9:00am (EST)
The market got pounded on Wednesday as the bears finally did some damage and drew some blood. The bulls did manage to cut the losses in half by the closing bell but they didn’t get out of bed until way after lunch.
The Dow experienced some quick selling pressure throughout the morning and dropped to a low of 10,517. This represented over a 200 point haircut but the index closed the session at 10,603, down 122 points.
The S&P 500 held critical support levels as it hit a low of 1,129. We trust it down to 1,100 and the index finished at 1,138, down 12 for the day.
The Nasdaq crossed the finish line at 2,291, down 29 points for the day and tanked to a low of 2,268.
The 1% losses could have been much worse for the market and the old cliché of “this is a trader’s market” is being echoed by the money managing pros. Folks, if the market is headed lower it won’t be a trader’s market. There will plenty of put option trades available if stocks are headed for a correction.
The bulls can blame yesterday on China, or some of the crummy economic news we got. Word is China wants banks to stop issuing loans, suggesting that liquidity is quickly drying up in the global credit market. As far as economic news, housing starts dropped 4% during the month of December.
And now for the news we have been waiting to report…
Warren Buffett did what he told Wall Street he would never do.
He split his company’s stock.
Berkshire Hathaway announced yesterday that its shareholders approved a 50-for-1 split of its Class B stock (BRK.B, $3,476.00, up $144.00) that will take effect TODAY.
There will not be a record date or a payable date and the stock should open on the New York Stock Exchange near $70 when the opening bell rings in 30 minutes. The best part of this is that we can now trade options on the Baby Berk’s at discounted prices.
We normally don’t like playing options on stocks that trade over $200 and we are hesitant to trade options on stocks over $100 because the premiums can get expensive but sometimes we do..
Take for instance the options on Berkshire’s Class B shares. You could have bought the February 3,500 calls (BVQBG, $75.00, up $58.00) for $17 on Tuesday and you would have made 340% on your investment yesterday. Of course, most traders did not and these call options opened at $46.10 on Wednesday.
The option chains are thinly traded as you might imagine because of the high premiums and the stock price. However, that is about to change…
eBay (EBAY, $22.23, down $1.03) made a nice bounce last night after earnings beat Wall Street estimates. PayPal has turned out to be perhaps ebay’s finest acquisition and continues to pay dividends.
The company reported a profit of $1.4 billion, or $1.02 a share, up from $367 million, or $0.29 a share, a year ago. After “adjustments” eBay’s numbers were really $586 million, or $0.44 a share. Analysts had pegged 40 cents a share. Shares were up $1.80, to $24.03 in extended trading last night.
As we head to press, Dow futures are down 16 points after being positive for much of the morning; S&P 500 and Nasdaq futures are down a point about a point each. Current subscribers, please check the Members Area for the latest updates.
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