A Look Back at 11 Stock Trading Setups

11 Stock Trading Setups
a review

Some Quick Background
About every Wednesday morning, I’ve been
posting trade setups to TraderPlanet.com
This has allowed people to see my approach and
what’s working in the market.
And my setups have been working very well.

About Me
I help people become
great options traders.
(who doesn’t love corgis?)

Keep in Mind
These ideas are not “hindsight” trades. They
were posted LIVE on TraderPlanet.
That means there is plenty of uncertainty when
these ideas are shared.

How this is Structured
We will go over the trade setups posted, the
reasoning behind the trade setup and how the
stock looks right now.
I’ll then provide a lesson with each one so you
can use it in your own trading.

Setup #1: UNP
“Late-cycle areas such as energy and utilities
have been doing well, and one area to watch
in the next month is rail stocks. On a
fundamental basis, these names tend to do
well when there is demand for their services
-- and if commodity prices and volume
continue to rise, the demand will rise as
well. UNP just broke out of a broadening
triangle formation, and is now a clear
market leader.
The stock is a little extended from the recent
rally but watch this name for a pullback
opportunity in the 190-187.50 area. ”

Lesson
On super liquid stocks like
this, a failed breakout
doesn’t always mean
failure. A second retest
and breakout is still a good
setup.

Setup #2: NSC
“NSC is completing a base on base
pattern with a key level of
resistance at 98.
This level will most likely hold the
first time around but if it
completes a higher low and
breaks out, it's a quick move to
100. This stock reports the
morning that this article comes
out so price volatility could
change the pattern.”

Lesson
If a breakout doesn’t happen
after an earnings event,
keep the level on alert to
see if the momentum can
continue.

Setup #3: VVIX
“Is it really that quiet out there?
You would think that the market would be a
little more scared, that investors would be
buying protection as we head into the summer.
But that’s not what we’re seeing.
The traditional "fear" index is the VIX, which
measures the supply and demand for SPX
options. With a reading of 13.71, it puts it in
towards the lower end of its six month trading
range.
But let's go down the rabbit hole just a little
more.
The VVIX measures the supply and demand for
VIX. I feel that this chart is just as important as
the VIX because investors are not just using SPX
puts to get protection-- they're now using VIX
calls. [continued…]”

Setup #3: VVIX
“The current reading in the VVIX is in the 65's,
which puts it almost near six month lows.
What does this mean? Very few people are
using the options market to protect
themselves. And you think that they would,
with FOMC minutes due out, along with jobs
numbers and economic data.
The trade here is to get long "vol of vol." That
simply means buying straddles (a combination
of a call and put) on the VIX or VXX before the
fireworks start on Wednesday afternoon.
If we get a ripper of a rally, the VIX will tank
further, and if things start getting ugly, the VIX
will spike. The only bad outcome would be a
non-move, but given the way the market's
been trading, "movement" is a high odds bet.”

Lesson
When you see the “vol of
vol” get too low, that’s a
great time to buy straddle
spreads on VIX options.
This is a hilariously advanced
trade, but really really fun.

Setup #4: IBB
“If you find a money manager who has been using leverage to get
long tech, biotech, and all the stocks that worked in 2013,
you'll probably have to talk him off a ledge.
Biotech is one of those "leading" sectors that was hard hit
during the March/April pullback. And we now have a level
that if broken, will make this market a lot more healthy than
what it currently is.
Depending on the way you tilt your head, IBB (the Nasdaq
Biotech Index) is forming an inverse head and shoulders
bottom, or potentially an ascending triangle.
The most important thing here is the resistance level that
has held for the past month, right at 235.
If that level is breached and we start to see upside
aggression again, it indicates a resurgence of risk appetite.
Biotech was one of the areas that led this market to the
downside. If 235 clears with gusto, you can make a much
better bull case for the market.”

Lesson
You don’t have to “nail the
bottom” to make good
money on a pullback.
Waiting for levels to
present themselves can
give you better odds at
the expense of a higher
basis.

Setup #5: LNG
“Stocks that worked very well last year have been hit the hardest,
and there has been a very rotation into materials. Certainly
not the most bullish part of the market cycle.
Many energy names are standouts that are much stronger
than damaged.
Cheniere Energy Inc. (LNG) is in the liquified natural gas game,
and judging by the stock price the game has been good. It is
hovering near all time highs and has built a base. A simple
breakout play should suffice here-- a move above 60 would
be a clean breakout with an initial target at 65.
However because this market has seen its fair share of failed
breakouts, a more nuanced trade would be to anticipate the
breakout here with a stop under 55 and then sell half once
the stock does break 60. With implied volatility at one year
lows, long calls are a cheap way to play it-- something like
the July 57.50 calls with similar risk management as stock.”

Lesson
No lesson here. Just got
really lucky on some news.
Toot, toot.

Setup #6: BHI
“One of the hot areas in this market continues to be materials
and oil service stocks.
Names like HAL, HES, and SLB have all seen clean breakouts
and range extensions to new 52 week highs, and news driven
plays like LNG have rewarded investors several times over.
One oil play that hasn't broken out but looks ready to is BHI.
After a strong gap higher on earnings, the stock has been in an
ever-tightening range with compressing volatility. This means
that for about two months, buyers and sellers have been
agreeing on price, but this cannot last much longer.
As the major trend is up, when there is volatility expansion it
will most likely follow the uptrend as well. Watch for a break
and hold of 71, with a measured move target of about 74-75
per share.”

Lesson
Price acts differently on a
breakout versus a pullback.
The “energies” are different
so don’t expect the stock to
trade the exact same way at
a specific level.
If you don’t trail your stops,
you’re looking for a world of
trouble.

Setup #7: EA
“PEAD is short for "Post Earnings Announcement Drift,"
where a stock sees a strong move on earnings in
response to improving fundamentals, and then the
stock continues to rise in price due to steady demand
for the company. EA (Electronic Arts) is in such a
setup.
After a strong breakout on earnings, the stock ran from
32 to 36, and then pausing for a month. During this
month volatility has continued to contract, but on
Tuesday it saw a breakout of the pattern to new highs
on increasing volume.
A long here with a stop under 34 is a good position trade,
with initial targets at 37.”

Lesson
PEAD stocks can be absolute grinders, meaning that there
isn’t a ton of momentum or that it fades quickly…
especially if it is a larger cap stock.
The target was hit on this stock pretty quickly, so trailing
stops would have worked.
Also, looking for a pb2bo (pullback to breakout) pattern
off that level is a good setup for a PEAD stock.

Setup #8: QCOM
“Qualcomm (QCOM) has been in a basing pattern for
nearly four months. The proper name for this pattern
would be an "ascending triangle" because the pivot
lows have been decreasing and the pivot highs have
been at the same level.
A simple way to play it would be to wait for the breakout
above 81 and then buy the Aug 80 calls, with a target
of 85 per share. A "trickier" way to play the stock
would be to look for the resistance level of 81 to act
as a magnet so you can get a better basis on your
position. Buying calls on the breakout of 80 and then
scaling once the stock hits 81 would be a way to stick
around in the position for a little longer with less risk,
especially as earnings approaches.
A breach of the lower trendline would signal that the
pattern is broken.”

Lesson
Anticipating the breakout as a stock
approaches earnings is a very powerful
setup as investors may start looking to
position themselves into a bullish
fundamental idea.
Also, failed breakdowns (like this one) can be
a great pattern in and of themselves.
Holding through earnings, however, can be
pretty stupid.

Setup #9: N
“’Dregs’ stocks are former high flyers that have not had a
particularly good run of things. This can be due to a
drop in earnings growth or just bad luck from a lack
of momentum.
Either way, dregs stocks become beaten down and shorts
start getting greedy. If these stocks start basing out,
there will be buy stops hit from shorts as well as
those looking to initiate new positions.
N (NetSuite) has had a rough go of it this year. Once
trading up to 120, it saw a 50 point selloff during the
momentum "blowback" from March to April.
It has now undergone a technical consolidation known
as a triangle pattern. If it breaks to the upside, it will
retest the June highs at 90 in short order. Odds are it
will pullback from that-- if it makes a new higher low
and clears 90, then it will be a longer term trend
change that you can milk for months to come.”

Lesson
Basing patterns can easily evolve. A symmetrical triangle
pattern can morph into an ascending triangle pattern,
which can then morph into a cup and handle or
something else.
And if the market doesn’t fall apart this month, this
sucker is running to 100.

Setup #10: WDC
“After a very strong rally from May to July, the stock has
done nothing besides settle down in a three- point
range.
The important thing to note is that the stock didn't break
its range to the downside while the rest of the
market was selling off in August. This indicates a good
amount of relative strength provided by convicted
buyers.
A move to 103 would confirm the breakout, but an
anticipatory long here with a tight stop is a good
trade as well. “

Lesson
If a stock fails to see a hold with volume
above an “obvious” level, tighten up your
stops because a failed breakout will take
the stock all the way back to the bottom of
the range.

Setup #11: GMCR
“Over the past four earnings events, Keurig Green
Mountain (GMCR) has seen strong moves higher in
response to improving company fundamentals.
And because of the continued aggression by buyers, the
stock often fails to fill or break below that earnings
gap.
I'm expecting a similar pattern to develop this quarter. As
GMCR fades its earnings move, it will come into
levels in which buyers aggressively come in and
defend the stock from coming lower.
A straight stock position is not the best way to trade this.
Instead, an Oct 120/115 put credit spread is a bullish
play that takes the bet that GMCR will be above 120
by October options expiration, which is good odds
and good risk/reward.”

Lesson
I freaking LOVE pb2ma (pullback to moving
average) patterns after a strong move
higher on earnings.
Bull put spreads are an option strategy that
allows you to make money as long as the
stock doesn’t breach a key level. That’s
what happened here.

Want More?
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A Look Back at 11 Stock Trading Setups

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