Click to enlarge chart
The market had another solid day to continue a nice start to the year as for the second day the market recovered from early losses. The market was powered by a slate of economic data that were released today. We got great news from ADP Employment Change as the number came in at 300K+ new jobs added, while expectations were for 180K. Initial jobless claims came in less than expected as well. ISM Services were slightly improved, and crude inventories were higher than expected. So why the mixed day and large drop to start?
Italy had a rough day as bond yields rose over 7% again and Unicredit commented they were having trouble raising money. The trouble in Europe dropped the euro and boosted the dollar. The market dropped early on fears in Europe, but it was able to recover a large portion of those losses and move higher throughout the day. Until Europe clears up, however, we will continue to be impeded by these issues.
Earnings season is right around the corner, which should provide us with the first major push for the year up or down. We got a sneak peek today with Monsanto (NYSE:MON), which had excellent earnings, and Constellation Brands (NYSE:STZ), which had earnings that came in under expectations.
We had another solid day as we were able to close three positive positions with Tempur-Pedic (NYSE:TPX), Macy's (NYSE:M) and Ultra Proshares Financial (NYSEARCA:FAS). We closed our sold $48 puts in TPX for a 12%-plus gain. We closed long on M stock for a 1.5% gain, and we were able to close some sold $65 puts on FAS for a 9.5% gain. We took losses, however, on TGT and SCO.
We have the following positions. In our options portfolio, we are long IBM (NYSE:IBM), Starbucks (NASDAQ:SBUX), Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) and we are short United States Oil (NYSEARCA:USO). In our earnings portfolio we are long Monsanto (MON), CarMax (NYSE:KMX), Bed, Bath, and Beyond (NASDAQ:BBBY) and Tempur-Pedic (TPX). We are short Netflix (NASDAQ:NFLX) and Polycom (NASDAQ:PLCM). We added a bear call spread in Netflix (NFLX) for the 90/92.50 spread.
Moving into tomorrow, the market looks good to continue higher as long as we get some good data from the jobs numbers. We believe that the market should stay strong on the hype of the New Year, and as long as we continue higher, money flow is going to want to enter this market.
Two stocks that we think look ready to move are Hertz (NYSE:HTZ) and IBM (IBM). We believe that Hertz looks solid right now with a strong rising upwards wedge. Additionally, the company has broken a lot of resistance levels and has great support below it. The company should hold $11 by expiration, and we can make 15% selling the $11 puts currently.
With IBM, the company looks a bit weak right now. While we believe in IBM, we are concerned the stock may see some profit taking and money flow exiting into earnings after Oracle's disaster. IBM probably has limited upside right now, and we like selling bear call spreads against the stock on the weekly and montly basis for the $190 - $195 range.
Additional disclosure: We have the following positions. In our Options Portfolio, we are long IBM (IBM), Starbucks (SBUX), Google (GOOG), and Apple (AAPL) and we are short United States Oil (USO). In our Earnings Portfolio, we are long Monsanto (MON), CarMax (KMX), Bed, Bath, and Beyond (BBBY), and Tempur-Pedic (TPX). We are short Netflix (NFLX) and Polycom (PLCM). We added a bear call spread in Netflix (NFLX) for the 90/92.50 spread.