One Stock Ready For Takeoff – Traders Reserve

October 21st, 2022

One Stock Ready For Takeoff

It’s hard to believe another Friday is here. And you should know how I feel about Fridays. Watch out as we’ve typically seen some rough trading days.

So what should we expect today? Here’s a chart of the SPY, representing the S&P 500. I’ve circled an area of interest because for a month now we’ve essentially been flat.
Trading

Could we be building a base from here? There are still plenty of economic headwinds to be wary of. Let’s rewind the same chart and look at what happened at the end of June and into July. We had a market selloff, a period of flat trading, and then with a cross over the 20-period moving average, the market took off. Now compare the two charts. Do they look similar?

I don’t know that we’re going to rip higher from here and the last three trading days haven’t inspired confidence, but should the market stay above the 20-day and cross above the last swing-high around $380, we could see it continue for another push to the 200-day.

The big difference in the charts is that in July we also crossed above the 50-day and we still have quite a bit to go before challenging that line this time around.

I don’t see any reports today that should drive the market in either direction. Since this has been a news-driven market as of late, we could potentially see some mild trading today. Or maybe we will see a 900-point drop. It’s just been one of those years.

The VIX crossed under its 20-day moving average and the last time it did that was right before the mini-crash in September, so we need to stay vigilant. Remember, the VIX and the SPY typically have an inverse relationship. So if the VIX is going to bounce up from here, watch out SPY.

Trading

As the title suggests, here’s one stock that is ready for liftoff, and how you can trade it.

United Airlines (UAL) just reported earnings and is now headed into historically the best 4-week trading period for their stock. Looking back through the previous 16 years, UAL has traded positively during this upcoming 4-week period in 12 of those years, giving it a historical accuracy of 75%! The average gain for UAL over the next 4 week period is 9.96%.

With implied volatility lower after earnings, we can trade a call debit spread. Now, we do have resistance at $40, so you may want to see if it can break through first, but that’s up to you.

Trading

Here’s the trade: buy 1 DEC 16, 2022 $39 / $47 call vertical. The trade cost is $265 per spread. If the stock rises by 9.96% by November 18th, you’d have an estimated profit of $120.53 on your $265 investment, giving you a 45.65% return.

BTO 16 DEC 22 $39 call

STO 16 DEC 22 $47 call

Net Debit: $2.65 per spread.

What do you think? Will UAL fly higher?

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Jeff

Guest Writer, Filthy Rich, Dirt Poor

Editor, Wealthy Investor Society

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