Options Animal Weekly 5/22/10

Submitted by gregj on May 22, 2010 - 8:42am

OA Weekly – 05/22/10

Market Review:

gregj's pictureMajor sell off again this last week with some significant levels of support being broken by all three major markets.  The 200 day Moving average was broken this week, and although we had some positive turn of events on Friday, the question remains, was it enough to turn the tide of the bearish downdraft.  There have been a number of bearish analysts who have come out and “recalled” the double dip recession once again.  The most notable of course is Doctor Doom himself.  One particular note that I enjoyed in his piece was the idea that you can use options to hedge risk in the down moving market.

http://www.optionsanimal.com/blog/charans/economist-roubini-says-go-cash-market-will-tumble-20-what-you-should-do/05-5-10

The European debt fear is of course at the heart of this panic.  Will we be able to change the trend? I am not betting on it.  We have had too bullish of a move in the last year, to not have some pullback.

Financial Legislation looks as if it will be an issue that the markets have to deal with sooner rather than later.  The bill pushed its way out of the Senate, and  now the only major step remaining is to reconcile with the House’s bill.  The legislation will have a major impact on firms like Goldman Sachs.  Although, they are fighting to keep the derivatives piece out of the final bill that President Obama will sign, it looks like for now the teeth are going to stick.  We will see what the fallout will be.

As for the rest of the market, as was referenced in the article above, the time to hedge is here.  This is not a market to try and buy the dips and sell at the top, as those can be 15 mins apart from one another.  This is a time to understand and use the collar trade.

VIX/VXN – 40.10/42.81 (VIX high of 47)
Put/Call weekly Avg. CBOE –1.25 (1.53 Thursday)

Overall market movement this last week:

DJIA – down 426.77(-4.02%)
S&P 500 – down 47.99 (-4.23%)
NASDAQ – down 117.82 (-5.02%)

Next Week’s Earnings reports:

Tues: AZO

Wed: AEO, TOL

Thurs: COST, TIF, JCG, HNZ

Economic data:

Date Event For Actual Forecast Prior
May 24 Existing Home Sales Apr - 5.7M 5.4M
May 25 Case-Shiller 20-city Index Mar - 3.0% 0.6%
May 25 Consumer Confidence May - 58.1 57.9
May 25 FHFA Housing Price Index Mar - NA -0.2%
May 26 Durable Orders Apr - 1.3% -0.3%
May 26 Durable Orders ex Transportation Apr - 0.5% 3.5%
May 26 New Home Sales Apr - 430 411
May 26 Crude Inventories 05/22 - NA 0.162M
May 27 GDP - Second Estimate Q1 - 3.3% 3.2%
May 27 GDP Deflator - Second Estimate Q1 - 0.9% 0.9%
May 27 Initial Claims 05/22 - 450K NA
May 27 Continuing Claims 05/22 - 4600K NA
May 28 Personal Income Apr - 0.4% 0.3%
May 28 Personal Spending Apr - 0.0% 0.6%
May 28 PCE Prices - Core Apr - 0.0% 0.1%
May 28 Chicago PMI May - 60.0 63.8
May 28 U. Michigan Consumer Sentiment May - 73.8 73.3

Stocks to Watch:

Greg – BIDU, AAPL, T

Eric – SPY, CRM, JCG

Phil – V, CAL, X

Jeff –AMR, WMT, GMCR

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