11:30pm (EST)

1.  Market Summary

2.  Zoom Technologies (ZOOM) – Zoom or Doom?

3.  Molex (MOLX) – Value Play with Strong Cash Flow

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 month of October is always a scary month for Wall Street despite being, historically, one of the better months to trade.  Well, this October has been no different as we head into Halloween and the last day before we officially close the books and look ahead towards November and the “Christmas Rally”.

The bulls have been cruising and started last week on a 3-week winning streak as they looked to push the major indexes towards their 200-day moving averages.  They got off to a great start on Monday as the market danced around this technical level on enthusiasm of Europe getting a debt deal done.  The bulls were able to push the market higher by 2%, on average, as the Dow and S&P closed just below their 200-day MA’s while Tech finished above its as the Nasdaq kissed 2,699.

Of course, in took less than 24 hours for Wall Street started to worry that a deal wouldn’t get done by Wednesday’s “deadline” which weighed on the indexes.  Tuesday’s drubbing wiped-out all off Monday’s gains and then some which gave the bears hope that there could be a delay by the European Union (EU) to stabilize the financial crisis.

Wednesday was choppy after the EU pushed back the plan to get something done but the bulls got a lift when word spread China was going to buy into Europe’s bailout fund.  After testing support, the bulls pushed resistance in the afternoon as the market finished higher by 1%.  There was some positive news after the close as well when the market learned the bailout fund could reach $1+ trillion.

Sure enough, Thursday’s futures were pointing towards a huge open after Europe’s 3-step plan to fix the debt crisis was approved late Wednesday night.  The market soared 3% on the news as all three moving averages pushed their 200-day MA’s (moving average).

There was a chance for a pullback on Friday considering the big spike but the bulls still pushed the action.


The Dow added 23 points, or 0.2%, to settle at 12,231.  The blue-chips made a strong run past resistance at 12,200 (orange line, purple circles) which was our upper-end target from last week.  The next run by the bulls could get the index to 12,600 (black line, green circles) over the near-term and the July highs.  Support is at 12,000 and the 200-day MA should there be a pullback but we have penciled in 11,900 (green line, black circles) if things get stretched.  The Dow started Monday at 11,808 and managed to gain 422 points, or 3.6%, for the week.  The index is now up 654 points, or 5.6%, YTD.

The S&P 500 gained a half-point on Friday, or 0.04%, to finish at 1,285.  The index made a strong push past resistance at 1,250 (blue line, green circles) on Thursday and we mentioned a test to 1,275 and the 200-day MA could be in play last week.  The bulls will try to clear 1,300 (black line, orange circles) next with a chance at 1,325 if the momentum lasts.  If these levels are achieved then the bulls could be looking for a run to 1,350 (purple line, brown circles) by Thanksgiving or Christmas.  The S&P was at 1,238 to start the week and advanced 47 points, or 3.8%, by the end of Friday’s session.  For the year, the index is now showing a gain of 28 points, or 2.2%.

The Nasdaq slipped a little over a point, or 0.05%, to settle at 2,737.  Tech rebounded and made a run at 2,750 (purple line, black circles) before finishing just below this level to end the week.  The next test comes at the July highs and 2,850 (blue line, brown circles).  Support is at 2,600 (green line, orange circles).  For the week, the Nasdaq surged nearly 100 points, or 3.8%, after starting Monday’s session at 2,637.  For 2011, Tech is up 85 points, or 3.2%.

The S&P Volatility Index (^VIX, 28.24, down 2.46) fell 15% on Thursday after hovering near 30 (orange line, purple circles) for much of the week.  We have been mentioning a possible move down to 22.5 (green line, black circles) on a continued rally and a reading below 20 could be in the cards if the market rallies thru year-end.

With 3Q earnings winding down, we were surprised to see some weakness in some of the higher echelon stocks.  Amazon.com (AMZN, $217.32, up $10.54) dipped below $200 after falling nearly $30 on Wednesday but made a nice recover by Friday.  3M (MMM, $81.00, down $0.41) fell $5 after they announced but also recovered on Thursday’s big pop.

Things weren’t all bad though as F5 Networks (FFIV, $107.63, up $1.91) and Caterpillar (CAT, $96.85, up $0.58) said some good things.

There will be some big names reporting earnings but with the market will more likely focus on economic news this week while keeping an eye on Europe’s developments.  While Wall Street knows their problems weren’t solved overnight, it seems traders are putting the euro-zone crisis on the side burner for now but will still be watching to see if things start to boil over again.

We mentioned in our Daily that the “Super Committee” will be in the spotlight here at home and their plans on reducing the deficit need to be in place before Thanksgiving.  This could become another circus like the one we saw in August but maybe the politicians learned their lesson.  Nah…

If  by chance, the Super Committee does show some serious spending cuts and things go smooth then expect the market to challenge new highs for the year sometime in December.  There is still plenty of headline risk for the market and there could be a skeleton or two that sneaks out of the closet but for the most part, we don’t see a double-dip recession coming with 75% of the companies reporting, beating earnings.

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2.  Molex (MOLX) – Value Play with Strong Cash Flow

Molex (MOLX, $25.47, down $0.41) just reported record earnings and is lloking poised to go higher in the coming months.

The $4.47 billion telecommunication electronics company based in Lisle, Illinios reported earnings on Tuesday, October 25th for the 1st quarter ending September 30th.  Earnings were $0.46, beating analysts’ estimates of $0.42 and 7.2% higher than the $0.43 it reported a year ago.  Revenue was $936 million, beating analysts’ estimates for $898.5 million and was up 4.3% year-over-year.  Revenue, earnings, and cash flow reached new records while gross margin, capital spending, and price erosion remained healthy.

In 2010, the global connector market reached $45 billion and is estimated to reach $66 billion by 2015.  Given that the company’s total revenue is only $936 million, it has a lot of room to grow.

The company isn’t a one-trick pony and makes more than just connectors, with over 100,000 products, including everything from electronic, electrical, and fiber optic interconnects to switches and application tooling.  Products can be separated into six groups listed below.

The automotive segment, which brought in 15% of total revenue, grew 17% from the year-ago quarter and includes electronic content for safety systems, powertrain, infotainment, and body electronics.  The company expects increasing demand due to the increasing electronic content in automobiles and its exposure to China, where a large amount of auto manufacturing has shifted.

The infotech segment, which brought in 26% of total revenue, was up 6% sequentially and growing 20% from the year-ago quarter, includes fiber optics and high-speed data and small form factor products used in server, storage and tablets markets, which are experiencing high demand.  The company also benefited from continued investment in servers and storage that was driven by data center upgrades.  It’s acquisition of Luxtera expanded its optical cable business.

The telecom segment, which brought in 23% of total revenue, was down 2% sequentially and 5% year-over-year, includes infrastructure and mobile phone components, connectors, and antennas.  The decline in revenue for the segment was due to lower revenue for infrastructure components, particularly in North America and Europe, which was partially offset by higher demand for mobile phone components.  The company sees good opportunities in mobile phones, particularly due to continued adoption of smartphones and the introduction of new functionality to ever smaller devices.  It also expects this area to grow long-term as internet usage continues to expand through more mobile devices, the adoption of cloud computing, and increased use of video, all of which will drive a need for additional capacity and higher speeds.

The consumer electronic segment, which brought in 20% of total revenue, was up 14% sequentially and down 2% year-over-year, includes earphones, jumpers, components for gaming machines, connectors for home and portable audio, digital still and video cameras, DVD players, and recorders.  This segment may face short-term headwinds due to consumer confidence and the global economy, but is projected to do well in the long run due to expected growing demand in developing countries.

The industrial segment, which brought in 13% of total revenue, was down 6% sequentially and 4% year-over-year, includes network interface cards, software for industrial networks, cord sets, electrical solutions, and I/O connectors for industrial production equipment, as well as portable lighting.  The business typically reflects global GDP growth rates.

The medical/military segment, which brought in 3% of total revenue, was down 6% sequentially and 8% year-over-year, includes connectors and custom integrated systems for diagnostic and therapeutic equipment used in hospitals, including x-ray, magnetic resonance imaging, and dialysis machines as well as solid-state lighting products and connectors used in military technology.

Both gross margin and operating margins expanded in the quarter, despite cost pressures.  Its recent restructuring lowered the fixed cost, and to hedge against costs, about 25% of labor is on temporary contracts.  Free cash flow exceeded net income, which should support the dividend while it plans to expand the business through mergers and acquisitions.  Price erosion was below historic averages, keeping margins high.  The company should benefit from the rising demand for mobile devices as well as the need to enhance network capacity and to replace aging hardware.

Guidance for the December quarter for revenue is from $870 million to $910 million.  Earnings are expected to be from $0.37 to $0.43 per share.  Analysts predict that earnings and revenue will come at $0.42 on $896.60 million in the 2nd quarter (12/11).  In the 3rd quarter (3/12), analysts are looking for earnings and revenue of $0.40 on $885.64 million.  Estimates are included in graphs below.

Analysts seem to expect that revenue and earnings will fall, which is possible since the company noted concerns.

Compared to its top competitors and its industry, the company does not look overvalued.


APH = Amphenol Corporation                                             MEI = Methode Electronics      RFIL = RF Industries

TEL = TE Connectivity           Industry = Diversified Electronics

MOLX APH MEI RFIL TEL Industry
Price/Sales 1.27 2.10 0.82 1.24 1.15 0.74
Price/Book 1.92 3.73 1.40 1.18 2.06
Trailing PE 14.98 15.90 21.58 17.21 13.36 11.17
Forward PE 12.93 15.45 14.88 10.95
PEG 1.44 1.18 1.66 0.96 0.67
Revenue Growth (%) 7.80 8.90 12.00 17.00 20.90 7.70
Gross Margin (%) 30.33 31.94 20.39 50.02 31.19 31.19
Total Debt/Revenue 0.095 0.322 0.061 0.076 0.212
Cash Flow/Revenue 0.130 0.141 0.059 0.002 0.120
Current Ratio 2.33 3.52 3.44 3.95 1.86
Market Cap/Revenue 1.245 2.099 0.813 1.249 1.163 0.487
Market Cap/Cash 8.179 10.600 4.240 4.023 13.017
EV/Revenue 1.19 2.22 0.68 1.02 1.27
EV/EBITDA 6.21 9.87 9.02 8.42 7.18
Return on Assets (%) 8.13 11.59 3.25 5.53 6.69
Return on Equity (%) 13.73 24.83 6.37 7.06 16.42
Total Debt/Equity 14.47 56.75 10.41 7.23 35.18
Dividend Yield (%) 3.10 0.10 2.90 6.20 2.40
Dividend Change (%) +0.20 +2.80 +0.50

Source: Numbers calculated from Yahoo Finance

On negative side, MOLX’s revenue growth is the lowest in the group.  Through in the higher end, the price/sales and price/book are not greater than two.  The PEG and growth margin is the middle.  Total debt/revenue is a little high, but cash flow/revenue is also high.  This means that the company can convert a lot of revenue into cash flow.  The current ratio is the second lowest, but above two, meaning current assets are over twice current liabilities.  Thus, credit doesn’t seem a problem.  The market cap, or price, is 1.245 times revenue and 8.179 times cash.  One positive, the EV/EBITDA is the lowest in the group, and it is 6.21, close to 5 which is used to find acquisition targets.  Also, return on assets and return on equity are the second and third highest in the group.  The dividend yield is the second highest in the group, and it is rising, a positive sign.

At $25.47, the stock is just above its median target of $25.00 made by the 12 analysts recorded by Thomson/First Call.  Mean target is $24.75; high target is $29.00; and low target is $19.00.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.6, down from 2.5 a week ago.


Current Month Last Month Two Months Ago Three Months Ago
Strong Buy 3 3 3 3
Buy 3 4 4 3
Hold 7 6 6 6
Underperform 1 1 2 2
Sell 1 1 1 0

Since most fundamentals look positive while not all the technicals are negative, we may to see if shares come down a little before possibly thinking of starting a position – but we like the company.

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3Zoom Technologies (ZOOM) – Zoom or Doom?

Investing in stocks under $5 can be a risky endeavor, especially Chinese stocks, but there are some worth looking into if you see other high-profile making small investments in them.  Spreadtrum Communications (SPRD, $25.88, up $0.52) recently announced an 8% stake in Zoom Technologies (ZOOM, $2.09, down $0.02) that might be worth watching.

The $33 million Beijing, China electronics and telecommunication manufacturer competes with Foxconn International Holdings, BYD Company and HTC Corporation.

Foxconn is Apple’s manufacturer.

While Zoom may be a legitimate company, it seems like 95% of Chinese RTOs (reversed-merged shares) have fraud allegations, so we need to be careful.  Thus, it is no wonder why the stock is has fallen to $2 a share.


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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, 10/28/11).


MONDAY

AbitibiBowater (ABH, $17.01, up $0.11), Acura Pharmaceuticals (ACUR, $4.62, down $0.16), Alleghany (Y, $319.80, down $0.45), Allstate (ALL, $27.16, down $0.55), American Dental Partners (ADPI, $10.90, up $0.05), American Learning (ALRN, $2.08, up $0.18), Annaly Capital Management (NLY, $16.98, up $0.07), Black Diamond (BDE, $8.89, Flat), Cambrex (CBM, $5.66, down $0.15), Carolina Bank Holding (CLBH, $2.36, down $0.29), Celldex Therapeutics (CLDX, $3.03, down $0.14), Changyou.com (CYOU, $30.00, up $1.09), Clear Channel Outdoor Holdings (CCO, $11.21, down $0.08), Cooper Tire and Rubber (CTB, $14.33, down $0.44), Dehaier Medical Systems (DHRM, $1.73, up $0.09), Dolby Laboratories (DLB, $30.74, up $0.21), Essex Rental (ESSX, $2.86, up $0.19), Fidelity Bancorp (FSBI, $8.74, down $0.45), Forest Oil (FST, $12.59, up $0.24), General Cable (BGC, $30.03, up $0.42), Greenlight Capital (GLRE, $23.21, down $0.17), Harris Interactive (HPOL, $0.62, up $0.04), Humana (HUM, $80.35, up $0.01), Idera Pharmaceuticals (IDRA, $1.55, down $0.02), Kid Brands (KID, $3.09, up $0.09), Leap Wireless International (LEAP, $6.85, down $0.03), Loews (L, $41.28, down $0.14), Manhattan Bridge Capital (LOAN, $1.01, down $0.05), Medallion Financial (TAXI, $11.53, down $0.13), New Frontier Media (NOOF, $1.12, down $0.02), Oxigene (OXGN, $1.53, down $0.01), Performance Technologies (PTIX, $1.85, up $0.04), Psychemedics (PMD, $8.95, down $0.05), Pure Bioscience (PURE, $0.68, up $0.03), Real Goods Solar (RSOL, $1.70, down $0.06), Shaw Group (SHAW, $22.18, up $0.88), Skilled Healthcare Group (SKH, $3.71, down $0.23), Sohu.Com (SOHU, $69.00, up $4.82), Taser (TASR, $4.84, down $0.18), Vornado Realty Trust (VNO, $83.11, up $0.44), Winn-Dixie Stores (WINN, $6.58, down $0.11), Zanett (ZANE, $0.40, up $0.02)


TUESDAY

American Capital (ACAS, $8.03, up $0.03), American Tower (AMT, $56.32, up $0.20), AmerisourceBergen (ABC, $42.08, up $0.59), Baker Hughes (BHI, $60.89, up $0.47), Black Box (BBOX, $29.45, down $0.16), Blackbaud (BLKB, $28.77, up $0.08), Cal Dive International (DVR, $2.41, up $0.38), CF Industries (CF, $170.14, up $4.00), Checkpoint Systems (CKP, $13.67, up $0.12), Corinthian Colleges (COCO, $1.87, down $0.02), Cray (CRAY, $6.82, up $0.10), Denny’s (DENN, $3.58, down $0.02), DigitalGlobe (DGI, $21.42, up $0.17), Dunkin Brands Group (DNKN, $27.89, down $0.21), FirstEnergy (FE, $45.41, down $0.18), Fiserv (FISV, $60.76, down $0.40), Fresh Del Monte Produce (FDP, $26.30, down $0.25), GeoEye (GEOY, $36.65, up $0.03), Healthcare Realty Trust (HR, $19.18, up $0.26), Insperity (NSP, $26.71, down $0.47), Jazz Pharmaceuticals (JAZZ, $40.01, up $0.15), Leapfrog Enterprises (LF, $3.90, up $0.03), Martha Stewart Living Omnimedia (MSO, $4.08, up $0.01), Metabolix (MBLX, $5.42, up $0.09), National Research (NRCI, $33.56, up $0.50), OpenTable (OPEN, $46.68, down $0.32), Peets Coffee & Tea (PEET, $63.46, down $0.54), Pfizer (PFE, $19.82, up $0.16), Pitney Bowes (PBI, $20.70, down $0.12), Quicklogic (QUIK, $3.13, up $0.20)


WEDNESDAY

Affymetrix (AFFX, $5.83, up $0.10), AOL (AOL, $14.65, up $0.01), Becton Dickinson (BDX, $79.64, up $1.48), CenturyLink (CTL, $35.96, up $0.34), Clean Harbors (CLH, $57.64, down $1.11), Clorox (CLX, $66.23, down $2.34), Comcast (CMCSA, $23.85, down $0.74), Dendreon (DNDN, $11.29, up $0.35), Dice Holdings (DHX, $11.00, up $0.70), Extreme Networks (EXTR, $3.09, down $0.06), Fisher Communications (FSCI, $29.92, down $0.69), Foster Wheeler (FWLT, $22.32, down $0.28), Garmin (GRMN, $35.09, up $0.29), Great Wolf Resorts (WOLF, $2.29, down $0.06), Hanesbrands (HBI, $27.32, down $0.39), Health Net (HNT, $28.94, up $0.85), Hyatt Hotels (H, $37.36, down $0.72), Insignia Systems (ISIG, $2.30, down $0.09), J2 Global Communications (JCOM, $31.16, up $0.09), Kimco Realty (KIM, $17.90, up $0.23), Level 3 Communications (LVLT, $26.56, down $0.84), Marsh and Mclennan Companies (MMC, $30.95, down $0.84), Mastercard (MA, $354.58, up $5.43), Matrix Service (MTRX, $11.15, down $0.25), Natural Resource Partners (NRP, $29.91, up $0.12), OraSure Technologies (OSUR, $9.63, up $0.01), Penske Automotive Group (PAG, $21.03, down $0.37), Qualcomm (QCOM, $53.23, down $0.29), RealD (RLD, $11.19, down $0.18), Skywest (SKYW, $13.59, down $0.08), Speedway Motorsports (TRK, $13.27, down $0.38), Tesla Motors (TSLA, $29.87, up $1.11), Time Warner (TWX, $35.47, up $0.13), Valueclick (VCLK, $17.50, down $0.23), Vulcan Materials (VMC, $33.21, down $1.42), Walter Energy (WLT, $81.25, up $2.09), Whole Foods Market (WFM, $73.65, down $0.55), Zillow (Z, $30.51, down $0.26), Zipcar (ZIP, $21.00, up $1.48)


THURSDAY

AboveNet  (ABVT, $59.84, up $0.33), Alkermes (ALKS, $18.03, up $0.39), Alpha Natural Resources (ANR, $26.56, up $1.57), Apache (APA, $104.99, up $3.08), Ariad Pharmaceuticals (ARIA, $11.90, up $0.18), bebe stores (BEBE, $7.41, down $0.24), Blount International (BLT, $16.04, down $0.25), Cache (CACH, $5.15, down $0.14), CBS (CBS, $25.80, down $0.89), Chesapeake Energy (CHK, $29.74, up $0.58), Con Way (CNW, $30.32, down $0.06), DineEquity (DIN, $48.94, up $1.30), Duke Energy (DUK, $20.46, down $0.19), Energizer Holdings (ENR, $75.18, down $0.96), Fluor (FLR, $59.63, down $0.07), Genworth Financial (GNW, $6.85, down $0.08), Great Plains Energy (GXP, $21.11, down $0.14), Health Care REIT (HCN, $53.54, up $1.05), Innerworkings (INWK, $9.27, down $0.16), J & J Snack Foods (JJSF, $52.77, down $0.58), K Swiss (KSWS, $4.63, down $0.11), Kellogg (K, $54.78, down $0.29), LinkedIn (LNKD, $93.93, up $6.70), Live Nation Entertainment (LYV, $9.82, up $0.26), Mannkind (MNKD, $3.13, down $0.10), Microchip Technology (MCHP, $36.46, up $0.10), National Health Investors (NHI, $45.08, down $0.50), O Charleys (CHUX, $6.45, down $0.01), Openwave Systems (OPWV, $1.51, down $0.11), Orbitz Worldwide (OWW, $1.92, down $0.02), Pansoft (PSOF, $2.18, up $0.11), Public Storage (PSA, $131.52, up $3.23), RealNetworks (RNWK, $10.02, up $0.01), Red Lion Hotels (RLH, $7.11, up $0.02), Rosetta Stone (RST, $9.94, up $0.04), Sara Lee (SLE, $18.17, up $0.30), Savient Pharmaceuticals (SVNT, $3.93, up $0.05), Skyworks Solutions (SWKS, $20.29, down $1.09), Strayer Education (STRA, $87.84, down $1.22), SunPower (SPWRA, $10.58, down $0.04), Telik (TELK, $0.28, up $0.02), World Wrestling Entertainment (WWE, $10.40, down $0.13)


FRIDAY

Aes (AES, $11.65, up $0.13), Arbor Realty Trust (ABR, $3.70, up $0.13), Assisted Living Concepts (ALC, $14.56, down $0.24), Buckeye Partners (BPL, $67.99, up $0.70), Cascade Bancorp (CACB, $5.85, down $0.04), Constellation Energy Partners (CEP, $2.72, up $0.06), Dixie Group (DXYN, $3.05, down $0.06), Global Industries (GLBL, $7.95, down $0.01), iGate (IGTE, $14.02, down $0.03), Jinkosolar Holding (JKS, $9.84, up $0.93), Madison Square Garden (MSG, $26.59, down $0.43), Nathan’s Famous (NATH, $19.17, up $0.37), Novavax (NVAX, $1.69, down $0.01), Olympic Steel (ZEUS, $21.80, down $0.45), Pepco Holdings (POM, $20.13, up $0.24), Sky-mobi (MOBI, $5.34, up $0.31), Starwood Property Trust (STWD, $18.98, down $0.19), Summit Hotel Properties (INN, $8.28, down $0.38), Treehouse Foods (THS, $61.93, down $1.47), United Bancshares (UBOH, $8.00, down $0.09), US Concrete (USCR, $3.54, down $0.20), Ventas (VTR, $56.04, up $1.37), Washington Post (WPO, $361.10, up $4.96), Zhongpin (HOGS, $9.50, down $0.23)


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5. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 10/28/11)


WEEKLY WRAP CLOSED TRADES for 2011 (12-0): F + 7%, RMBS +16%, SYMC +4%, VVUS +18%, DNDN +9%, PCX +13%, SGEN +26%, TIVO +34%, REDF +11%, PCX +7%, GE +5%, CLNE +13%


Dendreon (DNDN, $11.29, up $0.35)


November 10 calls (DNDN111119C00010000, $1.85, up $0.30)


Original Entry Price:  $9.95 (10/26/11)

Lowered Price from Selling Options: $8.85

Exit Target: $10+

Return: 26%

Stop Target: None


Action:  We had been flirting with the idea of adding Dendreon for weeks and we finally pulled the trigger after hearing takeover rumors again last week.  We lowered our cost to under $9 by selling a juiced-up call and we are looking for support to hold at $10 (black line, green circles).  Resistance is at $$12.50 (purple line, orange circles) but would represent a breakout with a lot of air to fill.  One curveball is the company will be announcing earnings this week and last time out (August 4, green circle) shares got smashed, falling from $36 to under $12.  Due to this event, there is risk down to $8 on another terrible quarter or a possible pop past resistance on better-than-expected numbers.

We recommended buying the stock at $9.95 on 10/26/11 and for every 100 shares to sell the November calls for $1.  This lowered the cost basis to $8.85.


If shares are called-away by mid-November at $10 the trade makes 12%.



Vivus (VVUS, $9.20, down $0.03)


November 9 calls (VVUS111119C00009000, $0.55, flat)


Original Entry Price:  $8.45 (9/9/11)

Lowered Price from Selling Options: $7.70

Exit Target: $10+

Return: 19%

Stop Target: None


Action:  Vivus made a break above resistance at $9 (orange line, black circles) on Thursday’s big move in the market so we can’t get too excited as it could have beena tide that lifts all boats.  However, if $9 can become new support, we are good to go.  The next area of resistance lies at $10 (green line, purple circles) and if $9 doesn’t hold there is risk down to $8 (blue line, brown circles).  Vivus reports earnings on Monday.

We recommended buying the stock at $8.45 on 9/9/11 and for every 100 shares to sell the October 9 calls for 40 cents.  This lowered the cost basis to $8.05.

On 10/26/11 we recommended selling the November 9 call option for $0.35 which lowered the cost basis to $7.70.


If shares are called-away by mid-November at $9 the trade makes 17%.



MGM Resorts (MGM, $12.02, up $0.30)


November 11 calls (MGM111119C00010000, $1.35, up $0.20)


Original Entry Price:  $11.73 (8/12/11)

Lowered Price from Selling Options: $9.73

Exit Target: $12+

Return: 24%

Stop Target: None


Action:  Shares surged 17% for the week and easily cracked resistance at $11 (orange line, purple circles) which is now short-term support.  Headwinds are at $13 (black line, purple circles) and the 200-day MA but this is a going to be a $15 stock in 2012.  Our cost basis is now under $10 and we are guaranteed a double-digit-digit profit if we are called-away in 3 weeks.  If $11 should fall, multi-year support is strong at $10 (blue line, brown circles).  MGM will report earnings on Thursday.

We recommended buying the stock at $11.73 on 8/12/11 and for every 100 shares to sell the September 12 calls for 90 cents.  This lowered the cost basis to $10.83.


On 9/20/11 we recommended selling the October 12 call option for $0.60 which lowered the cost basis to $10.23.


On 10/26/11 we recommended selling the November 11 call option for $0.50 which lowered the cost basis to $9.73.


If shares are called-away by mid-November at $11 the trade makes 13%.



Newpark Resources (NR, $9.23, down $0.11)


December 10 call (NR111217C00010000, $0.45, flat)


Original Entry Price:  $9.45 (7/27/11)

Lowered Price from Selling Options: $8.10

Exit Target: $10+

Return:  14%

Stop Target: None


Action:  Newpark jumped 11% for the week and cleared another wave of resistance which was at $9 (brown line, green circles) and will now serve as short-term support.  The next test comes at $9.50-$10 (blue line, purple circles) which represents multi-year highs.  A run to $15 is possible over the next 3-6 months.  Backup support is strong at $8 (orange line, black circles).

We recommended buying the stock at $9.45 on 7/27/11 and for every 100 shares to sell the August 10 calls for 50 cents.  This lowered the cost basis to $8.95.

On 9/15/11 we recommended selling the December 10 call option for $0.85 which lowered the cost basis to $8.10.

If we are called away at $10 in mid-December, the trade makes 23%.


Rare Element Resources (REE, $6.78, up $0.65)


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

Lowered Price from Selling Options: $11.23

Exit Target: $15+

Return: -40%

Stop Target: None


Action:  Shares gained $1.36, or 25%, for the week and made a strong move past resistance at $6 (green line, black circles).  A possible run to $8 (black line, orange line) is possible on continued momentum.  If shares can make it above $8, we may be able to start writing call options again.

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.



AKS Steel Holding (AKS, $9.17, up $0.94)


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

Lowered Price from Selling Options: $14.58

Exit Target: $20+

Return: -37%

Stop Target: None


Action:  AKS broke major resistance at $8 (purple line, blue circles) after announcing earnings last week and was up over 11% on Friday.  The next challenge will come in at $9.50 (black line, orange circles) but longer-term this is at least a $14 (orange line, green circles) stock.  We didn’t “average” down since we added the DNDN trade last week and we still need to wait until we get to double-digits before writing another call option.

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.


American Capital (ACAS, $8.03, up $0.03)


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

Lowered Price from Selling Options: $8.38

Exit Target: $15+

Return: -4%

Stop Target: None


Action:  Shares were up $1 for the week and also broke through resistance which was at $7.50 (green line, blue circles) and should act as short-term support.  The company announces earnings on Tuesday so there is risk down to $7 (orange line, black circle) on a negative report.  However, if shares make a run to $8.50-$9 (purple line, black circles) on a beat-and-raise quarter then we can close the position or write another call option.

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.


On 9/13/11 we recommended selling the October 9 call option for $0.30 which lowered the cost basis to $8.38.



Cisco Systems (CSCO, $18.56, up $0.12)


November 17 calls (CSCO111119C00017000, $1.75, up $0.10)


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

Lowered Price from Selling Options (and dividends): $15.51

Exit Target: $20+

Return: 20%

Stop Target: None


Action:  Support is at $17 (purple line, brown circles) which was prior resistance.  We said a few weeks ago shares were on their way to $18, possibly $20 (green line, black circles).  By the looks of things, we will easily be called-away from this trade in 3 weeks.

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 7/5/11 the company paid out a 6 cent quarterly dividend.  This lowered the cost basis to $16.52.


On 7/22/11 we recommended selling the August 17 calls for 30 cents which lowered the cost basis to $16.22.


On 9/9/11 we recommended selling the November 17 calls for 65 cents which lowered the cost basis to $15.57.


On 10/4/11 the company paid out a 6 cent quarterly dividend.  This lowered the cost basis to $15.51.


If shares are above $17 by mid-November and we are called away, the trade makes 9%.



Spreadtrum Communications (SPRD, $25.88, up $0.52)


November 25 call (SPRD111119C00025000, $2.20, up $0.35)


Entry Price:  $23.45 (2/7/11)

Lowered Price from Selling Options (and dividends): $20.38

Exit Target: $30

Return: 27%

Stop Target: None


Action:  Spreadtrum had another strong week and added 13% while hitting all-time highs in the process.  Shares started the week just above $22 (green line, blue circles) which was resistance and should act as short-term support should shares retreat below $24 (orange line).  The beauty of this trade is the stock is at all-time highs so there is no overhead resistance.

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.


On 7/7/11 the company paid out a 5 cent quarterly dividend.  This lowered the cost basis to $21.43.


On 9/15/11 we recommended selling the November 25 call option for $1 which lowered the cost basis to $20.43.  If we are called away, the trade makes 22%.


On 10/6/11 the company paid out a 5 cent quarterly dividend.  This lowered the cost basis to $20.38.


If we are called-away in mid-November at $25 the trade will make 23%.



DryShips (DRYS, $2.90. up $0.16)


January 2012 7.50 call (DRYS120121C00007500, $0.02, flat)


Entry Price:  $5.25 (1/03/11)

Lowered Price from Selling Options: $4.60

Exit Target: $8

Return: -37%

Stop Target: None


Action:  DryShips faces strong overhead resistance at $3 (blue line, black circles) while support has moved up to $2.50 (orange line, green circles).

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%.


= = = = = = = = = = = = = = =

6.  Week Ahead


The market faces a number of important events this week and we kick things off with Monday’s Chicago PMI report.  Economists are expecting a print of 59, but if Wall Street can get 60, the bulls will be running by 9:46am, or a minute after the report.


For Tuesday, we the ISM Index numbers at 10am, with expectations set at double-nickels (55), along with Construction Spending.  The market will digest the latest Auto and Truck Sales an hour before the close.  The FOMC will also start their 2-day gathering to talk about the economy.


On Wednesday, all eyes will be on the ADP Employment Change numbers and the Challenger Jobs Cuts Report.  The MBA Mortgage Index is also due out before the bell but if the ADP figures can again come in higher than 100,000 jobs added, it will be bullish.  There are whisper numbers the private sector may have added up to 125,000 jobs.  Later in the day, we will get the all-important FOMC Rate Decision at 12:30pm.


Thursday starts with Initial and Continuing Claims at 8:30 am with Productivity and Unit Labor Costs figures being released as well.  Factory Orders and the ISM Services numbers will be out 30 minutes after the open.


Friday could be crucial in determining if another breakout or a pullback to support is in the cards as the Nonfarm Payrolls report for October and the Unemployment Rate hits the Street.