Options activity provides a look at expectations on DIS, NFLX, WFC

U.S. stock futures are headed for a quiet open this morning. Ahead of the bell, futures on the Dow Jones Industrial Average are up 0.02%, and S&P 500 futures are up 0.03%. Nasdaq-100 futures have gained 0.02%.

In the options pits, call volume raced to the moon on Friday, helping to drive overall volume well above average levels. Specifically, about 24.2 million calls and 16.2 million puts changed hands on the session.

The CBOE saw call domination as well, with the single-session equity put/call volume ratio slamming to 0.54 — a two-week low. Meanwhile, the 10-day moving average slipped to 0.60.

Here were three stocks landing atop the options most-actives list: Disney (NYSE:DIS), Netflix (NASDAQ:NFLX) and Wells Fargo (NYSE:WFC).

Let’s take a closer look:

Disney (DIS)

Disney finally released the details of its highly anticipated streaming service during its investor day and WOW! Traders went absolutely bananas, sending DIS stock up 11.54% on historic volume. More on the price action in a minute, but first, here are the details.

Disney’s streaming service, Disney+, will debut in November at the cost of $6.99 per month or $69.99 annually. The price undercuts Netflix (NASDAQ:NFLX), the indisputable champ of the streaming space, by a substantial margin. Netflix plans currently range from $8.99 to $15.99. The number of movies and shows in the library will top 400 and include 25 original series and 10 original movies.

With Friday’s breakout, Disney shares have finally departed the range they’ve been locked in for four years. Now that resistance has finally fallen, and the stock is basking in record highs, the path of least resistance is unequivocally higher.

On the options trading front, call options were the hot ticket. Activity swelled to 625% of the average daily volume, with 752,989 total contracts traded. 68% of the trading came from call options.

The increased demand drove implied volatility higher on the day to 29%, placing it at the 61st percentile of its one-year range. Premium sellers will be happy to note this is the highest level of 2019.

Netflix (NFLX)

Disney’s gain will be Netflix’s pain. At least that was the knee-jerk reaction on Friday. While DIS stock surged 11.5%, NFLX tumbled 4.5%. The fear is warranted. Disney is willing to invest billions in delivering its unmatchable content at a price that makes Netflix appear downright expensive.

Starry-eyed analysts are already posting mind-blowing subscription estimates for Disney+. JPMorgan (NYSE:JPM) thinks it will eventually top 160 million which surpasses Netflix’s current number of 139 million. There is no doubt that a substantial portion of Disney’s growth will come from the millions of media lovers who currently subscribe to Netflix.

The next catalyst for NFLX stock will be its earnings announcement on April 16. We’ll see if the company can pull a rabbit out of the hat to distract investors who are now nervous that Disney has irrevocably stolen their future.

On the options trading front, calls won the day despite the stock’s drubbing. Activity ramped to 265% of the average daily volume, with 376,738 total contracts traded. Calls claimed 56% of the day’s take.

Implied volatility drifted sideways at 46% and remained at the 42nd percentile of its one-year range. Premiums are pricing in daily moves of $10, or 2.8%.

Wells Fargo (WFC)

While the Disney-Netflix drama certainly captured the imagination on Friday, bank stocks and their quarterly earnings also drove the market narrative. While some heavy hitters like JPMorgan and Bank of America (NYSE:BAC) soared on the day, Wells Fargo sunk like a stone.

But not initially! Wells Fargo was actually up about 2% after reporting earnings of $1.20 per share on $21.6 billion in revenue. Both measures topped expectations. The cause for the sudden downturn and eventual loss of 3% for the day was the bank slashing its forecast for net interest income.

With WFC now sitting well below falling 20-day, 50-day and 200-day moving averages, I see zero reasons for optimism. Buyers will find greener pastures in other banks right now.

On the options trading front, traders came after calls dominated during the volatile session. Total activity grew to 653%, with 352,033 contracts traded. Calls accounted for 66% of the take.

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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Source: Investor Place

After gains earlier in the week, markets were somewhat mellow on Friday. The Dow and S&P 500 were up slightly, and the Nasdaq was off a quarter of a percent. Good jobs data earlier in the day buoyed markets, after less than stellar projections out of Amazon (AMZN). The online retailer said that 2019 will be a big investment year for the company, which was already anticipated. But news that the company was facing regulatory headwinds in India, and was projecting lighter sales, drove the stock down to finish off just over 5% on the day.  

Sysco (SYY) and Clorox (CLX) report before the bell bright and early Monday, but investors will be waiting for the closing bell to ring for Alphabet (GOOGL) to report. Even after coming off of 2018 highs, the search company is still a $783 billion market cap behemoth. After Facebook’s (FB) much better than anticipated numbers, analysts will be looking for good news on the advertising front from Google as well. The company is expected to make $11.08 a share, up on a year-over-year basis from $9.70.

Tuesday we’ll have a range of earnings reports from Walt Disney (DIS), British Petroleum (BP), and Estee Lauder (EL). Disney is back to the low end of the trading range it experienced for most of 2018, and has recovered from the end of year swoon it experienced. Wednesday is pharma day when Eli Lilly (LLY), GlaxoSmithKline (GSK) and Regeneron Pharmaceuticals (REGN) all report.

Thursday the earnings spotlight will turn to Phillip Morris (PM), Sanofi (SNY) and Yum! Brands (YUM). Philip Morris made headlines early this year when it said it wants to eventually stop selling cigarettes. Investors will be looking for an update on the business plan moving forward if the company wishes to turn away from its main product. Friday we’ll hear from Exelon (EXC), Phillips 66 (PSX) and Hasbro (HAS).  

The economic calendar Monday, to begin the first full week of February, starts with motor vehicle sales, factory orders and the TD Ameritrade IMX, or investor sentiment survey. Investors who jumped ship in late 2018 as the market faced uncertainty may be coming off the sidelines after one of the best Januarys in 30 years. Factory orders for November, which are delayed from an original early January release schedule, are expected to come in up .4%. This follows a 2.1% decline in October.

Redbook retail data, PMI services and ISM non-manufacturing data will all be released Tuesday. The Purchasing Managers Index, made up of over 400 companies, last came in at 54.4 for December. Also slated for Tuesday is President Trump’s State of the Union address. Any news out of the speech, especially an update on how the Chinese trade situation is progressing, may impact markets Wednesday.

Mortgage applications, international trade data, and productivity and cost numbers will be scrutinized by analysts Wednesday. The composite mortgage numbers were down 3% last week, with refis coming in particularly weak, down 6%. Fed Chairman Powell is expected to host a town hall meeting at 7 pm Wednesday evening, taking questions from educators across the U.S..  

Thursday is a big day for economic data. Jobless claims and the EIA natural gas report will both be released Thursday morning. Thursday afternoon will find investors looking over consumer credit numbers, the Fed balance sheet, and money supply data. With the Fed projected to tap the brakes on quantitative tightening, analysts will be pouring over the Fed balance sheet numbers when they are released at 4:30 pm. Baker-Hughes rig count data comes out on Friday.    

Wednesday morning was all about earnings, with markets jumping on “not bad” earnings out of Apple (AAPL) Tuesday evening, and good news from Boeing (BA) Wednesday morning. And then, Wednesday afternoon was all about the Fed. Chairman Powell seemed to take the Fed, and the fear of rising interest rates, off the table as a potential stumbling block for the market with the FOMC statement and subsequent press conference.

The Fed statement declared that the Fed “will be patient as it determines…future adjustments” to interest rates. The market interpreted that as a green light on the rate front, and added to the earnings gains achieved earlier in the day. On the trade front, high level talks began again between the U.S. and China, but reports from multiple sources say it may be slow going as several in-the-weeds details on intellectual property protection and enforcement must be worked out.

The earnings onslaught continues Thursday when Tuesday Morning (TUES) and YRC Worldwide (YRCW) report before the opening bell. Revenues at trucking company YRCW are expected to rise a few percentage points over last year, with earnings coming in at $.12 per share. Investors will be looking for an update on hiring, with trucking companies across the board citing a lack of qualified drivers. Analysts are predicting a 52% year-over-year rise in Tuesday Morning earnings to $.29 a share when the company reports. The home goods retailer has fallen sharply in the past year from highs around $4 to now trade under $2 per share.

As government agencies catch up on reports not issued due to the government shutdown, the economic numbers will be coming at a rapid pace the next few days. The Challenger Job Cut Report, jobless claims, personal income, and the employment cost index will all be released tomorrow morning. Personal income is expected to have increased .4% in December, and strong consumer spending is expected to continue, ticking up .3%. The core price index, excluding food and energy, is expected to rise .2%, or 1.9% on an annual basis. Chicago PMI and new home sales are also scheduled for release Thursday.

The first day of February will start off with the employment situation numbers, followed by both the PMI and ISM manufacturing indices. Analysts are watching the manufacturing numbers very closely to see if weakness the last few months was only an aberration. The consensus ISM number for January is a tepid 54. Construction spending, consumer sentiment, and wholesale trade numbers will also be released Friday.The November construction number, originally scheduled for release January 3, is expected to show a .2% increase.

Exxon Mobil (XOM), Chevron (CVX), Merck (MRK) and Honeywell (HON) kick off February with earnings Friday morning. Both Exxon and Chevron have bounced, along with oil prices, off of the bottom touched in December. But, on a percentage basis, both large oil companies are trailing the bounce in oil itself. Analysts will be looking for commentary from each company on where they see the price of oil headed, and whether global economic weakness will continue to impact the commodity.

Markets rallied for a fifth straight week Friday as a trifecta of good news was enjoyed by investors. President Trump announced a temporary reopening of the U.S. government after reaching a deal with Congress. Unless a final deal is reached before mid-February, another shutdown could ensue. But, traders are hopeful this is a sign that a permanent solution can be reached.

The WSJ reported the Fed may be close to halting its program of quantitative tightening. This could give markets the breathing room they need to regather for another rally. And, finally, positive news on the trade front is raising confidence that additional tariffs will be avoided in coming months.

We are in the heart of earnings season, and the last week of January will start off with a bang. Monday morning analysts will get right to work dissecting earnings from Caterpillar (CAT) and then interpreting releases from Whirlpool (WHR) and Celanese (CE) after the close. Caterpillar has been a bellwether in the recent trade dispute between the U.S and China, rising when there is good news and falling when tensions between the countries rise. Analysts will be looking for the real impacts of the trade dispute when Cat reports. Whirlpool has long been viewed as a measure of how the consumer is holding up. The company is expected to report $4.30 per share, with the main question being whether the company is seeing inflationary pressures from its suppliers.

The Dallas Fed Manufacturing Survey and the Chicago Fed National Activity Index will both be released Monday. The Chicago numbers could be particularly interesting as they pick up activity nationwide, and should give a better reading on how weak manufacturing has become. Last month’s reading came in at .22, and the current three month average is .12. The positive numbers indicate manufacturing is still growing above trend, even with the recent falloff reported by regional Fed Banks. Tuesday analysts will look through Redbook retail numbers, international trade numbers, and the Corelogic Case-Schiller Home Price Index (HPI). The HPI October numbers were relatively flat.

Apple (AAPL) will be the headliner Tuesday when the company reports earnings. Investors are anticipating an update on sales in China, and many analysts feel price cuts are coming in the newest iPhones. Pfizer (PFE), Verizon (VZ) and 3M (MMM) also report Tuesday. The hits keep coming Wednesday when Microsoft (MSFT), Facebook (FB), and Visa (V) all report. Facebook’s Mark Zuckerberg will likely comment on Facebook’s advertising practices after penning a piece for the WSJ addressing the issue on Friday.

Mortgage applications, impending home sales, and the ADP employment report are all released Wednesday morning. Also on the slate are GDP numbers. GDP is expected to come in at 3.4% for the quarter. Wednesday afternoon will also mark the close of a two day Federal Open Market Committee meeting, with any interest rate changes announced at 2 pm. Traders do not expect any move by the Fed, but will be watching the statement closely for any deviation in wording from the Feds last comments.

Thursday we’ll hear from Amazon (AMZN), Mastercard (MA) and General Electric (GE) as they report quarterly earnings. Investors will likely get an update on how the standup of the new Amazon headquarters is progressing. Friday will be all about big oil as both Exxon Mobil (XOM) and Chevron (CVX) report before the opening bell.

Jobless claims and the employment cost index will be released Thursday. And on the first day of February, consumer sentiment, employment situation numbers, and the PMI manufacturing index will all be released Friday. Non-farm payrolls are expected to come in at 312K and the unemployment rate is projected to be 3.9%.

Wednesday, markets were mainly in recovery mode and made up some ground after a selloff on Chinese economic weakness Tuesday. Strong earnings from International Business Machines (IBM) and Procter & Gamble (PG) propped markets up after downward revisions to global economic growth by the International Monetary Fund (IMF) earlier in the week. The market is also fighting less than stellar news on the trade front between the U.S. and China. And, growing tension on the U.S. government shutdown which appears to become more acrid by the day. The two parties are now arguing over when and where President Trump will deliver his state of the union address next week. From an economic data perspective, investors are getting fewer and fewer data points as more federal agencies stop releasing data due to worker absences.  

Jobless claims, PMI composite flash data, and leading indicators will all be released Thursday morning. Jobs continue to be a bright spot in what has become a muddled economic picture, with continually weakening housing numbers, and data indicating manufacturing in the U.S. is slowing. With a lower than expected 213K last week, claims are expected to again remain below the 220.75K four week moving average. PMI flash data is expected to show a continuing sluggishness in manufacturing, with only a slight rise from December levels and still below numbers reported in November.

Thursday is a big day for earnings as Intel (INTC), Union Pacific (UNP), Bristol-Myers (BMY), Starbucks (SBUX), and American Airlines (AAL) all report. American Airlines has traded relatively flat after declining around 25% from highs set just before the selloff that began in October last year. Analysts will be looking at load count as well as the impact of oil prices. There will also likely be discussion of the impact of the government shutdown, and how that is impacting profitability. Starbucks is trading around 10% above highs set in the first half of 2018, and analysts are anticipating strength in North America to offset weakness in the Chinese market.

There is no slowdown in earnings headed into the weekend as AbbVie (ABB), Colgate-Palmolive (CP), Ericsson (ERIC), D.R. Horton (DHI), and Lear Corporation (LEA) all report Friday morning. Management for D.R. Horton will be under a microscope to give investors an expert opinion on if and when they see the housing market stabilizing, and perhaps turning up. Last quarter Colgate-Palmolive’s gross and operating margins both fell, and analysts are not expecting a turnaround this quarter. With the majority of its revenue generated internationally, the consumer goods company should serve as a canary in the coal mine, providing some indication as to whether the global economy is faltering as many believe.  

The monthly Kansas City Fed Manufacturing Index is projected to decline yet again after a jaw-dropping 12 point fall last month. The index is expected to come in at 2, down only 1 point from last month’s final tally of 3. Leading economic indicators are also expected to decline for December at -0.1%. The stock market fall, combined with the aforementioned weakness in manufacturing, accounts for the December decline.

Friday we will likely not get the release of planned durable goods orders and new home sales due to the partial government shutdown. We will see data on the Baker-Hughes North American rig count to get an idea of how the rig count is trending with the continuing weakness in oil.

Markets were closed Monday for the Martin Luther King, Jr. holiday, but may take their cue from overseas markets when they reopen for business Tuesday. European markets were flat to lower as they digested final GDP numbers out of China for 2018. The Chinese economy grew 6.6% in 2018, its slowest growth in almost 30 years.

When markets reopen Tuesday, they will also return to the stalemate in Washington, with nothing being resolved over the long holiday weekend. President Trump’s offer to extend the DACA program for three years in exchange for funds to build a border wall with Mexico was announced dead on arrival by Democratic leaders.

In addition to impacting federal workers and the businesses they frequent, the extended shutdown is preventing companies, like Uber (UBER, pre-IPO) and Lyft (LYFT, pre-IPO), from proceeding with their IPOs. A skeleton staff at the Securities and Exchange Commission (SEC) is on duty to police market misconduct, but not to approve IPOs and other registration filings.

Tuesday analysts will see the release of Redbook retail data. A major economic victim of the government shutdown has been retail data. The Redbook data has therefore taken on more importance in recent weeks. Last week showed a 6.7% rise in sales year-over-year. This weekly data is being watched closely for any cracks in consumer confidence. Also released Tuesday are existing homes sales numbers.

Investors will get a reading on brokerage earnings Tuesday when TD Ameritrade (AMTD) and Interactive Brokers (IBKR) report. With several reports showing investors moving to the sidelines in late 2018, analysts will be monitoring the level of trading activity at these brokerage firms, given the swift rebound so far this year. Did investors reengage in the market, or are they still waiting for an all clear? Also releasing earnings Tuesday are Johnson & Johnson (JNJ), International Business Machines (IBM) and The Travelers Companies (TRV).

Proctor and Gamble (PG), United Technologies (UTX), Texas Instruments (TXN), ASML NV (ASML) and Las Vegas Sands (LVS) report earnings Wednesday. Like the other casino stocks, Las Vegas Sands started trending lower in mid-2018, but looks to have found a bottom in the mid-$50s. The company is expected to report $.86 per share on Wednesday. Investors will be looking for an update from United Technologies on its plans to separate into three different companies. Announced in 2018, the company has said that the reorg could take as much as two years to complete.  

Mortgage applications, the FHFA House Price Index, and the Richmond Fed Manufacturing Index will all be released Wednesday. With both orders and shipments contracting unexpectedly in December, when the Index came in at -8, investors are keeping a close eye on the Richmond Fed numbers for January. Projected to bounce slightly to -3, the number is an important gauge of where the economy may be heading in early 2019.    

Markets moved higher Wednesday, but were trending lower into the close, after an impressive earnings report from Goldman Sachs (GS) lifted the stock almost 10%. While the beat on earnings lifted the stock, they do not put to bed the ongoing investigation into the money manager by the Malaysian government, or the U.S. Federal Reserve. Markets gave back some of Wednesday’s gains after news hit the wire late afternoon, that the U.S. will be seeking criminal charges against Chinese telecom company Huawei, accusing the company of stealing trade secrets. The ongoing trade tension between China and the U.S. showed signs of progress in the latest round of talks, but the Huawei investigation looms large over the fragile negotiations. No apparent progress has been made on the continuing government shutdown, with both sides now sniping about President Trump’s scheduled State of the Union address later this month.

While pundits debate the exact economic impact the partial government shutdown is having on the economy, we are certain it is impacting the release of economic numbers on which analysts base their recommendations. The latest casualty were retail sales numbers for December, which were due to be released Wednesday, and are now delayed. Thursday we will get the release of jobless claims, which are expected to tick up slightly as more federal workers file claims. The consensus total is for 221K claims. Analysts will also take a look at the Philly Fed Business Outlook, but housing starts, also due Thursday, are delayed.

While financials continue to report Thursday, with earnings from Morgan Stanley (MS) and American Express (AXP), we’ll also hear earnings news from Taiwan Semiconductor (TSM) and Netflix (NFLX). Morgan Stanley, which suffered a dismal 2018, rallied Wednesday along with other banks, tacking on 3.75%. The company is expected to report earnings of $.92 before the market open Thursday morning.

Analysts are highly anticipating Netflix earnings, after the company announced it is raising prices for its subscription services effective immediately for new subscribers, and over a three month period for current customers. The stock has been on a blistering pace the past few weeks, and is up over 50% from an intraday low set December 26th. Investors will be looking for projections of what the price increase means for earnings going forward.

Earnings continue to roll in from financials Friday, when State Street (STT) and Suntrust Bank (STI) both report. Analysts will also hear from oil services company Schlumberger (SLB). This is Schlumberger’s first report since oil prices tanked late in 2018. Revenue is expected to drop 5% sequentially, and the company has projected a possible 15% potential revenue drop in North America, as fracking revenue has declined. After hitting a high of just below $80 in 2018 the stock has been almost cut in half, now trading at just over $41.   

Friday investors can pour over industrial production numbers and consumer sentiment, from the University of Michigan survey. Consumers are expected to see a somewhat bleaker landscape, as the survey number is projected to drop to 97 from December’s final reading of 98.3. Mixed messages abound as the government shutdown is a negative, trade negotiations seem slightly positive, and the market rebound in 2019 has been strong.

Markets finished lower Monday after more news of economic weakness out of China, and an increasing sense of unease over the partial government shutdown. With mid-month January paychecks now not showing up in government employee bank accounts, the impact of the shutdown appears to be accelerating. And, with both sides digging in, there appears to be little hope of a near-term solution to the impasse. Investors are keeping one eye on the shutdown and the other on earnings, as earnings season is now in full swing. Many large banks report earnings this week, mixed with a number of transportation stocks. While most analysts agree earnings are coming down from the blockbuster growth of 2018, the question for investors is whether the bottom in stocks has already been put in when the market sold off last quarter, or if there is more pain to come in 2019.

PPI and the Empire State Manufacturing Survey are scheduled for release Tuesday. PPI is expected to come in flat, owing mainly to the continuing drop in oil prices in December. The Empire State numbers are expected to bounce back from a reading of 10.9, and to come in at 12 for December. Analysts will be watching this number closely to determine whether recently weak manufacturing numbers were an aberration, or the beginning of a more substantial decline in manufacturing.

JP Morgan Chase (JPM) and Wells Fargo (WFC) report before the open Tuesday. Many analysts believe the large banks are undervalued, while others are citing pressure from fintech startups and payment processors, like Visa (V), as a growing challenge to large bank profits. Citi’s (C) report on Monday, while not stellar, reinforced the pillars the large banks have come to rely on in recent quarters, large buybacks of stock and attention to cutting costs. Citi finished flat on the day. Some analysts are holding their breath hoping none of the large players encountered an unexpected trading loss given the massive volatility at the end of 2018. Also reporting Tuesday is Delta Airlines (DAL). Airlines have taken it on the chin since early December when earnings warnings began to emerge from the sector.

Banking earnings continue Wednesday, when Bank of America (BAC) and Goldman Sachs (GS) report. Goldman has been under the gun with an investigation of its involvement in an embezzlement scheme at 1MDB, a Malaysian state investment company. Revelations by Goldman employees, that they intentionally avoided the firm’s internal compliance rules, are being investigated by the Federal Reserve, and has spooked investors. CSX Corporation (CSX) reports after the close Wednesday. The rail company has been successful cutting costs and improving efficiency this year, but some analysts fear that may not provide much support going forward. CSX should be able to put forth some color commentary on the economy given its vital role in transporting goods. One question analysts have is whether the lead up to the China trade tariffs resulted in a bulge in traffic headed into the fourth quarter, and if that portends lower volume the next few quarters.

Economic numbers released Wednesday will include mortgage applications and the housing market index. Housing index numbers are expected to rise slightly to 57 after a devastating 8 point drop in November. Also on tap are retail sales, import and export prices, Redbook retail numbers, and business inventories. Both import and export prices are expected to decline, again due to the weakness in oil prices. Falling export prices were somewhat offset by a bounce in the price of farm products.