After enduring a five-week sell-off, the markets seem to be mounting a strong recovery. With major banks delivering upbeat earnings last week, the earnings season has kicked off on a positive note, setting an encouraging tone for the weeks ahead. Pullbacks of this nature often open the door to excellent trading opportunities, provided traders have the patience to wait for the right moment. One standout opportunity is Oracle (ORCL) , which is currently displaying a compelling mean reversion setup. For this particular trade signal, I’ve consulted several technical indicators: RSI (Relative Strength Index): RSI measures trend strength and can also signal potential mean reversions. When RSI falls below 30, it indicates a stock is oversold. For a bullish set-up, traders look for RSI to rise back above the 30 level, signaling a reversal. In the case of ORCL , RSI has now climbed out of the oversold zone with notable strength. MACD (Moving Average Convergence Divergence): A widely used momentum indicator, the MACD is often interpreted through the crossover of its fast and slow lines. While ORCL hasn’t yet experienced a crossover, it appears imminent. If the fast line crosses above the slow line in the next 1-2 days, it would serve as additional confirmation for a bullish setup. DMI (Directional Movement Index): This indicator identifies the prevailing trend. A rising DI- signals a downtrend, but when DI- starts to reverse, it suggests the end of a downtrend and the potential emergence of a new bullish trend. Together, these indicators paint a strong case for ORCL as a promising trade opportunity. With technical confluences aligning, the setup offers an attractive balance of risk and reward. The Trade For a bullish trade on ORCL, I am utilizing a bull call spread strategy. This approach involves buying a $160 call and selling a $165 call as a single trade unit. If ORCL closes at or above $165 by expiration, this trade will generate a 100% return on investment (ROI) on the capital invested. For example, with 10 contracts, the trade requires risking $2,500 to potentially earn $2,500. This strategy offers a well-defined risk-reward profile, making it an excellent choice for capturing bullish momentum while keeping risks controlled and manageable. Here’s the trade structure: Buy: $160 call, Feb 14th expiry Sell: $165 call, Feb 14th expiry Cost: $250 Potential Profit: $250 (I explore setups like the one described here in greater detail in my book, Mean Reversion Trading , and share additional insights and resources on my website: https://tradingextremes.com .) -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: (None) 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.
