HEADLINE, HEADLINE: NASDAQ LOSES 2.3%, S&P 500 LOSES 1.5% & Dow Jones LOSES 1.29%
Well what in the world happened today? Look no further than our old friends Google and Apple. Google today dropped 3% while Apple dropped just over 3%. This is not the first time we have noted recently that the moves of these stocks correlate very closely with each other and as they go so goes the NASDAQ as seen in the chart above.
Evidence of how schizophrenic this market is can be seen by reviewing some of the financial stocks today. Bear Stearns was down today along with the market but it was down just $1.22 while Goldman was down less than 1%, which really doesn’t seem so bad at all when you compare against Apple dropping almost $6.00, Research in Motion dropping $5.72 to close at $100.26 or SunPower dropping $6.70 to close at $121.49. It may seem like an unfair comparison to put a financial stock side by side a technology stock but the only reason we do it is to highlight that this relative movement is exactly the opposite of what we saw just a few days ago when technology leaders were holding up strong and financial stocks were taking a nosedive.
This is a yo-yo market. As Optionator pointed out:
Amidst the carnage were rays of hope. Relative strength is something we pay close attention to on these big down days and we found some in POT. We already have a bullish trade open on POT that is on course for closing profitably at the end of this week barring some major stock decline. And despite the action in the markets today, POT stayed strong, closing up $0.72 for the day so we are not too concerned but will remain vigilant. JC Penney also had a strong day, closing up 3.39%. In fact, AEO and WMT were also higher today, poking holes in the Bears’ recession claims. Boeing, too performed reasonably well, dropping 1.15%, less than the major market averages (we have already made our bets on Boeing).
We were bullish all the way up to the Fed announcement when we encouraged hedging and hope that many of you have protected your virtual portfolios in the declines that followed. If you entered short call options during the declines and your stocks have continued to drop, re-evaluate the premium left on the options. If there is not much premium left it may be prudent to roll out another month and grab some extra time premium.
Make sure not to get too excited one way or the other. Rolling some puts down at this stage and banking some profits while staying protected is a smart way to play today’s yo-yo market. We have seen huge up days and huge down days over the past few weeks and the only consistency we have seen is unpredictability so stick with the policy of taking profits when they appear and let’s keep our fingers crossed for a return to the good old days of long-term trends!
