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)

View COST Trade

Market Outlook:

An eventful week for equities saw the major indices end the week in the green. SPY and QQQ have declined since early September and managed to find support in recent days to break above their respective 100 D MA’s. The major event last week was the jobs numbers which were significantly lower than expected. Analysts were expecting a 500k increase in jobs but the actual figure came out at 184k. While this figure does provide evidence of keeping interest rates at bay, SPY and QQQ declined on Friday. The bond selloff continued on Friday which saw yields rise providing some fuel for the Financial sector. Sector rotation indicates a broadening recovery with 7 sectors in the Improving and Leading categories and 4 in the Lagging and Weakening categories. Financials and Energy are providing leadership thanks to higher rates and surging oil prices.

COST Bearish Trade Idea:
Our bearish DailyPlay trade is Costco Wholesale Corp (COST). From a technical perspective, COST is losing momentum after a strong rally from March this year. The deceleration in weekly and daily momentum points to further downside. Price ran into resistance at $467 and formed a double top on the daily timeframe before continuing lower. COST is also trading at a relatively high valuation (40x PE) compared to its 5 year average of 33x Earnings. 

View COST Trade

The bearish DailyPlay for Friday, October 8th is PayPal Inc (PYPL). PYPL is part of the Technology sector that has experienced a 3.9% decline in the last month. 

Technical View

• Breakdown of $267 support with high volume and failed retest indicates move lower.
• Weak Technical Score – 4 out of 10
• Bearish 1M and 6M trends

Fundamental View

• Trading at very high valuations (64x Earnings)
• Significant margin expansion needed to justify valuation
• Earnings Nov 1, 2021

View PYPL Trade

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

• Take Profits: $3.65 Debit
• Stop Loss: $14.60 Debit

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