Asset Classes

Free investment financial education

Language

Multilingual content from IBKR

Close Navigation
Learn more about IBKR accounts

Chart Advisor: Breaking Above

Posted October 26, 2021 at 3:08 am
Gordon Scott
Investopedia

Monday, 25th October, 2021

1/ Stocks close above resistance, outpacing other assets  

2/ Banking sector stocks continue to rise 

3Investors uncertain as Alphabet earnings approach 

4/ The bottom line

1/ Stocks Close Above Resistance, Outpacing Other Assets  

Stocks continue to edge higher on the strength of third-quarter earnings reports. State Street’s S&P 500 Index (SPY) set a record high intraday. Increasing bullishness could be seen across nearly all asset classes of late. Invesco’s DB Commodity Index Fund (DBC) continues to edge higher as the U.S. dollar, illustrated on the chart below by Invesco’s DB USD Index ETF (UUP), appears to be tracking downward from a recent upward trend.  

Commodities and the U.S. dollar have an inverse relationship. So, it is natural that when the U.S. dollar fluctuates in value it will impact the intrinsic value of commodities. As the dollar rises in value, it takes fewer dollars to purchase a commodity, and thus its price falls. That’s why a falling dollar is bullish for both commodities and stocks, since both are dollar denominated. 

The iShares 20+ Year Treasury Bond ETF (TLT), which tracks bond prices, appears to be pulling back from recent highs in September, creating a negative influence on technology stocks. During periods of economic expansion, bond prices and stocks move in opposite directions as they compete for capital. The recent pullback of bond prices could mean that investors are optimistic toward continued economic growth in the near term.  

2/ Banking Sector Stocks Continue to Rise 

Investors bid up the share prices of HSBC (HSBC) well above the 20-period moving average after the company exceeded analyst expectations for earnings per share (EPS). Analysts forecast $0.16 in EPS and $12.18 billion in revenue, HSBC reported $0.19 in EPS and $12.01 billion in revenue. Despite the revenue miss, investors were encouraged by a planned share buyback of up to $2 billion. The bank’s reported pre-tax profit for the third quarter increased 75% from a year ago to $5.4 billion. 

The chart below compares the recent performance of HSBC stock with State Street’s Financial Sector ETF (XLF). HSBC has been on a relative uptrend of late, bolstered by strong third-quarter earnings results across the financial sector. This is most evident in XLF’s recent returns, as the sector ETF has increased 39% year-to-date. In the same span HSBC has risen 18%.  

Options appear to be priced for the share price to continue to rise in the near term, and recent trading volumes favor call options over puts nearly 3-to-1. 

3/ Investors Uncertain as Alphabet Earnings Approach 

Alphabet (GOOG) is due to report fiscal third-quarter earnings Tuesday after the market closes. Earnings season has been positive so far overall, but mega-cap earnings could influence markets in unforeseen ways. Analysts expect GOOG to report $23.37 in EPS and $63.35 billion in revenue. The company has beat expectations in each of the last four quarters.  

GOOG has outperformed its sector in the past month, as illustrated on the chart below. The chart compares GOOG with State Street’s Communications Sector ETF (XLC). In the past year, XLC has added 32% while GOOG has gained 74%. The classand class C shares of GOOG comprise nearly 24% on XLC’s holdings, so gap between the two, their performances relatively mirror each other.  

The open interest for GOOG shows that option traders appear to be positioned for the stock to fall in the future, as puts outnumber calls more than 2-to-1. The current put open interest for GOOG is higher than usual over the past 52-weeks and recent trading volumes show a smaller gap between calls and puts. On Monday, there were nearly 15,000 puts traded compared to nearly 11,000 calls.  

4/ The Bottom Line

Stocks and commodities rose, as bonds and the U.S. dollar index fell. The price action for HSBC did remarkably well considering the company’s mixed report. Alphabet investors appear cautious ahead of the company’s earnings report tomorrow.   

Originally posted on 25th October, 2021

Disclosure: Investopedia

Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy.  While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Forex

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. Multiple leg strategies, including spreads, will incur multiple commission charges. For more information read the "Characteristics and Risks of Standardized Options" also known as the options disclosure document (ODD) or visit ibkr.com/occ

IBKR Campus Newsletters

This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.