OptionsAnimal Weekly 5-15-2010

Submitted by jeffm on May 15, 2010 - 6:29am

Market Review:


Somewhere in my distant memories, I seem to recall that I once heard someone say that investing in the stock market was boring… Perhaps that was in a bad dream because investing in this market is anything BUT boring!
jeffm's pictureStocks moved dramatically up and down this past week with the catalyst clearing being concerns about the European Union. Those concerns were focused on two major areas; the viability of the Euro itself as a currency, and the probably slowdown in Euro zone economies. Both bad. As a result, we saw a great deal of risk aversion in the EU member countries. The fears were so strong that they completely overshadowed the continued strong corporate earnings results and positive economic data here in the United States. Let's recap the week.

On Monday stocks finished broadly higher, as investors applauded European bailout news. Stock index futures were limit up early Monday after EU leaders agreed to a $1 trillion bailout of European debt markets. Plus, the European Central Bank [ECB] said it would buy back euro zone national bonds and the US Federal Reserve agreed to provide billions in overseas loans. The efforts helped ease investor anxiety levels, bolster the euro, and rally European equity markets. Then, shares surged when the bell rang on Wall Street. Most of the gains held into the close and, at the end of the day, the Dow Jones Industrial Average had added 405 points. The NASDAQ rallied 109 points.

Stocks bounced around, in and out of positive territory, but finished little changed Tuesday. After a 405-point rally Monday, the Dow Jones Industrial Average opened lower following a day of selling in European and Asian equity markets. While European markets pulled back on waning optimism about EU's $1 trillion bailout plans, China's equities came under pressure following hotter than expected inflation data. The morning selling on Wall Street proved short-lived, however, and both the Dow and NASDAQ were back in positive territory midday. From there, market action was lackluster. At the closing bell, the Dow Jones Industrial Average was off 37 points and the NASDAQ finished flat.

Wednesday's markets finished with solid gains on a relatively slow news day. With quiet trading overseas, US investors turned some of their attention to economic news early after the Commerce Department reported that the nation's trade balance increased to $40.4 billion in March, from $39.4 billion the month before. Economists were looking for an increase to $40.5 billion and stock index futures ticked higher on the in-line data. Beyond that, there wasn't much news to guide the market one way or the other. IBM rose 4.6 percent and led the Dow Jones Industrial Average to a 149-point gain. The NASDAQ added nearly 50. The CBOE Volatility Index (.VIX) lost 2.8 to 25.52.

The roller coaster ride continues on Wall Street, as the stock market averages fell into the red on disappointing economic and earnings news Thursday. After a 149-point rally Wednesday, the Dow Jones Industrial Average opened lower after data released before the opening bell showed weekly jobless claims fell 4,000 to 444,000 in the week ending May 8. However, this overall jobless number was larger than the 440,000 analysts had expected. Meanwhile, shares of Cisco Systems lost 4.5 percent after the networking giant reported first quarter profits that beat Street estimates, but then issued downside revenue guidance for the second quarter. Cisco was the biggest loser in the Dow and weighed down the NASDAQ as well. Commodities were weak, with crude down $1.6 to $74.05 and gold off $9.3 to $1233.40. Overall, there wasn't much reason for investors to cheer Thursday -- the Dow gave up 114 points and the NASDAQ lost 30.7.

The stock market averages suffered losses amid ongoing concerns about the European debt crisis. The Dow Jones Industrial Average fell in morning trading after European equity markets faced another round of selling Friday. France's CAC 40 Index tumbled 4.6 percent. Germany's DAX and UK's FTSE both lost more than 3 percent and the euro sank to only 1.2375 on the dollar, down from 1.25 early in the day. European equity markets and the euro are under pressure amid ongoing concerns about the debt crisis and the potential impact on both banking systems and economic activity in the euro zone. The problems overseas overshadowed the day's domestic news, which included a better-than-expected reading on retail sales (up .5 percent in April vs. .4 percent consensus), but a weaker-than-expected University of Michigan Consumer Sentiment Index (73.3 in May vs. 73.5 consensus). At the end of the day, the economic data mattered little, as risk aversion is once again on the rise across global equity markets. While the Dow Jones Industrial Average lost 163 points, the CBOE Volatility Index (.VIX) rallied 4.76 to 31.44.


VIX: 31.24
CBOE Total Put/Call Ratio: 1.10

Market Forecast:

Mostly cloudy with a chance of light pessimisim. Periods of brief optimism should be present on Monday and may give way to sunner trading throughoiut the week... ButI wouldn't vount on it!

Options expiration is next Friday. There are quite a few important earnings announcements this upcoming week:
Monday: LOW
Tuesday: ANF, HD, SKS, TJX, WMT, HPQ
Wednesday: DE, HOTT, NTES, PETM
Thursday: DLTR, GME, TGT, BKE, ARO, DELL, GPS, CRM, SHLD

Economic reports are as follows:


Announcements:

OA Trader Plus/Mentor live tradilass will be held on the 22nd of My at 12:30 eastern time. Jeff McAllister and Charan Singh will be the hosts.

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