Test tube trading
10/24/18

●LabCorp (LH) sold off yesterday with broad market but reversed to cut its loss in half

●Heavy trading in LH call options

●Stock releases earnings this morning


 

Boom.

One day before this morning’s Q3 earnings release, medical diagnostics stock LabCorp (LH) opened down 2.6% and quickly traded nearly 4% into the red. And that was after the stock fell 1.9% on Monday.

Yesterday’s move gapped the stock below the bottom of its one-month trading range to its lowest point since late April:

LabCorp (LH), 7/10/18–10/23/18. LabCorp (LH) price chart. Downside breakout.

Source: OptionsHouse

Such moves rarely occur in a vacuum, but in the run-up to today’s earnings, there wasn’t any news coming across the wire that indicated a company-specific calamity (although that doesn’t mean nothing’s going on). In fact, the most notable story involved LabCorp’s partnership with Walgreen’s Boots Alliance (WBA) to open at least 600 LabCorp patient services in the next four years,1 while some analyst coverage pointed to expectations of another solid earnings report.2 (LabCorp has beaten headline earnings estimates and met or exceeded revenue estimates for seven consecutive quarters, and has, on average, traded higher in the first week after earnings.3)

So, it’s possible LH was simply taking part in yesterday’s broad-market sell-off at a conspicuous time (right before earnings) and level (right as it was approaching the bottom of its trading range). And like the S&P 500 (SPX), later the trading session the stock was well off its low, down less than 1%.

Then there was the options activity. The following LiveAction scan shows LH options volume was nearly eight times its daily average with more than half the day to go. What the scan doesn’t show is that put options volume was within its normal range, but call options volume was nearly 12 times its daily average.

LiveAction scan: Unusual options activity, 10/23/18. Options volume up 794%.

Source: OptionsHouse

If yesterday’s action was primarily a matter of market-wide dynamics, the possibility of short-term upside follow-through in the broad market (see “Market Mover Update,” below) may mean LH’s drop below its trading range could be a short-lived experiment.

Scientists, start your test tubes.


Market Mover Update: Exhibiting “safe-haven” behavior, traders bid up gold and US Treasuries yesterday morning as stocks slid. December gold futures (GCZ8) jumped more than 1% intraday to their highest level since July, while December 10-year T-note futures pushed to their highest level since October 3.

But perhaps more interestingly, the S&P 500’s (SPX) 2.3% intraday decline yesterday dropped the index below its October 11 swing low to its late-June low around 2692. But the move appeared to unfold with less market “fear” than occurred on October 11, at least by one measure: The Cboe Volatility Index (VIX)  rallied only to 24.14—far shy of the “fear index’s” October 11 high of 28.84. As noted in “If the VIX could talk”, because the SPX and VIX typically move in opposite directions, a new relative low in the SPX should be accompanied by a higher VIX high.

Today’s numbers (all times ET): FHFA House Price Index (9 a.m.), New Home Sales (10 a.m.), EIA Petroleum Status Report (10:30 a.m.), Beige Book (2 p.m.). Today’s highlighted earnings: Advanced Micro Devices (AMD), AT&T (T), Boeing (BA), UPS (UPS), F5 Networks (FFIV), Ford Motor (F), Microsoft (MSFT), Visa (V).

 

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1 Wall Street Journal. There Will Be Blood (Testing). 10/11/18.

2 Zack’s Equity Research. Medical Products Q3 Earnings on Oct 24: BSX, ALGN & More. 10/23/18.

3 StreetInsider.com. Laboratory Corp (LH) Earnings. 10/23/18.