●VMC experienced heavy call options volume on Tuesday after Monday’s big down move
●The stock came close to a longer-term support level before rallying yesterday
●Industrials have been strongest market sector over the past month
A stock that’s been trending mostly lower over the past couple of months moves sideways for a few weeks, creating what appears to be an obvious near-term support level on the daily chart. Then it breaks below that level with its biggest down day in more than month. A sign the downtrend has kicked back into gear?
This isn’t a hypothetical scenario, it’s the recent price action in construction materials supplier (concrete, asphalt, etc.) Vulcan Materials (VMC). Industrial stocks like VMC may not get a lot of play in today’s tech-centric market landscape, but there’s no advantage in ignoring interesting market action wherever it occurs. Besides, industrials have been the strongest S&P 500 (SPX) sector over the past month (+3.7%), even if VMC hasn’t necessarily been participating in the fun recently.
But as the following daily chart shows, after Monday’s breakdown, Vulcan shares bounced back yesterday, up more than 1% in early trading while the SPX was up only 0.16%:
The hot news about VMC coming across the wire was…actually, there wasn’t any. But traders monitoring unusual options activity would have noticed the following:
● Total VMC options volume was more than three times the daily average just a little more than one hour into the trading session.
●High call/put ratio: 24 calls traded for every put.
●Around five times the average daily call options volume, as shown in the following LiveAction scan:
VMC was soon up more than 2% intraday. Heavy options volume concentrated in call options doesn’t guarantee bulls are grabbing control of the market, but it’s a development worth pondering on an otherwise slow news day—especially considering how VMC was moving on a longer time frame.
The following chart shows that while the stock had just broken below short-term support, it had approached the long-term support in the form of the lower boundary of a very wide, long-term trading range:
The stock has been swinging between the extremes of this range for the better part of two years.
All of which may have some traders wondering whether Monday’s breakdown was a bear trap. Luckily, bulls would have the ability to test that hypothesis with fairly little risk, since a decisive move below Monday’s low would blow a hole in the bullish outlook in the near term and fuel downside momentum. On the other hand, additional upside follow-through would have the potential to further squeeze shorts who jumped in on Monday’s breakdown, and propel the stock higher.
It’s only logical.
Market Mover Update: After pulling back to its mid-August swing high, Amazon (AMZN) rallied more than 1.5% intraday.
November WTI crude oil futures (CLX8) jumped more than 2% yesterday, breaking the downtrend of the previous five days.
September bitcoin futures (BTCU8) fell again yesterday, creeping closer to a widely watched support level around $6,000. The market has fallen around 16% since September 4.
1 CNBC. Buy Tesla shares 'even with drama,' Baird analyst says after factory tour. 9/10/18.
2 MarketWatch. Why these bullish analysts found new love for Tesla shares. 9/10/18.