9:00am (EST)

The Dow dropped 158 points, or 1.2%, to settle at 12,938 on Friday.  The blue-chips traded to a low of 12,926 and closed below 13,000 land another layer of support.  The next level of support is at 12,800 and then 12,600 while a burst to the upside will run into resistance at 13,000 and then 13,200.

The S&P 500 fell 15 points, or 1.1%, to end at 1,402.  The index traded to a low of 1,401.58 and held the 1,400 level but further weakness could lead to 1,375-1,350.  Resistance remains at 1,425 and then 1,450.

The Nasdaq gave back 25 points, or 0.9%, to finish at 2,960.  We mentioned a trip to 2,950 was possible last week and Friday’s low was 2,959.  Thursday’s low was 2,951.  A break below this level will get 2,900 in play.  The bulls will try to make another push at 3,000 but they are miles away from the 100-day MA (moving average) that is up ahead at 3,036. 

The S&P Volatility Index ($VIX, 22.72, up 3.26) gave us a great clue the S&P 500 was headed towards support and we mentioned last weekend there was a good chance 20 would trip.  Friday’s 17% surge above 20 got everyone talking about the VIX again as usual and there is risk to 30 on further weakness in the S&P.   

The market is on a 5-session slide and we have had a lower Friday/ Monday and a lower Friday over the past 2 weeks.  We said last weekend it was the first time in months the market had a lower Friday/ Monday close.

The second layers of support and now in play and even if there is a deal, a test back to resistance might be the best the bulls can do.  If a Fiscal Cliff deal with some significant proposals are agreed to today then it could be super bullish but the best we expect the zombies to do is put a patch on things or no deal at all.

Futures are giving the bulls one last chance and are up this morning as we head to press and look like this:  Dow (+25); S&P 500 (+6); Nasdaq 100 (+2).

We have a busy day ahead so please be sure to check your email inbox shortly after the open if we take action on any of our current trades or add new ones.

 

MEMBERS AREA

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: 159-60, or 73% win rate, including the Weekly Wrap that is 28-0). 

Special Notice:  Although we were hoping for one last push to new highs last week, the market rally ran out of steam.  We used “cheap” call options to play a breakout and some of these trades could come back if the market turns around but will be exiting a few of them today as we square up the books for 2012. 

Please read each trade carefully as we will be closing some while letting some of our open positions ride into 2013.  We still have to be cautious, as the action will likely remain volatile and whippy.  Any new trades going forward should have plenty of time to play out as the January options expire in less than 3 weeks.  This is why we started opening put positions with February and March expirations.

  

Fossil (FOSL, $89.31, down $1.44)

February 70 puts (FOSL130216P00070000, $1.40, up $0.10)

Entry Price:  $1.20 (12/26/12)
Exit Target:  $2.40
Return:  17%
Stop Target:  60 cents

Action:  We got our close below $90 on Friday that should serve as short-term resistance.  The company will announce earnings in mid-February and we believe shares could tumble below $70.

 

iShares Russell 2000 Index (IWM, $82.53, down $0.59)

January 85 calls (IWM130104C00085000, $0.30, down $0.05)

Entry Price:  $0.70 (12/21/12)
Exit Target:  $1.40
Return:  -57%
Stop Target:  None

Action:  Support at $82 held last week but the 2% move lower hurt our call options.  These WEEKLY options expire this Friday and our original trade setup had us exiting the position by today before the close.  We will see where we are at in our midday update.    

 

Cree (CREE, $33.20, down $0.29)  

January 36 calls (CREE130119C00036000, $0.40, down $0.05)

Entry Price:  $0.65 (12/21/12)
Exit Target:  $1.30
Return:  -38%
Stop Target:  None 

Action:  Shares were so close to breaking out past $34 last week but faded below $33 on Friday.  We will likely be closing this trade at some point today.

 

Nuance Communications (NUAN, $21.87, down $0.21)  

January 24 calls (NUAN130119C00024000, $0.15, down $0.05)

Entry Price:  $0.35 (12/18/12)
Exit Target:  $0.70
Return:  -57%
Stop Target:  None

Action:  Shares closed below $22 on Friday and there is risk down to $20.  Resistance has been strong at $23 but a close above this level should be watched as a possible entry point down the road.

 

Southern Copper (SCCO, $37.27, down $0.57)

January 40 calls (SCCO130119C00040000, $0.15, down $0.10)

Entry Price:  $0.45 (12/14/12)
Exit Target:  $1.00
Return:  -67%
Stop Target:  None 

Action:  Southern Copper got a nice pop midweek pop that teased us as shares tried to push new highs on the move to $38.42.  We still like this trade but we may be exiting today as shares are close to breaking below $37.

 

Taser International (TASR, $8.63, down $0.02)   

January 10 calls (TASR130119C00010000, $0.15, flat)

Entry Price:  $0.15 (11/29/12)
Exit Target:  $0.45
Return:  0%
Stop Target:  None

 

March 10 calls (TASR130316C00010000, $0.50, flat)

Entry Price:  $0.30 (11/29/12)
Exit Target:  $0.50
Return:  67%
Stop Target:  None

Action:  Shares hit a high of $8.90 on Friday and we nearly got our close above $9.  We like both of these options going into the New Year.

 

Vivus (VVUS, $13.21, down $0.46)

January 15 calls (VVUS130119C00015000, $0.45, down $0.15)

Entry Price:  $0.65 (11/21/12)
Exit Target:  $1.30
Return:  -31%
Stop Target:  None

Action:  We were hoping for a close above $14 last week and we were hoping to exit the trade for a small profit.  We may roll this trade over into March or May as we await a possible buyout offer.

 

Other 2012 Portfolio OPEN positions (3):  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)  

Monster Beverage January 35 puts (from November 2012) 

Rosetta Stone January 15 calls (from November 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.

 

Akamai Technologies (AKAM, $40.40, down $0.63)

January 43 calls (AKAM130119C00043000, $0.40, down $0.10)

May 55 calls (AKAM130518C00055000, $0.55, down $0.10)

Thoughts:  We believe Akamai will be a takeover target in 2013 which is why we listed the May call options.

 

MGM Resorts International (MGM, $11.43, down $0.28)

March 13 calls (MGM130316C00013000, $0.30, down $0.05)

June 15 calls (MGM130622C00015000, $0.27, down $0.05)

Thoughts:  We are expecting a run past $12 to the upper mid-teens for MGM over the next few months.  Support has been strong at $11.

 

JPMorgan Chase (JPM, $43.24, down $0.39)

January 46 calls (JPM130119C00046000, $0.30, flat)

Thoughts:  The 52-week high is at $46.49 and if shares make a run this level will likely trip with fluff up to $48.  If the Fiscal Cliff is averted, the Financial stocks should continue gathering momentum.  A close below $42 would be bearish.

  

Caterpillar (CAT, $86.81, down $0.85) 

January 85 puts (CAT130119P00085000, $1.40, up $0.30)

Thoughts:  Shares could be headed for another trip below $85 after a failed test at $91 again.   

 

Taiwan Semiconductor (TSM, $17.13, up $0.15)

January 17.50 calls (TSM130119C00017500, $0.25, up $0.05) 

April 17.50 calls (TSM1304C00017500, $0.80, up $0.05) 

Thoughts:  If the bulls can hold support, shares could push $18-$19 by mid-January.  We have played this name with great results in the past and we like the April call options.

 

TiVo (TIVO, $12.26, down $0.10)  

May 14 calls (TIVO130518C00014000, $0.85, flat) 

Thoughts:  We have mentioned Google could acquire TiVo down the road due to litigation issues.  We see Google eventually moving to cable and TiVo would be a perfect fit.  There is risk down to $11.50 if $12 doesn’t hold but we are looking for new highs by mid-May.