9:00am (EST) continued…

The Dow got hammered for 137 points, or 1.05%, to finish at 12,849 on Friday.  The blue-chips gave up the 13,000 level on Monday’s open and closed below 12,800 on Tuesday which were the next waves of support we said to watch for.  The bounce on Wednesday and Thursday was exactly what we wanted to see as the Dow traded to 12,987 but could not clear 13,000 and finished below its 50-day MA.  This will be the first wave of resistance followed by 13,200.  A close below 12,800 again would get 12,600 back in play, followed by 12,350-12,300.  For the week, the Dow fell 210 points, or 1.6%, after starting the week at 13,060.  Year-to-date, the blue-chips are up 632 points, or 5.2%.  

 

The S&P 500 tanked 17 points, or 1.25%, to settle at 1,370.  The index traded to a low of 1,357 on Tuesday’s beat down and easily fell through our 1,375 target and nearly took out our 1,350 target as well.  The surge on Wednesday and Thursday sputtered out at 1,388 but well short of 1,400 which represents major resistance going forward.  A break below 1,350 would get 1,325-1,300 back into the picture.  The S&P 500 started at 1,398 on Monday and declined 28 points, or 2%, for the week.  For the year, the index is up 113 points, or 9%.  

 

The Nasdaq got punished for 44 points, or 1.45%, to end at 3,011.  Tech closed at 3,047 on Monday which was the first close below 3,050 since mid-March.  We said a close below this level would likely lead to a test down to 3,000-2,950 and Tuesday’s low was 2,987.  Thursday’s high was 3,059 and the close at 3,055 made us a little nervous going into Friday because we were back over 3,050.  However, we got the word on China’s GDP numbers late Thursday evening and hit the rack like a happy sack of potatoes as we knew Friday would be bearish.  We said a test down to 2,850 would be a 7% decline from prior levels before last week started and the bears got half of it before the bulls made one last hurrah.  The Nasdaq did close above its 50-day MA but not by much.  The Nasdaq was at 3,080 to start the week and gave back 69 points, or 2.3%.  For 2012, the index is up 406 points, or 15.6%.

The S&P Volatility Index ($VIX, 19.55, up 2.35) was at 16.70 before Monday’s session and easily closed above our 17.50 target by the close after the bear attack.  The VIX finished at 18.81 and the close at 20.39 on Tuesday were the clues we were looking for as confirmation of a trend change – along with the major break of support by the Dow, S&P and Nasdaq.  A move above 22.50 this week would be a good indication the market could correct 8%-15% by the summer with the VIX pushing 26 and its 200-day MA.  This of course, is our worst case scenario but is something we are preparing for.   

 

The Russell 2000 was off 12 points, or 1.5%, and closed at 796 on Friday.  The index closed at 803 on Monday and 784 on Tuesday but held 780.  We knew when the S&P opened at 808 and below 810 to start the week that the 800 level would fall quickly.  We mentioned 780 in our red box from last week’s chart and a break below this level could lead to 750.  A run back above 810 would be bullish but would need to hold for several days to reverse the bears’ momentum.  The Russell got zonked for 22 points for the week, or 2.7%, after starting Monday’s session at 818.  The index is up 56 points, or 7.5%, for the year but the money did not rotate out of the big cap names into the small caps and was another warning sign the market was headed lower.        

It doesn’t appear first-quarter earnings are going to save the bulls but we will get some bigger clues this week as the season kicks into second gear.  The financial stocks were a catalyst that carried the bulls higher over the back-half of the rally from January to the end of March but they are showing weakness and the selling pressure picked up steam going into Friday’s close.  This could be a hint of things to come as banks struggle with matching last year’s 1Q revenues.

The Fed could come into play but the QE3 story has been rehashed so many times we don’t even pay attention to it anymore.  We know not to fight the Fed, but how powerful will the Fed’s last bullet be?  The talking heads and slick switching analysts keep throwing QE3 when there is bad economic news and we have heard talk of the Fed possibly buying mortgage-backed securities.  However, Ben Bernanke was mum in his public appearances last week and seemed nervous when he babbled.  To us, this wasn’t a convincing poker face and the bears could call any bets he might make.

Another clue and possibly the final piece of the bear’s puzzle will be if they get a negative close on Monday.  The S&P has not closed down on back-to-back Friday’s and Monday’s all year.  The prior THURSDAY and Monday were down days and this past Friday was a loser.  If this Monday ends in a bear victory it could mean money is moving to the sidelines and our predication, or warning of a correction could be on the horizon.

We like to remember the old saying that stocks or the market often take the stairs higher but sometimes tend to take the elevator on the way back down.  If volatility picks up like we think it will and the market continues lower, we will be on track for another sweet week.

Futures are showing a big open as we head to press and look like this: Dow futures are up 88 points to 12,876 while the S&P 500 futures are 8 points to 1,373.  Nasdaq 100 futures are higher by 15 points to 2,708.   

 

MEMBERS AREA

 

Please remember, ALL “Exit Targets” and “Stop Targets” are targets.  You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless we list one.  We will send out a “Profit Alert” or “Trade Update” if we want you to close a position OR if a new trade comes out.  Otherwise, follow instructions at all times in the 9am and 1pm updates.  Also, we will usually give you a heads-up if we think we are going to send an email outside of these time frames but it is rare that we do.

 

Acuity Brands (AYI, $54.07, down $1.24)

May 50 puts (AYI120519P00050000, $1.05, up $0.25)

Entry Price:  $0.60 (4/12/12)

Exit Target: $1.20
Return:  75%
Stop Target:  50 cents

Action:  Our near-term target is for a drop below $50, down to $48.  The 200-day MA is at $50.79.  We have a stop target of 50 cents but it is not a Hard Stop.  A break above $56 will have us out of the trade.

LinkedIn (LNKD, $107.24, up $1.34)

May 82.50 puts (LNKD120519P00082500, $1.00, down $0.10)

Entry Price:  $0.90 (4/12/12)
Exit Target: $1.80
Return:  11%
Stop Target:  None

Action:  We will need to see a close below $100 this week, if not, shares could test $120.  We are looking for a drop to $80 by mid-May and our first target is for a test down to $90 over the next week or so once $100 is cracked.

 

Caterpillar (CAT, $105.89, down $0.55) 

May 92.50 puts (CAT120519P00092500, $0.90, up $0.05)

Entry Price:  $0.85 (4/12/12)

Exit Target: $1.70
Return:  6%
Stop Target:  None

Action:  We would like to see a break below $104 and then $102 which should get us our drop below $100,  Caterpillar is a big Dow component so if there is a breakdown in the blue-chips, shares will likely follow.


PowerShares QQQ (QQQ, $66.19, down $1.01)

May 65 puts (QQQ120519P00065000, $1.20, up $0.40)

Entry Price:  $1.00 (4/11/12)

Exit Target: $2.00
Return:  20%
Stop Target:  None

Action:  We got our close below $66.50 on Friday and we would like to see a dip below $65 today.  Our near-term target is $63 which would get these options to $2.  A move above $58 would be bullish.

 

Deckers Outdoor (DECK, $62.11, down $0.79)

May 50 puts (DECK120519P00050000, $0.65, up $0.05)

Entry Price:  $0.50 (4/11/12)

Exit Target: $1.00
Return:  30%
Stop Target:  None

Action:  The 52-week low is $61.27 and the 2-year chart shows a move below $60 coming.  Our near-term target is $55 over the next week or two followed by a dip to $50 or worse.


First Solar (FSLR, $20.83, down $1.17)

May 18 puts (FSLR120519P00018000, $1.25, up $0.25)  

Entry Price:  $0.90 (4/11/12)

Exit Target: $1.80
Return:  39%
Stop Target:  None

Action:  We are looking for a drop below $20 over the next week or two.  This level was the IPO price from late 2006 and a breach of this level should lead to the mid-teens.  

Tiffany & Company (TIF, $66.40, down $0.97)

May 62.50 puts (TIF0519P00062500, $0.95, up $0.20)

Entry Price:  $1.05 (4/9/12)

Exit Target: $2.10
Return:  -10%
Stop Target:  80 cents

Action:  Shares closed below their 50-day MA on Friday and a break below $64 should get us to at least $62, possibly $60 which would get these puts to $2.50.  A move above $68 would be bullish short-term. 

Lululemon Athletica (LULU, $73.51, up $0.38)

May 67.50 puts (LULU120519P00067500, $1.30, flat)

Entry Price:  $1.05 (4/4/12)

Exit Target: $2.10 (closed half at $1.60 on 4/11/12)
Return:  38%
Stop Target:  $1.10 (Hard Stop)

Action:  We lowered the Hard Stop from $1.20 to $1.10 on Friday when the options were at $1.21.

C.H. Robinson Worldwide (CHRW, $64.13, down $0.40)

May 60 puts (CHRW120519P00060000, $0.80, up $0.10)

Entry Price:  $0.65 (4/4/12)

Exit Target: $1.30  (closed half at $0.90 on 4/11/12)
Return:  31%
Stop Target:  65 cents

Action:  The 52-week low is $62.30 and we are expecting a trip below $60 this week.   The puts would then be in-the-money and would be worth $2 if shares test $58.

Other 2012 Portfolio OPEN positions (8):  These are trades that are still open in the portfolio that have longer expiration dates or are on “hold” but are not worth mentioning until they turn around.  This means we would not open any new positions.  We are still keeping track of the trades and we will record the results, accordingly, when we close them or the options expire.  Click on the 2012 Portfolio link in the Members Area to view ALL open/ closed trades.

 

April Options Expire this Friday.

 

magicJack VocalTec April 30 calls (from March 2012)

E*Trade Financial July 12 calls (from March 2012)

Bank of America January 12.50 calls 2013, July 12 calls (from March 2012)

Acme Packet April 40 calls (from February 2012)

Dendreon May 22 calls (from January 2012)

Silver Wheaton April 42 calls (from March 2012)

U.S. Oil Fund April 45 calls (from February 2012)

Sony April 22 calls (from February 2012) 

 

WATCH LIST SECTION

These trades are NOT recommendations.  They are trades that we like but have not added to the portfolio as an official recommendation because of market conditions or because we are waiting for better entry prices.  We try not to have more than 12-15 open trades at any one time which is why we created a Watch List.  We will not list entry prices because these stocks are on the verge of breaking out or they could sell off.

Potash (POT, $42.82, down $0.68)     

May 40 puts (POT120519P00040000, $0.80, up $0.15)

Thoughts:  Watch for now.

 

Green Mountain Coffee Roasters (GMCR, $43.59, down $0.03)

May 35 puts (GMCR120519P00035000, $1.15, down $0.10)

Thoughts:  We would love to see a test to $45 which is where we are looking to establish positions.

 

Netflix (NFLX, $104.17, down $0.09)

April 95 puts (NFLX120421P00095000, $0.40, down $0.10)

May 80 puts (NFLX120519P00080000, $1.50, down $0.10)

Thoughts:  Shares fell below $100 on Wednesday for the first time since late January.  A test to $75 could be in the mix if the bearish momentum picks up.

 

 

Apache (APA, $93.65, down $1.25)    

May 85 puts (APA120519P00085000, $1.10, up $0.20)

Thoughts:  Watch for now.

 

Sears Holdings (SHLD, $57.67, down $1.18)

May 45 puts (SHLD120519P00045000, $1.10, flat)

Thoughts:  Watch for now.   

  

Apollo Group (APOL, $36.70, down $0.47)

May 36 puts (APOL120519P00036000, $1.20, up $0.15)

August 30 puts (APOL120818P00030000, $0.90, up $0.05)

Thoughts:  Watch for now.