Wednesday, July 28th, 2021
Happy Wonderful Wednesday!
Last week, the market gave us four bullish days out of five. The three min indices reached new highs within the weekly moves. The Dow finally crossed that mark. The week started out with a big drop on Monday, so much so that as I worked on this newsletter, I decided to take a break to see how things played out. The market shifted directions and started heading up and continued throughout the week. All the concern about Covid on Monday seemed to evaporate as the week unfolded.
To review past equity candidates, scroll down.
For today’s Trade of the Day, we will be looking ConocoPhillips, symbol (COP). Before analyzing COP’s chart, let’s take a closer look at the stock and its services.
ConocoPhillips explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG), and natural gas liquids worldwide. The company primarily engages in the conventional and tight oil reservoirs, shale gas, heavy oil, LNG, oil sands, and other production operations.
The company was founded in 1917 and is headquartered in Houston, Texas.
I looked through a lot of charts over the weekend. I zeroed in on COP because it had a pullback in late June and early July and now looks ready to head higher. It is a widely traded stock with lots of volume.
On the ADX indicator below the chart, notice how the green +DI line is on top. Because of that strength, the black line may soon turn up to show growing strength. These are all signals of strength with the thought that it may continue to climb.
For those who want more info on ADX, I give more details in the section below, or scroll down to the trade info.
Average Directional Index (ADX) Points to Direction and Strength
ADX is an easy indicator to interpret. The +DI line (green) is bullish and when it is on top, it suggests price is going to head up. When the -DI line (red) is on top, it suggests price is going to drop.
The black line is the strength line and when it heads up, it is telling you strength is moving into the DI line that is on top and in control. When the ADX line has been heading down, the DI line on top has been weakening and is ready for a change.
When the DI lines swap places and cross up and the ADX heads up, it suggests strength is moving into the new DI direction.
ADX signal = Profit Payout
Each candle on the chart represents price movement of a week. As the + DI heads up and moves above the black line and both remain above the red line, it suggests there is bullish strength that could continue to grow, especially once the black line starts to turn up. If price continues to move up, the ADX line (black) will turn to head up to imply that strength will continue to support the trade. As long as the ADX is heading up, it means it is supporting the bullish- up direction.
I am looking at its chart and possible trade on Monday, but the pattern should hold. You don’t want to consider entry if the current candle doesn’t move above the line drawn at about 56 or if it drops below slanted line. Think of it as dropping through a floor. If that happened, you would not enter or you would close the trade.
If you are interested in learning more about the ADX strength line, I’d like to suggest you consider getting Inevitable Trend Moves. This book covers in detail how to trade the ADX to jump in during a confirmed strength stage that is as clear as looking at a picture with arrows pointing out direction.
COP Potential Trade
Please note and remember that I am typing this on Monday, two days before you receive it and the information, I am sharing could change over those two days and is intended to share the opportunities that options offer us.
ConocoPhillips (COP) last week turned up from its pullback and this week it continued that upward move. It appears to be ready to reclaim recent highs. Its pattern should remain intact if price keeps rising. Notice the + DI is heading up and is well above the -DI line. We want the + DI to remain above the -DI (green above the red) to consider a trade. Green line on top is bullish.
Price is likely to rise further and eventually above 58 entry. Its first target is 62 as the +DI (green line) moves up and the ADX (black line) turns up. Its current uptrend should remain intact, and price should continue to rise, perhaps even higher to 64. We will keep an eye on COP over the next couple weeks.
I am looking at charts on Monday, so prices are apt to change a little by Wednesday.
The short-term price target for COP is $62, then, perhaps, $64, and higher.
To buy shares of COP today price would be approximately 58. If it reaches its near-term target of $62 that would be a rise of $4 or 8.9% profit in a short period of time. If you bought 10 shares the total cost would be $580, and you would earn $40 total on the ten shares.
This said, option trading offers the potential of a smaller initial investment and higher percentage gain even when price is expected to rise. Let’s take a look.
If you bought one Call option contract covering 100 shares of COP’s stock with an Aug 20th expiration date for the $62 strike and premium would be approximately $.60 today or a total of $60. If price increased the expected $4 to $62 target over the next few weeks, the premium might increase approximately $3 to $3.60 per share or $300 on your 100-share contract. This is a gain of $300 on your $60 investment or a 500% gain over a few weeks.
Remember you can close an option trade anywhere along the line before expiration to take gains or stop a loss.
The example above is a comparison of an investment of $580 and a $40 gain versus a $60 investment and $500 profit. Big difference.
Options can offer a win, win, win trade opportunity. They often offer a smaller overall investment, covering more shares of stock and potentially offer greater profits.
If you are having any kind of trouble taking advantage of these trades, I don’t want you to miss out. I have put together programs that help traders just like you access the potential profits that options provide. I write like we are having a conversation, so the information is easy to understand and apply. Be sure to check out the programs shared in this email and we will make it easy for you to get your share.
I love to trade, and I love to teach. It is my thing.
Yours For a Prosperous Future,
PS-I have created this daily letter to help you see the great potential you can realize by trading options. Being able to recognize these set ups are a key first step in generating wealth with options. Once you are in a trade, there is a huge range of tools that can be used to manage the many possibilities that can present themselves. If you are interested in learning how to apply these tools and increase the potential of each trade, click here to learn more.
Review of Past Candidates:
Four weeks ago, we checked out Netflix (NFLX) with a July 30th expiration and 540 strike price, paying a $19 premium per share. The equity climbed 560 last week and premium rose as high as 28.00. Nice return on the trade. It now pulled back and is well below the strike.
Three weeks ago, we looked at MSFT with a $290 strike and July 30th expiration and a premium of $1.82. It’s bid premium as I type is 3.80 or 109% gain.
Last week, we studied QUALCOMM (QCOM). Last week, the week ended down. It broke its support level and trade should have been closed. It dropped further this week.