2 Stocks To Trade, And What's Next For The Market

by: David Ristau

Market Recap: The market finished off a short week with a flatter day as the market prepared for a crucial non-farm payrolls report tomorrow. The market drifted lower all week after the Federal Reserve announced that it will not be supplying any more free money with QE. Today, though, the market did have some more exciting reports. Initial jobless claims dipped week over week and stayed around the 350K level. That level is good to see moving into the NFP report tomorrow. Additionally, retail sales were strong in March as many retail companies beat their expected YoY sales. Further, Challenger Job Cuts came down 8.8%. Overall, it was a good news day that had the backdrop of a weak week, European fears and no-QE.

The move this week could easily be reversed with a strong print from NFP tomorrow. At the same time, a weak report would be fairly devastating for this market that is already starting to show some cracks. We do believe, however, that many strong stocks will continue to remain strong in this market as we seen by two stocks we believe are once again buys for next week:

Unknown ObjectTwo Trades

Two things we added to the mix today are Apple (AAPL) and Monster Beverage (MNST). We like Apple here as the stock continued to buck the market trend this week. Despite weakness in the market, Apple was strong all week, and we believe the stock is going to be at $650 at earnings. Where it goes from there is dependent on earnings.

To play AAPL, we did a weekly options bull put spread (see below). Apple should continue to be strong, and even if it does not go higher, we can make money on that spread. Further, AAPL has not broken its 20-day MA since December, and that is sitting at 598 right now. Further, we continue to like MNST. The company also showed great strength this week, testing its 10-day MA that it has held since the beginning of the year. We like buying it here on some recent weakness as we believe it will test $65 next week. Both stocks are strong and will see buyers come into them on weak days as well as strong days.

  • Trade No. 1: Apr13, 605/600 AAPL Bull Put Spread, Potential Gain: 11.6%
  • Trade No. 2: MNST, Long, Target 2-3% Gain

Click to enlarge

Tomorrow's Outlook

Not needed due to Friday's close.

Analyst Moves

The interesting moves we saw for analysts was an upgrade of PT on Panera (PNRA) to $190 from Credit Suisse. We continue to like this stock with a Buy Rating and $176 target. We have kept our price target lower due to margin concerns, but another quarter of margin improvement would greatly improve our price target. Raymond James downgraded LinkedIn (LNKD), which we were happy to see as we have the stock at a Sell rating at just over a $60 target. The company continues to shock us with how well it performs despite such little actual income generation.

Commodity Talk

Crude inventories rose 9M barrels this week, and that is a disaster for crude prices. Supply is finally catching up with oil, and we do not see oil being able to rise with the combination of oversupply, no QE, and high gasoline prices. A good report from NFP will probably give oil a temporary rise, but we would use that rise to short oil again. We like using Ultrashort Proshares Oil (SCO) to get into a short on oil. Gold is right around a buy point at 1,600. We would be willing to sell bull put spreads on gold with SPDR Gold (GLD) if we see a test of 1,600.

Our Moves

We closed several positions today. On the plus side, we closed half of our long in VF Corp. (VFC) for a 1% gain. We closed our Options Portfolio position in 52.50/50 bull put spread in Starbucks for a 20% gain. We let our AAPL weekly 600/595 bull put spread expire worthless for a solid 15% gain. We did lose, however, on a short in Agilent Tech (A) that we took a 1.5% loss on. Additionally, we took a 50% loss on PetSmart (PETM) 55/60 bull put spread on a small position.

We have the following positions. In our Short-Term Equity Portfolio we are long VF Corp. and MNST. In our Options Portfolio, we are long AAPL, Visa (V), PetSmart, Starbucks (SBUX), Ralph Lauren (RL), Google (GOOG) and IBM (IBM). We are short Apollo Group (APOL) and iShares Russell 2000 (IWM). We have a reverse iron condor in Direxion Financial 3x (FAS). In our Earnings Portfolio, we are long Ace Limited (ACE), Ulta (ULTA), Canadian Pacific (CP), Ashland (ASH), Coinstar (CSTR) and Goldman Sachs (GS). We are short Amazon.com (AMZN).

Chart courtesy of finviz.com.

Disclosure: I am long VFC.