Stocks to Watch

The bears won their second straight session on Monday after walloping the bulls for a 2% loss, on average, as the major averages fell back towards key support levels.  There was no green to be found and yesterdays action sounded like a full blown correction if you were listening to the talking heads or reading the headlines.

The Dow fell over 150 points, or 1.2%, to finish at 12,504.  We said to look for a close above 12,500 which was a higher low than Fridays bottom.  Although the index traded to a low of 12,470 and all 30 blue-chips fell, we got our wish.  The next level of support is at 12,350 with 12,800 still set as our breakout target.

The S&P 500 dropped 24 points, or 1.8%, and settled at 1,319.49, exactly.  We were looking for a finish above 1,320 but it was close enough for government work.  There is still risk down to 1,300 and 1,375 is still in play on a close back above 1,350.

The Nasdaq sank 57 points, or 2%, and ended at 2,802.  Tech dipped to a low of 2,794 but held our 2,800 target by a couple of points.  Further support is at 2,750 but the bulls still have plans of hitting 2,900-3,000 later this month.

While there continues to be major headline risk towards global debt issues (European and U.S.) and other ongoing concerns, the market is still higher for the month of July so all is not lost, yet. 

On the other side of the coin, we know the bulls are climbing a wall of worry and in our minds there has been no economic recovery but instead an economy that remains fragile. 

Housing remains in the dumps, jobs are not coming back, and the Fed is running out of bullets so why should the market go higher?  Because, it can.

Its hard to be bullish when others are bearish and bearish when others are bullish which is why we use an array of calls and puts to navigate the market when things get choppy.

Often times, when there is a trend, trading becomes easier.  Other times, when there is volatility, its best to hedge your bets in hopes of your winners outpacing your losers.  

Futures were pointing towards another nasty open but have improved substantially as we head towards the bell.  Continued debt

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The bears are trying to get back Friday’s triple-digit win by the bulls and so far they are doing a pretty good job.  Futures were already pointing towards a lower open and the market has been a steady decline since the open.  The euro is weaker on the bank “stress test” news while China, the world’s largest producer and user of steel, said it is temporarily cutting its steel production.

The Financial and Energy sectors are seeing some increased selling pressure as both are trading lower.  U.S. Financial stocks are down nearly 2% due to the weakness in the European Bank stocks, which tumbled on concerns about the health of their balance sheets.  Bank of America (BAC, $13.25, down $0.25), Capital One (COF, $39.45, down $1.24) and Wells Fargo (WFC, $25.25, down $0.59) are all trading lower as a result.

China halted its production of steel during the seasonally busy September-October period as the use of electrical power slipped due to efficiency goals. The move ha

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The bulls put up a good fight as they held the market’s slide at the open and were pushing their way towards even before succumbing to the pressure.  The bears are trying to break key technical levels ahead of the weekend and have come close to doing so. 

The unemployment numbers were horrible but the President will tell you we added private sector jobs every month for 7 straight.  Give us a break.  Businesses are still reluctant to hire and are running lean and mean.  Many companies are still outsourcing work and are only hiring on an “as needed” bases.

We could go on and on but what is the point?  Things move slow in Washington and no matter how you spin it, unemployment is going to bust 10% again.

Naturally, the markets are lower on today’s news but the bears still have work to do.

The Dow is down 140 points, or 1.3%, to 10,534 and has fallen below the 10,600 level.  The S&P 500 is off by 15 points, or 1.4%, to 1,110 and 1,100 will be the battle ground going into the close.  The Nasdaq is lower by 30 points, or 1.3%, to 2,263 and 2,250 should be where the party is at.

As far as specific stocks, Goldman Sachs (GS, $154.64, down $1.28) has been making some noise this week and hit a high of $157 on Wednesday which is strong resistance.  We mentioned before financial regulation was passed that banks would figure out a way around Washington if it would cut into their profits. 

It was almost a given “Golden Slacks” would be the first to make waves.

The company plans to spin-off part of its prop trading operations as early as today to grow earnings.  The new laws limit banks from playing with their own money in the financial markets which controls risk but limits profits.  Goldman saw the writing on the wall and it was a no-brainer they would eventually do this.  Look for others to follow.

Tesla Motors (TSLA, $19.70, down $0.75) is back below $20 after announcing earnings this week.  The recent IPO reported a loss of $39 million, or $5.04 per share, versus a loss of $11 million, or $1.56 per share, a year ago.  Revenue came in at $28 million.

Tesla makes the Roadster, a car that costs over $100,000.  The company isn’t expected to turn a profit for a few years, if then, and the next car (a sedan) it plans to build will run you $60,000.  Big price tags to go green that the consumer won’t be able to afford.

The continued losses will eventually catch up the stock.  Shares are volatile and have traded to a low of $14.98 since going public.  The 6-week high is $30.42 and the option pits are usually pretty active.  We think there could be a trade here.

We will be back over the weekend with our Weekly Wrap which will be out Sunday afternoon.