Is The Market Too Hot Right Now?

This week we’ve seen markets hit all time highs on numerous occasions, which raises the question, “Is the market too hot right now?

The term “melt-up” has also been thrown around in small circles and suggests that some think that the current market conditions are similar to what was seen back in January with the big momentum surge to start the year. So what should we really be taking away from all of this for the average investor?

Pay Attention To The Facts

A big proponent to the recent market expansion has a lot to do with the recent earnings season. Continual revenue beats from some of the more “luxury focused” companies like Tiffany’s (TIF) and today’s beat from Signet Jewelers (SIG) is a sign that the economy is feeling “good” right now. Furthermore, the lack of added interest rate hikes have continued to help the market.

 

You also have new luxury brands aiming to go public as well. Aston Martin, the British automaker best known for being James Bond’s car brand of choice, said on Wednesday that it planned to go public.

“Aston Martin Lagonda has been transformed into a luxury business focused on creating the world’s most beautiful high-performance cars,” Andy Palmer, Aston Martin’s chief executive, said in a statement.

Aston Martin will join the ranks of other luxury brands like Ferrari (RACE) and the makers of Maserati and Alfa Romeo, Fiat Chrysler (FCAU).

Looking Ahead

Many investors are looking at industries that are more progressive right now. Tech and, believe it or not cannabis are delivering solid gains right now. Canadian LP Tilray (TLRY) reported its first ever earnings as a public company this week and blew away most expectations.

Constellation Brands (STZ) upped its stake in Canopy Growth (CGC), another Canadian producer and it’ been said that alcohol juggernaut Diageo (DEO) will throw its hat in the ring with at least one Canadian cannabis company. Cronos Group (CRON), Zynerba (ZYNE) and Insys (INSY) are in the spotlight as the cannabis stock rally could be set to continue into September.

For tech, Apple Inc. (AAPL) continues to stretch its lead in the “trillion dollar market cap club” while Amazon (AMZN) may be close behind after surpassing the $2,000 per share mark in pre market trading on Thursday. Morgan Stanley (MS) raised its target price citing a $1.2 Trillion value for the company and sparked even more interest from investors. Other big tech companies like Microsoft (MSFT) and Cisco Systems (CSCO) were among the other big movers with gains north of 1% each.

Commenting on the markets’ August strength, JJ Kinahan, chief strategist at TD Ameritrade, told FOX Business that,“The market continues to do well with strong earnings boosting us to new highs, what’s surprising is that we’re doing so without the FANG stocks leading.  It’s impressive that we continue to see buying strength under any circumstance and hit new highs.”

And on the earnings side things will continue to be retail-heavy, with notable companies reporting Thursday expected to include Kroger (KR), Dollar General (DG), Dollar Tree (DLTR), and Ulta Beauty (ULTA) from the S&P 500. Other retailers reporting results are scheduled to include Abercrombie & Fitch (ANF), Sears (SHLD), and Perry Ellis (PERY).

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JP Morgan: The Stock Market Is Doing Something Different

J.P. Morgan (JPM) is telling having conversations with its clients.  The word on the street: There is a strange miscorrelation to the performance, overall between the US and global stocks and how it won’t last.

As a result, the firm predicts international stocks will outperform the domestic market the rest of the year.

“The recent divergence in the performance of US Equities vs. the rest of the world is unprecedented in history. For instance, if one looks at price momentum – it is positive for US stocks and negative for Europe and Emerging markets across all relevant lookback windows [one month, three months, six months and 12 months]. This has never happened before,”

-Marko Kolanovic said in a note clients Tuesday.

The U.S. stock market has greatly outperformed emerging market stocks this year. The S&P 500 is up 7% year to date through Tuesday as compared to the iShares MSCI Emerging Markets ETF’s (EEM) 9% decline in the same time period.

Kolanovic a quantitative and derivative strategist,  also noted that because the relative moves between global markets are so unprecedented it will not likely continue.

“In other words, something will give – either the US will fall or EM and Europe equities will catch up and move higher,” he said, “We believe an escalation will likely be averted and that a trade resolution and weaker [U.S. dollar] will lead to a ‘risk on’ convergence,” the strategist said.

In a separate note Tuesday, J.P. Morgan’s Bram Kaplan explained the research team’s “risk on convergence” call, predicting emerging markets will outperform the U.S. stock market. He added that in this scenario the domestic stock market will still go higher, but not as much as international equities.

To take advantage of the prediction, the firm recommended Dec. 2018 call options on the iShares MSCI Emerging Markets ETF and buying derivatives that rise if the EEM outperforms the S&P 500 into year-end.

Are You Long EEM Yet? Click Here To See How You Might Be Able To Use Covered Calls To Maximize Profits

After Market Earnings To Watch – Stock Options In Focus

As earnings season winds down and the market shifts attention to the President’s “situation” today, a number of investors continue to look to the remaining companies left to report this week.  This morning we already saw Target (TGT) and Urban Outfitters (URBN) beat earnings while others like Lowes (LOW) came in under expectations, which pushed the stock lower during early market hours.

If there’s one thing that’s certain it’s this: the earnings season we’ve seen so far has been one of the most fickle. Companies are coming in with record earnings this quarter but still end up getting smashed.  The reason? Street expectations; and they have been high as of late.  The announcements of record revenues and “highest EPS ever” pale in comparison to what the Street wants to see and many times that has hurt the would-be bull runs of countless companies.

Today we look toward the post market to see who will report and what may be some of the most active earnings trades to make on Thursday. In addition, we will track unusual options volume to try and determine where the street is placing their bets for future cash out:

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Toward the end of the day, investors should also be paying close attention to who will be reporting earnings on Thursday morning before the opening bell:

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These could be giving opportunities to score big with options strategies. But what stocks will be watched after earnings season is over and what are the best options to trade?

Click Here To See The Top 50 Stocks For Trading Options