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Chart Advisor: Mixed Messages


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Thursday, 16th September, 20211

1/ Indexes close in tight range 

2/ Kroger investors taking profits 

3AMZN option buyers are optimistic 

4/ The bottom line

1/ Indexes Close in Tight Range

Stocks looked like they would continue the recent selloff through most of the session today. However, the final two hours of the session saw buyers emerge to bid prices higher. In the end, stocks closed nearly unchanged compared to yesterday’s close. 

The chart below compares the daily performance of the S&P 500 Index (SPX) with Invesco’s Nasdaq 100 ETF (QQQ), iShares Russell 2000 ETF (IWM) and State Street’s Dow Jones Industrial Average ETF (DIA). The comparison highlights two things. First, that DIA is in a slight downtrend over the past two months, while the other three have maintained an upward tilt. Second, only SPX was unable to notch a new high in today’s trading compared to the previous day’s session. Both indications lend credence to the idea that the market may find support at this level. 

2/ Kroger Investors Taking Profits 

Investors have bid down the share price of Kroger (KR) following its fiscal second-quarter earnings results. KR reported earnings per share (EPS) of $0.80 and $31.68 billion in revenues, beating analysts’ forecasts of $0.64 EPS and $30.69 billion in revenue. Some traders decided to take profit following the relatively upbeat report, while others may have been off put by a modest drop in gross margin and an uptick in theft at the grocery chain’s locations.  

Even as KR shares slid 7.5% the day after the earnings announcement, the company has still outperformed its sector. The chart below illustrates recent KR performance compared to State Street’s Consumer Staples Sector ETF (XLP). KR’s large gap-down still has the stock out in front of the sector by a decent margin. While XLP has risen 7.5% year-to-date, KR has gained 27.5% in the same span.  

Sustained downward momentum could place KR further in line with its sector, but if the share price can establish support after a five-day slide, the stock could remain well ahead of XLP.  

3/ AMZN Option Buyers are Optimistic 

Amazon’s (AMZN) share price has recently fallen from an extreme range as the market has experienced its September swoon. Despite the small retracement, AMZN is still comfortably above its 20-day moving average, as illustrated on the chart below. Put option pricing is at one of the highest points over the past 52 weeks, slightly ahead of current call option pricing.

The open interest on puts and calls has a nearly even distribution, with about 554,000 calls compared to just over 563,000 puts. While put options have the slight advantage in the open interest, recent activity slightly favors calls. 

Today’s trading volumes featured 70% calls, demonstrating the bias that option traders had. AMZN stock has gained 13% over the last year, no small feat for a stock with a market cap over $1.7 trillion. 

For Oct. 15, the next monthly option expiration date after this week, the largest number of open interests is on the $3,600 call. This would normally represent a largely bullish outlook; however, it should be noted that implied volatility for this option is falling, indicating that these options are being sold more than they are being bought 

4/ The Bottom Line 

Stocks swooned early in the session but rebounded to end the day nearly unchanged. Investors on KR act like the best price was last month, while AMZN option traders are expecting growth in the fourth quarter. 

Originally posted on 16th September, 2021

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