Palo Alto Networks Inc (PANW) Stock Is Heading 8% Higher

PANW stock looks set to squeeze higher

Shares of cybersecurity company Palo Alto Networks Inc  (NYSE:PANW) are higher by over 18% over the past week of trading, following their latest quarterly earnings report on May 31. This latest rally comes after a steep one-day drop just three months ago on March 1. Through the lens of technical analysis and investor psychology, this bullish reversal rally over the past week looks to have further upside — about 8%, to be exact.

One of my former mentors at JP Morgan used to remind me almost daily that “we can learn a lot (about the markets) by just watching.” What he meant is that by the way a stock, bond or currency reacts to news often times tells us when meaningful and likely sustainable rallies or sell-offs are about to take hold that we can profit from.

The other thing this statement implies is that patience is key. From an intermediate-term trading perspective waiting for an initial meaningful move in an asset to take hold and then pouncing on a trade has, over time, a significantly higher profitability rate than getting into trades in anticipation of news.

When I last discussed shares of Palo Alto Networks on May 16 I offered that “the breakaway rally that has taken hold in the stock thus far in May could be the start of something more promising.” Specifically I said that buying some PANW stock around the $120ish area made sense if it was paired with a put to partially protect the long position.

I said that a next upside price target could be around $135, which is the level the stock ultimately gapped higher to following the May 31 earnings report. So far, so good.

Looking at the multiyear weekly chart we see that despite the sharp rally over the past week, PANW stock has merely moved back to the upper end of its multiyear consolidation wedge as marked by the black parallels. From a momentum perspective as represented by the MACD oscillator at the bottom of the chart, we see that much more upside may still be in the cards. To be clear, momentum alone is no catalyst to buy or sell a stock, but it does allow for some context.

On the daily chart we see that the down-gap in March followed by the up-gap on June 1 left a clear so-called “island reversal” behind. This reversal pattern is bullish by nature as it left the price action from March 2 to May 31 rejected and alone.
On this chart, we also see that there is an unfilled gap left above the current price, which I marked with the upper blue box and which fills around the $152 area. In other words, after possibly some more consolidation of last week’s rally, PANW stock could gravitate toward $152 as a next upside price target. A break and hold above $141 could set in motion a squeeze higher toward $152, while any bearish reversal should be respected as a stop-loss signal.

THE BEST STOCKS TO BUY BEFORE FED WEEK

Utilities and metals tend to fare well during the week of FOMC meetings

Once the dust clears from today's testimony of fired FBI Director James Comey, as well as the snap election in the U.K., Wall Street will once again zero in on the Fed. The Federal Open Market Committee (FOMC) is expected to raise interest rates at its June meeting next week, and stock traders will no doubt nitpick Fed Chair Janet Yellen's post-meeting press conference for clues to the next rate hike. Against this backdrop, we took a look at how the S&P 500 Index (SPX) tends to react during Fed weeks, and outlined the best stocks and exchange-traded funds (ETFs) to own -- and which ones have attractive options right now.
S&P Slightly Underperforms During Fed Weeks

Going back to 2015, the SPX has averaged a 0.10% gain during Fed meeting weeks, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Further, the S&P has ended Fed weeks higher 53% of the time. That's just slightly beneath the index's anytime weekly stats since 2015, with the SPX averaging a gain of 0.13%, with a positive rate of 55%.

25 Best Stocks to Own During Fed Weeks

Meanwhile, below are the 25 best stocks and ETFs to own during a Fed week, using historical data since 2015. Utilities stocks -- often seen as "defensive" stocks -- dominate the list, led by PPL Corp (NYSE:PPL). The shares of PPL boast the best win rate of any S&P member during Fed weeks, ending the week higher 84% of the time. Further, PPL stock has averaged an impressive gain of nearly 2% during these weeks -- the second-best on the list. The utility stock has been in rally mode since the U.S. presidential election, and notched a post-financial crisis high of $40.20 on Tuesday.

Utilities, Gold & Silver Top Best ETFs to Own Next Week

As to the best ETFs to own during the week of a Fed meeting, it's no surprise to find the Utilities Select Sector SPDR Fund (XLU) near the top of the list. Shares of XLU have ended the week higher 68% of the time, going back to 2015, with an average weekly return of 0.89%. However, metal-based ETFs tend to perform even better, likely because tangible assets are often seen as "safe haven" investments and inflationary hedges.

The VanEck Vectors Gold Miners ETF (GDX), in fact, has fared the best of any exchange-traded fund during Fed weeks, hands-down. GDX has ended the week positive 68% of the time since 2015, with a stellar average return of 2.53%. The shares have surged  nearly 11% since their early May lows, and are on pace to end atop their 10-month moving average for the first time since October.

What's more, GDX's short-term options are a relative bargain right now, for traders expecting another burst higher. The fund's Schaeffer's Volatility Index (SVI) of 32% is higher than just 22% of all other readings from the past year, suggesting GDX's near-term options are attractively priced, from a historical volatility perspective. Further, GDX's Schaeffer's Volatility Scorecard (SVS) of 82 indicates the fund has exceeded option buyers' volatility expectations during the past year.

Likewise, the SPDR Gold Trust (GLD) is also near the top of the list, with a win rate of 68% and an average Fed-week gain of 0.91%. But it's the iShares Silver Trust (SLV) that takes the cake, as far as win rate. The silver-based fund has ended Fed weeks higher 79% of the time since 2015 -- in a class of its own -- with an average gain of 1.31%. Further, wannabe short-term call buyers can scoop up SLV options at a discount, as the ETF's SVI of 19% is lower than 90% of all other readings from the past 12 months, and SLV sports an SVS of 97 -- a major selling point for premium buyers.

THE CONTRARIAN'S GUIDE TO TRADING MAGAZINE COVER STORIES

Stocks featured in cover stories could be ripe for contrarian action

The internet has changed the way investors consume stock market news. There is a surplus of investing information out there now, all jockeying for your attention. However, one thing that hasn't changed is the magazine cover story as a sentiment indicator. Today, we're going to discuss how a contrarian trader can profit off these cover stories.

Why Cover Stories Are Lagging Indicators

This piece is not meant to deride news publications for poor content. The purpose of cover stories are, quite simply, to report the news. They want to attract your attention. Their priority isn't to gauge what a stock will do in the coming months; their priority is to report on what is newsworthy at the time.

As a result, when you read a cover story in The Wall Street Journal or Forbes, that trend is likely already widely known, universally accepted, and has been in place for a relatively long time. This is especially the case when a general interest news outlet, such as Time, touts the bullish or bearish case for a particular stock.

Given the rapid flow of information through the market, contrasted with the sluggish nature of print publications, we've found that cover stories -- both bullish and bearish -- most often coincide with the culmination of a trend, rather than its inception. By the time a positive or negative outlook for a given stock, commodity, or asset class is a topic of broad enough interest to command real estate on a magazine cover, it's more likely than not that traders have already priced in the same information discussed in the cover story.

Examining the Sentiment Cycle of Bull and Bear Markets

Let's consider how this fits into the "sentiment cycle" sequence. The sentiment sequence off a major bottom (whether for a single stock, or the broader market) can be described as: despair; disbelief; acceptance; and euphoria. Off a major top, the sequence goes: euphoria; disbelief; acceptance; and finally, despair.

The "despair" stage tends to mark a bottom. When "everyone" is bearish, selling pressure has been exhausted, and the next major move is likely to be higher.

Meanwhile, initial rallies off a market bottom -- as well as the initial declines off market tops -- are greeted with "disbelief." Eventually, the new direction for the market becomes sufficiently established and sentiment enters the "acceptance" stage. 

And then, of course, the next stop is "euphoria," which often marks a top, as buying power is nearly exhausted and the next major move is down.

"The Genius of Snapchat" Meets The Madness of Crowds

Snapchat (NYSE:SNAP) made the cover of TIME magazine in March 2017, ahead of its much-anticipated initial public offering (IPO). The cover story touted "The Genius of Snapchat." Soon after, Snapchat surged 44% during its first day of trading, with the stock opening at $24 after pricing at a higher-than-expected $17 per share. It reached its lifetime high the day after its IPO, hitting $29.44 on March 3. 

The stock has since declined, shedding 20% within the last month. At last check, SNAP was down 4% today to trade at $18.73, flirting with its all-time low of $17.59 on May 11. 

Any trader who took the bullish TIME cover as a tip to buy SNAP stock would have been sorely disappointed. The story wasn't an investigation into an as-yet unknown start-up; instead, it was a reflection of the bullish hype and high expectations surrounding the imminent Tech 2.0 IPO. Judging by the charts, the general euphoria reflected by that Snapchat TIME cover peaked almost immediately after the shares started trading -- making that upbeat cover story a solid shorting signal.

How to Use Magazine Covers In Your Trading

Properly gauging cover stories is just one component of contrarian trading, but it is a shrewd way to gain a leg up. Cover stories of major publications should serve as a smoking gun. It is a signal of the collective mood on Wall Street, and an indicator of what the "conventional wisdom" is saying about a given stock. 


That said, the cover story indicator is not an actionable contrarian buy or sell signal in and of itself. As part of each trader's usual due diligence, a thorough review of the fundamental, technical, and sentiment backdrop for each stock should be completed before any new positions are initiated.

JWN, NLNK, HYGS STOCKS ON THE MOVE TODAY

The Nordstrom family has formed a group to explore taking the retailer private

The stock market is trading higher, as Wall Street digests former FBI Director James Comey's congressional testimony. There are a number of stocks making volatile moves, though, including high-end department store Nordstrom, Inc. (NYSE:JWN), cancer treatment specialist NewLink Genetics Corp (NASDAQ:NLNK), and hydrogen generation name Hydrogenics Corporation (USA) (NASDAQ:HYGS). Here's a quick look at what's moving shares of JWN, NLNK, and HYGS.

JWN Stock Soars on Reports the Retailer Could Go Private

Nordstrom stock is trading up 10.8% at $44.89, on reports the retailer is considering going private. Specifically, several members of the Nordstrom family who collectively own a roughly 31.2% stake of JWN have formed a group to explore this option. The pop comes at an ideal time for JWN stock, which was staring at a nearly 16% year-to-date deficit heading into today's trading to test its footing near the round $40 mark.

Today's surge has the shares nearly filling a mid-May earnings bear gap -- and short sellers could be caught off guard. More than 24% of JWN's float is sold short, or 5.4 times the average daily pace of trading.

NLNK Stock Sinks to New Low

NewLink Genetics stock has plunged 32.9% to trade at $7.13 -- the worst performer on the Nasdaq -- and earlier hit a five-year low of $7.07. The shares are reacting to news Genentech will return the rights to NLNK's immuno-oncology drug candidate, GDC-0919, though a research collaboration between the two companies will continue. Pouring salt on the proverbial wound is a downgrade to "neutral" from "outperform" from Baird, which slashed its price target (to $8 from $25) along with Jefferies (to $7 from $18).

As NLNK stock continues to move further away from its 52-week high of $25.17 from April 3, there's plenty of room for more analysts to lower their outlooks. In fact, not a single one of the five brokerages covering NewLink Genetics maintains a "sell" rating, while the average 12-month price target is docked at a lofty $24.60, as of last night's close.

HYGS Stock Hits New High on Fuel Cell Deal

Hydrogenics stock has surged 18.2% to trade at $8.30 -- fresh off an annual high of $9.25 -- after the company said it inked a roughly $50 million purchase and licensing deal with Blue-G New Energy Science and Technology Corp for 1,000 fuel cells. HYGS shares are now sitting on an 88.6% year-to-date gain, and options traders are showing unusual interest in the stock. Though volume is still light on an absolute basis -- just 327 contracts have traded -- it's running at three times what's typically seen at this point in the day.

YAHOO STOCK OPTIONS VOLUME EXPLODES AHEAD OF VERIZON VOTE

Yahoo shareholders have been using options to hedge against a sudden pullback

Options trading has been brisk on Yahoo! Inc. (NASDAQ:YHOO) in recent weeks, per data from Schaeffer's Senior Quantitative Analyst Rocky White. In fact, YHOO stock has seen some of the highest options volume over the last 10 sessions, with 323,399 calls and 337,712 puts traded. Echoing this, call open interest is docked in the elevated 87th annual percentile, with 452,339 contracts open, while the 424,505 puts that are currently open is at a 52-week peak.

This explosive options volume is continuing today, with 199,224 contracts traded so far -- eight times what's typically seen, and on track to settle in the 100th annual percentile. Puts have a slight edge over calls, with 101,544 of the former and 97,680 of the latter on the tape.

A bulk of today's activity has centered on the weekly 6/23 60-strike call and put, and June 60 call and put. Specifically, 119,735 contracts have collectively traded here, or 60% of the day's total options volume. This just mirrors the recent action seen in YHOO's options pits, with a combined 399,471 new positions initiated at these four strikes over the last two weeks.

Data from the previous 10 sessions suggests some of these calls and puts were used to initiate a collar as part of an options hedge, to guard a long stock position against a sudden near-term drop in YHOO. Today, with Yahoo shares soaring on tailwinds from Alibaba Group Holding Ltd (NYSE:BABA), a portion of of the intraday options activity appears to be indicative of YHOO shareholders rolling these collars up, considering opening activity has been detected at the June 70 call and put.

At last check, Yahoo stock was trading up 7.5% at $54.36, and earlier hit a 16-year high of $55.35. Boosting the shares is a positive reaction to BABA's revenue forecast, given YHOO's 15.5% stake in the e-commerce company. Yahoo shareholders are also expected to vote on Verizon's planned acquisition of its core internet business, with reports suggesting the combined company -- which will be called Oath -- will result in up to 1,000 job cuts at YHOO and AOL.

DOW JONES INDUSTRIAL AVERAGE CAUTIOUSLY HIGHER AMID COMEY TESTIMONY

The Nasdaq managed another record intraday high

The Dow Jones Industrial Average (DJIA) has traded on both sides of breakeven today, with all eyes on the testimony of fired FBI director James Comey. So far, Mr. Comey has stopped short of accusing President Donald Trump of obstructing justice, saying that's up to special counsel Robert Mueller to decide. However, Mr. Comey did confirm President Trump asked him to drop the investigation into former national security adviser Michael Flynn, saying, "Lordy, I hope there are tapes" of the conversations, alluding to a recent tweet from Trump. Elsewhere, traders also continue to consider this morning's European Central Bank (ECB) decision, and are keeping tabs on a general election in the U.K. Despite the choppy trade and political uncertainty, the Nasdaq Composite (COMP) managed to hit another record high, while the S&P 500 Index (SPX) was last seen fractionally higher.

Continue reading for more on today's market -- and don't miss:

Analyst: Nvidia stock could double.
The gold stock flashing a "buy" signal.
Plus, big VeriFone options volume ahead of earnings; Alibaba's big day; and the surgical device stock crashing.

Among the stocks with unusual options volume today is payment processor VeriFone Systems Inc (NYSE:PAY), as the company prepares to report earnings after the close today. At last check, PAY call options were trading at 17 times the expected pace, thanks huge action at the June 18, 19, and 20 calls. PAY stock has a history of big post-earnings moves, including a nearly 25% drop in the session after last June's report. VeriFone stock was last seen up 2.5% at $18.39.

One of the top performers on the New York Stock Exchange today is Chinese internet issue Alibaba Group Holding Ltd (NYSE:BABA), as a blowout revenue forecast pushes the shares up 10% to trade at $138.32. In fact, BABA stock earlier hit a record high of $142.85, and is now up 78% year-over-year.

Over on the Nasdaq, surgical robot maker Mazor Robotics Ltd - ADR (NASDAQ:MZOR) is underperforming, amid news authorities searched the company's offices in Israel. The shares were last seen 9.9% at $33.66, on pace for their lowest close since April 24. Still, MZOR stock remains up more than 100% over the past year.

ALL EYES ON FED AS JUNE RATE HIKE DECISION LOOMS

The FOMC meeting will have all of Wall Street's attention

All eyes will be on the Fed next week, as the Federal Open Market Committee's (FOMC) highly anticipated June meeting gets underway. While an interest rate hike is likely already priced into the stock market, traders will look to the Fed's forecast and comments from Fed Chair Janet Yellen for clues to the pace of future rate hikes. Kroger Co (NYSE:KR) will highlight the relatively quiet earnings front.

Below is a brief list of some key market events scheduled for the upcoming week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.

On Monday, June 12, the Treasury budget will be released. Dominion Diamond (DDC) will report earnings.

On Tuesday, June 13, traders can look forward to the start FOMC meeting, as well as the producer price index (PPI). H & R Block (HRB) will report earnings.

Wednesday, June 14, marks a busy day, with the highly anticipated Fed decision out at 2 p.m. ET. The central bank's announcement will be followed by a press conference with Fed Chair Janet Yellen. Otherwise, business inventories data, the consumer price index, May retail sales, and weekly crude inventories all released. Jabil (JBL) and Liberty Tax (TAX) will report earnings.

On Thursday, June 15, weekly jobless claims, the Empire State manufacturing survey, the Philadelphia Fed business outlook survey, import/export data, industrial production figures, the housing market index, and Treasury International Capital (TIC) data all will be released. The Fed will also release its balance sheet. Bob Evans Farms (BOBE), Finisar (FNSR), and Kroger (KR) report earnings.

To close out the week on quadruple-witching Friday, June 16, housing starts and early June consumer sentiment stats will be released. Dallas Fed President Rober Kaplan will speak. There are no notable earnings reports.