It’s All in the Fine Print
24th May 2009
The headlines this week shouted out that Home Depot (HD) posted a 44 percent increase in 1st quater profits. Looking a little closer at the details we find that the reason this number looked so good was because it was compared to the year ago quarter when HD wrote off the expense of closing its Home Expo stores. What the headline doesn’t tell you is that sales were down 10%, not exactly good news. Savy traders took this opportunity to book profits on the home improvement store’s 50% rise since the March lows.
HD’s story illustrates what has been happening over the last couple of weeks in the financial markets. Traders have been taking profits on this two month rally by selling to investors that are afraid they are going to miss the boat on a new bull market. If we have a real bull market, the is no need to hurry.
The SP 500, DJIA, and MNX all made their first ‘lower’ high in a couple of months this week. It was a good time to initiate some bearish option trades. Watch the 875 level in the SP 500, 8200 in the DJIA, and 134 in the MNX for support. If these hold, expect the stock market to stay in a trading range for a while. If they break down, this pull back will become a full fledged correction.
JD
