8:15am (EST) continued…

The Dow tanked 250 points, or 2%, to close at 12,573 yesterday.  The blue-chips fell through not only one level of support, but two, as the bears took out both the 12,800 and 12,600 levels, respectively.  The next wave of support is at 12,350 and then 12,200 with the aforementioned levels now being resistance once again.

The S&P 500 got hammered for 30 points to close right on 1,325.  We said the selling pressure would pick up once 1,350 and 1,335 were cracked which cost the bulls 2.2% for flinching.  They will try to put their finger in the dike at 1,310 but a break below this level will quickly lead to a test to 1,300 and then 1,275. 

The Nasdaq got absolutely crushed as Tech fell 71 points, or 2.4%, to settle at 2,859.  We were happy to see the 2,900 level get taken out but got a bonus package when the index fell below 2,875.  This puts the bears within spitting distance of getting a close below 2,850 today. 

Side Notes:  The Russell 2000 closed at 764, down 19 points, or 2.4%.  The S&P Volatility Index (VIX, 20.08, up 2.84) zoomed over 16% to finish above 20.

We have been preparing for another market pullback and we have been telling you if key resistance levels held that a violent and fast moving sell-off could occur.  We gave some extremely bearish targets in May for the major indexes by July or August and we said a few weeks ago there would be a bounce which we used to get short again. 

Of course, like we mentioned earlier, one day doesn’t make a trend change and we talked about how the bulls needed to clear a few more hurdles before we declared a “bull” market.  We often say the indexes can stretch support and resistance which is when most investors get trapped. 

We know we have rambled on this morning but we have a ton of new subscribers who have been nervous (along with some old ones) this week so we wanted to explain how we trade.

As we head to press, futures are showing a slightly higher open.  Dow futures are up 35 points to 12,537 whilethe S&P 500 futures are higher  by 4 points to 1,322.  Nasdaq 100 futures are advancing 3 points to 2,555.

We have some important updates this morning so read our trade instructions inside the Members Area very carefully.            

 

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.

 

Freeport-McMoRan Copper & Gold (FCX, $32.99, down $2.32)

August 31 puts (FCX120818P00031000, $1.35, up $0.65)

Entry Price:  $1.05 (6/20/12)

Exit Target: $2.10

Return:  29%

Stop Target:  None

Action:  Freeport had been on our Watch List for a couple of weeks and we pulled the trigger yesterday after the failed rally past resistance.  We are looking for a drop below $30 to $28 or worse by mid-August.

 

PowerShares QQQ (QQQ, $62.69, down $1.60)

August 60 puts (QQQ120818P00060000, $1.10, up $0.25) 

Entry Price:  $0.75 (6/20/12)

Exit Target: $1.50

Return:  47%

Stop Target:  None

Action:  Our mid-August target is for a test to $58 or worse. 

 

Veeco Instruments (VECO, $33.41, down $1.40)

July 30 puts (VECO120721P00030000, $0.65, up $0.25)

Entry Price:  $1.00 (6/6/12)

Exit Target: $2.00

Return:  -35%

Stop Target:  50 cents

 

Action:  We got our close below $34 by the weekend so let’s see if it holds.  

 

Apollo Group (APOL, $33.22, down $0.74)

August 27 puts (APOL120818P00027000, $0.70, up $0.15)

Entry Price:  $0.90 (5/10/12)

Exit Target: $1.80

Return:  -22%

Stop Target:  45 cents

Action:  We liked yesterday’s breakdown but we would love to see a close below $32.50 today.

 

Arena Pharmaceuticals (ARNA, $11.68, up $1.18)  

July 3 calls (ARNA120723C00003000, $8.70, up $1.20) 

Entry Price:  $1.00
(4/30/12)

Exit Target: $2+ (closed half on 6/5/12 at $3.40)

Return:  505%

Stop Target:  $6.75 (HARD STOP a quarter of the other half)

Action:  We are closing a quarter of the remaining half position we still have open to lock-in further profits as we have now hit a 500% return.  We would like to see how shares open so stay locked-and-loaded in case we exit before our afternoon update. 

We could try to squeeze more profits but we are “trading our plan” as we have mentioned all week we wanted to close another quarter of the position by Friday.

If your original purchase was 20 contracts then you should have sold 10 by now.  If you owned 10 contracts you should now have 5 since we have closed the trade.

There seems to be some confusion on our Trade Instructions so when we sell a quarter of the trade we will be closing 5 contracts on a 20 contracts trade which would leave 5 open for next week.

If you purchased 10 contracts and have sold 5 you could sell 2 or 3 and leave the rest open for further instructions.  If the Hard Stop is hit, same dea; as you would close a quarter of the HALF you have remaining.

 

Other 2012 Portfolio OPEN positions (9):  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)

Best Buy July 16 puts (from May 2012)

First Solar July 10 puts (from May 2012)

FedEx July 77.50 puts (from June 2012)

Potash July 35 puts (from June 2012)

iShares Russell 2000 July 70 puts (from June 2012)

Illinois Tool Works July 50 puts (from June 2012)

Facebook July 24 puts (from June 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.

 

Coinstar (CSTR, $64.57, down $1.36)   

July 60 puts (CSTR120721P00060000, $1.05, up $0.25)

Thoughts:  Continue to hold.

 

KLA-Tencor (KLAC, $48.42, down $1.33)

July 47 puts (KLAC120721P00047000, $0.85, up $0.25)

September 39 puts (KLAC120922P00037000, $0.65, up $0.10)

Thoughts:  Shares tested $49.80 yesterday and we have been saying a test to $50 could happen.  We are still watching this one but don’t be surprised if it’s an official recommendation soon.  We are expecting a drop to $44 or worse over the next few months.   

 

Schlumberger (SLB, $62.56, down $2.98)  

July 60 (SLB120721P00060000, $1.40, up $0.70)

August 55 puts (SLB120818P00055000, $1.05, up $0.45)

Thoughts:  We may have missed some great entry points yesterday but we are still being a little cautious.