December 19, 2024
Market Update and Stocks on Watch
There is no sugar coating it, the breadth worries that had been a concern for the past two weeks finally led to an ugly day yesterday for the market and most stocks. S&P 500, Dow, Nasdaq and Russell 2000 … it was bad across the board.
So now, a day later, which stocks are attracting the best call buying activity?
Let’s start with Uber (UBER), which had been under pressure for the past two weeks (along with most stocks) as breadth was breaking down. However, yesterday call buyers started accumulating positions, and that has continued today. Here are those trades:
Today – Buyer of 4,000 Uber (UBER) February 70/80 Bull Call Spread for $1.30 – Stock at 60.5
Yesterday – Buyer of 10,000 Uber (UBER) February 72.5 Calls for $2.20 – Stock at 63.5
Yesterday – Buyer of 3,500 Uber (UBER) March 75 Calls for $2.07 – Stock at 62.5
Yesterday – Buyer of 2,200 Uber (UBER) June 70 Calls for $5.70 – Stock at 63.
I like this option activity, though I don’t necessarily love the way UBER stock has been trading. Let’s keep this one on watch.
Next up is Sofi (SOFI) which I wrote up two days ago, and now with the stock lower by $1.50 from Tuesday’s highs, call buying has not slowed down a bit. Here are those trades from this week:
Today – Buyer of 4,200 Sofi (SOFI) September 25 Calls for $1.64 – Stock at 15.25
Today – Buyer of 8,000 Sofi (SOFI) January 16 Calls for $0.90 – Stock at 15
Tuesday – Buyer of 10,500 Sofi (SOFI) February 22 Calls for $0.88 – Stock at 16.65
Monday – Buyer of 3,500 Sofi (SOFI) February 22 Calls for $0.84 – Stock at 16.80.
I continue to like this option activity in SOFI, though for now at least I’m going to stick on the sidelines with a call buy, as SOFI is the type of stock that could continue to bleed if the sellers remain in charge.
However, if the tone of the market changes, SOFI remains near the top of my watchlist for new buys.
December 17, 2024
Market Update and Two Stocks on Watch
As I’ve written several times the last two weeks, the action under the surface of the market, and breadth in general, has been deteriorating. Essentially some of the big boys in tech (GOOG/AAPL/etc.) are holding the indexes up, while the rest of the market has been under pressure. And here is some of the data that backs that up …
Via @jasongoepfert on X: With today’s dip in value stocks and jump in growth, the ratio between them just fell to the lowest in 24 years. Another couple of days like this, and value will hit a 40-year low relative to growth.
Via @MikeZaccardi on X: If the DJIA were to finish red today, it’d be the longest negative streak since 1978.
This is not the best sign in my opinion, and this is why we have been on a temporary hold from buying new positions.
However, I do want to note that a couple good days for the rest of the market can quickly have me on a buying spree once again as seasonally this is a bullish time of year.
One potential catalyst for the market (both down or up) will be the Federal Reserve announcement tomorrow. Headed into the event, the market is pricing in a nearly 90% likelihood that the central bank will cut rates … though in reality, the interest rate cut is not what traders are worried about, and instead they’ll be focused on the Fed Chairman’s press conference for clues for 2025.
Of note, the options market is pricing in a move of approximately 1% this week for the S&P 500 following the Fed event tomorrow.
And should the market shape up on the Fed, or for any reason really, one stock that has piqued my interest as of late is Sofi (SOFI) as the stock has been trending higher for months, broke out to a new high yesterday and has attracted call buying the last two days, including these trades:
Today – Buyer of 5,500 Sofi (SOFI) February 22 Calls for $0.88 – Stock at 16.65
Yesterday – Buyer of 3,500 Sofi (SOFI) February 22 Calls for $0.84 – Stock at 16.80
I’m intrigued by SOFI and am watching for further call buying.
Finally, I want to update you on Marvell (MRVL) which has been on my radar for a new buy several times as of late.
On Friday, MRVL stock broke out following “peer” Broadcom’s (AVGO) earnings and then continued higher again yesterday. I decided not to chase the stock as the breadth that I wrote above had me on the sidelines from new buys.
Fast forward to today, and MRVL stock is lower by 9% and right back to where it started before Broadcom’s earnings last week (I haven’t found a solid reason why the stock is so weak today).
Regardless, I am watching this MRVL situation closely and should call buyers “buy the dip,” we may get involved soon (if market breadth improves).
December 16, 2024
Weekly Update
For the second straight week the leading indexes went in vastly different directions as the S&P 500 fell 0.6%, the Dow lost 1.9%, and the Nasdaq gained 1%.
Stocks on Watch
Let me start here: I’m growing a bit suspicious of the market as breadth last week was AWFUL.
However, if that breadth can improve, there is no question that semiconductor play Marvell (MRVL), which had been a top candidate going into last week, is my number one candidate as the stock broke out to a new high and option activity became wildly bullish, including these trades:
Friday - Buyer of 4,000 January 130 Calls for $2.25 – Stock at 119
Friday - Buyer of 1,000 January 125 Calls for $4.40 – Stock at 120
Friday - Buyer of 3,000 March 130 Calls for $9 – Stock at 120.
I like MRVL a lot, and if my market breadth worries pass, we will be buying.
Also on my watchlist is EQT (EQT), which I wrote up on Thursday as traders accumulated calls all week, including:
Thursday – Buyer of 2,400 March 50 Calls for $2.53 – Stock at 46.3
Wednesday – Buyer of 10,000 March 50 Calls for $1.60 – Stock at 44
Wednesday – Buyer of 6,000 June 50 Calls for $2.40 – Stock at 43.5
Tuesday – Buyer of 6,000 March 50 Calls for $1.39 – Stock at 43.5
Monday – Buyer of 5,000 March 50 Calls for $1.20 – Stock at 43.5.
This call buying is everything I like about following option activity. The only thing I don’t love about EQT is it is a natural gas stock, and that group can go from red hot to ice cold in the blink of an eye.
Also on my watchlist due to stock strength is Credo (CRDO) which broke out to a new high on Friday, as well as Ciena (CIEN), which exploded higher on earnings on Thursday.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13.80, which continues to signal very little fear of a market sell-off. Though I will note, the VIX is somewhat artificially low as traders are already pricing in a typically slow trading period near the Christmas holiday.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 6
Thursday - 5
Friday – 5
Events for the Week to Come
This week traders will be ultra-focused on the Federal Reserve announcement where it is expected (90% likelihood) that the central bank will again cut interest rates. Though of note, that interest rate cut isn’t the main event, as traders will be more focused on Fed Chair Jerome Powell’s thoughts on further rate cuts in 2025, which are looking somewhat less likely as inflation has remained stickier than anticipated.
On the earnings front it will be a somewhat slow week other than Micron (MU) on Wednesday and Nike (NKE) and FedEx (FDX) on Thursday.
What Traders are Saying
As I noted in Stocks on Watch above, I’m growing a bit concerned by the action under the surface of the market. And as @DKellerCMT wrote on X, the numbers back up my worries about the action of most stocks:
Less than 50% of S&P 500 members remain above their 50-day moving average heading into the weekend. Last time we dipped below 50% was at the Halloween low... but much deeper pullbacks tend to start this way too!
And while I’m concerned about the breadth of the market, there is no question we are entering a very bullish time of year (today through the end of the year), as noted below via @GeigerCapital and @RyanDetrick on X:
Stepping back, I continue to be bullish. Though given the action under the surface of the market the last two weeks I certainly have my eyes open for more potential potholes that could trigger us selling positions, or even swinging bearish with the portfolio.
This will be a super interesting situation to play out in the days to come!
Open Positions
Robinhood (HOOD) January 15/26 Bull Call Spread – HOOD continues to trade below and above the 40 level which has seemingly been a battling ground for the stock. And at current levels there is just $0.25 left to capture in our bull call spread that worked well.
Also, last week Wall Street firm Needham raised their price target on HOOD shares to 52, up from 40, noting:
“Looking Good Under the HOOD; Raising Estimates -- raising our transactional activity ests for 4Q24 & ‘25 as it has rolled out successful new product launches, and retail crypto activity is coming back signif w/ Nov volumes +400% vs Oct -- hosted a successful Analyst Day in NYC last wk w/ mgmt emphasizing paths to growing mgn >50%, new product launches in the road map (more event based trading & possibility of sports betting), as well as ambitions to materially lean into crypto in ’25 including new token listings & staking -- we can envision a scenario where it’s competing to be #1 in Crypto volumes over the next few yrs, while mgmt sees a path to #1 in Options by ‘27 & #1 in Equities by ’29.”
Corning (GLW) May 47 Calls – GLW fell marginally last week along with the broad market, though it continues to look great. Of note, on Monday a trader bought 5,000 Corning (GLW) February 50 Calls for $2 – Stock at 48.
Marijuana ETF (MSOS) – My patience with this position is running very thin as the MSOS continues to be dreadful … and that may continue through the close of 2024 as traders tax-loss harvest the worst performers.
On Holding (ONON) January 42.5 Calls – ONON was mostly unchanged last week and at current levels our calls are at a potential profit of approximately 130%.
Of note, I’m debating selling an out-of-the-money call soon as January expiration is approaching for our calls, and because of that time is limited with this position.
Oracle (ORCL) March 160/240 Bull Call Spread – ORCL fell hard on earnings last week which is not what we were looking for. And while the stock decline wasn’t fun, our position is still at a potential gain of approximately 35%.
Of note, the March 240 calls that we sold for $3.10 right before earnings are now worth $0.75.
Palantir (PLTR) January 26/45 Bull Call Spread – PLTR had a volatile week, having briefly fallen as low as 68 before closing the week at 75. At current levels there is just $0.25 left to capture in our bull call spread that worked well.
Occidental Petroleum (OXY) March 52.5 Calls – OXY and almost all oil stocks look dreadful, and I may soon take a loss on this trade as there has been virtually zero sustained strength. Though I do wonder if these stocks will come alive when the calendar flips to 2025.
Of note, option activity remains strong looking for that rebound in 2025, including this trade from Monday:
Buyer of 5,000 Occidental Petroleum (OXY) March 52.5 Calls for $1.65 – Stock at 49.
Rocket (RKT) March 20 Calls – RKT still is the worst, as rising long-term interest rates are just killing this stock and group.
Walmart (WMT) January 65/95 Bull Call Spread – WMT fell marginally last week along with the broader market, though it remains within striking distance of all-time highs. At current levels our position is at a potential profit of approximately 575%.
Financials ETF (XLF) June 50 Calls – The XLF is the perfect illustration of the weakness under the surface of the market. What I mean is the XLF is hardly dying, but it is also not participating (the last two weeks) with the market’s advance.
Regardless, I think the group still looks good and our calls are exactly how I would play a rotation back into the XLF and the broader market.
Jets ETF (JETS) January 26 (exp. 2026) Calls – What I said about the XLF right above is exactly how I feel about the JETS … essentially, the group looks good, but the ETF also didn’t participate in the Nasdaq-fueled advance last week, which is fine.
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