Stocks Set to Snap Four-Week Winning Streaks

With earnings season in high gear, traders should consider a long straddle options strategy

Feb 2, 2018 at 2:10 PM
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After settling last week at record highs -- sending up a sobering sentiment signal in the latest Investors Intelligence (II) survey -- the U.S. stock market pulled back as reports that Apple halved its iPhone X production target weighed, and news of a high-profile healthcare initiative sent pharmacy stocks and health insurers spiraling. While Boeing earnings provided a brief respite from the selling, the Dow, S&P, and Nasdaq are on track to snap their four-week winning streaks -- a move that may have been sparked by this rare tech signal -- with the former pair pacing for their biggest weekly losses in two years. What's more, the CBOE Volatility Index (VIX) is headed for its best week since August.

Apple Stock Ends Rough Week Below Key Trendline

Speculation that Apple had cut its iPhone X production target in half on Monday sent the Dow stock down more than 2%, and sunk several Apple suppliers. And while the shares shook off a fresh round of bearish analyst attention, a negative reaction to Apple's revenue forecast sent the equity breaking below long-term technical support on Friday.

Healthcare Stocks Slump on AMZN-BRK.A-JPM Buzz

Healthcare stocks also struggled this week, after Amazon, Berkshire Hathaway, and JPMorgan Chase said they were forming a company to tackle rising healthcare costs for U.S. employees. While blue chip UnitedHealth dragged the Dow to its worst daily loss since August on Tuesday, Aetna and Community Health Systems stocks sold off with their sector peers. Anthem also slumped ahead of earnings, though Cerner shares bucked the trend on rumors of a potential Amazon partnership. Further, Vertex Pharmaceuticals surged on strong earnings and drug data.

Earnings Winners

Big-cap names Chevron and Exxon Mobil collapsed after the energy giants reported earnings, but not all of the week's post-earnings action was to the downside. In addition to Boeing's big earnings beat -- which sent the Dow stock to a new record high -- MasterCard shares popped post-earnings, though analysts were already bullish ahead of the event.

Boeing rival Lockheed Martin also scored an earnings win, but the brokerage bunch has yet to catch up to the stock's impressive price action. Plus, Amazon continued its record-setting run after the e-tailer tallied a $1.9 billion fourth-quarter profit, Facebook joined its fellow FAANG stock in uncharted territory after earnings, and Broadcom boomed on the chipmaker's narrowed fiscal first-quarter guidance.

Best and Worst Stocks

And while Netflix closed out January with its strongest monthly return since early 2013, our list of best stocks to own in February featured travel stock Priceline and credit card concern Visa. Blue-chip drug name Merck, on the other hand, has been one of the worst stocks to own this month over the past decade, as has casino stock MGM Resorts. Narrowing the time frame, video game maker Activision Blizzard has historically been hot after the Super Bowl, which would be more of the same for a stock that hit a record high this week alongside rival Electronic Arts.

One Options Strategy to Consider Next Week

Earnings season continues to run at fever pitch next week -- making the long strangle a prime options strategy for those looking to profit on stock volatility. While Goldman Sachs dropped Nvidia from its conviction list ahead of the chipmaker's quarterly report, Morgan Stanley initiated bullish coverage on Take-Two Interactive before its results. Tesla, Twitter, and Walt Disney are a few of the other high-profile names set to report earnings, while a number of Fed speakers will weigh in after this morning's impressive jobs data.


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