9:00am (EST) continued…
The Dow declined 31 points, or 0.3%, to settle at 13,135 on Friday. The blue-chips started the week by kissing 13,195 and we mentioned a close above 13,200 would be bullish. After coming that close, we knew there was a good chance a run to 13,350 would be coming and Wednesday’s pop to 13,329 was just 21 points away from tripping. The index is trapped between the 50-day and 100-day MA’s with the 200-day right at 13,000. A break below 13,100 would be bearish and would confirm 13,000 will get tested but a drop below 12,800 would be even worse. A close back above 13,200 would be a sign the bulls haven’t given up hope. Watch for a close above 13,300 for a sign on hitting new highs for the year. The Dow started the week at 13,155 and was only down 20 points, or 0.2%, by Friday’s close. For the year, the index is showing a gain of 918 points, or 7.5%.
The S&P 500 dropped a 6-pack, or 0.4%, to close at 1,413. We wanted to see a close above 1,425 to start the week and Monday’s high was 1,421.64. Tuesday’s push past the 50-day and 100-day MA’s to 1,434 put 1,450-1,475 on the map as the S&P closed at 1,427..84. This level held on Wednesday but a close back below 1,425 on Thursday have our upper end targets on hold. We said to watch for dip buying at 1,410 and Friday’s low was 1,411. If there is a break below these levels 1,400 will come into play. A breech of this level would lead to 1,375. The S&P 500 was at 1,418 on Monday’s open and was down 5 points, or 0.3%, for the week. For 2012, the index is up 156 points, or 12.4%.
The Nasdaq dipped 21 points, or 0.7%, to settle at 2,971. We said at the start of last week that just clearing 3,000 was not enough and that the bulls needed to top 3,025 to keep our hopes up for a continued yearend rally. The Nasdaq kissed 2,997 on Monday and closed at 3,022 on Tuesday after trading up to 3,033. Wednesday’s high was 3,035 but Bernanke ruined any chance of the bulls sticking 3,025 as the index closed at 3,013. The pop past the 50-day and 100-day MA’s was bullish but Thursday’s close below 3,000 at 2,992 was a sign 2,975 and the 200-day MA would be tested. Friday’s low was 2,963 and it will be crucial the bulls hold 2,950 to start the week. If not, there could be a test to 2,900 in a hurry. The bulls will need to push and hold 3,000 then 3,025 if we are going to see a run to 3,100-3,150 by 2013. The Nasdaq started Monday’s session at 2,978 and was gave back 7 points, or 0.2%, for the week. For the year, the index is still up 367 points, or 14.1%.
The Russell 2000 fell a half-point, or 0.05%, to finish at 823.75. We have said for a few weeks now the small-caps would be the best clue on market direction and that they usually outperform the other indexes from here on out and into January. The index closed above 830 on Tuesday and we mentioned last week if this level triggered there could be a run to 850 in the coming weeks. Wednesday’s high was 837 but the small-caps finished at 829 on Thursday’s pullback. Thursday’s low was 822 and Friday’s low was 821. As long as the 50-day (816) and 100-day (817) MA’s hold to start the week, the bulls should challenge these levels again. If not, watch for dip buying at 806 and the 200-day MA and then 800. If these levels fail to hold, look out below as 780 could be back in the mix. The Russell 2000 came into the week at 822 and was up 1.5 points, or 0.2%, by the weekend. For 2012, the index is showing a gain of 82 points, or 11.2%.
The S&P Volatility Index ($VIX, 17.00, up 0.44) trended higher throughout the week and topped out at 17.15 on Friday. The index is still holding 17.50 but a break above this level could lead to a test to 20. Anything above that and the market will be in correction mode. A test back towards 15 will lead to higher prices and a drop below this level would indicate a test to new highs for the S&P.
The zombies decided to work the extra week as we expected and are now set to adjourn from Congress this Friday. It was refreshing to know Obama has a tripped plan to Hawaii regardless on if a deal gets done or not. For all the teamwork that was promised during the election, where has it been? We have know since August 2011 this Fiscal Cliff was coming and during that time nothing was done until after he last minute as the U.S. lost its triple-A credit rating.
The zombies dragged their feet again last week and while we didn’t believe a deal would get done, we were hopeful just so that we could stop typing the word Fiscal Cliff. We thought Thursday’s late night session between the head Z’s would create some Santa magic for Wall Street but after an hour there was still a stalemate.
Friday’s action was slightly bearish but the indexes are still holding support. We were looking for a small gain of any kind on Friday just so that we could have said the market closed higher on a Monday and Friday for the first time since October. This is usually one of the clues we look for when the market is in a trend but with the close, it is easy to say we are still in a choppy, slightly bullish, now bearish market.
The Financial stocks made a push past resistance to start the week and traded above the $16.20 level. A push past $16.40 would indicate a breakout while a dip below $15.80 would be the start of a possible new trend lower. The bulls will need the Financial stocks to pull their weight, along with Tech, if the indexes are going to make a run at the 52-week highs.
We will again watch American Express (AXP, $56.65, down $1.07) for clues on how the Financial stocks are doing. We were up 40% on the January 57.50 calls (AXP130119C00057500, $0.95, down $0.45) by Wednesday as they had reached a high of $1.40 on the stock’s pop to $58.35. We were looking for a run to $60, which could still happen, but we locked in profits of 20% as we felt a pullback was coming. The long-wick candle stick on the daily chart below made us nervous and our instincts served us well as we would be down 5% on the trade if we had left it open. We still think shares can make a run to $60 but a close below $56 and the 50-day MA could lead to a test down to $53 again. If so, we will be ready to pounce on put options.
We have been all over Apple’s (AAPL, $509.79, down $19.90) chart like grass on dirt but we haven’t pulled the trigger on a trade yet. However, we may be getting close. We mentioned last week a close below $520 would lead to a test to $500 and Friday’s 4% haircut was an eyesore.
It has always been risky to bet against Apple as far as buying put options because it has been a strong company for many years. However, in recent quarters that has been some slipups and earnings misses so it could go either way with their next earnings release. Wall Street will have a wide range of numbers as the suit-and-ties make last minute adjustments and analyze their numbers and supply chains. Apple will need to knock the cover off the ball and then some as an earnings match won’t be enough. We will cover more on this story in the coming weeks and there could be some litigation news out this week concerning the company. Good or bad, the verdict could also have a major impact on the stock.
The Apple December options are risky and the January options may not provide enough time to play a $100 move in the stock but let’s watch them to see how they trade. The January 600 calls (AAPL130119C00600000, $3.40, down $1.05) were down 23% on Friday and the January 400 puts (AAPL130119P00400000, $1.62, up $0.74) surged nearly 85% after opening at $1.05 and closing at 88 cents on Thursday.
The Apple February 600 calls (AAPL130216C00600000, $8.85, down $2.35) dropped over 20% on Friday and could also be used on a run back towards $600. On a drop below $500, the January 400 puts and the February 400 puts (AAPL130216P00400000, $5.10, up $1.70) can be used to play further weakness. They gained 50% on the stock’s 4% drop.
These options have higher premiums than we normally like to trade but we could take “half” positions to limit our exposure and to play the stock’s next major move.
In review, the game plan is basically the same as last week. We will be watching Tech and Apple along with the Financial Select Spiders and American Express (and JPMorgan Chase, $42.81, up $0.03). We are also looking for a miracle by Friday for the zombies to announce a deal. A higher Monday close would also be a nice start for the bulls.
As we head to press, futures are showing a slightly higher open for Monday. Dow futures are up 30 points to 13,117 while the S&P 500 futures are higher by 5 points to 1,414. The Nasdaq 100 futures are up 8 points to 2,631
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 “New Trade” 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. Closed Trades for 2012: 150-55, or 73% win rate, including the Weekly Wrap which is 26-0).
Southern Copper (SCCO, $38.20, up $0.43)
January 40 calls (SCCO130119C00040000, $0.55, up $0.15)
Entry Price: $0.45 (12/14/12)
Exit Target: $1.00
Stop Target: None
Action: The 52-week high is $39.44 set at the beginning of November and shares traded up to $38.70 last week. Shares could make a run past $40 to $42 on continued momentum. We are going to have a tight stop for this trade and may close it if shares fail to hold $37.
Akamai Technologies (AKAM, $38.96, down $0.13)
January 42 calls (AKAM130119C00042000, $0.52, down $0.04
Entry Price: $0.56 (12/14/12)
Exit Target: $1.15
Stop Target: None
Action: Shares set a 52-week high of $40.62 on Thursday and we are looking for a breakout to blue-sky territory. Our near-term target is $42 but we would love to see a run to $45. That would get these options to $2.50 which would be nearly a 350% return.
MGM Resorts International (MGM, $11.38, down $0.05)
January 11 calls (MGM130119C00011000, $0.70, down $0.05)
Entry Price: $0.51 (12/11/12)
Exit Target: $1.00
Stop Target: 55 cents, raise to 60 cents (Hard Stop)
Action: The options traded to a low of 65 cents on Friday and our Hard Stop is at 60 cents. Shares traded to a peak of $11.53 and the options reached 83 cents before fading. This is a 2-year chart for MGM and we mentioned last week shares had a good shot at clearing $11.50 that would signal a possible breakout. Shares traded to a high of $11.53 on Friday which opened the door for a run to $12 and the 100-week MA.
TiVo (TIVO, $12.69, up $0.26)
January 12.50 calls (TIVO130119C00012500, $0.85, up $0.15)
Entry Price: $0.60 (12/7/12)
Exit Target: $1.20
Stop Target: 60 cents
May 14 calls (TIVO130518C00014000, $1.05, up $0.15)
Entry Price: $0.68 (12/7/12)
Exit Target: $1.30
Stop Target: 70 cents
Action: This is a 4-year chart for TIVO. Goldman upgraded shares of TiVo with a $15 price target which was a buck behind ours. A close above $12.75 would be bullish for a possible run to $16. Shares traded to a high of $12.95 on Friday. Support has moved up to $12 followed by $11. We recommended the January calls to play the near-term possible breakout and we went with the May calls for the possibility of a buyout.
Taser International (TASR, $7.65, down $0.04)
January 10 calls (TASR130119C00010000, $0.10, flat)
Entry Price: $0.15 (11/29/12)
Exit Target: $0.45
Stop Target: None
March 10 calls (TASR130316C00010000, $0.20, flat)
Entry Price: $0.30 (11/29/12)
Exit Target: $0.50
Stop Target: None
Action: This is also a 4-year chart. Shares traded down to $7.51 last week and support at $7.50 held. We would like to see back above $8 today.
Vivus (VVUS, $11.48, down $0.07)
January 15 calls (VVUS130119C00015000, $0.30, down $0.05)
Entry Price: $0.65 (11/21/12)
Exit Target: $1.30
Stop Target: None
Action: Vivus was up nearly a buck for the week but is still in a tight trading range. We would like to see a close back above $12 over the near-term. Shares could run to $16 if the stock can clear the hurdle at $12 as there is a big gap to fill. A close below $9.86 and the mid-November low would be a break out of the range and the uptrend line.
Rosetta Stone (RST, $12.27, down $0.16)
January 15 calls (RST130119C00015000, $0.15, flat)
Entry Price: $0.20 (11/19/12)
Exit Target: $1.00
Stop Target: None
Action: We would like to see a close above $12.50 this week. Support has been strong at $12 and we will stick with the trade as long as $11.50 holds.
Knight Capital Group (KCG, $3.24, down $0.03)
January 2.50 calls (KCG130119C00002500, $0.80, flat)
Entry Price: $0.55 (8/21/12)
Exit Target: $1.10
Stop Target: 65 cents
Action: The current buyout offer is $3.50 but we expect a final price north of $4 by mid-January. This would make these options worth at least $1.50 minimum for a juicy triple-digit return. Shares will remain in a tight range until another offer surfaces.
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.
Bank of America January 12.50 calls (2013) (from March 2012) – continue to hold
Solazyme December 12.50 calls (from September 2012)– continue to hold
Lufkin Industries December 45 puts (from November 2012) – half position open
LifeLock December 10 calls (from November 2012)– continue to hold
Monster Beverage January 35 puts (from November 2012)– continue to hold
Apollo Group December 18 puts (from October 2012) – continue to hold
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.
Dunkin’ Brands Group (DNKN, $31.66, down $0.37)
January 32.50 calls (DNKN130119C00032500, $0.55, down $0.15)
Thoughts: We may get back into this trade if $31.50 holds. A drop below this level could lead to $30. A close above $32.50 would be bullish for another possible attempt at a breakout.
iShares Russell 2000 Index (IWM, $82.36, down $0.05)
January 83 calls (IWM130119C00083000, $1.25, flat)
January 84 calls (IWM130119C00084000, $0.85, flat)
Thoughts: We have talked about the small-caps leading the next leg higher and we like these calls to play the move. Use the Russell 2000 for clues to go long – or short if the index start to breakdown.
Microsoft (MSFT, $26.71, down $0.30)
January 27 calls (MSFT130119C00027000, $0.60, down $0.15)
January 28 calls (MSFT130119C00028000, $0.25, down $0.10)
Thoughts: These options look attractive and shares could easily make a run back to $28.50 if current levels hold. A move below $26.50 would signal a test to new lows and a switch to put options.
JPMorgan Chase (JPM, $42.81, up $0.02)
January 44 calls (JPM130119C00044000, $0.67, down $0.03)
Thoughts: The 52-week peak is at $46.49 and we may go long on a close above $43 with a tight stop. Support is at $42 and then $40.
Nuance Communications (NUAN, $22.01, up $0.15)
January 23 calls (NUAN130119C00023000, $0.45, up $0.05)
Thoughts: There is a good chance shares trade to $25 once $22.50 and the 50-day and 100-day MA’s are cleared. Short-term support is at $21.50 followed by $20.
Cree (CREE, $33.92, down $0.41)
January 35 calls (CREE130119C00035000, $1.25, up $0.10)
Thoughts: Shares are near 52-week highs and there could be a push to $40 if momentum sticks. A close below $32 would be bearish.