I have some older content that I don’t have in any post so that’s all getting dumped into this post. I hope you find it worthwhile.
2021-08-16 Monday
(1) I established a bearish position in SPX on Friday afternoon by buying Sep3 Put Vertical Debit spreads. I already own some DH’d bullish positions in Oct and Dec so the Put spreads were an additional hedge for the bullish positions plus some downside speculation. When SPX was lower this morning I sold Sep3 Put Vertical Credit spreads to reduce my initial risk by almost 50%.
That’s just a case of taking some risk out of a position when price gives me the opportunity. After all, we’ve been in a relentless up-market recently so my bias is still to the upside overall until price indicates otherwise! Here’s my current Sep 3 Put Condor.
And here’s my overall position including the bullish longer term positions.
(2) I have a bearish bias in the short-term in AMZN but I didn’t close out my bullish Dec position yet. Instead I own 2 bearish positions that expire in the next 2 weeks. Those bearish positions are larger then the bullish position so that leaves me with a net short Delta position currently. The objective here is to benefit from price moving sideways to lower over the next 2 weeks and then a potential rally. It’s very possible that I’ll exit the Dec bullish position after price rallies up into longer term resistance.
2021-08-15 Sunday
(1) Over the past four weeks NFLX has squandered numerous opportunities to begin a longer-term rally based on a bullish setup. The lower band of a rising 8 SMA is a very good location for a long (bullish) trade. The low at #1 from three weeks ago should have triggered a strong rally if buyer’s were motivated. The lack of a rally indicated that buyer’s were not motivated there and the fact that price has remained within the lower half of the 8 SMA bands while the bands are still rising isn’t necessarily bearish since the bands are sloping up however the lack of upside follow-thru has me watching for a potential breakdown! I’ve set a price alert to trigger on a drop below last month’s 504.66 low.
(2) Looking back at a bullish setup from July in FB to make a point about using multiple time-frames to increase the likelihood of success of a directional trade. The 3-up (3u) daily candle had a lower low and higher high (the description on the chart states higher low and high which is incorrect). The daily chart showed a bullish setup by itself but when combined with a great location for a long (bullish) trade on the weekly chart the bullish setup became much more powerful. There were two time-frames with simultaneous bullish signals!
(3) BP offers an interesting short (bearish) setup going into tomorrow’s trading. This week’s candle was a bearish reversal with a long upper wick that found resistance at the declining 8-week SMA upper band just as it should have. Now it needs to follow-thru lower to indicate that the sellers are motivated. A good bull/bear line for this coming week is last month’s 24.93 HB price level. Friday’s daily candle closed below the rising lower band which it shouldn’t have if the bulls were still in control. Unless price rallies back and closes above the lower band tomorrow that’ll confirm that sellers have taken control of the price action and lower prices are to be expected.
(4) CMG had a failed breakdown below the rising lower band of the 8-day SMA last week. Failed breakdowns are bullish however the fact that the rising lower band failed at all is reason to suspect that price may be in the initial stage of rolling over. Should price find resistance over the next few days in the 1895 area that would suggest price momentum is weakening and the bands are flattening prior to rolling over. A drop below last month’s 1866.83 level could then trigger a short trade. As always I’m aware that an important level such as last month’s high represents both sides of the same coin. Meaning? Below that level is bearish but failing to follow thru lower and then recovering back above there would be bullish. I can’t ignore that type of price action if I’m in a trade! The stop levels are listed on the weekly chart (left side) below.
2021-08-14 Saturday
(1) Comments are on the COST chart below.
2021-08-11 Wednesday
(1) Using the FB hourly chart to demonstrate how price often moves from uptrend to downtrend by way of a rounded top. The 8-hour SMA bands can provide the context by which the pattern is easier to see.
(2) Today I had the opportunity to further Delta Hedge my 08/10 AMZN bearish position but chose not to do so. First, below is the risk profile for my current position including what it would look like if I had further DH’d my position. Trades #1-3 were made yesterday (see the 08/10 post below) and trade #4 was available late in the day today. It would be a good risk profile with so little Delta (directional) risk that it almost doesn’t matter what the price of the stock does over the next few days because my current open profit (purple) line is almost flat. As I mentioned I didn’t take trade #4. Why not? Scroll down below the risk profile and look at the hourly chart as of this afternoon.
Price has fallen today and it’s now below strong resistance from last week’s 3299.77 low and last month’s 3306.98 low. And, on top of that resistance, there is also the upper band of the declining 8-hour SMA bands which often provides strong resistance as well as good location for a short trade. I’m expecting that resistance to keep price from finding acceptance back above the 3300-3307 area so I chose not to further DH the position to reduce my short Deltas. Even though I won’t know until tomorrow whether that decision pays off or not I already know it was the correct decision based on the price action analysis that I use.
2021-08-10 Tuesday
(1) Over this past weekend (see 08-07 post) I thought AMZN looked like a good potential bullish setup if price moved higher to clear some overhead resistance. All price did yesterday was continue the sideways consolidation. A sideways consolidation is often a continuation pattern so you look to see what the prior move was to establish your bias. In this case, price is in a downtrend so unless the bulls can step up here this chart is now looking more bearish than bullish. I can use yesterday’s hi/lo range of 3354.88/3328.52 as the bull/bear lines in today’s trading. Bullish above yesterday’s high and bearish below yesterday’s low. A further breakdown below last week’s 3299.77 low would be very bearish with the proviso that, if price breaks down below that level it would have to continue lower. A failed breakdown near 3300 would become bullish with a stop below the failed breakdown low.
Update after the close: The AMZN chart above was prior to today’s trading. The chart below includes today’s trading. I initiated a short position after price had the failed breakdown above yesterday’s high. My stop on the trade was the opening candle’s 3358 high.
After the failed breakdown I bought a 4-lot of Put Vertical Debit spreads for a total debit of $4,714. My intention was to Delta Hedge (DH) those spreads prior to the close if price followed thru lower. If price didn’t move lower or just traded sideways through the day I’d likely just close the trade for a small profit or loss. I did not want to carry the full $4,714 of risk overnight. Below are the trades that I made today:
Below is the end of day risk profile reflecting the $2,209 overnight risk.
In summary I took on $4,714 of risk early in the day which gave me time to let price move lower and allowed me to reduce that risk by over 50% prior to the close. I closed the day with a 68% return on overnight risk.
2021-08-09 Monday
(1) I seldom reference RSI or MACD in my price action analysis and when I do it’s usually to mention how I no longer focus on those indicators. So how do I measure momentum? I use price itself. I know, crazy, right? Why use price to measure the momentum of price? Think about it. 🤔 Why wouldn’t I use price to measure it’s momentum? Indicators such as RSI and MACD are a derivative of price. Why not skip the derivative and look to the source itself? Lets look at an example from today.
I took a look at the FB hourly chart around noon today and saw this:
When price is in a strong uptrend it moves vertically above the upper band of the 8 SMA. Buyers are motivated and price is rising quickly. When the slope of the bands begins flattening it’s an indication of slowing momentum. It doesn’t mean the rally is over but the advance is at least slowing down. When I saw the price action on the chart above, I tweeted this:
About 40 minutes later I tweeted this:
Seller’s excess is reference to the single prints on the market profile chart where it’s easier to see whether or not price has gained acceptance at a certain level. Sellers were very motivated over the past two days to unload FB stock above 364 so I can trade against that level. I’m counting on those sellers to have my back on my short position.
Finally, here’s the FB hourly chart as of the end of the day:
Price has continued to rollover but, so far, sellers haven’t been particularly strong. Price should see a relatively strong move down tomorrow or else I’ll be looking to exit my short position. The downside price target for tomorrow is the 356 area where both last month’s and last week’s HB is located. I’d expect to see buyers waiting there.
2021-08-08 Sunday
(1) Pairing the daily and weekly charts often brings a better perspective on the current price action. The chart on the left is SPX daily with 8-day SMA bands and the chart on the right is the weekly with the 8-week SMA bands.
Back in May price reached the rising lower band of the 8-week SMA (#1). That’s good trade location for a longer-term bullish position. However, if you look at the same time period on the daily chart, price had made a new low (#1) and was well below the declining 8-day SMA bands. While price could be expected to potentially rally back up into the declining bands there was no evidence that a larger rally might occur imminently. The next day price did begin a rally back up to the declining upper band of the 8-day SMA (#2) and was soundly rejected as it should have been. After that rejection occurred the expectation then would be that price would attempt to make another new low since the daily bands were trending lower. But wait! The weekly bands were in an uptrend! What to do? Follow along here because what occurred next is a textbook setup that occurs on the charts on many stocks and ETF’s. As price approached the previous 4056.88 low it reversed (#3) and closed the day with a green candle with a long lower wick. Buyers stepped in strongly before price could make that new low and bought it! First lesson; always respect a green candle with a long lower wick that reversed at, just above or just below a previous pivot low. There are always buyers lurking near a previous low, especially a pivot low (the lowest low over the prior 5-10 days). What we don’t know is how motivated those buyers might be. The first indication of motivation is the bullish reversal candle with the long lower wick. However, they still have to pass a second test which would be how they handle the upper band of the still declining 8-day SMA. The first day after the reversal candle price closed right at the daily upper band and left a relatively long upper wick. It looked like the sellers might turn this back down again. I’d wait to see what the next day brings. The second day after the bullish reversal candle price easily cleared the high of the previous day and moved well above the upper band but then had a very weak close. Once again it looked like the sellers may have rejected the buyers and again look to take prices lower. Even though that was a weak close and a bearish looking candle, the fact that price took out the high of the previous day was a warning sign for the bears! Price shouldn’t have been able to rally above a declining upper band for 2 consecutive days even though the closes were near the upper band. The following day removed all doubt that the bulls were back in charge when it opened above the now rising upper band! So when could I have established a bullish position? I could’ve started a partial (1/3-1/2 size) position at the close of the bullish reversal candle using the 4056.88 pivot low as a stop. I could’ve utilized a longer duration OTM Condor with low Delta risk to reduce my loss if price had failed to follow thru with a new uptrend. (See the OTM Call Condor I show in the 2021-08-07 post about AMZN. That’s a good example of a low Delta risk position). I then could’ve added size to the position on the confirmed breakout. The takeaway from this post is that once the daily chart failed to breakdown and make a new low it was confirming the uptrend on the weekly chart. The 2 timeframes were confirming each other. That is the best time to hold a directional position!
2021-08-07 Saturday
(1) Reviewing weekly charts as I always do on the weekend and AMZN is interesting. Price failed to follow-thru lower after dropping below last week’s 3306.98 low. Does that make this week a failed breakdown? It does but before I add a new long position I need more upside follow-thru first. Next week, if price moves above this week’s 3344.94 HB level that’s a positive for the bulls but still not enough for me to initiate a full-size long position. I would however consider a 1/3 to 1/2 size long above HB with a stop below this week’s 3299.77 low. The problem with that trade is the stop. Using a prior week’s low as a stop is a legitimate placement for a stop but it also opens up the possibility of getting stopped out prior to a potential *bullish failed breakdown*. I could get stopped out just as price is reversing higher. Of course that is the risk with any stop level! In this case, I’d likely use 3299.77 as a *soft stop* instead of a hard stop. In other words I’d have to see price spend at least an hour or so accepting value below the 3299 area. A quick reversal back above that level would be bullish and *great* trade location for a long. Ultimately I’d need to see price take out this week’s 3391 high to the upside and accept value there (no quick reversal) to go to full-size on the position.
If I were to take a long position in AMZN I’d likely use an OTM Condor. Since AMZN is such an expensive stock buying Calls or even Call spreads can be quite expensive. Using a Condor to initiate a bullish trade lowers the cost considerably and, even more importantly, lowers the Delta risk. Below is an example. A $50 wide Vertical Debit Spread would cost $14.43 ($1,443) where the Condor could be bought for $8.48 ($848). That’s a 40% reduction in the cost of the bullish position! Also, notice that the Delta (directional) risk of the Condor is just over 2. That’s the equivalent directional risk of owning just 2 shares of AMZN stock.
2021-08-05 Thursday
(1) Important price levels are two-sided coins. Bullish on one side and bearish on the other. That’s why, for instance, a breakdown is bearish and a failed breakdown is bullish. With that in mind, SPX 4400 is a very important level thru tomorrow’s close. See chart comments.
2021-08-03 Tuesday
(1) Good short setup in FB triggered yesterday. See chart below for comments.
(2) SPX found support just .49 points above last week’s low. A close above yesterday’s HB (which it’s currently well above) would be bullish. Today’s candle is developing as 2d which is technically bearish but much less so when it’s a green candle.
(3) As the day progressed I closed my short position in FB due to the nature of the price action even though price has continued to drop. When price moves lower while remaining with the declining 8-hour SMA bands it’s an indication of waning momentum. At this point it appears sellers are running out of steam! There are many important levels of price resistance above but I expect price to try to rally through those levels over the next day or two.
(4) Bought SPX Calls after price broke above resistance and targeted yesterday’s high to Delta Hedge the position and lock-in a profit. See comments on the chart.
