Weekly Market Assessment
Not seen in over 200 years! On Friday, the German Bund, the equivalent to our 10 Year Treasury Bond dropped below 1% to .96%! Our 10 year yields also look to be in free-fall as we have now hit 2.31%. Investors are again fleeing into these safe assets and are willing to protect their principal while receiving rates that "technically" cannot outpace the dreaded rate of inflation. Hard to believe that these rates could be at these levels in what is suppose to be an economic recovery! The bond market is said to be where the smart money is, as yields fall the bonds principal increases, these recent weeks proved to be a telling sign when there was a disconnect between the bond yields and equity market. The equity market rebounded off its lows from last week however the bond yields continued to drop, expressing signs of uncertainty in the equity markets recovery.
After a ~3% recovery in the DOW after hitting the 200 day moving average, another headline out of Russia and Ukraine struck the market and quickly sold off. Headline risk, geopolitical concerns and economic uncertainty continue to try and derail this market. Germany came out with a negative GDP number on Thursday, however the markets rallied, every single word out of Putin's mouth that is positive, continues to push our market into the green, while any rumored military advance threatens our market into the red. Has the U.S. market become insulated from specific headline risks? The constant worry of "what is going to happen next" has made investors/traders anxiously waiting over the sell button. Uncertainty continues to enter and exit our markets on a daily basis, however like many times before, it is soon forgotten as we move into new all time highs not seen in 200 years.
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.
JCPenny (JCP) $9.50- Reported on Thursday after the bell and beat on almost all retail store metrics. JCP expected a loss of $1.04, but came in with a loss of .75, revenue increased by 5.1% while also increasing gross margins to 36% from 29.6% a year ago. Looking at comparison of Kohls and Macy's, Kohls had a 1.1% revenue decline and Macy had a 3.2% revenue growth. Using a price to book ratio for these comparisons Kohls trades at 1.96 and Macy's at 3.34. JCPenny trades at 1.04 price to book. After these "improved" results by comparison, JCP should soon be able to trade near its competitions price to book ratio. Also JCP has over 80 million share sold short, which is 28% of the total shares outstanding.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk:
S&P 500 (SPX) -I purchased a vertical "CALL" Spread at 1925/1930 last week. Exited this position too early in the week for a 14.5% gain in the SPX which ended the week at 1955.06!
Zynga (ZNGA)- I purchased shares of ZNGA at $2.74 last week. I am out of this position at $2.87 on Thursday for a 4.3% gain.
Valeant (VRX)- As mentioned last week, I picked up common shares of VRX at $107.23. I sold out of this position at $111.65, for a 3.9% gain. I have now bought a September $105/110 Vertical "CALL" Spread.