Friday’s price action scared a lot of investors and traders.  And rightfully so!

When stocks go up in a parabolic fashion, as they did in semiconductor stocks, it can often trigger fast selling pressure when things change.  And on Friday, unemployment data being strong led to good news being bad for the market.  What often puzzles traders and investors is that bullish news isn’t always bullish, just as bearish news isn’t always bearish.

The shift in short-term interest rate projections put a bit of a damper on the bull’s expectations.  With strong employment growth came an increased likelihood of a rate hike soon.  And higher interest rates scared buyers of stocks into turning into profit-taking mode.  But with the buyers becoming sellers, there was simply no one to stop the fall, at least until the weekend put a bit of a pause to the selling pressure.

In any case, this is not a bearish economic input, so I’m still looking for bullish ideas.  But I’m still avoiding tech for some of the highest probability ideas, because tech stocks could skyrocket, but they could also fall fast.  That’s just not the probability of a trade that I’m excited by right now.  Rather, I’m looking for market rotation with limited risk and lots of upside, and the Stock Forecast Toolbox pointed me to a very interesting name for this idea in Wells Fargo (WFC):

As the market looks for new buying opportunities, WFC fits the bill.  It’s testing recent highs, starting to cross some long-term moving averages, which often signals a longer-term bullish stock, and it appears to have some fairly low risk upside in the short-term.  And the Forecast Toolbox agrees:

With a setup like this, where I’m looking for an 8% rally over the course of the next 2 weeks, I continue to use my normal options analysis to find an optimal trade setup for the stock reaching the toolbox target, which is currently $87.30.  With that target in mind, the July 15th $82.5/$87.5 call vertical, currently priced at $1.95 looks very attractive.  With a potential upside of 150%+ on a risk of $195 per vertical spread, I see a high probability of a winning trade with a larger reward than the risk.  And once again, this appears to be a winning trade setup that I can thank the Toolbox for helping me find.

As the market continues to show sector and stock strength as well as opportunities in seemingly boring, but highly predictable stock patterns, be sure to take advantage of the free 7-Day Trial of the Stock Forecast Toolbox!

If you have any questions, never hesitate to reach out.

Keith Harwood

Keith@OptionHotline.com