By Jeff Bishop – WeeklyMoneyMultiplier.com
Stocks closed the week blazing hot, as the Dow gained over 440 points on Friday and finished with its 8th straight weekly gain. Furthermore, its the longest winning streak the Dow has seen since November 2017.
And you know what?
It seems like stocks are moving higher more on hope than anything.
I read through economic data, study changes in market volatility, and other big-idea catalysts– regularly.
On Friday, I mentioned that we had some bad numbers (industrial production down and retail sales took a nosedive), but the stock market ignored it.
Some believe we’ve been rallying on prayers that U.S.-China trade talks are going well…and that a trade war will be avoided… and that deal will be struck soon.
However, these are all rumors at the moment. And because of that, I’ve been trading smaller until I get a better read.
Now, that doesn’t mean I’ve been on the sidelines altogether. Sometimes I can’t help myself. You see, I trade options, and even small trades can turn into big winners as they did on Friday.
A 20% crash in XPO puts brought me back a return of +500% overnight. If you want to learn how this works, make sure to watch Take Advantage of Crashing Stocks.
That said, we’re entering a 4-day trading week, markets are closed tomorrow for Presidents’ Day.
However, it will be a busy week. For example, 46 S&P 500 stocks report earnings, including Walmart, Roku, CVS, and Herbalife.
It’s also a hectic week for econ data, as we’re expected to get the FOMC minutes on Wednesday and jobless claims numbers on Thursday.
Is the Market too Euphoric?
Tomorrow is a holiday and a lot of the smart-money traders are taking vacations for a few days. That said, this is when the markets could get volatile. The reason being: these traders may have placed stops, and if they don’t have access to their mobile platform or trade setup… their stops could trigger, in turn, this could cause a selloff.
Now, there’s still a lot going on with macroeconomic variables, politics, and corporate earnings. For example, last week I actually traded options in a name that had earnings:
That’s right, a 500% gain pretty much overnight, betting that the stock would fall.
Moving on.
Despite all of the variables that could affect stocks negatively… the market has been relentless. The Dow Jones Industrial Average posted its eighth straight weekly gain. Moreover, the S&P 500 Index reached its highest levels since late last year.
However, there are still a plethora of risks on the table…
Let’s Break it Down and Get Specific
- Ongoing U.S. – China trade talks. Although the President of the U.S. (POTUS) noted that trade talks have been very productive, this could be a buy the rumor, sell the news type play. My thinking is the fact that the smart money has been long for the entire move, and now they’re taking risk off the table – as noted in my report: Preparing for a Bear Market. Rather than chasing the rally, it seems like the smart money is getting on the defensive.
- Brexit. Despite more politicians trying to stop the looming U.K. departure from the European Union, it’s almost unavoidable. Leading up to the expected departure date on March 29, 2019, there could be increased volatility, and we might see some stocks crash.
- The POTUS declared a national emergency over border security.
- The U.S. pulled out of an arms control treaty with Russia. This is sparking fears of a weapons race, so defense sector names will be on notice.
- Global macroeconomics have been weak. China inflation came in weaker than expected, indicating demand has been sluggish. Additionally, U.S. jobless claims ticked up last week. Moreover, U.S. retail sales were weak – falling 1.2% in December (that’s one of the busiest seasons for retailers). Consumer confidence fell to an 18-month low.
- U.S. student loans are in serious delinquency and default – reaching $166.4B. In other words, students have not paid their debt back for 90 days or more. The total U.S. student debt is continuing to climb, reaching more than $1.4T.
- The CBOE Volatility Index (VIX) just saw a 14 handle, and we haven’t seen that level in four months.
- Corporate earnings are still on the docket – companies like Walmart Inc. (WMT) Genuine Parts Company (GPC), CVS Health (CVS), Baidu.com Inc (BIDU), Trade Desk (TTD), Roku Inc. (ROKU), and Universal Display Corp. (OLED) have yet to report earnings.
With all of these variables that could negatively affect the market, it makes sense to get on the defensive and prepare for a crashing market.
Moving on, there are a slew of economic indicators this week.
Economic Calendar
Monday, February 18
- Markets are closed
Tuesday, February 19
- 7:45 AM EST ICSC Weekly Retail Sales
- 8:50 AM EST Fed’s Loretta Mester on Economic Outlook and Monetary Policy
- 8:55 AM EST Johnson/Redbook Weekly Sales
- 10:00 AM EST NAHB Housing Market Index for February
Wednesday, February 20
- 7:00 AM EST MBA Mortgage Applications Data
- 1:30 PM EST Fed’s Bullard takes part in Monetary Policy Forum in NY
- 2:00 PM EST FOMC Meeting Minutes
- 4:30 PM EST API Weekly Inventory Data
Thursday, February 21
- 7:50 AM EST Fed’s Bostic speaks on Economy and Monetary Policy
- 8:30 AM EST Weekly Jobless Claims and Continuing Claims
- 8:30 AM EST Philly Fed Business Outlook for February
- 8:30 AM EST Durable Goods Orders
- 10:00 AM EST Existing Home Sales MoM for January
- 10:30 AM EST Weekly EIA Natural Gas Inventory Data
- 11:00 AM EST EIA Petroleum Status Report
Friday, February 22
- 10:15 AM EST Fed’s John Williams discusses inflation at Policy Forum in NY
- 1:30 PM EST Fed’s Bullard to speak on balance sheet in NY
- 1:30 PM EST Fed’s Harker takes part in panel discussion on balance sheet
- 5:30 PM EST Fed’s Williams closing remarks at Fed event
There are a lot of eyes on the Federal Open Market Committee (FOMC) this week with minutes being released on Wednesday. Moreover, FOMC members are speaking – Loretta Mester, John Williams, and James Bullard – and they should give us clues as to where they think monetary policy could be headed. With the backlog of economic indicators, you never know what comment or variable could spark a selloff.
Moving on, there are still a lot of companies that have yet to report earnings. That said, let’s take a look at earnings calendar. Keep in mind, we’re going to be focused on implied volatility for these names and comparing it to its historical average.
Earnings Calendar
Monday, Feb. 18, 2019
- No notable earnings.
Tuesday, Feb. 19, 2019
Earnings Before Market Open
- Walmart Inc. (WMT) implying ~5% move. Historical average move 6.07%
- Medtronic Inc (MDT) implying 3.61% move. Historical average move 4.01%.
- Genuine Parts Company (GPC) implying 3.96% move. Historical average move 5.25%.
- Advanced Auto Parts Inc. (AAP) implying 11.02% (monthly implied volatility). Historical average move 12.68%.
Earnings After Market Close
- Devon Energy (DVN) implying 8.75% move. Historical average move 6.63%.
- Herbalife Nutrition (HLF) implying 7.37% move. Historical average move 7.46%.
- La-Z-Boy Inc. (LZB) implying 11.73% move (monthly). Historical average move 13.75%.
Wednesday, Feb. 20, 2019
Earnings Before Market Open
- CVS Health (CVS) implying 5.83% move. Historical average move 4.24%.
- Southern Company (SO) implying 2.75% move. Historical average move 2.12%.
- HollyFrontier Corp. (HFC) implying 7.04% move. Historical average move 7.21%.
- Owens Corning (OC) implying 10.15% move (monthly). Historical average move 8.13%.
- Analog Devices (ADI) implying 4.91% move. Historical average move 4.53%.
- Garmin Ltd. (GRMN) implying 5.95% move. Historical average move 6.29%.
Earnings After Market Close
- Netease.com Inc. (NTES) implying 8.78% move. Historical average move 9.48%.
- Albemarle (ALB) implying 8.89% move (monthly). Historical average move 7.43%.
- SolarEdge Technologies (SEDG) implying 14.26% move (monthly). Historical average move16.65%.
Thursday, Feb. 21, 2019
Earnings Before Market Open
- Bunge Ltd. (BG) implying 7.49% move (monthly). Historical average move 7.07%.
- Hormel Foods (HRL) implying 4.70% move. Historical average move 6.10%.
- Domino’s Pizza Inc. (DPZ) implying 7.87% move (monthly). Historical average move 6.03%.
- Norwegian Cruise Line Holdings Ltd. (NCLH) implying 7.99% move (monthly). Historical average move 5.48%.
- Gogo Inc. (GOGO) implying 17.11% move. Historical average move 16.59%.
Earnings After Market Close
- Hewlett Packard Enterprise Company (HPE) implying 3.33% move. Historical average move 4.25%.
- Kraft Heinz Company (KHC) historical average move 5.37%.
- Fluor Corp. (FLR) implying 9.19% move. Historical average move 8.40%.
- Baidu.com Inc. (BIDU) implying 3.86% move. Historical average move 7.65%.
- Intuit Inc. (INTU) historical average move 4.58%.
- First Solar Inc. (FSLR) implying 8.75% move. Historical average move 12.57%.
- Zillow Group (Z) implying 12.85% move. Historical average move 11.78%.
- Roku (ROKU) implying 15.54% move.
- Universal Display Corp. (OLED) implying 12.83% move. Historical average move 17.70%.
- Trade Desk Inc. (TTD) implying 14.78% move. Historical average move 23.58%.
- Applied Optoelectronics Inc. (AAOI) implying 20.72% move. Historical average move 22.81%.
- Exact Sciences Corp. (EXAS) implying 12.51% move. Historical average move 18.89%.
Friday, Feb. 22, 2019
Earnings Before Market Open
- Wayfair Inc. (W) implying 13.74% move. Historical average move 17.87%.
- Cabot Oil & Gas Corp. (COG) implying 6.26% move. Historical average move 6.23%.
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