Market Backdrop
Entering the back half of the year after records were set in the first half, the prevailing view is that this remains "a market of a handful of individual stocks rather than a stock market." Looking sector by sector reinforces this. The financials — represented by the XLF — are massively unchanged on the year. The energy sector is up only very mildly. The healthcare sector is likewise massively unchanged. The standout is the semiconductors: the SMH is up roughly 67% on a year-to-date basis and continues to "pull the S&P kicking and screaming." Despite constant talk about the economy underperforming, it is the semiconductors that are outperforming everything right now. Semis in fact had their best quarter ever in the first half of the year. Notably, none of the three trade ideas below is a semiconductor.
The three names in focus are CVS Health (CVS), the silver ETF (SLV), and Palantir (PLTR) — three stocks, three charts, and three trades.
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Trade 1: CVS Health — Bullish Call Spread
The thesis. Getting bullish on CVS is somewhat painful to admit, because the stock is incredibly overbought. But "overbought, but not completely overdone" is the key distinction — the momentum looks really, really good and suggests a bit more upside potential. This is described as one of those "freight trains" worth hopping on rather than standing in front of. Although being a contrarian is the usual instinct in this market, CVS is not the place for it. CVS is higher on the session and up roughly 30%-plus year to date. While the broader healthcare sector (the XLV) is basically unchanged on the year, CVS is one of the leaders of the pack. With capital rotating more and more into players like CVS, the plan is to not stand in the way.
The trade. Go out to the July 24th options expiration — a relatively near-term, roughly three-week trade, chosen because the pop is expected here and now. This is acting more as a trader than as an investor. The specific structure is a $4-wide call spread: buy the 104 calls and sell the 108 calls against them, done for a $1.30 debit. The goal is a continuation move under intense upside momentum conditions. At the time, the stock was trading around 104.22, so the call spread starts right about where price is.
The technicals. The technical read looks for a push into new highs, with the prior high point at 106.15 — a bit beyond the breakeven of the trade. The general price pattern is a rising wedge: two boundary lines both pointing upward and converging toward each other. A steeper trend line could also be drawn for a shorter-term outlook. Regardless, price is trending upward, exhibiting a repeating push-to-the-upside-then-pullback pattern on smaller and smaller scales.
Horizontal levels to watch on the downside: 103 (old highs and subsequent lows), then 98, then a notable low around the $90 level. The 5-day EMA (dark blue) sits near 103.50 — around where price opened that day, and it was holding above that point. The 21-day EMA (teal) comes in a bit below 100, a possible support if price starts to move lower.
The RSI is exhibiting a bit of bearish divergence despite repeated pushes into overbought territory, and price is on the verge of pushing into overbought once again. For a bullish outlook to be confirmed, the ideal setup would be RSI crossing back into the overbought area, making new relative highs above its previous peak, with price doing the same thing at the same time — price and momentum moving in tandem as confirmatory activity.
The volume profile shows the most important trading area between roughly 90 and 100 — a wide range, too granular for precise nodes, but where volume really picks up. The biggest concentration is around 93 to 97. Price at 104 is roughly $10 above that heavy-volume band, and the trade looks for a move even higher.
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Trade 2: SLV (Silver ETF) — Bullish Call Spread
The thesis. There's no pain being bullish on silver here. Silver has been "Mr. Toad's wild ride" of a metal this year — up almost 70% and now down quite substantially on the year. A base of support is expected to form, and there has already been some exhaustion sell-side activity. The dollar is also a factor: it has been incredibly strong, and any reversal in the dollar over the next couple of weeks or months is very possible — especially with the uncertainty around a "Kevin Warsh" (the exact makeup of which is not yet known). A reversal of fortune in the dollar could hand metals a degree of strength again. Given that SLV was up as much as 70% year to date and is now down dramatically with selling exhaustion, it is deemed high time to step back into it.
The trade. Go further out in time to the August 21st expiration to gain "the gift of time." Buy the 58 calls and sell the 63 calls against them — a $5-wide call spread, done for a $1.00 debit. A spread is used specifically to mitigate the heavy volatility exposure inherent in a product like silver; the $5-wide spread defines risk to $1 and allows the position to be held through heavier volatility. SLV was trading around 54.37–54.39 (up more than 1.5% on the day), significantly off its high near $109.
The technicals. The 58-to-63 zone would be looking to fill a gap and then move on a bit, with the target area lining up with highs seen after another downside gap. Because SLV is an ETF, gaps can be trickier to follow. The prevailing shape is a downward-sloping channel.
Horizontal levels to the upside: a low near 57.30, another series of lows roughly lining up with a high point seen during the decline before a gap to the upside near 61, and another floor near 66. To the downside: the 50 level (recent relative lows) and the 42.50-to-48 zone (the extremes of a brief range-bound area).
On moving averages, price is right around the 5-day EMA (dark blue), which comes in a hair below 54. There is a notable confluence to the upside: the monthly 21-day EMA near 58.62 and the yearly 251-day long-term EMA (orange) near 58, both of which also line up with the downward-sloping trend line forming the upper boundary of the channel — making that a notable potential breakout area to watch.
RSI is starting to improve, on the verge of breaking out of its downward-sloping trend line and already out of the oversold area, so the momentum picture appears to be improving. The volume profile shows a node where price seems to have stabilized — a small area of activity between 52 and 54 — with a larger supportive pocket to the downside between about 42 and 47.50. To the upside there is a larger pocket of activity, with the single most important area around 69 and the heaviest general trading band between roughly 64 and 70.
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Trade 3: Palantir (PLTR) — Bearish Put Spread
The thesis. Unlike the first two, this is a bearish trade to the downside. Palantir appears to want to test in or around the $100 level, and the recent bounce over the last couple of days is being used to sell into strength and establish a short position amid bullish activity. The day's action is described as "the quintessential rip your face off rally" — the kind of heavy sell-side-context bounce that is expected. Palantir had been down more than 30% year to date; the day's pop brought it back so it was "only" down 25%, but that creates a more effective moment to short into it. The conviction is that it still tests the 100 level.
The trade. Go out to the August 21st expiration to allow a little time and to mitigate volatility exposure with a spread. Buy the 110 puts and sell the 100 puts against them — a $10-wide put spread, done for a $3.33 debit. The short strike (the 100 puts) is placed right on the $100 level, precisely where a retest is expected. On the day, Palantir was up more than 9%.
The technicals. Anything is possible, and there are noteworthy things in the day's bounce. The stock is up about 20% off its lows near 106.37, which were only about five trading days earlier — a very sharp push higher. It also broke through a downward-sloping trend line (blue) connecting prior high points. The "fly in the ointment," however, is a floor near about 126 (a red line) that had held several times. Even though price was above that level, the day was still young, making it the critical juncture: a strong close above 126 could spell further bullishness, while a rejection there could see the move fizzle out — so that resistance point is where many traders will have their eye.
There is another set of highs near 135 and another near 162, defining a broad range between roughly 126 and 162 that encompassed much of the recent activity. On moving averages there is some improvement: price crossed above both the 5-day and 21-day EMAs in quick succession. A close above the 21-day EMA (teal) near 125.60 would be a more positive sign, with the next hurdle being the 63-day EMA (representing one quarter) at 135.26.
RSI is not yet making the step a bull would want — it has not moved above the 50 midline and sits right on the nose. A strong push above that 50 level (which separates bullish from bearish momentum), in tandem with more favorable price action, is what would be needed. The volume profile shows the nearest heavy-trading node between about 130 and 140 — a prominent spike and the area to cross above for a bullish outlook — with continuation potential around the 150-to-160 band.
Even with the 9%-plus move higher and the strong five-day run, Palantir remained down more than 20% over the prior month of trading — the context underpinning the bearish put-spread setup.
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Summary of the Three Setups
- CVS Health: Bullish, near-term. July 24th expiration, buy the 104 / sell the 108 call spread ($4 wide) for a $1.30 debit. Playing overbought-but-not-overdone momentum toward new highs.
- SLV (silver): Bullish, medium-term. August 21st expiration, buy the 58 / sell the 63 call spread ($5 wide) for a $1.00 debit. Playing selling exhaustion, a support base, and a possible dollar reversal, with the spread mitigating silver's high volatility.
- Palantir: Bearish, medium-term. August 21st expiration, buy the 110 / sell the 100 put spread ($10 wide) for a $3.33 debit. Selling into a sharp face-ripping rally in anticipation of a retest of the $100 level.
Across all three, the recurring tactical theme is using defined-risk vertical spreads to express directional views while capping cost and containing volatility exposure — bullish continuation on CVS and silver, and a bearish fade on Palantir.
