EARNINGS PLAYS HAVE ME INTRIGUED

I’ve been dabbling in a few earnings plays last week and am enamored with the conditions that are set-up for this particular quarter.

Naturally, so many stocks have had their asses kicked, and are off their highs of last year or year prior. However, the VIX is low here as well, and this market breakout has a steady bid underneath it, where we aren’t seeing fast selling in stocks, nor are most stocks responding to the multiple slow grind down attempts we’ve seen in the last week.

Most notably, I’m seeing the trends of implied volatility collapsing on most stocks into this quarter. Naturally, IV on most stocks was relatively high over the last several quarters, especially in energy/materials. However, look at something like $AAPL.

Focus on the Gold colored line, relative to itself. This is the trend for the “expectations” being priced into the options. And what this is saying is that “expectations” are the lowest price they’ve been in the last year. Aren’t expectations supposed to be high going into earnings?

This is why on average I tell most traders to avoid earnings, is that the options are usually discounting all the movement you’ll catch playing options. That’s why my Chipotle trade was so brilliant. Those options were the highest pricing they’ve been, meaning that “expectations” are super high for the stock. What’s the pain trade in that situation? No price movement, and wipe out all option holders.

This quarter is the most unique I can recall with all these things considered. I look for the following conditions to be present if playing a stock into earnings; I call them the “3P’s”…

P- Price pattern: I want a good consolidation or recent acceptance of price.

P- Profile: I need a good profile above or below this recent price range.

P- Premium: I need relatively cheap premium.

$FCX is another name I’m stalking here. Take a look at the premium here. Most of you are aware of the pattern and profile…

If you practice this strategy, remember not to bet more than what you can lose.

More on this later,

OA

Not much to do here but sit back and bask in the glory of all of this movement. Conditions like this haven’t existed since 2012-2013.

I went 2-for-3 in earnings plays this week with $QCOM and $SWFT and my loss being $SBUX.

I hopped on early and bought today’s weekly expiry and Aug monthly expiry in $CMG calls. The weekly was a monster and I love the set-up here for a run in the stock over the next couple weeks.

I am struggling to sell anything, because as I said back in my “No Dips For You” posts, selling here makes it harder to get back on.

I’m fully loaded and trying to move things around to get into some of my favorite watchlist ideas for next week. I’ll have those all completed by this afternoon.

OA

I spent a considerable amount of time over the last year or more talking about all the conditions across various asset classes and the high degree of correlation here versus the late 90’s. Stocks, breadth, value/growth, sentiment, positioning, false market signals, Emerging Markets, China, dollar, yen, oil, gold, etc. All set-up the same way they did in 1998, ahead of a significant run in stocks. That’s been my story all along, not once did that outlook change even into a year where even some of the few remaining optimists, changed their tune at the lows.

As we’ve hit new highs, I’ve discussed the defensive nature of most participants positioning. I’ve also discussed that as we’ve achieved this feat, the most important stat out there is that people don’t own stocks. Even the professionals. Exposure to equities reached a major low that we haven’t seen in many years. That coupled with the overall short interest keeps a bid under the market. According to all the chaos in the world, stocks don’t belong up here, but you have to realize that that opinion comes predominantly from those that don’t own any.

Lately it starting to feel as though the defensive nature of this market is starting to come off a bit. Starting to see quality and some momentum names pulling some weight as well. Breadth has hit all time highs with the indices too, which supports a healthy environment. According to my risk cycle that we discuss often, that means we’re in the early stages of something here, not at the end. It’s still quite interesting to me that the majority view these conditions as a risk, as opposed to an opportunity.

The lack of speed and correlation in the market day to day is a good sign. In fact, if you compare the market action coming out of 2011 post European financial crisis, or fall of 2010 months after the flash crash, once the market has committed to direction, the speed dies and the markets grind endlessly for weeks and months on end.

We just ended a 9 session win streak by the Dow today. Last time we had streaks similar to those were at the starting points of a significant trend.

Volatility is dirt cheap, and these conditions signal a trending market. These are the markets in which I perform best at. One should try to spend time viewing the market from a market of stocks perspective here, as opposed to a stock market. It would help immensely. Meaning, I won’t debate the gyrations of the market from here to there, but I’ll find you the best winners in this tape available.

In a couple months, we’ll revisit my “chart of the year” and the volatility compression that’s occurred in the monthly chart of the indices. Based on recent activity, one should be watching that closely for additional market velocity.

OA

The Dow Jones extends its winning streak to NINE consecutive days. Haven’t had one of those since March of 2013, when the market “broke out” taking out 2007 highs.

Good day,

OA

In the many posts I’ve written about a market melt-up coming, 1998 analogues and such, take a look at the Russell Growth Index versus the Russell Value index. Been a long long time since Growth performed before Value. Most notably was 1998 after the October correction.

Just an FYI.

90% of stocks on my grids here were in an uptrend even before the $SPX turned off its opening low. Think about that for a minute. The market looked like a short possibly, but stocks didn’t.

The $IBB was defended at the 68-69 level I mentioned yesterday. That was a very important signal here IMO, as it signals that the market is in a chase to play some offense rather than defense.

I’m watching $CRM, $WDAY, and $KITE.

More later,

OA