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Chart Advisor: China Syndrome


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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

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