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Will the Fed Fire-Up the Economy?

1:10pm (EST)

The bulls were behind the 8-ball before the opening bell sounded as economic data out of China revealed imports slowed significantly in the latest period due to declining demand and a tightening of monetary policies. 

The news pushed futures significantly below fair value which led to a nasty open.  The bears have done a good job of holding resistance levels, and, perhaps yesterday was another “head fake”.  We have mentioned in the past that resistance (and support) levels can sometimes be “stretched” and that could be the case again today with the Dow down nearly triple-digits ahead of today’s big Fed announcement.

Although we have been trading “light” in recent weeks, we still believe that the market will continue to experience some wild and volatile price swings in the coming months which will present better opportunities to trade. 

We have slowly been positioning ourselves in some bearish trades during the recent market rally over the past few weeks and these trades are on the move today.  Sometimes it is hard to buy puts in a rising market just like it is hard to buy calls in a declining market but this is how you set your trades up for triple-digits returns.  You may not always get the best entry price but the key is to recognize the trend before others do. 

The Dow is currently trading at 10,609, down 90 points.  The S&P 500 is off by 12 points and is at 1,115 while the Nasdaq is lower by 35 points to 2,270. 

Of course, all eyes will be on the Fed and there is a chance for major move in the market once their announcement is released.  We talked about the Fed’s options this morning and given today’s mini sell-off, the bulls are looking for a life jacket.  However, if the Fed doesn’t appear it is going to come to the economic rescue then the bulls will be sinking with today’s ship.

As far as specific stocks, there are a few companies trading higher in an otherwise sea of red.  One of our favorites, Netflix (NFLX, $124.43, up $7.53) is challenging its 52-week high of $127.96, which was set in mid-June, after announcing a deal with Epix that will expand Netflix’s library of movie titles.

nflx081110

Fossil (FOSL, $45.50, up $3.03) is up 7% after beating Wall Street’s earnings estimates.  The company announced a profit of $55 million, or $0.80 a share, versus $17 million, or $0.25 a share, in the year ago quarter.  Revenue jumped nearly 30% to $417 million for the quarter, compared to $316 million, in last year’s period. 

fosl081011

The Fossil August 45 call options (FOSL100821C00045000, $1.45, up $0.75) are up over 100%.

We are getting aggressive with an earnings trade of our own TODAY as we have been eyeballing a company that will report earnings on Friday.  These are cheap out-of-the-money options with the same type of potential as the Fossil call options just mentioned.  Subscribers, check the Members Area for today’s NEW TRADE!

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This entry was posted on Tuesday, August 10th, 2010 at 1:12 PM and is filed under Company Commentary, Earnings, Market Analysis, Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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    GREG
    “Rick – Wow what a day! I got in at the Dendreon calls at $2.25. Thanks to for your advice. I appreciate that. This company has a lock on this type of therapy and no one else in the world is close. Kind of reminds me of the type of companies that Peter Lynch and Warren Buffet suggest that investments be made in. Companies that can build a moat around their business model, that allows them to charge a premium for their product or service. In other words - a monopoly.”

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    “Hi Rick, thanks for the encouragement to play the dendreon calls! did freaking great! Got in the first lot at $1.44 on 3-24-09, sold at $2.45, 70% not bad. Bought it back at $2.30 on 4-7-09 closed out on 4-14-09 for 454% gain! Wow! I love it when that happens. So, thanks the encouragement to get back in when others were saying sell, sell, sell. Keep up the good work.”

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    “Rick – Thanks for Dendreon – it has made all the headlines today! I missed on RIMM earlier, but I’ve been holding onto DNDN calls since 3rd week March. Of course today it all paid off today, as DNDN rocketed up.”

    Jan. 31 2012
    Rick, new member...Studied all current trades, did some chart work,picked ZNGA, PEP, MGM...Sold on Feb. 2 for $3600.00 profit...Cost for 1-year membership to your newsletter was less than $1000.00..All I have to say..Thank you. John H –

    3/18/11
    Rick, I purchased 10 contracts of the Nike March 85 puts Thursday afternoon for $2.00. Thing is, I was upset because the puts went down to $1.60 or so before the market closed. Well, needless to say Nike didn’t impress Wall Street and when I turned on the computer this morning the puts were worth $7.10! Sold them for a $5,100 profit!. Thanks again, you are the MAN. Chuck J-

    2/3/12
    Hi Rick,

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    Hi Rick,

    I want to share my great results on GMCR. Based on your comments on February 15th, I bought 20 options at $0.28. They closed today at $7.00, which is a 2,300% gain. My $560 dollars turned into $14,000 in less than a month. In decades of trading, this is my single best trade ever. Thank you! By the way, the Dow was down 228 points today and I could care less. What a great trade. It proves the amazing power of options. I am so grateful for your service, which calls it straight all the time, your options trading manual, and most of all, your amazing skill
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