Let the Charts Speak Louder Than the Headlines

Hey there, Power Profit Traders!

Before we get going on today’s Power Profit Trades, be sure to tune into Money Morning LIVE at 8:30 a.m. ET each day, and stay for my Power Profit Trades program from 9:30-10:30 a.m. ET right here.

In fact, I have some VERY exciting news… Well, two pieces of exciting news, actually.

First, you can now find replays of my 9:30 a.m. sessions right here! From the main Money Morning LIVE room, just click the icon after Daily Picks in the navigation bar, and look for Tom Gentile Replays.

Never miss a lesson!

Second, my good buddy and podcast partner Chris “CJ” Johnson is about to knock your socks off with the penny-stock trading strategy he’s been honing behind the scenes for months.

Mark your calendars and register right now for his very special session at 8 p.m. ET tomorrow, Dec. 15, where he’ll outline how he’s been CRUSHING IT on stocks that cost 97 cents, on average – and now he’s ready to unleash his strategy to the world.

I’m a HUGE CJ fan and think you will be too!

That said, the stock markets started the week on a very dour day. Inflation is front and center following last week’s Consumer Price Index (CPI) surge to 6.8% in the headline number. And today we’re getting the wholesale Producer Price Index (PPI) that could show even worse inflation (estimated for 9.2%) on the company level (before consumers see the goods).

The Federal Reserve also kicks off its two-day meeting today, and stocks are concerned over pending further policy changes. This is weighing on technology and growth-focused stocks right now.

But that doesn’t mean that there aren’t plenty of trading opportunities out there – especially if you know how to utilize options to bet bearishly.

And in today’s Power Profit Trades newsletter, I will discuss one way to trade a stock that’s bumping up against a technical ceiling… and explain why you should trust technicals over headlines.

Understand that News Isn’t the Market

First, here’s a lesson on taking press releases with a grain of salt.

Every company tries to shape the news. Whether with in-house public relations and investor relations executives, or outsourced folks including associations – companies try to frame news as positive, for the sake of their stocks.

And the financial media is often an eager accomplice. They’ll take a positively spun press release or an interview with a C-Suite member and run with it.

In the process, traders and investors can get bamboozled into either sticking with a troubled stock – or worse, buying into the positive spin story with a bullish stock trade.

This is where understanding stock charts and analysis can both save you from getting suckered and set you up to trade the other side of a positive news spin.

Roku: Past Prime Time, and the Chart Proves It

Roku (ROKU) is the San Jose, California-based company focused on consumer electronic products that provide streaming video and audio content. Its core products include built-in television streaming platforms, as well as plug-in adaptors for streaming services.

It doesn’t make any of its products that are primarily outsourced to Hon Hai Precision Industry Company (HNHPF), known as Foxconn – the Chinese-based electronics company known for making leading Apple (AAPL) products. So, at its core, Roku just repackages other companies’ services.

Fundamentally, the company has profit problems, with negative operating margins running at 1.10% – which doesn’t help shareholders. And earlier this year, it was threatened with being cut-off by Alphabet’s (GOOGL) YouTube.

The stock is down 33.43% year-to-date — a nightmare for long traders – but the company got some good news that it made the most of last Tuesday, Dec. 8. A deal had been cut with Alphabet to restore YouTube and the stock took off on the company’s spin.

However, I was not remotely convinced that this stock would enjoy a big turnaround. In fact, my analysis showed that ROKU was set for trouble – not a triumph.

In reviewing and analyzing Roku using my tomsoptiontools.com charting, I quickly saw that there was a heavy resistance level at $260.00 for the stock. And even with the positive spin on the Alphabet news, ROKU only barely touched on that resistance level.

Roku Price & Technical Analysis – Source: TomsOptionTools

The subsequent sessions ended negatively for the stock, despite the spin doctors, and the selling came with a big bump in trading volume – to me, a further sign of trouble for the stock.

The Bear Trade for Roku

Now, I could’ve just shorted ROKU outright. But I had a much better and risk-controlled trade idea with less cash needed to deploy…

The goal was to take full advantage of my identified strong resistance level at $260.00 for ROKU. And to do this, I provided my Operation Surge Strike subscribers with a bear call spread trade on Friday. (For more info this strategy, call our VIP Team at 1-888-384-8339!)

To initiate the bear call spread, I recommended selling to open the $260-strike calls expiring Dec. 31, in order to bet on a ceiling for ROKU at that level.

However, selling options “naked” comes with risk.

To be safer on the trade, I also bought to open the $265-strike call in the same Dec. 31-expiring series, just in case Roku managed to get something right over the next coming weeks to push the stock through the resistance level.

The spread was opened for a net credit, and as of my calculations, could net an 80% profit ahead of the New Year.

Roku Intraday Price Dec. 10-13 – Source: Bloomberg

The lesson here is that you shouldn’t just blindly follow the news on any company or stock – trading patterns are where the real profits can be made, so many times, the charts speak louder than the headlines.

So, kids, that’s your Power Profit Trades lesson for today! Be sure to tune into this morning’s Power Profit Trades session at 9:30 a.m. ET right here!

Oh, and don’t forget to register for CJ’s SPECIAL SESSION – it all goes down at 8 p.m. ET tomorrow, Dec. 15.

Have a great week!


Tom Gentile
America’s #1 Pattern Trader

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