Top Trade Ideas for the Week February 9, 2015: Bonus Idea

• Posted by Greg Harmon
• on February 9th, 2015

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

Walgreens Boots Alliance, $WBA, is the result of a reorganization between Alliance Boots and Walgreens. The new company was proposed in the summer but the stock price action looks a lot like the old company, Walgreens. I have left the yellow panel from the front half of 2014 to show that the price action since the beginning of August is eerily similar. The same basing leading to a quick rise and another base, before another quick rise and base. The last time this was followed by a collapse. Will that happen again?

The current price action without that look back would be very bullish looking. The bull flag after a second run higher would target a move to 82.50 on a break higher. The MACD is in the same situation as in the summer. It has pulled back near zero and curling up for a bullish cross. You can see in August this did not cross but rather fell hard.

The RSI is quite different though. In August it had moved into bearish territory, on the edge of being oversold. But heading into Monday it has held in the bullish zone on the pullback and is pressing back higher. That is what makes a trade to the upside interesting. Short interest is low at 1.3% and should not play a factor. And the company does not report earnings again until April 9th after the close.

Walgreens Boots Alliance, Ticker: $WBA

Trade Idea 1: Buy the stock on a move over 76.85 with a stop at 75.85.
Trade 1 is a straight buy for upside price participation.

Trade Idea 2: Buy the February 76.5 Calls (offered at 85 cents late Friday) on the same trigger.
Trade 2 does the same but with much lower defined risk (the premium paid).

Trade Idea 3: Buy the February 76.5/77.5 Call Spread Risk Reversal selling the 74 Puts (7 cents).
Trade 3 gives a short term strategic trade to the upside with leverage and a better than 10:1 reward to risk on the capital, but with exposure to owning the stock should it settle under 74 at February Expiry.

Trade Idea 4: Buy the March 27 expiry 76.5/February 77.5 Call Diagonal (1.45).
Trade 4 gives a longer term upside participation trade. You should look to sell additional upside Calls when the February calls expire.

Trade Idea 5: Buy the March 27 expiry 76.5/February 77.5 Call Diagonal and sell the March 75 Put (free).
Finally trade 5 gives leverage and downside exposure under 75 on Trade 4 but requires no capital outlay initially.

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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 next week the equity markets are coming off of a good rebound higher but showed signs of exhaustion Friday.

Elsewhere Gold looks to continue to pullback while Crude Oil tries to move higher off of a bottom. The US Dollar Index may continue to consolidate the rise, pulling back mildly, while US Treasuries are biased lower in their uptrend. The Shanghai Composite looks to continue its pullback from a major run higher and Emerging Markets continue to consolidate in a bear flag in their downtrend.

Volatility looks to remain low but slowly rising slowing the wind be=hind equities to move higher. The equity index ETF’s SPY, IWM and QQQ, are all in a consolidation pattern in the intermediate term, despite the moves higher last week. The IWM looks the strongest and may test the all-time highs this coming week while the SPY is close behind but the QQQ a bit weaker. Use this information as you prepare for the coming week and trad’em well.

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