MomentumOptionsTrading.com Morning Update for 4/15/2013
Bulls Looking Strong
“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 were 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).
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.” (from 4/7/2013 Weekly Wrap Update)…
The bulls got back on track last week following another push to all-time highs. While no one talked about it, Alcoa (AA, $8.22, down $0.10) was the main catalyst behind the bullishness as their numbers came in better-than-expected. The Fed minutes were released early on Tuesday by a fat finger in DC, or by a zombie that forgot what day it was, and it helped take the pressure off as there was no anxiety on when QE may or may not end.
Wednesday’s surge past resistance was followed by Thursday’s run to new highs for the Dow and S&P 500. Although Friday morning was weak there was a steady rebound into the close that has the bulls seeking continued new highs. (read more…)
The Dow fell less than a tenth of a point (.08), or 0.0%, to finish at 14,865 on Friday. The blue-chips needed to hold 14,400 on any pullback to start the week and the bears tried to rekindle their Monday magic by pushing 14,497. That would be the best it would get as the close above 14,600 gave us a good feeling the bulls would push our 14,750 target. Tuesday’s high was 14,716 and was a prelude to Wednesday’s surge to 14,826. The close at 14,802 opened the door for a test to 15,000 and Thursday’s peak was 14,887. There was a slight pullback to 14,790 on Friday as prior resistance at 14,750 will now try to hold as short-term support. If not, watch for 14,600 and more importantly 14,400 to hold on an a pullback. A break below the 50-day MA at 14,200 would suggest a trend change as the 5-year chart shows the uptrend line at 14,000. The Dow started Monday at 14,565 and soared 300 points, or 2.1%, for the week. For the year, the blue-chips have now gained 1,761 points, or 13.4%.
The S&P 500 slipped 4 points, or 0.3%, to settle at 1,588. The bulls and bears battled for weeks over the 1,550 level and Monday’s dip to 1,548 was as far as the bears got. The 10 point pop by the close at 1,563 was bullish and led to Tuesday’s push to 1,573. We had a good feeling the bulls were going to clear resistance at 1,575 and Wednesday’s surge to 1,589 put our 1,600 target in play. Thursday’s high was 1,597 but the index spent Friday in the red and touched a low of 1,579. This could be the week that 1,600 trips but a drop below 1,575 and then 1,550 would be worrisome. The S&P 500 started the week at 1,553 and surged 35 points, or 2.3%, by Friday’s close. For the year, the index has advanced 162 points, or 11.4%.
The Nasdaq gave back 5 points, or 0.2%, to close at 3,294. Tech needed to hold 3,200 on Monday’s close or it was going to be a rough week. The bears got down to 3,195 but the bulls held strong and got a close at 3,222. Tuesday’s tease to 3,249.95 had the bears nervous and Wednesday’s surge to 3,299 had the bulls salivating. Thursday’s push to 3,306 ended with a close right on our 3,300 target. There is further room up to 3,350-3,400 but Friday’s low was 3,271 and the bulls need to hold 3,275 to start the week. More importantly, any dip below 3,250 will need to be watched, especially with Tech earnings in play. The Nasdaq came into Monday’s session at 3,203 and gained 91 points, or 2.8%, by the weekend. Year-to-date, the index is showing a gain of 275 points, or 9.1%.
The Russell 2000 declined 4 points, 0.4%, to close at 942 on Friday. The small-caps held 920 to start the week after a test to 921 and the rebound to 931 was bullish. There was a slight pullback on Tuesday to 929 but Wednesday’s push to 950 got the all-time highs back in the mix. Thursday’s high was 951 and a close above 954 should get the last of our fluff targets in play. Friday’s low was 937 and the bulls will try to hold 940-930 to start the week. A close below 920 could lead to another test down to 900. The Russell 2000 was at 923 to start the week and added 19 points, or 2.2%, by Friday’s close. The small-caps have advanced 93 points, or 11%, for the year.
The S&P Volatility Index ($VIX, 12.06) came into the week at 13.92. The bulls needed to hold 15 out of the gate and Monday’s pop to 14.50 would the high for the week. The index finished lower every day afterwards and kissed a low of 11.99 on Friday. The 52-week low of 11.09 was set in mid-March and a continued run to new highs could push the VIX to single-digits. At 9, it would suggest a bottom is in for the VIX and possibly a peak for the S&P 500. A close back below 13.50 would get some life back into the bears but the bulls have no worries until they see a close above 15 again.
The bulls triggered 3 of our 4 near-term targets that we gave at the beginning of March and for the talking heads who said April was the new May following the prior week’s slight pullback, they were proven wrong, again. The suit-and-ties that have called for a continued pullback are in continued disbelief and Friday’s drop and pop nearly gave the bulls a clean sweep for the week.
Although trading ranges can be frustrating and cause panic, we said the longer the market stayed in one, the bigger the breakout or breakdown would be. We were glad to see the trading ranges break to the upside as the bulls pushed historic highs on the Dow and S&P 500 while the Nasdaq triggered 3,300.
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)
The 5-year charts we have shown you for the major indexes are still bullish and this week promising to be exciting as earnings season hits second gear. The Dow will be sending 10 batters to the plate and, collectively, they will decide if the Dow clears 15,000 or tumbles back towards 14,000 over the next few weeks. The lineup includes Coca- Cola, Intel, and Johnson & Johnson on Tuesday followed by American Express and Bank of America midweek. On Thursday: IBM, Microsoft and UnitedHealth Group confess to Wall Street with General Electric and McDonald’s following up on Friday.
The biggest report will be International Business Machines (IBM, $211.38, up $1.97) as it accounts for nearly 11% of the blue-chips weight. Shares made a nice 5% jump back in January after earnings to clear the $200 hurdle and reached a peak of $215.90 in mid-March. There is a good chance shares move another 5% and that would mean a $10 move to new all-time highs or a break back below the $200 level. A print below $198 could cause a selloff down to $190 and the 100-day MA but IBM has been on a roll in beating Wall Street’s estimates quarter-after-quarter and we don’t expect that to change this time out.
McDonald’s makes up 5.4% of the Dow’s weight, American Express 3.4% and J&J, 4.3%. UnitedHealth Group makes up 3.3%. As you can see, the Dow could have a very volatile week depending on what these companies say. GE numbers could give us good or bad clues on how well the global economies are recovering, or not. Tech will also have some influence on the market as Google, Yahoo, Intel, eBay, and Sandisk will announce their numbers as well.
Gold got mugged last week, falling over $100 an ounce, or nearly 7%. We have been warning of the breakdown to $1,525 and we said last week it could do a perfect back test to $1,600 before the bottom fell out. Bingo. The close at $1,480 opens the door for a test to the 200-day MA ($1,433) and possibly a drop to $1,400. At these levels, Gold would be at decade lows and would probably represent a great opportunity to start building positions.
Silver just hit our BUY target again at $26 following Friday’s 5% drop to $25.89 but we mentioned there was a $4 spot on getting American Eagles. We will see if the spot goes down but Silver is likely to outperform gold over the next few years. The spot is high because of supply and demand despite Silver sitting at 2-year lows. Demand is roughly 60% higher than output and silver is used in more than gold. Buying silver under $26 with a $4 spot was unimaginable a few months ago but we believe somewhere down the road silver will be north of $50. However, a continued selloff could lead to $22.50, or even $20. At $20, we might back up the truck and bet the farm.
There are a few economic reports that could cause some stickiness this week and April option expiration is this Friday. Monday is tax deadline day and is usually bullish as the Dow has only fallen 5 times over the past 20 years on April 15. April option expiration day is also bullish as the blue-chips have been up 13-out-of-the-last-16 Friday’s. Some years have shown nice 1%+ pops and would be enough this year to clear 15,000 if current levels hold.
If earnings come in better-than-expected and economic news doesn’t disappoint then the indexes should see a continued rally. If so, the extended targets we could see are: Dow 15,300; S&P 1,625; Nasdaq 3,350. We will keep our target of 975 for the Russell 2000.
We must admit even we are surprised by the GAINS the indexes have made for the year but we are not surprised by the rally as we told you it would have legs from December through April. May might be a different story and there could be some seasonal weakness in late April but until the bottom uptrends lines from the 5-year charts crack, the bulls are in control.
Futures are showing a lower open this morning following disappointing data out of China. As we head to press, here is how we look: Dow futures are down 40 points to 14,744 while the S&P 500 futures are lower by 6 points to 1,575. The Nasdaq 100 futures are declining 9 points to 2,837.
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: 35-16, for a 69% win rate, including the Weekly Wrap that is 10-1).
Symantec (SYMC, $24.25, down $0.05)
May 25 calls (SYMC130518C00025000, $0.55, flat)
Entry Price: $0.60 (4/11/13)
Exit Target: $1.20
Stop Target: None
Action: Near-term support is at $24 followed by the 50-day MA. A move above $25 should get $27 in play and we will double or money on a move past $26.
Yahoo (YHOO, $24.69, up $0.20)
May 25 calls (YHOO130518C00025000, $0.80, up $0.10)
Entry Price: $0.65 (4/11/13)
Exit Target: $1.30
Stop Target: None
Action: Shares traded to a 52-week high of $24.80 on Friday and and our near-term target is $28. If shares can make a run past $26 we will make triple-digits. Support is at $24 followed by $22 and the 50-day MA.
Ironwood Pharmaceuticals (IRWD, $18.17, up $0.40)
April 20 calls (IRWD130420C00020000, $0.10, flat)
Entry Price: $0.50 (3/19/13)
Exit Target: $1.00
Stop Target: None
May 20 calls (IRWD130518C00020000, $0.70, up $0.15)
Entry Price: $0.75 (3/19/13)
Exit Target: $1.50
Stop Target: None
Action: Shares traded to a high of $18.33 on Friday and we got our close above $18. The 52-week high of $19.67 was triggered in mid-March and we would like to see a run past $20 this week as the April 20 calls expire this Friday. Support is at $17 but is moving up as $17.50 has been holding.
Keryx Biopharmaceuticals(KERX, $8.05, down $0.05)
June 10 calls (KERX130622C00010000, $0.45, flat)
Entry Price: $0.70 (2/12/13)
Exit Target: $1.40
Stop Target: None
Action: Shares traded to a low of $7.77 on Friday but held $8. The 52-week high of $9.98 was hit in late January and last week’s peak was $8.55. A close above $9 should get double-digits in play. Support is now at $7.50 following the break out of the trading range with $7 serving as backup.
MGM Resorts International (MGM, $13.04, up $0.18)
June 15 calls (MGM130622C00015000, $0.20, up $0.05)
Entry Price: $0.40 (2/12/13)
Exit Target: $0.20
Stop Target: None
Action: Shares rebounded to clear $13 following the prior week’s test to $11.72 and the 100-day MA. We would like to see a close above $13.25 and then $13.50 this week. If resistance is cleared, we should see a quick trip to $15.
Other 2013 Portfolio OPEN positions (7): 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.
Facebook April 29 calls (from February 2013) – Our breakeven point is $18.35 by Friday.
Sony April 18 calls (from March 2013) – Our breakeven point is $18.35 by Friday.
Cisco Systems April 22 calls (from March 2013) – Our breakeven point is $22.35 by Friday.
Baidu April 75 puts (from March 2013)
Cyberonics April 40 puts (from February 2013)
iShares Dow Jones Transportation Average April 100 puts (from February 2013)
Taiwan Semiconductor April 20 calls (from January 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.
Caterpillar (CAT, $85.05, down $0.65)
May 80 puts (CAT130518P00080000, $0.85, up $0.10)
May 82.50 puts (CAT130518P00082500, $1.50, up $0.20)
Thoughts: Earnings are due out on April 22. We would love to see a back test to $88 ahead of the event but resistance is holding. A close below $85 again should get $83 in paly and a break below this level will likely lead to a trip in the high $70’s.
Sina (SINA, $49.83, up $1.23)
May 45 puts (SINA130518P00045000, $1.25, down $0.30)
Thoughts: Support at $50 has been holding and there is risk up to $52. If shares close below $47, we will likely go short for a test down to the low $40’s.
Bank of America (BAC, $12.17, down $0.10)
June 13 calls (BAC130622C00013000, $0.25, down $0.05)
Action: Support has been solid at $11.75 since early March and there is further help at $11.50, or the 100-day MA. The close back above $12 to start the week was bullish and we are waiting for a trip past $12.50 before possibly going long.
Spider S&P 500 (SPY, $158.80, down $0.39)
May 155 puts (SPY130518P00154000, $1.05, up $0.05)
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 $155 before possibly going short.
PowersharesQQQ (QQQ, $69.94, down $0.05)
May 71 calls (QQQ130518C00071000, $0.55, down $0.10)
Thoughts: A close above $70 could clear the way for a test to $72-$73 over the near-term and would be enough to get us a double in these calls. Support is at $68 and the 50-day MA.
iShares Russell 2000 (IWM, $93.64, down $0.38)
May 90 puts (IWM130518P00090000, $0.75, up $0.10)
Thoughts: We would wait for a close below $92 before possibly going short.