1:00pm (EST)
“I learned a thing or two from ol’ Charlie don’t you know
You better stay away from Copperhead Road”
When we were doing our Weekly Wrap on Sunday, we had a feeling the bulls would struggle at the top of the current trading range following last week’s huge rally. We weren’t too worried about the problems with Greece but we knew when futures opened lower last night the market could test support which was prior resistance.
Renewed fears of Greek going down are back in the headlines after the suit-and-ties failed to come up with a more detailed plan over the weekend to prevent a default. There was some hope the European Union finance ministers would give more money to the bailout fund, as suggested by Treasury Secretary Timothy Geithner, but he got laughed at, basically. Well, we shouldn’t say laughed at, let’s just say, the EU leaders suggested he shouldn’t throw stones at glass houses.
The bottom line, folks, is that Greece is broke and it can’t pay its bills without the bailout loan. Although we expect some resolution this week, the biggest problem is that since the loan was delayed until October, this could actually force Greece to default if they DON’T do something. Like we mentioned last week, the EU doesn’t want a domino effect.
We are more worried about the events here at home as the Fed takes center stage on Tuesday and Wednesday. The two-day meeting will shape the market’s direction this week once the FOMC statement on interest rates is released.
Our portfolio is light as we look to establish our next batch of trades. We have taken a few early positions on longer-term options and we have a few trades that are still open from June and July. Our points is, we have a number of trades that are on our Watch List that should do really well on a market breakout but we need to make sure there is a continued rally and that we don’t fall back into the current trading range.
If we do, we may have to play some short-term put options, but we think the bulls can push new highs once some of the global risks come off the table.
One sector that continues to get hammered is copper which is at its lows for the year. One stock we like to follow when it comes to copper is Freeport-McMoRan (FCX, $39.92, down $1.67) which is down another 4% today and at fresh 52-week lows. The 52-week high is $61.35 so shares are down nearly 35% from their high. However, multi-year support is strong at $30 so we are being careful with this one although we think shares are getting to be a steal. We will be looking at a strangle option trade for Freeport on Tuesday but either way, the stock and options are getting interesting as a possible short or a longer-term rebound with LEAPs.
Be patient. We should get our clues shortly. As far as our ongoing trades, they are holding steady and are showing slight gains. We have already taken half profits in our Research In Motion (RIMM, $23.93, flat) put options to lock in a triple-digit return and the call trades we have open are off to a great start despite today’s pullback.
As far as the market, we mentioned support this morning at Dow 11,350; S&P 1,200; and Nasdaq 2,600. As we head to press, the Dow is down 182 points to 11,327 while the S&P is lower by 19 points to 1,197. The Nasdaq is off 22 points to 2,600. If the bulls can’t hold current levels, the market could be testing lower support levels just as fast as it went up last week.
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