Fundamental news is helping boost the markets as inflation data didn’t derail the market rally last week. All in all, the market has started to show a bit of increased resilience as it appears many market participants may be waiting for another dip to buy, but will that dip come or will those on the sidelines commit to buying at highs?
Before we get into this week’s idea, I want to review how the most recent stock I highlighted is performing. In last week’s video call, I discussed an opportunity presenting in AT&T (T):
AT&T has been on a one-way path to the upside, and the key here remains the options structures. While the stock rallied from $25.15 to $26.07, or 3.7%, the March $26 calls increased in value from $0.27 to $0.64, or 137%. That’s the power of options leverage! But with the RSI now well over 70, it no longer fits as a new entry for me, and I’m looking elsewhere for opportunities.
The starting point is still the broad market, so let’s review the technical situation in the S&P 500:
SPY is pressing highs and looking primed to break out to the upside. However, we have topped out at similar levels repeatedly in the past few months. I’m optimistic, but the market signal isn’t clear yet for the next directional move – a breakout to the upside and a tailwind for stocks or a pullback that may lead to a buyable dip.
Considering this, it’s clear that I either need to find a stock that’s moving bullishly without the broad market tailwind or is nearing an inflection point that is likely to resolve to the upside with a market breakout providing the extra oomph needed for a possibly significant move.
One sector that seems to be ready to move is financials:
XLF is pressing against highs and nearing a breakout level. With just a little extra allocation to this sector, we could be setting up for a major move to the upside. And with that setup, I go back to my AI-generated signals for a high probability setup that can benefit, and the name that I’m looking at now is Morgan Stanley (MS):
MS is pressing highs along with XLF and ready to breakout. On top of that, we see relatively inexpensive options on a historical basis, with implied volatility near 6-month lows. The move to the upside could be explosive and leveraged with call options. The breakout’s not there yet, but it’s very close, and if it comes through, the market will be back in a price-discovery mode of looking for the next logical stall-point. And if it doesn’t breakout, the defined risk of options helps me sleep soundly at night knowing that I have capped my loss. That sounds like an attractive setup to me for a potentially high expected value trading opportunity!
If you want to learn more about utilizing AI for predicting dynamic markets and the incredible opportunities that can be captured utilizing state-of-the-art technological advancements in trade recognition, send me an e-mail and I’ll be sure to get you all the information you need!
As always, please go to http://optionhotline.com to review how I traditionally apply artificial intelligence, technical signals, volatility analysis, and probability analysis to my options trades. And if you have any questions, never hesitate to reach out.
Keith Harwood
Recent Comments