Fading the calls

$940bn worth of options traded on Thursday last week, making it the single biggest volume day for U.S. options… ever. Interestingly, 70% of the options traded have expiries less than one week. Also worth of note is that options volume was 140% equities volume and the vast majority of those options being bought were calls. That makes it highly likely that the strength behind the great weeks was banks having to scramble to get stock in order to hedge the other side of all those contracts. Has retail pushed it a bit far? Fading the calls seems like a good trade right now.

We’re not saying that the melt up is over. Hell, it could go for another year or so. Just in the very short-term it seems like the rally might have run out of steam on Friday and is due a pull-back. Let’s look at some charts and you’ll see why.

Offshore trade ideas

S&P 500 Volatility Index (VIX)

The VIX has held the base around 15, but put in a decent up-day on Friday. This might have been some of the smart money buying cheap protection in the face of stretched equities. A spike up to the low 20’s here would not be too surprising.

Philadelphia Semiconductor Index (SOX)

SOX has had a great break out from the flat top triangle. Friday’s action resulted in a spinning top candle formation though. A gap lower at the open on Monday with red action all day will likely create a shooting star candle formation. Not the end of the world, but maybe enough for it to go test the break out level again. Keep in mind that a large part of this index is NVDA, which was driven higher by high options volumes last week. Fade the calls…

S&P 500 (SPY)

Bit of a doji on the daily candle there on Friday. Interesting to see that it formed just under what was a historic upward sloping support (trend) line. Again, we’re not calling for the end of the world here, just a bit of a breather.

Dow Jones Transportation Index (DTX)

Well, thank you Avis for trying harder and doubling in a day so that DTX could fly! Note that the trend here is firmly up, but again, a small pull-back would make sense.

Russell 2000 (IWM)

We’ve been tracking ol Russell (the love muscle) for a while now. Finally the break-out came. Hopefully this is the start of a 12 month long grind higher. But first, fade the calls and let IWM retest the break out level.

Nasdaq (QQQ)

We’re really picking tops this week it seems. Again though, not the greatest action at the close of the week. One last pull-back before the Santa Rally arrives?

U.S. Dollar Index (DXY)

DXY finding a bit of resistance around 94.50 (and support at 93.50-ish). Our view is that DXY should continue to climb over the next 12 months, although it will have to break this range (marked in white) first.

Brent Crude Oil

Weekly chart on Brent here. It looks rather likely that we see it pulling back to test the trend line marked in white. There was some news over the weekend that OPEC will be increasing prices to their biggest customers… so oil is a bit of a wild card now. We could see it gap up rather a lot when futures open. The words ‘energy crisis’ are ones you will probably see a whole lot before our summer is over. We maintain our bullish view on oil and energy and think that weakness continues to be a good opportunity to add (buy).

Gold

Nothing to do just yet, but keep watching this weekly chart. Remember, the best trades take a long time to set up. Patience young Padawan.

USDZAR

USDZAR overshot the resistance initially, but now looks set to make a push to the bottom of the channel. We would guess that an encouraging election result might ignite some interest in SA assets and lead to some inflows into our market. In a strong ZAR environment, local retailers and banks come to mind.

Cryptocurrencies

Ethereum (ETH)

ETH is doing better than BTC at this stage. Call it the leader if you will. It’s made new highs and is grinding ever-so-slowly higher. There is nothing about this chart not to like. Sitting long for another month seems like the right trade.

Bitcoin (BTC)

BTC is trying, but hasn’t quite yet broken free from its resistance. Maybe some of those TSLA call profits will make its way to the crypto space in the coming weeks? A large portion of the market seems focused on the shi… altcoins and NFT space at the moment though. Once the apes realise that most altcoins are merely pump and dump schemes, they will find their way back to big daddy Bitcoin.

South African trade ideas

Anglo American PLC (AGL)

Well… not many words are needed here. This chart looks like a dumpster fire.

AngloGold Ashanti (ANG)

ANG needs to be watched in conjunction with Gold (above). If Gold can break out of that large triangle and ANG can hold above the 200 day moving average, we could be setting up for a decent strategic long here. Keep in mind that miners often lead the actual metal. This is worth keeping on the radar.

Brait SE (BAT)

If you’re not following @tradinglikeafox, you should be. He did a good thread on ‘at home exercise’ companies earnings that were disappointing. The ‘lockdown’ trades are out of steam and people are returning to the outside world. This bodes well for BAT as its gym business is going to do well. Looking at the chart though, it broke that range nicely and had a multi-week pull-back. Now it’s made a decent bullish push again and momentum is turning proper bullish again. New (recent) highs are on the way.

BHP Billiton (BHP)

Another dumpster fire looking chart. This is not as clear as AGL though as BHP has some oil exposure. Nonetheless, the chart is pointing down.

Naspers (NPN)

NPN is not looking good at all. We’d thought that this stock could break higher, but it is starting to look like we got it wrong. Careful with the longs here.

Sasol (SOL)

Following on from our comments on oil (above), SOL could be very much in play in the week ahead. Nice chart setup too.

New educational content

We uploaded the JSE Power Hour presentation Petri did earlier this year, although the link in the mailer that went out did not work. So for those who are keen to watch the video and download the slides, please have a look at our Presentations page. You will actually find most of the Presentations that Petri has done over the last fews years, including the slides. It’s a good place to start learning if you are new.

Joining HCA trading

HCA trading offers a number of different trading accounts to suit different types of traders. Our offshore trading accounts allow traders to buy shares, ETFs, CFDs and even fractional shares in the United States for only $2 a trade. Locally, we offer shares, ETFs and CFDs at good rates with robust and reliable trading platforms. All our trading, including CFDs, is done on a Direct Market Access basis and thus our clients are able to interact directly with the real equity market and not have to worry about excessive counterparty or liquidity risk. Our prime broker locally is a big four bank and offshore we make use of one of the largest non-bank prime brokers in the world.

Local stockbroking rates

Trading instrument	Brokerage rate	Margin rate	Minimum trade charge
JSE listed equities and ETFs	0.30%	100%	R150
CFDs on JSE listed equities	0.20%	10% – 25%	R50
SAFEX listed index futures (ALSI)	R20	6% – 8%	R20 per contract

Offshore stockbroking rates

Trading instrument	Brokerage rate	Margin rate	Minimum trade charge
U.S. listed equities and ETFs	USD 1 cents per share	100%	USD 2
Canada listed equities and ETFs	CAD 2 cents per share	100%	CAD 2
U.K. listed equities and ETFs	GBP 12 + 0.1%	100%	GBP 12
Germany listed equities and ETFs	0.20%	100%	EUR 8
Forex	0.40%	100%	USD 4

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*Please note that these trade ideas form part of a larger weekly plan and the value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The risk of loss arising from trading in Contracts for Difference can be substantial. You should carefully consider whether such investments are suitable for you in the light of your circumstances and financial resources.