Quick Takes Pro Market Technician Michael Kahn Analyzes the S&P 500:
SPX was trading at 1,986.31 at the time of analysis, down 10.57 on the day. Michael began with pointing out that nothing’s really changed with SPX from last week.There was a short-term rally following the breakout from the double bottom pattern. SPX then rallied for a couple of days and now we’re at a pause day. Volume had been trending down through much of February when volume saw an increase then spiked at the end of the month. After the spike, volume dropped again as SPX rallied into March with a second spike occurring on another down day. Michael believes this activity may indicate that the argument that volume had been falling during the rally isn’t really valid. Finally, Michael points out that as SPX continues to approach its 200-day moving average, it’s nearing resistance and may be getting close to slowing down. He doesn’t believe we’re in a great place to buy new stocks for the first time as the risk/reward may not be worth the new investment at this stage in the rally.
Michael Kahn’s Chart of the Day: Whole Foods Market, Inc. (WFM):
Whole Foods Market, Inc. was trading around the 33.43 level during the time of analysis, above its 50-day moving average of 30.32. A few months ago, this was the stock that everyone loved to hate. Since then, Michael points out that a basing pattern has emerged with the stock moving sideways. There’s been a lot of damage to the stock, but it’s waiting for a breakout above $35 and is flirting with it’s 200-day moving average since it dropped a year ago. Michael likes this stock for a number of reasons: lower lows in price, higher lows in RSI bullish momentum divergence, the MACD curve is curving higher, and it’s seeing positive on-bounce volume for the first time since WFM began falling a year ago. He thinks overall it’s a good set-up, particularly if it breaks out above $35.
TradeKing “Options Guy” Brian Overby Analyzes Whole Foods Market, Inc.’s Volatility & Dividends:
Whole Foods Market, Inc.’s 30-day Implied Volatility (IV) is currently at 31.5%. It has seen a small spike up recently, but is in the lower half of the 6 month range.
Whole Foods Market, Inc. pays dividends quarterly and it’s next earnings announcement is slated for 05/04/2016.
Brian Overby Shares WFM Paper-Trading Strategies:
Brian’s first paper trade was a Short Put Spread, a bullish to neutral strategy that’s similar to a short put, but there is some limit to your risk should the underlying stock drop.
His second paper trade is a Long Calendar Spread with Calls. The strategy is set up with an out-of-the-money call strike which turns this “normally” neutral strategy slightly bullish.
Brian’s First Paper Trade - Short Put Spread
- Sell 1 April 15th 2016 WFM 32 Put- Buy 1 April 15th 2016 WFM 30 Put
- 38 days to expiration
- Net Bid 0.36, Mid 0.43, Ask 0.49 for the strategy
- Net credit is 0.43 if we get it at the mid-price, though note this is not always possible
- Maximum potential loss: $1.57
- Maximum potential gain: $0.43
- Total commission to enter this trade at TradeKing is $6.25
Brian’s Second Paper Trade - Long Calendar Spread with Calls
- Sell 1 April 15th 2016 WFM 37 Call- Buy 1 May 20th 2016 WFM 37 Call
- 38 and 73 days to expiration
- Net Bid 0.56, Mid 0.61, Ask 0.66 for the strategy
- Net debit is 0.61 if we get it at the mid-price, though note this is not always possible
- Maximum potential loss: $0.61
- Maximum potential gain is limited to the premium received for the back-month call minus the cost to buy back the front-month call, minus the net debit paid to establish the position. NOTE: You can’t precisely calculate your potential gain at initiation of this strategy, because it depends on how the back-month call performs at the front-months expiration date.
- Total commission to enter this trade at TradeKing is $6.25
Important notes: Option prices are given as a per-contract amount. Multiply loss and gain figures by 100 shares and by the number of contracts traded to determine the amount of the full potential loss or full potential gain. No additional calculations are needed to determine commission costs.
TradeKing Options Tools used:
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