Hello, everyone,
Blake Young with you on this historic Monday - historic in terms of the volatility we’re seeing in this big downturn. The big indexes are down anywhere from 2.7% to 3.2% as I write this.
But, contrary to what you might think - and contrary to what’s certainly being said in the financial media today - times like this can be rich in opportunities.
So I’m going to go a step beyond our usual Weekly Watchlist and look at what I think could be great trades. Two are bearish trades fading a gap fill at the moment, both are in the semiconductor sector. I’m talking about On Semiconductor (ON) and Micron Technology (MU).
Both of these names have been selling off alongside Nvdia (NVDA) and the tech sector.
Today, however, they’ve tried to stage a rally in all the chaos. Here’s what happened next…
Three Stocks in Play Right Now
Bargain-starved investors may feel these stocks have been discounted enough, but in my view, they’re in a classic “dead cat bounce.”
Both these stocks fell back to longer term support areas… then “bounced the gap.” Over the past two sessions, price action has filled and failed to continue higher. These gap failures probably represent traders’ ditch efforts to get out of the positions at a smaller loss. The downtrend here could continue.
I’m expecting ON to roll over below $72 and fall to $60 in the next two weeks. This would be a $12 gain that you can protect for between $2 and $3 with a trade - that would be a 5:1 bet in a bearish (emphasis on “ish”) market.
MU is in a similar boat, but the gap fill is retesting old support as the new resistance. The opportunity here is a fall to $80 in the next two weeks and possibly all the way to $60 by the end of September. I’d be comfortable with an $8 stop loss for a $20 target.
Incredibly, it’s not all bearish bets here - one of the few bullish stocks I see is a favorite of mine and Don’s: Costco (COST). COST has gapped down to long-term support and failed to break out. The support near $800 is more significant than, say, ONs chart, because COST has traded for three weeks at or near $800. It’s also re-tested this level after its last earnings report. Costco’s next quarterly report is at the end of September, which provides ample time for a bounce and return to its previous consolidation near $840.
Although this is a mere 5% move, it’s a $40 potential turn with as little as $5 at risk. I’d also consider a short put at the $800 strike with an August 30 expiration date. You could be paid $23 for your willingness to own COST at $800!
I’ll be in touch with my paid-up Deep Currents subscribers with a detailed list of my recommendations, but I feel like everyone should know about these moves. These are historic times.
Blake Young