9:00am (EST) (continued…)

The Dow jumped 100 points, or 0.8%, to finish at 13,158 on Friday.  Following a flat Monday, the blue-chips tested the 13,200 level on Tuesday and closed at 13,203.  On Thursday, the 13,000 level came into play as the index finished at 13,057.  There is still risk down 12,800 and the 100-day MA followed by 12,600-12,500 if there is further weakness.  This would also be bearish break of the bottom uptrend line.  The recovery on Friday still keeps 13,200 in play and we said last week a close above 13,350 could lead to a test of 13,500-13,600.  The Dow came into Monday at 13,275 and declined 117 points, or 0.9%, for the week.  For 2012, the blue-chips are higher by 941 points, or 7.7%.

 

This is a 10-year chart for the Dow from last week:

 

The S&P 500 added 9 points, or 0.7%, to settle at 1,411.  The index tested a low of 1,410 on Tuesday which was short-term support and a key pivot point followed by 1,400 which was tested on Thursday’s drop to 1,400.50.  The S&P fell to a low of 1,398 on Friday which still keeps 1,375 in play.  We mentioned at the beginning of the month and again last week there was a good chance the S&P would hit 1,425 and Tuesday’s high was 1,426.  This confirmed 1,450 is still in play and Friday’s close back above 1,410 was bullish but another dip below 1,400 on a Bernanke disappointment could mean serious trouble.  The S&P 500 started the week at 1,418 and gave back 7 points, or 0.5%, by Friday’s closing bell.  YTD, the index is up 154 points, or 12.2%.

 

This is a 10-year chart of the S&P 500 from last week: 

 

 The Nasdaq gained 16 points, or 0.5%, to close at 3,069.  Tech made a series of lower lows all week but nearly finished positive for the week after kissing a high of 3,076.80 on Friday.  The index was able to hold the 3,050 level all week but Thursday’s dip to 3,045 and Friday’s test to 3,042 is still a warning that 3,025-3,000 is only one bad headline away.  A drop below the bottom uptrend line at 2,950 and the 50-day MA could cause some panic.  The close above 3,075 last Friday was the clue we said would get Tech to 3,100-3,150 and the Nasdaq hit 3,100 on Tuesday.  Same deal for this week.  The Nasdaq was at 3,076 coming into Monday’s action and slipped 7 points, or 0.2%, for the week.  For the year, the index is showing an advance of 464 points, or 17.8%.

 

 

Here is the 10-year chart for the Nasdaq from last week:

 

 

The Russell 2000 advanced 3 points, or 0.2%, to end at 809.19.  The small-caps held 810 to start the week and made a push to 827 on Tuesday’s intraday high.  Our near-term target of 825 was triggered which still keeps the possibility of 830 alive for September but the bulls will need to clear and hold 810 and then 825 again.  The Russell managed to hold the 800 level all week but Friday’s dip to 803 is getting too close for comfort.  The bears are still targeting a test to at least 790 on an initial break of 800, possibly 780.  The Russell 2000 came into Monday’s open at 819.89 and was down 11 points, or 1.3%, by the end of the week.  For 2012, the index is showing a gain of 69 points, or 9.2%.

 

 

Here is the Russell’s 10-year chart from last week:

 

The S&P Volatility Index ($VIX, 15.18, down 0.78) was up 13% for the week after testing a low of 13.38 on Monday.  The VIX closed back above 15 on Tuesday and traded to a high of 16.45 on Thursday’s pullback.  A move above 17.50 will get a lot of attention and a test above 20 could lead to panic selling.  A move back below 15 would be bullish and a close under 13-12.50 would confirm the VIX is headed to 10 and that the market is headed to new highs.

 

 

Here is last week’s 10-year chart of the VIX:

 

 The market has another week of August before September rolls around and it is usually the most bearish month of the year according to the history books.  August also has some bearishness to it but so far the market is up for the month.  Last week’s charts for the major indexes and the VIX showed an almost certain test to the 52-week highs and while the S&P 500 technically cleared this level, there was no “fluff” to new highs. 

A pullback following a test of the 52-week high is a normal market or stock reaction.  The current market is so technical and is falling right on the support and resistance lines we have outlined that we should get a really good read on a possible breakout or breakdown.  We went on record last week and said the market could move 5% in September and 10% by year-end up or down depending on the headlines. 

The targets we gave were Dow 14,000 or 12,600 in September followed by 14,500-14,600 or 12,000 by year-end.  The S&P could be at 1,500 or 1,350 next month which would lead to 1,550 or 1,275 by Thanksgiving/ Christmas.  The Nasdaq could push 3,225-3,250 or 2,925-2,900 in September and then 3,375-3,400 or 2,800-2,775 on continued strength or weakness. 

There will be a ton of speculation on what Ben Bernanke might or might not do or say this Friday and over the weekend when the central bankers get together in Jackson Hole.  The zombies still seem split on if another round of quantitative easing will really work and we have said how the Fed only has one bullet left.

People seem to forget that extending “Operation Twist” and the extended bond buying before that by the Fed was actually QE3 and QE4 so any new stimulus by our count would be QE5.  Nothing is working and the comments from James Bullard last Thursday, a member of the FOMC, rehashed how little impact these programs have had.  Yes, the first QE worked well most would agree but the real problem is the world governments want growth but growth is slowing and consumers are cutting back.  

Perhaps a “saving of the euro” and another round of QE will take the market to new highs but there are so many storm clouds ahead that it is imperative we keep our eyes on the road and our hands upon the wheel.  We will continue to roll with the bulls and have a real good time but be ready for a trend change if Big Ben lets the market down and Europe kicks the can off the road and into a ditch.

As we head to press, futures are showing a slightly higher open.  Dow futures are up 2 points to 13,158 while the S&P 500 futures are up a point to 1,411.  The Nasdaq 100 futures are up 9 points to 2,784 following the Apple (AAPL, $663.22, up $0.59) news after Friday’s close.  Shares closed at $675 in extended trading following the company’s legal win versus Samsung in their U.S. patent battle.     

 

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.

 

Cymer (CYMI, $56.60, up $0.10)

September 55 puts (CYMI120922P00055000, $1.60, down $0.05)

Entry Price:  $1.42 (8/23/12)

Exit Target:  $2.25+
Return:  13%
Stop Target:  70 cents

Action:  We got in on the break below $58 which we are looking to hold as resistance.  If not, a test to $60 could be in the mix and where we might exit the trade.  We are looking for a near-term drop to $55 and a close below this level could lead to a test to the low $50’s.

 

Caterpillar (CAT, $87.47, down $0.16)

September 82.50 puts (CAT120922P00082500, $0.80, up $0.02)

Entry Price:  $0.73 (8/23/12)

Exit Target:  $1.50
Return:  10%
Stop Target:  None

Action:  We started watching shares of CAT at the beginning of the week, looking for a break below $88.  We got in on Thursday’s drop when shares were at $87.81.  Shares traded to a low of $86.40 on Friday while the options reached $1.  We are looking for shares to test $80 again once $85 and the 50-day MA is taken out.

Knight Capital Group (KCG, $2.80, down $0.06)

January (2013) 2.50 call (KCG130119C00002500, $0.55, down $0.05)

Entry Price:  $0.55 (8/21/12)

Exit Target:  $1.10
Return:  0%
Stop Target:  None

Action:  We would like to see shares close above $3 over the next few weeks but there is still risk down to $2.  If shares trade near $4 by mid-January we will get an easy double or triple on our call options.

 

WellPoint (WLP, $57.66, down $0.07)

September 60 calls (WLP120922C00060000, $0.60, down $0.05)

Entry Price:  $0.70 (8/21/12)

Exit Target:  $1.40
Return:  -14%
Stop Target:  None

Action:  We would like to see shares start the week with a close above $58 which should get $60 into play.  From there, a push to $64 could be in play.  We will stick with the trade as long as $56 holds but we will likely close the trade on a drop below $55.

Amgen (AMGN, $84.59, up $0.93)       

September 85 calls (AMGN120922C00085000, $1.40, up $0.35)

Entry Price:  $0.80 (8/20/12)

Exit Target:  $1.50 (closed half at $1.10 on 8/22/12)
Return:  56%
Stop Target:  80 cents, raise to $1.00 (Hard Stop on other half)

Action:  The close above $84 was bullish and sets up a run to $90 on a blue-sky breakout.  We have raised the Hard Stop from 80 cents to $1 on the other half of the trade in case shares retreat.  We will also raise the stop along the way should shares continue higher to maximize our profits.

Pepsico (PEP, $73.06, up $0.40)

October 75 calls (PEP121020C00075000, $0.55, up $0.10)

Entry Price:  $0.50 (8/16/12)

Exit Target:  $1.00
Return:  10%
Stop Target:  None

Action:  The close back above $73 on Friday was bullish and we are still looking for a run to $80 over the next few months if the market remains bullish.  We may exit the trade on any weakness or on a drop below $72. 

Veeco Instruments (VECO, $33.02, down $0.18)

September 30 puts (VECO120922P00030000, $0.70, up $0.05)

Entry Price:  $0.90 (8/2/12)

Exit Target:  $1.35-$1.80
Return:  -22%
Stop Target:  None

Action:  We got into this trade at the beginning of the month when shares were on the verge of dropping below $34.  The back test to $38 wasn’t fun but we finally got our break below $34 last week.  We would like to see a close below $32 this week which should get $30 and the 200-day MA in play.

 

 

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.

 

AOL (AOL, $32.92, up $0.13)

September 33 calls (AOL120922C00033000, $0.80, flat)

September 32 puts (AOL120922P00032000, $0.60, down $0.10)

Thoughts:  Watch for a move below $31 to possibly play the puts while a break above $33 could be used to play another breakout.  A strangle option trade could also be created by using both options.

 Netflix (NFLX, $63.16, down $0.89)

September 72.50 calls (NFLX120922C00072500, $0.60, down $0.20)

Thoughts:  Watch for a break above $67 before going long.  A move below $62.50 would be bearish.

Fusion-io (FIO, $29.12, up $0.13)

September 32 calls (FIO120922C00032000, $0.65, down $0.05)

Thoughts:  A break above $30 might get us back in these call options to play a run to $32.  A move below $27 would be bearish.

Broadcom (BRCM, $35.35, up $0.14)

September 36 calls (BRCM120922C00036000, $0.70, up $0.05)

September 33 puts (BRCM120922P00032000, $0.40, down $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.

Akamai Technologies (AKAM, $37.10, down $0.03)

September 38 calls (AKAM120922C00038000, $0.90, flat)

November 45 calls (AKAM121117C00045000, $0.70, flat)

January 45 calls (AKAM130119C00045000, $1.25, flat)

Action:  A close below $37 would be bearish and could get $35 in play while a break above $38-$39 could send shares into blue-sky territory.