Market Recap: The market went through a bit of weakness today as earnings were not as well received for IBM (IBM) and Intel (INTC) as other earnings have been this season so far. Additionally, the market may have been doing some correction heading into a key bond sale by Spain on 10-year notes tomorrow. Without an upward catalyst, the market seemed to lose a bit of its footing today and faltered. We are expecting a big day tomorrow on the bond sale as well as jobless claims and continued earnings releases.
The market moved in a pretty tight range all day, which is typically evident before more violent and volatile days. With some risk coming off the market, equities were somewhat weak. We will have to wait and see on the 10-year auction to know the market's next move as well as some key data and earnings.
Two stocks we like right now are Coca-Cola (KO) and Sina (SINA). For KO, we think the stock is looking pretty good long. The company had great earnings, and we continue to maintain a Buy rating on the company with an $85 rating. We continue to like KO, and think the stock has limited downside based on strong earnings. Further, if the market does weaken somewhat, we like KO to continue to be strong as a consumer staple. SINA is looking very weak right now, and we continue to think this stock has a lot of downside. The stock, recently, formed a reverse head and shoulders, but it now has retested the bottom of its right shoulder. We continue to believe more weakness is ahead for the company as earnings are supposed to drop over 1000% this FY. The stock is in a strong downtrend, and we have a $60 PT on the company.
Trade #1: KO, May18, 72.50/75 Bull Call Spread
Trade #2: SINA, May18, 70/72.50 Bear Call Spread
The market weakened today, and tomorrow, we are going have the major Spanish debt sale to direct our day. In addition to that big announcement, we have jobless claims and existing home sales, which are big economic items that will have some weight on the market. If claims rise again, it will be a weak moment for the market as well. As for earnings, we have big reports from American Express (AXP), DuPont (DD), eBay (EBAY) and Morgan Stanley (MS). Those reports could help out if solid, and earnings will remain a big part of the day's movement. The Spanish bonds will definitely overshadow the market, but we have a lot of other things that can keep the market in check if they do have a weak sale.
The battle over First Solar (FSLR) continues as different analysts take different stakes on the latest news out of the solar giant about its intentions to move out of Europe and cut thousands of jobs. Today, Cantor Fitzgerald upgraded the company to Hold as they like the move. We continue to think FSLR has long-term upside, but it is going to have a very hard time convincing investors until the company does recover more. IBM got downgraded by Macquarie today to Neutral, which we thought was a bad move as IBM had a great quarter and offers a lot of upside. The company had a very conservative estimate for the FY, and we look for a move to $280 by year's end.
We went short crude this week and added to that position yesterday with a May18 United States Oil (USO) 42/43 bear call spread. We do not see much upside left for crude. With Obama's plan to kill speculation, Iran coming off the ledge, and supplies still very high, the $100-plus oil is short-term fueled by strength in equities. Inventories were another sign today that the supplies are too high, and weakness is going to set in for crude oil.
We had a pretty good day. We locked in a 1.2% gain on Ultrashort Proshares Oil (SCO). We sold our second half of Melco Crown (MPEL) for a 3.5% gain. We locked in a 15% gain on a Google (GOOG) reverse iron condor we entered before earnings. We added the KO spread listed above to our Options Portfolio, and we added a reverse iron butterfly on VMware (VMW) as we expect a volatile move on their earnings.
We have the following positions. In our Short-Term Equity Portfolio we are long CF Industries (CF), Ultrashort ProShares Oil and Kohl's (KSS). In our Options Portfolio, we are long KO, Dollar General (DG), Monster Beverage (MNST), SPDR Gold (GLD), Visa (V), Starbucks (SBUX), Ralph Lauren (RL), Google and IBM . We are short Apollo Group (APOL) and USO. We have a reverse iron condor in Direxion Financial 3x (FAS). In our Earnings Portfolio, we are long Chipotle Mexican Grill (CMG), Ace Limited (ACE), Ulta (ULTA), Canadian Pacific (CP), Ashland (ASH), Coinstar (CSTR), and Goldman Sachs (GS). We are short Amazon.com (AMZN). Reverse iron butterfly in VMW.
Chart courtesy of finviz.com.
Disclosure: I am long SBUX.