U.S. stock futures are trading higher this morning in a bid to rescue stocks from their oversold state.
Heading into the open, futures on the Dow Jones Industrial Average are up 0.70%, and S&P 500 futures are higher by 0.70%. Nasdaq-100 futures have added 0.81%.
In the options pits, puts once again proved more popular than calls, though overall volume levels did fall back from Friday’s high levels. By day’s end, about 18.9 million calls and 19.6 million puts changed hands on the session.
Evidence of last week’s panic subsiding was also seen at the CBOE, where the single-session equity put/call volume ratio fell sharply to 0.67. Meanwhile, the 10-day moving average ended at 0.70.
Options traders zeroed in on technology stocks. Facebook (NASDAQ:FB) shares plunged on reports of the government scrutinizing the company for anticompetitive practices. Salesforce (NYSE:CRM) suffered after an analyst brought up valuation concerns. Finally, Twitter (NASDAQ:TWTR) broke critical support amid the widespread selling in the tech sector.
Let’s take a closer look:
Facebook (FB)
The big news of the day driving market trends was undoubtedly the Wall Street Journal report that revealed: “Federal antitrust enforcers and lawmakers are poised to scrutinize the largest technology companies for anticompetitive practices.” The who’s who of tech titans from Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG, NASDAQ:GOOGL) to Facebook were all down anywhere from 5% to 7%. Of the three, Facebook fell the hardest, losing 7.51% on its second-highest volume session of the year.
One silver lining of the day’s beatdown was buyers emerging to prevent FB stock from closing below its 200-day moving average. Most of the other tech leaders have already fallen below theirs. Given the size of the plunge and its accompanying volume, it certainly feels like short-term capitulation. Don’t be surprised if we get a quick snap-back.
However, support levels have been broken, so until the stock can carve out higher highs and higher lows, sellers hold the upper hand.
On the options trading front, Facebook options were more popular than any other stock on Monday. Total activity swelled to 342% of the average daily volume, with 700,579 contracts traded. Calls still won the day, accounting for 62% of the trading.
The demand surge lifted implied volatility to its highest level since January. At 37%, it now sits at the 55th percentile of its one-year range. Premiums are pricing in daily moves of $3.87 or 2.4%.
Salesforce (CRM)
Tech weakness didn’t spare software stocks on Monday. Salesforce cracked a three-month support level and its 200-day moving average amid pre-earnings jitters. The company is slated to report earnings after the bell today. Widespread selling in the technology sector wasn’t the only development vexing CRM stock. It was also removed from J.P. Morgan Securities’ Analyst Focus list on warnings of high valuations in software stocks.
With the stock’s 4% whack, it’s entering tonight’s report on shaky technical footing. The past three months of basing now sit overhead and are likely to turn into resistance. That said, earnings trump everything so if the company pulls a rabbit out of the hat, yesterday’s breakdown can be reversed in short order.
On the options trading front, traders favored calls despite the beatdown. Activity climbed to 282% of the average daily volume, with 94,654 total contracts traded. Calls claimed 62% of the session’s sum.
Ahead of tonight’s release, implied volatility sits near its highest levels of the year with a rank of 60%. The expected move is $8.13 or 5.6%, so adjust your forecasts accordingly.
Twitter (TWTR)
Although Twitter wasn’t thrust into the headlines like Facebook and the other large tech companies, it nonetheless suffered. By day’s end, the blue bird had fallen 5.5%. The volume was above-average, but not near as significant as the panic-filled frenzy seen in Facebook and friends.
Additionally, the drop was orderly and made sense if you’re a chart follower. Once horizontal support and the 50-day moving average gave way at $36.40, TWTR stock proceeded to fill its April earnings gap. Once the gap filled, buyers (and the closing bell) emerged to halt the selling.
On the options trading front, calls outpaced puts by a modest margin. Total activity climbed to 163% of the average daily volume, with 115,144 contracts traded; 63% of the trading came from call options alone.
Implied volatility ticked higher, but the rally was muted. At 44%, it remains relatively depressed at the 26th percentile of its one-year range. Premiums are baking in daily moves of 95 cents or 2.8%.
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.
