U.S. stock futures are trading lower after yesterday’s failed rally attempt. Optimism over the latest turn in the bilateral trade talks between the U.S. and China sent futures flying when traders returned from the weekend. Unfortunately, stocks experienced a classic “sell the news” reaction and gave back the lion’s share of the gains by the closing bell.
The selling pressure is continuing this morning, if slightly, with futures on the Dow Jones Industrial Average down 0.49% and S&P 500 futures lower by 0.27%. Nasdaq-100 futures have lost 0.45%.
Monday’s early morning euphoria was enough to send call volume sharply higher even as overall volume climbed well above average levels. Specifically, about 20.7 million calls and 16.7 million puts changed hands on the session.
The growing disparity between calls and puts pushed the CBOE single-session equity put/call volume ratio down to 0.55. Meanwhile, the 10-day moving average slipped further to 0.58.
Let’s take a closer look:
General Electric (GE)
The budding recovery for General Electric went into overdrive on Monday after the company reported it was selling its biopharma business to Danaher Corp (NYSE:DHR) for $21.4 billion in cash. Money received from the deal will allow GE to accelerate the paying down of its debt and better shore up its balance sheet.
While the stock ended 6.4% higher on the day, the market’s reaction was a massive “sell the news” event. At its morning peak, GE stock had gained 15.5% before sellers emerged to spoil the party. Chart watchers will point to the location of the rejection as telling. The 200-day moving average has lorded over the stock for over two years, halting many recovery attempts along the way. Yesterday proved no different.
The news sparked a flurry of trading in the options pits. Total activity swelled to 285% of the average daily volume, with 1,027,272 total contracts traded. Calls won the popularity contest, accounting for 57% of the day’s take.
Implied volatility ticked higher on the day to 46%, placing it at the 38th percentile of its one-year range. Premiums are pricing in daily moves of 31 cents, or 3%.
China stocks took to the sky following news of the U.S. delaying its planned tariff increases. Alibaba was one of the biggest gainers with a 3.6% jump on large volume. The leap is serving as an exclamation point to the e-commerce giant’s recent recovery.
Friday’s breakout precipitated the rally and gave spectators a clear signal to climb aboard. With BABA stock now above the 20-day, 50-day and 200-day moving averages, buyers have officially wrested control of the trend across all time frames.
On the options trading front, calls led the way. By the closing bell, activity ballooned to 159% of the average daily volume, with 244,326 total contracts traded. 69% of the sum came from call options alone.
With BABA back in bull mode, fear has left the building. At 28%, implied volatility is now scraping the bottom of its one-year range (9th percentile). With premiums now on the cheap, the expected daily moves stand at a mere $3.27, or 1.8%.
Cisco Systems (CSCO)
The once-sleepy Cisco is getting its mojo back. Though the gains aren’t as jaw-dropping as the late ’90s, they are notable nonetheless. Last week’s earnings release and the subsequent follow-through have sent CSCO stock to a fresh 19-year high.
Trading volumes have ticked higher over the past two sessions, showing continued accumulation after earnings. Tack on the rising moving averages across the board and Cisco’s price trend is on fire right now.
Options activity is confirming the bullish undertones. Call options ruled the roost accounting for 82% of the day’s tally. Total activity climbed to 246% of the average daily volume, with 166,346 total contracts traded.
The increase in demand bumped implied volatility up to 20%, or the 14th percentile of its one-year range. Premiums are now pricing in daily moves of 64 cents, or 1.3%.
As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.