9:00am (EST) continued…

The Dow gained 23 points, or 0.2%, to settle at 13,228 on Friday.  The blue-chips reached a high of 13,266 on Tuesday and is a little over 30 points from setting a new 52-week high.  We mentioned the close above the 50-day MA last week was bullish and the move back above 13,200 could lead to a breakout to 13,500.  The bears are looking to force the action back below 13,000 and then 12,800.  The Dow came into the week at 13,029 and added nearly 200 points, or 1.5%, by the end of it.  Year-to-date, the blue-chips are up 1,011 points, or 8.3%. 

 

Here was the chart work we did in early February when the Dow was just above 12,800 and our thoughts at the time: 

“We were watching the drop below 12,600 to and we said to it would be important the bulls bought the dip or they faced a bear test to 12,350-12,000.  The Dow came within a stone’s throw of tripping the 52-week high of 12,876 and 13,000 is still in play.  We went on record last week and called for a run to 13,500 over the near-term and as you can see from the 10-year chart, the Dow could hit 14,000 in 2012.” (from February 5, 2012 Weekly Wrap)   

The S&P 500 added 3 points, or 0.2%, to finish at 1,403.  The index traded to a high of 1,406, but more importantly, the S&P was able to reclaim 1,400 after finishing two-tenths of a point below this level on Thursday.  This clears the way for a possible test up to 1,425 and the 52-week high of 1,422 which was hit at the beginning of the month.  If resistance sticks and the bulls cannot hold down 1,400 then there will be another test back down to 1,375- 1,350.  The S&P 500 was at 1,378 to start Monday’s session and gained 25 points, or 1.8%, by Friday’s close.  For the year, the index is up 146 points, or 11.6%.    

Here were our notes and chart work from early February with the S&P at 1,345: 

“The S&P failed to clear our 1,350 top-end target which would lead the way for a run to 1,375-1,450 over the near-term.  A break above these levels could lead to our 2012 target of 1,550-1,600 for the S&P.  As you can see from the 10-year chart, a close below 1,300 would get 1,250 back into play and a possible bear market would emerge on a trip below 1,200.” (from February 5, 2012 Weekly Wrap)   

The Nasdaq advanced 19 points, or 0.6%, to close at 3,069.  Tech traded up to 3,076 and is just 65 points, or 2% away, from setting 52-week highs.  After starting the week just below its 50-day MA, the index was able to reclaim the 3,050 level on Thursday which has become a favorite playground between the bulls and bears.  There is still a chance our 3,250 target comes into play, if 3,134 is cleared, but it will take a lot of momentum.  The bears will be looking to hold the top and push things back under 3,000-2,950.  The Nasdaq was at 3,000 even to start the week and advanced 69 points, or 2.3%, for the five trading sessions.  YTD, Tech is higher by 464 points, or 17.8%. 

From February with the Nasdaq at 2,905:

“Tech made it five-straight winning weeks and we have been saying the bulls had their eyes on the 52-week high of 2,887 and, if cleared, the Nasdaq would make a push to 3,000.  If the momentum continues we could see the “fluff” we have been talking about push the Nasdaq to 3,250 over the near-term.  For 2012, our price target is 3,750-4,000 for Tech.  Should the bears wake up anytime soon, they will try to get the action below 2,800-2,750.´(from February 5, 2012 Weekly Wrap) 

The S&P Volatility Index ($VIX, 16.32, up 0.08) came into the week just below 17.50 and traded past 20 on Monday’s action before closing above just under 19.  The rest of the week was bullish which pushed the VIX to a low of 15.75 on Thursday and 15.83 on Friday.  We said last week a move above 20 would be bearish while a dip below 16 would be bullish.  The VIX can trade to the low teens on a continued rally and the chart is showing a breakout or breakdown of the 4-week trading range could be coming soon. 

The Russell 2000 popped 7 points, or 0.9%, on Friday and ended at 825.  The index cleared 800 on Wednesday’s rally and went out near its high on Friday.  The 830 level has been a brick wall but if cleared, the bulls could make a run at 850-875.  The bears will target 810-800 this week.  The Russell was at 804 before Monday’s opening bell and was up 21 points, or 2.7%, for the week and is showing a gain of 85 points, or 11.4%, for the year. 

Here were our thoughts on the Russell 2000 back in February with the index at 831 which still remains MAJOR resistance: 

“We have talked about how the move above 750 at the beginning of the year would lead to a run at 800 and this level was cleared on Wednesday.  The index now appears set for a run at 875-900 over the near-term and for 2012, there is a chance the Russell 2000 makes a run at 1,000.  A break below 800 and then 750 would be bearish and a trend change would occur on a fall below 700.” (from February 5, 2012 Weekly Wrap) 

 

We said the two things we were looking to take the market lower or higher last week were the Fed and earnings.  Both were bullish and we confirmed Wednesday morning the market would do a back test to resistance.

This week, the only day we are really focused on will be Friday which is when the Labor Department reports the employment numbers.  If the numbers are weak, look out below.  However, if they come in strong, the market could easily hit our near-term targets of Dow 13,500; S&P 1,450; Nasdaq 3,250.

The past month has shown an increase in jobless claims which could have an impact on overall employment when the payroll numbers are released on Friday.  We may get some clues on Wednesday with the ADP Employment report and on Thursday, the Challenger Employment figures will be released.  The number to watch for on Friday’s nonfarm payroll report will be 165,000 which is the consensus estimates.  However, the range is wide as some economists have nonfarm payrolls coming in as low as 75,000 while others have pegged numbers north of 250,000.

If the numbers come in at the high or low end, either way, it will likely establish the next TREND which is what we are looking for.  In bulls markets, call options work best.  In bear markets, we like to use put options.  Following a 4-week trading range, we should get the breakout or breakdown we have been looking for, soon.    

As we head to press, Dow futures are down 22 points to 13,142 while the S&P 500 futures are lower by 3 points to 1,395.  Nasdaq 100 futures are showing a 10 point loss and are at 2,726.

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.

 

KLA-Tencor (KLAC, $52.29, down $2.82)

June 48 puts (KLAC120616P00048000, $0.70, up $0.20)

Entry Price:  $0.45 (4/26/12)
Exit Target: $1.00
Return:  56%
Stop Target:  None

Action:  This trade got off to a hot start as shares traded down to $51.28 on Friday.  The options traded up to 90 cents and we thought about closing half but we think shares could dip below $50 this week on back test.  We have to be careful though as shares did hit 52-week highs on Thursday.      

 

 First Solar (FSLR, $18.35, up $0.04)         

May 18 puts (FSLR120519P00018000, $1.50, down $0.10)

Entry Price:  $0.90 (4/11/12)
Exit Target: $1.80 (closed half at $1.50 on 4/27/12)
Return:  67%
Stop Target:  $1.30 (HARD STOP)

June 15 puts (FSLR120616P00015000, $1.05, down $0.05) 

Entry Price:  $1.15 (4/25/12)
Exit Target: $2.30
Return:  -6%
Stop Target:  50 cents

Action:  We closed half of the May put options on Friday to lock-in profits ahead of the weekend.  Shares hit another all-time low of $17.81 on Friday and we said once shares fell below $20 the downside spiral could accelerate.  We have a near-term target of $15 for First Solar and shares could fall to the single-digits by the end of summer.


iShares Russell 2000 (IWM, $82.38, up $0.64)

June 75 puts (IWM120616P00075000, $0.75, down $0.15)

Entry Price:  $1.15 (4/25/12)
Exit Target: $2.30
Return:  -33%
Stop Target:  50 cents

Action:  There is resistance up to $83 but we are looking for a drop back below $80 next week.

 

Joy Global (JOY, $71.60, down $0.63)

May 65 puts (JOY120519P00065000, $0.60, flat)

Entry Price:  $0.85 (4/25/12)
Exit Target: $1.70
Return:  -29%
Stop Target:  None

June 60 puts (JOY120616P00060000, $0.90, flat)

Entry Price:  $1.15 (4/25/12)
Exit Target: $2.30
Return:  -19%
Stop Target:  50 cents

Action:  You can see the damage that could be done if shares fall below $70 from this weekly 1-year chart.  We are looking for resistance to hold at $75 and these are June options which mean we have plenty of time to wait for a breakdown.

 

Apollo Group (APOL, $35.78, down $0.14)

May 33 puts (APOL120519P00033000, $0.30, flat) 

Entry Price:  $0.62 (4/20/12)
Exit Target: $1.25
Return:  -52%
Stop Target:  None

Action:  Shares traded to a low of $33.71 to start the week and we are looking for another close below $35 this week.  Our near-term target is for a test down to $30 but the May options only have 3 weeks left before the expire.  We may have to roll the position into some August put options if this trade doesn’t work out in our favor.  Below is a 15-year chart for Apollo Group.  


Potash (POT, $42.68, down $0.19)     

May 40 puts (POT120519P00040000, $0.30, flat)

Entry Price:  $0.40 (4/17/12)
Exit Target: $0.80
Return:  -25%
Stop Target:  None

Action:  If we can get a break below $41.50, we think shares could test $38.  However, these options also expire in 3 weeks so we may start taking profits once we get back above even.  We can always roll the trade over into June puts if resistance at $45 holds.  

Green Mountain Coffee Roasters (GMCR, $47.90, down $0.85)   

May 35 puts (GMCR120519P00035000, $0.45, up $0.05)

Entry Price:  $0.85 (4/17/12)
Exit Target: $1.70
Return:  -47%
Stop Target:  None

Action:  The company announces earnings on Thursday and shares could be above $50 or below $30 by Friday.  Green Mountain has a lot of unanswered questions to put things mildly and we are hoping some old skeletons come out of the closet when they announce.  We saw our Deckers put options rebound from 60% down to return us a triple-digit profit last Friday and we are hoping for the same results.  However, a break above $50 would likely put this trade out of commission.  Conservative traders could add a call option but we are standing pat.  

 

Lululemon Athletica (LULU, $74.71, up $1.29)

May 67.50 puts (LULU120519P00067500, $0.60, down $0.15)

Entry Price:  $0.90 (4/12/12)
Exit Target: $1.80 (closed half at $1.20 on 4/23/12)
Return:  0%
Stop Target:  $1.00 

Action:  There is risk up to $75 on a continued rebound but there is also a big gap to fill in the $50’s.  We closed half of the trade when shares dropped below $72 and on Tuesday we had gotten our drop below $70.  However, like a tide that lifts all boats, shares rebounded along with the market.

Acuity Brands (AYI, $57.45, up $1.73)   

May 50 puts (AYI120519P00050000, $0.25, down $0.05)

Entry Price:  $0.60 (4/12/12)
Exit Target: $1.20
Return:  -58%
Stop Target:  None

Action:  A move above $60 and the 50-day MA will be bad news for this trade.  We have been looking for a drop below $52.50 but shares have held $54 for the most part since we have been in the trade.    

      

PowerShares QQQ (QQQ, $67.24, up $0.40)

May 65 puts (QQQ120519P00065000, $0.40, down $0.10)

Entry Price:  $1.00 (4/11/12)
Exit Target: $2.00 (closed half at $1.60 on 4/23/12)
Return:  0%
Stop Target:  None

Action:  We closed half of the trade when the Q’s fell below $65 to start the week.  We were looking for some follow through on Tuesday but the rebound came and lasted all week.  A move above $68 could force us out of the other half of the trade for a small loss.

Other 2012 Portfolio OPEN positions (5):  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.

 

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

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

Dendreon May 22 calls (from January 2012)

Tiffany & Company May 62.50 puts (from April 2012)

Caterpillar May 92.50 puts (from April 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.

We will add some more possible trades this week as we get a feel for direction but here are two we really like.

Arena Pharmaceuticals (ARNA, $2.62, up $0.47)

July 3 calls (ARNA120723C00003000, $1.05, up $0.30)

Thoughts:  Shares were able to hold $2 all week and surged on Friday after reports surfaced that Arena’s diet drug, Lorcaserin, is far safer than Vivus’ obesity drug, Qnexa, which is trying to gain approval as well.  Of course, we already told you that and we have made our subscribers some nice profits in Vivus.  Now it’s time to play Arena.

The pie is big enough for both companies to market their diet drugs which will make billions.  Arena is looking to gain pre-approval from AdComm on May 10 and the green light by the FDA in late June. 

This chart shows the breakout potential:

  

 MGM Resorts (MGM, $13.77, down $0.01)

June 14 calls (MGM120616C00014000, $0.70, flat)

June 13 puts (MGM120616P00013000, $0.45, down $0.05)

Thoughts:  MGM announces earning on Thursday.  Shares traded to a high of $13.89 on Friday after dipping below $13 on Tuesday which has been strong support.  We are looking for the company to report a good quarter, but if they miss or lower guidance, shares could test $12 and the 200-day MA.  A better-than-expected earnings report in could get shares back pushing $15.  We love MGM for the possible approval of online poker over the next few months and have a $20 target on the stock but earnings are always tricky to play.  We could use both the calls and puts to create a strangle option trade but we aren’t sure if the post-earnings move up or down will be large enough to offset the costs.   

 

 

April 2012 | Members