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April 26th, 2023
The Government Is Interfering With Your Money Again
This time it’s not the U.S. government, but the end result of a U.K. regulator decision is likely to have an impact on your portfolio.
The U.K.’s competition authority moved to block Microsoft’s (MSFT) $69 billion acquisition of Activision Blizzard (ATVI). That was supposed to be the way to expand the Xbox audience and grow their gaming empire. It was supposed to be their way to stand up to the gaming behemoth, Sony and its PlayStation 5 gaming console.
Given how prevalent MSFT is in portfolios, it’s hard to imagine how this won’t hurt the broader market. Activision’s stock was down 11% on the news alone, let alone what this does for their overall prospects moving forward.
But, is it time to feel sorry for Microsoft? Hardly. Big Tech is once again pulling the market higher and the majority of 2023 gains have come from the badly beaten mega-cap tech stocks.
I’d be hard-pressed to say these shouldn’t be in your portfolio right now. That certainly doesn’t mean I’m bullish on tech, but investing in sector leaders will help overcome the choppy trading we’ve had lately.
Just imagine what Netflix’s (NFLX) stock price might look like once they implement their password crackdown in the U.S.
I know you’re saying that you’ll just stop watching, but only time will tell.
Ok, now on to a look at the S&P 500 (SPY) chart before we see if there’s anything worth trading.
We have an interesting picture forming here. I drew 1, 2, and 3 in red which shows the SPY made a series of lower highs since August of last year. I drew a 1, 2, and 3 in orange to show a series of higher lows. While we look to see what direction the SPY may break from this pattern, I added everyone’s favorite indicator – the MACD.
It’s a little harder to see, but the MACD is making a fresh cross on the bearish side. What makes this signal have a little more meaning is that the price of the SPY made a series of lower highs at the same time the MACD did. People look to the MACD to diverge from price action as a way to see a break in the trend. Without the divergence between the SPY price and the MACD, we are left to assume the bearish cross in the MACD is in fact a bearish move.
Given how close we are to the bottom of the wedge, we could easily be in for a rough couple of weeks.
Now, what might change my mind? Well, we’re also very near to some key moving averages – like the 50-day. We could oscillate around the moving average and move sideways. The bearish MACD signal doesn’t mean the market will collapse, but it does give me a reason to be neutral to bearish right now.
Today’s trade is based on a possible technical breakdown of a chart on Burlington Stores (BURL). Let’s start off on the weekly chart – big impulse move down, correction move higher, and now a continuation of the downtrend.
Now, let’s zoom in on a daily chart. We can see the stock made a 75% move of an average true range (ATR) to the upside. That can give us a better opportunity for a bearish entry – it’s like buying the dips, but in the opposite direction. Next, we have a line of support at $185. That is important to note because I’m looking for a break below $185, however, I will be quick to bail on the trade if the stock moves sideways or goes higher.
Since the IV Rank is 25 out of 100, there’s not much we can do for a credit spread. Sometimes when implied volatility is so low, you can buy options rather than sell them.
I’m looking at a bear put debit spread here.
Buy to open 16-JUN 190 put
Sell to open 16-JUN 160 put
The trade is showing a debit cost of around 8.65 – 9.25.
The max reward is $2135 if the stock falls below $160 by expiration. The max risk is the debit you paid for the trade. The stock needs to be below $181.35 at expiration for this spread to be profitable.
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Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab
Any trade or trade idea discussed is for educational purposes only. They will not be tracked as an official trade recommendation.
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