10 Jan 2011

Market Overview:

The market shook off a slightly worse than expected jobs report on Friday and managed to finish the day nearly flat. The market will likely move based on three news generating events this week:

1. The beginning of earnings season.

2. Macroeconomic data released on Wed-Fri.

3. A renewal of fears about the European sovereign debt crisis.

I think this will be the week we see a reversal of the uptrend in the market. After an early pop on Monday last week, the market failed to move higher as volume remained relatively high. To me this churn represents bulls using up their ammunition. I expect the market to find a reason to selloff this week.

SPY Options Trading:

Thankfully, my weekly options expired worthless last week. I'm still holding the 22 Jan 2011 126 calls short in expectation of a pullback to at least 125 before expiration. Since I have a bearish bias for the upcoming week, I will look to sell weekly 128 or 129 calls on any rally. To the downside, I will look to sell 124 or 123 puts if there is a major selloff.

Key Levels in the SPY:

Resistance: 127.50, 127.75, 128

Support: 127, 126.50, 126.15, 126, 125.50

Individual Stock Trading:

NFLX -

NFLX is still stuck in a tight range between 175-185. There is a convergence of SMAs around 180. The 2, 5, 10, 20 and 50 day SMA are all near 180. I'm expecting this stock to make a big move in the near future. I will attempt to play it in the direction of the break. I'd prefer it to break higher as I think that would give the biggest gains as the shorts are squeezed.

RIMM -

After a break higher RIMM has struggled to move higher the past 2 trading days. It looks like the rally is failing, thus I will look to fad an opening pop on Monday. I'll look to short RIMM around 63, with a stop of 65 and a target of 57.

FDX -

FDX is still trapped between 92-94. Like NFLX, I'm looking to play this one in the direction of its break from the trading range.

My updated trading log for the month is below.