This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

Chart Advisor: China Syndrome

Investopedia

Contributor:
Investopedia
Visit: Investopedia

Monday, 20th September, 2021

1/ Global news sparks selling in U.S. indexes 

2/ Adobe option traders prep for earnings 

3AutoZone may be bargain priced

4/ The bottom line

1/ Global News Sparks Selling in U.S. indexes

The September slide picked up steam as major indexes prepared for the fallout from a potential default of China’s largest developer, Evergrande. The Dow Jones Industrial Average (DIA) fell 2.7% during the session. That drop would have marked its largest single-day drop since October 2020. Similarly, the S&P 500 ETF (SPY) saw its worst day in 11 months. The Nasdaq 100 (QQQ) and the Russell 2000 (IWM) fell 3.2% and 3.4%, respectively, intraday. A late session rally brought prices back from the brink but failed to get them higher than the open.  

Hong Kong’s benchmark Hang Seng Index (HSI) fell 4% after a weekend of speculation surrounding China Evergrande Group, which could collapse under a major debt burden. There are vast differences, but the situation has been called China’s “Lehman Moment”—a reference to the implosion of Lehman Brothers at the height of the 2008 subprime mortgage crisis. Investors fear the consequences could reach further than the world’s second-largest economy.  

Coupled with an increase in reported COVID-19 cases domestically, a two-day meeting of the Federal Reserve, and an ever-encroaching deadline to raise the debt ceiling, buyers seem content to sit on the sidelines for now. 

2/ Adobe Option Traders Prep for Earnings  

It’s difficult to determine whether investors are losing confidence in Adobe (ADBE) ahead of the company’s fiscal third-quarter earnings report, or if, like many equities, ADBE is a victim of current market circumstances. Analysts have forecast earnings per share (EPS) of $3.02 and $3.9 billion in revenues for the software giant. The stock has been trading in a relatively average range of late, yet today’s performance pushed the ADBE share price well below its 20-day moving average. 

Despite the drop, ADBE is still comfortably ahead of its industry. Below is a comparison of the recent ADBE share price with the iShares Expanded Tech-Software Sector ETF (IGV). It should be noted that while ADBE has outperformed IGV, ADBE represents the ETF’s largest holding at more than 9%. However, while IGV has risen 17% year-to-date, ADBE is up 31% in that same span, highlighting how strong ADBE has been in 2021.  

ADBE shares rose 2.5% after its last earnings, and current option pricing implies a 4.8% move in either direction.  

3/ AutoZone May be Bargain Priced  

Investors have bid up the share price of AutoZone (AZO) leading into the company’s fiscal fourth-quarter earnings announcement tomorrow before the market opens. Analysts expect the automotive retailer to report $29.69 EPS and $4.54 billion in revenue. The share price has fallen over the last 30 days, however, as anticipation for earnings appears to be building. The share price has risen in the month of September, climbing above its 20-day moving average in the process.

AZO has had a stellar 2021 so far, having gained 34% year-to-date. Comparatively, State Street’s Consumer Discretionary ETF (XLY) has only risen 11% in the same time frame. A tumultuous one-month period has seen AZO and XLY trade relative leads recently, however, investors may have big expectations for AZO as it has beat earnings expectations 11 out of the last 12 quarters.  

4/ The Bottom Line 

Stock indexes gapped lower to start the week as investors showed they were nervous about the developments in overseas market. Adobe investors seem reluctant to join in the selling ahead of earnings judging by the stock’s relative strength above its industry. 

Originally posted on 20th September, 2021

Disclosure: Investopedia

Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy.  While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Investopedia and is being posted with permission from Investopedia. The views expressed in this material are solely those of the author and/or Investopedia and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. For more information read the Characteristics and Risks of Standardized Options, also known as the options disclosure document (ODD). To receive a copy of the ODD call 312-542-6901 or copy and paste this link into your browser:

http://www.optionsclearing.com/about/publications/character-risks.jsp

trading top