The market rebounded strongly to end what was a fairly weak day in the stock market today. The issue came from the combination of renewed fears for Europe and lack of progress at EU Summit as well as Supreme Court decision to uphold Obama's healthcare plan. Without much progress towards Eurobonds or other major European decision, the market was back to "risk-off" trading. Further, the Supreme Court shocked many by upholding Obama's healthcare insurance policy, which is viewed as a negative for many healthcare insurers. Additionally, the market lacked a catalyst from initial jobless claims and GDP as both came in flat.
Moving into tomorrow, the market rallied hard to finish the day, and that type of stick is something that can translate into positives for the next day. Yet, its hard to imagine a lot of strength with no development from Europe. If the market does get itself going tomorrow, though, we could see a lot of upside as the market attempts to "window-dress" a very weak Q2 and June.
Two trades we are watching right now are an earnings position in Walt Disney (DIS) as well as pair trade in Wells Fargo (WFC) and Morgan Stanley (MS). We are big fans of DIS right now. The quarter gave DIS the release of Avengers and Brave and put behind them the disaster of John Carter. Both movies were box-office hits and should have translated well into DIS earnings that are expected to improve by around 20% YoY. The company has been very strong despite market weakness and is in a great uptrend, and we like going long on them for August options. Additionally, we believe as we head into earnings that a long on Wells Fargo coupled with short in Morgan Stanley. Wells Fargo is looking solid into Q2 earnings, holding support lines right now and showing good earnings growth YoY. Morgan Stanley just got a severe downgrade from Goldman Sachs (GS) as the company has high levels of exposure to market. Wells has less exposure, and we believe they will outperform MS moving forward.
Trade #1: DIS, Aug18, 48/47 Bull Put Spread
Trade #2: Long WFC, Short MS
Tomorrow, we should be looking at another exciting day in the market. Its going to be quite volatile with Europe's final day of their summit, the end of the quarter, the end of the month, and the aftermath of the close we had today. On top of all that, we also get a healthy slate of data and earnings to react to tomorrow. We start with some interesting Asian data with Chinese Industrial Profits report as well as Japanese Housing Starts. We get French GDP and Euro-Zone CPI.
Another big set of data is due out for the USA tomorrow with Consumer Spending and Personal Income. The most important report may be the Michigan Consumer Sentiment Index, which has been strong as of late. All in all, if nothing comes from the EU Summit, it will be very difficult for this market to make much of a move. Yet, do not forget about the power of window dressing! We should see some reaction from weaker Nike (NKE) results, Research in Motion (RIMM) miss, and we have important reports from Finish Line (FINL), KB Homes (KBH), and Constellation Brands (STZ) tomorrow.
Oxen Group Moves:
We had a mixed day today as we saw some nice gains but took some losses as well. We got a solid 3% gain on our second half of the Marathon Petroleum (MPC) long and Home Properties (HME) short. We had to take a loss, however, in our Monster (MNST) bull put spread from our Options Portfolio as well as a pair trade in Monster long, Qualcomm (QCOM) short on the MNST breakdown below 70. We added the above DIS position as well as long in Clean Energy (CLNE) and short in Biogen Idec (BIIB).
We have the following positions: In our Short-Term Equity Portfolio we are long eBay (EBAY), Apple (AAPL), and Clean Energy . We are short Williams Sonoma (WSM), SPDR S&P (SPY), and Biogen Idec . In our Options Portfolio, we are long Dollar General (DG) and AutoZone (AZO). We are short Aflac (AFL), Garmin (GRMN), and Kohl's (KSS). We have a reverse iron condor on Apple . In our Earnings Alpha portfolio, we are long Disney , Ashland (ASH), Vertex (VRTX), Intuitive Surgical (ISRG), Marriott (MAR). We are short Schlumberger (SLB) and Walgreen (WAG). We have a reverse iron butterfly in Decker's Outdoor (DECK).
Chart courtesy of finviz.com.
The Oxen Group
Disclosure: I am long PNRA.