Investment Rationale

Stocks got hit yesterday, seeing all overnight gains in futures disappear, as housing data came in weaker than expected, and the Consumer Confidence and JOLT jobs number came in better than expected – the latter two looked at bearishly by investors as it helps show the Fed that they can continue to slow the economy by raising rates further. After the second session of seeing early futures markets rally fade, I sold out of my S&P futures long at the same price (4024) I got in at on Monday.  And I’m glad I did, because it saved me today’s downdraft.

Today is the last trading day of August, and Friday – for all practical purposes – the last trading day of the summer. We can still see some increased volatility from both of those “endings”, and with this week the heavily vacationed one it is, don’t be surprised to see some big intraday swings, too. 

Today the SPX and SPY will more than likely post daily Setup -9 count s– always a possible trading bounce point. (The NDX and QQQ marked the -9 count yesterday.) Both of these two major US indexes are also near their respective weekly support levels I laid out on Monday (so maybe by Friday’s close those weekly support levels hold for a trading bounce?) However, I still think the big picture is a negative one, and that rallies should be sold into to lighten overall equity market exposure. (It would take a substantial change in known fundamentals to alter my view.)

In the meantime, we still have to deal with this Friday’s expiration in our long VALE $13.5/$14.5 call spread. Yesterday, we sold out of 15 of the 45 we still had on, and today we will sell out of the remaining 30. (Until yesterday, price hadn’t materially moved against us, but Tuesday’s 4.7% loss makes it very unlikely for price to get back above $13.50 by Friday’s close. It’s up to you, as always, should you wish to hold off and hope for Friday to get that upmove for you to then exercise the call to buy the stock.)

VALE – Daily

A reminder that we have educational webinars today at 4:15pm ET with Jess, Tony, and me, and then Friday morning a Members Only open Q&A session with me at 8:45am ET.

Closing Trade

• T -109.68% Loss: Buy to Close 30 Contracts Sept 2, 2022 $18.50/$17.50 Put Verticals @ $0.65 Debit. DailyPlay Portfolio: By Closing all 30 Contracts, we will be paying $1,950. 

Partial Closing Trades

• VALE – 48.15% Loss: Sell to Close 15 Contracts Sept 2, 2022 $13.50/$14.50 Call Verticals @ $0.14 Credit. DailyPlay Portfolio: By Closing 15 Contracts, we will be receiving $210. We Partially Closed this trade on August 23 at $0.13 Credit, when we Closed 25 of the 70 Contracts, leaving us with 30 Open Contracts.
• INTC – 34.52% Loss: Sell to Close 1 Contract (Buy Jan 20, 2023 $35) / (Sell Sept 9, 2022 $38) Call Diagonals @ $2.03 Credit. DailyPlay Portfolio: By Closing 1 of the 3 Contracts, we will be receiving $203. 
• BEAM – 113.06% Gain: Sell to Close 2 Contracts Sept 16, 2022 $60/$50 Put Verticals @ $5.22 Credit. DailyPlay Portfolio: By Closing the remaining 2 Contracts, we will be receiving $1,044. We took Partial Profit on this trade on August 18 at $4.30 Credit, when we Closed 4 of the 8 Contracts, and then again, on August 23 at $6.47 Credit, when we closed 2 of the remaining 4 Contracts. Therefore, the average gain on this trade is 107.04% and the average cost basis to exit this trade is $5.07 Credit.

Investment Rationale

The SPX reached my near-term tactical support zone (4032/4023, where three unrelated technical indicators came together) and was the projected initial down move target from when I turned bearish north of 4270. I can’t make much out of yesterday’s action other than there was clearly some buying in there to offset selling from those stuck long from higher levels. Yesterday I bought some S&P futures in the fund I trade for at 4024. I’m gonna keep a tight sell stop on them but still think we could see a trading bounce this week from the confluence of three unrelated indicators (all near 4030) I explained in Monday’s OP webinar.

We see the market on a daily Setup -7 count coming into today, so we may very well see a terminal -9 count by Wednesday, but the bigger picture is what really matters. And we may get a better clue into that depending upon where Wednesday closes because the monthly chart (below) has a new look to it with the +13 count that came in because of where the August rally had reached. Closing beneath the Base Line (3960) is potentially another negative, while closing above 4132 would kill the down count and potentially make the picture less negative.

SPX – Monthly

As far as our Daily Play portfolio, let’s look at the short T Sept. 2nd $18.50/$17.50 put spread we have on. We are down 110% of what we collected, and with support having given way the past few days and yesterday also gapping lower and then closing beneath the -13’s Risk Level ($17.83), let’s cover our put spread today – half this morning and half nearing today’s close.

T – Daily

We’re long 45 VALE Sept. 2^nd $13.5/$14.5 call spreads. The market hasn’t really gone against us on this one, but time has. We’ve only got four days for this to work.  Let’s exit another 15 of the spreads today.

VALE – Daily

We are also long three INTC Sept. 9th $35 calls vs. short 3 Jan. 20th $38 calls. The Sept. calls expire in 11 days, and we’re down about 35% on the position, so let’s remove 1 of the three spreads we have on now.

INTC – Daily

Lastly, we have the remaining two long BEAM $60/$50 put spreads expiring Sept. 16th.  This was a recent large winner. With price against the cloud top, and my thoughts that we may still get a general market trading bounce, let’s take off the last two to lock in what was a 113% winner as of yesterday.

BEAM – Daily

Bearish Opening Trade Signal

View HSY Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 3 Contracts October 7, 2022 $230/$240 Call Vertical Spreads @ $3.97 Credit.

Total Risk: This trade has a max risk of $1,809 (3 Contracts x $603).

Counter Trend Signal: This is a Bearish trade on a stock that is experiencing a neutral to bullish trend. 

1M/6M Trends: Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 106

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

As HSY fails to break higher above its $230 prior all-time highs and starts to show some signs of exhaustion, this warns us of a potential pullback. It is hard to bet against a stock with such strong relative strength and an uncanny ability to navigate the supply chain issues, but it is not immune to a slowdown in consumer spending. Currently trading above 28x next year’s earnings, it is at a substantial premium to its peers despite only expecting 12% EPS growth for next year. I see this valuation at risk of multiple contraction as we’ve seen across the entire market. 

HSY – Daily

Today’s the day that investors have been waiting for since, well, the last time Fed Chairman Powell did his press conference in July. That one helped goose the market higher; this one the world awaits his every word (and more so, his tone). Bulls drove stocks higher yesterday, with their belief that he won’t be quite as hawkish as was thought he’d be just 5-10 days ago. Go figure…

Maybe, he says nothing that neither zooms or plunks the market, but says enough not to make either bull or bear particularly happy, suspending us all into stock market purgatory until the September inflation numbers get released in a few weeks. That may be his message, as the bulls and bears have been fighting it out the last few weeks with neither camp feeling quite satisfied right now.

Monday starts the 2nd most vacationed week of the year (only behind Christmas week), so it can bring exaggerated market moves (as far less players are around to provide liquidity). Through Labor Day, take that into consideration as you either play for targets to be met or how you choose your stop-out levels.

I, myself, will finally be taking a long-awaited true vacation with my wife from September 7-18 (meaning I will not be working in any capacity during that time). It will be pure joy for us to tour Florence, Italy and the surrounding Tuscan Valley, and then end our stay by sitting in the sands of the Italian Rivera while sipping Prosecco. During that time you will be very well taken care of by our very own rockstar, CNBC Contributor and OptionsPlay Chief Strategy Officer, Tony Zhang.

Lastly, we had a great trade on in having previously bought a BEAM Sept. 16 $60/$50 put which we have scaled out of almost the entire position with substantial gains. We have two contracts left, and with the large gain the stock put in this week, we will exit the remaining two contracts today should the stock be positive on the day going into today’s close.

As a reminder, make sure you have closed out of the TLT long put trade that expires today. 

Enjoy the last August weekend of the summer.

Rick Bensignor
Chief Strategist

Closing Trade

• TLT – 210.61% Gain: Sell to Close 3 Contracts Aug 26, 2022 $118.50/$114.50 Put Verticals @ $4.10 Credit. DailyPlay Portfolio: By Closing the remaining 3 Contracts, we will be receiving $1,230. We took Partial Profit on this trade on August 12 at $2.77 Credit, when we Closed 6 of the 12 Contracts, and then again, on August 19 at $2.74 Credit, when we closed 3 of the remaining 6 Contracts. Therefore, the average gain on this trade is 134.47% and the average cost basis to exit this trade is $3.10 Credit.

Investment Rationale

The SPX ended a 3-day slide yesterday with a gain of about 30 bps. as traders are starting to square some books before Fed Chair Powell’s statement on Friday from the Jackson Hole symposium. Bond yields pushed up to 3.11% (testing resistance from here to 3.14%), and then potentially as high as 3.30% if Powell’s words are taken even more hawkishly (this is not an official English word, but I’m fine using it) than expected.

TNX – Daily

We have one option spread that expires on Friday, so make sure you are out of them before then. This is the last 3 TLT long Aug. 26th $118.5/$114.5 put spreads that we are up 211% on.) 

Yesterday, I recommended a conditional long USO Sept. 16th $75/$81 call spread ONLY if the USO trades down to $75 or lower. I will extend that idea through Friday’s close, most especially with oil having traded to over $95 on Wednesday. (I want to buy it into the unfilled gap made this week if it gets a spike move down.)

USO Bullish Conditional Trade Signal

View USO Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 8 Contracts Sept 16, 2022 $75/$81 Call Verticals @ $2.72 Debit.

Total Risk: This trade has a max risk of $2,176 (8 Contracts x $272 per contract).

Trend Continuation Signal: This is a Bullish trade on a stock that is experiencing a bullish trend. 

1M/6M Trends: Mildly Bullish/Neutral

Technical Score: 9/10

OptionsPlay Score: 95

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please Note that this is a CONDITIONAL TRADE. See the Condition below. The strike prices, premiums, and OptionsPlay Score will therefore be slightly different when the condition is met, and we enter this trade.

Investment Rationale

Not much of a day for the equity market yesterday, though the thrust in energy-related names continued as oil surged another few dollars after Monday’s headlines that OPEC may reduce output in coming months. The dollar also fell, giving metals a decent lift, while natgas got hit for 5% after posting a daily Sequential +13 on Monday.

As we get closer to this Friday’s Fed statement from Jackson Hole, you’re going to want to make any portfolio changes you deem necessary before that 10am ET announcement, for it can surely send the market sharply-lower or higher, depending upon how hawkish – or not – Chair Powell comes across on his inflation-fighting agenda. (If for some reason between now and then the SPX finds itself nearing 4050, I’d be more apt to be a buyer there, as the reward to risk ratio is preferable (i.e., I could risk, say 50-75 SPX points vs. possibly making 200 quickly).

For today’s Daily Play, I want to stay away from a “pure stock”- type idea, because none of us has any clue as to what/how Powell is going to say on Friday. So, rather than putting on something that has a 50/50 chance of still being right after he speaks then, let’s at least go into the commodity world, as the price of oil should not be as much affected by what he says, than, let’s say, MSFT or JPM might be.

With oil having rallied sharply the last two days – and the weekly oil inventory report coming out today at 10:30am ET – let’s look to buy a pullback in the US Oil Fund ETF (USO), as the daily chart posted a recent Sequential -13 “downside exhaustion” signal, and price appears to be headed higher. So, should we see the USO trade down to $75 or lower, then let’s look to buy a September 16th $75/$81 call spread at the then mid-price level. THIS IS A CONDITIONAL TRADE. If it doesn’t get down to $75 or lower today or tomorrow, we’re not putting the trade on.

USO – Daily

Closing Trades

• ADI – 53.85% Gain: Buy to Close 1 Contract Aug 26, 2022 $165/$175 Call Verticals @ $1.80 Debit. DailyPlay Portfolio: By closing the remaining 1 of 3 Contracts, we will be paying $180. We Closed 2 of the 3 Contracts of this trade on August 2 at $6.30 Debit. Therefore, the average loss on this trade is –34.62% and the average cost basis to exit this trade is $4.80 Debit.
• CRM – 1.60% Loss: Buy to Close 1 Contract Sept 2, 2022 $175/$160 Put Verticals @ $4.45 Debit. DailyPlay Portfolio: By closing the remaining 1 of 2 Contracts, we will be paying $445. We took partial profits for this trade on August 10 at $3.57 Debit. Therefore, the average gain on this trade is 8.45% and the average cost basis to exit this trade is $4.01 Debit.

Partial Closing Trades

• VALE – 51.85% Loss: Sell to Close 25 Contracts Sept 2, 2022 $13.50/$14.50 Call Verticals @ $0.13 Credit. DailyPlay Portfolio: By closing 25 of 70 Contracts, we will be receiving $325. 
• BEAM – 164.08% Gain: Sell to Close 2 Contracts Sept 16, 2022 $60/$50 Put Verticals @ $6.47 Credit. DailyPlay Portfolio: By closing the remaining 2 of 4 Contracts, we will be receiving $1,294. 

BA Bearish Opening Trade Signal

View BA Trade

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish

Details: Buy to Open 4 Contracts Sept 16, 2022 $160/$145 Put Verticals @ $4.85 Debit.

Total Risk: This trade has a max risk of $1,940 (4 Contracts x $485 per contract).

Counter Trend Signal: This is a Bearish trade on a stock that is experiencing a neutral trend. 

1M/6M Trends: Neutral/Neutral

Technical Score: 3/10

OptionsPlay Score: 135

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

Stocks got hammered yesterday on follow-through selling from Friday’s fall, as well as an increasing belief that Fed Chair Powell will be far more clearly hawkish at his press conference this Friday from Jackson Hole. (10am ET.) The two-day drop was a hefty 200 SPX points – a rather large move of almost 5% from high to low. As I write this commentary on Monday evening, I see the S&P futures up about 20 bps., and it wouldn’t surprise me if we see some midday strength today to take some of the decline away. However, as I said in Monday’s AM webinar, I think the SPX gets to the mid- to low-4000s on this corrective down move, so I’ll still be looking to lean into charts that appear to be fading from the summer rally.

One such name is a big Daddy-O type one:  it’s Boeing (BA). Its weekly chart shows a Setup +9 two weeks ago, and its daily chart now shows a bearish “island reversal” pattern upon yesterday’s gap down that offset the late-July gap higher.  This after marking a daily Sequential +13 reading on the gap up, and a complete stall against a prior support level.

BA – Daily

Put these together, and we’ll look to buy a September 16^th $160/$145 put spread. On Monday, that closed at $4.845, and I don’t want to buy it for any more than that (and preferably less today should we see the overall market move higher in the first half of the day).

POSITION CHANGES:

• We are short an ADI August 26^th $165/$175 call spread that expires on Friday. There are now both daily and weekly support levels very close to the current price. Let’s close this out today with what showed a 54% profit as of Monday’s closing mid prices.
• We are short a CRM September 2 $175/%$160 put spread that we are at breakeven on. Let’s close that out today.
• We’re long VALE September 2 $13.5/$14.5 call spreads, and now down 52% on them. Let’s exit today 25 of the 70 spreads we have on.
• We’re still long 4 of the original 8 BEAM September 16^th $60/$50 put spreads. We’re up $164% on this portion, so we’ll remove 2 of the 4 today.

Bullish Opening Trade Signal

View BKR Trade

Strategy Details

Strategy: Long Call Spread Risk Reversal

Direction: Bullish

Details: Buy to Open 1 Contract October 21, 2022 $24/$26/$29 Call Spread Risk Reversal @ $0.37 Credit.

Total Risk: This trade has a max risk of $2,363 (1 Contract x $2,363).

Counter Trend Signal: This is a Bullish trade on a stock that is experiencing a neutral to bearish trend. 

1M/6M Trends: Neutral/Bearish

Technical Score: 4/10

OptionsPlay Score: 125

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. This will be reflected in the Portfolio tab within the OptionsPlay platform.

Investment Rationale

Today’s DailyPlay is Baker Hughes Company (BKR), which is currently down 40% from its all-time highs. If we look at the OIH ETF (Oil Services EFT), of which BKR is part of, we see a very clear uptrend over the last few years. OIT has pulled back towards the trendline and now we have seen a bounce higher, which is likely going to continue. When we look at the chart of BKR, we see the same clear uptrend where we pulled back to after the 40% decline, and we believe that this is where it will bounce higher and continue higher. Looking at the relative performance of BKR to OIH, we can see that BKR is trading largely on par with the ETF, we, therefore, expect both BKR and OIH to bounce higher, with BKR most probably outperforming this ETF. 

BKR – Weekly

Closing Trade

• TLT -107.58% Gain: Sell to Close 3 Contracts Aug 26, 2022 $118.50/$114.50 Put Verticals @ $2.74 Credit. DailyPlay Portfolio: By closing 3 of 6 Contracts, we will be receiving $822. We Closed 6 of the 12 Contracts for this trade on August 12 at a $2.77 Credit. Therefore, the average gain on this trade was 109.1% and the average cost basis to exit this trade is $2.76 Credit.

Investment Rationale

The SPX is now but 1% beneath its 200-DMA, and I’d fully expect computer-driven funds to get even more bullish if that oft-watched level is exceeded, especially in the low volatility / high momentum environment. And that’s why I am using a whole range of SPX 4270 to 4500 to lighten my overall equity market exposure, rather than trying to pick the perfect day to sell out of an entire portfolio constructed over many years and a variety of entry points. (Honestly, that just wouldn’t make sense to do.)

Today is yet another summer Friday, which also means it’s a weekly option expiration session, too. And from what I’ve read, there are some $2 trillion of options going off the board today, so expect some real intraday swings as dealers need to unwind their positions. I wouldn’t be surprised to see the SPX gravitate toward 4300, as it has ~23,000 option contracts still open for today’s expiration, almost evenly split between calls and puts. That’s roughly more than the combined open interest of all other contracts that are +/- 50 points of 4300.

I do want to do one trade adjustment today, closing out 3 of the 6 remaining short TLT Aug. 26th $118.50/$114.50 put spread we still have of the original trade. (We previously took off 6 of the 12.)  UST 10-yr. rates have again stalled at initial resistance at 2.91%, so let’s take more profit on this trade as we’re up 107% on this portion.

TLT – Daily

Additionally, Monday’s conditional DP in XLV did not get its necessary upside breakout for us to buy the

Enjoy the summer weekend.  

Closing Trades

• BEAM – 75.51% Gain: Sell to Close 4 Contracts Sept 16, 2022 $60/$50 Put Verticals @ $4.30 Credit. DailyPlay Portfolio: By closing 4 of the 8 Contracts, we will be receiving $1,720. 
• UAL – 61.39% Loss: Buy to Close 3 Contracts Aug 19, 2022 $38/$47 Call Verticals @ $1.17 Debit. DailyPlay Portfolio: By closing the remaining 3 of 6 Contracts, we will be paying $351. We Closed 3 of the 6 Contracts for this trade on July 27 at a $0.98 Debit. Therefore, the average loss on this trade was -64.53% and the average cost basis to exit this trade is $1.08 Debit.

Conditional Trade

• XLV – On August 16th we published a Conditional Trade for XLV. As XLV did not meet the Condition, we are canceling this DailyPlay trade.

Investment Rationale

We finally saw some profit-taking yesterday in the market as some major earnings reports disappointed vs. expectations. I do believe we’ll be seeing more of these disappointments as time goes forward into the fall, and it is just one of the reasons that I think the risk now to buying stocks is higher than the potential likely reward. 

Yesterday we put on a bearish put spread in BEAM, and with the stock having sold off 6.3% on Tuesday, the trade is already up some 75%. That’s a heck of a good one-day return, and as such, I’m going to suggest we take 4 of our 8 contracts off today to lock in the solid gain.

BEAM – Daily

Additionally, Monday’s conditional DP in XLV did not get its necessary upside breakout for us to buy the call spread. I am officially canceling the idea.