Buy Stock Options After The Number – Great Stocks Decline After Big Earnings.

April 24, 2008
Author: Peter Stolcers, Founder of OneOption

Yesterday, the market was able to overcome weakness that existed for most of the day. The SPY 139 level is proving to be formidable. After the close, AAPL announced better-than-expected earnings and the stock is trading lower. Amazon guided lower and that stock is down as well. TEX and POT knocked the cover off the ball and both stocks are lower. I can understand POT being down after the huge run-up it’s had, however, I don't understand the action in TEX. I am seeing stocks that have not run up ahead of earnings pull back after they post great numbers. All I can say is that they will make great buying opportunities once the market is ready to stage its next rally. Durable goods orders came in at -.3% compared to a 1.7% decline in February. A flat number was expected. It Initial jobless claims showed an increase of 33,000 jobs. That number should bode well for next week's Unemployment Report. Increasing unemployment could lead to a much deeper credit problem. Some traders are speculating that the Fed might shift to a tightening mode. I highly doubt that. They have thrown the kitchen sink at the subprime crisis and we have yet to see the light at the end of the tunnel. The Fed will not raise rates until the write-downs decrease. In June and July we have another huge round of mortgage resets and the Fed will want to see that foreclosure aftermath before they start tightening. That information won’t be available until September. I stated yesterday that companies with good earnings have declined after the release. After the close we will get: AXP, BUCY, BIDU, CENX, DECK, JNPR, KLAC, MSFT, VSEA, and WDC. It is possible that beaten down semis might get a pop. The market needs help from the tech sector if it is going to break out. Tomorrow morning, earnings are pretty light. MSFT and the semis will impact the market the most. The market is in no man’s land. I would buy small on any rally above SPY 140 or I would aggressively buy around SPY 132, but I would not be taking positions here. Look for companies that have been in a long term up trend, have beaten estimates, trade at low P/E’s and declined after the release. Commodity stocks and industrials fit this description (TEX, STLD, AKS, POT, BG). For today, expect quite trading. The market does not have much to sink its teeth into. Traders are looking ahead to next week’s FOMC and Unemployment Report. image

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