Options Trader: Tuesday Wrapup

by: Philip Davis

Woo-Eee, what a day!

It is so hard not to BUYBUYBUY, but I’m still not loving this thing just yet. Had we gone down a bit more or consolidated a little longer I would have been excited about a rally, but so far we’ve just got a really nice bounce.

This morning I said: "Look for the very rare "abandoned baby" pattern to form in the candle chart of the Qs (it will gap up at the open and finish the day at or above yesterday’s high) to signal a real reversal which could have all those shorts covering for the rest of the week."

Abandoned Baby Candlestick Example

That’s pretty much what we got today in the Nasdaq, the SOX, and, of course the NASDAQ 100 Trust Shares (QQQQ), but not from the other indices (like I said, it’s very rare), which formed less bullish looking bounces. We did get out 20% retracements from tops to bottoms everywhere but the Dow and the Transports but we NEED that to cross and we need to get over 33%, then 50% to get back on track:

10 Day 3/5 Low

Index High Low Finish % Bounce 33 %
Dow 12,786 12,111 12,207 14% 12,334
Transports 2,983 2,736 2,768 13% 2,818
S&P 1,460 1,374 1,395 24% 1,402
NYSE 9,453 8,838 9,006 27% 9,041
Nasdaq 2,525 2,340 2,385 24% 2,401
SOX 489 457 465 25% 468
Russell 829 760 778 26% 783
Click to enlarge

US Markets

So we must BREAK our 33% levels and, as usual, the NYSE and Russell are leading the way so let’s keep an eye on them. 157 Dow points may sound impressive but they are way off and we need to cross 12,250 there to feel safe with 2,785 forming the 20% mark for the Transports.

Oil is still the potential rally killer and a big cold snap in the east has already bounced oil back to $60.69 but, much like the Dow, this is not a pattern to get very excited about. Either oil breaks or the market does, right now I have my money on Exxon Mobil (NYSE:XOM) puts! Despite the incredibly clueless forecasting of an early spring by Punxsutawney Phil, (you thought we were done with that reference didn’t you?) Accu-Weather (a service that employs no rodents at all) says the cold weather will blow out as fast as it blew in and we will be back in the mid 40s by the weekend.

Zman posted a nice chart today and I’ll be taking a close look at Hess Corp. (NYSE:HES), Teekay Shipping Corporation (NYSE:TK) and Tesoro Corporation (NYSE:TSO) (again) based on what I see there. He was dead on with
Oilsands Quest Inc. (BQI) this morning with a nice 5% gain - that’s certainly something you don’t get every day! Credit also goes to Denver, who selected it in comments this morning.

Gold popped back up to test $650, topping out at exactly that number but the dollar remained week which makes me just three for four this morning when I said: "Oil will bounce to at least $60.50, a good test (see ZMan’s daily comments) and gold will bounce ($650) and miners will bounce (look for Thursdays level) and the dollar will bounce…"

I’ll have to think about that dollar issue, it was fairly weak but at least it held 84.



We made a lot of selections pre-market but the opening was weak and we didn’t play too many but let’s see how they did today so we know if it was good logic for next time:

• NASDAQ 100 Trust Shares (QQQQ) $43s opened at .73 but the QQQCQs never went past .60 so we would have been stuck with these at .85 although stopping out on the pullback from .93 would have been prudent.

• Google (NASDAQ:GOOG) June $540s came in at $3.50 and topped out at my target of $5 (up 43%) where we were supposed to sell half but you can be forgiven for not listening the way this thing went up today!

• Google Apr $500s opened at $3.30 (.30 over target) and finished at my target of $4.50 (up 36%). Same as above, it was hard to sell after such a great day.

• Google Jan $600s opened at $11.50 and finished short of our target at $12.80 (up 11%) so a little disappointing so far but, as I said this morning, it’s more of a long-term play into earnings, hoping for a pop at some point.

• eBay (NASDAQ:EBAY) Apr $32.50s opened at for $1.05 but missed my $1.40 target to finish at $1.35 (up 29%).

• Allegheny Technologies Incorporated (NYSE:ATI) Apr $100s opened way high at $4.70 but we took them anyway and just kept them, now $5.90 (up 26%).

• Goldcorp Inc. (NYSE:GG) July $27.50s opened at $1.85 and finished at $2, nothing special so far…

So mission accomplished on that batch, we made our 20%, which is all you can ask from a momentum play.

• New Century Financial Corporation (NEW) Jan ‘09 $20s opened at .65 and finished at .75 (up 15%), slightly outpacing the 10% gain in the stock.

Our member ideas were also excellent, we’ll see what the week brings:

• Acme Packet, Inc. (NASDAQ:APKT) (Batesum) gave us a nice entry at $15.15 and finished at $15.84 (up 5%). I’m told 5% is considered good for a stock in one day but I’m a little out of touch with those things… The Aug $17.50s are already $1.70 so no hurry to sell.

• Apple (NASDAQ:AAPL) (Tom) gapped up but luckily we already have plenty of these. You’ll be relieved to know my July $90s gained a buck to $7.60.

• Amazon.com, Inc. (NASDAQ:AMZN) (Scott) was real slow to get going but zoomed up 4% at the days end. The Jan $40s came in at $4.40 and went nowhere but we didn’t chase them.

• Juniper Networks, Inc. (NYSE:JNPR) gained 3% on the day but hit our entry at $2.25 for the Jan $20s and gained another dime.

• IntercontinentalExchange, Inc. (NYSE:ICE) (John) was nice enough to come back down and the Apr $155s did get all the way down to $5.50 (target $6) and finished at $6.65 (up 19%) but I missed this one.

• Oilsands Quest Inc. (BQI) required you to pay .02 over our target at $3.12 and topped out at $3.33 (up 7%) before pulling back a dime to $3.22. This stock makes a great oil cover!

• Seagate Technology (NASDAQ:STX) went the wrong way all day and luckily gapped open and made no play (but I still like them). We’ll watch for HPQ and DELL to move before we jump on them.

• iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI) also gapped up too far to grab, but we already have the $110s.

Not a bad day considering the disaster we had last week - let’s hope this recovery sticks!