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Geopolitics are the focus of the news, but they’re not having a major impact on the main market indexes.  There are, however, some interesting technical setups forming that could greatly impact market movement and create some explosive return profiles.

Before I get into a new trade idea, I’d like to check in on the XLU idea from last week.

XLU is firm with more upside showing.  This has worked out with a slow grind higher that appears ready to continue.  As always, I have to let winners ride and would be looking at a stop loss on a break of the 10-Day Moving Average, as that was the trigger for the bullish thesis.

There’s a sector of interest to me now because it’s been beaten down so badly.  It’s not necessarily a high probability trade, but if timed right, it could get a short-squeeze and really help the options leverage pay off nicely.

That sector is the airlines, via the ETF JETS:

The downward trend has been consistent and aggressive, but I’m starting to see signs of a reversal.  The MACD is showing flat and has been for over a month, showing a lack of momentum to the downside – it’s simply a grind.  Additionally, the RSI has been sitting under 30 for a long while, and that simply doesn’t normally happen.  Finally, implied volatility is starting to drop, which gives a leveraged opportunity with defined risk to the upside.

Overall, there are a handful of interesting setups coming out right now, but it’s still a slow dull market without a major trend.  However, doing the homework to find the setups that do exist can catch an unsuspecting market off-guard and give a very nice return.

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.  As always, if you have any questions, never hesitate to reach out.

Keith Harwood


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