|
|
|
|
|
 |
|
|
 |
Wednesday, April 30th, 2008
You could almost predict what was going to happen in the market today. After a strong morning rally which carried the Dow past the all important 13,000 plateau, the market sold off after the Fed announced a quarter-point rate cut. The Dow was up 178 points and briefly traded above 13,000 after the announcement was made but quickly reversed course for the remainder of the day. It was the first time the Dow had traded past 13,000 since early January.
For April, all three indicies posted nice gains for the month after a dreadful first-quarter. The Tech heavy Nasdaq made the biggest jump, adding 5.9%. The Dow advanced 4.54% while the S&P rose 4.75%. Overall though, all three are down for the year. The Nasdaq is down 9%, the Dow 3.35% while the S&P is down 5.64%.
If you notice the charts of all three, you will see that they are right around support and resistance from early January. With earnings winding to a close and the Fed’s announcement, stocks will have to find a new way to rally. There’s an old saying on Wall Street and it goes “Sell in May and go away”. After traders are through vacationing, the theory is that the market is more active at the start of September leading into October which is historically the most volatile month. These “seasonal patterns” are very clear and they can be a good guide but as option traders we could care less where the market is headed.
I just wanted to mention this because this rally could fade with no significant events taking place. Second-quarter earnings will start in July and until then the market will likely trade off economic reports. That in itself could be a mixed bag of tricks so be careful out there.
Rick Rouse
Tags: "Sell in May and go away, Add new tag, Dow, Nasdaq, S&P 500
Posted in Market Analysis | No Comments »
Wednesday, April 30th, 2008
Google (GOOG, $578.47, up $20.00) continues its steady climb after its earnings announcement on the 18th. The stock is up another 3+% today after the company’s CEO had some positive things to say. Here is all you need to know. In an interview, he said, “In our case, we focus on quality, and we have a very simple model. If we show fewer ads that are more targeted, those ads are worth more. So we’re in this strange situation where we show a smaller number of ads and we make more money because we show better ads. And that’s the secret of Google”. I love that last sentence.
I have been mentioning over the last few weeks how Google could continue to climb based on Microsoft’s (MSFT, $29.15, up $0.51) and Yahoo’s (YHOO, $27.15, down $0.21) ugly battle. The stock is making a big push at $600 and that would mean a $150 move since their earnings announcement. Wow!
I had also mentioned that traders were active in the May 500 calls (GOPEO, $81.00, up $20.10) before Google announced earnings. They were selling for $7 at the time. It’s hard to believe a 10 contract option trade that would have cost you $7,000 would now be worth $81,000 in two weeks. Now that’s making money.
Google is well aware of just how much they stand to benefit from the Microsoft/ Yahoo stand-off. When a fire gets low, you throw more wood on it. If it gets too low, it’s likely to go out or smolder. It looks like Yahoo and Microsoft are smoldering and its no wonder that Google stoked the fire today.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Google ads, secret of Google
Posted in Google | No Comments »
Wednesday, April 30th, 2008
Merck (MRK, $37.14) has always been a tough stock to trade. It’s an investment in the Drug sector which carries extra risk due to the nature of their business. Drug and Biotech stocks trade on product announcements and development of their pipeline. Once different drugs are announced or “created” and start Phase I, II, and III of their process for FDA approval, these stocks can make huge volatile swings based on the news.
Merck fell more than 10% yesterday after the company said its cholesterol drug Tredaptive was not approved by the FDA. The company didn’t say what the FDA’s problem(s) were with the drug, but it’s likely it had something to do with safety concerns. This was a total shock to the market which had figured the drug would get approved.
Merck’s meltdown started in January and you can tell by the chart once the stock broke through its 50, 100 and 200-day moving average it was in trouble. Trading near $60 to start the year, the stock is now sitting at 52-week lows. That’s well over a 30% drop. Take a look at the chart and you will see exactly what I’m talking about.
The best option trade certainly would have been a put play on Merck once it broke through these averages back in January for three or four months out. Charts aren’t a sure fire way to make money but they are the single most important aspect of an option trade. There are numerous “other factors” we must consider when we trade options but it is imperative that you learn some aspect of how to read a chart.
We can teach you how to read charts and find option trades to where your success rate is 90% or greater. Click here to learn more.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Drug Sector, FDA approval, Merck
Posted in Sectors | No Comments »
Tuesday, April 29th, 2008
With tax refunds hitting consumer pockets over the next few days and weeks, Wal-Mart (WMT, $57.96, up $0.61) could be the “Retailer of Choice” as people spend their rebates on the 800-pound discount gorilla. The company is offering to cash the checks for free and said no purchase will be necessary.
Wal-Mart offers the best of both worlds. It’s a one-stop hub for all of your household, grocery and even your gas needs. It’s no coincidence the company is cutting prices on key grocery and other items to coincide with the distribution of the rebates. Wal-Mart really wants to grab a bigger piece of the grocery segment although margins aren’t that great. However, Wal-Mart has superior cost-cutting structures in place that they are able to pass on to the customer.
Option traders are placing bets on the May 57.50 calls (WMTEY, $1.43, up $0.30) and the May 60 calls (WMTEL, $0.44, up $0.12) which are up 26% and 37%, respectively, that the stock continues higher.
Wal-Mart usually doesn’t make big, dramatic moves in its stock price but the bulls seem to want to push this one up to the $60 level. If Wal-Mart can get to $61 by May 16th then the May 57.50 and 60 calls would double from current levels with the 57.50’s returning slightly more. Either way, this is a very aggressive play on a stock that Wall Street has fallen back in love with.
Rick Rouse
Rick@OptionsMentoring.com
Tags: perfect storm, tax refund, Wal-Mart
Posted in Hot Stocks | No Comments »
Tuesday, April 29th, 2008
10:00AM
(MSFT, $28.69, down $0.30) and Yahoo (YHOO, $26.22, down $0.21) continue to trade lower today. Microsoft lost $0.84 yesterday while Yahoo fell $0.37. With no deal in place in only makes sense that both stocks have suffered. I can only imagine what Microsoft’s “war room” is planning next. As each stock falls lower, Google (GOOG, $554.34, up $2.22) continues its uptrend (the stock was up $8 Monday) and has to be loving every minute of this battle.
MasterCard (MA, $265.62, up $23.12) is hitting 52-week highs this morning after reporting profits more than doubled during its latest quarter. I have been telling you that stocks can often see swings of 8%-10% or even 20% on earnings announcements. Yesterday, the stock closed at $242.50 and if you would have factored a 10% move either way you would have gotten roughly $266 to the upside and $218 to the downside. MasterCard is up nearly 10% today and the May 270 calls (MALEX, $6.80, up $4.20) are up 160%. On the other hand, the May 220 puts (MALQD, $0.20, down $3.30) fell 94% on the news. See why betting on earnings can be so risky? If you had predicted MasterCard’s stock would suffer after a lousy report or bad market conditions then you would have basically lost your entire investment overnight if you had bought the puts.
Now, if you would have placed what is called a “strangle” option trade and bought equal amounts of the May 270 calls and the May 220 puts, then you would have came out slightly ahead. The previous close of the calls were $2.60 and the puts were $3.50. This gives you a total cost of $6.10. If you were to sell both of these positions now, you would get roughly $6.80 for the calls and maybe $0.20 or $0.15 for the puts for a total of about $7.00. That’s roughly a 10% gain in one-day just by hedging your trade. Sure, it may not pack the power of getting you a 100%-200% gain but it also protects you from losing all of your money on a trade.
Sohu.com (SOHU, $70.82, up $0.01) was up $9 yesterday and I had mentioned that they may be one of the better China Internet plays. The May 70 calls (UZKEM, $7.30, unchanged) were up nearly 150% after earnings quadrupled on strong advertising and online game revenue. Online gaming continues to grow at mind-boggling numbers as online video games are expected to triple by 2012 according to some industry analysts.
One last tidbit…Ballard Power Systems (BLDP, $4.16, up $0.06) is a fuel cell manufacturer that makes equipment for hydrogen production. The company announced earnings this morning but the stock isn’t getting much of a pop. Hard to believe this was a $125 back in the day…
Rick Rouse
Rick@OptionsMentoring.com
Tags: Google, MasterCard, Yahoo
Posted in Google, Yahoo / Microsoft | No Comments »
|
|
|  | | | |
