Friday the market did what it has done pretty much since Wednesday. It is moving flat and laterally ahead of the earnings onslaught. Investors are basically biding their time until companies come out with their earnings and tell us what to expect for the future. There was no definite trend on the day. Friday was a lot like one of the time trials this year in the Tour de France: it was up, it was down, and it covered a lot of ground, but in the end did not go anywhere. It was a volatile session that basically closed flat with the indices bracketing the zero line.
There was quite a bit of news on Friday. Chevron posted a profit warning, and Chevron is in the energy sector so that weighed heavily on the energy top stocks to buy. Of course they have already been hit rather hard over the past three weeks, so there was not a lot of additional damage done. It was just like throwing another wet blanket on top of the sector.
Corporate bond sales data came out, and they are tumbling. They improved over the spring, assisted by all of the Fed facilities that it had put in place. As seen over the past month, corporate bond spreads have widened and sales have tumbled. That makes some sense when you consider that CEOs - the insiders - are selling at the fastest rate in two years.
SU (Suncor Energy, Inc.)
The market was primed for a downturn last week and we set up some nice plays to take advantage of that.
SU is a tar sand stock and as it is expensive to extract the best stock really tracks the price of crude. Just so happens the dollar is strengthening and worries of a double dip in the world economy are teaming up on the price of oil. Thus they are teaming up on the price of SU.
Put SU on the report on 6-24-09 as it rebounded from a break of the 50 day EMA just two sessions prior. It bounced up to the 50 day and stalled; if it fell back we looked to buy some puts and ride the next leg lower.
It ended up taking SU a big longer to fall. It rallied up through the 50 day the next session and then stalled out, moving laterally for two more sessions. It was still below a key resistance level so we simply moved our buy point higher, tracking the movement of the best stock in the pattern. On 7-1 it gapped higher and tapped that resistance only to roll over and closed back down below the 50 day EMA.
That is when we moved in. We bought some August $30 strike put options for $2.55, quite reasonable and with a relatively low implied volatility level as well as a -63 delta we stood to make a nice gain as SU fell back. It gapped lower the next session, dropping 3.5%. Gapped lower again Monday, losing 5.8% though it did bounce off the session low at some support at $26. That was our initial target level so we sold half of our position for $4.70, banking 84%, not bad for less than 4 sessions in the trade. We did not sell it all because SU can break that support and really tank; it often pays big dividends to let a part of your trade run with the trend despite hitting a near term support or resistance level. We will be attentive, however, as SU slid laterally the next four sessions, holding that support.
RIMM (Research In Motion Ltd.)
We also saw a good setup in RIMM ripe for a quick gain. RIMM had sold off mid-June, breaking the 50 day EMA and then sliding laterally, unable to break through after a modest rise up to that level to start July, bumping up against the 50 day. We put it on the report 6-29 as it was bumping up against that level. If it broke lower from there we would enter some put positions to ride a resumption of the breakdown.
It gave us the entry on 7-2 as it gapped lower, rallied back to bump the 50 day, and then rolled back down. We bought some August $70 strike put options at $4.85; not bad as AAPL puts for example cost over twice as much. RIMM lost a bit of ground the next session, but the move lower started Tuesday as RIMM lost $2.31 (-3.3%). Wednesday the market made its early dump lower and RIMM dumped lower with it, losing 3 points on the low ($65.62). That was our initial target, however, and we sold half of our position for $8.20, banking 69% in 4 sessions. RIMM bounced Thursday then was flat Friday. Again we are keeping part of our position in the event RIMM breaks lower again, a likely probability given its more serious support is down at $60, another six and one-half points lower and a really big gain.
VSEA (Varian Semiconductor--$25.79; +1.01; optionable): Chip equipment
After Hours: $25.79
EARNINGS: 07/30/2009
STATUS: Ascending triangle. Very strong volume the past two sessions as VSEA gapped off the 50 day EMA (23.80), used by VSEA as support on the last test in its 10 week pattern. First really solid pattern after VSEA moved up off its initial base from October to March. Strong action and looking to move in on a continued move higher. If it tests back to start the week, all the better; we can pick it up as it continues higher off that test. Very solid.
Volume: 1.704M Avg Volume: 934.294K
BUY POINT: $25.91 Volume=1.1M Target=$31.45 Stop=$24.10
POSITION: UES KE - Nov. $35c (60 delta) &/or Stock
CLR (Continental Resources--$23.49; -0.42; optionable): Oil and gas exploration
After Hours: $23.40
EARNINGS: 05/07/2009
STATUS: Head and shoulders. CLR broke lower Monday, breaking down from a 9 week head and shoulders pattern. Sharp break lower on strong volume, bouncing off 22 on the week lows. It rebounded back to some resistance at 24 where the 200 day SMA (23.74) resides as well. Looking for CLR to break lower again from here, continuing the push lower. This would be the third push lower since it peaked in June, and that still gives us plenty of room to make some good money. A move to the initial target lands a 45%ish gain.
Volume: 1.325M Avg Volume: 1.146M
BUY POINT: $23.32 Volume=1.2M Target=$20.02 Stop=$24.27
POSITION: CLR UE - Sept. $25p (-51 delta)
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