Coming off three straight weeks of losses, the bulls staged a rebound last week as the S&P 500 gained 3.65%, the Dow rose 2.66% and the Nasdaq rebounded by 4.1%.
The trading action last week was encouraging for the bulls ahead of the release of the much-anticipated Consumer Price Index (CPI) report this Tuesday, which could set the tone for the indexes for weeks/months to come. Though as we have seen countless times this year, the bears have sold aggressively into virtually every rally.
Stocks on Watch
This week’s Stocks on Watch is again featuring Cameco (CCJ) which I am still watching, “old friend” Uber (UBER), as well as put buying in a former leader, Veeva (VEEV).
For three weeks now I have been highlighting call activity in CCJ as the stock has held up well, and option activity has been overwhelmingly bullish. The only reason I haven’t pulled the trigger on a buy was the awful market action. That being said, should the call buying noted below continue, I will almost certainly add the stock to the portfolio:
Friday - Buyer of 12,500 Cameco (CCJ) December 33 Calls for $3 – Stock at 30.75 (rolled from December 31 calls).
Next on my watch list is UBER, which falls in the category of stocks that are potentially “sold out,” as the stock has held up very well through the last month’s ups and downs. And last week option activity was very bullish in UBER, including this trade from Thursday:
Thursday - Buyer of 10,000 Uber (UBER) September 32.5 Calls for $0.42 – Stock at 30.5.
And finally, when I’m looking for stocks to short/buy puts on, I tend to focus on recent earnings losers. One of those stocks is VEEV, which fell 14% on earnings two weeks ago and on Friday a trader bought puts looking for greater declines. Here is that trade:
Friday - Buyer of 1,500 Veeva Systems (VEEV) December 165 Puts for $10.50 – Stock at 176.
VEEV is a top candidate for a put buy should the market unwind yet again.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 23.5, or lower by 8%.
The VIX falling to 23.5 on Friday was very encouraging for the bulls. That being said, I would be shocked if it fell much further ahead of the much-anticipated CPI report on Tuesday morning. Of note, the options market is implying an approximate move of 2.2% this week, likely largely on that CPI report and the volatility surrounding “quad witching.”
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Tuesday – 5
Wednesday – 6
Thursday - 6
Friday –5
Events for the Week to Come
As noted above, the release of the Consumer Price Index (CPI) on Tuesday will garner the majority of traders’ attention this week. This is the last major inflation data point ahead of the Federal Reserve’s September meeting, where the central bank is expected to raise interest rates by 50 or 75 basis points. Of note, ahead of the CPI release, Fed Funds Futures are now pricing in a 90% chance of a 75-basis point hike in September.
What Traders are Saying
The steep market decline of the previous two weeks, which saw the Nasdaq fall approximately 13%, was eye-opening/concerning for the everyday investor, as well as hedge funds and institutions. That’s right, institutions panic just like the rest of us, as shown below via @SentimenTrader on Twitter:
“Sometimes, there’s a chart that just blows your hair back. In 22 years of doing this, none stand out like this one. Last week, institutional traders bought $8.1 billion worth of put options. They bought less than $1 billion in calls. This is 3x more extreme than 2008.”
Three times as extreme as the housing crisis?!! The financial system was teetering on the edge of collapse through that 2008 stretch, and yet last week saw even greater put buying vs. call activity?!!!
So what does this stunning data point mean for the market? Of course, we won’t know for several more weeks/months, but here are my thoughts.
First, it’s possible that we are on the precipice of a much further decline if these institutions are right.
However, as I’ve written before, Fear of Missing Out (FOMO) is one of the most powerful movers of markets. And should the indexes begin to rise, these institutions may be underinvested, or even short the market, which could trigger an epic short squeeze … IF the market strengthens.
Open Positions
Long positions: AR, XBI, GOOG, M, OXY, SBUX, XLF
Bearish Positions: SPY
Antero Resources (AR) November 45 Calls – AR gained 1.5% last week and looks totally fine despite the recent pullback in commodity stocks. Of note, on Thursday a trader bought 8,200 October 45 Calls for $1.30 – Stock at 39.
Biotech ETF (XBI) January 84 Call – On Tuesday I was starting to get concerned by the recent pullback in the XBI. But by Friday the biotech index had rallied sharply and is back in good shape. Such is the wild market these days. Aiding my confidence in the XBI was a buy of 16,000 XBI November 100 Calls for $2.65 – Stock at 88.5 on Friday.
Alphabet (GOOGL) February 120 Calls – GOOGL gained 3% last week and looks “OK”. Though interestingly, despite the stock mostly chopping around, option activity remains red hot looking for a big run higher into year end.
Macy’s (M) September 20 Covered Call – M continues to chop around aimlessly, which is totally fine for our September 20 call that expires this Friday. You will be hearing from me regarding this position ahead of expiration. One more item … M stock goes ex-dividend early this week, which means we will collect the $0.1575 per share dividend later this month.
Occidental Petroleum (OXY) December 65/80 Bull Call Spread – OXY pulled back by 4.5% last week along with its oil and commodity peers. However, as has been the case for months, Warren Buffett AGAIN took the opportunity to buy even more shares last week, raising his ownership in the shares to 26.8%. And on Friday a trader bought 2,000 Occidental Petroleum (OXY) October 70 Calls for $2.60 – Stock at 65.
PayPal (PYPL) March 97.5 Call -- On Thursday we added PYPL to the portfolio via a purchase of the March 97.5 calls. I would expect PYPL will move with the whims of the market and the risk-on/off narratives.
S&P 500 ETF (SPY) March 420/320 Bear Put Spread – On Tuesday we sold the March 320 put for $7.20, which turned this trade into the 420/320 bear put spread at a net cost of $18.25.
Starbucks (SBUX) January 85 Calls – Ahead of the company’s investor day tomorrow (Tuesday) SBUX stock rose 7% last week. Our position is in great shape headed into this event. Also of note, on Wednesday a trader bought 1,000 March 92.5 Calls for $5.75 – Stock at 87.
Financials ETF (XLF) January 33 Calls – Very impressively the XLF rallied 4.5% last week and all of a sudden the financials are showing signs of life again.
