U.S. stock futures are plunging this morning as the latest turn in the trade war pushed into the currency markets. In response to the new tariffs imposed on Chinese goods by President Trump’s last week, China allowed its currency, the yuan, to tumble to its lowest reading in more than a decade.
Against this backdrop, futures on the Dow Jones Industrial Average are down 1.38%, and S&P 500 futures are lower by 1.55%. Nasdaq-100 futures have lost 2.11%.
In the options pits, put volume rocketed to extreme levels, revealing continued panic in the face of the trade war escalation. Calls were hot as well but to a lesser extent. By day’s end, some 22.1 million calls and 25.8 million puts changed hands.
The groundswell in put demand made a massive impact at the CBOE, with the single-session equity put/call volume ratio rallying to 0.87. That marks a new 2019 high and suggests capitulation is nigh. Given the bloodbath expected this morning, we could see even higher readings before a bottom is found, however. As for the 10-day moving average, it climbed to 0.69.
Let’s take a closer look:
The reversal of fortune in Apple after its earnings party has been unfortunate. The earnings numbers were good, but market-moving events like the Federal Reserve meeting and, more importantly, the latest turn in the Trade War have conspired to steal all earnings-related gains.
With the weekend currency drama, AAPL stock is set to open down just shy of 3% to $198. That will land it at the rising 50-day moving average and provide traders with a good shot at a bounce. Here’s an important reminder, however. As the market correction persists, correlations will run hot. Individual stocks will trade less on their underlying fundamentals and more on whatever the latest headline is. Absent a snapback in the broader market, AAPL will probably struggle to find its footing.
On the options trading front, puts slightly outpaced calls on Friday. Total activity popped to 194% of the average daily volume, with 824,113 contracts traded. Puts accounted for 55% of the day’s take.
Implied volatility pushed higher to 30% placing it at the 37th percentile of its one-year range. Premiums are pricing in daily moves of $3.83 or 1.9%.
Amazon fell for the seventh day in a row on Friday and is now down 10% from its 2019 peak reached last month. This morning’s ugliness is chopping another 2.6% off its price tag and will push the e-commerce giant deeper into oversold territory.
Volume patterns are showing three consecutive distribution days ushering AMZN stock into the weekend. With institutions leaning on the sell button, it has been challenging to find a bottom. No doubt this morning’s whack will bring us closer to the level of bloodletting needed for a tradable bounce to form.
On the options trading front, the patterns mirrored that of Apple with puts leading the way. Activity swelled to 190% of the average daily volume, with 339,320 total contracts traded. Puts claimed 56% of the session’s sum.
Implied volatility has been rising during the slide, but given its extremely low starting point, it still sits in the lower end of its range. At 29%, it sits at the 21st percentile of the one-year range. That number will certainly rise this morning though. The daily expected moves are now $32.77 or 1.8%.
Twitter may be the most impressive stock of the technology sector. It has completely sidestepped the broad market weakness, powered higher by its recent earnings release. The weekend drama is weighing it down but don’t be surprised if the bearishness is short-lived. TWTR stock is set to open down 2.80%, near $41.65.
Even if we see downside follow-through, multiple support zones will come into play that should bring buyers to the yard.
On the options trading front, puts traded heavy despite Friday’s strength. Activity jumped to 150% of the average daily volume, with 151,622 total contracts traded; 72% of the trading came from put options alone.
The increased demand drove implied volatility higher on the day to 40%, placing it at the 20th percentile of its one-year range. Premiums are baking in daily moves of $1.07 or 2.5%.
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.