Investors locked in some gains after last week's FOMC decision to cut its fed funds target 25 basis points to 2.00%, while shares of Yahoo! Inc. (NASDAQ:YHOO) $24.37 -14.99% tumbling more than $4.00/share after Microsoft (NASDAQ:MSFT) $29.06 -0.61% withdrew its $47.5 billion offer.
According to news reports, Yahoo! shareholders said they would support a move by activist shareholders to replace the company's board of directors after playing hardball with the world's largest software company.
While Yahoo! shareholders sound "hot under the collar," energy prices spike higher for a second-straight session as supply concerns and unseasonably cooler weather forecast helped set the bullish tone.
June Nat Gas futures (ng08m) jumped $0.4010, or 3.72% to settle at $11.178, which is just shy of last Monday's June contract record settlement of $11.329.
June Crude Oil (cl08m) surged to a record intra-day high of $120.36 before settling up $3.65, or 3.14% at $119.97 on a trifecta of technical buying, renewed supply concerns out of Nigeria, Iran and Iraq as well as tight US stockpiles into the summer driving season.
Closing U.S. Market Watch - 05:00 PM EDT
Despite a 2-day surge in crude oil prices, which tend to come on euro strength against the dollar, the euro rose a more tepid 0.47% to tick 1.5496 at today's 05:00 PM EDT close.
Meanwhile, equity weakness mirrored that of dollar weakness vs. the yen, with the dollar slipping 0.51% to 104.85.
At 10:00 AM EDT, stocks tried to recover from their opening tick lows after the Institute for Supply Management (ISM) said its services index rose to an expansionary 52.0 reading in April versus April's contracting measure of 49.6.
Readings above 50 in the ISM indicate growth. Economists expected a 49.1 reading for April after three consecutive months of declines.
Wells Fargo's head of foreign exchange strategy Nick Bennenbroek said "the report is consistent with the trend we have been seeing that the U.S. economy is not as disappointing as many initially thought."
In the above U.S. Market Watch, I've highlighted in blue some of the indices we might view as more "service" related, where the services sector represents roughly 80% of U.S. economic activity (banks, airlines, hotels, restaurants and retailing).
I think we also saw some further sign that market participants see a Fed that may start to "stand pat" on further rate cuts.
Today's results from the Treasury's 13-week auction showed less-than-bullish demand for this very short-term maturity and its yield ($IRX.X) backed up 8.5 basis points to 1.550%. Just days after the Bear Stearns (NYSE:BSC) $10.70 -1.83% bailout by JP Morgan (NYSE:JPM) $48.00 -1.35%, the 13-week yield plunged to 0.20% on Thursday 03/20/08.
Instead, buyers showed a greater appetite for the 5-year Treasury Yield ($FVX.X) as it's yield fell 2.4 basis points to 3.135%.
5-year Yield ($FVX.X) Chart - Daily Intervals
Today is a great day to quickly review the 5-year Yield ($FVX.X) chart and review what it may be "saying."
As noted in prior wraps and teachings over the years, I've suggested that traders and investors try to keep some type of "consistent range" on various indices.
For the 5-year Treasury Yield ($FVX.X), a SHORTER-TERM Treasury yield, I'm still keeping a 10/15/07 relative high to 01/23/08 relative low RANGE with a conventional retracement bracket.
During times of "distress," it is not unusual to see market participants plough cash into shorter-dated Treasuries, perhaps like they did just days before, and the day of the "Bear Stearns failure."
But despite the "sky is falling" mantra, and a Fed targeting fed funds at 2.00%, sellers in this bond now have its yield having risen roughly 93 basis points from it 3/17/08 closing yield of 2.202%.
Current levels are certainly going to be finding both some TECHNICAL yield buying at the conventional 38.2% and 150-day SMA (32.15; 3.215%).
Associating YIELD and PRICES is difficult, so let's take a look at the iShares Lehman 3-7 Year (NYSE:IEI) $107.15 +0.15%, which would be a security that would approximate the 5-year's price action.
iShares Lehman 3-7 Year (IEI) - Daily Intervals
Just as the 5-year YIELD is at a near-term YIELD resistance, the IEF is at its near-term PRICE support.
Now, we must think not only about what market participants might that are LONG the 5-year, or IEI from $111, or $108.36, but what about those that are/were SHORT this bond when the "sky was falling?"
Think about this. If short at $110.02, that trade would be PROFITABLE by 2.6% and I (Jeff Bailey) would have to be looking for some near-term SHORT COVERING at these PRICE levels.
Why you ask? Because at that time, this security would have been YIELDING roughly 2.5%/year. In such a short amount of time passing, a SHORT can lock in a very HANDSOME bond-related gain, without owing much dividend (per IEF), or interest (per a 5-year T-bond).
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Furthering my thoughts that we could see some TECHNICAL buying in the 5-year Yield, which could have some cash taking PROFITS from equity is this.
I (Jeff Bailey) do NOT see the FOMC raising its target on the fed funds rate anytime soon.
Today, shares of mortgage lender Countrywide Financial (NYSE:CFC) $5.38 -10.03% were among the most active on broker comments that S&P 100 heavyweight Bank of America (NYSE:BAC) $38.97 -2.06% may lower its buyout offer to $2.00/share due to further write downs should it complete its buyout of CFC.
The various parts of the BOND market are SO IMPORTANT to monitor.
Then tie with a MAJOR index like the S&P 500 (SPX.X), or its tracker and the S&P Depository Receipts (SPY).
SPY and DIA Montage - Daily Intervals
At tonight's close, I'm seeing a MAJOR correlation with the shorter-dated 5-year Treasury and the S&P Depository Receipts (SPY) $140.83 -0.48%. Not only at TREND, but the 150-day SMA.
IWM and QQQQ - Daily Intervals
While the VERY BROAD iShares Russell 2000 (IWM) has worked itself above trend, here we would want to note a TIE as it relates to the Oct-January RANGE.
Encouraging this May expiration to see the IWM's "Max Pain" theory value
actually RISE to $71.00 from $70.00, suggesting option traders starting to get
New Long Plays
New Short Plays
Long Play Updates
Credicorp - BAP - close: 82.66 change: -0.58 stop: 79.75
BAP unexpectedly hit some profit taking this morning. Traders bought the dip near $80.00, which is where you'd expect to find short-term support. The afternoon rebound is encouraging and would normally be a new bullish entry point but we're running out of time. BAP is due to report earnings on May 7th after the market's close. If BAP doesn't hit our target before then we'll exit on Wednesday at the closing bell to avoid holding over the announcement. Our target is the $84.75-85.00 range.
Picked on April 28 at $80.51 *triggered
Blue Coat Sys. - BCSI - close: 24.30 chg: -1.01 stop: 21.75
No surprises here. After a sharp rally higher last week BCSI is seeing some profit taking under resistance at its 100-dma. The stock lost about 4% today. Currently we're suggesting readers buy a dip in the $22.50-22.25 range. If triggered at $22.50 our first target is the $24.95-25.00 range. Our second target will be the $27.00-27.50 zone but BCSI will have to deal with potential resistance at its 200-ema and 100-dma. FYI: The most recent data lists short interest at 13% of the 36.6 million-share float but a lot of the shorts may have covered during the rally.
Picked on May xx at $xx.xx <-- see TRIGGER
Peabody Energy - BTU - close: 63.81 change: +1.41 stop: 57.69
Hmm... waiting to buy a dip hasn't worked out for us the last few days. BTU continued to rally following last week's rebound. Today's strength was fueled by better than expected earnings in rival Alpha Natural Resources (ANR). Wall Street expected ANR to report 17 cents a share but the company announced 39 cents in profits. ANR rallied more than 11%. Shares of BTU gapped open on the news and closed with a 2.2% gain. We are going to stick to our plan for now. Our official entry point is the $60.50-60.00 range. We'll put our stop loss under last Thursday's low. If triggered our short-term target is the $64.75-65.00 range. More aggressive traders could aim higher.
Picked on May xx at $xx.xx <-- see TRIGGER
Citigroup - C - close: 25.75 change: -0.64 stop: 24.50
Banking stocks under performed the market on Monday and leading the way lower was C. The stock lost 2.4% and closed right on its 100-dma. We are going to reiterate our comments from this weekend that a dip or a bounce near $25.50 could be used as a new bullish entry point. However, you might want to be patient and wait for a possible dip toward $25.00 instead. More conservative traders might want to move their stop closer to $25.00. We have two targets. Our first target is the $27.50-28.00 zone. Our second, more aggressive target is the $29.70-30.00 range. The Point & Figure chart is bullish with a $36.00 target.
Picked on April 21 at $24.50 *triggered
Citi Trends - CTRN - close: 20.77 change: -1.03 stop: 18.99
CTRN is another stock that was caught up in the retail stock weakness. Shares lost 4.7% and have pulled back toward the 10-dma and exponential 200-dma. A glance at the intraday chart suggests that CTRN is poised to dip toward the $20.00 region soon. Currently our suggested entry point to buy CTRN is the $20.05-19.50 zone. Our stop loss is at $18.99. If triggered we will have two targets. Our first target is the $22.40-22.50 range. Our second target is the $24.00-25.00 range. We do not want to hold over the late May earnings report (still unconfirmed date). The P&F chart is bullish with a $29.00 target.
Picked on April xx at $xx.xx <-- see TRIGGER
Excel Maritime - EXM - cls: 43.87 chg: +0.75 stop: 38.29
Shipping stock EXM continues to look bullish. The stock hit an intraday high of $46.00 and settled with a 1.7% gain and another close above its 200-dma. We have a very wide (aggressive) stop loss under Thursday's low. More conservative traders will want to consider placing their stop closer to $40.00. Our target is the $49.00-50.00 range. We do not want to hold over the May earnings report. Our challenge is that the report date us unconfirmed. One source suggests that EXM might report as early as May 15th. This could be a very quick play since we will try to avoid holding over earnings. FYI: Additional shipping stocks you may want to check out are DSX and PRGN.
Picked on May 04 at $43.12
Kohl's - KSS - close: 48.20 change: -1.91 stop: 48.49
KSS reversed lower under resistance. The stock lost 3.8% as the retailers sank on rising oil costs and negative comments out of Sears. Right now our suggested entry point to buy KSS is at $51.05. However, we will keep a close watch on the $45.00 level, which should be round-number support underpinned by its 50-dma. A bounce near $45.00 might be another attractive entry point to scalp four or five points. This is going to be a short-term play as we don't want to hold over the May 15th earnings report. If triggered at $51.05 we have two targets. Our short-term target is the $54.90 mark. Our secondary target is the $58.00-60.00 zone. The P&F chart looks very bullish with a $67 target.
Picked on May xx at $xx.xx <-- see TRIGGER
Lamar Advertising - LAMR - cls: 39.98 chg: -0.81 stop: 38.49
We have been warning readers to expect a pull back in LAMR. Shares lost 1.9% today. The stock closed right at round-number support near $40.00. If the stock market continues lower tomorrow then LAMR could be trading near $38.00 in a heartbeat. We reiterate suggestions to take profits here. Tomorrow is our last day. LAMR is due to report earnings on May 7th. We are closing this play on Tuesday at the closing bell assuming it doesn't hit our stop loss first. LAMR has already exceeded our target near $40. Our second, more aggressive target is the $42.50 mark.
Picked on April 23 at $37.47 *1st target hit
Lowe's Cos. - LOW - close: 25.45 change: -0.68 stop: 24.99
Bingo! Over the weekend we suggested that LOW might provide us another entry point near $25.50. Shares have done that today with a 2.6% loss. However, one concern was today's close under what should have been technical support at the simple 200-dma and exponential 200-dma. Readers may want to look for signs of a bounce first before jumping in. Our four-week target is the $27.90-28.00 range. We do not want to hold over the late May earnings report. The P&F chart is bullish with a $39 target.
Picked on April 27 at $26.02
PowerShares India - PIN - close: 26.81 chg: -0.34 stop: 25.95
The PIN also slipped on Monday with a minor 1.2% decline. Short-term technicals suggest the PIN will bounce from here but if the market continues lower tomorrow we would look for a decline into the $26.50-26.00 zone. Our target is the $27.85-28.00 zone.
Picked on April 24 at $26.39
Terra Ind. - TRA - close: 40.89 change: +0.86 stop: 35.99
As a group the fertilizer stocks were out performing the market this morning. However, while many of TRA's peers eventually closed lower this stock held on to its gains and added 2.1%. We don't see any changes from our weekend comments. We would still consider new positions here but be ready for a dip to the $38.00 region. This can be a volatile group so expect some big swings. Our target is the $47.00-48.00 range. FYI: TRA is holding an analyst conference on May 5th.
Picked on May 04 at $40.03
S&P SPDR Homebuilders - XHB - cls: 22.69 chg: -0.02 stop: 21.69
It was a very quiet day for the XHB. Some of the individual names in the housing sector moved but the homebuilding ETF traded sideways in a 40-cent range. We would still consider bullish entry points in the $22.25-22.00 zone. This consolidation of higher lows should eventually produce a bullish breakout. We have two targets. Our first target is the $24.40-25.00 range. The $25.00 level will probably be resistance. Our second, much more aggressive target is the $27.00-27.50 range. The Point & Figure chart is very bullish with a $35.00 target.
Picked on April 24 at $22.67
Short Play Updates
Closed Long Plays
Buckle - BKE - close: 47.90 chg: -0.83 stop: 47.74
Retail stocks struggled on Monday. The RLX retail index lost more than 2.3% after Sears (SHLD) issued some negative comments on the business environment and crude oil rallies to a new high over $120 a barrel. Rising oil means higher gasoline prices and investors are already worried about the consumer. BKE spiked lower at the open and quickly hit our stop loss at $47.74 closing this play. The general trend is still up but the momentum indicators are suggesting trouble ahead for BKE.
Picked on April 23 at $48.80
Closed Short Plays
Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.
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