This market seems a bit slick right now. Ups and downs, is it rigged?
Okay, enough with the puns that will make sense in a moment, but first, as usual, let’s check in last week’s idea. And for that, we take a look at QQQ, the NASDAQ 100 ETF:
As you can see, it’s been a rocket higher. The FOMC was spectacular for tech with its changing verbiage. Tech earnings were generally good. Everything lined up with the technicals, and tech took the elevator up instead of climbing the stairs. It was truly an incredible week for tech, and congrats to all tech bulls out there that were holding for that move.
But, we’re not here to just look at what happened last week. Of course, the goal is to find the next move. With the way stocks have moved in general over the last week, my target is to find a contrarian play. Bullish stocks have simply gotten more overbought than I like.
And for that, I like to go to the seemingly only sector that hasn’t been bullish. However, over the last few years, it’s been very bullish. And there’s reason for fundamental investors to still bet on it being bullish. Let’s look at oil, and we’ll do so with the ETF USO:
It’s not pretty after Tuesday’s collapse. However, gaps up and gaps down tend to be opportunities for short-term trades counter to that move. What that means for me is that I can look for a short-term bullish play in oil-related stocks. And my favorite ETF to play that kind of move with some leverage is OIH:
As you can see, it’s not a pretty picture. If we repeat the response to moves up and down in oil like we did on September 27th (up), October 4th (down), and October 19th (up), we can see reason to try do “fade the move” (a little trader speak on this one). And if the 200-Day Moving Average fails to hold for OIH, maybe it’s time to walk away. This is a great setup for defined risk, significant leverage, and a clean trade plan.
Of course, for me personally, I’ll now take that input and apply it to my research on many individual names in oil names. I’ll then look for names to add to my Outlier Watch List that can perform strongly in a bullish market environment, figure out how best to leverage those trades with options, define my risk, and look for some really interesting trading strategies. If you want to learn more, make sure you sign up for my Outlier Watch List now!
As always, please go to http://optionhotline.com to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades. As always, if you have any questions, never hesitate to reach out.
Keith Harwood
Keith@optionhotline.com
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