9:00pm (EST)

The bulls started the week facing pressure from the previous weekend after a proposed plan to cut the deficit fell through, as it did all week.  The game of chicken between the Republicans and Democrats weighed heavy on the major indexes and just as the bulls appeared ready to break through resistance and hit new highs, they found themselves defending support and the 200-day moving averages instead.

The bears chiseled away at support on Monday but the losses were somewhat contained as Wall Street and the talking heads were anticipating a miracle debt deal that they thought was still in the works.

It was apparent on Tuesday that the two sides were getting further apart and the losses doubled from Monday’s decline.

On Wednesday, the wheels fell off the wagon and the losses more than doubled from the previous day as the bears pushed Dow 12,300; S&P 1,300; and the Nasdaq was just under 2,800.

Thursday’s losses were minor and Tech actually closed higher.

Going into Friday’s action, futures were pointing towards a 1% drop at the open and that we got.  The market opened sharply lower, after a less-than-stellar 2Q Gross Domestic Product (GDP) report which came in at 1.3% versus estimates for 1.7%.  Jobless Claims were actually better-than-expected as they declined by 24,000 to 398,000 and represented the first week below 400,000 since early April.

The indexes rallied back into positive territory following a in-line Consumer Confidence report and a speech by our President saying he wants a bipartisan agreement reached on the debt ceiling.  But it wasn’t enough as the market drifted lower into the close as no deal got done.

The Dow dropped 96 points to end at 12,143.  We were looking for a close above 12,200 after the index tested a low of 12,083 but didn’t get it.  The green boxes represent the last two weeks of trading which show the current volatility.  The break below prior support (black line) at 12,400-12,350 and the 50-day moving average (MA) will serve as the first area of short-term resistance if there is a rebound this week.  The 12,000 level and the 200-day average should provide additional support (red line, brown circles) but there could be a test to 11,600 (blue line, orange circle) if there is no debt deal on Monday.  For the week, the Dow tanked 538 points, or 4.2%.  For 2011, the Dow is up still up 4.9%.


The S&P 500 fell 8 points and finished at 1,292.  The index closed below the 1,300 level and traded to a low of 1,282 on Friday but held the 1,275 level (blue line, red circle).  This area represents short-term support and the 200-day MA but there is further risk down to 1,250 (black line).  The bulls will target a break back above 1,300-1,325 before making a run at new highs.  For the week, the S&P declined 52 points, or 3.9%.  For the year, the index is up 2.8%.

The Nasdaq dipped 10 points to settle at 2,756.  Tech traded in the green for a little while on Friday and hit a high of 2,780 but also traded down to 2,724.  We would have loved to have seen a close above 2,800 which was prior support (red line, black circles) but there is risk down to 2,700 (black line, green circles) if the selling pressure continues.  The bulls will try to reclaim 2,800 before making another go at 2,850 (orange line).  For the week, the Nasdaq tumbled 102 points, or 3.6%.  YTD, the index is up 3.9%.

The S&P Volatility Index (^VIX, 25.25, up 1.51) held the 20 level the prior week but we knew when it broke resistance (black line, red circles) the market could test prior support levels.  There could be a test up to 30 if there is continued panic and no debt-limit deal by August 2.

The good news we can report this morning is that there is a new deal in place.  The bill still needs votes but would would raise government spending by nearly $3 trillion with an immediate cut of $1 trillion up front in federal spending.  There would also be an additional $2 trillion in cuts by Thanksgiving.

Futures were up nearly 2% last night after hearing the president announce an agreement to raise the debt-limit ceiling and the overseas markets are having a banner day.  We mentioned on Friday that we could see the mother of all rallies or a major sell-off depending on what happened over the weekend and since we are long call options, it’s good to see the bulls come through.

Dow futures are up 157 points to 12,245 while the S&P futures are higher by 16 points to 1,304.  Nasdaq futures are showing 29 point pop and are at 2,388.  We have a lot to cover in our Members Area so let’s get on it.   


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.

Spider S&P 500 (SPY, $129.33, down $0.89)

August 135 calls (SPY110820C00135000, $0.70, down $0.05)

Entry Price:  $0.95 (7/27/11)
Exit Target: $1.40-$1.90
Return:  -26%
Stop Target:  None

Action:  We went over the chart for the S&P 500 earlier and we have 3 weeks before these options expire.  Our breakeven point is $135.95 for the Spiders.

Spider Dow Jones Industrial Average (DIA, $121.13, down $1.15)

August 126 calls (DIA110820C00126000, $0.55, down $0.15)

Entry Price:  $1.05 (7/27/11)
Exit Target: $1.60-$2.20
Return:  -48%
Stop Target:  None

Action:  We went over the Dow’s chart and we will need a run back to $126.

Mead Johnson Nutrition (MJN, $71.37, down $0.39)

November 80 calls (MJN111119C00080000, $0.95, down $0.10)

Entry Price:  $0.55 (7/26/11)
Exit Target: $1.10+ (closed half at $1.25 on 7/28/2011)
Return:  100%
Stop Target:  75 cents

Action:  Mead Johnson had a great quarter and held $70 after reporting earnings last week.  We are looking for shares to make a run to $85 by mid November.


Rambus (RMBS, $13.88, down $0.48)

September 17 calls (RMBS110917C00017000, $0.30, down $0.10)

Entry Price:  $0.65 (7/22/11)
Exit Target: $1.30+
Return:  -54%
Stop Target:  None

August 17 calls (RMBS110820C00017000, $0.10, flat)

Entry Price:  $0.60 (6/20/11)
Exit Target: $1.20+
Return:  -83%
Stop Target:  None


August 12.50 (RMBS110820P00012500, $0.20, up $0.10)

Entry Price:  $0.15 (7/29/11)
Exit Target: $1.20+
Return:  33%
Stop Target:  None

Action:  Rambus could go to $10 or $20 over the next few weeks.  If they can get a legal victory in their ongoing litigation then shares should trade up to $20 (blue line, green circles) which was prior support.

There was a setback on Friday though, and shares run the risk of kissing $10 (red line, green circles) and possibly, single-digits.  However, Rambus is also turning its books around so we are hoping short-term support at $13.50 (black line, red circle) holds if there is further weakness.


Broadcom (BRCM, $37.07, up $0.23)

August 38 calls (BRCM110820C00038000, $0.95, flat)

Entry Price:  $0.55 (7/20/11)
Exit Target: $1.50 (closed half at $1.65 on 7/26/2011)
Return:  136%
Stop Target:  70 cents

Action:  Broadcom could clear $40 this week and the other half of this trade will still give us some solid profits.  Shares have been holding strong support just above $36 (black line, red circles) and we are looking for a run up to $42 (blue line, green circles) which has been strong resistance but will be enough to get these calls above $2.

Qualcomm (QCOM, $54.78, down $0.21)

October 65 calls (QCOM111022C00065000, $0.35, flat)

Entry Price:  $0.85 (7/11/11)
Exit Target: $1.70
Return:  -59%
Stop Target:  None

Action:  Qualcomm has strong support down to $54 (red line, black circles) but we should see a quick pop back to $57 (green line, orange circles) with today’s bounce.

iShares Russell 2000 (IWM, $79.74, down $0.10)

August 86 calls (IWM110820C00086000, $0.20, down $0.05)

Entry Price:  $1.10 (7/1/11)
Exit Target: $2.20
Return:  -82%
Stop Target:  $0.55

Action:  The Russell held its 200-day MA and short-term support (black line, red circles) level and should get back to $84 on today’s pop which will be slight resistance (green line, orange circles).  We will need a run back to $86 to breakeven or take profits but we have 18 days to so.

Freeport-McMoRan (FCX, $52.96, down $1.08)

August 57 calls (FCX110820C00057000, $0.65, down $0.20)

Entry Price:  $1.18 (7/1/11)
Exit Target: $2.40
Return:  -45%
Stop Target:  $0.60

Action:  Freeport held support (red line, black circles) at $53 on Friday and should trade back to $55-$56 (green line, blue circles) on a rally.

Symantec (SYMC, $19.06, down $0.43)

October 20 calls (SYMC111022C00020000, $0.70, down $0.15)

Entry Price:  $0.93 (6/21/11)
Exit Target: $2.00
Return:  -25%
Stop Target:  None

Action:  Symantec announced earnings last week and we wanted to go over the 5-year chart to show you how we got our price target.

Shares reached a high of $19.81 on Thursday after the company reported a good quarter and the $19.50 area has been strong resistance (black line, red circles).  Multi-year support is strong down to $18 (green line, brown circles) and our price target is $22 (orange line, blue circles) for Symantec over the next 3-6 months which is longer-term resistance.

MGM Resorts International (MGM, $15.11, down $0.19)

September 17 calls (MGM110917C00017000, $0.50, down $0.05)

Entry Price:  $0.70 (5/13/11)
Exit Target: $1.40
Return:  -29%
Stop Target:  None

Action:  Support is strong at $14.75 (green line, red circles) but we are expecting a surge back to $15.50 which has been loner-term resistance (black line, orange circles).  The 52-week high is $16.94 and we think shares can run to $20 by year-end.  The company announces earnings on August 8.

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.

RF MicroDevices August 10 calls (from February 2011)
Dendreon August 50 calls (from April 2011)
Vivus September 10 calls (from May 2011)
Rediff.com India October 15 calls (from June 2011)
Seattle Genetics August 22.50 calls (from June 2011)
Seattle Genetics September 20 calls (from May 2011)
Global Payments August 55 calls (from July 2011)
TiVo August 11 calls (from July 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.

Amgen (AMGN, $54.70, up $1.27)

September 55 calls (AMGN110917C00055000, $1.70, up $0.50)

Thoughts:  We like this trade a lot and could add it once we clear some room with our current trades.

Quality Systems (QSII, $91.36, up $1.49)

September 100 calls (QSII110917C00100000, $1.00, up $0.20)

Thoughts:  Another great quarter and the company announced a 2-for-1 split after announcing earnings last week.  Shares could trade to $100 up into the stock-split which will take place at the end of October.

RealD (RLD, $15.48, down $2.94)

August 17.50 puts (RLD110820P00017500, $3.00, up $1.70)

Thoughts:  Shares of Real D fell to a 52-week low of $14.50 on Friday after missing earnings.  If you were in this trade last week then you should closed the trade to lock in triple-digits profits.

Polycom (PLCM, $27.03, down $0.89)

September 30 calls (PLCM11091700030000, $0.60, down $0.35)

Thoughts:  Watch for now.

Williams-Sonoma (WSM, $37.02, flat)

September 39 calls (WSM110917C00039000, $1.05, flat)

Thoughts:  Watch for now.