The traditional last week of summer on Wall Street went out with a whimper, as the market fell for a third straight week. The numbers weren’t pretty for the bulls as the S&P 500 fell 3.3%, the Dow declined 3%, and the Nasdaq fell another 4.2%.
While the trading action today (Tuesday) could be slow as traders return from the long holiday weekend, it does feel as if the coming days could be critical as the bears are targeting a re-test of the June/July market lows.
Stocks on Watch
Last week I led Stocks on Watch with this paragraph:
“There is no better sign for the type of market that we are in than the stocks on the top of my watch list, and today those three stocks are a uranium play (CCJ), a solar stock (FSLR), and a fertilizer play (CF).”
And now, one week later, the market fell 3.3%, and yet the stocks on the top of my watch list are still CCJ, which rose 8% last week, and FSLR, which gained 4% (CF fell, and is now lower on my list).
While option activity in FSLR has been strong, though not overwhelmingly so, the call buying in CCJ has been red hot, including these trades from last week:
Friday: Buyer of 15,000 Cameco (CCJ) December 31/37 Bull Call Spread for $1.69 – Stock at 29Wednesday: Buyer of 3,000 Cameco (CCJ) October 30 Calls for $2.44 – Stock at 29.25Tuesday: Buyer of 5,000 Cameco (CCJ) October 30 Calls for $2.55 – Stock at 29.5.
I REALLY like CCJ and FSLR, and could see adding either of these stocks to the portfolio this week.
That being said, there is no doubt that any buys right now are not easy, as the market was a mess last week, and at some point, should conditions continue to worsen, the sellers may move their attention to CCJ/FSLR, and any stocks with “meat on the bone.”
The Chicago Board of Options Exchange Volatility Index (VIX) closed at 25.5, which was essentially unchanged on the week. The lack of a big move higher in the VIX last week was somewhat encouraging for the bulls as we could have seen the “fear index” back near 30 as the market fell for a third straight week. Though to be fair, the long holiday weekend likely kept a lid on the upside of the VIX.
Finally, as I noted in a market update on Thursday, with the VIX above 27.5 put sellers took advantage of the elevated prices to sell option premiums ahead of the long holiday weekend.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 5
Thursday - 6
Friday – 4
Events for the Week to Come
Coming off an August Jobs Report on Friday that slightly missed expectations and which traders considered to be a “goldilocks” report, this week traders will be focused on the European Central Bank’s monetary policy announcement on Thursday as there has been much debate if the ECB will hike interest rates by 50 or 75 basis points.
And finally, while earnings season has slowed down, there are still a handful of intriguing reports this week.
What Traders are Saying
The rocky market the past three weeks, after signs of hope in previous weeks, triggered two “comics” from @ZorTrades on Twitter that perfectly sum up the market this year and, in reality, every year.
Let’s start with the first comic, which represents cryptocurrency but could work for any hyper-growth stock the past year.
Just last year there was a never-ending line of buyers of stocks like SHOP, SQ, and NVDA.
Fast forward to this year, SHOP is lower by 78%, SQ is down 60%, and NVDA has lost 50% year to date and fell sharply again last week. Now, seemingly no one wants to buy them!
And finally, the comic below perfectly represents 2022, where there has been a handful of signs of hope that have seemingly been met by nothing but pitfalls.
Long positions: AR, XBI, GOOG, M, OXY, SBUX, XLF
Bearish Positions: SPY
Antero Resources (AR) November 45 Calls – AR, and its natural gas peers, finally gave up some ground last week. In bear markets, eventually the sellers come for all. That being said, I think the stock still looks good.
Biotech ETF (XBI) January 84 Call – The XBI was essentially unchanged on the week and still looks good. I’m encouraged that this sector didn’t get crushed along with growth stocks last week.
Alphabet (GOOGL) February 120 Calls – GOOGL “only” fell 2% last week which was encouraging. Also of note, on Wednesday a trader bought 5,000 November 117.5/130 Bull Call Spreads and Sold 5,000 November 95 Puts – Stock at 111. This trade is a highly leveraged bull risk/reversal, which is a very aggressive way to get upside exposure.
Macy’s (M) September 20 Covered Call – M lost 7% last week and is “back in the soup” of sorts. Though of note, on Thursday a trader bought 10,000 Macy’s (M) September 17.5 Calls for $0.53 – Stock at 17 (rolled back from September 20 calls).
Occidental Petroleum (OXY) December 65/80 Bull Call Spread – OXY and its oil peers finally gave up some ground last week. That being said, I think the stock still looks great after a monster move higher in previous weeks.
Nasdaq ETF (QQQ) December 285/350 Bull Call Spread – On Tuesday we sold our QQQ position for a profit of 63.48%. While the swift market decline hurt our profits in this position, it did help our SPY puts, as noted below.
S&P 500 ETF (SPY) March 420 Puts – On Tuesday we locked in a profit of 45% on half of our SPY puts as the indexes fell yet again. I will continue to hold the balance of this trade that is now at a potential gain of 55%.
Starbucks (SBUX) January 85 Calls – SBUX “only” lost 1.3% last week and continues to look solid in comparison to the overall market. Big picture, I believe if the market gets in gear SBUX will continue to be a leader.
Financials ETF (XLF) January 33 Calls – The XLF fell 2.5% last week, which was largely in-line with the S&P 500. As of the close on Friday the ETF is trading right at the 33 strike that we own, targeting a move higher by January of 2023.