Options Trader: Thursday Wrapup

by: Philip Davis

Well, don’t say I didn’t warn you…

It was bound to happen sooner or later, but let’s all take a deep breath and see where we are. But first - an aside. I have fun looking up pictures for the site, but sometimes I find some really strange stuff. In looking for a good picture of Humpty Dumpty falling off a wall (see how I maintain a thread from morning ’till night!) I came across robots singing the Humpty Hump and the Edgar Allen Poe version of the nursery rhyme. This is why I love Google - they appreciate this sort of nonsense enough to pony up $1.6B for the rights to show it to you!

Humpty Dumpty

Anyway, we had a great time today watching the market tumble. We’ve been pulling our winners off the table for a week now and had our stops in place since last Thursday. We just took a whole bunch of Diamonds Trust, Series 1 (NYSEARCA:DIA) puts yesterday, so the darned market better have gone down or we’d be feeling pretty silly right now. For some reason it took the market until 11 to decide the retail numbers were depressing while we were heading for the exits at 9:42, when I said:

Weak Wal-Mart Stores, Inc. (NYSE:WMT) - it sure spooks me! I don’t mind if WMT is weak by themselves, but when Target Corp. (NYSE:TGT) is down too, then you know the shoppers didn’t move up market (and there is no down from WMT). Costco Wholesale Operation (NASDAQ:COST) did well, but I don’t see them as being a real day to day substitute for WMT.

The market was so bad today that Apple almost went down. At noon, we decided to cover the Long-Term portfolio with some quick sells and by 1:15 we mover the STP around as well. We had a great finish catching the Amgen Inc. (NASDAQ:AMGN) move right at 3:07, where my brilliant quick analysis was: "AMGN - something bad! $60 puts for $1.40 as mo play XXX." Hey, they can’t all be thesis papers . . . 8-)

Luckily, the team pulled it together and we had the facts by the time the stock had a rebound 10 minutes later. We were ready to buy the June $57.50 puts for $1.15. Needless to say, most of us are already half out at $2 as we just so happened to be discussing non-greedy exits all week. Nothing takes the sting off a down market like a double at the end of the day!

We had a big, fat across the board sell-off and no sector was spared. Even Tesoro Corp. (NYSE:TSO) dropped 2% (a sign of the apocalypse, I’m told), despite gasoline jumping 4% and oil staying under $62, which one would think is a good combination for a refiner… There are still 235M scheduled for June delivery on the NYMEX and another 348M piled up in July and August ahead of the May 22nd termination date. That’s eight trading days left and they had to shuffle 275M barrels worth of May contracts to pare down just 10M barrels for the day. It’s going to be a wild finish at the NYMEX next week!

Today the S&P lost 1.4% of its 6.6% advance for the year, and this was the Dow’s third 100-point plus drop since this rally began on March 13th.



Day's Move

Must Hold

Comfort Zone

Break Out

Next Goal

Dow 13,215 -147 12,468 12,600 13,000 13,500
Transports 2,859 -50 2,825 2,900 3,000 3,250
S&P 1,491 -21 1,430 1,460 1,500 1,550
NYSE 9,669 -158 9,218 9,465 9,600 10,000
Nasdaq 2,533 -42 2,454 2,500 2,600 2,750
SOX 498 -10 477 490 500 560
Russell 818 -16 803 820 850 900

US Markets

After all that we only added two red boxes (the Nasdaq and the S&P) and ran into danger on the Russell and the SOX, but obviously, nothing a good day can’t reverse. Tomorrow, and more importantly Monday, will be key to determining our true direction. I was disappointed that the Transports and the Nasdaq fell so hard as we were looking to them for some leadership, but the sell programs took everything down today with few exceptions.

The dollar was supported by the ECB’s soft statement but the E.U. and Fed language combined with rate hikes at the bank of England were enough to send gold flying through its $670 " support " to finish the day at $667.

Oil and Dollar

Was it a bad day? I’ll tell you tomorrow!