Dear Fellow Trader:
My indicators are giving bearish signals right now as we get ready to head into the last week of trading before the election. However, even though my indicators are giving sell signals, the last week before a presidential election usually has a bullish bias, and the last few days of the month also tend to have a bullish bias. Regardless of all of the uncertainty ahead, that combination suggests that the market will probably do a decent job in the next week.
One of the important things to know about the election is that it is kind of freezing all consumers. Consumers are just not spending, period. Everybody’s waiting to see what’s going to happen before they make any large purchases. While we obviously don’t know who the next president is going to be at this point, that control of the Senate and House is up for grabs is also making people very nervous and causing the market to freeze in a sense.
Contrary to stocks, the price of gold should continue to fall in this environment, as it has a tendency to decline during the final week before an election. The strength of the U.S. dollar is also a factor causing gold to fall. It looks like the dollar is going to continue to rise at this point in time, so I remain bearish on gold.
As I alluded to in Wednesday’s Weekly Review, the big news this week was that Iraq insisted that it be exempt from the proposed agreement to limit oil production. As a result, I think the price of oil is starting to fall apart because the Organization of the Petroleum Exporting Countries (OPEC) is not doing what it’s supposed to do, of course, and its agreement is breaking down.
Additionally, there is so much supply stored away on oil tankers that, if the price were to rise over the near term, that excess supply would likely flood into the market. In turn, that would put a cap on what the price of oil can do at this point in time. This also limits the amount of crude that can be produced, as there is simply not enough storage capacity.
The other big story this week is earnings season, and the results have painted somewhat of a mixed picture. Some companies are showing good earnings, while others are not. Several stocks have made some significant drops because of their earnings report, and I may try to take advantage of those lower prices in the coming weeks.
We still are in a very flat, very quiet market and, despite the steady stream of earnings coming in, we’re not seeing much action at all. However, I think something’s going to happen after the election, one way or the other. My gut feeling is that the market will decline and we’ll get a good correction, but we are entering a bullish period of the year, so we’ll have to wait and see.
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 American Express (AXP) Dec 67.50 Calls (AXP161216C00067500) at $1.55 or lower. After entry, take profits if the stock price hits $69.60 or the option price hits $3.10. Exit if the stock price closes below $65.60 or the option price closes below $1.00.
Buy to open the U.S. Bancorp (USB) Dec 45 Calls (USB161216C00045000) at $0.90 or lower. After entry, take profits if the stock price hits $46.50 or the option price hits $2.00. Exit if the stock price closes below $43.80 or the option price closes below $0.50.
Buy to open the Teradyne (TER) Dec 23 Calls (TER161216C00023000) at $0.75 or lower. After entry, take profits if the stock price hits $24.40 or the option price hits $1.80. Exit if the stock price closes below $22.00 or the option price closes below $0.40.
Buy to open the GameStop (GME) Dec 23 Puts (GME161216P00023000) at $1.20 or lower. After entry, take profits if the stock price hits $21.40 or the option price hits $2.50. Exit if the stock price closes above $25.30 or the option price closes below $0.80.
Buy to open the Equity Residential (EQR) Dec 57.50 Puts (EQR161216P00057500) at $1.10 or lower. After entry, take profits if the stock price hits $56.70 or the option price hits $2.40. Exit if the stock price closes above $61.40 or the option price closes below $0.70.
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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