Dear Fellow Trader:
Our indicators have now turned to a solid bullish reading. Of course, we had an extended period of market losses, so we’ve seen somewhat of a reversal now.
Oil has made a snapback rally — a pretty swift one, for that matter — but I think oil prices probably will not move up very much from here. We’re at a point at which it’s going to find some overhead resistance, and if I were a betting man, I’d be betting that it would go lower from here. At the moment, I think people are taking advantage of this $50 range. If they can lock that in, they’re probably going to be okay with a commodity hedge.
Oil inventories are still awfully high; we have a huge amount of oil, and that puts a lot of pressure on the market. Saudi Arabia is trying to do the reverse thing, because they’re working on a public offering for 2018…but it hasn’t gone too well because a lot of other countries are cheating on the production levels from the OPEC agreement. So, oil prices are headed for a breakdown and are going to be a problem for the market in the future.
I would say, though, that the unexpected strength in the market this week is a bullish sign.
As traders, we always want to look at the S&P 500 Volatility Index (VIX), and that is still very low. This tells me that, at this point in time, there isn’t a lot of danger of a crash. When the VIX does start to rise a lot, you have to get very defensive — but we are just not seeing that. Even the pop after Speaker Paul Ryan pulled the health care bill was relatively small.
So, we’re still in a bull market, and it looks like it’s going to continue. The market’s rallying into what I would consider to be bad news on the political front. Congress really fumbled on health care, and there’s a lot of infighting in the Republican Party. President Trump tweeted again on Thursday morning, saying he was extremely upset with the Freedom Caucus…and, of course, the Democrats are fighting everything.
That’s a negative for the market, but the FANG-type stocks in particular just continue to rise: Facebook (FB), Amazon (AMZN), Microsoft (MSFT), Google (GOOGL) and Apple (AAPL). All are near or at all-time highs, and they continue to lead the market. They’re also leaders in their respective industries.
Ultimately you want to have more diversification in the market, though, and there’s just not much of a selection of stocks. Wall Street just doesn’t have many alternatives to the Googles and Amazons of the world. In the recent past there have been lots of mergers — and not many new offerings. Now, I do think that will change, because the market environment is so good for IPOs. Meanwhile, retailers are still in an ice age. (In fact, that might be a place to start looking for a contrarian play.)
As for currencies, the U.S. dollar has weakened, and that tells us that the euro is the place to be. I think “Brexit” will have less of an impact than everybody thinks it will — it will take several years to play out. I’d be more watchful of the French election in late April as a catalyst for global markets. We certainly could use a little more volatility, as far as option trading goes! In the meantime, we’ll go with the short-term trend and lean a little more bullish, with three call options and two put options.
This Week’s Trades
Every week, I scan thousands of potential option plays to develop your exclusive list of Power Options. These Power Options rely on a proprietary, scientific approach that removes the guesswork and allows my powerful software to identify the best option buys.
All of these short-term options are actionable for up to three days after they are recommended. You’ll need to watch the stock and option prices to ensure the trades are close to where they were when I made the recommendation. If after three days you still have not gotten the position filled, cancel the order and watch for my new recommendations, as the profit probabilities may no longer be valid.
Buy to open the Enzo Biochem (ENZ) May 7.5 Calls (ENZ170519C00007500) at $1.05 or lower. After entry, take profits if the stock price hits $9.30 or the option price hits $2.00. Exit if the stock price closes below $7.60.
Buy to open the Blackhawk Network Holdings (HAWK) Jun 45 Calls (HAWK170616C00045000) at $0.95 or lower. After entry, take profits if the stock price hits $44 or the option price hits $2.00. Exit if the stock price closes below $39.50.
Buy to open the Advanced Micro Devices (AMD) Jul 16 Calls (AMD170721C00016000) at $1.35 or lower. After entry, take profits if the stock price hits $16.20 or the option price hits $2.50. Exit if the stock price closes below $12.90.
Buy to open the GameStop (GME) Jul 20 Puts (GME170721P00020000) at $0.85 or lower. After entry, take profits if the stock price hits $20.30 or the option price hits $1.60. Exit if the stock price closes above $23.60.
Buy to open the First Solar (FSLR) Jun 25 Puts (FSLR170616P00025000) at $1.10 or lower. After entry, take profits if the stock price hits $24.50 or the option price hits $2.30. Exit if the stock price closes above $29.
Remember, if a profit target is hit intra-day, exit and take profits immediately. Occasionally, if a sudden profit appears, we may recommend exiting a position early to capture the gains, and my team will alert you during the trading day via email or text message if you have elected to receive them.
If the position closes at or below the stock- or option-based sell signal price, exit the trade the next morning at the open.
Additionally, if an option or its underlying stock does not hit its target, or if the stock does not close at or below its sell signal price within three weeks of entry, close the position. I do not recommend holding an option play for more than three weeks.
As always, we’ll let you know when there’s a profit-taking opportunity, and we’ll be back with a look at all of our positions on Wednesday. Have a great weekend.
Ken Trester and the Power Options Weekly Team
Important Note: This sample issue was originally published several months ago. All of the trade recommendations are now out-of-date and no longer apply. When you're ready to get into the next trades simply click the button below.
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