The equity markets, despite a strong move up yesterday, are continuing to show signs of weakness.
As I noted in my last post, the technicals point towards some downside in the near future.
Geopolitical tensions and the whirlwind of news around the implications of these things have shoved the market violently in both directions.
Crude is pretty much running the show in terms of carrying/propping up the Dow and the S&P.
Tech looks pretty weak here and financials seem to be weakening a bit as well.
Things to Keep In Mind Today
- – Initial Claims for Unemployment was slightly higher than expected; not much to note.
- – The Philly Fed Manufacturing Activity Beat Expectations by a decent margin.
Those numbers were reported 30 minutes ago, the initial reaction was a jerk up on the indices which have since retreated. I think we push up from here into the open.
I took a look at the past few Thursdays and they all have very similar pattern…though with monthly options expiry, today could be different. That said, the pattern has been upward momentum into the open, a quick bear jerk down then a slow ascension through the day followed by selling at the end of the day that’s caught by some bullish order flow into the close.
- – $VIX had a very bullish day of options trades yesterday.
- – Most of the aggressive short-term bull plays yesterday were out to next Friday rather than this Friday, implying traders in most equity sectors are trading around a move lower today or tomorrow for the broader markets.
Some of my favorite unusual options activity from yesterday worth watching include…
- – Bearish trades against several chip manufacturers…namely $INTC and $MU
- – $QQQ MAY18 $150 Ps @ ASK
- – $IWM MAY18 $165 Cs Swept @ ASK + Opening
- – $YNDX MAY18 $40 Cs Swept Above ASK
- – $SN MAY18 $5 Cs
- – $$BEN MAY18 $37 Cs @ .05 ASK
- – $SPY 25APR18 $280 Cs @ .07 ASK
- – $VIX MAY18 $26 Cs
Watch markets at 10:30 AM [EST] for the Natural Gas Inventories numbers to decide the next direction of the major indices.
Keep an eye on the 10-year Treasury Notes and Gold as well, they’re both about testing pretty critical resistance levels.
Today In History
The first Boston Marathon was held 121 years ago today and was won by John J. McDermott. Investing should never be a sprint, particularly in these market conditions. McDermott had the right idea.
What Is Going On With The Markets?
Well… I don’t know. Anyone who claims to know with precision is probably guessing and pulling their claims out of their asses.
Here’s what I see…
Option flow is pointing towards a choppy week here, we may easily end up on Friday where we started at close on Monday.
The same options flow is pointing towards upside after this weekly options expiration coming Friday ( April 13th, 2018).
The options flow I’ve been seeing is implicative of downside towards the end of the week.
A member of my trading room asked me about my thoughts on the potential for a breakout in gold and the implications on markets.
I told him about avoiding biases…our 1 on 1 conversation went a little something like this…..
That was my quick answer…at least in terms of the short-term potential for a spike in gold as markets get shaky here.
Here’s a bit more of an elaboration…
Which is better, active or passive portfolio management?
This is a debate that was running pretty hot for the lovely cushion of a bull market Quantitative Easing & the Presidential cycle brought us.
Then we started pulling off the highs with aggression.
A ‘war’ threat with North Korea. Escalating tensions with Russia. Tariffs. Fed rate hikes.
In a (seemingly) over-extended market, pick a reason and you’ll start to see some selling as soon as panicked longs find a reason to get scared. MarketWatch was kind enough to state the reason for all this pullback was mere $VIX. Yet that makes no sense. At all.
The futures are slightly in the green territory as of now…but they’re fairly flat. [S&P +3.00 Nasdaq +6.00 Dow +59.00]
- Economic data this morning was decent; nothing warranting a real heavy push
- News cycle seems to be pushing the tech sector up, with $BABA offering on the Chinese Market being reannounced today and several Chinese companies receiving upgrades today. Beyond Ali-Baba, $BIDU $YRD and $JD are also up pre-market. You might want to try to catch upside on these via $FXI…or for individual names $BABA and $BIDU should be the leaders of the pack today.
- Notable upgrades & earnings out include:
- $FDX Maintained at Outperform and PT Raised to $280
- $ASUR Reports record 4th quarter & raises guidance
- $AVGO PT announced at $340 by BAC
- $QRVO Cut to Underperform from Neutral by BAC
- $NTNX PT Raised to $58 [from $45] at Raymond James
- $ZION upgraded to outperform from market perform at Raymond James
- Notable News from a report on The Video Ad-Sector says the industry has seen a 31% drop in fraud rate. This should move bode well for $GOOG $FB $TWTR $SNAP & $TTD amongst others
As for the trading the market today…be careful with monthly options expiring tomorrow. Typically, to play on retail sentiment, they’ll drive the market up at open, let it fade and idle for a while, then start buying to build bullish sentiment into the close. That might not happen today, but it’s something to watch for.
If you have any short-dated bullish options positions, I’d consider taking some profit off if the day goes as stated above…let’s wait and see.
My favorite options flow from yesterday include:
Bullish Start To The Week, But What’s Next?
It’s been a bumpy two weeks for the indices. A few days have seen massive dips and recoveries. One saw a 300+ move in the dow in the matter of a few hours.
A fair amount of newer traders haven’t traded high volatility market situations like this.
It panics them. It makes them overtrade as they try to recoup losses…usually resulting in more losses.
If the above applies to you, calm down and slow down your trading a bit…
Take a step back sometimes. Think of it like this…if you had bought 1 share of $QQQ on February 1st and done nothing with it, you’d be breakeven as of today. If you had bought one on February 5th as the market seemed to be recovering and held through the dip, you’d be up a fair amount.
So my last “stocks to watch” post turned out to have a 100% winning rate. Had you taken on any of the positions listed there, you would have profited (to various extents and %s of course).
While that may be the only time that ever happens, I just felt like bragging a little bit. 10/10 on weekly stock pick performance is..well…pretty good.
But regardless, don’t consider all of the trades listed below to be profitable necessarily; some will, some won’t. That’s just how it is.
What this list is meant to be, is a list of stocks for you to consider adding to your watchlist. Nothing more and nothing less. With that said, here are some of the tickers that’ll be on my watchlist.
This is a new type of post that I will try to make each week (usually weekends, but sometimes during the week) where I share some stocks to watch, or at least that I’ll be watching based on recent Unusual Options Activity as well as some other market factors.
For full disclosure, I will let you know which ones I have positions in already. The names on this list that I don’t have positions in are names that I’ll be eyeing for opening positions in.
Stocks To Watch Early On In The Week of August 21st, 2017
Market psychology is a cornerstone of how markets operate. Whether that’s psychology that the ‘big money’ has trained retail to follow or whether it is the psychology of traders themselves. Options expiration dates are a great way to show what I mean.
Trading is a lot like gambling; I’ve already gone over the differences of investing vs. trading in previous blog posts, and it’s a subject I’m very likely to touch on again. It’s very important.
August 18th, this past Friday, was the standard expiration for August monthly options. While many people were still holding onto options expiring that day (something you should NOT be doing because of the impact of the options greek ‘theta‘ as the primary reason), there was some hope that the markets would rally and those option holders might be able to regain some of the profits they had made. That or they were hoping their losing positions would gain in value.