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11:00am (EST)
Today is one of those rare days in the market that only happens four times a year. It’s an event known as “freaky Friday” and it occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. These days are dubbed “triple witching days” and they take place on the third Friday of March, June, September and December.
It is usually a bullish day for the market and the Dow, Nasdaq, and S&P 500 are all showing gains. The Nasdaq has been the strongest as it is up 30 points, or 1.6%, to 1,836. The bulls are trying to win the week but the bears did enough damage on Monday and Tuesday and appear to be taking today’s round off.
Will the bulls pull an upset and win the week? Well, it’s possible but unlikely. The final trading hour is known as the “triple witching hour”. Sounds like a good name for a movie but the market can get quite volatile in this final hour. We normally get high volume as traders are quickly offsetting their option and futures orders before the closing bell but I don’t think the final results will be enough for the bulls to raise their hand in victory.
You have to give the bulls credit though. The bears really could have done some damage and maybe they will but this battle could get nasty once 2Q earnings start to roll in. We have been stuck in this tight trading range and I’m looking for a breakout one way or the other once earnings start to hit the second week of July.
Taking a look at a specific trade we are following; Abercrombie & Fitch (ANF, $26.30, down $0.19) started the morning higher but appears to be heading below $26. This is our initial target area for the July 25 puts (ZWRSE, $1.20, up $0.05) but this was only meant to be a one or two day trade.
The two choices are to leave the position open or take profits. You still have the rest of the day to watch the stock and maybe we get the break later in the day and the call options make it to $1.30 or higher. If you don’t close the position, you will risk losing your profits.
I will try and update the Blog one last time today but I could be in the pits with the witches.
Rick Rouse
Rick@TheOptionInvestor.com
Palm (PALM) Drops The Ball
Friday, March 19th, 2010
9:10am (EST)
The market ended mixed on Thursday despite a number of fantastic earnings reports and an upbeat round of economic data. The bulls took 2-out-of-3 from the bears after the latest jobless report revealed that initial claims for unemployment benefits fell by 5,000 last week. It was the third consecutive decline in jobless filings and sets the stage for an improving jobs report in April.
The Labor Department also said its Consumer Price Index (CPI) was unchanged in February, suggesting that inflation remains relatively tame. In other economic news, the Conference Board’s index of leading economic indicators rose 0.1% and the Philadelphia Fed Index for March came in at 18.9, which was slightly above the reading of 18 that Wall Street had been expected.
As a result, the Dow rallied 46 points, or 0.4%, and settled at 10,779. The index traded as high as 10,784 and went out near its high which was a good sign as we zone in on our target of 10,800. We know we are within spitting distance, and if we were playing horseshoes this would work but we really would like to see a close above this level today. That would pave the way for Dow 11,000 depending on what happens with healthcare this weekend.
The Nasdaq added a deuce and closed at 2,391 but traded in a tight range as we try to close above the 2,400 level we have mentioned. We touched this level on Wednesday but missed the mark yesterday as the index only made it to a high of 2,394.
The lonesome loser was the S&P 500 which slipped a half-point to finish at 1,165. Our target is 1,175 then a possible run to 1,200.
Folks, we have been flagging these targets since August and we nailed it when the indexes traded near these levels in January. The market then faded but we knew these targets would come into play once the bulls got back on track. However, now that we are here again, you can see where we are running into resistance and it will be important for the bulls to make a statement to get us through this level.
Today is “Triple Witching” so we could see some added volatility with the March options expiring. There will be battles fought at all levels and a lot of key strike prices will come into play as both the bulls and bears try to get the prices they want.
We can give you a great example this morning and all you have to do is watch the action in Palm (PALM, $5.65, up $0.28) today and into the closing bell. The company reported earnings last night and in after-hours trading shares were below $5. Palm issued a revenue forecast for the current quarter that was far below analysts’ expectations.
The company said it lost $18.5 million, or $0.13 a share versus a loss of $95 million, or $0.89 a share, in the year-earlier period. Revenue more than tripled to $350 million compared to $90 million but Palm is a mess.
Wall Street was expecting the company to report a loss of $0.42 a share on revenue of $316 million.
The problem with Palm is that their inventory is built up at wireless carriers and sales aren’t as brisk as they once were. Even their CEO admitted to “execution missteps” in a conference call and said they are working “aggressively” to boost sales.
Yeah, good luck buddy catching Apple (AAPL, $224.65, up $0.53)
Palm is facing a rapidly closing window to carve out a space in the competitive smartphone market and this report shows how they have dropped the ball.
As far as action, watch the March 5 puts (UPY100320P00005000, $0.17, down $0.03) and the April 5 puts (UPY100417P00005000, $0.44, down $0.05) today. We had the March puts on our Watch list Monday and Tuesday and they were at 10 cents. We should have backed the truck up because we had a feeling this dog was going below $5.
Shares of Palm are at $4.62, down $1.01 in pre-market trading.
As we head to press, Dow futures are up 11 to 10,728; S&P 500 futures are up 3 to 1,163; Nasdaq 100 futures are higher by 2 to 1,945. Subscribers, check the Members Area for the updates.
Tags: AAPL, options picks, Palm, stock option signals, Triple Witching
Posted in Earnings, Market Commentary | Comments Off