Stock Market Showed Continuation of Bullish Signs Last Week

After I reported volatile market actions on August 9th post: Trading stocks in Turbulent Market Days, the stock market had 2 sell-off's within a week. Since the drops were accompanied by higher volumes and the decline of new highs - new lows indicators of NYSE & NASDAQ, I went to bearish outlook for the intermediate term. I tried to initiate bearish trades at the time. However, I was not able to find a candidate that could meet my bearish trade criteria until August 18 which coincided with the bottom of the SPX pull-back in last 4 weeks.

On August 18, I was glad to find HOG forming a picture-perfect descending triangle break-down with high volume as I posted on StockTwits. I bought Nov 17, 2017 $50 Put for $4.80 for this consumer sector stock as consumer sector performed poorly in those days. The stop loss point was set at a recent high around $48.27.

However, the stock pulled up along with general market in the next couple of days. Hence, I had to leg into a diagonal put spread by selling Sept 15 $46 put as shown in the chart below. Since then, the stock price has not been able to rise more than 2 days in a roll and formed another lower high at $48.12. The pricing pattern is not a descending triangle any more, but looks like it may be forming a low base pattern. I have to face it: any outcome is possible with all the trades I put on as my trading is a probabilistic game. This is one piece of fundamental truth of trend trading.

On August 22, the market rose strongly along with higher volume. I felt it could be the 2nd confirmation day to signal the continuation of the bull market. I noticed EDU (a Chinese company) was breaking out with high volume along with outperforming emerging & Chinese markets. So I entered an aggressive bullish position on EDU as shown in the chart posted on StockTwits in the middle of the day. The mental stop loss was set about a few cents below prior low of $74.98. I planned to stop out if the price drops below it or the Chinese ETF FXI breaks down somehow.

A few days later on August 28, EDU got sold off heavily. I had to sell a Sept 15 $85 call which had a Delta of 0.20 which was in the lower end of my typical short Delta. This was because that EDU had limited option strikes and I felt the volatile stock could bounce up to recent highs around $85. The next day, it briefly broke down below my stop loss point soon after the open but it was going up when I started to monitor my positions at my routine trading hour. The FXI was still looking bullish at the time. So I decided to keep the position for that day and waited to see if it would break down again. The market happened to be very resilient on that day and kept rising for a few days now.

One more day later, I started to feel more bullish about a bullish flag pattern of SPX and posted the following chart on StockTwits.

On August 30, I entered a long Dec 15 $165 call position on NFLX as it was bouncing up from a recent test of 50 day moving average line and seemed to form a bullish flag pattern. I also bought March 16 $220 call on BIDU as it broke out of a high base chart pattern. I'll post more about this trade later.