Yes, it has felt like we have been due for a pull-back. And yes, it has felt like we have been extended for a long time. That is precisely why we don’t trade based on our feelings. So far the indexes haven’t pulled back much and in the meantime many stocks have been giving back huge returns. The market will pull back; however, trying to anticipate it before getting a validating signal will get you run over by that energizer bunny. Although upside on the indexes may be limited, breadth has been confirming strength, VIX started to head back down on Friday, and the market is staying range bound. The money right now is in individual stocks and if you were in select solars, casinos, finacials, Chinese internet, 3-D printers, bios etc, you are having a good start to you year. I think we will get more clues regarding where the market is headed next week as it seems the holiday and the weather has kept things a bit slower than usual.
Although my open interest graphs are on the typical momentum names that have better odds of pinning, recently, I haven’t been trading them much. As you will notice below, my notes reflect that the typical momentum names display very little edge in terms of risk/reward. Eventually they will be back in play and I will continue to update them as much as I can, but if money isn’t flowing there I want to be where it is flowing. You should too. Here is another post I wrote this weekend about how some sectors and stocks are getting overly extended and where money could flow.
Open Interest: As always, keep in mind that these should be used in conjunction with your own technical analysis and I don’t advice you to trade solely based on my graphs and notes.
SPY: The highest open interest calls is 183 and the puts is 182. I doubt we stay in that tight of a range all week, but I also doubt that we get a huge range outside of that.
AAPL: I don’t know what that sell off was about on Friday; it wasn’t about pinning. Maybe we get news over the weekend or maybe it was just random. For next week, highest open interest is the 550 calls. I see no edge unless we drop to further support (around 435-440) or get above 550.
AMZN: It’s been consolidating and holding on to recent gains very well. The highest open interest is on the side of the puts, which tends to be better for bulls. If AMZN does go down, see if the 390 puts can keep it held up. Based on the open interest, next week would be a good week for a break out from the 400 level.
BIDU: Many of the China internet names are hot despite the FXI not doing so well. If FXI bounces it might really get them going. BIDU is still struggling to stay above 175, but I imagine it’s only a matter of time. The highest puts is 170 and calls is 180 (up from 175 the last two weeks), which is good to see if you are a bull.
FB: Continues to struggle with 55, also where the highest calls have been. The good news for bulls is now there is equally as high puts at 55. Assuming it doesn’t stay right at 55, watch for a break in one direction. Price closed Friday at 54.56
GOOG: It has been in overbought territory for a while and I think this pull back should be welcomed. It fell right back into the channel it has been trading in since its earnings gap. See here for illustration of that. The highest puts are 1,100. GOOG often doesn’t obey its highest puts or call strikes, but I guess we will see if 1,100 holds next week.
LNKD: Currently not a pretty chart, but at an area that can trap people that expect more downside. It’s tough to short in this market so I see no edge currently. Highest puts is 190 and calls at 215.
NFLX: Still not really doing all that much. Highest open interest is the 370 calls.
PCLN: Finally about to hit the bottom of a channel it’s been in since April. See here for chart. I expect at least a bounce at the bottom of the channel, if not a move back up to the top. I currently have no position, but it is getting tempting. The highest puts is at 1,100. Between 1,100 being a round number that supposedly means something, the channel I posted, and the high puts, I think if it got there it would be a good buy at least for a bounce play.
TSLA: I do believe this has more upside, but patience seems to be the key. It has yet to get the momentum it needs to push above the highest calls and stay there. Perhaps we need some news or a gap up over the highest calls. Either way, same story, but different week here. Highest calls 150 all the way to 160.
TWTR: It has been a beast and so far it seems it has more upside. Here is something interesting. The 68 calls were at 605 on Friday morning. They are now at 15,527. If you look at the time and sales, which @wallstjesus kindly posted here you will see that most of them look to have been rolled from the Jan 3rd 65 calls to the Jan 10th 68 calls during the last half hour Friday. Someone obviously looking for more upside.
Good luck next week.