11:00pm (EST)

1.  Market Summary 

2.  Fusion-io (FIO) –A Company of the Future or  Not

3.  Obama-Buffett 2012?

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 big thing about trading ranges is that the longer the market or a stock stays in one, the bigger the breakout, or breakdown will be.  We mentioned last week the S&P 500 has gone more than a month without a 1% drop but we also haven’t had that euphoric 3%-4% rally that gets everyone excited.  After 5 weeks of flat action, we expect March to be much more volatile and at some point, we will likely see one last surge or we get the dip that everyone has been calling for over the last 2 months.” (END)  3/4/2012 Weekly Wrap…  

The bears threw the kitchen sink at the bulls last week and stretched support but the bulls were able to battle back to reclaim these levels by Friday’s close for the most part.  In other words, the bulls did enough to get the weekly win, as they pushed 3-out-of-4 of the major indexes higher.

We mentioned coming into the week the two marquee events that would move the market would be Apple’s (AAPL, $545.17, up $3.18) new iPad announcement and Friday’s jobs numbers.  Both were impressive and helped stabilize the selling pressure and rebound from midweek on.

The 5-week trading range (blue boxes) was briefly busted like we predicted and last week’s charts were 6-month snapshots which showed 2 waves of support and were in green lines.  This week we will focus on the 3-month charts and you will see the first wave of support, or uptrend line, in green again.  The orange lines represent the overshoot of support and resistance which are in black lines.  These charts are so easy to read and have been golden for months in giving us great market clues. 

The Dow added 14 points, or 0.1%, to close at 12,922.  The blue-chips touched a high of 12,968 on Friday which was below the prior week high of 12,997.  The bears were able to take out the 12,800 level on Tuesday with the low coming in at 12,734.  The crucial test would have been at 12,600 had there been more selling pressure but it was enough to shake out the weak hands.  These two levels will be in play on any pullback.  As far as the upside, the Dow will first need to clear 13,000 on a close and then 13,055 (prior week high) which could lead to a test to 13,200.  A break above this level would likely lead to 13,500.  The Dow began the week at 12,977 but fell double-nickels (55 points), or 0.4% points for the week.  For the year, the blue-chips are higher by 705 points, or 5.8%.   

The S&P 500 advanced 5 points, or 0.4%, to finish at 1,370.87.  The index traded up to 1374.76 and we were looking for a close above our fluff target of 1,375.  Trading could be chopping up to 1,378 which was the prior week high but a break above this level should get the S&P to 1,400-1,425.  On the flip side, the bears took the index down to 1,340 on terrible Tuesday and 1,350 was a key support level.  A break below these two areas would likely lead to a test to 1,325-1,300.  For the week, the S&P 500 added 1.24 points after starting at 1,369.63 on Monday.  For 2012, the index is up 113 points, or 9%.   

 

The Nasdaq jumped 18 points higher, or 0.6%, to close at 2,988.  It was enough to give the bulls the weekly win as Tech traded up to 2,993.  The index checked in at a 52-week high of 3,000.11 the week before and a break above this level gets 3,250 in play.  The bears pushed 2,910 on Tuesday but the bulls held 2,900 and the trading range which was a good omen for Wednesday’s rebound.  A break below support would quickly lead to 2,850-2,800 with the latter serving as the 50-day moving average (MA).  The Nasdaq was at 2,976 before Monday’s open and added a dozen points, or 0.4%, for the week.  YTD, the index is showing a gain of 383 points, or 14.7%.

 

We cautioned the S&P Volatility Index ($VIX, 17.11, down 0.84) could become more volatile last week and it did.  The VIX was at 17.29 before Monday’s opening bell but tested a high of 21.24 on Tuesday’s pullback.  We said to watch for a break above 20-22.50 which would confirm the trend is changing but Friday’s 5% drop still puts us on track for a test to 15 or below which is bullish.  

 

The Russell 2000 soared over 10 points, or 1.3%, to close at 817.  The small-caps were the most volatile of the indexes as the bears penetrated the 800 level on Tuesday, pushing the index to a low of 787 and under the 50-day MA of 795.  We said a break below 800 would bring 780 into the picture and possibly 750 which is right around the 200-day MA.  The 830 level will represent major resistance once again going forward and if busted, pencil in a run to 850.  For the week, the Russell 2000 gained nearly 15 points, or 1.8%, after beginning at 802.  For the year, the index is up 77 points, or 10.3%.         

 

Apple (AAPL, $545.17, up $3.18) finished the week down a penny after hitting a low of $516.22 on Tuesday and a high of 547.74 on Friday.  Monday’s high before Tuesday’s low was $547.84.  The 52-week high is $548.21 which was set the prior week.  So much for the “sell-the-news” event that we saw a lot of Wall Street pros call for last week.  Apple hit another iPad upgrade out of the park despite the unimpressed Tech fans that weren’t wowed but will be once they see it up close and in person.  A break above $550 could open the door for another blue-sky breakout to $600.  

 

One of the reasons for Wednesday’s big rebound following Tuesday’s selloff last week was word that the Fed does have some other QE3 tricks up their sleeve if needed.  Ben Bernanke didn’t say Jack about QE3 the prior week when he took center stage and why would he if he has plans to start the money printing presses again?

The Fed policymakers are scheduled to meet on Tuesday and Wall Street isn’t expecting any changes in the policy stance and only slightly different wording to the policy statement.  Big Ben said that despite the recent improvement in the job market, it remains far from normal and that the housing market remains depressed.  Bernanke has an incredible poker face and we aren’t expecting him to give Wall Street any hints in his statement regarding accommodation.  He will be the wild card this week.

We wanted to follow-up on the Friday/ Monday closes which occurred last week and although we did get our second negative F/M of the year, both days were rather mild with minor losses.  We will continue to monitor the F/M closes going forward but this past Friday was up and we have a good feeling Monday’s session will be positive.

We mentioned how the first half of March was seasonally bullish while the back half of the month is usually bearish.  March options expire this week and Friday also represents triple-witching which is when all index, futures, and options expire.  Volatility has picked up this month but this is usually a mixed day.  The good news is that the Monday before triple-witching is typically bullish as the Dow has posted gains nearly 70% of the time over the past 25 years.  

We also mentioned last week how we haven’t seen a 4%-5% frantic surge to new highs in the market while in the same breath we talked about how there hadn’t been a 1% pullback for 2012.  Well, the 1% selloff happened last Tuesday.  We would love to see a 3% pop this week which would be enough to get the indexes past our fluff targets.  After that, we would expect a pullback like the Wall Street pros have been calling for all year and still are because they didn’t buy Tuesday’s dip.   

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 Key of Technicals Used In Following Articles

 


2.  Fusion-io (FIO) –
A Company of the Future or Not 

By Michael Bryant

To find a winning stock for the long run, one must first look to the future.  What does the future hold?  This is usually common sense, but may require some digging.  One area in great need is storage drives for all the content being circulated through the web.  Standard disk drives are large and can scratch.  Solid State Drives (SSDs) and data decentralization are the future, and should replace disk drives within the next 25 years.  Fusion-io (FIO, $31.59, down $0.06) seems to be well prepared to take advantage of this revolution.  But is it worth the price?

The company is the leading supplier of fast SSDs for memory storage, data decentralization, and the acceleration of performance of enterprise servers.   Its flash-memory based ioDrives is used by companies including Facebook, HP, IBM, and Dell.  Currently, it holds an 80% market share.

Fusion-io’s products are divided into three categories: ioMemory Platform, System Software, and Integrated Solutions.  The ioMemory Platform includes ioDrive2, ioDrive Duo, ioDrive Octal, and Visual Storage Layer (VSL).  The ioDrive2 comes in different sizes, ranging from 365 GB (Gigabytes) to 1.2 TB (Terabytes).  The VSL platform is based on NAND-flash.  The System Software includes ioTurbine, directCache, and ioSphere.  IoTurbine turns ioMemory into a powerful and easy-to-manage drop-in virtual cache to unleash the performance potential of virtualized systems.  DirectCache turns ioMemory into a transparent, auto-tiering, acceleration cache to non-disruptively improve storage performance and efficiency.  IoSphere delivers real-time monitoring and management of all ioMemory across the data center.  Integrated Solutions include ioCache products for virtualization.

Fusion-io recently announced BetOnSoft, a leading global online gaming software provider, is accelerating its Microsoft SQL Server 2012 database to provide better experiences for its customers with Fusion’s ioMemory platform.  A similar announcement was also made last week when the company said Niwango’s Nico Nico Douga, one of the largest video-sharing websites in Japan with over 26 million registered users, is using Fusion ioMemory to enhance processing speed, and thus user experience, while reducing energy use and the number of servers needed.  Niwango is a subsidiary of Dwango Corporation.  With Fusion ioDrives installed into its servers, Dwango was able to improve performance per server.  These are positive signs that the company’s products seem in demand.

Analyst have been giddy on the company including, Credit-Suisse’s Kulbinder Garcha,  who reinstated coverage of the company with an “Outperform” rating and a $50 price target.  Garcha estimated full-year earnings of $0.22 a share on $339 million, compared to consensus estimates of $0.24 a share on $332 million.  For next year, he estimates are for $0.31 a share on $527 million, compared to consensus of $0.37 a share on $453 million.  Garcha sees gross margins between 56% to 58%.  Certainly having Facebook and Apple as customers are big pluses, but are these estimates realistic?  The graphs below show past revenue, costs, and earnings.  Consensus estimates are also shown.

 

Both the consensus estimate for revenue and earnings seem highly possible.  So Garcha’s earnings estimates, which are below consensus, could be too low.  Earnings could even beat consensus.  Our worry is that the earnings fell last time out, thus possibly convincing him to lower his estimates, which are above consensus, but may be a little too high.  Consensus revenue estimates flow with the trend of past revenue almost linearly and not leaving much room for raising estimates.  This could hurt the stock or at least limit its upside.

The gross profit (the difference between revenue and cost of revenue) seems to be growing and not shrinking.  The gross margin (gross profit/revenue) for the latest quarter was 58%, down from 63% the previous quarter but in line with that of a year ago.  Thus, it is possible that margins could remain 56% to 58%.

But the fact that the total expenses recently crossed above revenue hints at a possible warning sign.  Could this be a sign than competitors OCZ Group (OCZ, $8.88, up $0.19) and EMC (EMC, $29.01, up $0.49) are taking away market share from the company?

Another analysts, Morgan Stanley’s Katy Huberty, reinstated coverage with a “Buy” rating, saying that the company’s industry could grow to $20 billion. 

There is a slightly bullish sentiment on the stock among analysts as recorded by Zack’s Investment Research, with the majority saying “Hold.”  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.50, up from 2.68 a month ago.

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

3

3

2

1

Buy

1

1

1

0

Hold

6

5

5

4

Underperform

0

0

0

0

Sell

1

2

2

2

On the flip side, FBN Securities reinstated their negativity on the stock, lowering the price target to $26 from $29. 

Comparing the stock to that of some of its top largest competitors and the industry, shares look a little overvalued, making only 7 positives (green) to 12 negatives (red) in the table below.

EMC = EMC Corporation        MU = Micron Technologies       OCZ = OCZ Group

STEC = STEC                       Industry = Data Storage Devices 

 

FIO

EMC

MU

OCZ

STEC

Industry

Market Cap ($billion)

2.85

59.56

8.23

0.30

0.43

0.24

Price/Sales

9.57

2.98

0.95

0.95

1.40

1.06

Price/Book

6.53

3.14

1.00

3.39

1.38

Trailing PE

185.82

26.23

-46.28

-20.65

19.83

29.00

Forward PE

87.75

14.73

16.66

16.15

19.42

             PEG            

5.63

1.81

-2.41

2.76

0.83

1.04

Revenue Growth (%)

169.50

14.00

-7.20

93.70

-38.10

18.60

Gross Margin (%)

58.21

60.82

17.84

20.49

43.57

25.47

Operating Margin (%)

6.04

17.21

4.57

-1.37

8.18

3.87

Profit Margin (%)

4.80

13.04

0.43

-5.01

8.15

     Current Ratio    

9.63

1.12

2.72

1.88

13.19

Price/Free Cash Flow

219.84

13.94

7.04

Price/Cash

9.26

9.43

4.30

7.88

2.38

Market Cap/Revenue

9.58

2.98

0.95

1.44

1.40

0.74

Market Cap/EBITDA

98.71

12.81

3.47

129.30

11.22

26.40

Inst. Ownership (%)

77.79

84.96

85.17

68.28

60.76

Inst. Trades (%)

26.26

1.00

4.77

30.47

-9.81

Insider Ownership (%)

0.49

0.37

0.83

0.55

22.44

Insider Trades (%)

-99.31

-18.37

44.64

-67.44

 

Short Interest (%)

20.25

6.39

5.30

33.02

18.59

Source:  Numbers calculated from Yahoo Finance and Finviz.com

As for the negatives, the high price/sales are dwarfed by the triple-digit trailing PE and near triple-digit forward PE ratios.  Not only are these numbers the highest listed in the table, they look similar to those of internet darlings.  Even when dividing the PE by the estimated earnings growth, the PEG is still the highest listed.  The amount of free cash flow per share is by far the lowest listed when compared to price.  The amount of cash per share compared to price is second only to industry storage leader EMC, and the number is almost identical.  The total revenue as compared to market cap is by far the smallest listed.  The market cap/EBITDA, which should be similar to the EV/EBITDA since the company has no debt, is also nearly in triple-digit territory; way too expensive to be considered an acquisition target.  The low insider ownership and high insider selling is a big red flag.  Short interest is also very high, meaning a lot of investors are betting against the stock.

On the other hand, a high short interest could trigger a short squeeze, meaning many short sellers cover all at once, causing the stock to jump.  Institutions also seem to be buying the stock, so it’s not all bad.  Institutions have more tools than the average investor but lack the insider knowledge.  Also, institutions have a lot of cash, so high institutional buying drives the stock higher.  The high current ratio shows that the company has high liquidity, a very positive sign of the company’s health.  The profit margin and operating margin is slightly above average of those listed, but the gross margin is second to only EMC while the revenue growth is by far the highest listed.

The company launched its IPO on June 9th 2011, filing at $19 per share but opening at $25 per share.  Since then, the shares have had a rollercoaster up and down.

 

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 3.  Obama-Buffett 2012?

by Bill Gunderson

Now that Warren Buffet has a secret successor, it is tempting to wonder what he will do next.

How about this: He should do in fact what he has done in function for the last three years: Go to Washington and be the economic point man for the Obama administration.

Before Buffett, Obama did not really have much of an economic program besides telling Joe the Plumber he wanted to make things more “fair” by taking from the rich and giving to the poor.

Even if that meant federal revenues actually going down — as punitive tax rates make happen.

Envy — I mean fairness — trumps all. At least that is what Obama said. 

But, even many Republicans did not take him seriously: Raising taxes in a recession? No one is crazy enough to do that.

Then along came Buffett and his famous secretary. Of course, Buffett said, raising taxes is a great idea. Why is it fair, he wondered, that he paid lower tax rates than his secretary?

Overnight, Buffett became the lead spokesman for Obama, Biden, Clinton, Geithner, and the rest of the ‘we are not taxed enough’ club. The working press loved it: No tax idea was too screwy, too high, or too anything: Buffett liked it, and that was enough. 

And why not? Buffett is the miracle worker. The seer of the future. He’s never wrong, right? 

Wrong.

Whatever Buffett used to be, he is not anymore. Hasn’t been for quite some time.

Since Obama took office three years ago, Buffett’s track record of picking winners and losers has been absolutely dismal.  Over the last three years, Berkshire has delivered annual average returns of 16.0%, while the S&P has averaged 21.9%. Buffett has been losing out to the index by a large margin during this time period.

Over the last five years Buffet’s holding company has delivered an average annual return of 2.4%.  Not a track record to be real proud of.

Buffett has been living on his reputation. And the same reporters who followed President Obama to Solyndra without once checking the internet to find out the company’s own auditor said it was no longer a “going concern,” are now fawning over Buffett and his ‘soak the rich’ pronouncements as if they had the authority of a guy who knows how the economy works.

Maybe he did. Long, long ago. Not anymore. But he talks as if he still does. Well, that’s fine. If he is going to be a spokesman, a creator, a Godfather, let him to go Washington and tell us all about it: In public. Before reporters. In front of Congress. Instead of hiding behind the folksy — faux — personality from the corn fields he trots out whenever it is convenient. Whenever he does not want to explain the unexplainable.

Just because you successor is a secret, that doesn’t mean your plan to raise taxes, increase spending, and turn the economy over to socialists who never had a real job has to be.

(In addition to special posts for Momentum Options Trading, Bill also writes for Huffington Post, the Dow Jones Market Watch, and is a regular guest on several national cable news shows on finance and investments.  His articles may or may not reflect our views on a subject)

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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, 3/9/12)


MONDAY
 

Airmedia Group (AMCN, $2.75, down $0.05), Alexza Pharmaceuticals (ALXA, $0.63, down $0.02), American States Water (AWR, $37.47, up $0.34), Artesian Resources (ARTNA, $19.22, up $0.23), Bankfinancial (BFIN, $5.53, up $0.13), Carmike Cinemas (CKEC, $8.70, up $0.33), Clean Diesel Technologies (CDTI, $3.11, up $0.28), Clean Energy Fuels (CLNE, $20.77, up $0.06), Coleman Cable (CCIX, $12.46, up $0.98), Cumulus Media (CMLS, $3.49, up $0.15), Douglas Dynamics (PLOW, $12.94, up $0.12), Ecology and Environment (EEI, $16.55, down $0.19),  First United (FUNC, $4.90, up $0.04), Frederick’s of Hollywood Group (FOH, $0.54, down $0.01), FuelCell Energy (FCEL, $1.50, up $0.09), Globalstar (GSAT, $0.82, up $0.02), Gordmans Stores (GMAN, $15.14, up $0.12), Horizon Technology Finance (HRZN, $16.29, up $0.03), IDT (IDT, $8.40, up $0.34), Investors Real Estate Trust (IRET, $7.62, up $0.15), LDK Solar (LDK, $4.94, down $0.06), magicJack VocalTec (CALL, $24.00, up $1.72), Majesco Entertainment (COOL, $2.81, up $0.18), Manhattan Bridge Capital (LOAN, $1.17, Flat), Nautilus (NLS, $2.64, down $0.01), Nupathe (PATH, $3.07, up $0.01), Piedmont Natural Gas Company (PNY, $32.32, down $0.09), Resolute Energy (REN, $10.30, up $0.25), Shangpharma (SHP, $7.72, up $0.07), Spire (SPIR, $1.20, up $0.05), Tibet Pharmaceuticals (TBET, $1.64, up $0.04), Uranium Energy (UEC, $3.77, down $0.02), Urban Outfitters (URBN, $29.50, up $0.82), Vista Gold (VGZ, $3.43, Flat), Waterstone Financial (WSBF, $2.41, up $0.01), Youku (YOKU, $25.01, up $0.26)

 

TUESDAY

Apricus Biosciences (APRI, $3.41, up $0.20), Blueknight Energy Partners (BKEP, $6.70, down $0.22), Books A Million (BAMM, $2.90, up $0.02), Crimson Exploration (CXPO, $3.19, up $0.06), Ebix (EBIX, $22.33, up $0.39), FactSet Research Systems (FDS, $90.14, up $1.64), Francesca’s Holdings (FRAN, $25.30, up $0.34), Insmed (INSM, $3.96, up $0.04), Lydall (LDL, $9.14, up $0.29), Medifast (MED, $16.17, up $0.12), Michael Baker (BKR, $24.30, up $0.46), Oxigene (OXGN, $1.13, Flat), Pokertek (PTEK, $0.87, down $0.01), Progenics Pharmaceuticals (PGNX, $9.33, up $0.27), Raven Industries (RAVN, $61.26, up $1.34), Rex American Resources (REX, $32.15, up $0.21), Saga Communications (SGA, $38.00, up $1.52), Sypris Solutions (SYPR, $4.02, up $0.08), Vaalco Energy (EGY, $7.64, up $0.03), Vimpelcom (VIP, $11.84, down $0.22), X-Rite(XRIT, $4.54, up $0.10), Xerium Technologies (XRM, $7.73, up $0.07)

 

WEDNESDAY

Aaon (AAON, $18.48, up $0.32), Affymax (AFFY, $11.00, down $0.16), Arena Pharmaceuticals (ARNA, $1.74, up $0.02),  Callon Petroleum (CPE, $6.87, up $0.20), Dot Hill Systems (HILL, $1.23, down $0.04),Eagle Bulk Shipping (EGLE, $1.49, down $0.02), EnergySolutions (ES, $4.23, up $0.06), Federal Signal (FSS, $4.43, up $0.10), Global Ship Lease (GSL, $2.95, down $0.13), Guess (GES, $35.94, up $0.51), KB Home (KBH, $11.82, up $0.16), Lin TV (TVL, $4.11, up $0.11), Newtek Business Services (NEWT, $1.40, up $0.08), Oiltanking Partners (OILT, $31.35, up $0.10), Online Resources (ORCC, $2.79, down $0.01), Providence Service (PRSC, $15.70, up $0.45), rue21 (RUE, $27.37, up $0.98), Spartech (SEH, $5.44, up $0.05), Sunesis Pharmaceuticals (SNSS, $2.29, up $0.01), Towerstream (TWER, $2.67, up $0.02), Vera Bradley (VRA, $37.14, up $2.20), VisionChina Media (VISN, $1.67, down $0.01), Wave Systems (WAVX, $1.73, down $0.08), Xoma (XOMA, $1.86, up $0.01), Zhongpin (HOGS, $10.30, down $0.18)

 

THURSDAY

Abraxas Petroleum (AXAS, $3.84, up $0.10), Casual Male Retail Group (CMRG, $3.50, up $0.12), Cato (CATO, $27.23, up $0.51), Dole Food (DOLE, $9.67, up $0.27), GenVec (GNVC, $2.59, Flat), Getty Realty (GTY, $15.73, down $0.06), Harvest Natural Resources (HNR, $8.03, down $0.13), Houston Wire & Cable (HWCC, $14.71, up $0.35), KIT digital (KITD, $9.23, down $0.01), Kohlberg Capital (KCAP, $7.03, down $0.04), Lihua International (LIWA, $5.63, up $0.05), New York and Company (NWY, $3.31, down $0.06), Old Point Financial (OPOF, $10.87, up $0.34), Oxygen Biotherapeutics (OXBT, $2.65, down $0.04), Perfect World (PWRD, $11.82, down $0.20), Pharmacyclics (PCYC, $25.37, down $0.24), Pure Bioscience (PURE, $0.34, down $0.01), Radio One (ROIA, $1.03, up $0.05), Real Goods Solar (RSOL, $1.41, down $0.04), Recovery Energy (RECV, $4.21, down $0.09), Ross Stores (ROST, $55.98, up $0.62), Scholastic (SCHL, $31.35, up $0.55), SmartHeat (HEAT, $3.53, up $0.06), TransAtlantic Petroleum (TAT, $1.29, up $0.04), Uranerz Energy (URZ, $2.62, up $0.11), Vantage Energy Services (VTG, $1.53, up $0.10), Winnebago Industries (WGO, $8.58, up $0.13)

 

FRIDAY

China Sunergy (CSUN, $1.97, up $0.02), First Citizens Banc (FCZA, $5.35, Flat), Harris and Harris Group (TINY, $4.14, up $0.04), Hastings Entertainment (HAST, $2.39, up $0.39), Orient Paper (ONP, $4.13, up $0.10), Pendrell (PCO, $2.50, down $0.03), ReneSola (SOL, $2.46, up $0.10), Rexahn Pharmaceuticals (RNN, $0.49, up $0.01), Wpcs International (WPCS, $1.53, up $0.01)

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4.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 3/2/12)

The March options expire this week and we have a number of trades that could get called-away.  For the ones that are close and don’t, we will write options on the current trades during the following week.  (Quotes are as of Friday’s close, 3/9/12)

Closed Trades for 2012 (12-0):  DAR +20%, TIVO +5%, MGM +22%, ZNGA +13%, SGMS +6%, VVUS +17%, F +8%, AA +7%, CLNE +27%, DNDN +18%, MGM +19%, ACAS +3%.   

 

E*Trade Financial (ETFC, $9.67, down $0.01)

April 10 calls (ETFC120421C00010000, $0.34, down $0.02)

Original Entry Price:  $9.73 (2/29/12)

Lowered Price from Selling Options: $9.28

Exit Target: $12

Return: 4%

Stop Target: None

Action:  Shares tested a low of $9.23 on Tuesday’s pullback but recovered on Thursday and finished slightly lower on Friday.  There is risk down to $8 if $9 doesn’t hold but once $10 is cleared on a close, shares could mount an assault on $12.  Below is a 6-month chart and be sure to check out last week’s 5-year chart if you are a new subscriber.

 We recommended buying the stock at $9.73 on 2/29/2012 and for every 100 shares to sell the April 10 calls for 45 cents.  This lowered the cost basis to $9.28.

If shares are called-away by mid-April at $10 the trade makes 8%.

 

Bebe Stores (BEBE, $9.21, up $0.15)

Original Entry Price:  $9.00 (2/22/12)

Lowered Price from Selling Options: Waiting for shares to reach $10

Exit Target: $8

Return: 2%

Stop Target: None

Action:  Bebe held up well and was flat for much of the week before bumping higher.  We are still waiting for Bebe to trade above $10 before we sell a call option.  Our 2012 price target is $15 and we like the turnaround story which we wrote about a couple of weeks ago.  Support is at $8 if $9 doesn’t hold.


We recommended buying the stock at $9.00 on 2/22/2012

 

Pizza Inn (PZZI, $4.81, up $0.11)

Original Entry Price:  $4.50 (2/22/12)

Lowered Price from Selling Options: No options available

Exit Target: $8

Return: 7%

Stop Target: None

Action:  Shares were unfazed by last week’s volatility and added some nice gains on Thursday and Friday.  Shares could challenge $5 this week and our near-term target is $6, longer-term $8 if the company can manage its growth.  We cannot sell options on this position, yet, because there are none listed.  Below is a 10-year chart.   

We recommended buying the stock at $4.50 on 2/22/2012.  

 

magicJack VocalTec (CALL, $24.00, up $1.72)

March 20 call (CALL120317C00020000, $4.00, up $1.60)

Original Entry Price:  $17.43 (2/7/12)

Lowered Price from Selling Options: $16.78

Exit Target: $20+

Return: 43%

Stop Target: None

Action:  The company announces earnings on Monday.  MagicJack made another 52-week high last week, touching $24 in back-to-back session before ending Thursday down 6%.  Friday’s rebound was nice to see as shares closed at $24.  If Wall Street digs their numbers we will likely get called away as shares could trade above $25 on a multi-year breakout.  If they disappoint, shares could fall to $18, or worse.  The company has already said it will beat estimates.  Below is a 10-year chart for magicJack.

We recommended buying the stock at $17.43 on 2/7/2012 and for every 100 shares to sell the March 20 calls for 65 cents.  This lowered the cost basis to $16.78.

If shares are called-away by mid-March at $20 the trade makes 19%.

 

OCZ Technology Group (OCZ, $8.88, up $0.19)

Original Entry Price:  $9.60 (2/7/12)

Lowered Price from Selling Options: Waiting for shares to reach $10

Exit Target: $12+

Return: -8%

Stop Target: None

Action:  Shares traded down to $8 on Tuesday and this level has been holding like a champ.  A break below support would be bearish but we are still expecting a pop past $10 on short-covering which is where we will start writing call options.   A move above $9.50 could trigger a squeeze.  Below is a 2-year chart for OCZ.


We recommended buying the stock at $9.60 on 2/7/2012.

 

Arena Pharmaceuticals (ARNA, $1.74, up $0.02)

July 3 calls (ARNA120723C00003000, $0.60, flat)

Original Entry Price:  $1.88 (2/2/12)

Lowered Price from Selling Options: $1.33

Exit Target: $3+

Return: 26%

Stop Target: None

Action:  The company announces earnings on Wednesday.  We were looking for shares to make a push above $2 last week but they could only muster a test up to $1.85 on Monday.  The action in Arena will likely heat up on any Vivus news, especially next month which is when Qnexa may or may not get approved.  Arena has its own obesity drug called Lorcaserin which some analysts say is safer than Vivus’ Qnexa.  

We recommended buying the stock at $1.88 on 2/2/2012 and for every 100 shares to sell the July 3 calls for 50 cents.  This lowered the cost basis to $1.33.

If shares are called-away by mid-July at $3 the trade makes 117%.

 

MGM Resorts (MGM, $13.71, down $0.09)

 

March 15 call (MGM120317C00015000, $0.01, down $0.02)

Original Entry Price:  $13.77 (2/2/12)

Lowered Price from Selling Options: $13.32

Exit Target: $15

Return: 3%

Stop Target: None

Action:  MGM fell below $13 on Tuesday’s bear attack but had a strong back half of the week as shares pushed $14.  We will get called away if shares make it back above $14 by next Friday.  There is further risk down to $12 and if we aren’t called away, we don’t mind holding the stock as our longer-term target is $17.    


We recommended buying the stock at $13.77 on 2/2/2012 and for every 100 shares to sell the March 15 calls for 45 cents.  This lowered the cost basis to $13.32.

If shares are called-away by mid-March at $15 the trade makes 13%.

 

Patriot Coal (PCX, $6.53, up $0.23)

April 9 call (PCX120421C00009000, $0.08, up $0.02)

Original Entry Price:  $8.91 (1/12/12)

Lowered Price from Selling Options: $8.31

Exit Target: $15

Return: -21%

Stop Target: None

Action:  Patriot was pounded last week and fell below $6, briefly, after hitting a low of $5.97.  Friday’s rebound was nice but we said there was risk down to $5.  Coal stocks are out of favor right now which is why we went bottom-fishing but Patriot should be back near $10 over the next 12 months.  At these levels, it also makes an interesting buyout candidate. 


We recommended buying the stock at $8.91 on 1/12/2012 and for every 100 shares to sell the February 10 calls for 40 cents.  This lowered the cost basis to $8.51.

On 2/29/12 we recommended selling the April 9 calls for $0.20 which lowered the cost basis to $8.31.

If shares are called away in mid-April at $9 the trade will make 9%.

 

Bank of America (BAC, $8.05, down $0.01)     

April 8 call (BAC120421C00008000, $0.43, down $0.02)

Original Entry Price:  $6.75 (1/12/12)

Lowered Price from Selling Options and Dividends: $6.34

Exit Target: $15

Return: 27%

Stop Target: None

Action:  Bank of America paid a penny dividend at the end of February which we have included in averaging our cost down because we do own the stock.  We wish it would have been higher, or course, but a dividend is a dividend.  Shares fell below $8 to start the week and hit a low of $7.66 by Tuesday.  The close above $8 on the following day, however, shows shares are headed past $10 at some point in 2012.  A move above $8.75 would be bullish and there is still risk down to $7.50-$7 but we don’t mind holding BofA for a few months if shares do pull back.     

We recommended buying the stock at $6.75 on 1/12/2012 and for every 100 shares to sell the April 8 calls for 40 cents.  This lowered the cost basis to $6.35.

If shares are called-away by mid-April at $8 the trade makes 26%.

   

Bank of America (BAC, $8.05, down $0.01)

March 6 call (BAC120317C00006000, $2.05, down $0.05)

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

Lowered Price from Selling Options and Dividends: $4.98

Exit Target: $7.50

Return: 62%

Stop Target: None

Action:  This is our other BAC trade from December which will surely get called away this Friday.

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, $20.66, down $0.59)  

March 15 calls (VVUS12031700015000, $5.70, down $0.60)

Original Entry Price:  $12.60 (1/12/12)

Lowered Price from Selling Options: $10.85

Exit Target: $15

Return: 90%

Stop Target: None

Action:  Unless the wheels fall off the wagon, our shares of Vivus will be called away on Friday.  Shares dropped 3% this past Friday and $20 should act as short-term support.  This is our 5th trade on Vivus and as much as we want to establish another position, let’s wait until this one is closed and we will see where we are at.  Our longer-term target has now moved up to $40 but the its obesity drug, Qnexa, still needs an official approval from the FDA which could come as early as April.  Below is a 20-year chart for VVUS.

We recommended buying the stock at $12.60 on 1/12/12.

On 1/23/12 we recommended selling the March 15 calls for $1.75 which lowered the cost basis to $10.85.

If shares are called away at $15 in mid-March the trade will make 38%.    

 

Alcoa (AA, $9.81, up $0.04)

March 11 call (AA120317C00011000, $0.01, down $0.01)

Original Entry Price:  $9.65 (1/12/12)

Lowered Price from Selling Options and Dividends: $9.37

Exit Target: $11

Return: 5%

Stop Target: None

Action:  Alcoa tested $9.50 for much of the week before adding 2% on Thursday and finishing slightly higher on Friday.  There is further support at $9 but we would like to see a close above $10 this week.  Below is a 3-year chart for AA.   

We recommended buying the stock again at $9.65 on 1/12/12.    

On 1/23/12 we recommended selling the March 11 calls for $0.25 which lowered the cost basis to $9.40.

On 2/1/12 the company paid a 3 cent dividend which lowered our cost basis to $9.37.

If shares are called away at $11 in mid-March the trade will make 17%.     

 

Symantec (SYMC, $17.73, up $0.16)

March 17 call (SYMC120317C00017000, $0.75, up $0.20)

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

Lowered Price from Selling Options: $14.60

Exit Target: $18

Return: 21%

Stop Target: None

Action:  Symantec tested near-term support at $17 but rebounded to push $18 on Friday.  We will need shares to hold $17 to get called away this week.  A close above $18.50 gets $20 in play and the 52-week high is $20.50.  

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.

On 1/23/12 we recommended selling the March 17 calls for $0.70 which lowered the cost basis to $14.60.

If shares are called away at $17 in mid-March the trade will make 16%.    

 

Solazyme (SZYM, $12.93, up, $0.75)     

March 15 call (SZYM120317C00015000, 0.05, flat)

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

Lowered Price from Selling Options: $9.66

Exit Target: $15

Return: 34%

Stop Target: None

Action:  Shares tested a low of $11.74 on Thursday before finishing above $12 on the close.  Friday’s close was beautiful.  Strong support is at $12, followed by $11 but the bullish “symmetrical continuation triangle” is still in play for a run back to $15. 

Shares could pop on Monday after being featured on Cramer’s Mad Money.  He gave a ringing endorsement for Solazyme after kicking it to the curb previously because it didn’t know about it.  Shares were up another 6% in after-hours once he started yelping his “Buy” recommendation.         

Here is our original write-up on Solazyme for new (and current) subscribers to read from November 2011:

http://momentumoptionstrading.com/2011/11/13/momentumoptionstrading-com-weekly-wrap-for-111311-2/

 

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.

On 1/25/2012 we recommended selling the March 15 call at $0.40 which lowered our cost to $9.66.  If shares are called away at $15 in mid-March the trade will make 55%.      

 

Newpark Resources (NR, $7.79, up $0.05)

March 12.50 call (NR120218C00012500, $0.20, flat)

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

Lowered Price from Selling Options: $7.85

Exit Target: $10+

Return:  -1%

Stop Target: None

Action:  Newpark fell down to $7.44 intraday on Tuesday and nearly got back to even for the week on Thursday’s 3% pop.  We said a close below $7.50 would be bearish but shares held this level and the fundamentals are intact.      

 

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.

On 1/25/2012 we recommended selling the March 12.50 call at 25 cents which lowered our cost to $7.85. 

If shares are called away at $12.50 in mid-March the trade will make 59%.      

 

Trades on HOLD:  Rambus (RMBS, $6.76, up $0.07), Rare Element Resources (REE, $6.15, up $1.04), AKS Steel Holding (AKS, $7.32, up $0.29), DryShips (DRYS, $3.31, down $0.01)

= = = = = = = = = = = = = = = 

 

5.  Week Ahead

Last week was super busy for economic news and this week is no different, although Monday is light with the Treasury Budget the highlight of the day.

Tuesday kicks off with Retail Sales before the bell, followed by Business Inventories 30 minutes after the open.  The main event will be 2pm’s FOMC Rate Decision which we discussed earlier.

On Wednesday, Wall Street will get a look at the MBA Mortgage Index and Current Account Balance figures along with Import/Export Prices, all before the opening bell.  An hour after trading gets underway, the weekly Crude Inventories report will be released.

For Thursday, Initial and Continuing Claims, PPI (Producer Price Index) and the Empire Manufacturing numbers, are due out 60 minutes before the session starts.  All of these headlines will likely move the market but the Philly Fed at 10am will be the game changer.  If it comes in better-than-expected, it would be super bullish.

Friday wraps up with CPI (Consumer Price Index), Industrial Production, and Capacity Utilization before the open, Michigan Sentiment 30 minutes after.