Earlier this week, we were waiting for 3 big market catalysts…
- The interest rate decision.
- MSFT earnings.
- GOOG earnings.
We got our answers.
And I’m watching a specific trade setup…
In short:
- The Fed held rates steady.
- MSFT beat earnings.
- GOOG showed weakness in certain areas.
All of this information is important for rounding out a comprehensive picture of the market.
But only one catalyst leads to my favorite trade setup.
The Biggest Catalysts
First…
As expected, the Fed held rates at 3.75%–4%.
But it wasn’t unanimous. The vote was 10-2, with Lisa Cook and Cleveland’s Fed President Beth Hammack dissenting in favor of a quarter-point hike.
Warsh said politics didn’t factor into the decision, and suggested the Fed has room to wait for more data before its December meeting.
A December hike is still on the table.
Next…
Microsoft beat earnings expectations across the board.
EPS came in at $4.89 vs. $4.73 expected, on $92.28 billion in revenue vs. $90.69 billion expected.
Azure, the number traders cared about most, grew 48% to $33.2 billion, above the roughly 45% Wall Street was looking for. And management guided for 49%–50% Azure growth next quarter.
Plus, capex came in lighter than analysts expected.
The stock popped about 4% after hours and traded near $548 in premarket, right up against the $550 high… then sellers stepped in.
Finally…
Google Cloud was a blowout.
Revenue rose 103% to $30.7 billion, well above the ~90% expected.
But the rest of the report raised red flags…
EPS of $2.12 missed the $3.02 consensus. Search growth slowed to 12% from 17% the prior quarter. And spending keeps climbing. Capex hit a record $51.4 billion, and free cash flow was negative $9.1 billion.
Management also said capex will increase significantly in 2027.
That’s the exact fear we flagged heading into earnings. As a result, the stock gapped lower.
My #1 Trade Setup
Stop scrolling!
Without spoiling the answer…
What do you think my #1 watch is?
Try to test yourself.
Remember, I like reversion trades: when a stock moves too far in one direction and then momentarily retraces.
Buyers get too exhausted on the upside. Sellers get too exhausted on the downside. That’s when the momentum switches, at least briefly.
Instead of following the crowd, I wait for the crowd to tire itself out. Then I play the reversal.
Of the two stocks I mentioned earlier, one is MUCH more overextended than the other…
Alphabet Inc. (NASDAQ: GOOG) is due for a correction.
At the lows on October 29, the stock fell 13% from its pre-earnings close. Now it’s trading near the YTD lows from March 30.
That level could act as support for a short-term bounce.
Plus, the intraday price action shows a huge gap to fill above $300 per share and a double bottom around $280.
Stocks love to fill gaps, and the double bottom shows that this stock knows how to follow support and resistance.
The GOOG bounce could be quick, and it might not look like much on the chart. Maybe only a few percentage points…
But with short-dated options, the value of the contract will move exponentially compared to the underlying stock.
Buy call contracts as close to support as possible. That helps minimize our risk and maximize our potential gains.
GOOG is the most exciting stock in the market right now.
That makes it our #1 watch for an options trade.
Stay Street Smart,
Jeff Zananiri
