Despite what was initially thought as a “successful” start to the holiday season, the Dow is down over 400 points as we hit mid-day. The figures from Black Friday were higher than what many analysts had been expecting as sales rose 3% to $10.6 billion. However, this is supposedly the biggest shopping day of the year and it is clear Wall Street is certainly concerned the news isn’t indicative of the rest of the weekend.
As a result, the Dow is down 435 points to 8,394 while the S&P 500 is skidding 53 to 853. The Nadaq is down nearly 90 points to 1,446.
Most consumers spent November waiting for Black Friday and many of the deals that come along with it as stores try to lure in customers. It has been quite apparent that people are bargain hunting and will continue to right up until Christmas. The strength from Friday will probably not be enough to carry the rest of the weekend, as reports also surfaced that business fell off sharply on Saturday.
There were a couple of economic reports that were also released this morning that has also added to the negative sentiment. The Institute for Supply Management said its index of manufacturing activity fell to a 25-year low in November and another said construction spending fell by a larger-than-expected amount in October. No surprises here.
On the bright side, Ford (F, $2.86, up $0.17) and General Motors (GM, $4.94, down $0.30) have held up well although GM has slipped after trading as high as $5.75. I mentioned the option activity in these two companies on Friday and today is no different…it is heavy.
Citigroup (C, $6.88, down $1.43) is getting an 18% haircut after surging all last week. The December 5 calls (CLP, $2.25, down $1.20) hit our stop of $3 on the way down this morning. Here is yet another example of why sell stops are so crucial. I had mentioned the short-term target for Citigroup was $8 and we got to $8.48 on Friday. The stock opened this morning at $7.90 and has been drifting lower ever since. The trade was good for a 200% return. Citigroup could get cheaper again and there will certainly be another trade coming.
I also mentioned Chesapeake Energy (CHK, $15.95, down $1.23). The December 17.50 puts (CHKXW, $2.60, up $0.55) opened at $1.65 on Friday and are up over 25% today. We are targeting $3.00 for the puts but set stops at $2.25.
Rick Rouse
Rick@OptionsMentoring.com
