Archive for the ‘Chart of the Day’ Category

Dividend Growth Strong In Q1

From the desk of Charlie Bilello:  S&P 500 1st quarter dividends rose 9.1% over the prior year, strongest growth since Q2 2015:

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Hat tip Charlie Bilello

Deere Dives, Approaches Low Risk Buy Zone

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Deere & Co. began today’s session with a nasty news inspired gap lower open.  The stock has rebounded a bit this afternoon but quite a bit of damage has been done.  Shares hit new ’18 lows in the early going as the stock continues to struggle after leaving behind an ominous spike high in mid February(earnings).  If DE remains heavy in the near term a very low risk entry opportunity will develop for patient investors.

Trading notes: 

At today’s early lows DE is off over 17% from the 2018 spike high left behind immediately following the last earnings report.

Just below today’s low is a major support zone near $141.00. 

This key area is marked by the 200 day moving average, which held important lows in September 2016 and August of 2017.

Also in this zone is the powerful high volume breakout gap left behind after the November 22nd earnings report.

We believe a retest of this area will offer an extremely low buying opportunity.  On the downside a close back below $138.00 would send a clear sign that a more prolonged basing process is ahead.

At time of publication we are long DE in some managed accounts.

 

 

Nas 100 Futures

Nas100

AMZN

AMZN

Alcoa’s Correction Creates Opportunity

aa

Alcoa has been basing near a major support area since early February.  After suffering an ugly breakdown immediately following the January 17th earnings report AA began a steep pullback.  The stock dipped down to the $44.00 area in early February retracing a powerful rally leg that began on December 19th.  Alcoa has held this area at multi-week lows in March and, as an upward sloping 200 day moving average comes into play, is holding this week’s low as well. 

Trading notes:  At this week’s low AA is off 22% from the 2018 peak.

A divergent low(daily MACD)is now developing.

The $44.00 area has marked the February, March and April lows.

Despite yesterday’s selling wave AA did not violate last week’s low.

A close back below $43.00 would be a clear warning sign that a much more prolonged basing pattern will be needed before AA can return to rally mode.

A key upside hurdle is the $48.00 area.  A clear break through this level would take out an overhead trendline the links the January/March highs as well as the 50D mav.

At time of publication we are long AA in most managed accounts.

 

XOP Call Option Spread Trade

XOP Call Option Spread Trade

 

By Bob von Halle

I wanted to highlight an options trade I did this morning in the XOP exchange traded fund for the Oil & Gas Exploration companies. The exact trade specifics are as follows with XOP trading at $34,20 at the time.

Bought 10 contracts May 35 calls at $1.25     Sold 10 contracts May 38 calls at $.35 for a net cost of $.95 (total risk exposure is $950 as a result). Implied volatility metrics at the time were in the low 30% territory.

First, the reason I chose the XOP over the more commonly sited XLE etf for the energy sector is simple: better diversification. The XLE has 40% of its basket comprised of 2 stocks: XOM and CVX.  The XOP is far more broadly representative of the E&P space with no more than a 3% weighting in any one name (including the two mentioned prior). It also contains a better mix of mid to small cap names that tend to be more sensitive to the movement in oil prices than the super major names due to their higher debt leverage (lower credit ratings).

Energy equities have significantly under performed their underlying commodity by a considerable margin in recent months as oil prices have steadily risen from low $50/barrel to the mid $60’s/barrel. Energy equities have also been significant laggards versus other S&P 500 categories with the possible exception of Consumer Product company names (e.g. CPB, KHC etc). But that pattern has begun to change a bit in the recent market downdraft as the energy names have held in far better than most sectors, as evidenced by the side ways trading pattern in the above chart. Moreover, the boost in oil prices has given rise to an increase in earnings projections for the E&P sector, which has reduced their PE multiples closer to the market averages, making them relatively less expensive compared to other sectors (but still with a higher than market multiple).

Whether any of the above will produce trading profits on this spread is pure conjecture at this point. However, by utilizing options rather than pure stock, I am able to control the price movement of 1,000 shares (10 contracts) for a maximum cash outlay (and risk) of $950 rather than the $34,200 it would cost for the same position in the underlying etf, albeit it only for a 3 point range. This is a small trade for me, representing only 20% of my normal sized position, so I may consider adding to it at slightly lower costs. However, should the XOP drop below its Feb support levels of $33, I will likely close out the trade for a loss and move to the sidelines. Plus I have almost 7 weeks for this trade to work out as expiration is May 18th.

Energy equities have been a tough trade for many months, with the exception of a nice spike higher from Sept to Dec of last year. Many managers remain under weight the sector. I am encouraged by the recent stability versus other areas of the market, and by the narrative of stable to higher oil prices due to better supply/demand dynamics. This is clearly a bit of a contrarian trade, and is subject to the vagaries of the entire stock market (or simply oil prices) selling off, but my risk is defined (and limited) and provides me with exposure to a sector I feel has upside potential.

Hewlett Packard Enterprise Reaches Major Support

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Shares of HPE(Hewlett Packard Enterprise Company)exploded to the upside following a blow out  earnings report back on Feb. 22nd.  The stock finished the day with a 10.5% gain on its heaviest upside trade in history.  This was HPE second best single day gain ever, only the 3/4/16 ramp of 13.65% is better.  HPE trended higher in the two weeks following the huge Feb. 23 open eventually stretching the gain off the 2018 lows to 35%.  By early March the stock had entered deeply overbought territory and was due for a healthy pullback. 

HPE has been fading since March 7th and at this week’s lows has nearly retraced the entire post earnings rally.  As shares begin to stabilize around a major support zone patient bulls should be alert. 

Trading notes:  HPE’s January high marks the top band of the support zone($17.10).  Near the lower band is the massive 2/23 breakout gap($16.70).   In the middle of this zone is the 1/3 retracement level of the powerful rally off the 2017 lows($16.90).

The daily MACD indicator is now back to neutral after working off the high(overbought)March reading.

Selling pressure is easing of late indicating downside exhaustion just as key support comes into play.

On the downside a close back below $16.50 would indicate a more drawn out basing process is ahead.

At time of publication we do not have a position in HPE.

AAPL

AAPL is testing the 200 day

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How Does Q1 GDP Measure Up?

gdp

The lede:  Weakness in the first quarter compared to the rest of the year would not be a surprise, given a consistent pattern of first quarter underperformance over the last 40 years [Figure 1], a puzzle that economists at the Bureau of Economic Analysis have been studying. Over that period, first quarter growth has been almost a full percentage point lower than the average of the other three quarters combined despite seasonal adjustment of the data. The same pattern has appeared in the current expansion [Figure 1]. We believe it may appear again in 2018 as fiscal stimulus promotes business investment and consumer spending against a positive backdrop of a strong labor market and coordinated global growth.

Hat tip LPL Research.

Gold

Gold

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