1:50pm (EST)
The two words we have typed a 1,000 times over the past two weeks are finally being laid to rest. Debt and Limit.
Well, it is official as word the Senate has passed the debt limit extension bill by a 74-26 has hit the Street. The reaction hasn’t been well received as the market is having another down day but maybe once the bill is endorsed by Obama’s John Hancock, the bulls will wake up.
The economic news continues to come in weaker-than-expected and today’s reports on Personal Income and Spending was another Debbie Downer. Personal Income was up just 0.1%, versus expectations of a 0.2% increase. The talking heads are blowing this out of the water but even if we would have hit 0.2% look at how small the numbers are. As far as Personal Spending, it decreased by 0.2% versus expectations for a 0.1% pop.
The big reports this week will be the unemployment figures which could save the bulls or be another nail in their coffin.
The Dow is down 128 points, or 1.1%, to 12,004 while the S&P is lower by 17 points, or 1.3%, to 1,270. The Nasdaq is getting punished for 35 points, or 1.3%, and is at 2,709.
It’s hard to find any green in today’s action but one stock bucking the trend is Herbalife (HLF, $61.19, up $6.56) which is up 10% after announcing stellar earnings. The company reported a profit of 88 cents on revenue of $880 million. Wall Street had penciled in 74 cents on $820 million in sales.
The options, of course, did much better on the earnings beat. The August 60 calls (HLF110820C00060000, $2.60, up $0.90) were going for $1.70 going into yesterday’s close and are currently up over 50% but hit a high of $4.00 shortly after the open. As you can see, you have to be quick to ring triple-digit profits in this market.
We are still on the fence as to which way this market is headed. Of course, we have been bullish for much of 2011 and we are expecting a huge rebound over the next few weeks and months in the market. The bears are doing some serious damage, yes, but it just feels like a trap.
The S&P hit an intraday low of 1,262 on June 23 and rallied to a high of 1,356 by July 7. It only took 10 trading days to get this type of move and we believe the same powerful moves could come. The scary thing is that it looks as though the way the cards are falling it will all come down to Friday’s unemployment rate.
A number above 9% and the bears will win the pot. If by some miracle, the bulls get a print below 400,000 on Thursday and 9% on Friday, they just might “river” the bears.
We have a couple of trades that are up while others are down but we have used a mixture of August, September, and October options to play the current volatility. We aren’t sure how it will all turn out but the current market volatility is providing some exciting plays. Once we close out positions we will be adding new ones and by then a clear trend should be in place.
The bulls are holding the 200-day moving averages so don’t count them out just yet.
We are running a little late because we wanted to make sure the you-know-what bill got signed. We are glad to report while doing this update, it did. Obama blew more smoke by saying there could be jobs today if this and that happened. Well, do it. You are the President.
The second half of trading should be interesting and we will be back in the morning with a fresh outlook. In the meantime, subscribers, check the Members Area and our Watch List for the updates.
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