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Monday, November 14th, 2011
1:15pm (EST)
Trading has been sloppy and choppy this morning as the bears are doing their best to hold the bulls back from advancing the market further following Friday’s nice pop. Futures were pointing towards a higher start for the US markets when the European markets opened but gradually faded as we headed towards the open.
There are a few stocks making some noise today which has kept the Dow from falling further while Tech has shown some strength.
International Business Machines (IBM, $188.07, up $0.69) is fractionally higher after Warren Buffett revealed he has been building a $10 billion stake in the company since March. We’ve liked IBM since $125 a few years ago and have played options on the stock in the past but the premiums have become more expensive because of the higher strike prices. We would but like to see a 4-for-1 split, or at least a 2-for-1 to get shares back under $100 but some companies have been reluctant to split their shares in recent years, or in some cases, a decade or more.
The last time IBM did a split was back in 1999 when they split the shares 2-for-1. In 1997 they did a 2-for-1 and in 1979 IBM split 4-for-1.
Caterpillar (CAT, $96.63, up $0.50) is trading higher after getting an upgrade from Goldman Sachs (GS, $98.75, down $2.91) this morning. Shares were added to Goldman’s Conviction Buy List with a price target of $118. The company seems to be clicking on all cylinders and is gearing up plants here at home which is a good, positive sign.
Caterpillar is still a stock we like to trade options on because shares are under $100. To a stock investor, stock-splits are really meaningless because you still have the same dollar amount invested. However, when stocks trade for $200 or $300 or in some cases $500 a share, the premiums to trade call or put options can be really expensive, especially if the options are “in-the-money” which is why we like to see stock-splits on higher priced shares.
For example, if an option is at $5, you are risking 5 times more money to than playing a $1 option up or down. A 5% move in the stock might not be enough for you to make money. A 10 contract trade would cost you nearly $5,000 for an option priced at $5.
With lower priced options that trade for a $1 or less, a 5% move in the stock usually means a 100% return for the option depending on how fast it comes. A 10 contract trade on a $1 option will cost you $1,000 but you could do 4 more trades instead of risking much more on the $5 option.
So, when you hear us call for a stock-split, this is what it means to us as far as trading options. Caterpillar doesn’t need to do a split any time soon and in fact, we currently have the stock on our Watch List along with some call options we may recommend. Goldman seems to be following our lead. In case you are wondering, Caterpillar did a 2-for-1 split back in July 2005 and before that, a 2-for-1 back in July 1997.
As we head to press, The Dow is down 87 points to 12,066 while the S&P is lower by 13 points to 1,250. The Nasdaq is off by 21 points to 2,657. Subscribers, check the Members Area for the latest updates and we will be back in the morning with a fresh outlook.
Tags: CAT, GS, IBM
Posted in Market Analysis, Market Commentary | Comments Off
Thursday, July 28th, 2011
1:20pm (EST)
The market is seeing green today for the first time all week as all three of the major indexes are up.
Although the debt ceiling debate remains unresolved, the bulls got some good news this morning after learning Jobless Claims came in under 400,000 at 398,000. Wall Street was expecting a print of 440,000. Continuing Claims fell to 3.7 million from 3.72 million. Elsewhere, Pending Home Sales for June rose 2.4% to an index reading of 90.9 versus 88.8 last month.
Futures were pointing to a slightly higher start but firmed up after hearing the jobs numbers which lead to a solid open. Earnings have also come in better-than-expected which is no surprise considering how strong the 2Q season has been.
Green Mountain Coffee Roasters (GMCR, $105, up $16.89) is surging nearly 20% after reporting its quarterly profits tripled. The company reported a profit of $76 million, or $0.49 a share, on revenue of $717 million. Analysts were expecting $0.36 a share on sales of $607 million. Green Mountain is the second most shorted stock on the exchange and part of the huge move is due to short-sellers covering their losing bets.
Starbucks (SBUX, $40.49, up $1.52) will report after the closing bell today.
Another company we have been following is Mead Johnson Nutrition (MJN, $72.19, up $4.71) which is at 52-week highs after beating the Street’s expectations and they raised guidance in the process. The baby formula maker reported profits of $132 million, or $0.64 a share, versus $121 million, or $0.59 a share, in the year-ago period. Revenue came in at $932 million for the quarter. Excluding items, the company actually earned $0.72 a share.
The suit-and-ties were looking for $0.69 a share on revenue of $880 million.
Even better was the fact that Mead Johnson raised its full-year guidance to $2.70-$2.75 a share, up from its prior forecast of $2.62- $2.70. Analysts have been penciling-in $2.72 a share for 2011.
Cisco Systems (CSCO, $16.22, up $0.53) got a shot in the arm from Goldman Sachs (GS, $137.39, up $2.67) following yesterday’s drubbing after the brokerage firm upped its price target to $21 and slapped a “Buy” rating on the stock.
We mentioned last week that some big money was starting to come into Cisco and it’s nice to see the Wall Street has finally jumped on our bandwagon. We have been telling our subscribers that Cisco is a steal in the mid-teens.
Another stock that looks attractive now, thanks to Goldman, is Patriot Coal (PCX, $19.78, up $0.03) which has dropped from a high of $25 last Thursday to under $20 in just a week. Golden Slacks cut Patriot’s price target from $29 to $24 following the company’s 2Q earnings loss so there was a reason for the price cut.
Patriot Coal did take an “asset-retirement” charge for the quarter but they still get good money for the black gold they sell. It is a volatile stock but we love trading it because we know its pattern so well. We recently profiled a call option trade on Patriot that was closed last Thursday for gains of nearly 80% in just one week.
We have also recommended the stock twice in our Weekly Wrap and our subscribers have booked profits of 13% and 7%, respectively, so far this year.
We aren’t sure when we will go back to the well for Patriot but if support holds at these levels, we might take another look.
There will be some headlines within the next hour as Republican John Boehner is expected to speak on a debt reduction plan that will be voted on tonight.
As we head to press, the Dow is up 33 points to 12,350 while the S&P is higher by 5 points to 1,313. The Nasdaq is trying to make it back above 2,800 and is at 2,789, up 12 points. We have a ton of information to cover in our Members Area and we will be back in the morning with our next update.
Tags: GMCR, GS, MJN, option alerts, option trading, option trading services, options momentum trading, options on stock, options trading, options trading service, PVX, SBUX, stock option trade, trade in options, weekly options trading
Posted in Company Commentary, Earnings, Market Analysis, Market Commentary | Comments Off
Monday, July 18th, 2011
1:15pm (EST)
Futures were pointing towards a rough open this morning as continued concerns over Europe and U.S. debt continue to plague the market. Overseas markets have traded lower for much of the morning on a weaker euro while the Financial stocks here at home continue to take a pounding.
Bank of America (BAC, $9.64, down $0.35) is at fresh 52-week lows (and a 2-year low) ahead of its earnings announcement tomorrow, before the bell. The company is expected to report a loss of 90 cents a share on revenue of $12.34 billion. BofA “preannounced” their results in late June after saying they were taking a $14 billion charge to settle their mortgage issues. Otherwise, the company would have earned near $0.30 a share or so.
Goldman Sachs (GS, $127.78, down $2.38) is also at fresh 52-week lows and will report their Q2 earnings on Tuesday, before the market opens. Wall Street is looking for earnings of $2.27 a share on revenue of $8.14 billion, on average. Analysts’ estimates range from a high of $3.36 to a low of $1.80 with revenue ranging from $7 to $10 billion. Given these numbers, there is a chance for an earnings surprise or a big disappointment.
We have covered both companies for years and we said once Goldman broke below $135, it would be a sign to back away from the sector for a few months. In mid-May, here were our thoughts on BofA:
“Bank of America (BAC, $11.99, up $0.06) broke below $12 a share on Friday and is on its way of testing its 52-week low of $10.91. At some point folks, this is a $20 stock but it might take a few years to get there. Most of the financial websites will list the “book value” of Bank of America at $20 which means shares are trading at half their book. However, we like to look at the “tangible” book value which for BofA is $12-$13.
The tangible book value is what shareholders can expect to receive if Bank of America goes bankrupt and its assets are liquidated. The higher the tangible book value, the better, as it provides shareholders with more insurance. At some point, the Financial stocks will bounce back but we are hoping shares of BofA can come down a little more.” (END)
There is still further risk for the Financial stocks and our feeling is in 3 months they will be a buy, if not sooner. At some point, we may use LEAP options to play a rebound as some of these stocks approach their 2009 levels. For those of you that haven’t been with us for long, take a look at our 2009 Portfolio Track Record inside our Members Area. If you are not a member we can email you our results but it is starting to “feel” like we are repeating a process that could payoff big-time in 6-12 months.
For instance, in March 2009, Bank of America was at $5 a share and we suggested buying the May 6 call options which were trading for 75 cents at the time. A month later, shares had rebounded and were at $10 while the call options we recommended were at $5.00. The stock returned 100% in a month while the options returned 567%!
If you would have bought 20 contracts for $1,500, you would have netted $8,500 in 30 days. At the same time, we also suggested the Bank of America July 10 call options at 30 cents which our subscribers closed out at $1.60 which comes out to a return of 433%.
Our point is this quarter will be lousy for some Financial stocks while others will come in with better-than-expected numbers. Now might be a good time to continue shorting or buying put options on some of these names but we are waiting for the right opportunity to go long both Goldman and BofA which may be 3-6 months.
As far as the market, the support levels we covered this morning are being tested to a “T” as the Dow is down 145 points to 12,334 while the S&P is off 17 points to 1,299. The Nasdaq is lower by 40 points to 2,750.
We have a lot to cover in our Members Area so let’s get to it.
Tags: About options trading, bac, GS, option trading, stock and option, stock exchange, stock to buy, stock trading, trade online, trading futures, trading online, trading system, what are stock options, what is a call, what is option trading
Posted in Earnings, Market Analysis, Strategies | Comments Off
Thursday, May 12th, 2011
1:05pm (EST)
The bears got an early jump at the open and tested support but the bulls have managed to hold and are pushing back. We mentioned Cisco System’s (CSCO, $16.95, down $0.84) earnings this morning but Tech has held up well despite Cisco’s 5% drop. Economic news has been disappointing and the Financial sector continues to die a death by a thousand cuts.
Before the bell, Wall Street learned the Producer Price Index (PPI) for April increased 0.8%, which was greater than the 0.5% increase that has been penciled in. Core PPI rose 0.3% in April, versus expectations for a 0.2% pop.
Elsewhere, Retail Sales were higher by 0.5% for April but came up short as expectations were pegged for a 0.6% increase. The silver lining was that retail sales, less auto sales, actually came in better-than-expected at 0.6%, which was greater than the 0.5% rise that has been expected.
And finally, Initial Claims were 434,000 for the week, which was higher than the 423,000 that had been forecast. The latest count is down from last week’s upwardly revised total of 478,000.
The Dow traded to a low of 12,537 but has held our 12,500 downside target. The blue-chips are currently up 5 points to 12,635 and is breaking out to new highs. The S&P is up a point to 1,342 while the Nasdaq is up 6 points to 2,851. Both indexes have also held our downside targets of 1,325 and 2,800, respectively.
Goldman Sachs (GS, $140.74, down $7.14) is down 5%, following an analyst downgrade from “Hold” to “Sell” and broke major support at $145. From the chart, you can see there is downside risk to $135 which is probably where they fall into a trading range. Shares have traded to a low of $140.66 after falling through the first wave of support at $145 which was prior resistance. The next test could come in at $135 if the $140 level is violated.
We have a lot to cover in our Members Area and we have been expecting somewhat of a bounce in the afternoon session which may or may not hold. We think it will as we have a NEW TRADE!
Subscribers, check the Members Area for the new recommendation and for our current updates.
We will be back in the morning with our next market update.
Tags: call options, Goldman Sachs downgrade, GS, high beta stocks, Hot stocks, momentum options, Momentum stocks, NYSE: GS, option tips, options trading course, stock market options, strangle option trades, weekly options
Posted in Financial Stocks, Market Analysis | Comments Off
Tuesday, August 10th, 2010
9:00am (EST)
Trying to predict the market is never an easy gig, but if you have solid technical analysis it can help. The bulls broke through resistance on Monday as the market looks ahead towards today’s Fed meeting.
Many of you know we have been in a choppy market, but we have used upside targets, along with support levels to predict where this market has been and where it could be headed. We were bullish up until the end of April which is when we started recommending put option trades. At the time, the Dow was trading above 11,000, and the charts were telling us a pullback was coming.
By the end of May, the Dow was at 10,000 but had dipped to a low of 9,787 on the May 6 “flash crash”. Check.
From there, we thought we could see more selling, but the Dow formed a tight trading range for 4 weeks afterward. In fact, the Dow was still around 10,000 on June 28, BUT did trade to a low of 9,600 by July 2. Check. We got the correction again.
Now, here we are a little over a month later and the Dow is above 10,700. Folks, these are 10% moves that no one is noticing on a MONTHLY basis. Aside from second quarter earnings, the picture of the economy hasn’t changed and appears to be getting worse. Does this mean the market is due for another pullback? Maybe, maybe not.
The bulls managed to break through key resistance levels once again on Monday, and today’s Fed meeting could be the straw that breaks the camel’s back or one that gives the bears some ammunition.
The Dow added 45 points, or 0.4%, to finish at 10,698. The index traded to a high of 10,719 and resistance will come in at 10,800. A break above these levels will no doubt lead to a run at Dow 11,000.
The S&P 500 gained 6 points, or 0.6%, to close at 1,127. The index kissed the 1,125 level all last week and actually closed at 1,127 last Wednesday as well. The next stop should be 1,150 but it’s not a given.
The Nasdaq showed the most muscle as it popped 17 points, or 0.8%, to settle at 2,305 which was the high for the session last Wednesday. Resistance will come in at 2,350.
The bears did have some ammo yesterday but failed to capitalize on the Hewlett-Packard (HPQ, $42.60, down $3.40) news or the fact that Goldman Sachs (GS, $155.40, up $0.22) lowered their S&P 500 year-end 2010 price target to 1200 from 1250.
This still represents a 7% advance from current levels but Goldman cut their 2011 earnings estimates for the index while at the same time upping the 2010.
As far as today, all eyes will be on the Federal Reserve’s highly anticipated assessment of the economy, which is set to hit Wall Street shortly after 2pm (EST). It’s no secret the FOMC will keep interest rates at rock-bottom levels but many of the suit-and-ties are hoping the central bank will do something to stimulate the economy again.
The two words that could either thrill Wall Street or scare the heck out of investors are “quantitative easing” (QE). The Fed doesn’t have many options left as Fed fund rates are already at 0.0%-0.25% but QE could be the wild card that makes or breaks this market. It is a form of monetary policy to where the Fed could buy some mortgage-back securities from the banks which in turn would get them to loan more cash. Or, they could buy treasuries. Either one of these options would “stimulate” the economy and quiet down fears of deflation, but the Fed is walking a tight rope.
As you can see, the stage is set for either the bulls to shine or for the bears to steal the show.
Futures are pointing towards a lower open as we head to press. Dow futures are down 94 points to 10,572 while the S&P futures are lower by 12 to 1,114. The Nasdaq 100 futures are lower by 17 points to 1,897. Subscribers, check the Members Area for the updates.
Tags: GS, HPQ, option picks, stock options trading
Posted in Market Analysis, Market Commentary | Comments Off
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Dow Lower Despite IBM, Caterpillar (CAT) Strength
Monday, November 14th, 2011
1:15pm (EST)
Trading has been sloppy and choppy this morning as the bears are doing their best to hold the bulls back from advancing the market further following Friday’s nice pop. Futures were pointing towards a higher start for the US markets when the European markets opened but gradually faded as we headed towards the open.
There are a few stocks making some noise today which has kept the Dow from falling further while Tech has shown some strength.
International Business Machines (IBM, $188.07, up $0.69) is fractionally higher after Warren Buffett revealed he has been building a $10 billion stake in the company since March. We’ve liked IBM since $125 a few years ago and have played options on the stock in the past but the premiums have become more expensive because of the higher strike prices. We would but like to see a 4-for-1 split, or at least a 2-for-1 to get shares back under $100 but some companies have been reluctant to split their shares in recent years, or in some cases, a decade or more.
The last time IBM did a split was back in 1999 when they split the shares 2-for-1. In 1997 they did a 2-for-1 and in 1979 IBM split 4-for-1.
Caterpillar (CAT, $96.63, up $0.50) is trading higher after getting an upgrade from Goldman Sachs (GS, $98.75, down $2.91) this morning. Shares were added to Goldman’s Conviction Buy List with a price target of $118. The company seems to be clicking on all cylinders and is gearing up plants here at home which is a good, positive sign.
Caterpillar is still a stock we like to trade options on because shares are under $100. To a stock investor, stock-splits are really meaningless because you still have the same dollar amount invested. However, when stocks trade for $200 or $300 or in some cases $500 a share, the premiums to trade call or put options can be really expensive, especially if the options are “in-the-money” which is why we like to see stock-splits on higher priced shares.
For example, if an option is at $5, you are risking 5 times more money to than playing a $1 option up or down. A 5% move in the stock might not be enough for you to make money. A 10 contract trade would cost you nearly $5,000 for an option priced at $5.
With lower priced options that trade for a $1 or less, a 5% move in the stock usually means a 100% return for the option depending on how fast it comes. A 10 contract trade on a $1 option will cost you $1,000 but you could do 4 more trades instead of risking much more on the $5 option.
So, when you hear us call for a stock-split, this is what it means to us as far as trading options. Caterpillar doesn’t need to do a split any time soon and in fact, we currently have the stock on our Watch List along with some call options we may recommend. Goldman seems to be following our lead. In case you are wondering, Caterpillar did a 2-for-1 split back in July 2005 and before that, a 2-for-1 back in July 1997.
As we head to press, The Dow is down 87 points to 12,066 while the S&P is lower by 13 points to 1,250. The Nasdaq is off by 21 points to 2,657. Subscribers, check the Members Area for the latest updates and we will be back in the morning with a fresh outlook.
Tags: CAT, GS, IBM
Posted in Market Analysis, Market Commentary | Comments Off