Weekly Market Assessment
After a crazy 8 day rallying in the S&P 500, we are again in an area of major resistance at 1850. From mid December to January 23nd, we approached this level for almost 23 days without being able to break through it. We are now trading at ~1840 after hitting 1847.50 and then selling off hard again. Looking to some technical indicators, we see that ~40% of the Dow Jones companies are trading below their 200 day moving average, which expresses a change in market sentiment. Why are some companies not being bought when they are below a major average if the market outlook remains so positive? These huge "Blue Chip" companies are held by the most prudent investment firms and make up a well diversified outlook on the overall economy. What is intersting to see is that they are trading in the opposite direction to the overall market!
Two weak jobs reports, a home builder sentiment that logs sharpest drop ever, and activity in China factories hitting a 7 month low, raises concerns as we approach these critical levels in the market again. Throw in a huge acquisition from Facebook to acquire WhatsApp for $19 billion (thats worth more than 257 companies in the S&P 500) which is the 4th largest tech acquisition in the past decade. This has reminded investors of the Time Warner acquisition of AOL ($160 billion deal, AOL now has a market cap of $3 billion) which was at the height of the Dot.com bubble in 2000! I don't even know what the hell WhatsApp is! The next few weeks should be a pivotal point in the market as a breakout above specific levels will bring in new money, while a failure will create skepticism of the markets current valuation.
Through the Looking Glass: My Perspective on Stocks Reactions to Market Conditions
Next week we get earnings from Toll Brothers (TOL) and Sears Holdings (SHLD). I will be looking to buy "PUTS" on SHLD on any upside as this looks like its becoming a JCPenny stock. Earnings have continued to become worse and worse for the last 3 quarters and this technically looks to be in a downtrend. Volatility should be high going into this report which should provide plenty of option premium to sell, so might also look to sell a Vertical "CALL" spread. With TOL, the recent bad weather and bad home builder sentiment report should have a negative impact on TOLs' earnings.
As mentioned last week Tesla(TSLA) reported its earnings and beat, where I was positioned for a miss. With Priceline(PCLN) I sold an Iron Condor far and wide at 1340/1345 and 1170/1165 that expires next Friday, PCLN currently sits at ~$1320.
Making the Watchlist: Below are the stocks that I will be looking at over the coming months. I will provide the the current stock price, and why I am watching them. I will comment on them as I continue to keep an eye on them. You will be able to see and follow their growth and/or decline.
Zillow (Z) $78.15- Is approaching its 200 day moving average for the 5th time. It has previous bounced off this major support level. With the recent negative reports about housing market and current/past weather conditions, it looks like a chance to get into this stock at these levels and deserves a look.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk
Tesla (TSLA)- Reported its earning on Wednesday and beat by a wide margin which was not expected. I bought a weekly 185 "PUT" a got wiped out on this play as TSLA opened up over $210. I then sold a weekly Vertical "CALL" at $220/225 to try and recover loses which worked while also buying another weekly "PUT" at $212.50. These plays worked out but came out with a total loss in TSLA of 50%
Priceline (PCLN)- Sold a FEB 1340/1345 and 1170/1165 Iron Condor. Implied volatility has spiked going into earnings and I am spreading out the time value on this trade. I chose these levels at 1160/1155 as this is right below the 20 and 50 day moving average. While the 1340/1345 is just outside the expected move of $75 from its current price. The spike in volatility and time value should work in my favor as the premium from this strategy should shrink significantly after the release of its earnings.