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Daily Newsletter, Wednesday, 11/26/2008

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Table of Contents

  1. Market Wrap
  2. In Play Updates and Reviews

Market Wrap

Horn of Plenty

[Image 1]

The S&P 500 (SPX.X) 887.68 +3.53% rose for a fourth-straight session, something it hasn't been able to do since April after traders digested a plate full of weak economic data brought on by the continued credit crunch.

Global Economic Calendar - 11/26/08

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Not unlike a Thanksgiving dinner with all the "fixings," today's economic calendar was full.

Prior to the opening bell, hors d'oeuvres were served with October durable goods orders falling a more notable 6.2% as tight credit conditions found weak demand for high-priced items like cars, machinery and computers.

U.S. consumers cut spending during October at the steepest rate in more than seven (7) years according to the Commerce Department, while those with jobs (that have received a paycheck for services rendered) saw their income rise by 0.3% in the same period.

The Dow Jones Home Construction Index (DJUSHB) 212.00 +10.85% was atop today's list of sector winners.

The Commerce Department reported sales of new single-family homes, seasonally adjusted, fell by 5.3% in October to a seasonally adjusted 433,000 annual rate. Total October sales of new single-family homes have fallen 40.1% from October'07.

The median sales price of a new house sold in October was $218,000 vs. $234,000 a year ago. The average sales price was $272,300 vs. 310,100 a year ago.

Shorts came into cover as the months' supply came in at 11.1. While October's months' supply was up 1.83% from September's 10.9, I'm noting Augusts' 11.4 and March's 11.2 measures remain near-term high levels.

Exacerbating the advance was Moody's and Standard & Poor's downgrading their credit ratings for KB Home (NYSE:KBH) $12.40 +18.66%, DR Horton (NYSE:DHI) $7.52 +8.98% and Ryland Group (NYSE:RYL) $16.81 +12.36%, which have recorded steep losses tied to tight credit and the slowed housing market.

Having achieved point and figure chart bearish vertical counts last week and crude oil stockpile levels unchanged versus a year-ago, Nymex Jan'09 Crude Oil (cl09f) settled up $3.67, or 7.23% at $54.44 after the EIA said U.S. stockpiles rose by 7.28 million barrels to 320.83 million barrels.

On the demand side of things, the EIA said weekly crude oil inputs rose by 280,000 barrels/day to 14.84 million barrels/day as refinery operable capacity rose to its highest level since Hurricane Gustav and Ike struck the Texas Gulf shores.

My number of days of supply of crude oil rose to 21.9 days supply from last week's 21.4.

Not shown in the above economic calendar was China's announcement that it had cut its key interest rate for the fourth time this year. The People's Bank of China cut rates by 108 basis points to 5.58% with the deposit rate dropping the same amount to 2.52%.

S&P Depository Receipts - 15-minute intervals (01:15 PM ET)

[Image 3]

With volume turned on, the S&P Depository Receipts (SPY) were trading at an important institutional level of resistance having gapped lower at a near-term level of institutional support of 84.17 as depicted by the weekly pivot retracement.

Advance/decline lines were holding positive at both major exchanges by better-than 2:1 margins.

In recent sessions, Exxon Mobil (NYSE:XOM), which gained $2.78, or 3.55% by the close at $80.89 has become a "bellwether" stock for the S&P 500, as well as the Dow Industrials (INDU) as it vies for the most heavily weighted stock in both of these widely quoted indexes.

Oil as depicted by the US Oil Fund (USO) finished up $3.18, or 7.68% where the above screen capture suggests an already volatile session under way.

Exxon Mobil (XOM) - 15-minute intervals (01:33 PM ET)

[Image 4]

XOM has been a major reason for the plentiful gains (SPX/INDU) since late-Friday afternoon and having pressed its own WEEKLY R1 late Monday, seemed tentative just after the lunch-hour crowd returned to their posts.

Natural gas prices were also on the rise after the EIA reported a 66 Bcf draw in the latest week to 3.422 Bcf.

No sooner than the above screen captures been taken when news hit the wires that terrorist targeting British and American citizens had killed at least 80 people and had taken 100 hostages in at the Taj Mahal Palace hotel and the nearby Oberoi hotel in Bombay, India.

Dow Diamonds (DIA) - 60-minute intervals (01:55 PM ET)

[Image 5]

With volume turned on, the Dow Diamonds (DIA) were once-again facing perhaps the biggest test of the majors as this 30-component PRICE-weighted index was once again pressing its WKLY R1, and "old" upward trend from the 10/10/08 low of $78.94.

It was time to check on one of the WEAKEST indices, to see how the "tail" of our inchworm was doing.

Russell 2000 ($RUT.X) - 60-minute intervals (02:30 PM ET)

[Image 6]

Financials, which had been strong since President-Elect Obama named Timothy Geithner to head the Treasury department had broken above their short-term trend, but looked "squared up" with the other major averages at its WEEKLY R1. How humans could get these matches is beyond the comprehension of most traders.

Institutional computers. That's relatively easy and suggests major institutional interest in these markets.

Perhaps one "key level" I alerted traders to in Tuesday's Market Monitor (before server crash) was the Semiconductor HOLDRs (SMH), which was a sector that was testing its WEEKLY Pivot of $15.73.

Yes, even after networking giant Cisco Systems (NASDAQ:CSCO) $16.39 +6.29% news that it was planning to shut its North American offices for five (5) days (12/29/08-01/02/09) for the first time in more than a decade in hopes to save $1 billion in costs.

Closing U.S. Market Watch -

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And by the close, there was a lot of green on the screen!

Volume at the big board was very light with just 5.79 billion shares changing hands. Advancers outnumbered decliners by a hefty 2,677:469 margin. There were 18 issues that traded a new 52-week high, while just 92 issues witnessed a new 52-week low.

NASDAQ volume was equally light at 2.0 billion shares. Breadth was positive at the close with 2,275 gainers and 601 decliners. New highs matched that from Tuesday at 5, while the new 52-week low tally was 129.

The S&P 500 recorded zero (0) new highs for an eighth-straight session, but the six (6) new lows a relief from Thursday's 263.

The Russell 2000 sported seven (7) new highs today. That is the most in recent memory (6 on 11/03/08) and near matches from 09/29 and 09/28. After seeing 699 on Thursday 11/20/08, today's 29 also a relief, but still a bit shy of 15 and 14 from 11/03/08 and 11/04/08.

On the earnings front, Deere & Co (NYSE:DE) $35.76 +8.03% recovered from a gapping lower trade of $28.87 after the farm equipment maker warned that earnings would dip in 2009 as the weakening global economy threatened to end the 5-year boom in sales. Deere said its Q4 net fell to $345 million, or $0.81/share.

Freddie Mac (NYSE:FRE) $0.79 +49.05% inched higher after receiving another $13.8 billion from the Treasury. The company said that as a result of the draw, total liquidation preference of senior preferred stock rises to $14.8 billion from $1 billion. The mortgage company said funding was provided in order to address Freddie's deficit in stockholders' equity that existed at September 30.

Major Global Indexes, Currencies, USO, GLD, HUI, OIX, XLF, DJUSHB

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Some quick notes where I would want to provide emphasis per recent Market Wrap is that "oil stocks" as depicted by the OIX.X are now outperforming the USO, which did achieve its bearish vertical count of $40.00 last week.

If it is true that stock price action leads the commodity price action, then oil traders should be getting flat from bearish.

HUI's 44.27% gain since Wednesday really starts to narrow the "GLD/HUI" gap from prior notes and recent sector bell curve analysis has the PRECious metals group the STRONGEST of sector internals followed.

Have a wonderful Thanksgiving Holiday!


In Play Updates and Reviews

Monitor Positions, Prepare to Exit

Play Editor's Note: The best four days in the stock market since 1932. That's what the financial media is reporting. I don't recall if they're looking at the percentage move in the S&P 500 (+17.9%) or the percentage move in the DJIA (+15.5%). Both moves are impressive for a four-day rally. Friday is a shortened trading session following tomorrow's holiday here in the U.S. Typically the post-Thanksgiving Friday is a bullish one for the stock market but volume is extremely low, which lets stocks get pushed around for big one-day percentage moves. After such a strong four-day bounce I don't want to chase it with new bullish positions but it's not time yet to consider new bearish positions. This will make picking new candidates a challenge this weekend. The best trade here is probably do nothing. Just monitor your current positions, maybe tighten stops, and be prepared to take profits if stocks near your targets or reverse on us. I want to wish everyone a happy Thanksgiving. We're thankful for your continued membership.


CALL Play Updates

Entergy Corp. - ETR - close: 83.90 change: -0.09 stop: 79.99*new*

I remain extremely wary of the action in ETR. The stock has under performed the market the last couple of days. Technically it just looks like ETR has been digesting its bullish breakout from Friday. This week's consolidation in ETR would be normal except for the fact that the S&P 500 and the DJIA have been in rally mode. Traders bought the dip near ETR's 10-dma and 50-dma, which is encouraging. We are upping our stop loss to $79.99. More conservative traders may want to exit early or raise their stops toward $81.00-81.25 under Wednesday's low. In spite of the relative weakness I'm tempted to buy this dip or wait for a new move over $85.00.

The P&F chart is bullish with a $104 target. We're setting two targets. Our first target to take profits is $92.50. Our secondary target is $97.50. Keep a wary eye on possible resistance at the 100-dma and exponential 200-dma overhead.

Picked on November 22 at $ 85.76
Change since picked:      - 1.86
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       2.3 million  


Intuitive Surgical - ISRG - close: 134.67 change: +10.28 stop: 119.99*new*

It was a great start to our new play on ISRG. We got a much better entry point when the stock gapped open lower at $120.25 and then proceeded to surge to new two-week highs. ISRG ended the day with an 8.1% gain. We would strongly consider taking profits right here. Please note we're adjusting our exit target to $139.50. More aggressive traders may want to aim higher but we would expect resistance near $150. Today's rally over $130 has produced a new P&F chart buy signal with a $180 target. Please note our new stop at $119.99. More conservative traders may want to use a stop loss around $125 instead.

Picked on November 25 at $120.25 /gap down entry point
Change since picked:      +14.42 /originally listed at $124.39
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       1.4 million  


iShares Russell 2000 - IWM - close: 46.87 change: +2.65 stop: 42.49

It was a strong day for the small caps. We got a better entry point with the morning gap down. The RUT surged almost 6% and the IWM actually outpaced it. We're moving our stop loss up to $42.99. We would not suggesting new positions at this time. Our target is the $48.00 mark.

Picked on November 25 at $ 43.27 /gap down entry
Change since picked:      + 3.60 /originally listed at $44.22
Earnings Date           00/00/00
Average Daily Volume =       119 million  


Priceline.com - PCLN - close: 67.66 change: +4.84 stop: 60.95*new*

Target achieved? Maybe. We would strongly consider taking some money off the table right here. PCLN provided a better entry point with the gap down at $61.10 this morning. Then shares exploded higher and hit $69.99. Our first target to take profits was at $69.90. Yet the $69.99 price appears to be a bad tick. If you drill down on an intraday chart the high for the day was only $69.87. Yes, that's only three cents away from our target. It certainly sounds like a winner. We're not suggesting new bullish positions at this time. We are moving our stop loss to $60.95 and more conservative traders may want to move their stop toward $62.50 instead.

We would probably call today a win for our first target. We still have a secondary, more aggressive target at $74.85.

Chart:
PCLN

Picked on November 25 at $ 61.10 /gap down entry point
Change since picked:      + 6.56 /originally listed at $62.82
Earnings Date           02/12/09 (unconfirmed)
Average Daily Volume =       1.9 million  


Sears Holding - SHLD - close: 37.15 change: +3.76 stop: 31.58*new*

It was another strong day for retail stocks. SHLD really out performed with an 11% gain. The stock closed at its highs, which should be bullish for Friday. We are raising our stop loss to $31.58 (breakeven). Readers will want to seriously consider taking profits right here. SHLD already hit our first target at $34.90. We're currently aiming for our secondary target at $39.50.

Picked on November 22 at $ 31.58 /gap open higher/1st target hit
Change since picked:      + 5.57 /originally listed @ 30.44
Earnings Date           12/02/08 (confirmed)
Average Daily Volume =       2.2 million  


PUT Play Updates

*Currently we do not have any put play updates*


Strangle & Spread Play Updates

SPDR GOLD Trust - GLD - close: 80.38 change: -0.49 stop: n/a

Gold took a back seat to equities as investors slowly pushed stock prices higher. The GLD bounced around the $79-81 zone and settled with a fractional loss. Resistance at the 100-dma and exponential 200-dma remains directly overhead.

We are not suggesting new strangle positions at this time. Our remaining strangle involves December options.

What is a strangle?
A strangle involves buying both an out-of-the-money call and an out-of-the-money put. We don't care what direction the stock goes as long as it moves one direction. If the stock moves far enough one side of our trade will rise in value and pay for the entire trade and make a profit.

-December Strangle-

Summary:
We suggested readers buy the December $75 call (GVD-LW) and the December $70 puts (GVD-XR). Our estimated cost was $6.30. We want to sell if either option hits $12.00.

Picked on November 09 at $ 72.50
Change since picked:      + 7.88
Earnings Date           00/00/00
Average Daily Volume =      19.3 million  


Ultra S&P500 ProShares - SSO - close: 26.01 change: +1.64 stop: n/a

The S&P 500 continued to rally and posted a four-day winning streak. This was the best four-day percentage move for the markets in decades. The SSO responded with a 6.7% gain. This play is neutral. We really don't care what direction the market goes but we do need it to move!

We're not suggesting new positions at this time.

Note: The SSO is an ultra-long ETF that typically moves twice the daily performance of the S&P 500 index.

What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.

-December Strangle Details-
We suggested readers buy the December $30.00 call (SOJ-LD) and the December $20.00 put (SOJ-XT). Our estimated cost is $3.75. We want to sell if either option hits $6.00.

Picked on November 12 at $ 24.84
Change since picked:      + 1.17
Earnings Date           00/00/00
Average Daily Volume =       126 million  


CLOSED BULLISH PLAYS

Axsys Tech. - AXYS - close: 69.01 change: +2.56 stop: 61.83

Target achieved. AXYS continued to rally and hit $69.61 intraday. Our target to exit was the $69.50 mark as the $70.00 mark has been resistance for weeks. At this point I would expect some profit taking in AXYS but would keep it on your watch list for another opportunity. The stock has produced a bullish inverse H&S pattern and if the stock breaks the neckline it would suggest a bullish target of $90 or more.

Chart:
AXYS

Picked on November 22 at $ 61.83 /target hit 69.50
Change since picked:      + 7.18
Earnings Date           02/19/09 (unconfirmed)
Average Daily Volume =       195 thousand 


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