TEN Exclusive: Options Update – 1/3/10
Sunday, January 3rd, 2010Written by Dan Micovic
The New Year is finally here and we should get back to “normal volume†and better directional trading. The bears took control of the final day of 2009, as Wednesday’s upbeat Chicago PMI reading was revised lower to 58.7. Stocks traded in a narrow range throughout most of the day, but then fell sharply in the final hour. The Dow closed down 1.1% for the day and 0.9% for the week. Still, it mustered a mild 0.8% advance for the month of December and was up a healthy 18.8% for the year. The S&P 500 Index slipped 1% for the week, but added 1.8% for December. For 2009, the broad-market barometer jumped 211.9 points, or 23.5%. The Nasdaq Composite (COMP) shed 0.7% for the week, but notched the biggest monthly rally of all its peers, up 5.8% in December. The COMP also racked up the largest percentage gain for the year, wrapping up 2009 with an advance of 692.1 points, or 43.9%.
The S&P 500 Index (SPX) made new calendar-year highs in the 1,130 area early last week, but the decades last week of trading ended on a sour note. Massive selling in the last half hour of trading on Thursday pushed the SPX back below 1,120, the 50% retracement of the 2007 high and 2009 low. This is worrisome and will take a few sessions to work itself out.
From a technical perspective, it is discouraging that the SPX closed the year back below the 1,120 area. Keep in mind that the break above the 1120 level was done with extremely low volume and plenty of investors were dubious of the achievement. If you are a technology bull, then you are still encouraged by the price action in the Nasdaq Composite (COMP), as the breakout above 2,200 was more convincing than the SPX’s breakout above the 1,120 area.
We are most likely in for the same choppiness that we witnessed during the last two months of 2009, but with higher volume the potential for a sharp move in either direction is much greater. It’s not a good idea to place any large bets until the markets work through this period and a direction is established. We think that it will take a few weeks but we will see a sharp move during January.
[private_Options Update]
Weekly Economic Calendar:
Monday
- The economic calendar kicks off with the release of November construction spending and the Institute of Supply Management (ISM) manufacturing index for December. There are no major earnings reports scheduled for release
Tuesday
- Traders will digest November factory orders and December auto sales. The Mosaic Company (MOS) is slated to release earnings.
Wednesday
- The lone economic report will be the ISM service index for December. Monsanto Company (MON) will release earnings.
Thursday
- Economic news is relatively quiet on Thursday, as traders will see only weekly initial jobless claims.
Friday
- The week closes with a bang, as traders will receive December nonfarm payrolls, the unemployment rate, November wholesale inventories, and the consumer credit report. There are no major earnings reports slated for release on Friday.
New Trade Idea:
We will not release a new trade today as we want to see what the market does during the first few sessions of 2010. We will have a few new trade ideas on Wednesday.
OPEN POSITIONS:
Buy Imax (IMAX) Feb 12.5 calls (IMQBV) @ $1.70
The stock had a solid week but succumbed to the overall market weakness on Thursady. Their latest release, Avatar, is doing blockbuster numbers and has changed the movie-going experience. Once the overall market volume picks up this stock should really outperform. Use a mental stop of $12.25 on the stock.
Yingli Energy Jan 16 Call (YGEAT) @ .95:
YGE had 3-4 solid trading days and was on the verge of a clear breakout before trading volume dropped due to the holidays. Now with volume expected to pick up, we expect a clean breakout in the near-term. Continue to hold and use a closing price on the stock of $14.50 as a mental stop.
FedEx Jan 95 Call (FDXAS) @ .40:
FedEx attempted to rally and made a nice move higher before Thursday’s sell-off. We should see the stock try to fill the gap from last week 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]
