The bulls were looking to break out of their early summer doldrums by trying to extend their Weekly winning streak to 2 but fell short on Friday after the bears fought their way back. The end result was another win for the bears instead who have now covered 7 out of the last 8 weeks, for the most part. The market reacted to the usual rhetoric but still managed to hold its trading ranges although the technical picture remains mixed.
Monday and Tuesday started off with the bulls pushing resistance as Wall Street bought at support and rallied on the Greece “vote of confidence”. Wednesday was going good until late in the afternoon which is when Ben Bernanke nervously spoke about the economy. This quickly led to a selloff as the Dow dropped 90 points by the closing bell.
Thursday was a sea of red after the jobs report came out which showed another reading above 400,000 claims. The major indexes were headed for a major loss of over 2% apiece until Oil became the bigger story.
The bulls found new life after seeing Black Gold dip into the low $90’s on news the IEA (International Energy Agency) said it would release 60 million barrels of oil to lessen the impact of supply disruptions caused by the unrest overseas. The U.S. will supply about 30 million barrels over the next several weeks. Despite the rocky outing, the bulls still had the lead going into Friday’s action but it appeared nobody wanted to be long ahead of the weekend.
The Dow dropped 115 points on Friday, or 1%, and finished at 11,934. The index challenged our top-end target of 12,200 which was serious resistance but fell 70 points, or 0.6%, for the week. The blue-chips are still above their 200-day moving average (MA) and face a tough task this week as they try to hold support at 11,800. If the 200-day MA doesn’t hold then there is further risk down to 11,600. For the year, the Dow is still up 3.1%.
The S&P gave up 15 points, or 1.2%, to settle at 1,268. The bulls made another run at 1,300 early last week but when they failed to break through this level we knew there could be some trouble. Going into Friday, we were looking for 1,275 to hold but it didn’t which now brings 1,250 back into play. From there, it could get ugly for the market if support doesn’t hold. Looking at the chart below, you can also see the index is still slightly above its 200-day MA of 1,258, but fading, and below its 100-day MA. The index got the lightest beating of the week as it only slipped 3 points, or 0.2%, but is still up 0.9% YTD.
The Nasdaq finished lower on Friday by 34 points, or 1.3%, and closed at 2,653. The index managed to hold the 2,650 level which was key as Tech ended the week higher after adding 37 points, or 1.4%. There is still risk down to 2,625-2,600 on a break below the 200-day MA but the bulls will try again for another run at 2,700 after testing this level for much of last week. The Nasdaq started the year at 2,652.87 and is flat for the year.
The Russell 200 was down 5 points and finished at 798 after trading above the 800 level for much of last week. We like to watch this index as well because sometimes it can give better clues on a breakout or breakdown. The Russell is firmly above its 200-day MA but would need to move above the 100-day MA before we turn super bullish again.
And finally, let’s take a look at the S&P Volatility Index ((VIX, $21.10, up $1.81) which surged nearly 10% on Friday and close firmly above 20. We mentioned a few weeks ago the VIX was headed above 20 and up to 30 on a continued sell-off. For those of you who just signed-up with us, the VIX works opposite the market. In other words, when the market is falling the VIX is rising and when the market is trading higher, the VIX usually falls. A reading above 30 indicates fear and panic and means the bears are in control while a print below 20 usually means calmness and confidence as the bulls are in the driver’s seat.
This week should be pretty interesting as we wind down current earnings and look ahead to July’s fireworks. Second-quarter earnings will start next month and companies that aren’t doing so hot will usually “pre-announce” a few weeks before.
We didn’t see too many surprises for the first-quarter and expectations are rather low which means most companies should meet or beat expectations. However, what they say going forward will mean everything to this market.
We aren’t sure if Q2 earnings will be a catalyst for a breakout but it could be one for a breakdown if companies come in with lower numbers. QE2 will also be ending so expect some volatility from this subject matter as we close out the month of June along with a final vote on Greece’s fate which will be close.
Please remember, ALL “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless we list one. We will send out an “Alert” or “Trade Update” if we want you to close a position OR if a new trade comes out. Otherwise, follow instructions at all times in the 9am and 1pm updates. Also, we will usually give you a heads-up if we think we are going to send an email outside of these time frames but it is rare that we do.
LinkedIn (LNKD, $69.94, down $0.38)
July 55 puts (LNKD110716P00055000, $1.50, up $0.15)
Entry Price: $1.20 (6/24/11)
Exit Target: $2.40
Stop Target: None
Action: LinkedIn traded to a high of $72.73 on Friday and we were looking for $73 to hold as resistance. Our price target for the stock is $55 over the near-term but since these are July options, we have to be careful because they expire in 3 weeks. Ideally, we would like to get a double this week and move on. Since this is a new stock that doesn’t have much of a trading history, we are using moving averages to get a feel for how it trades.
Symantec (SYMC, $18.75, down $0.18)
October 20 calls (SYMC111022C00020000, $0.80, down $0.05)
Entry Price: $0.93 (6/21/11)
Exit Target: $2.00
Stop Target: None
Action: Symantec traded to a high of $19.14 last week and the 52-week high is $20.50. The stock is in a nice trading range and there is strong support down to $18 (black line, red circles) which was prior resistance. The 52-week high is $20.50 and a breakout above resistance (green line) will lead to fresh highs.
Wells Fargo (WFC, $27.26, up $0.22)
July 26 puts (WFC110716P00026000, $0.40, down $0.05)
Entry Price: $0.50 (6/20/11)
Exit Target: $1.00+
Stop Target: None
Action: Shares traded to a low of $26.72 on Friday while the high was $27.42. We are looking for resistance to hold at $28 (blue line and 50-day MA) while we wait for a trip down to $23 by mid-July.
Rambus (RMBS, $14.21, down $0.23)
August 17 calls (RMBS110820C00017000, $0.40, down $0.10)
Entry Price: $0.60 (6/20/11)
Exit Target: $1.20+
Stop Target: None
Action: We did a big write-up on Rambus last night in our Weekly Wrap. If Rambus can win it current litigation case then there is a big gap to fill on positive news.
Krispy Kreme Doughnuts (KKD, $9.13, up $0.03)
July 10 calls (KKD110716C00010000, $0.30, up $0.05)
Entry Price: $0.20 (6/14/11)
Exit Target: $0.40+
Stop Target: None
Action: The 52-week high for Krispy Kreme is $9.47 and shares kissed $9.43 on Friday. We would like to see a run past $10 this week which could lead to a breakout up to $12.
RealD (RLD, $24.61, up $0.20)
July 20 puts (RLD110716P00020000, $0.35, flat)
Entry Price: $0.45 (6/9/11)
Exit Target: $0.90+ (closed half at $1.60 on 6/10/2011)
Stop Target: 30 cents
Action: We still believe RealD will test $18 over the next few weeks. We have already sold half the position at $1.60 and our entry price was 45 cents. The gain on the closed half was 256% so even if these puts expire worthless the trade will make 78%. Because of this, we will probably leave it open until expiration but we do not recommend new positions.
Vivus (VVUS, $7.61, down $0.01)
September 10 calls (VVUS110917C00010000, $0.25, flat)
Entry Price: $0.65 (5/20/11)
Exit Target: $1.30
Stop Target: None
Action: Vivus is forming a nice trading range (black and red lines) as we wait for its drugs to gain FDA approval. Vivus may have a winner with Qnexa on two fronts which is what most analysts are forgetting. The drug has completed Phase 3 trials for obesity and is still awaiting approval from the FDA. Qnexa has also completed Phase 2 clinical trials and is hoping to get approval to treat diabetes and obstructive sleep apnea as well.
Seattle Genetics (SGEN, $20.70, up $0.48)
September 20 calls (SGEN110917C00020000, $2.80, up $0.25)
Entry Price: $1.50 (5/9/11)
Exit Target: $3.00 (closed half at $2.20 on 6/8/2011)
Stop Target: $1.60 (HARD STOP on other half)
Action: Shares of Seattle Genetics have proven they want to stay over $20 (black line, short-term support) and we still may add some August calls to our portfolio ahead of some major news. The FDA will review the company’s cancer drug, brentuximab vedotin, for two cures by mid-July. The drug is hoping to gain approval to treat Hodgkin lymphoma and sleep apnea disorders. The chart below is a thing of beauty.
Other 2011 Portfolio OPEN positions (6): These are trades that are still open in the portfolio that have longer expiration dates or are on “hold” but are not worth mentioning until they turn around. This means we would not open any new positions. We are still keeping track of the trades and we will record the results, accordingly, when we close them or the options expire. Click on the 2011 Portfolio link in the Members Area to view ALL open/ closed trades.
eBay July 40 calls (from February 2011)
RF MicroDevices August 10 calls (from February 2011)
Dendreon August 50 calls (from April 2011)
MGM Resorts International September 17 calls (from May 2011)
Rediff.com India October 15 calls (from June 2011)
Darling International July 20 calls (from May 2011)
WATCH LIST SECTION
These trades are NOT recommendations. They are trades that we like but have not added to the portfolio as an official recommendation because of market conditions or because we are waiting for better entry prices. We try not to have more than 12-15 open trades at any one time which is why we created a Watch List. We will not list entry prices because these stocks are on the verge of breaking out or they could sell-off.
Potash (POT, $52.54, down $0.40)
July 55 calls (POT110716C00055000, $0.70, down $0.10)
Thoughts: If shares can break above their 200-day MA, they could make a quick run back to $55 (black line, blue circles) which was previous support and is now short-term resistance. Potash also trades WEEKLY options so we may use these options or another chain if we see an opportunity.
Williams-Sonoma (WSM, $37.26, down $0.34)
July 39 calls (WSM110716C00039000, $0.50, down $0.10)
Thoughts: We may have to move out to August with this possible trade to give it more time to develop as we are expecting a run back up to $45.
Ancestry.com (ACOM, $39.92, down $0.17)
July 40 calls (ACOM110716C00040000, $1.60, down $0.10)
Thoughts: These calls doubled last week and were at 80 cents last Wednesday morning. The 52-week high is $45-and change and we are looking for the run past $40 to stick as the stock gains momentum. A break below $37 (black line, support) voids the possible run to blue-sky territory.
SanDisk (SNDK, $38.94, down $3.94)
July 39 puts (SNDK110716P00039000, $1.50, up $1.15)
Thoughts: Shares fell 9% on Friday and we knew a drop below $40 was coming. However, we did not take the trade on Friday so we blew it. The options opened at 62 cents and reached a high of $1.60 before closing up 350%.
We have been expecting a drop down to $37 (blue line) but we are not ruling out a test to $33, or its 52-week low (green line, orange circle), if the selling pressure continues.