It's Time to Pay Close Attention to the Options Data
The much-expected volatility has yet to materialize, but you know what has? A concerning Put/Call ratio. Reader questions and trading ideas include LRCX, CLF, ASTS, CELH, ZS, STWD, MO, NOW, SAP, AXP, and MDB.
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The Market
The S&P has barely budged all week. So much for volatility!
But you know where we’ve seen some selling? In the small caps. The Russell is down almost three percent since last Thursday’s close. So once again, the small caps take it on the chin when we get overbought.
I don’t have a strong view on where IWM should hold because we aren’t back to an oversold condition yet, but if it gets down into that 215 area, I’d start looking for a bounce. If we are oversold when it gets there, that would be much better.
However breadth was poor today, the worst since September 6th. And, it was bad enough that the McClellan Summation Index stopped going up. A mere 30% of the volume was on the upside today.
Do you realize that TLT has now been red for seven straight days? I am not yet ready to buy TLT, but at seven down days and support in this 97 area, I would look for a bounce in the next day or so.
Now let me report what has gone from bothersome to worth paying close attention to. In addition to the VIX DSI being so low, the ten-day moving average of the equity put/call ratio is now at .56. In the past few years it hasn’t broken that level but twice. Once in the spring of 2022 and once in the summer of 2023. I don’t have today’s final reading yet for equities only, but the total ratio (which includes ETFs, Indexes, etc) was .76. This is the lowest reading since August 30th (recall we had a good whack the first few days of September).
There is a lot that has shifted this week despite the indexes milling around.
New Ideas
Micron reported earnings after the bell, and the stock is up quite a bit. We looked at it here on Sunday evening. But I will go back to Lam Research LRCX which I have been pushing in the semi-space for a few weeks now. The stock has run after hours (as have all the semis) on the Micron news. This is a reminder that my initial target is in this 800-825 area. I would take a little off the table.
Should the stock gap over 825 and hold that level, that would be impressive and then I would have to calculate a new target price.
Today’s Indicator
The Volume Indicator is still overbought. It has backed off this week as breadth has weakened a bit.
Q&A/Reader’s Feedback
Cleveland-Cliffs CLF should be buyable around 12 for that gap fill, but if it can’t get up and over 13 within a week or so, I’d get out of the stock. There is no base to speak of.
AST Space Mobile ASTS has some support here, so it ought to bounce off this 20-22 area. I would get concerned if the stock cannot get itself up and over 30 or if it breaks 20.
Celsius CELH bounced when it filled the gap, but that was all it was: a bounce. There is decent support around 30 but this stock is probably ripe for tax loss selling this year. The measured target on the downside is 5 which seems ridiculous but the market has a long history of taking once hot growth stories and killing them once they are done.
I have a rule of thumb: a spike low tends to hold the first trip down. (see August vs June) It’s the second trip down (see September) on the chart of Zscaler ZS that is a question. So far, it has bounced but let ‘s admit it, the bounce lasted three days and has spent more time chopping about than anything. It couldn’t even close that gap overhead. It may have another rally left in it but I’m not sure I trust it to rally much more than 180.
Starwood Property Trust STWD is in a funny channel since the spring. Unless/until it breaks in one direction or the other I would look for this pattern to persist.
I feel as though the recession stocks had a great run and, while I am not bearish on them, I can see them doing a lot of chopping about now. Should Altria MO break 50 (the uptrend line) I would get more concerned.
Service Now NOW met its upside measured target last week. If it comes down to that 850 area I think it would find support down there.
SAP SAP is in a little channel and as long as that channel persists I would expect it to hold at the bottom line and sell off from the top line. Currently the bottom line is around 215.
American Express AXP is another stock with a channel. I have a measured target around 285 on the stock, so I would expect a pullback and another try higher but, as you can see, the top of the channel is currently 270, so it’s going to need time before it can achieve the target.
If I were looking to buy Mongo DB MDB I would at least wait for that gap near 250 to fill because, right now, it’s in the middle of nowhere as it filled the gap from late May already.
