December -- a historically bullish month -- started out rough for U.S. stocks, amid mixed signals on U.S.-China trade relations, concerns about bond yields and oil prices, and a high-profile arrest, just to name a few reasons. In fact, the S&P 500 Index (SPX) was down 4.44% as of yesterday's close, which marked the fifth trading session of the month, since Wall Street was shuttered last Wednesday, Dec. 5, to mourn President George H.W. Bush. That marks the worst December start for the stock market in decades.

Since 1950, there have been just eight other times when the SPX was down at least 2% in the first five sessions of December, per Schaeffer's Senior Quantitative Analyst Rocky White. The last time was 10 years ago, in December 2008, when the index was down 2.25% and U.S. stocks were in the throes of the financial crisis. This year's start marks the worst since December 1980. For context, December has historically been the best month of the year, looking at returns since 1950, with the index averaging a gain of 1.61%, and higher 75% of the time.

However, as you can see on the chart above, the SPX went on to enjoy positive rest-of-month returns every time but once, back in December 2002. Even in December 2008, the index posted a 3.1% return the rest of the month.

In fact, the worse December begins for stocks, the better it seems to end. Below you'll find S&P 500 December stats based on performance during the first five trading sessions. When the stock market barometer is down 2% or more, as it is now, it's went on to average a rest-of-month return of 1.65%, and was higher 88% of the time. That's much better than the other scenarios. For instance, when the index was up 2% or more to start the month, it averaged a rest-of-December gain of 0.9%, and was higher just 50% of the time.

In conclusion, bulls shouldn't give up hope for a Santa Claus rally. Bad starts to December typically end up resolving to the upside, not to mention the second half of the month has been the best time to own stocks, historically. From a technical standpoint, though, traders should watch the S&P's movement between the 2,600 and 2,800 levels for clues to future price action, per Schaeffer's Senior V.P. of Research Todd Salamone.

News that Tivity Health (TVTY) bought NutriSystem (NTRI) helped Weight Watchers International, Inc. (NASDAQ:WTW) stock snap a three-day losing streak yesterday. What's more, an analyst at DA Davidson said that based on the same valuation metrics of the NTRI deal, WTW stock is undervalued by 15% to 36%. Further, the analyst reiterated a "buy" endorsement and $137 price target, saying a "successful diet season outcome" could lift the shares when Weight Watchers reports earnings in February.

At last check, WTW shares were up 1.6% to trade at $49.94. The stock has been trading in a series of lower highs and lows since its record peak of $105.72 in mid-June. Its deep decline, facilitated by two dramatic bear gaps, has slashed the equity in half since then. More recently, the stock has been trading in the $45-$55 range since the November bear gap, attempting to stay north of its year-to-date breakeven marker at $44.28. 

Despite the equity's struggles in the second half of 2018, most analysts are already optimistic toward WTW. Eight of 10 analysts issue a "strong buy" rating, with not a single "sell" in sight. Weight Watchers stock has a ways to go before it hits analysts' consensus 12-month price target of $91.92, which stands at nearly an 85% premium to current levels. 

However, near-term options traders have taken a much more pessimistic stance lately. WTW's Schaeffer's put/call open interest ratio (SOIR) of 4.04 sits in the high 87th percentile of its annual range, showing put open interest quadruples call open interest among options expiring in the next three months. The lofty percentile suggests short-term traders have rarely been this put-heavy on Weight Watchers during the past 12 months.

 

 

The shares of Acorda Therapeutics Inc (NASDAQ:ACOR) are spiraling today, after Goldman Sachs downgraded the drug stock to "sell" from "neutral," and nearly halved its price target to $10 from $19 -- a roughly 50% discount to last night's close, and the lowest target on Wall Street. The brokerage firm expects Ampyra revenue to ease as generics for the multiple sclerosis drug hit the market, and sees lower-than-anticipated U.S. sales for ACOR's Parkinson's drug, Inbrija.

At last check, ACOR is trading down 15.1% at $16.16, set for its worst day since Sept. 10 -- when news of a regulatory hurdle for Inbrija sent the shares tumbling more than 24%. The security has now sliced through recent support in the $17 region, home to its negative 20% year-to-date return, and is closing in on its Sept. 13 annual low of $15.60.

Against this backdrop, it's not hard to see why most analysts are already bearish on Acorda Therapeutics. However, two of eight brokerages still maintain a "strong buy" rating on the stock, and the average 12-month price target sits all the way up at $22.11 -- suggesting more negative analyst notes could come down the pike.

Elsewhere, short sellers have been actively targeting ACOR stock, which has likely increased pressure on the shares. Short interest is up 88.5% from the Sept. 1 reporting period to 8.03 million shares -- the most in over a year. These bearish bets accounts for 17.2% of the equity's available float, or 11.5 times the average pace of trading. Shorts are sidelined at the moment, though, with Acorda Therapeutics short-sale restricted during today's bear gap.

The struggles of Amazon.com, Inc. (NASDAQ:AMZN) and its FAANG peers were well-documented amid the broad market sell-off. Today, though, AMZN is up 0.9% to trade at $1,654, after Cowen named the stock its best idea for 2019. More specifically, the brokerage firm waxed optimistic about the company's Prime and Amazon Web Services businesses, citing the former as the driver behind the long-term success of the company's retail business. 

As alluded to earlier, Amazon.com stock was not spared from the October bloodshed on Wall Street, shedding nearly 17% this quarter in total. However, the damage was contained late last month by the shares' 320-day moving average. AMZN has bounced since then, breaking out of a trendline of lower lows that started after its Sept. 4 record high of $2,050.50.

In the options pits, calls are still the preferred mode of action. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows AMZN with a 10-day call/put volume ratio of 1.25, which registers in the elevated 75th percentile of its annual range. This points to a healthier-than-usual appetite for bullish bets lately. Digging deeper, the weekly 12/14 1,700-strike call saw the largest increase in open interest during this time frame among contracts yet to expire, although it's unclear if these options were bought or sold. 

Whatever the motive, Amazon stock has been a strong target for premium buyers over the past year, based on its Schaeffer's Volatility Scorecard (SVS) of 87 (out of 100). This shows a tendency for the stock to make bigger-than-expected moves over the past year relative to options traders' expectations.

The shares of FedEx Corporation (NYSE:FDX) are down 1.2% in electronic trading, after BofA-Merrill Lynch downgraded the shipping name to "neutral" from "buy," while slashing its price target to $220 from $304. The analyst in coverage waxed pessimist on the company's management shakeup last week, namely the departure of the head of the company's Express unit. In short, the brokerage firm sees this as a possible signal of a delay in the company achieving its profit target.

FedEx stock is on track to open at a new annual low. The shares gapped lower last week after Morgan Stanley warned of "the risk Amazon Air poses," culminating in a Dec. 7 bottom of $200.12. As a result, last week was FDX's worst weekly performance since March 2009, bringing its 2018 deficit to 19%. 

Despite two bear notes in as many weeks, analysts on the whole are still quite bullish on FDX. Of the 19 brokerages covering the security, 16 rate it a "buy" or "strong buy," with zero "sells" on the books. What's more, the stock's consensus 12-month price target of $284.11 is a 41% premium to Friday's closing perch. 

As far as options, puts have become popular in recent weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows FDX with a 10-day put/call volume ratio of 0.96. This ratio registers in the 83rd percentile of its annual range, pointing to a healthier-than-usual appetite for bearish bets lately. 

The shares of Marinus Pharmaceuticals Inc (NASDAQ:MRNS) are up 11.2% to trade at $5.75, after the biopharmaceutical firm said its postpartum depression drug, ganaxolone, was well-tolerated in a mid-stage study, and that patients showed no serious side effects to the treatment.

Cantor Fitzgerald was quick to chime in, underscoring its "overweight" rating on MRNS stock, and raising its price target to $25 from $19 -- a 335% premium to current trading levels. This echoes the generally bullish bias among the brokerage bunch, with all four analysts in coverage maintaining the equivalent of a "strong buy" rating, and the average 12-month price target perched all the way up at $18.50.

On the charts, MRNS stock topped out at a three-year high of $10.54 on Oct. 1, before plummeting all the way down to a seven-month low near $4 by Nov. 27. The shares have now retraced 23.6% of this plunge, and are pacing for their highest close since Nov. 1.

A continued round of short covering could help Marinus Pharmaceuticals stock extend this recent bounce. Short interest is down almost 26% since its early July record peak, but there are 3.39 million shares still sold short. This represents a healthy 8.5% of the equity's available float, or 4.9 times the average daily pace of trading.

NutriSystem Inc. (NASDAQ:NTRI) stock is trading up 31.3% today at $44.90, following news the dieting expert is being bought by Tivity Health Inc (NASDAQ:TVTY) for $1.4 billion, or $47 per share. The shares had been trading around their downtrending 200-day moving average since early November, moving further away from their 52-week peak of $55.10 from last December.

This rally from NTRI stock may be a shock for all those shorting the name. Specifically, more than one-fifth of the float is held by short sellers, or more than nine times the average trading pace. Recent options traders had been bearish, too, with put buying more than tripling call buying during the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX).

Mitek Systems, Inc. (NASDAQ:MITK) is also gaining today, trading up 12% at $10.05, after ASG Technologies Group raised its buyout offer for the financial technology firm to $11.50 per share from $10. Elliott Management-backed ASG said it made the offer public because Mitek has refused to engage in reasonable discussions about a takeover deal.

MITK stock is now trading in double-digit territory for the first time since January, with the $10 mark acting as a ceiling in recent months. Earlier, in fact, the equity touched an annual high of $10.16. Still, the shares have enjoyed tremendous upside since bottoming at $6.32 in early October. All four brokerage firms covering Mitek Systems have "strong buy" recommendations.

Meanwhile, Yelp Inc (NYSE:YELP) stock is trading 2.1% higher at $35.33, after major shareholder and hedge fund SQN Investors LP called for an overhaul of the company's board, and said it wants the review site to consider all options, including a sale (subscription required). The stock has underperformed this year, down roughly 16% in 2018 and touching a 52-week low of $29.35 a month ago.

Most analysts have already taken a skeptical view of YELP shares, with 16 of the 21 in coverage handing out "hold" or "strong sell" recommendations. In a similar vein, options traders have pushed the 10-day put/call volume ratio at the ISE, CBOE, and PHLX to 2.29 -- ranking in the bearish 94th annual percentile.

Just before the Thanksgiving holiday, the National Association of Active Investment Managers (NAAIM) exposure index was sitting at its lowest point since February 2016, at 30.55. In other words, active money managers were very limited in their overall equity exposure, as the S&P 500 Index (SPX) was testing its October lows. However, NAAIM bulls have re-emerged with a vengeance, with the index more than doubling to 61.96 in the past two weeks -- something we haven't seen in more than three years.

There have been just 11 signals of this kind since 2006, considering one signal every month, per Schaeffer's Quantitative Analyst Chris Prybal. Specifically, the last time the NAAIM index jumped 100% or more in two weeks was in October 2015. Prior to that, you'd have to go back to October 2014, when the index skyrocketed 650%. Of note, this signal also flashed in March 2009, what we now know was the start of a years-long bull run.

Historically, a notable rush of reinvigorated NAAIM bulls has preceded strong S&P 500 returns. A week after signals, the SPX was up 1.2%, on average, and was higher 70% of the time. That's more than 10 times the index's average anytime one-week return of 0.1%, looking at data since 2006. Two weeks out, the S&P was up an impressive 2.8%, on average, and was higher 90% of the time. That's compared to an average anytime one-week return of just 0.3%, with a 62% positive rate.

One and two months out, it's a similar story. The S&P was up an average of 2.7% and 2.6%, respectively, and was higher 80% of the time after signals. That's far better than its average anytime returns for both time frames. Six months and a year later, the index also generated bigger-than-usual average gains of 5% and 9%, respectively. Plus, those returns would be much larger, if not for the 2008 signals (of which there are three), when the stock market was in the throes of the financial crisis.

The lone outlier is the three-month marker, with the index down an average of 0.3%, and higher just 60% of the time. That's mostly due to the steep 30.1% loss suffered after the July 2008 signal.

In conclusion, these NAAIM signals have preceded big rallies for the S&P historically, with the exception of the intermediate-to-long-term returns during the financial crisis. However, the stock market's trajectory after the most recent signal will likely be determined by the S&P 500's price action around a pair of key long-term moving averages, per Schaeffer's Senior V.P. of Research Todd Salamone.

It's a volatile session on Wall Street today, and United States Steel Corporation (NYSE:X) is no exception. X shares jumped 1% at the open after UBS upgraded the steel stock to "neutral" from "sell," saying its 2018 decline has created an attractive valuation. However, the brokerage firm also cut its price target to a Street-low $22, down from $28, and the equity was last seen down 1.6% at $20.97, fresh off a 17-month low of $20.42.

Options volume is accelerated, too, continuing a trend seen in recent sessions. In fact, X popped up on Schaeffer's Senior Quantitative Analyst Rocky White's list of 20 S&P MidCap 400 Index (MID) stocks that have attracted the highest options volume during the past 10 days, with names highlighted in yellow new to the list. While today's activity is occurring on the call side, U.S. Steel options traders have been unusually put-skewed over the last two weeks.

At the International Securities Exchange, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), X's 10-day put/call volume ratio of 2.07 ranks in the 96th annual percentile, meaning long puts have been initiated relative to calls at a quicker-than-usual clip. The bulk of this action has centered at the December 22 puts, which were likely bought to open back on Nov. 27, when a speculator rolled down their December 24 puts.

Today, call traders are busier than usual, with 10,000 calls on the tape -- 1.5 times what's typically seen at this point -- compared to just 7,000 puts. The weekly 12/14 21.50-strike call is most active, and it looks like traders are selling to open the options, betting on a ceiling for the steel stock through this Friday's close.

Looking at the charts, U.S. Steel stock is down 56.3% from its March 1 seven-year high of $47.64, with its 10-day moving average ushering the shares to a 9.7% December loss so far. But while the equity is pacing for a roughly 32% fourth-quarter decline, it hasn't finished a week below the round $20 since May 2017.

The shares of Five Below Inc (NASDAQ:FIVE) are up 2.9% to trade at $98.21 today, after Loop Capital upgraded the discount retailer to "buy" from "hold," while nudging its price target up to $120 from $110. The analyst in coverage is encouraged by the company's improving merchandise and brand awareness, and believes it is "more economic downturn resistant" than other retailers.

It's been a volatile stretch for Five Below stock, based on its 30-day historical volatility of 54.7%, which ranks in the 92nd annual percentile. Back in September, FIVE gapped higher after a blowout earnings report, netting a record high of $136.13. The shares pulled back from there, but appear to have found support at their 200-day moving average. Overall, FIVE boasts a 48% lead year-to-date.

The equity is ripe for a short squeeze, and that could keep the wind at FIVE's back. Short interest increased by 19.2% in the last reporting period to 3.61 million shares, the most since Aug. 1. This now accounts for nearly 7% of the stock's float and at FIVE's average daily volume, it would take more than four days for all of the bearish bets to be covered.

In the options pits, calls are in vogue, despite limited absolute volume. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 3,012 calls were bought to open in the last 10 days, compared to 1,780 puts. This call/put volume ratio of 1.69 registers in the elevated 72nd percentile of its annual range, pointing to a healthier-than-usual appetite for bullish bets lately. 

"After Friday's move back below [SPY] $280, bulls should seek a move back above this round number and the FOMC decision-day close of $280.50, before getting aggressive..."
-- Monday Morning Outlook, November 12, 2018

"Despite last week's rally, equities are still locked in an area that is pivotal for bulls and bears alike. In other words, the bulls are not out of the woods, but the bears have to be somewhat disappointed in last week's advance... SPX resistance is in the form of a trendline drawn through the early October high -- one day prior to Powell's 'long way' remarks on rates -- through the mid-November high... Whereas the SPY 265 strike is put-heavy and the SPY 275 strike is call-heavy, amid an environment over the past couple of weeks of negative and positive headlines with regard to the Fed and trade talks with China, it is not a huge surprise to see the put-heavy strike defended and the call-heavy strike posing as resistance."
-- Monday Morning Outlook, December 3, 2018

Monday's session was about the only bright spot for equities last week. The SPDR S&P 500 ETF Trust (SPY - 263.57) gapped above potential resistance at the 275 strike that morning after President Donald Trump indicated progress in trade relations with China after a weekend G-20 dinner. But clouds quickly darkened as reports emerged about the lack of details with respect to this progress.

While it was announced the U.S. and China would suspend additional tariffs for 90 days, investors weighed the uncertainty of the outcome of the trade situation as the yield curve continued to flatten, hinting at slowing economic growth ahead. Talk of a pause in rate hikes ahead of an anticipated increase next week helped build support for stocks, albeit only temporarily. By Thursday and Friday, the SPY and SPX found themselves toying again with their October and November lows in the area of the put-heavy 265 strike that I discussed last week, which is also in the vicinity of the 80-week moving average, the importance of which I discussed in my commentary on Nov. 26:

"Since 1980, breaks of the 80-week moving average have usually preceded tests of the 160-week moving average, which approximates a roughly three-year moving average. With the 160-week moving average currently situated around 2,400, bulls run the risk of at least another 10% pullback if there is a significant breach of the 80-week moving average on a weekly closing basis. A break of the 160-week moving average would likely foreshadow further bear-market action."
-- Monday Morning Outlook, November 26, 2018

The bottom line is the SPY and S&P 500 Index (SPX - 2,633.08) failed at $280 and 2,800, respectively. Last month, I cautioned that you should be wary about rallies that fail to take these levels out convincingly. Within one day of closing around $280, the SPY found itself back below another resistance level at $275 and within one week, both the SPY and SPX found themselves below their respective 80-week moving averages for the second time in three weeks heading into the weekend, albeit only barely below.

Therefore, caution flags are out once again about the increased possibility of bear-market action in the coming months, or at the very least a further correction down to the 2,400 level on the SPX or $240 on the SPY -- site of the 160-week moving averages, also discussed in my late-November commentary.

The continued technical deterioration in the SPY has occurred in the immediate aftermath of the Fed holding the fed funds rate steady on Nov. 8. In the 22 instances during the current tightening cycle in which the Fed held rates steady at an FOMC meeting, the SPY has rallied 77% of the time in the one month following the pause, with an average return of 1.46%. During the past month, however, the SPY declined an eye-opening 6%. A decline of this magnitude when bullish conditions were in place is another risk for bulls.

An immediate risk to bulls, since we are only two weeks away from standard December expiration and amid the sharp decline last week, is the big put open interest lingering at the SPY 260 strike, a large majority of which was bought to open, according to Chicago Board Options Exchange (CBOE) data.

As long-time readers know, a big put open interest strike like this can sometimes act as a magnet due to "delta hedging," which occurs when sellers of the puts are forced to sell S&P futures to hedge their positions as the SPY approaches a put-heavy strike. Since the put options grow more sensitive to SPY action during the decline, sellers of the puts are forced into selling more and more S&P futures to remain neutral.

Admittedly, this is a tricky situation, as there is a bullish counter-argument to this situation. That is, any short positions associated with the 260-strike put open interest that exists now will get steadily unwound if the SPY remains above $260 and we move closer to expiration day.

But if the 260 strike breaks, selling could accelerate as shorting of futures accelerates. However, I would expect any selling related to delta-hedging to stop once SPY 255 and 250 are approached, as many of these puts were sold to open, which effectively dampens volatility -- unlike instances in which the puts are bought to open, which drives volatility.

The bulls do have a few arguments to make their case. The first is a repeat pattern emerging of the February-through-May action, in which the SPY made several lows around the area we have been probing since October. The main difference between these two time periods, however, is that longer-term moving averages did not break down earlier in the year.

The action in the Cboe Volatility Index (VIX - 23.23) last week was also interesting. On one hand, stocks nosedived when the VIX declined to the 16.28 level, which is 50% above the August closing low of 10.85. However, the VIX peaked around 25.15, which is half its 2018 intraday high. If we are still engulfed in a volatile trading range for the foreseeable future, buying opportunities will emerge around VIX 25, whereas bouts of selling will emerge on VIX declines to the 16 area. If my VIX read is correct, it is "advantage bulls" in the very near term. But if the VIX closes significantly above 25.15, watch out below.

Risks are growing for longer-term bulls, unless the SPX can quickly gather steam and rally back above 2,800 convincingly. Until then, the best they can hope for is the volatile range action that we are witnessing now.

Continue reading:

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Marvell Technology Group Ltd. (NASDAQ:MRVL) is bucking broader tech headwinds today, after the chipmaker reported adjusted third-quarter profit of 33 cents per share on $851 million in revenue -- more than analysts were expecting. And even though company forecast a roughly 10% decline in current-quarter storage revenue, MRVL stock is up 3% in electronic trading.

Not everyone is impressed with Marvell Technology's earnings report, though, with no fewer than seven analysts cutting their price targets on the chip stock. Morgan Stanley set the lowest bar at $19 -- down from $23. Jefferies, on the other hand, called MRVL's valuation "compelling."

Looking at the charts, the stock has been trending lower since its early-August peak of $22.25, with its 30-day moving average applying steady pressure in recent months. The shares bottomed at an annual low of $14.69 on Nov. 20, and were down almost 28% heading into today's trading, closing Tuesday at $15.50.

Options traders have been anticipating more downside for the tech stock. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), MRVL's 10-day put/call volume ratio of 0.85 ranks in the 93rd annual percentile, meaning puts have been bought to open relative to calls at a quicker-than-usual clip.

On the other hand, short sellers have been cashing out during MRVL's recent slide. Short interest fell 17.8% in the most recent reporting period to 23.05 million shares. These bearish bets now account for just 3.7% of the stock's available float, or roughly two times its average daily pace of trading.