Take Some Profits and Look for Hot Hands

Back on June 5, I discussed five names to watch for the next leg of the Nasdaq rally.

Less than two weeks later, I believe traders should consider at least partial profits on two of those names.

After strong earnings, StitchFix (SFIX) has soared from the sub-$20 level to near $26.50 in less than two weeks. A 37% move is one where folks should consider a scaled profit-taking or a roll of stock into options.

The second name is Zuora (ZUO) , which has moved from $28.50 to nearly $36. That's a 25% move in less than two weeks.

While I wait for the other three names to move, grabbing some coin here on either of these two is the risk managed approach. I wouldn't liquidate completely, but I would do some reducing.

We're definitely seeing a hot-hand approach in this market. Traders are rotating quickly to what's working and staying with it. Lose the momentum buyers and stagnation appears.

It's challenging to anticipate where the next move will come. I'm watching utilities here. Several names popped up on early morning momentum scans with possible breakouts.

I am checking out the Utilities Select Sector SPDR ETF (XLU) , which is pushing the 50-day simple moving average of $49.70 Monday morning. A close above that level has been good for a quick 2% pop in the past.

The Trade

-- Buy to open 1 XLU July 20 $49 call at $1.32.

Net Cost: $132

Max Risk: $132

Max Reward: Unlimited

Days Until Expiration: 32

Breakeven: $50.32

Intrinsic Value: $77

A close under $48.50 would stop this trade while a push into $50.50 should spur some profit-taking or adjusting of this trade, possibly by rolling the strike higher or creating a spread.