U.S. stock futures are flat this morning but well off the overnight dips. In early morning trading, the futures on the Dow Jones Industrial Average are up 0.38% and S&P 500 futures are higher by 0.41%. Nasdaq-100 futures have added 0.49%.
In the options pits, call buyers were still the busier bunch on Thursday, but the markets had a tizzy brought by the weakest retail sales report since 2009. We also had news that things are not going well with the China tariff deal. Now we are in a stalemate while we await the next meeting or headline. Wall Street is waiting for confirmation before they eliminate the risks from those fronts. The action was more cautious than Wednesday. We saw the options balance shift slightly more bearish, with only 18.1 million calls and 16.3 million puts during the session.
However, there is still overall caution among many skeptics of this rally. The CBOE single-session equity put/call volume ratio inched up to 0.6. This is now almost at the 10-day moving average of 0.61.
Although options activity was cautious on Thursday, there were a few standouts in options trading. Bristol-Myers Squibb (NYSE:BMY), Activision Blizzard (NASDAQ:ATVI) and Intel (NASDAQ:INTC) had unusual levels of options activity or an unusual mix. This typical is a precursor to sizable stock moves.
Let’s take a closer look:
BMY stock has seen better days. Last year started well for it, but after topping out in the middle of February, it went into a 35% correction from top to bottom. 2019 started even worse when the stock fell to a new low of $44.30 on Jan. 3 when they announced the Celgene (NASDAQ:CELG) buyout.
Since then, Bristol Meyers stock has rallied and now showing some appetite to continue even further. Options traders on Thursday traded 214% of its daily average. They were still split almost evenly between calls and puts but it does show their interest in it.
This is an indication that there should be a move — most likely the continuation of the current trend. Buying calls is a cheap way to bet on the upside. Conversely, buying puts is a cheap way to buy temporary protection while remaining long the stock. Here they are both active, so investors are still engaged.
If the bulls can breakout through $51.50 area then they would have the opportunity to retest $52.90. If that happens, it would offer yet another upside breakout line. So what is happening here is that investors are using options to ride out this mini rally so they can get to bigger rewards above.
This is a quality, healthy company whose stock is temporarily broken … but the company is not. The market eventually will fix this so that the trend reflects the actual company prospects.
Activision Blizzard (ATVI)
The worst may be over for Activision stock, at least for now. This stock, along with many in the sector, have been under severe pressure from major shifts in their customer trends. But it seems like ATVI is adjusting and managing their businesses to right the ship.
I recently wrote an article on how to trade the short-term ATVI. In it I noted the breakout potential from $44.30 to $45.60. This upside potential has almost filled as of yesterday but there still is potential upside even above it.
The ATVI zone around the recent high of $46.58 per share will now serve as the next breakout potential to target $48 per share and fill the entire Feb. 5 gap. It will need the general market’s help and it may take a few days to do it. Eventually, this creep higher will break the long-term descending trend line of lower highs and a much bigger breakout will ensue.
This is a long way of saying that the Activision stock has probably bottomed and that it will have a chance at recovering all the way back to $56 per share. There are areas of resistance at several spots along the way, the most major of which are at $49.50, $51.6o and $$53 per share.
Intel stock mounted a respectable 14% rally off the December lows. The day it went into the earnings event, INTC stock was on the verge of a secondary breakout line. Unfortunately, Wall Street did not like the earnings report headline and the stock sold off as much as 8% when it opened.
But this was a fake-out bear trap because since then, the stock has risen 10%. Now it is once more at the verge of another chance at that breakout. The measured move from that would target $56 per share. There will be resistance at $53.20 and $54.70.
Now that the gap is almost closed, I weigh the odds of it being the target of this ongoing rally against the idea that this is a mega breakout with $56 per share as the eventual target.
I was a bit disappointed that they gave the interim CEO the job for good, especially after such a long search period. But since then, investors have accepted the decision so it’s no longer an overhanging issue and my feeling don’t matter to how I trade it.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.