Happy Wonderful Wednesday!
Last week the Dow was up 2 days and down 3. The market is still in recovery mode after a harsh drop the Friday after Thanksgiving and again last week. Monday as I type is recovering a small portion of the pullback.
To review past equity candidates, scroll down.
For today’s Trade of the Day, we will be looking at Union Pacific Corporation symbol (UNP). Before analyzing UNP’s chart, let’s take a closer look at the stock and its services.
Union Pacific Corporation, through its subsidiary, Union Pacific Railroad Company, engages in the railroad business in the United States. The company offers transportation services for grain and grain products, fertilizers, food and refrigerated products, and coal and renewables to grain processors, animal feeders, ethanol producers, and other agricultural users; coal and sand, petroleum, and liquid petroleum gases; and construction products, industrial chemicals, plastics, forest products, specialized products, metals and ores, and soda ash, as well as finished automobiles, automotive parts, and merchandise in intermodal containers. As of December 31, 2020, its rail network included 32,313 route miles connecting Pacific Coast and Gulf Coast ports with the Midwest and Eastern United States gateways.
The company was founded in 1862 and is headquartered in Omaha, Nebraska.
I looked through a lot of charts over the weekend. I zeroed in on UNP on Monday because it looks ready to climb further after being up 6 weeks in a row, despite the overall market pullback. 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 of the -DI line (red) and the ADX. The green +DI line is above and the ADX line has turned up. These are all signals of building bullish strength with the thought that price may continue to rise.
The candles have been flat for 6 weeks+ and have now turned up.
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 further above the black line and both rise 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 rise, the ADX line (black) will continue to 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. The opposite is true if the -DI line heads up to cross the +DI line – this suggests bearish strength and a climb in price. If the ADX line heads up while the red line -DI is on top, is it saying strength is building into the downward direction.
I am looking at its chart and possible trade on Monday, but the pattern looks as if it has gotten started will continue and the +DI may continue heading up if price keeps rising. You don’t want to consider entry if the current candle doesn’t stay above 247 or if the +DI line were to turn down and drop below the ADX.
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.
UNP 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.
Union Pacific (UNP) has been flat the last 6 weeks, suggesting it was strong, but resting. It has now turned up. It appears to be ready to head higher and the ADX turn up further, if this continues, the pattern should remain intact as price keeps rising. Notice the +DI is above the -DI line on the chart above. We want the +DI to stay above the -DI (green line above red) to consider a trade.
Price is likely to rise further and move above 247 entry. Its first target is 255 as the +DI (green line) stays above and the ADX (black line) turns up. Its current uptrend should remain intact, and price should continue to rise, perhaps even higher. We will keep an eye on JPM over the next couple weeks.
I am looking at charts on Monday, so prices are apt to change a little by Wednesday. Be sure the green +DI line continues to rise and goes further above the red -DI line and price stays above 247 before entry.
To buy shares JPM today, price would be approximately 247. It would be silly to buy shares if you expect price to drop. You’d wait until it hit a bottom and started to rise again. If price stays above 247, perhaps you could buy 3 shares for $741. If price rose to $255, that would be a profit of $8 or $24 for the 3 shares or a 3% gain.
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 UNP’s stock with a December 23rd expiration date (Dec wk4) for the $255 strike and premium would be approximately $2.50 today or a total of $250 per contract. If price increased the expected $8 to $255 target over the next few weeks, the premium might increase approximately $5 to $ 7.50 per share or $500 on your 100-share contract. This is a gain of $500 on your $250 investment or a 200% gain over a couple week
Remember you can close an option trade anywhere along the line before expiration to take gains or stop a loss.
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:
Two weeks ago, we discussed FB and an expiration of December 10th (Dec wk 2) and a 260 strike with a premium of 7.50. There was no trade as it never made it and stayed above 353.
Last week, we looked at MU and an expiration of Dec 17th and a 92 strike and a premium of 1.06. Wednesday morning it gapped up and moved up to 2.09 premium and then slowly declined throughout the day and into the week with the overall market decline.