Option Investor
Newsletter

Daily Newsletter, Thursday, 4/5/2012

Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

Dow Down, Week Ends Early

by Thomas Hughes

Click here to email Thomas Hughes
The Dow Jones Average added a third day to the latest losing streak. Mixed economic data, fears from Europe and anticipation of tomorrow's jobs report kept traders out of the market. Trading is closed tomorrow for the Good Friday holiday and will reopen on Monday.



Futures were lower in pre-market trading. All three major indexes were down around 0.5% when this weeks initial jobless claims numbers were released. The numbers were an improvement over the previous week, but only because of revisions. While still near four year lows it appears that initial claims are on the rise from February lows. Initial claims for the week ending March 31st were a reported 357,000, down 6,000 from the previous weeks upwardly revised 363,000. Last weeks claims were revised up by 4,000. The four week moving average of initial jobless claims continued to fall, reaching four year lows. The lagging indicator lost 4,250, dropping to 361,750. Analysts had been expecting initial claims to be 355,000.


Continuing claims for unemployment fell by 16,000 for the week ending March 24th. Claims for a second week of unemployment are 3.338 million.


Total claims for all forms of unemployment benefits also fell in this weeks report. Total claims declined by 107,760 to 7.05 million.


Retail comp store sales were also reported this morning. Increases were seen industry wide, due in large part to warm weather. The data, which only covers stores that are open for at least a year, is thin. Only about 1/6 of all retailers participate in the data.

Gap Inc (GPS) reported a 10% rise in comp store sales versus March of last year. The gain was larger than the expected 5.4% rise predicted by analysts. Net sales rose to $1.46 billion compared to last year and comp store sales increased by roughly 8%, last March the company's sales declined by 10%. Gap has been trending up strongly for two months and is making a bounce up from its short term moving average now. Gap is scheduled to report earnings April 17th.

Gap Inc, Daily

Target (TGT) also reported an increase in sales and is just above the short term moving average. Target reported net sales rose by 7.9% and comp store sales rose by 7.4%. In the report the company said that March sales were “above expectations” and were helped by an early Easter and “favorable” weather. Because of the better than expected results the company also updated its guidance for the first quarter of 2012. Previous guidance expected earnings per share in the range of $0.97 to $1.07, now the company is expecting earnings in the range of $1.04 to $1.10 per share. Year to date the company's earnings have increased 8% versus a 2% decline in the same period last year. Target will release its earnings statement next month.

Target, Daily

Macy's (M) reported net sales increased by 6.9% to $2.358 billion in March. Comparable store sales increased by 7.3% in the period. On a year to date basis Macy's sales are up over 6% from last year. Macy's CEO said that March sales figures exceeded their expectations “beyond” the impact of an earlier Easter. Company sales were broad based across demographic lines. Macy's also raised guidance. They had previously expected first quarter results to improve by around 3.5% but are now expecting roughly 4.5%.

Macy's, Daily

Net sales at Costco (COST) rose by 10% in March. Costco reported a 6% gain in March same store sales, but analysts had been expecting a slightly larger 6.7%. Year to date same store sales rose by 6%. Costco shares dropped sharply in early trading but climbed throughout the day.

Costco, Daily

Pier One (PIR) released full year 2011 earnings today as well as full year comp store sales. The home décor retailer says same stores sales for the full year rose 9.5% versus the previous years 10.9%. The company also increased its profit and operating income margins ahead of its own targets. The stock has been trending up over the last month in line with the other strong retailers and is building support around $17.50 and the short term moving average. Today's trading took the stock up over 1.5%.

Pier One, Daily

The retail Spyder (XRT) has been trending up over the last few months. The ETF is currently sitting on its short term moving average and above short term support around $60.

The retail Spyder (XRT), daily

Eyes are still on Europe as the widespread debt crisis plays out. Poor results in Spain's bond auction are blamed on yesterday's declines. Many economists think that the effects of the LTRO and Greece debt swap are yet to be felt. In other news, the Swiss Central Bank is buying Euro's to help support the 1.20 exchange rate floor it set last year. Also, the Bank of England held its key interest rate steady. The bank sees first quarter GDP growth for the island nation at 0.5%.

French president Nicolas Sarkozy pledged to bring the country back to economic surplus by 2017. He says he wants the country to be at a 0.5% surplus, the first public financial surplus in the country for nearly 30 years. In his statements he expects France to see 0.7% economic growth this year.

The European markets closed mixed today, on continued fears of economic woes and mixed US data. The FTSE 100 index closed up 0.35%. The Xetra DAX Index closed down -0.13% and the CAC 40 index closed closed up by 0.19%.

Asian markets also ended the day mixed. The Nikkei and Hang Seng indexes were both down, by -0.53% and -0.95% respectively. The Shanghai index ended the day up by nearly 1.75% on news that China will allow more open investment in capital markets.

There were only three scheduled IPO's this week. Erickson Air-Cran, manufacturer and operator of the Erickson S-64 Air Crane, a heavy lifting helicopter is priced in the range of $13-$15 but failed to open. Likewise, Enerkem, a manufacturer of bio fuels from waste feed stock also did not open as expected. Stock in the fuel company is currently priced in the range of $17-$19.00.

Retail Properties of America (RPAI) did open and quickly gained over 8% on the initial price of $8. The REIT owns and operates shopping centers in 35 states and counts Best Buy, Wal-Mart and Home Depot among its tenants. The $8 pricing was well below the expected range of $10-$18. The stock ended the day up over 9% from opening.

Retail Properties of America, One Day

Carmax (KMX) reported record fourth quarter and full year results for fiscal 2012. The company's results come on top of recent news of improving US car sales. Full year net sales rose 11% in the period, $1.02 billion more than fiscal 2011. Income for the finance division of the company rose by 19% in for the year. The company opened three stores in fiscal 2012 and is planning on opening another nine during the upcoming 12 months. The stock surprisingly traded down today, losing more than 4.5% but halting at the 30 day moving average.

Carmax, Daily

Constellation Brands (STZ) reported record free cash flow in fiscal 2012 but a 20% in drop in net sales. The decline in sales is due in large part to divestiture of Australian and United Kingdom wine businesses. The company also expects net sales to decline by another 12% in fiscal 2013. Shares of Constellation stock dropped roughly 12.5% in today's trading. Constellation is one of the leading supplier of alcoholic beverages worldwide.

Constellation Brands, Daily

Schnitzer Steel (SCHN) is one of the nations largest recyclers and manufacturer of steel products. The company reported fiscal 2012 second quarter results which show a huge improvement from last year. Diluted earnings per share are reported as $0.35 per share, compared to $0.25 in the same quarter last year. During the quarter the company reduced its debt ratio to 27% from the previous quarters 31% and increased the dividend. The stock now pays 0.18% annually. The report sparked a rally which drove the price up around 3.5% on heavy volume.

Schnitzer Steel, Daily

A report late Wednesday in the Financial Times has Morgan Stanley CEO James Gorman in talks with Moody's to prevent a credit rating downgrade. The ratings agency has been considering the downgrade for over a month. Shares of Morgan Stanley traded down over 1.5% in today's trading. The downgrade is expected to take the banking giant down three notches to Baa2, barely above junk status. The rate cutting could interfere with Morgan Stanley's planned purchase of Citigroup brokerage Smith Barney. Morgan Stanley currently owns 51% of the brokerage and holds options for an additional 14% that will come into play at the end of May. JP Morgan, Bank of America and Goldman Sachs are also being reviewed for a downgrades.

Morgan Stanley, Daily

The financial Spyder (XLF), which holds JP Morgan, Bank of America and Goldman Sachs in the top 6 by account value, has been trending up for over 3 months. However the stock has retreated from resistance at $16 three times in the last few weeks.

The financial Spyder (XLF), Daily

Apple (AAPL) made the news again today. Stock in the company surged nearly 1.5% from yesterday's closing price to make a new all time high. The stock has gained over 55% since the beginning of the year. The company is currently investigating reported problems with its latest iPad device. There is an alleged problem with the wi-fi adapter and antenna on some models but the problem is not impacting share price.

Apple, Daily

Social media giant Facebook announced today that it will list its upcoming 5 billion dollar IPO on the Nasdaq exchange. The stock will trade under the symbol (FB) and is scheduled to open in May. Other social media related companies traded down today. Linkedin (LNKD) lost -0.13%, Zynga (ZNGA) lost -2.5%, and Yelp (Y) lost about 7.5%

LinkedIn, Daily

Zynga, Daily

Yelp, Daily

Oil traded up today, breaking a two day down trend. Jobs data and a recovering labor market are helping to increase outlook for demand. China is also helping to pump up the price of oil. A Chinese based insurer of tanker ships announced today that it will stop covering tankers carrying Iranian oil. Some unrest in the middle east and reports of rockets fired into Israel were also reported to support the higher prices.

Natural gas inventories were reported to have increased by 42 billion cubic feet. This was at the upper end of the projected range and was bearish for the market. Natural gas lost over 2% in today's trading.

Precious metals were up today. Gold rose by over 1% after a sharp two day decline. Silver also gained more than 1% while copper and platinum rose by less than 0.5% each.

The rate on 30 year bonds declined today by -0.058 to a yield of 3.322.

30 year bond rates, Daily

The CBOE Volatility Index (VIX) gained 1% but remained above the 30 day moving average. The index has been trading in a tight range for several weeks and is near four year lows.

Volatility Index (VIX), Daily

The Dow traded thinly and in a tight range today, failing to hold above the short term moving average. The index has lost 0.11% since last weeks close and has fallen below its 3 month trend line. The index is still above 13,000 but momentum has turned bearish.

Dow, Daily

The long term trend in the blue chip index remains up but the indicators are rolling over. The 200 day moving average is pointing up and near a four year high.

Dow, Weekly

The S&P 500 is down for the week as well, by -0.06%. The broader market is still above the 3 month trend and trading well above the short term moving average. The index traded in a similarly tight range to the Dow but fell below its psychological support level of 1,400.

S&P 500, Daily

The Nasdaq Composite fell at opening today, in line with the other two major indexes but the index traded higher throughout the day and regained some ground from yesterday's losses. The tech heavy index is trading about 2.5% above the short term moving average. Today's gain keeps the index above the three month up trend but still near two week lows.

Nasdaq, Daily

The market is waiting for tomorrow's release of March jobs data. Reaction to the data won't be seen until Monday because of the Good Friday holiday. The ADP report, earlier in the week, suggests another month of strong jobs creation. The estimates for tomorrow's report are around 203,000. This would be the fourth consecutive month of strong job creation. There are several other jobs related figures coming out tomorrow as well, including the unemployment rate and hourly earnings.

After the close of today's trading private rating agency Egan Jones cut the US credit rating to AA- from AA+. The downgrade is due to debt levels and lack of progress in debt reduction. It will be important to see how the analysts react to this new development.

Thomas Hughes


New Plays

A Quiet Thursday

by James Brown

Click here to email James Brown

Thursday was a relatively quiet day for stocks. Most of the major indices were content to drift sideways in a narrow range. The U.S. dollar rallied for its third day in a row while bond yields traded lower.

Overall stocks were mixed on Thursday with healthcare, retail, semiconductors and biotech showing relative strength. Homebuilders were some of the worst performers.

There will be no new trades tonight as the markets are closed tomorrow. We will be publishing the newsletter as normal this weekend.


In Play Updates and Reviews

Squeeze In Progress

by James Brown

Click here to email James Brown

The U.S. markets are closed tomorrow for Good Friday, in observance of the upcoming Easter holiday on Sunday.

The newsletter will be updated this weekend per our normal schedule.

On Thursday we saw NTAP get stopped out and our new trade on SKUL was triggered.

Current Portfolio: