Written by Dan Micovic

The previous week’s market momentum completely vanished last week, with the three major market indexes suffering substantial losses. The Dow Jones Industrial Average (DJIA) lost 2.8%, while the S&P 500 Index (SPX) dropped 3.6%, and the Nasdaq Composite (COMP) lost 3.8

We’re getting oversold signals for the short-term and Friday’s action backed that reading.  However, we will need a series of sparks to ignite this market for a sustained rally.  We received a spark on Friday in the form of the Financial Reform Bill being completed and now we need some follow-thru.

A few weeks ago, we stated that the environment remains dangerous for both bulls and bears. This is still the case, as the pessimism that has built up during the past few weeks sets the stage for quick, short-covering rallies that leave the bears wounded. At the same time, the technical backdrop is still on shaky ground, as resistance levels such as 1,100 and 1,125 on the SPX have come into play, leaving little for the bulls to get excited about. The end result has been quick bursts higher followed by sharp declines, resulting in no net movement, irritating bulls and bears alike. As we enter this week’s trading, support for the SPX is in the 1,050 area, while resistance sits at 1,100.

Our outlook is currently neutral but we expect to see a bit of a bounce early this week before we get to important economic reports later in the week.

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Weekly Economic Calendar:

Monday

  • Reports on May personal income and personal spending are scheduled for release.Barnes & Noble Inc. (BKS) and Micron Technology Inc. (MU) will release their earnings.

Tuesday

  • The Case-Shiller home price index for April along with the Conference Board’s consumer confidence index will be released. Meanwhile, General Mills Inc. (GIS) will post quarterly results.

Wednesday

Thursday

  • The weekly initial jobless claims, as well as reports on construction spending in May and auto sales in June. Constellation Brands Inc. (STZ) will report earnings.

Friday

  • We finish the week with the nonfarm payrolls and the unemployment rate for June. There are no earning reports scheduled for release on Friday.

New Trade Idea:

Buy Baidu July 75 call @ $4.20 or better:

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This market leader held up very well during the difficult market last week and looks poised to move higher.  Plenty of support below us here.  Use $6.00 as a target and $2.15 as support.

Open Positions:

Las Vegas Sands (LVS) July 26 call @ $2.10:

The gaming stocks have held up well during this trying week.  LVS in particular looks solid.  Use $4.30 as a target and $1.20 as a mental stop –loss.

American International Group (AIG)July 28 Call @ $1.95:

If you haven’t closed this position yet, use any strength to exit the play.

Skechers (SKX) July 45 Call @ $1.75

This play has been closed.

Crocs (CROX) July 10 Calls @1.40:

Continue to hold.  Let’s continue to use $3.20 for a target and $0.50 as a mental stop-loss.

TEN Exclusive: Options Update – 6/27/10 is an article from:
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