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Weekly Trader’s Outlook

Price action improving as we head into next week

Weekly Market Review:

Equities are modestly higher early Friday morning following a relatively bumpy ride for investors this week. Even with this morning’s 0.6% gain the S&P 500 is still down over 1.5% on the week which was largely driven by concerns over a resurgence of COVID-19 cases in Europe and drawn out discussions among lawmakers regarding the next round of fiscal stimulus. Technically, the S&P 500 hit the 10% correction mark yesterday based on the intraday low of 3,209 from the September 2nd closing high of 3,580, so that may be contributing to some of this morning’s bounce:

Source: Schwab StreetSmart Edge®

Past performance is no guarantee of future results.

This Week’s Notable 52-week Highs:

Bandwidth Inc. (BAND + $5.77 to $168.93)

Beigene Ltd. (BGNE + $2.70 to $279.27)

Dollar General Corp. (DG + $1.43 to $206.05)

Forte Biosciences Inc. (FBRX + $4.22 to $49.82)

Freedom Holding Corp. (FRHC + $0.16 to $23.79)

GameStop Corp. (GME + $0.49 to $9.63)

Logitech International S.A. (LOGI - $0.67 to $72.54)

Oracle Corp. (ORCL - $0.06 to $59.24)

Owens & Minor Inc. (OMI + $0.14 to $20.45)

Polar Power Inc. (POLA - $0.88 to $2.80)

Roku Inc. (ROKU + $2.09 to $180.36)

Scientific Games Inc. (SGMS + $1.47 to $34.25)

Stitch Fix Inc. (SFIX + $0.36 to $25.83)

Zillow Group Inc. (Z + $2.39 to $100.20)

Q3 Corporate Earnings

Although we really haven’t really gotten into the thick of Q3 earnings, there have been 13 out of the S&P 500 companies that have reported and out of those 83% have beat on the top line while 91% have beat on the bottom line. Last quarter 65% beat estimates on the top line while 85% beat on the bottom line versus the respective 59% and 65% seen in the prior quarter. Here are some of the higher-profile names that reported this week:  

Ticker Symbol

Reported EPS

Consensus EPS Estimate

Difference

AZO

$30.93

$22.72

+$8.21

NKE

$0.95

$0.50

+$0.45

KBH

$0.83

$0.51

+$0.32

SFIX

($0.44)

($0.17)

($0.27)

GIS

$1.00

$0.82

+$0.18

CTAS

$2.78

$2.12

$0.66

JKS

$1.20

$0.75

+$0.45

JEF

$1.07

$0.34

+$0.73

ACN

$1.70

$1.73

($0.03)

KMX

$1.79

$1.11

+$0.68

FDS

$2.88

$2.53

+$0.35

COST

$3.13

$2.80

+$0.33

 

Below are some of the higher-profile names that will be reporting next week. I’ve identified the ones I’ll be keeping my eye on in bold below.

Monday (28th): WB, THO, SINA, CALM (before market open); UNFI (after market close)

Tuesday (29th): INFO, MKC, ANGO (before market open); MU, SNX, PRGS (after market close)  

Wednesday (30th): EPAC (before market open)

Thursday (1st): PEP, STZ, CAG, BBBY (before market open); SGH (after market close)

Friday (2nd): --

Volatility:

The Cboe Volatility Index (VIX), although elevated at its current level of 27, appears to have found a trading range of roughly 25 to 30 over the past two weeks. And it appears that VIX traders are not expecting volatility to subside as we approach the 2020 U.S. elections. If you look out to the VIX term structure there is a gradual rise to the low 30’s over the next two months, which is currently topping out at around 33 (currently) at the November 18th expiration. It’s possible that the VIX futures could come down to converge with the current spot price, but it doesn’t seem likely given the uncertainty around COVID-19, fiscal relief and the election, so expect volatility to be the norm for the time-being.

Source: Schwab StreetSmart Edge®

Past performance is no guarantee of future results.

Unusual Options Activity:

Unusual Call Activity:

Jetblue Airways Corp. (JBLU + $0.19 to $11.49): Calls are outpacing puts ~20:1 as option traders primarily target the October 16th 13.00 call. Volume on this contract is 6,139 (vs. open interest of 2,533) which mostly consisted of various-sized blocks that were being bought at the ask prices of $0.28 & $0.29 each (suggesting bullish intent).

Target Corp. (TGT + $2.95 to $154.95): Calls are outpacing puts better than 5:1 as option traders primarily target the October 2nd 155.00 call. Volume on this contract is 11,363 (vs. open interest of 727) which mostly consisted of various-sized blocks that were being bought for between $2.00-2.10 each (suggesting bullish intent).

Unusual Put Activity:

Molson Coors Brewing Co. (TAP - $0.30 to $32.75): Puts are outpacing calls ~11:1 which is primarily being driven by a 10.98K block that was sold on the October 16th 30.00 put at the bid price of $0.25. The put sale suggests that the block trader believes that TAP will close above the $30.00 price level at expiration and/or is comfortable taking a long 1.098M share position in the stock at an effective purchase price of $29.75 in the event that it closes below that level at expiration.

Dentsply Sirona Inc. (XRAY + $0.80 to $43.45): Puts are outpacing calls ~100:1 as option traders primarily target the October 16th 42.50 put. Volume on this contract is 2,508 (vs. open interest of 149) which mostly consisted of various-sized blocks that were being bought for between $1.50-1.55 each (suggesting bearish intent).

Heavy Option Volume:

Endo International PLC (ENDP + $0.23 to $3.24): Option volume is running at roughly 40x the daily average of 158 contracts as option traders primarily target the October 16th 3.50 call. Volume on this contract is 2,693 (vs. open interest of 9) which mostly consisted of various-sized blocks that were being bought for between $0.10-0.25 each, suggesting bullish intent.   

Canadian Solar Inc. (CSIQ + $2.15 to $32.05): Option volume is running at roughly 12x the daily average of 533 contracts as option traders primarily target the October 2nd 35.00 call. Volume on this contract is 2,615 (vs. open interest of 154) which mostly consisted of various mid-sized blocks (277, 181, 178, 124, etc.) that were being bought at the ask prices of $0.25, suggesting bullish intent.

iShares MSCI Taiwan ETF (EWT + $0.07 to $43.27): Option volume is running at over 8x the daily average of 416 contracts as option traders primarily target the November 20th 37.00 put. Volume on this contract is 2,911 (vs. open interest of 5) which mostly consisted of various-sized blocks that were being sold at the bid price of $0.45. The put sales suggest that the put sellers expect EWT to remain above the $37.00 price level at expiration.   

Technical Outlook:

S&P 500 Index ($SPX + 57 to 3,304): As previously mentioned the SPX hit the 10% correction mark on Thursday and the good news for the bulls is that it also appears to have roughly lined up with the 3,200 support level. However, its’ too early to say whether that will be the extent of this recent pullback, as the index still needs to get back above the 50-day Simple Moving Average (SMA). Therefore, the near-term support remains 3,200 and the 50-day SMA (currently 3,351) will be considered near-term resistance until proven otherwise.

Source: Schwab StreetSmart Edge®

Past performance is no guarantee of future results.

NASDAQ Composite ($COMPX - 156 to 10,951): The NASDAQ sustained a slightly bigger drop (-13%) than the SPX during this recent downdraft, but the index is in a similar situation in that it needs to reclaim the 50-day SMA before the bulls can feel more comfortable from a technical perspective. Therefore, 10,500 appears to be near-term support and the 50-day SMA (currently 11,024) is likely near-term resistance.

Source: Schwab StreetSmart Edge®

Past performance is no guarantee of future results.

Russell 2000 Index ($RUT + 10 to 1,555): the Russell 2000, which has relatively underperformed this year, is in a bit of a different set-up. The index closed below its 200-day SMA on Thursday but is pushing through it pretty convincingly this afternoon - this is a good sign if you are bullish.    

Source: Schwab StreetSmart Edge®

Past performance is no guarantee of future results.

Economic Recap:

Economic data was fairly sparse this week, which was highlighted by strong housing data. Here’s a recap of the individual reports that came out this week:

Better than Estimates:

  • New Home Sales: 1011K vs. 875K est

In-Line with Estimates:

  • Existing Home Sales: 6.0M vs. 6.0M est

Worse than Estimates:

  • EIA Crude Inventories: -1.6M barrels vs. -2.3M barrels est
  • Initial Jobless Claims: 870K vs. 825K est
  • Durable Goods Orders: 0.4% vs. 0.9% est
  • Durable Goods Orders ex-transportation: 0.4% vs. 1.0% est

Key takeaways from this week’s data:

  • New Home Sales increased 4.8% in August to 1011K units which represents the highest level since 2006. New homes for sale dropped 282K to 3.3 months of supply, which is the shortest duration since 1963.
  • Durable goods rose for the fourth straight month.

Here’s a look at next week’s line-up:

  • Monday (28th): --
  • Tuesday (29th): Advanced International in Goods, Advanced Retail Inventories, Advanced Wholesale Inventories, Consumer Confidence, S&P Case-Shiller Home Price Index
  • Wednesday (30th): ADP Employment Change, Chicago PMI, EIA Crude Oil Inventories, GDP – Third Estimate, GDP Deflator – Third Estimate, MBA Mortgage Applications Index, Pending Home Sales
  • Thursday (1st): Construction Spending, Continuing Claims, EIA Natural Gas Inventories, Initial Jobless Claims, ISM Manufacturing Index, PCE Prices, PCE Prices – Core, Personal Income, Personal Spending
  • Friday (2nd): Auto Sales, Average Workweek, Average Hourly Earnings, Factory Orders, Nonfarm Payrolls, Nonfarm Private Payrolls, Truck Sales, Unemployment Rate, University of Michigan Consumer Sentiment - Final

 

We’ll be getting a pretty heavy dose of economic data next week and as is usually the case, market participants will likely be keenly focused on the monthly employment data. In addition, keep an eye on Thursday’s PCE Prices given the recent focus around the Fed’s change in inflation targets and rate policy.

Summary:

Equities endure another round of volatility, but are closing the week out on a high note. While volatility is likely to persist, the market technicals appear to be improving following the recent correction.

Equity markets are hovering near the highs of the session as we approach the close, which is the kind of price action you want to see if you are bullish. At around 3:54 p.m. ET the Dow Jones Industrial Average is higher by 341 to 27,155, the S&P is taking on 51 to 3,298 while the NASDAQ composite is gaining 242 to 10,915. I’m not sure if we have more downside to this recent correction, but I’m encouraged to see the alignment of a 10% correction in the S&P 500 along with a bounce off the 200-day SMA in the Russell. It feels to me like the SPX/COMPX/DJI want to run up to their 50-day SMA for a test, which if so, would suggest we have some more near-term upside. Additionally, if we get some progress on the fiscal relief package this could act as a bullish catalyst, even if market participants are already expecting it. Therefore, my outlook for next week is bullish, but be mindful for some potential resistance if/when we hit those 50-day SMA’s on the major indices (27,500 on the DJI, 3,350 on the SPX and 11,025 on the COMPX).

What You Can Do Next

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Important Disclosures:

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