11:30pm (EST)

 

1.  Market Summary 

2.  Wendy’s (WEN) – Ready for a Turnaround?

3.  Yelp (YELP) – Are Shares Overpriced?   

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   

“Although this week is historically bearish, we could see some “window-dressing” by the fund managers which means they will be buying stocks early in the week.  We still feel the market is close to peaking but we wouldn’t be surprised to see one last run at our near-term targets (Dow 13,500; S&P 1,425-1,450; Nasdaq 3,250; Russell 850) if there is a rush to buy this week.

We could also see a trading range this week before we get the surge in April which is typically one of the best months of the year for the market.  Over the past decade, the indexes have gained 2%, on average, in April and if support holds this week, there is a good chance history repeats itself.  However, we aren’t too bullish on 1Q earnings which will start to come in during the second week of April” (3/25/2012 Weekly Wrap/ Monday Morning Outlook)

The bulls held support and continued with their winning ways last week following the “Bernanke Bounce” on Monday.  The major indexes rallied 1.5%, on average, after hearing the Fed Chairman say supportive monetary policies would remain in place and that another round of quantitative easing could be a possible.  Ben Bernanke said the U.S. economy would need to grow more rapidly to produce enough jobs to further bring down the unemployment rate (which comes out this Friday).  This spurred a huge relief rally following the prior week’s slight pullback as the market reached fresh 52-week highs.

The bulls came close to our aforementioned near-term targets as the momentum continued into Tuesday’s open.  However, the momentum faded late in the day as a late session sell program hit Wall Street.  The Dow was able to finish in positive territory but the S&P 500 and Nasdaq couldn’t escape the bears attack as both indexes ended the day with slight losses. 

Wednesday’s futures were showing a continued pullback as the bears looked poised to crack another layer of support following weaker-than-expected economic news from overseas.  They did at the open as the market fell over 1% when trading got underway.  The Dow fell to a low of 13,069 while the S&P dipped under the 1,400 level before both indexes bounced back by the closing bell.

Thursday’s action was more of the same in the morning as lighter-than-expected economic news muddied the waters.  Initial Claims fell 5,000 to 359,000 versus expectations for a drop to 350,000 but the previous week’s numbers were “revised” which accounted for the slight miss.  Meanwhile, fourth-quarter Gross Domestic Product (GDP) increased 3.0%, which matched forecasts while Personal Consumption increased 2.1%, also in-line.   Wall Street must have realized this after their lunch break as the indexes rebounded sharply in the second half of trading and into the close.  The Dow was able to squeak out a small gain while the Nasdaq and S&P suffered only minor losses.  This led us to believe that Friday was going to be a good day as the market was on the verge of booking one of the best quarters we have seen in quite some time.

The Dow jumped 66 points, or 0.5%, to finish at 13,212.  The blue-chips reached a high of 13,265 on Tuesday and 13,224 on Friday.  The close above 13,200 gets 13,500 back into play which is only 2% away and when we would expect a top.  Thursday’s low was 13,032 and Tuesday’s dip held 13,000 which is still short-term support.  A break below this level gets 12,800 on the radar and what could be the possible start of a pullback.  The Dow started the week at 13,080 and gained 131 points, or 1%.  For 2012 (and the quarter), the blue-chips are up 995 points, or 8.1%.   

The S&P 500 gained 5 points, or 0.4%, to settle at 1,408.  The index traded to a low of 1,401 on Friday but closed above the 1,400 level all week.  The bears pushed a low of 1,391 on Thursday which opened the door for a test down to 1,375-1,350 but the close above this level keeps 1,425-1,450 in the picture.  The S&P 500 started Monday at 1,397 and added 11 points, or 0.8%, for the week.  For the year, the index is up 151 points, or 12%.   

The Nasdaq struggled for much of Friday as it darted in-and-out of positive territory before losing 4 points, or 0.1%, to end the week at 3,091.  We were looking for a close above 3,100 and we seriously doubted the bulls had enough left in the tank to finish above Tuesday’s high of 3,134.  There is still a chance we see a run to 3,250 but the bears were pushing 3,050 again.   Further support lies at 3,000 and a break below 2,900 could be a warning sign the bears have had enough of the rally.  Tech came into the week at 3,067 and advanced 24 points, or 0.8%.  For 2012, the index is up 496 points, or 18.7%.

The S&P Volatility Index ($VIX, 15.50, up 0.02) finished flat on Friday but flashed yellow lights when it traded above 17 on Wednesday and Thursday.  Last week we said to watch the 17.50 level for a possible clue a pullback could be coming but the bears could only push 17.20 and 17.27 at the height of the fights.  As long as the bulls keep the mid-teens in play, the market has a good chance of going higher and with the VIX testing the low-teens.

The Russell 2000 slipped 2 points, or 0.2%, and ended Friday at 830.  The index traded to 847 on Tuesday’s opening pop which keeps 850 on the radar.  The low for the week came in at 822 and a break below 817 (50-day MA) might be a warning sign if the bears push support at 810.  Our near-term target has been 875-900 for the Russell and we said last week a break below the 50-day moving average would be bearish.  Same deal this week.  The Russell started Monday’s session at 830 and finished with a slight gain of 0.27 for the week.  The index is up 90 points, or 12.1%, for the year.         

It was an impressive quarter for the bulls to say the least and we have been glad to follow behind them as we finished the quarter with a 59-13 Track Record for both our Daily (42-13) and Weekly Wrap (17-0) newsletters.

We have been successful by NOT following the crowd and Wall Street who spent 3 months waiting for cheaper prices.  Those of you who took our advice when we said the Dow would rally 1,000 points from the November lows have done well.

While we continue to feel the bulls will make one last push towards our near-term targets, there is also a slim chance the market challenges our longer-term end of year targets for the indexes which are:  Dow 14,000; S&P 1,550-1,600; Nasdaq 3,750-4,000; Russell 1000.  This of course, will depend on 1Q earnings which will start coming in next week (April 9-13) with Alcoa’s (AA, $10.02) numbers kicking things off on Tuesday, April 10.  Watch how the stock trades this week.  Alcoa likes to rally the week before if the numbers are good.

As far as overall 1Q earnings, Wall Street and the talking heads aren’t expecting much.  Either their estimates are too low and we could see some crappy numbers, or, companies easily beat expectations and it’s off to the races.

The other curve ball will be Friday.  The Unemployment Rate is due out and an uptick could cause panic as investors feel the recovery could be stalling.  If the number is flat or moves lower, it will help the bulls case for higher prices.  The problem is the market will be closed on Friday so we will have to wait until the following Monday to see how Wall Street reacts.  Followed by the start of earnings on Tuesday.

We are expecting a continued rally this week with Thursday being the wildcard.   

 

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Key of Technicals Used In Following Articles

2.  Wendy’s (WEN) – Ready for a Turnaround?

Dave Thomas’ Wendy’s franchise has been through a lot.  Having gone through many hardships, having been bought and briefly owned by Arby’s, and having been badly hurt during the credit crisis, the now #2 burger chain in the nation is ready for growth.  Can Wendy’s (WEN, $5.01, up $0.05) reinvent the magic its founder envisioned?

The beef filler has been the subject of national outrage, prompting some stores to stop using the product.  The fact that Wendy’s never used the filler may settle well with the public and boost sales.  People concerned about the filler may be deciding to buy their burgers at Wendy’s as it has now surpassed Burger King as the #2 burger chain in America based on sales.  Wendy’s sales came in at $8.5 billion compared to its rival’s $8.4 billion

The $1.95 billion company based in Dublin, Ohio is still the world’s third-largest quick-service hamburger chain, after McDonald’s (MCD) and privately held Burger King.  It has more than 6,500 franchise and company-owned restaurants in the U.S. and 27 countries worldwide.  In 2008, Arby’s bought the company in an all-stock deal and became known as Wendy’s/Arby’s Group.  However, the Arby’s franchise has been losing money ever since, and on July 5, 2011, the “Group” sold off the failing Arby’s chain for the equivalent of $430 million.

Wendy’s has been aggressively buying back shares over the past three years.  It has spent about $400 million, or 20% of its market value, on share buybacks.  The company has also redesigned its stores to include new Redhead Roasters branded coffee, digital signage, and a Wi-Fi bar.  It added more items on its menu, selling everything from chicken sandwiches to salads to smoothies and ice cream shakes.  It also changed its fries to include the skin and seasons them with sea salt.  In their attempt to win over customers, they seem to be winning.

Most of the company’s stores are in the U.S., leaving plenty of room for international expansion.  As show in the charts, revenue has narrowly beat total expenses over the past three years, thus allowing a small but positive non-GAAP earnings per share.  However, revenue and sales have yet to rise.  Franchise revenue is very small, so a big chunk of total revenue comes from sales.  A red flag is that operating expenses seem to be growing steadily each quarter.  Unless revenue grows fast enough to offset that, the company could see problems down the road.  The good news is that analysts see year-over-year earnings and revenue growth in the 1st quarter.

 

Compared to its top publicly-traded competitors and its industry, the company looks slightly undervalued, with negatives (red) falling short of positives (green) 10 to 11.

On the positives, Wendy’s revenue is greater than its market cap, unlike that of MCD, YUM, and the industry.  Only JACK has more revenue as compared to market cap.  The company also has the most cash as compared to market cap.  Both price/sales and price/book are low compared to competitors.  And the high current ratio means that the company can cover current liabilities better than competitors.  The lower EV/EBITDA is not quite low enough to be an acquisition target, but is in the lower end compared to competitors.  Insider ownership is, although low, at the higher end compared to competitors. 

On the negatives, debt is a big drag on the company, and only SONC has more debt as compared to market cap.  Trailing PE is very high, and the forward PE is still high.  PEG is the highest listed, while revenue growth, operating margin, profit margin, and return on equity are all low.  Gross margin is low compared to competitors.  Institutional ownership is lower than all competitors except MCD.  The presence that institutions are selling is also not good for the stock price.  

At $5.01, the stock is about half-way between its low target of $4.50 and its mean target of $5.45 made by the 13 analysts recorded by Thomson/First Call.  The high target is $7.00, and the median target is $5.50.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.7, up from 2.8 a week ago.

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

2

3

3

3

Buy

2

2

4

4

Hold

15

14

12

11

Underperform

1

1

1

1

Sell

0

0

0

0

   

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3.  Yelp (YELP) – Are Shares Overpriced?

Social media has been hot as Facebook’s highly-anticipated IPO nears.  Stocks such as LinkedIn (LNKD, $101.99, down $0.68) and Zynga (ZNGA, 13.15, up $0.31) have gone on a rollercoaster ride since going public.  LinkedIn started trading 300% higher than its IPO price.  While most social media stocks have gone higher, some like Renren (RENN, $5.52, flat) have gone lower.  Business review site Yelp (YELP, $26.89, down $0.05) seems to be caught in the frenzy.  Is it heading higher or lower?

The $1.61 billion startup allows users to provide reviews on local businesses such as restaurants, boutiques and salons to dentists, mechanics and plumbers.  People can then search Yelp to scan through all the reviews.  The company made its IPO debut in early March, pricing shares at $15.  The stock opened significantly higher and ended the first day of trading at $24.58/share. 

Yelp has expanded into major metros across the US, Canada, UK, Ireland, France, Germany, Austria, the Netherlands, Spain, Italy, Switzerland, Belgium, Australia and Sweden.  In the 4th quarter, it had a monthly average of 66 million unique visitors.  By the end of 4th quarter 2011, users had written approximately 25 million local reviews, making it the leading local guide for real word-of-mouth reviews.  On average, the site gets more than 5.7 million unique visitors monthly.

The company generates revenue mainly from local business advertising (66.8%); Yelp deals, partnerships, and services (17.7%), and brand advertising (15.5%).  The company competes primarily with other online business review services like Google (GOOG, $641.24, down $7.17) Places, Yahoo (YHOO, $15.22, down $0.08) Local, Angie’s List (ANGI, $18.89, up $0.92), CityLocal and Gumtree.

With a price/sales of 20.14 and a price/book of 15.28, Yelp is priced similar to LNKD, which has a price/sales of 20.14 and a price/book of 16.67.  The difference is that LNKD is profitable, while as shown in the graph below, YELP is not.  Total expenses have been increasingly greater than revenue.  The growth rate seems to stay the same from one quarter to the next.  Thus, unless revenue growth picks up speed or total expenses levels off, Yelp will not be making a profit anytime soon.  Another difference is that LNKD has a 106% year-over-year quarterly revenue growth rate, while that of YELP is 63%.  Thus, one would think LNKD would be trading at nearly twice YELP’s price/sales.

 

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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, 3/30/12)


MONDAY 
 

Arrhythmia Research Technology (HRT, $3.60, down $0.12), Digital Domain Media Group (DDMG, $5.69, up $0.09), Exceed Company (EDS, $3.02, up $0.02), First Financial Service (FFKY, $3.20, down $0.06), Food Technology Service (VIFL, $7.00, down $0.38), Galectin Therapeutics (GALT, $4.04, down $0.30), GreenHunter Energy (GRH, $2.48, up $0.18), HMG/Courtland Properties (HMG, $4.30, up $0.25), Lifeway Foods (LWAY, $9.25, down $0.16), Pep Boys (PBY, $14.92, up $0.01), Royal Bancshares of Pennsylvania (RBPAA, $1.59, up $0.24), Talbots (TLB, $3.03, Flat), United Security Bancshares (UBFO, $2.45, down $0.09), Westway Group (WWAY, $5.79, down $0.18)

TUESDAY

Comverse Technology (CMVT, $6.87, up $0.10), Conns (CONN, $15.35, down $0.32), Elephant Talk Communications (ETAK, $2.25, down $0.02), Imperial Holdings (IFT, $2.67, up $0.01), International Speedway (ISCA, $27.75, up $0.44), Mitcham Industries (MIND, $22.46, up $0.51), New Concept Energy (GBR, $2.75, down $0.07), Team (TISI, $30.95, down $0.48), Wireless Telecom Group (WTT, $1.23, up $0.01)

WEDNESDAY

A. Schulman, (SHLM, $27.02, down $0.13), Acuity Brands (AYI, $62.83, down $0.36), AngioDynamics (ANGO, $12.25, down $0.02), Chimera Investment Corporation (CIM, $2.83, down $0.01), Global Payments (GPN, $47.50, down $4.73), Gold Reserve (GRZ, $3.98, up $0.24), Mistras Group (MG, $23.82, down $0.47), Monsanto (MON, $79.76, up $0.85), MSC Industrial Direct (MSM, $83.28, down $0.26), National American University Holdings (NAUH, $6.30, down $0.41) Northwest Pipe (NWPX, $21.24, up $0.36), PriceSmart (PSMT, $72.81, up $1.01), RIT Technologies (RITT, $3.41, up $0.04), Ruby Tuesday (RT, $9.13, up $0.03), ZST Digital Networks (ZSTN, $2.22, down $0.01)

THURSDAY

Andatee China Marine Fuel Services (AMCF, $3.06, down $0.24), AZZ Incorporated (AZZ, $51.64, up $0.16), BCB Bancorp (BCBP, $9.99, down $0.14), CarMax (KMX, $34.65, up $0.46), Catalyst Pharmaceutical Partners (CPRX, $1.11, down $0.03), Chromcraft Revington (CRC, $1.25, Flat), Constellation Brands (STZ, $23.59, down $0.03), Enterprise Financial Services (EFSC, $11.74, down $0.22), Golden Enterprises (GLDC, $3.35, up $0.14), Gushan Environmental Energy (GU, $1.44, down $0.01), Northeast Community Bancorp (NECB, $5.63, Flat), Pier 1 Imports (PIR, $18.18, down $0.05), RPM International (RPM, $26.19, down $0.06), Schnitzer Steel Industries (SCHN, $39.90, down $0.10), SemiLEDs Corporation (LEDS, $3.98, up $0.04), WD-40 Company (WDFC, $45.35, down $0.30)

FRIDAY

Market Closed

 

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4.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 3/30/12)

Other Closed Trades for 2012 (17-0, overall):  SZYM +55%, VVUS +38%, CALL +19%, BAC +20%, SYMC +16%, DAR +20%, TIVO +5%, MGM +22%, ZNGA +13%, SGMS +6%, VVUS +17%, F +8%, AA +7%, CLNE +27%, DNDN +18%, MGM +19%, ACAS +3%.   

 

Scientific Games (SGMS, $11.66, up $0.09)   

Original Entry Price:  $11.10 (3/20/12)

Lowered Price from Selling Options:  Waiting for shares to reach $12-$13

Exit Target:  $15+

Return:  5%

Stop Target:  None

Action:  We are looking at selling the May 12.50 (SGMS120519C00012500, $0.45, up $0.05) at higher prices so look for a possible Trade Alert this week.  

These calls were at 45 cents last week and have a current ask of 50 cents.  We are going to try to sell them for 60 cents or more.

Shares were trying to push $12 for much of the week and reached $11.90 on Monday.  Support is still strong at $10.50.  A close above $12 would be bullish and our 2012 price target is $15+.

 

We recommended buying the stock at $11.10 on 3/20/2012.

 

Pandora (P, $10.21, up $0.18)

June 13 calls (P120616C00013000, $0.25, flat)

Original Entry Price:  $10.58 (3/20/12)

Lowered Price from Selling Options:  $10.18

Exit Target:  $12

Return:  1%

Stop Target:  None

Action:  Pandora dropped to a low of $9.62 on Thursday but closed above $10.  We said $9 could come into play on a further pullback while a move back above $11.00-$11.50 would be bullish. 

We recommended buying the stock at $10.58 on 3/20/2012 and for every 100 shares to sell the June 13 calls for 40 cents.  This lowered the cost basis to $10.18.

If shares are called-away by mid-June at $13 the trade makes 28%.

 

E*Trade Financial (ETFC, $10.95, up $0.05)

April 10 calls (ETFC120421C00010000, $1.00, up $0.05)

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

Lowered Price from Selling Options:  $9.28

Exit Target:  $12

Return:  18%

Stop Target:  None

Action:  Shares traded down to $10.72 on Thursday which is still well above the 200-day MA and strong support.  We would like to see a move above $11.50 this week which was the prior week’s high.

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, $9.23, down $0.05)

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

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

Exit Target:  $8

Return:  3%

Stop Target:  None

Action:  We might try to sell the May 10 calls (BEBE120519C00010000, $0.20, flat) this week but we would like shares to break $10 before doing so. 

Bebe tested a high of $9.52 and $9.51 on Monday and Tuesday but was pushing $9 by week’s end.  Further support is at $8 but the stock is still in a solid uptrend.  The 52-week high is $9.58 which was hit twice in mid-March and we would like to see a close above $10, soon.

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

 

Pizza Inn (PZZI, $4.82, down $0.06)

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 flat for the week and pushed $4.90 twice which was the prior week’s high.  Our near-term target is $6, longer-term $8 if the company can manage its growth.  They have revamped their website and are accepting franchise applications.  We cannot sell options on this position, yet, because there are none listed.  Support is at $4.50-$4.25   

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

 

OCZ Technology Group (OCZ, $6.98, down $0.02)

Original Entry Price:  $9.60 (2/7/12)

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

Exit Target:  $12+

Return:  -27%

Stop Target:  None

Action:  We said there would be further risk down to $6 and last week’s low was $6.78.  We would like to see a run back towards $8 which has been strong resistance and short interest is still high.  

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

 

Arena Pharmaceuticals (ARNA, $3.08, up $0.04)

July 3 calls (ARNA120723C00003000, $1.45, flat)

Original Entry Price:  $1.88 (2/2/12)

Lowered Price from Selling Options:  $1.33

Exit Target:  $3+

Return:  123%

Stop Target:  None

Action:  Shares traded to a high of $3.47 last week and the next level of resistance comes in at $3.50.  Support is trying to hold at $3 but there is risk back down to $2.50-$2.00.  The FDA probably won’t make the diet drug makers do additional heart tests and Arena should hear from the FDA on May 10 concerning its obesity drug, Lorcaserin.  We believe there is a good chance the drug gets the green light and there is also the possibility it gains acceptance in Europe.   

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, $13.62, down $0.23)

April 14 calls (MGM120421C00014000, $0.30, down $0.15)

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

Lowered Price from Selling Options:  $12.67

Exit Target:  $15

Return:  7%

Stop Target:  None 

Action:  MGM closed below $14 mid-week and tested a low of $13.50 on Friday.  Short-term support is strong at $13.50, followed by the 200-day MA.  Our-near-term target is $15 on a rebound back above $14.   

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.

On 3/20/12 we recommended selling the April 14 calls for $0.65 which lowered the cost basis to $12.67.

If shares are called away in mid-April at $14 the trade will make 10%.

 

Patriot Coal (PCX, $6.24, down $0.32)

April 9 call (PCX120421C00009000, $0.03, down $0.01)

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

Lowered Price from Selling Options:  $8.31

Exit Target:  $15

Return:  -25%

Stop Target:  None

Action:  Shares traded own to $6.02 on Wednesday and $6.04 on Thursday.  There is further risk down to $5 but at these levels, shares are a 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, $9.57, up $0.04)     

April 8 call (BAC120421C00008000, $1.60, flat)

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

Lowered Price from Selling Options and Dividends:  $6.34

Exit Target:  $15

Return:  51%

Stop Target:  None

Action:  Shares tested a low of $9.35 on Friday and support is at $8.75, followed by $8.  We would like to see a move back above $10 but we will likely be called away in a few weeks.  We are hoping shares come back a little so we can buy them again but we may have to purchase them in double-digits next time around if we are called away.  

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%.

  

Alcoa (AA, $10.02, down $0.01)

April 11 calls (AA120421C00011000, 0.08, down $0.02)

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

Lowered Price from Selling Options and Dividends:  $9.17

Exit Target:  $11

Return:  9%

Stop Target:  None

Action:  Alcoa tested a low of $9.75 but ended the week above $10.  Support is strong at $9.50 but a break below this level would be bearish over the short-term.  Resistance is at $10.50.   

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. 

On 3/20/12 we recommended selling the April 11 calls for $0.20 which lowered the cost basis to $9.17.

If shares are called away in mid-April at $11 the trade will make 20%.

 

Newpark Resources (NR, $8.19, up $0.21)

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

Lowered Price from Selling Options: $7.85

Exit Target: $10+

Return:  4%

Stop Target: None

Action:  Shares traded own to $7.78 but has been making higher highs and higher lows since early March.  A move above the 50-day MA of $8.44 would be bullish would and where we will look to sell another call option.  Support has been solid at $7.50.

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.  

Trades on HOLD:  Rambus (RMBS, $6.45, down $0.04), Rare Element Resources (REE, $6.28, down $0.29), AKS Steel Holding (AKS, $7.56, down $0.07), DryShips (DRYS, $3.48, up $0.14)

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5.  Week Ahead

Economic news will be heavy this week with a lot of month-end reports due out.

Monday starts off with the ISM Index and Construction Spending numbers which are due out at 10am (EST).  

Tuesday will be interesting as the morning session gets a look at the latest Factory Orders figures while the afternoon brings much more excitement.  At 2pm, the FOMC Minutes could be a market mover while Auto and Truck sales could provide a lift for Auto stocks.

Wednesday’s action kicks-off with the MBA Mortgage Index which will be out at 7am followed by the ADP Employment Change report at 8:15am.  After the open, ISM Services and Crude Inventories are scheduled to be released at 10am and 10:30am, respectively. 

For Thursday, the Challenger Jobs Cuts figures are due at 7:30 followed by Initial and Continuing Claims an hour later.

Friday will be a monster day but the market will be CLOSED for Good Friday.  Nonfarm Payrolls, Nonfarm Private Payrolls, the Unemployment Rate, and Average Workweek numbers will all be announced at 8:30am.  Later in the day, at 3pm, Consumer Credit figures will be released.