I’m trying to go around my bearishness in the market.
At some point, maybe this Wednesday, I’ll just give in and feed into the reality of how bad things may be about to get.
For now, I’m still playing both sides of this market, though it is largely put options, sprinkling in a few calls here and there.
Speaking of put options, don’t miss my earnings-driven play on KB Home (NYSE: KBH) from Friday. There’s still time to get in and play a big move on earnings.
Today, I’m targeting two stocks still holding onto uptrends in this volatile market.
It’s great to see strength in a sea of weakness, but at some point, a bear market can swallow even the strongest little swimmers.
Let’s take a look at what to expect with this weeks Earnings Edge…
AutoZone, Inc. (NYSE: AZO)
Earnings: September 19th, Before the Open.
Consensus: EPS $38.30, Revenue $5.15B
Avg. Analyst Rating: 2.1 (Buy), Price Target $2,165.65
AutoZone (NYSE: AZO), the auto parts retain chain, is reporting before the market opens. So we are not talking as much about what you can expect from earnings, since that will have already happened before the market opens.
But, the stocks chart and price fluctuations after earnings will be a big deal.
AZO in an Uptrend
Shares are trading in a clear upward price channel, with a rising support in green and falling resistance in red.
What concerns me is the stock is flirting with that support right at earnings, signaling it likely moves lower. It also already broke below it briefly in May, showing investors are already anxious to exit the stock.
If it does move lower, it has much further to go though. I would look to grab put options on the stock if it closes lower on Monday. Even if it is a 10% drop.
On the flipside though, if it manages to hold this support, that’s a green light to go long.
You can use the green support level as the point to exit and preserve capital on the long side and turn bearish to profit from an even bigger pullback.
Arthur J. Gallegher & Co. (NYSE: AJG)
Earnings: September 20th, Before the Open.
Consensus: EPS $1.71, Revenue $2.04B
Avg. Analysts Rating: 2 (Buy), Price Target $179.48
Arthur J. Gallegher (NYSE: AJG) is a global leader in specialized insurance and risk management products.
If you haven’t yet, it’s time to think about which stocks are going to perform the best, or drop the least, in an extended bear market.
The nature of the business is individuals and corporations have the need to insure items or products. AJG helps make that happen and that’s not going to be one of the first things consumers ditch in a recession. Eventually it could happen, but not early on.
That’s a key reason the stock hasn’t sunk yet.
Take a look:
AJG on Verge of Breakout
It’s seen two sharp moves to the upside this year, the last one fell apart in late April early May.
This latest rally has spent about the same amount of time hovering near the top. A big move is coming and earnings this week, along with any big Fed news, has the ability to set the ton for the next few months for the stock.
I’m expecting a big move in the stock, so a simple way to play it is with a straddle – buying a call and put with same strike and expiration.
Volatile markets are also great for these.
When one leg of the trade generates an overall profit, you begin to look for an opportunity to take profits.
The higher, the better, but the point is, you want to secure an overall gain on the trade early on.
Then, you can let the second option that is down significantly, ride until expiration leaving a small chance it turns around.
With volaitlity so high, anything can happen.
And if it reverses, then you stand to make money from a free trade basically.
Of course, you’d like to know which direction it should go and simply make money.
Insurance stocks carry a ton of debt. With rising rates, it hurts them on the interest payments and forces prices up on their insurance side.
This is going to be tricky to navigate especially if the Fed goes for another 0.75 percentage point this Wednesday.
I’ll be sure to follow up on the general market after we get the Fed action Wednesday.
Regards,
Chad Shoop, CMT
Editor, Bank It or Tank It