This Friday marks the August option expiry, a period known for significant positional changes due to expiring options. Following last week’s market downturn, SPY has bounced back and reclaimed the key support zone of 530-532. This is a level that has been heavily discussed within the Benzinga Option School. Currently trading above this zone, SPY maintains a mildly bullish outlook. However, while many tickers have seen a rebound, few have managed to outperform SPY, indicating a lack of distinct strength or weakness. This is evident on the 1-hour chart, where numerous tickers appear to be simply following SPY’s lead.
Given this correlation, identifying specific bullish targets becomes challenging as many tickers aren’t exceeding SPY’s performance. Therefore, we need to identify the tickers that are significantly outperforming (or underperforming) SPY, as these present more lucrative trading opportunities.
Preferred Bearish Pick: $TSLA
The 1-hour chart shows SPY’s recovery from the Sunday gap lower, while $TSLA remains stagnant. This suggests a lack of buying demand for TSLA, while other stocks demonstrate sufficient interest to recover their Sunday losses. If we are looking for bearish opportunities this week, $TSLA stands out as the preferred choice, as it exhibits the least bullish interest from major players and investors. We are actively searching for minor corrective pullbacks to establish bearish positions for the September option expiry.
Alternative Bearish Pick: $XOM
The 1-hour chart reveals that XOM experienced a less severe drop than SPY and recovered its Sunday gap losses quicker. This indicates stronger interest or resilience, possibly fueled by the escalating geopolitical tensions in the Middle East (Israel/Iran conflict) which could drive oil prices higher. While XOM is trading near $119-$120, a price point it has struggled to surpass, we believe it’s slightly overvalued. We are waiting for minor corrective pullbacks a few dollars lower to establish bullish positions for the September option expiry.
Honorable Mention: QQQ
QQQ, representing the Nasdaq 100, holds greater potential for movement compared to SPY due to its vulnerability. Before last week, AI and Big Tech stocks were the primary drivers of bullish sentiment, leading to a higher concentration of positions in these areas than in other sectors. As NVDA’s earnings are scheduled for August 28th, AI’s narrative will be put to a crucial test. Strong earnings could propel AI, semiconductors, and Big Tech stocks into a new bullish run, potentially lasting through the fall. However, if earnings fall short of expectations, the market could face further losses as the main catalysts for gains this year may begin to sell off.
This potential response makes QQQ particularly well-positioned for a significant move (up or down) after the upcoming events such as PPI, Jackson Hole, and NVDA earnings. Additionally, QQQ’s position is favorable as it’s further away from its Top Call Strike (TCS) compared to SPY. This indicates a larger upside potential if we see a bullish move, offering greater potential rewards for bullish options plays.
We will be sharing more of our trading ideas with the Benzinga Option School and Trading Waves members this week.