EB Daily Market Report - Tuesday, October 12, 2021

Tom Bowley - October 12, 2021

October Max Pain Event Today

Later today, at 4:30pm ET, I'll be discussing October Max Pain and how it could impact short-term trading. If you'd like to join me, here's the room link (room will open at 4:00pm ET):

https://earningsbeats.zoom.us/j/89974561911

If you cannot make the live event, we'll make sure you receive a copy of the recording.

Executive Market Summary

Futures were slightly positive overnight and we opened with fractional gains
Our major indices have drifted mostly lower since this morning, however
There's little earnings or economic news to trade off of, but that will change overnight
JP Morgan (JPM, -0.54%) headlines a half dozen behemoths set to report their Q3 results Wednesday morning
In addition, we'll get our latest inflationary numbers at the consumer level at 8:30am ET on Wednesday
Defensive sectors are definitely leading the action today, with aggressive sectors trailing on a relative basis
Gambling ($DJUSCA, +3.18%) and renewable energy ($DWCREE, +2.85%) have avoided the selling; the latter is discussed further in the Sector/Industry Focus
Tesla (TSLA, +1.76%) is leading the auto industry ($DJUSAU, +1.81%) higher; TSLA will report its latest quarterly results next week

Market Outlook

I calculated max pain for both the SPY and QQQ (ETFs that track the S&P 500 and NASDAQ 100, respectively) and, for the first time in many months, max pain is actually higher than current price. This suggests that it would be in the best interests of market makers to BUY equities into Friday, rather than to sell them.

Also, the S&P 500 is in the midst of a bounce after the 5-day moving average of the equity only put call ratio ($CPCE) pierced .55 (such piercings highlighted with blue-dotted vertical lines). That's been the level throughout this pandemic rally where enough fear has crept into the market to mark key bottoms (blue circles below):

I'm not sure we continue to rally off this .55 test, but max pain suggests we could see further follow through to the upside.

Sector/Industry Focus

Renewable energy ($DWCREE, +2.85%) is beginning to strengthen and this group could really fly if it can clear resistance in the 255-260 area:

It's still got some work to do as it's backed off its intraday high, but don't lose sight of this group, especially if you're an aggressive trader. Several smaller stocks in this space are surging today and that could accelerate if the market continues rotating into that area.

ChartLists/Strategies

Usually, I don't have max pain candidates until late in the day and after the close, but this month I've selected 6, plus I have the max pain calculation for both the SPY and QQQ, so I thought I'd share it with our members PRIOR to the closing bell. Here's this month's information:

The Tuesday, October 12th close column obviously is not the closing price as the market remains open for close to another hour. However, these were the prices as of roughly 3:15pm ET. Of the 6 individual trading candidates, ZM and BBBY offer up the best potential reward, given the current price and the max pain price. Both have been beaten up badly of late and could use at least a temporary reprieve.

I haven't put together the October Max Pain ChartList yet, but I should have it available later this afternoon/evening, if you'd like to view it or download it into your StockCharts.com account. (Downloading does require either Extra or Pro level membership at StockCharts.com)

Earnings Reports

Here are the key earnings reports for the next two days, featuring stocks with market caps of more than $10 billion. I also include a few select companies with market caps below $10 billion. Finally, any portfolio stocks that will be reporting results are highlighted in BOLD. If you decide to hold a stock into earnings, please understand the significant short-term risk that you are taking. Please be sure to check for earnings dates for any companies you own or are considering owning.

Tuesday, October 12:

FAST, PNFP, AZZ, SGH

Wednesday, October 13:

JPM, BLK, INFY, WIT, FRC, DAL

Economic Reports

None

Happy trading!

Tom