Market Summary
Watching SP500 is like watching a Rocky movie. It is stumbling around but it just won't give up. Despite the rally being a bit long in the tooth and SP500 bumping up against resistance the last half of the week the market put in a decent showing Friday and the week with the NYSE indices putting in an upside week after the prior week's hiatus. Breaks to new recovery highs by NASDAQ 100 and SOX. Breaks to new post-November highs by NASDAQ and SP600 added extra punch to the move. SP500 broke higher through next resistance at 878, but it has stage fright and could not make it stick. On the other hand it did not roll over, still hanging around the back door. Money kept coming in to fill in each low spot all week and it was still there Friday even with the new month. Of course it was Friday and May 1. A lot of markets around the world were closed and most of the work was done for the week. That makes this coming week and the real start of May much more interesting and will tell the next chapter in this rally.
As for Friday specifically the market was sloppy before the open. JPM cut its estimates on most of the big banks, likely anticipating the stress test results and factoring in the run the financials have enjoyed to this point. Then word came out that the stress test results would not be out Monday but on Thursday May 7. Seems there was dispute between Treasury and the banks over the results and what should be released. As we have discussed prior, will releasing the data put everyone at ease or will it only engender the same worries post-Lehman for those banks marked with the scarlet letter?
In any event, when the word got out the pressure was off and futures relaxed a bit. Chip sales were reported up 3.3% for March. They still stunk year over year (-30%), but as with all of the data of late it was an improvement. China reported its second consecutive PMI over 50 (expansion). Happy days are here again. Top stocks opened flat, sold some, but only modestly. They staged a midday recovery after a stronger ISM report (though unlike China and its stimulus that is working, the US was still below expansion), sold to negative again, but in the last half, and in particular the last five minutes, they bounced the large cap indices to positive. It was low volume, directionless trade that didn't tell us anything, but it held the gains for the week.
Recommend Top Stocks to Buy
POT (Potash Corp.)
Sometimes the market lays the money on the ground and walks away, seeing if you are going to walk up and pick it up. POT was rolling in a channel from February to last week in a pretty well-defined range. Up to 90, down to 80ish, back up again. We almost missed the move, looking at it and not moving in like some rookie. POT showed a doji right at the bottom of the range on 4-23. Saw it, watched POT jump higher the next session. Didn't give up, however. Kept watching it and the following session on 4-27 it tested back and we put it on the report. Tuesday POT gapped lower, held the range, and started back up. Perfect. Sometimes you do get second chances even with a harsh mistress like the market.
We moved in with some top stocks positions at $82.74 and some June $80 strike call options at $8.70. The next session POT gapped higher, closing at $85.59. Gapped higher again Thursday, though it showed a doji on the close. That was not the end and on Friday POT gapped higher again and surged 4 clicks, moving through the March closing high and toward the February high. It blasted through our initial target at the first resistance in the range. We stuck to the plan and took half the gain off the table, selling some top stocks for $91.06 or a 10% gain and half the options for $14.40, netting $5.70 per option or 65.5%.
POT closed off the low but it also held the break through the March peak. Thus we will see what kind of staying power it has to continue the move and make us more money. If it fails we close the options and maybe sell some calls against the best stock position as it fades back in the channel. We can also play it to the downside as this is a nicely defined channel and still has a rotation or two left in it before it breaks apart. Then when it hits the bottom and holds we can buy back the calls sold, sell the puts we bought, and load the upside position yet again. Yes the market does give you second chances if you are willing to look in the first place and then act. Glad we did on the second chance.
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APC (Anadarko Petroleum--$45.63; +2.57; optionable): Independent oil and gas
After Hours: $45.63
EARNINGS: 05/06/2009
STATUS: Ascending triangle. APC did not work out to the downside, making a higher low and breaking over the 200 day SMA (42.85). Thursday it tested that break and Friday APC rebounded off the 200 day, getting a shot of the best volume in three weeks as it moved to the breakout point. That puts APC at a higher closing high since the October bottom and it has some open field to run ahead of it.
Volume: 6.563M Avg Volume: 7.214M
BUY POINT: $45.82 Volume=8M Target=$52.55 Stop=$42.61
POSITION: APC HI - Aug $45c (49 delta) &/or Stock
QLGC (Qlogic--$13.45; -0.73; optionable): Semiconductor integrated circuits
After Hours: $13.38
EARNINGS: 04/30/2009
STATUS: Test 200 day SMA. QLGC gapped out of a 3.5 month base in mid-April, clearing the 200 day SMA (13.45) on the move. It bounced laterally for a week and surged again Wednesday and gapped higher again Thursday. It could not hold the move, however, closing flat that day and then gapping lower Friday after its Thursday after hours earnings report. It was not an overwhelming positive response to the earnings, but QLGC bounced off the 18 day EMA on the intraday low (13) and rebounded to hold the 200 day on the close. That also keeps it at the January 2 recovery high off the November low. If it continues to hold this level QLGC will be a buy as it heads back up.
Volume: 5.384M Avg Volume: 2.791M
BUY POINT: $13.77 Volume=4M Target=$16.74 Stop=$12.81
POSITION: QLC GV - July $12.50c (62 delta) &/or Stock
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