By Dan Darrow
August 30, 2022
Today's Trade Ideas
Symbol: BABA
Style: Swing
Strategy: Call Spread
Contracts:
Long Oct21 $105 call
Short Oct21 $115 call
Action Area: $1.70 - $2.20
Comments: BABA is a more speculative bullish trade idea. Chinese Tech/eCommerce stocks have had stretches of strong action this year, but the predominant trend has been lower. 2022 started similar to how 2021 ended on BABA, with low interest from traders and lackluster price performance. The early January rally stalled around the 50day sma, and by mid-March, the stock had lost nearly 50% as it slid into the low-70s. While the March drop has ended up marking the low for the year, sustained rallies have still been hard to come by, with the developing run in June/July stalling as soon as the stock hit the 200day sma. Chinese names woke up in a big way last week, thanks in part to upbeat earnings from JD and progress on allowing US authorities to inspect the accounting practices of Chinese firms listed on US exchanges. BABA surged over a three-day stretch from the high-80s up past 104 by Friday morning, but the stock was unable to hold above the 50day sma that session as the overall market tumbled post-Jackson Hole speech. BABA has rolled back into the mid-90s and the key 8day ema and 20day sma zone the past couple of sessions to retrace a large portion of the move, but it looks set up for a bounce as the stock is coming out of a two-month downtrend and peers are probing their June/July high. Headline risk remains high on this group, so the Oct21 call spread will be a more speculative bullish trade targeting an initial move to 102+ (retest of the 50day sma). The swing trade will use a 40-50% net debit loss as a stop.
Style: Swing
Strategy: Strangle
Contracts:
Long Sep30 $170 call
Short Sep30 $175 call
Long Sep30 $145 put
Short Sep30 $140 put
Action Area: $1.90 - $2.25
Comments: META has formed an interesting setup for a strangle. META first dropped into the 155/156 area in mid-June, but the level has turned into something of a magnet for the stock since then. Multiple tests of the area over the past three months have all held, and each bounce has led to a minimum rally of $15+ in less than a week. META’s steady drop the last few sessions has put it at the key 155/156 level again, and it is setting up a make-or-break pattern on the stock. If META holds the huge support level, recent action dictates we should see a sizable move to 170+ quickly. If three-month support breaks, a pent-up breakdown should lead to a drop into the mid-140s (~10% extension). The Sep30 strangle will be targeting a move of $12+ in either direction to begin locking in money, and the trade will use a 40-50% net debit loss to begin with.
On The Radar
Today was the first big down day for XLE after breaking the key 100day sma two weeks ago. Dips have been modest and quickly bought on XLE once it started to move above the 100day sma, but the large drop on Oil today weighed heavily on Energy stocks. XLE attempted to stabilize around the 8day ema, though it did finish below the key momentum level. The Oct21 call spread has already been rolled up twice, but it would still be great to see the ETF stabilize above 79.50-80 to solidify the recent breakout. We can be patient with the Oct21 call spread for now and tighten the stop on the swing trade to 77.75 moving forward (a break back below the 100day sma).
Commodities tumbled broadly today and Copper stocks were swept up in the selling. FCX sank out of the gate to close the gap from last Monday (29.86), but it found buyers around the key 50day sma shortly after. FCX stabilized under 30 and is back into the support zone from earlier in August, but it will need to firm up soon as a break of 29 could open the chart up for a much deeper slide. That is also where the stop is for the Oct21 call spread, so we will be paying close attention to the stock tomorrow.
Open Positions
Trader Author Portfolio Holdings
**As of 4pm ET August 30, 2022
