10:30pm (EST)

1.  Market Summary 

2.  Qualcomm (QCOM) Hooking-Up with Apple?            

3.  Global Payments (GPN) Approaching New Highs            

4.  Earnings 

5.  Weekly Wrap Portfolio Update 

6.  Week Ahead

(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section)

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1.  Market Summary

The bears started the week by pushing the market lower on renewed debt concerns over Italy which quickly started the downgrade of debt (again) overseas and here at home.  Monday and Tuesday were rough as the bulls gave up significant ground and were going under water with three fingers up. 

On Wednesday, just as the 50-day moving averages were about to crack, Ben Bernanke looked overboard and threw the bulls a lifejacket.  Their energy carried them back to key resistance levels but the rally faded although the indexes still ended the day in positive territory.

After showing some resilience in Tuesday’s afternoon session and on Wednesday, we knew Thursday would be a key day as a bevy of earnings hit the Street.

JPMorgan (JPM, $39.98, down $0.37) gave the bulls a helping hand before the bell as the best in breed investment bank topped Wall Street’s expectations but Moody’s (MCO, $36.45, up $0.13) ruined the party after putting the U.S. under review for a credit rating downgrade.  It was the first such downgrade for America since the mid-90’s.

The knuckleheads at Moody’s (and Standard & Poor’s) missed the mortgage meltdown, and the financial crisis – spooked the markets all last week by playing global credit cop(s) but the debt and ratings downgrades are pretty obvious.  In fact it has been overkill.  Hopefully, all the rhetoric has made the boneheads in Congress take notice because it is unbelievable how nothing was accomplished last week.  As the August deadline looms, we are hopefully a deal gets done this week and but Congress needs to get something done to reduce the deficit or raise the limit.  Once this cloud of uncertainty is lifted, the bulls will be able to test new highs.

The downgrade on Thursday was briefly forgotten when Google (GOOG, $597.62, up $68.68) announced after the bell and absolutely smashed Wall Street’s earnings.  After being discounted and left-for-dead, analysts were way off the mark when they penciled in their estimates 3 months ago for the internet giant.

The stock soared 13% and for some reason Google always seems to report the day before monthly options expiration.  This time was no different and we knew in after-hours trading there would be a major battle at the $600 level on Friday (green line, black circle).  Had Google missed estimates, shares were facing a test back down to $480 (blue line, green circles).  If the stock can break above $600 and hold this level for a few weeks then shares could make a run up to $640+ (green line). 


Shares of Google opened at $597.87 and traded to a high of $600.25.  The 600 strike price was a battleground as the July 600 calls (GOOG0716C00600000, $0.00, down $0.25) expired worthless BUT did open at $2.90.  The calls traded to a high of $4.90 which would have been a return of over 1,000% had you bought on Thursday’s close and sold at the peak.

The Google August 600 calls (GOOG0820C00600000, $15.70, up $0.13) zoomed nearly 500% after closing at $2.70 the day before.

Despite the dandy news from Google, it wasn’t the tide to lift all boats as the market stayed near the flat line as it waited for the second round of European bank stress tests.  The tests showed that only 8 failed out of 90 banks but most “financial experts” are already discounting the tests as using unrealistically favorable loss assumptions.

This kept the bulls from advancing the ball further but they showed they aren’t ready to quit which left the bears wondering what else they have to do.

The Dow added 42 points on Friday to finish at 12,479.  The index traded to a high of 12,504 which is near our 12,600 resistance level (orange line).  We have been outlining a break above 12,800 as confirmation on a possible run to 13,000 over the near-term.  Support is still strong at 12,350-12,400 (black line, green circles) over the short-term.  The good news is that the index is still above its 20-day and 50-day moving averages but a break below these levels could lead to a test of Dow 12,000.  For the week, the blue chips dropped 177 points, or 1.4%.  For the year, the Dow is up 7.8%.


The S&P 500 gained 7 points to settle at 1,316.  The 1,325 area served as a battle ground for much of the week but the bulls did a great job of holding support and pushing resistance.  After falling to a low of 1,313 on Tuesday, the bulls were able to reach 1,331 on Wednesday’s bounce.  However, the index traded to a low of 1,306 and 1,307 by the end of the week and it will be imperative the 1,300 level hold as support this week (black line, blue circles).  If not, there could be a test down to 1,275 (purple line) and possibly, 1,250.  If the bulls can build on Friday’s gains and tackle 1,325-1,334 then they will target 1,350 again (orange line) which would set the stage for a run at 1,375-1,400.  For the week, the S&P dropped 27 points, or 2.1%.  For 2011, the index is up 4.7%.

The Nasdaq advanced 27 points to close at 2,789.  The index remained the most volatile and traded in a range of 2,750-2,850 for the week.  We would have liked to have seen a close above 2,800 on Friday but Tech is still on track to challenge its 52-week high 2,887 (orange line) with a chance of 3,000, if taken out.  Near-term support is still strong at 2,750 (black line) and then 2,725-2,700 (blue line).  For the week, Tech gave back 70 points, or 2.4%.  YTD, the index is up 5.2%.


The Russell 2000 popped 5 points and ended at 828.  The small-cap index managed to hold the 825 level after touching a low of 829 on Tuesday and 821 on Thursday but closed above 820 which is strong support (red line).  There is further support at 800 (green line, black circles).  Resistance is still at the 52-week high of 868 (blue line) and we are looking for a run up to 875-900 on a breakout.  The Russell declined 24 points, or 2.8% for the week, but is still up 5.8% year-to-date.


The S&P Volatility Index (^VIX, 19.53, down 1.27) jumped over 20% and battled the 20 level all week after closing above this level on Wednesday.  We mentioned in our update that morning that this would be an area to watch closely and although our target was stretched, we still saw the bulls had fight left in them.  Following Friday’s rally, the index closed below this level and will be closely watched this week.


As you can see, the bulls did a great job of holding support and it all comes down to earnings and the U.S. debt situation.  Let’s not forget the ongoing debt concerns in Europe which will also hamper any rally until there is more clarity.  The stress tests were a start but their accuracy is being questioned. 

Earnings have been strong which should provide a floor of support over the near-term for the bulls although there is still risk down to the aforementioned lower levels.  However, the market is still at the upper-end of its trading range and we are pretty confident the U.S. debt ceiling will get raised.  It will take a while before we can reduce the deficit but we so many eyes on Congress, it’s them, not Wall Street, on the hot seat.


If you have been listening to Obama, he has been rooting for the market to go higher although in the same breath he is clinging to the corporate jet and big oil tax break theme.  A few months ago he was cheering for “Dow 14,000” which happens to be our year-end target and Washington needs a higher market.

Somehow, someway, we think the bulls test news highs in July. 

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Key of Technicals Used In Upcoming Articles

Bollinger Band

Bands plotted two standard deviations away from a simple moving average, the closer the price to the upper band, the more overbought the stock is, and the closer the price to the lower band, the more oversold the stock is. 

Moving Average

Average price over a length of time, it is used to spot trends.

MFI

(Money Flow Index)

Increases when money flowing into a stock (positive money flow) is increases with respect to money flowing out of the stock (negative money flow), an MFI of 100 would mean that there is no money flowing out of a stock and only money flowing into the stock.  General consensus says an MFI of 80 is overbought and an MFI of 20 is oversold. 


RSI

(Relative Strength Index)

Momentum oscillator that measures the speed of directional price movement, general consensus says an RSI of 70 is overbought and an RSI of 30 is oversold. 


RS = Relative Strength                         U = Up Days

EMA = Exponential Moving Average            D = Down Days

n = number of days in period

Stochastic %K and %D

An oscillation in closing prices, the %K is the change in closing price with respect to past high and low of a period, usually 14 days.  The %D is the average of the %K values for a past period, usually 3 days.  A bearish signal is given when %K crosses below the %D in overbought territory, defined as reading above 80.  A bullish signal is given when %K crosses above the %D in oversold territory, defined as reading below 20.   

W%R (William’s%R)

Change in high price to closing price with respect to past high and low of a period, usually 14 days, a reading above 20 is considered overbought territory, and a reading below 80 is considered oversold territory. 

Falling Wedge

Bullish stock pattern, both the upper and lower trendlines converge and slope downward.  The lower (support) trendline is flatter than the upper trendline, which signals that selling pressure is waning, as sellers have trouble pushing the price down further each time the security is under pressure.

Support/Resistance

These predetermined levels are used to predict when prices will reverse.


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2.  Qualcomm (QCOM) Hooking-Up with Apple?

We believe Qualcomm (QCOM, $54.96, up $0.04), which has a virtual monopoly of chips for cell phones, will weather the economic storm, beat on earnings, and provide another great option play.

The $92 billion company makes wireless chips for about 70% of the worldwide market and will release 3rd quarter earnings after market close on Wednesday July 20.   Analysts’ estimates are for earnings of $0.71 on $3.59 million.  For the 4th quarter, Wall Street estimates earnings of $0.76 on $3.93 million.  Below are revenue and earnings graphs with the 3rd and 4th quarter estimates included.



Analysts are predicting revenue and earnings to fall before rising again.  Many analysts seem to think the Japanese earthquake will hurt the company’s sales for the quarter.  Sony-Ericsson, a mobile phone maker, reported revenue fell 32% year-over-year.  However, expectations that Qualcomm will likely be the baseband provider for Apple’s (AAPL, $364.92, up $7.15) new iPhone5 have kept analysts bullish.

Of the 37 analysts that follow Qualcomm, most seem generally bullish on the stock over the next 12 months, giving it an average rating of 1.9, unchanged from a week ago.  1.0 is a strong buy, and 5.0 is a strong sell.  Mean target is $64.93, implying that the stock still has $10 to gain.  Median target is $67.00.  High target is $80.00.  And low target is $32.00.  Number of sells went up from 1 to 2 from last month, a possible warning sign.


 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

16

16

16

15

Buy

12

20

21

19

Hold

7

7

7

7

Underperform

0

0

0

1

Sell

2

1

1

1

 From the table below, the stock is the priciest among its top competitors and the industry based on PE ratio and ROE (Return on equity).

 

Trailing PE

Forward PE

PEG

Debit-to-Equity

ROE

Gross Margin

QCOM

23.85

15.66

1.04

4%

17

68.31%

BRCM

16.79

11.09

0.77

12%

22

50.13%

NOK

7.82

13.85

3.25

33%

13

29.83%

TXN

11.61

11.29

1.16

0%

31

53.21%

Industry

10.00

1.29

33.27%

Cash flow also fell in 2010 by about $2 billion from 2009, another warning sign.  However, capital expenditures seem to be shrinking.  The current ratio is 3.39, thus telling us that the company has enough current assets to cover its current liabilities.



As shown by the graph, the stock price is at its long-term resistance line that will be very difficult to break but earnings could be a catalyst to carry shares higher.


The price graph below is also showing an ascending triangle.  Thus, if the stock does break the top resistance line of the triangle, the next resistance would be at the target price of $70 a share.  Most of the technicals are not near or in overbought territory.  The W%R is actually oversold.  When all the technicals were at similar levels, as indicated by the purple lines, the stock fell.  If shares break below the bottom support line of the triangle, the 200-day moving average forms the next wave of support.



We currently have a call option recommendation for Qualcomm in our Daily publication so we won’t be writing a covered call this time around.  However, if there is a pullback on disappointing earnings, we may take another look at the stock.

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3.  Global Payments (GPN) Approaching New Highs

Global Payments (GPN, $51.29, up $0.08), is a leader in electronic transaction processing services that offers processing solutions for credit and debit cards, business-to-business purchasing cards, gift cards, electronic check conversion and check guarantee, and verification and recovery electronic check services. 

Certainly, the movement to plastic is favorable for the company which releases 4th quarter earnings after market close on Thursday, July 21.   Analysts’ estimates are for earnings of $0.73 on $476 million.  For the 1st quarter, analysts estimate are for $0.77 a share on $497 million.  Below are revenue and earnings graphs with the 4th and 1st quarter estimates included.


Analysts are predicting revenue and earnings to grow for the 4th and 1st quarters.  From a look at the revenue chart, this estimate is not unreasonable but the earnings estimates seem a little too bullish. 

Of the 18 analysts that follow the stock, most seem generally bullish over the next 12 months, giving it an average rating of 2.2.  The number of strong buys, along with the number of analysts rating the stock, has dropped over the past three months.

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

6

8

9

9

Buy

2

4

5

6

Hold

10

14

14

14

Underperform

0

1

1

0

Sell

0

0

0

0

This could be a sign that analysts are a little tentative on the stock.  Global Payments seems to have one of the worst numbers when compared to its top competitors on Debit-to-Equity.

 

Trailing PE

Forward PE

PEG

Debit-to-Equity

ROE

Gross Margin

GPN

22.37

16.55

1.51

42%

18

64.54%

ADP

21.70

19.45

1.93

1%

20

51.09%

MA

20.67

15.36

0.92

0%

43

100.00%

PAYX

21.18

18.34

1.73

0%

36

68.64%

V

19.21

15.57

0.93

0%

13

84.40%

Industry

20.78

1.08

33.59%

Cash flow has been steadily rising since 2007, but capital expenditures have also been on the move and in turn consuming 10.4% of cash from operations.  The current ratio is 1.27.  Any number less than two is a warning that the company may have trouble covering its current liabilities.


As shown by the long-term graph, the stock price is at its highest point since 2006.  This forms a resistance line that would be very difficult to break.

One bright spot, the price graph below shows a bulling ascending triangle.  Thus, if the price does break the top resistance line of the triangle, the next resistance area would near $60.  However, all the technicals are near or in overbought territory.  When all the technicals were at similar levels, as indicated by the purple lines, the stock went sideways.  If the price breaks below the bottom support line of the triangle, the 200-day moving average forms the next support level.

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4.  Earnings 

The companies in BOLD, we are looking at as possible trades and we may list call or put options on them in our Daily Newsletter.  If they become official recommendations, we sent out Trade Alerts or include them in our 9am and 1pm updates that come out during the week (Quotes are as of Friday’s close, 7/15/11). 

MONDAY

Amazon.com (AMZN, $212.87, up $2.49), AMR (AMR, $5.01, down $0.08), Baidu (BIDU, $146.93, up $6.11), Boston Scientific (BSX, $7.01, down $0.08), Capital One Financial (COF, $48.50, down $0.25), Charles Schwab(SCHW, $15.01, down $0.19), Check Point Software Technologies (CHKP, $56.58, down $0.01), Cintas (CTAS, $31.06, down $0.16), Delta Air Lines (DAL, $8.41, down $0.10), Greenhill (GHL, $46.50, down $6.46), Halliburton (HAL, $53.08, up $1.25), Hasbro (HAS, $41.37, up $0.06), Kinder Morgan Energy Partners (KMP, $73.05, down $0.03), M&T Bank (MTB, $85.56, down $0.44), NetGear (NTGR, $40.01, down $0.27), Omnicom Group (OMC, $47.29, up $0.18), Precision Castparts (PCP, $161.48, up $1.00), Prologis (PLD, $34.79, up $0.19), Travelzoo (TZOO, $77.09, up $2.14), Washington Trust Bancorp (WASH, $23.00, up $0.11), Zions Bancorporation (ZION, $23.17, up $0.20)

TUESDAY 

Apple (AAPL, $364.92, up $7.15), Chipotle Mexican Grill (CMG, $324.60, down $0.03), Coca Cola  (KO, $67.53, down $0.14), CSX (CSX, $25.32, up $0.07), Forest Laboratories (FRX, $38.46, down $0.33), Harley Davidson (HOG, $41.84, up $0.04), Intuitive Surgical (ISRG, $358.79, up $2.83), Johnson & Johnson (JNJ, $67.45, down $0.21), Peabody Energy  (BTU, $59.61, up $1.57), Polaris Industries  (PII, $113.67, up $0.26), Riverbed Technology (RVBD, $39.57, up $0.56), Stanley Black and Decker (SWK, $69.69, up $0.70), TD Ameritrade Holding (AMTD, $18.02, down $0.02), VMware (VMW, $102.67, up $2.12), W W Grainger (GWW, $157.62, up $1.03), Wells Fargo (WFC, $27.18, down $0.10), Yahoo (YHOO, $14.96, up $0.06)

WEDNESDAY

Abbott Laboratories (ABT, $53.04, down $0.12), Altria Group (MO, $26.69, down $0.16), American Express (AXP, $51.81, up $0.43), Baidu (BIDU, $146.93, up $6.11), Blackrock (BLK, $184.54, up $2.27), Cheesecake Factory (CAKE, $32.69, down $0.01), E*Trade Financial (ETFC, $12.91, down $0.05), F5 Networks (FFIV, $113.94, up $2.98), Intel (INTC, $22.37, up $0.10), Johnson Controls (JCI, $40.85, up $0.09), Kinder Morgan Management (KMR, $64.80, down $0.24), Noble (NE, $37.39, up $1.30), PNC Financial Services (PNC, $56.82, down $0.44), Qualcomm (QCOM, $54.96, up $0.04), Seagate Technology (STX, $16.81, up $0.13), St Jude Medical  (STJ, $45.92, up $0.37), Taser (TASR, $4.29, up $0.03), Tractor Supply  (TSCO, $69.17, up $0.10), US Bancorp (USB, $24.74, up $0.05), Westwood Holdings Group (WHG, $39.97, up $0.62), Xilinx (XLNX, $33.48, down $0.05)

THURSDAY

Acme Packet (APKT, $65.90, up $0.60), Advanced Micro Devices (AMD, $6.43, down $0.01), AT&T (T, $30.31, down $0.27), Baxter International (BAX, $60.80, down $0.19), BB&T (BBT, $25.32, Flat), Blackstone Group  (BX, $15.90, down $0.18), Chubb (CB, $62.22, down $0.03), Cirrus Logic (CRUS, $16.48, up $0.47), Cooper Industries  (CBE, $58.10, down $0.01), Cypress Semiconductor (CY, $20.98, up $0.17), Diamond Offshore Drilling (DO, $70.46, up $2.39), Eli Lilly (LLY, $38.33, down $0.08), Flextronics International (FLEX, $6.14, down 0.13), Freeport McMoRan Copper and Gold  (FCX, $55.34, up $1.09), Global Payments (GPN, $51.29, up $0.08), Healthstream (HSTM, $13.23, down $0.12), Human Genome Sciences (HGSI, $23.20, down $0.12), Ingersoll Rand (IR, $44.75, down $0.48), Microsoft  (MSFT, $26.78, up $0.31), New York Times (NYT, $8.67, up $0.26), Penske Automotive Group (PAG, $23.48, up $0.48), Philip Morris International  (PM, $66.93, up $0.51), Pixelworks (PXLW, $2.37, Flat), Polycom  (PLCM, $31.02, up $0.45), Pool (POOL, $28.78, up $0.80), Rambus (RMBS, $14.16, up $0.13), Ruby Tuesday (RT, $11.07, Flat), Safeway (SWY, $23.75, down $0.04), Sandisk  (SNDK, $41.62, up $0.46), Sherwin-Williams (SHW, $83.20, up $0.08), Skyworks Solutions (SWKS, $22.68, up $0.30), Travelers Companies (TRV, $57.90, up $0.17), Western Digital (WDC, $37.27, up $0.21)

FRIDAY

Advent Software (ADVS, $27.62, up $0.08), Air Products and Chemicals (APD, $94.29, up $0.35), Caterpillar (CAT, $109.36, up $1.78), Dover (DOV, $65.97, up $0.47), General Electric (GE, $18.41, down $0.12), Honeywell International (HON, $57.25, up $0.24), McDonalds (MCD, $85.48, down $0.33), Schlumberger (SLB, $87.99, up $2.07), Verizon Communications (VZ, $36.82, down $0.06), Xerox (XRX, $10.01, down $0.06)   

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5.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 7/15/11)

WEEKLY WRAP CLOSED TRADES for 2011:  DNDN +9%, PCX +13%, SGEN +26%, TIVO +34%, REDF +11%, PCX +7%

Symantec (SYMC, $18.97, flat)

August 20 calls (SYMC110820C00020000, $0.40, down $0.01)

Original Entry Price:  $18.77 (6/8/11)

Lowered Price from Selling Options: $18.17

Exit Target: $20+

Return: 4%

Stop Target: None

Action:  SYMC is still OPEN as we recommended selling the July 19’s for $0.60 which expired worthless. 

The August 19 calls are trading at 80 cents and would make 9% if we sold these options but the August 20’s will yield us 13%. 

Sell to OPEN the August 20 calls shortly after the open on Monday morning.  We will send out a Trade Alert to remind you.

Shares are approaching their 100-day MA which is also near strong support at $18.65.  There could be a test down to this area but our target is $22 for Symantec over the next 3-6 months.


We recommended buying the stock at $18.77 on 6/8/11 and for every 100 shares to sell the July 19 calls for 60 cents.  This lowered the cost basis to $18.17. 

On 7/18/11 we recommended selling the August 20 calls for 40 cents which lowered the cost basis to $17.77.

If shares are called away by mid-August at $19 the trades makes 13%.

 

Rare Element Resources (REE, $10.05, up $0.04)

Original Entry Price:  $12.38 (5/31/11)

Lowered Price from Selling Options: $11.23

Exit Target: $10+

Return: -11%

Stop Target: None

Action:  REE is still OPEN as we recommended selling the July 12’s for $1.25 which expired worthless.

We will need to wait for shares to pop back over $11 before selling another option.

Support is strong just below $10 (red line, green circles) as shares continue to remain in a trading range (red and black lines).  A break over $11.75 (black line) would be bullish while a break below support (red line) would be bearish.    


We recommended buying the stock at $12.38 on 5/31/11 and for every 100 shares to sell the July 12 calls for $1.15.  This lowered the cost basis to $11.23. 


Vivus (VVUS, $8.34, down $0.05)

August 9 calls (VVUS110820C00009000, $0.25, down $0.05)

Original Entry Price:  $7.93 (5/11/11)

Lowered Price from Selling Options: $7.13 

Exit Target: $10+

Return: 17%

Stop Target: None

Action:  The break above $8 (black line, red circle) that occurred at the end of June was very bullish and should act as short-term support.  We would like to see a run up to $9 (red line) which will be strong resistance.

Vivus may have a winner with Qnexa on two other fronts besides trying to gain approval of the drug for weight loss.  Qnexa is hoping to gain approval to treat diabetes and obstructive sleep apnea as well.  Vivus recently had its “good wood” drug approved and is on its way to developing a nice pipeline. 


We recommended buying the stock at $7.93 on 5/11/11 and for every 100 shares to sell the June 8 calls for 50 cents.  This lowered the cost basis to $7.43. 

On 7/1/11 we recommended selling the August 9 call option for $0.30 which lowered the cost basis to $7.13.  If shares are called away by mid-August the trade makes 26%.


AKS Steel Holding (AKS, $15.55, up $0.36)

August 16 calls (AKS110820C00016000, $0.60, up $0.10) 

Original Entry Price:  $15.93 (5/2/11)   

Lowered Price from Selling Options: $14.58

Exit Target: $20+

Return: 7%

Stop Target: None

Action:  Shares made a strong move past resistance in June (black line, green circles) and have found short-term support at higher levels just above $16.  We sold the August 16’s on strength and shares are looking good for a possible move up to our target of $17 (orange line) by the end of 2011.


We recommended buying the stock at $15.93 on 5/2/11 and for every 100 shares to sell the May 16 calls for 50 cents.  This lowered the cost basis to $15.43.

On 7/1/11 we recommended selling the August 16 call option for $0.85 which lowered the cost basis to $14.58.  If shares are called away by mid-August the trade makes 10%.


American Capital (ACAS, $9.81, down $0.03)

August 10 calls (ACAS110820C00010000, $0.40, down $0.05)

Original Entry Price:  $9.73 (4/19/11)   

Lowered Price from Selling Options: $8.68

Exit Target: $15+

Return: 13%

Stop Target: None

Action:  Short-term support is $9.50 (black line, green circles) with further support at $9.  Shares face resistance at $10.50 (blue line) and are right in the middle of an ongoing trading range that has formed since mid-March.    


We recommended buying the stock at $9.73 on 4/19/11 and for every 100 shares to sell the June 10 call for 50 cents.  This lowered the cost basis to $9.23. 

On 7/1/11 we recommended selling the August 10 call option for $0.55 which lowered the cost basis to $8.68.  If shares are called away by mid-August the trade makes 15%.  


Cisco Systems (CSCO, $15.59, up $0.16)

Original Entry Price:  $17.14 (3/17/11)   

Lowered Price from Selling Options: $16.58

Exit Target: $20+

Return: -6%

Stop Target: None

Action:  Cisco will need to trade back above $16 which is short-term resistance before we write another call option.  There is strong support down to $15 and there is a lot of accumulation going on with shares down at these levels.  A break above $16 (green line) could get the momentum going for a run back to $17-$18 by year-end (blue line).


We recommended buying the stock at $17.14 on 3/17/11 and for every 100 shares to sell the May 18 call for 56 cents.  This lowered the cost basis to $16.58. 


Spreadtrum Communications (SPRD, $15.45, down $0.27)  

Entry Price:  $23.45 (2/7/11)

Lowered Price from Selling Options: $21.48

Exit Target: $30

Return: -28%

Stop Target: None

Action:  Spreadtrum still faces resistance at $18 (red line, blue circles) with short-term support coming in just above $14 (orange line, green circles).  We have also listed additional support just above $12 due to the volatility (black line, red circles).   


Shares opened at $23.43 on 2/7/11 and the March calls could have been sold for 95 cents.  This lowered the cost basis to $22.48.

On 4/11/11 we recommended selling the May 22.50 call option for $1.00 which lowered the cost basis to $21.48.


DryShips (DRYS, $4.04, down $0.02)

January 2012 7.50 call (DRYS120121C00007500, $0.10, flat)   

Entry Price:  $5.25 (1/03/11)  

Lowered Price from Selling Options: $4.60

Exit Target: $8

Return: -12%

Stop Target: None

Action:  DryShips cleared resistance at $4 (red line, green circles) a few weeks ago which was prior support.  If shares can hold this level then look for a run back to $4.50-ish (black line, orange circles) which is the next area of resistance.


DryShips opened at $5.37 on 1/3/11 and shares were at $5.25 shortly after the bell.  The January call options could have been sold for 65 cents which lowered the cost basis to $4.60.  

If shares are over $7.50 by January 2012, the stock will be “called away” and the trade will make over 60%

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6.  Week Ahead

Economic news is light on Monday with the NAHB Housing Market Index due 30 minutes after the open.

On Tuesday, the market gets a fresh look at Housing Starts and Building Permits which should influence the market to some degree. 

Wednesday brings the weekly report on mortgage applications from the (MBA) Mortgage Index before the bell and Existing Home Sales a half hour later.

For Thursday, which is a huge earnings parade, Wall Street will deal with employment as the Labor Department gives its update on Initial Claims and Continuing Claims before the open.  The Philly Fed report will also be released along with the Leading Indicators and the FHFA Housing Index numbers.

There is no economic news scheduled for Friday.