Nasdaq has the better edge, when considering bullish prospects. We discussed why we felt this way in a Saturday Post to subscribers, that you can read here or on the blog at The Closing Print. Topic: “Two Methods for Determining the Next Market Direction.”
Four days later the chart looks like this……
Aroon down (red line) continues its move lower, while Aroon up (green line) stays near 70. This is mostly bullish for the index. Price action is above the 50sma, whereas SPX is below. Additionally, after more than 18% gains from the November low, the index has given back a mere 2.33%, with the latest test of the 50sma.
The NYSE Composite, S&P500, Russell and Dow Industrials are still underneath the 50sma, therefore we are looking for setups in the Nasdaq listed companies. With 3100 companies listed on the Nasdaq, the COMPQ is considered a broad measure of market performance.
Income Trade in Urban Outfitters – The Setup
We are looking for income trades with short duration, due to the current state of the equities markets. That means we want to be in and out, yet have a high probability of success. We want to trade stocks with good prospects, with 2 – 10 days left until expiration.
Earnings are due 5/16/2017 After Market (confirmed)
We will not take this trade yet, we are considering a position only if we see price action move towards the upper part of the current range. Ideally, we want to take the trade on Monday, if the retail sector XRT continues to firm and Nasdaq pushes higher into Friday. Too much can happen over the weekend. That said, we’ll watch this stock over the next couple of days, as we think we can generate a nice sum of money trading covered calls should the trend continue to improve in the next couple of days.
This is the current situation, looking at the monthlies and 500 shares of URBN.
Right now we could generate $275 in premium by trading a covered calls. We could sell 5 contracts of URBN 2017 19-MAY 25.00 CALL. If the stock were to rise before expiration we would make a profit of $1,210. This trade also provides 2.4% worth of downside protection for the stock. Since we know where recent support is, this is a reasonable assumption.
- Premium received: $275
- Potential Profit if Stock is Above Strike: $1,210
- Downside Protection: 2.4%
We’ll update you on this trade in the near future.
Happy Thursday – Vinny
PS. Here are a few additional stocks that we are considering:
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