2010 started off with a great run (best since ’87) and it looked as though the mantra of Tony Little were those of the bulls. Enter in option expiration and earnings season and that story hit a brick wall. With only 4 days in the coming trading week there’s a lot packed in that time. In fact, a bit over 13% of the S&P 500 companies report earnings this week and there are plenty of decent names to watch.
Key to the continued trend, in my opinion, will be earnings and how the market reacts to them. Current estimates show an expected 62% increase over last year’s number for S&P 500 companies. This number is considerably lower from where it was in November and most of the move lower stems from large banks and brokerages having their estimates lowered. One things for sure and that is you can only cut so many employees and other costs before your company is screwed. If you can’t sell the widget and make a profit, then nothing else matters.
Besides earnings plays this week I’m watching a few other names as well. I like the pullback in $OCR here and see it as constructive and still like the odds of a gap fill from 7/29. I’m looking to buy straight stock in some client accounts and will monitor the option chains as well.
$MMM reports earnings on the 28th of January and the stock is slightly off a 52-week high. There was large call action Friday in the February 90’s. I bought a few as a speculation play and am completely comfortable with losing all the premium if I’m wrong. I would add to this position of the stock breaks above 85.
It appears as though $APD would be a perfect candidate for an earnings/volatility play with price action stuck in a sideways grind ahead of eps on the 22nd of January.
$PRU is another name I like and it recently broke out on the weekly chart and has held. It’s a low risk “right or right out” trade and I like the odds of a 61.8% retracement which would put it up around 60.