The Dow Jones Industrial Average (DJIA) -- the U.S. stock market's blue-chip barometer -- is on pace to finish lower for a fifth consecutive day, slumping as anxiety creeps higher ahead of Donald Trump's inauguration tomorrow. This marks its longest losing streak since early November. Schaeffer's Senior Quantitative Analyst Rocky White compiled data on Dow losing streaks of five days of more, going back to 2010, comparing the returns over subsequent weeks and months to the blue-chip index's anytime returns.

As you can see in the tables above, the Dow has tended to outperform following a streak of at least five down days. The percent positive for returns in the session immediately following a five-day losing streak is slightly lower -- and below 50% -- suggesting that there's an increased chance the streak continues to at least a sixth day. But, at every time frame further out, the post-losing-streak Dow is positive more often than the anytime Dow, with higher average returns.

In fact, three months after a losing streak of at least five days, the Dow has averaged a return of 4.7%, and been positive 81.8% of the time -- a significant outperformance compared to the index's three-month anytime average return of 2.3%, positive 70.1% of the time. Plus, standard deviation after a losing streak remains more or less in line with its anytime figures, suggesting little change in volatility is to be expected.

In this table, you can see the return after each losing streak of five days or more, going back to 2010. This encompasses 23 prior signals in all. The two most recent streaks saw a negative one-day return, indicating the Dow's losing streak extended beyond five days. In fact, both of these occurrences saw the Dow drop for seven days in a row. But per the table below, which shows the longest losing streaks since 2010, the Dow has not closed lower for more than eight consecutive sessions, going back to 2010.

Even though the longer-term outlook appears optimistic after a losing streak of at least five days, there is still reason to be hesitant in the near term. After all, the Dow Jones Industrial Average has historically turned in a negative performance the week before AND the week after a presidential inauguration, going back to 1937. 

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!

As with this casino stock, bullish options traders should be wary of NRG Energy Inc (NYSE:NRG) heading into tomorrow's presidential inauguration of Donald Trump. The stock is one of the worst performing S&P 500 Index (SPX) components in the week subsequent to inaugurations. Specifically, the shares have finished lower in each week following the past three ceremonies, shedding 2.2%, on average -- unlike these two outperforming oil stocks.

Today, NRG is managing to buck the broad-market headwinds, up 0.5% at $15.33. And, since Trump's election to the presidency, the stock has been on fire, tacking on 33.7%. Earlier this week, in fact, the shares hit a six-month high of $15.92.

That said, NRG is sitting in the proverbial danger zone. Given its 14-day Relative Strength Index (RSI) of 79.4, the stock is in overbought territory, suggesting a near-term pullback could be in the cards. This, coupled with the equity's historic post-inauguration struggles, could lead to a wave of selling in the sessions ahead.

If that happens, a capitulation among the bulls could exacerbate losses. For example, there's plenty of room for future downgrades, considering five analysts rate NRG a "strong buy," compared to three "holds" and not a single "sell." Similarly, short sellers have been hitting the bricks en masse, with short interest down 34% in the most recent reporting period. If the shares pull back, however, these short sellers could be reinvigorated.

Based on the considerations above, it may be a good time to buy put options on NRG Energy Inc (NYSE:NRG). Adding to the appeal of options buying -- whether puts or calls -- is the fact that volatility expectations are relatively low among short-term strikes. Specifically, the stock's Schaeffer's Volatility Index (SVI) of 42% sits in the bottom one-tenth of all readings from the last year.

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!

It's fairly well-known that bank stocks have put in a strong performance since the early November U.S. presidential election. In fact, the banking sector -- as measured by the Financial Select Sector SPDR ETF (XLF) -- is near the top of our internal Sector Scorecard, with 95% of the stocks we follow under the bank umbrella trading north of their 80-day moving average. This positive price action has been witnessed in the SPDR S&P Bank ETF (KBE), which has surged nearly 22% since its Nov. 8 close at $34.94 to trade at $42.55, and is fresh off a Jan. 3 eight-year high of $44.56. Nevertheless, options traders have been getting antsy, bracing for a longer-term pullback in the bank exchange-traded fund (ETF).

Today, for instance, KBE puts are trading at nearly six times the average intraday pace, with roughly 6,400 contracts on the tape. Per Trade-Alert, this marks the second straight day of elevated activity at the ETF's June 41 put. Specifically, one block of 5,000 June 41 puts was bought to open yesterday for $2.10 apiece, while it looks like a 5,500-contract lot was seemingly purchased to open today for $1.90 each. In other words, these put buyers each paid $1.05 million (number of contracts * premium paid * 100 shares per contract) to bet on a move below $41 by June options expiration.

This penchant for puts is echoed among short-term traders, based on KBE's Schaeffer's put/call open interest ratio (SOIR) of 1.45 -- in the 66th annual percentile -- meaning puts outweigh calls among options expiring in three months or less. This slightly elevated reading is likely due to the large amount of open interest at KBE's March 40 put, where 7,563 contracts currently reside. Trade-Alert indicates the bulk of these options were bought to open in early December, when the shares were hovering near $42.

Now, it's certainly possible some of the activity at these out-of-the-money puts is a result of SPDR S&P Bank ETF (KBE) shareholders -- or those long bank stocks -- using options to hedge against any downside risk. Regardless, now appears to be an opportune time to purchase premium on KBE, as its Schaeffer's Volatility Index (SVI) of 24% ranks in the 22nd annual percentile. Simply stated, low volatility expectations are currently priced into the ETF's near-term options, a potential boon to buyers.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

The stock market has been on fire since the Nov. 8 U.S. presidential election, due to what many have dubbed the "Trump rally." While fewer than 50 trading days have passed between then and now, the major market benchmarks have all explored record-high territory -- and could continue to do so, if history is any guide -- with the Dow coming within a whisper of the psychological 20,000 mark. As such, all eyes will be on D.C. on Friday, when Donald Trump will drop the "-elect" from his newly won title, and be inaugurated as the 45th president of the U.S. As such, market watchers will likely be keeping an eye on the VanEck Vectors Russia ETF (RSX), the PowerShares DB U.S. Dollar Bullish ETF (UUP), and the SPDR Gold Trust ETF (GLD), which all have ties to the president-elect.

VanEck Vectors Russia ETF (RSX)

The RSX was one of the top performing foreign exchange-traded fund's (ETF) in 2016, adding more than 45% -- while the VanEck Vectors Russia Small-Cap ETF (RSJX) turned in the best performance, doubling in value. With Trump taking a friendlier tone toward Russia than his Democratic counterpart Hillary Clinton, RSX surged nearly 16% from Nov. 9 to Dec. 31 -- and hit a two-year high of $21.99 along the way -- to settle atop its 36-month moving average for two straight months, and close out December north of $21, home to its 2015 highs, March/October 2014 lows, and the late-2008 post-bear gap highs. Though the shares have extended this upside into the new year, they're currently flirting with a 2.4% week-to-date loss to trade at $21.18 -- and test their 20-day moving average, which has ushered RSX higher since the U.S. election.

Short-term traders are decidedly put-heavy toward RSX, per the ETF's top-heavy Schaeffer's put/call open interest ratio (SOIR) of 2.73 -- in the 97th annual percentile. This is likely due to the massive amount of open interest at the deep out-of-the-money January 2017 15- and 17-strike puts, where more than 67,000 contracts collectively reside. Longer term, the May 21 put has seen the largest rise in open interest in the past 10 trading days on the VanEck Vectors Russia ETF, with 8,331 new contracts added.

PowerShares DB U.S. Dollar Bullish ETF (UUP)

After matching a seven-year high of $26.83 on Jan. 3, UUP has been on the decline -- down 3% -- most notably due to yesterday's sharp pullback following Trump's comments that the U.S. dollar was "too strong." Nevertheless, the ETF found a foothold in the $26 region, and closed Wednesday at $26.16, a former area of resistance that is home to a 50% Fibonacci retracement of its early November-to-January rally and its 2015 close.

Traders, it seems, have been bracing for more Trump-related turbulence for the dollar. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), UUP's 10-day put/call volume ratio of 0.72 ranks in the 75th annual percentile, meaning puts have been bought to open over calls at a faster-than-usual clip in recent weeks. Plus, put open interest across all options series is docked just 5 percentage points from a 52-week peak, with 215,344 contracts outstanding.

In the front-month series -- which expires at the close on Inauguration Day -- peak put open interest of 22,390 contracts resides at the January 2017 26.50-strike put. While Trade-Alert indicates a significant portion of these puts was bought to open on Tuesday, Jan. 10 -- when the PowerShares DB U.S. Dollar Bullish ETF was trading near $26.37 -- it also suggests they may be tied to UUP shares.

SPDR Gold Trust ETF (GLD)

GLD has been moving higher since putting in a post-Fed bottom at $107 in mid-December. In fact, the shares have surged 8% since hitting this Dec. 15 low, including yesterday's 1.4% pop as the U.S. dollar staged a Trump-induced retreat. What's more, Tuesday's daily win was GLD's 13th out of 15 sessions, the first triumph of its kind since 2011. Plus, the ETF is now back above the $111-$112 area -- which marks a 61.8% Fibonacci retracement of GLD's December-to-July rally, and supported pullbacks in late 2014 and early 2015 -- as well as the $115 region, home to a 50% retracement of the early 2016 surge, which served as a floor in 2013 and early 2014. On Wednesday, GLD closed at $114.87.

Despite GLD's encouraging bounce, call traders have been tapping the proverbial brakes on the ETF. In fact, since topping out at a 52-week peak of 3.7 million contracts outstanding on Nov. 18, call open interest has declined 25% to 2.8 million calls, in the tepid 35th annual percentile.

Nevertheless, those purchasing the ETF's near-term options are scoring a relatively good deal. While SPDR Gold Trust ETF's 30-day at-the-money implied volatility of 13.6% ranks lower than 93% of all comparable readings taken in the past year, its Schaeffer's Volatility Index (SVI) of 14% ranks in the 19th percentile of its annual range. Summing it all up, low volatility expectations are currently priced into GLD's short-term options.

Schaeffer's Expiration Week Countdown subscribers just made 97.5% GAINS on SPDR Gold Trust (GLD) puts! Sign up now for a trial subscription.

The S&P 500 Index (SPX) performance immediately after a presidential election has been a pretty good indicator for how stocks perform in the six months after Inauguration Day, as Schaeffer's Senior Quantitative Analyst Rocky White pointed out earlier this week. However, if history is any indicator, the SPX and its fellow major market indexes could be at risk of a short-term speed bump -- and the market's "fear gauge" could jump -- after Trump swears in on Friday, Jan. 20. Below, we'll outline some historical stats on how the SPX and its peers tend to perform leading up to and after Inauguration Day, and list more than 40 stocks to watch before the inauguration. (And while you're at it, check out these 3 exchange-traded funds that could move as the Trump winds blow.)

The table below lists all the SPX stocks that have been positive every single pre-inauguration week going back to 2000. Medical supplier Hologic, Inc. (NASDAQ:HOLX) has been the best performer, averaging a return of more than 10.5%. In the past week, so far, HOLX is down 1.82%, but remains within striking distance of its annual high of $41.01, tagged in mid-December. Meanwhile, many consumer staples stocks ("Food Bevgs Soaps") tend to outperform leading up to inauguration.

That said, there are 15 SPX stocks that have never ended pre-inauguration week in the black. Bank stock Capital One Financial Corp. (NYSE:COF) has suffered the most, averaging a one-week drop of 7.42%. In the past week, COF has dropped about 2.1%. A few other banks/finance stocks also made the list, including Bank of New York Mellon Corp (NYSE:BK), which reported earnings this morning. Also notable, big-cap stocks Boeing Co (NYSE:BA), AT&T Inc. (NYSE:T), and Verizon Communications Inc. (NYSE:VZ) tend to perform poorly leading up to Jan. 20.
 

Going back to 1937 -- the first time Inauguration Day was on Jan. 20 -- the SPX has averaged a slimmer-than-usual return in the week before inauguration (which does not include the Inauguration Day return). The Dow Jones Industrial Average (DJIA), meanwhile, has averaged a loss of 0.18% in this week. Still, both indexes ended the week higher 65% of the time. 

The tech-rich Nasdaq Composite (COMP) tends to outperform leading up to Inauguration Day -- as it did yesterday -- averaging a gain of 1.18%, going back to 1972 (when we first have data), and positive 73% of the time. That's much bigger than the COMP's anytime one-week average return of 0.21%. The CBOE Volatility Index (VIX) tends to drop in the week leading up to inauguration, averaging a loss of 1.7% going back to 1993 (when we first have data), and positive only 33% of the time, indicating lower-than-usual volatility expectations. 

The week after a presidential inauguration (which does include Inauguration Day returns), however, all three major indexes tend to underperform, averaging a modest loss, compared to average anytime one-week gain. The Dow has been positive just 45% of the time during the week after a president takes office. The VIX, meanwhile, averages a slimmer-than-usual gain of 0.63%, but has ended the week higher two-thirds of the time -- much more than usual. So, if history repeats itself, stocks may be in for a pullback -- and volatility expectations could rise -- after President-elect Trump takes office on Friday.

Sign up now for a trial subscription of Schaeffer's Expiration Week Countdown! We'll send you 5 trades for expiration week, each targeting double- or triple-your-money gains in less than 5 days.

While many stocks have rallied to notable highs in the months since the presidential election in the U.S., some have attracted more analyst nods than others. Among names that have recently hit important milestones, but hold unusually bearish ratings from the brokerage bunch, are agricultural equipment maker Deere & Company (NYSE:DE), oil-and-gas stock Transocean LTD (NYSE:RIG), and chipmaker Texas Instruments Incorporated (NASDAQ:TXN). What's more, the overall sentiment setups on all three stocks suggest DE, RIG, and TXN could have more room to run.

Beginning with DE, the shares hit an all-time high of $106.75 earlier this month, and have since pulled back to support at the $104 level, which corresponds with the 20-day moving average. Nonetheless, two-thirds of analysts maintain a "hold" or "strong sell" opinion on the stock, closed last night at $105.24. What's more, the average 12-month price target of $101.75 sits at a discount to current levels. A round of upgrades and/or price-target hikes could send the stock on to higher highs. Sure enough, DE received a price-target hike to $106 from Deutsche Bank yesterday, and this morning Credit Suisse boosted its target to $132. 

There's plenty of pessimism elsewhere, as well. Though short interest fell by 29% during the two most recent reporting periods, it would still take more than eight sessions to cover the remaining short positions, based on DE's average pace of trading. And looking to the options pits, Deere & Company has a Schaeffer's put/call open interest ratio (SOIR) of 2.66 -- meaning put open interest nearly triples call open interest among options in the front three months' series. Moreover, this ratio sits higher than 78% of all readings from the past year. An unwinding of these seemingly bearish positions could give the stock an extra boost.

RIG tapped an annual high at $16.66 just over a month ago, and has since remained in the $14.50-$16 region, perched above the 20-day moving average. Though the shares shed 1.9% Wednesday to trade at $15.30, RIG could be gearing up for a big week ahead. According to Schaeffer's Senior Quantitative Analyst Rocky White, the stock has been among the top 25 S&P 500 Index (SPX) stocks in the week following a presidential inauguration, going back to 2000. In fact, over this time period, the stock has finished every post-inauguration week positive, averaging a 2.4% gain.

In spite of the security's recent run higher, 19 out of 22 analysts call RIG a "hold" or worse. And the 12-month consensus price target is well underfoot, at $12.60. Short interest on the stock remains elevated, too, accounting for 16.2% of RIG's total float. Meanwhile, the stock's SOIR of 1.65 ranks in the 86th percentile of its annual range.

Given the potential for an unwinding of bearish sentiment among brokerage firms and traders, RIG looks to be presenting an appealing opportunity for contrarian option bulls. After all, the stock has a Schaeffer's Volatility Index (SVI) of 46% -- in the low 10th percentile of its annual range -- suggesting near-term options are currently well-priced, from a volatility perspective. Plus, Transocean LTD's Schaeffer's Volatility Scorecard (SVS) sits at an elevated 74, indicating options have tended to underprice the equity's ability to make big moves over the past 12 months.

Finally, TXN hit a 16-year high above $75 last Friday after a recent pullback found support at the $73 level and 40-day moving average. The shares have eased back slightly, finishing Wednesday at $74.38. Still, more than half of the brokerages tracking the stock give it a "hold" opinion or worse. And though short interest has been falling in recent months, it would still take nearly a week for short sellers to buy back their remaining positions.

TXN also has a SOIR of 1.66 -- in the 90th percentile of its annual range. And it looks like put buying has picked up in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has seen more than 2.5 puts bought to open for each call in the past 10 sessions. That leaves plenty of room for an unwinding to pessimism to keep TXN's rally alive. The equity could be ready to make another move soon, too, as Texas Instruments Incorporated is due to report earnings after the close next Tuesday.

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!

Stocks have had quite a rally since the November election. The S&P 500 Index (SPX) is up about 6% since then. This week, I will look at how the current rally compares to other post-election rallies. Also, is the recent price action any indicator for what might happen after the inauguration? Is the rally an omen for the rest of the year or the next four years? Or does it indicate expectations are getting a little too hopeful for the next administration, and the gains have already been had? 

Stocks Election to Inauguration: In 1937 (after the 1936 election), Inauguration Day was moved from March 4 to Jan. 20. I went back to that point to see how the SPX has normally performed between the election through inauguration. For comparison, I looked at non-election years from the second Tuesday in November through Jan. 20 of the next year (the comparable time frame in election years), as well as anytime 50-day returns (on average, there have been about 50 trading days between a presidential election and Inauguration Day).  

Per the chart below, stocks have tended to underperform from the election until the inauguration, at least by the S&P's average return of 0.44%. By other metrics, like percent positive, the returns have not been so bad. The reason for the underperformance is that the average positive of 4.25% is lower than the other two columns, and the average loss of 6.64% is bigger (in magnitude) than the other two columns. So, the sharp rally we've seen so far this year is out of the ordinary.

The chart below shows the performance of the S&P 500 since the recent election, and compares it to the average path of the index following past elections going back to 1936. I also show how the index has done when a new party takes control of the White House. Stocks right away surged after this past Election Day, but have been pretty flat over the last month. Interestingly, stocks usually do poorly immediately following the election, and then trudge higher to a small gain before the inauguration. The typical return after a new party takes power is pretty close to the average anytime return, except that it declines in the last few weeks before inauguration to a small loss overall. I guess it is fitting that stocks are acting differently than normal, since the last election was different than normal.

Going Forward: The tables below show how the SPX has done after Inauguration Day. The first table, summarizing the six months after Jan. 20, shows stocks have tended to struggle after there is a change of party in the White House. The S&P 500 has averaged a six-month gain of 0.3% in these instances, with just 37.5% of the returns positive. The second table shows how the S&P 500 has done for the rest of the year. Again, a change in party has not typically been good for stocks in the first year. One thing to note is that stocks show less volatility than usual in the six months after an election when a new party takes power. However, for the full year, there is more volatility in election years, as measured by standard deviation. Evidently, the volatility comes in the second half of the year.

So, what does a rally mean after the election into Inauguration Day, like we saw this year? The tables below are encouraging. The performance of the SPX immediately after the election has been a pretty good indicator for what has happened after the inauguration. When the index has been up by at least 4% from Election Day through Jan. 20, it has averaged a gain of 6.36% over the next six months, and 9.93% over the remainder of the year. This easily outperforms the other scenarios. When the index has been negative after elections, it has done poorly over the next six months and a year.        

Finally, can stocks' returns from the election to inauguration tell us anything about the next four years? Probably not, but let's look at the numbers for fun. Again, when stocks have done well right after an election, the next four years have done pretty well, too. The SPX has a double-digit annualized average return when the index is up at least 4% after the election. Five of the six returns have been positive. Unlike the tables above, though, when stocks are down post-election, you do not see the poor returns going forward for the next four years like you do in the next six months to a year.

Sign up now for a trial subscription of Schaeffer's Expiration Week Countdown! We'll send you 5 trades for expiration week, each targeting double- or triple-your-money gains in less than 5 days.

Greetings! I haven't chimed in for a while, but you have all done a great job keeping the CBOE Volatility Index (VIX) in check in my writing absence. But with an imminent cosmic Trump sea change on the horizon, we all have questions. Such as this:

"Since the guy's a bit of a wildcard, can we expect to see a steady volatility ramp (or endless spikes)? Or does the likelihood of a 3 a.m. Twitter rant against Pyongyang just get priced in during one big fell swoop, and it's smooth sailing from there?"

Short answer is yes, I expect volatility to lift. But I don't necessarily think it will happen because of President Trump, per se. Or, a better way to say that is: I would expect a rising volatility trend in the next four years, Trump or not. He may (OK; he will) exacerbate that, but given we have no control universe where he's not president, it will prove difficult to measure.

It's rough to see much into the VIX's future. We are all generally guided by the recent past. In fact, the single best way to "guess" at the market's volatility assumptions going forward is to look at the current realized volatility backdrop... and then add a few points, because the market net-net almost always expects higher volatility tomorrow than it sees today. Don't believe me? Watch financial TV for a day, and jot down any time someone gets asked what they see for volatility going forward. Dollars to doughnuts, they expect it to go higher.

Don't have the patience to watch much financial TV? I don't blame you. Good thing there's an objective way to gauge future volatility expectations. Just look at VIX futures! Here's the current VIX term structure, courtesy of VIX Central.

Volatility is definitely going to lift! VIX futures are all-knowing, and they see upticks as far as the eye can see. But alas, as we just noted, the market always expects higher vol out in time. And that's especially true at low VIX levels.

Here's Jan. 6, right after the monthly jobs report came out, versus two other moments in time with similarly low VIX levels. One is in August 2016, with the election season about to heat up. The other is in August 2015, with virtually no political volatility attached (because, as we all knew, the Trump Show would go away soon and Jeb and Rubio would fight it out for the nomination).

Our current curve sits between the older two, which makes some sense. The best analysis is that the market prices in some "Trump Vol Premium," but nothing all that noteworthy.

And remember, volatility futures are almost always wrong. They have predicted about 1,000 of the last 10 volatility spikes. They also only predict lasting VIX trends. Short-term VIX pops can and do occur somewhat often; maybe two to four times, in a typical year. A VIX future technically doesn't hedge you against that, unless you time the VIX pop almost perfectly (e.g., owning September VIX futures won't do you much good if it pops in April).

What's more, VIX futures won't help much in a very short-term, Trump tweetstorm-related vol pop. So I'm going to throw all of this out, and lay out my volatility expectations for the next four (gasp) years.

The uncharted waters we now face will likely produce more frequent VIX pops than we are accustomed to seeing. But that may have happened anyway. That's because, in the long-term picture, we are quite overdue for a more lasting VIX pop, Trump or not. Here's VIX back to 1993, using the 30-day moving average in order to smooth out the fluctuations a bit.

We tend to move in volatility "regimes" of four to six years. We started in a bit of a low regime, which begat a high regime in the late '90s and early '00s. That switched, in 2003 or so, into about four years of low VIX, then about three years of high VIX.

Long story short, we're now about six to seven years into a low VIX regime.

This is all very inexact, of course. Looking back with the benefit of time, perhaps the high VIX regime that started in 2007 really lasted into 2012. That means we're "only" five years into low VIX... which still suggests a lasting volatility storm will come soon.

So, I'm going to make some general predictions here.

The median VIX, over the course of forever, is 17.91. In 2016, the median was 14.31 -- similar to the sub-normal levels of the last few years. I predict that number moves higher in 2017, and trends higher still over the next few years.

I will not predict how often VIX makes short-term spikes, or remotely when they occur. They take us by surprise, almost by definition. But I do expect we see them more frequently going forward.

We tend to correlate all market moves to something news-related. And since Trump will remain in the news, said spikes may correlate to things he does, or says, or tweets. But it's likely more a byproduct of a rising volatility tide that would have happened anyway.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

Find out how you can profit from volatile short-term moves with Schaeffer's Weekly Options Trader.

 "... we are seeing optimism come into the market, which usually occurs prior to a sell-off or trading range behavior... For example, newsletter advisor optimism, per a survey by Investors Intelligence (II), is at the highest level since July 2014... The data suggests that the optimism isn't necessarily an alarm bell for bulls to exit, but it does suggest that the expected returns over the next days and weeks are flat, and far below the 'normal' returns for various time frames."
    -- Monday Morning Outlook, December 19, 2016

"This week, Morgan Stanley published a report titled, 'Buy the Election and Sell the Inauguration?' It looks at the possibility that even if earnings growth continues to pick up after Trump takes office, the stock market's price-to-earnings ratio could contract due to higher uncertainty and rising interest rates."
    -- Barron's, January 6, 2017

"Technically, stocks continue to look healthy, as they digest post-election gains. But the sentiment backdrop suggests they are more vulnerable than usual to negative headlines, so ensure that you are prepared for a setback, with Dow 20,000 continuing to loom overhead amid a loss of leadership in the small- and mid-cap spaces."
    -- Monday Morning Outlook, January 9, 2017

The above excerpts from my weekly market commentaries and Barron's are intended to give you a flavor for where we have been from a sentiment and technical perspective (Dow 20,000 remains untouched) during the past few weeks, and what lies immediately ahead -- including the inauguration of President-elect Donald Trump at the end of the week.

As we cautioned in mid-December, increasing post-election optimism among traders, combined with round-number resistance overhead, suggested equities were vulnerable to trading range behavior at best, and, at worst, a short-term pullback. Fortunately for bulls, amid the increasing optimism, price action since mid-December can be characterized as a trading range environment.

Might resolution in one direction or the other be imminent, perhaps beginning Friday with the inauguration? Or, with the number of companies reporting quarterly earnings -- and, perhaps more importantly, outlooks for next year -- market participants may give an overall "thumbs up" or "thumbs down" based on what they see and hear, effectively releasing the S&P 500 Index (SPX - 2,274.64), S&P MidCap 400 Index (MID - 1,687.40), and Russell 2000 Index (RUT - 1,372.04) from their respective narrow ranges.

To be fair, some indexes are not range-bound -- notably, the Nasdaq-100 Index (NDX - 5,059.51), a benchmark for large-cap technology stocks that we discussed last week, continues to ascend above the 5,000 mark.

$SPY Has not closed above $227.76, its 12/13 close day before Dec FOMC- rejections 12/15 and so far this week $SPX

— Todd Salamone (@toddsalamone) January 12, 2017

For 6 consecutive days, pre-FOMC close (12/13) on $RUT has acted as resistance. YTD '17 break even/40dayMA supportive this past week pic.twitter.com/ApBcOCbZg2

— Todd Salamone (@toddsalamone) January 13, 2017

Another event in the not-so-distant future is the Federal Open Market Committee (FOMC) meeting, which occurs Jan. 31-Feb. 1. I mention this because there has been a lot of talk lately about the "Trump rally." This doesn't come as a major surprise, as the SPX is up about 8.5% since the election, he held his first press conference since being elected last week, and his inauguration is just days away. In fact, the area 10% above the SPX's pre-election close, at 2,293, is one to watch, as short-term traders who were long into the election may seek to lock in profits around this level.

However, the SPDR S&P 500 ETF Trust (SPY - 227.05), an exchange-traded fund (ETF) that is the second most active security among individual stocks and ETFs, made its closing high on Dec. 13 -- the last trading day before the FOMC raised rates and upped its forecast to three rate hikes this year, compared to the two hikes predicted in its previous forecast. It is interesting that in the two immediate days after the FOMC meeting, as well as last week, the SPY failed to close above the Dec. 13 closing level.

Coincidentally, the SPY's Dec. 13 close is also 10% above the 2015 year-end close (see top pane in chart below), and this round-number percentage gain area was something we were noting as potential resistance last month. The SPY continues to "dance" around this area.

As we noted last week, the MID and RUT have behaved similarly to the SPX and SPY. The below RUT chart displays a dance around the Dec. 13 close, with a few closes above this level that were not sustained. Like the SPY, the RUT's Dec. 13 finish coincides with an area that is a round-number percentage gain above the 2015 close; in this case, 20% (first pane in graph below). The RUT's 40-day moving average acted as support at last week's low.

"The (SPY) $225 level coincides with S&P 500 Index (SPX - 2,259.53) 2,250, a half-century mark -- and such half-century marks have historically acted as magnets during trading range behavior and/or key pivot areas after a big advance or pullback (see chart below). The importance of these half-century levels could be due to the heavy open interest that tends to build up on SPX and SPY options at these strike prices that represent half-century levels on the SPX. "
    -- Monday Morning Outlook, December 12, 2016

It is also of interest that the SPX continues to flirt with the half-century 2,250 level, which is equivalent to SPY $225. In fact, this was the area of last week's low. As we mentioned last month, SPX half-century marks have historically acted as magnets during trading ranges, or have served as major pivot points when reversals occur.

We hypothesized that one reason these levels could act as magnets and/or major pivot areas is due to the open interest that tends to build at half-century strikes on the SPX, or midpoints between round numbers on the SPY. That said, standard January options expire on Friday.

From a purely options-related perspective, this is not the kind of open interest configuration that has existed when we have experienced sharp, swift sell-offs in the week of or before expiration during the past few years. In other words, we do not see big put open interest strikes immediately below the market that dwarf call open interest, which are the kind that tend to act as magnets during sell-offs (especially when an enormous put open interest strike is broken and there are other fairly heavy open interest put strikes below).

If we break below the narrow range we have been in, the SPY could visit $220, where there is large call and put open interest. A move to this area would not be helped along, however, by anything related to the current SPY open interest configuration. The same is true if a sharp advance occurs. The SPY 230 strike (equivalent to SPX 2,300) is home to big call open interest, which could act as a magnet if expiration week bulls come out in full force. However, keep in mind that the $229 area is 10% above the pre-election close, and thus a potential profit-taking area.

In the absence of a catalyst, however, the SPY is at risk of chopping around in its current range. From a sentiment perspective, risk remains to the downside -- but with equities trading near all-time highs, that risk is downgraded until there is a degradation in the technical backdrop.

Continue reading:

• Indicator of the Week: The Sentiment Signal Flashing for the Second Time Ever
  
• The Week Ahead: Trump Inauguration, Blue-Chip Earnings In Focus

Sign up now for a trial subscription to Schaeffer's Expiration Week Countdown! We'll send you 6 trades for expiration week, each targeting double- or triple-your-money gains in less than 5 days.

U.S. stocks appear poised to bounce back on strong inflation data, with the Fed in focus. Among specific equities in the spotlight are financial stock Goldman Sachs Group Inc (NYSE:GS), retail interest Target Corporation (NYSE:TGT), and IT issue Gigamon Inc (NYSE:GIMO). Here's a quick look at what's driving GS, TGT, and GIMO.

• GS reported earnings and revenue above analysts' expectations, thanks to a surge in trading revenue during the post-election market rally. The shares are up 0.5% ahead of the bell, but the generally lukewarm brokerage bunch has yet to weigh in. Goldman Sachs Group Inc shares were hit hard on Tuesday, putting the bank stock in negative year-to-date territory, at $235.74. And options traders may not mind if the losses keep coming. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GS has a 50-day put/call volume ratio of 0.70 -- just 4 percentage points from an annual bearish high.

• TGT is sliding 3.5% in pre-market trading after the company slashed its current-quarter outlook following disappointing holiday sales -- a prevailing trend among retailers. At $70.94, the stock is just above its year-over-year breakeven level, but a breach of support at the round $70 mark could spell more trouble for the shares. Analysts have already been broadly bearish toward Target Corporation, with 10 out of 15 firms calling TGT a "hold" or "strong sell," but the average 12-month price target of $78.00 stands at a 10% premium over current levels, suggesting a round of price-target cuts could be ahead.

• GIMO is set to drop nearly 23% at the open, after the company said it expects to fall short of fourth-quarter guidance when it reports earnings just over two weeks from now. The news has already earned Gigamon Inc price-target cuts from Credit Suisse, Needham, and Stifel, with the latter setting the lowest bar, at $40 -- a level the shares haven't breached in nearly six months. Should these losses materialize, GIMO may also find itself below the 200-day moving average -- a recent layer of support -- for the first time since last February. And that's just fine with short sellers. These bearish bets edged higher in the most recent reporting period, and currently represent 8.9% of GIMO's total float, or more than a week's worth of buying power, at the stock's typical daily volumes. 

Stay on top of overnight news & big morning movers. Sign up now for Schaeffer's Opening View.

Medical waste management specialist Stericycle Inc (NASDAQ:SRCL) was downgraded by Goldman Sachs back in November, an event that corresponds with the first of double-bottom lows for the stock at the end of 2016. Moreover, this bottom occurred near the $75 area, which is half the shares' all-time high. More recently, the shares broke through both the 80- and 100-day moving averages for the first time since March 2016. Not only that, but SRCL was removed from the Nasdaq 100 Index (NDX) in December, and our studies suggest such stocks tend to outperform going forward.

 

As the stock's technical setup turns more bullish, bearish traders may be caught off guard. For instance, short interest equates to more than six days' worth of buying power, going by average daily volumes. However, these bearish bets declined during the past two reporting periods. SRCL could continue to rise as short sellers cover their positions.

This pessimism is seen elsewhere. For one, the stock's Schaeffer's put/call open interest ratio (SOIR) comes in at 1.35, ranking above three-fourths of readings from the past year. This indicates near-term options traders are more put-skewed than normal. Plus, the majority of analysts have a "hold" or "strong sell" opinion on the stock. As such, SRCL could benefit if sentiment begins to shift across Wall Street.

Meanwhile, the stock has a Schaeffer's Volatility Index (SVI) of 23%, which ranks in the 18th annual percentile, on top of a Schaeffer's Volatility Scorecard (SVS) of 82. In other words, low volatility expectations are currently being priced into Stericycle Inc (NASDAQ:SRCL) options, despite the fact the stock has tended to make bigger-than-expected moves on the charts during the past year. Moreover, our recommended call option sports a leverage ratio of 5.5, meaning it will double in value on an 18.1% gain in the underlying shares.

Subscribers to Schaeffer's Weekend Series service received this SRCL commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Series is one of our most popular trading services.

Analysts are weighing in on retailer Nordstrom, Inc. (NYSE:JWN), semiconductor stock Advanced Micro Devices, Inc. (NASDAQ:AMD), and biotech Eli Lilly and Co (NYSE:LLY). Here's a quick roundup of today's bullish brokerage notes on JWN, AMD, and LLY.

• JWN is down 1.3% at $43.76, despite some bullish analyst attention from Credit Suisse, which upgraded JWN to "outperform" from "neutral," and issued a price-target hike to $58 from $48, calling Nordstrom, Inc. "one of the best franchises in the retail sector," and "differentiated from other mall anchors." In addition, the analyst predicted "outsized earnings growth relative to peers." Despite its history of outperforming in the first year of presidential cycles, JWN has stair-stepped nearly 14% lower over the past month, as brick-and-mortar retailers continue to report lackluster holiday sales. There are plenty of shorts rooting against the stock, with nearly 20% of JWN's float sold short, which would take nearly a week and a half to cover, at the equity's average daily volume.
  
  
• AMD is 0.2% higher at $9.83, thanks to a price-target hike to $9 from $7 from Barclays. AMD absolutely crushed it in 2016, but has dropped more than 21% since tagging a nine-year high in late December, and yesterday ended lower for a fifth straight day. In the option pits, Advanced Micro Devices, Inc.'s Schaeffer's put/call open interest ratio (SOIR) of 0.98 is in the 90th percentile of its annual range, indicating near-term options traders are much more put-heavy than usual.
  
  
• LLY is trading up 0.6% at $77.29, after news broke that the biotech would be purchasing CoLucid Pharmaceuticals Inc (NASDAQ:CLCD), which specializes in migraine medications, for $960 million. LLY also received a price-target hike to $92 from $85 by Goldman Sachs -- in annual-high territory. LLY is up 20% since its November lows, though the shares could be running into resistance at their 320-day moving average -- a trendline that blocked several other rally attempts over the past 12 months. In the option pits, Eli Lilly and Co's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 9.67 sits just 8 percentage points from an annual peak, hinting at a much healthier-than-usual appetite for long calls over puts of late.

Don't miss the market's next move! Sign up now for Schaeffer's Midday Market Check.