This crazy roller coaster ride continues but perhaps we’ve seen the final descent and are now slowly rolling towards the top.  The Dow Jones Industrial Average managed to scratch and claw its way back above the10,000 level, but the S&P 500 Index (SPX) is still struggling to reach the 1,100 level, a level we haven’t closed above in about 4 weeks.

The weak technical backdrop did indeed favor the bears last week, but the sentiment backdrop was ripe for a short-covering rally that might quickly unnerve them. Last week’s price action was representative of this conclusion. Monday’s trading was a continuation of the prior Friday’s weakness, and Tuesday was pretty much uneventful until a surge higher in the last two hours of trading. Wednesday saw a gap higher, followed by more strength into the lunch hour, but afternoon weakness sent the S&P 500 Index (SPX) 22 points lower into the close. But Thursday saw another sharp gap higher that lasted into the closing bell. Finally, Friday’s action began with a gap lower and stocks trading in the red until the last half-hour of trading, at which point they rallied to close in positive territory. The end result has been volatile movement within the 1,040 – 1,100 range, and overnight holding risk continues to be high.

The SPX comes into the week at a very interesting juncture.  It remains above its February and May lows in the 1,040 area, but below its 200-day moving average, currently around 1,110.

We remain very cautious of this market and the triple expiration this week will make trading even more difficult.  We will pick our spots and hedge our bets.

Options 6.14

Weekly Economic Calendar:

Monday

  • There are no major economic reports scheduled for release, and the earnings season slows as La-Z-Boy Inc. (LZB) is the only company scheduled to release earnings.

Tuesday

  • The Fed will release the Empire State Manufacturing Index for June and we’ll get May’s import and export data from the Department of Labor. Best Buy Co., Inc. (BBY) will post its results.

Wednesday

  • Wednesday brings the release of weekly crude inventories, May housing starts, the May Producer Price Index (PPI) and core PPI, and May industrial production data. Canadian Solar Inc. (CSIQ) and FedEx Corp. (FDX) will announce their results.

Thursday

  • Initial jobless claims, the May Consumer Price Index (CPI) and core CPI, the Conference Board’s leading indicators index for May, and the Philadelphia Fed Index for June will all be released. The J.M. Smucker Co. (SJM), The Kroger Co. (KR), Pier 1 Imports Inc. (PIR) and Smithfield Foods Inc. (SFD) will release earnings.

Friday

  • There are no major economic reports or earnings scheduled for Friday release.

New Trade Idea:

Buy Chipotle Mexican Grill (CMG) July 120 Calls @ $4.00 or better:

Options 6.142

A beautiful chart of a stock that till wants to go higher.  Let’s use $8.00 as a target and a mental stop-loss of $2.00.

Buy Crocs (CROX) July 10 Calls @ @1.40 or better:

Options 6.143

Interesting looking chart with strong support just beneath here.  If we have seen the bottom of this correction, this stock should explode higher.  Let’s use $3.20 for a target and $0.50 as a mental stop-loss.

Open Positions:

Buy Overstock (OSTK) June 20 Put @ $1.00 or better:

This position was stopped out on Friday.

Aruba Networks (ARUN) June 15 Call @ $0.20

ARUN was up over 5% on Friday.  A great move.  Let’s give ARUN a few more days.  Use $0.55 for a target exit.  Because of the low-cost we won’t set a stop-loss until next week.