Every trade setup is different, even when it might look the same. In every stock, there are many different factors that can affect its price at any given moment. That’s why I love it when I have many checks in my favor at the same time, i.e., a Confluence of factors that can help the stock do what I expect it to do. 

The more checks in my favor there are, the more confident I am that the trade setup will work. I’ve found a setup in WDAY with numerous checks. It is significantly oversold on the daily Keltner channels. It is a major support area. I think the overall market can bounce here, and the stock has shown relative strength compared to other stocks in the tech sector. 

Fundamentals

Workday, Inc. (WDAY) provides enterprise cloud applications worldwide. Its applications help its customers to manage critical business functions and optimize their financial and human resources. The company offers a suite of financial management applications, which enable chief financial officers to maintain accounting information in the general ledger; manage financial processes; identify real-time financial, operational, and management insights; enhance financial consolidation; reduce time-to-close; promote internal control and auditability, and achieve consistency across finance operations.

Technicals

WDAY has been on this new scanner I’ve been using to look for oversold patterns. It has traded at -3 ATR on my daily Keltner channels. 

Keltner Channels are volatility-based envelopes set above and below an exponential moving average. Keltner Channels use the Average True Range (ATR) to set channel distance. In my experience, it is very rare for quality stocks to stay below -3ATR’s away from the daily mean for long, and this can present great opportunities for a bounce trade.

Not only is WDAY extremely oversold on my Keltner indicator, but WDAY has also had 4 days now where it has tested a bottom at the 246 area. That’s a sign of relative strength in this weak market. Moreover, this was an area of previous major support. The last time WDAY was trading at these levels it proceeded to run to all-time highs in the 300’s.

This is a spot with great risk/reward, and I’m giving WDAY the benefit of the doubt here as it appears that heavy accumulation is taking place at these levels. 

The Trade

I’m feeling more confident that these levels will hold, so I will be more aggressive than usual. I am selling the 245 puts and buying the 240 puts expiring Jan 21 to make a bullish put spread. 

If WDAY is above 245 by the close on Jan 21, I will collect the full premium on the spread I sold. I expect WDAY to test $260 if it can hold here, and perhaps even $270 and then $280 if it can bust through that potential resistance.

Bottom Line

I believe the more checks in my favor that I have on a trade, the more likely it will potentially work. This confluence of signals gives me added confidence in the trade setups. 

There are numerous trading signals lining up together at once in WDAY. It is significantly oversold on the daily Keltner channels. It is at a major support area. I think the overall market can bounce here, and the stock has shown relative strength compared to other stocks in the tech sector. 

For these reasons, I am able to take on more risk and keep a tighter stop on the trade than usual. It appears heavy accumulation is taking place at these levels, and I am theorizing WDAY to trade higher, especially if the broader market can agree.