Have You Been Naughty or Nice? + Open Interest for December Opex

Have you been naughty or nice?

After a year of constant jokes and criticism do you think Ben – oops,  I mean Santa is going to shower us with money through the likes of AMZN, GOOG, FB, TWTR, NFLX, TSLA and all stocks that begin with any letter from A to Z?  Or is he going to smoother all the PPT (Plunge Protection Team) – oops, I mean elfs, and say….”so you thought you guys were so funny all year, well HO HO HO AND A RUG PULL WE GO”

Last Week:
Last week I wrote:

SPY: There are some puts at 179 and 180, but really the best support (should the down move not be over) comes around 178 where we have a wall of puts as well as a technical support area. If* we get there look for a reversal candle to go long.”

I did go long right beneath 178 on Thursday, but then got stopped out. Although we did close above 178, it wasn’t by much. I also wrote:

“Furthermore, I think regardless of the overall market, we will still see individual stocks move on their own.”

Well look no further then to darlings FB, TWTR, and TSLA to see that not all stocks followed the market down. A note on TWTR that I would like to briefly discuss in order to illustrate how thinking  outside of the box (i.e. creating an edge for yourself) can help you succeed. For those who are new followers I had been expressing my bullishness on TWTR for a few weeks. Two weeks ago I wrote this in my blog: 

TWTR: Two for Two pinning perfectly to cause max pain. I am still bullish and still believe this will ultimately be chased, especially if social media starts to run into the year end. And I think it helps that there are so many bearish on the name (i.e. on stocktwits sentiment is 72% bearish). For week three we finally get more puts :-).”

The stock was $41.57 at that point. Three days later is when it had its first big up day that led to a 42% increase in eight trading days. The reason I believed TWTR would have a big run was pure psychology. The technicals, open interest, fundamentals etc, played no role in my thought process. I presumed that the bearish sentiment, combined with the brand itself, the sector, and fear of missing out would all culminate into the powerful effect that ensued. 
Next week

Tuesday, the 12th trading day of December officially kicks off the seasonal trend in which the low for the month is put in. Ironically, that’s right before the Fed meeting, which seems to have been the catalyst to the recent market weakness (cause you know we always need to assign a reason for market movements). Using different breadth indicators, we are currently not as oversold as we have been when bottoms take place and thus remain vulnerable to some more downside. My take is that if we get more downside next week it will be early on leading up  to the the Fed meeting, but that the 1750 area will hold. Thus, my flexible game plan going into next week will be to buy at or right under 1750 or look for a reversal signal in the first half of next week. I think one concern many of us have is that the seasonal trend won’t play out this year because, unless you live in a bubble (pun intended), you are aware that everyone expects a rally. Regardless, I’m going to go with the innocent until proven guilty theory regarding seasonality for now. Furthermore, December options expiration has been up eight of the last 10 years (via @ryandetrick).

Open Interest:
The following are are all for expiration on December 21st. Note that open interest is a helpful tool in gauging risk/reward in conjunction with more formal technical analysis, not an exact science. Keep in mind that this is monthly expiration so many of the outstanding calls and puts were bought a while ago. We also have quadruple 
witching, so expect volatility. And one more thing….you will see a change in many options strikes. The CBOE have added. 2.5 strikes on some stocks. It will be interesting to see how/if this changes things.

SPY: We closed at 178.11. Because the 50 day MA is at 176.34 and there is decent open interest at the 177 and 176 put strikes, any more downside may not exceed 176. However, I think the real protection would come in at 175 and if we happen to get there, I think the risk/reward is pretty much as good as it gets to buy. 

AAPL: The strikes that have the most calls and puts together is 550 and 560. AAPL has a tendency to be pretty stuck by open interest during monthly expiration week. The only thing I can see changing that (which is a possibility) is if the rumors are true and the iPhone officially starts getting China Mobile orders.  Irregardless of news, it will probably be a difficult stock to trade next week.

AMZN: It would probably take a drone itself to get price to stay over 400 next week….but looks like a good target doesn’t it?

BIDU: Not saying it will, but I would love to see 180 become a magnet next week. 

FB: I’m all about magnets next week (or maybe wishful thinking)….so maybe 55? Momentum is on FB’s side so I will look for follow through. Oh and although the 55 calls look daunting, I have seen FB get through huge call walls before. If there is no follow through next week I would look for a pin around 50. 

GOOG: Kind of an ugly ending to the week. I would look to go long if it gets to 1,050 or the 20 day MA, which is just above it around 1,053.

LNKD: I was a bit surprised by LNKD’s weakness last week given his siblings TWTR and FB were going for gold. I think next week will be important to see which direction it wants to go.

NFLX: Seems like two steps forward, one step back, but still moving up. It is a bit alarming to see basically no puts until you get to 370. Take notice.

TSLA: Not really what the bulls want to see. It couldn’t get over those high open interest calls last week and well it’s going to face a tough challenge this week. The best scenario is for price to move through those strikes early in the week so they close out.

TWTR: I gave you plenty of heads up to get bullish TWTR. For next week, I honestly don’t know what to expect. The obvious presumption is that it will stay range bound around 60 and consolidate, but here is my pro-tip….buy the dips!

Have a good week!