Last week, U.S. stocks ended the on a strong note — much better than most people thought they would. The geopolitical landmines were aplenty yet investors managed to avoid most of them.
The futures are trading slightly lower this morning, which is normal. Investors have a bunch of earnings reports to navigate from banks and Netflix (NASDAQ:NFLX) to name a few. We will also have more updates on the negotiations with China.
Against this backdrop, futures on the Dow Jones Industrial Average and S&P 500 are lower by 0.29%. Nasdaq Composite futures have lost 0.31%.
Even though Friday was a positive day, there were more put buyers than sellers. In the options pits there were 27.6 million puts and only 21.4 million calls. That’s a 56%- 44% rising ratio of puts to calls. There is still caution even though markets are near all time highs.
Moving to the CBOE reveals a single-session equity put/call volume ratio which popped back up to 0.51, well below the 10-day moving average which now sits at 0.69.
Options activity was a buzzing in a handful of stocks including Freeport-McMoRan (NYSE:FCX), Alibaba (NYSE:BABA) and Citigroup (NYSE:C).
Let’s take a closer look.
Freeport-McMoRan (FCX)
The sellers are in charge of FCX stock and keep setting lower highs. Last week the bulls made an effort, but now it is back to a prior ledge. These usually give the edge to sellers. So the bulls have a lot of work ahead of them this week. Best case scenario is for FCX bulls to fall back on $9 per share as a base to continue this recovery rally.
Conversely, if the bears are able to set a new FCX stock low here, they will have the opportunity to take it much lower and perhaps revisit the Christmas lows.
Alibaba (BABA)
Chinese stocks have been hostage to headlines more so than other any other issue. So it is not a surprise to see BABA stock whip back and forth inside of a range. Eventually, either the bulls or bear will break through their limit and carry momentum in that direction.
BABA stock has failed at $175 per share recently, so that ledge from the May correction is still in play. The onus is on the bulls to take it out and target $180 per share where they left their prior upside breakout opportunity.
Conversely, BABA bears can easily retest the $162 floor from last week thanks to an open gap from Friday. Neither side can benefit from this week’s expected headlines.
Citigroup (C)
Here is a premier global bank that sells at a dirt cheap forward price-to-earnings ratio under 9 and less than 3 time sales. Clearly Wall Street has no respect for its future. This is in spite of C stock also paying a dividend. This week management will report earnings so the company will have the opportunity to change investor opinion, but my expectations are low for trader enthusiasm.
Technically, C stock has an opportunity coming that could open the door for a $2 rally or more. If the C bulls can beat and close above $72.50 then they can invite more momentum buyers to target $75 first, and then the $80 per share range. Conversely, Citi stock is vulnerable to a dip to fill the gap from last week.
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. Join his live chat room for free here.
