Second Quarter Earnings Take Center Stage

9:00am (EST)

Despite a hectic Friday, the bulls were able to hold onto their weekly gains as they recouped half of the losses off the lows and held key support levels in the process.  It was short week following Monday’s holiday but the economic news was flowing as the market moved higher throughout the week in anticipation of a good jobs report. 

We mentioned on Thursday if we could get a figure under 9% then we could see a blow-off rally.  Well, that didn’t happen as June non-farm payrolls rose by only 18,000 versus expectations for 105,000.  The unemployment rate came in at 9.2%, up from 9.1%.  Futures were flat ahead of the news but went south once the headlines came out.

We weren’t too shocked, which is why we took a 300% win on a call option trade on Thursday in case the jobs report was bad – but Wall Street and the talking heads were astonished.  They jumped on their bears back and stated selling stocks in the pre-market and into the opening bell.

The good news is we do chart work and they don’t.  The business world continues to question the rally and the headline news is still mixed but it basically comes down to this.  We are at the top of a trading range and we either hit new highs of we fall back to the middle or bottom (or worse) of it.   

The Dow dropped 62 points on Friday to finish at 12,657.  The blue-chips fell to a low of 12,567 which was just below prior resistance at 12,600 (blue line, red circles) which is now trying to hold as support.  The index traded into the 12,7’s on Thursday which is just below the next level of resistance at 12,800-12,850 (orange line).  If these levels are broken we could see Dow 13,000 in July.  Further support is at 12,350 (black line) if the bears can get back under 12,600.  For the week, the Dow added 74 points, or 0.6%, and is up 9.3% YTD.



The S&P 500 slipped 9 points and closed at 1,343.  The index dropped down to 1,333 (blue line, red circles) on Friday which was also prior resistance and is trying to act as short-term support.  The level represents a double off the March 2009 lows.  We have been looking for a run past 1,350 and we got that on Thursday as the S&P reached a high of 1,356.  The next area of resistance will come in at 1,375 (orange line) but if cleared could pave the way to 1,400.  However, if the bears can get back under 1,325 then 1,300 (black line) would come into play again.  For the week, the S&P gained 4 points, or 0.3%, and is up 6.9% for 2011.

The Nasdaq declined 13 and settled at 2,859.  Tech slipped below 2,850 (blue line, red circles) which is now support/ prior resistance after falling to a low of 2,831 on Friday.  The bears will target a break back below 2,825 and then 2,800 (black line) but if the bulls can keep the momentum going then they will target the 52-week high of 2,887 (orange lines) and then 3,000.  For the week, the Nasdaq advanced 43 points, or 1.6%, believe it or not and is up 7.8% for the year.

The Russell 2000 gave back 6 points and ended at 852.  The index cleared 850 (blue line, red circles) on Wednesday which was prior resistance and is now short-term support after reaching a high of 860.  We said last week if the Russell cleared this level it could make a run at its 52-week high of 868 (orange line).  Above that 875-900 could come into play.  Support will come in at 825 and then 800 (black line) if there is a pullback.  For the week, the Russell 2000 added 12 points, or 1.5%, and is up 8.8% YTD. 


As far as the S&P Volatility Index (VIX, 15.95, flat) it was unchanged on Friday and pretty much for the week (red circle).  The VIX remained below 20 after dropping 25% the prior week, a key level we have been outlining for weeks.  For the newbies, a reading under 20 indicates calmness and confidence while a print above 30 indicates fear and panic.  We said the VIX could trade down to 13-14 (black line) on a continued rally.  It will get interesting if the VIX touches these levels.  

This week is the start of 2Q earnings season.  We wish there were a bigger name other than Alcoa (AA, $16.26, down $0.23) who holds the title of “unofficially kicking off the season” which gets underway on Monday after the market closes.  Shares of Alcoa were flat for the week and dropped $1 after announcing 1Q earnings in April when revenue came in below expectations.   

If the company can beat earnings and raise guidance in the same breath then it could be a good sign for the bulls.  Of course, Alcoa won’t be the company that makes or breaks the bulls run to resistance and a possible jailbreak to new highs, it will be Tech and the Banking stocks.  If these sectors can impress, then the bears will have trouble holding back the stampede.


MEMBERS AREA

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.

 

TiVo (TIVO, $10.78, up $0.06)

August 11 calls (TIVO110820C00011000, $0.50, flat)

Entry Price:  $0.55 (7/1/11)

Exit Target: $1.10

Return:  -9%

Stop Target:  None 

Action:  Shares are right near the 2-year resistance level of $11.  If TiVo can get through this area then we could see a quick run up to $18 on short covering, buyout news, or a partnership with Google or someone else.  TiVo seems to be turning the corner after a decade of losing money and is becoming attractive. 

iShares Russell 2000 (IWM, $85.13, down $0.52)

August 86 calls (IWM110820C00086000, $1.75, down $0.35)

Entry Price:  $1.10 (7/1/11)

Exit Target: $2.20

Return:  59%

Stop Target:  $0.55 

Action:  The 52-week high for the iShares is $86.81 (blue circle) and the break above $85 (red line, green circles) was bullish.  If the index can trade $87 we could see a quick run to our target of $90 (orange line).


Freeport-McMoRan (FCX, $55.12, down $0.37)

August 57 calls (FCX110820C00057000, $1.65, down $0.20)

Entry Price:  $1.18 (7/1/11)

Exit Target: $2.40

Return:  40%

Stop Target:  $0.60

Action:  Freeport held double-nickels ($55) which was prior resistance (green line, red circles) on Friday and we are still looking for a run to $57 (black line, orange circles).  The 52-week high is $61.35 and a break above $57 could put this number back in play.

Seattle Genetics (SGEN, $21.08, up $0.45)

August 22.50 calls (SGEN110820C00022500, $1.15, up $0.15)

Entry Price:  $1.10 (6/28/11)

Exit Target: $2.50

Return:  5%

Stop Target:  $0.55 


September 20 calls (SGEN110917C00020000, $2.80, up $0.30) 

Entry Price:  $1.50 (5/9/11)

Exit Target: $3.00 (closed half at $2.20 on 6/8/2011)

Return:  67%

Stop Target:  $2.20   

Action:  The $20.50 level has held as short-term support (red line) and we got our close above $21 on Friday.  The bullish channel (green lines) is giving us a $25-$30 price target by the end of summer as the company moves closer towards approval of its drugs. We should hear some preliminary news in a few weeks and a final decision by the end of August.

Symantec (SYMC, $19.73, down $0.13)

October 20 calls (SYMC111022C00020000, $1.05, down $0.10) 

Entry Price:  $0.93 (6/21/11)

Exit Target: $2.00  

Return:  13%

Stop Target:  None

Action:  We have been mentioning the $19.65 (black line, red circles) level as a pivot area for shares of Symantec which held last week.  The 52-week high is $20.50 and these options will probably be called away if short-term support holds.  If so, we may look to establish another position next week. 

We are expecting shares to run up to $22+ by mid-October and we also have a current ongoing for our Daily publication using October calls.



Rambus (RMBS, $14.61, down $0.32)

August 17 calls (RMBS110820C00017000, $0.30, down $0.10)

Entry Price:  $0.60 (6/20/11)

Exit Target: $1.20+  

Return:  -50%

Stop Target:  None

Action:  Shares kissed $15 last Thursday which is short-term resistance (red line).  There is a big gap to fill from $15 up to $19 which was prior support (green line, black circles).  If Rambus can win it current litigation case then expect a breakout and a run into the $20’s.


Rediff.com India (REDF, $12.02, down $0.02)

October 15 calls (REDF111022C00015000, $1.10, flat)

Entry Price:  $1.25 (6/01/11)

Exit Target: $2.50

Return:  -12%

Stop Target:  None

Action:  Resistance is at $13 (black line, red circles) which was prior short-term support.  If shares can get past this level we could see some serious short covering.  We would love to see another run back to the 52-week high of $18 which would get these options to $3 but a break below $10 (green line, blue circles) would be negative and probably force us out the trade.    


MGM Resorts International (MGM, $14.96, up $0.23)

September 17 calls (MGM110917C00017000, $0.50, up $0.10)

Entry Price:  $0.70 (5/13/11)

Exit Target: $1.40

Return:  -29%

Stop Target:  None

Action:  MGM has made a sweet comeback over the past few weeks along with the options so we are bringing back daily coverage.  When we recommended the trade, we said we expected shares to run up to $20 by October and the break above $14 (black line, red circles) was very bullish and this level should act as short-term support.  The next level of resistance is at $15.75.


We are still hopeful a poker bill gets passed and there are a few knuckleheads on the Hill who see the huge tax revenue this would INSTANTLY bring our country.  It will also create “jobs” (professional poker players) as the industry would be regulated and taxed.  Obama, come on, this is a no brainer!  If Barney Frank can give the thumbs up, then obviously he sees the bigger picture.  These options expire in 67 days.


Other 2011 Portfolio OPEN positions (7):  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)   

Darling International July 20 calls (from May 2011

Vivus September 10 calls (from May 2011)

LinkedIn July 55 puts (from June 2011)   

Wells Fargo July 26 puts (from June 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.

Mattel (MAT, $27.65, down $0.35),

August 28 calls (MAT110820C00028000, $0.78, down $0.18)

Thoughts:  This chart might be a little hard to read but the break above $27 was very bullish because it represent decades of strong resistance.  This is a chance, however, on a run to $30 if $27 holds over the next few days and the company will announce earnings on Friday which could be the bump to get it there.  If the company disappoints, obviously shares will be rejected.

Qualcomm (QCOM, $59.36, up $0.10)

October 65 calls (QCOM111022C00060000, $1.00, down $0.05)

Thoughts:  This could become an official trade as soon as today.  Qualcomm appears to be making a run to $70 (green lines).  There is strong support down to $55 (red line) but shares are on the verge of exploding if Tech holds up as they look to break through multi-year resistance.  The company reports earnings on July 20 and is rumored to be the chip of choice in the iPhone5.

Cisco Systems (CSCO, $15.74, down $0.16)

September 16 calls (CSCO110917C00016000, $0.60, down $0.10)

Thoughts:  Cisco made a run up to $16 on Thursday which is just below resistance (black line, red circle).  There is strong support down to $15 and the August 16 calls (CSCO110820C00016000, $0.50, down $0.10) didn’t move much last week.  We could sell a September call but we will wait for a break above $16 before we do so.  



Patriot Coal (PCX, $22.98, down $0.22)

August 25 calls (PCX110820C00025000, $1.00, down $0.20)

Thoughts:  Support is just above $22 which was prior resistance/ support (black line, green circles) just and the next area of resistance is at $24 (red line).  Shares were just under $21 when we recommended a covered call option trade for our Weekly Wrap that will likely get called away with the stock 9% over the strike price.   


Polycom (PLCM, $32.39, down $0.45)

August 35 calls (PLCM110716C00067500, $0.95, down $0.20)

Thoughts:  The 2-for-1 stock split hit yesterday so let’s watch these for a little bit.  Stocks normally move higher after a post-split and Polycom is a fast mover.

 

Juniper Networks (JNPR, $32.06, down $0.74)

August 35 calls (110820C00035000, $0.60, down $0.25)

Thoughts:  These are “cheap” call options on a run back to $35.

 

Williams-Sonoma (WSM, $38.09, down $0.29)

August 39 calls (WSM110716C00039000, $1.20, down $0.15)

Thoughts:  Shares jumped from $36. To $38 for the week… options were at 75 cents?… This is our favorite trade going into next week and it could be an official recommendation if the market holds up.  Support (black line, green circles) at $35 held up well.