Bonus Trade Idea for the Week of September 2, 2014: Wells Fargo

September 2, 2014 5:01 AM

Here is your Bonus Idea:

Wells Fargo, Ticker: $WFC

Wells Fargo had been pulling back in a falling channel since the beginning of June until it broke the downtrend higher a week ago. It has consolidated since then at the 50 day SMA and looks ready for a break higher. The RSI paused during the consolidation but was turning higher Friday with a MACD that is rising. The Bollinger bands are starting to open as well. A break higher carries a target on a Measured Move to 53.25, just above the previous high. There is resistance at 52.15 and 53. Support lower may come at 51 and 50.60 followed by 50.25 and 49.70. Open interest this week favors the 52 Strike if it holds up and 50 on a fall back.

Trade Idea 1: Buy the stock on a move over 51.70 with a stop at 51.

Trade Idea 2: Buy the September 5 Expiry 51.50 Calls (offered at 22 cents late Friday). Cheaper than a stop on the stock.

Trade Idea 3: Buy the September 5 Expiry 51.5/52 Call Spreads (18 cents). Capped profits but a 177% return if it is.

Trade Idea 4: Buy the September 51.5/52.5 Call Spreads (37 cents). Capped profits but a 170% return if it is.

Trade Idea 5: Buy the September 51.5/52.5 Call Spreads and sell the September 50 Puts (25 cents). Increases leverage in the Call Spread but requires margin for the short put.

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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, as the market heads into September sees equities are strong but have had strong moves already. Elsewhere look for Gold to continue to hold around 1300 with a downward bias while Crude Oil has a short term bias higher in its consolidation. The US Dollar Index and US Treasuries are biased higher. The Shanghai Composite looks to continue to pullback in its recent rally while Emerging Markets are biased to the upside with the risk of consolidation at resistance continuing. Volatility looks to remain subdued keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. The IWM looks strongest and this may be a sign of rotation into it from the SPY and QQQ. The QQQ looks a bit better than the SPY having rested all week, where the SPY has some signs of short term exhaustion. But the trend of SPY and QQQ both remain higher. Use this information as you prepare for the coming week and trad’em well.

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