The more things change…
08/15/17

The more things change, the more they stay the same. That’s how some traders felt about the market yesterday. 

First, the change. Traders have sensed a rise of geopolitical risk as barbs fly between Washington, Pyongyang, and Beijing. They’ve also lost their early-2017 expectations for sweeping tax reform and other stimulus measures on Capitol Hill.1 Those factors, combined with a relative lack of good news last week, handed the market its worst showing in more than four months.

Well…so…what’s remained the same? For one thing, buyers quickly returned to the picture on Monday and drove the S&P 500 to its biggest daily gain since late April. They did so with the index below its 50-day moving average, marking the fifth time this year that traders—acting with Pavlovian swiftness—have bought the pullback below this key level. 

Speaking of canines, the dog days of summer were in full swing as only 14.8 million options contracts changed hands yesterday. That was the lowest tally in a week and well below the 16.2 million daily average in the preceding month.

S&P 500, 1/4/17 - 8/14/17

Source: OptionsHouse by E*TRADE

That snoozefest gave traders an opportunity to thumb back through some recent quarterly reports now that earnings season has mostly passed. Some found a few companies that have pulled back on the heels of strong results. If they were to cross-reference their findings with underliers that tend to trade a lot of options (at least 10,000 per session) here are a few that may stand out as potentially interesting:

  • Oracle (NASDAQ: ORCL): Back at its 50-day moving average after ripping to all-time highs on a blowout quarter in June. Tech has been the best sector this year.
  • Netflix (NASDAQ: NFLX): Also shot to new record levels following strong results in July. Though they were knocked down a peg recently amid news that Walt Disney (NYSE: DIS) will muscle into their sandbox.2
  • Square (NYSE: SQ): A newer name in the tech world that’s surged on the growth of e-commerce is also back near its 50-day MA.3
  • Sarepta Therapeutics (NASDAQ: SRPT): Rallied hard in July after sales of its lead drug crushed analysts’ estimates.4 Now it’s eased back and more than half of that surge has faded.

The rest of the week also remains pretty quiet, with only a handful of earnings and economic reports. Traders looking for catalysts mostly need to look to September, when political items like the debt ceiling and tax cuts (or the lack thereof) come into play.

Bottom line: Yesterday was a quiet session, yet eagle-eyed traders still found potential opportunities.

 

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1. Marketwatch: Trump’s failure to enact policy is having a ‘chilling effect’ on earnings. 8/14/17.

2. Reuters: Disney posts profit drop, to take bigger stake in streaming firm BAMTech. 8/8/17. Barron's: Netflix Surges 11%: Sub Adds Crush Estimates; Discloses ‘Content Accounting’. 7/17/17.

3. Reuters: Square beats expectations on higher transactions. 8/2/17.

4. Marketwatch: Sarepta shoots higher as sales of $300,000-a-year drug exceed expectations. 7/19/17.