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Market Updates

Dropping coverage of Qualcomm at $59.50

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Shares of Qualcomm (NASDAQ:QCOM) hit PremierMarkets.com stop at $59.50 this morning and has us dropping coverage of this stock at this time. We will continue to monitor the stock as it relates to June 5th covered call strategy when we profiled the sale of the June 65 call (AAOFM) when bid at $2.20. We feel that option expiration this coming Friday should have a trader placing a stop on this now naked call (if stopped out of the underlying stock) at $65. At the time of this writing, shares of QCOM are trading $58.28 and the covered call (AAOFM) is offered at $0.40. A trader that simply wants to close the entire position and not have to worry about the call can do so here.

Monitoring our recent trading

Last week, PremierMarkets.com tightened up a stop on a profiled options play in the Biotech HOLDRS (BBH) as we didn't want to see some decent profits erode for traders in that profiled trade on broader market weakness. We felt at the time that the bullish percent charts indicated coming broader market weakness and while we felt the biotechs were strong relative to the market, we had been seeing some nice option gains turn into small gains and even negative values lately. This perhaps goes hand-in-hand with what we are now seeing in shares of QCOM today. The stock hit our stop level and has traded lower from that point. This is further sign of weakness that didn't seem to exist last week and we're taking note of this action. When we first profiled a full position bullish trade in shares of QCOM back on May 16th, the stock immediately worked in the favor of bullish traders from the $63 level and ran to a high of $70. Understanding risk, we then began taking some defensive action by writing covered calls in the stock and raising stops on 1/2 position lots. In the end, the stock took itself out of PremierMarkets.com portfolio.

What some of the action in the PremierMarkets.com profiled portfolio is telling us is that the broader market weakness we are currently seeing seems to be more of risk management by institutions than that of specific sector action. We are seeing groups like the Networking Index (NWX.X) continue to show weakness at a more rapid pace that others, but this has been a group for sometime that we felt institutions have been avoiding. With this observations, a trader should try and avoid this group we feel near-term on the bullish side from a traders perspective. Only longer-term investors should show any type of interest and we would encourage limited interest with 1/4 positions only.

Last Thursday's profiled put play in the S&P 500

On Thursday of last week, we profiled a put play for traders in the July 1,275 put (SZPSO) on the SPX should it trade below 1,265. On Friday, this occured and traders could have bought this option. Unfortunately, my trade station feed was not working and PremierMarkets.com can not take "credit" for current trading in the option as I did not get the time and sales entry on the trade when the SPX broke below 1,265. We will follow that trade for our subscribers that did take the trade. Currently, we feel the SPX has downside fairly easily to the 1,250 level and at that time a trader might begin moving his/her stop in the option down to break-even. The recent market environment has been relatively tight ranged, but a trader willing to book 25% to 50% profits in option trades has probably faired better that those looking for home runs.

What to look for

I feel the current bullish percent charts are showing that institutions are not aggressive buyers at current levels. Markets risk is starting to decline and we feel a buying opportunity is upcoming, but probably won't present itself until later in the week and closer to triple witching this Friday if not early next week. I'd like to see the NASDAQ-100 bullish percent dip back below the "oversold" level of 30%, have the bullish percent for the S&P 500 dip below 45% and then see both of these indicators then reverse higher to set up the bullish move for the broader market. Traders willing to right some covered calls on longer-term positions they want to hold should continue to do so as we have witnessed in our profiled portfolio that this strategy has helped lessen the blow of the recent market decline.

Jeff Bailey
Senior Market Technician

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