Market Continues Pullback

Market Summary (continued)

The good before the bad, the market before the politics. That is how the report goes tonight. The Friday action was not that bad and it was, despite the losses, kind of quiet for a quadruple expiration Friday. Commodities were leading higher again in the pre-market and as the session got underway. Financials were struggling again after their surge, likewise the techs and the semiconductors. All was manageable, at least when you put it in the perspective of the past several months. The market rallied for a couple of weeks with SP500 producing a 20% move off the low; a couple of days of pullback is rather normal.

Then the news hit just after lunch in New York. The CBO finished its evaluation of the Obama/Fed stimulus, budget, and bailout facilities and said the cost would be $2.3T more than budgeted because of the additional spending and an economic recovery not as rosy as the White House believes. CBO revised the 2009 deficit up to $1.8T. It further said that the deficit would remain at 4% of GDP (or actually as the CBO put it, NOT LESS THAN 4% of GDP) for the foreseeable future. Less than 2% is typical for our economy and many get antsy when it moves over 2% for even a short period of time. This is absurdly high and not expected to be just temporary, the usually cited exception for running a larger deficit in times of trouble. As a nice bit of icing, another report came out and noted 542 mass layoffs in February. A mass layoff is 50 or more at a time from the same company. Looks as if a million jobs were lost in the last two months. Not good.

The indices were idling sideways and we thought we might get a bounce in to the close that would be good to short heading into the weekend. When the news hit they jerked lower into new selling for the afternoon and taking the selling from basically flat or modestly lower to down 2% and more. Volume ramped up as stocks sold off hard. You can say it was distribution, but it was expiration Friday and a lot of positions had to be adjusted or rolled after the Fed's action Wednesday. It was clear, however, that the market reacted negatively to the latest indication that at least two branches of the government in Washington are insanely out of control with their spending and constitutional trampling.

GLW (Corning, Inc.)
Company Profile
This week we look at two different plays from different sectors that came in line 1-2-3, giving us good entry points and then great initial profit points. This was repeated many times over the past couple of weeks as quality leadership stocks stepped up and took the lead in the market rally, giving us a lot of great gains.

GLW is a stock everyone knows from the tech boom. It has again turned its business from a bottle maker to a fiber maker and now to a flat screen maker. You like a company that sees market trends and adjusts accordingly. We saw GLW trading in a narrow consolidation rang after rallying up through early February. As the market sold off hard, GLW sold, but it did not break down. So we put it on the report and waited for it to show the consolidation had ended and we would move in. It didn't take long. The following Tuesday GLW rocketed higher on a shot of above average volume. It held its gain into the last hour so we bought stock at $11.11 and some May $10 strike call options at $2.

GLW then started a classic move higher, i.e. stair-stepping up the 10 day EMA. It added gains the next two sessions, moving to $11.85 as well as hitting near the February peak. It tested for two sessions to the 10 day EMA on lower volume (showing no heavy selling and thus a normal pullback after testing resistance), then shot higher on 3-17 on another day of strong, above average volume, clearing and closing over the February peak, an important move. GLW added a bit more the next session then gapped higher Thursday to $13.25. That hit our initial target and it was also the high for the session. When GLW started to peel back we banked some gain, selling some stock for $12.88 (a 15.9% gain) and some of the options for $3, a 50% gain. GLW faded Friday on rising volume, but we are again looking for a test, this time at the February high, and if it holds and bounces we will add to the winning position from this market leader.

ICE (IntercontinentalExchange, Inc.) is one of the stocks of an exchange, this one trading energy products, and after its initial move off the January low it set up a compact but very solid 5 week double bottom with handle pattern, a bullish pattern often formed by stocks as the bottom. We put it on the report on 3-22-09, and the next session ICE broke higher out of the pattern. That was our entry signal and we moved in with some stock at $64.79 and some April $60 strike call options at $8.80. We went with the closer expiration because this stock tends to race when it moves, but we also picked up some June $65 strike calls at $10.10 as well for a longer play.

ICE did what we thought it would, i.e. show a stellar breakout move. It closed at $66.74 the first day, putting us solidly in the money. It added $1.69 the next session, was flat the next, then added $3.50 and $5.56 after that short pause. Five up sessions in a row on the breakout. Did we take some gain? You know that answer. We sold half the stock for $75.47; didn't hit the top on the day, but it surged early and stalled so we banked the 16.4% gain. We also sold a chunk of our shorter term options for $16.30, banking 85%. As for the longer term, well we sold some of them as well for $16.20, a 60.4% gain. After that run ICE gapped a bit higher Thursday but hit the 200 day SMA and rolled over. It sold lower Friday as well, but both sessions on lower volume. Looking for a test of the 10 day EMA and to set up another buy from this quality stock.

CTRP (Ctrip.com International--$26.57; -0.49; optionable): Chinese travel
Company Profile
After Hours: $26.69
EARNINGS: 02/09/2009
STATUS: Test breakout. Low, low volume as CTRP continues moving laterally after the surge a couple of Fridays back. Being patient and letting it make this lateral test and when it breaks higher, that is what we want. To recap: CTRP was always a favorite for us, capable of strong long runs, and it could do it fast. It had hard times with most of the market but bottomed in November and then worked laterally in a 20 to 24ish trading range. It broke out last week and is moving laterally the past three sessions, forming a handle of sorts to the breakout. Strong money flow is running higher ahead of the stock, and when CTRP makes the break higher we are ready to move in.
Volume: 523.722K Avg Volume: 829.887K
BUY POINT: $27.76 Volume=1.2M Target=$32.88 Stop=$26.22
POSITION: QCT FE - June $25c (69 delta) &/or Stock

CELG (Celgene--$45.52; -0.18; optionable): Biotechnology
Company Profile
After Hours: $45.51
EARNINGS: 01/29/2009
STATUS: Continuing downtrend. Rising, above average volume Friday as CELG tested modestly lower, flirting still with a more serious breakdown. Expecting CELG to sell regardless of whether the market finds near support or not and thus if it breaks lower we are looking to get in. To recap: CELG rallied up to the 50 day EMA (48.98) and stalled there over the past week, fading back to try and hold support near 45. Has trended lower since August 2008 and it looks ready to trend lower again after it breaks lower here on some better trade. A move to the target lands a 50%ish gain.
Volume: 6.142M Avg Volume: 5.618M
BUY POINT: $45.34 Volume=6.4M Target=$42.26 Stop=$46.71
POSITION: LQH PI - Apr. $45p (-42 delta)