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What a wild week! Hopefully you were prepared with a plan. My plan was outlined for your viewing last week:
“My take is that if we get more downside next week it will be early on leading up to the the Fed meeting, but that the 1750 area will hold. Thus, my flexible game plan going into next week will be to buy at or right under 1750 or look for a reversal signal in the first half of next week.”
You can read more about my thought process in last weeks blog here.
We have a shortened week coming up and volume will likely be fairly light, which can lead to greater volatility. My suggestion if you are a short term trader is to trade less than you normally do, keep positions smaller and take profits or cut losses quicker. We close at 1:00pm EST on Christmas Eve and are closed on Christmas day. Any weekly options you buy on Monday or Tuesday morning will lose a day and a half of premium if you keep them through the holiday.
Regarding the market direction and what to expect, I don’t have much to say. Many of the major indies closed at all time highs, seasonality favors the bulls and so for now the path of least resistance is to the upside. Keep focusing on stocks that are breaking out, manage your longer term positions, and reflect on your trades over the year. It’s better to trade lightly than to give back your gains for the year (hopefully you have some). If you don’t have gains for the year, then even more reason for you to sit back and reflect on what you could work on to better yourself for next year rather than try to play catch up with only a handful of trading days left in the year.
Please remember that open interest should be used in conjunction with other analysis and trading based solely on open interest is not advised.
Note: After graphing all the open interest for this week, I am intrigued. Rarely do I see so many that are not only predominately calls, but where price is currently starting out above the highest strikes. This either is a nasty trap that will steal retailer’s money or this is very bullish (my current bias). If price stays above those strikes, as options close out the market makers will have to buy more stock to stay delta hedged, which pushes prices higher.
SPY: Typically, I don’t like seeing the calls outweigh the puts. Having said that, since we are already above the highest call strike it’s not all bad. If we stay above them or even better, gap higher Monday morning (a likely scenario) then they become much less relevant. Also of note is that usually the highest strike is almost double what it is now. In other words, I’m still bullish and will become more cautious if we fall below the 181.5 strike.
AAPL: I imagine you will see AAPL hit 560 next week. What it does from there remains to be seen. The earlier in the week it gets there, the higher the probability it closes higher than 560 by the end of the week. The longer it takes the more odds 560 sticks. Also, since I just wrote on this topic see here to read about when one strike dominates and becomes a magnet.
AMZN: Closing at all time highs and above the two highest strikes, the momentum is to the upside. If we fall back below 400 then it may have a little more consolidating to do before it can keep moving higher. A gap up and go Monday (or even just a go and close above these strikes) would likely change the look of this graph and confirm the strength.
BIDU: Had a strong Friday, but closed a little below the highest calls strike, which looks the same for next week at 175. Similar to the other graphs and to what I have said before, the earlier it gets over the more bullish it is. My bias is it’s going higher.
FB: Added to the S&P and the secondary was priced at 55.05. I think this is a wait and see.
GOOG: Once again we see price in the middle of the high call strikes. I have a feeling this gaps higher Monday morning.
LNKD: This has been a dog. I think it’s also a wait and see. It starting to seems like something is up because it seems curious that it’s vastly underperforming its peer group.
NFLX: Still stair stepping higher, but not with force. Price is currently below the two highest call strikes. It needs to get over them with conviction or may be trapped next week.
PCLN: Not really letting up and all pull backs are being bought up. Still on watch is that 1200 number.
TSLA: Not such a pretty week. Similar to last week the highest strike is at 150. I have no bias and see no edge currently. It does make for good squeezes when you can catch one.
TWTR: Closed just above 60 and the highest call strike. So far it still looks like more people want in. Also, sentiment on StockTwits is still more bearish than bullish, which I see as more favorable to the bulls. The highest puts is at 56.5 so if the stock happens to fall there, I think risk/reward favors buying. And over 60 maybe, just maybe we get a run to 70.