Market Backdrop
The S&P 500 is struggling to climb. Trading took out the large August candle. The 10-year Treasury yield sits at 4.9%, close to 5%. High-risk, high-flying stocks find it hard to compete with a guaranteed 5% return from a risk-free bond, where you take no risk. That pushes money into bonds and stalls equities.
PPI (producer prices) came in higher than expected. Oil is above $100 a barrel on both WTI and Brent. The war and the Strait of Hormuz situation have no resolution. Higher oil costs trickle down to consumers, which likely means a slowdown. The market is now pricing a possible rate hike - not a hold, not a cut, but a hike. So equities pulling back or stalling makes sense.
CF Industries (CF) - Bullish
CF Industries is the world's largest producer of nitrogen fertilizer products. About 25% to 35% of globally traded ammonia and urea comes from the Strait of Hormuz, so the disruption there hits both oil and fertilizer supply. Petroleum products are a major input in making fertilizer, and physical natural gas is used in production and transport.
Q2 sales were $2.2 billion versus $1.89 billion a year earlier, up 17%. Sales volume fell about 15%. So even though CF sold less product, revenue rose because prices went up due to the Strait disruption. Farmers still need fertilizer, and CF charged more.
If the Strait of Hormuz opens up, oil drops, and fertilizer supply is no longer disrupted, that would not be bad news. If CF lowers prices or holds prices flat, volume should pick back up as people consume more and farmers need more fertilizer. That offsets any price cut, or if prices stay flat and volume rises, it means more upside on revenue and sales volume.
Technically, the chart shows an inverse head and shoulders and a slight cup and handle - two bullish signals. The problem: the stock is trapped at its all-time high near 140, and needs to break above 140 resistance to run higher.
Chart details: The high point was 14196, about where it topped recently and in the current session. A downward sloping trend line off those highs has been broken. After earnings, the stock bottomed near 110, then formed an upward channel. Today's candle looks like a bearish engulfing candle - a large red candle swallowing the real body of yesterday's smaller green candle. Downside follow-through tomorrow would confirm it and could break the stock below the channel. Old highs near 130 could become support. Other levels: 122 (a relative low) and 110 (post-earnings low). The 5-day EMA sits near 136; the 21-day near 130. RSI is above the 50 midline and below the overbought level of 70, with the green trend line still pointing up. Bulls want a higher close and a matching new RSI high. Most recent volume sits at 120 to 128, a support area if the stock drifts lower.
Trade: Bullish, but taking risk at resistance means wanting someone else to share the risk. Using the January 15, 2027 expiration, buy the 130 strike call (about $20) and sell the 150 strike call (about $11). That cuts risk from $20 to $9. If the stock is at or above 150, that is about a 50% return, over a 127-day window. The spread gives a buffer and passes off time decay to the other side. If the stock pulls back, the spread reduces risk from $20 to $9. Stop-out level: a break below the 20-day moving average. The stock has been bouncing off that 20-day; a break would mean cutting the trade for a small loss.
Lululemon (LULU) - Bearish
Lululemon is a premium athletic wear retailer. In this economy, with high gas and food prices and 3% credit card charges, premium athletic wear is not top of mind for spending. Competition is rising - Aloe (Alo) and other athleisure brands are gaining ground. The growth question is hard to answer: how many nice yoga pants or workout items does a person really need? Weak growth is why the stock has declined.
LULU got a new CEO, a former Nike (NKE) executive. Nike is having one of its worst stock years in a long time and risks getting delisted from the S&P 500 (removed from the S&P 100). That does not inspire faith in a turnaround.
The numbers: Q2 revenue fell 4%, comparable sales fell 9%. In the Americas, revenue declined 8% and comparable sales fell 12%. Q2 margin rose 200 basis points, but most of that came from a tariff refund, not from the core business doing well. The turnaround does not look credible near term; the stock is likely to stay flat or go lower.
LULU is the 10th worst performer in the S&P 500 this year and down more than 50% year to date.
Chart details: A symmetrical triangle formed before earnings. Low volatility often comes before high volatility when the breakout happens - here it broke to the downside. The gap open was at 118; the pre-gap low was near 104 (the new high after breakdown). The low came in at 9755. The 5-day EMA sits at 10378. RSI is moving lower below the 50 midline; 30 is the oversold threshold, and a break below it signals acceleration down. The volume profile point of control - the heaviest trading area - is at 11849. The stock has fallen below that, which suggests many trapped bulls. Beware rallies that trigger selling from those trying to exit.
Trade: Bearish, but do not just pile into puts after a stock has been beaten down and gapped over earnings. The right lens: not betting it goes lower, but betting it cannot go higher, since a rise would have to chew through the gap-down resistance. Use a bear call spread on the November 2026 expiration: buy the 130 strike call (out of the money) for 105, and sell the 120 strike call (closer to the money) for 205. That is a net credit of about $1. The stock has 20 points of upside room before the option is in trouble over the next 71 days. Risking $10 to make $1 gives a potential 10% return in 71 days, with a 20-point cushion. Three ways to win: the stock stays flat, rises a little, or falls. Stop-out: a break above the 50-day moving average.
LULU was down another 1.7% to just above $98.
UPS - Bearish
The key question: is the market telling us something management isn't? Management says everything is great - Q2 revenue up 7.6% year-over-year, full-year guidance raised, restructuring behind them, entering the second half with momentum. The stock chart does not agree.
UPS is winding down its relationship with its biggest customer, Amazon (AMZN). Investors question what happens when one of the biggest package shippers in America becomes its own delivery competitor. Amazon is delivering about 85% of its own packages and expects to deliver 85% to 91% of its own packages by 2029. Diesel hit a record high of about $5.85 a gallon, near $6, which hurts a business running trucks and planes to deliver packages. With its biggest e-commerce client winding down, there is no clear reason for packages and deliveries to boom. Right now UPS is cutting costs to hit its numbers, but there is only so much cost to cut before it needs new business, and there is no clear source for that new business.
Technically, a double top formed near 118. The stock has broken below the 200-day moving average, and all moving averages are crossing down. It looks weak.
Chart details: Trending lower. Horizontal levels: 112 is the earnings gap start; 109 is the post-gap high; another high near 107. Recent lows at 99, and a double bottom near 94. The 5-day moving average is closest at 100.85. RSI slipped below its green trend line and is close to oversold again. The volume profile point of control is at 9645, a possible support area.
Trade: A bear call spread on the October 16, 2026 expiration (36 days). Sell the 105 strike call and, to stay covered, buy the 115 strike call 10 points out. That gave about a 95-cent credit before the market open (possibly less since the stock was up 75 cents on the day). Break-even is 105.90. Risking $10 for 36 days gives about a 9% return, with a built-in $5 cushion. You do not need to be 100% right - the stock can stay flat, fall, or rise as long as it does not go more than $5 higher. Stop-out: a break above the 200-day moving average.
UPS was up about 8/10 of a percent, bucking the market, sitting exactly at $100 a share.
