1:00pm (EST)
We said this morning Wall Street might need some convincing on the European Union (EU) leaders agreement to tighter fiscal rules for the eurozone. From the looks of things, they seem to believe, once again, that the worst was averted and seem convinced most of the countries will agree on treaty changes that were cooked up by French President Nicolas Sarkozy and German Chancellor Angela Merkel.
Britain had some strong words and was one of the countries we mentioned this morning that doesn’t plan to go along with “the plan”. Their Prime Minister, David Cameron was quoted as saying, “We’re not in the euro and I’m glad we’re not in the euro. We’re never going to join the euro and we’re never going to give up this kind of sovereignty that these countries are having to give up.” Strong words, for sure.
By opting out, Britain took itself out of the equation of the fiscal process but there will be questions on how “tight” the new group will be. The U.K. is the 3rd largest economy in the eurozone and they simply felt like they could do better on their own two feet.
Despite the rebuttals, the agreement cleared the way for the group to provide the International Monetary Fund (IMF) with up to 200 billion euros in loans. These funds will be used to extend precautionary credit lines to Italy and Spain.
The end result wasn’t the holy grail of answers but it was enough to make the bulls happy. The bears may not have thrown the kitchen sink in yesterday but today’s strength certainly has them frustrated as they are now down for the week as we hit the halfway point.
Texas Instruments (TXN, $29.66, down $0.26) decided not to join the Tech party after slashing its 4Q earnings guidance. The company lowered its revenue expectations to $3.19-$3.33 billion with earnings per share coming in at $0.21-$0.25. This is down from a previous forecast of $3.26-$3.54 billion in sales and profits of $0.28-$0.36 a share. Going into the quarter, Wall Street had earnings pegged at $0.48 a share on revenue of $3.41 billion.
Elsewhere, Diamond Foods (DMND, $35.78, up $9.23) is up 35% after hitting a fresh 52-week low of $26.37 on Wednesday. It seems their Pringles brand acquisition from Procter & Gamble (PG, $64.94, up $0.47) will go through sooner rather than later.
Diamond Foods shares were pushing $100 in mid-September and reached a high of $96 before leaks of accounting issues and the Pringles deal not getting done. It is still a risky stock and we will need to see what the company’s books look like when they report earnings next week. They will announce their numbers on Tuesday so there may be a chance for a strangle option trade on Monday – or – a straight call or put option play. However, the premiums will be juiced following today’s big pop so it may be better to sell some options.
The Diamond Foods December 40 calls (DMND111217C00040000, $2.20, up $1.70) are up 340% today and expire next Friday. The December 30 puts (DMND111217P00030000, $1.20, down $4.00) are still above a buck despite being $6 out-of-the-money. We don’t engage in selling options or going “naked” unless we own the stock but shares are too risky for us to make Diamond a covered call trade for our Weekly Wrap although we like the fat premiums.
We will keep the stock on our Watch List and will listen to the company’s conference call next week for more clues on where their focus is. We have been following Diamond Foods’ stock for over two years and shares look attractive if the company can dispel some of its recent missteps. LEAP options could be a cheap way to play this one and we will do some digging over the weekend.
As far as the indexes, they are right at resistance and up for the week if things hold.
The Dow is up 170 points to 12,167 while the S&P is higher by 20 points to 1,254. The Nasdaq is showing a pop of 43 points and is at 2,639.
We are still in great shape to take further profits next week as we closed a few other half positions into strength earlier this week.
The charts are still bullish and we will be back Sunday night with our Weekly Wrap. We are also on the verge of closing 3 more trades for this publication which will bring our covered call track record to 18-0 this year. So, when you hear the knuckleheads say this isn’t a “stock pickers” market, tell them to call us. We have proof it still is!
Subscribers, check the Members Area for the last minute updates and we will speak again on Sunday. Until then, have a great weekend, everyone!
