"On Wednesday, the RSI moved above 80 for the first time since Feb. 21, 2017. Looking back at data for the SPDR S&P 500 ETF (SPY - 277.92) since 1993, this has happened only eight times. Although it is a limited sample size, when RSI reaches this level, the SPY has historically underperformed over one-week and one-month times. The other big takeaway is that the SPY has outperformed over three-month, six-month, and 12-month time frames after RSI reaches 80 or higher."
    -- Monday Morning Outlook, January 15, 2018

Despite reaching an extreme short-term overbought condition two weeks ago, the SPDR S&P 500 ETF (SPY - 280.41) defied historical expectations of an expected 1% pullback, on average, and instead rallied 1.8%. As we saw last week, overbought oscillators lose some effectiveness in a trending market -- and with the SPY only experiencing one close below its 20-day moving average since late August, the prevailing trend overpowered the short-term sell signal.

"In the most recent short interest report, there was finally a tick lower, after a relentless surge in recent reports. This decline in short interest is occurring from around the same level as what we saw prior to the November 2016 elections. I cannot say for certain whether the shorts will continue to cover -- but it does appear that many are playing a losing game, which increases the probability of short covering. Considering how the SPX behaved as it fought headwinds from a build in short interest, just think of its capabilities if the short-selling headwind turns into a short-covering tailwind."
    -- Monday Morning Outlook, October 16, 2017

"Some market observers have dubbed this phenomenon Fear of Missing Out, as stock market records fall on an almost weekly basis. Others refer to a 'melt-up' market, where the prevailing mood is shifting to greed from fear and investors stampede in without worrying much about valuation or fundamentals.”
   -- The Wall Street Journal (subscription required), January 17, 2018

What might be at work with respect to the recent momentum in the market? How about short covering? I've mentioned in several commentaries since at least mid-October that one of the bigger risks to the bear case is the huge short interest on components of several major equity benchmarks and related exchange-traded funds (ETFs), such as the S&P 500 Index (SPX - 2,810.30), PowerShares QQQ Trust (QQQ - 166.34) and Russell 2000 Index (RUT - 1,597.63). And it's not only the large relative short interest on these components, but the fact that the short interest build occurred within the context of many of the underlying stocks advancing -- implying the shorts were in losing positions. 

A fresh look at current short interest suggests that the shorts could be in panic mode, or are being forced to liquidate losing positions. After the election in 2016, we witnessed how short covering could drive stocks, and it appears we are seeing this again in recent weeks.

The series of charts immediately below indicate that the shorts are finally in eye-opening covering mode. And the good news for bulls is that, as of the last report, total short interest on components of the SPX, QQQ, and RUT still has a ways to go before hitting the lows from early last year.

While "FOMO" (fear of missing out) is an acronym you may see and hear in the media in the coming days and weeks to explain the rally, understand that "fear of losing more" could also be at work as underwater shorts bail on losing positions. This is precisely why we created a screen months ago looking for highly shorted stocks in which the short interest build was concurrent with an advance in the equity. Such names as Michael Kors (KORS), Square (SQ), Kohl’s (KSS), Foot Locker (FL), and Cboe Global Markets (CBOE) are just some of the names on this list. 

As we enter this week’s trading, keep in mind that the SPX and RUT are both near round-number levels at 2,800 and 1,600, respectively. More times than not, these century levels can mark brief (or lengthy) hesitation areas within established uptrends. Since the SPX took 2,500, the century-mark levels have acted more as brief, rather than lengthy, hesitation areas. 

At risk of again calling for the current momentum we are seeing weaken in the days ahead, I’d be remiss to fail to mention that the century-mark phenomenon is next up on the technical list as a reason to expect sellers to finally emerge. Stay tuned (and tell everyone that you heard it here first, if this plays out).

In the meantime, stay long those equities that are highly shorted and displaying favorable price action. Try to concentrate your holdings on those equities where you see evidence that shorts are in covering mode. 

While short-covering makes a strong bull case for the days and weeks ahead, other sentiment indicators are showing optimism -- such as the ratio of equity call buying to put buying, in addition to various surveys, such as Investors Intelligence and the National Association of Active Investment Managers (NAAIM). However, optimism in a bull market like this is expected, and is less meaningful in its implications relative to optimism when there is evidence that the technical backdrop is deteriorating. Nonetheless, if the optimism/unwinding of pessimism is concerning you, continue to use call options to play equities with perceived upside as a way to both manage risk and participate in the underlying uptrend. 

If you buy calls, stay in tune with how equity options are priced for different expiration periods, since earnings season is here. Options with expirations that occur simultaneously with or just after an earnings report will be priced higher from an implied volatility perspective than options expiring before or well after the underlying equity‘s earnings report.

Continue reading:

• Indicator of the Week: Popular Stock Market Indicator Calls for Big February Gains
• The Week Ahead: Netflix, Blue-Chip Earnings, GDP Headline Busy Week

The final stretch of 2017 started with a bang for our Weekend Trader options recommendation services, as traders closed out three winners in three days. First, our Dollar Tree (DLTR) call option was closed out at a 102% gain on Nov. 29, less than two months after it was initially recommended. Then, on Nov. 30, a Kroger (KR) call option hit its target for a 104% return in a little over two weeks, while a Progressive (PGR) call rounded out the trifecta on Dec. 1 by doubling in value in just under six weeks.

These three trades were spread across our Weekend Trader Series and Weekend Trader Alert subscriptions, which follow an identical methodology -- find intermediate-term option-buying opportunities that are set to deliver 100% returns within one to four months. This approach typically (but not always!) leads our traders toward in-the-money calls and puts, which provide leverage on directional moves while offering comparably lesser risk of a total loss relative to an out-of-the-money alternative.

With two more trades closed out at target profits within the past week, as of this writing, there's clearly something going right with this strategy. To find out more, we sat down with the experts behind Weekend Trader: Schaeffer's Senior VP of Research Todd Salamone, Senior Quantitative Analyst Rocky White, and Quantitative Analyst Chris Prybal.

It was obviously a good year for the stock market in 2017, but what kind of environment was it for the Weekend Trader strategy? What were the advantages and disadvantages?

Todd Salamone: In most instances, implied volatility on equity options was relatively low, which means option prices were cheap, and gives the option buyer more profit potential on directional moves in his favor.

It would be easy to say the strategy did well because the market was higher, but that isn’t necessarily true. The strategy focuses on three- to six-month options, three- to four-month options, and nothing more expensive than one-year options. There were 2 two-month stretches where the S&P 500 Index (SPX) did very little on a net basis -- late February through late April, and mid-June through August. However, there was enough rotation in the market where the analysts here were able to find hot stocks and sectors throughout the year, as well as "cold" sectors and stocks on a few put plays -- which paved the way to a successful 2017.

Did you find you had to adjust your usual approach to fit the market environment -- playing more calls than puts, for example? 

TS: Naturally, in a market that grinded higher with little downside, we found more call opportunities. But we did find some stocks that were major underperformers and carried more downside risk, in our assessment, so we tried our best to take advantage of such opportunities as they arose. However, there were a few occasions during the year when we carried no puts, which is not something we are entirely comfortable doing.    

What kinds of "dealbreakers" have iced otherwise-appealing trade setups?   

TS: Frequently, we would see underperforming stocks that were potentially ripe for a put play, but we found the chart was too choppy for a two- to four-month option premium -- meaning we didn’t see enough reward for the risk we would be advising our subscribers to take. Sometimes, such opportunities were better suited for one of the real-time trading recommendation programs that we offer with much shorter holding periods, such as Overnight Trader or Weekly Options Trader.

Another deal-breaker on occasion was a major event around the corner, such as earnings, which made the options more expensive than usual. 

Which indicator or signal might tip the scales in favor of a particular stock? 

TS: If we're weighing several candidates, it might be the underlying with the most favorable options pricing or a higher Schaeffer's Volatility Scorecard (SVS) rating. The SVS is a proprietary scoring system that we use internally to rate the historical tendency of an underlying to produce favorable returns for option buyers.

DLTR call was recommended on Oct. 13 -- the same day the stock was downgraded. Did this impact your recommendation at all?    

TS: We actually noted that the stock was holding above the critical $90 level despite the bearish analyst note, which is pretty much the perfect microcosm of a contrarian bullish setup -- strong price action in the face of pessimism. This was an encouraging sign that definitely played into our ultimate decision to play Dollar Tree calls.

The KR call was recommended on Nov. 19 after a lengthy slide related to pessimism over Amazon's buyout of Whole Foods (and subsequent slashing of prices). The option was recommended two weeks ahead of earnings, after which KR gapped higher. Did you change your approach at all to manage the event-related risk?

Chris Prybal: Heading into the trade, we felt KR was oversold by a variety of measures, even as it was rebounding from support around $20 -- a crucial level that corresponds with a $20 billion market cap, roughly half the all-time high, double the 2009-2012 trading range, and peak put open interest at the time of the recommendation. Due to the earnings being two weeks out, though, our strategy was to select an option deeper in-the-money (ITM) and buy more time than usual. 

PGR was recommended on Oct. 22, with high short interest being one of the key factors behind the trade. Obviously, there are a lot of heavily shorted stocks out there at any given time -- what made the case for PGR so compelling?

Rocky White: For most of the year, short interest had been rising, and the stock was up quite a bit. Specifically, from February until the trade was put on, short interest had nearly doubled and PGR was up 25%. Therefore, the chances of a short covering rally were higher than usual.

Just before the trade was put on, short interest had declined from the highs, which we took as a sign that shorts were beginning to lose faith in their positions. Fortunately, that turned out to be the case, as short interest fell further from there -- which was probably key in driving the rally that led to our position hitting targets.

Earnings season is officially in full swing, with next week featuring off some high-profile names of its own. Among those slated to report is streaming giant Netflix, Inc. (NASDAQ:NFLX), which is scheduled to unveil its fourth-quarter earnings after the stock market closes on Monday, Jan. 22. Ahead of the event, NFLX stock this morning received price-target hikes from Rosenblatt to $265 from $225, and from Deutsche Bank to $210 from $200. Below, we take a look at how the FAANG stock has performed, and how options traders are speculating ahead of Monday's report.

Netflix stock has had a stellar year, picking up nearly 59%, while also touching a new record high of $226.07 on Tuesday. NFLX was slightly lower at last check, down 0.2% to trade at $219.95, but considering its 14-day Relative Strength Index (RSI) closed last night at 72 -- in overbought territory -- a near-term pullback may have been in the cards.

In terms of earnings reactions, NFLX stock has made some volatile post-earnings moves in recent years, surging 13.5% the day after reporting last July, and sinking 13% in both April and July 2016. Looking back over the past eight quarters, though, the shares have averaged a swing of 8.4% in either direction in the session after reporting. This time around, the options market is pricing in a smaller-than-usual 7.9% move for Tuesday's trading, per at-the-money implied volatility data.

Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is showing NFLX with a 10-day call/put volume ratio of 1.40, ranking in the 74th percentile of its annual range. This suggests call buying has been extremely accelerated compared to put buying during the past two weeks, indicating options buyers are anticipating a positive earnings reaction for the shares.

However, the recent appetite for the FAANG favorite calls represents a shift among short-term traders. The security's Schaeffer's put/call open interest ratio (SOIR) of 1.60 ranks higher than 98% of all other readings from the past year, meaning speculators are more put-heavy than usual among options expiring in three months or less. Specifically, peak open interest of 30,234 contracts is found at the February 150 put, most of which has been bought to open, according to data from the major exchanges.

The activity at this deep out-of-the-money strike likely represents shareholders initiating an options hedge against an unexpected decline, but skepticism toward the FAANG stock is seen on Wall Street. Twelve analysts still maintain a "hold" or worse recommendation on NFLX, while short interest accounts for four times the equity's average pace of trading. A positive earnings reaction could draw more bullish brokerage notes and/or spark a short squeeze.

The S&P 500 Index (SPX) has surged nearly 4.8% so far in January -- and there's still more than a week of trading left -- on pace for its best month since March 2016, and its 10th straight monthly gain. However, even as U.S. stocks assail record heights, the CBOE Volatility Index (VIX) -- or Wall Street's "fear gauge" -- is also on pace for a big month, currently up 4.3% in 2018. This rare occurrence has happened just 12 other times in history. Below, we take a look at how the stock market tends to perform when both stock prices and volatility expectations are on the rise.

Most Signals Flashed During the Dot-Com Bubble

Specifically, the last time the SPX rose 3.5% or more in a month at the same time the VIX was positive for the month was in February 2017. Prior to that, you'd have to go all the way back to December 2003 for a signal, per data from Schaeffer's Senior Quantitative Analyst Rocky White. The majority of the signals flashed just before the dot-com bubble burst, with six occurring between June 1997 and March 2000.

Stocks Could Underperform in the Short Term

Following previous signals, the S&P tended to underperform in the short term, giving up 0.19%, on average, in the subsequent month, and higher just 41.7% of the time. That's compared to an average anytime one-month gain of 0.73%, with a win rate of 64.2%, looking at data since 1991.

However, three and six months after signals, the S&P 500 was higher 75% of the time, with average returns roughly in-line with anytime returns. One year after signals, the index outperformed, with an average gain of 10.23%, and a win rate of 81.8%. That's compared to an average anytime one-year return of 8.85%, with 78% positive.

In conclusion, when the S&P and "fear barometer" tend to soar in tandem, it's been yet another signal of short-term weakness and long-term strength for the stock market. Considering the historic run-up of stocks in 2018, not to mention signs of extreme optimism, those concerned that overbought stocks are due for a breather may want to heed founder and CEO Bernie Schaeffer, who recently noted that options hedges against a correction are priced to move.

The shares of biotech Exelixis, Inc. (NASDAQ:EXEL) -- which makes Cabometyx -- have been in a channel of higher highs and lows since early 2016, gaining 55% over the past year. Since its most recent test of the $32-$32.50 range -- home to its Oct. 16 record high -- earlier this month, EXEL stock has given back about 13%, and was last seen 0.3% lower to trade at $27.80. However, the drug stock could be a steal at current levels, if recent history is any indicator.

Specifically, Exelixis stock recently came within one standard deviation of its 160-day moving average, after a lengthy stretch above this trendline. Historically, pullbacks to this trendline have been buying opportunities for EXEL bulls. After the last four signals, EXEL shares were higher one month later 75% of the time, averaging a gain of 11.61%. A similar rally from current levels would place the security around $31 -- within striking distance of new-high territory.

Should the equity resume its quest for record highs, a continued short squeeze could propel EXEL even higher. Short interest declined 7.1% during the most recent reporting period, but these bearish bets still account for nearly 17 million Exelixis shares. At the stock's average daily trading volume, it would take more than six sessions to repurchase these pessimistic positions -- plenty of fuel for additional gains.

U.S. stocks hit new highs again this week, with the Dow Jones Industrial Average (DJI) soaring past the 26,000 level, thanks to another round of well-received fourth-quarter earnings reports. The momentum stalled by week's end, however, when profit-taking and fears of a government shutdown took hold on Wall Street. As a result, the CBOE Volatility Index (VIX) notched its best weekly win since Dec. 1 -- a second straight double-digit weekly rise for the fear gauge. While the Dow, S&P 500 Index (SPX), and Nasdaq Composite (IXIC) are still set for positive finishes to the week, a slight pullback in stocks may not be surprising, given the extreme optimism seen from investors and signs of an overbought market.

Investors Digest 4Q Earnings

Outside of the ongoing political drama, earnings remained the main focus for traders this week. Heavyweight bank stocks like Goldman Sachs (GS), Morgan Stanley (MS), and Bank of America (BAC) were some of the main highlights, and blue chip IBM reported its first increase in revenue in 23 quarters -- though shares of the Watson creator still pulled back. Fellow Dow stock American Express (AXP) whiffed after earnings, too.

Transportation concern Kansas City Southern (KSU) saw heavy options trading ahead of earnings, with the stock ultimately rewarding the bearish traders. Netflix bulls, meanwhile, are lining up ahead of the company's release next week, with the FAANG stock already trading at record highs.

Analyst Notes Result In Big Stock Moves

Still early in the new year, many analysts were again making notable changes to their outlooks for stocks across all sectors. Most of the attention was bullish, with Deutsche Bank calling for a breakout from Sirius XM stock -- though the firm lowered its price target for this healthcare stock. Nomura's predicting a 60% surge in Square stock, and Credit Suisse gave Starbucks (SBUX) some credit.

Meanwhile, one analyst said to buy Walmart stock after tax reform, and another downgraded Apple (AAPL). Also in the tech space, cybersecurity stock Palo Alto (PANW) apparently has "room to flourish," and self-driving technology is one reason Mizuho sees more upside for Nvidia (NVDA), as the chipmaker hit record highs yet again.

Best Stocks This Week

One of the biggest moves this week came from GNC stock, as the shares rallied following an upbeat sales report. Shares of Papa John's (PZZA) also continued to push higher, and call buyers are betting on more technical strength. Retail showed signs of life again, too, with shares of discount retailers enjoying tailwinds.

And what would the week be without several stocks rallying on blockchain developments? In fact, one Chinese tech stock doubled in value in one day on blockchain buzz, and Overstock.com (OSTK) could continue to attract bullish traders -- much like Tesla (TSLA) did this week. As for notable losers, generic drugmakers slid on competition concerns, and Snap continued to disappoint investors.

Fourth-Quarter Earnings Season Picks Up

Looking ahead, Facebook's "buy" signal could be an opportunity for traders to replicate gains seen from our winning options trade on aluminum stock CENX. For a longer-term time frame, check out AMD stock. Of course, traders may just want to use options to hedge, since even the VIX is flashing a rare signal that could be bad news for stocks. But as earnings season rolls on, the January Barometer says to keep buying into February if stocks hold their monthly gains. 

It's a mixed session on Wall Street today, as traders await updates on the budget showdown in D.C. Among individual stocks making notable moves are embattled blue chip General Electric Company (NYSE:GE), pharmaceutical firm Valeant Pharmaceuticals Intl Inc (NYSE:VRX), and e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN). Here's a quick look at what's moving shares of GE, VRX, and AMZN.

GE Stock Hit a Seven-Year Low Ahead of Earnings

General Electric stock is down 2.7% to trade at $16.32, fresh off a seven-year low of $16.02, on track to extend its daily losing streak to five, and pacing for its worst week since March 2009 -- the same week of the stock market bottom. Sparking this week's sell-off was GE's early morning announcement on Tuesday it would incur a more than $11 billion charge from its long-term care insurance portfolio, as well as the new U.S. tax code, which spurred breakup talk from CEO John Flannery.

The Dow component will continue to be in focus next week, with fourth-quarter earnings due before the market opens on Wednesday, Jan. 24. GE stock has closed lower in the session after reporting in seven of the past eight quarters, and another negative earnings reaction could draw bearish brokerage notes. Of the 12 analysts covering General Electric, five still maintain a "buy" or "strong buy" recommendation, while the average 12-month price target of $21.71 stands at a 33.1% premium to current trading levels.

VRX Stock Pacing for Fourth Straight Loss on Competition Concerns

Valeant Pharmaceuticals stock is down 3.1% to trade at $21.41, after Wells Fargo and Cantor Fitzgerald expressed caution over potential competition for the drugmaker's diarrhea drug, Xifaxan, from a similar treatment being developed by Cosmo Pharma. However, the latter brokerage firm said sales from the rival drug would be insignificant, relative to VRX, and didn't see any "fundamental reasons for the stock's weakness."

Today's retreat extends the stock's recent retreat from its early January 12-month high at $24.43, with VRX on track for its fourth straight loss, and its worst week since August. Nevertheless, the security appears to be finding a foothold near $21 -- home to its rising 30-day moving average, and a 23.6% Fibonacci retracement of its November-to-January rally.

Those wanting to bet on the stock's next move are in luck. Valeant's Schaeffer's Volatility Index (SVI) of 51% ranks in the 15th annual percentile, suggesting short-term options are pricing in low volatility expectations at the moment. Plus, the equity's Schaeffer's Volatility Scorecard (SVS) is perched at 100, meaning VRX stock has made big moves over the last year, relative to what the options market has expected -- a potential boon to premium buyers.

Amazon Hikes Monthly Prime Rate

Amazon is raising its prices for monthly Prime members by $2 to $12.99 -- the first time in almost four years it's done so -- though the rate for an annual plan will remain unchanged. AMZN is trading up 0.6% at $1,300.89, though the FAANG stock remains on track to snap its three-week win streak.

More broadly, Amazon shares have surged 60.8% on a year-over-year basis, and topped out at a record high $1,339.94 on Jan. 16, thanks to some positive analyst attention. Options traders have been betting on more upside, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AMZN's 10-day call/put volume ratio of 1.22 ranks in the 93rd annual percentile, meaning calls have been bought to open at a quicker-than-usual clip in recent weeks.

Facebook, Inc. (NASDAQ:FB) is falling in early trading, after CEO Mark Zuckerberg, announced that the social media platform will be filtering its News Feed to prioritize what's been shared by a user's family and friends, as opposed to non-advertising content produced by publishers and other businesses. Zuckerberg said he expects the shift to have a negative impact on user engagement and time spent on the site over the short term, though there's expected to be no impact on advertising.

In response, Stifel downgraded FB today to "hold" from "buy." Separately, SunTrust Robinson and Morgan Stanley raised their price targets to $240 and $215, respectively.

FB is down 4.5% at $179.32 at last check, with the stock testing critical support at its 80-day moving average, which has contained the equity's pullbacks since last June. This trendline is currently located at $176.90 -- about 6.4% below FB's Jan. 8 record high of $188.90.

Today's downgrade is unusual, as analysts are broadly optimistic toward the social media giant. Prior to the fresh cut at Stifel, all 27 brokerage firms following FB carried a "buy" or "strong buy" rating.

However, in the options pits, sentiment has not been so optimistic. The FAANG stock's International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) 10-day put/call volume ratio ranks in the 86th percentile of its annual range, suggesting that puts have been bought at a faster-than-usual clip relative to calls during the past two weeks.

And while some of this put-buying may have been related to hedging on the part of FB shareholders, it's worth noting that short interest on FB stock rose almost 19% during the past two reporting periods. This recent crop of bears will no doubt be watching the stock's progress around its 80-day moving average very closely in today's trading.

Sirius XM Holdings Inc. (NASDAQ:SIRI) and Nvidia Corporation (NASDAQ:NVDA) stocks have both been winners in recent years, and are again gaining today following bullish brokerage attention. Below we'll take a closer look at shares of SIRI and NVDA after the analyst notes.

Deutsche Bullish On SIRI Stock

Shares of Sirius XM are trading up 1.8% at $5.57, after Deutsche Bank upgraded the stock to "buy" from "hold" and lifted its price target to $6.50 from $5.25. SIRI hasn't traded above $6 since 2006, but it's been trending higher in recent years, including a 19% rally over the past 12 months. More recently, the security's been consolidating above its 200-day moving average.

Short interest is sill elevated, though it's been edging lower in recent reporting periods. As of now, more than 16% of the float is dedicated to short interest -- which equates to more than two weeks' worth of buying power, going by average daily trading volumes. A continuation of this short-covering trend could help keep Sirius XM moving higher on the charts.

Plus, it's worth noting this may not be the last bull note we see for SIRI, since the majority of analysts in coverage still have "hold" or "strong sell" ratings in place. The average 12-month price target of $5.85 doesn't price in much upside, either.

BAML Sees More Upside For NVDA Stock

Meanwhile, shares of Nvidia are trading up 1.8% at a new record high of $228.50, thanks to a price-target hike at BofA-Merrill Lynch to $275 from $251 -- representing upside of over 20% from current levels. The stock had already more than doubled in the past year. 

Options data suggests traders have been betting on more upside. This is according to the 10-day call/put volume ratio of 1.63 from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the top quartile of the annual range. Said simply, call buying has been unusually popular in recent weeks.

Technology powerhouse IBM Corp. (NYSE:IBM) is trading lower, as a disappointing full-year forecast overshadows the company's first rise in revenue in 23 quarters. In response, the tech stock has received mixed analyst attention. Of note, brokerage firm Deutsche Bank raised its price target to $160 from $150, while RBC cut its price target to $180 from $183. The Dow stock was trading 2.4% lower at $165 at last check.

IBM has had a rough year, dipping to a 52-week low of $139.14 in mid-August, though it's since recovered some of these losses. Of course, Big Blue is still far removed from its annual high near $183 from last February, and its 14-day Relative Strength Index (RSI) touched 81 yesterday, showing it was technically overbought coming into the session.

In the options pits, sentiment has been leaning towards the bulls' camp. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows IBM's 50-day call/put volume ratio is 2.21, ranking in the 97th percentile of its annual range. This suggests that calls have been purchased over puts at a faster-than-usual clip during the past ten weeks.

On the other hand, near-term options traders were more focused on puts, based on the tech concern's Schaeffer's put/call open interest ratio (SOIR) of 1.34 -- a reading that ranks in the 88th annual percentile, showing such a put-skew is unusual. Over the past 10 days, the January 2018 150- and 155-strike puts saw the largest increase in open interest by far.

Jack Dorsey's portfolio is in focus today, after Square Inc (NYSE:SQ) and Twitter Inc (NYSE:TWTR) both received some bullish brokerage attention. Here's a quick look at the analyst notes issued for shares of SQ and TWTR, and how the stocks are reacting.

Nomura Instinet Eyes Another 'Phenomenal' Year for SQ

Nomura Instinet raised its price target on Square stock by $16 to $64 -- the highest on Wall Street -- amid expectations of another "phenomenal" year for the payment processor thanks to a positive inflection in gross payment value (GPV) growth. The brokerage firm also said it expects Square to be a different company in 10 years, boosted in part by increasing share gains from its sector peers.

This new Square price target represents expected upside of nearly 59% to last night's close, and has the shares up 5.2% this morning to trade at $42.38. Longer term, SQ stock has almost tripled over the past 12 months, and recently took a sharp bounce off its rising 80-day moving average following a pullback from its Nov. 24 record high of $49.56 -- a historical "buy" signal for the shares.

There's plenty of room for more analysts to upwardly revise their outlooks on SQ stock, too, considering 14 still maintain a "hold" or "strong sell" rating. Plus, the average 12-month price target of $41.29 stands at a discount to Square's current price.

Stifel Issues Lackluster Price-Target Hike for Twitter Stock

Stifel lifted its price target on Twitter stock to $21 from $17, though this still stands at a discount to Thursday's close. As such, TWTR shares have slipped 0.3% at the open to trade at $23.98.

The security has been retreating since hitting a two-year high of $25.85 on Jan. 12. However, the shares remain up 43% year-over-year, and could find a foothold at their 30-day moving average -- a trendline that has helped usher TWTR higher since late August.

And like SQ, the door is wide open for the skeptical brokerage bunch to catch up to Twitter's price action, with 83% of analysts maintaining a "hold" or worse recommendation. Additionally, the consensus 12-month price target of $21.16 sits in territory not seen since mid-December.

On Thursday, Facebook Inc (NASDAQ:FB) snapped its six-session losing streak -- its longest since December 2016. This negative price action came after FB stock topped out at a record high of $188.90 on Jan. 8, and was exacerbated by a rare downgrade following news of changes to the company's News Feed. However, the equity is now stabilizing above a key trendline.

Specifically, FB is currently trading within one standard deviation of its 80-day moving average, after trading above this trendline for a significant amount of time. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the past 12 pullbacks to this moving average in the last three years, the security has averaged a one-month gain of 4.28%, and a 91% win rate. Based on Facebook stock's current price of $181.48, a move of this magnitude would put it near $189.25 -- in record-high territory.

Options traders in recent weeks have been quick to bet on more upside for FB stock. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 287,485 calls in the last 10 sessions, compared to 136,510 puts. The resultant call/put volume ratio of 2.11 ranks in the elevated 71st annual percentile, meaning the rate of call buying relative to put buying is unusual.

Meanwhile, those currently purchasing premium on short-term options are paying for elevated volatility expectations, considering Facebook is expected to report earnings the evening of Wednesday, Jan. 31. This is according to the stock's 30-day at-the-money implied volatility of 31.6%, which ranks in the 98th annual percentile.

While this could make it more of a challenge for premium buyers to maximize the benefits of leverage, an alternative strategy for those wanting to bet on new highs for the FAANG stock would be a bull call spread. In this two-legged options trade, a FB speculator would sell to open a higher-strike call to offset the purchase of a lower-strike call.