Tuesday Still Calls the Tune

After some early-morning hesitation, the market has found first gear. It's a Monday and feels like it. Then again, the best part of Monday is it means Tuesday is just around the corner. Anyone paying attention to the market performance on Tuesdays knows it has been the best day of the week for longs, consistently, for quite some time now. I know I'm repeating myself here, but ride a trend until it finally ends. I know several folks looking just for some calls or call spreads on the SPDR (SPY) into the end of the day with the goal of selling them before the close tomorrow. Honestly, it isn't overly scientific. It is about as simple as it comes. The pattern to be long on Tuesday has worked better than anything else, so there you have it. Sometimes we do tend to overcomplicate things. I've tried to dumb it down a bit during earnings this year and it has worked, especially with the momentum names. Tableu Software (DATA) is one of those momentum names getting set to report here. Since the beginning of March, the stock has been in a free fall. The pattern looks a bit like an arc fall here. Based on the chart, I would look to the $52 area as support. Resistance sits just above price here, so a decent reaction to the earnings report could push DATA over $60 and back up toward $67.50. While this seems like one heck of a bounce for a stock that looks like death, there is very big short interest here -- in the 20% range. Tableau Software (DATA) Source: StockCharts.com View Chart » View in New Window » When looking at the chart on how the stock has moved on its previous three reports, there are some telling signs. The stock currently has options pricing a move around 12%. This is pretty much in line with the previous implied moves. While selling straddles appeals to some with the big implied volatility, this one may take an iron stomach. While the stock has closed the end of the day close to or below the straddle pricing, it has been significantly above that level two out of three times. In fact, buying the straddle and selling at the open, or shortly thereafter, has been a better play than selling the open. Another trend that has developed over three earnings reports is the stock has faded not only off the highs of the day, but also off the open. In other words, it has closed lower than it has opened all three times. The ideal setup appears to be a gap higher with some follow-through to the upside setting up for a fade. It actually sets up for a buy-the-open trade as well, but the timing required to profit from that trade feels a bit rich from a risk-reward approach. While some can pull it off, I think it would set up more losers than winners. My preferred approach here is something along the lines of unbalanced butterflies or skip strike butterflies, but we still have almost two weeks until expiration, so I don't think I would be happy with the movement those types of combinations would offer. Spreads and combination trades often move much less than folks anticipate when it comes to earnings. I'm much more likely to buy a May $55 put/60 call strangle here and sell May $70 calls against at least half the position. If the stock can get to $60, my preference here, then I would be more likely to May $60 straddles for my approach, keep the trade small and look to exit shortly after the open or even hedge after hours if there were a big move. I do want to wait until there is only 30 minutes or less left in the trading day before pursuing this position.

Tuesday Still Calls the Tune

I don't like Mondays, but am quite fond of the next day's trend.

Columnist Conversation

INDU/DIA 20 DMA

Monday Morning Fibocall for 1/25/2021

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.