The bulls are trying to bounce back from their worst 6-sessions in more than a year as they try to hold today’s gains. The technicians are saying the market is oversold and due for a rebound but aren’t bullish on the longer-term outlook. In other words, the indexes remain at the bottom of their trading ranges.
We have been studying the charts all week while working on the Weekly Wrap and while today’s bounce is a feel good story, there is a chance for one more dip before a possible stronger rebound next week and into September. The odds favor the bears of making a run at the June lows but it has been a losing bet to go against the bulls this year. In any event, we have also been preaching this is a stock picker’s market and where fundamentals are starting to matter.
One stock we have followed for years, with terrible fundamentals, is Abercrombie & Fitch (ANF, $38.57, down $8.23). We use to admire the company back in the early 1990′s and before they became a “teen retailer” because they made quality, outdoor clothes for men. No skinny jeans or buffed up sales associates, just good, cool clothes.
The company has since lost its way and we have often shorted the stock or bought put options. If you check our Track Records over the years, you will see we have had success (and failure) betting on Abercrombie’s earnings and we sure missed a good trade today.
Shares are down 18% after the company announced a terrible quarter and the put options are zooming. The September 40 puts (ANF130921P00040000, $2.80, up$2.25) are up 400% and have traded to a high of $3.85! These options closed at 57 cents yesterday and a 10-contract trade would have cost $570 before the close. Today, we could have cashed out for $3,850 at the highs.
We do have a retail put option play already so we didn’t want to overcrowd our portfolio but we should have swung the bat as the teen retailoring stocks have been getting hammered.
Our current trade is up over 30% but could approach the same gains we just mentioned if shares tumble below $40.
As far as the indexes, the Dow is up 52 points to 14,949 while the S&P 500 is higher by 10 points to 1,653. The Nasdaq is advancing 32 points to 3,631.
We have some other trades that are getting nice pops so let’s hit the Members Area.
Special Note: The Nasdaq has been halted and is rerouting orders. The talking heads are in a panic trying to figure out what is happening but no word yet. Sounds like a flash crash coming or something has been hacked. We have a trade we want to get into but realize everyone might not get filled. We will wait until the Nasdaq gives the green light again and when they do, we could have a New Trade alert.