4 Trades in Aetna: Bonus Idea

Here is your Bonus Idea with links to the full Top Ten:

Aetna, $AET, slowly rolled lower over the summer. In October it broke below its 200 day SMA and it found a bottom at the beginning of November under 105. From there it raced higher over 136, up over 30%, in less than a month. Since the beginning of December it has been pulling back though.

The pullback has taken the form of a falling wedge, generally a bullish pattern, and it is breaking that wedge to the upside coming into the week. A target on the move would take it to 131.75. The 50% retracement of the move higher also gives a target on an AB=CD pattern to 152.50 above that.

The momentum indicators are turning back bullish. The RSI held in the bullish zone on its pullback and is now reversing while the MACD is stalling its fall, and above zero. From a Japanese candlestick pattern perspective the Hammer candle Thursday was confirmed to the upside Friday, suggesting more upside as well.

There is resistance at 127.75 and 130 followed by 135 and 136.50. Support lower comes at 123 and 119 followed by 112 and 104.50. Short interest is low at 2.3%. The company is expected to report earnings next on January 31st, and the stock goes ex-dividend on January 10th.

Options chains for this week show large open interest at the 125 call strike. For the January monthly options (20th expiry) open interest is big at 120, 125, 130 and 135 on the call side and biggest at 120 on the put side, giving an upward bias. February 3rd options just started trading so they have low open interest and the February monthly are also light in open interest, with what little there is focused from 120 to 130. The April chain adds some information to the mix as the open interest is largest on the put side at 110 and 115.

Aetna, Ticker: $AET

Trade Idea 1: Buy the stock (over 123) with a stop at 120.

Trade Idea 2: Buy the stock and add a January 13 Expiry 125/120 Put Spread ($1.70) and sell a January 27th Expiry 135 Covered Call ($1.68 credit) for a costless collar.

Trade Idea 3: Buy the January 125/130 Call Spread ($2.20) and sell the January 120 Put ($1.84 credit).

Trade Idea 4: Buy the January/April 135 Call Calendar ($3.50) and sell the April 115 Put ($3.95 credit).

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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which heading into the holiday shortened last week of the year sees the equity markets looking strong longer term and consolidative in the short term.

Elsewhere look for Gold to continue lower while Crude Oil consolidates with an upward bias. The US Dollar Index is strong and looks to move higher while US Treasuries continue to be biased lower. The Shanghai Composite and Emerging Markets are biased to the downside with the Chinese market looking more like a digestive move rather than the breakdown in Emerging Markets.

Volatility looks to remain subdued and at very low levels keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts all suggest further short term consolidation or even minor pullbacks may occur but within longer term strength. Use this information as you prepare for the coming week and trad’em well.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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