12:55pm (EST)
The bulls are trying to reclaim the weekly lead but if current levels hold the bears will get the weekly win – but not by much. Of course, there is still another half of trading to go and anything can happen, including lower lows or a rebound to higher highs. The market flashed another bullish signal this week for continued gains into mid-November (or longer) but the bears are dropping clues they want to play ball. Despite the cross currents, we are still in the bulls camp as we have been saying since mid-October that we expected a continued rally into November.
The chart work we will be doing over the weekend will help us confirm or debate our thesis and we have been loading up our Watch List with some fresh plays for nethe next few months. Our portfolio is somewhat light as we only have 7 open trades with some of them starting to close as we wind down our November trades. We have opened a few trades for December and we are in GREAT shape to play the next breakout or a possible pullback.
There have been a number of slick talking pros (and financial publications) this week saying the market is at a bubblicious point but all of the predictions for a correction have been wrong all year long. We have said at some point the “crying wolf” knuckleheads will be right but they don’t do chart work and they don’t study the market so they have no clue when and if a correction is coming. They see 25%-30% gains in the indexes and see froth. We said in February the market would be where it is and even we are surprised by the gains but it doesn’t mean we want to bail ship. In fact, we have given fluff targets that continue to come into play but we are still waiting for the Dow to trigger our 16,000 year-end target as the other 3 have hit theirs and then some.
We do our homework and while others sat on their hands, we were mostly buying call options throughout September and October. We did have great success with our JC Penney (JCP, $8.19, up $0.69) put option trades as they returned 364% and 319%, respectively, but we have also stayed in call options into November and December.
We have said at some point, a correction will come, and with the zombies preparing for another debt ceiling fight in January, another 1,000-point drop in the Dow is likely. It could come in December, or November, or January but for now, the uptrend is still intact so ignore the noise until we get the confirmation the bears are in control.
One stock we want to cover before the weekend hits is Sony (SNE, $16.78, down $0.47). Shares are down another 3% today and we had a feeling when they fell below $20 back in early October there could be further downside risk. The stock has been volatile and we have been bullish on Sony since $12 as we said shares would run to $20+ this year.
The recent weakness in the stock is cause for concern and we will try to determine if this is an attractive entry point of if there is further downside risk. We could use a combination of calls and puts to try and play the stock’s next move while limiting our risk but on the surface shares are approaching a buying opportunity. These are the types of trades we love doing research on so look for the name on our Watch List next week.
We have some last minute updates on our current trades so we have to roll.
As we head to press, the Dow is up 29 points to 15,575 while the S&P 500 is flat at 1,756. The Nasdaq is off a 6-pack to 3,913. The S&P 500 Volatility Index ($VIX, 13.79, up 0.04) has stayed below 14 and a close below 13.50 would be bullish. One troubling sign for the bulls is the Russell 2000 as the small-caps are down 10 points, or 0.9%, to 1,090 and have fallen below 1,100.
We do have a NEW TRADE today, or a continuation of another, as we are piggy-backing one of our current trades as shares have cleared resistance today. We said if they did there could be some short covering. We could also have a Profit Alert before the close but if you don’t hear from us, we will be back Sunday night with our Weekly Wrap and on Monday morning with our Daily newsletter. Until then, have a great weekend everyone!
