Good morning, traders…
I just got back from a few days in Mexico with my wife — no kids, no chaos, just the two of us for our 20th anniversary. It was great. I even got a little sunburned.
Better yet, going away for a while gave me something I didn’t even realize I needed: perspective.
When you’re buried in charts 12 hours a day, you can lose objectivity. Moving averages, trendlines, and key levels start to blend together.
But as we were walking on the beach over the weekend, it hit me: this is what trading is supposed to feel like…
In many ways, very similar to surfing…
Calm. Focused. A steady rhythm of observation and response (as opposed to knee-jerk reactions).
Like setups, waves come in sets, and it’s up to the surfer to determine the perfect one to ride (and when).
The best big wave surfers have an uncanny ability to spot the perfect, glassy, tubular barrel and time their moves with precision to get the gnarliest possible ride.
Trading is no different. The market doesn’t reward you for trading mediocre setups with subpar entries. It rewards those who wait for their spot and time their moves perfectly.
Let me show you how to do that this week…
The 2 Emotions Moving the Markets
I’ve said it before, and I’ll say it again: emotions drive stock prices more than anything else. And the most prevalent emotion since February has been fear.
We can see it right in the CBOE Volatility Index (VIX). You didn’t need a fancy model. The chart tells the whole story…
A nasty spike in April thanks to some unexpected tariff talk from the White House, followed by a precipitous move lower.
And not just a random drop, but rather a textbook descending channel. I couldn’t draw a better example of a classic downtrend…
Lower highs, lower lows. A visual representation of fear spiking, then slowly giving way to reality.
It’s like what happens anytime humans are startled by something new. First, we overreact: “TARIFFS!” Markets freak out. News outlets scream. Traders panic…
Then we ask, “Wait, what does that really mean?” And as the days pass and the world keeps turning, we realize … it’s not the major-index death sentence people initially feared.
That’s exactly what VIX told us. Fear exploded, then fizzled. Time reveals what panic obscures.
You can see this same story in the broader markets. Look at the S&P 500 ETF Trust (NYSEARCA: SPY)…
It’s been a tale of extremes in the major index. Extreme bearishness has snapped back into extreme bullishness.
But both the despondent move lower and the “air pocket” move higher are unsustainable.
Markets don’t travel in straight lines forever. They stretch, revert, and base. That reversion to the mean is a feature, not a bug.
Arguably the greatest investor of all time, Warren Buffett, once said: “The stock market is a device to transfer money from the ‘impatient’ to the ‘patient.’”
And if the last two months taught us anything, it’s exactly that.
You don’t have to take my word for it, take Buffett’s. He made billions doing exactly that.
Not by being the fastest. Not by chasing hype. But by waiting for the perfect moment to strike.
Speaking of the time to strike, let’s look at my favorite setups of the week so far…
5 “Smart Money” Charts to Watch This Week
Xcel Energy Inc. (NASDAQ: XEL)
XEL showed a beautiful pop and pullback. If we see it clear $46.50, we could get a continuation move with a decent setup toward $48.85. June $50 calls were active, and I like that risk-reward.
DraftKings Inc. (NASDAQ: DKNG)
Football is coming. DKNG back above $37.50 opens the door for a nice short-term trade. We saw half a million in premium fly into those $36 and $37.50 calls. Repeat flow, size, and timing make it worth watching.
Rocket Companies Inc. (NYSE: RKT)
If mortgage interest rates finally drop — and that’s a big “if” — Rocket could get interesting. The $14 calls for May 30th were seeing size, but it needs to clear $13.30 first. If it gets there, I’ll be looking for a move toward that open interest zone.
Ardelyx Inc. (NASDAQ: ARDX)
Not your usual big-name play, but keep your eyes on it. After earnings, it dropped, found a base, and now looks ready to retest $4. Big blocks of the $5 calls for June caught my attention. If it clears that $4 area, there’s a gap to fill.
Coinbase Global Inc. (NASDAQ: COIN)
$1.77 million in short-dated call premium hit early Friday. Big size, aggressive entry. We cleared pre-market highs and are pushing into that gap zone from last week. As always with COIN, keep your risk tight, but this kind of flow isn’t nothing.
How to Track These Setups
If you’re wondering how to track all this, I’ll make it simple…
Sort by size, premium, and timing. Look for unusual bets on names that don’t show up very often. Look for urgency (large size in short-dated calls).
Additionally, I’ve asked our team to highlight these unusual short-dated, high-premium trades in gold in the scanner.
That way, they’ll be hard to miss when you open my OMEN Scanner.
You don’t have to chase. You don’t have to guess. You just have to know what to look for (and be ready when the opportunities present themselves).
Happy trading,
Ben Sturgill
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*Past performance does not indicate future results
