The beauty of option trading is it's never boring--some market ups and downs got us out of several positions this past week...
NETEASE (NTES) PLUNGED LOWER THURSDAY LAUNCHING OUR NOV 37 PUTS TO A QUICK FOUR-DAY TWENTY-ONE PERCENT PROFIT!
We also sold out of our IWM calls for close to a break-even and sold out of the second half of our GS debit spread for a loss after last week's first half gain.
In addition it looks like Harley (HOG) is rolling over and already added some nice value to our put position on Friday--any more downside and this put position will chalk-up another nice profit to the win column.
When Goldman rolls over along with the rest of the financials you have to wonder how much longer this rally can last. To help find out and locate some winners for this week let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The S&P-500 tested upside resistance at 1100 twice last week and then rolled over. The index formed a lower high and Friday's close was a lower low. Decliners were 10:1 over advancers (448:46) on the S&P Friday--a bearish sign.
The Nasdaq gave up 10 points on Friday despite the gains by Microsoft and the big $25 spike higher by Amazon. If the Nasdaq could not remain positive with those heavyweights posting big gains it gives you an idea how much selling was going on everywhere else. Decliners were 4:1 over advancers on the Nasdaq Friday. This index is looking like a big drop could happen anytime--rising wedges are usually very bearish patterns.
Another consideration is the Financials are considered the overall market leaders and that sector dropped -2% for the week in spite of positive comments from Capital One and American Express. Capital One (COF) rallied +7% after posting a surprise 14% increase in Q3 profits. COF did raise loan loss provisions but they were positive on the trend in consumer credit accounts. American Express (AXP) said earnings fell -21% but reported progress in cleaning up their accounts--loan loss provisions actually decreased at AXP.
There are reasons for investors to be concerned about the financial sector with seven more banks closed on Friday bringing the total to 106 for the year. Fortunately the banks closed on Friday were small with the estimated cost to the FDIC fund at a relatively modest $357 million.
The coming week we'll see another $123 billion worth of bond debt being sold at auction. With the interest rate on the 10-year note hovering at a six-week high just under 3.5% the cost of government borrowing is starting to move up. With a $1.5 trillion annual deficit growing to a $2 trillion the cost of money is eventually going to be a very big problem. Once these auctions start seeing a lack of bids it will drive rates higher--and those higher rates will draw a lot of money from the stock market. That may not happen in the next few weeks but it will happen
The next two weeks are filled with critical economic events including another FOMC meeting. The most critical report for next week is the first look at the Q3 GDP on Thursday. Expectations are for a gain of +3.2% compared to a drop of -0.74% in Q2. This higher Q3 expectation is already priced into the markets and a miss on expectations could have a very serious impact.
On Friday the GDP for the U.K. was released and showed a -0.4% drop instead of the 0.2% gain economists had expected. The European markets fell on the news and the British pound fell -1.5% against the dollar in early trading. The problem is the U.K. is basically a mirror of the USA. They have implemented many of the same stimulus programs as the U.S. and they are still in recession. This made analysts question their predictions for the USA and Thursday's Q3 GDP estimates--a big reason for the market weakness on Friday.
This week's economic reports are a build-up to for the next week's climax with the ISM, Fed meeting and Non-Farm Payrolls.
The earnings cycle is in full swing and we'll see the most earnings reports of any week in the next five days. However the quality of the earnings may begin to decline because the majority of the big cap blue chips have already reported.
We'll primarily see small tech and energy with COP, XOM and CVX leading the energy sector and on the tech side we have GLW, ADPT, AKAM, LVLT, FLEX and SYMC to name a few. We also get the inside scoop on the retail brokers Ameritrade and Etrade. After this week we'll be on the tail-end of earnings with all that bullish anticipation behind us.
So far in this earnings cycle 37% of the S&P has reported and 81% of those companies have beaten estimates by an average of 18%. That would be a pretty impressive number except that the majority of it came from additional cost cutting with some companies still announcing layoffs. Earnings for the entire S&P are only expected to be $14.79 per share for the quarter--well below the $23-$24 per share for Q3 in 2006/2007. It is also below the $15.96 actually reported in Q3 2008. Companies are beating estimates but estimates are still so low you could crawl over them.
Volume is starting to look bearish along with the actual price on the charts with the largest volume day in the past three weeks coming on Wednesday's decline at over 10 billion shares. Thursday's rally was decent at 9.2 billion but Friday's decline was also in the 9 billion range and continued the trend of higher volume on down days.
The major indexes are showing the kind of volatility that normally appears at market tops as investors become less committed and more cautious. Everybody wants the market to move higher but the big funds are already fully invested. It's beginning to appear that strong earnings surprises are opportunities for traders to exit rather than buy more. The question is...
HOW DO WE MAKE MONEY ON IT?
We've got two plays lined up this week--the first is a both ways play we can get into for practically nothing and the second is a bullish play on an index that rises when the rest of the market falls.
Our first play is a strangle where we can buy both sides for around .50 cents! And get this--earnings are coming out toward the end of this week so we won't have to wait long to collect what should be an excellent payday.
Our next play is really on the overall market and will rocket higher if the market continues to sell off--a very strong possibility as funds move to take their profits as earnings wind down.
We've got two very nice trades lined up on increasingly volatile market--so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on http://rs6.net/tn.jsp?et=1102785369313&s=1&e=001Smf5P_-01APrJwd0Bxb-J_xlXBb5G0aJpgzvyZiW8Oh5_sCettybQnNRjjA64XFKIQTlO9OjjJHGsWvEloXlS3LggPAbc45J0EiYa9HWD_VdlvPIFQ5trw==
Monday, October 26, 2009
Friday, October 23, 2009
The Fastest Money You Will Ever Make is on the Downside
People are scared of falling markets--but they shouldn't be...
The Fastest Money You Will Ever Make is on the Downside
Stocks fall faster than they rise. This week's bearish pick from the Daily Report produced a 150% winner in 5 days! Each week one of the stock picks is highlighted that subscribers could have jumped on. They could have traded any number of strategies, but for this example an at-the-money option was selected.
A week ago (October 15th), NCR was featured as the "short of the day". Subscribers could have purchased the November $12.50 puts for just $.90. Today, the puts traded as high as $2.30 catapulting a $900 trade into $2,300 in just one week! You'll see stocks drop like this but rarely will they rise like this--the super fast profits are almost always on the downside.
Subscribe to the Daily Report to take advantage of trades like this. To learn more about a trading subscription that gives you two new trade ideas each day--one bullish and the other bearish--and a Package to take advantage of them click here.
Market Commentary -Last week, we talked about taking profits on long positions and the market has dropped. Subscribers are making great money and the action is picking up.
By the end of this week, 35% of the stocks in the S&P 500 will have reported earnings. Results have been good with 78% beating estimates. Unfortunately, that is already priced into the market. Yesterday, the S&P 500 made a new high for 2009 and an intraday reversal pushed it to a new five day low just before the close.
This type of price action tells us that significant resistance is forming. We saw the same type of price action in September and that key reversal resulted in a five-day decline. The most recent dip in September was deeper than the prior two dips and the breakout last week was minimal.
Overhead resistance does not mean that we will see a dramatic decline. There are still many Asset Managers who are under allocated and cash is still flowing into the equity market. This demand for stocks is being met by supply. Traders are taking profits after a 60% rally from the March lows. These two forces will offset each other and the market is likely to fall into a trading range throughout the rest of the year.
The comps from a year ago will be easy to beat, but as time passes, we will be closer to an interest-rate hike by the Fed. Again, these two events will offset each other. The easy money has been made and it is time to shift to a more neutral trading strategy.
Before tomorrow's open, we will hear from Amazon, American Express, Broadcom, Capital One, Western Digital, Honeywell, Ingersoll-Rand, Microsoft, Schlumberger and Whirlpool.
Amazon will post decent numbers, but future margin contraction (Wal-Mart is cutting prices) will weigh on the stock. American Express and Capital One will have increasing consumer default rates and the reaction could be negative. This has been an issue with every major bank that has announced. Microsoft has rallied ahead of the release of Windows 7 and this could be a “sell the news” event. All told, earnings could spark some selling on Friday.
Today, initial jobless claims came in at 531,000 when analysts had expected 515,000. Continuing claims dropped below 6 million. The combination was a wash and the market did not react to the release. There are a number of economic releases due out next week and they include durable goods, consumer confidence, GDP, initial claims, Chicago PMI and consumer sentiment. Analysts are looking for a 3% rise in Q3 GDP and that is likely to be the most important economic number next week.
There are great opportunities on both sides---the market is likely to chop back and forth within a 10% range (+ or – 5%) through year-end.
Bears have been carried out in body bags and for that reason we may not see a huge run-up into the end of the year. They have covered their positions and we will not see short covering rallies. At this point we should be less worried about a breakout than a breakdown. If the SPY breaks below 102, start buying short positions. This probably won't be happening, but we need to be prepared. Get your watch lists ready for stocks poised in both direction by clicking here.
The Fastest Money You Will Ever Make is on the Downside
Stocks fall faster than they rise. This week's bearish pick from the Daily Report produced a 150% winner in 5 days! Each week one of the stock picks is highlighted that subscribers could have jumped on. They could have traded any number of strategies, but for this example an at-the-money option was selected.
A week ago (October 15th), NCR was featured as the "short of the day". Subscribers could have purchased the November $12.50 puts for just $.90. Today, the puts traded as high as $2.30 catapulting a $900 trade into $2,300 in just one week! You'll see stocks drop like this but rarely will they rise like this--the super fast profits are almost always on the downside.
Subscribe to the Daily Report to take advantage of trades like this. To learn more about a trading subscription that gives you two new trade ideas each day--one bullish and the other bearish--and a Package to take advantage of them click here.
Market Commentary -Last week, we talked about taking profits on long positions and the market has dropped. Subscribers are making great money and the action is picking up.
By the end of this week, 35% of the stocks in the S&P 500 will have reported earnings. Results have been good with 78% beating estimates. Unfortunately, that is already priced into the market. Yesterday, the S&P 500 made a new high for 2009 and an intraday reversal pushed it to a new five day low just before the close.
This type of price action tells us that significant resistance is forming. We saw the same type of price action in September and that key reversal resulted in a five-day decline. The most recent dip in September was deeper than the prior two dips and the breakout last week was minimal.
Overhead resistance does not mean that we will see a dramatic decline. There are still many Asset Managers who are under allocated and cash is still flowing into the equity market. This demand for stocks is being met by supply. Traders are taking profits after a 60% rally from the March lows. These two forces will offset each other and the market is likely to fall into a trading range throughout the rest of the year.
The comps from a year ago will be easy to beat, but as time passes, we will be closer to an interest-rate hike by the Fed. Again, these two events will offset each other. The easy money has been made and it is time to shift to a more neutral trading strategy.
Before tomorrow's open, we will hear from Amazon, American Express, Broadcom, Capital One, Western Digital, Honeywell, Ingersoll-Rand, Microsoft, Schlumberger and Whirlpool.
Amazon will post decent numbers, but future margin contraction (Wal-Mart is cutting prices) will weigh on the stock. American Express and Capital One will have increasing consumer default rates and the reaction could be negative. This has been an issue with every major bank that has announced. Microsoft has rallied ahead of the release of Windows 7 and this could be a “sell the news” event. All told, earnings could spark some selling on Friday.
Today, initial jobless claims came in at 531,000 when analysts had expected 515,000. Continuing claims dropped below 6 million. The combination was a wash and the market did not react to the release. There are a number of economic releases due out next week and they include durable goods, consumer confidence, GDP, initial claims, Chicago PMI and consumer sentiment. Analysts are looking for a 3% rise in Q3 GDP and that is likely to be the most important economic number next week.
There are great opportunities on both sides---the market is likely to chop back and forth within a 10% range (+ or – 5%) through year-end.
Bears have been carried out in body bags and for that reason we may not see a huge run-up into the end of the year. They have covered their positions and we will not see short covering rallies. At this point we should be less worried about a breakout than a breakdown. If the SPY breaks below 102, start buying short positions. This probably won't be happening, but we need to be prepared. Get your watch lists ready for stocks poised in both direction by clicking here.
Monday, October 12, 2009
OUR BULLISH PICK FROM LAST WEEK--PERRIGO (PRGO) CLIMBED EVERY SINGLE DAY DRIVING THE NOV 35 CALLS TO A FIVE-DAY DOUBLE!
This past week the markets blasted higher taking just about everything along for the ride...
OUR BULLISH PICK FROM LAST WEEK--PERRIGO (PRGO) CLIMBED EVERY SINGLE DAY DRIVING THE NOV 35 CALLS TO A FIVE-DAY DOUBLE!
The stock never hit our 'official' entry price but judging by the emails we've received quite a few folks did EXTREMELY well on this pick. We also had AMZN reverse and head higher stopping us out of our puts.
The markets are on a tear higher and the big question this week is--will it last? To answer that question and find out where the new profits are hiding let's take a good look at...
WHICH WAY IS THIS MARKET IS HEADED
The SP-500 closed the week at 1071.49--just a few cents away from a new high for the year at 1071.66. Despite the chip rebound the Nasdaq is still about 30 points below its 2009 high of 2167.
The major indexes are still 30% off their highs despite a nearly 50% rebound from the March lows which many pundits take encouragement from--in other words there is still more room to run.
The chip stocks benefited from a broad sector upgrade from Deutsche Bank on Friday pushing the SOX to a +3.3% gain for the day and a 6.5% gain for the week. Tokyo Electron reported that semi equipment orders had risen 94% in Q3 from the levels seen in Q2.
Tokyo Electron is the second largest chip equipment maker behind AMAT. From the rebound in the SOX it is hard to believe that last week the index had broken support and was heading for the basement.
Most of this week's economic reports will be upstaged by the arrival of some major earnings events. Intel will be the headliner on Tuesday and everyone expects their earnings to be strong. Most chip companies have guided higher throughout the month and expectations are bullish. Intel is expected to post 27-cents in earnings.
The financials have a huge influence on the rest of the market and JP Morgan is the first of the big banks to report announcing this Wednesday before the bell--and they are expected to post strong earnings as well. The rumor is they are turning in some strong trading profits in this market. Jamie Dimon offered to loan money to the FDIC two weeks ago in an interview where FDIC head Sheila Bair was on the same panel. This should be a great earnings report.
On Thursday there are several important reports. Goldman Sachs (GS) is estimated to turn in $4.24 per share in earnings--an impressive 2.5 times their earnings for Q3-08. The financial sector in general is expected to post strong results with an average of 57% earnings improvement over 2008.
IBM will report on Thursday and investors will be hoping to see if IBM can beat their estimate of $2.38 on the strength of their services division and overseas contracts. IBM hardware revenue fell -39% in Q2 so hopefully services will make up the difference. IBM's $3.64 gain on Friday was responsible for nearly 50% of the Dow's 78-point rise.
Google will report on Thursday and has been garnering upgrades for the last several weeks on expectations for a good report. Credit Suisse upped their price target on Friday to $600 from $475 with a close at $515. Unfortunately Google has a bad habit of taking a cliff dive the day after their earnings report. Google declined for two weeks after their earnings in July.
Positive, early reports from companies such as Alcoa, on top of a generally positive tone from senior executives making the rounds of investor conferences last month helped drive recent stock gains.
Alcoa's return to profit earlier this week after three straight quarters of losses was one factor behind the S&P 500's 4.5% weekly gain - its best since July.
Analysts currently expect a 24% profit drop among S&P 500 companies from the third quarter compared to a year ago, according to FactSet. That's slightly worse than expectations in late June but is better than the 26% drop in the second quarter.
This month, 64% of all revisions for S&P 500 earnings were for better results, with analysts getting particularly optimistic about consumer staples so expectations for earnings are high.
Earnings for Q3 are expected to be strong followed by an even stronger Q4 despite the lackluster rebound in economic activity. If you look under all the hype you will see that Q3 earnings are still expected to be 25% BELOW the same period in 2008 yet investors are ready to buy ANY sign of improvement.
Much of the market is led by the financials and fortunately banks are expected to show improved earnings in spite of continued loan delinquencies. Commercial real estate loans equate to 26% of all outstanding loans at banks. Despite the rising delinquencies the banks keep rolling forward as many loans as possible. The banks are trying to push the date of accountability farther out into the future to avoid having to take the charge off in the current quarter. All the banks reporting earnings this cycle will be heavily scrutinized for increases in loan loss reserves as a leading indicator of future charge offs.
Quite a few analysts continue to warn that any improvement in earnings will come from aggressive cost cutting not increased sales. This may be a good earnings quarter relatively speaking but it is far from a quarter of good earnings. That fact may not keep the markets down though. Combine improving earnings with a Fed committed to keeping rates low and this rally should keep on going--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two trades lined up this week and they are both bullish. The first is on an index we love to make money on and this time should be no exception.
The second is on one of the financials with the best possibility of a big pop soon--and we've got an innovative way to play it that should both increase your returns AND reduce your risk.
We've got a great week in the markets lined up with plenty of news to keep things jumping--so let's get to it.
For more information on everything you receive with your Pearly Gates subscription click on http://www.cashflowheaven.com/pg/
OUR BULLISH PICK FROM LAST WEEK--PERRIGO (PRGO) CLIMBED EVERY SINGLE DAY DRIVING THE NOV 35 CALLS TO A FIVE-DAY DOUBLE!
The stock never hit our 'official' entry price but judging by the emails we've received quite a few folks did EXTREMELY well on this pick. We also had AMZN reverse and head higher stopping us out of our puts.
The markets are on a tear higher and the big question this week is--will it last? To answer that question and find out where the new profits are hiding let's take a good look at...
WHICH WAY IS THIS MARKET IS HEADED
The SP-500 closed the week at 1071.49--just a few cents away from a new high for the year at 1071.66. Despite the chip rebound the Nasdaq is still about 30 points below its 2009 high of 2167.
The major indexes are still 30% off their highs despite a nearly 50% rebound from the March lows which many pundits take encouragement from--in other words there is still more room to run.
The chip stocks benefited from a broad sector upgrade from Deutsche Bank on Friday pushing the SOX to a +3.3% gain for the day and a 6.5% gain for the week. Tokyo Electron reported that semi equipment orders had risen 94% in Q3 from the levels seen in Q2.
Tokyo Electron is the second largest chip equipment maker behind AMAT. From the rebound in the SOX it is hard to believe that last week the index had broken support and was heading for the basement.
Most of this week's economic reports will be upstaged by the arrival of some major earnings events. Intel will be the headliner on Tuesday and everyone expects their earnings to be strong. Most chip companies have guided higher throughout the month and expectations are bullish. Intel is expected to post 27-cents in earnings.
The financials have a huge influence on the rest of the market and JP Morgan is the first of the big banks to report announcing this Wednesday before the bell--and they are expected to post strong earnings as well. The rumor is they are turning in some strong trading profits in this market. Jamie Dimon offered to loan money to the FDIC two weeks ago in an interview where FDIC head Sheila Bair was on the same panel. This should be a great earnings report.
On Thursday there are several important reports. Goldman Sachs (GS) is estimated to turn in $4.24 per share in earnings--an impressive 2.5 times their earnings for Q3-08. The financial sector in general is expected to post strong results with an average of 57% earnings improvement over 2008.
IBM will report on Thursday and investors will be hoping to see if IBM can beat their estimate of $2.38 on the strength of their services division and overseas contracts. IBM hardware revenue fell -39% in Q2 so hopefully services will make up the difference. IBM's $3.64 gain on Friday was responsible for nearly 50% of the Dow's 78-point rise.
Google will report on Thursday and has been garnering upgrades for the last several weeks on expectations for a good report. Credit Suisse upped their price target on Friday to $600 from $475 with a close at $515. Unfortunately Google has a bad habit of taking a cliff dive the day after their earnings report. Google declined for two weeks after their earnings in July.
Positive, early reports from companies such as Alcoa, on top of a generally positive tone from senior executives making the rounds of investor conferences last month helped drive recent stock gains.
Alcoa's return to profit earlier this week after three straight quarters of losses was one factor behind the S&P 500's 4.5% weekly gain - its best since July.
Analysts currently expect a 24% profit drop among S&P 500 companies from the third quarter compared to a year ago, according to FactSet. That's slightly worse than expectations in late June but is better than the 26% drop in the second quarter.
This month, 64% of all revisions for S&P 500 earnings were for better results, with analysts getting particularly optimistic about consumer staples so expectations for earnings are high.
Earnings for Q3 are expected to be strong followed by an even stronger Q4 despite the lackluster rebound in economic activity. If you look under all the hype you will see that Q3 earnings are still expected to be 25% BELOW the same period in 2008 yet investors are ready to buy ANY sign of improvement.
Much of the market is led by the financials and fortunately banks are expected to show improved earnings in spite of continued loan delinquencies. Commercial real estate loans equate to 26% of all outstanding loans at banks. Despite the rising delinquencies the banks keep rolling forward as many loans as possible. The banks are trying to push the date of accountability farther out into the future to avoid having to take the charge off in the current quarter. All the banks reporting earnings this cycle will be heavily scrutinized for increases in loan loss reserves as a leading indicator of future charge offs.
Quite a few analysts continue to warn that any improvement in earnings will come from aggressive cost cutting not increased sales. This may be a good earnings quarter relatively speaking but it is far from a quarter of good earnings. That fact may not keep the markets down though. Combine improving earnings with a Fed committed to keeping rates low and this rally should keep on going--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two trades lined up this week and they are both bullish. The first is on an index we love to make money on and this time should be no exception.
The second is on one of the financials with the best possibility of a big pop soon--and we've got an innovative way to play it that should both increase your returns AND reduce your risk.
We've got a great week in the markets lined up with plenty of news to keep things jumping--so let's get to it.
For more information on everything you receive with your Pearly Gates subscription click on http://www.cashflowheaven.com/pg/
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