TEN Exclusive: Options Update – 2/28/10
Sunday, February 28th, 2010Written by Dan Micovic
Last week was a nervous one but when it was all said and done, the S&P 500 Index (SPX) still finished within half-a-percent of where it started the week. We look at it as a considerable win for the bulls, that they were able to hold the 1100 level. This level had been considered major resistance in the prior weeks and it is slowly turning into a decent level of support.
We did have spots of bad news this past week as a steeper-than-expected drop in consumer confidence caused the Dow to give up nearly 1%. Chairman Bernanke was able to reverse that loss the next day by telling lawmakers that the massive stimulus of the last year helped launch an economic recovery, but that the unemployment picture will likely remain weak. He also said inflation is expected to remain subdued, and that the Fed intends to keep interest rates at their historic lows for some time.
It seems that the average investor as well as the seasoned trader, have begun to factor the potential of negative headlines into their trading, reducing the great sell-offs that we have seen in the past. Panic selling has all but virtually disappeared in recent months. The SPX stayed in a very tight range of 1094-1108 this past week despite some troubling news.
We think that the SPX will have considerable resistance between the 1110-1115 level and strong support around 1080-1085. We are now mildly bullish and will add calls early this week to reflect our sentiment. Expect choppiness and a tight range, but when we do breakout it should be to the upside.
Weekly Economic Calendar:
Monday
- January’s personal income and spending reports, the January personal consumption and expenditures (PCE) price index, January’s construction spending index, and the Institute for Supply Management’s (ISM) manufacturing index for February will be released. DISH Network Corp. (DISH), Edison International (EIX), Rowan Companies Inc. (RDC), The Dress Barn Inc. (DBRN), MBIA Inc. (MBI), and NutriSystem Inc. (NTRI) will release earnings.
Tuesday
- February’s auto sales will be released. AutoZone Inc. (AZO), Boyd Gaming Corp. (BYD), Cooper Tire & Rubber Company (CTB), Staples Inc. (SPLS), and Hovnanian Enterprises Inc. (HOV) will release earnings.
Wednesday
- The February Challenger, Grey, and Christmas job cuts report, the February ADP employment report, the February ISM services index, the March Fed Beige Book and the weekly report on U.S. petroleum supplies will all be released. Big Lots Inc. (BIG), BJ’s Wholesale Club Inc. (BJ), Canadian Solar Inc. (CSIQ), Costco Wholesale Corp. (COST), Joy Global Inc. (JOYG), Coldwater Creek Inc. (CWTR), Take-Two Interactive Software Inc. (TTWO), SINA Corp. (SINA), and Yamana Gold Inc. (AUY) will report earnings.
Thursday
- Weekly initial jobless claims, the fourth-quarter productivity report, January’s factory orders, and January’s pending home sales report will all be released. Del Monte Foods Company (DLM), Fuel Systems Solutions Inc. (FSYS), Suntech Power Holdings Co. Ltd. (STP), Urban Outfitters Inc. (URBN), Wendy’s Arby’s Group Inc. (WEN), and Marvell Technology Group Ltd. (MRVL) are scheduled to report earnings.
Friday
- February’s unemployment rate, nonfarm payrolls, hourly earnings, and the January consumer credit report will be released. Aircastle Limited (AYR), Assisted Living Concepts Inc. (ALC), and Solarfun Power Holdings Co. Ltd. (SOLF) are releasing their earnings reports on Friday.
New Trade Idea:
Buy PNC Financial (PNC) March 55 Calls @ .95 or better:
We really like the way the financials have perked up and PNC quietly inched higher last week. It’s at a critical breakout level and we think with some decent economic news, this stock should really prosper. Use 1.75 as a target and use a mental stop of .50.
Buy Morgan Stanley (MS) March 28 Calls @ 1.00 or better:
Same story here with Morgan Stanley. The stock acted wel on Friday and is setting up for a volatility squeeze. We could see $29-$30 on the stock very quickly. Use $2.20 as a target and .55 as a mental stop-loss.
Open Positions:
Rackspace (RAX) March 20 Calls (RAX100320C20) @ $1.05:
The stock is breaking out nicely from its base and we think we could hit $21 this week. Look to take profits around $2.00 on the calls and keep a mental stop of .40 on the calls.
International Paper (IP) March 24 Calls (IUI100320C24) @ $1.35:
This position was closed on Friday.
Ambercrombie & Fitch (ANF) March 35 Calls (ANF100320C35) @ $1.65:
The stock is beginning to heat up here and we should see a move above $37 shortly. Continue to hold and look to take profits on the calls around $3.00. This is shaping up to be a great trade.
