Setting Up a Pair of Shorts
It's getting tough to short today on the SPDR S&P 500 (SPY). The closer it gets to the $154 level, the more apt I am to wait until it closes below $154 or breaks very early in the day before I get aggressively short on the indices. If it moves below $154, then I believe we'll be looking at a quick trip to $152.80; however, it bounced hard off the $154.28 low today, so I do not expect that area to fail easily.
SPDR S&P 500 (SPY) -- Daily
Source: StockCharts.com
View Chart »View in New Window »
Morgan Stanley (MS) will round out the big banking/brokerage names before trading tomorrow. The options are pricing in about a $1 move from the $21 area; however, the support and resistance levels are about $1.50 from the current price. It's been a mixed bag so far from the financials with actual results a bit better than expected overall, but equity reaction favors the bears. I am going to use a skip-strike butterfly on the downside going with the April 19 $21.5-$20.50-$20 put strikes for about $0.33. I realize my downside target is lower than the $20.50 strike; however, the market is looking better into the afternoon, so I want to give the position some room.
Morgan Stanley (MS) -- Daily
Source: StockCharts.com
View Chart »View in New Window »
The other name is Danaher (DHR), which I know Doug Kass already holds short. The chart below looks at the risk for that final flush to $57. Support sits about a quarter above $59, but the RSI has been rejected from the midpoint of the current bearish pattern and stochastics are moving into oversold territory. I wouldn't be as concerned about the stochastics, since oversold has been a good place for the stock to bounce, but headed into earnings, the TRIX is going below 0.
Danaher (DHR) -- Daily
Source: StockCharts.com
View Chart »View in New Window »
These aren't bullish signs of optimism. Still, I want to give the position time just in case the stock breaks higher out of this falling wedge, so I am looking at using May $60 puts on this one, which can be had for about $1.50 at the time. I would stop out of this position on any close above $62.
At the time of publication, Collins was long MS put butterflies and DHR puts.