Yesterday I said I didn’t think the underlying structure of the market could be supportive for very much longer … The large techs that have led the rally have started to consolidate after very large gains, and that consolidation is likely to last weeks, not days. Secondly, white we have had some rotation into secondary stocks that have supported the rally, they just don’t look constructive enough in my view to continue to support higher prices. One of my short candidates was Data Dog, I said I would watch it intraday for relative weakness versus the broad market.
That happened very near the end of the day as the averages made new highs but DDOG did not. So I went short the stock around 109 or just above, via a put spread in Target Zone. The option pricing works well in a spread but option premiums are too rich for straight out puts and calls. DOG stock was up 3.5% Thursday and 15% in the last 2 weeks. Normally that is NOT a reason to look for shorts, but it is coming into an area of thicker supply on my charts, so I stepped up on the short position. A $3-$6 pullback should happen quickly if my call is correct. Plus I expect Friday will be a down day overall.
P.S. I have two strategies that have been extremely productive for me. Next Thursday I am going to break them down with examples and walk through why they work so well. In addition, I am going to be answering questions that many of you have about my approach. If you want to sign up, be sure to do it early. Register here.