2/7 Daily Market Note: SPX Reaches 5000. Alibaba Reverses Course. What's next?
U.S. Markets Will Never Ever Go Down Again?
Hey Guys,
Endless positive continuation in the U.S. // Predictable reversal in China.
Sound familiar?
We’ll quickly go over BABA earnings and then recap U.S.
Along with my DCF Modeling, this open interest chart below was one of the indicators I used to assess market-wide positioning for Alibaba into/after earnings.
Options volume and and positioning now drive a significant amount of capital in markets and where Strikes are placed give us a sense of where the Big Players may want the stock to go but Market Makers may prevent it from actually getting there.
From this Open Interest Chart here - which details out number of open positions at each strike - we can see that the lean was bullish (positive) into earnings. 80 was a very big strike level, and so was 90. Market makers would have had to pay huge premiums to 80-90 Call Buyers if BABA soared today.
My personal modeling of BABA indicated that the intermediate-term (take a couple months) fair value is roughly 80-90 and my belief that even if it did get to that region, it may immediately reject.
Combined with the confluence that China statistically rarely rallies for 3 days or more in a row, that BABA already advanced 8% ahead of earnings, and that people were positioned for 80-90 Strikes….It just didn’t feel right to me and that a rugpull may be coming.
And we know what happened next.
Are BABA and China heading lower again? Or is this just a detour on the way back to higher levels?
We’ll discuss this and U.S. markets more below. Stay on top of China with us.