Market Overview

What Options Investors Should Know This Week

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What Options Investors Should Know This Week

Check out the video below for a full recap of this week's options outlook:

Scoreboard

The last week of July ended green overall, but on a sour note. The bitter aftertaste was due not so much to the extent of the drop, but for the fake-out bulls fell for.

Friday's open ripped higher on really bad Economic data (ECI). The small caps were +1 percent. Markets however drooped into the close to approximately -0.4 percent. The early run up was built on bulls hoping that the bad news would delay the lift-off date.

Observation: The early sharp rise on bad economic news confirms that markets may still fear the rate hike. Therefore, nothing is priced in from the rate hike perspective. Here it is as it happened on Friday:

  • Overall, those who chased the recent mega-caps, earnings-driven rallies did so on bad breadth and paid the price. Now, bulls will likely regroup to remount a rally. But, they need help from a positive catalyst, such as the Federal Reserve delaying the rate hike.
  • There have also been several small relief pops, such as China and the Fed. Relief pops are, in theory, shortable. However, the amount of down days recently may be enough to cause pause.

Related Link: Apple Shares At Critical Juncture: Will It Pop Or Will It Flop?

Focus Points

  • Greece: The Greek stock markets are slated to reopen Monday.
  • Apple: Apple Inc. (NASDAQ: AAPL) is technically vulnerable to a possible drop/trajectory since it broke the dashed white trend line.
  • Small Caps: They have an important level next week: 123.5 is critical.
  • Yellen And Rate Hike: Last Friday's rally was on back of the worst ECI number on record. ECI data may be so far off expectations as to raise the possibility of an error/anomaly, especially amid frequent eye-popping government number revisions. Keep in mind that the ECI may not be the leading indicator of worst-case scenarios.

Looking Ahead

Ranges: Be Cautious. There has been a defined range for a long span. This creates the possibility of a violent break of the range. Meanwhile, all the ranges are still playing out logically. Markets tested upper and lower limits of the range. Keep in mind that the amplitude of the moves is getting larger, indicated by increasingly larger swings.

Don't chase. Don't panic. Be cautious.

  • General: Weekly candles were green, but with lower lows and lower highs. Recently, the bullish technical setups have seen a significant destruction, but fast reparations followed. The rallies so far have been of relief nature.
  • IYT: Green shoots from the iShares Dow Jones Transport. Avg. (ETF)(NYSE: IYT) as they finally broke out of the "lower highs" trend.
  • VIX: Last Friday, the fear gauge touched 11.85. There have only been handful of times in past 12 months where the VOLATILITY S&P 500 (INDEX: VIX) was this low.
  • Other Variables: Facts did not change this week only sentiment so no change in thesis.
  • Thesis

    Rates: Crashed on Friday, verifying that the rally was relief over the Fed not raising rates immediately. However, the markets did not take advantage of it. Now the CBOE Interest Rate 10 Year T Note (INDEX: TNX) has that the potential of breaking down (lower rates), but if it bounces, then it has the chance to resume higher (follow the crayon).

    Oil: Last Friday, oil continued its crash, -3 percent, despite the weak dollar. The same trend can be seen in other commodities and gold.

    Tickers:

    • Chevron Corporation (NYSE: CVX): Closed -4.9 percent on Friday.
    • Exxon Mobil Corporation (NYSE: XOM): Closed -4.6 percent.
    • LinkedIn Corp (NYSE: LNKD): Friday fake-out after hours from +15 percent to -9 percent.

    Posted in: Previews Options Pre-Market Outlook Markets Trading Ideas Best of Benzinga