Market Backdrop
The market shows deep splits. Three or four tech stocks lead, and the rest of the market trails. Meta (META) is a clear example. Its options chain, one to two weeks out, shows an inverted implied volatility skew. This means the market prices a bigger chance of Meta crashing to the upside than to the downside. For a $2 trillion company, this is very unusual and not seen in normal markets.
FedEx (FDX) - Bearish
FedEx is the one bearish trade of the group. The trend points down, and this trade rides that trend. A double top formed near the 340-345 level - price hit it twice and reversed hard down to current value. The technicals look bad and are unlikely to stop soon.
The chart shows an M-shaped pattern with two rejections near 340-341. A downward-sloping channel formed between two trend lines. Price crossed through a floor near 306 that had formed after earnings, bounced briefly, then broke through fast. Relative lows sit at 290 and 286, giving a support zone. A gap runs from 276 to 271, formed near the start of the year in January. That gap lines up with the break-even and short strike of the trade, so a move down to that gap is the target.
Moving averages show downside trend speeding up. The 5-day, 21-day, and 63-day exponential moving averages sit in descending order, with the fastest below the slowest. The 251-day EMA, representing one trading year, comes in at 284.41 and lines up with the lower channel boundary, giving it more weight as a downside level. RSI hangs just above the 30 oversold line; a drop below 30 would be another bearish signal. A move below 285 would break below a heavy trading zone that runs from 285 to 333, with the point of control near 312. The next real pocket of activity below that sits between 245 and 255. FedEx is down about 610 of a percent on the day and down 10% over the last month.
The trade: go to the D18 expiration for extra time, since it must pass through earnings, which may give price a small bid back. Buy the 280 puts, sell the 270 puts. This $10-wide put spread costs a $3 debit, leaving plenty of time and large upside if FedEx keeps falling.
Home Depot (HD) - Bullish
Home Depot's trend also points down, but this is a bullish trade. The bigger reason goes beyond the chart: a rotation out of technology and back into economy staples. Expect sell-side action in AMD (AMD), Micron (MU), and Meta (META) soon - maybe this week or next. When semiconductors and Meta get hit, money should rotate into staples like Home Depot. Micron reports earnings a week from today, a possible catalyst.
The technicals look set to hold the 300 level. The chart shows an M-shaped double top pattern similar to FedEx, with an old high near 354 and a breakdown near 308. A recent low sits near 289-290, at 52-week lows. Price looked ready to break out of its channel to the upside. The 5-day EMA sits just under 302. The 21-day EMA sits near 312.75. RSI is improving and has pushed out of oversold territory; price broke out of the downward sloping trend line and made relative highs. Volume nodes sit at 300-305 and 309-317, marking possible consolidation zones. Home Depot trades down about 1.8% at $299.89, just below the 300 level the trade needs to hold.
The trade: go to the October 16 (OX16) expiration, fairly near-term. Buy the 310 calls, sell the 315 calls. This $5-wide call spread costs a $1.70 debit. The goal is a simple pop back to the upside - hold 300, get back to 315 or 320, then reassess. This is not a long-term investment idea, just a bounce play tied to the market rotation expected in the next few sessions.
Qualcomm (QCOM) - Bullish
Qualcomm is up more than 20% over the last month, and this trade rides that run. It is a short-duration trade, about a week out, using the OS-second expiration. The play is a gamma squeeze. Retail traders, proprietary trading firms, and hedge funds all rush in to buy calls. Buying calls forces the counterparty, the market maker, to buy stock to hedge, which creates a feedback loop. Qualcomm looks caught in one of those loops now, where call buying drives strong upside in the stock.
The chart shows a push above an old high near 196. As market makers sell calls and buy underlying stock to protect against runaway losses, they add fuel to the breakout. A cascade of orders triggers stop orders and other orders once a threshold breaks, causing runaway price moves that pay off if positioned right. Beyond that, 220 is the next upside level. On the downside, 179 was an old high that later acted as support. An upward channel shape has formed, with a possible upside breakout that eased somewhat today, leaving price right on the trend line boundary. The 5-day EMA in dark blue sits at 192.32, closest to current price. Moving averages sit in bullish order, fastest on top and slowest at bottom, with the 21-day and 63-day pulling apart. The 63-day lines up with the lower channel boundary near 176.40. RSI is not yet overbought; a bullish confirmation would be a strong breakout with RSI making new highs above 70. The volume profile shows price has moved past the heavy trading area holding the point of control. Heavy volume a few sessions ago on a big down day suggests buyers stepped in at low levels. The next volume node sits at 198 to 208. Qualcomm trades down about 8/10 of a percent at 196.57, about $7 below the trade's break-even.
The trade: OS-second expiration, just over a week out. Buy the 200 calls, sell the 210 calls. This $10-wide call spread costs a $310 debit. The wide spread is essential to cut volatility exposure on a volatile stock. Worst case, the loss is $310. If right, the trade could be worth about $7 in a couple of sessions if Qualcomm keeps climbing.
