TEN Exclusive: Options Update – 1/10/10
Sunday, January 10th, 2010Written by Dan Micovic
The New Year began with a bang as the market gained 1.5% on Monday but then quickly reverted back to its slumber of December. Even employment reports from ADP and the U.S. Labor Department were unable to interest Wall Street for very long, and the Dow eventually closed just 35 points higher than Monday’s close.
Just as quickly as the SPX retreated below the important 1,121 area in 2009′s final hour of trading, it just as quickly pushed right back above 1,121 and the 2009 highs in the opening hour of the new decade.
In addition to the expiration of January options, the beginning of the fourth-quarter earnings season highlights the calendar this week. The question to be answered is whether or not earnings reports will be strong enough to keep the current trend intact, or will they be the catalyst for a quick reversal after the recent breakout?
We have plenty of support around the 1120 level but not much support between our current lofty level and 1120. That said, retail investors remain optimistic which is quite different from what we saw in 2009 around earnings. It will take major disappointments to drive this market lower and to hold it lower. Of course the possibility does exist that we could see a 5% pullback as we did last October, but we’re anticipating this week to continue trending higher.
Potential resistance for the SPX is at 1,155, with solid support between 1125-1120. Should we breach that support, the major line of support is down around 1100.
We expect the market to [private_Options Update]continue grinding higher in the near term.
Weekly Economic Calendar:
Monday
- Monday marks the start of the fourth-quarter earnings season, as Alcoa Inc. (AA) is joined by Helen of Troy Limited (HELE) and WD-40 Company (WDFC) with reports due.
Tuesday
- Traders will be greeted with the November trade balance on Tuesday. Infosys Technologies Limited (INFY), KB Home (KBH), and SUPERVALU INC. (SVU) are slated to release earnings.
Wednesday
- The December Treasury budget, the Fed’s Beige Book, and weekly U.S. petroleum supplies will all be released. Sealy Corp. (ZZ) is the lone earnings report of note slated for release on the session.
Thursday
- Traders will see weekly initial jobless claims, December retail sales, December import/export prices, and November business inventories. Origin Agritech Limited (SEED), Intel Corp. (INTC), and Shuffle Master Inc. (SHFL) are scheduled to report earnings.
Friday
- The week closes with data on consumer inflation in the form of the December consumer price index (CPI), while the Empire State manufacturing index for January, December’s capacity utilization and industrial production reports, and the January University of Michigan’s consumer sentiment index are also on the docket. JPMorgan Chase & Co. (JPM) is the only major company releasing earnings on Friday.
New Trade Idea:
Buy the Martha Stewart (MSO) Feb 5 call (MSOBA) at $1.10 or better
Martha Stewart is finally moving again after a month-long consolidation. We have a clear breakout and the stock should run to $6.50 before meeting any resistance. Use $5.75 on the stock as a mental stop.
Buy the DryShips (DRYS) Feb 6 call (OOCBF) at $.95 or better
DryShips is making a nice move here and we think we can get to $7.50 early this week. This is a stock we have traded before and when it moves, it really moves. Use a conservative stock price of $5.50 as a mental stop.
Buy the Delta Air (DAL) Feb 12 call (DALBO) @ $1.10:
We have a nice gain here although the stock did pull back on Friday after UBS removed it from one of its buy lists. We should see the stock trade higher this week and look to take profits in the $1.90 area. Use a close of $1070 on the stock as a mental stop.
Buy the Symantec (SYMC) Feb 19 call (SYQBI) @ $0.65:
Not much movement at all the past two sessions. Continue to hold with $17.50 on the stock as a mental stop.
Imax (IMAX) Feb 12.5 calls (IMQBV) @ $1.70
Another Winner! We suggested taking profits anywhere above $2.30 and that’s just what we did on Thursday for a smooth +35% profit. Great trade.
FedEx Jan 95 Call (FDXAS) @ .40:
We continue to hold FedEx. The stock moved on Friday after UPS raised expectations looking forward. FedEx may do the same this week. We have nice support here and we need the stock to break and hold above the $85.50-$86 level. We should see the stock try to fill the gap and we could see a $90 stock over the next several sessions. Continue to hold with $81 as a mental closing stop on the stock price.[/private_Options Update]
