Earnings Season Highlights

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A collection of noteworthy post-earnings reactions
Published on Jan 19, 2021 at 4:42 PM
  • Market Recap

Stocks made a comeback from last week's losses on Tuesday, as investors returned from the long holiday weekend with renewed optimism over additional stimulus, and celebrated a sunny start to earnings season. Stimulus sentiment was bolstered by comments from Treasury Secretary nominee Janet Yellen, who noted the benefits of a larger stimulus package would "far outweigh the costs." Reassurance also came from Dr. Rochelle Walensky, President-elect Joe Biden's pick for head of the Center for Disease Control and Prevention (CDC), who said the U.S. will be able to fulfill its goal of vaccinating 100 million people in Biden's first 100 days in office. In turn, the Dow finished the day with a 116-point pop, while the S&P 500 and the Nasdaq Composite also settled notably higher. 

Continue reading for more on today's market, including:

  • Why First Solar stock could be a steady bet for options bulls. 
  • Revealing one of Schaeffer's top picks for 2021. 
  • Plus, APHA brushes off bull note; analysts think AMD could surge; and LOGI steps into the earnings confessional. 

The Dow Jones Industrial Average (DJI - 30,930.52) added 116.3 points, or 0.4% for the day. American Express (AXP) led the gainers with a 3.8% pop, while Goldman Sachs (GS) fell to the bottom of the barrel with a 2.3% dip. 

Meanwhile, the S&P 500 Index (SPX - 3,798.91) settled 30.7 points, or 0.8% higher, and the Nasdaq Composite (IXIC - 13,197.18) rose 198.7 points, or 1.5% for the day.

Lastly, the Cboe Volatility Index (VIX - 23.24) lost 1.1 point, or 4.5% for the day. 

Closing Indexes Summary Jan 19

NYSE and Nasdaq Stats Jan 19

  1. BlueNalu, a San Diego-based food startup specializing in lab-grown seafood, said it raised $60 million in convertible note financing in preparation to potentially go public. (CNBC)
  2. Johns Hopkins University data confirmed that California is the first state in the U.S. to surpass three million Covid-19 cases, while virus-related related deaths in the U.S. have surpassed 400,000. (MarketWatch) 
  3. Aphria stock failed to keep up despite lofty bull note. 
  4. Growing demand for stay-at-home devices has analysts eyeing this semiconductor staple
  5. Breaking down LOGI following its fiscal third-quarter earnings report.

Corporate Earnings Jan 19

Unusual Options Activity Jan 19

Oil, Gold Rally as U.S. Dollar Weakens 

Oil prices staged a rebound today, brushing off cuts in the International Energy Agency’s (IEA) 2021 crude demand forecast, after Yellen's calls for further economic relief took a hit on the U.S. dollar. February-dated crude tacked on 62 cents, or 1.2% for the day, to settle at $52.98 per barrel.

Gold prices also hardened up on the back of the weakening dollar, bouncing back from its seven-week lows. February-dated gold added $10.30, or 0.6%, to settle at $1,840.20 per ounce.

Published on Jan 19, 2021 at 3:03 PM
  • Earnings Preview

Blue-chip insurance stock Travelers Companies Inc (NYSE:TRV) is up 0.5% at $143.83 at last check, after earlier hitting $144.29 to surpass last session's annual high of $144.12. On its way higher since an early-November bull gap, TRV's latest pullback was caught by the 50-day moving average, with shares breaking through resistance at the $140 region last week. What's more, today's positive price action comes just ahead of the company's fiscal fourth-quarter earnings report, due before the open on Thursday, Jan. 21. 

Leading up to the event, the options market is pricing in a post-earnings move of 3.3%, which is just barely lower than the security's average post-earnings swing of 3.4% from the last eight reports, regardless of direction. A look back at these reports shows that TRV closed two of these next-day sessions higher, while one of those days was flat. However, it's worth noting that last quarter the stock experienced a 5.6% pop. 

TRV Jan 19

Despite the recent rally, most analysts are hesitant toward the equity. Out of the 17 analysts in coverage, 13 carry a "hold" or worse rating, leaving plenty of room for a round of upgrades to act as a tailwind. 

Meanwhile, the options pits lean overwhelmingly bullish. This is per TRV's 10-day call/put volume ratio of 6.61 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits higher than 97% of all other readings from the past year, indicating calls are being picked up at a faster-than-usual clip. 

Now could be a good time to weigh in on these TRV options. The stock's Schaeffer's Volatility Index (SVI) of 27% stands higher than just 10% of all other readings in its annual range, implying that options players are pricing in relatively low volatility expectations at the moment. 

Published on Jan 19, 2021 at 2:34 PM
  • Quantitative Analysis
 
Published on Jan 19, 2021 at 11:59 AM
  • Strategies and Concepts

The Best Weekly Options Trade Alerts and Newsletters

by Schaeffer's Digital Content Team

When a new trader steps into the world of weekly options, it can be overwhelming the volume of data and screens that may be required to properly identify successful trades. While the general concepts remain similar to those of standard options, weekly options present a significant increase in expiration dates to choose from, which can lead to decision overload.

While we do believe that anyone can trade options with the right education and support, possessing a baseline of information about how weekly options work is important to taking the drivers seat in a trading portfolio and maximizing trade returns.

With the short-term nature of weekly options and the significant increase in expiration dates from which to choose, the amount of research and knowledge required to trade successfully increases as well. A great way to get started with capitalizing on the power of weekly options trading is to partner up with a well-respected industry professional. Using a credible newsletter, like the options newsletters provided by Schaeffer's Investment Research, is a great way to get off the ground in weekly options trading.

The major benefit of choosing one of the best weekly options newsletters is that these newsletters will provide you with real-time trade entry and exit instructions. The trade recommendations will have complete trade entry information provided, including the chosen strike price, expiration date, and maximum entry price. By letting the experts do the work for you, you can truly learn a lot simply by shadowing. Each trade recommendation will also come with a trading rationale explaining why the trade was identified as an opportunity at that moment and how the trade parameters were determined.

What to Look for when Subscribing to a Weekly Options Newsletter

The major items to look for when researching potential weekly options trading newsletters are all meant to ensure that you do not spend your hard-earned money with a company that does not have your best interest at heart. Not every options newsletter offers reliable and useful information. In fact, some options newsletters offer unsubstantiated results and absolutely no support. Be sure to invest in the right options newsletter by looking for the following characteristics:

  • Performance-backed strategies: You will often come across options newsletters with outrageous promises or claims that they have found the 'million dollar formula' for trading weeklies. Remain vigilant of any strategies that seem too good to be true. It is absolutely possible, especially with options trading, to produce results that are genuinely as good as they look in marketing. Make sure the company can provide you with a complete track record to back up any claims that you think are questionable. Any reputable company will have quick access to a complete track record of their trades without any strange disclaimers about "hypothetical returns" or "these returns have not been verified." If you ever find yourself second-guessing a marketing claim, simply ask the company for more information that can verify it.
  • Real-time trading advice: The volatility of the stock market can never be emphasized enough. One minute, your entire trading portfolio can be green. Two minutes later, 90% of your portfolio could dip into the red due to major price movement fluctuations. Never accept trading advice that is delayed. If a newsletter publisher is delaying their trading recommendations for any reason, malicious or not, just skip them. A true guide will be there to provide you with real-time trading alerts to get you the absolute best entry and exit pricing on all recommended trades. Hours and even minutes can make the difference in a profitable trade and a breakeven or losing trade. Timing is everything with short-term options trading like weekly options. The ideal weekly options newsletter will keep you in the loop real-time when trades are identified, either via email or text message.
  • Trust the experts: There is no certification required for 'investment gurus' and this can create an air of mistrust in the options newsletter industry. Anyone could claim to be an expert without any experience at all. The first thing you want to look at when choosing an options trading newsletter is the trader behind it. Look for a trading expert who has been known in the industry for a minimum of 10 years. Look for a trading expert who has been featured in respected media outlets (for their analysis, not through paid advertising). Look for a trading expert who is recommended by others. We recommend checking Google as your primary source of the most unbiased reviews of all newsletter publishers. There are quite a few "investment review" websites that are, unfortunately, run by investment publishers themselves to defame others in the industry while propping themselves up.
  • Confirm trading support: While newsletter publishers are not permitted to provide individualized trading advice (if you experience this, report it immediately to the SEC), a reputable newsletter provider will provide the highest possible level of support for their customers. Call the publisher you are considering and see how long it takes to speak with someone who can answer your questions. Check to see if the publisher has live chat on their website. Email the publisher and assess the length of time it takes to receive a response. As mentioned above, timing is everything. The best options newsletter publishers will provide immediate support, especially during market hours.

Schaeffer's Investment Research's Weekly Options Newsletters and Trade Alerts

Regardless of your level of experience with options trading, Schaeffer's offers the top-of-the-charts options newsletters and options trade alerts. We offers a variety of weekly options trade recommendation services including Schaeffer's Weekly Options CountdownSchaeffer's Weekly Volatility Trader, and Schaeffer's Weekly Options Trader. Every one of these weekly options trade recommendation services provide exact entry and exit instructions for weekly options trades each month, as well as a detailed trading rationale for each trade so you can learn directly from our experts while still capturing profit in your own portfolio.

Published on Jan 19, 2021 at 10:50 AM
  • Editor's Pick
  • Best and Worst Stocks

Every day for the next two weeks, we're going to highlight one of Schaeffer's top 14 picks for 2021. First up on the tee box is Callaway Golf (ELY). To access the entirety of the 2021 report, click here.

Back in late October and early November, golf equipment company Callaway Golf (ELY) carded two double-bogeys on the charts -- first gapping lower after the acquisition of entertainment company TopGolf and again when it suffered a Nov. 10, post-earnings drop of 2.6%. Since then, ELY has steadied itself and broken out of a technical downtrend to test old all-time-highs, culminating in a Dec. 17 peak of $24.49. The shares' multiple top formation has potential to break before the company's February quarterly report, while the cheaper implied volatilities between that time frame serve as an extra incentive.

As ELY clawed back above its year-to-date breakeven level in the last month or so, short interest remained near all-time high levels. More specifically, the 16.73 million shares sold short account for a whopping 19.3% of ELY's total available float, or seven days' worth of pent-up buying power, at the stock's average pace of trading.

These premiums are well-priced at the moment, too, per the stock's Schaeffer's Volatility Index (SVI) of 49%, which stands higher than only 9% of all other readings in its annual range. This implies that options players are pricing in relatively low volatility expectations at the moment. In conclusion, Callaway Golf is a $2.2 billion company, and the $3 billion level represents $31.70. With that in mind, keep an eye on the $30 level in 2021, as it is nearly double its post-earnings lows from November. 

Callaway Golf (NASDAQ:ELY) Stock Pick for 2021

Chris Prybal is a Senior Market Strategist at Schaeffer's Investment Research. A lifelong student of the markets, he made his first trades before he even began attending the University of Cincinnati, where he studied finance and treasury management. Prybal's areas of expertise include option premium buying and selling, and his equity and market research have been cited by Barron's, MarketWatch, Forbes, Investopedia, and the Cincinnati Business Courier.

Published on Jan 19, 2021 at 10:48 AM
Updated on Jan 19, 2021 at 10:48 AM
  • Intraday Option Activity
  • Analyst Upgrades
Today's options pits are focused on puts. Although calls still outnumber puts today, the latter is trading at triple the average intraday amount, volume in the 99th percentile of its annual range.
Published on Jan 19, 2021 at 10:16 AM
Updated on Jan 19, 2021 at 10:39 AM
  • Buzz Stocks

The rumblings of another earnings season are upon us, and bank stocks, as usual, are kicking off the event. On the docket today, for instance, is financial name Goldman Sachs Group Inc (NYSE:GS), which just blew analysts' expectations out of the water with a fourth-quarter earnings beat of $12.08 per share. The company's revenue also topped estimates. Despite the earnings and revenue beat, GS is down 0.7% at $298.91 at last check, reversing course after the company's CEO warned that there is still significant uncertainty, thanks to the growing number of coronavirus cases worldwide. 

While the security is falling further from its Jan. 14 record high of $309.41, longer-term, the shares have been in rally mode since familiar support at the $190 mark catapulted GS past its pre-pandemic levels. In the past nine months, GS is up roughly 64%, with guidance from its ascending 10-day moving average.

While the brokerage bunch hasn't chimed in on Goldman Sachs' earnings beat yet, most in coverage came into today optimistic. Of the 13 in coverage, nine call it a "strong buy," while the 12-month consensus price target of $307.81 is a 2.3% premium to Friday's close. 

Option traders have shared this sunny sentiment, per Goldman Sachs' 10-day call/put volume ratio of 2.82 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stands higher than 80% of readings from the past year. This means calls have been picked up at a much quicker-than-usual clip of late. 

 

 

Published on Jan 19, 2021 at 10:20 AM
Updated on Jan 19, 2021 at 10:20 AM
  • Buzz Stocks
Drilling down to today's options activity, over 6,000 calls have already crossed the tape, which is 15 times what is typically seen at this point. Most popular is the February 100 call, followed by the 150 call in the same monthly series, with new positions currently being opened at both.
Published on Jan 19, 2021 at 9:26 AM
  • Earnings Preview
  • Buzz Stocks

Buzzing Renewable Energy Name Gears Up For Earnings

by Schaeffer's Digital Content Team

Alternative energy company FuelCell Energy, Inc. (NASDAQ:FCEL) will step into the earnings confessional before market opens on Thursday, Jan. 21. The renewable energy stock has been red-hot in the last six months, but hasn't fared so well in the earnings confessional over the past 12 months. This has resulted in post-earnings drops of17.5% back in September, and a more modest dip of 3.5% back in June. For the upcoming earnings report on the fourth quarter of 2020, analysts expect that FCEL will report -$0.04 per share

FCEL has tacked on 607% in the last 12 months. That is not a misprint. Along the way, the shares' ascending 20-day moving average has contained pullbacks. Yet despite the torrid pace, all six analysts maintain "hold" or "strong sell" ratings on the stock. Should FCEL score a post-earnings pop, it could draw a round of bullish analyst attention. 

FCEL stock chart

Overall, FuelCell is still lacking what it times to be an ideal value investment at this time. The company has reported a trend of decreasing annual revenue and continues to pile on to its net losses. FuelCell has lost over $30 million in revenue since 2017, bringing its top line total to just $64.9 million over the past 12 months. To summarize, FCEL has a long way to go before it can justify its current $5.1 billion market cap.

Published on Jan 19, 2021 at 9:08 AM
  • Opening View
 
Published on Jan 19, 2021 at 8:23 AM
Updated on Jan 19, 2021 at 8:50 AM
  • Monday Morning Outlook

Small caps may be the biggest area of opportunity, as measured by the iShares Russell 2000 ETF (IWM -- 190.30) and Russell 2000 Index (RUT -- 1,911,69).  With the IWM and SPY experiencing about the same performance in 2020, there is much more short-covering potential in the small-cap area relative to large-cap stocks.”

-Monday Morning Outlook, December 14, 2020

After year-end 2020 short interest data was released by the exchanges last week, I could not help but think about the comments that I made in the middle of December, as excerpted above. My sense, given the trajectory of moves we have seen in many individual stocks during the past few weeks, is that we have seen major short-covering rallies in the small-cap space since I made those mid-December comments.

Per the table below, this has translated into significant outperformance in small-cap equity-based exchange-traded funds (ETFs), relative to larger-cap ETFs such as the technology-focused Invesco QQQ Trust Series (QQQ – 311.86) or the broader large-cap SPDR S&P 500 ETF Trust (SPY – 375.70). 

1-18 chart 1

So how do you play this environment?  First, options can be used in lieu of stocks to reduce dollars at risk but allow leverage to work for you in the event you are playing stocks to the upside that might rally…”

          -Monday Morning Outlook, December 21, 2020

In fact, one of a few strategies that I have recommended during this past month is the use of call options as a substitute for stock plays in recognition of the bullish price action amid the sentiment-based risk, emerging Covid-19 vaccine headlines, and new strain uncertainties. Call options allow you to reduce your dollars invested, define your risk, and the leverage gives you attractive profit opportunities. 

With the above in mind, many of our subscribers benefitted directly from the small-cap, short-covering advance, taking huge profits on GameStop (GME), Bed Bath & Beyond (BBBY), SunPower (SPWR), Under Armour (UA), Shake Shack (SHAK) and Axon Enterprises (AAXN) call options. 

If the short covering continues, the best opportunities are likely to continue to be found in small-cap equities in the weeks ahead. 

While there has been short covering among S&P 500 Index (SPX – 3,768.25) components, which is likely supporting the index on pullbacks, total short interest is at a multi-year low. Plus, if you are looking at large-cap technology names, as measured by short interest in QQQ components, you may be fighting a headwind as short interest is building from a multi-year low.  

Meanwhile, short interest on Russell 2000 Index (RUT – 2,123.20) components is decreasing. From a broader perspective, total short interest on its components is nearer to multi-year highs, which leaves significant room for covering activity. Whether you are utilizing call options to speculate on individual stocks or allocating equity investments between small caps or large caps, ensure that you give the small-cap space focus.

1-18 chart 2

1-18 chart 3 regrab

1-18 chart 4

“…despite the headlines, some of which could have given the bulls pause, the SPX never breached the rising 20-day moving average, which sits below the first level of potential support on a pullback, which is the 2020 close of 3,756.07.”

          -Monday Morning Outlook, January 11, 2021

Ahead of the long weekend, Friday’s action saw everything pull back, whether large cap, technology, or small cap. Even though high-profile banks reported much stronger-than-expected earnings and President-elect Joe Biden released his stimulus plan on Thursday evening, buyers were nowhere to be found. 

That said, last week’s pullback in the SPX can hardly be defined as one that would stir panic among traders, who have been extremely bullish during the past several weeks. Friday’s SPX low, in fact, was around its 20-day moving average, which is now sitting around its 2020 close of 3,756, which I identified last week as the index’s first level of potential support.

1-18 chart 5 regrab

The CBOE Market Volatility Index (VIX – 24.34) rose slightly last week, but Wall Street’s “fear gauge” still isn’t hinting at major volatility ahead, as it remains well below its 252-day moving average. Moreover, per the first pane in the chart below, the round year-over-year 100% gain in this index acted as a “resistance” point, which has been the case since mid-December. 

Looking ahead to the end of the month, if this 100% year-over-year gain in the VIX comes into play, it will be on the heels of a surge into the 36 area in November, as it was around this time last year that it began rising from the 12 area into the 18 area, just weeks after China disclosed a novel virus had emerged in the country.

1-18 chart 6 regrab

One thing we are not seeing now relative to this time last year is the emergence of a significant number of VIX call buyers relative to put buyers, per the chart immediately below. These call buyers proved prescient with respect to their timing last year, when VIX calls were being purchased at a rate of four-to-one relative to puts in the previous 20 days. At present, this ratio stands at only 1.35.

1-18 chart 7

To conclude, one (or all) of the following strategies continue to be recommended:

  1. Use calls in lieu of stocks to manage sentiment-based risk but also play the current trend higher.
  2. Use straddles -- the simultaneous purchase of a call and put -- for the same reason as the first bullet (and to manage earnings risk).
  3. If not using call options as a stock replacement, consider index puts to hedge long stock positions.
  4. Emphasize small-cap stocks over large-cap equities.

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

Continue reading:

Published on Jan 19, 2021 at 8:45 AM
Updated on Jan 19, 2021 at 8:45 AM
  • Buzz Stocks

What to Make of Cisco Stock After its Big Purchase

by Schaeffer's Digital Content Team

Cisco Systems, Inc. (NASDAQ:CSCO) made waves in the software and  telecommunications equipment industry last week. Cisco announced a jaw-dropping amendment to its original merger agreement, which would complete Cisco’s acquisition of Acacia Communications (ACIA) at a rate of $115 per share, or for approximately $4.5 billion. This new acquisition value is a significant 73% increase from the originally agreed upon price of $2.6 billion.

Despite the big move, Cisco stock hasn't had much big movement on the charts recently. The shares are down 7.3% in the last 12 months, with short-term support emerging at the $44 level, which is the site of CSCO's post-earnings bear gap levels from mid-August. 

CSCO Stock Chart

Meanwhile, options traders have been picking up CSCO calls over puts at a rapid-fire rate. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 4.15 indicates more than four Cisco calls have been bought to open for every put in the past two weeks. This ratio registers in the 85th percentile of its annual range, pointing to a much healthier-than-usual appetite for bullish bets over bearish of late.

Now is an opportune time to strike on CSCO near-term options. The stock's Schaeffer's Volatility Index (SVI) of 29% is at the 15th percentile of its annual range, suggesting short-term options are pricing in relatively low volatility expectations for the underperformer.

Overall, as a potential investment, CSCO's price-earnings ratio of 18.39 makes the stock one of the most attractive value plays amongst the huge market-cap companies. In addition, the company has a nice dividend yield of 3.17% and a forward dividend of 1.44. 


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