Find Out How We Found This Bullish Trade
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This has been an amazingly bifurcated market on both the macro and micro levels. Big picture, the bulls and bears are basically divided over two types of analysis; technical for the former and fundamental for the latter.
Meaning, bulls are pointing to the positive price action, market structure, as well as money flows. The bears are focused on economic data, earnings reports, and the Fed.
Over the past month, the two camps have been at a stand still as the major indices remain range-bound, consolidating before an inevitable move in either direction. The decline in volatility is reflected in the VIX, which has dropped to 16, the lowest since the pre-pandemic days.
In response to this change in the trading environment, Options360 has shifted gears and moved from trading mostly the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust (QQQ) back to taking positions in individual names.
Reflecting the battleground nature of the market, Options360 opened two new positions, one bullish and one bearish. I’ll discuss the bullish trade today.
Johnson & Johnson (JNJ) reported earnings on Tuesday morning, where the company beat both top and bottom line expectations, as well as raised guidance and boosted its dividend.
The initial reaction was positive with shares trading around $168 during the pre-market session. However, once the market opened JNJ’s stock took a sharp drop, falling to around $160 per share.
Given Options360 had discussed opening a bullish position ahead of the report, I was watching closely and soon our bullish trade idea was in validated.
The silver lining, and one of the reasons I love running the Options360 service, is that being so focused on the stock’s price action allowed me to identify what I believe is a better opportunity for a longer term position.
Namely, the drop. The decline made little sense based on the positive earnings report, filled a gap on the chart and held long term support around $160. That fact, coupled with the level of “buy every dip” type of mentality the market has been displaying, we decided that this price action presented a great risk/reward opportunity for a bullish position.
I can’t provide the exact position we establish, but the basic parameters are expectations JNJ will get back towards $167ish over the next month. Very important to note, we will use a close below $159.50 as stop loss. Defining and managing risk is a necessity for long-term success.
Tomorrow, I’ll share the bearish position in Best Buy (BBY) Options360 established on Wednesday.
If you want to get this and all trades in real time, try out my options trading service ⎯ Options360 ⎯ with this special trial offer.
