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1:10pm (EST)
We wanted to bring Apollo Group (APOL, $44.29, down $1.68) to your attention again today as shares have hit another 52-week low. We have been bearish on this stock for a couple years, and we had good success in the past playing options on it.
Apollo Group and other Educational stocks are taking a beating today after a “gainful employment probe” continues to hit the industry. The last time out, we took a small loss on an option trade because of the volatility, but it was a sign of things to come.
From May 27th:
“We took a 16% hit on Apollo after the parameters of the trade were broken, but we have been warning our subscribers to stay away from this dog for years. Justice might not have been served on our recommended option trade, but the 52-week low of $52.20 looks like it will fall today.
We didn’t like the volatility when shares shot up to $60 last Thursday on some bogus rumor so we got our subscribers out. However, we should have listened to our gut as the stock looks poised to fall below $50 today.” (END)
From January 8th:
“Apollo actually made a slight gain yesterday and reported their earnings after the bell last night. Although they painted a pretty picture for Wall Street, the stock was down $3.20, to $60.74, in after-hours trading last night.
The company reported earnings that beat estimates by a penny but once again, the way they run their accounting department has raised some concerns. We made 4 trade recommendations on Apollo last year, all put options, and the returns were 100%, -15%, 50%, and -17%.” (END)
The point we are trying to make is that when you follow a terrible company for years you can get a feel for how it trades and we plan on teaching you this. (Our Momentum Options Trading Manual is coming in July, we promise). The same is true for companies that have solid businesses. You buy call options on stocks that you feel are going to go up and put options on stocks that you think are going to sink. It’s that simple. The risks are greater playing options but the returns can be incredible.
We profiled Apollo Group again on our Watch List last week because we knew the fall was coming but sometimes our portfolio is full so we miss out on a few trades. We don’t like to carry over 10 open positions at once and sometimes WE will miss trades because we don’t like to break our own rules. However, our Watch List has been hot and a lot of traders are writing to thank us for adding it.
We wrote a really good story on Apollo Group when the stock was at $73 back in October 2009. We could have bought a LEAP put option but the premiums on going 9-12 months out can be pretty expensive. Here is that article and it provides a more detailed look at the company’s shady business practices (If you like playing poker, you will love our analogies):
http://momentumoptionstrading.com/2009/10/28/apollo-group-has-a-skeleton-or-two/
We have a lot to talk about in our MEMBERS AREA today, and for those of you who are thinking of joining us, you have picked a great time. Not only are we nearly set to launch our trading manual, we also have plans to offer AUTO-TRADING by mid-July!
We are still hammering out the details, but we think we have found a great firm to handle your trades. We know many of you are busy, and the requests for auto-trading have not gone unheard. Both will be available soon so stay tuned!
As we head to press, the Dow is down 31 points t 10,121 while the S&P 500 is down by 2 points and was last seen at 1,071. The Nasdaq is higher by 3 points to 2,220. We will be back Sunday night with the Weekly Wrap. Oh, by the way, BP (BP, $27.31, down $1.43) is at 14-year lows. Next week is setting up to be a doozy, folks…
MomentumOptionsTrading.com Weekly Wrap for 7/11/10
Sunday, July 11th, 2010
2Q Earnings Season Starts On Monday
4:30pm (EST)
The bulls had a stellar week after taking a beating from the bears that pushed them to the brink and had the major averages on the verge of a collapse. The market spent much of Friday near the breakeven line before a late day rally pushed the indexes firmly into positive territory. The rally was impressive and came during a holiday-shortened week and on lighter-than-normal volume. We also saw rallies into the close instead of sell-off’s but can the rally be trusted?
The Dow added 59 points on Friday, or 0.6%, to settle at 10,198. It was the index’s best week so far in 2010 as the Dow popped 511 points, or 5.3%. However, to put things in perspective, the index fell 457 points, or 4.5%, the week before. Here is what we said Friday morning:
“The recent trading range has been 9,800 through 10,600 with 10,200 providing a pivot point. The low was 9,600 set last week. The 500 point rally off the lows has been violent and unpredictable to say the least.”
Folks, when we said volatility would be picking up, we weren’t kidding. The Dow closed just 2 points away from our “pivot point”. The next level the bulls will be eyeing is 10,400 then 10,600 and support will come in at 10,000 and 9,800.
The S&P 500 ended the week with an 8 point gain, or 0.7%, to finish at 1,077. The index was able to tack on 55 points, or 5.4%, for the week after falling 54 points, or 5%, the prior week. We mentioned the 1,075 level would come into play on Friday and we were also 2 points off from nailing the close. Watch for a test of 1,100 to the upside and 1,050 again to the downside.
The Nasdaq had the best showing on Friday, adding 21 points, or 1%, to close at 2,196. Although the 2,200 level acted as slight resistance, we are watching the 2,240-2,250 area to change our bearish sentiment. For the week, the index added nearly 105 points, or 5%, after dropping 130 points, or 6%, the week before.
Turning to black and yellow gold, oil also surged higher throughout the week and ended at $76 per barrel while gold finished at $1,210 an ounce. The rally in oil marked an impressive 5.5% gain for the week - its best weekly finish in nearly six weeks. The gold bugs got excited when the commodity dipped below the $1,200 level which garnered some buying but added just 0.2% for the week, overall.
The VIX fell to 24.98, down 0.73, or 2.8%, and closed below 25 for the first time since June 21. The euro, which we are watching like a hawk, has seen a powerful rally over the past month and is at $1.264 versus the dollar. We have the CurrencyShares Euro Trust (FXE, $126.00, down $0.50) on our Watch List and said $1.27 should act as resistance.
To make a long story short, the market was due for a bounce and we only mention these key levels to put things in perspective for you. It is important to try and keep track of where support and resistance is because it often gives you a clue of future direction. We not only do this with the major indexes but we do it with all of our trades.
As long as the picture or story hasn’t change, then it makes it easier to stick to your game plan. We warned last week that we could get a “dead-cat bounce” or a “relief rally” because the sentiment had become a little too negative although well deserved.
We still feel like any rallies should be sold and the upcoming earnings season will likely set the stage for the market’s next move. We are hoping to break out of this recent range and we could care less which way the market is headed but we are preparing for another leg lower.
Here is at look at some of the big names set to report second-quarter earnings this week:
Alcoa (AA, $10.94, up $0.22) after the close on Monday and Intel (INTC, $20.24, up $0.14) on Tuesday. Thursday we get a look at Google (GOOG, $467.49, up $10.93) and JPMorgan Chase (JPM, $38.85, up $0.69) while Friday brings Bank of America (BAC, $15.11, up $0.25) and General Electric’s (GE, $14.95, up $0.12) numbers.
As far as pre-announcements, we thought we might see more as only 150 companies gave Wall Street a heads-up on the upcoming quarter. The S&P 500 had a little over a 100 of the names which means roughly 20% gave guidance updates. To put things in perspective, there were twice as many 10 years ago.
The underperformance in a few sectors have caused analysts to lower estimates going into the quarter and some companies will look golden when they report. The key will be what wording they use going forward.
We are looking for another volatile week and the bulls have a little momentum they are using to push the market higher. We think the bears will also show up as we don’t think things will be as one-sided as they have been over the past two weeks. Either way, the rest of the summer will be interesting and don’t forget the July options expire THIS Friday.
We are currently looking at new trades that span August, September and maybe even December call and put options. We are likely to pull the trigger on a few recommendations this week so stay locked and loaded as the wave of news begins to flood Wall Street.
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Posted in Company Commentary, Earnings, Market Analysis, Market Commentary, Oil, VIX, Watch Lists | Comments Off