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Chart Advisor: Eager For Gains

Posted November 5, 2021 at 3:25 am
Gordon Scott

Thursday, 4th November, 2021

1/ Buyers continue the rally 

2/ Qualcomm results generate positive surprise 

3Will earnings redirect the DKNG price action? 

4/ The bottom line

1/ Buyers Continue the Rally 

Major averages continued to rise, bolstered by strong performance from the technology sector. Invesco’s tech-heavy Nasdaq 100 (QQQ) led the way upward, adding 1.3% and setting a new high. State Street’s S&P 500 Index ETF (SPY) gained 0.2%, also setting an intraday high. iShares Russell 2000 ETF (IWM) dipped 0.2% and State Street’s benchmark Dow Jones Industrial Average ETF (DIA) fell 0.4%.  

First time unemployment claims continued to fall to a new pandemic-era low. U.S. jobless claims totaled 269,000 for last week, better than the 275,000 that economists had expected. Investors could be focusing on Friday’s non-farm payroll employment change report, which could help further paint a picture of the strength of the economy

The chart below compares the recent performance of QQQ with SPY and a composite of tech giants Apple (AAPL) and Microsoft (MSFT). These mega cap tech companies comprise the top holdings of major indexes, and often their performance can dictate the direction of the overall market.  

Chart watchers would take note of divergences between the major indexes and technology sector. The combined MSFT and AAPL portfolio has not outperformed the market as a whole since the beginning of summer. SPY, which could be considered representative of the market, is recently behind these two benchmarks, illustrating how recent tech performance has dragged indexes higher.  

2/ Qualcomm Results Generate Positive Surprise 

Shares of Qualcomm (QCOM) rose 13% after the company reported fiscal fourth-quarter earnings that exceeded analyst forecasts. Experts expected QCOM to report $2.26 in earnings per share (EPS) and $8.86 billion in revenue and the company announced $2.55 in EPS and $9.3 billion in revenue. QCOM’s chip business rose 56% year-over-year, on demand for new phones, despite an ongoing global chip shortage. 

The chart below compares the recent performance of QCOM with Invesco’s tech-heavy Nasdaq 100 ETF (QQQ) and iShares’ Semiconductor ETF (SOXX). Even with the large earnings-based share price movement, QCOM lags both QQQ and SOXX.  

Technology stocks have been on fire of late, as evidenced by QQQ continuing to set record highs. However, SOXX has outperformed QQQ. Over the past year, QQQ has gained 38%, while SOXX has added nearly 58%. In the same time frame, QCOM shares rose 21%. This could mean that even with today’s share price increase, there is room for QCOM to effectively catch up with both its sector and industry.  

3/ Will Earnings Redirect the DKNG Price Action? 

Investors have sold off shares of Draftkings (DKNG) ahead of the company’s fiscal third-quarter earnings announcement, which is expected Nov. 5 before the market opens. Analysts expect the sports betting company to report a net loss per share of $0.91 and $237.9 million in revenue. Since going public, DKNG has yet to exceed analysts’ forecasts for earnings per share, stretching over the last 6 quarters.  

Regardless, option traders appear to be positioned for the DKNG share price to rise after earnings. That’s because the open interest for DKNG has nearly 667,000 call options compared to over 486,000 puts. Trading volumes on Wednesday also favored calls over puts at a rate of more than 2-to-1.  

Interestingly, the option with the highest open interest for this week is the $50 call, which represents a more than 10% upside to DKNG’s current share price. With heavy betting on a positive earnings result, unexpected poor news could catch traders by surprise and create a rapid decline in the share price of DKNG.  

4/ The Bottom Line 

Investors followed on from yesterday’s rally. Qualcomm shocked investors with stellar results. Draftking shares dipped even as traders favored buying calls in preparation for earnings tomorrow. 

Originally posted on 4th November, 2021

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