Finally we reached the moment we’ve been waiting for and playing for. A new ATH. Phenomenal recovery in the S&P 500 index from the March lows. The question now on everyone’s mind is of course “Where do we go from here”.
Well to begin with, as we say in every newsletter, we have no intention of shorting into strength. People thought a full recovery from March was impossible, and then that turned into “No way we make another ATH” and now inevitably human psychology points to “The next pullback is just around the corner”. Maybe it is; Maybe it is not.
We aren’t interested in guesswork. As the facts stand, the market has shown phenomenal strength. On the COT data we see both hedge funds and retail at pre COVID levels long. If there was only one thing concerning this rally, this would be it. In just a few weeks the entire retail world went from severely short, to severely long. The transformation is extreme and sudden as you notice on the graph. As it always is, small specs are once again late to the party, but they showed up big time. Going forward, that’s the only reason for concern. When everyone is greedy…
You know the rest. On the TA front if we get a pullback we are looking at 3280-3300 level to hold. Below that there is 3180. If 3180 breaks and gets back tested as a seller’s area we switch our entire perspective. As things stand all the strength is still in the technology sector. However, do remember what we always say. Technology is not simply technology. There’s multiple industries. We have IT, clouds, semiconductors to mention just a few. Clouds showed up in a big way this past week especially Thursday as we warned about the rotation in real time. Please utilize the watchlists of sectors and sectors divided by industries that we shared to catch rotations in real time. We do think the next rotation will be money flowing out of technology and into financials and industrials and are patiently waiting for if/when that happens to be the first ones to capitalize on it.
SPX: 3450C are long for 8/28 while 3290P and 3255P are long for 8/24. We could see a reversal on Monday followed by bullish continuation into Friday. SPY Darkpools: Above: N/A ; Below: 335.83, 334.90, 333.00 and 332.80
Some buying action on the side of hedge funds in VIX futures. Gap below on VIX futures. Contract rollover. We are still cautious with VIX this high of course, and will continue to monitor further. VIX futures are still trading above the breakout so it does pay to keep either the index itself or the futures in mind.
U.S. Dollar is still relatively range bound. On the COT report there are no major changes with hedge funds mostly undecided/slightly on the sell side. We still have our longs on the Dollar and intend to keep them for the time being if nothing else as a slightly defensive play.
We scaled out half at 40% so there is no rush on liquidating the rest. On the TA side the Dollar is still sitting on a lower high. RBR printed in between so we might be focusing on that as continuation, if the low breaks might just decide to sell the longs completely out in profit and just wait out the next entry. For now, the reversal is still in play.
Looking at the COT data the hedge funds are undecided on the Japanese Yen largely. The % of positions reported long/short on the side of the fundies was 0.01 to the short side which honestly isn’t saying anything. Small specs are net long still overall.
On the chart the Yen is following an upper trending channel, but unless it manages to hold the highs of 8/7 as a new buyer’s zone it’s a risky buy. If, or when that happens we will look into it.
Two ways to interpret this. Either the Euro is backtesting a breakout for further continuation up, or hitting the top of a multi year downtrend for another selloff. Off the COT data we can see that both hedge funds and small specs are essentially net long and we are looking for a continuation up more so than anything. No position at the moment however if the Euro can defend 1.65 and/or establish 1.2 area as a new buyer’s zone we might become interested in a longer term long on this currency.
Unbelievable run out of AAPL and the first company to break the 2 trillion market cap. Members made great gains on swings from Thursday into Friday when AAPL made a massive run from 476 to 498. Buyers are convinced this could go higher before the stock split with calls long from 525-560 for 8/28. On the flip side, if it does not hold 495, AAPL could revisit 475.
Darpools: Above: N/A ; Below: 497.50, 490, 489 and 478
It’s going to be a very interesting week with AMZN. On the weekly chart it’s breaking out of a weekly bull flag and after AAPL and TSLA announced stock splits, it’s only fair to speculate this giant will be next. A large massive bullish bet was made on Friday with $73M in Nov 20th 3300C. With everyone anticipating the market to have a sharp correction, this market maker thinks otherwise and bears may get their shirts ripped off their backs. Other speculative bets include 3500C for 8/28 , 3620C 8/28 and a very odd 3800C which is likely playing for gamma.
Darkpools: Above: 3305, 3310 ; Below: 3275, 3250 and 3200
Post the earnings release, BABA did not get the same reception as other tech names. Given that it did not fly like others, BABA is by far the cheapest Tech stock out there.
Over 52 week highs, potentially we may see it squeeze to 290-300 price range. Options flow point to bullish outcome in the next few weeks with 300 call strikes of 09/18, 11/20 and 12/18 gaining interest.
This social media giant has been quietly consolidating in the background while the rest of it’s teammates in FAANG steal the show on their enormous runs. If rotation follows and exhaustion leaves AAPL to flow in FB, would not be surprised for it to get to 275-290 possibly 300. Market makers are on the same page with 282.50 and 290 calls long for 8/28, however, some uncertainty is in the air with 265 puts long for 8/28. Not seeing a lot of conviction that this week ahead will be to trade FB but slight pop in news may pave the way.
Darkpools: Above: 269 ; Below: 266.90, 265.80, 265.50 and 264.10
Failed to break over 200 ema again this week and heading towards 93-94 area, which is a good support zone for the last few months. Anticipating it will hold the April lows, look for a bounce from this area to trade the range for this week. Options flow indicates that the puts are being shorted for 90 and 95 strikes. 110 and 115 call strikes for 11/20 expiry are gaining interest.
JPMORGAN CHASE & CO
Banks are general are in a lot of pressure this week. With S&Ps breaking out of the 52 week highs, we anticipate some of the financial names to gain upside momentum in the weeks to come.
We could see JPM squeezing on the daily chart and needs to hold the 50% fib levels. We do see some large size bets are being made on 200 strike calls for Jan 2022 expiry. This week expiry, 100, 105 and 110 call strikes gaining interest and 95 strike puts are being shorted.
Huge buyers influx this week shows LYFT has gained some interest as being a value stock up for grabs. Over 50 ema, we could see nice breakout and test of 200 ema area in the coming weeks. As a swing play, Nov 20th 32.5 calls have been heavily traded for this week and September 27 and 28 strike puts are being shorted as well.
Compared to Visa run up recently, MA has a lot of catch up to do. Given that V has turned expensive, potentially we could see buyers pushing MA higher. Technically, watch for the break of the 52 week area and continuation towards 370-380 range. 340 strikes for Nov 4th are of particular interest here.
It’s been a while since we heard anything in regards to TikTok. The last we saw was some snippet that ORCL may be interested, ya, doesn’t make sense to us either. Everyone wants a piece of the market juice TikTok has behind it. In regards to MSFT, we may finally hear something this week. Call options are long from 212.50 to 222.50 for 8/28 with virtually no puts…which is surprising. MSFT is also another giant that could be the next to test the ability to hit the 2 trillion market cap. We saw this when AMZN/AAPL/MSFT were in a tight race to get the 1 Trillion market cap not too long ago.
Darkpools: Above: N/A ; Below: 214.10, 212.90, 211.90 and 211.80
On the daily it’s stuck in quite the triangle and struggling with breaking out. If it can get over 500 and hold, we could see a massive breakout potentially to 525-530 and Market makers feel the same way. Calls for 8/28 are long but traded very close to the bid from 510-525 and at the same time, if the breakout fails, puts down to 460 are long to capitalize on the breakdown.
Darkpools: Above: 494.80, 492.50 ; Below: 491
Option flow from 8/21 was rather misleading for the ER but as we know, ER’s are always a coinflip. We anticipated NVDA to breakout to new all time highs and hit 550-570 but it seems Market Makers played their usual games and left it for this week to get there. Call volume is suggesting 570 provided it can get over 540. Fib retracements show it’s in clear blue skies with little to know resistance. If the market decides to take a reversal, a hedge for puts down to 485 are long as well.
Darkpools: Above: 508 ; Below: 503, 490
CRM is trading inside the channel for quite some time and now, huge options flow indicate that the earnings outcome may be favorable in the short term. Previous 52 week high acting as a resistance, but break of that could push it to the top of the trendline. Last week we saw large number of 210 and 220 call strikes were traded for Nov 20th expiry.
Snap continues to consolidate tighly around the 50 ema area and possibly a nice tech play in the weeks to come. 22, 23 and 26 strikes for Sep 18th are still net long.
“And the meme goes on!” – We mean, beat. How silly of us. Jokes aside, great run this week on another stock split news. Members made ridiculous gains and are very likely enjoying their weekend, especially with one specific trader who capitalized on a large $100k trade netting in 100% winnings. TSLA this week is pointing to potential further upside with a bullish bet on 2500C long for 8/28 and on the flip side, some think the juice has run out with puts long down to 1800. Whichever way TSLA swings this week, it’s definitely going to be wild and we’re suspecting quite abrupt.
Darkpools: Above: 2078; Below: 2051, 2050 and 2042
Also failed to break above 50 ema, however, there is a nice uptick of buyers in ride sharing stocks last week. It needs to close hold above 50 ema for any further continuation to retest the highs around 35-36 area. This week expiry, we see heavy buying of 31 and 32 strike calls and as far as 34.5. We also see that longer dated put options are also being shorted which typically shows highly bullishness in the underlying.
INDICATOR OF THE WEEK: Momentum
Self explanatory, this indicator deals with momentum and can help traders decide whether to initiate, hold, or sell a position. On top of ascertaining the trend it alerts of possible bearish and bullish pivot points if the trader is looking for a play on reversal. Works on all timeframes.
WEEKLY TRADING TIP: Relativity
We’ve found that Albert Einstein’s theory of relativity paints quite possibly the most beautiful picture of the stock market. How so? Let us explain…
Most human beings are on a lifelong journey, a hunt of sorts, to reach their full potential. The usual tool most people implement when attempting to reach their potential is a formal education in a field of their choosing. Some people choose to be nurses, some doctor’s, some engineers, teachers, accountants etc. There are a myriad of professions in this world, but all have one thing in common: There is always some sort of financial compensation for the time the person spends in their chosen field, and almost always they are required to spend multiple years in an educational institution to learn the tools of the trade so to speak.
In the U.S. these are the average hourly compensations just to name a few.
Doctor – $89 per hour median salary (8 years of education + 4 year residency)
Nurse – $29 per hour (4 years of education)
College Professor – $27 per hour (4-8 years of education)
Just to name a few.
This is considered completely acceptable, common knowledge, and common practice.
Then people come into the stock market, and expect to make thousands and millions in their second week of being there. Not only are the expectations (usually in lieu of any time spent trying to attain trading knowledge or experience) ridiculously high, but traders are more often than not unhappy with their returns even when they do manage to achieve some type of consistency. Some individuals earn $15 per hour doing physically strenuous work, yet most traders are unhappy with making $100 – $200 in a 5 minute trade and end up holding their positions until they go red. The stock market is a place where there is no ceiling on what an individual can earn, not even the sky’s the limit. Why wouldn’t that require the same time, focus, work, devotion, discipline, and respect as any other profession?
Take your time, observe the market, ask questions, learn, practice.
“When you sit with a nice girl for two hours you think it’s only a minute. But when you sit on a hot stove for a minute you think it’s two hours. That’s relativity.”
– Albert Einstein