Market Sells Off After Weak Jobs Report

April’s jobs report was released this morning and was below expectations. This sent the market into a falling tailspin across the board. The Dollar UUP and Bonds TLT were up on the day as well as slight gains in Gold GLD and Silver SLV. One of the extreme moves of the day was in oil which got 4% of its faced ripped off. This put the USO on its back at the 200 day moving average where it did find support for now.

Yesterday I tweeted out and posted on Facebook that I was picking up some IWM puts in both the May and June expiration. I closed the May contracts today for a 60% gain and am still holding the June contracts and looking for a potential move to the 200 day moving average around the $75 level. Be sure to like us on Facebook and Twitter so that you can participate in some of these trades. I would also love to hear from those who took that trade with us so comment on this post now!

In today’s video, I take a look at some downside targets in the market and a couple plays I’m looking for next week. I am in a “short the rally” mode for now and am eying some credit spreads in a couple names. If we can get some early strength next week I would look to start adding some puts on weaker names so stay tuned.

Weekly Market Wrap Video Transcription:

Welcome to the’s weekly video for Swing Trading Options. Today is Friday, May 4th 2012, and we’re looking at the market today. Basically, we fell of the cliff after the jobs report this morning. Expectations came in lower than expected. This was flagged earlier on Wednesday when ADP numbers were less than expected.

I’m not very surprised that this happened. I was actually…

[spoiler]positioned for this. We were talking with our members and yesterday I sent a message to our members that I grabbed some IWM puts. I grabbed some May contracts and June contracts. (Let’s look at the IWM real quick.)

Russell 2000 Index Fund ($IWM)

It is the weaker of the indexes. Yesterday we grabbed some IWM puts – small position, just looking for a bad jobs report. That played out well. We’d close the May puts today at a nice gain in that. I’m going to hold the June puts probably through next week. Let’s just see where this market takes us.

The IWM is much weaker than the rest of the bunch. You can see that we have this large potential head and shoulders here, but we’ll see if that plays out next week. If this breaks the neckline around the $78 area, then we would look for a move back down closer to – (Let me bring in the averages real quick.) – the $75 area, which is about the 200-day moving average. That’s the plan for the IWM play.

S&P500 Technical Analysis:

Let’s look at the $SPY real quick. Also to our members, I’ve been talking about this trend line. This is the October 4th low from last year. We’ve hit it once, twice, and then you can see we did come back to it. We broke down and now this trend line is basically new resistance. And we came back above here. I’ve been pointing this out to our members. We’re trying to see if this support was going to hold today, but the jobs report came out and basically we’ve broken down. The next target on the downside I think we’re going to probably get to this pivot. I think there’s going to be strong support here. This is about 134.40, 134.50 on the SPY. I would expect the bounce.

But prior to that (I’m going to switch to the cash index), I would not be surprised if early next week we got a little bounce, maybe one or two days early in the week, and then we break down. What I’m looking to do is short rallies at this point. Maybe we’ll get that in the SPY. Also, I’m actually just considering buying puts on the SPY and I am looking at June options at this point.

New Option Plays for Next Week:

Let’s look at a couple of plays that we might want to look at next week.

United States Oil Fund ($USO)

One of them is USO. USO had a monster drop today. There was some news earlier in the week about inventories were very high. And then now that we have the weaker economic data showing a potential slowdown in the US, Oil is down 4% today.

If you look at the USO, which I’m using as a proxy for Oil, you can see we got to the 200-day moving average, and I think we’re going to bounce from here. The question is: How big is the bounce going to be? What I would look for next week – I’m not in this, but I think I would prefer to do a credit put spread or a bull put spread on this. I’d probably look at something like the 36, 34. We’ll see how the week opens next week, but if we get a little sideways consolidation here for a day or so, I would look to put this on as early as possibly Monday or Tuesday.

If we start to bear flag like this early in the week, when we start getting candles up within this candle, I would probably hold off on that because that’s – If we set up for a bear flag and then we push down, that would go against our position. I don’t want to play straight up calls on this, but I think selling some put spreads here makes sense. And I would actually look at the May put spreads because we have 14 and next week it will be 12 days left. We want to see what the premium is going for at that point.

iShares Barclays 20+ Year Treas. Bond ($TLT)

Another play I’m interested in is TLT, which is inverse to the market. It’s a safety play. I would look for TLT to the long side. And the setup I would look for here is I would actually look at buying some calls. I would actually look for some early weakness in the next week and look for a potential pull back to about the 20-day moving average. (Let me bring in the 13-day with that.) That coincides with the 13-day as well.

Around the 117 (maybe 117 and a quarter area), I would look at some June calls. Let’s look at the chain here real quick. I would probably look for delta of 70 on the June calls, so you’re probably looking at somewhere around the June 116 calls. If we do get a pull back next week, let’s go ahead and just theoretically price these for Monday. The seventh is Monday. If we did pull back to, let’s just say, 117 (we’re at 118.14) – Let’s say we get a dollar pull back. What you can do here is go in and we just say if the stock price drops by one dollar, then these calls would be worth a theoretical price of about $2.44. I would look to potentially get in those early in the week for, let’s just say, $2.50. They’re in the money, so you have some intrinsic value here. And you don’t have a lot of time decay, which is important.

I would look for a move to retest. These are very clear targets here. You have this pivot here. (Let me change my tool real quick.) You have this pivot. This will be first target, which is around 119.20. Second target I’d probably take it off, but I would look for a move up there. But I would actually wait for a small pull back first. You do have this little gap that happened today. Maybe you’d come back to 117.47 or potentially gap fills 117.23. You could even potentially scale in a little bit here and a little bit at the 13-day EMA.

We’ll see some of the things I’m looking at for next week. Some major players really broke down today.

Intel Corporation ($INTC)

A couple of the names that I have been watching on the long side was Intel. Intel was holding up pretty well but it had a huge outside reversal day yesterday (very bearish engulfing candle), at a follow through today. You are going to get to the 50-day probably, but you might get a little bounce before heading lower. I do not want to short Intel, but again, actually, obviously we’re not going to get long as well.

International Business Machines Corp. ($IBM)

I think IBM is one of the stronger of the stocks as well. We’ll see if these moving averages can hold.

Caterpillar ($CAT)

A couple other names that we had been short: Caterpillar is actually going to run. I think we’re going to make a run to the 200-day moving average here. I would actually look for a potential bounce. I don’t know that I would want to short Caterpillar anymore because this is going to act as heavy support around this $98 area. I would actually look at potential bull put spreads as well on Caterpillar. But let’s see how next week opens.

That’s a Wrap:

If you guys have any questions, let us know. We’ll see you next week!

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