Market Backdrop
The last trading day of August opened fully in the red. This looks tied to events in Iran over the weekend. So far the market treats the conflict as a reason for caution, not a jump into a new, more serious phase. The escalation has been sharp. This week brings several AI and AI-linked earnings, including Dell and Zscaler, which should drive the whole group.
Cadence Design Systems (CDNS)
Cadence (CDNS) moved higher after raising guidance, but not enough to erase its losses for the year - still down about 3%. The latest quarter showed a record backlog, just above $8 billion.
The stock is pressing against resistance. The plan is to wait for a breakout above that level. No breakout means no trade. Letting the market do the heavy lifting first, then joining the move.
The trade is a broken wing call butterfly (an asymmetrical butterfly) in regular September, expiring the 18th: the 360/375 broken wing call fly. Implied volatility lines up with the 370 strike. The broken wing structure still pays out if the move runs further than expected past the upside. The trade shows a 362 break-even. The stock traded below that at 338.77.
On the chart, CDNS has been in a downtrend for the last couple of months. Heavy resistance sits where the anchored VWAP meets the July gap, around 358 - close to the 360 level. A bullish momentum divergence off the lows hints at a possible bottoming process, and current momentum looks strong enough to push price toward that resistance. If momentum fades, traders will watch for a retest of the prior low near 310.
Cloudflare (NET)
Cloudflare (NET) shows some volatility but overall upward momentum, gaining more than 50% year to date. The sector is attractive and Cloudflare sits at the top of it, driven by the AI trade.
The setup is an inside bar entry: a trade above 310.60. The trade is a broken wing call fly targeting the 340 line - the 325/340/350 call broken wing fly. Above 310.60 it should cost about $2.40, with a strong reward-to-risk. During the session NET traded at 301.50, up about half a percent while the broader market fell.
On the chart, NET made a large cup and handle breakout to new highs, with the MACD confirming the move. Recent tech weakness pulled price back to retest old resistance turned new support, and that support held with a confirmed bounce. Near-term support sits around 291. Price is forming a bull flag that could carry it back to new all-time highs.
A second, longer chart shows that shorter-term cup and handle is now the cup of a much larger cup and handle stretching back to prior cycle highs. Price recently stalled at all-time highs right at the 161.8% Fibonacci retracement level - the typical first profit-taking zone for base-breakout traders, which explains the overhead supply there. If price clears 335 in the near term, the next resistance is 406. The longer-term trend is strong and getting stronger, favoring the bulls.
Walmart (WMT)
Walmart (WMT) fell after earnings, with no clear agreement on whether the results were strong. The stock came under pressure despite a 52% rise in US marketplace sales in fiscal 27.
The numbers were not that bad; the market simply wanted better, and the sell-off looks overdone. A significant gap sits above if the stock can get going. WMT has built a solid base just above the 102 level. Implied volatility is low, so buying it outright is cheap on a relative basis - conditions that point to a calendar or diagonal spread.
The trade is a call calendar: the 9/4 versus 9/18 106 call spread, which does not even cover half the gap. It costs about 85 cents. The target is above the recent highs at 103.67. Modeled out, the trade should make about $125 to $145 depending on implied volatility - a good reward-to-risk for a calendar. Buying WMT at prices not seen for a while carries little fear.
On the chart, WMT has been under heavy pressure with a big double-top breakdown. The risk-on environment for stocks has hurt staples, with little defensive rotation. A recent breakaway gap and break of support signaled a new downtrend. Still, the small triangle consolidation below gap resistance at 107 may eventually turn into an exhaustion gap. Signs to watch: a possible MACD bullish divergence off the lows, plus seasonal headwinds approaching that could push more rotation into the name.
During the session WMT traded at 104.33, up 1.2%. On the five-year chart WMT is up more than 100%, and has not faced this level of scrutiny over that longer stretch. The weekly price sits at the confluence of prior highs and the 38.2% Fibonacci retracement around 102 - the same base level noted above. Downside momentum has been strong, but the MACD shows early signs of that fading. The biggest signal for a confirmed bounce is a weekly close above 107. Price traded about $2 above the 102 retracement and about $3 below the 107 confirmation level.
