The top five stocks in the Nasdaq 100 (AAPL, MSFT, AMZN, GOOGL & FB) make up one third of the weight of the index. These five stocks on average gained 2.3% yesterday, more than doubling the performance of the S&P500 (SPY), and keeping pace with the Nasdaq 100’s (QQQ) year to date out-performance vs the SPY, up 3% ytd vs QQQ up 6.1%.
Of this group, FB’s 3.74% gains was most notable as it was accompanied with massive volume. 49 million shares traded on the day, more than the prior two days combined and 17 million greater than the average over the last year. As for options, total volume was 2.3x average daily volume with calls outnumbering puts 436,000 to 160,000. The volume in both stock and options obviously feed off each-other, as increased options volume causes increased hedging activity in the stock, but one thing is clear the size of the more, coupled with the increased volume signals a new-found level of conviction, at least in the very near term.
Last week I highlighted what looked to be a failed breakout in FB and waning momentum:
While the stock just made a new all time high on earnings, it was unable to hold and has fallen back into the base it has been in for the better part of the last 10 months:
The stock has clearly lost momentum in the last six months despite printing massive revenue and user growth. While I generally don’t get to bothered about growth stocks trading at ridiculous multiples, FB’s $220 billion market cap puts it into an entirely different stratosphere from the likes of NFLX and TSLA, trading at a whopping 13x expected 2015 sales.
This week the stock did hold its 200 day moving average (yellow line), which should be mildly encouraging, but a failure here would have the stock right back at the low end of the 10 month range.
The last bit in hindsight was the most important, the stock held the 200 day moving average, a widely followed momentum indicator, and then exploded:
As for options volume, the two largest trades on the day were June calls, when the stock was $81.50, a trader sold to close 12,000 June 82.50 calls at 1.61 and bought to close 19,000 June 85 calls for 84 cents. On the day, 17,900 June 82.50 calls and 35,000 June 85 calls traded. So likely a trader closing a fairly large 1×2 ratio spread that could have been a leverage/yield overlay to long stock. As usual we warn about extrapolating too much from unusual options activity. But if this was a leverage overlay then it would appear that the trader is taking off the spread for a small debit. That leads me to believe that they think the stock could be above $85 on June expiration and they’re not interested in traded potential yield/leverage in place of capping potential upside in the event of a sustained breakout.
A continuation of yesterday’s momentum by the largest components of the QQQ would be all that is needed for a an epic breakout in the Nasdaq 100 in the weeks to come. And much like the trade set up for FB this week, the QQQ could be poised for a short term inflection.