I won’t minimize the severity of the coronavirus. It’s already disrupted global economies, with the full impact still unclear.
As a trader, you need to be able to separate your business from your feelings – focusing on the stocks and markets without judgment.
With that in mind, I give you three trades that I like going into next week.
*Note: These trades rely on the market finding at least a temporary bottom last Friday. If markets continue crashing, I plan to stay clear.
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Advanced Micro Devices (AMD)
Before this rally collapsed on its face, semiconductors had one heck of a run. It’s no surprise that they got hit pretty hard during this selloff. This stock caught my eye because of how well it actually held up given its run.
Let’s start by taking a look at the weekly chart.
AMD Weekly Chart
You probably notice some red lines on the chart. Those denote Fibonacci retracement levels. These are common retracements drawn between swings points based on Fibonacci math. They use 23.4%, 38.2%, 50%, 61.8%, and 76.4% retracements as key support levels.
In this case, the 50% retracement between the wing points also landed at the 21-period exponential moving average on the weekly chart. I use this and the 8-period moving average as a support and resistance indicator when I’m trading.
So, with both of those signals showing up, I like the looks of this trade.
Now, I want to show you what I found on the daily chart as further evidence.
AMD Daily Chart
In the same area, you can see I highlighted the lower Bollinger Band. Bollinger Bands give me a probability range of 95% based on a rolling 20-periods of candle closes. It works great as a place to find support (or resistance at the upper band).
So, as I break the trade down to the daily chart, I find that the lower Bollinger Band showed great support. You can tell that it worked well since AMD closed higher on Friday compared to the rest of the markets. That tells me it has relative strength.
Now, since this market is really volatile, and implied volatility is elevated, I don’t necessarily want to buy calls. They’re very expensive and don’t give me the best bang for my buck.
Instead, I want to sell a put credit spread on this stock.
A put credit spread involves selling a put option at a strike price that is at the current stock price or lower. Then, I buy a put option below that to cap my risk. I collect a premium for the position, which is the maximum amount I can win. The most I could lose is the distance between the strike prices less the premium.
You can learn more about put credit spreads in my free article here.
Selling a put credit spread takes advantage of the bounce as well as the high implied volatility. With the market prone to collapse at any time, I want to choose an expiration for the following week or the week after. Otherwise, I risk giving the trade too much time to turn against me.
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Tesla (TSLA)
I don’t know whether Tesla will remain at these lofty levels. However, the chart tells me that there’s a trade to be had right here and now.
Let’s look at the daily chart.
TSLA Daily Chart
Similar to what I saw in AMD, Tesla’s stock came into the lower Bollinger Band on the daily chart. That area also coincided with a gap window from where the stock started its massive run.
This stock is riskier than AMD. It ’s had a meteoric rise and fall within the last few months. However, that’s led to a high implied volatility and a wide trading range.
So, I like a put credit spread here as well. I’d go with an at-the-money spread and let the volatility for the stock work in my favor.
Netflix (NFLX)
To round out the trifecta, I offer trade number three – Netflix. While every stock was getting smashed last week, Netflix showed a lot of strength. In fact, it had a decent up day in the middle of the markets falling off a cliff.
NFLX Daily Chart
When I look at the daily chart, the support area I highlighted comes near a lot of swing highs and swing lows. That tells me this is an important level. Combined with the strength of this stock, this is another one that I want to be long.
Depending on when I enter the trade, if implied volatility collapses enough I would be fine with call options if I could find a TPS setup. Otherwise, I’d still have the put credit spread here as well.
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Millionaire Trader Reveals Top Trade Idea Each Week
RagingBull.com CEO, Jeff Bishop, shares his top pick for the week each Monday, straight to your inbox.
“My strategy aims to help you pull one winner out of the market each week, regardless of market conditions!” – Jeff Bishop
Know your strategy inside and out
Whether you play these trades or any other, it’s imperative you develop a solid strategy with rules to keep yourself on track. This will keep you from losing your shirt in the bad times while letting you take advantage of the best opportunities.
In my upcoming webinar, I go over the techniques I used to develop my TPS strategy that you can implement into your trading today. These are the same tools that took me from $38,000 to over $2,000,000 in just two years.
Click here to register for my free training session.
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