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Chart Advisor: Jobs on the Rise

Posted November 8, 2021 at 2:38 am
Gordon Scott

1/ Stocks push higher after good news on jobs

2/ Coming soon: AMC earnings 

3Airbnb earnings top estimates 

4/ The bottom line

1/ Stocks Push Higher After Good News on Jobs

Major averages edged higher, rallying to record levels on the strength of a better-than-expected October nonfarm payroll report. The iShares Russell 2000 ETF (IWM) led the way, climbing 1.3%. State Street’s Dow Jones Industrial Average ETF (DIA) and S&P 500 Index ETF (SPY) rose 0.5% and 0.3%, respectively, while Invesco’s Nasdaq 100 ETF (QQQ) remained flat.  

The U.S. added 531,000 non-farm jobs to the economy in October, greater than the 455,000 that was forecast. Coupled with a low reported unemployment rate (4.6% vs 4.7% expected), stocks reacted positively to indicators of an overall recovering economy. The issues plaguing the market recently—supply chain constraints,  the delta variant of COVID-19 , and inflation—were seemingly forgotten, at least temporarily.  

Stocks have shaken off a September swoon to rally to new highs as the market enters what has been historically its strongest quarter. This could mean that there is still room for the upward trend to continue for the near term.  

2/ Coming Soon: AMC Earnings 

Movie theater chain AMC (AMC) is set to report third-quarter earnings results on Nov. 8 after the market closes. Analysts are forecasting a net loss per share of $0.54 to go along with $733.35 million in revenue. Investors have bid up AMC shares prices in anticipation of the announcement, as AMC rose more than 15% in the past week.  

As illustrated on the chart below, this recent upward trend has propelled AMC stock to an above-average range, solidly above its 20-day moving average. Option traders also appear to be placing bets that the stock will rise in the future. Recent trading volumes favored calls over puts over 3-to-1.

The open interest for AMC features over 1.4 million calls compared to 954,000 puts. However, it should be noted that even though current put option open interest is higher than normal, implied volatility suggests that these options are being sold more than bought. This could be because option traders are optimistic toward AMC earnings and are selling put options in order to collect unusually high pre-earnings option premiums.   

3/ Airbnb Earnings Top Estimates 

Investors bought shares of Airbnb (ABNB) after the company reported its highest revenue and net income ever in its fiscal third-quarter earnings announcement. Analysts had expected the vacation rental company to report $0.83 in earnings per share and $2.06 billion in revenue. ABNB announced $1.23 in EPS and $2.24 billion in revenue, up 67% year-over-year (YOY). ABNB’s net income rose 280% to $834 million on a year-over-year basis.  

Encouraged by the positive earnings results, investors snapped up ABNB shares, which surged 12%. Option traders appear to be positioning themselves for the stock to continue to rise in the near term. That’s because trading volumes on Wednesday featured over 337,000 calls compared to fewer than 70,000 puts, a rate of nearly 5-to-1.

Options remain priced for the share to rise, as calls currently trade for more than puts, after accounting for intrinsic value. This could mean that investors are undeterred by the increased cost of call options and are placing their bets that ABNB shares will continue to rise. ABNB stock has gained 43% year-to-date. 

4/ The Bottom Line 

With unemployment numbers lower and jobs on the rise, stocks notched higher to close the week. Airbnb’s quarterly earnings came in well ahead of estimates while traders are showing a more subtle optimism on AMC ahead of its quarterly report. 

Originally posted on 5th November, 2021

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