Option Investor
Commentary

Good News and Bad News

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The good news was the rebound on the XLE only +6 cents above out stop at $42. The bad news was the drop by CVX to $57.77 and stopping us out on the Chevron play only two days after we entered. Because of our put we actually made money on the trade but now we are back looking for a new entry point in oil.

I have been looking for a drop in oil prices in March but I did not expect it to come in one day and be so sharp. In reality the drop was caused entirely by the sale of a 25 million-share block of XOM right after the analyst meeting. Evidently a major investor decided to take profits in a hurry after the CEO said there was no fundamental reason for oil prices to be this high. XOM made a new all time high of $64.37 at 1:PM and it dropped to $60.70 by the close as that block of stock was passed.

With the OPEC meeting on Wednesday there is no expectation they will announce any production increases but we are likely to see a sell the news event similar to the Intel update or the MSO drop when Martha got out of jail. Therefore I am hesitant to reenter oil with March winding down.

Interest rate worries ahead of next weeks Fed meeting on March 22nd pressed the homebuilders and all are off their highs. The earnings warning by one builder last week was blamed on weather but all the builders took the hit. Never fear, spring is coming and that is the prime buying season.

With the Nasdaq headed for an apparent retest of 2020, options expiration and the S&P being reweighted I am not going to add any new plays this week. I would like to keep our cash ready for that expected drop in oil when it comes. A little positive thinking there. Also, I would love to buy the builders again should they drop back to the 50-day averages.

The semiconductor holders are nearing our entry point at $33 and I have not weakened on my resolve to take the entry. The SMH has seen support in the $32.50-33.00 range since early February and none of the chip stocks have said anything to change my mind. The 50, 100 and 100 day averages all converge at $32.50 and you can't get better support than that.

The plan this week is to watch and wait. Lots of economics, a weak market, volatile oil ahead of the OPEC meeting and a Fed meeting only seven days ahead. No need to rush into a new position ahead of the "sell in May and go away" crowd. We are rapidly running out of time for the market to make a move higher before the summer doldrums set in and it does not look likely from my view tonight.

Food for thought. Remember that AAPL put a couple readers talked me out of two weeks ago at $44.50? Apple hit $39 this week and still appears weak. In the future we will be entering some Leap puts on likely candidates and those that don't like puts can just pass.

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