The market started the week on a negative note as the major indexes traded lower throughout the day. The major averages were down well over 1% and the bears were testing support before a late rally by the bulls cut the deficits in half. Although the market finished lower, we liked the action as our support targets held and the bulls mounted a comeback.
The Dow fell nearly 40 points, or 0.4%, and settled at 11,052 after trading to a low of 10,929. Although 11,000 held, further support is at 10,800 with 11,200 providing short-term resistance.
The S&P 500 traded to a low of 1,173 before ending with a 2 point loss, or 0.1%, to finish at 1,187. The index tested its 50-day moving average once again and we have been mentioning the 1,170-1,175 area as strong support. Further support is in the 1,150 region if 1,170 fails while 1,200 remains a short-term brick wall.
The Nasdaq slipped 9 points, or 0.4%, and closed at 2,525. We were looking for the 2,500 level to hold although the index dropped to a low of 2,496 intraday. There is further backup at 2,450 but we are still expecting a push back towards 2,600-2,700 by the end of the year.
The Financial stocks helped put a floor on Monday’s action as American Express (AXP, $43.33, up $1.06) and Bank of America (BAC, $11.31, up $0.19) traded higher while others chipped in with slight gains. Both AXP and BAC are members of the Dow but it’s too early to tell if this is a rebound off the bottom for Bank of America which recently touched a 52-week low of $11.03.
We feel the Financial stocks will need to show some strength for this rally to continue but we still don’t trust them.
We wanted to do a quick update on FedEx (FDX, $91.59, up $4.09) following yesterday’s 4% pop. We have recommended options on FedEx in the past and it is a stock we watch closely. We were going to profile an option trade last week but we didn’t want to go long in front of a holiday and before the weekend. We also have a number of open trade recommendations so we are also at our max comfort level as we would like to close a few before opening new ones for our subscribers.
Shares of FedEx have been establishing strong support at $85-$86 over the past few weeks and we felt it was a stock we could play heading into the Christmas season.
We knew a lot of focus would be on Amazon.com (AMZN, $179.49, up $2.29) and possibly eBay (EBAY, $30.23, down $0.92) but we thought those trades might get “crowded” so we wanted to get into FedEx because they will doing a lot of the shipping over the holidays and we expect business to be brisk.
We mentioned all three stocks in our daily update yesterday but FedEx is our favorite over the short-term. The 52-week high is $97.75 and we watched the December 90 calls (FDX101218C00090000, $3.45, up $2.07) open at $1.71 on Monday morning. In our 12:30 update the options were trading for a little over $2 and added another 50% by the closing bell.
Although it may be a little late to get into the December options, we think there may a trade with the January or March options and we are looking for a good entry point with the right strike price.
Futures were pointing towards a flat open this morning but have worsened as we head towards the opening bell. Dow futures are down 86 points to 10,953 while the S&P 500 futures are lower by 10 points to 1,176. The Nasdaq 100 futures are showing a decline of 22 points to 2,124.