The bearish DailyPlay for Thursday, January 13th is Lowe’s Companies Inc (LOW). LOW is part of the Discretionary sector that is currently underperforming the S&P 500. 

Technical View

• Negative divergence occurred when price made new highs but momentum made lower highs. Typically a strong bearish signal. 
• Bearish 1M trend. 
• Failing to break above 55 D EMA as momentum continues to slow. This provides evidence of a further decline and possible break below the $240 support level. 

Fundamental View

• Poor sub-industry outlook as homebuilders as consumer spending starts to slow. 
• Inflation and labor shortages are major headwinds. Construction wages have risen 7.7% since pre-Covid levels. 
• Earnings: Feb 23, 2022 (41 days)

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

Take Profits: $2.05 Debit

Stop Loss: $8.20 Debit

View LOW Trade

The bullish DailyPlay for Tuesday, January 12th is Diamondback Energy Inc (FAND). FANG is part of the Energy sector that is experiencing very strong momentum and is providing leadership for the broader equity market. 

Technical View

• Breakout of the $116 resistance level and pullback provides a good bullish entry. 
• Bullish 1M and 6M trends
• Very strong Technical Score (10 out of 10)

Fundamental View

• Rapid rise in crude oil has boosted cash flow significantly.
• Average debt levels relative to peers but strong improvement in operating costs. 
• Earnings: Feb 22, 2022 (41 days)

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

Take Profits: $2.92 Debit

Stop Loss: $11.70 Debit

View FANG Trade

Closing Trades

• BAC – 51% Gain: Long Jan 21, 2022/Apr 14, 2022 45/47 Call Diagonals @ $2.80 Credit
• DFS – 78% Loss: Short Feb 18, 2022 115/125 Call Verticals @ $7.30 Debit

DailyPlay Positions Outlook

Equities continue to decline as markets await CPI data releasing tomorrow. This will likely provide more clarity as to how aggressive the Fed will be regarding rate hikes and policy tapering. Despite the recovery late into yesterday’s session, equities remain on the backfoot and a shift towards risk-off names continues. We take this opportunity to close out our DFS position before the 100% stop loss as our technical thesis has become invalidated with prices rallying above $120 with strong momentum. We will also be taking profits early on the BAC position which is a call diagonal trade. This is due to the short strike being ITM with very few days to expiration. Rolling the short strike would result in an increased cost basis for the overall trade which is why we are opting to close the position for a 51% profit instead. 

Prakash Vijayanath

Analyst at OptionsPlay

View CSCO Trade

Market Outlook:

A volatile week saw the S&P 500 as well as the Nasdaq-100 end the week in the red. Both indices broke below their respective key levels which indicates further declines ahead for this week. However, the VIX has declined for 2 sessions in a row despite declines in the major indices. This can sometimes be used as a short-term bullish signal as the bearish move is displaying signs of slowing momentum – A move lower in the major indices and a move lower in the VIX can act as a reversal signal. However, we view the overall macro picture as slightly negative for equities as markets continue to price in an additional rate hike for 2022 despite Friday’s low non-farm payroll number. We expect another volatile week as inflation numbers are released and continue to be a key theme in markets. 

CSCO Bullish Trade Idea:
Our bullish trade today is the Cisco Systems Inc (CSCO). CSCO’s strategy in transitioning to a higher-margin services type business is continuing to pay off. From a technical perspective, CSCO recently broke above the $60 resistance level with strong momentum and has pulled back to this level to provide a better risk/reward bullish entry. On a relative basis, CSCO is starting to outperform the communications sector which it is highly exposed to as well as the technology sector. 

As this is a long call vertical spread, look to take profits at 75%-100% gain and cut losses at 50%:

• Take Profits: $5.10 – $5.82 Credit
• ​Stop Loss: $1.46 Credit

View CSCO Trade

Taking Profits

• GLD – 17% Gain: Short Jan 21, 2022 $167/$172 Call Vertical @ $1.43 Debit

DailyPlay Positions Outlook

Equities look set to end the first week of 2022 on a bearish tone. Both SPY and QQQ have declined to their respective key levels. Volatility has started to increase as markets price in an additional rate hike for the year with the Fed minutes indicating a more hawkish tone. We expect some volatility today due to Non-Farm Payrolls being announced and have therefore decided to close the GLD trade for a minor profit. 

Prakash Vijayanath

Analyst at OptionsPlay

Taking Profits

• AMD – 17% Gain: Short Jan 21, 2022 $130/$145 Put Vertical @ $5.03 Debit
• TWLO – 66% Gain: Short Jan 21, 2022 $270/$290 Call Vertical @ $2.35 Debit

DailyPlay Positions Outlook

The increase in volatility was subdued later in the day with the major indices recovering some of their initial losses. However, Technology stocks were on the backfoot causing the Nasdaq-100 to underperform the S&P 500 and declining 1.3%. While key levels still remain intact for the S&P 500, weakness in the Nasdaq-100 has caused price to once again break below the $400 level. We take this opportunity to close out AMD and TWLO that only have 16 days to expiration. We are closing AMD for a partial profit while TWLO exceeded our initial profit target.  

Prakash Vijayanath

Analyst at OptionsPlay

Taking Profits

• FCX – 84% Gain: Short Jan 21, 2022 $34/$38 Put Vertical @ $0.27 Debit

View LYFT Trade

The bullish DailyPlay for Tuesday, January 4th is Lyft Inc (LYFT).LYFT is part of the Industrials sector that has experienced strong momentum in recent weeks. 

Technical View

• Price has broken above the $44.50 resistance level after a week-long pullback/consolidation. 
• Bullish 1M trend
• Break above 21 D EMA and strong short-term momentum. Encouraging bullish price action and further rally expected. 

Fundamental View

• Improving driver supply network aided by sunsetting of federal unemployment benefits.
• Strong rebound in sales expected – 41% sales growth forecast for 2022
• Earnings: Feb 1, 2022 (28 days)

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

Take Profits: $1.07 Debit

Stop Loss: $4.30 Debit

View LYFT Trade

View XLE Trade

Market Outlook:

We end 2021 on a generally positive note with equities closing the year near all-time highs despite the slight pullback on Friday. SPY rallied an impressive 26.9% in 2021 and outperformed the Nasdaq-100 over the course of the year. As we move onto 2022, we note that the Defensive leadership in equities has started to fade in recent days with growth stocks starting to rebound relative to value. Rotation out of Staples and Utilities and into Discretionary and Energy has been strong and points to the rally experienced by the major indices in recent weeks. 

XLE Bullish Trade Idea:
Our bullish trade today is the Energy Sector ETF (XLE). XLE has huge exposure to oil prices that are still experiencing a steady recovery since pandemic lows and maintain their bullish trend with price continuing to form higher highs and higher lows. XLE’s 1M trend turned bullish on Friday and with a Technical Score of 8 (out of 10), XLE is a strong ETF that will likely continue higher. 

As this is a call diagonal, the idea of this strategy is to purchase the $55 call which gives longer-term bullish exposure. The shorter-dated short leg is used to reduce the cost basis. Approaching expiration, we will likely buy to close the short leg for and sell another shorter-dated call to once again reduce the cost basis. This trade takes advantage of the fact that the shorter-dated options will experience accelerated time decay relative to the longer-dated call and by effectively “rinsing and repeating” the selling of the short leg, investors are able to reduce the cost basis of the long leg and reduce the breakeven price for the overall trade in the months to come. 

To learn more about this strategy, please watch the video below:

View XLE Trade

Taking Profits

• TLT – 52% Gain: Short Jan 28, 2022 $150/$155 Call Vertical @ $0.80 Debit

DailyPlay Positions Outlook

We end 2021 on a positive note by closing our bearish TLT position for a 52% profit after price gapped significantly lower yesterday. Momentum in equities this week has been strong with the major indices breaking above key resistance levels. While we do not that short-term momentum is overbought, a pullback in the major indices will provide better bullish opportunities heading into 2022. There has also been some rotation out of the defensive sectors that have been providing leadership in recent weeks which indicates more fuel for a further rally as growth has found some performance relative to value. 

Prakash Vijayanath

Analyst at OptionsPlay