U.S. stock futures are pushing higher to begin a holiday-shortened week of trading. Continued optimism over phase one of the trade deal and a bullish seasonal tailwind are fueling buyers into Christmas. The latest news surrounding the trade war saw China declare it will lower import tariffs on some 850 products starting Jan. 1.
Against this backdrop, futures on the Dow Jones Industrial Average are up 0.15% and S&P 500 futures are higher by 0.17%. Nasdaq Composite futures have added 0.31%.
The recent trend of outsized call volume continued on Friday, with approximately 28.3 million calls trading versus only 18.1 million puts. This growing disparity pushed the CBOE Volatility Index (VIX) single-session equity put/call volume ratio down to 0.46 — its second-lowest reading of 2019. At the same time, the 10-day moving average sank to a new low for the year at 0.55.
Let’s take a closer look.
United States Steel (X)
The past six weeks of bottoming action in United States Steel was just unraveled in a single session. On Friday, shares of the struggling steel producer fell 11% after announcing a massive cut to its quarterly dividend, weaker-than-expected earnings estimates and layoffs.
X stock’s cash dividend will drop from 5 cents per share to 1 cent, freeing up money that the company desperately needs elsewhere. Analysts were expecting a loss of 62 cents for the fourth quarter, so the company’s projection of a $1.15 loss per share came in far worse than investors were aiming for.
The price chart is officially back into bear territory. With support shattered and X now beneath all major moving averages once more, it’s impossible to be bullish from a technical perspective. A return to the 52-week lows at $10 seems likely.
Friday’s news lit a fire under options trading with calls curiously outpacing puts despite the terrible news. Total activity surged to 260% of the average daily volume, with 138,456 contracts traded. Calls drove 53% of the day’s take.
Implied volatility held firm at 56% or the 42nd percentile of its one-year range. Premiums are baking in daily moves of 42 cents or 3.5%.
The Trade: Buy the March $12/$9 bear put spread for $1.
Performance chasing is jamming Microsoft shares higher into year-end. Friday saw the software sultan rise 1.1% to a new record amid massive volume. While the volume surge was likely due to quadruple witching, there’s no denying the relentless force that has been driving MSFT stock higher all year long.
Its year-to-date gains are closing in on 55%, clinching what will go down in the history books as a banner year. Microsoft boasts all the bullish characteristics you would expect for a stock perched at all-time highs. Earnings growth has been steady, and its price trend is bullish across every single time frame.
On the options trading front, calls proved more popular than puts by over two to one. Activity pushed to 167% of the average daily volume, with 255,096 contracts changing hands. Calls accounted for 67% of the session’s sum.
Complacency reigns with implied volatility laying low at 18% or only the 3rd percentile of its one-year range. Premiums are pricing in daily moves of $1.76 or 1.1%. If you want to bet with the bulls into the new year, the bull call spreads offer a cheap way to do it.
The Trade: Buy the March $160/$165 bull call spread for around $2.
Recent strides in the trade war have fueled the market rally this month, but not all industries have equally benefited. Traders have been especially affectionate toward semiconductors. Advanced Micro Devices (NASDAQ:AMD), Micron (NASDAQ:MU) and Nvidia have all rocketed higher this month.
NVDA stock jumped to a new 52-week high on Friday, clinching its highest volume day since mid-October. What began as a sluggish start to 2019 is quickly becoming an inspiring turnaround. It’s now up 79% year-to-date.
Momentum is surging and NVDA sits well above the 20-day, 50-day and 200-day moving averages. Buyers are officially in control, and the stock’s posture looks its best since early 2018.
The bulls’ enthusiasm spilled into the options pits with calls racking up over 70% of the day’s total. Some 199,464 contracts circled the tables, which translates into 163% of the average daily volume.
Implied volatility is dead. At 31%, it’s at a lowly 6% of its one-year range. The market is forecasting daily moves of $4.64 or 1.9%, so set your expectations accordingly.
NVDA stock has become quite overbought in the short run. I suggest waiting for a pullback before pouncing with bull trades.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!