4 Trade Ideas for Discover Financial: Bonus Idea

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

Discover Financial, $DFS, had a bullish run begin with a Golden Cross in October 2020. After moving up out of an ascending triangle, it exceed the target move to 124.50, topping in August. The price action since the triangle break has created a rounding top. It has spent the past month on support and is now leaking under the 200 day SMA. The 50 day SMA is also dropping to possibly create a Death Cross.

The RSI is dropping in the bearish zone with the MACD negative but trending higher. The Bollinger Bands® have squeezed in which often happens ahead of a big move. There is support lower at 112 and 104 then 96 and 91.50 before 86 and 82. Resistance higher comes at 116 and 120. Short interest is low at 2%. The stock pays a dividend with an annual yield of 1.75% and has traded ex-dividend since November 23rd.

The company is expected to report earnings next on January 18, 2022. the December options chain shows chunks of open interest at every 5th strike on the put side and focused at the 115 and 120 strikes on the call side. The January chain is biggest at the 110 and 95 strikes on the put side and spread from 100 to 135 on the call side.

Discover Financial, Ticker: $DFS

Trade Idea 1: Sell the stock short on a move under 112 with a stop at 116.

Trade Idea 2: Sell the stock short on a move under 112 and add a December 116/120 Call Spread ($1.90).

Trade Idea 3: Buy the December 112/95 Put Spread ($2.95).

Trade Idea 4: Buy the January 110/95 1×2 Put Spread ($2.20).

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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 with 2 trading days left in November, saw equity markets  showing some degree of weakness in the short term.

Elsewhere look for Gold to consolidate after a pullback while Crude Oil pulls back from multi-year highs. The US Dollar Index continues to trend to the upside while US Treasuries consolidate. The Shanghai Composite looks to continue in broad consolidation while Emerging Markets extend losses in a downtrend.

The Volatility Index looks to remain elevated making the path more difficult for equity markets to the upside. Their charts remain mixed with the SPY and QQQ stronger than the IWM. For the strong ones, they continue to look stronger on the longer timeframe. On the shorter timeframe both the QQQ and SPY are resetting momentum measures and at risk for more pullback.

The IWM is right in the middle of the longer term consolidation covering all of 2021, but in a downtrend on the daily chart. The Hammer candle on the gap down to end the week could show us that the worst is over after more than an 8% drop. 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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