The market took a nasty turn for the worse after getting the latest Consumer Confidence numbers earlier this morning. The bears we already growling as they were pushing the action to the downside but got the momentum they needed when the weak economic numbers came out.
The S&P CaseShiller Index (for July) was a non-factor on futures before the open and came in at 148.9, which was a slight improvement from 148 for June. The Consumer Confidence Index for September came in at 48.5, which is well below what Wall Street had expected. They were looking for a number above 53 but got the lowest confidence reading since February.
The Dow immediately responded by sinking 80+ points but the market has moved off its lows and crossed into positive territory as we head to press. We continue to talk about volatility as it seems to picking up as we wind down September and head into October. Scary stuff…[caption id="attachment_7584" align="aligncenter" width="450" caption="Dow Jones 15-Minute Chart"][/caption]
The Dow fell to a low of 10,728 but has rebounded and is currently up 29 points to 10,841. The bears got their push below 10,800 but the bulls showed some resiliency by bringing the index back above this level and into the green. Resistance remains 10,950-11,000.
The S&P 500 is up 2 points to 1,144 but has traded to a low of 1,132 which is also a crucial level. We mention the ceiling that is in place at 1,150 but a dip below 1,130-1,125 could swing the momentum back to the bears big time.
Turning to earnings, Walgreen (WAG, $33.69, up $3.34) is up 11% after reporting better-than-expected results. The company reported a profit of $470 million, or $0.49 a share, versus $436 million, or $0.44 a share, in the year earlier period.
Sales rose nearly 8% to $16.9 billion as Wall Street was looking for Walgreen to earn $0.44 a share on $16.8 billion in revenue. Walgreen’s is getting a nice pop after their CEO said they would double annual earnings in the next year.
The Walgreen October 30 calls (WAG101016C00030000, $3.75, up $2.70) have zoomed over 250% while the October 30 puts (WAG101016P00030000, $0.06, down $0.64) are down over 90%. This type of trade is called a STRADDLE option trade and it would have been a good one. We have been using STRANGLE options trades as of late because they provide a little better returns sometimes but we keep mentioning why we are adopting these types of trades. They simply work, if you can find the right stock and you know how to do the research that is required to find the trade.
The total cost of the trade would have been $1.70 if you had bought EQUAL amounts of these options, or, $170 for 1 call and 1 put option. The calls options went into the close at around $1 while the put options went out at 70 cents. Today, the calls are up more than enough to offset the losses on the puts. You could close your position right now and your account would show $375, or a return of 121% in less than 24 hours. Boom, in and out. On to the next trade…
Folks, our new Trading Manual How to Trade Options on Momentum Stocks will teach you how to find these trades and it will be available this weekend. We are so excited…
Elsewhere, Apple (AAPL, $286.95, down $4.21) dropped 20 points off its high this morning after speculation that one of its top brass, Tim Cook, would be leaving the company to replace former CEO Mark Hurd, of Hewlett-Packard (HPQ, $41.58, up $0.33). These rumors went down in flames as Wall Street came to the defense by saying the dude is next in line to succeed Apple’s current BMOC (big man on campus), Steve Jobs.
There is little left in the way of economic news today so we expect a crazy close today. We will be back Wednesday morning at 9am (EST) with a full update and look for more news on our upcoming trading manuals as well.]]>