Option Investor
Newsletter

Daily Newsletter, Thursday, 4/4/2019

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Waiting, Still Waiting

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

A trade deal seems imminent but we're still waiting. The latest word is that Trump and Lie He were going to meet today but no news on that. The Wall Street Journal reported the White House was going to announce a date for the Trump/Xi summit but again, no word on that either. Assuming no summit will take place without a deal the two sides must be very, very close. Regardless, whatever agreement is reached, this is just the beginning; it will take years for true change and verification of that change.

Trump says we'll know if there is a deal to be done in the next four weeks.

The sticking point on trade is enforcement. It's easy for China to say sure, we'll do that, but them doing it is a whole different story. While Xi wants assurances a deal is done before the summit can happen, Trump needs to maintain leverage enough to motivate China into following through on their promises. Trump could remove the tariffs that are in place and he may, but they won't come off the table I think.

Market Statistics


The yield on the 10-year Treasury continues to rise. The yield curve remains inverted but the key 10-year rate is above the 3-month and rising. The 2.55 level looks like a critical level, if the rate can get back above there we may see the curve return to a more normalized state.


Economic Calendar

The Economy

Today's economic calendar is light with only the jobless claims data but the data is good. The initial jobless claims figure fell 10,000 from a slight upward revision to hit 202,000. This is a new low, the lowest level since 12/6/1969. The four-week moving average of claims also fell, shedding -4,000, to 213,500 and comes close to setting a new low itself. On a not adjusted basis claims fell -4.0% versus an expected increase of 0.60%. The best part is that the not-adjusted figures have resumed their YOY decline and are down -9.0% from last year.


The continuing claims figure also fell, dropping -38,000, from last week's revised figure. Last week's figure was revised up by 1,000. The four-week moving average of claims -8,000 and shows a marked reversal of the recent uptrend of claims. While not definitive this is another positive indication the labor markets are resilient and bouncing back from the winter slowdown.

The total number of claims made a small increase in the last week's data. The figure rose by 913 to 2.040 million. This figure is not in line with seasonal expectations and only -5.0% below last years number. The total claims data is still lingering near the seasonal highs and showing a red flag but, based on the initial and continuing claims data, likely to fall in the next week or two.


The Challenger, Grey&Christmas report on planned layoffs reveals some of why the total claims figure is running so hot. The number of monthly planned layoffs fell 21% in March but the quarterly total remains hot. On a quarterly basis, the number of planned layoffs rose 10.3% from the previous and 35% from last year making this the biggest quarter of job depletions since the 3rd quarter of 2015. The four leading sectors for job cuts are automotive, energy, financial, and retail where businesses are actively engaged in cost-reductions and/or automating their workforces. On the hiring side of the labor equation, Challenger says company's planned to make 16,300 hires in March. The number of planned hires in the 1st quarter is down from the last year but still strong relative to historical data.


The Dollar Index

The Dollar Index got a little bit of a boost from today's data, and from trade hope, and may be ready to break out of its range. The risk is that tomorrow's NFP report may not be the reassurance the market needs. The ADP report suggests weak job creation last month, after last month's pale 20,000 new non-farm jobs I for one would like to see a nice rebound in the data. Today's move in the dollar created a medium-sized green candle showing support at the $97.00 level while momentum is bullish. Strong wage gains, a drop in unemployment, or robust job creation (not expected) could send the DXY up to retest $97.50 or possibly break through. There is no significant data due from abroad to impact the dollar.


The Gold Index

Gold fell to a new multi-week low after today's labor data. The metal formed a medium-sized candle moving down from resistance and approaching support where it produced a bounce. The metal rebounded by the end of the day despite strength in the dollar and may be indicating the bottom of a range. This range may hold until and if a Trump/Xi deal is announced, at that time I think gold prices may rapidly deflate as global tensions ease. I am still targeting a touch to $1,280, a move below that would be bearish while a move up and above $1,300 may negate that target.


The Gold Miners ETF GDX advanced more than 1.50% in today's action. The ETF has formed a long green candle and is confirming the bottom of its trading range. The ETF is likely to remain inside this range for the near-term and may drift higher in the immediate term. The indicators are bearish but weak and showing signs of support that are consistent with range-bound trading. With today's close above the short-term moving average, I would expect upward drift in tomorrow's action but that will depend in large part on the NFP and the dollar.


The Oil Index

Oil prices wobbled a bit in today's session but are holding near the new highs. Today's action briefly surpassed the $62.50 level for WTI but the session closed with a loss. Regardless, the OPEC+ tightening effort along, the end of the refinery maintenance season, and signs of economic resilience are helping support prices. We may see a small correction or consolidation now but higher prices are inevitable longer-term.


The Oil Index closed with a small advance. The index is sitting on support at the short-term moving average and winding up within its narrowing range. There is still no sign of when or if the index will move up to follow oil prices but I think it will. For now, though, key levels are at the 30 and 150-days EMAs where it has found support and resistance over the past month. A move beyond either of those levels will be significant.


In The News, Story Stocks and Earnings

Tesla tanked. The company reported Q1 deliveries well below expectation and threw a wrench in analysts outlook for revenue and earnings. The miss is only the latest sign of the companies struggles, struggles that are not aided by its CEO's antics, but this time at least there is another underlying cause. Federal tax subsidies for the companies vehicles shrank substantially after Tesla hit an important production milestone. The bad news is now its customers have even less reason to want to buy an electric car. Shares of the stock fell more than -10% in premarket trading, most of the loss was not recovered by the end of the day. In Elon Musk news, a Federal Judge has given him and the SEC two week's to settle their differences.


Constellation Brands reported stellar earnings this morning. The global wine and beer distributor reports earnings and revenue above expectations, margins are widening, and provided positive guidance. The adjusted EPS of $1.84 beat by $0.12 while revenue grew 2.3% YOY. The company notes strong depletion's and shipments played a role in quarterly results. Shares are up 6.5% in today's action.


Ford advanced more than 1.0% to set a new multi-month high after reporting better than expected sales. The iconic automaker says Q1 sales fell only -1.6% beating consensus estimates and outperforming rivals GM and Fiat Chrysler. Sales of the Ford brand fell -2.1% and were offset by strength in Lincoln, up 11.2%, and weakness in cars was offset by strength in trucks. Car sales are down -23.7% while trucks and SUVs are up 4.1% and 5.0% respectively. The results are evidence Ford's turnaround strategy is working, the decision to cut back cars wasn't so crazy after all.


A day after AMD and Intel get an upgrade, Micron gets a downgrade. This one comes from Morgan Stanly who says the recent run-up in prices and an overly optimistic market has skewed the risk/reward ratio. Micron is up more than 50% from the December low so taking profits on the stock is not a bad idea. Morgan Stanly says expectations for the chip market to rebound are overblown, oversupply is still evident particularly in the DRAM and NAND segments.


The Indices

Market action was, for the most part, muted in today's session. One index, the blue-chip Dow Jones Industrial Average, advanced more than 0.60% to set a new high. The Dow Industrials are now moving up and out of a consolidation range and indicated higher. The caveat is that weakness persists in the indicators and that makes me nervous. The index is rising on a wave of positive sentiment that could take it up to the all-time high.


The Dow Jones Transportation Average posted the second largest advance at 0.44%. The index is still fighting with resistance at the 10,690 level and may be about to break through it. The indicators are bullish and rising so upward pressure is present, the question is how high can the index go? The 11,000 level is the next best target with 11,500 behind that if it is broken.


The S&P 500 posted a small 0.21% advance in today's trading. The broad-market index created a small green bodied candle inside the previous day's range but above my resistance target at 2,880. The indicators are bullish so upward pressure is expected, the risk is that the indicators are still weak and showing a marked divergence from current highs. The updraft in sentiment will likely carry this index a little higher, maybe to the all-time high, but I am wary a correction is brewing.


The NASDAQ Composite posted the only loss and that a mild -0.04%. The tech-heavy index formed a smallish doji to the side of the previous day's doji in a move that looks indecisive. The index is at a peak and looking frothy so there is danger a peak could form here. The indicators are bullish and pointing higher so rising prices are indicated, the caveat is that wicked divergence is present in both indicators. MACD and stochastic are both showing deep divergences that often lead to sharp corrections if not market reversals.


The market is melting up once again. An updraft of hope is lifting stocks in the near-term but I am afraid this situation is more about a lack of selling than a rush to buy. With trade hopes building to a head, a deal expected at any time, weakness in the indicators and the trade deal baked into prices the chances the bubble will burst soon is very great, the all-times a likely target for reversal. Don't forget, we're still weeks away from earnings season and this cycle isn't going to be great, no deal announced now, in the first week of the second quarter, is going to change that. I'm still very cautious, and neutral, for near-term positions, firmly bullish for the long-term.

Until then, remember the trend!

Thomas Hughes


New Option Plays

No Fat Lady Singing

by Jim Brown

Click here to email Jim Brown

Editors Note:

IMF head Christine Lagarde reminded everyone this week, there is no trade deal until the fat lady sings. While the president talked positive about the negotiations in a press briefing today, his lieutenants were talking negative. Despite his positive comments he said it would be at least four weeks before the current stage is complete and then two more weeks to "paper" it up. Six weeks from now is around May 15th and these things always slip. That means we are probably looking at June 1st for a potential Florida summit with President Xi. I seriously doubt the market can hang at or above this level all the way through May. Once the first three weeks of Q1 earnings are over, there will be a lot of incentive to take profits and leave for the summer.

 

New positions are only added on Wednesday and Saturday except in special circumstances.


NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Step by Step

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P closed with a minor gain and the Dow surged higher thanks to Boeing. Boeing rose $11 and added 78 points to the Dow and half of the Dow's gain. The S&P played touch and go with negative territory most of the day and the Nasdaq was negative most of the day. Comments on the China trade talks were both positive and negative and investors were unsure of what to do. The market is turning choppy again as we near the prior highs so caution is advised.



Current Portfolio


Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.





Current Position Changes


XRAY - Dentsply Sirona
The long position was entered at the open.


Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.


BULLISH Play Updates

No Updates to Current Positions


BEARISH Play Updates

No Current Puts