9:00am (EST)

The Dow gained 51 points, or 0.4%, to end at 13,168.  The blue-chips reached a peak of 13,216 but had trouble holding down the 13,200 level into the close.  The breakout above this level does pave the way for a run up to 13,350 but the finish still leaves 12,800 in play.

The S&P 500 popped 7 points, or 0.5%, to settle at 1,401.35.  The index traded to a high of 1,407 and held resistance at 1,400 as the bears ran out of time.  The break above resistance opened the door for a run to 1,425 but the bears still have 1,375 on their minds by week’s end.

The Nasdaq gained 26 points, or 0.9%, to finish at 3,016.  Tech was able to hold near-term resistance and the next level the bulls will target is 3,100-3,150 which is the March highs.  The index kissed a high of 3,028 and the 52-week high is 3,134.  The bears have to feel frustrated as many of the Tech companies have reported weaker-than-expected earnings and at some point fundamentals will take over, but the close above 3,000 was (very?) bullish.  The bears will fight to get the Nasdaq back under this level and today will be a critical test in trying to keep the bulls contained.

The Russell 2000 added 7 points, or 0.9%, to end at 801.  The small-caps traded to a peak of 806.41 and were able to hold resistance at 800.  There is a chance the Russell can rally to 810-820 on further momentum but the bears are calling it a 1-point scratch along with the S&P’s 1-point close over resistance. 

Meanwhile, the S&P Volatility Index ($VIX, 15.99, up 0.04) traded to a low of 15.48 but tripped 16 and finished higher for the session.  In mid-July the VIX traded down to 15.45 and we have said the VIX seems to be bottoming with a slim test to the low teens possible on a test to new highs.  This would mean a lower market in the weeks and months ahead if the VIX continues to hold 15 and moves its way back to 20+.  

We have fielded a lot of emails on buying call options, naturally, and there is a chance we do so this week…but.  Many of you feel as though we may be “missing” the rally but trying to trade at crucial support and resistance levels can be dangerous.  Of course, it can also be lucrative but let’s look at the entire picture.

The recent run back to the top of the trading range, and this is key, the trading range, is what the market is experiencing.  However, the topside of the range is getting stretched.  The downside slide went a little out of the trading range before the bulls recovered in June which is when the bears nearly crippled them and now it feels the same way.  From late March thru the end of may we went 37-3 which using mostly put options.  We distinctly remember all of the talking heads and market pros calling for a market rally so we knew we would look really good going against the grain or idiots for not following the crowd.

The last thing we want to do is go all-in on call options right now only to see a sudden and quick reversal which can happen any day on any headline.  The June trades we have for August will likely expire out-of-the-money next Friday and we have already planned for this.  They can still come back and make us a slight profit but we have already moved on from them.

The July trades on the indexes (DIA and SPY) are September options and the other remaining 3 (WYNN, VECO, and APOL) are also September options. This means we have 5 open positions that we consider worth holding as they do not expire for another 6 weeks.  In this kind of volatile market, we like the downside protection they provide should the market pullback from here.

At current levels, if there is another 2%-3% rally it  would get the major indexes to new highs.  With the market making daily 1%-2% swings, we could see new highs this week or next.  From there, what will be the catalysts to keep the rally sustainable through yearend?  Third-quarter earnings in October won’t be earth-shattering, the U.S. fiscal cliff remains unresolved, we haven’t even mentioned the saber-rattling we are doing with Iran, and possible rising food prices in the winter due to the corn crop damages.

If you answer is “quantitative easing” then you are right.  The problem is the current rally is built on just that, hope.  With market pundits around the world expecting the euro to be saved, the Fed acting as soon as the end of the month, which could happen and indeed, it would be very bullish.  But if it doesn’t?

We would rather let the market rally another 2%-3% and wait to see what happens.  If the zombies do get some kind of stimulus package together and the 17 countries in the eurozone figure out their debt crisis, we won’t miss anything.  If the indexes break new highs there is a chance they will run another 5%-10% by yearend if all the stars line up and there will plenty of opportunities to go long. 

If not, resistance fails here or at the next level which is at the highs.

We have average over nearly 5 trades a week this year and after getting aggressive in June, we recognized the trading range after the bottom of the trading range held.  In July, we recommended 8 trades after predicting a trading range was coming.  We have closed 4 of them for profits with the other 4 still open.  We have opened 2 positions in August.  We have closed 7-out-of-8 winning trades since mid-June and most of these trades are from our last “batch”.  

Yes, we all have itchy trigger fingers right now, or some of you may be nervous, but it is important to remember we aren’t “missing” anything.  In fact, we are in great position as we normally like to carry 15-20 open positions in TRENDING markets. 

If there is a breakout, don’t worry, we will catch it.  If there isn’t, then we could be getting an incredible opportunity to pick up some cheap September/ October put options for a test to the bottom of the current 3-month trading range or worse.

We are getting close to one or the other and while we may not get the clues we are looking for this week, by next week we certainly should.  Economic news will be major and August expiration is next Friday so we are expecting volatility to pick up another notch.

Stay focused, we are close to getting our answer and opening another “batch” of new trades that should do really well on a breakout or breakdown.

As we head to press, futures are showing a lower start and look like this:  Dow (-70), S&P 500 (-6), Nasdaq (-8).

 

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, $102.64, up $4.84)

September 80 puts (WYNN120922P00080000, $0.45, down $0.20)  

Entry Price:  $0.85 (8/2/12)
Exit Target:  $1.70
Return:  -47%
Stop Target:  None

Action:  Wynn shares jumped 5% yesterday and closed above $100 and the 50-day MA.  This opened the door for a test to $112.  We still believe once shares fall below $90, a test to $80 will come into play, possibly $60.  The 52-week low is $90.11 which was set just last week.      

 

Veeco Instruments (VECO, $37.10, up $0.64)

September 30 puts (VECO120922P00030000, $0.55, down $0.10)

Entry Price:  $0.90 (8/2/12)
Exit Target:  $1.80
Return:  -39%
Stop Target:  None

Action:  Shares closed just above $37 after making an intraday high of $37.50.  The 52-week high is $37.93.  We are looking for shares to drop below $33-$32 which would get a test to $30 back into play.  However, on a move past $38, we might add the September 40 calls (VECO120922C00040000, $1.05, up $0.25) on a blue-sky breakout to offset some of the current loss. 

 

Apollo Group (APOL, $28.11, up $0.87) 

September 24 puts (APOL120922P00024000, $0.65, down $0.15)

Entry Price:  $1.10 (7/31/12)
Exit Target:  $2.20
Return:  -44%
Stop Target:  None

Action:  DeVry (DV, $19.78, up $0.27) will announce earnings tomorrow and we expect them to disappoint Wall Street.  Hopefully, shares selloff and the damage hits the entire sector.  Apollo Group hit a fresh 52-week low of $25.77 last week and we have a near-term target of $20.  Longer-term we expect shares to trade to the mid to lower teens.  A break above $30 would force us out of the trade.

 

Other 2012 Portfolio OPEN positions (8):  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)

 

Dow Jones Industrial Average Spiders September 119 puts (from July 2012)

S&P 500 Spiders September 123 puts (from July 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. 

 

Buffalo Wild Wings (BWLD, $73.94, up $0.53)

September 80 calls (BWLD120922C00075000, $1.05, up $0.10)

September 65 puts (BWLD120922P00065000, $0.80, down $0.15)

Thoughts:  Shares of BWLD have been volatile of late.  In late July, the stock fell from $78.90 to $70.43 the day after the company reported earnings and traded down to $68.71 intraday.  The recovery high was $75.01 which is near-term resistance.  This is the level we will need to watch for a bullish breakout and buy calls. A move below $70 would suggest we use put options for a possible test down to $65-$60.

 

SanDisk (SNDK, $42.08, up $0.60)

September 45 calls (SNDK120922C00045000, $0.90, up $0.10)

September 38 puts (SNDK120922P00038000, $0.70, down $0.10)

October 35 puts (SNDK121020P00035000, $0.80, down $0.10)

Thoughts:  We would wait for a move past $42.75 before going long which is the end of July high.  A close below $40 would be bearish and could lead to retest of $35 or worse. 

 

Dillard’s (DDS, $69.41, up $0.66)

September 75 calls (DDS120922C00075000, $2.35, up $0.15)

September 60 puts (DDS120922P00060000, $1.60, down $0.15)

Thoughts:  The 52-week high is $72.46 and shares are making a run.  The options are expensive and this would make a pricey strangle option trade.   

 

Broadcom (BRCM, $34.23, up $0.33)

September 35 calls (BRCM120922C00035000, $1.00, up $0.10)

September 32 puts (BRCM120922P00032000, $0.70, down $0.10)

Thoughts:  The 52-week high is $39.66.  We would wait until shares clear $35.25 before going long and on a break below $32 we might look to go short.

 

Ingersoll-Rand (IR, $43.67, up $0.94)

September 40 puts (IR120922P00040000, $0.60, down $0.20)

September 45 calls (IR120922C00045000, $0.95, up $0.20)

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, $36.34, up $0.52)

September 33 puts (AKAM120922P00033000, $0.55, down $0.15)

September 37 calls (AKAM120922C00037000, $1.25, up $0.10)

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, $52.78, up $0.75)

September 55 calls (KLAC120922C00055000, $0.75, up $0.15)

September 48 puts (KLAC120922P00048000, $0.55, down $0.20)

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.