TEN Exclusive: Options Update – 2/7/10
Sunday, February 7th, 2010Written by Dan Micovic
Let’s hear it for the bulls who staged a furious last hour rally on Friday, rallying the Dow nearly 200 points and closing slightly above the 10,000 level.
Growing concerns about European sovereign debt and a less-than-inspiring January nonfarm payrolls report were the focus of the bears as the market was pummeled mid-week. After a subpar January, it appeared that we were back on track with strong sessions both Monday and Tuesday.
The rally reversed on Wednesday, after a weaker-than-expected ISM services index and an uninspiring ADP employment report. For the week, the DJIA fell 0.5%, while the S&P 500 Index (SPX) gave back 0.7%. The Nasdaq Composite (COMP), meanwhile, backpedaled only 0.3% for the week.
There are both positives and negatives to take out of this past week from a technical perspective. It is disappointing that the anticipated bounce only last for two sessions, but when it was all said and done; the SPX only lost 7 points on the week. We highlighted last week the importance of getting above the 80-day moving average around the 1100 level, and that’s precisely where the rally stalled and we rolled over. Fortunately the market did find plenty of support around the 1040 area and we did get a strong bounce. This is roughly the 160-day moving average area.
We think that the market will test to the downside again this week. For our purposes, which are short-term trades, you have to remain focused to the downside until sentiment and the trend clearly point higher. Keep in mind that many stocks are now giving oversold reading and there will be plenty of short squeezes occurring to give the impression that the market will run, but these should be short-lived rallies. We wouldn’t be surprised to come into Monday with positive futures, but it should be short-lived.[private_Options Update]
Weekly Economic Calendar:
Monday
- There are no economic reports slated for release on Monday. Hasbro Inc. (HAS), Loews Corp. (L), Electronic Arts Inc. (ERTS), and Evergreen Solar Inc. (ESLR) will release earnings.
Tuesday
- December’s wholesale inventories are scheduled for release on Tuesday. BJ Services Co. (BJS), Biogen Idec Inc. (BIIB), The Coca-Cola Co. (KO), Pulte Homes Inc. (PHM), Baidu Inc. (BIDU), and The Walt Disney Co. (DIS) will release earnings.
Wednesday
- The December trade balance, weekly crude inventories, and the January Treasury budget will be released on Wednesday. Computer Sciences Corp. (CSC), Elan Corp. (ELN), Sprint Nextel Corp. (S), Allstate Corp. (ALL), and Boston Scientific Corp. (BSX) will report earnings.
Thursday
- Traders will get the weekly initial jobless claims, January’s retail sales, and December’s business inventories on Thursday. Akeena Solar Inc. (AKNS), AutoNation Inc. (AN), JA Solar Holdings Co. Ltd. (JASO), PepsiCo Inc. (PEP), Agilent Technologies Inc. (A), Buffalo Wild Wings (BWLD), Cheesecake Factory Inc. (CAKE), McAfee Inc. (MFE), and Panera Bread Co. (PNRA) will report earnings.
Friday
- Friday brings only February’s University of Michigan consumer sentiment index. PepsiAmericas Inc. (PAS) and Duke Energy Corp. (DUK) will report their earnings on Friday.
New Trade Idea:
Buy JP Morgan (JPM) March 38 call (JPMCC) at $2.35 or better:
JPM has retraced to its support level and the 200-day moving average is approaching the 30-day moving average. With JPM at its 7-month low, this looks like a good entry point on the 38 calls for a nice short-term gain.
Buy Whirlpool(WHR) March 75 put (WHROO) @ $4.60 or better:
Whirlpool peaked in early January along with the overall market and has put in a series of declining tops which should ultimately take this stock to $70 and perhaps down to the mid-$60′s.
Open Positions:
Research in Motion (RIMM) March 70 Call (RFYCN) @ $2.60:
Research in Motion is finally beginning to fill the gap from back in December. The next targets for the stock are $68.50 and then $69.70 on its way above $70. Continue to hold.
Apollo Group (APOL) March 60 Put (OAQOL) @ $3.30:
Continue to hold. 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.
Exxon (XOM) March 65 call (XOMCM) @ $2.20:
Continue to hold. Use a target of $4.50 for the calls and a stop of $1.40.[/private_Options Update]
