11:00pm (EST)

1.  Market Summary 

2.  Alpha Natural Resources (ANR) – Coal Could Roll in 2012

3.  Scientific Games (SGMS) – In the Sweet Spot

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.  They will be ready by midnight.)

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1.  Market Summary   

The bulls got off to a great start in a holiday shortened week as the market moved higher by 1.5% following good news from around the world on Tuesday.  Strong manufacturing numbers from Australia, China, and India were helpful and Germany’s unemployment rate ticked lower.  Here at home, the ISM Index and Construction Spending numbers came in better-than-expected which helped the bulls crack another layer of resistance on the first day of trading for 2012.

Wednesday’s action was flat as the market awaited the upcoming employment numbers with the Dow and S&P finishing slightly higher while the Nasdaq fell less than a point.  However, the official “Santa” rally ended in gains.  We had mentioned the historical gains were 1.5% over the last 5 trading days of 2011 and the first 2 of the New Year and the bulls weren’t let down.  The Dow gained 1.6%, or 200 points, while the S&P 500 and Nasdaq advanced 1.9%, or 23 and nearly 50 points, respectively.

The stage was set for a nice pop on Thursday’s open after the Challenger Jobs Cuts came in at 42,000 while the ADP Employment Change report showed the private sector added 325,000 jobs in December.  Initial Claims fell 15,000 to 372,000 while Continuing Claims dropped 22,000 to 3.6 million.  The good news before the open wasn’t enough to avoid a drop to support but the bulls recovered by the closing bell with Tech leading the way higher.

The unemployment numbers for Friday were also better-than-expected with the rate dropping to 8.5%, the lowest in nearly 3 years, as US companies added 200,000 new jobs.  With unemployment claims also falling last week, the 4-week average for new claims is also dropping, as they are down to their lowest level since 2008.  Despite the strong numbers, the market followed Wednesday’s and Thursday’s pattern and finished the session mixed.

The Dow gave back 56 points, or 0.5%, to settle at 12,359 on Friday.  The blue-chips kissed a low of 12,332 and failed to test positive territory.  Near-term support is at 12,350-12,300 which was prior resistance with backup at 12,200 and 12,000.  A bearish trend would develop if we fall below these levels.  The bulls will try to push 12,575-12,600 with an outside shot at 12,750-12,800 if 4Q earnings get off to a good start and there are no other negative headline events.  The Dow started the week at 12,217 and finished with a gain of 142 points, or xx%, which is also the YTD total, of course.

 

The S&P 500 slipped 3 points, or 0.3%, to close at 1,277.  The index held 1,250 all week which was prior resistance and now near-term support and easily took out 1,275 on the first day back.  We said a close above this level could lead to a run to 1,300-1,325 but if we drift back down below 1,250 watch for 1,225 to stick.  If not and 1,200 is tested, then the bears would be back in business.  The S&P started Tuesday at 1,257 and added 20 points, or xx%, for the week. 

The Nasdaq added 4 points, or 0.2%, to end at 2,674.  We mentioned last week Tech would need to get past 2,650 and the 200-day moving average  of 2,660 to keep the momentum going and the run past 2,675 was impressive.  Although we were looking for a close above 2,675, the index looks poised to test 2,700-2,750.  From there it would be on to the 52-week high of 2,887 if earnings impress Wall Street and the bulls can carry the momentum through January.  Any high profile earnings miss or a change in sentiment could cause a pullback which is where we would look for 2,625-2,600 to hold.  If not, and 2,550 falls, then it will be time to look at put options.  The Nasdaq began the week at 2,605 and advanced nearly 70 points, or xx%, to start the year.

The S&P Volatility Index ($VIX, 20.63, down 0.85) fell 4% on Friday after starting the week at 23.40 but Tuesday’s rallied provided a little relief.  We said we would be watching for a move above 25 as a potential bearish signal, but by Wednesday, the VIX was back under the 22.5 level which was our target from October 2010.  We also said the index could trade to the mid-teens if the market tested 52-week highs so the VIX is still giving us incredible signs on where the market is headed.  The talking heads haven’t a clue on how the VIX works and the Wall Street pros will tell you it’s not a very reliable indicator.  Yeah, okay.  Our exact words at the beginning of the month were “a rising VIX above 25 would be early clues a pullback is coming so watch this level closely.”  Same deal going forward and include 22.5 as a possible warning signal as well if we start Monday in the red.    

We mentioned last week that the Russell 2000 could also be a crystal ball on what the market might do over the next few weeks and we talked-up its 3-session win streak on the first trading day of the New Year.  Make it 4-in-a-row.  The index easily cleared our 750 target for a continued rally on Tuesday’s 12-point pop to end at 752.  The index kissed a low of 735 on Thursday’s drop but held 725 and managed a slightly higher 752 close than Tuesday (by 0.03 points) which was bullish.  The Russell did, however, close slightly below 750 to keep us nervous though.  Keep in mind, if the Russell 2000 fades at these levels, it could be another sign the market heads lower or remains trapped in its current 10-week range.    

This week will be all about earnings and Europe will likely take a back seat for once (although we doubt it but it’s nice to type) as the bulls look to get past another layer(s) of resistance.  The downside targets we have covered will be crucial in watching for a slight pullback but be aware that selloffs can also happen and that multiple layers of support can be cracked if the market gets a curveball.

We can worry about February when it gets here but for now, the bulls look in control. 

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 Key of Technicals Used In Following Articles 

  As the Iran crisis pushes oil prices higher, it might be time to look at the other energy fuel.  Plus, despite traditional belief, coal is just not going away.  Alpha Natural Resources, (ANR, $21.20, down $0.52) as one of the largest American coal miners, may be set to benefit and appear to be bottoming.

 2.  Alpha Natural Resources (ANR) – Coal Could Roll in 2012

As the Iran crisis pushes oil prices higher, it might be time to look at the other energy fuel.  Plus, despite traditional belief, coal is just not going away.  Alpha Natural Resources, (ANR, $21.20, down $0.52) as one of the largest American coal miners, may be set to benefit and appear to be bottoming.

A year ago, Alpha Natural Resources, then the third-biggest U.S. coal producer, purchased Massey Energy, the largest coal company in the Central Appalachian region, for $8.5 billion.  The combined companies had more than 110 mines and coal reserves of about 5 billion tons, which created the world’s third-largest metallurgical coal producer, and pushed Alpha into the second-largest U.S. coal company by sales.

The mining and coal industry has been consolidating for some time.  Cliffs Natural Resources (CLF, $66.59, up $0.20), the largest U.S. iron ore miner, tried to purchase Alpha in 2008, but later backed out.  Alpha Natural then merged with Foundation Coal in 2009.  This acquisition diversified the combined companies holdings by adding Foundation Coal’s  low-cost thermal coal reserves and production in the Powder River Basin (Wyoming) with the existing reserves in Central and the Northern Appalachia (West Virginia, Virginia, Kentucky, Pennsylvania).

Coal is known mostly as an energy source.  Although use of this type of coal, called thermal coal, is looked as an industry of the past, the black rock generates 40% of the world’s electricity.  In 2009, 21% of the energy needs in the United States came from coal fired power plants but we are becoming less dependent on coal as an energy source.  However, coal is ever more important abroad, particularly in China, where demand has been surging. 

With the lack of technology to extract energy enough from other sources, such as nuclear, coal should remain as China’s top energy source.  Plus, the nuclear disaster in Japan earlier this year caused some countries to rethink nuclear energy, meaning coal is here to stay.  World electricity demand is expected to grow by 90% from 2008-2035, and 80% is expected to be from coal fired power plants.

The other type of coal, called metallurgic or coking coal, is less known.  It is used in the blast furnace for steelmaking and powers almost 70% of global steel production.  Metallurgic coal is used to help reduce iron ore in the traditional steelmaking process in large furnaces but U.S. steelmakers use mini-mills melt ferrous scrap as their primary raw material and do not require specialty coal.  Thus, most of the metallurgic coal is exported, mainly to Asia.

Alpha Natural Resources mines both thermal and metallurgic coal.  As a leading U.S. supplier and exporter of metallurgical coal, it is second only to Peabody Energy (BTU, $35.99, down $0.32) in revenue and third to Arch Coal (ACI, $15.36, up $0.02) in tonnage sold along U.S.-based coal producers.  As of 2010, the company had nearly 11% of the domestic market, only behind Peabody which had over 17% and Arch Coal which had just over 15%. 

Alpha’s revenue totaled $2.3 billion in the 3rd quarter and total coal revenue was nearly $2 billion, up from $896 million last year.  The remaining revenue came from freight and handling as well as other minor sources.  Freight and handling revenues were $214 million, up from $85.3 million, while other sources provided $93 million, up from nearly $20 million.  Net income came in at $66 million, up from $32 million last year. 

 

Coal shipments in the first three quarters totaled 75.2 million tons, up from 62.7 million tons in the first three quarters of 2010.  Metallurgical coal shipments were 13.9 million tons, up 56% from 8.9 million tons.  Chinese raw steel production increased 18% year-over-year in September and reached an annualized pace of approximately 750 million metric tons, up from an annualized run rate of approximately 720 million metric tons earlier this year.  Thus, the company is still growing at an impressive rate, while Chinese demand may not slow as much as investors feared.

Thermal coal should also see strong demand, primarily by emerging economies in Asia.  China set a new record for coal imports in September, increasing 25% year-over-year to just over 19 million metric tons, and the country is expected to import nearly 120 million metric tons of thermal coal for the full year 2011.  Indian imports have more than doubled since 2008 and are expected to reach nearly 80 million metric tons in 2011.  Imports are projected to exceed 200 million tons per year later this decade.  Alpha Natural has more than 25 million tons of export terminal capacity annually, so it can capitalize on this demand.  Meanwhile, demand for thermal coal is stagnant in the United States.

The graphs below show the trend in revenue for the company as well as earnings and expenses.  Analysts’ estimates are included and Alpha Natural will report their numbers in mid-February.

Clearly from the revenue graph, profit margins are low, as can be seen by comparing the revenue with the expenses.  The good news is that revenue is rising, and revenue estimates seem too low.  The story is different for earnings, as they have been all over the place. 

The chart below compares the ANR its top competitors and industry.

ACI = Arch Coal                   BTU = Peabody Energy            CNX = CONSOL Energy

JRCC = James River Coal      Industry = Industrial Metals & Minerals 

 

ANR

ACI

BTU

CNX

JRCC

Industry

Price/Sales

0.81

0.85

1.29

1.49

0.28

5.36

Price/Book

0.59

0.92

1.86

2.56

0.60

Trailing PE

44.44

21.10

10.37

16.23

15.55

9.54

Forward PE

12.62

6.19

7.38

10.71

             PEG            

0.32

0.36

0.27

0.37

2.37

0.64

Revenue Growth (%)

129.60

37.00

9.20

13.70

77.30

21.70

Gross Margin (%)

23.88

25.12

28.57

37.06

18.04

49.16

Operating Margin (%)

9.16

11.58

18.65

15.61

3.64

2.42

Profit Margin (%)

1.25

3.41

12.43

9.22

1.56

     Current Ratio    

1.53

1.53

2.09

1.46

2.73

Cash Flow/Revenue

0.120

0.187

0.183

0.256

0.153

Cash/Equity

9.64

4.47

26.33

13.79

46.22

Debt/Equity

36.15

109.71

47.02

93.36

128.23

EV/Revenue

1.15

1.83

1.43

1.96

0.65

EV/EBITDA

6.03

8.27

5.83

6.92

4.83

Return on Assets (%)

3.08

3.76

7.83

4.80

2.11

Return on Equity (%)

1.37

4.56

19.83

16.59

4.58

Short Interest (%)

9.00

9.20

4.60

2.39

39.00

Source:  Numbers calculated from Yahoo Finance

Alpha has the best revenue growth and price/book among the group.  Price/ Sales are also one of the lowest among the group.  The PEG of 0.32 is good but the trailing and forward PE are the highest among the group.  The operating margin, profit margin, current ratio, and cash flow/revenue are among the lowest.  The return of assets and return of equity are also very low. 

There may be more consolidation in the industry, as many companies including Alpha have EV/EBITDA low enough to suggest a takeover candidate.  Companies usually target acquisitions with a low enterprise value/EBITDA of about 5.

At $21, the stock is below its low target of $26 made by the 21 analysts recorded by Thomson/First Call.  Mean target is $36 and the high target is $58.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock is 2.

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

7

7

8

8

Buy

10

11

9

7

Hold

8

7

8

8

Underperform

0

0

0

0

Sell

1

1

0

0

 Analysts are upgrading the stock.  The month of November saw one overweight initiated by Barclay’s Capital and one upgrade to market outperform by energy analyst Howard Weil.

With mixed signals, let’s wait to see if $20 holds and $23 is cleared before taking positions. 

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 3.  Scientific Games (SGMS) – In the Sweet Spot

 News that the Justice Department passed a ruling that could pave the way to more online gambling and there are a number of companies we like.  The Casino stocks have been depressed for months but could make a big comeback in 2012.  One stock we like that could be in the think of things is Scientific Games (SGMS, $10.48, up $0.08).

 This reversal of this law will benefit the company in a big way and there is already speculation about expansion to online lotteries.  Scientific Games is the largest printer of instant scratch lottery tickets with a capacity to print 48 billion cards annually.  Since 1974, they have printed more than 300 billion instant lottery tickets for over 120 lotteries worldwide.  They manufactures more cards annually than all other lottery suppliers combined. 

 Scientific Games also provides ticket design and manufacturing, as well as game design, sales, marketing support, prepaid phone cards, licensed games, promotional entertainment, and internet services.  With the expansion of online gambling, internet services could grow.

 

Another win for the company is that it signed a contract with the Illinois Gaming Board to ensure the integrity, fairness and security of video gaming in the state.  Illinois could grow to be the largest video gaming network in the country, which will bring in a lot of revenue.

The graphs below show the trend in revenue and earnings.  Analysts’ estimates are included and the company will be releasing 4th quarter (12/11) earnings in late February. 

At $10.48, the stock is near its low target of $10 made by the 5 analysts recorded by Thomson/First Call.  Mean target is $12.90, median target is $13.50, and the high target is $15.  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

1

1

1

1

Buy

3

3

3

2

Hold

3

3

4

4

Underperform

0

0

0

0

Sell

0

0

0

0

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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, 1/6/12).


MONDAY
 

 Alcoa (AA, $9.16, down $0.20), Bank of South Carolina (BKSC, $10.12, down $0.19), Bridgford Foods (BRID, $10.00, up $0.10), BSD Medical (BSDM, $2.23, down $0.01), Clarcor (CLC, $50.30, down $0.49), CRA International (CRAI, $20.17, down $0.22), Emmis Communications (EMMS, $0.75, up $0.04), Frisch’s Restaurants (FRS, $19.55, up $0.12), Golden Enterprises (GLDC, $3.60, Flat), HB Fuller (FUL, $23.70, up $0.09), llumina (ILMN, $31.77, up $0.27), Leading Brands (LBIX, $2.85, up $0.05), M&T Bank (MTB, $79.45, up $0.22), Meade Instruments (MEAD, $3.26, up $0.10), Mistras Group (MG, $23.99, up $0.12), OCZ Technology Group (OCZ, $7.87, up $0.24), Penford (PENX, $5.04, down $0.08), Raptor Pharmaceutical (RPTP, $6.20, Flat), RF Industries(RFIL, $3.74, down $0.04), Schmitt Industries (SMIT, $3.58, up $0.18), Schnitzer Steel Industries (SCHN, $43.70, down $1.01), Sealy Corp (ZZ, $1.82, up $0.01), Skyline (SKY, $4.52, down $0.13), Standard Microsystems (SMSC, $25.37, down $0.18), Taylor Devices (TAYD, $7.98, up $0.14), VOXX International (VOXX, $8.92, up $0.17), VSB Bancorp (VSBN, $10.22, down $0.07), WD-40 (WDFC, $39.89, down $0.16), West Marine (WMAR, $10.70, down $0.49), Zep (ZEP, $14.28, down $0.21) 

 

TUESDAY

 Global-Tech Advanced Innovations (GAI, $3.71, down $0.09), Newlead Holdings (NEWL, $0.46, Flat), RF Monolithics (RFMI, $1.03, up $0.06), Synnex (SNX, $31.08, down $0.05)

 

WEDNESDAY

99 Cents Only Stores (NDN, $21.96, Flat), Dynacq Healthcare (DYII, $0.95, up $0.05), LCNB (LCNB, $12.93, up $0.18), Lennar (LEN, $20.40, down $0.37), Premier Exhibitions (PRXI, $2.32, down $0.07), Qiao Xing Mobile Communication (QXM, $1.01, down $0.02), Sandridge Mississippian Trust (SDT, $29.64, down $0.55), SuperValu (SVU, $8.23, down $0.05),

 

THURSDAY

Biodelivery Sciences International (BDSI, $1.85, up $1.01), Bona Film Group (BONA, $4.01, down $0.07), Chase (CCF, $13.36, up $0.01), Essex Property Trust (ESS, $139.98, down $0.59), Northern Technologies International (NTIC, $13.09, down $0.05), Peoples Educational Holdings (PEDH, $0.54, up $0.01), Sky-mobi (MOBI, $3.28, down $0.01), United Bancshares (UBOH, $6.90, down $0.02), Washington Federal (WFSL, $14.59, up $0.28),

 

FRIDAY

JPMorgan Chase (JPM, $35.36, down $0.32), Material Sciences (MASC, $8.24, up $0.15), Pure Cycle (PCYO, $1.74, down $0.01), Video Display (VIDE, $5.81, down $0.15)

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5.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 1/6/12)

WEEKLY WRAP CLOSED TRADES for 2011 (16-0) and 2012:  We have quite a few positions that could get called away this month.

 

Scientific Games (SGMS, $10.48, up $0.08)

January 10 calls (SGMS120121C00010000, $0.65, up $0.05)

Original Entry Price:  $9.89 (1/4/12)

Lowered Price from Selling Options: $9.44

Exit Target: $15

Return: 11%

Stop Target: None

Action:  Shares has a strong week, gaining 8%, and moved above $10 which was bullish.  The 52-week high is $11.27 and shares looked poised to run to $12 if taken out.  Support is at $10 followed by $9.   

 

We recommended buying the stock at $9.89 on 1/4/2012 and for every 100 shares to sell the January 10 calls for 45 cents.  This lowered the cost basis to $9.44.

If shares are called-away by mid-January at $10 the trade makes 6%.

 

Zynga (ZNGA, $8.81, down $0.10)

February 10 call (ZNGA120218C00010000, $0.30, flat)

Original Entry Price:  $9.37 (12/22/11)

Lowered Price from Selling Options: $8.87

Exit Target: $15

Return: -1%

Stop Target: None

Action:  Zynga tested its post IPO lows on Friday after falling to $8.45.  Shares have been trading for only 3 weeks so support is a little undefined right now.  We would like to see a close back above $9.50 this week.   

 We recommended buying the stock at $9.37 on 12/22/11.

On 1/4/12 we recommended selling the February 10 call option for $0.50 which lowered the cost basis to $8.87.

If shares are called-away by mid-February at $10 the trade makes 13%.

 

Bank of America (BAC, $6.18, down $0.13)

March 6 call (BAC120317C00006000, $0.63, down $0.08)

Original Entry Price:  $5.35 (12/22/11)

Lowered Price from Selling Options: $4.99

Exit Target: $7.50

Return: 24%

Stop Target: None

Action:  Bank of America surged past $6, or 11% for the week, and its 50-day MA on Thursday which clears the way for a run at $7-$7.50 if momentum holds.  If not, support is solid at $5.  The brown box indicates the 10-week trading range shares broke out of.

We recommended buying the stock at $5.35 on 12/22/11.

On 1/4/12 we recommended selling the March 6 call option for $0.36 which lowered the cost basis to $4.99.

If shares are called-away by mid-March at $6 the trade makes 20%.

 

Vivus (VVUS, $10.16, up $0.10)

January 11 calls (VVUS120121C00011000, $0.15, flat)

Original Entry Price:  $10.29 (12/16/11)

Lowered Price from Selling Options: $9.39

Exit Target: $15

Return: 8%

Stop Target: None

Action:  Vivus made it back over $10 and will try for another run past $11.  Support is strong at $9.  We should find out if Qnexa, the company’s obesity drug, has a good shot at getting approved or not by late February.

We recommended buying the stock at $10.29 on 12/16/11 and for every 100 shares to sell the January 11 calls for 90 cents.  This lowered the cost basis to $9.39.

If shares are called-away by mid-January at $11 the trade makes 17%.

 

Ford Motor (F, $11.71, up $0.12)

January 11 calls (F120121C00011000, $0.77, up $0.07)

Original Entry Price:  $10.38 (12/16/11)

Lowered Price from Selling Options: $10.15

Exit Target: $14+

Return: 15%

Stop Target: None

Action:  Ford surged 9% for the week and easily took out $11 and the 50-day MA.  The next level of resistance comes at $12-$12.40 and the 200-day MA.  Short-term support is at $11 and where our strike price is at.  We may have to look at a trade for our Daily as Ford looks strong.

 

We recommended buying the stock at $10.38 on 12/16/11 and for every 100 shares to sell the January 11 calls for 23 cents.  This lowered the cost basis to $10.15.

If shares are called-away by mid-January at $11 the trade makes 8%.

 

Alcoa (AA, $9.16, down $0.20)

January 9 calls (AA120121C00009000, $0.44, down $0.13)  

Original Entry Price:  $8.90 (12/16/11)

Lowered Price from Selling Options: $8.45

Exit Target: $11

Return: 8%

Stop Target: None

Action:  Alcoa will announce earnings after the close on Monday.  Shares made a run at $10 by Wednesday, trading to a high of $9.50, before settling above $9 for the week, up 6%.  Short-term support is at $8.50 but there is risk down to $8 if they miss Wall Street’s estimates.  A surprise could get shares above double-digits.

We recommended buying the stock at $8.90 on 12/16/11 and for every 100 shares to sell the January 9 calls for 45 cents.  This lowered the cost basis to $8.45.

If shares are called-away by mid-January at $9 the trade makes 7%.

 

Clean Energy Fuels (CLNE, $13.25, down $0.03)

January 14 calls 2012 (CLNE120121C00014000, $0.10, flat)

Original Entry Price:  $11.47 (11/23/11)

Lowered Price from Selling Options: $11.02

Exit Target: $15

Return: 20%

Stop Target: None

Action:  Shares added 6% for the week and closed just below the 200-day MA which is at $13.43.  Support at $12.50-$12 should stick and is between the 50-day MA of $12.27.  We said last week a run to $13 was coming which now clears the way for a test to $14. 

For those of you just joining us, Clean Energy is the leader of natural gas vehicle fueling and the company’s Natural Gas Highway initiative continues to expand in cities throughout the country.       

We recommended buying the stock at $11.47 on 11/23/11 and for every 100 shares to sell the January 14 calls for 45 cents.  This lowered the cost basis to $11.02.

If shares are called-away by mid-January at $14 the trade makes 27%.

 

Darling International (DAR, $13.38, flat)

January 15 calls 2012 (DAR120117C00015000, $0.05, flat)

Original Entry Price:  $13.23 (11/23/11)

Lowered Price from Selling Options: $12.73

Exit Target: $15

Return: 5%

Stop Target: None

Action:  Darling was flat on Friday but was up slightly for the week.  Support at $13 was breeched on Thursday’s drop, briefly, but shares were able to hold this level by the close.  There is additional support at $12 but we believe a close above $13.50 and the 50-day MA is coming as a run to $14 appears likely.   

 

We recommended buying the stock at $13.23 on 11/23/11 and for every 100 shares to sell the January 15 calls for 50 cents.  This lowered the cost basis to $12.73.

If shares are called-away by mid-January at $15 the trade makes 18%.

 

Symantec (SYMC, $15.78, down $0.02)

January 17.50 calls 2012 (SYMC120121C00017500, $0.03, flat)

Original Entry Price:  $15.60 (11/23/11)

Lowered Price from Selling Options: $15.30

Exit Target: $18

Return: 3%

Stop Target: None

Action:  Symantec traded in a tight range all week after making a brief trip above $16 to start the week.  Multi-year support at $15 remains solid but we are still expecting to see a move past the 50-day MA ($16.22) and up to the 200-day MA which is at $17.69.

 

We recommended buying the stock at $15.60 on 11/23/11 and for every 100 shares to sell the January 17.50 calls for 30 cents.  This lowered the cost basis to $15.30.

If shares are called away by mid-January at $17.50 the trade makes 14%.

 

Solazyme (SZYM, $11.49, down $0.10)     

January 12.50 call (SZYM120121C00012500, $0.20, flat)

Original Entry Price:  $11.16 (11/14/11)

Lowered Price from Selling Options: $10.06

Exit Target: $15

Return: 14%

Stop Target: None

Action:  Shares fell 3% for the week after trading to a high of $12.59 on Tuesday.  Support is strong at $11 and the 50-day MA with backup at $10 should Solazyme slip below these levels.  A break back above $12.50 gets $14 in play again.

We recommended buying the stock at $11.16 on 11/14/11 and for every 100 shares to sell the December 12.50 calls for 60 cents.  This lowered the cost basis to $10.56.

On 1/4/12 we recommended selling the January 12.50 call option for $0.50 which lowered the cost basis to $10.06.

If shares are called-away by mid-January at $12.50 the trade makes 24%.

 

Dendreon (DNDN, $12.35, up $1.73)

January 10 call (DNDN120121C00010000, $2.50, up $1.35)

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

Lowered Price from Selling Options: $8.45

Exit Target: $12+

Return: 46%

Stop Target: None

Action:  Dendeon made a massive move last week after the company said sales of Provenge came in stronger than anticipated.  The stock was up another 16% on Friday and gained over 60% for the week.  The January 10 calls started the week at 10 cents and soared 2,400%.  Needless to say, we will likely get called away from this position in a couple of weeks.  A close above $12.50 would be super bullish as you can see the big gap to fill from the fall from $35 to single-digits back in August.  Prior resistance at $10 should serve as near-term support should shares pull back. 

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.

On 11/23/11 we recommended selling the January 10 call option for $0.50 which lowered the cost basis to $8.45.

If shares are called-away by mid-January at $10 the trade makes 18%.

 

MGM Resorts (MGM, $11.13, flat)

January 11 call 2012 (MGM120121C00011000, $0.43, down $0.04)

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

Lowered Price from Selling Options: $9.28

Exit Target: $12+

Return: 20%

Stop Target: None

Action: MGM jumped 7% for the week and traded to a high of $11.27 on Tuesday and $11.25 on Thursday.  Resistance is strong at $12 and the 200-day MA while $10 will serve as support should shares retreat.  Longer-term, we have a $15 price target for the stock.

 

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.

On 11/23/11 we recommended selling the January 11 call option for $0.45 which lowered the cost basis to $9.28.

If shares are called-away by mid-January at $11 the trade makes 19%.

 

Newpark Resources (NR, $10.19, down $0.02)

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

Lowered Price from Selling Options: $8.10

Exit Target: $10+

Return:  26%

Stop Target: None

Action:  We wanted to sell another call option but Newpark is looking strong so we didn’t want to commit to early.  Resistance was at $9.75-$10 which will try to hold as short-term support following last week’s 52-week high of $10.36.  There is additional help at $9.50 should shares fall back but we are expecting a move to the mid-teens over the next few months.

 

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.

 

Trades on HOLD:  Rambus (RMBS, $7.99, down $0.09), Rare Element Resources (REE, $5.76, up $0.94), AKS Steel Holding (AKS, $8.75, up $0.06), American Capital (ACAS, $7.23, up $0.02), DryShips (DRYS, $2.17, down $0.07)

= = = = = = = = = = = = = = = 

6.  Week Ahead

Economic news is light this week and has been coming in better-than-expected.  We expect that trend to continue but realize the recent jobs data has been fluffed-up due to the holiday season.  These numbers will drop but manufacturing jobs are showing signs of life.

Monday’s Consumer Credit isn’t a major threat to the market and should come in at or above expectations based on recent consumer spending indicators. 
 
Tuesday the market will get the latest Weekly Chain Store Sales along with Wholesale Inventories which are expected to come in at 0.5%.

Wednesday brings the usual weekly updates on the MBA Mortgage Purchase Index and Crude Inventories.  The Fed’s Beige Book will carry some weight and will be released at 2pm (EST).  With retail sales doing well over the holidays and housing showing an uptick, we could see some surprises.

Thursday is busy with Initial Claims, Continuing Claims and Retail Sales all due out before the bell.  After the open, Business Inventories and the Treasury Budget will be announced at 10am and 2pm, respectively.

Friday wraps the week up with the latest Trade Balance numbers and Import/ Export Prices.  The Michigan Sentiment Survey could be a market mover but by then the fireworks will be over as we either expect the market to test/ break resistance or a pullback will have taken place by the time next weekend gets here.