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12:35pm (EST)
The market opened lower on the negative headlines from overseas, which we covered this morning, and the momentum to the downside was strong as the Dow headed towards a triple digit loss shortly after the bell. The index has traded to a low of 11,573 so it didn’t quite hit triple-figures.
We have bounced off the lows but some investors seem to be taking profits ahead of the earnings season which kicks off tonight. Alcoa’s (AA, $16.48, up $0.06) earnings report after the close today will “officially” be the start of 4Q earnings season and Wall Street is looking for a profit of $0.19 a share on revenue of $5.7 billion, on average. The consensus range is for Alcoa to earn $0.16-$0.30 on $5.5-$6.1 billion for revenue so there is a chance the company surprises or disappoints.
Alcoa has posted better-than-expected results for the past two quarters, beating both earnings and revenue estimates. The 52-week high is $17.60 and shares were strong all last week heading into today’s report. We pointed out in our latest video that the company would be announcing today and a call option trade would have worked well last week. For our trading manual, How to Trade Options on Momentum Stocks, we show you how to play earnings but we will probably sit Alcoa’s out. With a recent 20+% pop in the stock, we feel the easy money has already been made.
One group having a rough day is the Educational sector which is getting hammered after Strayer Education (STRA, $118.17, down $35.07) said winter enrollment is off by 20%. We have been warning you to stay away from this sector for years (unless you are shorting it), especially Apollo Group (APOL, $35.89, down $2.09) because of the shady shenanigans they use to enroll people. The entire sector is a joke and the hammer is about to fall as the sector’s debt begins to swell on unpaid student loans.
As we head to press, the Dow is down 44 points to 11,630 and we are looking for 11,600 to hold. There is further support at 11,500 but we doubt things get that crazy today.
The S&P 500 is off by 4 points to 1,267 and has traded to a low of 1,262. After breaking out past 1,250-1,260 last week, this zone should act as support.
The Nasdaq is showing a decline of 5 points to 2,698 and has dipped below 2,700. There is further support at 2,650 but Tech still looks strong.
We have a ton of information to cover this afternoon in our Members Area as one of our trades was stopped out. We had already closed half of the recommendation to protect profits but the other half continued to surge before falling back today. Still, we can’t complain. Our subscribers banked over 180% on the trade.
We will be back Tuesday morning with a full update.
Education Stocks Feeling the Heat
Tuesday, August 17th, 2010
9:00am (EST)
The market ended mixed on Monday as the bulls and bears battled to a draw on what was the second-lightest volume day of the year. The bears held an early advantage as the major indexes dropped nearly 1% after the open but the bulls managed a steady comeback the rest of the day.
As we enter the dog days of summer, we expected volume to dry up, but yesterday’s action wasn’t a good sign if you are bullish. Trading has been light in recent weeks but the bulls will need volume to pick up if they expect to have a sustained rally.
The Dow traded to a low of 10,209 before finishing the day down 1 point at 10,302. We have been mentioning that 10,200 would act as the first layer of support with a possible test of 10,000 should a break below this level occurs. Overhead resistance is at 10,400.
The S&P 500 was up fractionally and settled right where it started the day at which was 1,079. The index traded down to our 1,070 target, making a low of 1,069, which could clear the way for a test of 1,050 again. Short-term resistance remains at 1,100 for the bulls.
The Nasdaq continues to be the most volatile of the major indexes and has been making the bigger moves of late. The index added 8 points to close at 2,181 but touched a low of 2,155. Our near-term targets are 2,150 and then a possible test to 2,050. Tech traded to a high of 2,193 but continues to have trouble with the 2,200 region.
One sector on the move yesterday were the Education stocks which got slammed over regulatory uncertainty. There are concerns the government will impose tighter controls on student loans and Wall Street has been downgrading these stocks in a hurry.
Corinthian Colleges (COCO, $5.22, down $1.44) tanked over 20% and traded 40 million shares, or 10x normal daily volume. The August 7.50 put options (COCO100821P0007500, $2.45, up $.135) zoomed 120% as the stock made a fresh 52-week low.
Strayer Education (STRA, $163.26, down $36.75) got slammed for an 18% loss but the August 155 puts (STRA100821P00155000, $1.75, up $1.20) soared nearly 220%.
Capella Education (CPLA, $60.94, down $9.26) fell 13% but touched a low of $56.44 before rebounding. Now you know why we trade options…
We have been mentioning the Education stocks, specifically, Apollo Group (APOL, $40.98, up $2.04) which bucked the trend yesterday, and their shady business practices for nearly two years now and this bubble is finally popping.
We tried playing options on Apollo back in May and lost 16% after shutting the trade down due to volatility. At the time, shares were at $55 and we knew the stock was setting up to test 52-week lows. We were just a little early at the time but the chart said it all.
The good news is that we took another look at Apollo over the weekend and the selling pressure might not be over. If shares break below $38, we could quickly see a run to the lower $30’s. Currently, the 52-week low is $38.39 and some support should come in at $35, but over the next month or two this stock could lose another 25%.
Futures are pointing towards a slightly higher open despite some less-than-stellar economic news which we will go over this afternoon. Dow futures are higher by 63 points to 10,336 while the S&P 500 futures are up 10 points to 1,087. The Nasdaq 100 futures are showing a 12 point pop and are at 1,832.
Tags: APOL, COCO, CPLA, option picks, stock options trading, STRA
Posted in Company Commentary, Market Analysis, Sectors | Comments Off