Case Study: Boeing
The market has been characterized by violent, up and down movements, largely caused by emotion.
In the last episode, we discussed major themes that I’m seeing, and how I’ve adjusted my trading strategies to meld to this market.
One of those key focuses is using overnight gaps to my advantage… by fading the emotion of others.
When do we do this?
(Hint it’s happening right now, and here’s how to do it)…
We do it in this market environment — the pinball mode.
What’s ‘Pinball’ Mode?
S&P Daily Chart 9/6/19:
Can you see the red box, with the yellow arrows inside? The indexes are slamming back and forth, between key areas of support and resistance — until one side breaks. This is ‘pinball’ mode.
‘Pinball’ mode is a market environment that’s characterized by:
- High emotion
- Violent changes based on news
- Lack of drive based on actual fundamentals
- “Flavor of the hour”
During this type of environment, I focus mainly on fading moves, and looking at key areas of support and resistance. This is because big moves are made based on emotion and these are usually fadable. Instead of going with the momentum like we do in a bullish trend, we step in on the other side.
Let’s talk about an example.
Boeing is a great ticker to trade in ‘pinball’ mode.
It’s been trading in a pretty clear channel, respecting symmetry. Remember: Daily charts must respect symmetry. On this ticker, I waited until it rallied directly into my zone — so I could strike, to the downside.
I placed a bearish put butterfly on August 27th and was out by September 3rd. I placed the trade for 3.36 per contract, and closed for 4. 96 per contract. I booked a profit return of a little under 50% (48% to be exact).
I entered into a short trade, on a day where the market was trading higher. This is usually one of the hardest things for traders to do… it seems more intuitive to short something that’s falling, but usually you want to go against when the market’s in ‘pinball’ mode.
And so, I got short as it traded higher.
Then, there was some inevitable bad news. While the bad news was the catalyst for it to fall overnight, the setup was based on a technical level. The news was just the moment in time the setup came to fruition.
In this type of market, these moves require precision and finesse. We never ‘know’ when gaps will be, but we know they’re very frequent in this market environment.
So, we need strategies to take advantage of them.
By using a cheap butterfly, and a short term trade, I was able to capitalize on this gap down overnight.
I’ve mentioned my upcoming webinar on September 10th BUT this is exactly what I’ll be highlighting during the webinar. So if you haven’t yet, be sure to join me here (as always, it’s free).