Market backdrop
The market is a game of musical chairs. Money is rotating out of semiconductors, and the main winner right now is the financials. ASML fell into the red despite a fine earnings report, which shows the problem is price action, not the numbers. The desire to own the semiconductor space just is not there. Rotations are wild, into AMD or out of Micron, but the buying does not last more than 24 hours at most.
Lowe's (LOW) - bearish
This trade is not about rotation. It is about the stock breaking its lows. Lowe's trades around the 210 level. I expect a retest of roughly three-year lows near $180. The interest rate environment sets up badly for anything rate-sensitive right now, whether housing stocks, home builders, or home improvement stores, and Lowe's looks ready to break lower.
The trade uses the September expiration, about 60 days out. Buy the 195 puts, sell the 185 puts against them. This $10-wide put spread costs a $2.75 debit. It is a defined-risk trade that limits earnings-related risk and offsets volatility. I like spread trades in options.
Chart read: the downtrend is still in play. Highs after earnings fell off from previous highs near 293, and a trend line now connects three highs, with price staying below that line. The short-term uptrend that started from lows near 203 has broken. A small gap between about 217 and 220 stands as a resistance zone. Relative lows sit near 207 and then 203.40, giving a support zone to watch. The 5-day EMA (one week) is at 211.29, roughly where price sits now. The 21-day EMA is near 216. The 63-day quarterly EMA (gold) is around 223 and lines up closely with the trend line, a confluence that raises the odds of resistance there. RSI is moving lower with a short bounce, still below the 50 midline. On volume profile, a small pocket sits near 207 to 210, but heavy trading runs across a broad 215 to 260, with spikes near 235 and 246. Lowe's traded up about 2% at 211.82.
Costco (COST) - bullish
This is the bullish trade of the day. Costco is up only 6% year to date and just posted good monthly sales. Two reasons to like it. First, it is a rotation haven; money already moved from semis into financials and into bigger broad tech, and I think it now rotates toward beaten-up consumer staples and discretionaries like Costco. Second, the stock has channeled around $1,000 for most of the year. It has broken a little lower, but a slight bid below sends it right back into a channel around 950 to 1,000.
The trade uses the August 21 expiration, staying near-term. Buy the 960 calls, sell the 970 calls against them, a $10-wide call spread for a $1.70 debit. Going further out of the money cuts the cost. If wrong, the loss caps at $1.70; if right, the upside is strong. It is a cheap shot at the stock getting back to $1,000.
Chart read: a sharp drop came after highs at 1096.50, and earnings worsened it. Connecting two highs and copying the line across the lows forms a channel. Horizontal levels stand out: repeated highs near 970, a gap from 948 to 936, and recent relative lows near 900.7. Backtracking, 895 marks a small gap and a later low, a minor support to watch. The 5-day EMA at 925.31 has capped the last few sessions. The 21-day EMA (teal) sits near 944, inside the channel. The one-year EMA (orange, 251-day) comes in at 961.57 and is the most significant level, since longer moving averages matter more when breached. RSI shows a triangle of converging trends, below the 50 midline; a break above 50 would give an upside clue. Volume profile shows heavy trading from 933 to 960, with the point of control (the heaviest area) near 945. The zone from about 900.8 to 921, where price bottomed, is another possible foothold for bulls. Costco traded slightly higher, about $75 below the $1,000 target.
Strategy (MSTR) - bearish
Bitcoin has been trapped in a 60,000 to 65,000 range, down about 25% year to date. Strategy is down more, especially after it abandoned its plan of never selling Bitcoin, which the market disliked. This is a "bear sandwich" view: a bearish, a bullish, and a bearish take.
Buying all the Bitcoin it wants will not save the share price, no matter how many debt or secondary offerings the firm does. Investors are getting disillusioned with the firm and the strategy. Once Bitcoin gets listed on a major trading platform like Think or Swim, it becomes immediately correlated with other asset classes. The claim that it is a unique asset class no longer holds; if you can trade stock, then options, then futures, then sell some Bitcoin all in seconds, they are all interrelated. The bigger worry is a break lower in crypto broadly, in Bitcoin itself, not only in Strategy.
Because this stock can move hard, the trade goes far out in time and far out of the money. Using the October 16 expiration, 90-plus days out, buy an 80 put and sell a 70 put against it. The stock hovers around $100, so it needs a steep break lower, which the channel has shown before; the extra time is the reason for going out that far. This $10-wide put spread costs a $3.10 debit, the least expensive way to take a broad bearish shot.
Chart read: down 77.7% over the past 52 weeks, a very hard chart for bulls. A downward trend line runs from the highs after the last earnings event, and price has broken beyond it with no strong bounce, just meandering sideways. Lows hit 81.81 (green line). A relative low later became highs near 104; there is a 118 low and a high near 136. Price sits between the 5-day and 21-day EMAs at 96.37 and 102.93, short-term boundaries to watch. RSI is improving, out of oversold, making modest new highs above its prior peak but still below the 50 midline; bulls would want a cross above 50 with price making new highs at the same time. Very heavy recent volume stands out, with spikes 50% above the 50-day average of volume at the lows near 85 to 105. Price is below the point of control, the heaviest trading area, which runs 118 to 140 with the point of control at 136; that becomes a hurdle for bulls on any rally. Strategy popped about 1% on the day as Bitcoin also rose, since they tend to move together.
