Tuesday, 16th November, 2021
1/ Stocks move higher as buyers return
2/ Nvidia investors not afraid of earnings report
3/ Traders think Cisco will beat estimates
4/ The bottom line
1/ Stocks Move Higher as Buyers Return
Indexes climbed higher after strong October retail sales data as well as the recent U.S. infrastructure bill being signed into law. Invesco’s Nasdaq 100 ETF (QQQ) led the march higher, adding 0.7%. State Street’s S&P 500 Index ETF (SPY) rose 0.4%, while the Dow Jones Industrial Average ETF (DIA) gained 0.2%. The iShares Russell 2000 ETF (IWM) brought up the rear, climbing 0.1% on the day.
Advance retail sales numbers for last month came in stronger than expected, beating economists’ forecasts by 0.4%. Retail sales increased 1.7% in October, compared to a 0.8% increase a month prior, illustrating a continued increase in consumer spending. This comes despite reports last week which illustrated rising inflation.
President Biden signed into law an infrastructure spending bill, which had been seen as helping EV and materials stocks. Additionally, investors expect the bill’s line items to have a simulative effect on the economy, so it makes sense that they are raising their expectations for market prices.
Major averages now sit just under fresh highs, as illustrated on the chart below. Since the start of October, when major indexes experience multi-day pullbacks, there has been a prolonged move to the upside. After breaking a recent multi-day pullback, and with no major economic reports expected tomorrow, it’s possible indexes could be primed for yet another move to the upside.
2/ Nvidia Investors Not Afraid of Earnings Report
Investors have bid up the share prices of Nvidia (NVDA) to an extremely high range ahead of the company’s fiscal third-quarter earnings announcement. Analysts expect the company to announce $1.11 in earnings per share (EPS) and $6.8 billion in revenue. Investors could focus on data center revenue as a key metric, which rose sharply during the pandemic. As per the chart below, NVDA stock is trading well above its 20-day moving average.
Option traders appear to be positioned for the stock to move higher in the near term. Tuesday’s trading volumes favored call options over puts nearly 2-to-1. It’s interesting to note that the open interest for NVDA features nearly 1.59 million puts compared to 1.4 million calls. However, put options are slightly more expensive than calls, after accounting for intrinsic value.
This could mean that option traders see the relatively less expensive call options as a good bet going into NVDA’s earnings and are scooping up options at these prices.
3/ Traders Think Cisco Will Beat Estimates
Shares of Cisco Systems (CSCO) remain relatively range-bound, just above the stock’s 20-day moving average, headed into the company’s fiscal first-quarter earnings report tomorrow after the market closes. Wall Street expects the company to announce $0.80 in EPS to go with $12.98 billion in revenue. The company is looking at growth in its recurring revenue from subscriptions, which will be an important factor in Wednesday’s report.
With CSCO on a slight upward trend since the beginning of the month, option traders appear to be placing their bets that the stock will continue to rise. That’s because the call option open interest for CSCO is higher than usual, while the put option open interest is lower than average.
The Nov. 19 $57.50 call option has far and away the highest open interest for any option expiring this week, with over 20,000 options at that strike. The next highest is the $60 call, with an open interest over 16,000. Based on the total open interest numbers, that means that 21% of option traders are betting on a 0.1% to 5% rise in the price of CSCO stock based on earnings.
4/ The Bottom Line
Indexes moved higher on positive headlines. NVDA and CSCO shares have attracted positive attention from traders who expect them to beat analysts estimates for the last quarter.
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Originally posted on 16th November, 2021
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