Morning Update
Jobs Number Sends Dow Under 50-Day MA
Dear Bottarelli Research Member,
Good morning. The jobs number came in exactly as expected, shedding 524,000 jobs in December and a total of 1.5 million in Q4 2008. This number confirms the worst year of job losses since the 1940s, and it now puts our unemployment rate at 7.2%.
On this news, the markets started to rally (as the number wasn’t worse than expected). But then, rational heads prevailed and the Dow quickly lost 130 points. After all, we all know that the government can come out and “revise” this number down to 750,000 in the blink of an eye — and this could cause a quick downside push.
In fact, looking at the Dow chart below, you can see that today’s downside move has now pushed the Blue Chips below their critical support level at the 50-day moving average. As I look at this formation, a move down to 8,000 could easily occur — and this could still place the Dow in the parameters of a bull market retrenchment. After all, a move down to 8,000 would set a higher-low off late November’s support at 7,500. And more importantly, it could set the markets up to move aggressively higher leading into the January 20th inauguration.
Based on this up-and-down forecast, I’d like to maintain all four of our current positions. On the call side, we’re holding cheap (but explosive) February upside positions on LVS and JASO. Specifically, we’re holding JASO February 5 Calls (QJP BA) for an average entry price of $0.83 and LVS February 7.5 Calls (LJJ BU) for an average entry price of $1.52. Both plays are holding up well today, so continue to hold each position going forward.
Over on the put side, I feel that VAR will continue to hit new lows going forward, so keep holding your VAR February 30 Puts (VAR NF).
And despite yesterday’s mystifying upside move, I continue to feel that shares of Kohls (KSS – NYSE) are setting up for a sizable downside push. As I mentioned, the stock looks capped out at $40.00 per share, so let’s continue to hold our KSS January 40 Puts (KSS MH) for more selling pressure.
In other news, I highlighted online education stock Apollo Group (APOL – NASDAQ) in yesterday’s alert, noting that with the nation on the fast-track to 10% unemployment, there’s a good chance that a large number of people might decide to continue their education while they’re out of work. Then today, APOL comes out and reports powerful earnings fueled entirely off this same premise –and the stock is blasting higher. See below:
This positive news out of APOL is also making its way towards other online-education plays like Corinthian Colleges (COCO – NASDAQ).
It really looks like these companies will be major beneficiaries of a nation of unemployed workers, so I’ll continue to follow this story. I’d like to add upside calls on any forthcoming price dips.
When it’s time to move, you’ll be the first to know. Until then…
Lock and load!
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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