Futures are up slightly Sunday night but the direction next week is as unsure as a coin toss.
The markets closed on their lows with an average of a -4% loss for the week. The Dow closed below support but the Nasdaq and S&P closed on support and will be our hope for a rebound on Monday.
However, I believe that market sentiment has turned negative. Earnings have been good but top line growth has been negligible. Economics are going flat or declining in some reports. Most of all the administration attack on Wall Street is a potent negative force to recon with.
Bernanke's confirmation is still in doubt despite president Obama's subtle endorsement over the weekend. The markets don't want to have to deal with a new Fed chairman as the Fed begins to unwind record amounts of stimulus. Changing horses in the middle of the river is never a good idea.
I am at a loss as to what we should do next week. If there were any concrete indications we were going lower we could sell calls but futures are up +6 overnight. If I thought that was going to hold through Monday we could take a chance on selling some more puts but like I said in the title it would only be a coin toss chance of being right.
The commodities markets are crashing because of the strong dollar, the worries about growth out of China and profit taking from the big gains.
The energy sector led by oil prices has declined for two weeks and oil is at strong support but energy stocks have been influenced by the fall in equity prices. Of all the sectors this one has the best chance for a rebound because it is the most oversold.
Unfortunately there are a couple dozen energy companies reporting earnings next week and nearly all will report drops in earnings because of the decline in oil prices over 2008 levels.
I decided on a handful of stocks that appear to be in a trend that may not be helped by a rebound in the market. Considering the increase in volatility and the potential for a gap open on Monday I would advise caution in entering these trades.
No Open Positions
PXP - Plains Exploration - $33.36 (Naked Put Write)
Plains Exploration & Production Company (PXP) is an independent oil and gas company primarily engaged in the activities of acquiring, developing, exploring and producing oil and gas properties primarily in the United States. The Company owns oil and gas properties with principal operations in Onshore California; Offshore California; the Gulf of Mexico; the Gulf Coast Region; the Mid-Continent Region, and the Rocky Mountains.
PXP gained ground the last two weeks despite the decline in oil prices. If we do see oil rebound this week PXP should do better.
Sell Feb $31 Put PXP-NZ currently $.70, Stop at PXP $31.50 .
Chart of PXP
FSYS - $38.63 - Fuel Systems (Naked Call Write)
Fuel Systems Solutions, Inc. (Fuel Systems)designs, manufactures and supplies alternative fuel components and systems for use in the transportation, industrial and power generation industries on a global basis.The Company offers an array and combination of gaseous fuel components; solid-state components and software that monitor and optimize fuel pressure and flow to meet manufacturersâ€™ engine requirements; gaseous fueled internal combustion engines, or engines manufactured by original equipment manufacturers (OEMs) that are integrated with Fuel Systemsâ€™ fuel delivery and electronic controls, and systems integration support to integrate the gaseous fuel storage, fuel delivery and/or electronic control components and sub-systems to meet OEM and aftermarket requirements.
Fuel Systems is out of favor with the market and broke below recent support last week. I am recommending a naked call using the $40 strike.
Sell Short Feb $40.00 Call JQQ-BH currently $1.90, Stop FSYS at $41
Chart of FSYS
CSIQ - Canadian Solar Inc - $21.67 (Naked Call Write)
Canadian Solar Inc. (CSI) designs, develops, manufactures and sells solar cell and module products that convert sunlight into electricity for a variety of uses. The Company conducts all of its manufacturing operations in China. Its products include a range of standard solar modules built to general specifications for use in a range of residential, commercial and industrial solar power generation systems. It also designs and produces specialty solar modules and products based on its customersâ€™ requirements. Specialty solar modules and products consist of customized modules that its customers incorporate into their own products, such as solar-powered bus stop lighting, and complete specialty products, such as solar-powered car battery chargers. It sells its products under its Canadian Solar brand name and to original equipment manufacturing customers under their brand names.
Breaking through support on the bad news in the solar sector over the last two weeks.
Sell Short Feb $23.00 Call GQA-BY currently $1.20, Stop CSIQ at $23
Chart of CSIQ
MFLX - Multi Fineline Electronix - $24.33 (Naked Call Write)
Multi-Fineline Electronix, Inc. (MFLEX) is a producer of flexible printed circuits and flexible circuit assemblies. The Company is engaged in the engineering, design and manufacture of flexible printed circuit boards along with related component assemblies. The Company targets its solutions within the electronics market. MFLEX focuses on applications, in which flexible printed circuits facilitate human interaction with an electronic device. Applications for its products include feature phones, smart phones, consumer electronic devices, portable bar code scanners, computer/storage devices and medical devices. The Company provides its solutions to original equipment manufacturers (OEM), which produce devices, such as feature phones and smart phones and to electronic manufacturing services (EMS) providers..
Crushed on an earnings warning in early January the rebound failed. Actual earnings Feb 4th.
Sell Short Feb $25.00 Call FXU-BE currently $.95, Stop MFLX at $25.25
Chart of MFLX
HIG - Hartford Financial Services - $24.62 (Naked Call Write)
The Hartford Financial Services Group, Inc. (The Hartford) is an insurance and financial services company. It provides investment products, individual life, group life and group disability insurance products, and property and casualty insurance products in the United States. The Hartford is organized into two operations: Life, and Property & Casualty. The Life and Property & Casualty operations conduct business in 11 operating segments.
Hartford is crashing on the attack on Wall Street. Actual earnings Feb 8th.
Sell Short Feb $25.00 Call HIG-BE currently $1.15, Stop HIG at $25.50
Chart of HIG
IOC - Interoil Corp - $77.00 (Naked Call Write)
InterOil Corporation (InterOil) is an integrated energy company operating in Papua New Guinea. The Company operates in four business segments: Upstream, Midstream, Downstream and Corporate. Upstream includes Exploration and Production, which explores oil and natural gas in Papua New Guinea. Midstream Refining produces refined petroleum products at Napa Napa in Port Moresby, Papua New Guinea for the domestic market and for exports, and Midstream Liquefaction includes developing an onshore liquefied natural gas (LNG) processing facility in Papua New Guinea.
IOC was declining the prior week but news of a new discovery sent it rocketing higher. That news appears to have faded and resistance appeared at $80.
Sell Short Feb $85.00 Call IOC-BQ currently $3.10, Stop IOC at $80.50
Chart of IOC