Market Action Summary: 1/28/19


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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
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.