Weekly Market Assessment
Stuck between a rock and a hard place. For the 5th consecutive day we have traded in an extremely tight range between the 10 and 20 day moving average. A positive open soon fades away hours later to end the day in negative territory. Thoughts of what seems like market consolidation are being dismissed after words like "froth or frothy," "IPO Bubble," "overvalued market," and "looks like the top of 2000" are being used. I cant tell you how many times I've heard "froth" and "bubble" in just the last half hour, insane! What is for sure is the fact of almost all well know momentum stocks, that have ridiculous P/E ratios, have sold off huge this month. Priceline -13%, Netflix -20%, Facebook -15%, and Telsa - 41%. All trade in the NASDAQ, so you can imagine the NASDAQ isn't doing so well this month.
The rotation from new tech to old is seen by looking at the veterans: Microsoft +10%, IBM +11%, Cisco +5% and Oracle +3%. The money seems to be rotating into more safe haven equity companies that have a solid and well establish business that isn't based on large future expectations. In other words, low Price to Earning ratios! The VIX index is again near lows at ~14, while the 10 Year Treasury Bond is back above 2.70%, exhibiting confidence in the equity market. Are we seeing a rotation from momentum stock to old tech or just profit taking?
Through the Looking Glass: My Perspective on Stocks Reactions to Market Conditions
Nex week we receive the monthly Jobs Report, this number could help us break out from this consolidation area in either direction. I am holding my SPX position and will exit it if the opportunity presents itself before the report. I will be looking to again sell a Vertical "CALL" Spread at 1900/1905, if we get a spike in the S&P 500 going into the report.
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. Chart links may be attached.
Citigroup C $47.25- The bank failed the Fed's closely watched "stress test" and has been denied the chance to raise the amount of cash it returns to shareholders for the foreseeable future. The news dropped the stock more than 5%, and is down more than 14% for the year. It trades at a huge discount to its book value and has one of the lowest P/E ratios compared to its peers. Big firms will see this as a huge buying opportunity and I have purchase straight "CALLS" at 47.50. Technically, we had over 4X average volume, with a gap down and gravestone doji, expressing a change in direction, while also holding a previous trendline. A break above $48.20 would be bullish as it tries to fill its gap down.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk
S&P 500 (SPX)- As mentioned last week I sold a Vertical "CALL" spread at 1895/1900. Exited this position for a 1 week option gain of 14%. I have sold another Vertical "CALL" spread at 1880/1885.
General Motors (GM)- GM is dealing with a recall and internal management issues from an ignition problem back in 2003-2007, GM has lost more than 10% in its share price. In comparison to its competition, GM trades at a discount and I have purchased APRL $35 "CALLS".
Citigroup (C)- As mentioned above I have purchased an APRL $37.50 "CALL". Volume continues to trade above average and with a more than 5% decline in the stock where the fundamentals haven't changed should present an opportunity for large firms to increase their stake in the company. I have extended the duration and purchased an at the money "CALL" to better position myself for any short term moves.