I don't know about you, but all that fanfare about Dow 10,000 seemed to vaporize with yesterday's gap and crap day.
While the daily chart of the $INDU was a spike, this chart of the futures was perhaps more indicative. I think the huge gap up was probably caused by short-covering, since every time we approach the highs, traders are bound to be at work on the sell side, in case it fails the test. With the capture of Saddam, they went into panic mode to cover, and after they were done, that was it.
In trying to find swing trades this morning, I had a few ideas. Normally, I look at various indices and based on that, look at the component stocks to see if there are any good setups.
For example, based on $SOX, I would have been looking for shorting opportunities on the bounce to the underside of the 20-day EMA but in yesterday's price action, that downswing already began, so we have to pass for today.
Based on the Goldbugs Index, we would be looking for possible shorting opportunities, but because the universe of stocks is small, I looked only at NEM and it was not the best one to do.
It was back to the Dow component stocks, since we want candidates that are trading at amounts high enough to make it worthwhile. I found two. Remember, the Dow is at a high, and so we will be looking to peg some spike highs here.
No matter how we slice it, ADX of 61 is extreme for this symbol and timeframe. The question is if we will be able to pick a top or not. Options expiry is this coming Friday, so we'll be using January 2004 options.
As usual, we use yesterday's low as the alert price: 53.28. The 5-day Average Bar Length is $0.978. We add this to the alert price and get $54.26 as our ideal option strike price, which also serves as our initial stop loss.
We take a quick look at the puts that are available and settle on the JANUARY 55 PUTS. The plan is that if MO trades at 53.28 today, we wait a minute or two for the smoke to clear and buy a small size of the puts to stalk a spike high.
The next setup is the same. MMM has extreme ADX for the symbol and timeframe, and there is a rising wedge here. It's also a test of a 20-day high, also known as the Connors Turtle Plus One setup. Yesterday's low was 81.75 while the 5-day ABL is 1.184, producing the ideal strike price for the puts at $82.93, which also doubles as the initial stop loss. The closest option we find is the JANUARY 82.50 PUTS, and again, if MMM trades at 81.75, we wait a few minutes for the smoke to clear and then purchase a small size of the puts.
03.12.16 08:55 #