April 11th, 2023

Economic Optimism Helps Lift The Market

Without a banking crisis to worry about, we’re back to the same trading range as before and in a similar news cycle. We’re back to wondering how the market will react to the upcoming CPI report on Wednesday.

The future weeks in the market will be moved by earnings and the notion that the market expects to see the Fed pivot from their rate hikes. I expect we may see a last push higher, but will retreat after the Fed doesn’t immediately start cutting rates. The market will act surprised by the news and we will retreat from elevated levels.

Here’s a weekly chart of the Dow Jones Index and you can see that outside of the few weeks of a banking crisis, the index has been trading sideways since November of last year. It’s been a tight trading range, but we recently crossed above the purple support line. I expect that unless earnings come out strong, a week or two later we hit resistance at the orange line and come right back down.

 

If we zoom into the daily chart, we can see this pattern a little more clearly.  The last five trading days have been stuck between 33265 and 33625.  The last two times we crossed the purple support line, we traded flat for a couple of days and eventually broke out higher until we hit the orange resistance line.  

 

With the consumer price index report and the FOMC meeting minutes coming out on Wednesday, I’d expect to see more chop until that news is out in the open. That might be the news to get us to break out higher.

Then right around the corner, we get some of the bigger, bank names coming out with earnings. JPMorgan (JPM), Citigroup (C), and PNC Financial (PNC) take center stage on Friday and we should hear more about the health of the financial sector and projections for the next quarter.

Add to the backdrop of yet another impending rate hike, and we should have some volatility coming back into the market.

The Volatility Index (VIX) is already near 52-week lows, which could be bearish for the market if volatility creeps up from here. As option sellers though, we need a little volatility back in our lives though.

 

Today’s trade ideas are in the specialty retail industry.

I have three top Seasonality stock picks for you today. For those who haven’t heard of seasonality in the market, it refers to consistent patterns that tend to take place within the calendar year and are repeated year-over-year.

There are many reasons why stocks favor some weeks of the year more than others, and most of the time seasonality is a reflection more of how a stock trades through earnings, but there are instances where a stock has a good track record and it is not during earnings.

Today, I’ve picked a few. Now, just because a company has an 80% track record of trading positively one particular week of the year doesn’t mean it will do that this year. Trading always involves risk, no matter what the historical data is telling you.

Ollie’s Bargain Outlet (OLLI) has traded positively over the next four-week period 100% of the time over the last seven years. The average gain was 16.20% during that time. A 21-JUL $60 call is going for about $5.20.

Next is the Performance Food Group (PFGC). The stock has traded higher over the next four-week period 85% of the time during the last 7 years. The average gain was 9.63%. A 16-JUN $60 call option is trading for about $4.30.

Last is Lantheus Holdings (LNTH). Over the last seven years, LNTH has risen in this next four-week period 85% of the time and it has an average gain of 10.18%. The open interest for the 21-JUL options is light and the options are more expensive than the other two stocks. To cut the cost, you can convert this into a debit spread. You can buy a 21-JUL 85 / 100 debit spread for about $5.80.

These trade ideas may not fit the bill for everyone, but you have three trade ideas for stocks that have historically gone up over the next four weeks. Will this year be the same? How would you trade them knowing the information you now have?

If you have any questions, comments, or anything we can help with, reach us at any time.
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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation. 

 

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