It’s been a rough month for Gold and it continued yesterday with the price falling $9 an ounce to $908. Other metals traded lower as well. Silver tumbled $0.38 to close at $17.14 a pound, while Platinum fell $92 to close at $1,563 an ounce. Copper dropped $0.14 to $3.44 a pound and Palladium dropped $16.70 to end the day at $354.40 an ounce.

Oil is below $120 this morning which is pushing the Dow higher by 160 points to 11,445. With the price of oil dropping, the dollar will continue to rally. That’s not good news for Gold stocks as many of them are trading lower this morning. We had a little success with Gold stocks at the beginning of July and we able to make some quick profits of 10%-25%.

I’m not bullish on Gold at the moment…I’m not really bearish either. Trading options on Gold stocks can be a tricky business and we were able to make some money trading these types of options when the market was falling and oil was rising. A month later, we are in a different environment. Take a look at how much some of the Gold stocks have declined from July 1. I’ll also list some September options that we will be watching.

Barrick Gold (ABX, $38.32, down $1.70) was $46. The stock was recently upgraded from “Neutral” to “Outperform” by Credit Suisse at the $40 level but is down 4% this morning. The September 40 calls (ABXIH, $2.25, down $0.55) may be worth a look if they can get below $2.00.

Goldcorp (GG, $34.64, down $0.61) was $48 and has dropped 14 points in a month. The company reported a surprise $9.2 million loss for 2Q and lowered its production outlook for the rest of the year. The September 35 calls (GGIG, $2.65, down $0.45) have lost 15% today and may be a good buy at $2.25.

Gold Fields (GFI, $9.86, down $0.08), was $12.57. The stock is down over 20% in a month and is a better stock trade than an option trade at this time. The September 10 calls (GFIIB, $0.75, up $0.05) would double if this stock is at $11.50 by September 19.

Newmont Mining (NEM, $45.45, down $0.67) was at $53. The company reported a decent 2Q, posting a profit of $0.61 a share, compared to loss of $0.89 a share in the prior year quarter. Newmont has been making deals with other, smaller firms in an effort to expand its strategic alliances and those could pay off down the road. Watch the September 45 calls (NEMII, $3.05, down $0.55) and let’s see if they can get down to $2.50.

Although it doesn’t appear to be the case today, Gold stocks could be bottoming out after the steep drop in July. It’s unusual that we are getting such a huge rally before the Fed announcement and it remains to be seen what happens later in the day. The Dow has moved up another 30 points since I started this blog to 11,473. We’re looking at a 200-point gain in just over an hour-an-a-half as oil continues to trade below $120 a barrel.

Rick Rouse
Rick@OptionsMentoring.com

The market is on the upswing as we head to lunch following yesterday’s huge loss. Oil is down a little over $3 to $121 level and the talk is it could be on its way to $100 a barrel. Just a few weeks ago we were approaching $150 so the continued slide in oil is having a positive affect on the market.

The market also got some good economic news as the Conference Board’s July index of consumer confidence rose slightly to 51.9 from 51 in June. Consumer spending accounts for more than two-thirds of U.S. economic activity so the uptick was welcomed news.

The next stop for oil would be the $117 level which could pave the way for a slick road to $100 a barrel. Of course, the market may be getting ahead of itself but comments from OPEC’s president that oil’s current price is “abnormal” and could fall to $70 or $80 is fueling the fire. Oil is at a 10-week low and the recent slide has also coincided with a stronger U.S. dollar.

The dollar is at a 5-week high and a stronger dollar is pushing commodities prices lower. Copper, gold, and natural gas are all significantly off their highs of just two weeks ago. Barrick Gold (ABX, $42.63, down $1.57), Goldcorp (GG, $39.55, down $1.40), Gold Fields (GFI, $11.97, down $0.09) and Newmont Mining (NEM, $47.70, down $1.41) are all trading lower today.

Today’s rally can certainly be contributed to the fact that oil is lower. But any sustained rally is only likely to occur if oil continues to retreat. It’s tough to say if we get a straight drop to $100 a barrel for oil but if we do and it can stay at $100 a barrel or below, it will certainly help stabilize the market over the near term.

Rick Rouse
Rick@OptionsMentoring.com

Earnings will hit Wall Street starting this week and Dow component Alcoa (AA, $32.78, up $0.67) will officially start things off Tuesday after the market closes. The stock has taken a hit over the past month, dropping roughly 20%, from $40 to its current levels. No surprise there as the current bear market (it’s official) has taken a lot of stocks lower. A bear market occurs when the market has sold-off 20% from a high. Last October the Dow hit a high of 14,279. It closed at 11,288 Thursday.

Alcoa hasn’t participated in the commodity rally although the price of aluminum has gone up. The problem for Alcoa is that energy accounts for a huge percentage of the cost of making aluminum.

Wall Street is expecting earnings of $0.69 a share, down from $0.73 a share versus last quarter. However, analysts have been lowering those estimates as its likely the company will miss earnings due to a slowing economy and rising raw material prices, so they say. Maybe the recent drop has already been factored into the stock price but it could be tough for Alcoa to make a sharp rebound in these current market conditions.

Alcoa should do well over the next 6-12 months even if Wall Street doesn’t like the numbers. The company predicted strong growth in global demand for this year of nearly 9%, well above the average 6% growth rate for the previous 10-year period. Of course, China will lead the way but the demand for aluminum has actually been declining in the U.S. and Europe.

As far as an option trade it’s hard to tell if the glass is half full or half empty with Alcoa. Trading options around an earnings announcment is always risky but this one takes on a higher degree of risk because of the circumstances. In situations like these its best to stand on the sidelines and wait for better trades instead of forcing the issue.

Rick Rouse
Rick@OptionsMentoring.com

Last Friday I gave you a list of Gold stocks and options to watch as the market headed lower. That analysis was spot on so protect your positions if you are showing a profit.

Barrick Gold (ABX, $46.24, up $0.74), was $45.44. Hit a high of $47.00 this morning. The July 45 calls (ABXGI, $2.50, up $0.35, or 16%) were mentioned at $2.10. A stop of $2.30 gets you a nice 10% profit and keeps you in the trade for higher moves.

Goldcorp (GG, $48.23, up $2.06), was $46.73. High of $49.10. The July 47.50 calls (GGGT, $2.33, up $0.83, or 55%) were going for $1.80. Big move here, folks. Set stops at $2.15.

Gold Fields (GFI, $12.70, up $0.06), was $12.57. Not much pop behind this one due to the low share price. The July 12.50 calls (GFIGV, $0.70, up $0.10, or 17%) were profiled at $0.60.

Newmont Mining (NEM, $53.02, up $0.86), was $52.88. This stock isn’t as explosive as the first two I mentioned and sometimes the stock trades to its own beat of the drum. The July 55 calls (NEMGK, $0.90, up $0.22, or 32%) were mentioned at $0.94 so they have actually lost a little bit despite today’s big move.

The price of gold for is up big today, nearly $12.00, to $940 per ounce.

Rick Rouse
Rick@OptionsMentoring.com

Gold stocks are making a run today as oil continues higher while the market heads lower. The Dow (11,316, down 137) is down triple-digits once again and Gold continues to thrive as investors seek a safe haven. The precious metal is up $16 to $931 an ounce. Here’s a few stocks and call options that we can follow over the next few weeks. The group below has performed extremely well this week:

Barrick Gold (ABX, $45.44, up $2.40)
July 45 call (ABXGI, $2.10, up $1.05, or 100%)

Goldcorp (GG, $46.73, down $2.39)
July 47.50 call (GGGT, $1.80, up $0.95, or 100%)

Gold Fields (GFI, $12.57, up $0.65)
July 12.50 call (GFIGV, $0.60, up $0.25, or 71%)

Newmont Mining (NEM, $52.88, up $0.70)
July 55 call (NEMGK, $0.94, up $0.10, or 12%)

The pressure of higher oil (now at $142!) and a lower dollar could give Gold the fuel it needs to make a trip to $1,000 an ounce. I mentioned in my Market Commentary last night that nothing looks good except maybe Gold and that’s holding true today. Like I said, things are getting cheap and it will soon be time to jump on the Financial stocks and other sectors that have been scolded. In one or two years from now the right LEAP options could do very well.

Rick Rouse
Rick@OptionsMentoring.com

I’ve been fielding a lot of questions on Chipotle Mexican Grill (CMG, $85.07, down $1.03) lately and I thought I would provide an update on what has happened since my last post on the company a couple of weeks ago. Restaurant stocks have taken a beating lately and in that time frame Chipotle has quickly fallen from $95 to $85. That is a small drop if you consider the stock has a 52-week high of $155.

One of the major uncertainties hurting Chipotle and Restaurant stocks in general is the effect of higher food costs. We have all heard about the supposed “rice shortage” and other commodities like corn and meat and veggies could continue higher for the foreseeable future. All of this will no doubt weigh on margins and eateries may have to increase menu prices just to keep up.

In April, when Chipotle was at $110 I talked about how active the May 105 puts were and that the bears could be ready to come out of hibernation. Those same May put options ended up going from $4.50 to over $9.50. I also said it appeared that traders were also rolling out their positions into the June 95 puts (CMGRS, $11.70, up $1.00) which were trading at $5 on 5/16. They have also more than doubled.

I point these things out because it is important to notice trends and what other factors can influence your holdings wheather you are bullish or bearish on a stock. When Chipotle fell below $90 I said momentum could take it to the lows $80’s and we got there Friday when the stock hit a low of $83 and change. Even if you don’t trade options and you were bullish on the stock, you would have saved yourself a lot of money by noticing Chipotle had broken key support levels.

The stock is just a trading day away from setting a 52-week low and usually in these circumstances new lows are made. If $78 is broken then the next level of support could be in the $60’s. Ouch! However, the stock has been hammered and the remaining Chipotle bulls might make a stand at current levels and save it from going below $80.

Rick Rouse
Rick@OptionsMentoring.com

Shipping stocks went the way of the market capping a two day sell-off as traders were nervous holding positions ahead of a holiday weekend. The Baltic Dry Index, which measures dry bulk shipping rates, had hit record highs earlier in the week. The index trades on the London exchange and reached 11,783 before falling back to 11,465 on Friday.

That is nothing compared to the 50% plunge the BDI experienced from November to a low of 5,600 by the end of January. Despite the volatility the BDI is seen as a good indicator of future economic growth and productivity.

The sector is exciting to follow so here is another “Watch List” that I have created on stocks that usually move with the BDI. I believe the uptrend continues over the next few months as a number of factors come into play that will be positive for the bulk carriers. All five of these stocks have options and quotes are from Friday.

DryShips (DRYS, $90.05, down $2.08). The stock hit a low of $55 mid-March and doubled to $110 by May 16. In fact, the stock made a move from $90 to $110 back to $90 in the month of May already.

Eagle Bulk Shipping (EGLE, $32.30, up $0.26). One thing that struck me with this one was the action in the July 35 calls (QEKGG, $1.40, up $0.15). Eagle’s 52-week high is $36.24 which was hit on May 19.

Excel Maritime Carriers (EXM, $47.86, down $2.64). Fell 13 points or 20% for the week.

Navios Maritime Holding (NM, $12.89, down $0.19). In a weird twist, Navios was up 6% in after-hours Friday. There was no “big” news other than the company saying it would be reporting earnings this Thursday.

TBS International (TBSI, $45.92, down $1.57). The company did a 3.4 million share offering on Thursday at $51 per share that closes Wednesday. The timing looks bad, sure, but the demand was there.

Although these stocks are in a downtrend and I’m bullish longer-term, I wouldn’t rush to buy any of them just yet. Let the market open this morning and see if the fallout continues for another day or two. If we get lower opens for these stocks and or options, any entry points you may have can be lowered.

Rick Rouse
Rick@OptionsMentoring.com

With everything going on in today’s world (ridiculous oil prices, rising food prices, and a nasty looking dollar) one would think that Gold, considered by most as a “safe haven” in times of turmoil, would be doing well. Not. After making a one-year run from $650/ ounce to a little over a $1,000/ ounce in March, Gold is now trading at $870/ ounce.

What’s amazing to learn is that we all know Gold has been a solid investment for years now and rightfully so. You would also expect Gold will eventually challenge the $1,000 mark again. Those are givens. However, from what I’m hearing there are some who expect Gold could trade as high as $1,500-$2,000 within in the next year. Are you serious?

I’m not a big fan of gold-mining companies but there are other ways to trade Gold rather than buying a stock. You can trade gold futures and options on the New York Mercantile Exchange and the Chicago Board of Trade’s eCBOT electronic system. You can buy Gold calls and puts at different strike prices just like options on stocks or the S&P 500.

Gold options trade in 100 ounce contracts. To figure out the cost of an option you take the current price of a contract (let’s say $30.00) and multiply it by 100. So it would cost you $3,000 ($30.00/ oz. x 100 oz.) if you picked a strike price with a premium of $30.

These trading alternatives may or may not be for you but I thought it was interesting to see how Gold has been in a downtrend when other commodities have been booming.

Rick Rouse
Rick@OptionsMentoring.com