The Dow zoomed 217 points, or 1.7%, to close at 13,096 on Friday. The
blue-chips had fallen below the 13,000 level by Wednesday and traded to a
low of 12,778 during Thursday’s pullback. However, the bulls were able to
reclaim the 12,800 level and the 100-day MA by the close which setup
Friday’s jump back above 13,000. The next wave of resistance is still at
13,200 and Friday’s high was 13,133. A move above 13,350 would signal a
possible bullish breakout. If the bears can get by 12,800 then their next
targets will be 12,600 and then 12,400-12,350. The Dow came into the week
at 13,075 and was able to add 21 points, or 0.2%, for the week. For 2012,
the blue-chips are showing a gain of 879 points, or 7.2%.
Here is last week’s chart of the Dow:
The S&P 500 surged 26 points, or 1.9%, to settle at 1,391. The index
pushed a high of 1,390 on Monday’s open but couldn’t quite kiss 1,400 which
is near-term resistance. Wednesday’s close at 1,375 opened the door for a
test down to 1,350 and the 50-day MA. On Thursday, the bears pushed 1,354
before the bulls recovered half of their losses. Friday’s run to 1,394
represented a “higher high” for the week but resistance held heading into
the weekend. We have said a move above 1,425 would represent a possible
trend change while a close below 1,350 would be bearish. Same deal for
this week. The S&P 500 was at 1,386 to start Monday’s open and was up 5
points, or 0.4%, for the week. For the year, the index is higher by 134
points, or 10.6%.
Last week’s chart for the S&P 500:
The Nasdaq soared 58 points, or 2.0%, to end at 2,968. Tech traded to a
high of 2,970 to start the week but closed below 2,950 and the 100-day MA
on Monday which lead us to believe a test to support at 2,900 and the
50-day MA was coming. Sure enough, during Thursday’s debacle, the Nasdaq
traded down to 2,890 before recovering to finish at 2,909 by the bell. The
bulls are still trying to clear 3,000 which is near-term resistance but
until 3,150 is conquered, we remain cautious. The Nasdaq started the week
at 2,958 and added 10 points, or 0.3%, following the late-week fireworks.
Year-to-date, index is up 363 points, or 13.9%.
Here is last week’s chart for Tech:
The Russell 2000 added 20 points, or 2.6%, to close at 788. The small-caps
tested 800 on Monday’s open after reaching 798.69 but it was all downhill
afterwards. The index closed below its 50-day and 200-day MA’s on
Wednesday’s pullback and we thought there was a good chance 750 would come
into play which is crucial support. The Russell touched a low of 765 on
Thursday. We said on Friday we wanted to see a close below 790 which is
right at the 100-day MA. Friday’s high was 791.09. There is still a
chance the bulls crack 800 this week and a possible run to 825 would follow
but we won’t get excited until 850 is taken out. The bears are still
looking to test 750 but they will need to take out 780 again. The Russell
2000 came into the week at 796 but finished lower by 8 points, or 0.9%,
when all was said and done. For 2012, the index is higher by 48 points, or
Here is last week’s chart for the Russell 2000:
The S&P Volatility Index ($VIX, 15.64 down 1.93) fell 10% on Friday after
pushing 20 for much of the week. The index held the 17.50 level up until
Thursday’s close but after the test to resistance, the VIX is back in the
mid-teens. We have said the VIX could trade to the low-teens on a market
breakout but the index only fell a point for the week. The first important
number to watch is the mid-July low of 15.45 which is within spitting
distance. If this triggers, look for 14.43 to hold and was the VIX closing
low in mid-March. The intraday low was 13.66 and when the S&P reached its
peak for the year. The bears will try to push 17.50 to start the week and
will be eyeing 20 again if they can get the momentum back.
Last week’s chart of the VIX:
The market fell for the ninth-straight Monday while Friday was another up
day. We have mentioned all summer bearish Monday’s and Friday’s usually
lead to lower markets and bullish M/F’s often signal a higher market.
Considering the current 3-month trading range, the mix of negative Monday’s
and mostly bullish Friday’s have certainly contributed to the action.
The bears were on the verge of doing some real damage before Friday’s rally
(look real close at the Russell 2000 chart) and we were looking for
confirmation that a negative close on Friday could get the ball rolling to
the downside. That didn’t happen.
The talking heads and Wall Street pros will tell you the market rallied off
the Nonfarm Payrolls but this is simply not the case. We watched futures
trade flat for much of Thursday past midnight and into Friday morning. The
European markets open at 3am (EST) and about an hour before they opened
U.S. futures got a pop. It seems as though the overseas markets were more
bullish on Mario Draghi’s statements following the ECB (European Central
Bank) meeting than Wall Street was although no real immediate action was
Wall Street never likes to read the fine print and often does a knee-jerk
reaction to any major news event. A closer look at the ECB “minutes”
revealed some type of bond jargon that could include issuing banking
licenses to the ESM (European Stability Mechanism) and the EFSF (European
Financial Stability Facility).
This would allow the ESM and the EFSF to borrow money from the bond markets
in which it could then buy eurozone sovereign debt. They would then use
those bonds as “collateral” to secure loans from the ECB to buy more
sovereign bonds which it would then use as collateral (again). Got it?
If we dummy it down, to us, it just seems like a bunch of smoke-and-mirrors
that will take 3-4 weeks to implement (by their estimates) but we all know
how fast European leaders work.
Yes, the jobs number was helpful in fueling the rally but after an opening
pop, the market stayed flat for much of the session. The flat action came
right at resistance but there was no selloff or pullback into the close.
Here at home the Federal Reserve did nothing and disappointed the
suit-and-ties who were looking for a QE3 sugar fix. We repeatedly said the
Fed wouldn’t act but the zombies will be meeting again at the end of the
month in Jackson Hole, Wyoming.
There is a strong feeling that some type of stimulus package could come in
September and if there is, Fed Chairman Ben Bernanke, could use the
conference as his stage. He did in 2010 when he announced a QE
(quantitative easing) program which lead to a 10% September rally for the
S&P. The index closed at 1,049 on the last day of August 2010 and reached
a peak of 1,157 before closing at 1,141 on September 30, 2010.
Of course, the belief was the Fed would have acted this week if Nonfarm
payrolls would have been a disaster but the bottom line is they won’t act
until the fuse is about to blow. This means the ball will be in Europe’s
court until they drop it and the market will still be subject to headline
The key to everything going smoothly for the bulls is Germany which has
opposed much of the shenanigans from the weaker countries in the eurozone
and seems to be getting tired of the bailouts. Spain could ask for one
this week. If Germany goes along with the ECB’s “new plan” then we would
expect the market to rally but again, this could take a few weeks.
Economic news will be light this week and 2Q earnings season is winding
down. Volume has been super low and August is typically a slow and weak
month for Wall Street traders as they get the last of their summer fun in.
The charts are showing mixed signals with the small-caps lacking with Tech
and the big-caps pushing possible new highs. If we get a tenth-straight
lower Monday, it would be good news for the bears.
If Monday turns out to be bullish, along with the upcoming Friday, the
market could test its highs for the year with a possible breakout on deck.
A lower Monday and a negative Friday could mean the indexes have topped and
we stay in the trading range with pressure to the downside. However,
August election years are tricky as they can sometimes be VERY bullish so
both scenarios are possible.
As we head to press, futures are showing a slightly higher open this
morning. Dow futures are up 12 points to 13,067 while the S&P 500 futures
are higher by 3 points to 1,391. The Nasdaq 100 futures are advancing 10
points to 2,681.
Do not risk more than 5% of your trading account 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.
Wynn Resorts (WYNN, $95.56, up $2.03)
September 80 puts (WYNN120922P00080000, $0.80, down $0.35)
Entry Price: $0.85 (8/2/12)
Exit Target: $1.70
Stop Target: 50 cents
Action: There is choppy resistance up to $100 but once shares fall below
$90, look for $80 to come into play, possibly $60. The 52-week low is
$90.11 which was set just last week.
Veeco Instruments (VECO, $34.47, up $0.60)
September 30 puts (VECO120922P00030000, $1.00, down $0.15)
Entry Price: $0.90 (8/2/12)
Exit Target: $1.80
Stop Target: None
Action: A move above $36-$37 would be bullish and could force us out of
the trade. A drop below $33-$32 should get a test to $30 in play.
Apollo Group (APOL, $26.66, up $0.62)
September 24 puts (APOL120922P00024000, $1.00, down $0.25)
Entry Price: $1.10 (7/31/12)
Exit Target: $2.20
Stop Target: None
Action: Shares hit a fresh 52-week low of $25.77 last week and we have a
near-term target of $20 for Apollo. Longer-term we expect shares to trade
to the mid to lower teens.
Dow Jones Industrial Average Spiders (DIA, $130.73, up $2.19)
September 119 puts (DIA120922P00119000, $0.40, down $0.40)
Entry Price: $1.55 (7/24/12)
Exit Target: $3.10
Stop Target: 75 cents
Action: A move above $132 would be bearish but these are September options
so we don’t mind holding them. We have seen trades lose 80% of their value
and our recent Apollo trade was down over 70% before coming back to give us
a profit. Still, we don’t like the fact that we this trade is lower but we
can also use the puts as protection if we do start to load up on call
options on a breakout. If there is a move above $132, traders can use the
WEEKLY August 131 calls (DIA120818C00131000, $1.05, up $0.65) or the
September 132 calls (DIA120922C00132000, $1.65, up $0.70).
S&P 500 Spiders (SPY, $139.35, up $2.71)
September 123 puts (SPY120922P00123000, $0.35, down $0.30)
Entry Price: $1.30 (7/24/12)
Exit Target: $2.60
Stop Target: 65 cents
Action: A move above $140 would be bullish. We would like to see a move
below $137 by mid-week, $135 by Friday’s close. We may have to put the DIA
and this trade on “hold” if there is a breakout but we will hold these
Other 2012 Portfolio OPEN positions (6): 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.
Bank of America January 12.50 calls 2013 (from March 2012)
iShares Dow Jones US Real Estate August 57 puts (from June 2012)
AOL August 24 puts (from June 2012)
Consumer Discret Select Spiders August 41 puts (from June 2012)
Freeport McMoRan Copper & Gold August 29 puts (from June 2012)
PowerShares QQQ August 59 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.
Ingersoll-Rand (IR, $42.60, up $0.64)
September 39 puts (IR120922P00039000, $0.70, down $0.20)
September 44 calls (IR120922C00044000, $1.10, up $0.30)
Thoughts: A move above $43.50 could lead to a test of the 52-week high
which is $45.62 which is why we have listed the calls this week. We are
looking for a drop to $36 by mid-September and would wait for shares to
move below $41 before playing the puts.
Akamai Technologies (AKAM, $35.48, up $0.79)
September 33 puts (AKAM120922P00033000, $0.80, down $0.35)
September 37 calls (AKAM120922C00037000, $1.05, up $0.30)
Action: A close above $36 could lead to a test of the 52-week high of
$39.14. If shares make a move past $40 it would represent blue-sky
territory and a possible push to $45-$50. A drop below $33 would be bearish
and could lead to a test of $30.
KLA-Tencor (KLAC, $52.10, up $0.50)
September 55 calls (KLAC120922C00055000, $0.70, up $0.10)
September 49 puts (KLAC120922P00048000, $0.75, down $0.15)
Thoughts: We have recommended 4 put option trades on KLAC since April and
they made 172%, 144%, 29%, and 6%. It might be time to get bullish if $50
continues to hold. Shares look headed to double-nickels ($55) but a move
below $50 would reverse the recent uptrend.