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Schlumberger Reaches Major Gap Resistance

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SLB has had a great run already this year.  It has finished in the green every day this month as it extends the rally off the December close to nearly 13%.  Today the stock is bumping up against a very heavy resistance area near $76.00.  Back on April 21 SLB took a damaging hit after opening the session with an earnings inspired breakdown gap.  A severe downleg was underway and by mid November SLB had fallen 20%.  The current rally has lifted the stock back up to the April breakdown gap erasing the entire seven month sell off in less than seven weeks.  We believe the stock is now quite extended in the near term and is due for a healthy pullback.  We remain bullish on SLB, and energy as a whole, and will be looking to rebuild positions at lower levels.  As this plays out an option play is beginning to look very attractive.  Bob von Halle has the details:

If you are owner of SLB stock and are concerned about the chance for a significant near term pullback, you might want to consider the following options strategy. With SLB trading around $75.75 look to do the following:

Sell the Feb 77.5 calls for approx $1.55 which would be essentially a covered call strategy that lets you participate in further upside. 
Buy the Feb 75 puts for approx $2.05 cents 
Sell the Feb 70 puts for approx $. 55 cents for total cost of $1.55
So essentially for ZERO outlay other than commissions you have given yourself a bit of further upside room, while protecting yourself for a 5 point pullback in the coming weeks.
Note that SLB reports earnings on Jan 19th which happens to be option expiration date for that month. You can do a similar type trade in that month, but the above gives you much more time for this to work out. Also note that SLB has weekly option series but they are not very liquid and have little in the way of open interest, so I would recommend sticking with the regular monthly series.
At time of publication we remain long SLB in most managed accounts.

Up to Number 2

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After today’s close the S&P 500 Index has now remained above its 200 day moving average for 386 straight days.  Second longest such streak in history.

Steady.  Higher.  Relentless.

Hat tip Charlie Bilello

 

Six For Six

From Ryan Detrick:   It is official.

The S&P 500 Index has hit new highs the first six days of 2018, tying the record from 1964.

The Nasdaq Composite has also reached new highs the first six days of this year, ties the record from 1999.

‘The engine of the economy roared back to life’

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  • The Small Business Optimism Index from the National Federation of Independent Businesses came in at 104.9 in December.
  • The average monthly reading for the index in 2017 was 104.8, the highest for any year in its history.
  • Both the NFIB’s CEO and chief economist attributed the boost in confidence to policy changes under the Trump administration.

The lede:  Small-business confidence hit a record high in 2017, according to the National Federation of Independent Businesses.

The National Federation of Independent Businesses on Tuesday released its Small Business Optimism Index for, capping “an all-time record setter” of a year in 2017, according to the right-leaning lobbying group.

The optimism index came in at 104.9 in December. According to the NFIB, the index’s average monthly level was 104.8 in 2017, the highest in the history of the the survey.

Juanita Duggan, the president and CEO of the NFIB, pinned the increase in optimism on policy changes from Washington under President Donald Trump.

“With a massive tax cut this year, accompanied by significant regulatory relief, we expect very strong growth, millions more jobs, and higher pay for Americans,” Duggan said in the release.

More:   NFIB Chief Economist Bill Dunkelberg also credited Trump’s election for the surge in optimism.

“The 2016 election was like a dam breaking,” Dunkelberg said. “Small business owners were waiting for better policies from Washington, suddenly they got them, and the engine of the economy roared back to life.”

Rollbacks matter…

Hat tip BusinessInsider.com

Almost A Handful

Four charts to start the day.

Earnings revisions reach record(sell-side euphoria):

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Ten Year US Treasury Yield reaches a nine month high:

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Correction?  Who needs a correction:

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Just ten more days and the S&P 500 Index will break the record for longest time without a 5% pullback:

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Harley Headed Higher?

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Harley-Davidson has been trading in a narrow range as it continued to struggle with heavy resistance near its declining 200 day moving average.  A breakout could now be brewing.  Some quick thoughts:

Despite battling heavy resistance near the 200D the stock gave up little ground in December.  A downgrade last week(Longbow cut to ‘underperform’)did little damage.  HOG is working on a second straight higher monthly low as a major bottom near the $46-$45 area(July, August, September, October, November lows)has formed.

HOG will need to convincingly take out the $52.30 area to confirm a breakout.  This zone has capped the last five weekly highs.  On the downside, a close back below $49.00 would take out the January low indicating the 200 day moving average is still in control.  Until then we are positive on the set up.  With a very high short interest ratio(13.45)there is plenty of fuel to power a meaningful rally.  At current levels we believe HOG is a fairly low risk buy with a stop close only set just below this week’s low($50.70). 

HOG is scheduled to report fourth quarter results on January 30th. 

We have no position in HOG at this time. 

High Five

After five days of trading the S&P 500 Index is up 2.8% for the year.

It has started a year with a 2% or better gain fifteen times.

Every year this has happened(15 for 15)the Index has gone on to gain just over 18.5% on average for the year.  

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Impressive.  The interesting data point in the above table is the depth of the deepest pullback during each year.  The smallest being 5.8% in 2013, the largest being 33.5% in 1987.  The average intra-year decline is just under 20%.  As mentioned earlier, the S&P 500 Index hasn’t suffered as much as a 5% pullback in over 350 trading days, that’s the 3rd longest such streak in history.  With a little patience we expect to see many entry opportunities during the year.  Volatility will make a welcome return.

Hat tip Ryan Detrick of LPL Research

It Continues

Here’s how the current rally stacks up historically.  Third longest in history without a 5% pullback:

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Steady.  Higher.  Relentless

Hat tip Callum Thomas

Volatility Will Return

And that’s not necessarily a bad thing.  From the Desk of Ryan Detrick:  The S&P 500 Index gained 2.6% last week, that would have been the largest weekly gain all of 2017.  It also ended a streak of 55 consecutive weeks without a 2% change(higher or lower), which was the third longest streak ever(mid-’60s and mid-’90s).

Which brings to mind the below chart.  They love ’em higher.  The Rydex Bull/Bear ratio is at record highs:

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The expectation is for further gains this year but it will be it should be a wild ride.

Hat tip Ryan Detrick/Lance Roberts

Stock Market History From JPMorgan

The LONG term view of the ups and downs(mostly ups)of the S&P Composite Index since 1900:

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Hat tip StockTwits

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