The market traded in a tight range on Wednesday as the battle to break or hold resistance continued between the bulls and bears. The indexes started the day lower but battled back to trade into positive territory by midday. The rest of the session was spent chopping around the flat line as the market ended mixed for the day.
The Dow gained 7 points to finish at 13,175 while the S&P 500 added a point to close at 1,402. The Nasdaq slipped 5 points to end at 3,011. The Russell 2000 dipped 1 point to settle at 800.16 while the S&P Volatility Index ($VIX, 15.32, down 0.67) fell 4% after trading to a high of 16.47.
The action was rather boring but shares of Priceline.com (PCLN, $562.32, down $117.48) broke down like a rented mule, falling 17% yesterday. The company reported earnings after the bell on Tuesday and results were better-than-expected but their outlook spooked the Street. Priceline earned $352 million, or $6.88 a share, on revenue of $1.2 billion versus profits of $256 million, or $5.02 a share, in the year-ago period.
For the current quarter, the company expects to earn $11.10-$12.10 a share after saying weakening conditions in Europe could hurt growth for the current quarter. The suit-and-ties had penciled in a profit of $12.76 a share.
Naturally, there were numerous analysts who downgraded the stock but this is always after the fact. What is the point of slapping a “Hold” rating once the damage has been done? If a $680 stock falls $120 in a day, we doubt there are many investors rushing out to “Buy” the stock. Instead, traders sold shares of Priceline as the momentum was busted.
The options on Priceline are rather expensive because it is a high triple-digit stock but there was a chance to make some serious cash had you bought put options ahead of Tuesday’s close.
The Priceline August 525 puts (PCLN120818P00500000, $2.40, up $0.45) zoomed 444% after closing at 45 cents on Tuesday. The September 500 puts (PCLN120922P00500000, $7.40, up $6.30) soared 572% after closing at $1.10 on Tuesday. Of course, if shares would have rallied $100, these put options would have been smoked but for those who did their research, they hit gold.
We have added a couple of new call option ideas to our Watch List in case there is a test to the next layer of resistance or a breakout but we continue to be a little cautious of the price action. These stocks are “safer” and less volatile than the Tech names and we feel there is a chance the options could do well if the market continues to chug higher.
We also have a NEW TRADE for our Weekly Wrap we will be releasing shortly after the open. We really like this stock for the long-term and we aren’t worried about current market conditions. The newsletter is now 22-0 for the year and we could be adding 2 more winners next week! We were 16-0 in 2011.
The new trade is on a stock we have profiled numerous times in our Weekly Wrap and in our Daily over the past couple of years. For the Daily, our subscribers have made 11% and 45% on directional call option trades and in 2011 they made 91% on the same name in a week. For the Weekly Wrap we have recommended the stock twice with subscribers making 55% and 11%, respectively. Shares are at our comfort buy level and we like it at current levels.
Futures are showing a mixed open this morning and look like this: Dow (+2); S&P 500 (-2), Nasdaq 100 (+15). Subscribers, check the Members Area for the updates and possible new trade ideas.