October 2011 | Members

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.

12:50pm (EST)

O’Reilly Automotive (ORLY, $69.59, up $1.92)

November 75 calls (ORLY111119C00075000, $0.75, up $0.30)

Entry Price:  $0.55 (10/10/11)
Exit Target: $1.10
Return:   36% 
Stop Target:  None

Action:  The 52-week high is $72 and shares could be on the verge of a breakout. 


Potash (POT, $47.22, up $2.50)

November 52.50 calls (POT111119C00052500, $0.95, up $0.35)

Entry Price:  $1.00 (10/6/11)
Exit Target: $2.00
Return:   -5% 
Stop Target:  None

Action:  Shares of Potash got an upgrade this morning to “Buy” from “Hold” and a $62 price target.  The options got a nice pop on the “call” but we told you the drop to $40 was overdone.  The target is simply the top of the trading range before the market hit new lows but the analyst will look smart because if the price target is hit, shares will have jumped 33% or so.  Of course, we told you all of this last Thursday when we entered the trade.    


Seattle Genetics (SGEN, $21.17, down $0.35)

November 17.50 puts (SGEN111119P00017500, $0.90, up $0.10)

Entry Price:  $0.60 (10/5/11)
Exit Target: $1.20

Return:  50%
Stop Target: None

Action:  Shares are struggling in a strong market which is a good sign.  We are looking for a drop below $20 this week but we have plenty of time for this trade to play out.    


Pepsico (PEP, $61.65, up $0.63)

November 65 calls (PEP111119C00065000, $0.65, up $0.10)

Entry Price:  $0.50 (10/5/11)
Exit Target: $1.00

Return:  30%
Stop Target: None

Action:  We are going to keep this trade open for another day but we may close half or all of it to take the risk out of the earnings announcement.

 
Microsoft (MSFT, $26.82, up $0.52)

November 26 calls (MSFT111119C00026000, $1.55, up $0.30)

Entry Price:  $0.90 (10/5/11)
Exit Target: $1.80-$2.00
Return:  72%
Stop Target: 45 cents, raise to $1.25 (HARD STOP)

Action:  We have placed a HARD STOP of $1.25 to protect profits but Microsoft would have to fall off a cliff to stop the current momentum.  Shares have made a move above $26.50 which should get $27-$28 into play.   
 

Rambus (RMBS, $15.37, up $0.65)

November 16 calls (RMBS111119C00016000, $2.85, up $0.15)

Entry Price:  $2.40 (9/26/11)
Exit Target: $5+
Return:  19% 
Stop Target:  $2.00

Action:  Rambus has made a nice move back above $15 and we would love to $16 kissed into the closing bell.
 

Spreadtrum Communications (SPRD, $19.30, up $0.43)

January 25 calls (SPRD120121C00025000, $1.50, up $0.20)

Entry Price:  $1.50 (9/9/11)
Exit Target: $2.80
Return:  0%
Stop Target:  75 cents

Action:  We are back to even but we need the stock to get back over $20.


Other 2011 Portfolio OPEN positions (6):  These are trades that are still open in the portfolio that have longer expiration dates or are on “hold” but are not worth mentioning until they turn around.  This means we would not open any new positions.  We are still keeping track of the trades and we will record the results, accordingly, when we close them or the options expire.  Click on the 2011 Portfolio link in the Members Area to view ALL open/ closed trades.

Symantec October 20 calls (from June 2011)
Rediff.com India October 15 calls (from June 2011)
Qualcomm October 65 calls (from July 2011)
Clean Energy October 15 calls (from August 2011)
JDSU Uniphase January 20 calls (from August 2011)
                     January 16 calls (from August 2011)
Lufkin Industries December 80 calls (from September 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.

We will update this section in the morning.

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10:15am (EST) 

O’Rielly Automotive (ORLY, $69.07, up $1.40)

Buy to OPEN November 75 calls (ORLY111119C00075000, $0.55, up $0.10)

Action:  The 52-week high is $72 and shares could be on the verge of a breakout.  We like these options up to 65-70 cents. 

********************************

9:00am (EST) continued…

Here were our thoughts on August 7th with the S&P 500 just below 1,200:

“The S&P 500 slipped less than a point but finished below the 1,200 mark at 1,199.  The index traded to a low of 1,168 which was halfway near our 1,150 target.  The bulls made a run back to a high of 1,218 but we knew when 1,225 didn’t print at the open the rally could fizzle.  There is further risk down to 1,100 if the selling pressure continues but we have penciled in 1,050 just in case.” (END)

The S&P 500 traded to a low of 1,075 on Tuesday before closing with a gain of 25 points, or 2.3%, and settled at 1,124.

We took advantage of the test to new 2011 lows and nailed a number of triple-digit winners but more importantly, we called for a “dead cat bounce” and we rang the register at the perfect time as all three major indexes finished in the green. 

On Wednesday, the “bounce” continued as Wall Street rallied nearly 2% on word that Europe wants to recapitalize their financial institutions.  The market also got a positive ADP payroll report which provided some early morning momentum.

The bulls made a key move back above prior support on Thursday after jobless claims came in pretty much on target.  The Dow surged 1.7% to close above 11,000 while the S&P 500 zoomed 1.8% to end back above 1,150.

The bulls were going for their fourth-straight on Friday after the Nonfarm Payroll report came in at +103,000 while the Unemployment Rate stayed the same at 9.1% from the prior month.  Although these numbers were –line with estimates, the bulls had trouble at the next wave of resistance as Moody’s downgraded 12 U.K banks before the bell while Fitch slapped fresh downgrades on Italy and Spain when Wall Street went to lunch.   

The Dow slipped 20 points, or 0.2%, to settle at 11,103 on Friday.  While the 11,000 level represents short-term support, the close back above 10,800 (black line, green circles) on Tuesday’s selloff was crucial and will be the area the bulls need to hold on any pullback.  The next level of support comes in at 10,500 (blue line, orange circles) which could easily lead to 10,000 (orange line, green circles) level.  To the upside, the Dow will need to clear 11,350 (purple line, brown circles) before the bulls can think about a return to 11,600-11,800.  The blue-chips started the week at 10,913 and managed to gain 190 points, or 1.7%.  However, the Dow is still down about 575 points, or 4.1%, for the year.    




We wanted to show this chart to illustrate the ongoing trading range since August.  So, no matter how high or high low the talking heads get or the headline news, wait for a breakdown or breakout of the range (orange box, green circles).  For those of you who watched last night’s video, you would use the calls we went over and on the breakdown the put options.  Notice the 50-day MA (moving average) coming into play.

The S&P 500 fell 9 points, or 0.8%, to finish at 1,155.  The 1,150 (orange line, black circles) level represents short-term support but we will be watching the 1,125-1,120 level more specifically, and if penetrated, could lead to a test back down to 1,100 (green line, purple line) area on any downside weakness.  The next push by the bulls will be to resistance at 1,175 but the 1,200 (blue line, green circles) level will need to be cleared for this rally to have mustard.  The S&P started Monday at 1,131 and added 24 points, or 2.1%, for the week.  For 2011, the index is showing a decline of 102 points, or 8.1%.


The above chart shows the multi-year chart which is important to see but here is the S&P’s trading range (purple box, green circles) we have been mentioning and looks just like the Dow.  For those of you who watched the option trading course and feel safe doing your own trades, wait for the breakout of breakdown to use the options we mentioned in last night’s video.


The Nasdaq gave back 27 points, or 2.6%, to settle at 2,479.  Tech faces short-term resistance at 2,500 (orange line, green circles) and could make a run to 2,600 (black line, blue circles) if momentum sticks.  To the downside, there is risk to 2,400 but a break below 2,350-2,300 (green line, purple circles) would get new lows back into play.  For the week, the Nasdaq advanced 64 points, or 2.6%, but is down 173 points, or 6.5%, YTD.   


Here is a look at the range (green box, orange circles).  Course Members, the options we mentioned can be used to play the breakout or breakdown and the top and bottom of the ranges.


The S&P Volatility Index (^VIX, 36.20, down 0.07) started the week at 42.96 after breaking above 40 (green line, black circles) on the previous Friday.  This was also another clue we used in figuring new lows for the market as we have been mentioning a possible test to 50 (black line, orange circles).  On Tuesday’s test to the lows, the VIX traded up to 46.88.  The bulls will try to make another run below 30 (orange line, purple circles) if they can follow-up last week’s momentum.  Note:  The green circle around the “A” for August and the red lines represent the “clue” we got the market could test 2011 lows in September or October.


The VIX has also been in a range (purple box, green circles):


The bear market targets that we mentioned in early August will remain in our review mirror:  Dow 10,248; S&P 1,090; and Nasdaq 2,298.  Although the bulls are sitting comfortably above these levels, we will need to keep these numbers on the board until the market can breakout to the upside.  This could be another run to the top of the trading range but the market is also a step ahead of Wall Street which means there could be a lot of people caught off guard if there is a surge past resistance.  

This would lead to short-covering and, along with better-than-expected 3Q earnings which get underway this week, could be a powerful combination.  So, as you can see, with the major indexes resting in the middle of their current trading ranges, we could still go either way.  The market will continue to be volatile but the bulls could be on the verge of something special if support holds.

Futures are pointing towards a strong open: Dow futures (+133), S&P futures (+15), Nasdaq (+30).  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.

Potash (POT, $44.72, down $1.77)

November 52.50 calls (POT111119C00052500, $0.60, down $0.35)

Entry Price:  $1.00 (10/6/11)
Exit Target: $2.00
Return:   -40% 
Stop Target:  None

Action:  Short-term resistance is at $47-$48 which is where shares traded to on Thursday.  We are looking for a run past $50 (green line, orange circles) up to $55.  Potash did trade to a low of $39.54 on Tuesday which was just below multi-year support at $40 (purple line, green circles)

The November options have 42 days before they expire so we have plenty of time to let this trade play out.  We are expecting a continued rally next week.     


Seattle Genetics (SGEN, $21.52, up $0.11)

November 17.50 puts (SGEN111119P00017500, $0.80, up $0.10)

Entry Price:  $0.60 (10/5/11)
Exit Target: $1.20

Return:  33%
Stop Target: None

Action:  Shares reached a 52-week high of $22.37 (green line, orange circles) on Friday and are on the verge of blue-sky territory.  Wall Street is mixed on the company’s growth and we are looking for a drop back below $20 (purple line, red circles) this week.   



Pepsico (PEP, $61.02, up $0.45)

November 65 calls (PEP111119C00065000, $0.55, up $0.10)

Entry Price:  $0.50 (10/5/11)
Exit Target: $1.00

Return:  10%
Stop Target: None

Action:  Pepsi traded to a high of $61.56 on Friday while the call options kissed a high of 65 cents.  Shares continue to test and bounce off multi-year support just under $60 (black line, green circles).  We are looking for a run back to $62.50-$63 (blue line, purple circles), possibly $65 on a better-than-expected earnings report on Wednesday.  However, if the company misses estimates then we could see new 52-week lows.

 
Microsoft (MSFT, $26.25, down $0.09)

November 26 calls (MSFT111119C00026000, $1.25, down $0.05)

Entry Price:  $0.90 (10/5/11)
Exit Target: $1.80-$2.00
Return:  39%
Stop Target: 45 cents

Action:  Shares made a run to $26.50 (orange line, blue circles) before pulling back.  We wanted to see $26 hold which will be our stop to get out of the trade should there be further weakness.  Support is strong at $25 (green line, orange circles).   

Rambus (RMBS, $14.72, down $0.89)

November 16 calls (RMBS111119C00016000, $2.70, down $0.40)

Entry Price:  $2.40 (9/26/11)
Exit Target: $5+
Return:  13% 
Stop Target:  $2.00

Action:  Shares made a run at $16 (orange line, purple circles) on Thursday as they reached a high of $15.77.  On Tuesday, Rambus briefly fell below $14 (blue line, brown circles) which has been solid short-term support but closed above $15 that day.  Shares made a run at $16 (orange line, purple circles) on Thursday as they reached a high of $15.77 but gave back 6% on Friday.  


Another patent litigation case against Nvidia started on Friday and there was some nervousness.  We continue to tell you that an upcoming legal verdict/ settlement against Micron Technology and Hynix could mean a windfall for Rambus and no one on Wall Street seems to be following this story.  We could hear something this week.


Spreadtrum Communications (SPRD, $18.87, down $0.18)

January 25 calls (SPRD120121C00025000, $1.30, down $0.20)

Entry Price:  $1.50 (9/9/11)
Exit Target: $2.80
Return:  -13%
Stop Target:  75 cents

Action:  We were looking for $16 (green line, orange circles) to hold on Tuesday’s selloff and shares traded to a low of $16.52.  However, the bounce was incredible as shares also closed above $19 (purple line, green circles) for the day.  Spreadtrum kissed $20 on Thursday before slipping Friday.  We are looking for a breakout above $22 (orange line, brown circles).  These options have over 3 months before they expire and shares are capable of big moves.  We have an initial target of $25 for Spreadtrum and we believe we will get there by mid-January.

Other 2011 Portfolio OPEN positions (6):  These are trades that are still open in the portfolio that have longer expiration dates or are on “hold” but are not worth mentioning until they turn around.  This means we would not open any new positions.  We are still keeping track of the trades and we will record the results, accordingly, when we close them or the options expire.  Click on the 2011 Portfolio link in the Members Area to view ALL open/ closed trades.

Symantec October 20 calls (from June 2011)
Rediff.com India October 15 calls (from June 2011)
Qualcomm October 65 calls (from July 2011)
Clean Energy October 15 calls (from August 2011)
JDSU Uniphase January 20 calls (from August 2011)
                     January 16 calls (from August 2011)
Lufkin Industries December 80 calls (from September 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.


Blue Nile (NILE, $37.58, down $1.14)

October 40 calls (NILE111022C00040000, $0.90, down $0.50)

November 45 calls (NILE111119C00045000, $1.05, down $0.30)

Thoughts:  Shares of Blue Nile have been hammered recently and hit a low of $30 back in September.  Since then they have formed a nice trading range (yellow box) and we are looking for a run past $40 (black line, green circles).  There will be further resistance at $42-$43 but there is a chance at $45 (orange line, blue circles) if cleared.

Rockwell Automation (ROK, $59.17, down $1.73)

October 65 calls (ROK111022C00065000, $0.50, down $0.30)

November 65 calls (ROK111022C00065000, $1.90, down $0.75)

Thoughts:  Shares could test $65 (green line, black circles) on a run to resistance but we are looking for a breakout to $70 (orange line, blue circle).  Support is at $55 (purple line).



Tiffany (TIF, $66.37, down $0.21)

October 70 calls (TIF111022C00070000, $1.40, down $0.25)

November 75 calls (TIF111119C00075000, $1.85, down $0.15)

Thoughts:  Retail sales at the luxury level are still strong.  Shares look like they are ready to challenge $70 (blue line, purple circles), possibly $75 (orange line, green circles).  Support is strong at $60 (black line, red circles).



O’Rielly Automotive (ORLY, $67.67, up $0.10)

October 70 calls (ORLY111022C00070000, $0.55, up $0.05)

November 70 calls (ORLY111119C00075000, $1.65, flat)

Thoughts:  The 52-week high is $72 and shares could be on the verge of a breakout.


Vivus (VVUS, $7.95, down $0.37)     

March 10 calls (VVUS120317C00010000, $1.85, flat)

December 10 calls (VVUS111217C00010000, $0.50, up $0.05)

Thoughts:  Shares traded to a low of $7.47 on last Monday and closed below $8 for the first time in over a month.  Vivus was back above $8 (green line, blue circles) on Tuesday’s shakeout which has been solid support but fell 4% on Friday.  There is still resistance at $9 (orange line, black circles) and additional support at $7.50 (purple line, orange circles) should shares retreat below $8 again.


  
Freeport-McMoRan (FCX, $34.01, down $0.87)    

November 36 calls (FCX111119C00036000, $1.80, down $0.55)

November 32 puts (FCX111119P00032000, $2.00, up $0.10)

Thoughts:  We have profiled a strangle trade because Freeport could still go either way.  Support is strong at $30 (orange line, purple circles) while a run back to $40 (blue line, green circles) could be in the cards.  This level was multi-year support.