By: Tom Gentile
on August 16th, 2023
Originally published via our newsletter previously. Subscribe for early access!
Key Economic Reports to End the Week
The market bulls have been in charge for a number of months this year, which has the Dow up 5.96% on the year. The NASDAQ is up 31.10% and the S&P 500 is up 16.36% year-to-date.
The securities markets have rolled over a bit from their recent highs, and I am eagerly awaiting the reported numbers from the economic reports coming out tomorrow and Friday.
Tomorrow we get the Initial jobless claims numbers and the Consumer Price Index, (CPI). Friday the Producer Price Index, (PPI), comes out .
Both CPI and PPI are important and help the Fed in determining what to do with interest rates.
CPI is more relevant to consumers while PPI is more relevant to producers.
Together, they are looked upon as the strongest measures of inflation available to economists. The markets have seen sharp moves due to prior results from these reports.
The question is what the numbers will be and more importantly what they signal to investor and options traders concerning the direction of the markets.
That will play out based on what the anticipation of the Fed’s actions will be in their September meeting as a result of what these numbers are and if they are showing signal of slowing inflation or not.
— Tom Gentile
C1P: Chief 1-Percenter
Corners of the Market — SPY
This is a year-to-date chart on SPY.
It shows an ascending support line. Based on that line (green, dotted line), we’ve drawn in it shows the SPY has yet to truly have broken longer-term support.
The horizontal, solid, green line is a line that we see as the price level that may end up as support for SPY.
Should that be the case, it would be yet another time where the technical pattern of old resistance becomes new support works out.
Should a bounce transpire the bull market would be deemed by us, still intact. If not, refer back to last week’s article where fib levels were drawn in.
In this year-to-date chart on TLT, it shows yearly support at the price of 99. The overhead or high on the year is 109.
From that high one can see on the chart a succession of lower highs. One scenario is TLT could move lower the distance of the high point of the descending triangle to the support.
Not saying that amount of a move will happen, but it is a possibility.
Any type of bounce higher from here, which has already started of its recent low, may flame out when it fills the downside gap or at horizontal support.
If you haven’t heard me or any of my team say so, we do not trade options on UUP as the price movement is not robust enough, in our opinion, to make the prospects of getting doubles on options trade possible.
We use it to help in our determination of direction for US equities.
There tends to be an inverse relationship between UUP and SPY in that when the Dollar is strong it puts pressure on equity prices and vice versa.
UUP is in the upper part of the sideways trading range, which may be one reason for the bit of a slide in SPY.
Should a roll over from resistance in UUP occur we may see money flow into equities – no guarantee, but it is what we will look out for.
USO tried to break out last week and failed, but it didn’t start a reversal of the recent uptrend.
It looks like it just needed another day or two to get back to its bullish ways as it broke out to fresh highs again 5-trading days ago.
This time the breakout is so far, holding up and we are at a fresh, yearly high on USO.
Things don’t go straight up forever, and we know that so there is a chance of a pullback in USO.
The encouraging thing if that happens, if it pulls back to the 73-price area, would be if it holds that as support. It would be another case of old resistance becoming new support if that happens.
Let’s do a follow-up on those few points brought up last week.
- The closing low to closing high over the year shows the 61.8% fib level was the most meaningful support level on the year for GLD. UPDATE: This/that support area is still the support GLD needs to stay above to remain more bullish than bearish.
- The dotted, green, horizontal line indicates a double-top resistance where GLD needs to breach for me to get more bullish on GLD. UPDATE: Hasn’t happened.
- The dip it is going through now may find a bit of support as the price its at now has filled a gap up indicated on the chart. UPDATE: It is past the gap to the downside, but still holding above the 61;8% Fib retracement level.
Tools and Observations
When we are using the tools, there are scans that provide candidates that meet the technical parameters of the scans for certain tools, like Darknet.
And where some scans are the catalyst for consideration of an option trade.
The scan is all that is needed, and no other technical criteria is necessary.
Money Calendar is one such scanning tool.
Darknet is a scan that we at times DO, use additional technical analysis perspectives on the candidates the Darknet scan produces.
Take, for example, Logitech, (LOGI).
It showed up on the Darknet Scan results list today.
The reason we are showing you the majority of the list is to highlight there are more than just LOGI on the results list.
How does an options trader filter down the list of candidates?
We look at things like percentage to double (the lower the number the better) and slippage (the lower the better).
But, when there are more than one candidate that has a low percentage to double and a tight slippage (less than 1.0) we go to more technical analysis to see if one chart is ‘prettier’ than the other. That is the case with LOGI.
NOTE: This is NOT a recommended trade, but a case study or paper trade, if you will, used for educational purposes only.
Where many of the stocks in the Darknet results list show charts where the stocks are in downtrends, LOGI is in an uptrend and the Darknet B or bullish signal populates after a gap up on earnings and the retracement.
The retracement is close to a fill of the upside gap and or a price level where old resistance becomes new support.
It is because of these additional technical items we would favor the option trade shown in the Darknet results list over the others.
The option showing the lowest percentage to double is the September 15, 2023. $65 Call at $3.90.
NOTE: Again, this is not a recommendation, but an educational example where we taught you a process option traders – me and my team of option traders – go through to find our opportunities.
We anticipate this education will help you in your efforts to be successful option traders.
— Tom Gentile
C1P: Chief 1-Percenter
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