9:00am (EST) continued…

The Dow zoomed 287 points, or 2.4%, to end at 12,414.  The index went out on its high for the session and easily cleared the 12,350 level.  The next area of resistance will come in at 12,500-12,600 and we are expecting the bears to hold ground.  If not, the bulls could get carried away and push 13,000.  The bears will try to get the action back below 12,350 and then 12,200 by Friday’s close.

The S&P 500 jumped 30 points, or 2.3%, to finish at 1,315.  The index also closed at its high for the day and will face a test at 1,325-1,350 while a break below 1,300 would confirm a dead cat bounce. 

     

The Nasdaq soared 67 points, or 2.4%, to settle at 2,844.  Tech finished just under 2,850 which was good news for the bears but a move above gets 2,900 back into play.  A close below 2,800 would confirm a bull trap.

The Russell 2000 popped 19 points, or 2.56%, to close at 765.  The break above 760 was short-term bullish and opens the door for a run to 780.  The S&P Volatility Index ($VIX, 22.16, down 2.52) got hammered for 10% and fell below 22.50, a level we have talked endlessly about.  We said this week a move down to 20 is possible on continued strength so let’s see how the rest of the week plays out.

While there is a chance the market moves to the next level of resistance, remember that the current trades we are opening are in preparation for a huge leg lower by mid-July and August.  Sometimes it can be uncomfortable opening put positions in a higher market but this is when they become cheaper.

If there is another leg up, just remember our notes on June triple-witching, which is historically a nasty week-after for the market.  We will use a continued rally to open a few more positions, which could happen into next week if Bernanke pulls a rabbit out-of-the-hat today but yesterday’s bounce was on light volume.

 

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.

 

iShares Russell 2000 (IWM, $76.44, up $1.84)

July 70 puts (IWM120721P00070000, $1.10, down $0.60)

Entry Price:  $1.20 (6/6/12)
Exit Target: $2.40
Return:  -8%
Stop Target:  60 cents

Action:  The Russell has been a little more volatile than the other indexes and it’s why we went short the iShares yesterday.  There is risk up to $78 but we are expecting a test to $70 or worse over the next 6 weeks.

 

Veeco Instruments (VECO, $34.95, up $0.20)

July 30 puts (VECO120721P00030000, $1.10, up $0.05)

Entry Price:  $1.00 (6/6/12)
Exit Target: $2.00
Return:  10%
Stop Target:  50 cents

Action: The puts traded down to 96 cents after our update so everyone should have gotten nice fill prices.  Shares are right near resistance but could trade to $37 on fluff.  Our target is for a test to $25 by mid-July.

 

Illinois Tool Works (ITW, $55.29, up $1.10) 

July 50 puts (ITW120721P00050000, $0.80, down $0.30)

Entry Price:  $1.05 (6/4/12)
Exit Target: $2.10
Return:  -24%
Stop Target:  None

Action:  We mentioned yesterday there could be a run to $55-$57.50 if the market remained bullish.      

 

Constant Contact (CTCT, $20.99, up $0.15)

July 17.50 puts (CTCT120721P00017500, $0.50, down $0.10)

Entry Price:  $0.55 (5/24/12)
Exit Target: $1.10
Return:  -9%
Stop Target:  None

Action:  We will stick with the trade as long as $22 holds.  We have a near-term target of $18 and a mid-July target of $15.

  

First Solar (FSLR, $12.65, up $0.37)         

July 10 puts (FSLR120721P00010000, $0.50, down $0.15) 

Entry Price:  $0.62 (5/23/12)
Exit Target: $1.20
Return:  -19%
Stop Target:  65 cents

Action:  Shares are heavily shorted and yesterday’s pop to $13.77 was the result of some investors covering their positions.       

 

Best Buy (BBY, $19.89, up $0.72)

July 16 puts (BBY120721P00016000, $0.25, down $0.10)

Entry Price:  $0.85 (5/21/12)
Exit Target: $1.70
Return:  -59%
Stop Target:  None

Action:  Shares went out near their high and resistance at $20 held.      

 

Apollo Group (APOL, $34.81, up $2.12)

August 27 puts (APOL120818P00027000, $0.60, down $0.30)

Entry Price:  $0.90 (5/10/12)
Exit Target: $1.80
Return:  -33%
Stop Target:  45 cents

Action:  We were a little surprised by the strength Apollo Group displayed yesterday as shares traded up to $35.19.  The $35 level is the second wave of resistance and there is a slight chance shares test $37.  If they do, we may add another longer-term put option.  The January 22.50 put options are near $1 and if we can get them for under a buck we may pull the trigger.     

 

Arena Pharmaceuticals (ARNA, $6.45, up $0.18)  

July 3 calls (ARNA120723C00003000, $3.60, up $0.30)

Entry Price:  $1.00 (4/30/12)
Exit Target: $2+ (closed half on 6/5/12 at $3.40)
Return:  250%
Stop Target:  $3 (Hard Stop on other HALF)

Action:  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 with their upcoming meeting with the FDA.

 

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)

RealD June 10 puts (from May 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.

 

FactSet Research Systems (FDS, $106.60, up $2.33)

July 90 puts (FDS120721P00090000, $0.75, down $0.25)

September 85 puts (FDS120922P00085000, $1.25, down $0.55)

Thoughts:  A move above $106 could get shares to new highs for the year while a break below $100 could lead to $90 or worse.  The bid/ask prices are still too wide to play.

 

Coinstar (CSTR, $62.85, up $3.56)   

July 52.50 puts (CSTR120721P00052500, $0.70, down $0.50)

July 55 puts (CSTR120721P00055000, $1.05, down $0.80)

Thoughts:  Shares surged on their partnership with Starbucks to provide coffee vending machines under the brand name Seattle’s Best but just how popular and profitable they will be remain to be seen.

 

KLA-Tencor (KLAC, $46.53, up $1.56)

July 44 puts (KLAC120721P00044000, $1.05, down $0.65)

Thoughts:  We would like to see a run up $48 which is where we may go short again.

 

Newmont Mining (NEM, $51.70, up $0.35)

July 55 calls (NEM120721C00055000, $1.25, flat)

September 60 calls (NEM120922C00060000, $1.20, down $0.05)

Thoughts:  Continue to watch for now.

 

Apache (APA, $83.59, up $2.44)

July 72.50 puts (APA120721P00072500, $1.05, down $0.60)  

Thoughts:  We said shares could get a quick run back to $85.   

 

Schlumberger (SLB, $64.59, up $2.35)

July 57.50 (SLB120721P00057500, $1.20, down $0.55)

August 55 puts (SLB120818P00055000, $1.40, down $0.55)

Thoughts:  Shares easily look like they are headed below $60 but there could be a bounce to $65 over the near-term. 

 

PowerShares QQQ (QQQ, $62.52, up $1.40)

July 60 puts (QQQ120721P00060000, $1.10, down $0.60)

Thoughts:  Watch for now.

 

Potash (POT, $39.07, up $0.86)       

July 37 puts (POT120721P00037000, $1.15, down $0.40)

July 35 puts (POT120721P00035000, $0.65, down $0.30)

Thoughts:  We are looking for resistance at $40 to hold.