The Dow Jones Industrial Average was fortunate to hold the support at the 10,000 level last week, despite closing the prior week above 11,000. The revival of fears surrounding Greek’s sovereign debt led to ruminations about a “European Contagion” that could spread to the rest of the continent. The result was a near 1,000-point plunge (and modest recovery) by the DJIA on Thursday, with the malaise extending into the weekend. It was an unusual week highlighted by an extraordinary 30 minutes Thursday afternoon, when the Dow Jones Industrial Average (DJIA) briefly plunged a terrifying 1,000 points — the largest intraday decline on record — and then just as quickly recovered the majority of that loss. When the day was done, stocks suffered their worst session since February 2009 — and yet there was a sense that it could have been worse. How bad was it? At its intraday nadir, about 2:46 p.m., the Dow was down 9%, the largest percentage drop since 1987. Nearly $1 trillion in U.S. stock market value was wiped out in a matter of minutes. The DJIA kicked off the first week of May on a decidedly negative note, shedding 5.7%. Following suit, the S&P 500 Index (SPX) fell 6.4%, while the Nasdaq Composite (COMP) plunged 8%. The pullback has caused technical damage, with the SPX closing below its January highs in the 1,150 area, and its 160-day moving average. The 160-day trendline contained the SPX’s early February lows, when fears about Greece’s debt issues first emerged as a concern for U.S. stocks. The good news is that the SPX is headed into next week trading above 1,050, the site of its February lows. The index also remains above its 200-day moving average, even after testing the long-term trendline on an intraday basis on Thursday and Friday. For what it is worth, the 200-day trendline supported the SPX in 1997, after “Asian Contagion” worries spread and pushed stocks into a corrective mode. There is a lot of uncertainty, particularly related to the cause of the near 1,000-point, 15-minute plunge in the Dow Jones Industrial Average (DJIA) on Thursday afternoon. This, in itself, should be reason to approach the market with caution, while seizing opportunities. For example, with the broad market pulling back to an area of potential long-term support, there might be stocks trading near support levels that are worth taking a closer look at. You can use the pullback as an opportunity to play these equities from the long side. We enter this week with high caution and a high level of uncertainty. Remember, you don’t have to trade and sometimes sitting in cash is the right trade. We will look for names that are nearing or have bounced off of key support levels. We should get more and more clarity out of Europe as the week goes on.
Weekly Economic Calendar: Monday
- Monday is devoid of economic reports. Earnings season continues, with Dean Foods Co. (DF), DISH Network Corp. (DISH), Energy Conversion Devices Inc. (ENER), ReneSola Limited (SOL), Tyson Foods Inc. (TSN), LDK Solar Co., Ltd. (LDK), MBIA Inc. (MBI), priceline.com Inc. (PCLN), and Winn-Dixie Stores Inc. (WINN) releasing their earnings reports.
Tuesday
- March wholesale inventories are slated for release on Tuesday. On the earnings front, Fossil Inc. (FOSL), JA Solar Holdings Co., Ltd. (JASO), Electronic Arts Inc. (ERTS), SunPower Corp. (SPWRA), and The Walt Disney Co. (DIS) are scheduled to release their quarterly reports.
Wednesday
- Wednesday brings the weekly report on U.S. petroleum supplies, as well as the April Treasury budget and the March trade balance. Taking their turn in the earnings confessional are Macy’s Inc. (M), Cisco Systems Inc. (CSCO), DryShips Inc. (DRYS), and Whole Foods Market Inc. (WFMI).
Thursday
- Weekly initial jobless claims hit the Street on Thursday, followed by April’s import/export prices. Kohl’s Corp. (KSS), Urban Outfitters Inc. (URBN), Wendy’s/Arby’s Group Inc. (WEN), Blockbuster Inc. (BBI), CA Inc. (CA), Nordstrom Inc. (JWN), and NVIDIA Corp. (NVDA) are scheduled to report earnings.
Friday
- Friday closes the week with April retail sales, April’s industrial production/capacity utilization reports, the University of Michigan’s consumer sentiment index for May, and the March business inventories report. J.C. Penney Co. Inc. (JCP) rounds out a busy week of earnings reports.
New Trade Idea: There will be no new trades tonight as we continue to hold our open plays and we want to see how the market acts on Monday morning. Patience is the key right now. Open Positions: Macys (M) May 24 calls @ $0.70: We instructed subscribers to remove the stop-loss as the market was selling-off on Thursday. Continue to hold. Use $1.40 for a target with no stop-loss. Boyd Gaming (BYD) May 12.5 Calls @ $1.05: We instructed subscribers to remove the stop-loss as the market was selling-off on Thursday. Continue to hold. Use $1.75 for a target with no stop-loss. Las Vegas Sands (LVS) May 24 Calls @ $2.35: Earnings were great and the stock was upgraded. Unfortunately, this was lost in the concern over the big market drop. We instructed subscribers to remove the stop-loss as the market was selling-off on Thursday. Continue to hold. Use $3.60 for a target with no stop-loss. PNC Financial (PNC) May 67.5 Calls @ $1.45: We instructed subscribers to remove the stop-loss as the market was selling-off on Thursday. Continue to hold. Use $3.80 for a target with no stop-loss.
Written by Dan Micovic
