• This Week's Trade Idea:
Bearish: Microsoft (MSFT) – Buy the March 17th Expiration 65 Puts for $1.80 or less with a close or anticipated close below $63.75 in a down market (should that ever occur again).

• Market Overview:
We finally got what we’ve been waiting for! Almost as if on cue, the operators in the markets finally lifted us out of tedium purgatory.

• Below the Radar:
We're forced to start out this week's Below the Radar with a sentiment graphic that we came across.  Why “forced”?  Simply because the reading now being registered is in the 96th percentile.  As the graphic notes, this is extreme optimism and as many readers know this is a contrarian-type indicator.  This wouldn't be all too concerning other than the fact that serious bear markets or corrections have followed extreme readings like this in the recent past.

• Options Academy:
We're going to wrap up our coverage of the Calendar spread this time around.  We've discussed alternative uses for it the past few weeks.  Initially we covered using it defensively and then last week we covered how it can be applied on the short (sell) side as a straddle alternative.  That leaves us to discuss how we can employ it in an out-of-the-money (OTM) fashion.

Make sure to attend the Advantage Point Morning Call each Wednesday morning at 11:00am Eastern Time. This webinar is included in your Advantage Point subscription so there is no extra charge. If you haven’t registered yet, go to: https://attendee.gotowebinar.com/register/6449584955832188673 now!

Something finally gave but...

The Trade:

Bearish: Microsoft (MSFT) – Buy the March 17th Expiration 65 Puts for $1.80 or less with a close or anticipated close below $63.75 in a down market (should that ever occur again).

Outlook:

We have to be honest, it's very lean out there folks.  We're just not seeing much low-hanging fruit with great potential that we can have high confidence in at the moment.  We're not big on counter-trend trading and we try to avoid going back to a similar idea from the prior week.  Having said that, there just isn't enough compelling stuff out there for us to get behind aggressively.  Regardless, we've honed in on MSFT again for a few reasons...

Technicals:

Please take a gander at the chart above.  We've overlaid the NDX performance vs. that of MSFT.  MSFT is in candle form and NDX is in line form (magenta).  Please note the discrepancy between them at present. (the vertical green line).  It seems that MSFT, post-earnings release, has been a little “heavy”, while the NDX has continued to power up, up and away.  This can be seen by referencing the red and yellow lines that form an “X”.  It's hard to say how long this will sustain but it is the case for now.  This post-earnings sluggishness isn't sabotaging other “monster” tech companies like AAPL and FB.  In fact, they are both near all-time-highs as we write.  And, as we noted, there just isn't a lot to seize upon right now.  Many stocks have already gotten super-frothy making upside plays somewhat risky and there aren't, as of yet, a lot of downside plays showing up in our scans.  MSFT is relatively low risk and respectable reward IF we can catch the right scenario.

Support has moved up a $1.00 from last week.  That is, $63.75 is the new $62.75.  A breach of the 20 day SMA may finally trigger more selling if the market itself is finally experiencing some weakness.  MSFT has potentially put in a lower high so we do have at least a few key technicals flashing vulnerability.  Conversely, the indices and nearly all stocks we've watched have managed to hold key technical levels time and time again like synthetic clockwork.  As a result, we're not looking to play this big nor are we going to let a reversal to the upside inflict too much damage upon us.  Should we enter, and should the indices continue to rally and should MSFT begin to lift off with the markets finally, we'll likely cut and run if we anticipate or witness a close above $65.00.  On the other hand, $62.75 and $60.00ish seem like obvious potential targets if we get cooperation.

Fundamentals:

This is really about the short-term technicals at the moment.  We perceive of no major fundamental issues or flaws at MSFT at this time.

Additional:  Though we searched high and low for actionable ideas over the past few days, this juncture provided the fewest potential ideas we've seen in months.  Of all the scans that we run, and all the patterns we observed, this week provided very little bull or bear ideas for our short list.  We're not exactly sure what this means.  Typically when a breakout occurs, as we saw recently, there are many laggards that appear in scans that look primed to participate, albeit, belatedly.  That wasn't the case at all this time around.  As we write a Fed member is calling for significantly higher interest rates as the indices reverse and move higher yet again.  Clearly there's momentum to the upside but this rally should be a approaching a pause before potentially resuming but that's yet to materialize.  The breadth associated with this rally is relatively poor as well.

(Editor's note: This trade idea may be updated periodically, in keeping
with market conditions. It is intended solely for educational purposes.)

Recap of Last Week:

It was Déjà vu all over again!  Both NGG and MSFT never triggered.  NGG did move up with the market rallying but did so on gaps that kept us from initiating. MSFT was weak early on during the market’s rally but, eventually with market continuing to move higher, buyers found MSFT and came after it lifting it off of support we were watching for failure. On a side note, many symbols we covered in the Advantage Point Morning Call moved up with market as well.  Hopefully the stocks in focus will finally trigger this week!

(Editor's note: This trade idea may be updated periodically, in keeping
with market conditions. It is intended solely for educational purposes.)

We finally got what we’ve been waiting for!

Here’s a bit of our commentary from last week with the accompanying chart above:

“However, it's becoming more and more clear that we need to see a break above the resistance (R) at recent highs or a breakdown below nearby key-support (S) before we'll get broader and more interesting trading opportunities.   Note below that our RSI indicator continues to show negative divergence.  Momentum cycles still register as bullish at this snapshot in time but the longer this tedium persists the more they will weaken.”

Here's an updated chart:

Almost as if on cue, the operators in the markets finally lifted us out of tedium purgatory.  R, for resistance, was breached decisively and hasn’t let up much at all to this point.  D, for divergence, was resolved as well as the RSI indicator is reflecting the recent improvement in strength.  Since we’re witnessing new all-time highs, there’s no structural resistance in the way to help to halt the market’s upside surge.  It would seem that there’s plenty more points to tack on in the absence of unexpectedly adverse news or developments.  Clearly this isn’t about recent economic performance or contemporary progress on Capitol Hill.  This seems to be more about somewhat murky but optimistic expectations combined with momentum.

The Fed Chair Janet Yellen's testimony before the Senate committee and House panel will be one of the media's main foci in the early part of the week along with the goings-on within the new Trump administration, both small and large.

The week starts out with little economic news but it will ramp up with more earnings reports along with key inflation gauges (PPI, CPI), Retail sales, Housing starts and Industrial Production.  We will have to wait and see if Yellen and the reports help to propel the indices higher or if they serve as an excuse for profit-taking.

We're forced to start out this week's Below the Radar with this sentiment graphic that we came across.  Why “forced”?  Simply because the reading now being registered is in the 96^th percentile.  As the graphic notes, this is extreme optimism and as many readers know this is a contrarian-type indicator.  This wouldn't be all too concerning other than the fact that serious bear markets or corrections have followed extreme readings like this in the recent past.  Pull the SPX chart up on your platform and take a look at the top that was put in late in the Fall of 2007.  Check out the correction that followed the relatively extreme April 2011 reading.  Note the lack of progress through much of '14 and '15 as consistently high sentiment readings were registered.

We decided to go a step further and provide this snapshot as well:

This is a summary of CNN's Fear & Greed Index.  As can be seen, the index is up significantly from a week ago and a month ago.  Things are getting frothy.  It may also be worth noting that 1 year ago it was registering Extreme Fear.  This week last year marked the bottom for the SPX for the entire year of 2016.  The message is clear:  Be careful out there!

You can check out CNN's Fear & Greed Index anytime you'd like at:  http://money.cnn.com/data/fear-and-greed/  It's worth looking into if you're someone that would like to get acquainted to sentiment concepts.  CNN provides details into some of the key information that they calculate to produce the summary reading seen in the graphic above.  If you do explore further, please be sure to notice how market breadth in the form of the McClellan Summation Index is not yet supporting this advance.

As always, we'll continue to try to trade with the trend (still up) and momentum (still up) but this is yet another reminder to bank and roll as we do...

Something to keep in mind for later this year centers on Trump and the Fed.  By our count Trump now has 3 appointments to make to the Fed.  At some point in the not too distant future, 3 new Fed board members will be enmeshed in the inner-workings of the Fed courtesy of Trump.  Trump's administration has certainly rocked the boat in the eyes of the media so just begin to imagine Trump's people clashing with Yellen's people at the Fed.  Trump was critical of the Fed during the campaign and if he applies the same style he has with media to the Fed, things could become very interesting to say the least.  Also, let's not forget that Janet Yellen's appointment is set to terminate early in 2018.  She may only have 1 year left.  These are interesting times...

We're going to wrap our coverage of the Calendar spread this time around.  We've discussed alternative uses for it the past few weeks.  Initially we covered using it defensively and then last week we covered how it can be applied on the short (sell) side as a straddle alternative.  That leaves us to discuss how we can employ it in an out-of-the-money (OTM) fashion.

As we've noted, the calendar is mainly taught as a spread that's to be purchased at-the-money in an attempt to engage in premium collection in a capital-efficient way.  We’re going to buy into that somewhat but we're going to do it with calls that are OTM.  Here's the idea...

At times we come across opportunities that just aren't compelling enough to aggressively pull the trigger on at that juncture.  This can be frustrating for a variety of reasons but one way to turn the time spent researching the idea into a positive is to set a price alert on the stock via the Options House platform.  This is relatively simple but powerful as it can help convert sweat equity into real equity by providing timely reminders to us long after we've forgotten about valid ideas that just weren't immediately actionable.  Still though, at times, there are opportunities that fall between the setting of an alert and an immediate aggressive entry.  They are compelling enough that you believe you can't just move on from them but not compelling enough at the moment to go big!  This is when this alternative use for the Calendar spread can come in handy.

Envision a scenario in which you expect a stock to move higher with market but you realize that it has a lot of work to do to fight through much overhead resistance.  Ideally though, it would have very solid support at a level nearby.  This fits the OTM calendar well.  Here's why...

The OTM calendar is a low risk and typically lower capital outlay spread that lets us:

1. Participate in a less aggressive but less risky way
2. Provides long delta
3. Puts the Decay Curve on our side – the passage of time benefits us
4. Let's us have flexibility to go “naked long” when we deem so
5. Benefit if the stock price trades up towards our strike price

This is one that's definitely worth modeling if you're working with a tight capital situation.  The OTM Long Calendar lets us collect decay as we wait for our forecast to bear out but with less risk.  Additionally, depending on how long we engage in it and structure it, we may be able to fully pay off a longer dated at some point in the future thus allowing us to “play for free”.

As we covered many additional stocks and the markets in last week's Advantage Point Morning Call Webinar, we weren't able to cover the construction of the Poor Man's Straddle.  So, this week, again, time-permitting, we'll try to cover it and the OTM Long Calendar that we discussed this week.