• This Week's Trade Ideas:
Bullish Ideas: Nisource INC > NI > $24.55 Last.  Buy the Feb. 16th 24 Calls for $.70 or less with a close or anticipated close above $24.60 in an up market with expectations for continued strength in the major indices.  Could get caught up in defensive rotation into utilities.  Dividend 2/8.  Earnings Release 2/20*

Toronto Dominion Bank > TD > $60.62 Last.  Buy the Feb. 16th 60 Calls for $1.15 or less with a close or anticipated close above $60.65 in an up market with expectations for continued strength in the major indices.  THE FED fallout needs to be factored in obviously!  Without the FED distraction this would be very clear cut!

Bullish Mentions: XLU, DUK, AEP, XEL, PEG, SRE.

Bearish Ideas: Global X Lithium Battery ETF > LIT > $37.65 Last.  Buy the Feb. 16th 38 Puts for $1.10 or less with a close or anticipated close below $37.40 in a down market with expectations for continued weakness in the major indices and a willingness to contend with potential volatility!

Bearish Mentions: INSM, MU, MCD.

• Market Overview:
Yet again the SPYs and the DIAs and QQQs are look remarkably similar so we’ll stick with the SPYs.

• Below the Radar:
Last week was the second week in a row that we dedicated to Signs of Stretch.  Someone up there may be listening to us! (At least for 2 days!)

Anyway, a little selloff isn’t going to “fix things”. We’re only 2 days removed from all-time highs in the major indices and thus things became even more stretched with Friday’s close.

• Options Academy:
With the overflowing cornucopia of news that’s to be made this week, which includes the FED and AAPL’s earnings report, the past two days may only be the start of bigger things! (more volatility) We’ll keep an eye out it to see if we can wring out any more noteworthy items.

The Great Global Melt-Up ran too Far, too Fast, for too Long, for its own Good, at least for Now…

😊 Quite a mouthful!  Is it the right time to pick a fight with it in front of the FED?

The Trade(s):

WARNING:  Volatility has awoken from its slumber and this may be one of the most action/news-packed weeks of the year, potentially speaking.  The Bond Market and the USD somehow seem to be mattering again.  Aside from those, the FED meeting pensiveness will likely dominate until Wednesday and the fallout from it could dominate after.  There could be a lot of dips and rips and they could come with little notice.  In other words, if you decide to become or remain involved, stay nimble!!!

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:

Nisource INC > NI > $24.55 Last.  Buy the Feb. 16th 24 Calls for $.70 or less with a close or anticipated close above $24.60 in an up market with expectations for continued strength in the major indices.  Could get caught up in defensive rotation into utilities.  Dividend 2/8.  Earnings Release 2/20*

Toronto Dominion Bank > TD > $60.62 Last.  Buy the Feb. 16th 60 Calls for $1.15 or less with a close or anticipated close above $60.65 in an up market with expectations for continued strength in the major indices.  THE FED fallout needs to be factored in obviously!  Without the FED distraction this would be very clear cut!

Bullish Mentions:  XLU, DUK, AEP, XEL, PEG, SRE. 

Bearish Ideas:

Global X Lithium Battery ETF > LIT > $37.65 Last.  Buy the Feb. 16th 38 Puts for $1.10 or less with a close or anticipated close below $37.40 in a down market with expectations for continued weakness in the major indices and a willingness to contend with potential volatility!

Bearish Mentions: INSM, MU, MCD.

Outlook:

Last week we expected earnings related-merriment and we got it.  The Wall St. gang pushed equity prices further into the stratosphere and as the week’s trading officially closed out on Friday, the SPYs, the DIAs and the QQQs all sat at new all-time highs.  A few high-profile news stories hit the tape on Monday and the complexion of the markets changed.  Manic euphoria gave way to profit-taking and long-absent fear came back, just a little mind you!  As we write, the ugly opening on Tuesday was a prelude to what remains an ugly day.  We’ll have to see a little more play out to get a beat on what happens next especially with FED, FED, FED stuff front and center.

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:

Bullish idea JCI triggered last week, went up modestly through resistance, and then cratered with the major indices on Monday.  As we write, it’s right near the point at which we spotted it.  If the selloff has any staying-power it could fall off if the markets get washed out.  Additionally, it reports on earnings on 1/31 so we’d be prudent in this one at this juncture.

GPOR, our other bullish idea, barely triggered by 02c but then it was slammed down hard on what appeared to be a reaction to a downgrade by Morgan Stanley.  As we noted in our update, the news giveth and the news taketh away.  This never had a chance after the MS downgrade.  If the market had continued to jam higher and higher, it may have bounced back but it is too early to tell if that scenario is completely out of the question.

KHC, our leftover bull idea, couldn’t get the little extra push it needed to take out the 2^nd tier of resistance that we needed it to for bigger profits.  We noted in the webinar and updates not to hang out in there too much longer as it had its chance in a great market and didn’t make use of it.  It fell off somewhat from there.

As far as the mentions go, AIG, NUGT, NEM, IR, EQT, BX, and FOSL, they were a mixed bag.  Some started out well and faded quickly while others powered on only to finally get hit on Monday when the selloff started.  We noted that some things weren’t working in the market and that things had thinned out leadership-wise.

In short, we knew that there’d be a time when selling would finally kick in and we seem to have arrived at that point.  It’s yet to play out entirely but we’ve sensed this was due to happen give the vertical nature of the market and that’s why we’ve continued to try to find dollar-cheap and volatility-cheap safer ideas.  As Monday’s action and Tuesday’s opening indicate, things can change in a hurry especially when they’ve become too vertical in their ascent.  News did hurt us in GPOR and then macro news hurt in JCI but we did catch a very good news development in MRK.  Keeping our options dollar cheap remains one of our prime directives.

Yet again the SPYs and the DIAs and QQQs are look remarkably similar so we’ll stick with the SPYs.  Last week we had this to say:

We’re even more super-stretched than we were last week.  The euphoria is even more euphoric etc., etc.  The snozberries taste like snozberries… It’s nearly the same thing, day after day, week after week.  And, as we noted last week:

“Things have gotten statistically absurd so we’re going to need a deft touch.  It’s hard to bet against a strong trend like this one but we also know that we’re not early birds if we’re to jump in as big bulls in most stocks right now.  We shall do our best!

…Sure, it can get even more stretched but not by that much in most cases.  Late to get in yet too early to counter-trend short it.  That’s really the story everywhere we look.”

That “take”, turned out to be a fairly good one.  They got things a little more stretched, but this week has brought us more “snapback”, at least thus far.

We concluded our Market Overview comments with:

The most recent mini-leg of the rally is fresh enough that it can continue as well.  All in all, this mix makes for tough sledding as the current leg is has held support and continues to do so at the time of this writing.  We’re forced to settle where we have time and time again over the past year:  Go with the flow!  That’s it until it changes.

So, now, after recalling where we were last week, here’s where we are this week:

The SPYs have clearly broken below the orange support line we’ve been working with for the past several weeks (see orange arrow).  However, there could be many levels of support all the way down should the SPYs selloff to the point at which they broke out which produced the most recent leg higher.  The RED arrow highlights just how many potential support levels are in place.  Additionally, it is our experience that major indices will typically take another shot at rallying back to a high before failing.  There is no rule that states that a rally must occur, it is more a case of our observations over the past quarter century.  With this week set to be news-rich, there’s a good chance that news could provide rally fuel if the powers-that-be should need it.  All in all, this juncture remains one to watch and if volatility is likely to make its long overdue return, this would be the week that it could be most easily achieved.  In other words, there could be a lot of “back and forth” given how much they’ll have to work with.  We’ve got all that and the FED!  We can’t leave that flock of doves out of the equation.  Obviously, the FED could ignite things in either direction as well.  “I gotta tell ya, this is one power-packed week!”

We’ve got a huge number of earnings reports that will hit the tape this week along with a heavy economic calendar.  We’ve also got the State of the Union and other political intrigue as well.  The gang should have no trouble moving things significantly if they’d like to do so.  There’s so much news to hide behind, which makes anything possible.

Last week was the second week in a row that we dedicated to Signs of Stretch.  Someone up there may be listening to us! (At least for 2 days!)

Anyway, a little selloff isn’t going to “fix things”.  We’re only 2 days removed from all-time highs in the major indices and thus things became even more stretched with Friday’s close.

Before we really get rolling, we’re including this critical graphic:

This is only important because CNBC has told us thousands of times that smartphones and especially smartphone sales in China are the keys to lasting prosperity!  If that’s true (😉), then we may have reached the long-feared ruh roh moment! 

And now…back to the usual fare…meaning, sources of concern.

First off, the record books must be updated!  The Great American and Great Global Melt Ups have smashed prior records of up, up and away (without a 5% correction):

While those records are impressive, if you truly want to appreciate this mania, especially the “unprecedentedness” aspect of it all, then behold:

No other market in the past century of trading even comes close to the incessantness of this mania.  Keep that in the mind at all times!

If you need a quick primer on what brought us to these lofty levels that have persisted this long, start thinking WAR!  As in, WWII!  At least in terms of debt levels (Liquidity):

Yes sir, they’ve been fight a war so to speak.  And, they’re going to need more and more ammo for the next few decades it would appear.  https://grizzle.com/macro-battleship-the-big-picture/

Now, now, before we place all the blame on the FED, we’ve got to give credit (😊) where it’s due:

And now, what it has all been about and always will be about in one awesome paragraph:

QUANTITATIVE EASING BAILED OUT THE RICH

The ostensible purpose of balance sheet expansion since 2008 has been to stabilize “aggregate demand” in the neo-Keynesian sense of that term (lower borrowing costs and bid up asset prices in the hope of stimulating broad based economic activity). The real aim, so far as this writer is concerned, has been to stop debt liquidation and thereby prevent the creditor classes, be they bankers or bond owners, from losing money. This is the reason for the rising inequality which has been getting so much attention of late. The wealthy were bailed out while, as owners of shares and real estate, they also benefited from the rise in asset prices since 2009 triggered by quantitative easing (see following chart).

If you’d like to know what may still matter as we swim in a Sea of Liquidity, read this!:

https://econimica.blogspot.com/2018/01/greatest-moments-in-profit-taking_29.html

If your takeaway is the Household Net worth is marked into orbit right now and people hate the idea of saving money simultaneously, you are correct!  This type of situation hasn’t ended well in the past!  And this time, well…the gang really has everyone levered up:

And dependent, like never before:

And prices running away from incomes, like never before as well:

Nearly everything is ratcheted “to the hilt” as some would say, and, thus, there’s real trouble in store if this thing begins to unravel.  “Cascade selling” – could become a household phrase and we must not forget how overly shorted volatility is at this juncture.  All this certainly forms a massive time bomb but we know not the length of the fuse…

So, for now, we present the cherry on top!  The “odd lotters” are more in love with future stock prices than they’ve ever been!:

And to conclude, we’re tooting our own horns! (Just a little 😊)  Over the past year, we’ve casually mentioned market manipulations of various kinds.  We’ve taken issue with those that would argue otherwise, especially when the evidence simply continues to mount, hence:

https://www.zerohedge.com/news/2018-01-29/traders-arrested-futures-spoofing-probe

There’s one for you and here’s another!  Enjoy!:

https://www.zerohedge.com/news/2018-01-29/these-are-6-traders-who-were-just-arrested-manipulating-gold-market

Aaahhhh…Wall St.’s rigged Casino, there’s nothing quite like it!

And for good measure, here’s a link regarding shaky financial reporting at MetLife that includes a reference to GE’s shaky financial reporting, another topic we’ve harped on here and there:

https://www.zerohedge.com/news/2018-01-29/metlife-tumbles-after-discovering-material-weakness-financial-reporting

Remain Vigilant Friends!

Bank and Roll like your success depends on it!

Last week we spent time here in OA covering AAPL’s aka Apple’s Feb. 2^nd ATM straddle price (the “earnings straddle”).  We did so because the “earnings straddle” is often cited as a means to forecast the magnitude of movement expected by the options markets surrounding the release of that quarter’s earnings.  We alluded to following-up on it and thus we’ll do that this week.  We’re going to include last week’s OA again this week for reference (far BELOW) but we need this piece to get started:

And now, here’s an update on things from this morning from a weekly perspective:

Please note that AAPL fell as low as $164.70 which is a full $4.30 below the $169.00 level that the straddle was “forecasting” last week.  Interestingly, the implied volatility of the straddle was elevated when viewed vs. the prior years implied volatility range, which is to say, market participants were “paying up” to own AAPL options.  It seems to have paid off for them as AAPL has already moved far beyond the $8.00ish forecasted move (by the earnings straddle), and, there’s still time to go with earnings due out in a few days.

Last week we noted that a lot can change with that much time remaining until the earnings release and it certainly did.  All kinds of stories hit the tape with respect to AAPL’s issues and issues within the markets themselves.

A sample: https://www.zerohedge.com/news/2018-01-29/apple-slashes-iphone-x-production-half-after-disappointing-holiday-sales

Additionally, political issues crept into the market discussion as well.  Other interesting things developed too…

Of technical note, AAPL has broken not one but two support levels as of now and should it close that way, things could become even more dicey.  Another interesting technical development is the new high being registered at $180.10 recently, only to be followed by the quick two-week plunge to the mid $160.00’s.  That’s fairly volatile movement and one heckuva false-breakout the gang pulled off a few trading weeks back!

With the overflowing cornucopia of news that’s to be made this week, which includes the FED and AAPL’s earnings report, the past two days may only be the start of bigger things! (more volatility) We’ll keep an eye out it to see if we can wring out any more noteworthy items.

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

Last Week’s Options Academy (for reference)

The fascination with earnings releases seems almost limitless so we’re going to tackle a very common question that crops up quite frequently during “the season”.

Earnings reports are in full swing and we know that well as the majority of folks that attend our live weekend events tend to remind us of that fact, albeit, inadvertently.  This week brought the ever-popular: “I heard something about a money straddle on TV that can tell you how far a stock will move when the earnings come out.  What’s that all about?”  Which was quickly followed by: “I’ve heard that before too, can you cover that for us?”  We can, and we shall… 

Through the software magic of “ThinkBack”, behold Apple’s Feb. 2^nd ATM straddle price with the stock closing at $177.00 on the button yesterday:

Now, the ATM strike is actually $177.50, and that ATM’s straddle value is about $8.20, and there’s more than a week’s time to the earnings release in early Feb., however, we’re just going to round things off and summarize things succinctly for those that share this curiosity with respect to earnings moves by way of this graphic:

Well…while intentionally avoiding mathematical precision, look at it this way, the options markets are thought to be forecasting a little over an $8.00 move between now and with the earnings release in AAPL from the $177.50 strike price.  We arrive at that conclusion based on the observation that the markets are willing to pay $8.20 for the aforementioned ATM straddle in focus.  They wouldn’t pay that much (or so the thinking goes), if they didn’t believe a move of that price magnitude was not only possible but looming.  The options markets are presumed to have a “built in intelligence” and ability to forecast such matters.

Anyway, this is how it’s done, but in reality, we should wait until we’re much closer to read into the divinations of the ATM earnings straddle.  We’re too far away and much could change between now and then.  When we’re right on top of earnings, that’s when the straddle will really be all about the post-earnings release reactions.  Until then, let’s see how things play out in AAPL between now and the earnings date which will be upon us shortly.