1. Commentary 2. Green Mountain Coffee Roasters Brewing Big Gains 3. Earnings 4. Current Trades & Closed Trades 5. Monday Morning Playbook 6. Closing Thoughts ************************************************** 1. Commentary The market continued its upward momentum last week after a wave of better-than-expected earnings helped pushed the Dow over 9,000. Nearly half of the Dow’s components reported earnings and most of them easily topped Wall Street’s estimates. Caterpillar (CAT, $42.00, up $0.74) was one of the Dow’s stars as it had a huge week after making a run from $34 to $42. The bears had an opportunity to take back some of that momentum on Friday after Microsoft (MSFT, $23.45, down $2.11) and Amazon.com (AMZN, $86.49, down $7.38) dropped the earnings ball. Microsoft missed Wall Street’s revenue number while Amazon missed on its operating margins. Both stocks folded like a cheap lawn chair but the Nasdaq ended the day only slightly lower (-7 points) and finished at 1,965. However, the bulls were able to take the Dow higher by 24 points as it finished at 9,093. The S&P added 3 to close at 979. For the week all three indexes added 4.0%-4.2%. It has been an amazing stretch of action for the bulls as they have taken control of the market and have forced short sellers to cover their positions. With the market pushing new highs and crossing over its 200-day moving averages we could start seeing some of that cash that has been on the sidelines come into play. The one thing we were watching going into earnings season was the tight trading range we had been in for nearly a month and I kept saying that because of this we could get a huge breakout one way or the other. Intel (INTC, $19.36, down $0.12) was the key to jump on board. In fact, in the 7/19 Weekly Wrap, I had this to say: “With the Dow at 8,734 and the S&P 500 at 940, I’d say the bulls are going to do something special or we will fall back into a trading range once again? That wouldn’t be so bad but it would set-up a bigger stage for a more explosive move either up or down. However, given the momentum, it appears the bulls are in firm control and willing to push us to new highs. Dow 9,000? S&P 1000? Nasdaq 2,000? Those are the targets on the scope and we have enough meaningful earnings this week to make a run at those levels.” (END) One out of three isn’t bad and the other two indexes could close in on those targets if the bulls keep running. ************************************************** 2. Green Mountain Coffee Roasters Brewing Big Gains On June 30th I did a review of Green Mountain Coffee Roasters (GMCR, $68.64, down $0.14) and talked about its recent stock split. At the time, the stock was at $58 and a month later it is at $68. Here were my thoughts at the time with quotes from that day as well: “Green Mountain Coffee Roasters (GMCR, $58.54, down $0.02) recently completed a 3-for-2 stock split. This is normally a bullish event and there are ways to play these types of news events but you have to be careful. For example, in the “old” days, you could buy a call option on a stock that was splitting and the stock normally kept going up as did the option. Nowadays, it’s a little trickier. Green Mountain split its stock on June 9th and the price was adjusted from $93 to $62 to reflect the 3-for-2 split. Up until the split, the stock ran from $75 to $95 in just a month’s time. This is known as the “pre-announcement stage”. That was big money if you had bought a call option. What usually happens now after a split is what is known as an “announcement pullback”. On June 9th, the stock closed at $62.57. By June 23rd, the stock hit a low of $51.65. That was “big money” if you had bought a put option right after the announcement. Now we are seeing what is known as the “post split” rally. Since making the low of $51 last week, the stock has challenged $60 over the past few sessions. The key number we are watching is the $62.57 number because that would mean the stock is trying to resume its uptrend. A break above $60 could lead to the test of its 52-week high. Remember, most financial sites will quote $94 as the 52-week high but they do not factor the 3-for-2 split. So basically, if Green Mountain gets back above $62-$63 it is at new highs I don’t like any trades for this week in Green Mountain because of the 3-day weekend coming up but let’s put the July 60 calls (QGMGL, $2.00, down $0.05) and the August 65 calls (QGMHM, $2.90, unchanged) on our Watch List. You may be able to “day trade” these for this week by buying 10 or 20 contracts and looking for a 50 cent bump which would get you $500-$1,000 but don’t hold anything overnight.” (END) Well, that is exactly what we did as we rode the July call options for a quick 70% profit and closed out the August calls on July 1st at $3.55 for a 20% profit. The July options have already expired and the August 65 calls (QGMHM, $7.80, up $0.14), as you can see, have doubled. In hindsight, we could have left the August 65’s open but it was a “paired” trade and we were only looking to keep these options opened for a short period of time. There was also a pullback to $53 by mid-July. However, when I said the key number we were watching was $62.57 that was the alert to go long again. The stock broke thru this level last Monday. The point I want to make is that we still have it on our Watch List and I wanted to remind everybody of this “option trade” if you see something like this in the future. We did the right thing by taking quick profits but I did fail to remind you of this level. Although Green Mountain is listed in the Monday Morning Playbook section and will report earnings this week, the easy money has already been made. Another point I want to make is that some financial sites have the 52-week high at $94.50 but this is not accurate. Green Mountain IS at new 52-week highs and we are looking to take advantage of this trend on Monday morning. ************************************************** 3. Earnings Monday: ACE Limited (ACE, $48.40, up $1.34), Amgen (AMGN, $60.92, up $1.08), Buffalo Wild Wings (BWLD, $37.65, up $1.23), ChangeYou.com (CYOU, $41.65, up $0.45), Corning (GLW, $17.00, up $0.21), Honeywell (HON, $33.99, down $0.23), Olin (OLN, $14.03, up $0.29), Plum Creek Timber (PCL, $32.35, up $0.19), RadioShack (RSH, $16.06, up $1.49), Sohu.com (SOHU, $63.63, up $0.83) and Verizon (VZ, $31.50, up $0.23). Tuesday: Black Box (BBOX, $29.83, up $0.41), Coach (COH, $29.31, up $0.08), Deutsche Bank (DB, $72.91, up $0.61), DreamWorks Animation (DWA, $28.26, down $0.12), Energizer (ENR, $59.34, up $0.66), Fresh Del Monte Produce (FDP, $19.08, down $0.24), Jacobs Engineering Group (JEC, $42.28, up $0.27), Massey Energy (MEE, $23.74, up $0.65), McKesson (MCK, $46.71, up $0.43), Norfolk Southern (NSC, $44.84, down $0.52), Panera Bread (PNRA, $55.18, up $0.24), Teva Pharmaceutical (TEVA, $50.35, up $0.16), Valero Energy (VLO, $18.31, down $0.01) and Western Digital (WDC, $30.40, up $0.22). Wednesday: Akamai Technologies (AKAM, $21.13, down $0.12), American Tower (AMT, $33.48, down $0.29), Callaway Golf (ELY, $5.27, up $0.12), ConocoPhillips (COP, $44.95, up $0.96), Daimler (DAI, $44.85, up $0.77), Flowserve (FLS, $74.65, up $1.65), Green Mountain Coffee Roasters (GMCR, $68.64, down $0.14), Hartford Financial Services (HIG, $15.02, up $0.64), Hess (HES, $53.63, up $0.45), Honda Motor (HMC, $28.35, up $0.04), Moody’s (MCO, $25.93, up $0.41), NutriSystem (NTRI, $15.68, down $0.13), O’Reilly Automotive (ORLY, $41.07, down $0.03), Taser International (TASR, $5.54, up $0.12), Time Warner Cable (TWC, $33.42, up $0.15) and Visa (V, $67.29, up $0.10). Thursday: Apache (APA, $79.75, up $0.48), AstraZeneca (AZN, $47.54, up $0.44), Barrick Gold (ABX, $35.35, up $0.26), Colgate-Palmolive (CL, $75.10, up $0.52), First Solar (FSLR, $169.43, up $11.65), Genworth Financial (GNW, $6.89, flat), Kellogg (K, $47.92, down $0.21), Las Vegas Sands (LVS, $10.88, up $0.73), MasterCard (MA, $185.47, down $0.40), McAfee (MFE, $44.22, up $0.07), MetLife (MET, $33.69, up $0.93), Regal Entertainment Group (RGC, $14.19, down $0.05), Rosetta Stone (RST, $26.91, up $0.02), Travelers (TRV, $43.22, up $0.61), Walt Disney (DIS, $26.58, down $0.22) and Wynn Resorts (WYNN, $47.29, up $2.62). Friday: Allergan (AGN, $52.68, up $0.79), Calpine ($13.10, up $0.10), Constellation Energy Group (CEG, $29.50, up $0.49), Dominion Resources (D, $34.59, up $0.69), DryShips (DRYS, $6.23, up $0.05), Kaydon (KDN, $36.72, up $1.28), Snap-on (SNA, $33.32, up $0.62) and Washington Post (WPO, $407.88, up $5.30). ************************************************** 4. Current Trades & Closed Trades Ford (F, $6.78, down $0.20) December 6 calls (FLI, $1.43, down $0.09) Entry Price: $1.25 (5/18/09) Exit Price: $2.50 Return: 14% Stop: 60 cents, raise to $1.00 December 7 calls (FLJ, $0.88, down $0.11) Entry Price: $1.00 (5/18/09) Exit Price: $1.50-$2.00 Return: -12% Stop: 50 cents Action: Ford announced earnings last Thursday and going into the report I was telling our subscribers that I still liked BOTH call options although they were slightly lower than our entry prices. Ford gave back 3% on Friday but longer-term these positions look solid. Bank of America (BAC, $12.51, down $0.18) November 15 calls (BYOKO, $0.75, down $0.03) Entry Price: $1.50 (6/12/09) Exit Price: $2.25 Return: -50% Stop: If BAC falls below $11, close the position. Action: The action in BofA has been weak since the company announced earnings and the call options are at a 50% loss. This is normally the cut-off on “trades gone wrong” but this position was back at even going into earnings. These calls will be worth at least $3 if the stock can make it to $18 in 4 months which is when the November options expire. There are times when you will see an option loss 50%-75% of its value before turning around a posting a 100% return. This could be one of those situations so we shall see. For those of you looking for good entry prices, now may be the best time…if BofA can make it to just $16.50 by November these calls are worth at least $1.50 or a double. Cisco Systems (CSCO, $21.88, down $0.02) October 20 calls (CYQJD, $2.50, down $0.02) Entry Price: $1.50 (6/2/09) Exit Price: $3.00 Return: 67% Stop: $2.00 Action: I still have a short-term target of $25 on Cisco and I’m hoping we get there within a couple of months, if not weeks. This position was DOWN 50% a few weeks ago and here is the point I was making with BofA. If you will notice, I used longer-term options because when these two positions were profiled when the market was in the process of establishing a trading range. I knew that going into the trade but I was still bullish on Cisco and that patience has paid off. IBM (IBM, $117.64, up $0.58) August 105 calls (IBMHA, $12.60, up $0.20) Entry Price: $3.40 (7/14/09) Exit Price: $10.00 Return: 215% Stop: $10.00-$10.50, raise to $11 August 115 calls (IBMHC, $4.10, up $0.40) Entry Price: $1.05 (7/16/09) Exit Price: $2.00 Return: 171% Stop: $2.00-$2.25 Action: I suggested closing some of these call options on both the August 105 and 115 call options on Friday to lock in gains of 250+%. Half of the 105’s could have been closed to lock in a 253% return on some of the position. You could have taken some off the table with the 115’s at $4.00 and locked in gains of 290%. This made it a RISK FREE trade from here on out with the added luxury of participating in any further gains. USEC (USU, $6.03, up $0.03) August 7.50 calls (USUHU, $0.26, flat) Entry Price: $0.52 (7/16/09) Exit Price: $1.00 Return: -50% Stop: None Action: We should get word in a few weeks on if the company is getting funding for a secured loan of $2 billion. USEC has a monopoly on the uranium market and about 30 plants waiting in the wings. Don’t start new positions here because of the nature of the trade. Fairchild Semiconductor (FCS, $8.69, down $0.14) August 10 calls (FCSHB, $0.10, down $0.05) Entry Price: $0.17 (7/16/09) Exit Price:$0.34 Return: -41% Stop: $0.10 Action: This trade got stopped out on Friday at 10 cents but I have a strange feeling it could turn positive. These were such cheap out-of-the-money options that we probably could have left them open but the stop was triggered. DryShips (DRYS, $6.23, up $0.05) August 7 calls (OOCHJ, $0.30, up $0.05) Entry Price: $0.25 (7/21/09) Exit Price: $0.50 Return: 20% Stop: None September 7.50 calls (OOCIU, $0.40, up $0.07) Entry Price: $0.35 (7/21/09) Exit Price: $0.70 Return: 14% Stop: $0.20 Action: DryShips is capable of explosive moves and all we need is a run to $7.25-$7.50. This is a high risk/ high reward play and is based on market momentum. The company reports earnings this Friday so we may close the position or at least half ahead of earnings if we can get 50% returns. ************************************************** 5. Monday Morning Playbook We are in the process of closing out some trades as we have stops in place to protect our profits. The futures are lower as I go to press and anything can happen between now and the opening bell. If the bulls are going to show up, they will do so early. If we get a lower open on Monday morning it may provide us a good opportunity to go long if the bulls are serious. Here is what I’m watching and a list of trades that can be added as well. These trades are going to run around earnings so keep that in mind. Earnings bring extra volatility and price premiums on options so we will have to pick our entry points carefully. Green Mountain Coffee Roasters (GMCR, $68.64, down $0.14) reports earnings on Wednesday after the bell. We have three days to see if the August 80 calls (QGMHP, $1.80, up $0.05) can make a move. Set an entry price of $1.60 but if Green Mountain opens strong don’t pay over $2.00 for the calls. Also wait until 20-30 minutes after the market is open and use limit orders if this is the case. Buffalo Wild Wings (BWLD, $37.65, up $1.23) reports after the bell on Monday and we may have missed this one. The company has opened 40 restaurants in 2009 while other chains have slowed growth. In fact, the company just opened its 600th store and is shooting for 1,000. Again, we may be late to the party. The August 40 calls (BQUHH, $1.50, up $0.50) surged 50% on Friday as traders positioned themselves ahead of the report. This has me hesitant on making it an “official” recommendation and I wouldn’t pay over $1.75 for them. Restaurant stocks have been heating up… Cerner (CERN, $65.89, up $1.67) set a 52-week high on Friday and will report earnings on Wednesday. It’s a play on HealthCare and I like the August 70 calls (CQNHN, $1.60, up $0.55) up to $1.75. Microsoft (MSFT, $23.45, down $2.11) got pounded after reporting a disappointing quarter and the August 23 calls (MSQHQ, $0.92, down $1.73) dropped a whopping 65%. I believe the sell-off was a bit much but was expected. The company said computer sales we down but some of that could be the fact that people are waiting for Windows 7. There may be a trade here up to $1.00 and Microsoft could rebound if the market continues higher. If we start lower, set limit prices at 85 cents. All of these trades carry a high degree of risk because of the earnings and the fact that Microsoft could continue lower. ************************************************** 6. Closing Thoughts Many of you that have followed me for a while know I can be both bullish and bearish. The bottom line is I love price movement and volatility. Last summer at this time I was preparing us for a steep market correction and we got it. There were a ton of good trades on the way down and that is another thing I want to mention this week. When the market drops, you can make just as much money by buying put options as you can by buying call options which is what we have been doing of late. The key is you have to train your brain not to freak-out when things take a turn for the worse. However, until the bulls tell us different, we will continue to go long but remember that at times we can get caught by being too bullish. The odds are increasing that we could enter another phase of this bull market and as option traders that means buying more calls than put options. Also, we can’t forget the ferocity that the bears can have on any given day. As we have seen in the past, the market can reverse course quicker than Twitter gets tweeted but the bulls have the momentum. Keep an eye on the other two levels I have mentioned – S&P 1000 and Nasdaq 2,000. The Dow made the 9,000 target and could make a run to 9,600 if the other two indexes keep moving higher. We have another round of heavy earnings and the China stocks could make some nice runs if earnings come in better-than-expected. Economic news will also have an impact on things and Friday’s GDP (gross domestic product) and employment numbers will be watched closely. See ya’ at the opening bell! Rick@MomentumOptionsTrading.com]]>