Market Recap: The market suffered a slight setback on its second day of May as ADP Employment Change came in weaker than expected and could signal a possible meltdown on Friday when the non-farm payrolls are reported. Factory orders were also released today and came in a bit above expectations at -1.5% vs. -1.8% expectations. Additionally, helping to limit the market's downside was China's HSBC Manufacturing Index that came in above expectations, helping Asian markets to rise. Helping fuel downside was also the fact that European data was weak and raised the dollar vs. the euro.
Friday's job report is crucial to the direction of this market moving forward, and we believe that the market will definitely move on the news. The disappointment of a miss will be less with ADP today, but a bad report could spark the "Sell in May" that we are all waiting for.
A long position we like right now is Nike (NKE) and a short position we like is Ultra Proshares DJ-UBS Crude Oil (UCO). Nike set up beautifully and broke out today pushing past the March highs of 113. The stock looks set to continue higher into its June earnings report, and we believe that the stock will make its way toward 120 over that period if not higher. The company has gone nowhere since its last earnings report, and the market is not properly pricing in the 10% sales and earnings growth the company should expect. On the flip side, the oil market looks close to breaking down. Inventories popped again today, the dollar is rising, and oil looks ready to break. We believe that it's a great hedge to your portfolio right now as oil will decline a lot on unemployment rising.
Trade #1: NKE, Jun18, 110/115 Bull Call Spread
Trade #2: UCO, Short
The market's outlook for tomorrow will be dependent on jobless claims, Challenger Job Cuts, and ISM Services. Unemployment issues are definitely starting to sprout up for this market, and if they continue to persist, we are going to see a major market meltdown. Tomorrow, we also got an ECB bank rate decision as well as PPI for the eurozone, so it will be interesting to see how the market reacts to this news. We are looking fairly strong right now in this market, so if we do not get terrible news, we suspect another up day.
We had a nice day today as we took some solid gains off the table in equity. We sold our Francesca's (FRAN) long and Smithfield Foods (SFD) short pair trade for a 2% gain. We sold our long-term longs in Papa John's (PZZA) for a 17% gain and DR Horton (DHI) for a 32% gain from our Extended Value Portfolio. We took losses on F5 Networks (FFIV) and Morgan Stanley (MS), however, we still netted gains on both.
We have the following positions. In our Short-Term Equity Portfolio we are long Alexion (ALXN), Teva Pharmaceuticals (TEVA) and have a pair trade in Francesca's, Smithfield Foods as well as Equinix (EQIX) long: UCO short. In our Options Portfolio, we are long NKE, SPDR Goldshares (GLD), Panera Bread (PNRA), Coca-Cola (KO), Walgreens (WAG), Dollar General (DG), Monster Beverage (MNST), Visa (V), Polaris Industries (PII). We are short United States Oil (USO). We have a reverse iron condor in Direxion Financial 3x (FAS). In our Earnings Portfolio, we are long Wynn Resorts (WYNN), Western Digital (WDC), Ace Limited (ACE), and Coinstar (CSTR). We are short Amazon.com (AMZN). We have reverse iron condor in Las Vegas Sands (LVS).
Chart courtesy of finviz.com.
Disclosure: I am long CSTR.