Top Trade Ideas for the Week October 17, 2016: Bonus Idea

• Posted by Greg Harmon
• on October 17th, 2016

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

CVS Health, $CVS, started moving lower in August of 2015. It took a few steps down but found support at 86.50 in February 2016. It bounced hard from there and rallied for 3 months to a high in May. That was short of the August 2015 high. Since then it has been falling again. 2 weeks ago the price had retraced the entire move and was sitting at 86.50 again. Last week the stock started to move higher and ended the week right at the September low bounce before the last little dip.

This is at the 88.6% retracement of the broader move. A push higher here could be the start of the next leg higher. The RSI is moving up and making a higher high and the MACD is crossed up and rising. The next level of possible resistance comes at 90.80 and then 92.10 followed by 94.20 and 96.60. then 98.20. This stock has been ping ponging off of the Fibonacci levels. Short interest is low at 1.5% and the company is expected to report earnings next on November 8th. The stock also goes ex-dividend on Thursday.

The options chains show large open interest this week at the 89 and 91 strikes on the call side. This suggests more upside. November 11 Expiry options, the first after the earnings report,have been lightly traded except for some open interest on the 87 Puts. November monthly options have biggest open interest on the Put side at the 85 strike and sizable at 90. The Call side is much bigger though and spread from 90 to 110.

CVS Health, Ticker: $CVS

Trade Idea 1: Buy the stock on a move over 88.80 with a stop at 86.50

Trade Idea 2: Buy the stock on a move over 88.80 with a November 11 Expiry 87/88.5/91.5 Put Spread Collar (buying the 88.5/87 Put Spread and selling the 91.5 Put, all for free).

Trade Idea 3: Buy the November 85/90 Bull Risk Reversal (48 cents).

Trade Idea 4: Buy the October/November 90 Call Calendar ($1.25).

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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 October Options Expiration week the equity markets continue to show some weakness, especially in the small caps.

Elsewhere look for Gold consolidate with a downward bias if it resolves soon while Crude Oil continues to plow higher. The US Dollar Index also looks to continue higher while US Treasuries continue lower. The Shanghai Composite and Emerging Markets look best to continue to bide time moving sideways.

Volatility looks to remain low but creeping higher, sucking out the tailwind from the equity index ETF’s SPY, IWM and QQQ. Their charts show clear weakness in the IWM, with the SPY and QQQ a little stronger short term. The QQQ is the best looking longer term. 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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