8:45am (EST)
Although the bears won last week’s battle to make it two-in-a-row, you could tell by the bulls’ efforts that they aren’t going down without a fight. The real action occurred in one day, on Tuesday, which is when the bears roared loudest. Friday’s gains helped cut the week’s losses to less than half but the major averages still finished lower for the week.
The Dow started the week at 12,380 and gained 57 points on Friday to finish at 12,341. The index traded to a high of 12,369 but fell 0.3% for the week after touching a low of 12,137 on Thursday. Our upside targets have been 12,500-12,600 for the blue-chips but the Dow will need a close above 12,350 to challenge these levels. Near-term support remains at 12,200 and then 12,000.
The S&P was at 1,328 at the beginning of Monday’s session and added 5 points to settle at 1,319. The index closed below 1,325 on Monday and reached a low of 1,302 during the week. The bulls were looking to make a run to the 1,350 level but tested both near-term support targets of 1,325 and 1,300.
The Nasdaq began the week at 2,780 but quickly closed below 2,750 on Tuesday. On Friday, the index gained over 4 points and ended the week at 2,764 after testing a low of 2,733 on Thursday. The index had trouble with the 2,800 level the prior week which still represents near-term resistance. Support remains at 2,700-2,650 going forward.
Oil pushed back to nearly $110 a barrel while Gold surged to record highs and closed at $1,486 for the week. Silver is at 31-year highs and finished at $42+, up another 5% for the week. On the other hand, Copper fell over 5% in five days, to $4.26, after closing at $4.50 the week before.
The Dow is up 20 points for April while the S&P 500 is down 6 points. Tech is down about 17 points. So far, April has not delivered the results the bulls have been hoping for as the crosswinds have slammed us back into a trading range. If we pencil in the historic 2% April average gains for the indexes then we get Dow 12,500; S&P 1,355; and Nasdaq 2,820 by month end.
Yes, we do a lot of homework and chart work but it’s pretty crazy how that last paragraph just comes together and makes a compelling argument for one last bull charge as we head into May which happen to be our upside targets. However, a 2% move the other way puts the S&P below 1,300.
Earnings get thicker this week and we spent the weekend licking our chops as we get ready for the action this week. The current crosswinds have given mixed signals as to which way the market is going to break. The bulls averted disaster following Google’s (GOOG, $530.70, down $47.81) 8% plunge on Friday. We predicted a 5% move but we were a little surprised to see a drop of nearly $50.
The April options expired Friday but we wanted to show you how expensive options are on stocks that trade over $300, $500 or more.
Google was at $578 going into Thursday’s close and a $25 pop got the stock to over $600 or near $550 which was our prediction. We weren’t too bullish on the company beating expectations but we weren’t going to bet against the company either.
Well, the first choice would have been the April 550 puts (GOOG110416P00550000, $20.70, up $17.40) which closed at $3.30 on Thursday. The 500% return would have been beautiful on Friday but a 10 contract trade would have cost $3,300. If Google would have soared on better-than-expected numbers, then the puts would have expired worthless.
The Google April 600 calls (GOOG110416C00600000, $0.00, down $4.90) were near $5 and did expire worthless.
This would have been the PERFECT strangle option trade, of course, because you still would have doubled your money if you had taken both trades and paid $8.20. The problem is that if shares would have stayed between $600 and $550 or moved less than 5% then both options would have expired worthless.
We actually looked at this trade but we don’t like paying more than $2 for an option contract. Of course, we do recommend options from time-to-time that are in the $1.50-$2.00 range but we usually go 6-12 months out to give the trade plenty of time to develop.
We wanted to show the power of strangle trades because we do believe going forward that these types of plays offer a little more safety in a choppy and range bound market. We know we got side tracked but we wanted to show you how to buy some protection in case there isn’t one last run by the bulls.
Futures were down 0.2% for much of early morning hours and have gotten worse as we head towards the opening bell. Futures are down 0.5%.
Dow futures are lower by 66 points to 12,237 while the S&P 500 futures are down 8 points to 1,311. Nasdaq 100 futures are off 11 points to 2,299.
We have 12 charts we are showing today inside our Members Area that cover our current trades and ones that are on our Watch List. These charts make the technical picture a little easier to understand and you will know exactly what we are to expect if a stock breaks below or above resistance.
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