9:00am (EST)
The market extended its winning streak to four on Thursday but the drive for five may have ended after yesterday’s closing bell.
The Dow rallied 84 points, or 0.8%, and went out near its high as the index closed at 10,393. The S&P 500 closed above 1,100 for the first time in over two weeks as it added 7 points, or 0.7%, to settle at 1,106. As for the Nasdaq, it also added 0.7%, or 15 points, and closed at 2,241.
All three indexes look poised to blow through their recent resistance levels but last night the Federal Reserve decided to boost the rate banks pay for emergency loans. The emergency discount rate was bumped up from 0.50% to 0.75% and will go in effect today.
Futures were weak all night but have come off their worst levels.
The action is part of a broader move to pull back the extraordinary aid the Fed has provided to fight the financial crisis. It will be interesting to see how the market holds up in the first hour of trading as the modifications are not expected to lead to tighter financial conditions for households and businesses. In other words, if calmer heads prevail then the bulls could continue their winning ways.
The Fed had signaled for weeks that a higher discount rate was coming, though the timing of Thursday’s decision caught everybody by surprise.
As we head to press, Dow futures are off by 10 points to 10,364 while the S&P 500 futures are lower by 3 to 1,102. The Nasdaq futures are down 2 to 1,819. This is a MAJOR improvement from last night as the Dow futures were off nearly 100 points at 2am. And you thought we didn’t work overtime…
Current subscribers, check the Members Area for the updates.
MomentumOptionsTrading.com Weekly Wrap for 2/21/10
Sunday, February 21st, 2010
Bulls Make Another Run
8:00pm(EST)
The futures were pointing towards a nasty opening for the market early Friday morning but things got better as the bulls starting rising with the sun.
Thursday’s surprise discount rate hike by the Fed after the market closed scared the be-Jesus out of everyone as the Asian markets tanked and the Dow futures were down 90 shortly after midnight. However, the Fed may have done the bulls a big favor as they were able to take the market higher for the fifth day in a row.
We rarely talk about the specific indexes of the foreign markets but we often watch the action as they can and do have an effect on our markets. Hong Kong’s stock market is known as the Hang Seng and it tanked 2.6% on our Fed news and closed at 19,894, down 528 points, on Friday. Japan’s Nikkei fell 2.1%, or 212 points, and closed at 10,123.
A 2% drop in the Dow would have crushed the current rally but the Fed news was softened by the fact that the market had all night and some of the morning to figure out this really wasn’t a big deal. A better-than-expected consumer prices report also gave the bulls a lift.
The Dow traded in a narrow range for most of the day and ended at 10,402, up 9 points. The S&P and Nasdaq hit a “double-deuce” as each index gained 2 points and closed at 1,109 and 2,243, respectively.
It was a great week for the bulls as the Dow added 303 points, or 3%, and closed above 10-4 for the first time in over a month. It was also the Dow’s biggest weekly point and percentage gain since the start of November.
The S&P 500 was up 34 points last week, or 3.1%, and closed above the all important 1,100 level.
Finally, the Nasdaq jumped 60 points for the week, or 2.8%, and settled above 2,200 for the first time in a month.
We are back in that “upper” trading range we have been talking about for weeks and months which for the Dow are between 9,700 and 10,700. Once again, the targets we set back in August will now come into play again and they are at 1,175 for the S&P 500 and for the Nasdaq our target is 2,275. For the Dow, we have a target of 10,800.
The S&P traded 1,150; the Dow hit a high of 10,767; and the Nasdaq reached 2,326…all by mid-January which brings us to our next point.
The market was an easy read in 2008 as the Dow collapsed from 13,338 to a low of 7,392 by November. The Nasdaq fell from a high of 2,661 to a low of 1,295 by October of that year. Folks, that is a 50% haircut.
In 2009, the Dow rebounded off a low of 7,856 to a high of 10,605 while the Nasdaq soared from 1,476 to a high of 2,295. As you can see, this basically amounts to 50% gains which shows us two things.
In 2008, it was easier to trade put options and make money on the way down. Our track record shows this. In 2009, we mainly recommended call options. As we release our results for 2010 for all of our closed trades you will see our track record is around 60% for our trades.
It’s possible to make a good living if you hit 60% of your trades but we are more accustomed to hitting over 70% of our trades. The good news is that we aren’t ashamed of hitting 60% of our trades but we wanted to show you the “transition” the market is currently going through.
We saw this in mid-January when the market was approaching our targets and we knew we would either “breakout” or “retreat” from current levels. We still trade, regardless of market conditions, but we protected ourselves by going out to May, June and September with some of our call options trades. We have also used put options this year because when the market is this choppy and with this volatile, you need protection.
Even better news, is that there will be a pure play on the trend over the next few months as we think the volatility continues. We still think there is a chance the bulls push through our targets but we wouldn’t be surprised at all if we touch those targets and fade. If the market fades again, then the bears will take center stage.
As far as our portfolio, we are trying to preach these market conditions but IT IS a tougher market to trade and we do not send out trades just to grow our subscriber base. In fact, many of you know we will be limiting our membership to 1,000 subscribers because we don’t want to be like other option newsletters. One of our recent subscribers said that he was with another service which sent out 14 straight losing trades from mid-January up until now. The problem was his service dropped coverage of the trades and never responded to his emails about the current trades. Folks, we don’t roll that way.
We thought we would take some time to talk about the current market conditions and the trading atmosphere we are in to give you a better perspective on things. That said, we remain extremely excited because the current volatility will continue to offer us some fat trading opportunities but there will be risks.
Looking ahead to this week, we have a number of events that will be headwinds for the market.
Toyota’s (TM, $73.35, down $0.09) President changed his mind and will testify at a congressional hearing on Wednesday about the company’s recent recalls. The House Oversight and Government Reform Committee is investigating Toyota’s recall of more than 8.5 million vehicles for gas-pedal and sudden-acceleration problems.
Federal Reserve Chairman Ben Bernanke will be in front of Congress again on Wednesday and Thursday to give his semi-annual monetary policy report to Congress.
There will be some economic news the market will have to digest as well. The government will release new homes sales data for the month of January on Wednesday, while the National Association of Realtors will report its data for existing home sales on Friday.
We will be back in the morning with a fresh outlook and a complete update for all of the current trades. We are also looking at a number of stocks that we will be adding to our Watch List.
As we head to press, Dow futures are up 26 points…
Tags: option picks, option signals, options alerts, stock market summary, stock options trading, Toyota Motors
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