9:00am (EST)

“Before we get into this week’s commentary, we wanted to review some of our notes from the past few months:

December 9, 2012 Weekly Wrap:

“We gave yearend price targets for the major indexes last week and said we believe the Dow could push new highs by the end of the year.  We are officially making it 13,777.77 as there could be some “fluff” if resistance at the highs is cleared.  Our target for the S&P is 1,492 and for the Nasdaq we will go with 3,140.  For the Russell 2000 we have a target of 867.”  (END)

 

January 21, 2013 Weekly Wrap:

“With some of our fluff targets being triggered, we must now focus on the extended targets we gave you last week:  Dow 14,000; S&P (500) 1,500-1,525; Nasdaq 3,200-3,250; and Russell (2000) 900-925.  There could be a pullback to support or prior resistance levels if Apple, Google and IBM come up lame but we are expecting higher prices for the market through the end of January and possibly into February if we get some more can kicking by the zombies.” (END)

 

March 3, 2013:

After giving back 1% at the open, the market started March off with decent quarter-percent gain.  With the major indexes near 5-years highs and all-time highs, another 2%-3% gain would have all of the indexes at all-time highs, excluding Tech of course, and would be the blow-off type top that sucks in the last of the quiet money still on the sidelines.  As long as support holds, the near-term targets we have given you are Dow 14,750; S&P (500) 1,600; Nasdaq 3,300; and Russell (2000) 975. (END)

We have been telling you for a couple of months the bulls haven’t done all of this good work not to get the S&P 500 to new all-time highs and we were proven right on Thursday’s close.  While we do believe higher prices are in store, we need to figure out if the bulls will remain strong out of the gate to start April or if there will be a pullback.

The first trading day after Easter is usually bearish if it falls on April Fool’s Day but overall the bulls usually start the month off with gains.  With many of the “pros” STILL calling for a pullback, we don’t see why they would change their tune this week or next.  Their thinking is that Thursday was the final push to all-time closing highs on the S&P 500 and Dow and now that the indexes are there, the bulls can rest.

We aren’t sure how many of them are history buffs but April is the Dow’s strongest month during the bulls historical runs from November through April.  The blue-chips have average a 2% advance since 1950 and are up 7-straight Aprils with an average pop of 3.5%.  Post-election years are also bullish over the past 60 with the Dow averaging gains of 1.9%; the S&P 500 1.5%; and the Nasdaq 2.4%.

Our current extended targets of Dow 14,750; S&P (500) 1,600; Nasdaq 3,300; and Russell (2000) 975 are less than 1%-2% away so if history plays out like it normally does, we could see these extended fluff targets trigger.  There have also been some bearish April’s over the past decade but the last ones were in 2005 and 2004.  Of course, when you talk winning streak they are normally snapped but any April weakness should come after the tax deadline mid-month if there is a pullback.

Although history is on the bulls’ side, we are seeing some trouble signs ahead for May and the summer.  Copper continues to look weak but held $3.40 for now.  As you can see from the chart, a break below $3.37 could lead to a test to $3.30 but a rebound and close back above $3.50 would be bullish.

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Gold tripped $1,600 before the S&P 500 but ended the quarter with a loss for the second-straight time after finishing below this level.  The yellow-metal finished the quarter at $1,597 and a close below $1,560 again would be bearish.  A close above $1,620 would be bullish going forward and it will be interesting to see where Gold and the S&P will be in a couple of weeks.

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There were no high profile warnings last week which leaves this week as the last window of opportunity to confess to Wall Street ahead of 1Q earnings.  Analysts have low expectations as they only see the S&P 500 growing its earnings base by a half-percent.  Although there wasn’t a big name that came forward to warn, nearly 100 of the companies in the index issued lowered guidance when they gave their 4Q updates in January and February.

Perhaps they were sandbagging due to the political landscape at the time but if company earnings come in much better than expected, then we should see a continued rally.  If the market sees 1Q numbers being better than anticipated the gains usually come before the news is reported which means we could have a very bullish start to April.

Europe and economic news will be two curveballs we will have to continue to watch for.  Although the worst with Cyprus seems to be over, we warned last month to watch out for Spain in April if Europe continues to sink in a recession.  Economic news here at home will have a major impact on the market this week as we will see a number of employment reports along with the final Q4 Gross Domestic Product (GDP) figures.

The next few weeks will be important in determining if our extended targets will be met or if we are in for the slight pullback everyone has been calling for.”  (from 3/31/2013 Weekly Wrap Update)…

The tug-of-war between the bulls and bears continued last week as the back-and-forth action has now stretched into 13-straight sessions.  The Dow was up heading into Friday’s action and we nailed the numbers for all of the indexes on Thursday’s close which gave little clues on which direction the market could go on Friday.  However, futures were weakening in overnight trading leading us to believe there could be some downside action to close out the week.

Of course, the big event came before the bell on Friday as Nonfarm Payrolls came in at a staggering 88,000 or less than half of what the suit-and-ties had forecast (200,000).  Wall Street’s jaw dropped and you could hear the pin that hit on the exchange floor.

We knew the open was going to be nasty but we highlighted support and once it held we had a feeling there would be some dip buying.  The bulls did well to recover their losses on Friday while the bears did their best to crack the first wave of support ahead of 1Q earnings season that begin this week. (read more…)

 

Members Area

The Dow dropped 41 points, or 0.3%, to close at 14,565 on Friday.  The blue-chips have been weak on Monday’s of late and last week was no different as they traded down to 14,531 after clearing 14,605 on the open.  We have said a close above this level could lead to a run to 14,750 and the breakthrough was a good clue higher prices would come.  Tuesday’s surge to 14,684 and the close at 14,662 was impressive but Wednesday’s close at 14,550 wasn’t.  There was a rebound back to 14,606 on Thursday which was bullish but the Dow fell to a low of 14,434 on the open.  Support at 14,400 held but it was a quick 172 point decline and reminded Wall Street how elevators work.  The next level the bears will look to attack is 14,200 (50-day MA) and then 14,000.  The bulls held the bottom uptrend line but a close below this level will get these downside targets in play.  The Dow came into Monday at 14,578 and only gave back 13 points, or 0.1%, for the week.  For 2013, the blue-chips are up 1,461 points, or 11.2%.

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The S&P 500 fell 7 points, or 0.4%, to settle at 1,553.  The index made a run at its intraday all-time high of 1,576.09 (set on 10/11/07) and reached 1,570 before ending with a 7 point loss to 1,562 on Monday.  Tuesday’s push to 1,573.66 was sweet and the hold at 1,570 looked good until Wednesday’s pullback.  The dip to 1,549.80 and the break below 1,550 was a wakeup call on how fast this market could drop if support fails but the S&P closed at 1,553.  Thursday’s push to 1,562 was a nice rebound but we said that morning we wanted to see the bulls clear 1,560 on the close.  They came in at 1,559.98.  The bears pounced on Friday with the S&P dropping to a low of 1,539.50 (down 20) before the rebound back above 1,550.  A close 1,540 could lead to a back test to 1,525 and the 50-day MA, and possibly 1,500.  The S&P 500 started the week at 1,569 and lost 16 points, or 1%, following the pullback.  For the year, the index has advanced 127 points, or 8.9%, so far.

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The Nasdaq tanked 21 points, or 0.7%, to end at 3,203.  After clearing the 3,250 level the previous week, the bulls were looking for a run to 3,300 if they could clear 3,275 on the close and Monday’s run to 3,270.23 was a tease.  It was also a touchdown short of Friday’s peak to 3,270.30.  This was a good sign a back test to 3,250 was coming and Tuesday’s low was 3,245.  Tech closed at 3,254 but Wednesday’s washout to 3,210 and the close below 3,225 at 3,218 was bearish.  Thursday’s rebound was pegged at 3,224.98.  Imagine that.  The bulls needed to hold 3,200 or they faced further risk down to 3,175-3,150 and Friday’s low checked in at 3,168.  If Tech closes below 3,150, there will likely be some panic on Wall Street.  The close above 3,200 to end the week was cool but the bulls need to clear 3,225 early this week.  The Nasdaq was at 3,267 before the open on Monday and was shelled for 64 points, or 2%, by Friday’s close.  YTD, the index is showing a gain of 184 points, or 6.1%.

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The Russell 2000 slipped 2 points, 0.3%, to finish at 923 on Friday.  The small-caps were still on track to push 975 and the all-time high of 954 after closing above 950 just before Good Friday.  However, there was only a slight push of less than a point higher to 951.60 on Monday’s open.  This was a bad omen and one of the clues we said to watch for after the Russell tested 940 the prior week.  The next area of support at 920 would get tested with Wednesday’s dip to 916.84 and the close at 918.  Thursday’s 7-point pop to 925 was encouraging and the bulls held 920 but there is risk down to 900 on further weakness.  The Russell 2000 was at 951 to start the week and was down 28 points, or 3%, by the end of it.  The small-caps are still up 74 points, or 8.7%, for the year but last week was ugly.

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The S&P Volatility Index ($VIX, 13.92, up 0.03) came into the week at 12.70 and closed above the 13.50 level after trading to a high of 14.05.  We mentioned this level has become a battleground in recent weeks and the bulls were able to get the index down to 12.76 on Tuesday’s rally.  Wednesday close above 14 to 14.21 warned of more weakness as the high came in at 14.66.  Thursday’s peak was 14.79 before a close back below 14 to 13.89 but Friday’s peak to 15.65 is suggesting 20 is in the cards down the road.  A close back below 13.50 would be bullish for one last run at the highs.

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The sun came up Friday morning but the talking heads and suit-and-ties were preparing for the end of the world.  While everyone was running for cover, the bulls showed tremendous strength by holding support although some levels have cracked.  It was tempting to take some short positions but we knew if support held there could be a strong rebound.

There has been a ton of cheerleading when the market is making new highs and a bunch of Negative Nancy’s when there is a pullback, but as you can see from the charts, the market has been stuck in a trading range with volatility to the upside and now we are seeing volatility to the downside.  It still remains to be seen if the trading range is stretched or if this is a real pullback in the works but we would be surprised if we didn’t see further highs in April.

The trading ranges since early March have been:  Dow 14,400-14,600 with a breakout to the upside; S&P 1,540-1,560 with a push to all-time highs; Nasdaq 3,200-3,250; and for the Russell – 930-950 but is currently stretched to the downside.  The fact that the market held it March lows is bullish but a break below the February lows would be bearish.  In the meantime, the market remains in a trading range.

We mentioned last week April is the best month for the Dow with average gains of 2% over the past 6 decades and it is also the second best month for the S&P 500.  Although Tech has been weak of late, April has shown strong gains since the 1970’s and is the third best month for the Nasdaq.  There has been a lot of talk that April is the new May but we wouldn’t count the bulls out until the month settles.  However, the market gave mixed signals all week ahead of Friday’s big event and the clues we discussed last week have started to unfold so the bears need to be respected.

Besides a rising VIX, and a break below the bottom uptrend lines for some of the indexes, we had a major high-profile earnings warning after F5 Networks (FFIV, $73.21, down $17.21) lowered their guidance.  While we mentioned there could be some growth, other analysts believe Q1 earnings could be down 2%.  If so, it would be the first negative quarter in 4 years.

Alcoa (AA, $8.24 ,up $0.02) will be the first Dow component to announce, Monday after the bell, and earnings are expected to come in at 8 cents a share on revenue of $5.9 billion.  The company’s first quarter is usually weak but last year they surprised with a 14 cent beat.  This time we aren’t so sure they will even match estimates.  The 52-week low for the stock is $7.97 and although we won’t likely take Alcoa as an earnings trade, the April 8 puts (AA130420P00008000, $0.14, up $0.01) traded nearly 4,300 contracts on Friday.  The April 9 calls (AA130420C00009000, 0.04, up $0.01) traded over 9,000 contracts but shares would need to move 10% in less than 2 weeks for these options to turn a profit.  Perhaps a majority of these call options were sold.

There will be a few earnings trades we may play over the next few weeks so look for them on our Watch List.  We won’t commit a lot of capital to these trades if we do take them because they are risky in nature and the premiums are usually juiced but we do plan to swing the bat.

Copper and Gold continued to melt despite rebounding on Friday.  Gold closed below our bearish $1,560 on Thursday but rebounded nearly 2%.  There could be another test to $1,600 but gold could be headed to $1,525 on further weakness.  (Side note:  Copper closed at $3.34 on Friday after nailing our near-term target of $3.30 on Thursday).

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The big events beside 1Q earnings starting this week will be the FOMC minutes on Wednesday.  Despite the talk of quantitative easing either slowing down or ending, those worries were dispelled Friday following the weaker-than-expected jobs report.  The bears will be fighting the Fed to take the market lower but if it gets too ugly, Bernanke could get creative and provide even more stimulus packages.

The other worry for the bulls will be the Nutcase in North Korea as tensions continue to escalate.  Kim Jong Un has moved 2 medium range missiles into position after they were installed on launch platforms for possible tests over the next week or 2.  This could be all for show but the market will take further actions more seriously.

As we head to press, futures are showing a mixed open this morning and look like this:  Dow (xx); S&P 500 (xx); Nasdaq 100 (xx).

 

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 2013: 31-16, for a 66% win rate, including the Weekly Wrap that is 10-1).

 

Sony (SNE, $16.69, down $0.31)

April 18 calls (SNE130420C00018000, $0.15, down $0.10)

Entry Price:  $0.35 (3/27/13)
Exit Target:  $0.70
Return:  -57%
Stop Target:  None 

Action:  The volatility in Sony has been incredible.  Following the prior week’s run to $18, shares struggled at longer-term resistance and traded to a low of $16.21 midweek and $16.23 on Friday.  Support at $16 held and there is further help at the 50-day MA or $15.50.  A close back above $17.50 would be bullish for another possible push to $20.

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Ironwood Pharmaceuticals (IRWD, $17.92, up $0.29)

April 20 calls (IRWD130420C00020000, $0.20, flat)

Entry Price:  $0.50 (3/19/13)
Exit Target:  $1.00
Return:  -60%
Stop Target:  None

May 20 calls (IRWD130518C00020000, $0.55, flat)

Entry Price:  $0.75 (3/19/13)
Exit Target:  $1.50
Return:  -27%
Stop Target:  None

Action:  Shares made a nice rebound on Friday after trading up to $17.99 but we were pulling for a close above $18.  We still believe shares will make a run past $20 and we believe the company will beat on revenue estimates when they report earnings later this month.

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Cyberonics (CYBX, $46.29, up $0.33)

April 40 puts (CYBX130420P00040000, $0.35, down $0.15)

Entry Price:  $0.75 (2/26/13)
Exit Target:  $1.50
Return:  -53%
Stop Target:  None

Action:  Shares traded to a low of $45.21 last week and a close below $45 should get this trade moving.  We are running out of time so we need the breakdown out of the trading range to come this week.

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Other 2013 Portfolio OPEN positions (8):  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 2013Portfolio link in the Members Area to view ALL open/ closed trades.

 

Powershares QQQ April 70 calls (from April 2013)

April 70.50 calls (WEEKLY) (from April 2013)

Cisco Systems April 22 calls (from March 2013)

Baidu April 75 puts (from March 2013)

iShares Dow Jones Transportation Average April 100 puts (from February 2013)

Facebook April 29 calls (from February 2013)

 

Taiwan Semiconductor April 20 calls (from January 2013)

MGM Resorts International June 15 calls (from January 2013)

KeryxBiopharmaceuticals June 10 calls (from February 2013)

 

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.

 

Apogee Enterprises (APOG, $28.68, up $0.42)

April 30 calls (APOG130420C00030000, $0.40, up $0.10)

April 26 puts (APOG130420P00026000, $0.30, down $0.10)

Thoughts:  The company reports earnings on Wednesday and has beaten estimates the last 4 quarters.  The 52-week high is $30.26 and shares are holding a strong uptrend.  A miss could drop shares down to $26.  The options are thinly traded and will likely keep us on the sidelines as the bid/ask is wide enough to drive a truck through.  The average daily volume on the stock is just over 200,000 and while we doubt we take an option trade on earnings, we have been following the stock since the mid-teens and the chart is impressive.

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Bed Bath & Beyond (BBBY, $63.76, down $0.91)

April 67.50 calls (BBBY130420C00067500, $0.80, down $0.30)

May 57.50 puts (BBBY130518P00057500, $0.70, up $0.10)

Thoughts:  Earnings are due out on Wednesday and we could see shares move 10%.  While the chart looks bullish an earnings miss could knock shares back to double-nickels.

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CarMax (KMX, $41.35, up $0.24)

April 43 calls (KMX130420C00043000, $0.50, up $0.05)

Thoughts:  The company reports earnings on Wednesday and we are expecting a blowout quarter.  CarMax has become a great place to get good deals on vehicles and trade-ins and they are hassle-free.  If the company disappoints Wall Street and comes up short, a drop below $40 is nearly a certainty.

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Yahoo (YHOO, $23.30, down $0.22)

May 24 calls (YHOO130518C00024000, $0.60, down $0.10)

Thoughts:  Near-term support at $23 held and there is back up at $22.  A drop below this level could lead to a test to $20 but if Tech can turnaround over the next few weeks we could see a push past $24.

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First Solar (FSLR, $26.44, down $0.02)

April 25 puts (FSLR130420P00025000, $0.70, flat)

May 23 puts (FSLR130518P00023000, $0.90, flat)

Thoughts:  Our near-term target is for a test to $25, possibly $20.  Shares traded to a low of $25.66 on Friday and we love the May 23 puts if resistance at $27-$28 holds.

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Caterpillar (CAT, $84.60, down $0.03)

April 82.50 puts (CAT130420P00082500, $0.65, down $0.05)

April 85 puts (CAT130420P00085000, $1.70, flat)

Thoughts:  We have missed several opportunities to trade CAT as it has been on our Watch List for weeks.  A trip to $80 is almost certain but we would love to see a back test to $88 first.

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Sina (SINA, $47.58, down $1.50)

April 47.50 puts (SINA130420P00047500, $1.60, up $0.60)

May 42.50 puts (SINA130518P00042500, $1.20, up $0.25)

Thoughts:  We are waiting for a drop below $46 to go short.

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Bank of America (BAC, $11.97, up $0.03)

April 12 calls (BAC130420C00012000, $0.30, flat)

June 13 calls (BAC130622C00013000, $0.30, flat)

Action:  Shares fell to a low of $11.64 and below the 50-day MA before nearly clearing $12 by the close.  There is further weakness down to $11.50 but a close back above $12.25 and then $12.50 would be bullish.

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Spider S&P 500 (SPY, $155.16, up $0.70)

April 153 puts (SPY130420P00153000, $0.90, down $0.10)

Thoughts:  The S&P could make a run at 1,600 which means the Spiders could reach $160.  We would wait for a break below $152.50 before possibly going short.

 

iShares Russell 2000 (IWM, $91.73, down $0.18)

April 92 puts (IWM130420P00092000, $1.35, up $0.15)

Thoughts:  These options did well last week.