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Monday, March 28th, 2011
9:00am (EST)
“How do you like them Apples?”
This was the question the bulls left the bears with on Friday’s close as they rallied the market near its February highs. More importantly, the rally that stalled for 4-weeks is now back on as the bulls try to end March on a strong note. Although we are sure we haven’t heard the last growl from the bears, it appears our thesis that this rally would last from October 2010 to April is right on.
Of course, we didn’t expect all of the world drama that is currently grabbing the headlines but events around the globe are happening quickly which has caused a lot of the current volatility.
Things are still in a flux but the turmoil in Libya has suddenly gotten better which should mean lower oil prices. Portugal is a mess, Japan is still worrisome, sovereign debt is still an issue and higher food prices are here to stay. These headlines will continue to affect the market but it appears that the U.S. markets may actually be the best place to put your money.
The bears had the bulls in a corner the day before St. Patty’s but it has been all green since. The Dow traded to an intraday low of 11,548 on March 16 which was just above our 11,500 downside target and finished at 12,220 on Friday, up 50 points. For the week the index added 362 points, or 3.1%. The next stop the bulls are pushing is 12,500 with an outside shot at 13,000. Support is at 12,000 and 11,800.
The S&P 500 finally cleared 1,300 last Thursday which brought some buyers back into the market and ended Friday up 4 points to settle at 1,313. The index had reached a low of 1,249 on March 16 and we nailed support at 1,250. For the week, the S&P added 38 points, or 2.7%. The break back above 1,300 should carry to 1,325 with a run to 1,350 if the bulls can push through 1,334 which represents the double off the 2009 lows. The bears will target 1,300 then 1,275 again.
The Nasdaq is the real head-scratcher though. Just when it looked like Tech was going down with 3 fingers up, the bulls threw the sector a life jacket after watching it fall to a low of 2,603 by mid-March. The break above 2,700 breathed new life into the Nasdaq as it ended Friday at 2,742, up 6 ticks. For the week, Tech surged 100 points, or 3.8%. Nice. There is resistance at 2,800-2,850 but if broken there is a chance the bulls could push 3K.
We said last week that the 4-week “trading range” the market has been in since mid-February was getting stretched and becoming more volatile. After testing the bottom of that range, a week later we find ourselves back near the top of the range. These type of “V” patterns are very rare.
As a result, the CBOE Market Volatility Index (^VIX, 17.91, down 0.09) has been on a 7-session slide after touching 31.28 on…March 16. The 45% decline since has been the steepest on record which shows just how extreme the volatility has been. Remember, a VIX reading under 20 indicates confidence and calm while a reading above 30 indicates nervousness and panic. At the beginning of the month, the VIX was at 21 and the run to 31 was a 50% jump in two weeks.
The iPath S&P 500 VIX ($30.37, down $0.04) was at $35 last week and we said the option pits are quite active. The April 30 puts (VXX110416P00030000, $1.52, up $0.07) traded 13,000 contracts on Friday and easily doubled for the week.
If the bulls push the market higher then we should see the CBOE VIX fall to 14-13 which is when we would become cautious again. We said in November this rally had legs until April so we still should see one more run by the bulls. There is an old adage on Wall Street that says “sell in May and go away” so this thesis could also be playing out as well. Either way, we expect the volatility to continue into April.
We have a few trades that are thisclose to becoming official recommendations. Our Watch List has been full and we missed a few good trades last week. In our previous Weekly Wrap, we talked about Imax (IMAX, $31.71, up $1.72) and how it was at the bottom of its trading range. Shares were at $26 last Monday and we were hoping for a dip to $25.50 but it never came. Last Thursday, shares jumped 10% and on Friday they added another 6%. The calls options we were following zoomed 200%.
We are hoping some of our new trades can deliver the same kind of punch and many of them will be momentum plays. We are also profiling some WEEKLY options this morning which also may become official recommendations. These options expire this Friday, April 1.
Futures are up slightly as we head to press. Be on the lookout for a possible TRADE ALERT this morning.
Tags: CBOE VIX, reverse stock splits, RIMM, stocks that trade weekly options, straddle and strangle option trades, VIX, VXX, weekly options
Posted in Market Analysis, Market Commentary, VIX | Comments Off
Friday, March 25th, 2011
1:30pm (EST)
You wouldn’t know it judging by the volatility but the market is now positive for the month of March. The bulls are adding to yesterday’s breakout ahead of the weekend with Tech leading the way. Economic news has been pretty good – the Commerce Department said that gross domestic product (GDP) rose to 3.1% versus estimates for 2.9%. The consumer sentiment level for March was 67.5 versus consensus for a print of 68.
The Dow is up 69 points to 12,239 and has traded up to 12,259. The S&P 500 is higher by 7 points to 1,317 and has kissed 1,319. The Nasdaq is advancing 23 points to 2,759 and has traded up to 2,762.
We knew it would be a really bad day for Research In Motion (RIMM, $56.87, down $7.22). The company reported profits of $934 million, or $1.78 a share, versus $710 million, or $1.27 a share, in the year ago period. Revenue came in at $5.56 billion but the suit-and-ties were expecting earnings of $1.75 a share on revenue of $5.65 billion.
RIMM missed on their revenue numbers and it doesn’t get any better going forward. The company forecast earnings of $1.47-$1.55 a share for its current quarter which was well below estimates of $1.65 a share, on average. Revenue for the period is projected to come in between $5.2-$5.6 billion versus expectations for $5.67 billion.
We profiled a strangle option for RIMM on our Watch List for the March 60 puts (RIMM110325P00060000, $3.10, up $2.30) have gained nearly 300% while the March 65 calls (RIMM110325C00065000, $0.01, down $1.84) and here were out thoughts yesterday morning:
“These are WEEKLY options and RIMM would need to be below $57.50 or above $67.50 for the trade to breakeven, technically. We think shares are going to move 10% because RIMM will be showing its hand on if they are losing (market) share to Apple and Google. If RIMM misses, shares tank, if they beat, there might be some upside but not as much if they don’t “blow away” estimates.” (END)
We told our subscribers to close into weakness this morning and although it wasn’t an “official” trade, many of our option trading course members did very well with this trade because they know how to execute a strangle option trade. It is important to note that WEEKLY options are carry way more risk than “normal” options but the premiums can be cheap.
This will be the LAST weekend we offer our option trading manual How to Trade Options on Momentum Stocks at no charge if you sign-up for a one-year membership to our Daily newsletter or Weekly Wrap publication. The trading manual includes monthly videos to help you find your own trades and covers earnings. With first quarter earnings coming in April, this is the PERFECT time to learn how to play this major event.
The option trading manual is shipped to you at no charge and is going up in price so we urge you to get your copy this weekend. We will be back Sunday night with the Weekly Wrap.
Tags: reverse stock splits, RIMM, stocks that trade weekly options, straddle and strangle option trades, weekly options
Posted in Earnings, Weekly Wrap | Comments Off
Wednesday, March 23rd, 2011
1:35pm (EST)
The market continues to trade in narrow range as it did all day yesterday. The bears pushed the indexes lower at the start but the bulls have turned the tables and have the lead as we head towards the second half of trading.
The bears failed to take advantage of a weak housing report as new home sales for February fell to 250,000 versus expectations for 288,000. Despite the poor results, Homebuilding stocks like Pulte Group (PHM, $7.34, up $0.20), Lennar (LEN, $19.52, down $0.01), and KB Home (KBH, $13.23, flat) have held up well.
The Dow traded to a low of 11,972 but has reclaimed 12,000 as it is up 25 points to 12,043. The S&P 500 is up down a point to 1,292 while the Nasdaq is up 3 points to 2,688.
We aren’t surprised to see a pause in the action as there are very few catalysts at the moment for the bulls to feed off of. The next “big’ event that could get the market out of its current trading range will be first quarter earnings which start in April. However, we like the flat action and we still think the bulls can push upper resistance from mid-February until earnings season. From there, let the fireworks begin.
Tech is still looking weak so we will need the Financial stocks to lead the next leg higher. Cree (CREE, $43.18, down $5.81) came out this morning and cut its guidance for the upcoming quarter sending shares down 12%.
Discover Financial Services (DFS, $23.27, up $1.02) is up nearly 5% after beating Wall Street’s estimates and raising its dividend. The company reported a profit of $465 million, or $0.84 a share, versus a loss of $104 million, or $0.22 a share, in the year ago period. Revenue came in at $1.73 billion, up from $1.69 billion a year earlier.
Analysts were expecting 60 cents a share on revenue of $1.64 billion.
We think some of the Financial stocks look really cheap but we still don’t trust them, yet. We have been watching the near-term April options for a couple of trades but we may move out to June or July to give this sector enough time to rebound. However, we may still take a shot with an April or May call option if there is a quick bounce over the next few weeks.
Tags: KB Home, KBH, LEN, Lennar, NYSE: DFS, reverse stock splits, straddle and strangle option trades
Posted in Earnings | Comments Off
Tuesday, March 22nd, 2011
7:50am (EST)
Every bull and bear market is different and when those trends are in place, option trading can be like catching fish in a barrel. Usually, the upside in bull markets can be extreme with explosive moves that shoot way past resistance levels. The same is true for bear markets as most investors panic and head for the exits. However, most investors don’t like shorting stocks because they don’t understand how put options work or the don’t get the concept of shorting. Using put options in bear markets can make you the same triple-digit returns as call options in bull markets so remember this down the road for those of you who don’t understand this strategy.
When bulls and bear markets correct or reverse course, there is usually a “trading range” that occurs following the explosive run higher or lower. These trading ranges can be hectic, confusing, nerve-racking, and can cause you a lot of sleepless nights and hours and hours or more research.
Geopolitical events, oil, natural disasters, and war can also cause markets to fluctuate. If you combine a trading range with these events, it makes it even more frustrating because volatility can also rise. However, it is important to remember that there will be a breakout or breakdown and this is when you will need to be ready. Yes, certain option trades will work in trading ranges but for the most part its best to limit your exposure and be patient.
Although we were encouraged by yesterday’s rally, there were some things we liked and some things we didn’t like.
The Dow managed to close above 12,000 by adding 178 points, or 1.5%, to finish at 12,036. The index traded up to 12,078 and the close above 12K looked pretty but the blue-chips are going to need some help.
The S&P 500 gained 19 points, or 1.5%, and settled at 1,298 after kissing 1,300.58 intraday. We were looking for a close above this level to 1,305 with the powerful open but once again the bulls were denied.
The Nasdaq also fell short of our expectations but finished with the biggest percentage gain by adding 48 points, or 1.8%, and closed at 2,692. The index traded to a high of 2,699 and we were looking for a close above 2,700.
So basically, we got one plus and two negatives. If we throw in the Financial stocks, we get another negative as many of them started off strong but faded for much of the day. This is the one sector the bulls need to participate this time around so we need to watch this action carefully.
Stocks get stuck in trading ranges along with the market and many of the potential trades on our Watch List are showing this. The good news is that we have pinpointed support and resistance so our targets are clear. We just have to wait for confirmation.
We are still in a bullish trend but we know it’s rare for markets to make a “V” off the bottom. Last week the S&P traded to a low of 1,249 and was down 55 points from the previous Friday’s close of 1,304. (Now you see why we wanted a close at 1,305+).
Since then, the index has made back the majority of those losses and has formed the perfect “V” in less than a week. However, like we said, Volatility can be hard to predict inside trading ranges so this could be the start of another leg up if the bulls can keep the momentum on their side.
Tags: Citigroup, NYSE: C, reverse stock splits, straddle and strangle option trades
Posted in Financial Stocks, Market Commentary | Comments Off
Tuesday, June 30th, 2009
11:35am (EST)
American International Group’s (AIG, $1.09, down $0.24) shareholders have approved a reverse stock split that could help the company keep its listing on the NYSE. The company proposed a one-for-20 reverse stock split last week with the SEC (Securities and Exchange Commission) and it just became official.
The company also wants to bump the number of shares of its common stock from 5 billion to just over 9 billion and the preferred stock from 6 million to 100 million. Can you say dilution? Not that it’s too hard to dilute a $1 stock but people will look at AIG when it’s at $20 and wonder what happened. So, if you bought 1,000 shares of AIG at $1, it looks like you are going to have 50 shares valued at $20. Stay far away from this dog.
Speaking of stock splits, Green Mountain Coffee Roasters (GMCR, $58.54, down $0.02) recently completed a 3-for-2 stock split. This is normally a bullish event and there are ways to play these types of news events but you have to be careful.
For example, in the “old” days, you could buy a call option on a stock that was splitting and the stock normally kept going up as did the option. Nowadays, it’s a little trickier.
Green Mountain split its stock on June 9th and the price was adjusted from $93 to $62 to reflect the 3-for-2 split. Up until the split, the stock ran from $75 to $95 in just a month’s time. This is known as the “pre-announcement stage”. That was big money if you had bought a call option.
What usually happens now after a split is what is known as an “announcement pullback”. On June 9th, the stock closed at $62.57. By June 23rd, the stock hit a low of $51.65. That was “big money” if you had bought a put option right after the announcement.
Now we are seeing what is known as the “post split” rally. Since making the low of $51 last week, the stock has challenged $60 over the past few sessions. The key number we are watching is the $62.57 number because that would mean the stock is trying to resume its uptrend. A break above $60 could lead to the test of its 52-week high. Remember, most financial sites will quote $94 as the 52-week high but they do not factor the 3-for-2 split.
So basically, if Green Mountain gets back above $62-$63 it is at new highs.
I don’t like any trades for this week in Green Mountain because of the 3-day weekend coming up but lets put the July 60 calls (QGMGL, $2.00, down $0.05) and the August 65 calls (QGMHM, $2.90, unchanged) on our Watch List. You may be able to “day trade” these for this week by buying 10 or 20 contracts and looking for a 50 cent bump which would get you $500-$1,000 but don’t hold anything overnight.
Rick Rouse
Rick@MomentumOptionsTrading.com
Tags: AIG, Green Mountain Coffee Roasters, reverse stock splits
Posted in Company Commentary, Market Commentary, Strategies | No Comments »
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Bulls Looking for Big Push into April
Monday, March 28th, 2011
9:00am (EST)
“How do you like them Apples?”
This was the question the bulls left the bears with on Friday’s close as they rallied the market near its February highs. More importantly, the rally that stalled for 4-weeks is now back on as the bulls try to end March on a strong note. Although we are sure we haven’t heard the last growl from the bears, it appears our thesis that this rally would last from October 2010 to April is right on.
Of course, we didn’t expect all of the world drama that is currently grabbing the headlines but events around the globe are happening quickly which has caused a lot of the current volatility.
Things are still in a flux but the turmoil in Libya has suddenly gotten better which should mean lower oil prices. Portugal is a mess, Japan is still worrisome, sovereign debt is still an issue and higher food prices are here to stay. These headlines will continue to affect the market but it appears that the U.S. markets may actually be the best place to put your money.
The bears had the bulls in a corner the day before St. Patty’s but it has been all green since. The Dow traded to an intraday low of 11,548 on March 16 which was just above our 11,500 downside target and finished at 12,220 on Friday, up 50 points. For the week the index added 362 points, or 3.1%. The next stop the bulls are pushing is 12,500 with an outside shot at 13,000. Support is at 12,000 and 11,800.
The S&P 500 finally cleared 1,300 last Thursday which brought some buyers back into the market and ended Friday up 4 points to settle at 1,313. The index had reached a low of 1,249 on March 16 and we nailed support at 1,250. For the week, the S&P added 38 points, or 2.7%. The break back above 1,300 should carry to 1,325 with a run to 1,350 if the bulls can push through 1,334 which represents the double off the 2009 lows. The bears will target 1,300 then 1,275 again.
The Nasdaq is the real head-scratcher though. Just when it looked like Tech was going down with 3 fingers up, the bulls threw the sector a life jacket after watching it fall to a low of 2,603 by mid-March. The break above 2,700 breathed new life into the Nasdaq as it ended Friday at 2,742, up 6 ticks. For the week, Tech surged 100 points, or 3.8%. Nice. There is resistance at 2,800-2,850 but if broken there is a chance the bulls could push 3K.
We said last week that the 4-week “trading range” the market has been in since mid-February was getting stretched and becoming more volatile. After testing the bottom of that range, a week later we find ourselves back near the top of the range. These type of “V” patterns are very rare.
As a result, the CBOE Market Volatility Index (^VIX, 17.91, down 0.09) has been on a 7-session slide after touching 31.28 on…March 16. The 45% decline since has been the steepest on record which shows just how extreme the volatility has been. Remember, a VIX reading under 20 indicates confidence and calm while a reading above 30 indicates nervousness and panic. At the beginning of the month, the VIX was at 21 and the run to 31 was a 50% jump in two weeks.
The iPath S&P 500 VIX ($30.37, down $0.04) was at $35 last week and we said the option pits are quite active. The April 30 puts (VXX110416P00030000, $1.52, up $0.07) traded 13,000 contracts on Friday and easily doubled for the week.
If the bulls push the market higher then we should see the CBOE VIX fall to 14-13 which is when we would become cautious again. We said in November this rally had legs until April so we still should see one more run by the bulls. There is an old adage on Wall Street that says “sell in May and go away” so this thesis could also be playing out as well. Either way, we expect the volatility to continue into April.
We have a few trades that are thisclose to becoming official recommendations. Our Watch List has been full and we missed a few good trades last week. In our previous Weekly Wrap, we talked about Imax (IMAX, $31.71, up $1.72) and how it was at the bottom of its trading range. Shares were at $26 last Monday and we were hoping for a dip to $25.50 but it never came. Last Thursday, shares jumped 10% and on Friday they added another 6%. The calls options we were following zoomed 200%.
We are hoping some of our new trades can deliver the same kind of punch and many of them will be momentum plays. We are also profiling some WEEKLY options this morning which also may become official recommendations. These options expire this Friday, April 1.
Futures are up slightly as we head to press. Be on the lookout for a possible TRADE ALERT this morning.
Tags: CBOE VIX, reverse stock splits, RIMM, stocks that trade weekly options, straddle and strangle option trades, VIX, VXX, weekly options
Posted in Market Analysis, Market Commentary, VIX | Comments Off