June 2012 | Members

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.

12:25pm (EST)

Illinois Tool Works (ITW, $54.08, down $0.77)  

July 50 puts (ITW120721P00050000, $1.20, up $0.25)

Entry Price:  $1.05 (6/4/12)
Exit Target: $2.10
Return:  14%
Stop Target:  None

Action: We would like to see a close below $53.50 today.

 

RealD (RLD, $11.22, down $0.03)

June 10 puts (RLD120616P00010000, $0.15, flat)

Entry Price:  $0.35 (5/31/12)
Exit Target: $0.70
Return:  -57%
Stop Target:  None

Action:  Shares had traded higher all session long until lunch break and have now turned lower.  Continue to hold.

 

Coinstar (CSTR, $57.79, down $0.86)   

July 52.50 puts (CSTR120721P00052500, $1.85, up $0.15)

Entry Price:  $1.05 (5/30/12)
Exit Target: $2.10
Return:  76%
Stop Target:  50 cents

Action:  Our near-term target is $55 and our longer-term target is for a drop below $50.       

 

KLA-Tencor (KLAC, $44.32, down $0.24)

July 42 puts (KLAC120721P00042000, $1.40, up $0.10)

Entry Price:  $0.85 (5/30/12)
Exit Target: $1.70 (closed half on 6/1/12 at $1.30)
Return:  65%
Stop Target:  90 cents (Hard Stop)

Action:  We are expecting a test down to $40, possibly $38 on further weakness.   

 

Constant Contact (CTCT, $19.07, up $0.04)

July 17.50 puts (CTCT120721P00017500, $0.90, up $0.25)

Entry Price:  $0.55 (5/24/12)
Exit Target: $1.10
Return:  64%
Stop Target:  None

Action:  We have a near-term target of $18 and a mid-July target of $15.

 

First Solar (FSLR, $11.82, up $0.05)         

July 10 puts (FSLR120721P00010000, $0.90, up $0.20) 

Entry Price:  $0.62 (5/23/12)
Exit Target: $1.20
Return:  45%
Stop Target:  60 cents

Action:  Continue to hold.   

 

Best Buy (BBY, $17.99, down $0.31)

July 16 puts (BBY120721P00016000, $0.55, up $0.05)

Entry Price:  $0.85 (5/21/12)
Exit Target: $1.70
Return:  -35%
Stop Target:  None

Action:  Our near-term price target is for a test down to $15 and our breakeven point is $15.15.  Longer-term we have a price target of $12.50 for shares of Best Buy.    

 

Apollo Group (APOL, $31.99, up $0.39)

August 27 puts (APOL120818P00027000, $1.05, down $0.05)

Entry Price:  $0.90 (5/10/12)
Exit Target: $1.80
Return:  17%
Stop Target:  45 cents

Action:  The 52-week low for Apollo is $30.93 and we are expecting shares to test $30 over the next week or two.  Our longer-term price targets of $25 and $20.  If shares can trade to the teens by mid-August, we will make over 600% with these put options.

 

Arena Pharmaceuticals (ARNA, $6.34, down $0.06)  

July 3 calls (ARNA120723C00003000, $3.50, down $0.10)

Entry Price:  $1.00 (4/30/12)
Exit Target: $2+
Return:  250%
Stop Target:  $3.40 (Hard Stop on HALF)

Action:  The options have traded down to $3.45 so our Hard Stop on half hasn’t been triggered.  We have a price target of $10+ if there is no delay with their obesity drug, Lorcaserin, which could go to market by the end of the year if all goes well.

 

Other 2012 Portfolio OPEN positions (2):  These are trades that are still open in the portfolio but are down over 50%.  They have longer expiration dates and 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 if 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)

 

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 but these are the trades we are watching as new candidates.

We will update this section in the morning.

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10:35am (EST)

NEW TRADE!

Illinois Tool Works (ITW, $54.44, down $0.41)  

Buy to OPEN July 50 puts (ITW120721P00050000, $1.05, up $0.10)

Action:  Use limit orders up to $1.10-$1.15 but do not pay more than $1.20 to establish positions.

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9:00am (EST) continued…

MEMBERS AREA

The Dow got punished for 275 points, or 2.2%, to finish at 12,118 on Friday.  The blue-chips once again tested the 12,600 level on Tuesday, trading to a high of 12,611 but Spain got downgraded late in the day which knocked the session’s gains in half as the index ended at 12,580.  Wednesday’s action was our clue the rally on Tuesday was a “bear trap” as you can see from the bear flag we drew on the chart for you.  We also said to watch for a break below the 50-week and 200-day MA’s (12,225-12,250) which we said would lead to a test down to 12,000 then 11,800-11,750.  If these levels fail there could be a drop to 11,600 this week.  Resistance will be at 12,200-12,250 then 12,350 going forward which were prior support levels.  The Dow came into Monday standing at 12,454 and fell 336 points, or 2.7%, for the week.  For 2012, the Dow is now down 99 points, or 0.8%.

 

Here is the Dow’s chart from last week:

 

The S&P 500 tumbled 32 points, or 2.5%, to settle at 1,278.  The index tested 1,334 on Tuesday on the break above 1,325 but failed the 1,350 level once again.  On Wednesday, we sent out this chart and said it would be crucial for the bulls to hold 1,295:

 

On Thursday, the index closed right on the 1,310 level which was Wednesday’s low.  Futures were lower Thursday night so all of these clues lead us to believe nonfarm payrolls were going to be lousy and that 1,275 could be tested.  Bingo.  Friday’s low was 1,277.25.  The break below the 50-week MA of 1,283 and the 200-day MA at 1,284 was not pretty and now brings 1,250 into play.  The breakeven point for the S&P is 1,257. 60 and is where the S&P started the year at.  If this level is taken out there could be a test down to 1,225-1,200.  The S&P 500 started Monday at 1,317 and tumbled nearly 40 points, or 3%, for the week.  For the year, the index is higher by 21 points, or 1.6%.

 

Here is the S&P chart from last week: 

The Nasdaq got hammered for 80 points, or 2.8%, to close at 2,747.  Tech traded to a high of 2,882 to start the week and faced resistance at 2,900 but closed below the 2,850 level for the day.  Tuesday close at 2,825 lead us to believe 2,800 was going to fail on a bad jobs number.  We have highlighted the 2,750 area as crucial support over the past few weeks with the 50-week MA at 2,743 and the 200-day MA at 2,757 being key area to watch.  Friday’s low was 2,747.  If these levels crack, the bears will push 2,700-2,675 over the near-term with 2,600-2,550 a real possibility.  Tech started the year at 2,605 so you can see how this might play out.  The Nasdaq was at 2,837 to start Tuesday’s session and gave back 90 points, or 3.2%, over the next 4 days.  YTD, the Nasdaq is showing a gain of 142 points, or 5.5%. 

 

Here is what Tech looked like on May 25:    

The Russell 2000 got spanked for 24 points, or 3.2%, and went out at 737.  The small-caps kissed a high of 778 on Tuesday and we have been mentioning the brick wall at 780.  The close at 751 on Thursday was just above crucial support at 750 but we could tell it was shaky.  The prior week’s low was 748 and we have been calling for a test to 720 on further weakness if 740 did not stick.  The Russell was at 766 coming into the week and declined 29 points, or 3.8%, after all was said and done.  The index is now showing a loss of 3 points, or 0.5%, for 2012.

Here is the chart of the Russell 2000 from last week:  

 

The S&P Volatility Index ($VIX, 26.66, up 2.60) came into the week just under 22 and traded to a low of 20.99 on Monday’s rally.  By Wednesday, the index was back over 22.50 and made a move above 25 on Thursday which was also a great clue that volatility would be picking up.  We have been mentioning the VIX could test 30 on continued weakness.  If there is any rebound this week, look for 22.50 to hold.

 

Last week’s chart of the VIX:

 

The market got off to a rough start for June and May was a horrible month for the major indexes.  The Dow fell 820 points, or 6.2%, while the S&P tanked 87 points, or 6.3%.  The Nasdaq dropped 219 points, or 7.3%, for the month of May.

It was almost comical once the nonfarm payrolls came out on Friday as the talking heads seemed shocked and immediately started discussing the possibilities of QE3.  Believe it or not, some were saying we are at a capitulation moment.  Not yet.

We normally like to keep things simple with our charts and our explanations short and sweet.  As far as the technical jargon, a bear flag is the opposite of a bull flag, obviously, and occur after a significant move to the downside.  It is simply a bearish continuation pattern that talking heads and bullish analysts get excited about when there appears to be a rebound in the market which appeared to be the case on Tuesday and into Wednesday.  Usually, the consolidation (last week) happens on weak volume which we saw and heads higher before there is a second, significant sharp decline.

This week will be an important test for the bulls and next week will be even bigger.  The bulls will be looking for a Bernanke bailout but he will not be speaking until Thursday.  The FOMC meeting is the following week so he will need to say something positive ahead of this event to stop the bleeding.  However, the Fed Beige Book is due out on Wednesday, a day before Ben speaks, and the numbers will need to be good.

While there is a chance Bernanke introduces some kind of new “stimulus” package, the bottom line is that it will involve starting the printing presses once again which does not help the financial cliff the U.S. is facing in 2013 but that is another story for another day.  This puts the pressure back on Europe to doing something in a hurry but we doubt that happens.

With so much headline risk out there to the downside, the bears could step on the gas, until Thursday which means it will be crucial for the bulls to hold support to start the week.  If the Europe news gets worse and Big Ben fails to connect on a Hail Mary pass then the U.S. and global markets will see a continued correction.

The technical targets for bear flag patterns are calculated by subtracting the height of the flag’s pole from the breakdown at support.  Some technicians use the highs of the flag to get the downside targets and over the last few weeks we have shown you there are many ways to read a chart, long-term and short-term.

Gold surged 4%, or $63, to close at $1,625 an ounce and we have been mentioning the yellow metal appeared to be bottoming.  The move back above $1,600 was bullish.

At some point, the market will be a buy again but the downside targets we have given you since early May should continue to come into play over the next few weeks.  

As we head to press, futures are showing a slightly higher open for Monday.  Dow futures are up 13 points to 12,116 while the S&P 500 futures are higher by 5 points to 1,278.  The Nasdaq 100 futures are up 10 points to 2,465.

 

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.

 

RealD (RLD, $11.25, down $0.72)

June 10 puts (RLD120616P00010000, $0.15, down $0.30)

Entry Price:  $0.35 (5/31/12)
Exit Target: $0.70
Return:  -57%
Stop Target:  None

Action:  We know everyone is disappointed in how things went down on Friday but RealD is so close to folding like a cheap lawn chair.  We aren’t sure what spurred the call buying activity just before the close on Thursday, maybe another newsletter went long or someone took a large position, but the rebound hurt the premiums in our puts.  Shares tested a low of $11.02 before testing a high of $12.11 and on Friday the stock dipped to a low of $10.90.

As you can see from the chart, shares tested the 50-day MA at $11.90 and the 200-day MA at $11.02 all week.  There is a nice gap to fill once shares trade under $10.50 down to $9.50 which would get the puts to at least 50 cents.  If shares test $9 they will be worth $1.  This is the good news.

The bad news is we have less than two weeks for this to play out as the June options expire next Friday.  This trade may come down to the wire and we have had a few trades this year that were down 80%-90% that came back and handed us a profit.

Again, this trade is not over so do not get discouraged.

Coinstar (CSTR, $58.65, down $2.78)   

July 52.50 puts (CSTR120721P00052500, $1.70, up $0.55)

Entry Price:  $1.05 (5/30/12)
Exit Target: $2.10
Return:  62%
Stop Target:  50 cents

Action:  We were able to time this trade just right as shares tested their 50-day MA of $62.37 before fading.  We have been expecting a drop near double-nickels ($55) which has served as strong support since early February.  A drop below this level will bring $52 in play which is where the 200-day MA is at.  If shares test $50, these options will be worth at least $2.50, or a 150% return from our entry price.       

KLA-Tencor (KLAC, $44.56, down $1.27)

July 42 puts (KLAC120721P00042000, $1.30, up $0.30)

Entry Price:  $0.85 (5/30/12)
Exit Target: $1.70 (closed half on 6/1/12 at $1.30)
Return:  53%
Stop Target:  90 cents (Hard Stop)

Action:  The 2-year chart show the break below the 50-week moving average of $44.82 and the 200-day MA which was at $46.05.  We are expecting a test down to $40, possibly $38 on further weakness.  A move back above $46 would force us out of the other half of the trade and we have placed a Hard Stop of 90 cents in place in case shares rebound.   

Constant Contact (CTCT, $19.03, down $1.22)

July 17.50 puts (CTCT120721P00017500, $0.90, up $0.25)

Entry Price:  $0.55 (5/24/12)
Exit Target: $1.10
Return:  64%
Stop Target:  None

Action:  We have been calling for a break below $20 which we got on Thursday and said shares could test $18 once support was taken out.  We have a longer-term target of $15 which would make these options worth $2.50 if shares get there by mid-July.  We may close half of the trade if shares break above $20 again but the momentum to the downside is just picking up and we told you we don’t like the way this company keeps its books.   

  

First Solar (FSLR, $11.77, down $0.79)         

July 10 puts (FSLR120721P00010000, $0.90, up $0.20) 

Entry Price:  $0.62 (5/23/12)
Exit Target: $1.20
Return:  45%
Stop Target:  60 cents

Action:  Shares traded down to $11.54 and we were looking for a close below $11.50 on Friday.  The company is in a cash crunch and shares are at all-time lows.  We have a single-digit price target of $5 for First Solar.

 

 Best Buy (BBY, $18.30, down $0.42)

July 16 puts (BBY120721P00016000, $0.50, up $0.10)

Entry Price:  $0.85 (5/21/12)
Exit Target: $1.70
Return:  -41%
Stop Target:  None

Action:  Shares traded to a high of $19.44 mid-week and we said there was risk up to $20.  The July options have 6 weeks before they expire  and a break below $17.50 should get this trade going again.  Our near-term price target is for a test down to $15 and our breakeven point is $15.15.  Longer-term we have a price target of $12.50 for shares of Best Buy.    


Apollo Group (APOL, $31.60, down $0.22)

August 27 puts (APOL120818P00027000, $1.10, up $0.10)

Entry Price:  $0.90 (5/10/12)
Exit Target: $1.80
Return:  22%
Stop Target:  45 cents

Action:  The 52-week low for Apollo is $30.93 and we are expecting shares to test $30 over the next week or two.  This 15-year chart shows our longer-term price targets of $25 and $20.  If shares can trade to the teens by mid-August, we will make over 600% with these put options.

 

Arena Pharmaceuticals (ARNA, $6.40, down $0.29)  

July 3 calls (ARNA120723C00003000, $3.60, down $0.20)

Entry Price:  $1.00 (4/30/12)
Exit Target: $2+
Return:  260%
Stop Target:  $3.40 (Hard Stop on HALF)

Action:  Arena traded to a high of $6.74 on Thursday and we said resistance at $7 would be hard to clear.  We have a price target of $10+ if there is no delay with their obesity drug, Lorcaserin, which could go to market by the end of the year if all goes well.

 

Other 2012 Portfolio OPEN positions (2):  These are trades that are still open in the portfolio but are down over 50%.  They have longer expiration dates and 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 if 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)

 

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 but these are the trades we are watching as new candidates.

 

Facebook (FB, $27.72, down $1.88)

August 38 calls (FB120818C00038000, $0.50, down $0.25)

August 20 puts (FB120818P00020000, $0.70, up $0.15)

August 28 calls (FB120818C00028000, $3.10, down $0.80)

August 28 puts (FB120818P00028000, $3.50, up $0.60)

Thoughts:  This is a 60-minute, 10-day chart.  We said last week the easy trade will be to buy near-term at-the-money calls the second shares break $30.  Price targets range from $9 to $49 and we will be trading Facebook down the road.  For now we are just waiting and being patient. 

 

Illinois Tool Works (ITW, $54.85, down $1.30)  

July 52.50 puts (ITW120721P00052500, $1.60, up $0.60)

July 50 puts (ITW120721P00050000, $0.95, up $0.35)

Thoughts:  We wanted to add this trade last week on the break below the 50-day MA and we have said shares could test $50 on further weakness.  We may add the July puts early today or on a break below $53 which seems likely.

Newmont Mining (NEM, $50.30, up $3.14)

June 52.50 calls (NEM120616C00052500, $0.65, up $0.55)

July 55 calls (NEM120721C00055000, $1.10, up $0.70)

September 60 calls (NEM120922C00060000, $1.10, up $0.55)

Thoughts:  Shares traded to a high of $51.15 on Friday and the 52-week high is $72.42.  We would rather play GLD if we do go long but this trade could do just as well and the premiums are cheaper.  The break above the 50-day MA was clearly bullish and the 200-day MA is north of $58.  We believe shares can make a run back to $60, possibly $65 by mid-September.

 

Research In Motion (RIMM, $10.26, down $0.07)

August 8 puts (RIMM120818P00008000, $0.45, flat)

August 9 puts (RIMM1208P00009000, $0.75, flat)

Thoughts:  Shares traded down to $10.01 on Thursday and held single-digits but for how long?

 

 

Spider Gold Shares (GLD, $157.50, up $5.88)

December 185 calls (GLD121231C00185000, $4.40, up $1.70)

June 165 calls (GLD120629C00165000, $1.60, up $1.15)

Thoughts:  We knew gold was setting up for a big move and that we got on Friday.  The yellow-metal closed above $1,625 an ounce on Friday, up $63 (4%), following the market selloff.  We said a move above $160 would be bullish and would have us looking at some near-term options which is why we listed the June calls which soared 250% on Friday.  Wow. 

 

Apache (APA, $79.37, down $2.01)

July 72.50 puts (APA120721P00072500, $2.30, up $0.70)

Thoughts:  We have been calling for a break below $80 and these puts were at $1.15 at the start of last week.  Our near-term target is for a test down to $75 and longer-term a move below $70 could be in mix.    

Schlumberger (SLB, $62.07, down $1.18)

July 57.50 (SLB120721P00057500, $2.10, up $0.40)

August 55 puts (SLB120818P00055000, $2.10, up $0.25)

Thoughts:  These options were at $1.35 and 90 cents, respectively, before the market opened on Tuesday.  We said a move below $62.50 was coming and would be bearish. Shares easily look like they are headed below $60 over the near-term. 

 

PowerShares QQQ (QQQ, $60.41 down $1.65)

June 62 puts (QQQ120616P00062000, $2.20, up $0.90)

July 58 puts (QQQ120721P00058000, $1.60, up $0.55)

Thoughts:  See the Nasdaq chart.

 

iShares Russell 2000 (IWM, $73.82, down $2.29)              

June 75 puts (IWM120616P00075000, $2.45, up $1.05)    

July 67 puts (IWM120721P00067000, $1.40, up $0.55)

Thoughts:  See the Russell 2000 chart.

 

Potash (POT, $37.53, down $2.00)       

July 35 puts (POT120721P00035000, $1.25, up $0.50)

July 33 puts (POT120721P00033000, $0.75, up $0.20)

Thoughts:  Shares closed just above $40 to start the week which was near-term resistance and opened the door for a possible run to $42.   However, that door was quickly slammed as shares fell 5% on Friday.  Near-term there could be a test to $35, longer-term, $30.