Updated throughout the week
Friday’s Close for July 31st, 2009
Written by: Mike Coval

Still no significant retracement but we are starting to see the indexes top out with only slight moves in either direction. This should be followed by a large volatility day and then we should see the profit taking kick in. The news has been positive, economic reports and earnings so this is keeping the markets strong but the logic is saying it’s time to lock in profits now that we are at resistance levels and the recent gains have been strong.

To watch a video of Friday’s market action, along with my thoughts, Click here. The DOW closed up 17 points at 9,172 while the NASDAQ closed down 6 to finish the day at 1,979.

Energy: Oil prices fell after both European and U.S. oil companies reported some disappointing earnings numbers. Late in the day, the price of crude futures were trading down $0.24 at $69.21 a barrel. Track the price of crude with the Oil ETF, USO.

Economic News: Traders on Friday absorbed the latest reading of the gross domestic product, which showed that the recession is worse than many forecasts, but that it's also ending.

Financials: Still in the hot sector for news releases, MetLife, MET gained $0.38 after reporting better-than-expected operating earnings, but posted a $1.4 billion net loss, primarily stemming from derivative losses.

Consumer Cyclicals: Disney, DIS fell $1.10 on some heavy selling after earning $954 million, or 51 cents a share, in its fiscal third quarter, down from $1.3 billion, or 66 cents a share, a year ago. Disney had been expected to earn 51 cents a share. Anyone care to buy the Sept $26.00 puts on this one?

Goodyear Tire & Rubber, GT, rose 7%. The car parts manufacturer showed a second-quarter loss that wasn't as bad as analysts had expected. It reported a loss of $221 million, or 92 cents a share, vs. profit of $75 million, or 31 cents a share. Excluding one-time items, the loss was 35 cents a share. Sales fell 33% to $3.9 billion, reflecting a drop in automaker production cuts. The auto-related stocks sector has jumped 16% in July, making it the third best performer in the S&P 500.

Homework: Time for another homework trade, the last one, just as in the 13 before it was closed out for a nice profit. Today we are going to look at CMI and place a diagonal spread selling the August $43.00 put and buying the September $39.00 put for a $0.40 credit. The goal for this trade is to have the stock close above $43.00 either on the August or the September expiration date. If it does close above $43.00 in August we will also be able to sell the remaining time value in the Sept $39.00 put for some additional income.

We will now follow this trade with Wednesday and Sunday updates, until the trade is closed, in our members section of the Incometrader newsletter.

Cheers,
Mike