12:40pm (EST)

The market is continuing its slow drift lower as the debt ceiling debate in Washington carries on with the August 2 default deadline just one week away.  No use in going over the non-news so let’s look at economic news and earnings.

Before the bell, the S&P/Case-Shiller 20-city Index showed home prices fell 4.5% in May versus expectations for a drop of 4.4%.  Meanwhile, New Home Sales for May slipped 1% and came in at 312,000 units which were below the 320,000 units that was penciled-in.  And finally, Consumer Confidence came in at 59.5, which was better than expectations for a print of 57.

Turning to earnings, Broadcom (BRCM, $38.40, up $3.49), which makes chips for cell phones and iPads, is up 10% and is pushing $40 after reporting a quarterly profit that beat Wall Street’s expectations (excluding one-time items).  The company also forecast higher revenue which topped the suit-and-ties forecasts.

It was an incredible quarter as the company earned $175 million, or $0.31 share, versus $278 million, or $0.52 a share, in the year ago period.  However, if you back out options on stocks and payroll taxes, Broadcom would have reported a profit of $0.72 a share, or 8 cents higher than the pros penciled in.

Revenue jumped over 10% to $1.80 billion, just shy of the $1.81 billion predicted, but, this was overlooked when Broadcom forecast sales of $2 billion for the current period.  Wall Street was figuring $1.6 billion in revenue.

Broadcom is a very volatile stock and requires a lot of homework when trying to trade it but we got it right as our subscribers have locked in half gains of 200% today. 

The beauty of closing half of an option trade that is up 200% is this.  You still have exposure to make an even higher return if the stock continues higher and you also have the ability to wait it out.  This allows you to set a “Hard Stop” for the other half which you can continue to move up to lock in triple-digit profits, or, if shares have peaked and start to fall back, the hard stop will close the position for you automatically.

We will be managing this position for further gains if Broadcom can continue higher and there is a chance shares break $40 this week if the momentum is there.  If not, we will alert our subscribers to take profits on the other half of the trade and we will go hunting again for our next big winner.

The week after July options expiration has been very volatile in the past with swings of up to 4%-5% over the last few years.  Although we haven’t seen that this week, don’t be surprised if we see extreme volatility by Friday.  Hopefully, it’s to the upside. 

As we head to press, the Dow is down 50 points to 12,543 while the S&P is lower by a point to 1,336.  The Nasdaq is actually showing a gain of 5 points to 2,848. 

We will be back in the morning with our next update but don’t be surprised if we send out another Trade Alert today.  Subscribers, check the Members Area for the updates