Analysis of S&P 500 from QuickTakesPro’s Michael Kahn:
S&P 500 (SPX) – At the time of this broadcast, SPX was around 1,973.44 up 13.21 today. The upward trendline going back to November 2012 is still intact. We are at all-time highs, so there is no real apparent resistance level. However, if we take the height from the lowest point of the last inverse head and shoulders pattern to its last resistance level and place it at its breakout point, we get a common technical analysis indicator looked at to guesstimate how high it might go before the rally runs out of gas. That point is near 1,985. “This is just a place to look for signals. It is not saying it will get there or not,” Michael noted with emphasis.
Also, as we have hit these new highs, the RSI (Relative Strength Index) appears to be fading a bit. This is another sign that momentum could be waning. But as Michael has been saying, “the trend is the trend until it is not.”
It is above its 50 day moving average of 1913.53 and above its 200 day moving average of 1827.72.
The Chart of the Day is EBAY Inc. (EBAY) –
At the time of this broadcast, EBAY was at 50.42 up 0.36 today. Over the past couple years, this stock has been trading sideways. It appears to have broken through a trendline that was acting as resistance last week. As it broke out, the MACD indicator is gaining, suggesting there was some momentum behind the recent upward movement. It is still below its 50 day moving average of 50.95 which may be an area to watch out for, but to Michael this stock looks like it is trying to recover from its yearly lows. It is also below its 200 day moving average of 53.24.
Analysis of EBAY Volatility Chart and Dividends from TradeKing’s Brian Overby –
The 30-day historical volatility is at year lows, just about 16%. The implied has jumped up recently to near 27%. There is no dividend, so that won’t affect options prices. However, earnings is anticipated to be announced after the close on July 16th which could affect options prices that expire after that date.
Michael’s analysis is fairly bullish. We also find the 30-day historical volatility levels is near year lows, but the 30-day implied volatility has been increasing, most likely because there is an earnings announcement looming. Brian discusses an Inverse Broken Wing Butterfly with Calls, with an expiration that includes earnings announcement and also discusses a simple Long Call paper trade that uses a expiration that expires before the earnings announcement.
Brian’s Paper Trade – Inverse Broken Wing Butterfly with Calls
– Sell 1 July 19 2014 EBAY 48 Call
– Buy 2 July 19 2014 EBAY 50 Call
– Sell 1 July 19 2014 EBAY 55 Call
– 18 Days to expiration for the July 19th contract
– Net Bid Credit 0.03, Mid Debit 0.03, Ask Debit 0.08 for the strategy
– Net Debit is $0.03, if we execute at the Mid. (might not be possible)
– Maximum potential loss is $2.03 Breakeven $50.03
– Maximum potential gain is approximately $2.97
– Total commission to enter this trade is $7.55
Brian’s Paper Trade – Long Call
– Buy 1 July 11 2014 EBAY 49.50 Call
– 10 Days to expiration
– Bid 1.21, Ask 1.26 for the call. Debit is $1.26, if we execute at the Ask
– Maximum potential loss is $1.26 Breakeven is $50.76
– Maximum potential gain is unlimited if the stock goes to infinity (not likely to happen). Total commission to enter this trade is $5.60. **NOTE: option prices are given as a per contract amount.
Don’t miss the next TradeKing Midday Market Call. Every Tuesday midday from 12:00 – 12:15pm ET. Regards, Brian Overby TradeKing Options Guy and Senior Option Analyst.