Mid-day Update: Tesla Under Fire, Apple Racing

Great start to the week. The S&P defended the low of the day very well this morning before grinding higher to the 1667 we sit at now. We haven’t had a whole lot of major news items to deal with in the early going, but there has been plenty of action in individual names that has created a lot of opportunities.

Our biggest gainer thus far today is our $AAPL position. Our options are trading roughly 50% higher from the close on Friday and the stock hung tough while the market was defending the lows this morning. We saw buyers consistently step in around the $504 level that gave us conviction to hold on to our options, and the stock has grinded to $507 and continues to look strong. We may take down some exposure heading into the events, but the stock looks so strong it is hard to not extend another day (at least) with our options.

$FCEL is getting a nice lift today as we remain long the stock via options. We added to our $HD put position as the stock is struggling to reclaim its 8-day EMA. Keep an eye on that one as the chart looks incredibly bearish.

We took a feeler position on another momentum/breakout candidate in JA Solar Holdings $JASO. This is a volatile stock that has traded in a huge range in 2013, but the stock is forming a rounded bottom pattern and there is huge potential for a breakout over $9.50 that could send the stock well over $10. The YTD high sits at $11.40, and there is essentially no resistance to that mark if the stock can get going. Image

We also initiated a short position in $TSLA today via next week’s $155 puts. We’ve touched on shorting Tesla a couple of times over the last few days, and today has been the first move down with some conviction in quite a while. A test of the 20 day SMA around $157.20 seems imminent if the stock cannot move higher before the end of the session. If the 20 snaps, it could be bombs away for the stock. Still, this stock has been incredibly resilient, so don’t press too much if you’re making money. It’s still well above the Ichimoku cloud and it doesn’t take much for this stock to reverse its course.

We took a question on Twitter regarding our AT&T $T position and why tapering would impact the stock so much. It’s actually a relatively simple thesis – the big dividend players hate rising interest rates. If and when the Fed begins to reduce its bond buying, we should see the 10-year yield sustain a move above 3% which crushes equities that are known as strong dividend payers. Utilities and Telecom stocks frequently attract investors with attractive dividend yields, and those names have the most to lose if treasury bond yields begin to rise. AT&T’s chart looks particularly bearish in our view, which is why we have been buying puts over the last few weeks. Here’s a chart comparing $T and $DTYL, the bullish 10-year ETF. For those who are new to fixed income, the price-yield relationship is inverse: as yields rise, prices fall. $DTYL and $T are moving virtually in lockstep.

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We’ve been preaching prudence for several days as this market remains extremely headline driven, and any news from a number of ongoing story lines could catapult the market in either direction. As we were writing, $TSLA absolutely ripped off the lows to $161 and has already retreated under $160. Markets and stocks turn quickly! Keep. Your. Head. On. A. Swivel.

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Posted on September 9, 2013, in Uncategorized and tagged , , , , , , , , , . Bookmark the permalink. 1 Comment.

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