Daily Stock Market Equity and Options Trading Commentary

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Thursday, April 30, 2009

April Rain's Brought BIG Gain's

The month of April was an extremely good month for the bulls on Wall Street. Although ending today nearly flat, the major indices had their best monthly gains in years! The performance of the major U.S. stock market indices in April were: Dow +7.3%, S&P +9.4%, and the NASDAQ +12.3%. The chart below shows the major indices for the month of April (click to enlarge).
The Dow's best performer was American Express gaining over 85% since April Fool's Day, and I'm not joking! Some other names that have been strong for the past 30 days include Diedrich Coffee, Inc. (DDRX), Dendreon Corporation (DNDN), and Borders Group, Inc. (BGP) up 701%, 405%, and 333% respectively! For a trade idea, look into the options on BGP and DNDN (as DDRX does not have options), the volatility on these names has exploded and is bringing massive premiums! Two of my favorite speculation stocks for April were Palm and APWR climbing a steady 22% and 90% respectively for the month of April. I am still bullish on Palm, but they need to hurry up and release information about the Palm Pre, I think that could drive the stock a bit higher. My short term price target set on Palm is $12.50 a share, and that is where I have written covered calls for May for 50 cents a share.

To show a general picture of how the market performed broken down by individual stocks, below is a heatmap for the past month. Note that these stocks are sorted by sector and they are only for the stocks which have options available (click to enlarge).
To learn more about heatmaps check out my post. As you can see the health care sector was hammered, while financials did the best (it may look like one giant company, but it is actually about 30-40 in that large bright green area). Oil and gas did quite well, with the exception of Exxon Mobile and Chevron which together make up the large red rectangle in that group. Telecommunications was on the weaker side, but industrials performed well.

Using heatmaps is a great way to see where the money is moving in the market. Think of it like this: "the market moves together over time". I am not saying it moves together 100% but overall if the financials do well, telecommunications should eventually etc... If you're bullish and agree with this theory, you probably think the green boxes are leading indicators of the market, and should be putting money in the sectors which have not experienced these massive gains (with the exception of health care- need more info on where this administration is going). However if you're bearish, you'll most likely think the companies that did poorly for the month of April are the leading indicators, and may choose to short the companies/sectors that did very well.

That's the past let's look ahead to May! Historically the market does perform poorly to weak at best in May (until about October), as the old saying goes "sell in May go away", however when coming out of a bear market the month of May does very well on average. It's up to you whether you think the market will do well in May or not... I can just say one thing for sure. The April rain's brought me BIG gains...

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