Can This Rally Continue?

As I have said, there is a divergence between the technicals of the market and the fundamentals of the market. This week, the market will attempt to make 5 straight weeks of gains. There is a lot hinging on the jobs report on the economic front but the real driver this week will again be the corporate earnings. GM, Procter and Gamble, Starbucks report this week.

Starbucks? Yes, Starbucks is probably the biggest barometer of the health of consumer spending and the status of the economy. This is because Starbucks has the "Latte factor", meaning that, it is a perk that consumers enjoy and is highly levered to the health of the consumers and the economy. If Starbucks reports bad earnings and guides lower, we can also anticipate that the economy is in trouble and that last week's report regarding strong consumer spending is just a facade. Perhaps it is too simplistic but many things in life that are worth anything in salt are. I am willing to bet this week that Starbuck's earnings will surprise to the upside. I believe technically, the short term bottom has been reached at $31.50. The stock has formed 6 week tight pattern with diminishing sell side volume.

I will establish a small 10 contract position in Starbucks June $32.50 call position this week. I anticipate that if the earnings are good, we can see a gain of $2-$3.

I will sell LHCG calls early Monday morning based on the earnings report. The chart is bearish with double top pattern and high volume selling and residence for the past 3 weeks below the 50 EDMA, but this is a low float stock and selling appears done. If the earnings report is stellar, we can see $30 in short order.

Valuclick still remains an appealing candidate for a long call. I may purchase June $30 calls with expectations of selling shortly after earnings.