Well, we finally got some good breadth on a strong day in the stock market...as the advancers vs. decliners were 11 to 1 positive on the S&P 500 index yesterday! It was strange that the breadth was only 1.4 to 1 positive on the Nasdaq Composite index and 2.3 to 1 positive for the NYSE Composite index, but at least we got some great numbers on the most widely watched index for the U.S. market......The volume was subdued at just 3.1bn shares, but given that it’s the week before Labor Day weekend, that number is not a disappointment. (It would have been more compelling if it was a big number, but that relatively low-volume reading was not a problem.)
The issue we highlighted (again) yesterday about the options market (negative gamma and the market makers) seems to be getting more attention...as we saw a few more comments from the Street on this subject yesterday. The point is that these buyers...along with the algos...are giving the market its recent one-way move. The big problem is that at some point, the situation will reverse itself...and we’ll get a one-way move in the OTHER direction.
The realization among some investors that the market could (and even should) turn on a dime in a significant way is probably the reason why as the S&P 500 has rallied 4% over the past six trading days (+5.2% for the Nasdaq), but the VIX has ALSO rallied...by a full 20%!. In other words, as much as the small guys are buying calls, some of the smart money is starting to hedge themselves by paying up for puts (which is something we saw at the top in the 2000).
With the unemployment number coming out tomorrow, it could/should give all investors a reason to sit on their hands today, so we’re not looking for much action today. Then again, we weren’t look for much action this week...and yet the market has rallied nicely over the past three days. So anything is certainly possible, but we think tomorrow’s employment report should be enough to keep things quiet today.
With this in mind, we thought we’d highlight the breakout we saw in an individual stock yesterday. No, it’s not a tech stock...it’s actually a stock in the consumer staples group, Coca Cola (KO). As we have highlighted several times in recent weeks, the consumer staples have been acting quite well in recent weeks...with the XLP breaking to new highs. Therefore, this continues to be a group that should be attractive for those who are looking to use a “bar bell” approach...and hedge some of the exposure in the tech area...with some of the more defensive stocks in the “staples” group.
After a strong bounce in March and early April, KO had been stuck in a sideways range between $43 and $50, but it broke strongly out of that range (and strongly above its 200 DMA) yesterday. The stock is getting overbought, but not extremely so. So we have to be a bit careful, but we’d be more concerned that it won’t be able to hold its breakout move over the near-term if its RSI chart was more extremely overbought......However, we’re still going to have to make sure that yesterday’s strong breakout holds...but there’s no question that this is a bullish development for this stock. Whenever a stock breaks-out of a range...especially a multi-month one...it is usually followed by a very strong move over the intermediate-term. (Chart below.)
Finally, we were saddened to hear about the passing of Tom Seaver. He was one of the all-time greats of Major League Baseball...and he was also a complete class-act. It’s incredible that the “Amazing Mets” have not won another World Series since that Cinderella year of 1969. (Oops, they DID win another won in 1986, but NOBODY remembers THAT one...at least no Red Sox fans do! 😊 😊😊).......Speaking of class acts, another baseball great, Hank Aaron, said that Mr. Seaver was the toughest pitcher he ever faced. Considering that Mr. Aaron also faced the likes of Bob Gibson, Sandy Koufax and Don Drysdale, that’s really saying something!!!
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.