There is no other way to describe Wednesday's market rebound. Rumors broke about a possible solution for Greece and the short covering began. There was zero follow through and all the gains were made by 11:AM.
The spike on the chart below is all you need to know about trading on Wednesday. If you were short it was an ugly day. The markets were oversold from the two weeks of declines and when those conditions exist it only takes a little spark to light that short squeeze candle. Analysts were notably bearish on Tuesday and that means traders were loaded up on the short side.
The key for Thursday will be whether the continued rumors surrounding a potential Greek settlement will lift Europe and Asia overnight and will that carry over into the U.S. markets. Typically a rebound of this size carries over into the overseas markets but it remains to be seen if it makes a complete return to us on Thursday.
I avoided adding any bullish plays because of the potential for the short squeeze to fade. Secondly it was next to impossible to find any bullish charts because they all looked like the S&P chart above with the one day spike that could just as easily collapse.
The economic calendar for Thursday is headlined by the Retail Sales for May and analysts are expecting a +0.9% rise and that could produce a disappointment. Consumers have not been rushing to the malls recently for anything other than buying a new car.
S&P futures are down -2.50 tonight but that is nothing compared to the Wednesday bounce. Trade carefully and manage your positions. Don't load up in an uncertain market.
Send Jim an email
Current Position Changes
Stop Loss Updates
Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.
QRVO - Qorovo (Stopped)
We were stopped out on the short side the prior week and the long side was rising. I added a stop loss last week on the long put and when QRVO began to rise this week we were stopped out. This limited our loss on the combined position.
Closed long June $75 put, entry .34, exit .30, -.04 loss
WYNN - Wynn Resorts (Closed)
I suggested closing the WYNN short last Wednesday because of the volatility in WYNN and the potential for an unexpected rebound. On Thursday WYNN rebounded +$7. Fortunately we were far enough out of the money and the rebound started slow so we did not lose any of our gains.
Closed short June $120 call, entry $2.50, exit .01, +$2.49 gain
Z - Zillow (Bear Call Spread)
Zillow shares are broken. They are sinking fast as the spring home buying season comes to an end on July 4th weekend. Families typically buy homes April-June so they can move before school starts. After July 4th everyone is focused on vacations and getting ready for the new school year. Traffic on Zillow and Trulia slows significantly.
Rising interest rates are also a problem. The 30-year fixed rate is over 4% and while that is still low it is an 8 month high and rising.
Earnings August 11th.
Sell short July $95 call, currently 1.00, stop loss $93.35
Buy long July $105 call, currently .25, no stop.
Net credit .75 cents.
NSC - Norfolk Southern (Bear Call Spread)
Norfolk Southern is suffering from the decline in the energy sector and slowing demand for coal. The energy sector moves thousands of carloads of pipe and frac sand and active drilling rigs have declined by more than -60%. That means the number of new wells has also declined by -60% and associated trainloads of pipe and sand are falling as well.
Secondly the coal sector is dying. The president's war on coal is working and shipments of coal are also slowing.
Earnings are expected to be down sharply.
Earnings July 29th.
Sell short July $95 call, currently .55 cents, stop loss $93.45
Buy long July $100 call, currently .15 cents, no stop loss.
Net credit 40 cents.
Unofficial Suggestions (Bear Call Spread)
These were two possible plays I did not use today. If you are looking for something else to play you can start here. These are not official recommendations.
TAP - Molson Coors Brewing
Earnings August 6th.
Short July $77.50 call, currently 1.00
Buy July $82.50 call, currently .45
Net credit 55 cents.
SCTY - Solar City
Earnings August 6th.
Short July $60 call, currently .82
Buy July $65 call, currently .43
Net credit 39 cents.
Existing Play Recommendations
Links to original play recommendation
WYNN - Wynn Resorts (Bear Call Spread)
FSLR - First Solar (Bear Call Spread)
DDD - 3D Systems (Bear Call Spread)
GPRO - GoPro (Bull Put Spread)
TRGP - Targa Resources (Bear Call Spread)
SWIR - Sierra Wireless (Bear Call Spread)
CLDX - CellDex (Bull Put Spread)
QRVO - Qorovo (Bull Put Spread)
GMCR - Green Mountain Coffee (Bear Call Spread)
HLF - Herbalife (Bull Put Spread)
Prices Quoted in Newsletter
At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.
The prices quoted in the newsletter are the end of day prices in most cases.
When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.
For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.
For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.
All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.