Written by Dan Micovic

Despite Friday’s sour job report, the Dow Jones Industrial Average tacked on nearly 2% for the week and Friday’s late rally indicated that the bulls aren’t ready to give up on this rally just yet.  One important but often overlooked index, the VIX, wrapped up the week with a loss of 7.5%, closing its first week below its 200-day moving average since April.  That should be viewed as extremely bullish in our eyes.

Last week we saw the SPX rally above resistance at 1121, test the next level at 1130 and then sell-off below the 200-day support at 1115.  What we saw were the institutions step in and begin buying, pushing the index back above 1115 ahead of the weekend.  It’s always very bullish when you see the big guys step in and buy what they feel is an oversold market.

We would like to see the SPX make a stronger break above 1121 and test 1130 early this week.  Also watch the VIX.  A declining VIX should lead to a higher market.

We remain bullish and we think we’ll continue to see money come off the sidelines during market pullbacks. We will be patient with new trades until hear from the Fed later this week.

Options Update SPX Aug 8 2010

Weekly Economic Calendar:

Monday

  • There are no economic reports slated for release on Monday, while DISH Network Corp. (DISH), King Pharmaceuticals Inc. (KG), ReneSola Ltd. (SOL), Tyson Foods Inc. (TSN), WellCare Health Plans Inc. (WCG), MBIA Inc. (MBI), and THQ Inc. (THQI) will release their quarterly earnings reports.

Tuesday

  • Tuesday brings us the preliminary second-quarter productivity, second-quarter unit labor costs, and June’s wholesale inventories. However, the Federal Open Market Committee’s decision on U.S. monetary policy and the accompanying statement will likely be the center of attention. Convergys Corp. (CVG), Fossil Inc. (FOSL), JA Solar Holdings Co., Ltd. (JASO), Cree Inc. (CREE), LDK Solar Co. Ltd. (LDK), SunPower Corp. (SPWRA), and The Walt Disney Company (DIS) are scheduled to report earnings.

Wednesday

  • The market will get the weekly report on U.S. petroleum supplies, along with June’s trade balance and July’s Treasury budget. Computer Sciences Corp. (CSC), IAMGOLD Corp. (IAG), Cisco Systems Inc. (CSCO), Pan Am Silver Corp. (PAAS), and Silver Wheaton Corp. (SLW) will post their quarterly results.

Thursday

  • The weekly report on initial jobless claims will be released as will July’s import/export prices. The Estee Lauder Companies Inc. (EL), Kohl’s Corp. (KSS), O’Charley’s Inc. (CHUX), Royal Gold Inc. (RGLD), Sara Lee Corp. (SLE), Wendy’s/Arby’s Group Inc. (WEN), Autodesk Inc. (ADSK), Nordstrom Inc. (JWN), NVIDIA Corp. (NVDA), and Red Robin Gourmet Burgers Inc. (RRGB) will report earnings.

Friday

  • The latest inflation data, with the release of the consumer price index (CPI) and the core CPI reading will be released. Also on the docket are July’s retail sales, August’s University of Michigan consumer sentiment index, and June’s business inventories index. Joining the earnings parade will be China TransInfo Technology Corp. (CTFO) and J.C. Penney Company Inc. (JCP).

New Trade Idea:
No new trades.

Open Positions:

Green Mountain Coffee Roasters (GMCR) August 30 Calls @ $1.65:

We closed a nice winner in GMCR recently and since the stock has consolidated and is making another run towards new highs.  We should see a nice move higher this week.  Use $3.00 as a target and $1.00 as a mental stop-loss to the downside.

Baidu (BIDU) August 80 Calls @ $4.00:

Great move this week and we should see higher prices this week..  Use $8.00 as a target and $2.00 for a mental stop-loss.

American International Group (AIG) August 40 Calls @ $1.90:

AIG has continued to perform well even while the market consolidates and digests the recent rally.  When this market is ready to move again, AIG should be ready to run.  $40 may prove to be a bit of resistance.  Use $4.00 as a target and $0.90 as a mental stop loss.

SanDisk (SNDK) August 46 Calls @ $1.70:

This play was stopped out on Friday.

NetApp (NTAP) August 43 Calls @ $1.90:

Continue to hold and use $3.00 as a target and $0.90 as a mental stop-loss.

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