Market Recap
What a day… two failed breakouts in one day. First, ECB President, “Super” Mario Draghi dazzled global markets with an expansion of the ECB’s bond buying program and cutting three different interest rates. The initial reaction was a jump in global equity markets. S&P futures jumped to 2010.25 and the euro sold off. Second, during the ECB press conference, Draghi signaled that further interest rate cuts aren’t likely. This caused markets to reverse sharply to the downside. The German DAX stock index climbed as high as +2.7% before reversing to finish on the lows -2.3%. Similarly, the euro initially fell and then reversed to finish +1.7%.
In the US, the SPX fell as much as 1% until the European markets closed and then once again reversed to finish close to flat on the day. Talk about a schizophrenic market.
The DAX Index intraday chart
Source: Bloomberg
Besides the back and forth index moves, there were a few interesting big option prints.
1. KO – Coca Cola – options traded 6.3 times normal volumes ahead of their $0.35/share dividend. Taking a closer look at the multi-year chart show a breakout may developing on good volume. See chart below. I purchased the KO Aug 45 calls for an avg price of $1.44 to play this possible breakout.
KO multi-year chart
Source: Bloomberg2
2. SLV and SLW – the Silver ETF and the Silver Wheaton CoBoth the ETF and the miner saw heavy call interest today
Watch for a break above the $14.93 top of value on the daily chart (see below)
SLV daily chart
Source: ThinkorSwim
TTG’s market view (strictly our opinion):
After a seesaw day that ended in a doji candlestick (which represents indecision), what is next? The SPX has stalled out at its 100d MA (Moving Average) and is now stuck in the middle between the 50d and 100d MA. I believe the next move will be lower but the SPX may pause a bit before next week’s Bank of Japan meeting. I also look for clues in the Small Caps (IWM) which can sometimes lead the move in the SPX. After a month of outperformance, the IWM has started to trail the SPX. Today the IWM fell -0.8% vs the SPX flat. Looking at the chart below, the IWM has also stalled at its 100d MA and had an increase in volume on the two down days this week indicating a possible more conviction on down days. I still like selling out of the money call spreads in the IWM ETF.
IWM – Small Caps
Source: Bloomberg