Fizz or fizzle?

  • Heavy FIZZ put options trading with stock down more than 8% Tuesday
  • Stock approached key support around March spike low
  • FIZZ has been in an extended downtrend

When a stock isn’t behaving the way it “should,” it’s usually a good idea to ask why, and then figure out if there’s a potential trade opportunity.

Yesterday’s rebound from Monday’s tariff tantrum was, all things considered, fairly broad: Around midday every S&P 500 (SPX) sector was flashing green, except for utilities, which traders dumped one day after piling into them as a defensive play. The SPX itself was up more than 1%, and the Dow Jones Industrial Average (DJIA) had recaptured around half of the 600-plus points it gave away on Monday.

One stock that took a pass on the bullish party, though, was National Beverage Corporation (FIZZ), proprietors of La Croix sparkling water, among other brands. The stock was off more than 7% around 1 p.m. ET, and FIZZ figured prominently in a few Power E*TRADE LiveAction scans:

●Total FIZZ options volume was more than three times average.

●FIZZ put options volume was more than five times average.

●The FIZZ put/call ratio was around 6.23, meaning more than six put options had traded for every call option.

Traders getting busy in put options when a stock is trading sharply lower is nothing unusual, but one noteworthy aspect of the FIZZ situation was that yesterday’s sell-off dropped its shares very near the implied resistance of the stock’s March spike low, which occurred after the company last released earnings:

National Beverage (FIZZ), 1/31/19–5/14/19. National Beverage (FIZZ) price chart. Near support

Source: Power E*TRADE

After gapping lower in the wake of what was a huge earnings miss,1 the stock spiked down to $50.53 (a -26% loss) on March 8 but reversed to close above $58. It then wandered sideways to lower before yesterday’s plunge, which dropped it below $51 for the first time in more than two months.

Some contrarians looking at this chart may be inclined to think in terms of a possible upturn off support (in which case the heavy put options trading would be interpreted as a sign of extreme bearish sentiment), but others may be leaning toward the possibility of additional downside. The following weekly chart suggests why:

National Beverage (FIZZ), 5/26/14–5/14/19. National Beverage (FIZZ) weekly price chart. Long-term view.

Source: Power E*TRADE

The stock’s latest downturn is not an isolated event, but rather part of a bearish trend that has been in effect since last year—some traders would argue as far back as September 2017, when FIZZ hit its all-time high around $130.

The reason many traders view spike lows as important support levels is that they sometimes represent “climactic” price moves: After plunging lower, the stock immediately reverses dramatically upward, which is a potential sign the initial move was overdone. The longer price remains above a spike low, the greater the odds that it will become a significant market bottom (as was the case, for example, with the September 2016 spike low on the weekly FIZZ chart).

When a support level breaks, the resulting down move can sometimes have a lot of momentum because longs who were betting on the rebound have to scramble to get out of their positions, adding fuel to the selling fire. In this case, if FIZZ breaks below the March spike low, short-term traders may see a possible near-term target in the general support zone between the September 2016 spike low (around $39) and the January 2017 low (around $45.50).

But experienced traders know that approaching, or testing, a support level isn’t the same as breaking it. For example, even if FIZZ rebounds in the near-term from Tuesday’s sell-off—much the same way the broad market did after Monday’s drop—the dynamics around that nearby support level will remain intact.

Today’s numbers (all times ET): Retail Sales (8:30 a.m.), Industrial Production (9:15 a.m.), Atlanta Fed Business Inflation Expectations (10 a.m.), Business Inventories (10 a.m.), Housing Market Index (10 a.m.), EIA Petroleum Status Report (10:30 a.m.).

Today’s earnings include: Alibaba (BABA), Macy's (M), Cisco Systems (CSCO), Netease (NTES), ZTO Express (ZTO).


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1 National Beverage (FIZZ) Reports Q3 EPS of $0.53. 5/10/19.

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