February 8, 2019 - MDT Pro Tips A.M.

CURRENT POSITIONS:

GOGO Long at $19.93
Total Premium Collected $1.95
 
ASNALong at $14.20
Total Premium Collected $0.75

DUST Long $4.50
Total Premium Collected $0.70

SNAP Long at $14.54
Total Premium Collected - $1.65

OI Long Feb $19 call @ $1.70

RRC Long at $11.85
Total Premium Collected $0.50
RRC Short Feb 22nd - $9.00 Call @ $1.00

RIG Long at $8.81
RIG Short Feb 15th - $9 Call @ $0.26
.........................................................................................

We adjusted a few positions yesterday.  I suggested you close the MDR position at a small loss.  I suggested this primarily because we were overweighted in the energy sector.

On RRC, you should have rolled down the strike price of the short calls.

RRC is very close to the lower band. How RRC trades around this level will tell us how we handle this position.  I don't plan to hold these calls until expiration.

Now that it appears that the midband is holding as resistance, the question is when do we short the market?

Here is how I am reading the market at the moment.

The short term charts for the S & P 500 remain bullish.  And likewise, the short term charts for the VIX are bearish.

Based on this, I do believe the market will see another rally before any meaningful selloff.

And the most likely scenario is that the S & P 500 will retest the midband on the daily chart.

I could be wrong, but this is what I am anticipating.

The other scenario is that I am wrong and the market just continues to sell off.

Regardless of which scenario unfolds at this point, limiting long trades is the wise thing to do.  Or if you do initiate a buy, consider a married put at the time of purchase.

A married put is simply the simultaneous purchase of an out when you buy the stock.

So, what would confirm the midband as resistance?

Obviously, if the market does retest the midband and cannot get through it, this would certainly confirm the resistance level.

The other factor to monitor is the weekly bar for the S & P 500.

Through yesterday, the S & P 500 has formed an almost perfect doji bar.
This is where the close is approximately the open.

The week opened at 2,706.49 and yesterday closed at 2,706.05.  So, through yesterday, this certainly qualifies as a doji.

The midpoint of the range for the week is 2,713.12.  So, through yesterday, the market closed under it.  A close under the midpoint would be bearish.  But, a doji can also be bearish.

And finally, the weekly range so far is 52 points.  The weekly average true range is 94 points, so it is clear the market will contract this week. 

A contraction after a bull run is usually considered bearish.

Pre open, the S & P 500 is trading 15 points lower.  This would project to an open around 2,691.  Resistance from yesterday's daily bar is in the 2,703 area.

Yesterday I mentioned tracking buybacks as a watchlist.  And consider buying these stocks when you have a valid entry.

I mentioned another technique I like and will share that today.

I like to track companies that pay a high dividend.  These types of companies are typically utilities, business development companies, and real estate companies.

How do I find these deals?

On stockcharts, I can do a scan for stocks that pay a yield.  Then I will look at the stocks to see if they are oversold.

And if they are, I consider buying it.

I like this strategy because if a company is paying an 8% dividend and assuming they have not reduced that dividend, the yield becomes more attractive as the price of the stock drops.

For example, if a stock is trading at $10 and pays 8%, then if it drops to $7, the yield goes up to 8.75%.  I believe at some point the higher yield will attract more buyers.

Makes sense, doesn't it?

Let me give you a recent example of a trade I just closed out.

One company that came up on my radar was New Residential Investment Corp. (NRZ).

At the time, NRZ was trading around $14.  I picked the shares up the day after the bottom, at $14.63.

As anticipated, investors started to buy the higher yield.

I just closed the trade on February 6th at $16.96 per share.

If you factor in the fact that they also paid me a 50 dividend during the holding period, the return was 15.9% for slightly over one month.

Not bad.

So, how do you identify if the stock is oversold?  That is the question.

For me, the answer is simple.

At the time I bought NRZ, it was sitting right on the lower extreme bollinger band on its daily chart.

Couple the technical set up with the higher yield and my belief is there is only one way for the stock to move.

If you think this is a one-time fluke, let me say this.

At the time I bought NRZ, there were a number of other deals I was contemplating.  Stocks like MFA, BKCC, AMLP, and ABR just to name a few.

On our next webinar, I will show these charts and you can decide for yourself if this is a good strategy.

I don't suggest alerts on stocks that I trade due to conflicts.  But, in the future, if you would like, I will share the high-yield trades I am putting on.

If you are interested in this, email me at davismdt@gmail.com and if there is enough interest, I will be more than happy to share what I am doing.

These deals would not be considered part of the regular track record.

Here are the Key Levels for the Markets:

$VIX: 

Minor level: 22.66
Major level: 21.88 
Minor level: 21.10 
Minor level: 19.53 
Major level: 18.75 
Minor level: 17.97 
Minor level: 16.41
Major level: 15.63 <
Minor level: 14.85
Minor level: 13.28
Major level: 12.50

The VIX closed at 16.32.  The VIX got as high as 17.89 or 8 cents under the minor 17.97 level before selling off.

And with a close under 16.41, the VIX would still need two closes above 16.41 to move above 18.75.

To move lower, the VIX will have to break under 15.63.

17.97 should still be resistance.

SPX: 

Major level: 2,812.50
Minor level: 2,792.98
Minor level: 2,753.93
Major level: 2,734.40 <
Minor level: 2,714.88
Minor level: 2,675.83 
Major level: 2,656.30 
Minor level: 2,636.75 
Minor level: 2,597.65 
Major level: 2,578.10 

At the very least, I would want to see the S & P 500 to close above 2,734.40 to move higher ... and preferably two consecutive closes above it.

With an implied open today around 2,694, you want to see if the 
S & P 500 can hold the minor 2,695.30 level.

If it can't, I would expect the market to continue down to 2,656.

QQQ:  

Major level: 175.00
Minor level: 173.44
Minor level: 170.31 **
Major level: 168.75 <
Minor level: 167.19 
Minor level: 164.06  
Major level: 162.50 
Minor level: 160.94 
Minor level: 157.81  
Major level: 156.25 
Minor level: 154.69 

The QQQ closed at 168.23 yesterday.  With an active objective up to 175, I would still expect a rally.

At this point, I would expect support at 165.63.

Like the S & P 500, the QQQ is flirting with the midband which is 169.23.

IWM:
 
Major level: 156.25
Minor level: 154.69
Minor level: 151.56
Major level: 150.00 <
Minor level: 148.44
Minor level: 145.31**
Major level: 143.75 
Minor level: 142.19 
Minor level: 139.06 
Major level: 137.50 
Minor level: 135.94 
Minor level: 132.81 

The IWM closed at 149.69.  At this point, the IWM will need two closes above 151.56 to move up to 156.

The midband is 155.92 and yesterday's close was about 5 points below it.

But, like the other major markets, short term charts remain bullish.

146.88 is minor support.

TLT:  

Major level: 123.44 
Minor level: 123.05
Minor level: 122.27 **
Major level: 121.88 <
Minor level: 121.49 **
Minor level: 120.70 
Major level: 120.31 
Minor level: 119.92 
Minor level: 118.14
Major level: 118.75

The TLT closed at 121.83.  Target of 121.88 hit!

122.27 is the next minor level.  Two closes above 122.27 and the TLT should move up to 123.44.

To move lower, it will need two closes under 121.49. 121.29 is minor support.

GLD:  

Major level: 125.00 
Minor level: 124.22 **
Minor level: 122.66  
Major level: 121.88 <
Minor level: 121.10 
Minor level: 119.53 
Major level: 118.75 
Minor level: 117.97 
Minor level: 116.41 
Major level: 115.63 

The GLD closed at 123.74.  Biased for a drop to 121.88.

Daily chart remains bearish, so I have been looking for a pullback.

122.66 should still be support on the downside.

XLE: 

Major level: 71.88
Minor level: 71.10
Minor level: 69.53
Major level: 68.75 
Minor level: 67.97 
Minor level: 66.41 
Major level: 65.63 <
Minor level: 64.85 
Minor level: 63.28 ** 
Major level: 62.50 
Minor level: 61.72 
Minor level: 60.16 
Major level: 59.38 

The XLE closed at 63.23.  Watch to see if the XLE can hold 62.50.  If it can't, I would expect lower prices to follow.

A close today under 64.85 and the XLE should drop to 62.50.

64.06 should offer minor resistance.

Short term charts remain bullish.

FXY:

Major level: 89.84
Minor level: 89.65
Minor level: 89.26
Major level: 89.06
Minor level: 88.87
Minor level: 88.48 **
Major level: 88.28 
Major level: 87.50 <
Major level: 86.72
Major level: 85.94 
Minor level: 85.75
Minor level: 85.36 
Major level: 85.16 
Minor level: 84.97 

The FXY closed at 86.87.  This is the fourth consecutive day where the FXY is sitting right on the midband which is now 86.79.  

The longer the FXY consolidates here, the bigger the move will be when it finally breaks.

You know the implications if the FXY breaks under the midband.

86.72 should be support.  And resistance should now be at 87.30.

AAPL:

Major level: 187.50
Minor level: 184.38
Minor level: 178.13
Major level: 175.00 <
Minor level: 173.44 **
Minor level: 170.31 
Major level: 168.75 
Minor level: 167.19
Minor level: 164.06
Major level: 162.50 
Minor level: 159.38 
Minor level: 153.13 
Major level: 150.00 

Apple closed yesterday at 170.21.  A close today under 173.44 and the Apple should drop to 168.75.

Technical support is right around the 168 area.  We may see a bounce before Apple makes a retest of the low.

171.88 should now be minor resistance.  And 165.63 should be minor support.

WATCH LIST:

Bullish Stocks: REGN, ULTA, WCG, OST, VRTX, WDAY, ZBRA, AMT, CRM, DECK, ADP, MOH, LLY, DTE, CCI, UAL

Bearish Stocks: ATHM, KMX, QCOM, WTW, URBN, SIG, GES

Be sure to check earnings release dates.