“There is no indication this Bull market is about to roll over on negative sentiment” — Paul Ebeling
Last Week’s Action
Consolidation and rotation continue, overall the wk was flat.
Stocks rebound and some strong leaders run, big names lag. The Russell 2000 (RUT) leads North, there were good setups in chips.
Thursday rebound off of Wednesday’s selling was not strong, and losses modest.
NAS Comp recovered to the 10-Day EMA and closed positive. The NAS Comp move will come from the techs.
S&P 500 sold and then recovered to the 10-Day EMA to show a doji at the close, see it bouncing back up Monday the resistance is light to NIL.
This Week’s Outlook
Retail investors are are buying options, shoveling money into airlines, small caps and the likely beneficiaries of a COVID-19 vaccine even though US stocks hang near record highs.
Volume on call options, which are typically used to position for gains in stocks, is at its highest since early September, according to Deutsche Bank. And much of the action is small-lot purchases on individual stocks, a hallmark of retail investor activity.
The brisk trading by individual investors reflects a broader trend that has seen market participants shift money from growth stocks into the shares of companies that will likely get the greatest benefits from economic reopening expected to accompany the roll-out of the COVID-19 vaccine/s, That includes travel companies and smaller firms.
The Russell 2000, a benchmark for small-cap stocks, is up 16% since 9 November when Pfizer (NYSE:PFE) announced positive news from its COVID-19 vaccine study.
For the same frame, the DJIA gained about 6%, and the tech-heavy NAS Comp is up about 4%.
“There has been a broadening out of retail interest beyond high-growth tech names,” said a strategist at Deutsche Bank.
Options-buying retail investors piled into technology stocks such as Apple Inc and Salesforce.com Inc earlier this year alongside big institutional players. This time around, shares of companies such as Carnival Corp, American Airlines Group Inc, Boeing Co and United Airlines Holdings Inc are also seeing heavy Call buying
Demand for call options on small-caps has spiked, according to data from options analytics provider ORATS.
Among the components of the small-cap Russell 2000, Call skew: a measure of demand for Calls Vs Puts, which are typically used to protect against stock declines has climbed to the highest level in 13 yrs.
Much of the activity has been concentrated in single-stock options, which are more likely to be used by retail investors, rather than index options, which are primarily used by institutional investors.
Other evidence points to individual investors contributing heavily to the jump in Call volume.
The share of small-lot call purchases, in trades of 10 or fewer contracts each, relative to total Call volume has also climbed and is at its highest level since early September. Small trades of fewer than 10 contracts are often attributed to retail investors, who may not be able to afford larger purchases.
The broad factor, such as expected vaccine rollouts and fading worries over the US Presidential election, as President Trump is still firmly in charge, provide solid grounding for Bullishness in here.
Again, there is no indication that this Bull market is about to roll over on sentiment.
Have a healthy week, Keep the Faith!