10:00pm (EST)
The market continued its sell-off on Friday as the Dow dropped another 216 points to close at 10,172. The bears woke up on Wednesday from a long rest and have caused panic and fear for some investors. The Dow’s 550 point drop in 3 days marked its worst week since March 2008.
Perhaps the biggest bomb was dropped by the President who seems to have a personal vendetta against the financial companies. We kept quiet on the subject but we really think Washington is picking the wrong battles. Instead, they should concentrate on “shovel-ready” projects that will bring unemployment back below 10%.
The market’s decline has been broad-based and Friday’s drop can be attributed to Ben Bernanke not possibly getting a second term as Fed chairman. His gig expires at the end of the month and now there is serious doubt he gets the 60 votes he needs.
The S&P 500 fell 25 points and closed at 1,091 while the Nasdaq tanked 60 points, or 2.7%, to finish at 2,205.
A week ago right here in this space we said there was chance we get a 5%-10% and we got the 5%. We still think there is some weakness in the market but we are expecting one last rally by the bulls.
As we head to press the futures have turned around as the overseas markets get ready to trade in a few hours. Dow futures are up 42 points, the S&P 500 and Nasdaq futures are up 6. The heart of earnings season will hit this week and if you look at the list below there will be some action (quotes are from Friday’s close):
Monday: (Before the bell) AK Steel Holding (AKS, $20.19, down $1.03), Eaton (ETN, $65.88, down $0.86), Halliburton (HAL, $31.15, down $1.38)
(After the bell) Amgen (AMGN, $56.60, down $0.03), Apple (AAPL, $197.75, down $10.32), Jacobs Engineering (JEC, $39.66, down $0.24), VMware (VMW, $41.58, down $2.36)
Tuesday: (Before the bell) Baker Hughes (BHI, $44.27, down $2.36), Corning (GLW, $18.56, down $1.05), DuPont (DD, $32.50, down $0.65), Johnson & Johnson (JNJ, $63.20, down $0.77), Peabody Energy (BTU, $45.10, down $0.60), Sherwin-Williams (SHW, $58.00, down $0.61), Travelers Companies (TRV, $48.31, down $0.64), Wynn Resorts (WYNN, $63.95, down $1.42)
(After the bell) Callaway Golf (ELY, $8.25, down $0.10), DeVry (DV, $56.88, up $0.42), Gilead Sciences (GILD, $46.08, up $0.30), QLogic (QLGC, $19.19, down $0.50), Yahoo (YHOO, $15.88, down $0.32)
Wednesday: (Before the bell) Abbott Laboratories (ABT, $54.51, down $1.05), BlackRock (BLK, $225.00, down $5.24), ConocoPhillips (COP, $50.60, down $1.64), Piper Jaffray (PJC, $46.20, down $1.80), Valero Energy (VLO, $18.18, down $0.72)
(After the bell) Green Mountain Coffee Roasters (GMCR, $81.16, up $1.24), Harris (HRS, $45.78, down $1.46), Qualcomm (QCOM, $46.78, down $1.31), WellPoint (WLP, $65.10, down $0.40)
Thursday: (Before the bell) 3M Company (MMM, $81.48, down $1.22), Altria Group (MO, $19.71, down $0.18), AT&T (T, $25.39, down $0.28), Colgate-Palmolive (CL, $80.71, up $1.64), Eli Lilly (LLY, $35.52, down $0.59), Ford Motor (F, $10.52, down $0.66), Lockheed Martin (LMT, $75.58, down $1.40), Nokia (NOK, $12.72, down $0.18), Potash (POT, $109.05, down $3.59), Time Warner Cable (TWC, $43.84, down $1.04), Under Armour (UA, $26.63, down $0.71)
(After the bell) Amazon.com (AMZN, $121.43, down $5.19), Genworth Financial (GNW, $12.41, down $0.49), Juniper Networks (JNPR, $24.95, down $1.17), Microsoft (MSFT, $28.96, down $1.05), Rambus (RMBS, $24.74, up $0.72), SanDisk (SNDK, $28.39, down $0.97), Stanley (SXE, $27.74, up $0.14)
Friday: (Before the bell) Arch Coal (ACI, $24.80, down $0.51), Honeywell (HON, $39.88, down $0.85), Mattel (MAT, $19.95, down $0.63)
(After the bell) Horizon Lines (HRZ, $6.17, down $0.03)
This will be an important week for the bulls and we don’t expect them to go away quietly. We said back in December there could be an “epic battle” between the two sides and so far we have been dead-on with our market analysis. We have used caution to establish some long-termer term option plays and we have some insurance in our portfolio for protection.
If the market does continue lower there will be some incredible opportunities to buy put options on stocks that are overbought. Some of the high-flying stocks have already been clipped and there is plenty of downside to go if they are going to correct.
We will be back in the AM with the trade updates and the morning outlook.
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Apple Set To Report Earnings
Monday, January 25th, 2010
12:30pm (EST)
The bulls are out today in an effort to take back some of the momentum from the bears after last week’s drubbing. The Dow started off strong and looked headed for a triple-digit gain but is only up 51 points, to 10,224, as we go to press.
The index reached 10,256 but has come off its high after a disappointing housing report. The National Association of Realtors said December sales fell 16.7% to a seasonally adjusted annual rate of 5.5 million, from an unchanged pace of 6.5 million in November. Wall Street had been expecting a 10% decline but the reaction has been mild as an expected sharp drop was in the cards after the tax credit for first-time homeowners was due to expire and was later extended.
The bulk of earnings will get underway this week and all eyes will be on Apple (AAPL, $201.43, up $3.68) after the close today. The stock was at a 52-week high last Wednesday when it reached $215 but dropped nearly 8% to close out last week.
We know Apple will report a blowout quarter but will it be enough to satisfy Wall Street’s “whisper numbers”? We have already seen quite a few companies crush Wall Street’s estimates and we honestly don’t know where the stock will trade this time out after reporting earnings.
Apple will probably move at least 10% and here is how we get that information.
If you take the premium of the February 200 calls (APVBT, $10.60, up $0.75) and the February 200 puts (APVNT, $9.00, down $3.00) you get about $20 ($10.60+$9.00) which is 10% of $200.
As you can see, the premiums are super rich but these two options will be on the move all week. It’s possible that this would be a good straddle option trade because shares of Apple will be volatile. The company will also unveil its new tablet on Wednesday and the rumored price tag is $1,000.
There are multiple ways to play the earnings and you could also use a strangle option trade. The February 180 puts (APVNP, $2.50, down $1.55) and the February 220 calls (AJLBX, $3.40, up $0.10) could be used to try to capture some profits on the volatility but we don’t really like betting against Apple.
Either of these two options could double on Tuesday depending on how the market reacts but we aren’t playing either trade. We are momentum traders and as much as we would love to go long on the calls we just don’t trust the current market environment.
With that said if Apple tanks on Tuesday we may be able to pick up some cheaper call options as a possible “rebound” trade. If shares move higher after earnings the stock could be at new 52-week highs.
We also think there is a small possibility of Apple announcing a stock-split which in our minds would be the perfect time to make such an announcement. Normally, Apple favors a 2-for-1 split and the last time they did one was in 2005 when the stock was at $90. In 2000 the company did a 2-for-1 when shares were approaching $100.
Steve Jobs loves the spotlight and it’s time for another split. We are also watching Verizon (V, $30.64, up $0.30) as we feel there is a good chance Apple announces a new partnership with them to carry the iPhone.
Special Announcement: We have told you about the new changes coming to the options market and it looks like it is right around the corner. Next month, new options tickers will take effect and some financial sites are already using using the updated 21-character symbols.
We will be talking about these changes in the Members Area over the next few weeks as we also begin to implement the new ticker symbols. Some of our current trades do not expire for 4 and 5 months so we need to catch everyone up to speed. The change will make it much easier to look up option symbols although some already hate it.
We have updated the current positions and we urge investors to remain patient and focused as the markets goes through its current ebb and flow. We play both sides of the market and remain excited about a market correction if there is one coming.
We still think we get a nice rally before the market fades but we are watching key support levels closely. We have seen major buying come in over the past 10 months when the market dips 5% so we will have to see how this one plays out.
Tags: option picks, option signals, options alerts, stock options trading
Posted in Apple, Earnings, Market Commentary, strangle option trades, Strategies, Trading Psychology, Trading Tips | Comments Off