Traders celebrated when May ended and were optimistic that June would be much better. Did you realize that during the whole month of May we did not see back-to-back positive days for the S&P 500 Index? Last Wednesday and Thursday –when the SPX was up 2.58% and 0.41% respectively — were the first consecutive up days since the last two days in April. Investors thought that we had worked our back from the “flash crash” and that staying above 10,000 on the Dow was a given. We ended the week at 9,931.
The market was bedeviled this past week by continuing worries about European debt (add Hungary to the list of usual suspects); new worries about a slowdown in economic activity in China; and BP’s hapless efforts to end the catastrophic oil spill in the Gulf (although progress was reported on that front toward the end of the week). Just to stir the pot a little, two influential Federal Reserve officials publicly lobbied Thursday for higher interest rates. Then came Friday’s knockout punch: a hugely disappointing report on new private sector employment.
The Dow had tumbled 323 points, or 3.2%. The blue-chip barometer ended beneath the 10,000 level for only the third time since November 2009, declining 2% for the week. For the week, the S&P 500 Index shed 2.3%, while the tech-rich Nasdaq Composite lost 1.7%.
On the bright side, the SPX remains above its February low at 1,045. However, it won’t take much to push the index below this key support level, and a break below this level could lead to a steep decline in the markets.
The momentum favors the bears but it won’t take much to spark a quick and furious reversal. If we get that spark, this market will fly higher. That said, it is best to remain overly cautious and keep in mind that cash is a position too. There is no need to chase this market.
Weekly Economic Calendar:
Monday
- April consumer credit report and wholesale inventories will kick off the week. FuelCell Energy Inc. (FCEL) and The Pep Boys (PBY) will release earnings.
Tuesday
- There are no major economic reports scheduled for release. Bob Evans Farms Inc. (BOBE), Navistar International Corp. (NAV), Dollar General Corp. (DG), Pall Corp. (PLL), and The Talbots Inc. (TLB) will post their quarterly results.
Wednesday
- Wednesday brings the release of weekly crude inventories and the Fed’s Beige Book report. Ciena Corp. (CIEN) and The Men’s Wearhouse Inc. (MW) will announce their results.
Thursday
- The initial jobless claims, the April trade balance, and the May Treasury budget will be released. Del Monte Foods Co. (DLM), Lululemon Athletica inc. (LULU), and National Semiconductor Corp. (NSM) will report earnings.
Friday
- The week closes out with May retail sales, the preliminary University of Michigan consumer sentiment report, and April business inventories. There are no major earnings scheduled for release.
New Trade Idea:
Buy Vmware June 70 call @ $2.00 or better:
VMW has been a great performer prior to Friday’s massive sell-off. Even then the stock held up well and has nice support just beneath here. As you can see above, the stock made a strong bid to breakout and with any market bounce the stock should outperform. Use $2.90 as a target and $1.00 as a mental stop-loss.
Open Positions:
Thoratec Corp (THOR) June 45 Call @ $2.40
THOR was crushed in the market sell-off and we did honor our stop-loss and the position is closed.
Aruba Networks (ARUN) June 15 Call @ $0.20
ARUN held up better than most on Friday and the chart still looks decent. Continue to hold. Use $0.55 for a target exit. Because of the low-cost we won’t set a stop-loss until next week.
Wells Fargo June 29 Put @ $1.95:
This trade was closed last Thursday morning.
Sony (SNE) June 30 puts @ .90:
Sony continues to break down and this position is now nicely profitable. Use $1.80 as a target to the upside and $0.45 as a mental stop-loss.
