• This Week's Trade Ideas:
Bullish Ideas: Whiting Petroleum Corp> WLL > $27.37 Last. Symantec Corp> SYMC > $28.91 Last.

Bullish Mentions: CELG, GILD, VRX, AMGN

Bearish Ideas: None at this time.

Bearish Mentions: UN, UL. – For those that dare to dream.

• Market Overview:
We’ll see if the economic begins to matter again starting on Wednesday, with Friday being the heaviest day for releases. The “numbers” could matter more if last Friday’s selling was actually the start of something or just strange action in thin markets to close out the year.

• Below the Radar:
As we suspected beginning a few weeks back, it is threadbare right now with respect to new items of concern or opportunity bubbling up below the radar. It’s customary at the outset of a new year to prognosticate as to the major developments that will unfold and how those impact the markets.

• Options Academy:
2017 was a very odd year in terms of volatility or better stated, the lack of volatility. Some observers believe that 2018 will be similar while others argue that volatility will finally return to the markets.

First Trading Week of the Year Edition!

SPECIAL ANNOUNCMENT:

Please see Market Overview as it contains an illustrative update with respect to the quirky triggering of last week’s bearish idea in BAC.

The Trade(s):

We strongly suggest attending tomorrow morning's Advantage Point Morning Call for full details with respect to these idea(s), last week’s and options education.

Bullish Ideas: Whiting Petroleum Corp> WLL > $27.37 Last.  Buy the Jan. 19th 26 Calls for $2.15 or less with a close or anticipated close above $27.50 in an up market with expectations for continued strength in the major indices and the XLE.

Symantec Corp> SYMC > $28.91 Last.  Buy the Jan. 26th 28 Calls for $1.40 or less with a close or anticipated close above $29.05 in an up market with expectations for continued strength in the major indices and the XLK.

Bullish Mentions: CELG, GILD, VRX, AMGN and literally dozens of others but we’re not sure if we can trust one day’s action quite yet.

Several recent bullish mentions continued to move higher with 2018’s ebullient opening.  Of note and to jog memories:   ON, GSK, HAL, SLB, NBL…

We’ll cover those and others if requested in our webinar if folks are curious as to targets.

Bearish Ideas: None at this time.  We’ve put out many bearish mentions last week just in case things got surprisingly weak but as has been the case, we haven’t gotten any legitimate weakness to this point in time.  Last week’s bearish idea bare-ly triggered Friday’s late weirdness thus we’re tracking but that’s enough for now until we see if the Day 1’s goosing continues.  The indices were a somewhat muted, but some stocks were jammed back up with gusto.  We can afford to be a little more patient for now.

Bearish Mentions: UN, UL. – For those that dare to dream.

Outlook:

Earnings will begin to trickle in but won’t really ratchet up to high-density for a few weeks.  The major indices seem a little tired here, but it is dangerous to read too much into that as the final weeks of the year are not active periods and typically register low trading volume totals.

Technicals:

Will be discussed in-depth in the Advantage Point Morning Call webinar.

Fundamentals:

These trade idea(s) and mentions are technically-driven.

(Editor's note: This trade idea may be updated periodically, in keeping with market conditions. It is intended solely for educational purposes.)

Recap of Last Week:

Fortunately, we avoided bullish ideas and mentions last week as the markets just seemed to run out of steam.  We focused on the bear side but couldn’t get much going in a market that despite being incapable of rallying, effectively went nowhere to the downside as well.  Let’s get to the bear side anyway…

Last week’s bearish idea in BAC “triggered” very late on Friday as the SPY and XLF also fell off swiftly in the closing minutes.  We’ll track it but it’s hard to say what happens now given the strange nature of the trigger.

Bearish mentions BABA, SWKS, STM, TSM, ON, JBL, LRCX, BBT didn’t have much room to operate but could become interesting if Friday’s late action was in effect foreshadowing.

As a reminder, in case we see a break below support and real selling kicks in, here are other recent bearish mentions again:  ADBE, CRM, PYPL, MA, MON, NFLX, MCD.  We’re not necessarily expecting it, however, early January has thrown curve balls to investors at times.

Remember, these bearish mentions are there if and only if major market selling manifests itself for the first time since…we can’t remember!

Reminder:  We’ll cover any prior ideas or mentions by request in this week’s webinar.

Here’s the latest snapshot of the SPYs:

Last week we noted that they were bouncing the SPYs off the horizontal support level (above) but that they may have trouble lifting “beyond trend” (the angled purple resistance line).  We also noted that there’s much in the way of support nearby and that we were still overbought.  That all played out about as expected despite it being a holiday week.  Friday, however, did conclude in a rather ugly fashion.  But, how much can we read into that?  Here are intraday charts highlighting the last hour or so of trading in the SPY, XLF and bearish idea BAC respectively:

With the SPYs dropping, so did XLF and BAC, thus making BAC an “officially trackable” idea as it fell below our trigger level.  We’ll see soon if the late sellers got a jump in 2018’s action of if they need to change their execution tactics for better fill prices!  Regardless, if the gang reverses BAC and it manages to make a new high above $30.03 towards the close, we won’t wait around in there for too long especially if the indices are back in strong rally mode.

The past few weeks we’ve been wondering if FAANG may be working on a double top pattern.  That continues this week:

As can be seen, FAANG was heavy into Friday’s close as well.  Could we actually see a fall of some kind to a support level?  This seems a little more possible at the moment, but light trading markets are notorious for tripping up folks that read too much into them.  We’ll have to see if new lows are made and act accordingly.  If that’s the case, that would likely weigh down the major market averages as well.  Regardless, support levels abound.

We’ll see if the economic begins to matter again starting on Wednesday, with Friday being the heaviest day for releases.  The “numbers” could matter more if last Friday’s selling was actually the start of something or just strange action in thin markets to close out the year.

As we suspected beginning a few weeks back, it is threadbare right now with respect to new items of concern or opportunity bubbling up below the radar.  It’s customary at the outset of a new year to prognosticate as to the major developments that will unfold and how those impact the markets.  We’re not going to do that however as:

1. We’ve never been good at it! AND, we don’t want to leave a paper trail of our misfires! 😉
2. Look at 2017’s outcome vs. the predictions and you’ll see that very few are good at it!

Instead, we’re going to display the few items of interest we were able to come across and sprinkle in a few of our own but nearly all of it has to do with the astounding lack of volatility in 2017 and if 2018 stays course or if we see volatility that resembles the kind we all know and love that’s much more common…

First comes the Stage 1 of the “stage setting” for 2018 courtesy of Dana Lyons with our emphasis:

https://lyonssharepro.com/2017/12/2017-a-record-smooth-ride-for-stocks/

 And based on VIX readings, 2017 was the least volatile year ever in the stock market.

Specifically, the average daily closing price of the VIX in 2017 was 11.10 (through 12/26/17). That is the lowest of any year — by more than one and a half points — since the VIX inception in 1986 (by comparison, the “average yearly average” is over 20).

Furthermore, as the chart states, the maximum level reached by the VIX in 2017 was 17.28. That is the lowest maximum level attained in any year since inception — and 60% lower than the “average yearly max”. Obviously 2017 was an extraordinary year in its lack of stock volatility.

That’s interesting, but it’s also history at this point. What does it mean, if anything, for 2018? Are stocks now due for some serious volatility reversion?

Well, certainly stock market bulls cannot reasonably expect the unprecedentedly smooth ride to continue forever. Volatility levels were so far below historic norms that some increase should materialize in this next year. However, there is no reason that the relative low-volatility environment cannot persist further. There is no law suggesting that an imminent spike in volatility is likely. In fact, in our view, at this point it is more likely that the low volatility will continue in the near to intermediate-term.

Eventually, storm clouds will gather and the stock market seas will get choppy again. But for now, it is smooth sailing for investors.

As a reminder as to how things can persist despite bets being “all one sided” and overplayed, we have to look back no further than last January to find a record number of “VIX Shorts” that won and won big:

For Stage 2 of “stage setting”, we turn to Lance Roberts:

https://realinvestmentadvice.com/2017-sets-a-record-12-29-17/

As we noted, 2017 produced a one-of-a-kind record:

The Central Banks around the world continue to juice on their own and when called upon by the FED to join the FED!

Throughout the year we lamented the lack of drawdowns and complained that it was unlike any other time that we’d traded through in the past quarter century.  Here’s the proof:

And there you have it!  The least adversity in over 100 years!  All of which left us on the doorstep of another record:

We’ve witnessed a Central Planner’s Dream unfold before our eyes!  Thus, it’s no wonder that we’re starting 2018 with historic euphoria levels.  “Hail, hail, the gangs all in”:

And they’re in with everything they’ve got and whatever the Banksters are willing to loan them!:

This is where we begin this new trading year.  It will be interesting regardless of outcome!  More “UP” without volatility will be remarkable and a break in the action will feel remarkable because it’s been sooooo long…

Finally, we’re watching the “big picture” in energy as it may help to tell the tale of 2018 and it’s showing us a more bullish complexion than it has in some time.  A higher high and a higher low may be in place with the potential for a trend change not too far behind:

Bank and Roll like a New Year’s Eve Designated Driver!

2017 was a very odd year in terms of volatility or better stated, the lack of volatility.  Some observers believe that 2018 will be similar while others argue that volatility will finally return to the markets.  (see BTR for more on this.)  We’re not inclined to guess on these matters but one aspect we’d like to highlight pertains to volatility and “playing cheap”.  We’ll use last week’s currently but barely triggered bearish idea in BAC as our proxy for this brief stroll down “volatility lane”.  This is something we haven’t done in quite a while, but it may be appropriate to do so now as earnings are approaching and it may be easier to disappoint with so much good news seemingly baked-in to current stock prices:

We’ve add Implied Volatility (IV) to the subgraph in our chart above and placed a horizontal line at its current level of 23% so that we can see where we stand with respect to the past year’s volatility history.  23% may not be the lowest low but it’s certainly much closer to the low of the past year rather than the high.  We’ll keep that in mind.  Now let’s cover the two yellow vertical lines…

Those lines are meant to highlight price highs relative to the cost of options below.  The most recent yellow line makes it clear that IV is much lower now than it was at what may be a similar high point early last year.  Last year BAC rolled over shortly after topping (red arrow).  “Will it happen again this time?” is the question?  Of course, we can’t know for sure but that brings us to our main point…

As we alluded to above, most stocks are priced very aggressively right now and haven’t backed off much from their recent highs.  BAC fits that criteria.  We noted that it is a “counter trend” trade in last week’s AP Newsletter.  We always make special mention of that because counter-trend trading is often much more difficult than trading with the trend and there’s less margin for error as well.  That’s why it’s nice to perform a check as we did above with respect to IV levels in BAC.  With those levels as they are now, we’re playing the “counter-trend game” quite cheaply.  If BAC doesn’t fall off and manages to hold itself together, we won’t get hurt very much if IV levels drop as the stock finds a way to rally.  Why?  Because we can see that we stepped in close to the lowest levels of option prices over the past year.  This “works” even better when earnings are due out in the near future as they tend to elevate IV levels given the uncertainty of outcome they represent.

When stock prices fail to cooperate with our entries it’s never fun stuff, but the sting of a loss is greatly lessened when you play dirt cheap in the first place.

If you have questions, ask away in this week's Advantage Point Morning Call webinar.

Once again, Happy New Year!

May 2018 bring many blessings to you and yours!  And good trading results too!