S&P 500 (SPX) – At the time of this broadcast, SPX was around 1,649.83, up about 9.37 from Monday’s close. It is currently above its upward trendline going back to November, above the downwards trendline going back to when the Fed first started talking about “tapering” and above its 50 day moving average. The correction, according to the chart appears to be over and the trend is back up, but there are things Michael does not like about it, especially that the rebound was on very low volume.
Analysis of Volatility Index from TradeKing’s Brian Overby:
S&P 500 Volatility Index (VIX) – The VIX is around 14.45, down .33 from yesterday. It has pulled back to below its 50, 100 and 200 day moving averages of around 15.55, 14.41 and 15.06, respectively. On a percentage basis the VIX has had a big drop on not that big of an upward move in the SPX index. This could mean to be there is some complacency going on in the market. It could be that the market does not seem to be concerned that we are heading into earnings season again.
The Chart of the Day is Costco (COST) – At the time of this broadcast, COST was at $113.30, up about 0.68 on the day. It has broken through a recent resistance level (just above 112). Michael mentioned that consumer discretionary and retail stocks have been doing well recently and this might be moving along with them. This has been on a long term upwards trend going back to August 2009 and a shorter term one going back to November. It has recently broken above its trendlines, around the 112.62 mark on the chart. If COST can stay above that trendline there isn’t much to point to for resistance on the upside. We see the year high at 115.77 that may work as resistance, but if we use the bottom of the recent spike down (107.50) and take that distance below the established trendline and place it above the trendline, it hints that we could see levels around 118, according to Michael.
It is above its 50 and 200 day moving averages of 103.50 and 110.78.
Brian Overby’s strategy based on Michael’s analysis – both the 30-day historical and implied are levels are between 16 and 17%. They are around the middle of its normal levels. There is no dividend to be paid or earnings to be concerned with short term and the outlook is bullish. With this in mind, Brian discusses a Short Put Spread and a Broken Wing Butterfly with Calls.
Brian’s Potential Trade Strategy – Short Put Spread
– Sell 1 July 20 2013 COST 113.00 Put
– Buy 1 July 20 2013 COST 110.00 Put
– 11 days to expiration
– Net Bid 0.69, Ask 0.76, Mid 0.72
– Total credit is $0.69 if we get filled at the bid
– Maximum potential loss is $2.31
– Maximum potential gain $0.69 Breakeven is $112.31
– Total commission to enter this trade is $6.25
Possible Alternative Trade – Broken Wing Butterfly with Calls
– Buy 1 July 20 2013 COST 113 Call
– Sell 2 July 20 2013 COST 115 Call
– Buy 1 July 20 2013 COST 118 Call
– 11 days to expiration
– Net Bid 0.39, Ask 0.53, Mid 0.46
– Total net debit is $0.53 if we get filled at the Ask
– Maximum potential loss is $1.53
– Maximum potential gain is $1.47 Breakeven is $113.53
– Total commission to enter this trade is $7.55
**NOTE: option prices are given as a per contract amount. Multiply loss and gain figures by 100 shares and by the number of contracts traded to determine the amount of the full potential loss or full potential gain. No additional calculations are needed to determine commission costs.