The shares of beverage name Constellation Brands, Inc. (NYSE:STZ) are lower this morning, down 2.4% to trade at $235.44 following news that AB InBev (BUD) is suing the company over its use of the Corona brand name for its hard seltzer. According to AB InBev, a 2013 deal between the two stipulated that Constellation was not to use the name outside of beer products. 

On the charts, STZ nabbed a record closing high of $242.12 on Feb. 12. And while the security eclipsed this peak right out of the gate, notching yet another record high of $242.62, it quickly changed direction. The equity's 60-day moving average, which thwarted a bigger pullback attempt earlier this month, could provide some support should today's negative price action worsen. Longer term, the security is up 38.6% over the last nine months. 

Constellation stock's options pits have been overwhelmingly optimistic of late. In the past 10 days, 2.36 calls were picked up for every put at the International Securities Exchange (ISE), Cboe Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits in the 76th percentile of its annual range, implying that long calls have rarely been more popular in the last 12 months. 

Lastly, STZ options are relatively cheap at the moment. The stock's Schaeffer's Volatility Index (SVI) of 35% stands higher than just 17% of all other readings in its annual range, implying that options players are pricing in relatively low volatility expectations at the moment.

The shares of Southwest Airlines Co (NYSE: LUV) are up 0.5% to trade at $51.58 this morning, after the company said it is experiencing improved leisure passenger demand and bookings for February. The airline added it expects to see better year-over-year operating revenues, noting that cash burn should slow down as bookings improve. Now, the firm anticipates core cash burn to be roughly $15 million a day for the first quarter, as opposed to $17 million a day.  

Digging deeper, the equity has been taking a breather from its Feb. 8, annual high of $53.28. Smaller-than-expected fourth-quarter losses certainly helped the security to that level, which is more than double its May 14, seven-year low of $22.47. Meanwhile, support at the 80-day moving average contained the stock's latest pullback. In the last nine months, LUV has added 86.5%. 

Analysts are already optimistic towards the equity, with 14 of the 16 in coverage sporting a "buy" or better rating. Plus, the 12-month consensus target price of $56.32 is a healthy 9.1% premium to current levels. 

The options pits reflect that upbeat sentiment, with calls popular. This is per LUV's 50-day call/put volume ratio of 4.11 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 87% of readings from the past year. This means calls are being picked up at a faster-than-usual clip.

Lastly, LUV options can be had for a bargain at the moment. The stock's Schaeffer's Volatility Index (SVI) of 42% stands higher than 12% of all other readings in its annual range, suggesting options players are pricing in relatively low volatility expectations right now.

MicroStrategy Incorporated (NASDAQ:MSTR) is set for its third-straight pop today, after the company said it plans on offering six-year $600 million convertible senior notes in order to raise capital to buy more Bitcoin. There's been plenty of buzz surrounding the cryptocurrency of late, including Tesla's (TSLA) big grab and this morning's surge above the $50,000 level. MSTR was last seen up 3.6% at $1,071.16. 

It's been a volatile month for the equity, which toppled the $900 mark early last week, quickly nabbing a nearly 21-year high before taking a steep nosedive. The security looks to have regained some of its footing near the $975 region, however, and for the year, it boasts an impressive 166.2% lead. 

Despite this, short sellers  have been building their positions. In the last two reporting periods, short interest grew 16.4%, and now makes up almost 20% of the stock's available float, or a little under two days of pent-up buying power. And while most analysts are quiet on MSTR, the single analyst in coverage considers it a "strong sell."

The options pits aren't so pessimistic, though. Data from the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows that in the last 10 days, 9,414 calls were exchanged -- almost triple the 3,304 puts picked up in the same time period. 

“While the SPX dipped into the red for 2021, it was a short-lived trip. Therefore, with the 50-day moving average sitting at 3,741, and the 2020 close at 3,756, this remains a first area of potential support if the market retreats... if you draw a trendline connecting higher highs since mid-November, the 3,920 level marks potential resistance into this Friday’s close, with last week’s high coming just shy of the 3,900-century mark.”

          - Monday Morning Outlook, Feb. 8, 2021

Last week was a familiar story, with the S&P 500 Index (SPX - 3,934.83) carving out yet another high thanks to a strong Monday session, in which the index charged above the 3,900-century mark. After that, it was pretty much sideways movement, with resistance coming into play at the 3,920 area, which I highlighted as the top of a channel dating back to mid-November. That was also when a positive vaccine update made headlines.

If you use the SPX’s channel to chart its course over the next week, resistance comes into play at 3,940 at the beginning, and 3,955 at the end. If the market retreats, the 3,810 level is a site of potential channel support at Tuesday’s close, while 3,825 is the site at Friday’s close.

If there is a move below channel support, the 3,750 level once again becomes a potential floor. This is also the 50-day moving average’s location, which contained the benchmark’s most recent pullback, when forced selling emerged amid a notable short-covering rally. The 2020 close is in the vicinity of this moving average, too. What’s more, the previous year’s close is at a level that has been important over the past few years. For instance, the 2019 close acted as support in late January of 2020, as well as multiple times over the second half of the year. Then, across the year-to-date breakeven point in February of 2020 began a period of vicious selling.

It is expiration week, so I looked at the open interest configuration on the SPDR S&P 500 ETF Trust (SPY -  392.64) to see what levels would be important for both the SPY and the SPX. The SPY 395 strike, equivalent to the SPX 3,950, is home to almost 100,000 calls, most of which were bought-to-open. On one hand, a rally near this strike could spark delta-hedge buying that ends after the SPY gets through the strike. In fact, delta-hedge buying may have occurred in the last half-hour of trading on Friday.

But if the SPY remains below $395, a headwind could creep into play, as long futures positions related to the call open interest at that strike are liquidated as expiration nears. This scenario would be consistent with the SPX remaining in the channel discussed above. If stocks sell off, the 380 and 385 strikes -- which are equivalent to the SPX 3,800 and 3,850 -- would be potential options-related equilibrium points, given the hefty put and call open interest located at these strike prices. The SPX 3,850, for what it is worth, was around a closing high ahead of its late-January hiccup.

“I still prefer the small-cap space. Not only is there more short-covering potential in this space -- as I have been highlighting since mid-December -- but the technical backdrop looks firmer. For example, the Russell 2000 Index (RUT - 2,233.33) never dipped below its 30-day moving average, nor did it come remotely close to moving below its 2020 close of 1,975.”

          - Monday Morning Outlook, Feb. 8, 2021

Turning to the sentiment front, I have a few worthwhile observations. First, even though I have said I prefer small caps due to their short-covering potential relative to large cap stocks, I found the huge short covering in the second half of January on SPX components interesting (see the first graph below). Short interest on SPX components remains a little bit above the 10-year and 15-year lows that preceded market weakness. 

I have heard multiple guests and hosts on CNBC say that this is not a heavily shorted market, and I agree with those statements when considering only SPX components. However, despite short covering in the Russell 2000 Index (RUT - 2,289.36) over the past few reporting periods, I continue to see the small caps as heavily shorted, and thus the biggest area of opportunity if equities continue to advance.

Continuing with the small cap versus large cap theme, I was amazed when our own Quantitative Senior Analyst Chris Prybal put the chart below, together last week. It is the 10-day, equity-only put/call volume ratio on only components of the iShares Russell 2000 ETF (IWM - 227.26). 

This IWM component-only put/call volume ratio is relatively high, in huge contrast to the all-equity, 10-day buy-to-open put/call volume ratio that I have discussed multiple times since early December. In fact, the IWM component ratio is at levels that have typically preceded market bottoms. Amid the concerns I have voiced and have heard others express about unusually heavy call buying relative to put buying in equities, small-cap stocks should not be included in this conversation. In conclusion, this graph further solidifies my view that if you are taking on equity risk, ensure you emphasize small-cap stocks.

Todd Salamone is Schaeffer's Senior V.P. of Research

Continue reading:

• The Week Ahead: Shortened Holiday Week to Remain Full With Economic Data
• Indicator of the Week: 2 Technical Indicators for Bulls to Keep in Their Trading Toolkit

The four-day week this week will still bring a fair amount of economic data. Housing and consumer data will highlight the week, as will the usual initial and continuous jobless claims. Earnings season will continue as well. The list of upcoming reports includes Applied Materials (AMAT), CVS Health (CVS), Shopify (SHOP), Sunpower (SPWR), and Walmart (WMT). 

Today will bring the Empire State Manufacturing Index.

The following companies are slated to release quarterly earnings reports today, February 16:

Advance Auto Parts Inc. (NYSE:AAP -- $152.81) provides automotive replacement parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks. Advance Auto Parts will report its fourth-quarter earnings of 2020 before the bell today.

Allegion plc. (NYSE:ALLE -- $118.26) manufactures and sells mechanical and electronic security products and solutions. Advance Auto Parts will report its fourth-quarter earnings of 2020 before the bell today.

AutoNation Inc. (NYSE:AN -- $118.26) operates as an automotive retailer. AutoNation will report its fourth-quarter earnings of 2020 before the bell today.

Black Knight Inc. (NYSE:BKI -- $87.40) provides integrated software, data, and analytics solutions. Black Knight will report its fourth-quarter earnings of 2020 before the bell today.

Bruker Corp. (NASDAQ:BRKR -- $60.75) manufactures and distributes scientific instruments, and analytical and diagnostic solutions. Bruker will report its fourth-quarter earnings of 2020 before the bell today.

Ceva Inc. (NASDAQ:CEVA -- $69.87) operates as a licensor of wireless connectivity and smart sensing platforms to semiconductor and original equipment manufacturer (OEM) companies. Ceva will report its fourth-quarter earnings of 2020 before the bell today.

CVS Health Corp. (NYSE:CVS -- $74.21) provides health services and plans. CVS Health will report its fourth-quarter earnings of 2020 before the bell today.

Ecolab Inc. (NYSE:CVS -- $219.88) provides water, hygiene, and energy technologies and services. Ecolab will report its fourth-quarter earnings of 2020 before the bell today.

Expeditors International of Washington Inc. (NASDAQ:EXPD -- $96.58) provides logistics services. Expeditors International will report its fourth-quarter earnings of 2020 before the bell today.

Franklin Electric Co. Inc. (NASDAQ:FELE -- $74.81) designs, manufactures, and distributes water and fuel pumping systems. Franklin Electric will report its fourth-quarter earnings of 2020 before the bell today.

IAA Inc. (NYSE:IAA -- $62.36) provides auction solutions for total loss, damaged, and low-value vehicles. IAA will report its fourth-quarter earnings of 2020 before the bell today.

IPG Photonics Corp. (NASDAQ:IPGP -- $252.89) develops and manufactures a range of high-performance fiber lasers, fiber amplifiers, and diode lasers used in various applications. IPG Photonics will report its fourth-quarter earnings of 2020 before the bell today.

JELD-WEN Holding Inc. (NYSE:JELD -- $28.55) designs, manufactures, and sells doors and windows. JELD-WEN will report its fourth-quarter earnings of 2020 before the bell today.

Louisiana-Pacific Corp. (NYSE:LPX -- $43.52) manufactures building products primarily for use in new home construction, repair and remodeling, and outdoor structure markets. Louisiana-Pacific will report its fourth-quarter earnings of 2020 before the bell today.

MGM Growth Properties LLC (NYSE:MGP -- $33.23) is a publicly traded real estate investment trusts. MGM Growth Properties will report its fourth-quarter earnings of 2020 before the bell today.

Palantir Technologies Inc. (NYSE:PLTR -- $33.23) is power transmission motion control products. Palantir Technologies will report its fourth-quarter earnings of 2020 before the bell today.

Palantir Technologies Inc. (NYSE:PLTR -- $31.91) is power transmission motion control products. Palantir Technologies will report its fourth-quarter earnings of 2020 before the bell today.

Sabre Corp. (NASDAQ:SABR -- $11.81) provides technology solutions to the travel and tourism industry. Sabre will report its fourth-quarter earnings of 2020 before the bell today.

TransUnion (NYSE:TRU -- $95.06) provides risk and information solutions. TransUnion will report its fourth-quarter earnings of 2020 before the bell today.

Triton International Ltd. (NYSE:TRTN -- $56.36) engages in the acquisition, leasing, re-leasing, and sale of various types of intermodal containers and chassis to shipping lines, and freight forwarding companies and manufacturers. Triton International will report its fourth-quarter earnings of 2020 before the bell today.

US Foods Holding Corp. (NYSE:USFD -- $36.89) markets and distributes fresh, frozen, and dry food and non-food products to foodservice customers. US Foods will report its fourth-quarter earnings of 2020 before the bell today.

Vulcan Materials Co. (NYSE:VMC -- $164.50) produces and supplies construction materials. Vulcan Materials will report its fourth-quarter earnings of 2020 before the bell today.

Yandex N.V. (NASDAQ:YNDX -- $73.83) is an Internet and technology company. Yandex N.V. will report its fourth-quarter earnings of 2020 before the bell today.

Zoetis Inc. (NYSE:ZTS -- $166.71) discovers, develops, manufactures, and commercializes animal health medicines, vaccines, and diagnostic products. Zoetis will report its fourth-quarter earnings of 2020 before the bell today.

ACCO Brands Corp. (NYSE:ZTS -- $9.00) designs, manufactures, and markets consumer and business products. ACCO Brands will report its fourth-quarter earnings of 2020 before the bell today.

Agilent Technologies Inc. (NYSE:A -- $127.98) provides application focused solutions to the life sciences, diagnostics, and applied chemical markets. Agilent will report its fourth-quarter earnings of 2020 before the bell today.

American International Group Inc. (NYSE:AIG -- $41.40) provides insurance products for commercial, institutional, and individual customers. American International will report its fourth-quarter earnings of 2020 before the bell today.

Avis Budget Group Inc. (NASDAQ:CAR -- $44.71) provides car and truck rentals, car sharing, and ancillary services to businesses and consumers. Avis Budget will report its fourth-quarter earnings of 2020 before the bell today.

Boyd Gaming Corp. (NYSE:BYD -- $54.09) operates as a multi-jurisdictional gaming company. Boyd Gaming will report its fourth-quarter earnings of 2020 before the bell today.

Compass Minerals International Inc. (NYSE:CMP -- $64.18) produces and sells salt, and specialty plant nutrition and chemical products. Compass Minerals will report its fourth-quarter earnings of 2020 before the bell today.

Continental Resources Inc. (NYSE:CLR -- $23.02) explores for, develops, and produces crude oil and natural gas properties. Continental Resources will report its fourth-quarter earnings of 2020 before the bell today.

Cornerstone OnDemand Inc. (NASDAQ:CSOD -- $47.41) provides learning and people development solutions through software-as-a-service model. Cornerstone OnDemand will report its fourth-quarter earnings of 2020 before the bell today.

Denny's Corp. (NASDAQ:DENN -- $16.43) owns and operates full-service restaurant chains under the Denny's brand. Denny's will report its fourth-quarter earnings of 2020 before the bell today.

Devon Energy Corp. (NYSE:DVN -- $19.98) is produces and supplies construction materials. Devon Energy will report its fourth-quarter earnings of 2020 before the bell today.

Diodes Inc. (NASDAQ:DIOD -- $82.14) designs, manufactures, and supplies application-specific standard products in the discrete, logic, and analog and mixed-signal semiconductor markets. Diodes will report its fourth-quarter earnings of 2020 before the bell today.

Encore Wire Corp. (NASDAQ:WIRE -- $64.69) manufactures and sells electrical building wires and cables for interior electrical wiring. Encore Wire will report its fourth-quarter earnings of 2020 before the bell today.

Eversource Energy (NYSE:ES -- $85.17) is a public utility holding company. Eversource Energy will report its fourth-quarter earnings of 2020 before the bell today.

Exact Sciences Corp. (NASDAQ:EXAS -- $155.01) provides cancer screening and diagnostic test products. Exact Sciences will report its fourth-quarter earnings of 2020 before the bell today.

Genworth Financial Inc. (NYSE:GNW -- $4.11) provides insurance products. Genworth Financial will report its fourth-quarter earnings of 2020 before the bell today.

Innospec Inc. (NASDAQ:IOSP -- $100.08) develops, manufactures, blends, markets, and supplies specialty chemicals. Innospec will report its fourth-quarter earnings of 2020 before the bell today.

Invitation Homes Inc. (NYSE:INVH -- $31.00) is a single-family home leasing company. Invitation Homes will report its fourth-quarter earnings of 2020 before the bell today.

KAR Auction Services Inc. (NYSE:KAR -- $19.19) engages in the provision of used car auction services and salvage auction services. KAR Auction Services will report its fourth-quarter earnings of 2020 before the bell today.

Kornit Digital Ltd. (NASDAQ:KRNT -- $98.10) develops, designs, and markets digital printing solutions for the fashion, apparel, and home decor segments of printed textile industry. Kornit Digital will report its fourth-quarter earnings of 2020 before the bell today.

Lattice Semiconductor Corp. (NASDAQ:LSCC -- $48.44) is produces and supplies construction materials. Lattice Semiconductor will report its fourth-quarter earnings of 2020 before the bell today.

La-Z-Boy Inc. (NYSE:LZB -- $40.80) manufactures, markets, imports, exports, distributes, and retails upholstery furniture products, accessories, and casegoods furniture products. La-Z-Boy will report its third-quarter earnings of 2021 before the bell today.

Mercer International Inc. (NASDAQ:MERC -- $13.72) manufactures and sells northern bleached softwood kraft (NBSK) pulp. Mercer International will report its fourth-quarter earnings of 2020 before the bell today.

Mercury General Corp. (NYSE:MCY -- $55.97) is produces and supplies construction materials. Mercury General will report its fourth-quarter earnings of 2020 before the bell today.

NMI Holdings Inc. (NASDAQ:NMIH -- $22.38) provides private mortgage guaranty insurance services. NMI Holdings will report its fourth-quarter earnings of 2020 before the bell today.

QTS Realty Trust Inc. (NYSE:QTS -- $63.69) is a provider of data center solutions across a diverse footprint. QTS Realty Trust will report its fourth-quarter earnings of 2020 before the bell today.

QuantumScape Corp. (NYSE:QS -- $54.64) develops and commercializes solid-state lithium-metal batteries for electric vehicles. QuantumScape will report its fourth-quarter earnings of 2020 before the bell today.

RingCentral Inc. (NYSE:RNG -- $443.29) provides software-as-a-service solutions that enable businesses to communicate, collaborate, and connect. RingCentral will report its fourth-quarter earnings of 2020 before the bell today.

TriNet Group Inc. (NYSE:TNET -- $84.45) provides human resources (HR) solutions for small and midsize businesses. TriNet Group will report its fourth-quarter earnings of 2020 before the bell today.

Vornado Realty Trust (NYSE:VNO -- $38.39) is a real-estate investment trust. Vornado will report its fourth-quarter earnings of 2020 before the bell today.

Looking ahead to tomorrow, things speed up a bit with retail sales data, Producer Price Index (PPI), Core PPI, Industrial Production for January, and the Federal Open Market Committee (FOMC) minutes. All economic dates listed here are tentative and subject to change.

A few weeks ago, we checked in on how investor sentiment was looking for the New Year through a handful of useful indicators. Since we have now entered the second month of 2021, it seemed appropriate to revisit any changes that may have taken place since the start of the year. While a few weeks may not seem like ample time for a significant change to happen, we know from our experience with last March’s Covid-19 market crash that anything is possible on Wall Street. A more recent -- and pertinent -- example is the extreme volatility and broader-market selloff stocks experienced at the end of January, following the GameStop (GME) Reddit mania.

As stated in the first check-in, "There's still a ‘buzz’ to 2021, thanks to President-elect Joe Biden's thankfully seamless inauguration and the ramped-up vaccine efforts many are hoping will come along with the new administration. The Dow, S&P 500, and Nasdaq all boast very muted gains to start 2021, yet, as we're about to see, investor optimism is filled to the brim. Framing our content for this check-in is a similar but new graph below, with updated statistics from Schaeffer’s Senior Quantitative Analyst Chris Prybal, comparing the first day of 2020, to Feb. 3, 2021.

First on the list is the 10-day buy-to-open equity-only put/call volume ratio, which sat at 0.42 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) in January of 2020. Now, the reading comes in even lower than it read back a few weeks ago, now at 0.32. This suggests that the reading continues to sit in the lower rungs of the last four years, ripe for call buyers to enter the ring, if our contrarian viewpoint stands.

The Options Clearing Corporation (OCC) all-exchange, equity-only, 10-day option put/call volume ratio also has dipped lower from when we last checked in. However, this ratio of 0.51 does remain just above the December 2020’s first-ever dip below 0.50. Contrary to the ISE/CBOE/PHLX data, this reading suggests calls continue to take precedent over puts for the OCC options traders.

Another point of interest for me was the S&P 500 Index (SPX) Growth/Value ratio. In our first check-in, the Growth/Value was extending its multi-month trend lower, though it did remain above the 2020 starting ratio of 1.52. An unprecedented and highly publicized 12 months then occurred for growth stocks, which saw the ratio balloon alongside the SPX, but then roll over and seemingly limp into 2021, even while the SPX retained its strength. Now, not only has the ratio reversed course but, it stands at 1.96, just shy of 2.0 -- a level not reached by the S&P Growth/Value since November 2020.

Circling back to the overarching question that arose as the theme to start 2021, what should you feed into in regards to market optimism? To echo Senior Market Strategist Matthew Timpane, it’s most ideal to allow price action guide your decisions and utilizing options that put less dollars at risk relative to equities. This way, optimism can be less of a gamble and more of a supported and calculated risk of "hope" for your trading.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, February 7.