Earnings... Earnings... Earnings

We are entering earnings season and the early signal is that the market might sell off a bit as these earnings are reported. It sold off today as GS reported and it could continue tomorrow. INTC reported after the market close and so far it is trading down in after hours trading. We want to keep a close eye on the support levels. We are sitting on 840 on the S&P 500 and 7900 on the DOW. It appears unlikely that these support levels will hold due to the volume behind today's decline. Having said that...the VIX dropped a bit today, indicating that there wasn't much fear behind today's sell off. This looks like a classic example of buying the rumor and selling on the news. The market rally in March and early April was probably due to the anticipation that things are improving. Now that we are seeing the actual numbers, the market could sell off. The next support area is around 7450 on the DOW and about 805 on the S&P 500. I would like to see controlled selling. If we get a 300 to 400 point drop on very high volume (with a big spike in the VIX), we could end up giving back a lot of the March gains. I haven't seen any reason to panic yet so use the pullback to get back into nice upward trending stocks. One strategy is to "ante up" into the trade. Instead of buying your whole position at once, try buying just one or two contracts. If the stock continues to move up, you can add to the position by buying more contracts. If the stock continues to sell off, you don't incur high losses because you didn't have a large position. Yesterday I told you to start watching energy stocks again. They were some of the only stocks with gains today. They could be ready for a run. This is a riskier entry point, but it could payoff big time if the run starts here. CHK is one I've been watching for a while and it is now finally breaking out (there was huge option volume today on the Jan 2010 $50 calls). Watch BIIB this week. I mentioned last week that they were a takeover candidate. There is very high open interest on the 55 and 60 strike prices. They are supposed to report earnings on Thursday. The speculation would be that somebody knows something and that is why there is a heavy bet to the upside. I've also seen many of these go in the opposite direction so this would be considered a gamble. Financial stocks sold off today on higher than normal volume. This would indicate that they could drop a bit more. See how they perform tomorrow and keep an eye on the volume. Yesterday I told you to look at the FAS on a pullback...there could still be more of a pullback. There are a lot of financial stocks reporting earnings in the next two weeks. There is a great strangle opportunity on Citigroup (C). There was huge volume today on the May $5 calls and the May $3 puts...the volume was higher than the open interest. Citi is currently trading around $4. Their earnings are coming out around April 17th (Friday). For more information on trading Strangles or Straddles, call or e-mail the office (customerservice@myoptionmagic.com) and sign up to take the Advanced Options Strategies course (course 2).