View FB Trade

Bullish – FB – $324.61

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Market Outlook:
As we head into earnings season, equities have performed well with the major indices recovering considerably in the last 2 weeks. SPY has rallied back to its previous all-time high at $453 while QQQ ended the week pulling back slightly back to $374. Fundamentals will play a big part this week with 4 out of the 5 FAANG stocks announcing earnings (AAPL, AMZN, FB, and GOOGL). US GDP numbers will also be released on Thursday and will provide additional insight as to how well the economy performed despite headwinds caused by the Delta variant spread, labor shortages, and supply-side constraints. Over the last week, there has been a considerable rotation out of Energy, Staples, and Financials while Discretionary and Tech have seen strong momentum and will likely provide leadership this week.

FB Bullish Trade Idea:
Our bullish trade idea today is Facebook Inc (FB). FB recently pulled back significantly and found support near the $320 level. Price has been under pressure due to SNAP’s disappointing earnings announcement, however, this may be an overreaction when considering that FB and SNAP’s business model is considerably different. Please note that this is an earnings trade with FB announcing earnings today after the market close. View FB Trade

Sector Outlook

The Relative Rotation Graph (RRG) for sector rotation indicates that a broadening sector leadership with 7 sectors in the Improving and Leading categories and 4 sectors in the Lagging and Weakening categories.

Leading (positive relative trend and positive relative momentum): Discretionary, Industrials and Materials. However, only Discretionary showing strong momentum. Weak momentum in Industrials and Materials.

Weakening (positive relative strength and negative relative momentum): Financials and Energy are in the weakening category with poor relative strength and momentum. 

Lagging (negative relative trend and negative relative momentum): Communications and Staples are in this category and continue to experience weak momentum and relative strength. 

Improving (negative relative trend and positive relative momentum): 4 sectors are now in the Improving category – Technology, Real Estate, Utilities and Healthcare which rotated out of the Lagging category on Friday.  

XLV

Healthcare stocks have shown strong momentum this week with the sector rotating out of the Lagging category and into the improving category. Price recently broke above the 100 D MA after a pullback to the $124 area. Look for a continuation of rally back to $236 resistance. 

XLRE

Real Estate recently formed a double bottom at the $44.23 level and bounced higher with strong momentum. Price is currently rallying towards its previous all time high at $48.80. Look for continued rally this week. 

Market Observations

• TSM – Price has failed to break above the 100 D MA on multiple attempts and moved 1.77% lower on Friday. Next support sits at $108.
• CMCSA – Price broke below the $54.50 support level and has since come back to retest it. This provides a good risk/reward bearish entry. 
• DIS – Currently at major support. Look for bullish price action at current levels for further confirmation of long entry. 

View Closing Trades

Closing Trades

• PYPL – 66% Gain: Short Nov 26, 2021 265/285 Call Verticals @ $2.45 Debit
• CVS – 8% Gain: Long Nov 19, 2021 85/92.5 Call Verticals @ $2.83 Debit

DailyPlay Positions Outlook:

Equities have staged a strong rally back to all-time highs on the S&P 500 driven by strong consumer demand and sales. It should be noted that while there is strong positive momentum, it has started to decelerate and show signs of exhaustion. Bond markets have also not shown the same level of optimism and we remain cautiously bullish as volume has declined on this rally. We are taking this opportunity to take profits on our PYPL short and reduce long exposure in our CVS position that has failed to rally higher. 

View Closing Trades

Closing Trades

• NFLX – 2% Loss: Long Nov 19, 2021 635/665/690 Call Butterfly @ $5.39 Credit
• TLT – 51% Gain: Short Nov 26, 2021 146/150 Call Verticals @ $0.73 Debit

DailyPlay Positions Outlook:

This earnings season has been punctuated with sizable moves on both beats and misses. The equity market’s momentum has started to stall and now within 1% of a new all-time high. During this, bonds have continued to sell-off sending yields higher, which will provide a headwind for equities. We are taking this opportunity to close out our NFLX trade which did not pop higher on earnings, and short bonds trade, which have triggered our take profit levels. 

View WFC Trade

The bullish DailyPlay for Wednesday, October 20th is Wells Fargo (WFC). WFC is part of the Financial Sector (XLF) which has experienced a 9.19% rally in the last month. 

Technical View

• Breaking out above its $48.50 minor resistance and trendline suggests further upside
• Technical Score that has improved to 9 out of 10 
• 1M and 6M trends turned bullish 3 days ago. 

Fundamental View

• WFC trades near its long-term historical valuation of 13x 2022 Earnings. 
• Expecting an acceleration in revenue growth to reach 3-4%
• Non-interest income continues to grow and offset declines in NII. 

As this is a Credit Spread, look to take profits at 50% and cut losses at 100%:

• Take Profit: $0.69 Debit
• Stop Loss: $2.76 Debit

View WFC Trade

View KWEB Trade

The bullish DailyPlay for Tuesday, October 19th is China Internet ETF (KWEB). KWEB has experienced a 3.82% rally in the last month. 

Technical View

• After a 60% decline from the Feb top, KWEB has formed a double bottom formation
• Technical Score that has improved from its bottom to 2 out of 10 
• 1M Bullish and Neutral 6M trends improved over the past 2 weeks.

Fundamental View

• Chinese gov’t has softened its tone on crackdowns as citizens start to feel the effects
• Evergrande’s fallout has driven a more accommodative monetary policy
• Chinese internet companies are trading at multi-year low valulations

As this is a Debit Spread, look to take profits at 75-100% and cut losses at 50%:

• Take Profit: $5.80 Credit
• Stop Loss: $1.45 Credit

View KWEB Trade

View NFLX Trade

Market Outlook:
Equities finished on a strong note to end the week with back-to-back gaps higher and closing near the highs of each day. With momentum turning positive and a break above $440 resistance on SPY, this looks constructive for equities overall, However, there are signs of short-term exhaustion and risks a pullback next week if corporate earnings fail to deliver significant beats. The bond rally additionally took a pause on Friday, with TLT holding its $146 resistance level suggesting a potential selloff next week and rise in yields, pressuring equities lower. 

NFLX Bullish Earnings Idea:
Our bullish earnings play for this week is Netflix (NFLX). Netflix recently broke out above its 4-month trading range of $475-575 with strong relative outperformance to its sector XLC. This momentum and relative strength are constructive into a pivotal quarter for the streaming giant. With the success of Squid Games, we expect to see higher than average subscription rates and lower churn. With its high price, we seek a creative way to seek upside exposure into earnings, while risking less than 1% of the stock’s price using a broken wing butterfly. 

View NFLX Trade

View TLT Trade

The bearish DailyPlay for Friday, October 15th is 20+ Year Treasury Bond ETF (TLT). TLT has experienced a 3.84% decline in the last month.

Technical View

• A recent decline below a major $146 support level, currently resting $146 as new resistance
• Technical Score that has rapidly declined to 7 out of 10
• Bearish 1M and Neutral 6M trends

Fundamental View

• Fed minutes this week showed a strong probability of taper in Nov
• Several participants preferred raising interest rates faster than market anticipated timelines.
• Inflation metrics continue to outpace initial forecasts. 

As this is a Credit Spread, look to take profits at 50% and cut losses at 100%:

• Take Profit: $0.75 Debit
• Stop Loss: $3.00 Debit

View TLT Trade

Closing Trades

• AAPL – 24% Gain: Short Nov 5, 2021 142/150 Call Verticals @ $2.50 Debit
• ATVI – 36% Gain:Short Nov 19, 2021 77.5/85 Call Verticals @ $1.70 Debit

DailyPlay Positions Outlook:

After the inflation numbers, this morning and Fed minutes markets showed strength into today’s close. Despite momentum turning negative and moving averages turning lower, price action has remained resilient and bears failed to gain control. In this type of choppy market, we are taking this opportunity to take some shorts that are profitable off the table, despite not yet reaching our take profit levels. 

Equity Market Analysis

Nasdaq-100 – Bearish Bias

Apple Poised to Slash iPhone Production Goals Due to Chip Crunch

Equities have continued to weaken despite a rally in bonds yesterday and the Nasdaq and S&P weakened into the close again after early strength. Price action while not overly bearish, continues to weaken each day. Our Chart of the Day is the Nasdaq-100 Index, which had its 20D MA cross below its 50D MA. This is the first time since April 27, 2020 (530 days ago) where the short-term moving average has traded below the longer-term moving average. A break below $352 or rejection at these moving averages over the next few days or weeks would be considerably more bearish for equities. We maintain a bearish view of the markets and will maintain more short exposure. 

Chart of the Day – QQQ Moving Average Crossover

The Relative Rotation Graph (RRG) for sector rotation indicates that there are 7 sectors in the Improving and Leading categories, and 4 sectors in the Weakening and Lagging categories

Leading (positive relative trend and positive relative momentum): Industrial and Energy and Staples are joined by Financials. Industrial and Staples showing improving momentum. Weakening momentum in Energy and Financials.

Weakening (positive relative strength and negative relative momentum): Discretionary is showing slowing momentum. 

Lagging (negative relative trend and negative relative momentum): 4 sectors are in the lagging category – Technology, Real Estate, Healthcare, and Communications paring back into weak momentum in all three sectors and possible recovery in Real Estate.

Improving (negative relative trend and positive relative momentum): 2 sectors are now in the Improving category – Utilities and Materials. All sectors showing good momentum and improving relative strength.

Market Observations

• CCL – Travel stocks and cruise operators showing some strength in yesterday’s weakness and holds a bullish trendline. 
• SCHW – Break above its $76 resistance level suggests further upside in a rising interest rate environment. 
• XLC – Break below a key $79 support level suggests further downside from communication stocks. 

Closing Trades

• DIS – 41% Loss: Long Nov 5, 2021/Jan 21, 2022 $185/$195 Call Diagonal @ $4.55 Debit

DailyPlay Positions Outlook:

Equity markets have now confirmed a bearish shift to momentum and trends. Price action remains weak with a strong open yesterday, but closing at session lows. With SPY and QQQ both being rejected at the 50D SMA and moving averages sloping lower, trends and momentum both now have bearish confirmation. We are taking this opportunity to reduce our long exposure in sectors at risk such as Consumer Discretionary with Disney (DIS)