11:00pm (EST)

1.  Market Summary 

2.  Seven (7) Past, Current, and Future IPOs to Watch           

3.  Earnings 

4.  Weekly Wrap Portfolio Update 

5.  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 market was facing a fork in the road going into the start of last week. 

The bulls were trying to stop the bleeding as the indexes were perched just above their 20 and 50-day moving averages (MA) and were coming off a loss of over 2%, on average, from the prior week.  The bears were licking their chops and wanted more as they focused on breaking support and pushing lower levels.  

Monday was a pivotal day as the ongoing U.S. and European debt concerns continued to rattle the market.  The selling pressure at the open pushed the indexes below major support levels as the S&P 500 dipped below the 1,300 level while the Nasdaq fell below 2,750.  However, the bulls battled back late in the afternoon to hold support which was a sign of things to come. 

The market got a huge surge on Tuesday after the “Gang of Six” came to the rescue.  The group of senators proposed a plan to cut the deficit by nearly $4 trillion over 10 years, in part by raising $1 trillion in new revenue.  Obama loved it, Wall Street went bananas over it, and the market turned on a dime as the bulls reclaimed short-term resistance levels.

Following a 2% surge, Wednesday was a flat day as the bulls digested their gains but did manage to push Tech higher.

Thursday was another huge day as progress on Europe’s debt crisis lifted the overseas markets, while here at home, the water cooler talk was that the White House was close to a “budget deal”.  Tech earnings were strong as well as some of the older names resurfaced and announced blowout earnings.   

Going into Friday’s action, the market was anticipating a deal between President Obama and House Speaker John Boehner, but that was thrown a curveball after Boehner got his panties in a knot.  He said there was no deal and that the two sides weren’t even close to an agreement.

On that note, Friday’s action was mixed as the Dow fell 43 points to end at 12,681.  The index traded to a high of 12,740 which was just below our 12,800 resistance target (orange line) after clearing 12,600 on Thursday.  We have been outlining a break above 12,800 as confirmation on a possible run to 13,000 all month.  Support is incredibly strong at 12,350-12,400 (black line, blue circles) but this week could be extremely volatile.  For the week, the Blue-Chips advanced 201 points, or 1.6%.  For 2011, the Dow is up 9.5%.


The S&P 500 added a point to settle at 1,345.  The index fell to a low of 1,336 on Friday but held serve after testing 1,346.  Tuesday’s pop got the S&P back over 1,325 and Thursday’s rally over 1,334 set the table for a run at 1,350 which is still near-term resistance (blue line, red circles).  If cleared, it would set the stage for a run at 1,375-1,400.  The bears will target 1,334 and 1,325 again this week with major support coming in at 1,300 (black line, green circles).  For the week, the S&P popped 29 points, or 2.2%.  For the year, the index is up 6.9%.


The Nasdaq gained 24 points to close at 2,858.  The index managed to reclaim the 2,800 level on Tuesday and the bulls held it all week, pushing it to a high of 2,862.  Tech is still on track to challenge its 52-week high 2,887 (orange line) with a chance of 3,000, if cleared.  Near-term support this week will be 2,800 with backup at 2,750 (black line, blue circles) and then the 200-day moving-average at 2,700.  For the week, the Nasdaq jumped nearly 70 points, or 2.5%.  YTD, the index is up 7.8%.


The Russell 2000 was flat for the day and finished at 841.  The small-cap index managed to hold the 800 level after touching a low of 811 on Monday but managed to overtake the 820 level again on Tuesday which has been strong support (red line).  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.  If 820 breaks again, the 800 (green line, black circles) level should provide further support.   The Russell added 13 points, or 1.6% for the week, and is up 7.4% year-to-date.

The S&P Volatility Index (^VIX, 17.52, down 0.04) closed above the 20 level on Monday after testing, but never finishing, above this level the prior week.  We have been saying this is an important level to watch and we said it could get “stretched” (black line, green circles) as the index ran up to 22 to begin the week.  However, Tuesday’s advance brought the VIX back below 20 and the index trended lower the rest of the week.  We also mentioned we liked the bulls’ fight last week in our Weekly Wrap and the rally off support has the market at the top of its trading range.  If there is a breakout, look for the VIX to fall below 15 (blue line) and test its lows of the year.  



Of course, all the cards will be on the table this week as something will get done, we would imagine, with the country’s debt crisis.  Folks, if not, we may have to close ALL of our current bullish call options and buy put options but let’s hope this will not be the case.

Europe seems to be getting their debt concerns in order and if the zombies on the Hill can come up with a game plan then the market should hit new highs.  If there is a delay, hesitation, or more dissention in Washington over raising the debt ceiling then the market will pull back or even worse, there will be a major correction.  How far remains to be seen.

John Boehner mentioned over the weekend that he wanted to get something done so that the Asian markets wouldn’t get rattled and we have mentioned months ago Obama has gone on record rooting for Dow 14,000.

As much as we hate to say it, these two men will have a major impact on the market this week and we won’t be sleeping easy tonight.

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2.  Seven (7) Past, Current, and Future IPOs to Watch

Key of Technicals Used In Following Article

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. 

Support/Resistance

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


Despite current economic troubles, Initial Public Offerings (IPOs) have stayed hot.  Social media has taken much of the spotlight, and we present three social media IPOs here, but some other IPOs might be worth checking into.

LinkedIn (LNKD) – May 19th (IPO price: $45, current price: $102.97)

The largest business networking site was the first social media company to go public.  The stock immediately surged at the open to $84, made an intraday high of $115, and closed at $94.  The 1-day return from IPO price was one of the highest in history.  Since the IPO, the stock has fallen to a low of $63 on June 20th before climbing to a current price of $102.97.  The company is now closer to its high target of $115.00 than its mean target of $79.57, as estimated by 7 analysts that follow the company.  Median target is $85.00.  Low target is $45.00.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 3.0, down from 2.9 a week ago. 


 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

1

0

0

0

Buy

3

0

0

0

Hold

1

1

0

0

Underperform

0

0

0

0

Sell

2

0

0

0


The company is the largest holding of ETRACS Internet IPO ETN (EIPO), which tracks an index of Internet firms that have listed on the NYSE or Nasdaq for less than three years.  The company is expected to make revenue of $470 million this year, up from $243 million last year but does this justify a nearly $10 billion market cap? 

LinkedIn makes money by selling marketing solutions, which is advertising and products sold to help organizations sell on LinkedIn, and hiring solutions, which are solutions sold to companies looking to recruit top talent.

The company releases 2Q earnings in early August and estimates a loss of 2 cents a share on $106 million in revenues.  For the 3rd quarter, analysts estimate earnings call for a loss of 4 cents on $112.80 million.  In the 1st quarter, LinkedIn’s earnings were flat on revenue of $94 million.  In the 4th quarter of 2010, the company turned a profit of $0.04 on $198.4 million, and in the 1st quarter of that year, it made $0.00 on $44.7 million.  Thus, it went from a profit last year to a loss this year.

Shares currently sell for 33 times 2010 sales, 63 times book value, and carry a trailing price-to-earnings (PE) ratio of 1,183 and a forward PE ratio of 321.  In comparison, Monster Worldwide (MWW, $13.52, down $0.07), a job hiring site, sells for 1.73 times sales, 1.42 times book, and carries a forward PE of 17.  Internet search leader Google (GOOG, $618.23, up $11.24) sells for only 6 times sales, 4 times book, and carries a forward PE of 15.  Even when considering that LinkedIn grew revenue 110% year-over-year, which is over 4 times GOOG’s current growth rate, price/sales, price/book, and forward PE is only 27, 17, and 60 respectively, when using Google’s numbers.

LinkedIn’s current ratio is 1.53.  A current ratio less than 2 means that the company may have trouble paying its current liabilities which is a potential red flag.

 

Yandex NV (YNDX) – May 25th (IPO price: $25, current price: $35.65)

The Google of Russia, as the company is nicknamed, had the biggest tech IPO this year to date.  The stock climbed to a close at $38.84, up $13.84 or 55% from its opening price.  Since the IPO, Yandex has traded to a low of $30 on June 20th before climbing to a current price of $35.65.  The company is now closer to its low target of $36.10 than its mean target of $40.62, as estimated by 5 analysts.  Median target is $40.  High target is $45.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.2, unchanged from a week ago. 

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

0

0

0

0

Buy

4

0

0

0

Hold

1

0

0

0

Underperform

0

0

0

0

Sell

0

0

0

0

Yandex makes money by online advertising and, just like Google, is expected to see revenues triple over the next several years.  According to LiveInternet, the company generated 64.4% of all search traffic in Russia in June 2011.  Also operating in Ukraine, Kazakhstan, and Belarus, the company certainly has a lot of growth potential, but here again does this justify a double-digit market cap of $11.45 billion? 

The company releases 2Q earnings this week and Wall Street is looking for $0.13 a share on $150 million in sales.  Below are revenue and earnings graphs with the 2nd quarter estimates included.


The 2nd quarter year-over-year (YOY) earnings growth is estimated to grow at a slower pace from 2010 levels compared to the YOY increase between 2009 and 2010.  This is also very different from what happened in the 1st quarter.  The graphs for the 1st quarter and 2nd quarter YOY revenue look similar to each other.  Thus, earnings seem to likely beat estimates, while revenue may meet or narrowly beat estimates, based on the graphs.

Shares currently sell for 22 times sales, 28 times book value, and carry a trailing PE ratio of 74 and a forward PE ratio of 43.  Yandex’s revenue growth is about 2.5 times that of Google.  Thus, adjusting numbers to Google’s yields a price/sales of 15.7, a price/book of 10, a trailing PE of 60, and a forward PE of 36.  That would make the shares look pricey.  But when comparing the company’s numbers to Baidu’s (BIDU), the Google of China, they seem in line.  Baidu sells for 37 times sales, 35 times book value, and carries a trailing PE ratio of 84 and a forward PE ratio of 38.  BIDU’s revenue growth is about 1.35 times that of YNDX.  If we adjust Yandex numbers to Baidu’s, the numbers yield a price/sales of 27, a price/book of 26, a trailing PE of 62, and a forward PE of 28.  The price/sales and price/book are similar to Yandex’s, while the trailing and forward PE ratios are still 10-20 times smaller.

Zillow (Z) – July 20th (IPO price: $20, current price: $34.27)

The online real estate listings service began trading this past Wednesday.  The stock immediately surged at the open to $60, triple the IPO price of $20, before falling to a current price of $34.27.  The company is not profitable, posting a $6.7 million loss last year on revenue of $30.4 million, yet, is valued at $472 million right off the bat.


Shares have a small float with the company offering just 3.5 million shares, or 13%, to the public.  Such a small float leads to big price swings.

Zillow helps homeowners, buyers, sellers, renters, real estate agents, mortgage professionals, landlords, and property managers find and share information about homes, real estate, and mortgages.  It maintains a database of more than 100 million U.S. homes, including houses for sale, for rent, and homes not currently on the market.  The company also provides services to connect borrowers with lenders to find loans.  It is free to list in their database as Willow makes money by display advertisements.


From the revenue and earnings graphs, it is apparent that, despite the company is unprofitable, it will eventually become profitable, and it may happen very soon.

Shares currently sell for 13 times sales and 25 times book value.  YOY revenue growth is 111%.  When adjusting to Google’s numbers, the price/sales and price/book turns out to 27 and 17, respectively.  Thus, based on price/sales, the stock is trading at one-half times fair value but based on price/book, the shares look fairly priced. 

If Zillow had similar numbers to Google, the price would be $72.57 based on price/sales and $23.69 based on price/book.  The shares are between these two prices.  The median price is $48.13.  Thus, there seems to be more upside potential than downside potential.  Although this is a real estate company, investors should reward the company more for its growth.


Skullcandy (SKUL) – July 20th (IPO price: $20, current price: $34.27)

The developer and distributer of headphones and other audio accessories to retailers also began trading on Wednesday.  The stock immediately surged at the open to $23 from IPO price of $20 before falling to close a $19.50.  The stock currently trades at $19.69.  The company reported its first profit of $0.04 on revenue of $36.0 million for the 1st quarter of 2011, up from -$0.03 on revenue of $21.4 million for the same period a year ago.  Revenue has grown from $9 million in 2006 to $161 million in 2010. Adjusted EBITDA has grown from $1 million to $39 million over the same period.

The company combines music with fashion, style, and sports.  It sells a wide variety of products including colored and stylized headphones, iPod cases, necklaces, socks, blankets, hats, backpacks, shirts, belts, and jackets.  The Artist Series is a collection of specially designed headphones and accessories to match the particular artist.  There are even headphones for different sports teams in the NCAA and NBA.


Shares currently sell for 1.59 times sales.  YOY revenue growth is 66%.  Dick’s Sporting Goods (DKS, $39.70, up $0.25), a sports retailer, and Best Buy (BBY, $29.56, down $0.14), an electronics retailer, has price/sales and YOY revenue growth of 0.96 and 6.30% and 0.22 and 1.40% respectively.   When adjusting to Dick’s and Best Buy’s numbers, the price/sales turn out to be 10.10 and 10.41 respectively.  Thus, based on price/sales, the stock looks cheap. 

If the stock had similar numbers as the two other retail giants, the price would be $125 and $129, respectively.  Although we doubt Skullcandy will reach that high, there seems to be more upside potential than downside potential.  Although this is basically a retail company, investors should reward the company more for its growth.


Dunkin’ Brands Group (DNKN) – Expected IPO this coming week (Offering: $16-$18)

The parent of Dunkin’ Donuts and Baskin-Robins ice cream plans to raise between $348 million and $461 million by offering approximately 22.3 million shares, about 22% of the company, to the public at a price range of $16 to $18 per share.  The company plans to use the cash to pay down debt, expand outside New England, and expand internationally, with eyes on South Korea and the Middle East.  There are no plans to pay shareholders dividends anytime soon.

There are more than 15,500 Dunkin’ and Baskin-Robbins outlets around the world.  There are 71 Dunkin’ Donuts stores in China.  The company signed an agreement to open 500 new stores in India over the next 15 years.  And it is aggressively pushing into Russia and Ukraine.

Competitors range from Starbucks (SBUX, $40.35, down $0.03) to Krispy Kreme Donuts (KKD, $9.29, up $0.09), although it is more similar to Starbucks than KKD.  Recent revenue for Dunkin was $577 million on $7.7 billion in sales.  Shares will probably jump on its IPO debut and join the coffee craze.  Coffee sales account for more than half of Dunkin’s business.  Just watch the numbers and make sure they don’t go through the roof.


Zynga – Expected IPO in the fall of this year

The creator of social games such as CityVille, FarmVille, Mafia Wars, and Empires and Allies plans to go public raising $1-$2 billion.  But analysts think the company could be worth as much as $15-$20 billion, assuming the company follows the low-float model, in which companies sell only about 10% of their shares to the public—partly in hopes of driving up their valuation.

Zynga makes money by getting people addicted to their games, having them recruit friends, and getting them to buy virtual goods that help them proceed in the game.  For example, a person can buy Farmville cash to buy virtual items needed in the game.  The person becomes addicted by having their friends ask them for help with the game and thus returning the favor.  Zynga games use Facebook as its main platform but can be also used on the iPhone, MySpace, Android, Yahoo and more.  It pays Facebook a 30% royalty to host its games.


Financemanila lists that is takes $100,000-$300,000 to make a social game and between 3%-5% of users pay for virtual goods or sign up for advertising.  With about 215 million active monthly users and over 50 million daily active users, if only 3% of those 50 million daily users spent a dollar a day, that would be $550 million a year.


Zynga had 1st quarter revenue of $235.4 million, compared to 2010 revenue of $597.5 million and 2009 revenue of $121.5 million.  Thus, revenue grew $476 million or 391% from 2009-2010.  Assuming that the company makes $235.4 million in each of the other three quarters for 2011, it would make $941.6 million for the year, a $344.1 million, a 58% increase from the previous year.  Thus, growth may be slowing.

Facebook– Expected IPO in 1st quarter of 2012

The social media site is expected to go public with a market cap of at least $100 billion.  Although it sounds pricy, the valuation is in-line with that of LinkedIn.  Facebook has over 750 million users and is estimated to do $3.8 billion in revenue this year, a 90% gain from last year.   Though impressive, the chart below from Business Insider shows that Facebook has a slower growth than that seen in the early days of both Yahoo and Google.


Barron’s also notes that assuming the $100 billion market cap for Facebook would give the company a price/revenue of $26.30.  If we adjust Google’s price/revenue to match Facebook’s growth rate, we get 22%.  Thus, Facebook is probably worth less than $100 billion if compared to Google.

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3.  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, 7/22/11).

MONDAY

Aarons (AAN, $26.21, down $0.34), Acura Pharmaceuticals (ACUR, $3.23, down $0.02), Advent Software (ADVS, $27.51, up $0.20), Anadarko Petroleum (APC, $83.30, up $0.09), Baidu (BIDU, $154.00, up $3.83), Broadcom (BRCM, $35.47, up $0.64), Cal Maine Foods (CALM, $35.51, down $0.05), Chiquita Brands International  (CQB, $12.45, down $0.57), CTS (CTS, $9.89, up $0.09), Dover Downs Gaming And Entertainment  (DDE, $3.31, up $0.03), Eaton (ETN, $51.16, down $0.39), Geomet (GMET, $1.14, up $0.01), Geron (GERN, $4.16, up $0.07), HCA Holdings (HCA, $34.61, ep $0.18), Iconix Brand Group (ICON, $25.79, up $0.15), J & J Snack Foods (JJSF, $51.14, down $0.68), Kimberly Clark (KMB, $67.90, up $0.09), Netflix (NFLX, $276.58, up $0.77), Optionsxpress Holding (OXPS, $15.64, down $0.16), Overstock (OSTK, $15.40, down 0.15), Plum Creek Timber (PCL, $40.68, down $0.51), Quality Systems (QSII, $90.79, up $1.04), Radioshack (RSH, $13.11, down $0.04), Rediff.Com India (REDF, $11.33, up $0.51), Rent A Center (RCII, $30.17, down $1.17), Seattle Genetics (SGEN, $17.91, down $0.07), Six Flags Entertainment (SIX, $35.45, down $0.37), Skechers USA  (SKX, $14.48, down $0.11), Southern Copper (SCCO, $36.07, down $0.35), Texas Instruments (TXN, $31.78, up $0.17), Tootsie Roll Industries (TR, $29.42, down $0.10), Viropharma (VPHM, $19.71, up $0.33),

TUESDAY

3M (MMM, $95.38, down $0.46), AK Steel Holding (AKS, $15.81, down $0.01), Amazon.com (AMZN, $216.52, up $3.31), American Dental Partners (ADPI, $13.17, down $0.22), Amylin Pharmaceuticals (AMLN, $13.65, up $0.24), Avery Dennison (AVY, $33.69, up $0.24), Biogen Idec (BIIB, $105.56, down $0.06), Buffalo Wild Wings (BWLD, $67.32, down $0.96), Ceradyne  (CRDN, $36.03, down $0.05), Dole Food (DOLE, $14.50, up $0.27), Dominos Pizza (DPZ, $25.82, down $0.10), Electronic Arts  (ERTS, $23.93, up $0.04), First Solar (FSLR, $124.12, down $1.07), Ford Motor (F, $13.31, up $0.03), Hershey (HSY, $58.93, up $1.43), Illinois Tool Works (ITW, $56.97, up $0.01), Illumina  (ILMN, $74.47, up $0.34), Irobot (IRBT, $36.75, up $0.13), Jacobs Engineering Group (JEC, $42.81, down $0.14), Jetblue Airways (JBLU, $5.42, down $0.08), Juniper Networks (JNPR, $31.27, up $0.95), Lockheed Martin (LMT, $79.60, down $0.56), Nabors Industries (NBR, $27.57, up $0.36), Norfolk Southern (NSC, $76.21, down $0.44), Panera Bread (PNRA, $130.90, up $1.20), Patriot Coal (PCX, $24.88, up $0.47), RF Micro Devices (RFMD, $6.49, up $0.33), Rocky Brands (RCKY, $12.55, down $0.10), Simon Property Group (SPG, $121.85, up $0.58), Tellabs (TLAB, $4.33, down $0.06), United Parcel Service (UPS, $74.16, down $0.24), United States Steel (X, $44.81, up $0.16), Valero Energy (VLO, $26.71, down $0.18), Watson Pharmaceuticals (WPI, $70.48, up $0.73)

WEDNESDAY

Aetna (AET, $43.34, up $ 0.12), Aflac (AFL, $46.21, down $0.41), Autonation (AN, $39.08, up $0.24), Bemis (BMS, $33.95, down $0.19), Cabot Microelectronics (CCMP, $45.35, up $1.04), ConocoPhillips (COP, $75.26, down $0.55), Deckers Outdoor (DECK, $96.42, down $0.13), Diebold (DBD, $32.75, up $0.46), Dr Pepper Snapple Group (DPS, $40.36, down $0.13), Express Scripts (ESRX, $57.30, up $1.95), Famous Daves Of America (DAVE, $10.69, down $0.12), Flowserve (FLS, $111.05, up $0.05), General Dynamics (GD, $70.80, down $0.77), Global Crossing (GLBC, $38.46, up $1.34), Green Mountain Coffee Roasters (GMCR, $92.71, down $0.33), InterMune (ITMN, $37.02, up $0.62), Kemet (KEM, $12.78, down $0.31), Moody’s (MCO, $37.17, down $0.01), Owens-Illinois (OI, $26.81, up $0.11), Ryder System (R, $58.63, down $0.12), Shutterfly (SFLY, $60.26, up $1.31), Symantec (SYMC, $19.06, up $0.04), Teva Pharmaceutical Industries (TEVA, $47.76, down $0.13), Visa (V, $89.52, up $1.47), Whole Foods Market (WFM, $66.13, up $0.70), Zimmer Holdings (ZMH, $63.29, down $1.45)

THURSDAY

3D Systems (DDD, $26.87, up $0.16), 3D Systems (ARG, $70.08, down $0.40), AOL (AOL, $19.43, up $0.24), Ariba (ARBA, $33.04, down $0.06), Boston Scientific (BSX, $7.21, up $0.13), Bunge (BG, $73.08, up $0.31), Cerner (CERN, $65.05, up $1.14), Chesapeake Energy (CHK, $34.39, up $0.41), CME Group (CME, $285.70, down $0.99), Coca-Cola Enterprises (CCE, $29.82, Flat), Coinstar (CSTR, $54.23, down $4.40), Digital River (DRIV, $31.89, up $0.32), Dominion Resources (D, $49.78, dowbn $0.22), DR Horton (DHI, $12.08, down $0.05), Eastman Chemical (EMN, $104.44, down $0.03), Expedia (EXPE, $30.05, Flat), Exxon Mobil (XOM, $85.22, up $0.20), Genworth Financial (GNW, $8.93, up $0.72), GNC Holdings (GNC, $23.25, up $0.02), Jazz Pharmaceuticals (JAZZ, $38.58, up $1.02), Kellogg (K, $55.91, down $0.01), Legg Mason (LM, $32.43, down $0.06), Mead Johnson Nutrition (MJN, $69.08, down $0.69), Metlife (MET, $41.74, down $0.30), Monster Worldwide (MWW, $13.52, down $0.07), National Health Investors (NHI, $47.26, down $0.27), NetGear (NTGR, $40.33, up $1.10), Noble Energy (NBL, $97.57, up $0.70), Nutrisystem (NTRI, $14.50, down $0.41), Potash (POT, $61.64, up $0.93), Precision Castparts (PCP, $165.40, down $2.12), Qlogic (QLGC, $16.57, up $0.14), Raytheon (RTN, $46.74, down $0.58), RealD (RLD, $18.08, down $0.19), RealNetworks (RNWK, $3.59, up $0.01), Sprint Nextel (S, $5.16, down $0.01), Starbucks (SBUX, $40.35, down $0.03), StellarOne (STEL, $12.51, down $0.15), Tennant (TNC, $42.57, down $0.08), Time Warner Cable (TWC, $78.78, up $0.37), Timken (TKR, $48.76, down $0.15), Tyco International (TYC, $47.38, down $0.12), Veeco Instruments (VECO, $41.17, up $0.43), Verisign (VRSN, $33.77, up $0.60), Waste Management (WM, $35.97, down $0.60)

FRIDAY

American Electric Power (AEP, $37.71, down $0.31), Amgen (AMGN, $55.22, down $0.27), Arch Coal (ACI, $28.61, up $0.13), Calpine (CPN, $16.19, down $0.17), HMS Holdings (HMSY, $77.85, up $0.12), Kaydon (KDN, $38.12, up $0.21), Louisiana Pacific (LPX, $8.19, down $0.04), Merck (MRK, $36.09, down $0.09), Newmont Mining (NEM, $58.66, up $0.15), Pilgrims Pride (PPC, $5.37, down $0.09), Sky-mobi (MOBI, $8.40, down $0.11), Weyerhaeuser (WY, $22.18, up $0.14)     

= = = = = = = = = = = = = = = 

4.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 7/22/11)

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

 

Rambus (RMBS, $15.61, up $0.67)

September 17 calls (RMBS110917C00017000, $0.65, up $0.20) 

Original Entry Price:  $15.60 (7/22/11)

Lowered Price from Selling Options: $14.95

Exit Target: $20+

Return: 0%

Stop Target: None

Action:  We recommended shares of Rambus at $15.60 on Friday and suggested selling the September calls for 65 cents.  This reduced the cost basis to $14.95.  

Rambus made a nice break above resistance at $15 (black line, green circle) on Friday after trading in a tight range following May’s huge sell-off.  There looks to be a clear run to the next level of resistance which is just under $19 (red line, blue circles) and represented prior support.

We have been following this company for years and this could finally be the case that wins Rambus a windfall.  The current litigation isn’t expected to end until August but we are hearing things could wrap up sooner than that.  In other words, there could be a settlement or a verdict soon.

 

We recommended buying the stock at $15.60 on 7/22/11 and for every 100 shares to sell the September 17 calls for 65 cents.  This lowered the cost basis to $14.95. 

If shares are called away at $17 in mid-September the trade will make 14%.

   

Symantec (SYMC, $19.06, up $0.03)

August 20 calls (SYMC110820C00020000, $0.37, down $0.02)

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

Lowered Price from Selling Options: $18.17

Exit Target: $20+

Return: 7%

Stop Target: None

Action:  Symantec will announce earnings on Wednesday.

Shares reached a high of $19.55 last week which has been strong resistance (black line, orange circles) over the past few months.  Support has been strong at $18.65 (red line, green circles) and our price 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 35 cents which lowered the cost basis to $17.82.

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

 

Rare Element Resources (REE, $11.09, up $0.32)

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

Lowered Price from Selling Options: $11.23

Exit Target: $10+

Return: -1%

Stop Target: None

Action:  Support has been strong just below $10 (green line, red circles) and we got our break above $11 on Friday.  Resistance will be tough to crack just above $12 (black line, blue circles) but the bullish rectangle (purple circle) that has been forming since last November should lead to a breakout at some point.

We wanted to wait for shares to pop back over $11 before selling another option and we got that on Friday.  We will be looking to sell an August or September call on Monday but we may wait to see if shares make a push towards $12 before doing so.  This will allow us to collect more of a premium and maximize our gains if we are called-away. 


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, $8.23, down $0.11)

August 9 calls (VVUS110820C00009000, $0.20, down $0.03)

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

Lowered Price from Selling Options: $7.13 

Exit Target: $10+

Return: 15%

Stop Target: None

Action:  The break above $8 (red line, black circles) that occurred at the end of June was very bullish and has been holding as short-term support since.  We would like to see a run up to $9 (green line, orange circles) 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.  The company is currently running clinical trials to gain approval for treatment on diabetes and obstructive sleep apnea using Qnexa 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, $15.81, down $0.01)

August 16 calls (AKS110820C00016000, $0.57, down $0.03) 

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

Lowered Price from Selling Options: $14.58

Exit Target: $20+

Return: 8%

Stop Target: None

Action:  AKS reports on Tuesday. 

Shares made a strong move past prior resistance (black line, red circles) back in June which was prior support (green circles).  We are still targeting a move to $16.50 (blue line) which is the next area of resistance.


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, $10.21, up $0.13)

August 10 calls (ACAS110820C00010000, $0.55, up $0.05)

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

Lowered Price from Selling Options: $8.68

Exit Target: $15+

Return: 18%

Stop Target: None

Action:  Shares face resistance at $10.50 (red line) and support is $9.50 (black line).  The bigger picture is the upper trading range that has formed since mid-March which is bullish (blue box).  The company reports earnings on August 2.  


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, $16.46, up $0.11)

August 17 call (CSCO110820C00017000, $0.33, up $0.02)

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

Lowered Price from Selling Options: $16.28

Exit Target: $20+

Return: -6%

Stop Target: None

Action:  Cisco made a 6% move last week and we sold the August 17 calls on Thursday for 30 cents.  The break above short-term resistance (black line, blue circle) should lead to a run at $16.75 (purple line).  Our longer-term target is a run back to $18 by year-end (green line, orange circles).  We saw a lot of buying at support just below $15 (red line) so there is a lot of big money holding these shares. 


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. 

On 7/22/11 we recommended selling the August 17 calls for 30 cents which lowered the cost basis to $16.28.  If shares are called away by mid-August the trade makes 4%.  


Spreadtrum Communications (SPRD, $15.15, up $0.46)   

Entry Price:  $23.45 (2/7/11)

Lowered Price from Selling Options: $21.48

Exit Target: $30

Return: -29%

Stop Target: None

Action:  Resistance is at $16 (red line, blue circles) with short-term support coming in just above $14 (black line, green circles).  We are waiting for shares to get back near $20 before writing another call option.   


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, $3.93, down $0.10)

January 2012 7.50 call (DRYS120121C00007500, $0.06, down $0.02)   

Entry Price:  $5.25 (1/03/11)  

Lowered Price from Selling Options: $4.60

Exit Target: $8

Return: -15%

Stop Target: None

Action:  DryShips is still dancing around support at $4 (red line, green circles) and could fall to $3.75 if the short-term trend stays intact.  If shares can hold this level then look for a run back to $4.50 (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%

= = = = = = = = = = = = = = = 

5.  Week Ahead

There are no economic reports are scheduled for Monday. 

Before the bell on Tuesday, the Case-Shiller 20-city (home price) Index for May will be released.  Thirty minutes after the open, New Home Sales for June and the Consumer Confidence Index for July are due out. 

On Wednesday, the MBA Mortgage Purchase Index numbers will be out early while June’s Durable Goods Orders will hit the Street an hour before the session starts.  Once trading begins, the market will digest the Federal Reserve’s Beige Book, along with and the regularly scheduled weekly update on oil inventories. 

For Thursday, the market will get its usual update on weekly jobless claims with Initial Claims and Continuing Claims before the open.  Pending Home Sales for May will be released once we get underway. 

Friday will be huge as 2Q Gross Domestic Product (GDP) numbers are due out before the bell along with the Employment Cost Index.  The Chicago PMI figures will be news 15 minutes after the open followed by the final Reuters/University of Michigan Consumer Sentiment Index for July, ten minutes later.