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MomentumOptionsTrading.com Midday Update for 7/26/2013

Bears on Track for Weekly Win, Starbucks (SBUX) Surges/ Profit Alert (FNSR)

1:10pm (EST)

We had a good feeling the bulls’ slim lead for the week was in trouble following yesterday’s choppy action and last night’s futures action was pointing towards another test to support.  It’s too early to tell if this will be the start of a significant pullback or if the bulls will hold the uptrend lines.

One stock bucking the trend today is Starbucks (SBUX, $72.90, up $4.73) following a stellar earnings report after last night’s close.  The company reported a profit of $0.55 a share on revenue of $3.74 billion versus expectations for $0.53 a share on sales of $3.72 billion.  Starbucks also raised current quarter guidance to $0.60 a share compared to estimates for $0.57 a share.

The beat-and-raise has juiced the stock 7% but the near-term call options are zooming.  The July 70 calls (weekly) (SBUX0726C00070000, $2.80, up $2.07) are up nearly 300% while the August 70 calls (SBUX0817C00070000, $3.10, up $2.00) have jumped 180% after trading to a high of $3.70.

The July options expire today and would have been a risky earnings trade but we should have recommended the August calls.  However, we didn’t like yesterday’s action to take a trade for today.

We have done well by closing 6 winning trades for profits this week as we have another one today for nice double-digit gains (+20%).

We are once again in good shape to play the next MAJOR trend as our portfolio is light.  We have to be careful of the choppiness and the possibility of another trading range but our Watch List is exploding with a number of ideas that could become official recommendations over the next week or 2.  We just need to be patient and let the action come to us.

If the bulls can hold support then the market could continue to see new highs but if not, we could get a quick test to support to shake out the weak hands.

The Dow is currently down 88 points to 15,467 and will need to hold 15,400 for a possible rebound next week while the S&P is at 1,683 (down 6 points) and needs to hold 1,680.  The Nasdaq is lower by 5 points to 3,600 after kissing 3,581 shortly after the open.  The bulls have room down to 3,575 but a close below this level could be troublesome.

We will be back Sunday night with the Weekly Wrap and on Monday morning with the Daily along charts for the major indexes and all of our trades.  We have included some last minute update for today’s action, including the Profit Alert.  Until then, have a great weekend everyone.