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Tuesday, May 12th, 2009
9:00am (EST)
Now that the stress test has come and gone for the banks, it didn’t take long for the ones who needed new capital to raise money. Last week, 19 banks were examined to determine their ability to weather a deep economic downturn. After weeks and hype and anticipation, it was determined that 10 of them, or over 50%, needed to raise a combined $75 billion.
It was a no-brainer these firms would hit the pavement as early as they could. We saw it last week with Wells Fargo (WFC, $26.53, down $1.65) and Morgan Stanley (MS, $26.07, down $2.13). The two together sold nearly $12 billion of stock.
On Monday, it was Bank of New York Mellon (BK, $29.55, down $2.60), BB&T (BBT, $24.34, down $1.99), Capital One Financial (COF, $27.10, down $4.24) and U.S. Bancorp (USB, $18.50, down $2.04) picking the market’s pocket.
The financial stocks have soared from their lows in early March but worsening credit conditions in housing, credit cards and commercial loans could put a halt to the rally. At least for the moment.
I have been winding down my trades over the past couple of weeks because we have been mainly doing a lot of call option buying. That has worked for 8 weeks now and even before that but the recent action in the market has me seeking protection.
I talked about one last push for the market in the Weekly Wrap but had mentioned the bulls were running out of excuses to take us higher. But Monday’s have been lousy for the market and yesterday was no different.
The only exposure we had were the Blackstone Group (BX, $12.64, down $1.20) trades. Close out the May call options this morning, they expire Friday anyway. If the stock falls below $12, close out the June and January call option trades.
One trade I would like to do this morning is a Wells Fargo strangle trade. Wait 20-30 minutes after the market opens and buy equal amounts of the June 30 calls (FHUFD, $1.35, down $0.50) and the June 23 puts (WFCRI, $1.25, up $0.10). All we need is the stock to move 20% or more in either direction and this trade will be profitable. We may get the chance to make money on both sides.
The best part of the trade is that it offers protection both long and short.
Futures are pointing towards a higher open…
Rick Rouse
Rick@OptionsMentoring.com
Tags: Bank of New York Mellon, BB&T, Blackstone Group, Capital One Financial, Morgan Stanley, U.S. Bancorp, Wells Fargo
Posted in Option Trades, Sectors | No Comments »
Tuesday, March 17th, 2009
After a slow start, the Dow go it in gear and staged another nice rally today. Once again it was the financials that led the way depite a couple of key downgrades in the sector. It wasn’t pretty though.
The market looked lost when trading opened and the downgrades on Morgan Stanley (MS, $23.81, up $0.77) and Goldman Sachs (GS, $98.99, up $5.09) didn’t help. At one point, the financials were down 2.5% as Morgan reached a low of $21.77 while Goldman dipped to $92.55.
Wall Street analysts downgraded shares of Goldman and Morgan, saying their recent run-up is overdone. However, in the afternoon, an analyst out of Oppenheimer initiated coverage of both companies with an “Outperform” rating. That helped the financials rebound as the analyst believes that “investment banking is poised to recover from the economic slump before commercial banking.”
I never pay attention to upgrades and downgrades but they do move stocks. The problem with the financial sector is that I don’t believe Wall Street really knows what kind of earnings these firms are going to report. The analysts that are downgrading the financial stocks want to look smart in case they pull back while the analysts who are upgrading them want to say that they told us there was more room to run in these stocks.
In any case, the market rallied and was strong going into the closing bell. The Dow finished the session at 7,395, up 178, or 2.5%. The Nasdaq soared 4.1%, or 58 points, to close at 1,462 while the S&P 500 chipped in with a 3.2% gain, or 24 points, and ended the day at 778.
Naturally, the big debate right now is “the bounce” and everybody has an opinion on how much of a bounce we are going to get or how long the market can rally. It’s hard enough to predict the market day-to-day but to make a call on either one of those questions is impossible to answer. So don’t worry about it.
We know this is a trader’s market and the art of stock picking has gone to the wayside. There are still so many moving parts that all we can do is play the trend. Right now that trend seems to be up.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Goldman Sachs, Morgan Stanley
Posted in Financial Stocks, Market Analysis | No Comments »
Thursday, January 15th, 2009
The Dow had its worst day in 2009 on Wednesday and after what looked like a promising start to the New Year quickly fell apart as the index lost nearly 250 points and closed at 8200. It was an especially rough day for the financial stocks which weighed heavy on the market and more disappointing economic data put the Dow in the hole before we even opened.
I had mentioned yesterday morning that if the Dow broke 8400 we could get more downside action. The November low (7400) now comes into play but the bulls can still hang their hat on the fact that the Dow has held 8000. Obviously their confidence will be shaken if that level fails to hold. And that could be asking a lot considering we got the Apple (AAPL, $85.33, down $2.38) news after the bell.
The Nasdaq fell nearly 3.7%, or 56 points, and closed at 1489. A break below 1450 could also lead to a test of its November low of 1295. The S&P 500 fell 29 points, or 3.4% to finish at 842. If the 800 level fails to hold, we could be looking at a retest of 741. If the Dow, Nasdaq, and S&P 500 fail to hold the aforementioned levels then we could see some panic selling.
Citigroup (C, $4.53, down $1.37) looks like it has a bulls-eye on its back for the bears as the stock tanked over 20%. Citi joined its brokerage businesses with Morgan Stanley (MS, $17.19, down $1.67) and is quickly selling off assets and trying to raise cash. It now appears that their “supermarket” strategy is quickly becoming dismantled. Morgan will pay Citi somewhere in the neighborhood of $3 billion for a 51% stake in the venture, and Wall Street believes Citi will use the that money to offset losses.
Citi will report earnings on Friday and it ain’t gonna be pretty. This company is a mess and we could get some talk of restucturing plans when they report. Citi is expected to post a loss when its quarterly results are released and the stock is rapidly approaching its November low of $3.05.
I had a gut feeling on Monday when the news surfaced that Citi was selling a stake in its brokerage unit that Citi’s stock was in trouble. When a stock is at $6, most people don’t believe there is much more action from these low levels to zero compared to if a stock is at $20 or higher.
Well, throw that theory out of the window, brother. The January 5 puts (CMP, $0.67, up $0.58) were up 640% yesterday and opened at 23 cents. Of course, this trade would have been at the top of the risk scale but you get the point. The February 5 puts (CNP, $1.08, down $0.60) were up 125% and volume was off the charts as 36,000 contracts traded hands. If Citigroup does trade back down to $3 over the next month, the February 5 puts will double from current prices.
Bank of America (BAC, $10.20, down $0.45) is set to report earnings next Tuesday and there is chatter that the government is going to give them even more money. BofA is the king of banks (by assets) and has already gotten $25 billion from the government. What? They burned through that already?
Look for a pressure packed Thursday with a bias to the downside.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Apple, Bank of America, Citigroup, Morgan Stanley
Posted in Market Analysis | No Comments »
Thursday, October 16th, 2008
After taking one big step forward, the market took two steps back on Wednesday as the Dow fell 733 points, or 7.9%, to close at 8,577. Of course, we are not surprised because we have been preparing for it. Yesterday’s downfall was blamed on bad retail sales data as September sales tumbled 1.2% month-over-month. Biggest drop in three years. The news was a shocker for Wall Street as it was a larger than expected drop. Know-it-alls predicted a decline of 0.7%.
As far as the indexes, the Nasdaq took a 8.5% hit and finished lower by 150 points at 1,628. The S&P was hit harder than a Vegas hangover, falling 9%, or 90 points, and closed at 907.
The Dow’s low last Friday was 7,773. For the Nasdaq it was 1,542 and for the S&P it was 839. So far we’ve been right-on in calling this market and we have prepared for a bottom, played the bounce, and now we must get ready for the possibility of testing those lows again. Remember, I keep telling you October will continue to be like this. That is why we are taking half positions over the short-term/ long-term and cashing in on profits by keeping tight stops.
As far as the bounce, it was good for a quick trade in Microsoft (MSFT, $22.66, down $1.44), Google (GOOG, $339.17, down $23.54) and Johnson & Johnson (JNJ, $60.54, down $3.46), Morgan Stanley (MS, $18.13, down $3.81) and Goldman Sachs (GS, $113.15, down $8.75). Keep an eye on the calls I have mentioned. Some of them are still higher but they may get cheaper. So here is the game plan.
First, if you take any positions, only start with a half position. What that means is that if you normally buy 10 option contracts at a time, buy five. The market keeps showing signs of another breakdown and to me, that would be the best thing that could happen.
Of course everybody is going to question the bailout package but the market needed to do its own cleansing and needed to make its own low before Congress jumped in. The truth is that Bush didn’t want a crisis and they wanted to jump start the market because it was at multi-year lows. But the reality is the market has to make a bottom on its own.
I studied charts until I was light-headed last night and here is my best/ worst case synopsis. I’ve already been calling for this decline since August before we hit last Friday’s lows. In fact, in the October 7 blog with the Dow at 9,447, here was what I mentioned:
“I’m not making any predictions on how low the Dow can go because on any given day we could get some kind of “miracle news” that takes the Dow higher by 1,000 points but from my study of the chart for the Dow, it looks like we could test 8,300. That’s another 1,000 points lower. From there it gets real ugly.”
Well, we got that and then some, son. I only repeat myself a thousand times because, again, I want to make you aware of what type of market we are in. You have to have a quick trigger and know what is happening. Having said that, there is support at 7,200 for the Dow but that’s another 1,300 points lower.
Although the talking heads thought last Friday’s 7,700 level was “the” bottom, some research will shed a different light on the subject if you are willing to do a little homework. This market can float like a butterfly and sting like a bee, that’s for sure. But it’s up to you to stay on your feet so that you can beat the Street. Don’t fall in love with any positions (yet). We still have earnings and October options expire next Friday.
Drumroll please…it’s possible we test those lows for the Dow (7,200) by next Friday with the hope of the market rallying afterwards.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Goldman Sachs, Google, Johnson & Johnson, Market Analysis, Microsoft, Morgan Stanley
Posted in Company Commentary, Earnings, Google, Market Analysis, Sectors, Yahoo / Microsoft | No Comments »
Monday, October 13th, 2008
The relief rally was on today as the Dow zoomed 936 points as bulls rushed in to buy stocks that have been beaten down 50%-80% in just over a month. If you read the blog that I posted over the weekend, then you could tell how excited I was to go long the market. There were a ton of positions that could have been bought at the open this morning and it felt like I was going Christmas shopping on the Friday after Thanksgiving. That day is the biggest shopping day of the year as consumers rush to the malls at 4am to get the best deals. That is exactly what was happening at the opening bell this morning.
The Dow was up a quick 400 points right off the bat and its 11% gain was ithe biggest since the Great Depression. For the record, the Dow officially closed at 9,387. The “dead cat bounce”, “relief rally”, “oversold rally” or whatever you want to call it also pushed the S&P 500 and Nasdaq higher by 104 and 195 points, respectively. The S&P 500 closed at 1,003 while the Naz closed at 1,844.
But can the rally be trusted? The key point I made over the weekend was that you should only be looking out 6-12 months and it is hard to say if this rally will hold. However, today was our shopping day and here is what I had on my Christmas list from the weekend for my Lottery Play Portfolio.
Microsoft (MSFT, $25.50, up $4.00). If you’ve been reading the blog then you know how much I’ve mentioned this stock. This company has over $20 billion in cash and no sub-prime exposure. Share buybacks, dividend distributions, and acquisitions have eaten away at the company’s coffers – two years ago they had nearly $60 billion but the company’s products still generate about $1 billion a month. The stock fell to a low of $20.65 Friday. This morning, the April 25 calls (MSQDE, $3.30, up $1.30) opened at $2.35 and closed 65% higher for the day. Even at $2.35, you still got a 40% gain if you bought at the open. The April calls are over 6-months out and expire on April 17, 2009. If these calls get back to this level, don’t hesitate to jump on the. If you got in today with a half or full position then you could set 25% stops in case the stock retreats.
Google (GOOG, $381.02, up $49.02) turned out to be a “Blue-Light” special as it rallied 15%. This stock was on sale at half-off from its 52-week high of nearly $750 and the March 500 calls ($19.40, up $6.20) opened at $11.50 and briefly traded over $20. Google still has earnings so if you got in early, set stops at $15 or so.
Yahoo (YHOO, $13.49, up $1.20) fell below $12 last Friday and although it didn’t get the big pop Microsoft and Google did, it still managed a 10% gain. I didn’t go too far out on Yahoo call options because I still think the company is a mess (not taking the $33 a share from Microsoft still haunts shareholders). Remember though, we are not trading on fundamentals for some of these plays, just on what appears to be cheap. The January 17.50 calls (YHQAW, $1.33, up $0.06) were the most active but I don’t expect much from this one. In fact, set stops 20% below your entry price instead of the usual 50%.
Johnson & Johnson (JNJ, $62.68, up $6.83) was a no-brainer and a really safe play. The stock was up over 12% and I had mentioned the big drop after hitting a 52-week high a month ago. The November 60 calls (JNJKL, $4.70, up $1.70) opened at $3.30 as volume came in at 4x open interest. I love this stock for the short and long-term which is why the April 70 calls (JNJDN, $2.00, up $0.50) looked like a down-right steal at $1.50 this morning. If you missed today’s jump you could start building half-positions even at these levels.
I didn’t like General Motors (GM, $6.51, up $1.62) and still don’t although the 33% rally today was very impressive. We rode Ford and GM all the way down to these levels a few months ago and while there may or may not be bankruptcy in their future, I just think there are better trades out there. If you are a die-hard bull, the GM 2010 January 5 calls (WGMAA, $3.65, up $0.50) saw a lot of action as nearly 5,000 contracts traded. The 7.50′s (WGMAR, $3.15, up $0.65) weren’t nearly as popular, trading only 200 contracts.
Arch Coal (ACI, $27.32, up $5.28). The November 25 calls (ACIKE, $5.20, up $1.60) opened at $4.50.
Massey Energy (MEE, $26.47, up $5.74). The November 25 calls (MEEJE, $1.85, up $0.75) opened at $1.00.
Patriot Coal (PCX, $19.50, up $4.90) also made a nice comeback. The November 20 calls (PCXKD, $3.60, up $1.40) opened at $2.40.
There were a couple of other energy stocks I mentioned but I didn’t want to go too heavy on the sector.
Morgan Stanley ($18.10, up $8.42) was a huge story today after the company nearly went bankrupt last week. The investment bank went through a zany week of trading as many on Wall Street pondered its future. Mitsubishi Financial Group of Japan was the knight in shining armor for Morgan as they made a $9 billion investment in the company. The October 15 calls (MSJC, $3.80, up $2.61) were up 220% today.
Goldman Sachs (GS, $111.00, up $22.20) has made up 40 points since hiting a low of $74 last Friday. What a steal it was below $100 or even $80 for that matter. Remember, Buffett is in at $5 billion with another $5 billion waiting in the wings. The October 100 calls (GSJT, $15.50, up $10.00) opened at $6.95. An easy double as the day went on. If you bought at the open, set stops at $11.00. The January 125 calls (GSAE, $11.60, up $4.35) didn’t have the banner day as the October calls did but still were up 60% for the day.
There were a slew of other good trades, too many more for me to list but you got the idea. Keep an eye on some of the calls I have mentioned. They may get cheaper and they may not. It’s too early to call this a rebound and there is no way of predicting where we are headed over the next few days. Remember, earnings are on tap and they will certainly sway the market.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Add new tag, Coal stocks, Goldman Sachs. Microsoft, Google, Johnson & Johnson, Morgan Stanley, Yahoo
Posted in Company Commentary, Financial Stocks, Google, Market Analysis, Sectors, Yahoo / Microsoft | No Comments »
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Market Stumbles Once Again
Thursday, October 16th, 2008
After taking one big step forward, the market took two steps back on Wednesday as the Dow fell 733 points, or 7.9%, to close at 8,577. Of course, we are not surprised because we have been preparing for it. Yesterday’s downfall was blamed on bad retail sales data as September sales tumbled 1.2% month-over-month. Biggest drop in three years. The news was a shocker for Wall Street as it was a larger than expected drop. Know-it-alls predicted a decline of 0.7%.
As far as the indexes, the Nasdaq took a 8.5% hit and finished lower by 150 points at 1,628. The S&P was hit harder than a Vegas hangover, falling 9%, or 90 points, and closed at 907.
The Dow’s low last Friday was 7,773. For the Nasdaq it was 1,542 and for the S&P it was 839. So far we’ve been right-on in calling this market and we have prepared for a bottom, played the bounce, and now we must get ready for the possibility of testing those lows again. Remember, I keep telling you October will continue to be like this. That is why we are taking half positions over the short-term/ long-term and cashing in on profits by keeping tight stops.
As far as the bounce, it was good for a quick trade in Microsoft (MSFT, $22.66, down $1.44), Google (GOOG, $339.17, down $23.54) and Johnson & Johnson (JNJ, $60.54, down $3.46), Morgan Stanley (MS, $18.13, down $3.81) and Goldman Sachs (GS, $113.15, down $8.75). Keep an eye on the calls I have mentioned. Some of them are still higher but they may get cheaper. So here is the game plan.
First, if you take any positions, only start with a half position. What that means is that if you normally buy 10 option contracts at a time, buy five. The market keeps showing signs of another breakdown and to me, that would be the best thing that could happen.
Of course everybody is going to question the bailout package but the market needed to do its own cleansing and needed to make its own low before Congress jumped in. The truth is that Bush didn’t want a crisis and they wanted to jump start the market because it was at multi-year lows. But the reality is the market has to make a bottom on its own.
I studied charts until I was light-headed last night and here is my best/ worst case synopsis. I’ve already been calling for this decline since August before we hit last Friday’s lows. In fact, in the October 7 blog with the Dow at 9,447, here was what I mentioned:
“I’m not making any predictions on how low the Dow can go because on any given day we could get some kind of “miracle news” that takes the Dow higher by 1,000 points but from my study of the chart for the Dow, it looks like we could test 8,300. That’s another 1,000 points lower. From there it gets real ugly.”
Well, we got that and then some, son. I only repeat myself a thousand times because, again, I want to make you aware of what type of market we are in. You have to have a quick trigger and know what is happening. Having said that, there is support at 7,200 for the Dow but that’s another 1,300 points lower.
Although the talking heads thought last Friday’s 7,700 level was “the” bottom, some research will shed a different light on the subject if you are willing to do a little homework. This market can float like a butterfly and sting like a bee, that’s for sure. But it’s up to you to stay on your feet so that you can beat the Street. Don’t fall in love with any positions (yet). We still have earnings and October options expire next Friday.
Drumroll please…it’s possible we test those lows for the Dow (7,200) by next Friday with the hope of the market rallying afterwards.
Rick Rouse
Rick@OptionsMentoring.com
Tags: Goldman Sachs, Google, Johnson & Johnson, Market Analysis, Microsoft, Morgan Stanley
Posted in Company Commentary, Earnings, Google, Market Analysis, Sectors, Yahoo / Microsoft | No Comments »