Trading a Market Turnaround with Two New Trade Ideas - DKNG, MRK
Charts for SPY, QQQ, and KRE have all tested the 200-day SMA. What's next?
The candles for SPY did make a new low for 2025 last week, retesting the October 2024 lows. You could certainly view this as bearish and start trading accordingly.
Another perspective is to note the 200-day simple moving average (SMA) that is being tested. Last week ended on a positive note with buyers stepping in at this SMA.
With the relative strength index (RSI) at oversold levels, registering as low as 33 last week, this is looking like an interesting spot to buy.
I can’t be the only one that noticed this.
The candles for QQQ are also testing the 200-day SMA while simultaneously touching the long term trendline that has been in place since December 2022.
Oversold RSI at 35 by itself is not necessarily a buy signal. I do like to see it at the same time that support and SMAs are being tested.
That is exactly what we are seeing for QQQ which makes this week that much more interesting. And provides an opportunity to get in early for those that are able to identify these levels and take the risk.
While many are looking for positive signs in IWM for small caps, I like a different ETF to guage the health of small business.
Regional banks, represented by KRE, are nearing a level where signs of strength would be exactly what we want to see. Strength in the small caps is what we need to sustain a new overall market rally to new highs.
The candles for KRE are testing prior resistance near $58 which is also where the 200-day SMA slides in. RSI is also showing this ticker is oversold.
The long lower wick on Friday could be the pivot point needed for a push back towards $65.
The safer play is to patiently wait for these ETFs to have daily candles close above their respective 5-day SMAs. This would signal momentum swinging back to the upside.
A more aggressive approach is taking last week’s Friday buying as a sign of strength showing up at the 200-day SMA.
Why would we take this more aggresive approach?
As long as buyers step in at the 200-day SMA, it will provide support at increasingly higher levels. Markets will be moving higher.
At the same time, this SMA can be used as a very clean stop loss. If it is broken, the trades are taken off. It can be that simple.
And now it is time to get to our trade ideas for the week. It would not be March if I didn't cover a trade for DKNG and this year is no different.
Take a look at this set up.
(Quick shout out to TrendSpider if you are interested in the best chart tools in the business use this link to sign up.)
After a ridiculous push to $53, the candles for DKNG tumbled back towards support.
The anchored volume weighted average prices (AVWAP) from the August 2024 lows has provided support for every dip.
I think we are about to see the same thing happen again and with betting ramping up, DKNG could push to retest recent highs.
On the flip side, MRK looks like it will continue to reject against its 50-day SMA, making the second trade this week a short opportunity.
Staying disciplined is a requirement with the current market conditions. The heightened volatility means a trade can reverse at any moment.
The winning formula for me has always been to take early profits on an initial move and then allow the remaining position run.
RKT is a great example. The June call options have moved from our entry at $0.54 per contract to $1.40. We took early profits and now have three months left to allow these calls to run even higher!
DKNG could present a similar opportunity for upside while MRK is heading the other direction.
Here’s the trade for each, including the options I’m considering, entries, stop loss levels, and profit targets.
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