GE – 102% Loss: Short Oct 29, 2021 $97.5/$106 Call Vertical​  @ $5.95 Debit

NOC – 70% Loss: Short Oct 29, 2021 $350/$365 Call Vertical​  @ $11.20 Debit

DailyPlay Positions Outlook:

While the markets have sold off over the past few weeks, even though we identified two weak stocks that had broken support, they have both reversed higher despite the market selloff. We are taking this opportunity to close out both positions and manage our remaining open positions at this time. Our focus at this time we focus our attention on interest rates and the developing situation in China to provide our equity outlook.

Tony Zhang
Chief Strategist & CNBC Contributor

Adjustment Trade

DIS Trade Adjustment – 41% Unrealized Loss. Roll Oct 15 $195 Call to November 5, $185 Call to collect more premium:

• Buy to close October 29 $195 Call @ $0.07 Debit
• Sell to open November $185 Call @ $1.56 Credit
• This results in a reduced cost basis for the DIS Call Diagonal Trade from $9.15 to $7.66. 

DailyPlay Positions Outlook:

The short leg of the DIS diagonal spread will expire in 10 days and is almost worthless. This allows us to roll the short leg and continue to offset the trade cost of the long DIS call option by selling an OTM call to reduce the cost basis of the DIS Dec 17 $185 Call and collect more premium. This results in a new cost basis of $7.66 for the DIS diagonal trade. 

Yields rebounded yesterday after a 3-day pullback which caused the major indices to move lower. SPY and QQQ broke below their 100 D MA’s yesterday which is concerning. Support for SPY and QQQ sits at $423 and $342 respectively. Non-Farm Payrolls this week will be an important announcement to gauge the performance of the recovery and give further clues to what the Fed may do regarding monetary tapering. 

Tony Zhang
Chief Strategist & CNBC Contributor

View PTON Trade

Market Outlook:

Equities continued their decline last week but ended the week on a positive note after recovering some losses. SPY rejected the 100 D MA on Friday once again to close above it but momentum remains week and investors should note that this level could be broken this week indicating a further decline to support at $423. QQQ pulled back to its 100 D MA and recovered to retest the previous $360 support level. The sharp increase in yields that provided momentum for Financial names faded towards the end of the week allowing for a pullback in Financials. Risks remain to the downside for high beta stocks in general should yields resume higher. The dollar index (DXY) experienced a sharp gain to break above the $93.5 resistance level with strong momentum. Sector rotation is improving for the majority of sectors with Energy and Financials providing leadership.

PTON Bullish Trade Idea:
Our bullish trade is Peloton Interactive Inc (PTON). PTON is the largest interactive fitness company in the world. PTON has experienced poor performance in 2021 after declining from all-time highs above $160 to $86. However, both the technicals and fundamentals indicate that PTON may be oversold at current levels which provides a good risk/reward bullish opportunity. From a fundamental perspective, the relaunch of PTON’s Tread, reduced Bike cost, as well as continued development of PTON’s rower paints a favorable picture for the interactive fitness company. PTON has strong market leadership in the interactive fitness industry as well as solid organic subscriber growth. From a technical perspective, PTON’s RSI is currently oversold as price approaches the lower bound of its 2021 trading range.

The trade structure used for this bullish PTON trade is a call spread risk reversal. This is a very bullish strategy that involves selling an OTM put option and purchasing a call debit spread. By selling an OTM put, the cost of purchasing the call debit spread is drastically reduced. The cost basis of the debit spread alone is $6.70 and the premium received from selling the put option is $5.90. Therefore, the net debit paid is reduced from $6.70 to $0.80 ($6.70 – $5.90). 

View PTON Trade

View ATVI Trade

The bearish DailyPlay for Friday, October 1st is Activision Blizzard Inc (ATVI). ATVI is part of the Communications sector that has experienced a 6.4% decline in the last month. 

Technical View

• Recent rally to previous support at $78 with a failed retest indicates further decline
• Very weak Technical Score – 2 out of 10
• Bearish 1M and 6M trends

Fundamental View

• Long term risk to revenue and brand due to backlash from recent discrimination lawsuit
• Tightening supply of key hardware components will likely impact video game sales in the near future
• Earnings: Oct 28 (27 Days)

As this is a Credit Spread, look to take profits at 50% and cut losses at 100%:

• Take Profit: $1.32 Debit
• Stop Loss: $5.30 Debit

View MAR Trade

The bullish DailyPlay for Thursday, September 30th is Marriott International (MAR). MAR is part of the Consumer Discretionary Sector that has pulled back 0.39% in the last month.

Technical View

• Breakout of descending trendline and recent pullback provides a good risk/reward long entry.
• Strong Technical Score – 8 out of 10
• Bullish 1M and 6M trends

Fundamental View

• Pent up travel and lodging demand provides positive outlook for revenue growth.
• Sufficient liquidity and financial flexibility should see MAR recover to high single digit revenue growth.
• Earnings: Nov 5 (36 Days)

View MAR Trade

Market Observations

• SPOT – Currently trading below the 100 Day & Week MA while strength declines, look for bearish entries while price is maintained below $225
• TDOC – Break below $132 major support. This opens the door for a significant decline to $88. 
• GIS – Momentum is slowly increasing following a bounce off the 100 Week MA, look for bullish entries above $60.50 which is above the 100 Day MA

Market Outlook:

Equities ended last week on a positive note after suffering losses earlier in the week in relation to the Evergrande crisis. Despite the strong rebound last week, rates continue to rise and the rise in the dollar index (DXY) indicates that risk sentiment is fading as the Greenback remains in consolidation just below the $93.50 resistance level. Sector leadership remains narrow with only Energy and Discretionary in the leading categories. 8 of the 11 SPDR sectors are showing low momentum with 5 of them already in the lagging category. Bonds sold off after the Fed announcement last week with the 20+ Year Treasury Bond ETF (TLT) ending the week 1.52% lower. This week should paint a clearer picture of where equities are headed next and whether a “risk-off” environment may come into play.

LUV Bullish Trade Idea:
Our bullish trade is Southwest Airlines Co (LUV). After a multi-month decline and consolidation period, LUV experienced a strong uptick in momentum on both the daily and weekly timeframes. Price broke above the $52.14 resistance level after a bottoming formation at $47.50. This comes after a strong rotation back into travel stocks last week. From a fundamental perspective, LUV has the best balance sheet in the airline industry and even has a net negative debt position, a strong contrast to its highly leveraged industry peers. LUV is the best-positioned airline stock for a reopening play. 

As this is a Debit Spread, look to take profits at 75%-100% gain and cut losses at 50%:

Take Profit: $4.55 – $5.20 Credit

Stop Loss: $1.30 Credit

Sector Outlook

The Relative Rotation Graph (RRG) for sector rotation indicates that a narrowing sector leadership with only 5 sectors in the Improving and Leading categories and 6 sectors in the Lagging and Weakening categories.

Leading (positive relative trend and positive relative momentum): Discretionary and Energy are in the Leading category. Energy is showing strong momentum and relative strength while momentum in Discretionary is declining. 

Weakening (positive relative strength and negative relative momentum): Real Estate and Technology are in this category. Both sectors are exhibiting poor momentum and relative strength. This could lead to both sectors moving into the lagging category this week. 

Lagging (negative relative trend and negative relative momentum): 4 sectors are in the lagging category – Utilities, Materials, Communications and Healthcare. All sectors have declining momentum. Look for further weakness in these sectors this week. 

XLP

Defensive sectors continue to exhibit weakness with Staples breaking below the 100 D MA and failing the retest on multiple attempts last week. This indicates a move lower. Next support is at $68.80. 

XLE

The Energy sector broke above the $50.50 resistance level mentioned last week and is now testing the 100 D MA. Price formed an inverted head and shoulders pattern on the daily chart. Strong momentum and relative strength could see the sector break above the 100 D MA and start an uptrend back to $55. 

The bullish DailyPlay for Thursday, September 9th is Fidelity National Information Services Inc (FIS). FIS is part of the Technology sector which has experienced a 2.9% rally in the last month.  

Technical View

• Bullish engulfing candles on both daily and weekly timeframes indicate a possible reversal
• Price has declined to a strong area of weekly support and bouncing higher.
• Mean reversion – price has significantly deviated from the 200 D MA to the downside and an upside correction in the range can be expected

Fundamental View

• Merger with WP allows for revenue growth and cost synergies
• FIS offers secular exposure to banking as well as cyclical exposure with emphasis on consumers
• Earnings: Oct 28 (49 Days)

As this is a Debit Spread, look to take profits at 75%-100% and cut losses at 50%:

• Take Profit: $8.36 – $9.56
• Stop Loss: $2.39

View FIS Trade

Taking Profits

• HON – 65% Gain: Short Oct 1, 2021 $230/$240 Call Vertical​  @ $1.31 Debit
• MOS – 17% Loss: Short Sep 24, 2021 $30/$33 Put Vertical​  @ $1.19 Debit

DailyPlay Positions Outlook:

Equities remain elevated but signs of risk aversion are seeping in with the US Doller Index (DXY) gaining momentum as investors start to worry about the Delta variant impacting the ongoing recovery. The expectation for equities is that the next few months may be bumpy which comes after the S&P 500 gained 20% YTD. We see outperformance in the Nasdaq 100 as rotation into Tech provides a defense against a slowdown in other sectors. We take this opportunity to take profits on HON which surpassed our TP level and mitigate minor losses on MOS in accordance with closing our trades near 21 days to expiration.