Market Recap: It was another FLAT day for the market as the lulls of August continue to bring in low volume movement for the market. There was definitely a large slate of information available for the market to react to today, but it was mixed. Earnings were announced from four major companies today: Abercrombie & Fitch (ANF), Deere (DE), Staples (SPLS), and Target (TGT). The earnings were, however, mixed as ANF and TGT had solid reports that lifted their stocks while DE and SPLS underperformed drastically on the day. DE missed estimates strongly, which does not bode well for our economy as they are one of the best agricultural bellwethers. Data also was mixed today with the NAHB Housing Market Index rising to its highest level since February of 2007 while Industrial Production revealed a nice rise to 0.6%. Data was buoyed, however, by an Empire Manufacturing Index that showed a move lower to -5 vs. +5 expectations. All in all, it was a mixed day with some stocks, especially tech, showing a lot of strength while others showed a lot of weakness.
Tomorrow, we continue to have big earnings reports on the docket as well as some more key economic data from the housing market, but without stronger volume and any more concrete decisions from the ECDB or Fed, the market will continue to remain flat.
Two trades we really like right now are going long on Dr. Pepper Snapple (DPS) while looking at a bear call spread in Freeport-McMoRan (FCX). DPS came out with a great earnings report in July that showed continued growth for the company along with good management of currency, which is not the case at Coca-Cola (KO). The company gapped up and trended higher on earnings, but they have declined slowly since to form a perfect bull flag. We see them as definitely being able to move higher again as it bounced off the 20-day MA. A bottom appears to be in for DPS, and we expect the stock to trend higher from here. We have a $52 price target on the company along with a Buy rating. On the flipside, we do not like the trend right now for FCX and see more weakness ahead. The company has been weak for the majority of the year, and the latest earnings report did not spark a lot of confidence for us. The stock has been weakening over the past week while things have stayed fairly level, and it was rejected strongly as it neared the 200-day MA. We see the stock as having no upside until gold prices start to skyrocket and demand grows again for materials. For now, we like a bear call spread on them to make some income on premium.
Trade #1: Long, DPS
Trade #2: FCX, Sep22, 38/39 Bear Call Spread
We will look for the market to react mostly to U.S. data on housing and some key earnings reports tomorrow. New Home Sales and Building Permits will be released tomorrow, and that information has been a rallying point in the past. Philly Fed Index and Jobless Claims will also be released. Once again, we will need all data points to be good or bad to allow for the light volume to move the market in one direction or the other. The housing data is not expecting much growth, and if the NAHB Housing Market Index is any sign, we could be in for some beats there. For earnings, we have important reports in after hours from the tech industry with Cisco (CSCO), Applied Materials (AMAT) and Sina (SINA) reporting earnings as well as retail earnings from Limited (LTD). Along with these reports, we get earnings from Wal-Mart (WMT), Dollar Tree (DLTR), and Ross Stores (ROST) tomorrow. It's a big slate of earnings to be released tomorrow along with data. There is definitely plenty of ammunition to be released tomorrow, so we will have to watch to see how it all unfolds. Tomorrow could provide some movement if things move mostly the same way.
We had a great day in the market as we were able to close the rest of our Target long in our Short-Term Equity Portfolio for a 2.5% gain. We also closed 1/2 of our Transocean (RIG) short for a 1% gain from the Equity Portfolio. We also were able to close half of our Starbucks (SBUX) bull put spread for Sep22 for a 16% gain as well as a long-term position in Starbucks we entered two weeks ago for a 10% gain from our Extended Value Portfolio. We also exited our long in Francesca's (FRAN) we suggested yesterday for a 2% and 4% gain. We added the above long in DPS as well as a bull put spread in Priceline.com (PCLN) for our Options Portfolio.
We have the following positions:
In our Options Portfolio, we are long Priceline.com, Google (GOOG), Yum! Brands (YUM), Starbucks, United States Oil (USO), Monsanto (MON), Dollar General (DG). We are short Eli Lilly (LLY) and Adobe (ADBE).
In our Earnings Alpha Portfolio, we are long Francesca's (FRAN), Discover (DFS), Apple (AAPL) and American Eagle Outfitters (AEO). We are short Dell (DELL). We have a reverse iron butterfly in F5 (FFIV). We have reverse iron condors in Coinstar (CSTR) and Facebook (FB).
In our Goldman Sachs Up/Down Paper Portfolio, we are long Cubist (CBST) and Coca-Cola.
Chart courtesy of finviz.com.