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S&P 500 Overview: Upside Possible as Range Emerges
- S&P 500 pausing in range between 2600 and 2675.
- Internals like breadth and sector performance still positive. Dollar weakening
- Near-term overbought, opposing bearish intermediate trend.
- Calendar bullish, with economic data and earnings likely to be better than feared. Shutdown 2-3 weeks away (2/15), China tariffs 2 months away (3/1).
- Odds may favor upside breakout toward 2800. Ranges tend to widen.
- Index traders may want to wait for range to break, opt for individual stocks now.
Some Optimism in an Ocean of Gloom
- 1/28: Shalett of Morgan Stanley, Pinto of JPM, Achuthan of ECRI see S&P 500 downside
- 1/24 & 1/25: JP Morgan cuts GDP estimate, but sees hefty buybacks/dividends in 2019.
- 1/22: Moynihan of BAC: US consumer strong but slowing overseas.
- 1/22: PWC CEO poll: Recession fears on the rise.
- 1/21: IMF cuts global growth estimate to +3.5%.
- 1/18: Fidelity: China valuations positive.
- 1/17: Morningstar: Record $143 billion of outflows from active funds in December.
Economic News Less Negative Than You May Think
- European lending accelerated in December as Italy approved budget.
- Banks/financials giving positive signals.
- Euro rising despite Brexit fears. Yuan, Real, Ruble doing even better against USD.
- Jobless claims under 200K despite shutdown.
- Rail traffic accelerating again.
- Most bad news is fear/uncertainty about non-economic factors like politics (tariffs, shutdown)
- Recent shutdown gives economic data a pass. Bad numbers likely to be dismissed, good numbers could be embraced.
Rotation into Smaller Companies/New Areas
- Brazil, China outperform as US weakens
- Smaller biotechs, newer tech and E-commerce names as investors focus on M&A, new growth names and seasoning of recent IPOs.
- Oncology movers: EXAS, INCY, EXEL, MRTX
Option Activity:
- 1/28: Regional bank ETF (KRE): April 51-46 put spread (apparent hedge)
Interesting how they chose October low near $51 - 1/25: Cleveland Cliffs (CLF) April 9 puts sold for $0.70
- 1/22: Fiat Chrysler (FCAU): Feb 15 short puts → Feb 16.50 short puts.
- 1/17: Bank of America (BAC) March 26-29 call spread rolled → March 30-31
Don’s Watch List:
- 1/29 post-market: Apple (AAPL).
- 1/30 post-market: Microsoft (MSFT), Visa (V), Facebook (FB)
Russell’s Watch List:
- Apple (AAPL): Lots of fear priced in a day before earnings.
AAPL good for diagonal spreads: 160-165 calls could make sense. (Buy next week, sell this week.) - Facebook (FB): Diagonal spread candidate 150-155 spread costs ~$2.50.
- Regeneron (REGN), General Motors (GM) may run into 2/6 earnings.
GM good for options, possibly 8Feb 39.50 calls - Tableau Software (DATA) bullish triangle
- Seabridge Gold (SA): Almost 1 ounce of gold per share (stock under $15)
- Gold (@GC, GLD) has a “golden cross” as Fed turns dovish.
- Newer S&P members pushing new highs in the new year: KEYS, CDNS
- JM Smucker (SJM) downside risk amid difficult pet-food transition.
- Mattel (MAT) downside risk amid longer-term downtrend, potential support now resistance.
Busy Calendar Going Forward:
- Tomorrow: Consumer confidence, AAPL, AMD
- Wednesday: ADP payrolls, GDP (shutdown permitting), Federal reserve meeting, FB, MSFT, BABA, BA, PYPL, MCD
- Thursday: Euro zone GDP, jobless claims, AMZN, MA
- Friday: Non-farm payrolls, XOM, CVX, MRK
