U.S. equities are suffering a bout of volatility on Tuesday and seem to be on the cusp of breaking a three-week quiet period. That’s very welcome news on the trading front.
A number of catalysts are in play, including …
- Hawkish commentary from the Federal Reserve
- Reports that the Senate GOP will delay a vote on their healthcare bill until after the Independence Day holiday.
- Ongoing disappointment in economic data
- Reports of a cyber-attack in Europe
- President Donald Trump reportedly mulling a tougher stance on trade with China amid frustration with its ability to control North Korea.
The Fed is probably the most important, with chairman Janet Yellen and vice chairman Stanley Fischer both warning of elevated asset valuations today. Both also warned of high leverage among market participants that could lead to financial stability risks.
That’s followed closely by disappointment with the inability of President Trump and the Republicans in Congress to pass any meaningful legislation six months into Trump’s first term. That’s a worrisome sign that could delay or prevent follow-through on other promises that sent various areas of the stock market higher.
However, market activity is picking up today, and now’s the time for you and I to strike. Here are the seven best trades on the market right now as I see them.
The Best Trades on the Market: Apple (AAPL)
Apple Inc. (NASDAQ:AAPL) shares are breaking down out of a multiweek flag pattern, hitting resistance at the 20-day and 50-day moving averages setting up a possible test of the 200-day average down about 10% from current levels.
Apple stock double-topped near $155 over the past month and has since been caught up in the persistent selling pressures that’s befallen the “FAANGs” amid stretched valuations and crowded positioning.
The bulls remain ultra-hyped for the iPhone 8 launch later this year, despite Samsung Electronics (OTCMKTS:SSNLF) stealing the full-face OLED screen thunder with the Galaxy S8. And the bears are pointing to the extremely underwhelming “HomePod” launch — a feeble attempt to compete with Amazon.com, Inc.’s (NASDAQ:AMZN) Echo that looks overpriced and isn’t even available until December.
The Trade: Short AAPL, or buy puts, for a move down to $140.
The Best Trades on the Market: JPMorgan (JPM)
JPMorgan Chase & Co. (NYSE:JPM) shares, along with the rest of the big banks, are perking up here as hawkish comments from Fed officials are weakening long-term Treasury bonds, boosting yields and lifting net interest margin hopes. As a result, JPM stock looks to be lifting out of a scary seven-month-long head-and-shoulders reversal pattern, invalidating it with a move above $90, which could set up a surge to new highs with a move above $93.
But a failed breakout would be really bad news for the bulls, confirming the reversal pattern and setting the stage for a breakdown below the 200-day moving average.
JPM will next report results in just over two weeks on July 14 before the bell. Analysts are looking for earnings of $1.61 per share on revenues of $24.68 billion. Watch for loan activity and trading revenue to be in focus.
The Trade: Set up an options straddle near the current share price.
The Best Trades on the Market: Qualcomm (QCOM)
There are reports out this morning that Qualcomm, Inc.’s (NASDAQ:QCOM) request to dismiss an anti-competitiveness lawsuit from the FTC has been dismissed.
QCOM shares are rolling over in response, testing critical support at their 50-day moving average in a pattern remarkably similar to the February-April consolidation that resulted in a breakdown to the early February lows. A repeat retest would be worth a 9%-plus decline from here as shares continue to languish below their 200-day moving average, down some 20% from their October high.
The company will next report results on July 19 after the close. Analysts are looking for earnings of 81 cents per share on revenues of $5.3 billion.
The Trade: Sell QCOM short or look at put options with a $56 strike.
The Best Trades on the Market: AT&T (T)
AT&T Inc. (NYSE:T) shares are under pressure this morning, testing its mid-May low and falling further away from its 50-day and 200-day moving averages. Since double topping near $42 in mid-2016 and again in March, shares have fallen nearly 10%. Watch for a retest of the November low near $35, which would be worth an 8% decline from here. Sell short or look at July puts with a $38 strike.
The company will next report results on July 25 after the close. Analysts are looking for earnings of 74 cents per share on revenues of $39.91 billion. Shares are under pressure as headlines cross that competitor Sprint Corp (NYSE:S) is in discussions with Charter Communications, Inc. (NASDAQ:CHTR) and Comcast Corporation (NASDAQ:CMCSA) regarding a possible wireless deal. This follows previous reports of a possible merger deal with T-Mobile US Inc (NASDAQ:TMUS).
The Trade: Short T or look at July puts with a $38 strike.
The Best Trades on the Market: Verizon (VZ)
Verizon Communications Inc. (NYSE:VZ) shares are also under pressure, threatening to fall below their November and May double bottom lows near $45. That risks a breakdown to late 2015 lows near $41, which would be worth a 10% decline from here and would return shares to the 2013-16 trading range.
VZ is already down more than 17% amid rising competitive pressure in the wireless space amid smartphone market saturation, industry consolidation and price pressure. Earlier this year, Verizon brought back an unlimited data plan as it could no longer rely on network quality differentiation with Sprint and T-Mobile to maintain market share.
The Trade: Sell VZ short or look at puts with a $45 strike.
The Best Trades on the Market: Intel (INTC)
Intel Corporation (NASDAQ:INTC) shares are on the slide, losing their year-to-date consolidation range with a move down to its late-2016 lows near $33. This ends a long topping pattern near $38 going back to early October amid rising competitive pressure from Advanced Micro Devices, Inc. (NASDAQ:AMD) and its new Zen CPU architecture, including the Epyc server chips built around it.
Shares recently were downgraded by Bank of America Merrill Lynch analysts while Raymond James resumed coverage with an underperform rating.
Should support at $33 not hold, watch for a drop back to May 2016 lows near $29, which would be worth a 14% decline from here.
The Trade: Sell INTC short or look at July put options with a $34 strike.
The Best Trades on the Market: Cliffs Natural Resources (CLF)
Lastly, iron ore miner Cliffs Natural Resources Inc (NYSE:CLF) is perking up, blasting above its 50-day moving average and rising out of a five-month downtrend to hit levels not seen since April.
You can thank reports that President Trump might tighten trade terms with China focusing on imported steel. That would reinvigorate the U.S. steel industry, which CLF supplies.
CLF stock had fallen more than 50% from its high near $12 in February as the “Trump-flation” rally fizzled and investors turned their focus to other areas, like big tech stocks. I think a reaction rebound to the March-April trading range near $8.50 is likely, setting up a 25%-plus move from here.
The Trade: Buy CLF.