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9:00am (EST)
The bulls staged an impressive rally on Monday after learning the European Union (EU) and the International Monetary Fund (IMF) have agreed on nearly a $1 trillion rescue package to help debt-riddled nations across the euro zone. It was the biggest sign of support we have seen from our friends across the way and Wall Street ate it up.
The negotiations lasted into the early hours of Monday, and the timing was brilliant as EU officials agreed the 16 euro nations would put up $572 billion in new loans and $78 billion under an existing lending program. The IMF is adding another $325 billion.
Furthermore, our Federal Reserve said it would provide U.S. dollars to a number of foreign banks, which can then lend the cash to banks in their respective countries.
Needless to say, the bears never had a chance as the bulls maintained most of the gains from the initial pop at the open yesterday.
The Dow surged to a high of 10,835 shortly after trading got underway and finished Monday’s session with a 405 point gain, or 3.9%, to close at 10,785. It was the biggest point jump since March of last year as all 30 stocks that make up the Dow finished in positive territory.
Boeing (BA, $71.00, up $4.28), Caterpillar (CAT, $66.69, up $4.59) and International Business Machines (IBM, $126.27, up $4.17) accounted for nearly 100 points of the Dow’s move and Bank of America (BAC, $17.30, up $1.12) chipped-in by adding 7% to led the Financials.
However, the Dow settled just south of 10,800 which is now acting as resistance after being short-term support.
The S&P 500 also has a stellar day as it advanced nearly 50 points, or 4.4%, to settle at 1,159. The index traded to a high of 1,163 and is slightly above the 1,150 level. We can see a test up to 1,170 but the bulls will need a lot of momentum if they want to run past current levels.
Meanwhile, the Nasdaq led the rodeo with an eye-popping triple-digit gain of 109 points, or 4.8%, to close at 2,374. It was the first 3-digit move higher since October 2008 but the index failed the 2,400 level after reaching a high of 2,379.
As a result of yesterday’s strong rally, the CBOE Market Volatility Index (VIX, 28.84, down 12.11) fell 30% after reaching fresh highs last week. You can trade options on the VIX just like ordinary stock options but the premiums are super-jacked and we didn’t see any good trades. We were thinking of doing a straddle or a strangle option trade but after doing the research, we think there are so many better opportunities elsewhere.
We doubt yesterday’s relief rally repaired all of the damage done by the recent sell-off and we would are expecting a retest of those levels again sometime over the next month of two. However, anything is possible in this crazy and volatile market so we can’t ignore the fact the bulls brought the market back into positive territory for 2010.
Despite yesterday’s rally, futures are pointing towards a nasty open as Dow futures are off by 90 points to 10,652 while the S&P 500 futures are lower by 11 points to 1,145. The Nasdaq 100 futures are off by 17 to 1,922. We used yesterday’s rally to scale in two more put trades and they should get off to a good start if the market is indeed headed lower today.
Subscribers, check the Members Area for the updates.
Bears Grab Momentum!
Friday, August 6th, 2010
12:45pm (EST)
The bulls put up a good fight as they held the market’s slide at the open and were pushing their way towards even before succumbing to the pressure. The bears are trying to break key technical levels ahead of the weekend and have come close to doing so.
The unemployment numbers were horrible but the President will tell you we added private sector jobs every month for 7 straight. Give us a break. Businesses are still reluctant to hire and are running lean and mean. Many companies are still outsourcing work and are only hiring on an “as needed” bases.
We could go on and on but what is the point? Things move slow in Washington and no matter how you spin it, unemployment is going to bust 10% again.
Naturally, the markets are lower on today’s news but the bears still have work to do.
The Dow is down 140 points, or 1.3%, to 10,534 and has fallen below the 10,600 level. The S&P 500 is off by 15 points, or 1.4%, to 1,110 and 1,100 will be the battle ground going into the close. The Nasdaq is lower by 30 points, or 1.3%, to 2,263 and 2,250 should be where the party is at.
As far as specific stocks, Goldman Sachs (GS, $154.64, down $1.28) has been making some noise this week and hit a high of $157 on Wednesday which is strong resistance. We mentioned before financial regulation was passed that banks would figure out a way around Washington if it would cut into their profits.
It was almost a given “Golden Slacks” would be the first to make waves.
The company plans to spin-off part of its prop trading operations as early as today to grow earnings. The new laws limit banks from playing with their own money in the financial markets which controls risk but limits profits. Goldman saw the writing on the wall and it was a no-brainer they would eventually do this. Look for others to follow.
Tesla Motors (TSLA, $19.70, down $0.75) is back below $20 after announcing earnings this week. The recent IPO reported a loss of $39 million, or $5.04 per share, versus a loss of $11 million, or $1.56 per share, a year ago. Revenue came in at $28 million.
Tesla makes the Roadster, a car that costs over $100,000. The company isn’t expected to turn a profit for a few years, if then, and the next car (a sedan) it plans to build will run you $60,000. Big price tags to go green that the consumer won’t be able to afford.
The continued losses will eventually catch up the stock. Shares are volatile and have traded to a low of $14.98 since going public. The 6-week high is $30.42 and the option pits are usually pretty active. We think there could be a trade here.
We have a lot to cover in our Members Area and we are going to add a NEW TRADE today. We have closed out two winners this week and some of our other trades are showing signs of life. We are still in a choppy market but August is shaping up to favor the bears and they could be on the verge of waking up.
We will be back over the weekend with our Weekly Wrap which will be out Sunday afternoon.
Tags: call options, Goldman Sachs, GS, how to trade options, momentum options trading, Momentum stocks, option picks, option stock picks, options alerts, options newsletter, options track record, put options, stock options trading, Tesla Motors, volatile options
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