Market Recap: The market stayed positive for the majority of the day before falling apart yet again as the dollar index continues to rise and cause weakness for equities. Europe was a bit better as the eurozone GDP did not signal a recession as well as a solid number for Germany. Additionally, the market was celebrating some better than expected data from the Empire Manufacturing Index as well as NAHB Housing Market Index. Empire Manufacturing was well above expectations as well as NAHB Housing. Yet, retail sales were slightly weaker than expected.
The market, though, could not hold gains that it had for most of the day as we head into a Fed day. With the positive data, we were expecting some better moves for the market, which continues to suggest a very negative market environment. We continue to add bearish positions to the portfolio.
Two trades we like right now are long on Dollar General (DG) and short Nuance Communications (NUAN). Dollar General is a stock that we continue to like in any market. During rough times, it has appeal. At the same time, during times of prosperity, it has appeal as well. The stock is in a solid uptrend and should stay strong into its earnings report on May 28th. We believe that selling some puts against the company is a great way to play this stock. Max loss from two weeks prior to two weeks after earnings has been 10%, and four out of the last 10 reports it has not declined from this time at all. NUAN, however, is not looking good. A break of the $22 line will be quite bearish, and we would be shorting on that breakdown.
Trade #1: Jun16, DG, 44/43 Bull Put Spread
Trade #2: Short NUAN on break of $22
The market did not make as a big of a move as we expected today, but it did reverse to the downside once again to continue this bearish stretch for the market. We are not quite sure when this ends, and we need some catalyst to reverse things. The Greek situation is going to continue to linger, and we cannot expect much upside until that is solved. At the same time, we have a lot going on again tomorrow. We get housing news with Housing Starts and Building Permits as well as Industrial Production. The housing market has been strong, and it could provide a spark. Yet, Europe is also crowded tomorrow with eurozone CPI and Great Britain jobless numbers. Overarching, though, we have the Fed minutes, which will be very critical to the market tomorrow and moving forward. Look for a lot of movement to come off of that.
Based on our historical analysis, oil would be making its largest move in the past 20 years to the downside if it broke 92.50, and we believe that going long on oil at some point here this month around the 92 area is probably not a bad move. The best way we like to play that is with a United States Oil (USO) bull put spread or Ultrashort Proshares DJ-UBS Crude (SCO) bear call spread. Gold is in the same boat. Dollar rising is hurting the commodity, but we would expect a bottom to start to form around 1,500-1,525. The downside moves should start to slow.
We had a solid day as we took a 38% gain in a reverse iron condor in Las Vegas Sands (LVS) as well as an 8% gain in Coinstar (CSTR) bull put spread. We added a short in Chipotle Mexican Grill (CMG) and added a bull put spread in Dollar General mentioned above.
We have the following positions. In our Short-Term Equity Portfolio we are long Visa (V), Hershey (HSY) and Whole Foods (WFM). We are short Chipotle Mexican Grill, MasterCard (MA), Russell 2000 (IWM) and Sara Lee (SLE). In our Options Portfolio, we are long Disney (DIS), Panera Bread (PNRA) and Dollar General. We are short BP (BP), Apple (AAPL) and Russell 2000. We have a reverse iron condor on Ultra Proshares Financial (FAS). In our Earnings Alpha portfolio, we are long TJX (TJX), Western Digital (WDC), Teva (TEVA). We have a reverse iron condor in Priceline.com (PCLN).
Disclosure: I am long TEVA.