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I've had several e-mail today about buying calls or puts on stocks, specifically technology stocks, just ahead of earnings reports. To be truthful, I'd put more weight in buying puts than calls, but will say that speculating on a market response on earnings might be analogous to "rolling the dice."

Personally, I'm a bit shy to holding some trades over earnings. Stocks that have tended to trade lower into earnings sessions ahead are sign that the MARKET is already trying to discount some potential "bad news" into the report. Suffice it to say, I'd only trade those stocks from a bullish or bearish stance, if the trader viewed the stock as bullish or bearish into the earning's report and technicals have you currently holding a trade in the stock. I'm going to say that I wouldn't be putting "capital at risk" the day ahead of earnings, especially if a price move has already taken place.

In today's 11:00 Intra-day update at OptionInvestor.com, I showed the Pivot Analysis Matrix. Since that time, I've only seen one new level traded today, and that was to the downside at the S&P Banks Index (BIX.X) 270.45 -0.85% at its DAILY Pivot of 271.50. This is a sector that I felt traders needed to monitor, not only for potential weakness to be a "bearish" signal for the major indexes (specifically the SPX and OEX), but to also monitor for strength under broader market strength. What we talked about in today's market monitor was that the BIX.X at its best levels of the session were similar to the Dow, SPX and OEX in that it hadn't traded up to its DAILY R2 like the NASDAQ-100 Index (NDX.X) 976 +0.64% and QQQ $24.26 +1.04% had. This had us a little cautious or looking at today's strength in the indexes with some skepticism. The recent trading by the BIX.X at its DAILY pivot of 271.50 is a short-term sign of "lack of leadership" from a sector that has been showing relative strength and in my opinion should be showing some type of leadership, not lagging like it is today.

In last night's Index Trader Wrap at OptionInvestor.com, we looked at the major indexes with retracements set from their WEEKLY and MONTHLY S2 and R2 level. In prior Index Wraps, we've also looked at the major indexes with conventional retracement set on them, while still overlaying the WEEKLY pivot analysis levels.

One thing I'm noting today is that the "stronger" NASDAQ-100 Index (NDX.X) has its conventional 50% retracement level of 975.46 in play as support today. This morning, the NDX.X "gapped" just above this level and has been holding it as support. As such, I make the observation here and while I'm more BEARISH the major indexes with the bullish % charts still signaling internal weakening, this weekly 50% retracement looks to be in play and drawing some interest from buyers that looks be creating support.

NASDAQ-100 Index Chart - Daily Interval

This WEEK'S R1 level of 986.90 has served some early morning resistance, but I've also looked at the NASDAQ-100 Index (NDX.X) on a 5-minute chart, which clearly shows some buyers at this level on an intra-day basis.

Earlier this morning, in the market monitor, I profiled a bearish trade in the NASDAQ-100 Tracking Stock (QQQ) $24.32 +1.24% at current levels of trade. As a bear, I'd want to see the NASDAQ- 100 Index (NDX.X) close back below the 975.46 level before today's close.

Why? I've profiled a stop just above the DAILY R2 of $24.61 in the QQQ. As it relates to the above chart of the NDX, this would be just above the 986.90, which is the WEEKLY R1 level of resistance. I currently view a BEAR'S risk on a move above today's high as being 1,017 and as a BEARISH trader, I want as many "walls of resistance" as possible between my trades and a risk level.

After today's close, Applied Materials (NASDAQ:AMAT) $11.95 - 0.82% will report earnings. On January 31, shares of AMAT were hit lower from the $13.00 level after the company warned that quarterly orders had fallen 35% in the recent quarter, which was below the 20% decline the company had given guidance to at its last analyst update. It is my view that the MARKET has now factored in that news and now waits further update and VIEW from AMAT on when the company thinks orders will stabilize, worsen further, or see improvement.

AMAT is a component of the NASDAQ-100 and will most have impact on broader technology trading tomorrow. This is why, as a "bear" right now, I would want to see the NASDAQ-100 Index (NDX.X) close back below the 975 level to give me some type of "sign" that market participants are either concerned or "in the know" about further downside after tonight's earnings and comments from Applied Materials.

Bearish traders that are holding some gains in stocks, where they are "uncertain" about AMAT's earnings, don't need to liquidate ENTIRE positions or close them out, but the account management tool of taking some gains off the table, raising a little cash is often-times a good idea.

As the session progresses, earlier selling in Treasuries has slowly been turned into some buying. This was an observation made earlier today in the market monitor (defensive) and then again at 11:00 AM EST. The shorter-dated 5-year (fv03h) 112'230 +0.08 is right in the middle of its daily range, with YIELD ($FVX.X) at 2.93%.

My thinking here is that if the NDX.X is going to close back below the 975 level, then the 5-year YIELD ($FVX.X) should close below today's low of 2.917% by its 03:00 PM EST close.

Jeff Bailey

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