We have been trading in a very tight range and it’s really anyone’s guess as to whether we breakout or breakdown. SPX has been consolidating very close to the highs and breadth has been confirming strength in the overall market. Having said that, I’m going to put myself out there and give my bias. I know that all of my older followers think they know what I am about to say. Guess what? You are wrong. My bias is leaning toward a breakdown before a breakout. Having said that, if we do get a correction, I think it will be very minor consisting of about 2-3% or roughly between 1785 and the low 1800’s. Some of my reasons include the following:
- Bullish sentiment is still very high.
- The market has been struggling to break recent highs signaling a lack of new buyers.
- SPX short interest, albeit still high decreased by 23%.
- The recent breakdown in momentum names.
- The open interest on major indexes on this current monthly expiration have higher calls strikes than put strikes near price.
Regardless of my bias, it would not surprise me to be wrong. Next week starts earnings and most of the major banks are reporting. When finacials are strong it often leads the market higher. If there are many upside surprises that the market has not already priced in, there is a good chance markets will rally with finacials. Keep an open mind and continue to focus on stocks because despite the lack of movement in the indexes, many stocks are providing huge returns.
Open Interest: The following open interest graphs are for monthly expiration this Friday, January 18th. Keep in mind the open interest has higher numbers because many of these options have been available for a long period of time. Open interest should be used as an asset to your current technical indicators and I don’t advice trading based solely on these graphs or my notes.
SPY: Well you know what often happens when you see the highest strike being calls? Not a prediction, just pointing out that the highest calls and the second highest puts is at 180. If we do indeed drop next week, 180 appears to be a good spot on multiple indicators (including the 50 day MA).
AAPL: A serial disappointed with very high calls and puts at the 500 and 550 strikes (the highest strike is actually the 600 calls, which I don’t have displayed). Good luck with this one.
AMZN: I want it to breakout and eventually I think it will, but it may need to wait till after expiration. Highest calls at 400. Currently the most pain would be a 390 close.
BIDU: The highest calls are at 140. I don’t see them as causing an issue, but wanted to provide the full picture cause, you never know. They might cause some downward pressure if they start closing out. Guess we will find out.
FB: It’s beens such a tease and apparently everyone and their mother owns January call options. Highest calls is 60. Just FYI, 25 has the largest puts with over 180,00 (not shown below). I imagine it was either an overly confidant bear from a while ago or hedge.
GOOG: I posted a chart of GOOG last week that showed it had dropped back into the channel it had been in since earnings. Last week it got back above the channel on an upgrade. Here is an updated view of that chart. It looks very similar to when PCLN got above its channel and then fell back below (see here). Just an observation not a prediction. I doubt the open interest will give you any insight, but for your viewing pleasure and mostly so I don’t get multiple requests if I don’t post it.
LNKD: Trying to stage a comeback. I imagine it won’t be a straight line up and will have a bit of retracement, but as long as it doesn’t take out its recent lows of 198.60 then the trend is back up. Highest puts at 200 and calls at 240.
NFLX: Kind of a mess and closing outside of its lower BB band for 4 straight days. Here is also a messy open interest chart for your viewing pleasure.
PCLN: Last week I said it looked like it was about to hit the bottom of its channel and would probably stage a nice bounce. Of course, I didn’t end up playing it, but hopefully someone benefitted from it. If it continues to stall where it currently sits (chart here) or falls back down to the bottom of the channel then I would suggest longs be careful. That could end up being a good short play. The channel only holds up until it doesn’t. Doubt this will be useful, but here is your open interest.
TSLA: It cannot seem to stay above 150 or the highest calls, which is always around 150. Deja vu again with lots of calls culminating around the 150 area. Perhaps 145 would serve as good middle ground for the high strike puts and calls next week.
TWTR: Been tough to hang on to this since its initial run. Remember a few weeks back when @optionshawk and @wallstjesus pointed out those huge 90 call buyers? If you don’t remember, a few weeks ago there was huge purchases made of the 90 strike calls and unfortunately for them they never closed out. Well, it’s unfortunate unless they know something the rest of us don’t….but didn’t work last week so….
Good luck next week!