So, you're saying there's a chance. Hmm. A chance for what? Anheuser-Busch InBev (BUD) may be the most interesting chart that I have bothered to analyze in quite some time. Money Flow looks to have just gone positive. That said, the stock suffered a death cross at the start of the year, and relative strength is non-committal.
What interests me here is the strict obedience the stock's performance has paid to 61.8% Fibonacci re-tracements in the past (successive blue Fibs), and the fact that the last sale is at one of those inflection points right now (red Fibs). If those red Fibs are to be trusted, then that puts in play the orange Pitchfork model, where the current last sale can be seen in the crook of the elbow. Now, the danger exists in this. Those red Fibs might be too small to truly be considered. If that's the case, then the green Pitchfork model takes precedence, as resistance at the upper trend line is already being adhered to. Get it? Complex, huh? Awesome is more like it. What could be more fun than figuring out something difficult while the rest of the planet sleeps?
I don't suggest that home-gamers go short equity, unless they know who they are, and they know the limits to their own tolerance for risk. A directional shot at lower prices in my opinion should be taken through the purchase of put options. Less capital intense. Lets one sleep at night. However, for the net long crowd, one purchasing shares close to the last sale of $113.50 could see their net effective cost reduced through the sale (writing) of call options against the position. Last night, you could still get $0.80 for $116 calls expiring on Feb. 23. How's a cost basis of $112.70 sound for a stock trading at $113.50?
For the more adventurous crowd, $112 puts with the same expiration date closed last night at $1.37. You could (sort of) marry a put to the long. That protects you, but jacks up your cost basis to nearly $115. You could avoid the equity purchase all together and write (sell) that put. This brings in $137 per contract (at the last sale), and exposes you to the risk of paying $112 at the time of expiration, even if the shares are trading much lower. The shares go higher from here, you take the spouse out for a nice evening. You get run over, and at least you're running with an effective entry point of $110.63 for a stock you liked at $113.50. Dilly Dilly.
(This is an excerpt from Stephen "Sarge" Guilfoyle's Morning Recon, which now appears exclusively on Real Money, our premium site for active traders. Click here for a free 14-day trial and receive Morning Recon every day, along with exclusive columns from Jim Cramer, James "RevShark" DePorre, technical analyst Bruce Kamich and more.)
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At the time of publication, Stephen Guilfoyle was long BABA, GOOGL, AMZN, AAPL, although positions may change at any time.