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Monday, May 9th, 2011
12:20pm (EST)
The market has gotten off to a slow start as both the bulls and bears feel each other out before mapping their next move. Futures were pointing towards a higher open but were weakening as we headed towards the opening bell. There is some rhetoric out of Europe concerning Greece as S&P downgraded their debt (again) amid concerns the country will need more bailout funds which has kept traders in check.
The Dow had traded in a tight range, hitting a high of 12,669 at the open while the low has been 12,620. However, things are picking up as we head to press as the index is currently up 61 points to 12,700. The S&P is up 7 points to 1,346. The Nasdaq is showing a gain of 18 points to 2,845.
Citigroup (C, $44.02, down $1.18) completed it 1-for-10 reverse stock split this morning which is why you shares in the $40’s and not at $4+. We aren’t big fans of reverse splits which are usually done by companies that are about to lose their listing on an exchange or to get investors’ confidence up. When a company does a reverse stock split they are trying to maintain compliance but Citigroup is a little different because they really didn’t have to do the split.
Citigroup’s new share price will make it easier to short and for mutual fund managers to buy. Most funds restrict managers from buying stocks under $5 so this won’t be a problem at today’s prices. Speaking of reverse stock splits…
American International Group (AIG, $29.57, down $1.13) is at new 52-week lows today. Imagine that. We covered the company’s reverse stock split a few years ago which helped them keep their listing on the NYSE. AIG’s shareholders approved a one-for-20 reverse stock split in 2009 and we did well shorting this name all the way down to $1 before the split. In fact, some of our BEST option trades have been shorting AIG if you look at our Track Record over the years.
We have a lot to cover inside our Members Area including a trade adjustment. On two of the three trades we able to get filled at our recommended prices but we are going to have to raise our entry price for our other recommendation. Subscribers, check for the updates.
Tags: AIG, c, call options, high beta stocks, Hot stocks, momentum options, Momentum stocks, option tips, options trading course, reverse stock splits, stock market options, strangle option trades, weekly options
Posted in Market Analysis, Trade Update, Trading Tips | Comments Off
Monday, April 4th, 2011
9:10am (EST)
No other country can substitute for the U.S. The U.S. is still number one in military, number one in economy, number one in promoting human rights, and number one in idealism. Only the U.S. can lead the world. No other can. – Senior Korean official (to Thomas Friedman, NY Times Foreign Affairs columnist, February 2009)…
The bulls continued their comeback from the mid-March lows after having another solid week and pushing the market back towards its February and 52-week highs. It all came down to Friday’s jobs report and it was a “winner”. We aren’t sure if Charlie Sheen was impressed with Friday’s 8.8% unemployment rate and the 216,000 jobs added but we were.
The market ended the first quarter with a bang and got off to a nice start for 2Q after getting its best nonfarm payroll numbers in two years.
The Dow traded to an intraday 52-week high of 12,419 before finishing with a 57 point gain on Friday and settled at 12,376. For the week, the index added 156 points, or 1.3%. For the first-quarter (January-March), the blue chips advanced nearly 800 points, or 6.4%, which was the best quarterly gain since 1999.
The S&P 500 added 6 points to finish at 1,332 and held the 1,300 level all week. The index also made a strong move above 1,325 on Wednesday and reached a high of 1,337 on Friday. For the week, the S&P jumped 19 points, or 1.4%; for the quarter the index popped 75 points, or 5.4%.
The Nasdaq cleared 2,800 on Friday but closed slightly below this level with a gain of 8 points, to 2,789. Tech has led the recent charge off the mid-March lows and advanced 46 points, or 1.7%, for the week. For the first 3 months of 2011, the Nasdaq was up nearly 140 points, or 4.8%.
We mentioned on Thursday that if the unemployment rate came in below 8.9% we could see new highs. The 5-week “trading range” the market has been in since mid-February is on the verge of a breakout and here were our thoughts in late January before the range:
“The Dow gained 4 points to close at 11,989 but made its second straight trip above 12,000, hitting 12,019 intraday. We mentioned yesterday the index has a shot at 12,300-12,350 over the near-term and we would like to see a close above 12K today.
The S&P 500 finally kissed 1,300, twice, once in the morning and once in the afternoon before finishing just below resistance at 1,299.54 – up 3 points. We are looking for a pop to 1,325 and maybe 1,350 on a breakout.
The Nasdaq was the strong horse as it added 15 points, or 0.6%, to settle at 2,755. The index is still 9% away from our 3,000 target and we have said it may be hard to reach this level over the near-term. We may only get to 2,850.” (END)
On February 17, after a trip to these levels, we had this to say:
“The only number we have been watching this week is 1,334 which represented a double or a 100% rise from the S&P 500’s low of 667 back in 2009. We said last Friday that “1,325 Changes Everything” and only confirmed our target of 1,350 was in the cards. The index battled 1,334 for 3 sessions before breaking through yesterday after gaining 8 points to close at 1,336. Back in mid-January we said if the bulls could get past 1,300 then we could see 1,450-1,500 in 2011. However, let’s get to 1,350 first.
The Dow actually traded into our target zone of 12,300-12,350 after kissing 12,303 but finished the day at 12,288, up 61 points. If the upper-end of our zone is taken out then the bulls will be gunning for 12,500-12,600 over the near-term with a run to 13,000 coming if the momentum can last until April.
As for the Nasdaq, the index finished at 2,825, up 21 points, and closed right in the middle of our 2,800-2,850 targets. Of course, we have been mentioning a run to 3,000 since the beginning of the year and a break above here gets the bulls there.” (END)
The market appears to be moving past the Libya and Middle East crisis although oil continues to move higher. Japan seems to be hitting the ground running as rebuilding efforts have already begun. And America’s economy seems to be getting better despite the fact that housing remains in the doldrums.
The CBOE Market Volatility Index (^VIX, 17.40, down 0.34) traded down to 16.44 on Friday after touching 31.28 in mid-March. We mentioned last week the index could fall to 14-13 on another leg up which is when we think the bulls might take a break.
A VIX reading under 20 indicates confidence and calm while a reading above 30 indicates nervousness and panic.
We also mentioned the iPath S&P 500 VIX (VXX, $29.09, down $0.28) could head lower if the market rallied higher. The April 30 puts (VXX110416P00030000, $1.85, up $0.09) were at $1.50 last Sunday and gained over 20% by the end of the week.
We are hoping for one big charge by the bulls over the next few weeks and we would like to see a strong start to this week to get us there. April is normally the Dow’s best month and has posted gains of 2%, on average, for the past 60 years. Of course, history doesn’t always repeat itself but the catalyst for the market breaking out to new highs will be first quarter earnings which begin next Monday.
Alcoa (AA, $17.47, down $0.19) will announce their results on 4/11. Keep an eye on our aforementioned near-term targets for this week: Dow 12,500-600; S&P 500 1,350; and Nasdaq 2,850. If these levels are cleared then we could go into earnings season looking to test our upper-end 2011 targets for the indexes.
Tags: momentum options, Momentum stocks, reverse stock splits, stocks that trade weekly options, straddle and strangle option trades, weekly options
Posted in Market Commentary, VIX | Comments Off
Thursday, March 31st, 2011
9:00am (EST)
The bulls have used back-to-back “Boom Boom” poundings to finally reach the top of the current 5-week trading range the market has been in. Yesterday’s smooth sailing added another 0.5% on top of Tuesday’s pop which has pushed the major indexes back near their February highs. Now that we are here, it’s gut check time.
The Dow gained 72 points to close at 12,350 which is the exact target we said to watch for on a breakout. The index reached 12,383 and we either go to 12,500-12,600 or…we fall back into the “trading range”. Support is at 12,200 then 12,000.
The S&P 500 added 9 points to finish at 1,328 and touched 1,331. We mentioned 1,334 as a “pivot point’ for a run to 1,350 so watch this number closely today. Support is at 1,310-1,300.
The Nasdaq jumped 20 points, or 0.7%, and once again lead the charge higher. The index has room to run to 2,850 which is our key resistance target but if cleared, Tech could challenge 3,000.
As the bulls try to break resistance – a lot – we mean a lot of market “pros” are calling for a pullback. On the surface, things appear ripe for a pullback but like we said in our Weekly Wrap, the U.S. markets are looking like one of the “safer” places to put cash to work or rest. We also know the market can remain irrational longer than we can stay solvent but it’s all about price action.
It wouldn’t make sense to “bet the house” on a breakout but it does make sense to “speculate” on a breakout. We could be wrong, we know this. But we could also be right.
We also realize the market could remain in a “trading range”. If so, then we will continue to trade less. We like action but what we have learned about trading ranges is that it’s best to either sit out or take small positions and use more strangles and straddles. With options, a 30 cent option trade on 10 contracts will cost you $300. If you buy 100 contracts it will cost you $3,000. If your “speculative” trading account only has $3,000 in it and you risk it all on an entire trade, then you could be wiped out and be facing a reload or sitting on the sidelines.
Keep this in mind and never risk more than 5%-10% of your capital for any one trade. We are hoping for one last breakout or continued rally so let’s see how it plays out.
We are expecting “flat” action today with a tight trading range as Wall Street eagerly awaits Friday’s unemployment rate and jobs number.
Futures are slightly lower as we head towards the open; Dow (-8), S&P 500 (-2), Nasdaq 100 (-3). Subscribers, check the Members Area for the updates.
Tags: reverse stock splits, stocks that trade weekly options, straddle and strangle option trades, weekly options
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Wednesday, March 30th, 2011
9:00am (EST)
…if only briefly.
The bulls made another step towards serious resistance on Tuesday and either look poised for a jailbreak, or, they are throwing their last punches in a huge brawl that is going to end ugly.
We talked have talked extensively about the market’s moves since mid-October and we said last week the bulls are setting up for a possible big run heading into April. Although the glass is looking half empty for the investors who have been bailing on the market’s recent move up, it is only half full for those who are playing for a breakout. Of course, we are in the latter camp and are riding the bulls back to new highs. This is why we have a market.
The bears have to be disappointed with yesterday’s action because the headlines were tilted in their favor. Economic news was softer-than-expected and most earnings announcements and guidance came in below par. It didn’t matter. The bears didn’t bring enough artillery to the fight as the bulls quickly overpowered them and were back on track in less than an hour.
The Dow nearly pulled off a triple-digit gain but still added 81 points, or 0.7%, to settle at 12,279. The S&P 500 popped 9 points, or 0.7%, and closed at 1,319.
The Nasdaq advanced 26 points, or 1%, to finish at 2,756. We wanted to spend more time on Tech because the close above 2,750 was a beautiful thing. Although we aren’t out of the woods, yet, a run to 2,850 is looking better-and-better by the session. The 52-week high for the Nasdaq is 2,840 and we said a shot at 3,000 could be in the stars.
Of course, we are still bracing for a pullback at any given moment because nailing a top or bottom for any stock, let alone the market, is always tricky. We also didn’t plan for a 4-week trading range from mid-February that saw more volatility than an EKG. However, we did expect a pullback in February which is why we used longer-term options. And we recently opened some new trades to try and take advantage of the rally we have been expecting to come back. Hopefully, the market can make some nice gains today.
As we head to press, futures are pointing towards a higher open; Dow (+45), S&P 500 (+6), Nasdaq (+15). Subscribers, check the Members Area for the updates.
Tags: reverse stock splits, RIMM, stocks that trade weekly options, straddle and strangle option trades, weekly options
Posted in Market Commentary | Comments Off
Tuesday, March 29th, 2011
8:00am (EST)
After a promising start, the bulls gave back all of yesterday’s modest gains in the final hour of trading despite better-than-expected economic news. Earnings were light and will be until the second week of April which is when first quarter earnings start to roll in. Geopolitical events were a non-factor although there was some concern on how much radiation is seeping into Japan’s waters. Elsewhere, Libya seems to be getting closer by the day to getting new leadership which helped bring oil prices down.
We weren’t surprised to see a tight trading range but we were a little disappointed with the close.
The Dow traded to a high of 12,272 before giving back 23 points, or 0.2%, to finish at 12,197. We were looking for 12,200 to stick but the index closed into its low as the closing bell sounded. Further support is at 12,000 but we are looking for a test to 12,350 then 12,500, first.
The S&P 500 dropped 3 points, or 0.3%, and settled at 1,310. We were glad to see 1,310 hold for the second consecutive session and there is further support at 1,300. Near-term resistance remains at 1,325.
The Nasdaq traded to a high of 2,754 and we were hoping for a close above 2,750. The index fell 12 points, or 0.5%, when the dust cleared and finished at 2,730. The close above 2,700 was good to see because we are expecting Tech to rebound following a month long selloff. Further support is at 2,650 while near-term resistance remains at 2,800-2,850.
We have a lot to cover in our Members Area this morning so we have to cut it short. Futures are pointing towards a slightly higher open; Dow (+20), S&P 500 (+2), Nasdaq (+4). Subscribers, check for the updates.
Tags: reverse stock splits, RIMM, stocks that trade weekly options, straddle and strangle option trades, weekly options
Posted in Market Commentary | Comments Off
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First-Quarter Review
Monday, April 4th, 2011
9:10am (EST)
No other country can substitute for the U.S. The U.S. is still number one in military, number one in economy, number one in promoting human rights, and number one in idealism. Only the U.S. can lead the world. No other can. – Senior Korean official (to Thomas Friedman, NY Times Foreign Affairs columnist, February 2009)…
The bulls continued their comeback from the mid-March lows after having another solid week and pushing the market back towards its February and 52-week highs. It all came down to Friday’s jobs report and it was a “winner”. We aren’t sure if Charlie Sheen was impressed with Friday’s 8.8% unemployment rate and the 216,000 jobs added but we were.
The market ended the first quarter with a bang and got off to a nice start for 2Q after getting its best nonfarm payroll numbers in two years.
The Dow traded to an intraday 52-week high of 12,419 before finishing with a 57 point gain on Friday and settled at 12,376. For the week, the index added 156 points, or 1.3%. For the first-quarter (January-March), the blue chips advanced nearly 800 points, or 6.4%, which was the best quarterly gain since 1999.
The S&P 500 added 6 points to finish at 1,332 and held the 1,300 level all week. The index also made a strong move above 1,325 on Wednesday and reached a high of 1,337 on Friday. For the week, the S&P jumped 19 points, or 1.4%; for the quarter the index popped 75 points, or 5.4%.
The Nasdaq cleared 2,800 on Friday but closed slightly below this level with a gain of 8 points, to 2,789. Tech has led the recent charge off the mid-March lows and advanced 46 points, or 1.7%, for the week. For the first 3 months of 2011, the Nasdaq was up nearly 140 points, or 4.8%.
We mentioned on Thursday that if the unemployment rate came in below 8.9% we could see new highs. The 5-week “trading range” the market has been in since mid-February is on the verge of a breakout and here were our thoughts in late January before the range:
“The Dow gained 4 points to close at 11,989 but made its second straight trip above 12,000, hitting 12,019 intraday. We mentioned yesterday the index has a shot at 12,300-12,350 over the near-term and we would like to see a close above 12K today.
The S&P 500 finally kissed 1,300, twice, once in the morning and once in the afternoon before finishing just below resistance at 1,299.54 – up 3 points. We are looking for a pop to 1,325 and maybe 1,350 on a breakout.
The Nasdaq was the strong horse as it added 15 points, or 0.6%, to settle at 2,755. The index is still 9% away from our 3,000 target and we have said it may be hard to reach this level over the near-term. We may only get to 2,850.” (END)
On February 17, after a trip to these levels, we had this to say:
“The only number we have been watching this week is 1,334 which represented a double or a 100% rise from the S&P 500’s low of 667 back in 2009. We said last Friday that “1,325 Changes Everything” and only confirmed our target of 1,350 was in the cards. The index battled 1,334 for 3 sessions before breaking through yesterday after gaining 8 points to close at 1,336. Back in mid-January we said if the bulls could get past 1,300 then we could see 1,450-1,500 in 2011. However, let’s get to 1,350 first.
The Dow actually traded into our target zone of 12,300-12,350 after kissing 12,303 but finished the day at 12,288, up 61 points. If the upper-end of our zone is taken out then the bulls will be gunning for 12,500-12,600 over the near-term with a run to 13,000 coming if the momentum can last until April.
As for the Nasdaq, the index finished at 2,825, up 21 points, and closed right in the middle of our 2,800-2,850 targets. Of course, we have been mentioning a run to 3,000 since the beginning of the year and a break above here gets the bulls there.” (END)
The market appears to be moving past the Libya and Middle East crisis although oil continues to move higher. Japan seems to be hitting the ground running as rebuilding efforts have already begun. And America’s economy seems to be getting better despite the fact that housing remains in the doldrums.
The CBOE Market Volatility Index (^VIX, 17.40, down 0.34) traded down to 16.44 on Friday after touching 31.28 in mid-March. We mentioned last week the index could fall to 14-13 on another leg up which is when we think the bulls might take a break.
A VIX reading under 20 indicates confidence and calm while a reading above 30 indicates nervousness and panic.
We also mentioned the iPath S&P 500 VIX (VXX, $29.09, down $0.28) could head lower if the market rallied higher. The April 30 puts (VXX110416P00030000, $1.85, up $0.09) were at $1.50 last Sunday and gained over 20% by the end of the week.
We are hoping for one big charge by the bulls over the next few weeks and we would like to see a strong start to this week to get us there. April is normally the Dow’s best month and has posted gains of 2%, on average, for the past 60 years. Of course, history doesn’t always repeat itself but the catalyst for the market breaking out to new highs will be first quarter earnings which begin next Monday.
Alcoa (AA, $17.47, down $0.19) will announce their results on 4/11. Keep an eye on our aforementioned near-term targets for this week: Dow 12,500-600; S&P 500 1,350; and Nasdaq 2,850. If these levels are cleared then we could go into earnings season looking to test our upper-end 2011 targets for the indexes.
Tags: momentum options, Momentum stocks, reverse stock splits, stocks that trade weekly options, straddle and strangle option trades, weekly options
Posted in Market Commentary, VIX | Comments Off