Unusual Pattern of the Day: Yum Brands
Global fast-food giant Yum Brands (YUM) has been trending up in recent months fairly steadily. An unusual chart pattern suggests that the uptrend may be in danger.
The pattern? A shooting star. That’s a one-day candlestick that points to a limited ability by traders to send shares higher in the short-term. This pattern appeared on Monday, just as shares gapped higher as well on news of a second Covid vaccine.
That suggests a short-term drop. Shares have had a number of short-term drops in the past few months amidst a longer-term rally. That poses opportunities for traders on both the long and short side.
Action to take: In the very short term, look for a small pullback as traders look to close Monday’s gap. The January 2021 $100 put, which last carried a bid/ask spread of about $2.70, is likely to provide short-term traders with a quick gain in the next week or two.
As shares pull back to the $100 range, the stage will likely be set for the next move higher. That bodes well for the April 2021 $105 calls. Last carrying a bid/ask spread of around $5.90, they can probably drop into the $5 range or lower in the next few weeks as shares pull back. At that price, they offer a decent return for swing traders looking at the longer-term trend in shares.