Heading into this expiration week we find the Dow back to negative for 2010 after a rough week. Last week we heard the dreaded talk of a double-dip, corporate reports weren’t as impressive as when the earnings season started, employment remained weak and from overseas we got reports of stagnating economies. As a result the Dow slumped back to its June levels.
We received a lot of e-mails this weekend asking what effect option expiration would have on the overall market this week. The trend in recent history has been for expiration weeks to be slightly bearish. We’ve had very, very light volume in recent weeks and that definitely exaggerates market movements. We’re through the bulk of corporate earnings so the focus will be almost solely on economic reports, which have obviously disappointed the markets lately. If we get reports that disappoint, look out below. However, if the reports surprise we would be in for a very nice run as bearish option players cover their positions. As investors, you have to be ready for both scenarios.
We expect trading to be very choppy this week and until we get institutional participation, we think we’ll see more downside. You have to be prepared for quick moves in either direction but we remain slightly bearish heading into this week.
Weekly Economic Calendar:
Monday
- The New York Fed will release the Empire State Manufacturing Survey for August ahead of the open. Agilent Technologies Inc. (A), Lowe’s Companies Inc. (LOW), Sysco Corp. (SYY), and Urban Outfitters Inc. (URBN) will release their quarterly earnings reports.
Tuesday
- The Commerce Department will release reports on housing starts and building permits for July, while the Labor Department will supply July readings on the Producer Price Index (PPI) and the core PPI. Also, the Federal Reserve will report on industrial production in July. Abercrombie & Fitch Co. (ANF), The Home Depot Inc. (HD), Saks Inc. (SKS), Wal-Mart Stores Inc. (WMT), and Analog Devices Inc. (ADI) are scheduled to report earnings.
Wednesday
- The usual weekly report on U.S. petroleum supplies will be announced. BJ’s Wholesale Club Inc. (BJ), Chico’s FAS Inc. (CHS), Target Corp. (TGT), Applied Materials Inc. (AMAT), Brocade Communications Systems Inc. (BRCD), Hot Topic Inc. (HOTT), and Limited Brands Inc. (LTD) will post their quarterly results.
Thursday
- The weekly report on initial jobless claims will be released, along with the Conference Board’s Leading Indicators Index for July, and the Philadelphia Fed Index for August. Dick’s Sporting Goods Inc. (DKS), Dollar Tree Inc. (DLTR), GameStop Corp. (GME), Stein Mart Inc. (SMRT), Yingli Green Energy Holding Co. Ltd. (YGE), Aeropostale Inc. (ARO), Blue Coat Systems Inc. (BCSI), Dell Inc. (DELL), The Gap Inc. (GPS), Hewlett-Packard Co. (HPQ), Intuit Co. (INTU), Marvell Technology Group Ltd. (MRVL) and salesforce.com inc. (CRM) will report earnings.
Friday
- There are no major economic reports scheduled for Friday. Rounding out earnings for the week will be AnnTaylor Stores Corp. (ANN) and Hormel Foods Corp. (HRL).
New Trade Idea:
Buy Chipotle Mexican Grill (CMG) August 140 Put @ $1.50 or Better:
Looks like we have a classic double-top here on CMG and we could see a quick drop to the $135 area. Let’s use $3.20 as a target and $0.50 for a stop-loss.
Buy Research in Motion (RIMM) August 52.5 Puts @ $0.75 or Better:
RIMM looks poised for further downside this week. A break of $52.60 should send the stock in a freefall. Let’s use $1.50 for a target and a mental stop of $0.20.
Open Positions:
JP Morgan Chase (JPM) August 38 Puts @ $0.95:
Continue to hold. With corporate earnings winding down and the focus shifting more on economic reports, we expect the financials to take a hit this week. Use $1.55 as a target and $0.50 as a mental stop-loss.
TEN Exclusive: Options Update – 8/15/2010 is an article from: 
