Top Trade Ideas for the Week of December 12, 2011: Bonus Idea

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

3M, Ticker: $MMM

3M, $MMM, is testing the neckline of an Inverse Head and Shoulders at 82.6 as it passes through long term support/resistance at 81.50. As it moves higher the Relative Strength Index (RSI) is rising and turning bullish and the Moving Average Convergence Divergence (MACD) indicator is positive. Both are good for more upside. A break above 82.6 has resistance at 84.16 followed by 85.80 then 88.54 and 90.57 before filling the gap and heading to the target of the Head and Shoulders at 96.50. Support comes lower at 79.70 and then 78 and 75.70.

Trade 1: Buy the stock on a move over 82.60 with a 2% trailing stop.
Take off 1/3 at 85.80 and another 1/3 at 90.57.

Trade 2: Buy the January 82.50 Calls on a move over 82.60.
Use a move back below 81 to stop the trade, and take off 1/3 with the stock at 85.80 and another 1/3 at 90.57.

Trade 3: Buy the January 82.50 Calls on a move over 82.60 and sell the January 90 Calls against them to create a Call Spread as the stock touches 88.50.
Take the same action as in trade 2 for the January 82.5 Calls until the stock reaches 88.50. Sell the spread when it reaches 6.50 or as the stock breaks 90. An alternative would be to tighten it as well to a 85/90 or 87.5/90 Call Spread.

Trade 4: Buy the January 82.50/75 Bullish Risk Reversal on a move over 82.60.
Buy the January 82.50 Calls and sell the January 75 Puts against it to create the risk reversal. As it moves higher take off the Calls as in trade 2 and let the puts expire worthless or buy them back under 25 cents.

Trade 5: Buy the January 82.50/75 Bullish Risk Reversal on a move over 82.60 and then sell the January 90 Calls against them to create a Call Spread as the stock touches 88.50.
Buy the January 82.50 Calls and sell the January 75 Puts against it to create the risk reversal. Take the same action as in trade 2 for the January 82.5 Calls until the stock reaches 88.50. Sell the spread when it reaches 6.50 or as the stock breaks 90. An alternative would be to tighten it as well to a 85/90 or 87.5/90 Call Spread. Let the puts expire worthless or buy them back under 25 cents.

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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 looked as we head into Options Expiration week to be a bit more settled. Gold looks to consolidate in a range while Crude Oil is biased higher. The US Dollar Index and Treasuries are better to the upside but the trend in Treasuries is getting very weak so it could consolidate or pullback. The Shanghai Composite is on it s death bed while Emerging Markets look to continue lower. Volatility looks to continue its drift lower. This mix sets up for the Equity Index ETF’s SPY, IWM and QQQ to be biased to the upside slightly and their charts concur. The US Dollar Index strength will be the biggest risk to Equity upside in the coming week with Treasuries looking more peaked. If Treasuries gain strength then the slight Equity upside bias will be negated. Use this information as you prepare for the coming week and trade’m well.

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

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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