Market Summary (continued)
Friday was a case of piling on. Even though there was some decent news (Chicago PMI, Incomes) there was also less than good news. Trump ready to assess 5% tariffs on Mexican goods in a bid to force Mexico to crack down on illegal immigration to the US. China PMI manufacturing fell back to contraction at 49.4. China said it is ready to 'blacklist' certain US companies. Personal spending fell to 0.3% from 1.1% with real spending flat after a surge in March. Yen and yang.
The economic data for the most part did not help - core PCE rose to 1.6% from 1.5%, though the 1.5 was a downward revision. Nonetheless, that data was seen as anti-FOMC rate cut although various contracts are pricing in a 75BP, yes 75, rate cut with 50BP as early as September.
What was the killer that killed futures Thursday evening: the proposed 5% tariffs on all Mexican goods with the added insult that the rate could rise if Mexico does not quell the illegal immigration into the US.
This threat by the Administration may be the thing that broke the market's back. Already weak from the head and shoulders patterns the past 3 months; the double tops on SP500, NASDAQ and DJ30; the 17 months of lateral movement since January 2018; worries about China trade, European economics, a yield curve inversion . . . this news was more than the market could bear.
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STATUS: Head and shoulders. Excellent rally from the January breakout, moving up the 10 day EMA through mid-May. What a move. Two big gaps on the way up, one not so big; three gaps we can see, and that means start watching for a reversal. As CDNS put in a higher high in early May, MACD did not follow and volume was tepid. A short double top then a gap lower two weeks back. Sold to the 50 day in one move, followed by sideways movement last week that formed the right shoulder. Friday a gap lower on strong volume. We are ready to move in as CDNS continues lower with an eye on the upper gap point as the initial target. That move gains 85%ish on the put options.
Volume: 2.207M Avg Volume: 2.289M
BUY POINT: $63.07 Volume=2.5M Target=$55.65 Stop=$65.52
POSITION: CDNS AUG 16 2019 65.00 P - (-55 delta)
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STATUS: Inverted head and shoulders. Nifty pattern with a peak in September 2018 that then formed a large 6+ month double bottom with lows in December and May. The past 8 weeks as the second bottom formed, HIIQ formed an inverted head and shoulders. Note how MACD put in a higher low as price put in a lower low early May. Nice break higher Friday on volume when most of the market sold - money moving its way. As HIIQ moves through the 50 day EMA we want to move in. Our initial target is not that aggressive but lands a good gain, 20% stock, 70%ish on the options.
Volume: 689.355K Avg Volume: 955.372K
BUY POINT: $25.89 Volume=1.2M Target=$31.31 Stop=$24.09
POSITION: HIIQ AUG 16 2019 25.00 C - (61 delta) &/or Stock
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EL (Estee Lauder--$161.03; -4.58; optionable): Makeup
STATUS: EL broke out in February from an 8 month base, rallying very nicely into late April. As it put in that high MACD was trending lower; momentum waning. On May 1 a big gap higher (earnings) that reversed intraday to a loss. That prompted a drop to the 50 day MA, a bounce, then a new slide lower the past 2+ weeks, breaking the 50 day EMA with some authority on Friday. Anticipating a continued drop to near the upper gap point from early February. That move gains 65%ish on the put options.
Volume: 1.385M Avg Volume: 1.569M
BUY POINT: $160.89 Volume=1.6M Target=$149.45 Stop=$164.22
POSITION: EL JUL 19 2019 160.00 P - (-35 delta)
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--by the MarketFN STG Team
AMD (Advanced Micro Devices Inc.)
Our Success Trading Group members closed a winning trade on Advanced Micro Devices Inc. (Ticker: AMD) this week when we traded in and out of AMD the same day. We have several stocks on our radar and are looking forward to trading next week.
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KBH - KB Home is currently trading at $25.13. The July $25.00 Calls (KBH20190720C00025000) are trading at $1.54. That provides a return of about 6% if KBH is above $25.00 on expiration Friday in July.
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