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Your Jump on the Week – Market Internals

by | Mar 16, 2019 | Bishop's Corner

Stocks were absolutely on fire over the week, as the Nasdaq rose by almost 4% and the S&P 500 pushed 3% higher. Furthermore, stocks are at four-month highs, and the market’s “fear index” the VIX, is at its lows for 2019, after closing 12.88 on Friday.

I’ve found the best way to gauge market sentiment is  to study market volatility, pay attention to economic data, and follow closely what the Fed says about their monetary policy.  It’s what I do to get a “feel” of where the markets at… and where it can go next.

While market volatility is at its lows… we are starting to get some weak economic data (manufacturing and housing). However, as a trader, it’s important to recognize that the market is always right. That’s why I’ve kept a mix of a bullish (BA and NIO) and bearish positions (VXXB).

You see, the sentiment is important but so is price action and volume. And that’s why I use something called “my money pattern” to help me select spots where I should enter and exit trades.

That said, my strategies work in all different types of market conditions. They even allow me to reduce risk in stocks that are experiencing intense volatility as Boeing has over the last week.

If you missed my post on how to trade risky stocks with less risk, check it out here.

Now, going into next week, there is a ton of economic data to cover. Also, it will be another important week for earnings, as we’ll be hearing from names like Nike, Federal Express, and Conagra Brands.  

Read on to find out about my current positions, as well as, get your jump on the week with the economic and earnings schedule.

Trade Ideas This Week

Now, things are going to slow down on the earnings front this week… before we start to see earnings pick up next week. However, that doesn’t mean I’m taking it easy… there’s still a lot I’m watching, like Boeing (BA), the SPDR S&P 500 ETF (SPY), PowerShares QQQ Trust (QQQ), the Federal Open Market Committee (FOMC), and other economic indicators.

Here’s what I’m watching with SPY on the daily.

If you look at the blue horizontal line above, you’ll notice SPY has failed there before. Currently, it’s flirting with it… and it’s what traders call a “fakeout breakout”. In other words, the SPY could break above the blue horizontal line… only to fall back below it… potentially reaching the $260 level – putting it into bear market territory.

Now, on the hourly chart, I’m watching this:

If you look at the blue line and red line… they’re getting very close to each other, and the blue line looks like it could cross below the red line. This would indicate a potential shift in the short-term trend. If that does happen, I’ll be ready to buy put options in not only the SPY, but other stocks exhibiting the same pattern.

We’re also seeing some similar price action in QQQ – the technology ETF.

Not only is this going on… the CBOE Volatility Index ($VIX) is extremely low – breaking the 13 level… something we haven’t seen in months… that means the markets are getting too complacent at these levels.

However, there are still risks on the table:

  • The FOMC will be meeting this week and discussing its course of action.
  • Ongoing Brexit talks with the U.K. potentially leaving the European Union (EU) with no deal.
  • U.S. – China trade talks.
  • Interest rates (10-year yield and 2-year yield spread looking to get negative soon) – this would be bad for the markets… something we’ve talked about here before.
  • Crude oil and natural gas prices – we’ve seen falling crude oil prices rock the markets a few years ago.
  • Global economic slowdown.

With volatility this low and a slew of risks on the table… this could actually be a fakeout breakout in the markets, and we could see volatility pick up.

Moving on… here’s what I’m watching with specific stocks.

Boeing Stock (BA) Position

Boeing stock got so much attention last week. I already had a put spread on the trade – expiring this week… but I did some more thinking and bought calls in it as well.

Here was the chart I was watching in BA stock when I got into the options trade.

Now, here’s my play… I’m going to hold onto this call option position for a while… and I don’t plan to get out unless Boeing stock makes a move above $390… or falls below $350 (my stop loss area).

Here is my reasoning:

  • Even though this was a tragic event… the news will blow over soon. The Boeing jets will be back in the air once they figure out the root cause.
  • The markets are “memoryless” on things like this. The news will be all about the next injustice in the world, and BA stock won’t be talked about too much.
  • Think about this… The President of the U.S. (POTUS) announced the U.S. would ground these planes… pretty bad news… the stock dropped over $10 in minutes after that catalyst. However, the stock gained all of that, and then some, by the close that day.
  • Clearly, the stock is resilient… the bad news is out, and some traders are looking at this as a buying opportunity.

Not only that, the blue line looks like it’s going to cross above the red line on the hourly.

What’s this tell us?

Well, if and when this occurs, it signals a shift in the short-term trend… letting us know the stock could run higher. That’s what I call my money pattern.

Now that we’ve gone over the markets and what I’m watching, let’s move onto the economic calendar and earnings calendar (there are still some big names reporting this week, like Nike, General Mills, Conagra Brands, and Tiffany & Co).

Economic and Earnings Calendar

As always, we’re comparing what the options market is implying for the week for earnings stocks… and we’re comparing that to the historical average move post earnings for the last 8 quarters, unless stated otherwise.

Monday, March 18, 2019

Economic Calendar

  • 10:00 AM EST                 NAHB Housing Market Index

Earnings Calendar

Earnings Before Open

  • Overstock.com (OSTK) implying ~17% move. Historical average move ~18%.
  • Lumber Liquidators (LL) implying ~14.40% move. Historical average move ~22.50%

Earnings After Close

  • Tilray Inc. (TLRY) implying 12.34% move. Not enough data for historical average move.
  • HealthEquity Inc. (HQY) implying 10.89% move (monthly options). Historical average move ~9.70%.
Other Catalyst Events

  • Drug, Chemical, & Associated Tech week, March 18-21, in New York
  • Game Developers Conference, March 18-22, in San Francisco
  • Roth Capital Annual Conference, March 17-19

Tuesday, March 19, 2019

Economic Calendar

  • 7:45 AM EST                   ICSC Weekly Retail Sales
  • 10:00 AM EST                 Factory Orders
  • 10:00 AM EST                 Durable Goods Order
  • 4:30 PM EST                   API Weekly Inventory Data

Earnings Calendar

Earnings Before Open

  • Michaels Companies (MIK) implying ~14.6% move (monthly options). Historical average move ~14%.
  • HD Supply Holdings (HDS) implying ~7% move (monthly options). Historical average move ~8%.
  • DSW (DSW) implying ~12% move (monthly options). Historical average move ~15%.

Earnings After Close

  • FedEx (FDX) implying 5.84% move, historical average move 4.48%.
  • AAR Corp. (AIR) implying 8.83% (monthly options), historical average move 8.08%.
  • Tencent Music Entertainment (TMW) implying 13.30% move (monthly options). Not enough earnings data for historical average move.
Other Catalyst Events

  • Drug, Chemical, & Associated Tech week, March 18-21, in New York
  • Game Developers Conference, March 18-22, in San Francisco
  • Roth Capital Annual Conference, March 17-19
  • Oppenheimer Annual Healthcare Conference, March 19-21, in New York

Wednesday, March 20, 2019

Economic Calendar

  • 7:00 AM EST                   MBA Mortgage Applications Data
  • 10:30 AM EST                 Weekly DOE Inventory Data
  • 2:00 PM EST                   FOMC Forecasts (the markets are expecting no-rate hike)
  • 2:30 PM EST                   FOMC Chair Press Conference

Earnings Calendar

Earnings Before Open

  • General Mills (GIS) implying 5.84% (monthly options). Historical average move 6.11%.

Earnings After Close

  • Micron Technology (MU) implying 8.49% move. Historical average move 7.56%.
  • Guess? (GES) implying 13.87% move (monthly options). Historical average move 17.77%.
Other Catalyst Events

  • Drug, Chemical, & Associated Tech week, March 18-21, in New York
  • Game Developers Conference, March 18-22, in San Francisco
  • Roth Capital Annual Conference, March 17-19
  • Oppenheimer Annual Healthcare Conference, March 19-21, in New York
  • William Blair Annual Cancer Immunotherapy Conference in New York

Thursday, March 21, 2019

Economic Calendar

  • 8:30 AM EST                   Weekly Jobless Claims
  • 8:30 AM EST                   Continuing Claims
  • 8:30 AM EST                   Philly Fed Survey
  • 10:00 AM EST                 Leading Index
  • 10:30 AM EST                 Weekly EIA Natural Gas Inventory Data

Earnings Calendar

Earnings Before the Open

  • Darden Restaurants (DRI) implying 7.68% (monthly options), historical average move 7.97% move.
  • ConAgra Brands (CAG) implying 10.39% (monthly options), historical average move 5.5%.
  • Canadian Solar (CSIQ) implying 9.37% move, historical average move 8.77%.
  • G-III Apparel (GIII) implying 13.9% move (monthly options), historical average move 18.82%.

Earnings After the Close

  • Nike Inc. (NKE) implying 5.09% move, historical average move 7.8%.
  • Cintas Corp. (CTAS) implying 6.32% move (monthly options), historical average move 5.91%.
Other Catalyst Events

  • Drug, Chemical, & Associated Tech week, March 18-21, in New York
  • Game Developers Conference, March 18-22, in San Francisco

Friday, March 22, 2019

Economic Calendar

  •  9:45 AM EST                   Markit US Manufacturing and Service PMI               
  • 10:00 AM EST                 Wholesale Inventories
  • 10:00 AM EST                 Existing Home Sales
  • 1:00 PM EST                   Baker Hughes Weekly Rig Count
  • 2:00 PM EST                   Monthly Budget Statement

Earnings Calendar

Earnings Before Open
  • Tiffany & Co (TIF) implying 6.50% move, historical average move 9.74%.

Is there anything tripping you up… More stuff you’d like to see or less of…Have burning questions you’d like answered?

If so, I’d love to hear directly from you. To do so, you can email me questions@moneymultiplier.com

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