Lets get right to it. Amid the market turmoil some industrial names like du pont, caterpillar, ibm managed to eke out gains on the week. So is this a safe haven from the storm . Lets get in the money and find out. Dan, im going to guess youre going to say no. Its a pretty easy answer. Look what the dollar did this week. And theres your answer. Some of those stocks you just mentioned got absolutely creamed last year. And they started out the year very poorly. You had this move in the dollar. To me that was the thing that no one really expected. But industrial space, you know, listen, theyre exposed to all the things. Other than that lower input costs like the du pont from lower commodity price, that sort of thing, the true ones were going to talk about, general electric, to me they have a ton of risk in this Global Economic environment were in, especially if the dollar moves back up in my opinion in the first half of 2016. You know, i think if youre holding your hope on the market basically on dollar strengthening, basically finding some areas of strength, maybe caterpillar, which has been in the doghouse for a long time could see some strength here. Maybe the gold miners. We talked about that earlier this week. Could see some strength. But that doesnt necessarily mean that all is well, right . So i kind of think about, you know, what does this market feel like . We were talking about that before the show. It feels a little bit like a couple of the bear markets that we had in the 70s. It makes me think of you had in the 70s . No, no. But we studied them. And then later on maybe in the 90s we had some weakness. I think we know that the definition of an up trend is that you have countertrend selloffs, which are buying the dip and opportunity. If youre in a down trend you have countertrend rallies. Bear markets are characterized by sharp countertrend rallies which provide excellent shorts. A lot of industrials, material names, which had big moves off their lows earlier in the week, its meaningless. Meaning its like freeport. That was the biggest mover. Freeport mcmoran moving 16 at one point. From 26 to 3. 50. Its too little too late to go back up to 5. Who cares . Its a broken stock. When you see these mini countertrend rallies in what could be a bear market, what these are shorting opportunities you said . Sure. But no one actually caught the move. People say i got freeport. Real money cant do that. Its all robots or people that put in 100 shares. No ones catching moves. Caterpillars a great example. This is a short that worked. You shorted every rally over the last year and a half you made money brilliantly. Heres one where the sentiment is so bad, Short Interest is so high, i think theres like one wall street analyst who has a buy rating on the stock. The price target, the average price target is below where the stocks trading. So its had a really nice move with all this other trash. But to carters point its probably a great shorting opportunity until you really do see some sort of turn. Thats the problem with materials and some of the industrials and stuff that moved this week. There was nothing fundamental in particular one of the places you want to fade this. We dont have anywhere near the kind of prices in oil that those businesses need to strongly recover. A lot of these things have negative cash flow that exceeds their current cash balance and maturities coming up this year. Its really distressbased. Lets go straight to your ge trade. This is one i think some of these guys may not love because its showing some pretty decent relative strength and its obviously a company that has a very healthy dividend yield and some may deem to be somewhat defensive but i believe were in the sort of market where you could throw a dart at shorts and you can even throw them at Companies Like ge that youd say this is may be one of the last battles fought. Given the relative strength. I dont really feel that way. So to me i think given that exposure to emerging markets, given that exposure to the dollar i think it could set up as a good shorting opportunity. The stock has been basing between 28 and 29 for a few weeks. So to me i want to target their next earnings event. Weve seen so Many Companies that have just started to give mildly cautious forward commentary about the Global Economic environment and i think ge probably does that again had they report on their q1 on april 22nd. Today when the stock was about 28. 65 i looked out to may expiration. Im targeting their april 22nd earnings event. And you can really simply here just buy the may 28 puts for 1. 25. That is your max risk. It breaks even at 26. 75. To the down side. And if the stock it really if it starts to move in your direction and you start to be in the money here i think you can look to actually sell a lower strike put and turn it into a spread. I dont think you want to do that right now. But option prices on a relative basis are kind of cheapish for something that hasnt moved a whole heck of a lot yet. I think it starts to move lower, then youre going to have an opportunity to sell something against it. Why do you want to make a directional short on a stock that has actually been okay in the past 12 months . Its up 16 1 2 . Of all the things that have been tested, the biggest models over and over and over, relative strength. Things that are bad typically stay bad and things that are good. So the question is what is holding it up . Meaning people have free will. 9 30 the bell goes off they can sell anything to meet their margin calls. They can derisk. And and theyve been not doing it in ge. So to your point why fight something thats holding up . Im kind of in the camp of pick something else. But listen, if an ges going to be just as good as anything. But if youre going to make a bearish bet the way to do it is the way hes doing it. Take a look at when stocks actually have fallen apart. What do you see . A big gap. Its not like these things go down by 1 , 2 a day. When they do break they break sharply lower. And thats when youre going to have the opportunity to spread and get a much better value. One last thing. I think we have a chart, tenyear chart of ge. When you look at it. And carters going to do some great work in a few minutes if you can hang out there. Look at that thing. Its sitting on the up trend from the 2009 lows. I think if it breaks and its under 28, 27 1 2 very soon i think it can go down pretty quickly into the mid 20s. Youve got that gap to fill which im sure youre looking at on the daily chart. From august, yeah. The dow and s p may have closed at the lows here of the session. But were going to turn to carter whos going to take a look at walmart. Talk about a loser. This things been going down for the better part of two years. And thats the point of relative strength. In a tape like this heres a stock thats acting fairly well. Lets look at some charts and try to figure it out. Walmart up today over the past several weeks when the markets struggling. This is the setup thats the opportunity. What ive done is juxtapose on a fiveyear chart walmart versus its peer group meaning all s p 500 Consumer Staples. Of course walmart is one of the thats spread. And as this has sort of stalled and gone sideways, walmart is starting to outperform. The bet is that were going to get some convergence. In fact, take a look on a tenyear chart. This is when walmart gets into all the trouble that its been in. But whats interesting is it gets all the way back to this level of support and now were starting to bounce there. So we like the daytoday defensive action, the relative strength, then in terms of the daily chart, now you can draw the lines any way you want, lets draw them this way. So you can call it a trend line. It surely is that. And what its done clearly is broken above that trend line. Or you could do one of these. People call them things like heads and shoulders, bottoms or top. Heres our neck line. The presumption is were going to move above that neckline. Buy walmart. Mike, what do you think . From a fundamental perspective walmart continues to face secular headwinds. Amazons going to be a Bigger Company than walmart is one day. Its trading actually cheaper than the market, cheaper than its own historical average. Those are the good things. But obviously showing some relative strength and the valuation isnt terrible. One quick point i would make, what is expensive in walmart right now, nothing that theyre selling probably and maybe not the stock itself but the options on walmart are actually quite expensive. Theyre roundabout the 99th percentile in terms of the price of options in this stock going out three months if we take a look at two years worth of history. So i think the bullish way to play this without risking too much money is simply go out to april. You can buy the 67 1 2, 72 1 2 call spread. You can spend 1. 75 for that. Thats probably a little more than i normally would but thats just simply a function of the fact that options premiums are elevated. One of the things you can look at, though, in one of the few names that i might actually be willing to sell a put if it did sell off simply because it has gotten off near its valuations. If the stock does go a little lower and im looking to offset some of the premium i spent that would be one of the ways i could do it is i could look to sell the downside put around 62 1 2 or 60 if it falls the other way. Is there safety in a retail stock . No way. This week you saw kohls down 20 yesterday. I know this is a different audience, different setup. Heres my take on walmart. I dont like mikes trade. I dont like carters technical setup. I dont like the fundamentals you dont like the head and shoulders and the break above the trend . I dont because those are not my opinions. Those are facts. They are facts. So whats wrong with the setup . I think its going to find a lot of trouble at 70. I dont really know why its going up. But you cant say you dont like the technical setup. The technical setup is a bearish to bullish reversal, head and shoulders model. You can not like the trend and not like the idea but you cant not like the technicals because i dont make the technicals. The technicals make themselves. I think i touched a nerve here. Nothing but respect. What im saying is that listen, i just think the fundamentals dont line up, i dont think the macro environment lines up. We saw this oil spike over the last week. Its obviously moderated a little bit. But if crude oil were to go up precipitously for the wrong reasons because of a supply cut i think that hurts walmarts customers. Walmart already told us theyre going to be spending a lot of money to compete with amazon this year. So whenever this little lovefest ends and i think it might end somewhere maybe around 70 or so i think its probably going to go back and touch 60 at some point. It is one of the few places, though, where you can actually pick up a stock at a reasonable valuation where you do have some technical strength and where you can risk relatively little money to do that over the course of the next few months. And its always a question, who the heck was buying it today . The markets getting pounded and the stock is up. Meaning someone is expressing a view that this is bad but i think id rather be here. Relative strength matters. I mean, it did better than utilities today. Says something. Got a question out there send us a tweet optionsaction. We love tweets on this show. Really love them. Especially the nice ones. For everything options action theres only one place to go. Of course optionsaction. Cnbc. Com. Weve got the hottest options news, videos throughout the week and exclusive trades. What more could you want . Heres whats coming up next. Im going to disney world whoo so are we. And well tell you what has our traders so excited heading into next week. Plus bizarre rituals intended to bring about the end of the world. And now it looks like it may actually happen. At least according to five terrifying charts that could signal an array of carnage for one group of stocks. Well tell you what they are when options action returns. Here at Td Ameritrade, they work hard. Wow, that was random. Random . No. Its all about understanding patterns. Like the mail guy at 3 12pm every day or jerry getting dumped every third tuesday. Jerry every third tuesday. We have Pattern Recognition Technology on any chart plus over 300 customizable studies to help you anticipate potential price movement. Theres no way to predict that. Td ameritrade. Watching tvs get sharper, youve had it tough. Bigger, smugger. And you . Rubbery buttons. Enter the x1 voice remote. Now when someone says. Show me funny movies. Watch discovery. Record this. Voila. Remotes, come out from the cushions, you are back. The x1 voice remote is here. Steve, other than making im here atme move stuff,rade trader offices. What are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. Td ameritrade. Welcome back to options action. Carter, youve actually got some scary charts that could spell some more trouble ahead. What are you looking at . I just want to look at the concept of a trend and a break in trend. It is hard to stop a trend. When a stock like disney is trending momentum is a powerful thing, but a breaking trend is very hard to stop once it started. Just as is it was hard to stop the initial trend in the first place. Disney, under armour, we have a break in trend. Apple, we know it broke trend quite a while ago. Dow jones transportation, a break in trend. Once it starts its very hard to stop it. Just as it was hard to get it to break in the first place. Skyworks, a break in trend. Berkshire hathaway, a break in trend. Salesforce just starting to break trend. And heres one thats on the cusp. We think theres problems here. Mastercard has started to break more aggressively. Visa looks like its the next in line. Trends are hard to stop, and theyre hard to reverse once they break. Its been a great trend. Make the bet that somethings not right. So dan, how do you make this into a trade . Were actually going to agree, carter and myself. It was very tense. Using technicals for a trade. I would never, ever rag on his technicals. You did before. So ill take his technical input and agree with him 100 . Then ill add a sort of macro view, like i said at the top. I think you can throw a dart at a lot of these things. Once that thing breaks the longterm up trend its going lower. The fundamental news is the company just reported they have very good results. The stock rallied a lot. This was last week, rallied about 7 after the results. But that was when things are kind of rallying and now theyre not anymore. But they did give some cautious commentary about the dollar, about some exposure overseas. A lot of revenue exposure overseas. To me i think you want to look out, target the next earnings event. I think that if they actually miss and guide lower youre going to have a stock down very, very fast. The way weve seen some of these high valuation stocks. I just want to make one other point. Since they ipoed in 2008 this company has had doubledigit earnings in sales growth the whole time. This year consensus is calling for 7 eps growth. The lowest in that whole period. So to me if they do actually miss that i think youre going to have a great short opportunity breaking his technical trend. So really today when the stock was 71 1 2 i look out to june expiration. You can buy the june 7055 put spreads, buying one of the june 70 puts for about four bucks, selling one of the june 55 puts at one. That costs you 3. That is your max risk between 67 and 70 bucks. You can lose that three. You lose the three above it. But you have this really nice relationship between what youre risking and what you can make between 67 and 55. So i like this riskreward. I like carters technical setup. Its a fact. And then i think the fundamentals are squishy in a really kind of uncertain market. Thats a very nice spread youre getting right there down to that lower level strike. You were talking about the eps growth. And a lot of that came from margin expansions that were probably around 30 five years ago and theyre up near 45. When you think about what can happen, theres a couple things. You can see basically the valuation multiple drop. You can obviously see the overall market come in and you can see margins get compressed and you can see the top line growth drop. Its not like its a really cheap stock if the growth doesnt hold up. And theyre already saying it isnt. We know capital ones been a disaster. We know discovers been a disaster, American Express. These have held up, mastercard and visa but mastercards really under pressure. Presumption is visas eating American Expresss lunch. Thats one of the reasons why American Express is so bad. At some point maybe they dont have any more lunch to eat. What will constitute the break in this trend lower . I mean, how does that get it depends on what moving average you use. Mastercard has broken the trend and this is toying with that prospect. Theres a huge gap down as low as 55. And that would be see whats going on here . His technicals, my little options stuff. Weve got a little trade on here. Trying to i felt really bad about that. All love. Im sure. Coming up next, one group of socalled safety stocks that Consumer Staples should have done well this week but they didnt. Could they be signaling more trouble ahead . Well explain when options action returns. Im here at the Td Ameritrade trader offices. Steve, other than making me move stuff, what are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. Td ameritrade. Yeah ahh. You probably say it a million times a day. Ahh. Ahh ahh. Ahh but at cigna, we want to help everyone say it once a year. Say ahh. Ahh. Cigna medical plans cover one hundred percent of your innetwork annual checkup. So america, lets go. Know. Ahh and take control of your health. Cigna. Together, all the way. Here at the Td Ameritrade they work all the time. Sup jj, working hard . Working 24 7 on mobile trader, rated 1 trading app on the app store. It lets you trade stocks, options, futures. Even advanced orders. And it offers more charts than a lot of other competitors do on desktop. You work so late. I guess you dont see your family very much . I see them all the time. Did you finish your derivatives pricing model, honey . Td ameritrade. Welcome back. Time for the up side call where we take a look back on some of our winning trades. Last week dan said consumer stocks were about to run into trouble. Take a listen. So today when the xlp was 50. 75. You can buy the march 5045 put spread. That is my max risk. One of the march 50 puts for a dollar. Sell one of the march 45 puts at 20 cents. Well, the xlp fell 2 this week. So dan, you stuck with the trade . Yeah, you do. I think you have this where you want it and this is the kind of technicals i thought it would fail, the xlp at that prior level, it was unable to break out. This week we had some fundamentals in the space. Clorox down 6 , 7 . And theyre talking about some of the issues we just talked about. Adverse effects of the dollar. Domestic uncertainty about the consumer here. So to me i think you want to stay here. Dont be sucked in just because of that dividend yield. This is again, you can make money on a trade versus if youre sitting there in longterm money. This is outperforming. In a week like this its a little bit the walmart thing. Id call this fair money, even money. We were just marveling at ow some of these stocks are trading at a higher forward p e than google. And i think the reason is that speaks basically to the market sentiment. People are petrified of owning anything that was a good stock. Even those that are fundamentally still sound. People are afraid to own them. And these are places where they figure they can hide out. Fear is fear. And people were not afraid to own google three days ago and they were certainly afraid to own it the last couple days. And the same thing for facebook. The point is theyre going to get around to everything. Throw those darts, people. Two weeks ago mike thought disney shares were nearing a bottom. Have a listen. What i was looking at was simply selling the february 92 1 2 put. You could collect about 3 and a quarter when i was looking at it. Basically, this is a situation where youre going to get long the stock below 90 if it is put to you. Disney reports earnings on tuesday after the bell. So mike, what are you doing with this trade . Im sticking with it. This is obviously kind of a scarylooking chart when you think about it. Five years of just basically straight up and then weve had obviously a very hard time recently. The thing is, though, i think were getting down to a level where just from a fundamental valuation perspective it looked like things are stabilizing and it might be a place to hide out. Youre getting paid. And if the stock is put to you in a high volatility environment like this, you can look to sell some premium against it. This is one of those cases i think where selling puts might seem like a counterintuitive thing to do when the markets rolling over this way but you do get paid a lot to do it. Theres more thats one of the ones we use, if theres a break in trend. But this is already down 30 and look whats happened the last two weeks. Killing the market. Meaning you want to find those that are just starting to roll versus something thats already down 30 . Its why this trade is working. Is it profitable . It is profitable. We have a lot of media stocks reporting earnings next week. Dan, you know, when disney reported in august early august. That was the start. That was really the top of the market. And here was a name you that could have put up there in the top five with the apple, with the starbucks, the home depot. It was a real leader. My view is this, is that i think the sentiment has turned in disney and its obviously very bad but i think its probably going to get worse because whats really driving it lower are some fundamental secular shifts within the industry that are not going to wash out on this call that we get next week. Thats a fair point. What everybody really got concerned about was suddenly with cordcutting affecting espn, which is basically the premier property to own in the media space right now. But the thing is disney was very richly valued because of that property. It was trading at 22 times. Its trading at 16 times right now. Basically the premium everybody was reporting. Because of that property has been taken away. All right. Up next, your tweets and the final call from the options pits. Here at Td Ameritrade, they work hard. Wow, that was random. Random . No. Its all about understanding patterns. Like the mail guy at 3 12pm every day or jerry getting dumped every third tuesday. Jerry every third tuesday. We have Pattern Recognition Technology on any chart plus over 300 customizable studies to help you anticipate potential price movement. Theres no way to predict that. Td ameritrade. Thats why i switched from uverse to xfinity. Now i can download my dvr recordings and take them anywhere. Ready or not, here i come whispers now hideandseek time can also be catchuponmyshows time. Here i come cant find you anywhere dont settle for uverse. X1 from xfinity will change the way you experience tv. Steve, other than making im here atme move stuff,rade trader offices. What are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. Td ameritrade. Time to get to some tweets. The first one up, is gdx a good buy for long calls . Mike kuo, what do you see . If youre going to make a bullish bet in gdx calls is the only way you can do it. This was trading 12 1 2 a couple weeks ago and you you could go out to march and buy the 18 strike calls. Going to khowst about 85 cents. That might seem expensive but considering how much this thing is moving and the direction its moving i think its a pretty good bet. Early stage kind of thing. Theres a lot of leverage, a lot of gearing, a lot of depth but thats what makes this work when it works. Go long. You agree. Well, these guys have had a great call on a couple of occasions in the last year for gdx playing it to a countertrend rally. To me its almost getting back to the level of the down trend. Youd almost want to fade it its gone up so fast. I dont look to buy this thats why you want to buy the calls. 18s probably the level youre looking right at. Why do you want to sell puts in this, though . Im not going to sell puts in something that could also be trading 12 1 2 if this reverses. What im saying is if you take a look at the riskreward when its moving by five bucks in a couple of weeks you can spend 85 cents and maybe get many multiples of that. Last one here from ryan sutton. How much did risk reversal tip the barber for that smooth cut . Oh, wow. Thats the second this week. Very nice. Nice look, dan. Time for the final call. Carter. Be defensive if you have to be long at all. Walmart looks to be the place to be. You can use call spreads for that. Dan. Visa. I agree with the facts that mr. Carter was giving out. I really like a short entry here playing for that breaking trend. All right. Looks like our time has expired. Im melissa lee. For more options action check out the website. Well be back here next friday at 5 30 p. M. Eastern time. Meantime, big edition of mad money is coming up next. Announcer the following is a paid presentation for cize, brought to you by beachbody. This is the end of exercise. Get ready to cize it up. [ beat drops ] [ people cheering ] are you ready to dance . 5, 6, 7, 8 on my way in ima take it stop exercising, people. Its time to start dancing. Welcome to cize. Announcer cize is the allnew dance Workout Program thats gonna make losing weight fun and easy. To me, its not even exercise because i dont want to stop. Announcer its simple dance, have fun, and get awesome results. Its just l
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