Market Recap: The market finally made a move. After making a strong move to the upside during today's action, the market started to give up gains during the second half of the day. The cause: Apple (AAPL) shares dropped during the day after hitting a top, and the market still had very light volume that caused a quick drop on profit taking. The market is heavily tied into stocks like Google (GOOG) and Apple, and as they started to see a day of profit taking, the market followed suit. After so many days of gains for both, they were due for some healthy correction. Additionally, technicals are starting to come into play. The S&P 500 (SPY) and Dow Jones (DIA) are starting to look toppy, and we are seeing some resistance at the 1420 line on the S&P. 13300 now is the resistance line for DIA. Until we see a break of those lines, we may have hit a near-term top.
Going into tomorrow, we do have a pretty big day in the markets with Existing Home Sales, Crude Inventories and FOMC Minutes. FOMC Minutes will unlikely show anything to move the market forward, and we may be in for some more correction after that announcement.
Stocks To Trade
For an earnings trade, we like the looks of Ulta Salon Cosmetics and Fragrances (ULTA). We believe that Whole Foods Market (WFM) and American Express (AXP) look good for breakouts on the long side, while Expedia (EXPE) and Coach (COH) are looking interesting for shorts.
We continue to like ULTA for an earnings trade, and we believe that on any weakness individuals should sell puts heading into the company's early September earnings. The company is expected to report over 30% growth in EPS in this next quarter, and we like the looks of the cosmetics industry based on Sally Beauty Holdings' (SBH) latest results. The valuation is a bit steep on ULTA right now, but the company's last three quarters have produced gaps up of 5-10%, and we believe that the growth story is still strong for ULTA. We like selling the $75 puts on any weakness with 50-day and 200-day MA providing support.
For longs, we like the looks of Whole Foods Market and American Express. WFM looks ready to break out at 96.25 and above as that is the top of a current resistance line. The stock met that line today and failed to break out, but if it is able to move above that line, we believe the stock can break out. The company has been trending higher since fantastic earnings came out at the beginning of August. We have strong support below it with that breakout pivot as well as MAs on top of strong fundamentals. AXP, as one can seen below, has a squeezing price channel forming. The fundamentals for credit card companies has gotten a lot stronger this year, and AXP is either going to break lower on a move below 56.00 or higher on a move above 57.50. We would like to initiate a bull put spread on a break of 57.50.
On the flipside, this market is starting to look like its going to turn, and we like the looks of Expedia and Coach on the short side. EXPE has gotten hit with several negatives over the past couple weeks. First, travel companies are starting to look weaker after Priceline.com (PCLN) and Orbitz Worldwide (OWW) results were negative. Additionally, the company was named in a price fixing lawsuit that could hang over the stock. We believe the company is a good short until it breaks back over 20-day MA. COH is really starting to breakdown after forming a long bear flag, and we like the 57.50/60 bear call spread. The stock got immediately rejected at its 50-day MA after its very weak earnings dead cat bounce, and we do not see much catalyst here. Stocks like this that moved strongly on light volume after gapping down will be the first to go on a move downwards in the market.
The market does get some market moving news for tomorrow. The combination of FOMC Minutes and Existing Home Sales does provide some data points. FOMC Minutes are important as they will most likely show the last bit of Fed pertinent news before Jackson Hole, and the expectations are not high from us that it will show much chance of QE. Additionally, we got big earnings this evening from Dell (DELL) and Intuit (INTU) for some key tech news. Tomorrow morning, important earnings from Toll Brothers (TOL) will show just how well these housing numbers are translating into earnings. Additionally, American Eagle (AEO) will be key to retail.
We had a rough day in the markets as we exited a number of positions from our Short-Term Equity Portfolio. We exited Dr. Pepper Snapple (DPS) for a small gain, but we took losses on PPG (PPG) and American Tower (AMT). We also hit our stop on Walter Energy (WLT) short in our Goldman Portfolio. We added a long in Whole Foods and bear call spread in Coach.
We have the following positions:
In our Earnings Alpha Portfolio, we are long Lennar (LEN), Ulta, Francesca's (FRAN), and American Eagle Outfitters (AEO). We are short Dell. We have a reverse iron condor in Abercrombie & Fitch (ANF).
In our Goldman Sachs Up/Down Paper Portfolio, we are long Coca-Cola (KO).
Chart courtesy of finviz.com.