11:30pm (EST)

 

1.  Market Summary 

2.  Knight Capital Group (KCG) Worth a Look

3.  Earnings

4.  Weekly Wrap Portfolio Update 

5.  Week Ahead

 

(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section.)

 

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1.  Market Summary   

“We said the key last week to an extended rally would be how Apple, Amazon.com, Google, and Netflix 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 underperforming 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.” (from 8/19/2012 Weekly Wrap/ Monday Morning Outlook)… 

The bulls pushed new highs on the S&P 500 but the Dow, Nasdaq and Russell 2000 came up just short as the bears got back on track to win the week.  There was a tight trading range up until the FOMC Minutes midweek and the rhetoric in the Fed’s statements seemed to support more quantitative easing (QE) sooner rather than later.  However, weak economic news and another round of missed earnings expectations have caused a pause at the top as the bears got their first weekly win in six weeks.    

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 for Monday.  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.    

 

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Key of Technicals Used In Following Articles

 

2.  Knight Capital Group (KCG) Worth a Look   

By Michael Bryant

 

Knight Capital Group (KCG, $2.80, down $0.06) made headlines earlier this month when a software glitch created 148 erroneous trades that cost the firm $440 million.  In the two days following, shares had fallen from $10.33 to $2.58, a 75% plunge.  With major players coming to Knight’s rescue, the company seems to be slowly healing but is it time to buy the stock?

TD Ameritrade, the third-largest U.S. retail brokerage by client assets, helped found the company with about $700,000 in 1995 as a way to get better execution and held on to a 7% stake after its initial stock offering in 1998.  Knight operates in four segments: Market Making, Institutional Sales and Trading, Electronic Execution Services, and Corporate and Other.  

A market maker will quote both buy and sell prices of an equity held in inventory and makes a profit on the difference between the bid (buy) and ask (sell) prices.  Market makers do not collect commissions.  When an investor sells shares, the market maker will buy the stock from the seller at the bid price, even if they do not have a buyer at that moment.  They will then offer to sell the shares at the ask price to a buyer.  Thus, the ask price is always higher than the bid price, just like in options.  Likewise, when an investor wants to buy shares, the market maker finds a seller to buy those shares at the bid price and sell shares to the investor at the ask price. 

The market maker loses money when the price of the equity stays below the bid price or above the ask price.  In the first example above, if the stock falls below the price the market maker purchased them, they may not be able to sell the shares above what they paid for them.  In the second example, if the stock is unavailable at a price the investor wants, the maker may pay a higher price and lose money on the deal. 

Each market maker competes for customer orders by displaying buy and sell quotes for a guaranteed number of shares, thus decreasing the size of the bid/ask spread and in turn lowering the amount of profit from the order.  Designated market makers (DMM’s) are market makers assigned to a specific equity. 

The Market Making segment includes cash trading, designated market makers services, electronic market making, Knight Link, and relationship management.  Its cash traders handle orders such as oversized orders, specialized order types, and stocks impacted by breaking news or events.  Additionally, it provides share repurchase strategy and execution expertise.  Its DMM service is one of the only services operating on both the NYSE and NYSE Amex, allowing for a smooth transition when a company transitions from the NYSE Amex to the NYSE.  Its Electronic Trading Group (ETG) covers more than 19,000 U.S. securities and provides high quality statistical models of asset prices.  Knight Link allows clients to access its liquidity, ideal when looking for little or no market impact and high fulfillment rates.  Its relationship management provides personal service to build strong client relationships, quickly answer inquiries, and resolve trading issues.

The Institutional Sales and Trading segment covers full service sales and trading across global equities, fixed income, ETFs and options, research, equity and debt capital markets, reverse mortgage origination and HMBS securitization, and asset management.  It provides written research reports and focuses on stocks with market cap between $500 million and $5 billion and searches for quality stocks that can add alpha.  The segment’s Astor Asset Management provides investment advisory services.

Electronic Execution Services consists of electronic trading products that provide clients with market access, speed, and trading efficiencies.  The offering includes Knight Direct, Hotspot FX and Knight BondPoint.  Knight Direct platform provides direct market access to U.S. and international equities, options, futures, foreign exchange, and commodities.  Hotspot FX is one of the leading Forex trading platforms or ECNs (Electronic Communication Network) with about $30 billion in FX volumes per day.  Knight BondPoint is a leading provider of electronic fixed income trading solutions that provides firms with access to centralized liquidity and automated, cost-efficient trade execution services.

The Corporate and Other segment includes strategic investments primarily in financial services-related ventures, clearing and settlement activity, corporate overhead expenses and all other expenses that are not attributable to the other reporting segments.

After its catastrophic glitch that resulted in trading losses of $440 million, Knight escaped bankruptcy after receiving a $400 million capital infusion from a group of investors including Goldman Sachs (GS, $104.96, up $0.88), Blackstone Group (BX, $13.53, flat), Stifel Financial (SF, $32.61, up $0.26), TD Ameritrade, and Jefferies Group (JEF, $14.31, up $0.19).  The infusion called for a sale of preferred stock at an average price of $1.50 per share which will be convertible into approximately 267 million common shares if the stock closes at $3 or higher for a fixed period of time, thus diluting the holdings of its existing shareholders.  If converted, about 73% of the company will be held by the new group of investors.  

Last week, the group sold some of the preferred stock in the firm to retail online broker Scottrade, one of its biggest customers.  The discount broker is believed to be a long-term investor.  It was also one of the firms that stayed with the company after the glitch, while others pulled out. 

Before the trading error, Knight posted an 81% drop in 2nd quarter net income after saying it lost $35 million in Facebook’s (FB, $19.43, down $0.03) initial public offering.  The loss is still pending as the Nasdaq could cover all these losses, due to their mishandling of the IPO process.  Revenue dropped 52%, marking the third straight quarterly decline.

The good news is the graph shows that analysts see revenue, sales, and operating profit bouncing back in the following quarters.  

At $2.80, the stock is about at its median target of $2.75 made by the 6 analysts recorded by Thomson/First Call.  Mean target is $4.48, high target is $13.50, and low target is $2.10.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 3.2, unchanged from a week ago.

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

0

2

2

2

Buy

1

3

4

4

Hold

7

5

4

4

Underperform

1

0

0

0

Sell

1

0

0

0

 

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3.  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 8/24/12 close) 

By Catherine Tierney

 

Monday

Collectors Universe (CLCT, $14.04, down $0.10), Contango Oil & Gas (MCF, $57.74, up $0.41), Donaldson (DCI, $34.90, down $0.25), Espey Manufacturing & Electronics (ESP, $30.40, down $0.08), Jos. A Bank Clothiers (JOSB, $40.73, down $0.54), Matrix Service (MTRX, $11.05, down $0.20), Perfect World (PWRD, $11.01, down $0.18), PVH (PVH, $87.94, up $0.87), SeaDrill (SDRL, $41.13, up $0.13), Taylor Devices (TAYD, $8.56, up $0.46), Tiffany (TIF, $58.50, up $0.04)

 

Tuesday

Brown Shoe (BWS, $14.90, up $0.09), China Natural Resources (CHNR, $7.23, down $0.14), Cross Timbers Royalty Trust (CRT, $38.59, up $0.31), Cyberonics (CYBX, $44.39, up $0.34), Dycom Industries (DY, $18.52, down $0.30), Movado (MOV, $28.75, up $0.99), Sanderson Farms (SAFM, $41.00, up $0.73), Ship Finance International (SFL, $15.91, Flat), Standex (SXI, $42.61, down $0.94)

 

Wednesday

Ambient (AMBT, $5.36, up $0.08), American Software (AMSWA, $8.62, up $0.28), Collective Brands (PSS, $21.61, Flat), Culp (CFI, $10.12, up $0.19), Daxor (DXR, $8.96, up $0.01), Delta Apparel (DLA, $14.43, Flat), Delta Natural Gas (DGAS, $20.18, up $0.28), eGain Communications (EGAN, $5.10, up $0.09), Fresh Market (TFM, $61.56, up $1.05), Genesco (GCO, $70.16, up $0.88), Greenway Medical Technologies (GWAY, $15.20, down $0.25), Greif (GEF, $40.80, down $0.15), H. J. Heinz (HNZ, $56.27, up $0.76), Isle of Capri Casinos (ISLE, $6.20, up $0.02), Joy Global (JOY, $55.59, down $1.25), LTX-Credence (LTXC, $5.92, up $0.01), Oxford Industries (OXM, $49.92, up $0.48), Pandora Media (P, $9.97, up $0.12), REX American Resources (REX, $17.94, up $0.13), Saba Software (SABA, $7.37, down $0.01), TiVo (TIVO, $9.18, down $0.04), Vera Bradley (VRA, $24.51, down $0.34)

 

Thursday

Bio-Reference (BRLI, $26.56, down $0.53), Cascade (CASC, $49.65, down $0.73), Ciena (CIEN, $16.88, down $0.34), Esterline Technologies (ESL, $52.85, down $0.15), Methode Electronics (MEI, $8.95, down $0.05), OmniVision Technologies (OVTI, $15.63, up $0.17), Quanex Building Products (NX, $17.78, down $0.03), SAIC (SAI, $11.76, up $0.04), Splunk (SPLK, $30.86, down $0.07), U.S. Global Investors (GROW, $5.52, up $0.03), Zumiez (ZUMZ, $31.51, down $1.93)

 

Friday

Cubic (CUB, $48.73, up $0.23), MGC Diagnostics (MGCD, $5.50, up $0.20), Rosetta Genomics (ROSG, $6.12, down $0.24)

 

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4.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 8/24/12)

 

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, $13.04, up $0.02)

September 12.50 calls (SZYM120922C00012500, $0.80, flat)

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

Lowered Price from Selling Options:  $11.55

Exit Target:  $15+

Return:  13%

Stop Target:  $9

Action:  Solazyme traded up to $13.48 and $13.49 on Monday and Tuesday which is just below resistance is at $13.50.  A break above this level would be bullish up to $14.50.  There is risk down to $12.50 after shares touched a low of $12.81 and closed below the 50-day MA on Friday.  Further support is at $11.50 if there is a continued pullback.

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, $21.67, up $0.45) 

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

Lowered Price from Selling Options:  $21.75

Exit Target:  $30+

Return:  0%

Stop Target:  $15

Action:  Shares traded up $21.84 on Friday which is just under resistance at $22.  We should get a run to $24 once cleared and where we will look to sell another call option.  Shares did touch a low of $20.24 on Tuesday and we have said there is risk down to $20 which held and backup is at $18.  We are looking at selling the September 22 calls (VVUS120922C00021000, $1.10, up $0.20) if shares stay under $22 this week which would still get us nearly 10% but we don’t need to rush anything.  Our 2013 price target for Vivus is $50-$60 so we don’t mind holding the stock while we wait for better prices.  

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, $4.00, up $0.09)

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

Lowered Price from Selling Options:  $4.24

Exit Target:  $8+

Return:  -6%

Stop Target:  None

Action:  Usually, when the charts show this type of pattern which is a symmetrical triangle, a huge move is coming.  The lower highs and higher lows have formed have now formed a point as these lines converge.  Shares traded to a high of $4.10 to start the week and $4.08 on Friday.  The November 5 calls (ATRS121117C00005000) closed at 35 cents on Friday and we may target them this week to sell against our position.  Resistance is at $4.40-$4.50 which was prior support.  Support is at $3.60 and the 100-day MA.  

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, $$4.00, up $0.09)

February (2013) 7.50 calls (ATRS130216C0007500, $0.30, flat)

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

Exit Target:  $1.60

Return:  -63%

Stop Target:  None

Action:  This is a LEAP call option which has nearly 5 months before expiration.  We have a target of $8-$10 for the stock which is a strong takeover candidate. 

 

Bank of America (BAC, $8.16, flat)

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

Lowered Price from Selling Options and Dividends:  $8.24  

Exit Target:  $15+

Return:  -1%

Stop Target:  None

Action:  Shares traded to $8.40 on Tuesday which is just under resistance at $8.50.  Short-term support is at $8.00 with $7.75 as backup.  The October 8 calls (BAC121020C00008000, $0.55, flat) or the September 8 calls (BAC120922C00008000, $0.35) would lower our cost basis to under $8 but we are waiting for shares to push $9 before selling another call option.        

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, $3.23, down $0.05)

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

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

Exit Target:  $9

Return:  -28%

Stop Target:  None

Action:  Pizza Inn traded to $3.70 to start the week but touched a low of $3.10 on Friday.  We said resistance at $4 would be strong and near-term support held up at $3.  We would love to see one more test to $2.50 which is where we might add to the position but we are looking for $3 to hold.      

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, $10.31, flat)

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

Lowered Price from Selling Options:  $12.67

Exit Target:  $15

Return:  -19%

Stop Target:  None

Action:  Shares traded to a high of $10.77 on Monday and resistance at $11.00 proved to be just too much on the stock’s first attempt to break through in 2 months.  Support is at $10 which was prior resistance and then $9.50 should this level crack.  Shares traded down to $10.20 on Friday.

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, $8.63, flat)

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

Lowered Price from Selling Options and Dividends:  $8.73

Exit Target:  $11

Return:  -1%

Stop Target:  None

Action:  Shares reached a peak of $8.95 on Tuesday and broke above the 100-day MA but Friday’s low was $8.55.  We would like to sell another call once shares clear resistance at $9.  The first wave of support is at $8.50, which is just below the 50-day MA, followed by $8.20.  We are looking at selling the October 9 calls (AA121020C00009000, $0.23, flat) this week but we would like to get a little more premium.

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, $7.13, flat)

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 fell to a low of $6.91 to start the week but closed above $7 daily.  There is further risk down to $6.75 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, $2.31, up $0.02), AKS Steel Holding (AKS, $5.62, flat), Rare Element Resources (REE, $4.10, flat), Rambus (RMBS, $4.85, flat), Patriot Coal (PCXCQ, $0.18, up $0.01), OCZ Technology Group (OCZ, $5.67, down $0.22), Bebe Stores (BEBE, $5.37, down $0.09), Scientific Games (SGMS, $6.872, down $0.11)

 

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5.  Week Ahead

There are no economic reports for Monday but the Republican Convention begins in Florida.  Of course, things could get a little wet with Hurricane Isaac and we will have to wait-and-see if the storm does any damage to the Gulf and what impact it could have on oil prices. 

Tuesday starts off with Weekly Chain Store Sales at 7:45am (EST) followed by the Case-Shiller 20-city Index report at 9 sharp.  Consumer Confidence is due out at 10am. 

The MBA Mortgage is due out at 7am on Wednesday with the latest Gross Domestic Product (GDP) numbers due out at 8:30am.  After the open, Pending Home Sales will be released at 10am with the weekly Crude Inventories expected at 10:30am.  The Fed’s Beige Book could impact trading and hits the Street at 2pm.   

Initial and Continuing Claims will be released on Thursday at 8:30am along with Personal Spending and Income.  Natty Gas inventories are due at 10:30am followed by the Kansas Fed Manufacturing Survey at 11am.  The close of the Republican Convention also ends on Thursday. 

Ben Bernanke will grab all of the headlines on Friday but the market will have to deal with Chicago PMI at 9:45; the final Michigan Sentiment Survey at 9:55; and at 10am, Factory Orders will be released.