9:00am (EST) (continued…)

The Dow gained 90 points, or 0.7%, to finish at 13,090 on Friday.  The blue-chips traded in a tight range until Thursday’s dip to 12,978 but held support at 13,000 on the close.  Friday’s high of 13,151 was also the peak for the week.  The bulls will try to push 13,200 and then 13,350 this week while the bears will target 12,800 and the 100-day MA again.  The Dow started Monday at 13,158 and fell 68 points, or 0.5%, for the week.  For the year, the blue-chips are higher by 873 points, or 7.2%, following the 0.6% pop in August.

Here is last week’s chart for the Dow:

The S&P 500 advanced 7 points, or 0.5%, to end at 1,406.  The index tested a low of 1,397 on Thursday’s pullback and closed below the 1,400 level (by a half-point) which has been strong short-term support.  There is still risk to 1,375 and possibly 1,350 if Europe fails to impress Wall Street and the Fed doesn’t ease.  The bulls are still shooting for a close above 1,425 so that they can mount an assault on 1,450.  The S&P 500 came into the week at 1,411 and slipped 5 points, or 0.3%, by Friday’s close.  For 2012, the index is up 149 points, or 11.9%, after posting a 1.9% gain in August.

 

The S&P 500 chart from last week:

 

The Nasdaq jumped 18 points, or 0.6%, to settle at 3,067.  We have been mentioning the 3,050 level as strong short-term support which was tested last week on Thursday’s close of 3,048.  The index tested 3,040 on Friday which still keeps 3,025-3,000 in the mix.  If the Nasdaq closes above 3,075, there could be another run to 3,100 which has been a brick wall for the bulls, but, a close above this level would get 3,150 in play.  The Nasdaq was at 3,069 before Monday’s opening bell and gave back 2 points, or 0.1%, for the week.  YTD, the index has surged 462 points, or 17.7%, and was up 4.3% in August.

Here is the chart for the Nasdaq from last week:

The Russell 2000 added 3 points, or 0.4%, to close at 812.  The small-caps reclaimed the 810 level after closing at 809 on Thursday.  Friday’s low of 805 was still a reminder on how close the index is from tripping 800 and possibly 780 on a bad headline.  The bulls will attempt to clear and close above 820 and could attack 830 if Europe does all in can to save the euro.  The Russell 2000 was at 809 to begin the week and made a surprise gain of 3 points, or 0.4%, before the 3-day weekend hit.  For the 8 months just ended, the Russell 2000 is up 72 points, or 9.6%, after advancing 2% in August.

 

Here is how the chart for the Russell 2000 looked last week:

 

The S&P Volatility Index ($VIX, 17.46, down 0.36) is getting more volatile like we have been warning and closed just below the 17.50 level on Friday.  The VIX closed higher every day and tripped 18 before Friday’s slight drop.  We said a close above 17.50 could get Wall Street’s panties in a knot and 20 could signal a trend change.  A move back below 15 would be bullish and a sign the bulls could push new highs for the year.

Here is VIX chart from last week:

We factored in a possible 1%-2% move for the market on Friday based on what Bernanke did or didn’t say and at one-point the indexes were up nearly 1.5%.  There was plenty of volatility at the open and once the fireworks began but the trend was higher once Big Ben said the Fed WILL print more money, we mean, provide more stimulus.

Here is the money sentence that gave the bulls the green light:

“Taking due account to the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.” (END)

The knee jerk reaction was expected but Big Ben basically checked the pot back to Mario Draghi which gave him two more weeks to see what Europe does.  The Fed and its members should be mum until they meet again on September 12 as there is technically a week-long blackout period ahead of the meeting. 

Draghi has cried wolf more times than we care to count and he will take center stage again on Thursday (September 6) as the European Central Bank (ECB) meets.  The market is expecting the ECB to announce some kind of bond-buying program but there is, believe it or not, a chance they delay an announcement until next week on September 12 which is when Germany is expected to vote on the European Stability Mechanism (ESM).     

To review, the ESM provides “financial assistance”, or bailouts, to the members of the eurozone who need financial aid.  We have mentioned all summer long Germany has grown tired of flipping the bills for the struggling counties like Greece and Spain and is expected to vote on the treaties that were established for the fund.  Back in July, a German court looked into the complaints of the constitutionality of the ESM and this vote could be crucial in if the euro gets saved or not.  If Germany does give the okay for the ESM to establish a permanent bailout fund, the markets should rally, but again, this news isn’t expected until next week although there has been a leak.  Germany’s Finance Minister, Wolfgang Schaeuble, has gone on record saying that he does not see the Constitutional Court blocking the established treaties so Draghi could be safe if he gives the market something to nibble on.

The Dow Transportation Average showed signs of life on Friday and will need to break out of its downtrend if the bulls expect to test new highs.  The index trended lower all summer before the August bounce and pullback which is in danger of falling below the uptrend line.  A close below 4,950 on the Dow Transports could spell lights out for the bulls.  A close above 5,050 would be bullish. 

Commodities also made a nice move and we mentioned midweek gold and silver were on the verge of breaking out:

This week has the potential to be bullish as the charts favor the bulls.  The Tuesday after Labor Day is usually bullish and it is the first trading day of the month.  With the suit-and-ties coming off their August vacations, they will be anxious, or forced, to buy stocks if the market gets off to a strong start and the rally resumes.  

There are several U.S. economic reports slated for the week with Friday’s Nonfarm Payroll report and Unemployment numbers which could help or hinder any momentum.  This week’s headlines will likely get the market back at resistance or short-term support.  This means the indexes would again be at crucial levels heading into the following week which will also be packed with Tech news.

We may take a few directional trades this week for our Daily and there a couple of covered call positions for our Weekly Wrap that we may trade but we don’t need to force the action.  Although we have done well navigating the rocky waters, this is still a treacherous market to trade so please keep this in mind until we establish a clear trend.

As we head to press, futures are showing a slightly higher open this morning.  Dow futures are up 26 points to 13,105 while the S&P 500 futures are higher by 3 points to 1,408.  The Nasdaq 100 futures are advancing 10 points to 2,781. 

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.

 

Apollo Group (APOL, $26.85, up$0.39)

October 24 puts (APOL121020P00024000, $0.95, down $0.12)

Entry Price:  $1.16 (8/28/12)

Exit Target:  $2.30
Return:  -18%
Stop Target:  60 cents

September 24 puts (APOL120922P00024000, $0.25, down $0.05)

Entry Price:  $1.10 (7/31/12)

Exit Target:  $2.20
Return:  -77%
Stop Target:  None

Action:  Resistance is at $28 which we expect to hold.  The 52-week low of $25.77 was hit at the beginning of the month.  The company will announce earnings in mid-October and we are expecting shares to drift below $25 over the next few weeks.  Our near-term target is $20 but our longer-term target remains the low teens.

Cymer (CYMI, $56.70, up $0.96)

September 55 puts (CYMI120922P00055000, $1.30, down $0.40)

Entry Price:  $1.42 (8/23/12)

Exit Target:  $2.25+
Return:  -8%
Stop Target:  70 cents

Action:  The September options expire in less than 3 weeks and we would like to see a close below $55 this week.  A move back near $58 would probably force us to close the trade.

Knight Capital Group (KCG, $2.76, down $0.03)

January (2013) 2.50 call (KCG130119C00002500, $0.50, flat)

Entry Price:  $0.55 (8/21/12)

Exit Target:  $1.10
Return:  -9%
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.

Pepsico (PEP, $72.43, up $0.25)

October 75 calls (PEP121020C00075000, $0.40, up $0.05)

Entry Price:  $0.50 (8/16/12)

Exit Target:  $1.00
Return:  -20%
Stop Target:  None

Action:  There is risk down to $72 and these are cheap out-of-the-money options.  If shares trade to $76 we will at least double our money and we will need a break above $73 to get the momentum back.  If shares trade below $72-$71, we may exit the trade as there would be further risk to $70 and not enough time to play a rebound.

  

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)  

Veeco Instruments September 30 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.

 

Apple (AAPL, $x)

September 680 call (WEEKLY) (AAPL120907C00680000, $x)

Thoughts:  Shares of Apple usually make a nice move in the week before an expected new product announcement.

Silver Wheaton (SLW, $34.60, up $1.71)

September 35 calls (SLW120922C00035000, $1.00, up $0.55)

October 35 calls (SLW121020C00035000, $1.75, up $0.70)

Thoughts:  The close above $34 should get $36 in play this week.  A move above this level could lead to a run to $38-$40.  A close below $32 would be bearish. 

 

Amgen (AMGN, $83.92, up $0.77)      

September 85 calls (AMGN120922C00085000, $0.90, up $0.25)

October 87.50 calls (AMGN121020C00087500, $1.05, up $0.20)

Thoughts:  A close above $85 could lead to a blue-sky territory and a $100 stock.  There is risk down to $81 which is where we would love to reestablish a position but we might jump on the October 87.50’s if shares close above $85 this week.  If support at $80 is broken down the road, we will play put options.

Caterpillar (CAT, $85.33, up $0.66)

September 82.50 puts (CAT120922P00082500, $1.05, down, $0.35)

October 80 puts (CAT121020P00080000, $1.70, down $0.25)

Thoughts:  Shares are at a point where we could use a straddle trade but we haven’t listed any calls.  A close above $87.50 would be bullish but we feel shares will test $80 before $90.

AOL (AOL, $33.67, down $0.04)

September 33 calls (AOL120922C00033000, $1.20, flat)

September 33 puts (AOL120922P00033000, $0.60, flat)

Thoughts:  A close above $34.50 could lead to another surge but resistance has been a brick wall at $34.  We are waiting for a close below $32 to play possible put option on a move back below $30.

Netflix (NFLX, $59.72, down $0.76)

September 65 calls (NFLX120922C00065000, $0.95, down $0.25)

September 55 puts (NFLS120922P00055000, $1.00, up $0.05)

Thoughts:  We recently made 57% when shares dipped near $62.50 and popped above $65 which is where we took profits after there was no follow through.  The close below $60 was slightly bearish and could lead to double-nickels ($55).

Fusion-io (FIO, $28.02, up $0.11)

September 30 calls (FIO120922C00030000, $0.45, down $0.10)

October 30 calls (FIO121020C00030000, $x)

September 26 puts (FIO120922P00026000, $0.50, down $0.15)

Thoughts:  There is risk down to $26 following the failed test at $30 and resistance.  A move above $30 would be super bullish.

Broadcom (BRCM, $35.53, up $0.54)

September 36 calls (BRCM120922C00036000, $0.75, up $0.15)

September 33 puts (BRCM120922P00032000, $0.25, down $0.15)

Thoughts:  The 52-week high is $39.66 and a close above $36 would be bullish.  On a break below $34 we might look to go short as shares will likely test and fall below their 50, 100 and 200-day MA.

Akamai Technologies (AKAM, $37.51, up $0.20)

September 38 calls (AKAM120922C00038000, $0.80, up $0.05)

November 45 calls (AKAM121117C00045000, $0.70, flat)

January 45 calls (AKAM130119C00045000, $1.25, flat)

Action:  A close below $36 would be bearish while a break above $38 could send shares into blue-sky territory and north of $40.