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Sometimes the best trade is no trade.

Great traders set themselves apart with monk like discipline— the mastery of self.

Unlike a 9 to 5 job, there is no limit on how much you can earn in the stock market. However, just because the casino is open—doesn’t mean you should be.

In fact, the best traders are experts at sitting on their hands.

When I do decide to trade, I’m looking for setups like I had in ATVI… which caught a pop on the same day the Fed blessed the market with its interest rate announcement:

 

Patience paid nearly 90% on those call options!


And yet I hunger for more.

I’ve got my eyes set on three possible trades for next week. They include one of the most talked about ETN products, an often overlooked ETN, and one of the largest retailers in the world.

 

XLP SPDR Consumer Staples


The stock ‘safety trade’ continues to burn hot as investors seek yield from blue-chip stocks.

While this trade isn’t new, Friday’s close highlighted its strength.

 

XLP daily chart


Investors love to flee to large-cap stocks and their relatively safe cash flows.

Companies like Procter & Gamble (PG) don’t see the same declines as a Macy’s (M) when the economy retrenches.

Traders continue to pile into this stock, making it a pretty crowded trade.

However, I’m seeing a lot of things I like here.

First, the uptrend is as obvious as the sky is blue. The ETF rose unabated since the low in December 2018.

These companies continue to beat Q3 earnings estimates more than most other sectors.

Second, there’s a clear consolidation pattern forming. The swing high wicks all come in right around $61.55. This creates a resistance level for the ETF to bust through.

At the same time, there’s a series of higher lows forming.

These two pieces create a triangle pattern.

 

XLP daily chart


Lastly, price is experiencing a squeeze. That happens when the Bollinger Bands trade inside the Keltner channel.

I use Fibonacci extensions to determine my targets. Start by using the highest swing high and lowest swing low of the pattern. Then extend upwards 27.2% to get the first target.

 

VIX


The VIX itself is actually a tradeable instrument… just not as a stock.

Traders who want to play the VIX use options and futures to take positions.

I prefer the options. They work the same as they do for stocks with a few notable exceptions.

First, I need to point out that the VIX is mean-reverting. This means that over time, it goes back to its average.

Why does this happen?

The VIX measures expected volatility in the marketplace. Based on the history of the market, there is only so little or so much volatility that can reasonably be expected.

This leads price to move off extremes back to the average.

Because of this, you rarely see pricing in options at extreme low and high levels like you would for a stock.

However, that means you get a great risk-reward for the plays at extremes.

 

VIX daily chart


Futures have more leverage than I want to play with.

So, in-the-money options work well. They give me some extra leverage, but not as much as futures.

I’d look to go out a few weeks to a month to give myself enough time. This trade doesn’t necessarily pay out a ton. I’d be fine with a 25% gain on the options.

 

COSTCO (COST)

 

Sticking with the consumer staples, Costco’s stock looks amazing.

 


COST daily chart

The strong trend peaked out just above $306. While it made a series of lower highs, it also made a series of higher lows.

This creates a pressure on price that tends to make a violent move.

All of these create the ideal TPS setup in a strong stock.

But, the stock also benefits from the rotation into consumer staples.

I don’t have to worry about earnings since they reported last month. And, between now and Thanksgiving, there aren’t many data points that would derail the trend.

So I want to find an ideal entry.

I lean on the 8-period and 21-period exponential moving averages to draw out a buy-zone. This gives me a clear area that I can line up with the right timing.

Bollinger bands provide me with a stop out area. Otherwise, I lean towards recent lows.

As I mentioned earlier, I use the Fibonacci extensions to determine my targets.

Depending on the length of the squeeze, I’ll probably only go out a month at most for the expiration.

All of these combine to give me a good setup and great timing.

It’s not too late for you to join me for this week’s trading!


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