Option Investor
Market Updates

Bullish tone builds to best levels of year

Printer friendly version

The major indexes are challenging their 2003 highs after the regional Empire State Index jumped to a reading of 26.8 in June, the highest level in the two-year history of the survey, which was well ahead of the 9.6 forecast of regional economists. While the Empire State survey is not considered a "key" economic report, it was one of the first economic reports released in recent weeks that showed a substantial gain in manufacturing activity for a regional index.

The news sparked an early morning rise in stock futures and when cash markets opened for trading, gains have been building steady with the Dow Industrials (INDU) 9,257 +1.54% currently at its best levels of the session and holding at 141.82 point gain. Trading curbs would be in place should the Dow gain 150-points.

Sector action is broadly positive with only the Oil Service Index (OSX.X) 94.86 -1.56% showing a loss. The broader S&P 500 Index (SPX.X) 1,005 +1.67% looks to break free of the psychological 1,000 level with the Biotechnology Index (BTK.X) 484.55 +3.29%, Dow Jones Home Construction Index (DJUSHB) 480.69 +3.07% leading sector gains. Multiple sectors post gains greater than 2%, with the Airlines Index (XAL.X) 52.26 +2.89% boosted higher by component Frontier Airlines (NASDAQ:FRNT) $8.60 +12.71% triggering a tiple-top buy signal at $8.50 after a morning upgrade from Morgan Stanley to "overweight" from "equal-weight" based on airfare data which suggests pricing in FRNT's top markets stabilizing and moving higher. Morgan Stanley has a price target of $12. As noted in this morning's market monitor, today's trade at $8.50 has FRNT generating a new buy signal on its PnF chart with initial bullish vertical count currently building to $14. I like 1/2 bullish positions in the FRNT November $7.50 calls (FUOKU) ($1.90 x $2.10) with the stock still below its bearish resistance trend of $13.50.

Gain in biotechs and a reversal from early losses in the Semiconductor Index (SOX.X) 367 +1.63% has helped boost the NASDAQ-100 Index (NDX.X) 1,230 +2.16% to its best levels of the session. The NASDAQ-100 Tracking Stock (AMEX:QQQ) $30.59 +2.1% shows a $0.63 gain. In Friday's 11:00 AM EST update, we profiled a bullish trade for naked put or covered put sellers in the June $29 puts for $0.20. I've had several e-mail questions from traders that took the trade, looking for some premium deterioration over the weekend and now wondering if we should be bidding the contract for $0.10 to capture gains. I'm thinking today's gains help reduce the possibility that the QQQ trade $29.00 on or before Friday expiration and would do nothing at this time.

Jeff Bailey

Intraday Update Archives