Option Investor

Portfolio Review

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An Outstanding Week For Stocks!

The major equity averages soared Friday on the heels of favorable employment data, which bolstered investor optimism about the economy and future corporate earnings. The broad S&P 500 index hit a multi-year high during the session, closing up 11 points at 1,222. Blue-chips also rallied with the Dow up 107 points to 10,940, while the technology-laden NASDAQ gained 12 points to 2,070.

Most of the bullish spreads in the MCM Portfolio benefited from the upside momentum and only Watson Pharmaceuticals (NYSE:WPI), which is consolidating after its recent advance, warrants close attention as it tests support near the sold (put) strike at $30. In contrast, a few of the bearish positions are approaching previous resistance areas and may require exit or adjustment trades in the coming week. Among the most critical is LM Ericsson Telephone (NASDAQ:ERICY), which closed at $30.34 despite a lack of (technical) buying pressure in the issue. Obviously, the stock is at a "key" moment and with the spread's break-even point at $30.55, any further rise in its share value will force our exit (via the call-covering strategy) from the position.

At the same time, a review of the ERICY (1 month) chart suggests the stock may be reaching a near-term top in its trading cycle thus we caution readers to carefully weigh the risk-reward outlook in any exit strategy they are considering. The obvious question is: How much upside potential exists in ERICY during the next two weeks? More importantly, is the risk from this movement acceptable in order to allow the stock time to confirm (or clearly define) a near-term trend? While it's always easier to follow our recommendations, they may not be appropriate for your particular situation and this is one instance where we believe each individual trader should analyze ERICY's recent price history and make a decision based on their assessment of the stock.

Netease.com (NASDAQ:NTES) is another issue on the "watch" list but thankfully, it did not participate in Friday's rally. With a cautiously optimistic outlook in mind, we will continue to monitor the stock closely in the coming sessions. Amazon.com (NASDAQ:AMZN) and Career Education (NASDAQ:CECO) appear to be comfortably distant from their respective sold calls and the new positions in Harman International (NYSE:HAR) and Silicon Laboratories (NASDAQ:SLAB) did not make any notable moves in conjunction with the bullish activity. With regard to Estee Lauder (NYSE:EL), we have decided to track the position in the MCM Portfolio as a number of readers were able to initiate the spread at the suggested "target" credit of $0.35 per contract.

MCM Staff

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