After a failed Santa Rally, markets appear to be staging a comeback. We have a packed schedule of macroeconomic data next week — including CPI, PPI, and the kickoff of earnings season—a ll this data can trigger significant volatility in the markets. However, there are encouraging signs that the deep pullback from late December might be nearing its end. As the saying goes, “a rising tide lifts all boats.” With Nvidia leading the charge and the tech sector showing strength, many technology stocks are likely to follow suit. One such stock is software play MongoDB (MDB) , which is currently presenting a classic, textbook mean reversion set-up with multiple confluence factors aligning. I dive into patterns like this in greater detail in my book, Mean Reversion Trading . This trade setup is straightforward, utilizing just two technical signals to guide the trade: RSI (Relative Strength Index): RSI measures the strength of a trend and can also act as a mean reversion indicator. When RSI drops below 30, it signals that a stock is oversold. For a bullish set-up, traders typically wait for RSI to not only drop into oversold territory but also rise back above the 30 level. That’s precisely what we’re seeing with MDB, making it a potential bullish candidate. MACD (Moving Average Convergence Divergence): The MACD can be used in several ways, but one common approach is to watch for the fast line to cross above the slow line, signaling a potential shift in momentum. While a MACD crossover hasn’t occurred yet for MDB, it’s on the verge. If this crossover happens within the next 1-2 days, it could provide additional confirmation for a bullish setup. Both indicators together strengthen the case for this trade, offering a promising technical setup. For a bullish trade on MDB, I am using a bull call spread. This strategy involves buying a $250 call and selling a $255 call as a single trade unit. If MDB closes at or above $255 on expiration day, this set-up will deliver a 100% return on investment (ROI) on the capital deployed. For instance, with 10 contracts, the trade involves risking $2,500 to potentially gain $2,500. This defined risk-reward strategy is ideal for capturing bullish momentum while keeping the risk controlled and manageable. MDB 1Y mountain MongoDB, 1 year Here’s the trade structure: Buy: $250 call, Feb 7th expiry Sell: $255 call, Feb 7th expiry Cost: $250 Potential Profit: $250 This straightforward trade setup is designed to capitalize on MDB’s bullish momentum while maintaining a clear and limited risk profile. -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: ( Nishant has a MDB 250-255 bull call spread expiring on 2/7/2025.) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
