The Dow surged 267 points, or 2.3%, to settle at 11,808. The blue-chips tested 11,600 all week and our target was 11,800 (blue line, black circles). With Friday’s close, it would be hard to imagine the bulls not at least kissing 12,000 which is home of the 200-day moving average. If this level is penetrated then the bulls could make a quick run to 12,200 (orange line, purple circles). Short-term support is now 11,600 with 11,350 (green line, brown circles) providing backup. The Dow was at 11,644 to start the week and added 164 points, or 1.4%. For the year, the index is up 231 points, or 2%.
The S&P 500 zoomed 23 points, or 1.9%, to finish at 1,238. The index tested support at 1,200 (blue line, orange circles) on Monday and we had to wait until Tuesday for 1,225 to print and confirmation the index was going to push 1,250 (green line, black circles). We said last week if the bulls could clear this level then 1,275 (orange line, green circles) and the 200-day MA would come into play. Same deal this week. The S&P was at 1,224 before Monday’s opening bell and advanced 14 points, or 1.1%, for the week. For 2011, the index is still down 19 points, or 1.5%.
The Nasdaq zoomed 39 points, or 1.5%, to settle at 2,637. Tech tested a low of 2,557 on Thursday which is short-term support if 2,600 (green line, orange circles) breaks on a pullback. If the 2,550 level is taken out then there is further support at 2,500 (blue line, black circles). If the bulls can get a close above 2,650 then expect a pop to 2,700-2,750 (purple line, blue circles) and a test of the 200-day MA. Tech started Monday’s session at 2,667 and fell 30 points, or 1.1%, for the week. YTD, the Nasdaq is still showing a slight decline of 15 points, or 0.6%.
The S&P Volatility Index (^VIX, 31.32, down 3.46) came into the week below 30 (orange line, purple circles) and at 28. The bulls will try to get the VIX back below 30 on a continued move higher and we said there could be a test down to 22.5 (green line, black circles) if the bulls push 1,300. The bears will be looking to take the VIX back above 40 (blue line, green circles) after pushing 37 on Thursday and before Friday’s rally.
There have been some positive developments concerning Europe, yes, but the big driver of this market could be corporate earnings. With 3Q earnings hitting mid-stride, nearly 75% of the companies that have confessed have beat or matched Wall Street’s expectations. Usually, the fourth-quarter are most companies best quarters so expect January’s numbers to be even better.
The market is trading right on our price targets and so far we have been able to track its recent moves pretty well. As some point, we will get caught with a few trades but the trend has been up for 3 weeks and we will ride the wave until the bulls hit shore.
Friday’s action was bullish because Europe added a “backup” meeting on Wednesday in case the top brass can’t come up with a game “plan” to stabilize the eurozone. We will continue to watch the VIX and the 200-day MA’s and we also said October is historically bullish. However, just in case there is a curveball, we are ready switch sides. In fact, trading could get choppy as we near the 200-MA’s and there could be delays or flaws in Europe’s plan to get things right. There could also be other headwinds so we are always respectful of both sides as the bears aren’t going anywhere.
The rally from the October 4th lows and been incredible to say the least, but, in the overall scheme of things the market is still flat for the year. So, don’t get too caught up in what the talking heads are saying or some of the knuckleheads who only have one view on the market. We also said last week fund managers could chase any rally or breakout and this will be the week they have to commit if they are going to make their clients any money this year.
We mentioned at the beginning of the month that statistically, October, which has been known to be the month of big crashes, averages gains of 0.6% for the month. Well guess what? We may have already seen the October crash if the bulls crack another layer of resistance and can get through this week.
The bounce since has been phenomenal to say the least. We will still keep an eye on our downside targets but the trend is still up for now. We could see a slight pullback after this week as Europe’s uncertainty gets closer but let’s enjoy the ride first. We should know something by the first week of November on if “the plan” is going to work or not. If there are no speed bumps, the bulls should cruise to new highs by year-end but if there is, or Europe’s debt doesn’t get resolved – the bears could push new lows. Bottom line, the market is setting up for a massive move either way.
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.
Spreadtrum Communications (SPRD, $22.90, up $0.48)
January 25 calls (SPRD120121C00025000, $2.30, flat)
Entry Price: $1.50 (9/9/11)
Exit Target: $2.80
Stop Target: $1.05, raise to $1.55
November 24 calls (SPRD111119C00024000, $1.30, up $0.10)
Entry Price: $1.00 (10/20/11)
Exit Target: $2.80
Stop Target: $1.05
Action: Shares kissed a high of $23 (green line, purple circles) on Friday and our price target is north of $25. The 52-week and all-time high is $24.20 and we are on the verge of a breakout. Support is at $21 (orange line).
PowerShares QQQ (QQQ, $57.30, up $0.71)
November 58 calls (111119C00058000, $1.45, up $0.20)
Entry Price: $1.60 (10/19/11)
Exit Target: $2.40
Stop Target: 80 cents, raise to $1.00
Action: The 52-week high for the QQQ’s is $59.83 and we are expecting a run past $60 on continued strength once $58 (black line, green circles). Support is at $55 (orange line, purple circles).
Qualcomm (QCOM, $52.02 up $0.01)
November 57.50 calls (QCOM111119C00057500, $0.50, down $0.10)
Entry Price: $0.95 (10/18/11)
Exit Target: $1.50-1.90
Stop Target: None
Action: Qualcomm got no love from Wall Street on Friday but our $59-$60 (green line, purple circles) target by mid-November is still doable. We will need to clear $55 (blue line, orange circles), first. Support is at $51 (black line, green circles).
Potash (POT, $49.26, up $0.81)
November 52.50 calls (POT111119C00052500, $1.20, up $0.15)
Entry Price: $1.20 (10/18/11)
Exit Target: $1.80-$2.40
Stop Target: None
Action: We were hoping for a above $50 (green line, black circles) on Friday and we still expect shares to be at $54-$55 (purple line, orange circles) by mid-November. Support is at $46 (black line, blue circles).
SanDisk (SNDK, $49.76, up $4.26)
November 50 calls (SNDK111119C00050000, $2.35, up $1.30)
Entry Price: $1.30 (10/13/11)
Exit Target: $2.60
Stop Target: $1.05, raise to $1.50
Action: SanDisk went out near its high on Friday and the 52-week peak is at $53.61. There is resistance at $50 (black line, orange circles) but if cleared, should lead to a run to new highs. Short-term support is at $45 (green line, purple circles).
We set a sell limit price to close half of the trade at $2.50-$2.60 on Friday but the options didn’t quite make it to our exit target. Let’s see how we start today’s session before doing anything so cancel any open sell orders.
O’Reilly Automotive (ORLY, $70.42, down $0.32)
November 75 calls (ORLY111119C00075000, $0.50, down $0.10)
Entry Price: $0.55 (10/10/11)
Exit Target: $1.10
Stop Target: None
Action: We were looking for $70 (black line, purple circles) to hold on Friday which is short-term support and prior resistance followed by $69 (orange line, brown circles). Shares traded up to $71.44 and the 52-week high is $72 (green line, red circle). A break above this level will also lead to blue-sky territory. The company will report earnings this Wednesday so there will be some risk in keeping this trade open through the event.
Seattle Genetics (SGEN, $20.93, up $0.47)
November 17.50 puts (SGEN111119P00017500, $0.40, down $0.20)
Entry Price: $0.60 (10/5/11)
Exit Target: $1.20
Stop Target: None
Action: Shares were on the verge of falling below $20 multiple times last week and on Friday they gained 2%. We are going to stick with the trade as long as shares stay below resistance at $21.50$22 (blue line, orange circles).
Rambus (RMBS, $16.69, up $0.50)
November 16 calls (RMBS111119C00016000, $3.25, up $0.10)
Entry Price: $2.40 (9/26/11)
Exit Target: $5+ (closed half at $3.05 on 10/20/11)
Stop Target: $2.45
Action: Shares traded up to $17.14 last week and $16.99 on Friday as $17 (green line, black circles) is acting as short-term resistance. The break above prior resistance at $15 (black line, orange circles) will now serve as short-term support. We are expecting a run back to $19-$20 (blue line, purple circle) but a major move to $25 could be in store if the company can win its current legal battle which is entering its 6th week of deliberations.
Other 2011 Portfolio OPEN positions (2): 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.
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.
Pepsico (PEP, $62.28, up $0.16)
November 62.50 calls (PEP111119C00062500, $1.10, down $0.10)
January 65 calls (PEP120121C00065000, $0.95, flat)
Thoughts: If shares can close above $63 (black line, purple circles) then we may take a chance on shares reaching $65 (green line, orange circles). Support is at $60 (blue line, brown circles).
Cabot Oil & Gas (COG, $70.29, up $1.42)
November 80 calls (COG111119C00080000, $1.60, up $0.10)
Thoughts: The chart shows resistance at $70 (black line, orange circles) and the next wave comes in at $75 (green line, purple circles). The 52-week high is $78+ and shares are capable of big moves. Short-term support is at $67.50 (blue line, green circles).
iRobot (IRBT, $29.68, up $1.72)
November 30 calls (IRBT111119C00030000, $1.95, up $0.65)
Thoughts: We still like these calls on a break above $30 (black line, green circles) which could lead to a quick pop to $32 (blue line, black circles). Support is at $28 (purple line, orange circles).
Vivus (VVUS, $8.66, up $0.32)
March 10 calls (VVUS120317C00010000, $2.05, up $0.20)
December 10 calls (VVUS111217C00010000, $0.45, up $0.05)
Thoughts: Vivus continues to hold support at $8 (green line, blue circles) and faces strong resistance at $9 (orange line, black circles). There is additional support at $7.50 (purple line, orange circles) should shares retreat below $8 but we are looking for a breakout. The company resubmitted their obesity drug, Qnexa, for approval after labeling the drug unsafe for women capable of having children. A decision could come in early 2012. We may not sell another call option until we do get the breakout as the options pits have become pretty active which is leading us to believe traders are taking positions for a big move higher. The November 10 calls traded 1,600 contracts on Friday while the January 10’s traded an even 1,000 contracts. The March 12 calls traded over 2,500 contracts.