Dear SlingShot Trader Subscriber,
For a few brief shining moments yesterday, the Dow Jones Industrial Average cracked through a milestone. Not since May 2008 had the Dow tasted what it was like to be above the lofty levels of 13,000.
Unfortunately for all of the bulls on Wall Street, those brief shining moments were all too fleeting, as the Dow immediately started to pull back yesterday, and then continued its decline today.
So what does that tell us? For the moment, it tells us traders on Wall Street are stepping back and taking a good hard look at where the market is, how external forces – likeGreece– are affecting it, and where they think it is going to go in the future.
Does it mean the market is automatically going to reverse course and start moving lower? No.
Does it mean the market might reverse course and start moving lower? Perhaps, considering we’ve been in an incredible uptrend for two months now. It would certainly be normal to see a bit of a pullback, especially as we are starting to see more companies lowering their earnings guidance.
Every earnings announcement has two main components: the backward-looking earnings report that outlines how well the company did during the previous quarter, and the forward-looking guidance that estimates how well the company is going to do in the future. This earnings season we have started to see a divergence in those two components.
Let’s look at the backward-looking earnings reports first.
During the month of February, we have seen 772 companies beat their earnings estimates, 437 companies miss their earnings estimates and 141 companies report earnings that were in line with estimates. That’s pretty good. Any time you have that many companies with positive earnings surprises, you know it’s been a good quarter.
However, as you shift gears and look to the future, rather than the past, the picture changes.
During the month of February, we have seen 74 companies raising their earnings outlook for the future, 136 companies lowering their earnings outlooks and 289 keeping their earnings outlook unchanged. That’s not so good. Any time you see more companies lowering guidance numbers than are raising them, you start to get the sense the tide may be changing.
The Bottom Line for Next Week
The Dow Jones Industrial Average is going to have to generate some renewed bullish momentum to break up and above 13,000, but it is definitely not out of the realm of possibility. The S&P 500 faces similar resistance at 1,370 – the level it reached on May 2, 2011. The key for right now is to avoid the temptation to buck the trend. We have some warning signs that this bullish trend could pause for a moment, but it is premature to call an end to the bull run.
This Week’s Events
Here are some of the news events that we may trade in the next week or so. We’ll be discussing some of these in tonight’s webinar.
Feb. 23 – Deckers Outdoor (DECK) Earnings announcement
Feb. 23 – Weekly Jobless Claims
Feb. 24 – Consumer Sentiment
Feb. 24 – New Home Sales
Feb. 27 – Pending Home Sales
Feb. 28 – Durable Goods Orders
Feb. 28 – S&P Case-Shiller Home Price Index
Feb. 28 – Consumer Confidence
Feb. 29 – U.S. Gross Domestic Product (GDP)
Feb. 29 – Chicago PMI
When it’s time to open or close a trade, we’ll send you alerts via e-mail. You also can sign up to receive text messages regarding our trades. For more info about our SlingShot Trader portfolio, you can read trade alerts here and view our portfolios here. You can also see more trade-specific details by clicking on the trade links below.
These are the SlingShot Trader positions we opened during the past week of trading that we have not yet closed.
Deckers Outdoor (DECK) — On February 21, we recommended you to “buy to open” the March 85 Puts for $4.50 or less.
These are the SlingShot Trader positions we closed during the past week of trading.
Apache Corp (APA) — On February 16, we recommended you “sell to close” the March 110 Calls. We closed the position for $1.95 for a loss of 29.09%.
Barnes & Noble (BKS) — On February 21, we recommended you “sell to close” the March 13 Puts. We closed the position for $0.80 for a loss of 44.83%.
Top Trades Now
These are the current SlingShot Trader positions that we still recommend getting into now, assuming you haven’t already bought a full position.
Deckers Outdoor (DECK) – See Positions Opened above.
Webinar Preview: Join Us Tonight at 6 p.m. ET
Every Wednesday at 6 p.m. ET, we host our live webinar, in which we’ll review this weekly newsletter, discuss coming events in more detail and walk through our Top Trades. We also encourage you to submit your questions live during the session. We want to do everything we can to help you become a successful options trader, which is why you’ll have live access to us for an hour every week.
And if you have any questions or comments you would like to send us in advance of the live session — or anytime during the week — you can write to us at firstname.lastname@example.org.
If you can’t attend the session live, you can watch the archived version on our website in the “Live Weekly” section. It’ll typically be posted within about two hours of the end of the live session.
John Jagerson and Wade Hansen