TEN Exclusive: Options Update – 1/31/10
Sunday, January 31st, 2010Written by Dan Micovic
Another disappointing week from the market as the DJIU slipped another 1% and that capped the month of January with a 3.5% loss, the worst monthly performance since February 2009. The overall picture is beginning to look bleak as we have weakened substantially from a technical perspective, where the SPX Index has ventured below its 80-day moving average for the first time since last March, which was the bottom for 2009.
Let us not forget that only a few short weeks ago, the SPX was trying to break above the major resistance at 1150. It failed in each of its several attempts. Now the market has failed several times to get above its 80-day moving average at roughly 1100. In the past a break above the level proved to be a very bullish sign and a break below were excellent buying opportunities. The RSI (relative strength indicator) tells us that we are oversold at these levels and that a bounce should come soon. However, the failure to take the 1100 level back indicates to us that perhaps we have not seen the low of this correction.
Therefore remain diligent and proceed cautiously. Resistance remains in the 1100-1110 area on the SPX, while major support lies all the way back down at 1040. 1100 is the critical 80-day moving average that we have to conquer. [private_Options Update]
Weekly Economic Calendar:
Monday
- The economic calendar for February begins with the release of December’s personal income and spending data, as well as December’s construction spending and the January Institute for Supply Management (ISM) manufacturing index. Exxon Mobil Corp. (XOM), Humana Inc. (HUM), Sohu.com Inc. (SOHU), and Tupperware Brands Corp. (TUP) will report earnings.
Tuesday
- January’s auto sales and December’s pending home sales reports are scheduled for release. BP plc (BP), D.R. Horton Inc. (DHI), The Hershey Company (HSY), Lexmark International Inc. (LXK), United Parcel Services Inc. (UPS), Whirlpool Corp. (WHR), News Corp. (NWS), and VeriSign Inc. (VRSN) are expected to release earnings.
Wednesday
- The January ADP employment report, the ISM services index, and weekly crude inventories will be released. Comcast Corp. (CMCSA), Pfizer Inc. (PFE), Polo Ralph Lauren Corp. (RL), Time Warner Inc. (TWX), Travelzoo Inc. (TZOO), Broadcom Corp. (BRCM), Cisco Systems Inc. (CSCO), MEMC Electronic Devices Inc. (WFR), Visa Inc. (V), and YUM! Brands Inc. (YUM) will report earnings.
Thursday
- Traders will see weekly initial jobless claims, the fourth-quarter productivity report, and December’s factory orders today. Avon Products Inc. (AVP), Burger King Holdings Inc. (BKC), The Clorox Co. (CLX), Kellogg Co. (K), MasterCard Inc. (MA), Reynolds American Inc. (RAI), Royal Gold Inc. (RGLD), Sony Corp. (SNE), Bebe stores inc. (BEBE), Con-way Inc. (CNW), and Sunoco Inc. (SUN) are scheduled to report earnings.
Friday
- Friday brings us January’s unemployment rate, nonfarm payrolls, and December’s consumer credit report. Aetna Inc. (AET), Beazer Homes USA Inc. (BZH), Tyson Foods Inc. (TSN), and YRC Worldwide Inc. (YRCW) are scheduled to release their earnings reports on Friday.
New Trade Idea:
Buy Apollo Group (APOL) March 60 Put (OAQOL) @ $3.30 or better:
The for-profit education stocks are beginning to rollover after student lending legislation stalled. Apollo is nearing its last major line of support and we could see a quick drop to its old support around the $58 level. Use a mental closing stop of $1.90 for the option and a rough target of $5.30.
Buy Johnson Controls (JCI) March 27.5 Put (JCIOY) @ $1.40 or better:
Shares look to be topping out around the 61.8% Fib Level and have broken below its 20 day MA here. The recent worries at Toyota could weigh on the outlooks for these auto part stocks. Use a mental closing stop of $0.70 for the option with a target of $2.10.
Open positions:
Zion Bancorp (ZION) Feb 18 put (ZNQNF) @$0.85:
Continue to hold. Zion appears to have gotten a bit ahead of itself here especially with all of the uncertainty of the Obama banking reform. We think we’ll see a quick move back down to the $17 level. Use $1.30 as a target and .45 as a stop.
Exxon (XOM) March 65 call (XOMCM) @ $2.20:
Continue to hold. Exxon has earnings due on 02/01 and today traded down to the $65 level, a level it hasn’t touched since October. Back in October it bounced off of this level and went on a two-week run. We anticipate a bounce from these levels as we head into earnings. Use a target of $4.50 for the calls and a stop of $1.40.
Symantec (SYMC) Feb 19 call (SYQBI) @ $0.65:
This play was closed after our stop-loss was triggered.[/private_Options Update]
