By Dan Darrow
November 13, 2022
Today's Trade Ideas
Strategy: Long Call
Contracts: Dec16 $30 call
Action Area: $1.50 - $1.85
Comments: UBER is a fast-developing bullish trade idea. A tightening pennant pattern is forming on UBER post-earnings, and it is quickly nearing a resolution point. UBER first hit the key 200day sma following a strong report at the beginning of August. It failed to clear the moving average on that run, pulled back later in the month, then put together another leg higher that briefly cleared the 200day sma in September. The rally was short-lived, however, and weakness across the market in September and October dragged the stock back into the mid-20s and the 100day sma, where it sat prior to the 11/01 print. Another strong quarter sent UBER popping above the 200day sma on the day of results, but once again, the stock failed to hold onto gains and rolled back into 100day sma support. Now UBER is back above the 200day sma thanks to a large post-CPI move across the market, and the tight recent pennant pattern that has formed between the 100day sma and 200day sma looks set to resolve to the upside. The stock should build momentum higher quickly, with a retest of the earnings day high (30.99) a clear initial target for the Dec16 call. The swing trade will have a tight stop below 27 (under the 100day sma) or a 30-40% net debit loss, whichever happens first.
Long Nov25 $146 call
Short Nov25 $150 call
Long Nov25 $138 put
Short Nov25 $134 put
Action Area: $1.75 - $2.20
Comments: WMT is an interesting setup for a volatility strategy on earnings. WMT is both the biggest Retail name reporting next week and one of the first to report next week, making for a high-impact catalyst for the stock and sector. WMT’s May quarter rocked Retail, and the surprise warning in July took a toll as well, though the latter was short-lived. The company rebounded in August with a solid print, and the bounce-back print helped the stock stabilize in the 130s throughout the volatility September and October stretch. WMT will head into its report this week in a three-week consolidation right at the August earnings high, and the stock has room into the May gap above (148.21) and plenty of room lower to test recent support in the low-130s. The Nov25 strangle will be targeting a move of $6.5+ in either direction over the next two weeks. The event trade will not have a stop until after earnings are released, and a lack of movement will take a toll on the short-term contracts, so be sure to plan your size accordingly.
On The Radar
If the Fed is focused on inflation data and traders are focused on what the Fed is doing, then the monthly CPI reading will continue to be a huge event for the overall market. The cooler-than-expected CPI report on Thursday morning delivered a huge tailwind for the market, including recently lagging Tech names. The massive two-day move sent QQQ and SPY above key near-term levels, and the strong finish on Friday means that there may be more upside early this coming week. QQQ now has a path to the 100day sma (292.08), and SPY has a path to the 200day sma (407.16), but there may be some speed bumps along the way. With momentum shifting to the upside, we need to have a greater mix of bullish trade ideas in the near term, though we will not be chasing patterns higher (if stocks are extended, we will wait for pauses/consolidations before getting involved).
We can give DVA slightly more room. The DVA Dec16 put spread was initiated well below the action area as the stock was up sharply on Thursday morning following the CPI number. We had originally planned on using 70.25 as a technical stop, but it makes sense to give the trade a little extra room to see if it stalls around the 8day ema (70.76). If DVA continues to grind higher on Monday (or early this week) to 72.25+, then we will close the position.
MBLY is developing nicely. The turn higher began on Thursday thanks to the risk-on action post-CPI, and MBLY followed that up with another strong session Friday, hitting the IPO high (29.86) during a fast surge in the late afternoon. The stock closed well and near the best level of the session, so we will be watching to see if it can string together another rally to above 30 on Monday. The Dec16 call has already doubled, so it gives some optionality with the trade even before the big potential IPO breakout starts.
Trader Author Portfolio Holdings
**As of 4pm ET November 11, 2022