11:30pm (EST)

 

1.  Market Summary 

2.  Groupon (GRPN) – Buy Low, Sell High

3.  Riverbed Technology (RVBD) – Run Off Cisco’s Earnings Surprise

4.  Earnings

5.  Weekly Wrap Portfolio Update 

6.  Week Ahead

 

(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section.  Please give us about an hour as the website is currently loading the charts)

 

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1.  Market Summary   

“The charts are still showing mixed signals with the Dow and Russell 2000 pinned under their middle uptrend channels while the S&P 500 and the Nasdaq are showing some strength.  The VIX appears to be headed lower but volatility is at historic levels that often signal a reversal. 

Earnings are starting to wind down with nearly 450 of the 500 S&P companies having confessed.  The numbers are showing nearly 70% of them have beat earnings but we are more interested in how many companies missed on revenue and lowered guidance.     

The tight trading range is normal during the summer doldrums and the test at this next level of resistance has come on very low volume.  There were no convictions on any of the pops higher throughout the week as you can also see in the charts.  Wall Street is bracing for the Fed and Europe (and now China) to do something by the end of the month. 

While this week is options expiration, which usually brings added volatility, it wouldn’t surprise us if the market stayed range bound near the top for another week or two and pushed new highs.  Economic news this week has the potential to move the market 2%-3% which would get the indexes near their peaks for the year or back to near-term support which we have outlined.

Again, we can be bullish if we need to be but we are still expecting a trading range that could produce a test to the 2012 highs or a slight pullback to support which was prior resistance – until the Fed or Europe makes a move.” (from 8/12/2012 Weekly Wrap/ Monday Morning Outlook)…

The bulls continued their winning ways as the market moved higher for the sixth-straight week and cleared another layer of resistance.  The major indexes are within spitting distance of reaching new highs while the bears wait patiently for the end of the month to arrive. 

The Dow gained 25 points, or 0.2%, to settle at 13,275 on Friday.  The blue-chips traded in a tight range through midweek but made higher highs and higher lows until Thursday’s pop.  The low for the week was Monday’s dip to 13,112 but the bulls pushed a high of 13,281 on Friday.  We said there was a good chance the Dow would test May’s high of 13,338 and a close above 13,350 would be super bullish.  If there is “fluff” we could see a run to 13,500-13,600 this week or next and depending on how September goes, we could see the Dow at 14,000.  From there, the blue-chips could push 14,500-14,600 by yearend.  A close below 13,000 would simmer the rally.  The Dow started Monday at 13,208 and was up 67 points, or 0.5%, for the week.  For the year, the blue-chips are up 1,058 points, or 8.7%.

This is a 10-year chart for the Dow:

Here is last week’s chart of the Dow:

The S&P 500 added 3 points, or 0.2%, to finish at 1,418.  The index tested a low of 1,397 to start the week but was able to close above the 1,400 level which is now short-term support.  There was a tight range of 10 and 7 points for 2 days afterwards but Thursday’s pop to 1,417 confirmed the bulls were going to push the April high of 1,422.  We mentioned at the beginning of the month there was a chance the S&P would push 1,425 and a close above this level gets 1,450 in play over the next couple of weeks.  From there a surge to 1,500 could come in September with a year-end target of 1,550-1,560 if everything goes smoothly.  A close below 1,375 would be bearish.  The S&P 500 was at 1,406 coming into the week and advanced dozen points, or 0.9%, by Friday’s close.  For 2012, the index is higher by 161 points, or 12.8%.

Last week’s chart for the S&P 500:

The Nasdaq jumped 14 points, or 0.5%, to end at 3,076.  Tech made a brief trip below short-term support at 3,000 on Monday when it traded down to 2,999 but had cleared 3,025 by Wednesday’s close and 3,050 on Thursday’s finish.  We said last week once this level was cleared the Nasdaq had a chance of pushing 3,100-3,150 and the March 27 high of 3,134.  If September is going to be one to remember the bulls could rally to 3,225-3,250 on positive news from Europe with a year-end target of 3,375-3,400.  If there is a setback, the index could fall to 2,925-2,900, initially.  The Nasdaq was at 3,020 before Monday’s opening bell and tacked on 56 points, or 1.8%, for the week.  For the year, the index is up 471 points, or 18.1%. 

Here is last week’s chart for Tech:

The Russell 2000 jumped 7 points, or 0.8%, to close at 819.89.  The small-caps opened the week at 801.48 but were down over 1% after kissing 791 shortly afterwards on Monday.  The index closed at 799 for the session and Tuesday’s low of 794.81 was a higher low although the close for the day was 796.  Wednesday’s action was a clue there could be further upside as the Russell added 1% to finish at 804.  We said the bulls would need 810 to print as a hint for a bullish run to 825 and we got that with Thursday’s 813 close and Friday’s pop.  There is a good possibility the momentum lasts to 830 and the May 1 high over the near-term with a shot at 850-860 in September.  This would set the stage for a year-end rally to 900.  If there is a pullback to 800-780 on disappointment by the Fed or Europe, things could get ugly in a hurry.  The Russell 2000 started the week at 801.55 and surged 18 points, or 2.3%, before the weekend.  YTD, the index is higher by 79 points, or 12.2%.

Here is last week’s chart for the Russell 2000:

The S&P Volatility Index ($VIX, 13.85, down 0.45) fell another 6% on Friday and held 15 after starting the week at 14.74.  On Monday, with the market down nearly 1%, the VIX traded lower throughout the day to close at 13.70, down a point, or 7%.  We said in our Daily this was an unusual sign and either meant the VIX was head to 10 or the market had topped.  Friday’s low was 13.30 and a 52-week low.  Although the VIX is at scary levels, the 10-year chart shows how long the VIX can trade between 15-10.  The bulls should have no worries until the bears push 15 again and then 17.50.   

Last week’s chart of the VIX:

We said the key last week to an extended rally would be how Apple (AAPL, $648.11, up $11.77), Amazon.com (AMZN, $241.17, down $0.38), Google (GOOG, $677.14, up $4.27), and Netflix (NFLX, $63.69, down $0.62) traded (see last week’s aforementioned August 10 Nasdaq chart and comments).

Apple gained $18 for the week and hit fresh 52-week highs in the process while Goog’s added $17 and did the same.  Amazon is pushing its 52-week high of $246 and Netflix gained nearly $4 for the week after hitting $65.52 on Friday.

We did a back test on the S&P 500 for 5, 10, and 20-years just to confirm what could be a troubling sign now that the indexes have just one last resistance level to clear before a bull jailbreak.  We like to show the 50-day, 100-day and 200-day moving averages (MA) and when you go out a few years they turn into monthly averages.  Most technicians get really excited when a “Golden Cross” forms on a stock or an index and they occur when the 50-day (or month) crosses over the 200-day (or month).  This is usually a bullish signal the market or stock is going higher in the coming weeks or months.

On the flip side, a “Death Cross” occurs when the opposite happens, or when the 200-day MA falls below the 50-day MA.  This is usually a bearish signal that means a correction is coming.

The 10-year chart we showed you earlier on the S&P 500 shows a possible Death Cross could be forming in the coming weeks.  This type of signal is often bearish but they can be bullish as the breakdown can be weeks or months away but it is something we are watching closely. 

Trading ranges also produce bigger breakouts or breakdowns in a stock or the market, in general.  We warned of a tight trading range with a possible push to the top and with support moving up on higher highs and higher lows we are almost there.  The good news with the possible Death Cross forming on the S&P is that they have been less bearish over the past 20 years.  However, last year when the U.S. lost its triple-A credit rating while the zombies jawboned, the Death Cross was the kiss of death for the S&P 500.

The other warning sign we are seeing on this 2-year chart is the possibility of a “triple-top” which is forming on the S&P 500 but a break to new highs would nullify this chart pattern. 

We added a few call option trades to the Daily last week because we felt a test to the top of the trading range was coming with the possibility of the indexes testing new highs.  With Wall Street traders away until the end of the month winding down summer vacations, volume will continue to be low and the pros will run the risk of coming back off vacation with the market at new highs.  They will have a hard time telling their clients why their funds are under performing with the market pushing higher ground.  This could force many of them back into the market as they panic, feeling they are missing the rally.

The Fed will meet on August 31 and we should get some kind of “final” word on Greece by mid-September.  Let’s talk about Europe first.

The market’s pop on Thursday was due to German Chancellor Angela Merkel’s comments that the country was committed to maintaining the euro.  This echoed European Central Bank (ECB) President Mario Draghi’s comments last month which started the recent rally.

This week, Greek Prime Minister, Antonis Samaras, will meet with Merkel on Friday and French President, Francois Hollande, over the weekend.  When Greece got its SECOND bailout, their austerity agreements were for two years.  There is talk Samaras wants to stretch the austerity to 4 years.  However, word is he won’t “formally” request an extension until October which is when the European Union leaders meet again.

The market is expecting the ECB to announce a new bond buying program by the end of the month but it may not come until September 12 which is when Germany is expected to vote on the constitutionality of the ESM bailout fund.

This could get dangerous if Germany plays hardball but many seem to believe Greece will continue to stay in the eurozone for now. 

While the Fed has kept the door open to further quantitative easing (QE), we believe the Fed won’t act in September.  Bernanke is expected to give a “Changing the Monetary Policy” speech at the end of the month and perhaps this week’s FOMC minutes will provide some clues.  Still, we don’t believe the recent economic data has been weak enough to prompt additional stimulus from the Fed.  If it does happen, we would guess it could come in mid-September and nearly a year to the day when Big Ben last initiated a stimulus package.  (This was right after the U.S. lost its triple-A rating because Congress couldn’t agree on anything).

The bottom line is that the Fed will not show its hand or fire its possible last bullet until it gets reassurance from Europe that they are on the right path.  Last year, Big Ben acted more aggressive than expected.  This year, he could act less aggressive but Bernanke has made a name for himself with his unconventional ways of new stimulus packages so anything is possible.

The bulls appear to be taking the market by the horns and we would expect higher prices until the end of the month.  We doubt the bulls have made this trip not to test new highs but the bears will be waiting at some point.  It may or may not come in September, or even this year, depending how Europe goes but the bears will be back at some point.  Until then, the trend is your friend…until it ends.

As we head to press, futures are showing a slightly lower open for Monday.  Dow futures are down 6 points to 13,241 while the S&P 500 futures are off a point to 1,414.  The Nasdaq 100 futures are down a quarter-point to 2,775.      

 

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Key of Technicals Used In Following Articles

 

2.  Groupon (GRPN) – Buy Low, Sell High

By Michael Bryant

 

Ever since the day after its IPO, Groupon’s (GRPN, $4.75, down $0.25) stock has been in free-fall, plunging from a high of $29.52.  Now down about 83%, the stock may be nearing a bottom.  A covered call options play could allow you to profit well from a rise in the stock price but it may take 6-12 months.

Its business is broken into four segments:  Groupon (deals), Groupon Getaways (travel deals), Groupon Now! (real-time deals), and Groupon Rewards (rewards program, see figure below).

 

Merchants can set how much they want customers to spend to get rewards.  Groupon Now! is an application aimed at smartphone and tablet users and consists of the two buttons: “I’m Hungry” and “I’m Bored,” which locates the closest and best deals for food or entertainment, respectively, through GPS tracking.  Further, deals are split into foods and services in one category and goods into another category.

When entering new markets, it sends employees to research the local market and find successful local businesses.  Then salespeople explain the model to the business.  Groupon also uses social marketing sites such as Facebook (FB, $19.05, down $0.82) to further promote the idea.

If a subscriber purchases a deal within the time limit (often one to five days), they do not get the deal unless enough people purchased it by the end of the time limit.  If enough people have not purchased the deal, the charge is not placed on the credit card and the deal is withdrawn.  Once a deal is validated, the company sends an email of the deal so the subscriber can print it out.  Expiration dates vary but are usually within the next six months.  For travel deals, the expected ticket purchase and travel dates are on the deal.  For goods, orders are usually shipped within two and a half weeks.  Shipping is often either free or for a small fee.  Subscribers can also access deals through their mobile phones and retrieve them using the screen as a coupon, saving the printing process.

Launched in November 2008 by current CEO and Pittsburgh native Andrew Mason, the idea of the company’s business model is to play the middle man, selling coupons that, with their large discounts, are appealing to customers.  Merchants benefit by getting free advertising, getting a guaranteed demand for their products, getting rid of excess inventory, and attaining economies of scale.  Economies of scale says that the larger the production scale, the lower the cost per unit.  Because the merchant does not pay any upfront cost to participate, the model is not like classified advertising and the company makes money by keeping approximately half the money the customer pays for the coupon.  Thus, in theory, Groupon gets paid without having to pay anything except advertising.  Plus, it doesn’t pay merchants until about 60 days after customers buy a coupon, yielding a strong cash-flow.

The problem is that advertising costs have ballooned over the years.  Groupon spent around $5.65 for every new subscriber in 2011, a 152% increase from the price paid in the 1st quarter of 2010.  Since deals are usually for non-necessities, subscribers do not have a high priority to purchase them.  The company’s average active customer, who purchased a deal in the last year, is spending $165 a year, down 13% from peak sales.  In its 2nd quarter, Groupon said that active customers grew just 3%.  While traffic was higher at the beginning of 2012 than last year, it was down almost 10% in May and June from the same months in 2011.  Plus, existing subscribers may choose to leave and avoid the extra emails, or they can move to a competitor.  LivingSocial, a competitor, has been growing subscribers faster and Groupon Goods competes with Amazon.

Further, merchants have no obligation to remain with the company.  Instead of the deals building a loyal customer base, it attracts one-time bargain hunters who do not return until they encounter another deal that suits them.  Customers who buy deals can overwhelm small businesses, spend the bare minimum, and never return.  Thus, the deals succeed in bringing crowds, but lose money for many merchants.  This in turn affects the loyalty of many merchants themselves.  In a January 2012 survey of 400 merchants, more than half said they did not plan to run a daily deal in the next six months.

In April 2010, Groupon was valued at $1.35 billion.  In November, Google planned to purchase the company for $5.3 billion.  It later withdrew its bid and created Google Offers, yet another competitor.  On the company’s IPO, it raised $700 million, selling just 4.7% of the total outstanding shares, the smallest public float for a newly traded company in more than a decade.  Thus, it was expected that insiders would sell more shares after the June lockup period.  At that time, it was worth $13 billion, or more than four times more than its current market cap of $3 billion.  

In 2011, it bought Indian deal-of-the-day website SoSasta.com (re-named as Crazeal) in January, Hong Kong-based uBuyiBuy, and GroupsMore.com which is based in Malaysia.  In January 2012, it acquired Mertado, a social shopping service based on the Facebook platform.  It now serves 500 markets in 44 countries including Canada, Taiwan, Brazil, Greece, Germany, Finland, France, Belgium, the Netherlands, the United Kingdom, India, Ireland, Israel, Italy, Poland, Portugal, Spain, Japan, Puerto Rico, Turkey, Mexico, Peru, Chile, Sweden, South Korea, Colombia, Argentina, Norway, the United Arab Emirates, Romania, Singapore, Malaysia, Hong Kong, China, Russia, and South Africa. 

Below is Groupon’s revenue, operating expense, and income (loss) breakdown for the year ending December 31st :

 

 

2010

2011

North America

Revenue

$200,412,000   (64%)

$634,980,000   (39%)

Operating Expense

$210,849,000

$630,184,000

Income (loss)

($10,437,000)

$4,796,000

International

Revenue

$112,529,000   (36%)

$975,450,000   (61%)

Operating Expense

$283,085,000

$1,124,579,000

Income (loss)

($170,556,000)

($149,129,000)

Total Revenue

$312,941,000

$1,610,430,000

International revenue increased nearly 900% from 2010 to 2011, compared to 317% for North American revenue.  Total revenue increased about 515%.  International revenue made up nearly a third of total revenue in 2010, but grew to make up near two-thirds of total revenue in 2011.  As the U.S. economy picks up in the back half of 2012 and into 2013, North American revenue may continue to grow nicely.  However, a large chunk of that international revenue comes from Europe, which is undergoing a slowdown.  Thus, international revenue growth may slow dramatically.

The stock plunged 36% after it reported 2nd quarter earnings.  Excluding one-time charges, they earned $0.08 a share, beating analysts’ estimates of $0.03 a share.  However, revenue came in at $568.3 million, trailing estimates of $573.1 million.  The company cited economic weakness in Europe for the revenue shortfall, and provided guidance below Wall Street’s expectations.  Analysts expect 3rd quarter earnings of $1.19 a share on revenue of $1 billion.

Revenue has managed to finally become greater than total expense in the 1st quarter, allowing it to report a profit of $0.02.  Unless the current trend changes, the year-over- year graph says the total expenses will remain less than revenue but some say the company is still burning through cash.  

The most surprising and concerning news in its 2nd quarter results was a growing reliance on Groupon Goods, its direct-sales unit.  Concern is that Amazon will make it hard to compete profitably.  The good news is the company has$1.2 billion in its war chest as of June 30.  We will need to watch to see where this number is at following the current quarter.

At $4.75, the stock is below its mean target of $9 made by the 17 analysts recorded by Thomson/First Call.  Median target is $8, high target is $16, and low target is $5.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.6, down from 2.4 a week ago.

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

4

4

4

4

Buy

7

7

6

6

Hold

10

10

11

10

Underperform

1

1

1

1

Sell

1

1

1

2

The stock is at $4.75, and the October 5 calls (GRPN121020C00005000, $0.25, down $0.05) are at 60 cents.  If the stock is bought at current levels and the calls are sold against the position, it would lower the cost basis to under $4.15.  We think shares can return to $9 sometime in 2013 which would mean we would double our money.  Of course, if we took this trade, we could be called away in October at $5 if the stock is above the strike price but the trade would still make nearly 25%. 

We like this trade but there is still downside risk to $3, in our opinion, so let’s see how shares trade over the next few weeks.  We could also start small positions at current levels and buy more on a dip but we don’t need to rush anything although we do feel shares are getting “cheap”.

 

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3.  Riverbed Technology (RVBD) – Run Off Cisco’s Earnings Surprise

By Michael Bryant

 

Riverbed Technology (RVBD, $21.09, up $0.39) is riding a wave from Cicso Systems’ (CSCO, $19.06, up $0.04) strong earnings.  But how long can this last?

The $3.25 billion networking and communication device firm based in San Francisco, California provides solutions for information technology performance across wide area networks (WANs) in the U.S. and internationally.  Riverbed’s Steelhead products enable customers to improve their applications performance and access their data across WANs. 

The stock is surging higher on networking giant Cisco Systems’ earnings surprise after the company generated revenue of $11.7 billion, up from $11.2 billion in the same period last year, and above analysts’ estimates of $11.6 billion.  Excluding items, Cisco earned $0.47 a share, compared with $0.40 in the same period a year ago, and above analysts’ estimates of $0.45.  It also increased its dividend from $0.08 to $0.14, a jump of 75%.

Investors obviously are hoping that Riverbed will also see similar numbers when it reports its next quarterly earnings on Friday, October 24th.  It expects revenue to be in the range of $214 million to $219 million and earnings to be between $0.25 and $0.26.  Analysts expect 3rd quarter earnings of $0.25 on revenue of $216 million.  However, investors need to remember that gross and product margins have been on a decline recently so they shouldn’t get their hopes up too high.

 Analysts seem to be providing bullish estimates.  Both estimates seem attainable, but that means quarter-over-quarter revenue and earnings growth must stay about the same for the next two quarters.

At $21.09, the stock is about at its mean target of $21 made by the 30 analysts recorded by Thomson/First Call.  Median target is $20.50, high target is $27, and low target is $14.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.4, unchanged from a week ago.

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

6

6

5

4

Buy

7

7

10

10

Hold

24

24

21

21

Underperform

1

1

1

1

Sell

0

0

1

1

We had considered Cisco Systems as a covered call trade when shares briefly fell below $15, intraday, in late July.  We did well with a Cisco covered call trade in 2011 when shares were at similar levels but we missed the big surge and didn’t want to chase the stock.  Instead, we went long on Riverbed call options for the Daily which are up nearly 40% as we head into this week.  We have a stop in to protect profits but the trade could hit a triple-digit return if Riverbed shares clear resistance and push $30.

 

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4.  Earnings 

The companies in BOLD, we are looking at as possible trades and we may list call or put options on them in our Daily Newsletter.  If they become official recommendations, we sent out Trade Alerts or include them in our 9am and 1pm updates that come out during the week (Quotes are from 8/17/12 close)

By Catherine Tierney

 

Monday

Benihana (BNHN, $16.28, up $0.02), Bio-Reference (BRLI, $29.40, up $0.99), Charm (CHRM, $5.65, down $0.08), ChinaCache (CCIH, $5.60, down $0.01), Cross Timbers Royalty Trust (CRT, $39.62, up $0.01), eLong (LONG, $14.17, down $0.31), Fabrinet (FN, $13.12, up $0.42), Flexsteel (FLXS, $22.84, up $0.10), Kentucky First Federal (KFFB, $7.50, down $0.24), Kewaunee Scientific (KEQU, $12.80, down $0.20), Lowe’s (LOW, $27.87, up $0.42), Nordson (NDSN, $55.24, up $0.19), Piedmont Natural Gas (PNY, $32.08, up $0.01), ShangPharma (SHP, $7.90, Flat), Tuesday Morning (TUES, $5.35, up $0.15), Urban Outfitters (URBN, $31.40, up $0.42), Versant (VSNT, $10.25, down $0.15)

 

Tuesday

American Woodmark (AMWD, $20.70, up $2.89), Analog Devices (ADI, $40.82, down $0.03), Aspen Technology (AZPN, $23.77, up $0.24), Astro-Med (A LOT, $8.09, down $0.09), Barnes & Noble (BKS, $12.34, down $0.04), Best Buy (BBY, $20.27, down $0.14), Bolt (BOLT, $14.26, up $0.25), Cninsure (CISG, $5.84, down $0.16), Daktronics (DAKT, $8.01, up $0.03), Dell (DELL, $12.22, down $0.01), DSW (DSW, $62.64, up $2.21), Focus Media (FMCN, $25.22, up $0.05), GasLog (GLOG, $10.22, up $0.03), Globe Specialty Metals (GSM, $13.89, up $0.43), Intuit (INTU, $59.76, down $0.31), Key Tronic (KTCC, $7.88, up $0.24), La-Z-Boy (LZB, $13.90, up $0.62), Medtronic (MDT, $40.84, up $0.37), Qihoo 360 (QIHU, $18.54, down $0.12), Raven (RAVN, $33.08, up $1.08), Tech Data (TECD, $50.93, up $0.12), United Community (UCBA, $6.99, up $0.67), Williams-Sonoma (WSM, $37.59, up $0.47)

 

Wednesday

American Eagle Outfitters (AEO, $21.04, down $0.15), Bridgford Foods (BRID, $7.50, down $0.10), Chico’s FAS (CHS, $16.80, up $0.68), China Kanghui (KH, $22.63, down $0.17), Collective Brands (PSS, $21.63, Flat), Delta Natural Gas (DGAS, $21.63, down $0.10), DFC Global (DLLR, $20.21, up $0.17), Dycom (DY, $19.38, up $0.16), Eaton Vance (EV, $27.40, down $0.02), Express (EXPR, $17.15, up $1.23), FNB United (FNBN, $12.20, up $0.03), Guess’ (GES, $32.50, down $0.33), The Hain Celestial (HAIN, $55.19, up $0.82), Hewlett-Packard (HPQ, $19.52, Flat), International Rectifier (IRF, $18.96, up $0.22), Kayak Software (KYAK, $26.73, down $0.31), Krispy Kreme Doughnuts (KKD, $6.80, up $0.25), Perceptron (PRCP, $5.20, up $0.12), Prospect Capital (PSEC, $11.42, up $0.13), Semtech (SMTC, $25.52, up $0.23), Ship Finance (SFL, $15.40, up $0.14), Sigma Designs (SIGM, $7.01, up $0.15), Synopsys (SNPS, $31.28, up $0.08), Tilly’s (TLYS, $16.23, down $0.49), Toll Brothers (TOL, $32.37, up $0.21), Vanguard Health (VHS, $9.68, up $0.33)

 

Thursday

Aruba Networks (ARUN, $17.45, up $0.10), Autodesk (ADSK, $34.97, up $0.30), Bebe (BEBE, $6.27, up $0.06), Big Lots (BIG, $38.47, up $0.04), Bona Film (BONA, $5.70, down $0.17), Collectors Universe (CLCT, $14.54, up $0.08), Fred’s (FRED, $15.63, up $0.04), Global Sources (GSOL, $6.43, up $0.29), Golar LNG (GMLP, $31.32, up $0.07), HEICO (HEI, $35.90, up $0.66), Hormel Foods (HRL, $28.64, up $0.25), John B Sanfilippo (JBSS, $17.08, down $1.23), Lancaster Colony (LANC, $69.35, up $0.14), Mentor Graphics (MENT, $15.99, up $0.06), Micros (MCRS, $47.90, down $0.05), Net 1 Ueps (UEPS, $8.23, down $0.11), Patterson (PDCO, $36.13, up $0.22), QAD (QADB, $13.24, up $0.05), Regis (RGS, $17.72, up $0.42), rue21 (RUE, $27.54, up $0.14), salesforce.com (CRM, $147.23, up $0.27), Shiloh (SHLO, $10.79, up $0.03), Shoe Carnival (SCVL, $23.09, up $0.96), Signet Jewelers (SIG, $47.50, up $0.44), Solera (SLH, $43.90, up $0.13), Toro (TTC, $39.09, up $0.77), Zygo (ZIGO, $19.69, up $1.24)

 

Friday

Isle of Capri Casinos (ISLE, $6.40, up $0.14), Madison Square Garden Company (MSG, $39.07, up $0.67) 

 

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5.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 8/17/12)

Closed Trades for 2012 (22-0, overall):  ARNA +117%, SZYM +11%, BAC +26%, EFTC +8%, SZYM +55%, VVUS +38%, CALL +19%, BAC +20%, SYMC +16%, DAR +20%,TIVO +5%, MGM +22%, ZNGA+13%, SGMS +6%, VVUS +17%, F +8%, AA +7%, CLNE +27%, DNDN +18%, MGM +19%, ACAS +3%, P +9%.

 

 

Solazyme (SZYM, $13.21, down $0.05)

September 12.50 calls (SZYM120922C00012500, $1.00, down $0.05)

Original Entry Price:  $12.35 (8/9/12)

Lowered Price from Selling Options:  $11.55

Exit Target:  $15+

Return:  14%

Stop Target:  $9

Action:  Solazyme added 5% to start the week and closed at $12.43 on Monday.  On Tuesday, shares popped above $13 after busting through short-term resistance, which was prior support, at $12.50.  There is risk down to $11 over the near-term if $12.50 fails to hold up while resistance is at $13.50 and then $14.50.

We recommended buying the stock at $12.35 on 8/9/2012 and for every 100 shares to sell the September 12.50 calls for 80 cents.  This lowered the cost basis to $21.75.

If we are called away in mid-September at $12.50 the trade will make 8%.

 

Vivus (VVUS, $21.81, down $0.95) 

Original Entry Price:  $22.70 (7/27/12)

Lowered Price from Selling Options:  $21.75

Exit Target:  $30+

Return:  0%

Stop Target:  $15

Action:  The August 24 calls expired on Friday and we will be looking to sell some September calls this week.  Vivus traded up to $23.30 on Tuesday and resistance is at $24 and the 100-day MA.  Friday’s 4% drop has shares right at support and a move below $20 would be bearish but we don’t believe this will happen.  Our 2013 price target for Vivus is $50-$60.  

We recommended buying the stock at $22.70 on 7/27/2012 and for every 100 shares to sell the August 24 calls for 95 cents.  This lowered the cost basis to $21.75.

 

Antares Pharma (ATRS, $3.97, up $0.18)

Original Entry Price:  $4.94 (7/13/12)

Lowered Price from Selling Options:  $4.24

Exit Target:  $8+

Return:  -6%

Stop Target:  None

Action:  The August 5 calls expired on Friday.  The November 5 calls (ATRS121117C00005000) closed at 40 cents on Friday and we may target them this week to sell against our position.  Shares added 5% on Monday and pushed $4 throughout the week.  The next layer of resistance afterwards is at $4.50 which was prior support.  There is still risk down to $3 and the 200-day MA if $3.20 comes back in play.

We recommended buying the stock at $4.94 on 7/13/2012 and for every 100 shares to sell the August 5 calls for 70 cents.  This lowered the cost basis to $4.24.

 

Antares Pharma (ATRS, $$3.97, up $0.18)

February (2013) 7.50 calls (ATRS130216C0007500, $0.30, up $0.05)

Original Entry Price:  $0.80 (7/13/12)

Exit Target:  $1.60

Return:  -63%

Stop Target:  None

Action:  Continue to hold.

 

Bank of America (BAC, $8.00, up $0.07) 

Original Entry Price:  $8.93 (4/17/12)

Lowered Price from Selling Options and Dividends:  $8.24  

Exit Target:  $15+

Return:  -3%

Stop Target:  None

Action:  The August 9 calls expired on Friday and we will be looking to sell a September or October call option this week.  Shares traded to a high of $8.12 on Friday and the close at $8 and above the 100-day MA was bullish.  Shares now have a clean shot at $8.25 which is near-term resistance and a move above this level would get $8.50 on the map.  Short-term support is at $7.75 with backup at $7.50.       

We recommended buying the stock at $8.93 on 4/17/2012 and for every 100 shares to sell the May 9 calls for 45 cents.  This lowered the cost basis to $8.48.

On 5/30/12 the company paid a 1 cent quarterly dividend which lowered our cost basis to $8.47.

On 6/19/12 we sold the August 9 calls for 23 cents to lower our cost basis to $8.24.  

 

Pizza Inn (PZZI, $3.60, up $0.03)

Original Entry Price:  $4.50 (2/22/12)

Lowered Price from Selling Options:  No options listed (yet)

Exit Target:  $9

Return:  -20%

Stop Target:  None

Action:  Pizza Inn tested $3.94 on Monday as volume surged to over 2 million shares.  If the stock can clear resistance at $4 there could be a test to $4.20 or $4.40 over the near-term.  Support has moved up from $2.50 to $3. 

The company recently won the prestigious 2012 Hot Concepts award from the Nation’s Restaurant News and the buzz is growing.  The company is targeting 75 major cities to expand and some will be company owned or franchised.  Insiders are buying shares at these low levels and we feel you should be loading up too while they are still under $4.  We have a 12 to 18-month price target of $10 for Pizza Inn.  

MGM Resorts (MGM, $10.52, up $0.15)

Original Entry Price:  $13.77 (2/2/12)

Lowered Price from Selling Options:  $12.67

Exit Target:  $15

Return:  -17%

Stop Target:  None

Action:  Shares were up 9% for the week and cleared $10 on Wednesday’s close which should serve as support over the near-term.  We said last week a move above $10.50 could indicate a possible trend change and the next wave of resistance will come at $11.50 which is between the 100-day and 200-day MA’s.  MGM will soar once an online poker bill is passed, as will Zynga (ZNGA, $3.00) which is looking like a cheap call option play for 2013.  

We recommended buying the stock at $13.77 on 2/2/2012 and for every 100 shares to sell the March 15 calls for 45 cents.  This lowered the cost basis to $13.32.

On 3/20/12 we recommended selling the April 14 calls for $0.65 which lowered the cost basis to $12.67.

 

Alcoa (AA, $8.75, down $0.02) 

Original Entry Price:  $9.65 (1/12/12)

Lowered Price from Selling Options and Dividends:  $8.73

Exit Target:  $11

Return:  0%

Stop Target:  None

Action:  The August 9 calls expired Friday.  Resistance is at $9.00 and support is at $8.20 should there be more slippage.  We may sell a September call this week or we may close the trade to look for some juicier covered call plays.  We still like the stock for the long haul but we are looking for more bang from our buck.

We recommended buying the stock at $9.65 on 1/12/12.

On 1/23/12 we recommended selling the March 11 calls for $0.25 which lowered the cost basis to $9.40.

On 2/1/12 the company paid a 3 cent dividend which lowered our cost basis to $9.37.

On 3/20/12 we recommended selling the April 11 calls for $0.20 which lowered the cost basis to $9.17.

On 5/10/12 the company paid a 3 cent quarterly dividend which lowered our cost basis to $9.14.

On 6/19/12 we sold the August 9 calls for 38 cents to lower our cost basis to $8.76.  If shares are called away in mid-August at $9 the trade will make 3%.

On 8/1/12 the company paid a 3 cent dividend which lowered our cost basis to $8.73.

 

Newpark Resources (NR, $7.12, down $0.02)

Original Entry Price:  $9.45 (7/27/11)

Lowered Price from Selling Options:  $7.85

Exit Target:  $11

Return:  -9%

Stop Target:  None

Action:  Shares tested short-term support at $6.75 all week but held $7 at the close every day.  There is further risk down to $6.50 should this level not hold but we believe shares will test $7.50 and the 200-day over the near-term.  We would like to wait for a move above $8 before selling another call option.

We recommended buying the stock at $9.45 on 7/27/2011 and for every 100 shares to sell the August 10 calls for 50 cents.  This lowered the cost basis to $8.95.

On 9/15/2011 we recommended selling the December 10 calls for $0.85 which lowered the cost basis to $8.10.

On 1/25/2012 we recommended selling the March 12.50 calls for $0.25 which lowered the cost basis to $7.85.

 

Trades on HOLD:  DryShips (DRYS, $2.23, down $0.08), AKS Steel Holding (AKS, $5.51, down $0.07), Rare Element Resources (REE, $4.03, down $0.01), Rambus (RMBS, $4.84, flat), Patriot Coal (PCXCQ, $0.17, down $0.01), OCZ Technology Group (OCZ, $5.26, up $0.01), Bebe Stores (BEBE, $6.27, up $0.06), Scientific Games (SGMS, $6.89, up $0.19)

 

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6.  Week Ahead

There are no economic reports for Monday and the rest of the week is rather light.

Tuesday’s only report will be the FOMC Minutes at 2pm (EST) but there could be volatility once the news is out.

Wednesday’s action starts off with the MBA Mortgage Index at 7am with Existing Home Sales due out at 10am.  Crude Inventories will be released at 10:30am.

Initial and Continuing Claims will be released on Thursday at 8:30am.  After the open, the FHFA Housing Price Index will hit the Street at 10am as well as New Home Sales.

Friday wraps up with Durable Goods at 8:30am.