• This Week's Trade Ideas:
Bullish: Coach Inc. > COH > $40.06 Last.  Buy the Nov. 3rd 39 Calls for $1.85 or less with a close or anticipated close above $40.42 in an up market with expectations for continued strength in the SPY and XRT.  Somewhat speculative idea due to being counter-trend and indices are extended.  A blow-off is what will happen if we keep heading north in the indices and that's what it will potentially take for this and retail to fire.

Bullish Mentions:

Colgate Palmolive Co. > CL > $72.88 last.  CL has some interesting technical patterns and characteristics but earnings are due out in 10 days.  We will cover it in our webinar.

Bearish: None yet as the indices, while EVEN MORE short-term overbought, have not yet shown enough to suggest a retracement is imminent.  We’re not quite ready to begin fighting against this environment BUT WE MAY BE GETTING CLOSER.

Bearish Mentions:

BBY, CRM, FB A few big names showed up rather surprisingly.  Naturally these are all of the counter-trend variety and we will cover them in our webinar.

• Market Overview:
The slo-mo melt-up conditions persisted across the market. The motivations remain the same: Jam even higher for bigger bonuses and with Q3 earnings looming that could be the stuff that gets the next launch started. The earnings trickle has already started.

• Below the Radar:
We published a snapshot of CNN's Fear & Greed Index last week along with a plot of the same over time. Within just a few days those levels were exceeded!

• Options Academy:
We're going to cover a recent Bullish Mention in the form of Costco > COST as it helps to show us why "sidestepping" earnings reports may not be the worst idea! And... we're going to keep it short and sweet!

“Definitely due for a pause or pullback” OR “Get ready to go parabolic!” – we will see…

The Trade(s):

We strongly suggest attending tomorrow morning's Advantage Point Morning Call for full details with respect to these idea(s), last week’s and options education.

Last week we suggested that stocks were overbought yet there was a little room to run.  We wondered if they needed a pause to move higher or if they could do it in a straight line.  For the most part, we got just about what we expected.  There was no immediate selling despite the overboughtness and stocks generally found a way to glide a little higher.  We’re “late” in the up cycle at this point and the push seems to have at least temporarily petered out.  Our decision to only stay with a few bullish mentions last week due to the “extendedness” condition of the markets with seemingly scant upside looks like a respectable position to have taken.

The euphoric feelings have only intensified since last week and resistance levels are literally where we're at!

It's very late (by normal standards) to enter on the long side but once again there's very little in the way of corrective action to look to the bear-side.  With most stock prices in orbit, that leaves very little low-hanging ideas for us to safely latch onto...

Bullish Ideas:

Coach Inc. > COH > $40.06 Last.  Buy the Nov. 3rd 39 Calls for $1.85 or less with a close or anticipated close above $40.42 in an up market with expectations for continued strength in the SPY and XRT.  Somewhat speculative idea due to being counter-trend and indices are extended.  A blow-off is what will happen if we keep heading north in the indices and that's what it will potentially take for this and retail to fire.

Bullish Mentions:

Colgate Palmolive Co. > CL > $72.88 last.  CL has some interesting technical patterns and characteristics but earnings are due out in 10 days.  We will cover it in our webinar.

Bearish Ideas:

None yet as the indices, while EVEN MORE short-term overbought, have not yet shown enough to suggest a retracement is imminent.  We’re not quite ready to begin fighting against this environment BUT WE MAY BE GETTING CLOSER.

Bearish Mentions:

A few big names showed up rather surprisingly.  Naturally these are all of the counter-trend variety and we will cover them in our webinar.

BBY

CRM

FB

Outlook:

The resistance that was "a little ways" away last week has been hit and has at least temporarily halted the levitation higher.  Will it be strong enough to cause a reversal for at least a little while?

Technicals:

Will be discussed in-depth in the Advantage Point Morning Call webinar.

Fundamentals:

These trade idea(s) and mentions are technically-driven.

(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:

Last week we were once again fortunate to avoid anything remotely bearish.  We didn’t issue any official ideas as the markets were stretched.  The major indices, once again, played out fairly-closely to the way in which we discussed they would in last Wednesday’s Advantage Point Morning Call webinar.  They weren’t ready to go do down quite yet but there wasn’t much left in the tank to really take off.  They managed to hit the resistance levels we highlighted and they’re currently in the vicinity of those levels.  Thus, it was a tough “Tuesday” at which to initiate new ideas.  It looked that way at the time and in retrospect it certainly played out that way.  Still though, we did have a few bullish mentions of which we provided an email update late last week.

The bullish mentions from last week were essentially our “2^nd tier” ideas as our top tier ideas ran rather insanely to the upside before we could make them official.  Naturally, that frustrated the living daylights out of us but that’s trading/publishing!  (at times) Here are the 3 mentions:

WMB > Never moved up past our resistance.

SYMC > Made it through our trigger and looked fine but it received a downgrade from Morgan Stanley on Monday morning and was sold off as a result.  It never really had a chance to get going.

ADP > Took off rather nicely and went right to our resistance level quite cleanly.  We put out an update on that level late last week.

Many of the prior week’s ideas and mentions were covered in last week’s AP webinar.

CIEN, the only official idea, never powered up to the degree we believed it could and we noted that not waiting around too long in there way the key as it hasn’t broken the downtrend it’s been in.

Highlighted bullish mention COST, did move up “OK” but didn’t power and as it had earnings due out, we noted in our webinar that exiting prior to the earnings release would be prudent.  Though COST “beat the number”, the stock price was crushed following the earnings report.  This is our new example of why we avoid earnings risk as a matter of policy.

Bullish mentions KR and KHC never got it going and were fairly close to levels we’d spotted them at 10 days prior.   As is normally the case, we noted that we never overstay our welcome in counter-trend trades.

At this point there’s not much more to cover on these mentions.  Mostly, they made brief attempts or better to move up but could never really catch fire enough to power through key resistance that would make them worth holding longer.

The slo-mo melt-up conditions persisted across the market.

As can be seen in the SPY chart above, they've been driven through one resistance line but haven't quite made it to the resistance of a lesser degree.  The white oval highlights the possible conversion to support process that could be happening now.

The NDX is more closely shadowing the SPYs than it had been a few weeks back.

The yellow oval shows that the NDX is bumping against the upper Bollinger band but it too could be using the former horizontal resistance level as a means of support.  Only time will tell...

We noted the DIA had ran quite a bit but that room remained.  Well...it went to our channel resistance level and that's where it remains.

As can be seen above, the GANG poured back into the FAANG basket in a big way.  The ascending triangle and compound head and shoulders patterns are still in place.  Though in need of a breather like the rest of the market, FAANG could hold the key to Q4.  FAANG has been bottled up for several months and the markets chugged on without it.  IF FAANG reassumes its leadership role, the blow-off top that's being discussed could materialize and take people's breath away.  It could be spectacular.  Something not seen since late '99.  We will soon see what lies ahead!

The motivations remain the same: Jam even higher for bigger bonuses and with Q3 earnings looming that could be the stuff that gets the next launch started.  The earnings trickle has already started.

Regular readers know where we sit with regard to the economic data.  It's almost become immaterial to us as the phase we find ourselves in has rendered it so.  Wednesdays' FOMC minutes and Friday's slew of releases will keep TV's talking heads chattering but, in reality, performance-chasing, ZERO % or negative interest rates, and other behavioral tendencies and herd psychology are what's driving the mania much more so than gussied-up economic numbers.

We published a snapshot of CNN's Fear & Greed Index last week along with a plot of the same over time.  Within just a few days those levels were exceeded!  That's what spurred us to include new snapshots in last week's email update:

We noted last week that “one side of the boat” was overloaded and now that’s even more the case!  It doesn’t mean that we drop immediately but typically there’s a little “shakeout” maneuver that occurs following this level of “one sidedness”.

Another issue that's come along part and parcel with the "one sidedness" has been the lack of volatility, to put it mildly.  We covered this time and time again and as recently as last week but now we have MORE on it...

We stumbled upon a long and winding piece in our travels across the Internet in search of Below the Radar material.

It paid off in a big way, if you have time to kill!  This is quite an entry from: https://northmantrader.com/2017/10/08/flatliners/

We couldn't help but to include a few of our favor pieces from within the larger piece.

"Oh I’m kidding of course, but any trader staring at the tape knows that we find ourselves in the most compressed price environment in history.

This is not normal, there’s no heartbeat:"

Volatility is practically dead!  Downside move are practically non-existent!  Yes, the machines are all around us but even machines can be triggered to the downside.  This is about as uncomfortably calm as it gets.

More from the Northman:

"As I’m writing this I’m fully aware I may be viewed as the bear who cried wolf. After all I’ve been outlining structural risk factors for a while and markets have moved past my technical risk zones of 2450-2500 and most recently 2530. That’s what bubbles do. They blow past anyone’s expectations, they make believers of the unbelievers, make bears look like idiots and the most reckless look like geniuses.

But an extreme market that only becomes more extreme is not any less extreme, it is just more extreme. As no risk is apparent these extremes are then dismissed as the new normal."

The Northman briefly focused on one of our main concerns in the form of the graphic above.  We can see, once again, that the DC & the FED's policies have helped the top 10% over the past few decades but significantly undermined those of the bottom 90%.

We've scoffed here and there when talk of the FED "normalizing" has arisen.  We have company in the form of the Northman and they're citing concerns we've covered from JPM's Marko Kolanovic:

Before we push on, we have to include this rather large graphic we clipped at the Northman's site.  The write up there is definitely worth reading in full but this is a large part of what we liked so much about it.  We couldn't have wrote and "C & P'd" it better ourselves:

And there you have it!  More rounds of the same are in the works it would appear so party on!  Expect more euphoria as they're laying the groundwork for more euphoria! Talk is cheap and getting even cheaper in 2017 and beyond it would appear!  This is yet another great example of why just following the charts and not getting caught up in all the hooey and grandstanding has served us so well over the years.

Moving on from the Northman, we have this amazing graphic that puts today's euphoria into historical perspective: http://stockboardasset.com/insights-and-research/visualizing-real-test-bulls-one-chart/

We'll begin to wrap up Below the Radar this week with a link and a few snippets from John Hussman's recent commentary entitled "Bubble Mindset": https://www.hussmanfunds.com/wmc/wmc170925.htm

For the 2 key sections we're covering, we're leaving them just as we found them:

Obviously Hussman believes that this the most overvalued US Stock Market in history on this basis.  Eclipsing 1929 is no small feat!  But what of the future?:

As can clearly be seen above, if the future S&P 500 performance behaves as it has in the past, there's not a lot to love about the next 10 to 12 years or so.  Put another way, there seems to be much greater risk than reward left for investors at this stage, if history is to be a guide...

We're going to cover a recent Bullish Mention in the form of Costco > COST as it helps to show us why "sidestepping" earnings reports may not be the worst idea!  And... we're going to keep it short and sweet!

We covered it on 9/26 with the stock trading near $164.00ish.  A trader could have bought the slightly in-the-moneys we've been employing all year as such: Oct. 13^th Exp. $160.00 calls for $6.25 with a .68% delta.  That would have fit the bill the way it has for us many times over the course of 2017.

Rather disappointingly, COST closed over $167.00 on 10/5 just before the earnings announcement due out after the bell.  Below is the chart action since:

We draw your attention to what's transpired in the oval post-earnings.  COST missed right?  WRONG, they actually "beat" the number.  This type of reaction is what cured us of "playing earnings", without a serious axe to grind, over two decades ago.  If we visit the options just prior to the announcement and we assume we owned a 10-lot of the above-mentioned calls that we prudently closed out, here's the math had we exited:

9/26 Bought 10 Oct. 13^th Exp. $160.00 calls at $6.25 x 10 = $6250.00 debit

10/5 Sold 10 Oct. 13^th Exp. $160.00 calls at $8.10 x 10 = $8100.00 credit

Net Profit = $1850.00 on a $6250.00 investment in 10 CALENDAR DAYS!

There's nothing wrong with that!  That's nearly 30% ROI!

Pushing it from there and risking both profits and original principal for a coin-flips chance on earnings is the opposite of what we seek as traders.  We're in search of better than 50/50 odds otherwise why play the game?

As a side note, for those that still relish the idea of "betting on earnings", we suggest you consider the following: Take the $1850.00 in pre-earnings run profits and speculate with it, the "house's money".  Those players could have bought the Oct. 13^th Exp. $170.00 calls for $1.80 just prior to earnings after closing out their $160.00's for the profit.  Thus, the only thing lost would have been the house's money that had just been made.

The Lesson? When forcing wild speculation, do it with "other people's money" just like the Wall St. Pros!

If you have any questions please bring those to our next Advantage Point Morning Call webinar.

Have a great week!

The Advantage Point Team