks left in the current earnings season. In an up trending market many stocks will provide upside trades with expected returns between 5% – 20%. Here are some potential stocks that may provide pre-earning moves: CALM & NKE report over the next few days/weeks and may provide pre-earnings run.
Potential Set Ups for this week: Pullbacks on stocks for long entries are working, this week may be a great week for pullbacks. Look for orderly pullbacks on below average or shrinking volume. If you are unable to watch the markets through the day, then choose a couple of the stocks like TSLA, AMZN NFLX or the Index Leveraged ETF’s and watch these. Having too many stocks can cause loss of focus. I will be identifying specific focus zones as they appear on some of the stocks below so you can plan trades. This way regardless is an alert goes out or not you will have a handful of stocks/ETFs you will be ready to move on.
Upside: Many stocks are extended but have put in a very orderly rebound, until weakness comes back into the market pullbacks are the ideal entry opportunity. Trade the pullbacks until they stop working. LGIH, SIX, CALM, SBUX, & NKE does have earnings on 3/22.
Downside: AMZN, ANET & INCY.
On the Radar: Stocks & ETFs that could go either way include: UPRO, SPXU, TQQQ, SQQQ, TNA, TZA, TSLA (240 resistance/140 support), AMZN, GOOGL, FB, NFLX, FDX, SBUX**, SIX, LGIH**, VEEV, TREX & SEDG.
Stocks identified by ** that are close to a potential entry point.
Early Warning Alerts for Leveraged Index ETFs: Waiting for Second Chance Entry trigger and Alert reset.
If simplifying your life by trading along with us using the index ETF is of interest you can get the full background video at: http://activetrendtrading.com/etf-early-warning-alerts-video/
General Market Observation: Remember the market doesn’t have to make sense and it will do things that are surprising. This includes the rally that has been going on the last 26 trading days. With the Fed’s announcement this past week backing off their hawkish stance on interest rate hikes during 2016 perhaps will be the catalyst to move higher after current gains are digested. We shall see! At this point an orderly pullback to support would provide a good opportunity to go long from the rest of this ride. This is especially true for the SPX which is the strongest of our Tracking Indexes. The current strength pecking order is SPX, RUT and NDX.
Studying S&P may provide the best glimpse into what we may expect this week. First, Friday’s move up concluded a rally that has lasted for 26 trading days. This rally has gone up at a significantly steep angle of ascent which can often be a sign of unsustainable movement. Additionally the price action is contained in an ascending wedge which is a bearish pattern which often fails but will remain in effect until there is a close below the lower trend line. This has not happened yet. Currently the price action is respecting the 8 day EMA so pullbacks to the proximity of the 8 or 20 day EMA should be treated as a long opportunity. Trade the orderly pullbacks until they stop working!
Keep in mind that markets often move in symmetric patterns. Compare the current upswing with that of October 2015. The daily chart below shows a very similar ascending wedge in October of last year which lasted for 26 trading days followed by a pullback of over 4% in 10 trading days. This action went on to form a trading range that finally resolved to the downside at the end of 2015. There is no guarantee that this is what will happen this time but we should at least be mindful of what history reveals. Notice that the profit taking in November 2015 overshot the 50 day moving averages and bounced at the 38.2% Fib retracement of the move from the low on 9/29 and the 11/3 high. A similar move at this point would take prices down to about 1860 an established level of support. Also notice that the November 2015 pullback fell at about the same angle as the preceding uptrend. Remember symmetry!
Throw into the pot the mixed nature of the Indexes and the falling Momentum indicator on all three Indexes. Momentum is leaking out of the current move. If prices do press higher on the S&P look for strong resistance at the 2075 level. If this level is reached during the week and then indecisive or reversal patterns show up this could be a great short set up. Lastly, watch the two weaker Indexes if they start to falter this could the precursor for weakness on the S&P.
SPX: Downside Market Short the SPY, SPY Puts or SPXU.
Preferred Long ETF’s: SPY, UPRO and SPXL
NDX: Downside Market Short the QQQ, QQQ Puts or SQQQ.
Preferred Long ETF’s: QQQ and TQQQ
RUT: Downside Market Short the IWM, IWM Puts or TZA.
Preferred Long ETF’s: IWM and TNA
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How to Make Money Trading Stocks on Thursday, March 24th
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Index Returns YTD 2016
I’ve added a column to the Index YTD performance chart. The column on the far right shows the depth of the current correction with respect to the highs of the top from 2015. Note both DJI & SPX are now in positive territory for 2016.
ATTS Returns for 2016 through March 18, 2016
Percent invested $100K account: Strategies I & II invested at 0%; Strategy III invested at 20%.
Current Strategy Performance YTD (Closed Trades)
Strategy I: Down -1054.75 or -1.5%
Strategy II: 1.65%
Strategy III: Up $4458 or +22.3%
Cumulative YTD: 3.6%
Active Trend Trading’s Yearly Objectives:
– Yearly Return of 40%
– 60% Winning Trades
– Early Warning Alert Target Yearly Return = 15% or better
For a complete view of specific trades closed visit the website at: http://activetrendtrading.com/current-positions/
Updated first full week of each month.
Outs & Ins: A handful of stocks make the 2016 debut on the IBD 50 list this weekend. LGIH and TREX look like they may be setting up to the upside in the near term.
One of the big challenges in having a list with over 50 stocks on it is maintaining focus. If one tries to watch all 50 stocks it increases the probability of missing the stock that moves. This leads to playing “what if “ mind games and trying to figure out how to capture everything—in other words work harder! The best way to handle a large list is to simply choose a few candidates that appear to have the best chance of triggering a buy signal that week. This can be done by utilizing reversion to the mean criteria, moving average proximity or levels of support and divergence of the oscillators. Find 2-5 stocks that appear to be at or approaching buy parameters and then focus just on those stocks that week.
Out of this week’s IBD 50 list here’s what I found LGIH, SIX, CALM, XRS and TREX. I will hole in on just these this week and see what happens.
Share Your Success: Many of you have sent me notes regarding the success you are having with the Active Trend Trading System. Please send your stories to me at firstname.lastname@example.org or leave a post on the website. Thanks.