Tech U-turn: A little “booyah” will do ya
Last week Jim Cramer said boo(yah) and tech stocks – which had only just recently been showing renewed strength – promptly reversed course, giving up their recent gains. Whether Cramer’s call to sell tech actually had anything to do with the downturn, or whether the sell-off was options expiration related or due to other factors, the fact remains that the broad market appears to be on the verge of once again losing the support of the tech sector – a potentially worrisome sign.
While the trend spectrums for most major market indices still remain positive, the picture for technology stocks – as represented by the Nasdaq Composite, the Technology Sector SPDR, and the Semiconductor HOLDRs ETF – is currently mixed or negative. Market action over the next week or so should go a long way toward confirming whether this weakness was just a temporary downdraft or a sign of something more serious.
Near-term downside support levels I’ll be watching are about 1410-1415 for the S&P 500 and ~2400 for the Nasdaq. Upside resistance levels are ~1440 on the S&P 500, and ~2500 on the Nasdaq.
Options Expiration Results
- ACE (ACE) – The January 60 puts I sold against ACE on 12/19/06 expired in the money (ITM) and I was put the stock for a net cost basis of about $58.85 per share.
- Alcoa (AA) – The January 27.5 puts I sold against AA on 12/21/06 expired out of the money (OTM) for a 4-week net return of about 1.2%.*
- Biogen Idec (BIIB) – The January 45 puts I sold against BIIB on 12/19/06 expired OTM for a 4-week net return of about 1.0%.*
- Cemex (CX) – The January 32.5 puts I sold against CX on 12/19/06 expired OTM for a 4-week net return of about 1.6%.*
- Fifth Third Bancorp (FITB) – The January 40 puts I sold against FITB on 1/5/07 expired ITM and I was put the stock for a net cost basis of about $39.45 per share.
- Freeport McMoRan (FCX) – The January 45 puts I sold against FCX on 1/3/07 expired OTM for a 2-1/2-week net return of about 0.9%.*
- Home Depot (HD) – The January 40 puts I sold against HD on 1/5/07 expired OTM for a 2-week net return of about 1.7%.*
- Occidental Petroleum (OXY) – The January 50 puts I sold against OXY on 12/18/06 expired ITM and I was put the stock for a net cost basis of about $48.50 per share.
- Peabody Energy (BTU) – The January 40 puts I sold against BTU on 12/14/06 expired OTM for a 5-week net return of about 1.0%.*
- Progress Energy (PGN) – The January 50 calls I sold against my long position in PGN on 12/14/06 expired OTM for a 5-week net return of about 0.7%.
- Southern Copper (PCU) – The January 50 puts I sold against PCU on 12/21/06 expired OTM for a 4-week net return of about 1.7%.*
- Whole Foods Market (WFMI) – The January 45 puts I sold against WFMI on 1/3/07 expired ITM and I was put the stock for a net cost basis of about $44.30 per share.
New positions
Applied Materials (AMAT) – On Thursday I sold some February 18 puts on AMAT as it sold off along with the rest of the technology sector:
The degree of last week’s tech sell-off was enough to call the recent strength in that sector into question, and AMAT is no exception. Its intermediate-term trend is now in question, and a test of at least some of the near-term downside support levels – at around ~18, 17, and 16, respectively – seems likely.
Watchlists
New stocks of interest showing up in the “upside strength” scans include BHP Billiton (BHP), BorgWarner (BWA), and Family Dollar Stores (FDO).
New addition to the “oversold” list this week include American Home Mortgage (AHM), Commerce Bancorp (CBH), and McClatchy (MNI).
* As always, the return on these “cash secured” put sales was based on the premium received from the sale of the options (minus commissions) against the unmargined capital set aside to pay for the possible assignment of the stock.
