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Closing out 2021 with a Crush

January 2nd, 2022
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Market Update for the Week Ahead

Welcome back to the Juice! We hope you all enjoyed the extended weekend away from trading. Let's dive into the markets and see what is happening!

 

What happened last week?

Another year in the books and what a time it’s been. 2021 was an extremely difficult period for all stocks in the small to mid-cap range, while index performance was completely supported by mega-cap stocks. You’ve seen it, the proof was in the pudding with most of the option premium consistently flowing into names like Nvidia, Apple, and Microsoft. The end of the final trading day of 2021 was no different from the rest of the year with small-caps getting hammered all the way into the close. Mr. Market made sure the theme of small-cap destruction was held on through the very last trading day of the year.

When will small caps rebound? 2022 is a new year and is now upon us faster than expected. We’ll most likely see an increase in trading volume to start the year which will give us a good tell of the direction we’re headed. Before getting a rebound (and any big moves happen) we’ll need to see a change in options sentiment. We’d usually like to see a reversal in trend, similar to what we saw for the Santa Clause rally with some names beginning to cross the 5-day moving average to the upside, followed by an increase in bullish options activity in these names.

 

Markets - Option Flows

The Santa Clause rally continued earlier in the week, but going into Thursday afternoon the market took a turn. Stocks that were up big for the week fell through the floors and through support levels yet again. Here’s what the options market was telling us on Friday:

 

Markets - Sector ETFs

Let’s glance at which of the sector ETFs showed strength on Friday. GLD was the clear winner in terms of option premium with nearly $27 billion flowing through. Runner ups included XBI -Biotech ETF, XLF -Financial ETF, and SMH -semiconductors ETF. With the decision to raise interest rates right around the corner it could be players are setting up long-term positions in the financials sector to take advantage of names that have dipped. Following behind XLF was SMH, the popular semi-conductor ETF, that has continued to see bullish flow rip through over the last several months. The result has been a lot of the names like AMD, NVDA, and QCOM show resilience in this market (if not making new highs).

 

Matrix Scan - Roaring Kitty Calls 

Moving on to individual scans the Roaring Kitty Calls brought new names to our attention.

A lot can be said about nearly every name on this list, but I’ll dive into the PENN and SPCE that all came in with some of the largest increases in Friday’s call option trade volume.

Penn National Gaming (PENN) 

As noted from last week with many stocks finally clearing the 5-day moving average to the upside we can now see PENN is approaching the 50 EMA (this can be accessed on the “VIG - Charts” section). We wanted to dig into the full option flow for PENN so we made our way over to the VIG - Matrix Scan and did a custom search for the ticker PENN. Here are the top trades from Friday ordered by highest premium. We’ve got $80k-$300k trades hitting the tape with mostly high energy (ASK side). Interesting action we are seeing here, is someone entering for a bounce play?

Lets take a look at the Gamma Exposure (GEX) chart for PENN. We already know that PENN’s share price is sitting at lows not seen in the last 18 months. The stock has been somewhat resilient over the last few days and is relatively flat compared to most growth stocks that were hammered (and ended the week -5% to -10%). 2021 has changed the way people trade forever with options becoming a much more dominant financial instrument. Therefore the options market can be a large indicator of where a stock is headed.

The GEX chart is telling us a similar story. PENN’s share price is sitting in the middle neutral to bullish dealer impact. What we’ve historically seen is that as GEX builds to the bullish side a stock can be drawn to the strikes with the largest buying pressure. Remember, the GEX changes as share price moves and the delta on open call positions increases or decreases. Generally speaking these bars will stay the same ratio even though buying pressures or selling pressures increases. Keep an eye on the $56, $50, and $48 levels that are showing larger GEX cliffs here.

 

Virgin Galactic - SPCE

What do we have on the SPCE chart? The share price has been in a decline and bearish trend since August. Stock is sitting a 8-month lows and has been known to short-squeeze with the rest of the high-short-interest names. With bullish option flow coming through this makes a name to keep an eye on.

 

Matrix Scan - S&P Bulls 

Moving on to the “VIG - S&P Bulls” matrix scan I saw Dollar General (DG) all over the top list.


We wanted to investigate further so we drilled down into a custom scan showing Friday’s tape for the ticker. This list included calls and puts, but was sorted by most premium in descending order and interestingly enough all the largest plays were in calls with over million dollar blocks being traded.

 

Summary 

It hasn’t been easy navigating this market chop, but if anything we can rely on options flow to tell us the direction we’re headed. Cheers to a great trading year in 2022 and we look forward to this first week of trading to get underway.

Make sure to check out our Fantasy Stock Games this week as we start another full week of Games built around the 2022 New Year Kickoff! Enter for free to any of our numerous contests this week and show your stock and crypto pick 'em skills! 

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