June 2012 | Members

Do not risk more than 5% on any one trade but do try to take ALL of the trades.  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.

1:00pm (EST)

Consumer Discret Select Spider (XLY, $42.65, down $0.66)

August 41 puts (XLY120818P00041000, $0.80, up $0.10)

Entry Price:  $0.80 (6/25/12)
Exit Target: $1.60
Return: 0%
Stop Target:  None

Action:  The August puts have 53 days before they expire.  Everyone should have gotten nice fill prices as we said to use limit orders up to 85 cents.

 

Coinstar (CSTR, $64.80, down $0.64)   

July 60 puts (CSTR120721P00060000, $1.00, up $0.35)

Entry Price:  $0.90 (6/25/12)
Exit Target: $1.80
Return: 11%
Stop Target:  40 cents

Action:  The July options have 25 days before they expire and we are looking for Coinstar to make a move below $60.  We had to pay a little more to get in the position as the “ask” was 90 cents on the open.

 

iShares Dow Jones US Real Estate (IYR, $61.04, down $0.64)

August 57 puts (IYR120818P00057000, $0.85, up $0.15)

Entry Price:  $0.85 (6/25/12)
Exit Target: $1.70
Return: 0%
Stop Target:  40 cents

Action:  We are targeting a move to double-nickels for the IYR iShares.

 

KLA-Tencor (KLAC, $47.04, down $1.45)

August 43 puts (KLAC120818P00043000, $1.10, up $0.50)

Entry Price:  $0.90 (6/25/12)
Exit Target: $1.80
Return: 22%
Stop Target:  45 cents

Action:  We would like to see a close below $46.50 today.  

 

Freeport-McMoRan Copper & Gold (FCX, $31.67, down $0.63)

August 31 puts (FCX120818P00031000, $1.80, up $0.30)

Entry Price:  $1.05 (6/20/12)
Exit Target: $2.10
Return: 71%
Stop Target:  $1.10, raise to $1.50 (hard Stop)

Action:  We have raised the Hard Stop to $1.50.  We are looking for a drop below $30 to $28 or worse by mid-August but we are close to closing at least half of the trade considering the nice gains we have made in just 5 days.  

 

PowerShares QQQ (QQQ, $62.14, down $1.21)

August 60 puts (QQQ120818P00060000, $1.25, up $0.35)

Entry Price:  $0.75 (6/20/12)
Exit Target: $1.50
Return:  67%
Stop Target:  None

Action:  Our mid-August target is for a test to $58, possibly double-nickels ($55).  A close above $65 would be bullish.

 

Veeco Instruments (VECO, $30.24, down $3.83)

July 30 puts (VECO120721P00030000, $1.60, up $1.10)

Entry Price:  $1.00 (6/6/12)
Exit Target: $2.00
Return:  60%
Stop Target:  None

Action:  We can’t find any news for today’s plunge but we have told you shares look weak.  Shares have traded below $30 and we are looking for a test to $27.50.

 

Apollo Group (APOL, $32.67, down $0.88)

August 27 puts (APOL120818P00027000, $0.90, up $0.30)

Entry Price:  $0.90 (5/10/12)
Exit Target: $1.80
Return:  0%
Stop Target:  45 cents

Action:  Earnings are due out after the bell.

 

Arena Pharmaceuticals (ARNA, $9.75, down $0.13)  

July 3 calls (ARNA120723C00003000, $7.05, flat)

Entry Price:  $1.00 (4/30/12)
Exit Target: $2+ (closed half on 6/5/12 at $3.40, closed a quarter at $6.75)
Return:  415%
Stop Target:  $2 (Hard Stop on remaining quarter position)

Action:  We have a price target of $15 for shares if there is no delay with their obesity drug, Lorcaserin, up from $10 following last week’s surge to double-digits.  The company will meet with the FDA on Wednesday so shares will likely be halted all session long.  The FDA doesn’t always follow its panel’s recommendations although the drug won an 18-4 pre-approval decision.  If there is a delay on bringing the drug to market due to additional tests the FDA might require, shares could fall to $7, or $5.50 in a worse case deal. 

On our 20 contract trade, we sold half at $3.40 and a quarter at $6.75 which netted $3,400 (10 contracts x $3.40) and $3,375 (5 contracts x $6.75).  The remaining 5 contracts are valued at $7.05, or $3,525.  The total cost of the trade was $2,000 and the value is now at $10,300.  If shares fall to $5 these options would still be worth $2 so our gain would be 339%.  If the stock moves past $13, the calls would be worth $10, or $5,000, and we would show a profit or 489%.  We can live with either outcome.   

 

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.

We will update this section in the morning.

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11:05am (EST)

NEW TRADES!!!

Consumer Discret Select Spider (XLY, $42.76, down $0.55)

Buy to OPEN August 41 puts (XLY120818P00041000, $0.75, up $0.05)

Action:  Use limit orders up to 80 cents but do not pay more than 85 cents to establish positions.

 

Coinstar (CSTR, $64.98, down $0.46)   

Buy to OPEN July 60 puts (CSTR120721P00060000, $0.80, up $0.15)

Action:  Use limit orders up to 90 cents but do not pay over $1.00 to establish positions.

 

iShares Dow Jones US Real Estate (IYR, $61.00, down $0.68)

Buy to OPEN August 57 puts (IYR120818P00057000, $0.85, up $0.15)

Action:  Use limit orders up to 90 cents but do not pay over $1.00 to establish positions.

 

KLA-Tencor (KLAC, $47.15, down $1.34)

Buy to OPEN August 43 puts (KLAC120818P00043000, $0.90, up $0.30)

Action:  Use limit orders up to $1.00-$1.05 but do not pay over $1.10 to establish positions.   

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9:00am (EST) continued…

The Dow added 67 points, or 0.5%, to finish at 12,640 on Friday.  The blue-chips traded to a high of 12,877 on Wednesday’s push past resistance and into the 12,800-13,000 area where we said a possible trend change could occur.  Thursday’s 2% selloff pushed the Dow back below the 12,600 level as the index fell to a low of 12,561 intraday.  Although the bulls recovered this area before the weekend, the next wave of support will come in at 12,350 which is also the 200-day MA.  A break below this level would be bearish.  The Dow came into the week at 12,767 and fell 127 points, or 1%, for the week.  Year-to-date, the blue-chips are higher by 423 points, or 3.5%.

Longer-term chart for the Dow:   

The S&P 500 gained nearly 10 points, or 0.7%, to settle at 1,335.  The index reached a peak of 1,363 on Tuesday’s 1% surge and closed above the 1,350 level for the first time since mid-May.  The bulls were able to clear and hold the 100-day MA, briefly, but the S&P was back at 1,325 on Thursday’s plunge.  We said a break below 1,335 on Thursday would lead to additional selling pressure and the low came in at 1,324.  Friday’s close was right on 1,335 (imagine that) which still leaves the possibility for a back test to 1,350 but we are expecting a test down to 1,300-1,275 over the next few weeks.  The S&P 500 started Monday at 1,342 and gave back 7 points, or 0.6%, by Friday’s close.  For the year, the index is showing a gain of 78 points, or 6.4%.

Here is the longer-term S&P 500 chart:

The Nasdaq jumped 33 points, or 1.2%, to finish at 2,892.  Tech traded to a high of 2,940 on Tuesday’s 2% surge and 2,942 on Wednesday’s push higher and closed at 2,930 that day.  Coming into last week, we didn’t feel as though the bulls had the strength to clear 2,900 but we did say as long as 2,900 was in the picture they were going to push 3,000.  We also said a 5% pullback would get the Nasdaq below crucial support at 2,750 (light blue line) and the index fell half of that, or 2.4%, on Thursday’s pounding to test 2,850.   The index started Monday at 2,872 and Friday’s gains gave the bulls the victory for the week as Tech gained 20 points, or 0.5%.  For 2012, the Nasdaq is higher by 287 points, or 11.1%. 

Here is a 30-month chart for the Nasdaq:    

The Russell 2000 added 9 points, or 1.2%, to finish at 775.  The small-caps kissed 789.51 and 789.22 on Tuesday and Wednesday, respectively, but once again failed to clear the 800 level which was last seen in early May.  The low on Thursday was 764 which was just above the 200-day MA and a break below this level and then 740 (light blue line) could cause some panic.  The Russell 2000 was at 775 before Monday’s open and advanced 4 points, or 0.5%, by Friday’s close.  The index is up 35 points for 2012, or 4.6%.

Here is a longer-term chart of the Russell 2000:

The S&P Volatility Index ($VIX, 18.11, down 1.97) came into the week at 21.11 and displayed some breathtaking moves.  The VIX fell 10% on Friday after soaring 16% on Thursday’s selloff to close at 20.08.  For the most part, the VIX stayed below 20 and traded down to 17.09, midweek, as the bulls were rallying.  We said there could be a push to 17.50 on further market momentum and at 15, the bulls will be pushing new highs but we doubt the market plays out this way.  The VIX was pushing 25 during the prior week and we would expect this level of fear to come back into the market if support fails to hold and the bulls can’t crack resistance.

We came into the week expecting the bears to hold resistance but there were only two technical indicators left before a possible trend change took place.  As much as we wanted to be bullish, we just didn’t trust the rally as we bought put options for our Daily and we closed a profitable trade for our Weekly Wrap instead of writing another covered call.  We did use the opportunity to sell more call options on a few stocks we like for the longer-term but we are expecting a bearish market that could last thru August or mid-September. 

Second-quarter earnings will start to trickle in during the second week of July so there could be a few more last-minute warnings this week.  Alcoa (AA, $8.62, up $0.07) and Yum Brands (YUM, $66.11, up $1.10) will announce their quarterly results on July 9 so market your calendars as they will be the first to confess on what could be a lousy season for call options but a great one for put options.      

Although the indexes are still in a “trading range”, Thursday’s 2+% pullback was a wakeup call for the suit-and-ties who were in the “risk-on” mood.  It seems now that the same talking heads and slick talking pros are in a “risk-off” state of mind which we told you will limit your possibilities on making money in the market. 

We are watching the 100-day moving averages and a break of the upper channel downtrend lines as clues the bulls haven’t given up but the momentum appears to be favoring the bears.  This is the last week of June so we could also see some “window dressing” as fund managers lock in any gains for the quarter by Friday.  It will also be the last week corporations can try to meet or beat their quarterly results so we could see some more pre-announcements if they are going to miss expectations. 

Another market moving headline this week could be the final verdict on the Affordable Care Act.  The Supreme Court should announce the ruling by Friday as this will be the last week they are in session for a few months and have run out of time.  We mentioned last week this event could impact Healthcare stocks and there will be an important FDA announcement this week on obesity drugs. 

Economic news will also play an important role in which way the market trends this week and all of these elements will cause added volatility.  We have outlined key areas of support and resistance so we will need to stay focused until we get the all clear sign.

As we head to press, futures are showing a nasty open and look like this.  Dow futures are down 89 points to 12,479 while the S&P 500 futures are lower by 11 points to 1,316.  The Nasdaq 100 futures are showing a decline of 17 points to 2,557.      

 

Do not risk more than 5% on any one trade but do try to take ALL of the trades.  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.

Special Notice:  We still believe our July puts on Hold will come back as we have nearly 4 weeks until they expire.  On June 4, the market lows, we were basically flat with only a few trades left over from our May batch of trades.  We opened 3 trades that week as we expected a continued selloff but we only took half positions because we knew a bounce would come.  We followed that up with 3 trades the following week and we added 2 more last week.  Any new trades will be full positions but remember not to risk more than 5% of your overall account on any one position.

 

Freeport-McMoRan Copper & Gold (FCX, $32.30, down $0.69)

August 31 puts (FCX120818P00031000, $1.50, up $0.15)

Entry Price:  $1.05 (6/20/12)

Exit Target: $2.10
Return: 43%
Stop Target:  $1.10

Action:  We placed a Hard Stop at $1.10 to protect profits in case shares make a move towards $35 but we are looking for a drop below $30 to $28 or worse by mid-August.


PowerShares QQQ (QQQ, $63.35, up $0.66)

August 60 puts (QQQ120818P00060000, $0.90, down $0.20)

Entry Price:  $0.75 (6/20/12)

Exit Target: $1.50
Return:  20%
Stop Target:  None

Action:  Our mid-August target is for a test to $58, possibly double-nickels ($55).  A close above $65 would be bullish.

 

Veeco Instruments (VECO, $34.07, up $0.66)

July 30 puts (VECO120721P00030000, $0.50, down $0.15)

Entry Price:  $1.00 (6/6/12)

Exit Target: $2.00
Return:  -50%
Stop Target:  None

Action:  A close below $32.50 this week should get $30 into play and a break below this level would surely speed up the selloff.  We believe shares will test $27.50 but there is risk down to $25 as you can see from the 3-year chart.  Resistance at $35 has held up well.  

Apollo Group (APOL, $33.55, up $0.33)

August 27 puts (APOL120818P00027000, $0.65, down $0.05)

Entry Price:  $0.90 (5/10/12)

Exit Target: $1.80
Return:  -28%
Stop Target:  45 cents

Action:  Earnings are due out after the bell and we are expecting nasty numbers.  This is a 15-year chart which shows the importance of the stock holding $30 if there is a selloff on disappointing earnings.  We have said the company has some shady accounting practices and we have heard boiler room stories of the company trying to get sales in the past.  We said in our Weekly Wrap we can thank the government for the $1 trillion in student loan debt which was used with our taxpaying money, which won’t be paid back.


Arena Pharmaceuticals (ARNA, $9.88, down $1.80)  

July 3 calls (ARNA120723C00003000, $7.05, down $1.70)

Entry Price:  $1.00 (4/30/12)

Exit Target: $2+ (closed half on 6/5/12 at $3.40, closed a quarter at $6.75)
Return:  415%
Stop Target:  $2 (Hard Stop on remaining quarter position)

Action: Shares went parabolic, rising from $8.40 to start the week before reaching a high of $11.99 on Friday’s open.  Then, the bottom fell out for no apparent reason as shares touched a low of $7.80 just 15 minutes later.  Trading leveled off at $10 which is where the bulls and bears did battl as the implied volatility had exploded on both the calls and puts.  This means the options are still very expensive.

We have a price target of $15 for shares if there is no delay with their obesity drug, Lorcaserin, up from $10 following last week’s surge to double-digits.  The company will meet with the FDA on Wednesday so shares will likely be halted all session long.  The FDA doesn’t always follow its panel’s recommendations although the drug won an 18-4 pre-approval decision.  If there is a delay on bringing the drug to market due to additional tests the FDA might require, shares could fall to $7, or $5.50 in a worse case deal. 

On our 20 contract trade, we sold half at $3.40 and a quarter at $6.75 which netted $3,400 (10 contracts x $3.40) and $3,375 (5 contracts x $6.75).  The remaining 5 contracts are valued at $7.05, or $3,525.  The total cost of the trade was $2,000 and the value is now at $10,300.  If shares fall to $5 these options would still be worth $2 so our gain would be 339%.  If the stock moves past $13, the calls would be worth $10, or $5,000, and we would show a profit or 489%.  We can live with either outcome.   

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.

 

Consumer Discret Select Spider (XLY, $43.31, up $0.20)

August 41 puts (XLY120818P00041000, $0.70, flat)

September 40 puts (XLY120922P00040000, $0.80, up $0.05)

Thoughts:  Shares are struggling with the $44 level and we feel a test to the mid-$30’s (purple lines) could come over the next several months.  Tuesday brings the Weekly Chain Store Sales which have been known to impact futures and we want to short the index before the report if we decide to take the trade.    

 

iShares Dow Jones Transportation Average (IYT, $91.11, down $0.73)

August 83 puts (IYT120818P00083000, $1.00, down $0.10)

July 86 puts (IYT120721P00086000, $0.75, up $0.20)

Thoughts:  Resistance has held up well at $95 and a drop below $90 would be bearish.  We expect a test to $87.50 or worse over the next 6-8 weeks.

Coinstar (CSTR, $65.44, up $0.87)   

July 60 puts (CSTR120721P00060000, $0.70, down $0.35)

Thoughts:  Continue to watch.

 

iShares Dow Jones US Real Estate (IYR, $61.68, up $0.06)

July 60 puts (IYR120721P00060000, $0.75, down $0.05)

August 57 puts (IYR120818P00057000, $0.70, down $0.05)

Thoughts:  Watch for a break below $58 to confirm a test down to $54.  A move above $64 would represent a breakout to possible blue-sky territory.

KLA-Tencor (KLAC, $48.49, up $0.07)

July 47 puts (KLAC120721P00047000, $0.85, flat)

September 39 puts (KLAC120922P00037000, $0.55, flat)

Thoughts:  Shares tested $49.80 last week and we have been saying a test to $50 was coming.  If resistance holds, we are long for a drop to $44 or worse over the next few months.   

Schlumberger (SLB, $61.56, down $1.00)  

August 55 puts (SLB120818P00055000, $1.20, up $0.15)

Thoughts:  We missed some great entry points last week and we are expecting a move below $60 this week.