Stocks Rise On August 20 As Market Internals Weaken More Heading Into Options Expiration

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

Otherwise, enjoy the column!

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August 20, 2020

STOCKS – ZM
Macro – SPY 

August 20, 2020

STOCKS – MU, NVDA, GLD

MACRO – SPY, EWY

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ZOOM (ZM)

Do you know why a stock like Zoom was up 6.5% today? No, it isn’t because the stock is cheap trading with a $75 billion market cap. It is because there was a ton of options trading at the August 21 $285, $290, and $295 strike price. You also know something most of those calls were being bought. Do you know what it means? It means that there was a dealer out there selling those calls. That means they had hedged their risk out; you know how they do that? They buy Zoom’s stock. But you know what’s going to happen tomorrow, I’m willing to bet that at some point late tomorrow, the dealer who was hedging their position is going to start selling that stock because they are going to be over hedged heading into expiration. They will be long too many delta’s. That means, the stock will start going down, and probably even closes below $280, and that means the dealer gets to keep all those premiums. Thank you come again!

Just a hunch, who knows, maybe I’ll be wrong, I have been told flipping a coin gives better returns than my calls. 

Anyway, that is what today was all about. I’m curious to see how the Asian markets trade tonight.

Also, what was even more surprising was the actual number of stocks on the NASDAQ 100 FELL today! Yes, the NASDAQ 100 was up 1.4%, but the number of shares above their 50-day moving average fell to around 71%. Healthy market. 

Like I wrote this morning, the S&P 500 futures tested support at the uptrend, and it held. Again, as I said, you need to respect the uptrend. If it breaks troubles lies ahead.

One last thing, because I’m tired and have a headache, and my wife is getting on me to walk the dogs. Notice the equal-weight S&P 500. Notice that divergence. The market is not healthy. 

-mike

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.  

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