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10:40pm (EST)
The bulls were looking for a big push higher in the market on Friday and although they ended the day in positive territory, it wasn’t enough to take the win away from the bears for the week.
The Dow ended at 10,328, up 20 for the session but down 143 points for the week. The index hit a high of 10,566 and the bulls pushed that number until Wednesday when a late day sell-off led to Thursday’s 133 point decline. The bulls’ effort was noteworthy but the market still remains in a tight trading range.
The Nasdaq was strong on Friday as it added nearly 32 points to close at 2,211 while the S&P 500 advanced 6 to close at 1,102. The Tech-heavy Nasdaq ended the week with a 21 point gain while the S&P 500 fell 4.
The trend is still higher and we still have near-term targets of 10,800 for the Dow; 2,275 on the Nasdaq and 1,175 for the S&P 500. We made these predictions in August and we thought we would have hit them by now. We probably would have but the Black Friday Dubai debacle killed the momentum.
There is still a chance the market rallies over the next 10 days although we continue to hear the talking heads calling for a pullback. In a sideways market it’s easy to say we head lower, especially after the run the bulls have had since March. The bears are banking on a higher dollar but we think the problem is with the euro, not the dollar.
The market CAN go higher as the dollar continues to rally but Wall Street experts don’t feel like this is the case. We also think Bernanke and the Fed should have raised rates which would have sent a strong message that the economy was on the mend despite 10% unemployment.
Another catalyst that could lead the market higher is that investors who might normally sell stocks for tax purposes late in the year could likely to hold off this time around. The rally is only nine months old and this means any capital gains on your investments would be considered short-term profits by the IRS. This doesn’t really affect us as option traders but it means a much higher tax rate for gains on stocks held for more than a year.
A couple of issues the bulls will have to face this week include the huge winter storm that may have kept shoppers home on a critical holiday shopping weekend. This will hurt the brick-and-mortar stores and we could see shares of Amazon.com (AMZN, $128.48, up $1.57), UPS (UPS, $57.98, down $0.25) and FedEx (FDX, $84.95, up $0.48) challenge their 52-week highs this week and next.
It also appears the White House and Senate leaders have the necessary votes to pass the health-care bill this week. This will likely be a market moving event as the legislation is predicted to extend coverage to more than 30 million Americans who lack coverage.
The bill will also ban industry practices such as denial of insurance on the basis of pre-existing medical conditions. The pencil pushers feel it will help reduce deficits by about $130 billion over 10 years, and much more down the road. We shall see.
As far as earnings for the week, there are a few companies worth mentioning that report on Monday: ConAgra Foods (CAG, $22.16, up $0.02), Jabil Circuit (JBL, $14.80, up $0.38) and Walgreen (WAG, $36.64, down $0.67) could be on the move.
As we head to press, Dow futures are 9, Nasdaq futures are up 2 while the S&P 500 futures are up a point. We still have to see how the overseas markets trade before Monday’s opening bell but the bulls are ready. We will be back in the morning with the current trades and a fresh update.
Headline News Favoring Bears
Tuesday, August 3rd, 2010
12:55pm (EST)
The bulls are having trouble extending Monday’s gains as most of the news today has been disappointing and not up to expectations. Futures were pointing towards a lower open after Procter & Gamble (PG, $59.62, down $2.44) and Dow Chemical (DOW, $25.75, down $2.58) both missed Wall Street’s expectations and the market extended it losses after lousy economic reports on consumer spending and factory orders. However, the market has come off its lows and is trying to get back to even as we head into the second half of trading.
The boring stuff first…
The Commerce Department said June personal income was flat, as expected, while consumer spending was flat, as well. A slight increase to 0.1% has been expected.
Factory orders for June fell 1.2% which was worse-than-expected 0.5% decline that had been forecast. Pending home sales slipped 2.6% month-over-month which was better than the 5% drop that was predicted.
Turning to earnings, the exciting news…
Procter & Gamble reported a profit of $2.2 billion, or $0.71 a share, versus $2.5 billion, or $0.80 a share, in the year ago period. Revenue came in at $18.9 billion. Both numbers were below Wall Street’s estimates as analysts were expecting $0.73 a share on $19.1 billion in sales. Shares are down 4% which is a big move for this slow moving stock.
Dow Chemical reported earnings of $566 million, or $0.50 a share, compared to a loss of $486 million, or $0.47 a share, a year earlier. Revenue jumped 20% to $13.6 billion but analysts were expecting $0.56 a share on sales of $13.7 billion. Shares are down 9% on double the average daily trading volume.
Despite the negative headlines, the bulls are battling back as we head to press.
The Dow is lower by 30 points to 10,644 and bounced right off the 10,600 level as it tries to make it into positive territory. The S&P 500 is down by 5 points to 1,121 after touching a low of 1,116 while the Nasdaq is off by 9 points to 2,286.
It wouldn’t be surprising to see the bulls battle back as it appears the market could be setting up to follow last week’s pattern. We expected a pullback at these levels and Friday actually could end up being a flat day when the unemployment numbers are released. We don’t expect the 9.5% rate to change, and how the market behaves after hearing the news will depend on what the private sector says or how many jobs it added.
Our favorite beer company will announce earnings after the close. Boston Beer (SAM, $66.40, down $1.20) recently set a 52-week high of $74.52 back in June and we have mentioned it quite a few times in our Members Area. It isn’t the best stock to play options on because of the liquidity and low open interest. However, it would have been a sweet LEAP option trade as we have been covering this one in the $40’s since February.
We will be on the sidelines when Boston Beer reports but we might pop one open if they beat expectations.
Tags: Boston Beer, call options, dndn, Dow, how to trade options, momentum options trading, Momentum stocks, option picks, option stock picks, options alerts, options newsletter, options track record, PG, put options, SAM, stock options trading, volatile options
Posted in Earnings, Economic News, Market Analysis, Market Commentary | Comments Off