Remember a week ago when we all thought the Consumer Price Index (CPI) report was going to be the catalyst for a market move?  A lot can change in a week.  The CPI report may have assisted in the market rebound.  There wasn’t much to it but sometimes the absence of something is enough.

What I mean is that the CPI numbers were within the consensus range for each category.  Prices rose month-over-month and year-over-year, but at a slower pace than the last report and within the range that continues to decline with each report.

This shows that inflation is slowly being handled, but again, there’s still potentially a long road ahead as these numbers are nowhere close to where they were prior to the pandemic.

So with the CPI report out of the way, we’re left with a handful of other reports this week and the Fed meeting next week. Oh, and the second banking crisis to happen in the last 15 years. Ok, maybe ‘crisis’ is turning out to be a strong word for this situation.

As long as more regional banks don’t come out of the woodwork and stop operations, this may just be a fleeting blip on the economic radar.

On the 30-minute chart, the Dow Jones Industrial Average (ETF: DIA) is currently holding on to a support line of around 319. It’s a line that has held since November of 2022, just after the bottom was formed in October. A break above 324 would at least get us out of the range we’ve been in since Friday.

The S&P 500 (ETF: SPY) is faring a little better with a series of higher highs and higher lows since Monday (again, on the 30-min chart).

And the Nasdaq 100 (ETF: QQQ) is looking at everyone else asking, “what’s the problem?”  The idea is that the banking mess will cause the Fed to reevaluate its schedule for rate hikes and that will ultimately help the tech-heavy index.  Fed fund futures suggest a slightly higher chance of no hike than any hike during the next Fed meeting.

Spotify (SPOT) is in a bullish 1-month and 6-month trend and recently experienced a short-term pullback, providing a potential good buying opportunity.

Before we go any further though – we need to acknowledge that the S&P 500 is in a bearish 1-month trend and a mildly bearish 6-month trend. This is a bullish idea on a stock that is moving higher, but it is going against the overall market trend.

Let’s continue.

The implied volatility rank is 14 out of 100, so I’m looking to be an option buyer instead of an option seller.  

You could go out in time and buy a long call, but the long call is expensive and gives you access to unlimited upside potential. There’s no need for unlimited upside potential because I don’t think the stock is going to the moon from here – not in the next 45 days or so.

This idea came across my scanner for a debit spread trade.

Buy to open 16-JUN 125 call
Sell to open 16-JUN 150 call
Net debit 10.15

The max gain is $1985 on a $1015 investment. This would occur if the stock can climb above 150 by expiration.

You may notice that you’re collecting about 3.60 by selling the 155 call. There are 6 expirations (not including this week) between now and June, so you could sell weekly calls instead, but just make sure that the credit you’re receiving each week is equal to or better than the 3.60 you could collect now. Meaning, you need to collect at least 0.60 each week if you’d like to collect a premium each week instead.

There is no stop loss level – that’s up to you and what you’re comfortable with, but since you’re long a call, you do have that theta decay working against you. Be prepared to move on quickly if the stock doesn’t keep moving higher and fast.

If you have any questions, comments, or anything we can help with, reach us at any time.
Email: [email protected]
Phone: (866) 257-3008