Monday’s Vital Data: Costco, Amazon and CVS

Stock Market

Excluding the Dow Jones, U.S. stock futures are trading higher this morning, continuing the rebound that began on Friday. Because the Dow is a price-weighted Index and its most expensive holding is gapping lower this morning, it is the sole index entering the day in the red.

A fatal crash of Boeing’s 737 MAX 8 has the top Dow component trading 12% lower on safety concerns. Over the weekend, an Ethiopian Airlines flight that used the popular planed crashed, resulting in the death of all 157 passengers. This is the second crash involving the 737 MAX 8 in the past six months, and multiple countries have decided to suspend flights that use the aircraft.

In the options pits, Friday’s down gap lit a fire under puts and caused their total volume to outpace calls. Specifically, about 18.5 million calls and 19.6  million puts changed hands on the session.

The fear bid kept readings lofty at the CBOE, where the single-session equity put/call volume ratio held firm at 0.75. Meanwhile, the 10-day moving average continued its climb, notching a new two-month high at 0.65.

Here were three stocks that found themselves squarely in the crosshairs of options traders. Costco (NASDAQ:COST) shares surged after reporting better-than-expected earnings. Amazon (NASDAQ:AMZN) calls were active while the stock passed a critical support test. The desperately oversold conditions in CVS (NYSE:CVS) finally attracted enough bargain hunters to score an up day.

Let’s take a closer look:

Costco Wholesale (COST)

Costco stepped up to the earnings plate Thursday night and delivered data worth celebrating. The company earned $2.01 per share on revenue of $35.4 billion.  Analysts were expecting $1.69 in earning per share.

With Friday’s 5.1% gain, COST has just about recovered all that was lost during last quarter’s post-earnings beatdown. Furthermore, its year-to-date gain now stands at 11.8%.

This year’s return to bullishness has improved the technicals of Costco considerably. With the stock now perched north of rising 20-day, 50-day and 200-day moving averages, buyers have officially re-established dominance across all time frames. Resistance at $235 and then $240 are the next two upside targets.

On the options trading front, traders came after calls with a vengeance. Activity rocketed to 601% of the average daily volume, with 90,119 total contracts traded. 60% of the trading came from call options alone.

The usual post-earnings crush descended on implied volatility Friday, sending the metric down to 20%. That places it at the 23rd percentile of its one-year range. Premiums are now pricing in daily moves of $6.18 or 2.7%

Amazon (AMZN)

With Friday’s lower open, Amazon tested the lower bound of its 2019 trading range. Fortunately for shareholders, buyers emerged to save the day and prevent a potentially trend-shattering breakdown. The successful support test also boosted interest in AMZN stock options.

All major moving averages are slithering sideways which confirms the sloppy trading range and the inability of buyers or sellers to wrest control of the stock. Until the ongoing trading range is broken, expect directional trades to be difficult.

Traders used calls to express their optimism even as overall volumes climbed above average levels. Total activity grew to 175% with 272,131 contracts traded. Calls contributed 56% to the day’s sum.

Implied volatility ticked slightly higher on the day to 26% placing it at the 29th percentile of its one-year range. Premiums are now pricing in daily moves of $26.15 or 1.6%.

CVS (CVS)

After falling for 10 out of 11 days, CVS finally scored a legitimate up day. The prior one that interrupted its losing streak was a doji candle that provided little inspiration. Since reporting disappointing earnings last month, CVS has lost a fourth of its value.

With its bull market gains continuing to be unwound, the company’s shares have returned to levels not seen since early-2013. While fundamental analysts will point to the disappointing earnings backdrop as the cause for the latest descent, chart watchers are blaming the break of critical support at $60.

Even if buyers build on Friday’s up day, this is a rally born to be sold. Too much overhead resistance awaits to reject the recovery attempt.

On the options trading front, calls won the day. Activity jumped to 168% of the average daily volume, with 118,987 total contracts traded. Calls added 60% to the total.

As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.

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