Close to a High

Market Action:
Overnight on Wednesday, MOT (Motorola) said it expected a first quarter loss of about eight cents.  This negative number is in sharp contrast to analyst figures of about 17 cents, that would be in the positive.  On that news the stock took a tumble in after hours trading on Wednesday and on Thursday dropped about 6.5% in regular trading.

MOT’s news caused some negative reactions in the tech world and the NASDAQ opened on a weak note.  Both the Comp and the 100 (NDX) were down on the day but not much even as the Dow managed to add 13 points.  The trading day was rather subdued after Wednesday’s big rally.  

Other News:
The market had to deal with another piece of news, too, that of the leading economic indicators (LEI) which fell 0.5% after expectations were for only a 0.3% drop.  This number by itself wouldn’t be considered so bad but there was a revision to last month’s number from up 0.1% to down 0.3%.  So, we figured they got the 0.3% drop number right except it was for the wrong month.  That was a big miss, nearly 0.4%.  Now, if the March LEI is also down that would make three months in a row, which could be starting to forecast a recession…nah, couldn’t be.

Tomorrow we get to see new home sales.  We anxiously await the number.  Expected is that they will be 995K on an annual basis which represents a 2% decline after last month’s surprising 3% increase…That reminds us that KB Homes (KB) had news on Thursday morning.  KB, the number 5 US home builder, said that its net profit fell some 84%.  Then they went on to say that higher foreclosures and tighter lending standards in the broader market could prolong weakness in the sector.  Sounds like a turn around is in the making???

Opinion/Analysis:
From our perch on the side of the market, we think the corrective rally we have been in for the past couple of weeks is about over.  At least, we think that the price high is very close to where we are now.  We expect a little more rally to complete the pattern and then we should see some significant downside.  Any rally that pushed the Dow into the 12,500’s would be an invite for us to take another option position.  We indicate a couple of options again in the table below but we can’t be certain that either one of those would be what we would buy.  If we were to buy one of them we would probably lean toward the QQQRT which has a 46 strike and would probably give us somewhat better leverage.

Have a great weekend and sleep well.

Dow Industrials:  12,461.14  +13.62
VIX: 12.93
HUI:  340.52
QQQQ:  44.26
QQQRR: 1.14 bid
QQQRT:  2.13 bid
RYVNX:   16.59
RYAIX:  21.30
RYCWX:  35.78
TLT:  89.04
BEGBX:  13.93