The market has managed to hold its own despite an unexpected jump in the number of people filing for unemployment. New claims for jobless benefits rose to 573,000 from an upwardly revised figure of 515,000 in the previous week. That knocked the socks off Wall Street which was far more than the 525,000 claims they were expecting.
As a result, futures were substantially lower when the news came out but improved going into the open. The Dow is currently up 7 points to 8,766 after starting the session down 150 points. The market seems to be focused on the eventual outcome of the $14 billion bailout to cash-starved General Motors (GM, $4.26, down $0.34) and Chrysler which could go before the Senate on Thursday. The big worry here is that approval is not guaranteed.
Still, there are a couple of stocks that are doing alright today. Alcoa (AA, $10.40, up $0.20) and Caterpillar (CAT, $44.58, up $0.91) have done well since Tuesday’s write-up as we are still seeing some rotation into some of the bigger names.
The Alcoa January 10 calls (AAAB, $1.60, up $0.15) were profiled at $1.20 and it looks as though shares could make a run to $12 over the short-term. The stock appears to have bottomed and if we can get a push to $12 these calls will be worth at least $2.00 and that is the area we are targeting.
Caterpillar traded lower on Tuesday and hit a low of $41.26. It rebounded to finish flat but had a good day yesterday. The January 40 calls (CXJAN, $6.20, up $0.45) were profiled at $4.80 and could have been picked up cheaper than that. If you got into the position, set stops at $6.00. That locks in a 20+% return if you got in at $5 or lower.
As far as DryShips (DRYS, $10.30, down $0.41), that trade is dead. We choked the chicken for all it was worth. We sold half of our position at $4.40 and the December 7.50 calls (OOCLU, $3.20, down $0.40) hit our $4.00 stop on the way back down yesterday. I had that feeling that the trade had reached its limit. The selling has spilled over into today and if you didn’t sell at $4, you have lost 33%. This is why sell stops are your best friend.
The Dow is still having trouble with 9,000 and notice how this level has acted as serious resistance all week.