Monthly Cash Machine Newsletter, Monday, 04/18/2005 03:27:32 PM ET
HAVING TROUBLE PRINTING?
Looking for a bottom...
Stocks drifted in a small range Monday as investors pondered the outlook for share values in the wake of last week's sell-off. A pair of merger announcements and some mediocre profit reports did little to instill confidence in stock buyers and the lack of enthusiasm among analysts does not bode well for share values in the near-term. Without a positive catalyst, there is little chance of renewed interest in equities and that means the major market averages may move lower before a tangible "bottom" is established.
Obviously, our bullish positions are "hanging by a thread" and while we are hesitant to close those plays now, it may yet be in the best interest of the conservative traders who follow the MCM Portfolio. With one hour remaining in Monday's session, Sealed Air (NYSE:SEE) and Black & Decker (NYSE:BDK) are trading higher while Pixar (NASDAQ:PIXR) has continued its recent decline. A quick review of the charts suggests some "recovery" potential for SEE and BDK, however PIXR looks ominous with only one level of technical support between the current price and our sold (put) strike at $90. At the same time, Pixar may enjoy some buying pressure after the 2-for-1 split on Tuesday and that event could provide the best opportunity to exit the position with a small loss.
With regard to the pending adjustments in the portfolio, the Biotech Holdrs (AMEX:BBH) has retreated slightly, providing traders with a favorable opportunity to transition to the OCT-170/165 call-credit spread. While we don't generally recommend such long-term options in a "roll-out" strategy, the unexpected rally in BBH left few alternatives short of closing the spread for a large loss. With this approach, we may be able to take advantage of a future decline in the issue and the cost of buying a little more "maneuvering" time is relatively small.
Of course, no commentary would be complete without a few observations about our current nemesis: Estee Lauder (NYSE:EL). Fortunately, the issue has stabilized today and the option prices are reasonable for traders who want to lock-in some "premium" in the new calendar spread. Currently, the MAY-$45 call is quoted at $0.70 X $0.90 thus a limit order of $0.75 - $0.80 would likely be filled prior to the market close. Since the cost basis of the (long) JUL-45 calls is approximately $1.85 per contract, the overall debit in the position would be roughly $1.05 per contract, less commissions.