Tom’s Weekly Newsletter April 27th, 2022

Originally published on April 20th, 2022. Subscribe for early access!

Earnings Season is Under Way

And things overall seem to be off to a decent start.

JP Morgan Chase (JPM) reported an earnings miss and CEO Jamie Dimon issued words of concern about the markets going forward, yet the financials (which I use the XLF to assess direction for the financial sector as w whole) are seeing some upside pricing.

Delta Airlines (NYSE: DAL) reported an earnings beat, and their CEO was one of the most chipper and happy CEO’s I’ve heard when talking about his company’s future.

Airlines on the whole have popped a bit as well.

Tesla reports today and though they are down ))))) on the day we will see what the earnings and future guidance coming out of the company does for its share price and what that might mean for electric vehicles (EV) stocks going forward.

Bear Market Rally or Higher Prices to Come?

There is talk about any time the markets experience a  bullish 1-trading day (where prices close higher than their open) then sees them sell off the next few days or more that this is indicative of what goes on in a bear market.

Look, we still have more rate hikes to come, Russia and Ukraine and supply chain concerns so I am not going to say a recession or bear market conditions aren’t a risk…

But there are times we can get price pops and that looks like we may have that happen if today closes at or near its highs (a second consecutive bullish day).

Four Corners of the Market

SPY was lower by only a smidge, which means it technically did not have a follow through bullish day. Earnings season is what I see that will be the catalyst for short-term market direction. WE may hold this level and that may be enough for a short-term pop a bit higher.

Let me reiterate what I said in the image above and then elaborate a bit.

TLT has been in a down trend for some time and that makes it hard to get bullish or believe in prices going much higher since it has been in such a dramatic slide.

One can make a case for the last three trading days candle pattern being that of a Morning Star Reversal pattern.

Even if TLT doesn’t see a great deal of price action higher, I can see prices maybe taking a breather in trading lower and may stall or trade a bit sideways.

The Fed still isn’t planning on slowing down its rate hikes, and as long as that’s the case it is hard to expect TLT trading much higher for any great length of time.

This has been in a strong uptrend so far this year.

The formation at the top of this chart, the last 3-trading day Candles can be considered an Evening Star Reversal pattern.

If that is a technical indication UUP is due for a stall or maybe even a pull back, I’ve drawn in a horizontal green line which could be a place UUP finds support.

If one wants to slap a Fibonacci Retracement view on this to ascertain a support level based on that tool by all means go ahead.

The 38.2% level (the first percentage fib level for a pullback in a bull or bear market is at a price of $26.40.

This may not be worth an option trade, but a pullback in UUP may bring a pop in equities.

When one draws in a triangle pattern on a chart, recognize that they – the triangle – has a support and a resistance line.

USO is in a seasonally strong period of time in which expectations for higher prices are expected in oil and energy stock  up to mid-July.

Things do not go up or down in a straight line over time and though USO broke out of the triangle pattern it doesn’t mean it will shoot straight up without a pullback here and there in the process.

USO broke out of the triangle, which means it traded above the descending resistance line.

Over the last three trading days it looks like it formed a pivot high and has started settling back in price a bit. That doesn’t surprise me as that could be some profit taking happening.

So long as it holds that old resistance as a new support I am still bullish.

I am a long-term Gold Bug. 

Which means I have a long-term investment type view on GLD and remain long my long-term holdings.

I am primarily an options trader, and there may be bullish and bearish option trading opportunities in GLD, and I am not opposed to trade options on GLD in a bearish fashion even though I am a Gold Bug.

So long as GLD remains above my drawn in support line (in the image above), I will remain bullish bot as an investor and as an options trader.

We highlight the last two trading day candlesticks on the chart above.

Its formation is that of a Piercing Pattern, but where the formation happens is as important as the pattern itself.

This means it could pop higher from here based on the formation but doesn’t guarantee it.

Tools and Observations

Tesla, Inc. (TSLA) Reports / Reported Earnings Today

My tools have a 24-hr earnings scan and one of my colleagues, friends, instructors Mike Wade teaches an Earnings Mastery Course that may happen  again this year.

What you are reading is NOT to be construed as part of that education.

This is simply an observation to show you one way to ascertain, before an earnings announcement happens, how much market makers expect the stock to move.

One can look at the prices of the options on a security going into the earnings announcement and get a gauge on a potential price move.

One Way to Assess a Future Price Move on TSLA

Basically, look at the front or current month At the Money (ATM) calls and puts.

Add the two together and that is the potential price move post the announcement.

The reason I say look at the ATM options is because there is little to no Time Value or Theta priced in to those options.

Here are the ATM options for this Friday’s expiration on TSLA before market close and before the earnings announcement.

These are technically In the Money (ITM) as the stock price prior to the close (at the time of this writing) was $982.42 and there were no true ATM options. 

Add the $980 Call and Put premiums for this Friday, April 22, 2022, Straddle if you will and the value is $72.38 ($37.63 is the mid-price of the $980 Calls and $34.75 is the mid-price of the $980 Puts).

This means one can have an expectation of a price move of basically $72-points in either direction.

For a Straddle trade that would mean for an April 22, 2022, $980 Straddle to break even TSLA would have to move 72-points In the Money (ITM) to have a shot at being break even. And any price move further ITM could help the position.

And if one wants to do the math on the $985 (Out of the Money Straddle) they can.

One variation on this theme for an options strategy to consider would be a Strangle, which is a purchase of an out of the money call and an out of the money put, which reduces the cost/risk.

By the time you are reading this TSLA has reported. Check out the options pricing when things open up tomorrow as well the stock price and see how this straddle looks after the fact.

—Tom Gentile
C1P: Chief 1-Percenter