A Step Ahead, Covering Our XLF Play

Grabbing Great Gains Before Financials Fall

by Steven Sarnoff

Japanese Candlestick charts are a superior way to depict market price movement, because they vividly depict and reveal the human behavior (buying and selling) that drives price direction.  They often send up early warning signs of coming turns in price.  The chart is never wrong, only the analysis.

On a day when the Financial sector took it on the chin and fell hard, our readers are glad they were able to grab their gains (+82% in a little over a month) before many market participants felt the pain.  With markets closed tomorrow, here’s a walk through how we exited a step ahead of the crowd.

As you can see on our daily chart below, from mid-September to late-October, XLF shares moved south with 3 drives to a bottom.  Seeing a potential turning sign at a level of anticipated support (demand), I recommended our readers buy the XLF January $25 call for $1.40 or less.  That recommendation was triggered at Pt. A on 10-29-18 at $1.40 with XLF at $25.25.

Financials began a natural bounce.  Within a week, they put an island bottom in place.  That pattern set support below $26 and projected a rise to new resistance (former support) around $27.50.

XLF continued higher into November to test resistance and was rejected.  Support held and in early trading on Monday, price again jumped to retest resistance.  Seeing signs of selling  (the potential for an upper shadow forming on the daily candle) I emailed subscribers a Profit Alert to close the trade at Pt. B.

The XLF January $25 call traded 12-03-18 at $2.55, with XLF at $27.40, +82% in a little over a month, on an 8% move in the underlying shares, with an always known and strictly limited risk!  That is the power of my Superleverage method on display.

Yesterday’s negative candle hovers like a dark cloud and today we saw a very stern test of support.  The negative character of today’s line sets resistance at $26.48, basis the close, and implies the likelihood of lower prices down the road.

I hope you enjoyed this look at our recent trading recommendation.  Let me know if you have any questions and subscribe to Options Hotline to see how we go forward from here.

Good luck in your trading.

Best regards,

Steve

 

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