Something is Brewing

It was clearly an initiative move yesterday, especially in risk on instruments. Per our sentiment flow, this move would equate to “denial” in this move in stocks today.

Despite the clearly bearish divergence in the Russell today, if that relationship changes tomorrow to where the Russell is back to its Friday & Monday leadership role, I will be aggressively buying this market for a more meaningful rally.

We’ll discuss this in detail in After Hours with Option Addict, but I’m thinking we might see a good enough move to make up for losses from earlier in the year. Thus far, our recent string of longs/shorts has proven to be back in rhythm, so I’m looking at getting long the following names if this set-up pans out.

FSLR, CSIQ, BIDU, UA, SUNE, SINA…TNA.

I’m still shopping for more or better ideas, but with the right size and a good market move, I can easily dig myself out of the 2014 wreckage.

I picked up June SUNE calls at the open, SCTY (May calls) and took a DRYS long.

I currently hold calls in TTM, NE, JOY, SUNE, SCTY, and X.

I really like these VIPS, QIHU, WBAI type stocks as shorts into this strength. I am also looking to initiate that crude short this week.

More later,

OA

The TAN is sporting a pretty good correlation to all things wrong with the market right now.  However, some individual components of the TAN are looking pretty good right here.

SPWR has managed to stay within a breath of 52 week highs. SUNE, my second favorite stock in the space, has found some decent footing here at $16. Last but not least, FSLR, for those of you asking where to add or where to initiate….a move to $60 is where I want to add some calls to go with my stock position.

Most are still in disbelief that the VIX has hardly budged in the face of this market cycle. Being inversely correlated to the S&P, it is still a correct reflection of the lack of fear in most of the market. The $VXN has been the most accurate reflection of market volatility and fear this year and it is now at an important inflection point, as is the market.

The VXN suggests this is no more worrisome than most of the corrections we went through last year. However, it has been a huge roadblock for option traders this year. Premiums have been super inflated, and even if you catch a good price swing, you aren’t going to be making what you were off your risk. With this being the biggest risk to option buyers, I’ve done less up til now, because there is much more risk than reward in buying options.

A leg lower in stocks will trigger volatility spikes, and one that might cause a break in the range in the VXN. While an ATR applied to the Nasdaq or Russell suggests these trading conditions are equally as brutal as they were in 2010 or 2011, the VXN hasn’t reflected the same level of fear yet.

I would have bet coming into the week that these divergences all resolve, especially considering the carnage in growth stocks. There hasn’t been a correlation coefficient this low (.30) between the SPY/IWM for this long since 2000.

Since I can get cheap options in low beta, I am playing the long side in value stocks, and trying to play puts in select technical set-ups. A few more bearish bets I am looking to make are in FSL, CTSH, WDC and ETFC.

OA

I’m going to have to book my PBR calls from a couple weeks back as the stock reports next week. As you know, our big macro theme coming into this year was to watch for a major shift in emerging markets. Well, mid way through the year and that EEM is in a full blown trend, and the EWZ has been a focal point of discussion all year in After Hours with Option Addict.

Keep an eye on these two tickers…GFA, SID. At some point, possibly VALE.

I’m booking gains on LVS puts here, and have picked up a new long in NE. The drillers have been moving good recently, and the location in NE as well as the cheap options are hard to pass on right here.

Long Jun 32 calls, target 34.

Looking for another stock to bet against here, any thoughts?

OA