Following breakout Q1 results from General Electric (NYSE: GE) and Honeywell (NYSE: HON) on Friday, earnings from the industrial sector are kicking into high gear. The market is willing to move in either direction this week. I want to take advantage of any strong opportunities that the VantagePoint platform affords us. Today, I am concentrating on Nordstrom (NYSE: JWN):
The VantagePoint platform recently indicated a potential upside breakout in JWN could be forming due to a bullish crossover between 4/20/18 and 4/23/18.
Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average between 4/20/18 and 4/23/18. We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position that same day. This indicator measures strength and weakness for a 48-hour period, in this case strength. The move to the GREEN position further makes the case for a potential bullish scenario. Additionally, we see that the predicted high and low for today’s range is above the actual high and low from yesterday’s session. I want to play the VP bullish indication.
If one were a straight stock trader, simply buying JWN in the $48.50 area could prove to be prudent. You are anticipating a move to the upside. It’s also a conservative way to enter JWN without the limitation of time associated with other strategies. In this scenario, it would also be good practice to place a sell-stop order in the $47.00 area to mitigate potential losses.
For more active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.
Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation. First order of business is to determine your target strike. This will serve as the short leg of our debit put spread. We need three pieces of information to perform this calculation: current price, date of expiration and ATM implied volatility. In this case, JWN yields a target strike of R52.50. You can consider the JWN May 18th Regular Expiration 50/52.5 call spread paying $0.65. The maximum risk of this spread is the amount of premium you paid and the maximum reward is the width of this spread, less premium paid. Max risk = $0.65, max reward = $1.85 which gives us a reward to risk ratio of 2.85:1.
Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.