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Wall Street had another big day as the market powered higher once again despite conditions that would suggest otherwise. Stocks rose mostly after Goldman Sachs (GS) reversed the fortunes that Citigroup (C) and JPMorgan (JPM) had set for the market's major financial institutions. The company did not seem too fazed by a underperformance in revenue as they cut jobs, pay and cut spending in line with 2010 to bring margins much higher. The market loved it, and it sparked a solid rally. Yet, with such a significant rally on a lot of individual headlines like GS and French debt auctions, are we setting up for a reversal anytime soon?
Moving into tomorrow, we believe the market should be looking higher, but we think it is important to take a look at a couple stocks that could be downside movers in a flat market and would be great shorts in a reversal of market fortunes.
We look at Ultrashort Proshares DJ-UBS Crude Oil (SCO) as well as Salesforce.com (CRM) as one stock to buy and one stock to sell in a downward moving market. For SCO, oil is just too high. Supplies have been rising, Libya is back, and Iran is not getting embargoed. So why is oil still at $100? Demand is down, the world economists continue to slash targets, and the dollar cannot weaken for long. Right now, we believe picking up SCO is a great hedge to a long portfolio. Oil should move down into inventories tomorrow, and we should not expect more in the way of a drawdown on inventories.
Salesforce.com remains on of our least favorite stocks with its 5,000-plus PE. The company will be moving in the near-term on F5 Networks (FFIV) earnings. We believe, though, that adding a solid bear call spread at the 120/125 levels is a great way to sell premium on a stock that should be moving toward $90 this year.
Europe and data still remain very much an issue for this market. Europe has been ignored for the most part, but we do believe Greece issues should flare up shortly again. Further, data was not great today. Industrial production missed the 0.5% increase estimates at 0.4%. PPI showed deflation, and if CPI comes in above PPI ... price increases are being passed on to the customer. We believe that the market needs only one major negative headline to see a pretty solid sell-off.
Tomorrow, we expect the market to react violently to earnings and data. It should be an exciting day.
We had two solid days here. We closed several profitable positions yesterday including our Starbucks (SBUX) $39 sold puts for an 18% gain. We closed half our Panera (PNRA) equity position for a 2.7% gain, and we closed an Apple (AAPL) bull put spread for a 12% gain. Additionally, we closed 3/7 of our sold $9 Feb18 puts in Avis Budget (CAR). Today, we locked in the second half of PNRA at 151.00. We also sold half our equity position in SBUX at our first target at 48.11. It was a nice two day period with the only drawback being a loss taken on an SQQQ hedge and Hanesbrands (HBI) short.
We have the following positions. In our Short-Term Equity Portfolio we are long Panera and Ultrashort Crude. In our Options Portfolio, we are long Blackstone (BX), Google (GOOG), IBM (IBM), Dollar Tree (DLTR) and SPDR S&P (SPY) and we are short United States Oil (USO) and Salesforce.com. In our Earnings Portfolio, we are long CarMax (KMX), Avis Budget, Vertex Pharma (VRTX), Apple and Ashland (ASH). We are short Polycom (PLCM) and AOL (AOL).
Additional disclosure: We have the following positions. In our Short-Term Equity Portfolio we are long Panera (PNRA) and Ultrashort Crude (SCO). In our Options Portfolio, we are long Blackstone (BX), Google (GOOG), IBM (IBM), Dollar Tree (DLTR) and SPDR S&P (SPY) and we are short United States Oil (USO) and Salesforce.com (CRM). In our Earnings Portfolio, we are long CarMax (KMX), Avis Budget (CAR), Vertex Pharma (VRTX), Apple (AAPL) and Ashland (ASH). We are short Polycom (PLCM) and AOL (AOL).