Market Summary (continued)
Wednesday night we said the move up was not as strong a rebound as you want to see, but we could live with it given the leadership. Thursday was strong enough, at least on the NYSE indices given the financial stocks' rampage. The reason for the rampage was Wells Fargo pre-announced $0.53 versus $0.23. Futures were up before that news, but that is what upped the horsepower tenfold.
That was enough to overcome sloppy same store sales that saw WMT March sales +1.4%, quite off from the 3.2% expected. Overall retail sales were slimmer at -1.8% versus the -0.9% expected and the +0.3% in February. With weekly jobless claims still high (654K versus 660K and 674K prior) and continuing claims hitting an all-time high at 5.8M, a bit of consumer upset is expected. On the other hand, Japan put forth a larger than expected stimulus package and reported an increase in machinery orders. On balance the negatives were nowhere near enough to stand in front of the financials and their lead engine on the day, WFC.
Stocks gapped higher and never came back. After that initial gap and run in the first half hour stocks and the indices moved laterally for 5 hours, basically the rest of the session before a late drift higher and bump upside into the close. The indices cleared the early April peak and made some significant moves with NASDAQ 100 making a new breakout, SOX pushing the November high, the previous high since the bear market started, into the dirt, and NASDAQ moving over the January closing high.
Read "The Daily" Entire Weekend Summary
Here's a trade from "The Daily" and insights into our trading strategy:
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Company Profile
When the market makes a reversal move, either upside or downside, you hear a lot of pundits on the financial stations saying if you miss the early move you miss most of the move. Sure early moves are strong; if the trendline is good, however, so are the other moves. The key is focusing in on the leading stocks that continue to receive investor money and can make strong, substantive moves. As one of the traders here puts it, you want a strong stock that can tear off chunks of real estate in a hurry. Thus we have chronicled our trades in BIDU, ICE, CME, AAPL, GS, PCLN, AMZN, etc. in prior columns. The nice thing about strong upside runs is that new leaders continue to crop up and surge higher.
BRCM is such a leader. It took a bit longer to make the breakout as it traded in a 4 month lateral range similar to AAPL before it made its move. Of course that did not stop us from playing AAPL during that move but we also got the bonus of the breakout this last cycle in the trading range. When that breakout occurs with a strong quality stock, you often get an established run higher that gives you several times to buy both for the longer term and the shorter term trends. BRCM has been doing that for us of late.
We got onto BRCM for the most recent move in mid-March. As noted, BRCM was trading in a rolling range from 15 to 20 and we made the plays up and down during that range; very nice work if you can get it as the stock moves were 30+% up and down and our option plays were even better. In March, however, it did something different. First, it was on the fifth cycle in the rolling range; 4 or 5 cycles is a long range to play and usually by that time the range breaks apart either with an upside breakout or a collapse lower. Second, this time when BRCM hit the 20 range it did not fall right back down but started moving laterally. That had us looking for a breakout move and we put it on the report on the 3-14 weekend.
It tested that Monday and then broke over the top of the range to a new post-October high on 3-17-09. We moved in with some stock positions at $19.03 and some May $18 strike call options at $2.50. BRCM rallied to the 200 day SMA, paused and came back to tap the top of the range it broke from in a classic test, then it zoomed higher by over $2 to a new post-October high yet again.
When BRCM tested again it tested the last key level it broke, the 200 day SMA. When it made that test we put a new play on the report on 3-26, looking to catch it on a bounce off the 200 day. On 4-1 it surged off the 200 day, and when we saw the move was holding into the close we picked up some more positions at $21.10 and some May $20 call options at $2.70. The next session BRCM added $1.39, and as it was up 11% in 2 days we banked some gain on our original position, selling part of our best stock position for $21.76 or a 14% gain and part of our option position for $4.30 or a 72% gain.
As has been the case on this move, BRCM tested back after that 2-day surge, coming back to near support at the 10 day EMA. In a strong trend that is establishing itself to the upside the 10 day EMA will start acting as support for bounces higher. So . . . we moved in early Wednesday on 4-8 with more positions as BRCM tested and held the 10 day EMA on an intraday test after gapping higher to start the day. Thursday BRCM gapped higher again, posting a 5% move on the session as it continues stair-stepping higher in this strong breakout from a well-formed base.
What we are doing with BRCM is adapting to the market moves as they occur. We played the trading range when it was bouncing up and down with almost clocklike regularity. Then when we saw a potential change in the pattern we readied to play the breakout. It came and now we are playing the uptrend, adding to positions as BRCM tests strong moves higher, tests that give us logical entry points for longer term and shorter term positions. BRCM's earnings are on 4-21-09 and we are looking to ride this trend as long as it holds toward earnings and then bank much of the gain. We have gains in excess of 100% on our early option positions and the others are pushing the century mark as well. Averaging up into strong leaders allows you to put your money to work on proven movers that are building strength into their moves. Have to like that.
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BUCY (Bucyrus International--$18.58; +1.81; optionable): Cranes, draglines
Company Profile
After Hours: $18.56
EARNINGS: 04/23/2009
STATUS: Cup w/handle. BUCY has spent all 2009 forming a 13 week base. Nice handle this past week with a low volume fade to near support and then a breakout move Thursday on rising, above average volume. This is BUCY's first base coming off the bottom and the industrials are finally starting to make their move to join the rest of the market. Nice break higher Thursday as BUCY made a higher high on this run off the March low. Been awhile.
Volume: 3.467M Avg Volume: 2.86M
BUY POINT: $18.72 Volume=3.8M Target=$22.95 Stop=$17.41
POSITION: HBU GA - July $17.50c (65 delta) &/or Stock
CHK (Chesapeake Energy--$20.70; +1.21; optionable): Natural gas exploration, production
Company Profile
After Hours: $20.55
EARNINGS: 02/17/2009
STATUS: Trading range breakout. CHK bounced up and down in its 4 month trading range from 14 to 20 and then gapped out of the pattern Thursday. This move is a bit different from the prior up and down cycles in the trading range: on the last dip off the high it held midrange at the 50 day EMA (17.55) and rebounded immediately to the top of the range, tested, and broke higher. It could still fall back in but after this many cycles (4) the range tends to break down and with the market breaking higher it is logical for CHK to break higher as well. Thus looking to move in this week. It could test back to 20 first and if it does we will pick it up off that test. If not we can pick up positions from a continued move higher.
Volume: 17.319M Avg Volume: 17.257M
BUY POINT: $21.11 Volume=22M Target=$24.95 Stop=$19.63
POSITION: CHK GD - July $20c (62 delta) &/or Stock
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