We normally show you charts on Monday’s but we wanted to update the 10-year technical picture we showed you so that you can visually see what the bullish breakout could mean.
The Nasdaq gave back 9 points, or 0.3%, to finish at 3,069. Tech kissed our near-term resistance target of 3,100 and there is fluff up to 3,150 over the near-term while 3,050 represents short-term support. The 52-week high is at 3,134 which is less than 2% away. A close below 3,025 could be a warning sign.
The Russell 2000 fell a point to 815 and held support at 810 after kissing a low of 813 while the S&P Volatility Index ($VIX, 15.02, up 1) jumped 7% after trading up to 15.44.
This is a chart for the Dow Transportation Average. As you can see, the index has been a tight trading range and we would like to see a break above the blue downtrend line to confirm a continuation rally. If the Transports break below the blue uptrend line, things could get ugly.
While we were a little surprised by the sharp mini-selloff, volatile moves can happen once the market breaks out, or breaks down, from a trading range which is where we are at. We have also expected this test to the top and for those of you just joining us, please read our commentary from Monday morning and be sure to look at our chart work inside the Members Area which has been money.
We are still expecting some “fluff” for the major indexes which means new highs for the Dow and Nasdaq but we are being very cautious and trying to keep our portfolio light in case there is a sudden reversal. We have been busy with our trades over the past few weeks as we are trying to take what the market gives us but this is still a tough environment to trade in.
We have closed 6 profitable trades already this week which gets our 2012 Track Record at 118-36 for the year. The rest of our portfolio is balanced with a small mixture of calls and puts and our Watch List is growing as we look to play the next trend. We said in our Weekly Wrap the market could make a 5% move in September which could lead to a bigger 10% move by yearend depending on what the Fed and Europe do over the next few weeks so stay prepared.
Futures are showing a slightly open morning and look like so: Dow (-30); S&P 500 (-3); Nasdaq (-6).
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.
Knight Capital Group (KCG, $2.82, down $0.02)
January (2013) 2.50 call (KCG130119C00002500, $0.60, up $0.05)
Entry Price: $0.55 (8/21/12)
Exit Target: $1.10
Stop Target: None
Action: There is risk down to $2 but we have a 6-month target of $4.
The company recently lost $440 million in a trading software snafu which required some of the big boys to take a stake in the company so that it could be saved. We are hearing trading levels at Knight are back to normal as the firm is first or second in its sector. This is a possible “lottery” play on shares trading back to $4 or $5 and overall volume picking back up in the market once the suit-and-ties come back from their August vacations. If shares trade near $4 by mid-January we should get an easy double on our call options.
WellPoint (WLP, $57.27, down $0.11)
September 60 calls (WLP120922C00060000, $0.60, down $0.05)
Entry Price: $0.70 (8/21/12)
Exit Target: $1.40
Stop Target: None
Action: Shares appear to have bottomed since the beginning of the month and could be headed back to $60. From there a test to $62-$63 could be in play. We will stick with the trade as long as $55 holds.
Amgen (AMGN, $83.11, down $0.13)
September 85 calls (AMGN120922C00085000, $0.85, down $0.10)
Entry Price: $0.80 (8/20/12)
Exit Target: $1.50
Stop Target: 85 cents, lower to 60 cents
Action: Shares traded to a high of $83.92 yesterday before pulling back to finish slightly lower. Amgen can push $90 on a break above $85 but we will exit the trade if shares dip below $80. We have lowered the stop of 85 cents on the trade to 60 cents but it is not a hard stop.
Netflix (NFLX, $65.60, up $1.36)
September 70 calls (NFLX120922C00070000, $1.70, up $0.20)
Entry Price: $1.15 (8/20/12)
Exit Target: $2.00-$2.30 (closed half at $2.10, half at $1.50 on 8/21/12)
Stop Target: $1.50 (Hard Stop on other half)
Action: We closed half of the trade to lock-in profits when the calls traded to a high of $2.15 yesterday. At the time of our midday update the low for the options had been $1.60 so we set a Hard Stop of $1.50 on the other half of the trade. Unfortunately, the calls dipped to a low of $1.48 shortly afterwards when shares hit $64.65 which triggered our hard stop.
We would love to see Netflix fall back to $62ish which is where we got in on Monday for another possible trade but we don’t mind making over 50% in a little over 24 hours.
Fusion-io (FIO, $29.22, up $0.28)
September 30 calls (FIO120922C00030000, $1.40, up $0.05)
Entry Price: $1.00 (8/17/12)
Exit Target: $1.50-$2.00 (closed half at $1.60, half at $1.10 on 8/21/12)
Stop Target: $1.10 (Hard Stop on other half)
Action: Shares traded to a high of $29.73 while the calls opened at $1.20 and traded up to $1.65. We had a Hard Stop of $1.10 on the other half of the trade which was also triggered after our midday update as shares fell into negative territory. The low for the stock was $28.78 which was enough to trigger our Hard Stop on the other half as the options traded down to $1.10.
Pepsico (PEP, $73.01, down $0.32)
October 75 calls (PEP121020C00075000, $0.50, down $0.10)
Entry Price: $0.50 (8/16/12)
Exit Target: $1.00
Stop Target: None
Action: Shares held $73 and we will stick with the October calls as long as $71.50 holds. We still believe shares will push $75 over the near-term but a break below $72 would be bearish.
Veeco Instruments (VECO, $34.22, up $0.38)
September 30 puts (VECO120922P00030000, $0.50, down $0.10)
Entry Price: $0.90 (8/2/12)
Exit Target: $1.35-$1.80
Stop Target: None
Action: Shares traded to a low of $33.96 yesterday and we would like to see a close below $32.50 by Friday’s close.
Other 2012 Portfolio OPEN positions (5): 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.
Dow Jones Industrial Average Spiders September 119 puts (from July 2012)
S&P 500 Spiders September 123 puts (from July 2012)
Wynn Resorts September 80 puts (from August 2012)
Apollo Group September 24 puts (from August 2012)
Bank of America January 12.50 calls 2013 (from March 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.
Taiwan Semiconductor Manufacturing (TSM, $14.65, up $0.15)
January 15 calls (TSM130119C00015000, $0.80, up $0.05)
Thoughts: We are waiting for a close above $14.75 before possibly going long and yesterday shares reached an intraday high of $12.77.
Buffalo Wild Wings (BWLD, $74.96, up $0.31)
September 80 calls (BWLD120922C00075000, $0.60, up $0.05)
September 65 puts (BWLD120922P00065000, $0.35, down $0.05)
Thoughts: Shares reached a peak of $75.37 yesterday. 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 to possibly buy call options. A move below $70 would suggest we use put options for a possible test down to $65-$60. If shares can clear $75 there is a chance for a quick run to $80.
Broadcom (BRCM, $35.39, down $0.33)
September 36 calls (BRCM120922C00036000, $0.75, down $0.20)
September 32 puts (BRCM120922P00032000, $0.25, up $0.05)
Thoughts: The 52-week high is $39.66. We would wait until shares clear $36 before going long and on a break below $34 we might look to go short.
Ingersoll-Rand (IR, $46.67, up $0.27)
September 42 puts (IR120922P00042000, $0.25, down $0.05)
September 46 calls (IR120922C00046000, $1.50, up $0.10
Thoughts: Shares continue to appear they are headed to $50.
Akamai Technologies (AKAM, $37.43, up $0.38)
September 34 puts (AKAM120922P00034000, $0.25, down $0.05)
September 38 calls (AKAM120922C00038000, $01.00, up $0.15)
November 45 calls (AKAM121117C00045000, $0.65, flat)
January 45 calls (AKAM130119C00045000, $1.30, up $0.10)
Action: If shares make a move past $40 it would represent blue-sky territory and a possible push to $45-$50. A drop below $34 would be bearish and could lead to a test of $30. We have also listed the January and November 45 calls on a possible run to $50-$55 and would give us an additional 2-4 months to play a breakout.
KLA-Tencor (KLAC, $53.59, up $0.29)
September 55 calls (KLAC120922C00055000, $0.80, flat)
September 50 puts (KLAC120922P00050000, $0.40, down $0.10)
Thoughts: Shares look headed to double-nickels ($55) and a blue-sky breakout could be in the mix. A move below $52 would reverse the recent uptrend.