The market is showing signs of strength here with Non-Farm Payrolls showing that the economy isn’t in bad shape, at least for now.
And Chinese stocks are soaring on the back of their country’s stimulus package.Oil prices are skyrocketing in anticipation of escalating tensions in the middle east. The earnings cycle is just getting underway to give an indication of how many individual stocks have handled the 3rd quarter of 2024. And with all of that, I’m looking for trades that aren’t impacted by these fundamental inputs, because it’s what’s below the surface that can often lead to the highest probability of success when my trade ideas are driven by technical inputs.
First, let’s review the ACN chart from last week:
After breaking out to new highs, ACN is still trading near the highs, and many of the reasonable probability call options that could have been bought as a result are trading higher. The October 18th $360 calls highlighted last week are up ~70% apiece on this move already, and the chart shows me that there may be more room to run!
Trade setups happen like this every day, so I always have my eyes peeled for more potential big moves. So now, what’s the next big potential breakout that also has well-defined risk?
I’ll look to a stock that doesn’t have earnings too soon, as that input will both increase the cost of my options and have a fundamental input that could cause wild stock movement.
I also avoid stocks that already went parabolic since the move is harder to predict and the options’ implied volatility tends to get a bit wild with those names.
I’ll avoid most of the financial companies, as many start to release earnings in the next week or so.
Instead, I’ll look at a name that released earnings late in the cycle and shouldn’t have as much of a potential negative impact from the news we’re seeing right now, and one name that I found through my scans on the market is looking very intriguing, Lululemon (LULU):
LULU is testing the highs of the last 3 months while also pressing against the 100-Day Moving Average. It appears there could be some interesting follow-through in this less-talked-about name. If it can press through the 100-Day Moving Average, it will certainly appear that investors are accumulating a position now and viewing it as an undervalued company. With option premium trading in the middle of the range, I’ll have to be careful with my options structure, but with earnings not expected for about 2 months, I can certainly get some leverage without a fundamental input specific to LULU derailing this relative bullishness. For me, this looks like a safer way to buy into the market by digging into the names that people aren’t currently focusing on. And I can define my risk and increase my trade leverage by trading off of the tecnicals and utilizing an options structure like a debit call spread!
If you’d like to get a list of more ideas and setups just like this that could be of interest for trading opportunities, check out my Outlier Watch List.
And as always, please go to http://optionhotline.com to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades. And if you have any questions, never hesitate to reach out.
Keith Harwood
Keith@optionhotline.com
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