TradeKing Midday Market Call Recap: SPX, VIX, RUT, EBAY

Recap for Tuesday, June 12 by Kevin Corrigan

Did you miss Tuesday’s TradeKing Midday Market Call? Here’s a quick recap. Don’t miss another session, register here today!

Analysis from QuickTakesPro founder and Barron’s columnist Michael Kahn, CMT:

S&P 500 (SPX) – at the time of this broadcast, SPX was around 1318, up about 8 from Monday. There was a big reversal at resistance near 1335 yesterday. This is an important level. Also, another thing to point out and what is not usually noted on a standard daily chart, is where the SPX level traded during the premarket session. The high before the open was much higher than it was during the regular trading session from 9:30am to 4pm. This means the failure that occurred was even worse. Current market resistance is around 1360, where there is the potential for a lot of sellers to come in.   The RSI most recently is increasing, while prices are decreasing. This means there is bullish divergence. If you are a bear (like Michael is) keep this is mind as there may be a change coming.

Russell 2000 Index (RUT) - at the time of the broadcast, RUT was near 756 up about 5 from Monday. Similar pattern to the SPX but has been hanging around the 200-day moving average a lot longer. This is a more bearish set up with regards to the 200-day MA as compared to the SPX. It broke through the recent head and shoulders neckline of around 782. Since then it has tried three different times to break above a resistance line (around 779) and has failed. Some are saying this could be an inverse “Head and Shoulders” pattern, but I don’t agree. But with the RSI momentum indicator increasing, potential bullish movement should not be ignored.


Discussion from TradeKing Senior Options Analyst Brian Overby:

VIX – at the time of this broadcast, VIX was about 22.45, down about a point from yesterday. VIX has been trading in a range between the 100 day and 200 day moving averages, between about 18.81 and 24.60 respectively. The VIX contracts have been trading around the 22, 23, 24 levels, as we have been expecting. The August contract is trading around 26.70. Not a whole lot of movement expected outside 20-26 levels throughout the summer.


Quick Takes Pro “Chart of the Day” - EBAY - symbol (EBAY)

EBAY - At the time of this broadcast, EBAY was 40.94, flat from yesterday. The important thing is the trading level is where it has been since April, roughly 38.25 to 41.65. Here we see several failures to break above the 41.65, even this week when the market gave a run at a new high. If we draw a line between these levels and drop it from the 38.25 mark, we could see a drop to below 35 and near its former resistance level from 2011.
 


If we use the upper resistance line as a stop out point to take a trade in the stock going short, and we compare it to a potential target of 38.25, the risk-reward ratio is attractive. If it continues to decline, and breaks current support at 38.25, EBAY could head lower to under 35. Keep in mind, potential losses are unlimited when shorting stock.

Technical tools used:

- Moving averages
- RSI
- Support / resistance
- Trendlines

Options Guy’s potential options trade based on “Chart of the Day” – EBAY Long Put Spread (Bear Put Spread)

EBAY – the volatility chart shows there is a spike in implied volatility. This could be the result of activity ahead of the earnings announcement on 7/18. Because of this, I will focus on the spread trade instead of a straight put purchase. There are only 4 more days until June expiration, so we will look at the July strikes.


EBAY - Long Put Spread (Bear Put Spread):
 
- Buy 1 EBAY Jul 41 Put
- Sell 1 EBAY Jul 38 Put
- Long put spread market was Bid 0.98, Mid 1.00, Ask 1.02
- At the time EBAY was 40.96
- 39 days till expiration

- Max potential loss is $1.00 debit (mid price) if EBAY is at or above 41.00 at July expiration.

- Max potential gain is $2.00 if EBAY is at or below 38 (calculated by the $3 difference between the strikes, less the net debit paid of $1.00)

- Multi-leg commission to enter is $6.25

EBAY – Long put option as a possible earnings-based trade:

- Buy 1 EBAY Jul 41 Put
- Bid 1.88, Ask 1.90
- At the time EBAY was 40.96
- 39 days till expiration

- Max potential loss is debit of $1.90 (ask price)

- Max potential gain is $39.10 if EBAY goes to zero (quite unlikely)

- Commission to enter is $5.60


TradeKing Options Tools used:

- TK Live
- Options Strategy Workbench
- Detailed Quote / Earnings Calendar
- Moving Averages
- TradeKing Long Put Spread
- TradeKing Long Put
- TradeKing Volatility Charts


Get solid market analysis and potential trading ideas. Take 15 minutes of your lunch with Barron’s columnist and Chartered Market Technician, Michael Kahn of Quick Takes Pro, and TradeKing Option Guy Brian Overby, as they analyze the market during this live online session. As an added bonus, Michael shares the Quick Takes Pro “Chart of the Day” and Brian discusses at least one option trade. This might be the most valuable thing you do all week! Every Tuesday midday from 12:00 - 12:15pm ET.

Don’t miss the next TradeKing Midday Market Call. Register here: www.tradeking.com/events

Regards,
Kevin Corrigan
VP - Content and Social Media
www.tradeking.com

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