Top Trade Ideas for the Week of March 5, 2012: Bonus Idea

• Posted by Greg Harmon
• on March 5th, 2012

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

Dillards, Ticker: $DDS

Dillards, $DDS, had a massive pop out of a consolidation at the 200 day Simple Moving Average (SMA) running up nearly 25% in less than two weeks. It has had high short interest over 15% which could have helped fuel the fast rise. Consolidating now, it is showing signs of a top. There are topping tails on the last 3 candles and it has a Relative Strength Index (RSI) significantly overbought in the low 80’s with a Moving Average Convergence Divergence (MACD) indicator that is positive but fading. A bit obvious but a 25% run from the 200 day SMA also leaves it extended 25% above the SMA’s a spot it has not seen since the gap higher in May. Of course it can work off the overbought condition and allow the SMA’s to rise to meet it by just consolidating sideways, and there is no rule that it cannot get more overbought or more extended. If it chooses that direction then there is a Measured Mover to 70. Support lower is found at 55.50 and 53 before 52 and 49. My bias is to the downside.

Trade Idea 1: Short the stock on a move under 60 with a $1.20 trailing stop.

Trade Idea 2: Buy the March 60 Puts on a move under 60.
These last traded at 1.20 Friday. You can trade then using the stops and targets you would use with the stock but for a fraction of the risk.

Trade Idea 3: Buy the April 60 Puts on a move under 60.
The same idea as trade 2 but gives you a few more weeks for it to complete. These traded last at 2.90 on Friday.

Trade Idea 4: Buy the April 60/55 Put Spreads on a move under 60.
This spread traded last at 1.65, cutting the cost of the April 60 Puts substantially but limiting the maximum profit. The March version of this trade selling the March 55 Puts for 20 cents does not cut the cost of the March 55 Puts enough to warrant capping the profit.

Trade Idea 5: Buy the April 60/55 Put Spreads, selling the April 65/70 Call Spread on a move under 60.
The Call spreads was selling for $1.45 on Friday cutting the cost of the Put Spread to 20 cents. It does expose you to more downside risk of up to $5 if the price were to rise to 70 by expiry in April. This can be mitigated by buying the stock as a hedge on a break back over the flag at 62 and or buying the Call Spread.

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After reviewing over 900 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 Saturday which heading into the first full week of March sees the market still looking strong but showing signs of a needed rest in some areas. Gold, the enigma, looks lower in the very short term but positive on an intermediate and long term basis while Crude Oil is consolidating in an uptrend. US Treasuries remain in their consolidation zone but are looking slightly better to the upside while the US Dollar Index appears to have found a bottom and ready to work higher as well. The Shanghai Composite and Emerging Markets both continue to look higher into next week. Volatility looks biased to the downside but has little room lower, while it certainly does not look ready to turn higher. These influencers set the stage for the US Equity Indexes to consolidate within their uptrend. A move lower by the US Dollar Index or Treasuries should change that to continue the rally higher. The charts of Equity Indexes are mixed though. The QQQ remains very strong while the SPY is starting to look ready to consolidate and the IWM may pullback. A hard move higher by the QQQ or lower by the IWM, dragging the SPY with either could set the direction for the next few weeks. Use this information as you prepare for the coming week and trade’m 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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