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9:00am (EST)
The market traded north and south of the breakeven line for much of yesterday before taking a skid in the final couple of hours after Federal Reserve Chairman Ben Bernanke started talking.
Wall Street needed to hear only two words before the bears started to name that song. Big Ben’s “unusually uncertain” lyrics certainly won’t be as famous as “irrational exuberance” (the quote made by Alan Greenspan back in the day), but they were enough to rattle the market.
Bernanke also noted that central bankers were “prepared to take further policy actions as needed” to support a recovery. These remarks worried the bulls about the current economic recovery, and as a result the market sold-off.
We mentioned yesterday Ben’s body language would be watched closely, and he looked nervous in the spotlight. His voice was rather depressing compared to his usual upbeat comments, and it showed.
As a result, the Dow recorded a triple-digit loss of 109 points, or 1.1%, to settle at 10,120. The index traded to a high of 10,265 while the low was 10,065. It was the fourth session in-a-row the Dow has flirted with the 10,000 level.
The S&P 500 fell 14 points, or 1.3%, and closed at 1,069. The index finished just below the 1,070 level but could be gearing up to challenge 1,100 again this morning.
The Nasdaq appeared like it was going to be the clear winner on Wednesday but it shed 35 points, or 1.6%, and was last seen at 2,187. The index will likely make another run at its 200-day moving average of 2,240 as the index traded to a high of 2,236 yesterday and looks poised to do so again today. Tech also settled back below the 2,200 level which is still capping all rallies on a closing basis.
Turning to earnings, one of our favorite stocks let the Street down in after-hours last night. Netflix (NFLX, $119.65, down $0.74) failed to live up to the hype after the company topped earnings, but revenue came in light. The company also gave full-year guidance that also wasn’t up to par as shares are getting hit for a 10-spot this morning in early action.
Netflix reported a profit of $44 million or $0.80 a share, versus $32 million, or $0.54 a share, in the year ago quarter. Revenue came in at $520, up from $409 million, a year earlier. Analysts were looking for earnings of $0.71 a share on sales of $524 million so they missed by $4 million or so.
We were expecting a blowout quarter for Netflix and the overall results were golden, but, we were also worried about their top-line numbers as many companies are coming in on the light end. However, there are also quite a few companies that beat on both the top and bottom line and futures are showing a nice pop.
As we head to press, Dow futures are higher by 109 points to 10,167 while the S&P 500 futures are showing a 14 point pop and are at 1,078. The Nasdaq 100 futures are up 20 points to 1,835. Upside targets will be Dow 10,200-10,300; S&P 1,100; and Nasdaq 2,250 this morning.
Will the Fed Fire-Up the Economy?
Tuesday, August 10th, 2010
1:10pm (EST)
The bulls were behind the 8-ball before the opening bell sounded as economic data out of China revealed imports slowed significantly in the latest period due to declining demand and a tightening of monetary policies.
The news pushed futures significantly below fair value which led to a nasty open. The bears have done a good job of holding resistance levels, and, perhaps yesterday was another “head fake”. We have mentioned in the past that resistance (and support) levels can sometimes be “stretched” and that could be the case again today with the Dow down nearly triple-digits ahead of today’s big Fed announcement.
Although we have been trading “light” in recent weeks, we still believe that the market will continue to experience some wild and volatile price swings in the coming months which will present better opportunities to trade.
We have slowly been positioning ourselves in some bearish trades during the recent market rally over the past few weeks and these trades are on the move today. Sometimes it is hard to buy puts in a rising market just like it is hard to buy calls in a declining market but this is how you set your trades up for triple-digits returns. You may not always get the best entry price but the key is to recognize the trend before others do.
The Dow is currently trading at 10,609, down 90 points. The S&P 500 is off by 12 points and is at 1,115 while the Nasdaq is lower by 35 points to 2,270.
Of course, all eyes will be on the Fed and there is a chance for major move in the market once their announcement is released. We talked about the Fed’s options this morning and given today’s mini sell-off, the bulls are looking for a life jacket. However, if the Fed doesn’t appear it is going to come to the economic rescue then the bulls will be sinking with today’s ship.
As far as specific stocks, there are a few companies trading higher in an otherwise sea of red. One of our favorites, Netflix (NFLX, $124.43, up $7.53) is challenging its 52-week high of $127.96, which was set in mid-June, after announcing a deal with Epix that will expand Netflix’s library of movie titles.
Fossil (FOSL, $45.50, up $3.03) is up 7% after beating Wall Street’s earnings estimates. The company announced a profit of $55 million, or $0.80 a share, versus $17 million, or $0.25 a share, in the year ago quarter. Revenue jumped nearly 30% to $417 million for the quarter, compared to $316 million, in last year’s period.
The Fossil August 45 call options (FOSL100821C00045000, $1.45, up $0.75) are up over 100%.
We are getting aggressive with an earnings trade of our own TODAY as we have been eyeballing a company that will report earnings on Friday. These are cheap out-of-the-money options with the same type of potential as the Fossil call options just mentioned. Subscribers, check the Members Area for today’s NEW TRADE!
Tags: call options, FOSL, Fossil, how to trade options, momentum options trading, Momentum stocks, Netflix, NFLX, option picks, option stock picks, options alerts, options newsletter, options track record, put options, stock options trading, volatile options
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