How Options Are Fueling The Markets

First, let’s look at the covid crisis and how it played a role. As a result of the shutdowns, the FED took a really aggressive stance with its quantitative easing measures.  Lots of money printing to pay for massive stimulus payouts.  The worse news we hear historically is that the markets will react sharply to the downside.

In this market, they did the opposite because many in the market viewed the bad news as a sign the FED will keep its foot on the gas with their aggressive quantitative easing.  The markets love this as they see it as huge economic growth with less risk, even when things were shut down.  Many people were at home and had nothing to do but spend their stimulus money.  The markets loved this.  That is why we saw massive growth in AMZN, FB, GOOGL, and MSFT.  Other stocks favored from staying at home were ZM, NFLX, and TTD.

Now how do options fuel the markets?  Well, when an underlying stock has options there is a secondary derivative market that has its own supply and demand outside of the stock.  This can cause market makers to balance those demands.  How do they do this?

They do this by taking the difference of the total contracts bought and sold and adjust accordingly.  So for example let’s look at SPX.  In the below picture you can see Put volume is roughly half the call volume.  In this case, the market maker would engage in an activity called delta hedging where they would buy shares of stock to offset the difference between the Put and Call contract volume.  Since the market maker is only interested in the arbitrage between the bid and ask of these contracts, they want to stay delta neutral or, in other words, not be affected by stock price movement.

When they buy to offset, this can drive the price of an underlying stock up.  This is one reason why so many traders watch unusual options activity.

Every day on  Options Trading Signals we do defined risk trades that protect us from black swan events 24/7.  Many may think that is what stop losses are for.  Well, remember the markets are only open about 1/3 of the hours in a day.  Therefore, a stop loss only protects you for 1/3 of each day.  Stocks can gap up or down.  With options, you are always protected because we do defined risk in a spread.  We cover with multiple legs which are always on once you own.

Enjoy your day!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Founder & Chief Market Strategist
www.TheTechnicalTraders.com

 

Best Growth Stocks August 2021

For years, growth stocks have been beneficiaries of outsized gains compared to the averages. The main criteria we look for when betting on upside in a stock is improving fundamentals, great entry points (technicals), and a history of bullish trading activity in the shares. The hallmark way we go about finding the best stocks…the outliers, is by looking for quiet Big Money trading activity.

Oftentimes, that can be institutional activity. We’ll go over what that looks like in a bit. But, the 5 stocks we see as long-term candidates are FTNT, AMZN, PAYC, TTD, & ZM.

For MAPsignals, we believe the true tell on the near-term trajectory of the stock lies in the trading activity of the stock. The bottom line here is that oftentimes the manner in which a stock trades can oftentimes alert you to the forward fundamental picture more so than by simply looking at a company’s financials alone. We want the odds on our side when looking for the highest quality stocks.

Up first is Fortinet, Inc. (FTNT), which is a leading cyber security firm. They have been cruising higher for years.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for FTNT being:

  • 1-year performance (+95.86%)
  • YTD outperformance vs. NASDAQ ETF (+57.56% vs. QQQ)
  • Historical big money signals

Just to show you what our Big Money signal looks like, have a look at all of the top buy signals FTNT has made the past few years. That’s one strong uptrend. Blue bars are showing that Fortinet was likely being bought by a Big Money player according to MAPsignals.

It’s clear there’s a lot of blue historically with this stock. That’s exactly what you want to see when looking for a great growth name. This is what I call the stairway to heaven:

Chart, histogram Description automatically generated

Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, you need to look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Fortinet’s revenue numbers have been strong:

  • 3-year sales growth rate (+20.17%)
  • 3-year earnings growth rate (+347.93%)

Next up is Amazon, Inc. (AMZN), which offers a leading online marketplace. They are also dominant in cloud computing via AWS.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for AMZN being:

  • 1-year performance (+19.82%)
  • YTD vs. Staples ETF (+.2% vs. XLP)
  • Historical big money signals

While the stock has outperformed recently, look at the long-term picture. These are the top buy signals Amazon has made since 2015. Clearly the Big Money has been consistent for years:

Chart, histogram Description automatically generated

Source: MAPsignals, End of day data sourced from Tiingo.com

On top of a great long-term technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Amazon has grown revenues massively:

  • 3-year sales growth rate = +29.67%
  • 3-year earnings growth rate = +107.5%

Another growth name to consider is Paycom Software, Inc. (PAYC), which offers HR and payroll solutions to small businesses.

When we decide on the strongest candidate for long-term growth, we want to see a history of big money buying the shares. Paycom has that. Also, recent underperformance can be attractive:

  • 1-year performance (+32.16%)
  • YTD underperformance vs. technology ETF (-32% vs. XLK)

Below are the big money signals Paycom has made since 2015. This stock has been a magnet for Big Money:

Chart, histogram Description automatically generated

Source: MAPsignals, End of day data sourced from Tiingo.com

On top of a strong technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. Paycom’s growth rate is impressive. I expect more growth in the coming years:

  • 3-year sales growth rate = +25.03%
  • 3-year earnings growth rate = +39.28%

Number 4 on the list is Trade Desk, Inc. (TTD), which is the leader in digital advertising. The shares have been in bull-mode the past couple of years.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for Trade Desk being:

  • 1-year performance (+81.03%)
  • YTD outperformance vs. discretionary ETF (-16.53% vs. XLY)
  • Historical big money signals

Below are the big money signals that TTD has made since 2017:

Chart, histogram Description automatically generated

Source: MAPsignals, End of day data sourced from Tiingo.com

On top of the technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Trade Desk has been growing nicely:

  • 3-year sales growth rate = +39.94%
  • 3-year earnings growth rate = +65.73%

Our last growth candidate is Zoom Video Communications, Inc. (ZM), which is a video communications company.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for Zoom Video being:

  • 1-year performance (+47.94%)
  • YTD underperformance vs. technology sector (-2.66% vs. XLK)
  • Historical big money signals

Below are the big money signals Zoom Video has made since 2019. You can see how powerful the performance has been since the pandemic hit in March 2020:

Chart, histogram Description automatically generated

Source: MAPsignals, End of day data sourced from Tiingo.com

On top of the technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Zoom Video has grown revenues massively over the past few years:

  • 3-year sales growth rate = +177.46%
  • 3-year earnings growth rate = +2441.03%

The Bottom Line

FTNT, AMZN, PAYC, TTD, & ZM represent top growth stocks for August 2021. Given the strong historical revenue & earnings growth, and multiple big money buy signals, these stocks could be worth extra attention.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds long positions in ZM in managed accounts. He holds no positions in FTNT, AMZN, PAYC & TTD at the time of publication.

For a look at all of today’s economic events, check out our economic calendar.

Investment Research Disclaimer

https://mapsignals.com/contact/

 

 

Today’s Market Wrap Up and a Glimpse Into Friday

An infrastructure deal was reached in Washington, D.C. and stocks were up on Wall Street. The S&P 500 set a new record high after rising fractionally to 4266.49. The broader market index last reached a new high in mid-June. The recent Fed-induced losses did not last long as investors decided to look at the market glass as half-full.

The Dow Jones Industrial Average isn’t too far from its new all-time high after tacking on about 1% in Thursday’s session. The Nasdaq was fractionally higher. Some of the standouts in today’s session include:

  • Tesla gained 3.5%, extending yesterday’s rally.
  • Caterpillar rose 2.6%, reclaiming some ground it lost on inflation and rate-hike fears last week.
  • FedEx stock is down in extended hours despite experiencing record Q4 earnings and revenue that increased 27%. The company swung to a profit after a quarterly loss in the year-ago period, reporting net income of USD 1.87 billion, or USD 6.88 per diluted share. The transportation company’s services have been in high demand throughout the pandemic, including the delivery of vaccines. The stock is seeing heavy options activity including bullish expectations for shares to gain as much as 18% by the July expiration of contracts.

Stocks to Watch

Nike stock is up 11% in after-hours trading after beating on the top and bottom lines with Q4 results. The company’s results were driven by a recovery in the North American region, where sales grew more than twofold YoY to a new peak of USD 5.38 billion. Nike also experienced robust results in China and its digital sales segment. The trend of comfortable clothing is persisting even after the lockdowns have lifted.

In addition, The Trade Desk, an ad stock, gained 17% today and is trading higher in the after-hours. The stock is benefiting from Google’s decision to delay its move to do away with cookies until 2023. Google is making the change in response to privacy concerns and was initially expected to remove the tracking tech next year.

Look Ahead

On the economic front, personal income and spending for May will be released on Friday. Now that the government stimulus checks are a thing of the past, the expectations are for a further decline in personal income. It will likely not be of the same magnitude as the 13.1% MoM drop in April over March levels, but economists, nonetheless, are expecting a decline. Personal spending is expected to rise slightly.

Best Growth Stocks June 2021

The hallmark way we go about finding the best stocks…the outliers, is by looking for quiet Big Money trading activity.

Oftentimes, that can be institutional activity. We’ll go over what that looks like in a bit. But, the 5 stocks we see as long-term candidates are SQ, CYBR, TTD, NOW, & FIVE.

For MAPsignals, we believe the true tell on the near-term trajectory of the stock lies in the trading activity of the stock. The bottom line here is that oftentimes the manner in which a stock trades can oftentimes alert you to the forward fundamental picture more so than by simply looking at a company’s financials alone. We want the odds on our side when looking for the highest quality stocks.

Up first is Square, Inc. (SQ), which is a leading point-of-sale company. They help businesses seamlessly transact with their consumers. They also own the popular Cash App.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important. Square has been pulled lower like many Technology stocks:

  • YTD performance (-6.65%)
  • YTD underperformance vs. technology ETF (-9.91% vs. XLK)
  • Historical big money signals

Just to show you what our Big Money signal looks like, have a look at all of the top buy signals SQ has made recently. It’s had a strong chart over the past few years, too. Green bars are showing that Square was likely being bought by a Big Money player according to MAPsignals. It’s clear there’s a lot of green historically with this stock. That’s exactly what you want to see when looking for a great growth name.

Chart, line chart Description automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, you need to look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Square’s numbers have been strong:

  • 3-year sales growth rate (+64.45%)
  • 3-year earnings growth rate (-.66%)

Next up is CyberArk Software, Ltd. (CYBR), which is a leading cyber security company. The stock has been a huge winner over the years.

When we decide on the strongest candidate for long-term growth, we look at technicals. Sometimes a pullback is healthy. Here’s where CYBR stacks up:

  • YTD performance (-25.83%)
  • YTD vs. technology ETF (-29.09% vs. XLK)
  • Historical big money signals

While the stock has underperformed recently, look below. These are the top buy signals CyberArk has made since 2015. Clearly the Big Money has been consistent for years:

Chart, histogram Description automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of a great long-term technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, CyberArk has solid fundamentals:

  • 3-year sales growth rate = +21.53%
  • 3-year earnings growth rate = +34.3%

Another growth name to consider is Trade Desk, Inc. (TTD), which is a online advertising platform. The stock has been in beast-mode for years.

When we decide on the strongest candidate for long-term growth, we want to see a history of big money buying the shares. TTD has that. Also, the shares have pulled back massively in 2021:

  • YTD performance (-36.52% vs. SPY)
  • YTD underperformance vs. software ETF (-32.64% vs. IGV)

Below are the big money signals TTD has made since 2016. That’s a chart of a rocket:

Chart, line chart Description automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of a strong technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. Trade Desk’s revenue growth rate is impressive. I expect earnings to rebound in the coming years:

  • 3-year sales growth rate = +39.94%
  • 3-year earnings growth rate = +65.72%

Number 4 on the list is ServiceNow, Inc. (NOW), which is a leading enterprise cloud computing solutions company. The shares have been in bull-mode the past couple of years.

When we decide on the strongest candidate for long-term growth, we consider many technical areas. ServiceNow has pulled back like many Tech names:

  • YTD performance (-16.93%)
  • YTD underperformance vs. software ETF (-13.05% vs. IGV)
  • Historical big money signals

Below are the big money signals NOW has made since 2015:

Chart, line chart Description automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of the technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, NOW has been growing nicely:

  • 3-year sales growth rate = +32.73%
  • 3-year earnings growth rate = +.49%

Our last growth candidate is Five Below, Inc. (FIVE), which is specialty discount retailer. They have been growing rapidly for years.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for FIVE being:

  • YTD performance (+5.56%)
  • YTD outperformance vs. discretionary sector (+.22% vs. XLY)
  • Historical big money signals

Below are the big money signals Five Below has made since 2015. You can see how powerful the performance has been:

Chart Description automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of the technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. Five Below has grown over the past few years:

  • 3-year sales growth rate = +15.55%
  • 3-year earnings growth rate = +10.53%

The Bottom Line

SQ, CYBR, TTD, NOW, & FIVE represent top growth stocks for June 2021. Given the strong historical revenue & earnings growth, and multiple big money buy signals, these stocks could be worth extra attention.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds a long position in SQ in personal accounts, but no positions in CYBR, TTD, NOW, & FIVE at the time of publication.

Investment Research Disclaimer