Wal-Mart (WMT) is an extraordinarily large company with hundreds of thousands of employees and a business model more scrutinized than any other on the planet. It’s surprising when we see strong moves in the stock’s price, if for no other reason than there are usually plenty of people paying close attention to the fundamentals of the stock. It should, in theory, always be slow to move because of the extra scrutiny, but we haven’t seen that this year. 

What we have seen this year is a pretty incredible rise in value, with only a couple small breaks in an otherwise consistent run. Now we’re seeing significant leveling-off that’s lasted for more than a few weeks, and we’re thinking that it may be the sign of a trend completed. 

If so, then we’re looking at neutral-to-bearish trades in WMT with an eye towards a slight pullback. We could also be convinced to sell an iron condor here if the strike width were wide enough and the breakeven points made sense with respect to this highlighted range. 

In any case, WMT is back on our watch list and we’re looking closely at it each day, both as a trading candidate and as a decent proxy for the retail sector. 

This is a channel built from identifying the year-to-date range of highs in USO, and inserting a parallel line around the lows. The top part of this chart is much more interesting and viable than the bottom, so we’re focusing on resistance with the idea of generating a few trade ideas. 

First things first, this pretty squarely fits our criteria for a bear put spread (a debit spread) because it’s at the very top of an established range and implied volatility is reasonably low right now. We’d be pretty happy to enter into a 2-point debit spread and wait for a pullback… the trade would need to have something like 50 delta in order to be sensitive enough to moderate price movement. 

We see the 200-day simple moving average as a fair intermediate target for a bearish move, and we’d happily exit any proposed trade at that point with a likely profit. 

Longer-term it seems unlikely that we’ll see a continued push upward during a summer season noted for sluggishness, and unless we see a spike in oil prices we don’t expect a ton of upward risk here. 

Well, sometimes you’re right and it doesn’t do you any good… and this was one of those times. We predicted yesterday that a bearish move in MCD was possible, and that we felt pretty strongly about a bear call spread or other bearish strategy if the resistance level was sustained.Today we got a nice drop in the price, unfortunately one large enough to take our proposed trade off the table. Now we’re looking at the medium-term moving average (50 days, the yellow line) for some support, as it would be the first time the stock has gone below that SMA since the beginning of the year. 

This is certainly interesting to any short-term traders who watch this stock regularly, as we may be seeing signals of a channel finally starting to form, and a possible set up for a cyclical summer season. Watch closely, and if MCD sustains this range it’s established in the past month of so, we’ll be happy to trade the ups and downs inside the channel. 

Here’s a regression channel on CLF, Cliff’s Natural Resources. The stock has gapped above the channel’s top end, and also above the 50-day simple moving average. The combination of those two events leads us to think that there might be a bit of a pull-back in order, something in the $0.50 to $1.00 range. After a small pullback, or closing of the gap created by this quick increase in price, we could be looking at a more sustained push upward. 

Our play here, if we were to trade the stock, would possibly be either a short-term, low-cost bearish trade, like a butterfly, or a longer-term bullish-to-neutral trade, like an iron condor or a bull call/bull put spread. 

Regression channel aside, this bottom could look a lot like a saucer if the rise in price continues, giving some weight to the opinions of longer-term bulls using the recent dip as a buying opportunity. 

Last blog for the day: XLF, the financial ETF, has been on a tear of late, peaking to new highs while US markets do the same. The financial sector is leading the charge, which makes us even less likely to want to buy into banks now. WIthout any additional analysis we’d look at this and say it’s due for a pullback based on the break towards the top of the regression channel. With market factors in the mix, we’d say that financials will likely lead any pullback that occurs in the next few weeks, and that bulls should proceed with caution. 

Market volatility has been decreasing steadily, and that’s taking options premium out of most otherwise-tradeable stocks. We’d like to see some kind of regression to lows so that a little premium will come back into options - it’s getting really hard to sell premium in this environment with prices so low. 

We posted a few weeks ago about cycles in the VIX, and now we’re returning to the same chart with some additional graphics. The long vertical black bars demonstrate the vertical distance in index level between cycle highs and lows, and the white boxes highlight the lows of each cycle. It’s an interesting graphic because it demonstrates a pretty clear cycle in terms of time - nearly identical between peaks - and also shows a converging triangle, with each range a little smaller than the last. 

Given that the white boxes make a type of “saucer” pattern, it seems like average volatility levels are on the rise, though market prices don’t confirm this. It’s a little bit of divergence between indicators, and that’s not a bad thing - confusing market signals often lead to reversals, or at least discontinuations of trends. Bears be happy, you might see some more volatility soon! 

UNG, the natural gas ETF, has had a consistently bullish trend for the past year, though it’s showing signs of cycling toward the lower end of its wavelength. Here we’ve got a cross below the 50-day simple moving average, which has served as a significant technical indicator on multiple occasions - both as the signal of a bullish cycle and the most recent bearish cycle. 

We’re not necessarily advocating a trade, because the 200-day SMA still exists as significant support, but if the price gets down to the 200-day (the red line on the chart) then we’ll start looking at putting in a bullish trade and playing a rebound. Big moves in commodities don’t happen in a vacuum - there’s a lot of repercussions across the market when oil/gas/fuel prices drop. 

Again - we’re not advocating a trade (yet), but this is the kind of setup that often converts into an actionable idea. 

Forgive the mess that is on the chart above, but we’re using two regression channels to demonstrate the change in the slope and speed of the recent bullish run in the US markets. The white regression channel is nearly a year long, and begins with a cross above the 200-day simple moving average (the second most recent one). The black regression channel starts at the most recent cross below and above the 200-day SMA, and shows the most recent bullish run.

Notice that, while both are bullish, even substantially so, the shorter channel has more severe upward tilt and has a tighter range, indicating that there’s been less actual volatility in stock prices during its tenure. With this week’s jump in market prices we’re getting close to the top of the white channel, and we’ve got three significant levels of support on the downside with the two moving averages and the lower end of the black channel. 

What we’re seeing is a sustained run, and there’s no reason to think the larger bullish run is over, though we may be in for a slight pullback or some neutral action now that earnings season is nearly over. 

NFLX, fresh off another earnings-announcement boost, looks like it’s living in a castle in the clouds. We predicted a slight pullback a few weeks ago, but didn’t trade the stock because of the earnings risk, and we’re glad we stayed away. Now that we’re past the cycle and there’s 2.5 months until another announcement, we may be able to sell some premium in the stock and make some quick profit. 

It’s possible that NFLX may close the gap established by earnings, and it seems extremely unlikely that it will return to lower levels than previously established, so we feel pretty comfortable with selling premium (like a bull put spread) underneath the stock’s current price. We also may look at something neutral, like a butterfly or calendar, with the hopes that the stock may “pin” to its post-earnings price for a month or two, like it did in the after the last earnings announcement. 

Either way, we’ll likely have a trade ready to roll on this stock soon, as NFLX is forcing itself back into the realm of the high-volume, high-price options darlings like AAPL, GOOG, AMZN, and others. 

Like most US equities, MCD has been on a tear since the start of the year, pausing only to test its 50-day simple moving average. It’s since resumed it’s climb but has stalled near previous highs (highlighted on the chart above), leading us to predict we may have a meaningful resistance level here. Not all DOW stocks are outperforming right now, and McDonalds is an example of small weakness with respect to the rest of the index. 

We’ve had mixed success trading this stock, but we’ll continue to look at it for trade ideas. Here we’d consider a bear call spread, or possibly an iron condor or other price-neutral trade, given the resistance above $101 and the possible continued support from the 50-day SMA (the yellow line).