9:00am (EST)

The Dow dropped 265 points, or 1.8%, to close at 14,599.  The blue-chips closed a point below our 14,600 downside target and it will be important for the bulls to hold 14,400-14,200 on further weakness.  A close back above 14,700 would be bullish.

The S&P 500 sank 36 points, or 2.3%, to close at 1,552.  The bulls and bears battled over this level for weeks and it is now back in the picture.  A break below 1,540 could lead to a test down to 1,525-1,500.  The bulls will be trying to get back above 1,560.

The Nasdaq tanked 78 points, or 2.4%, to end at 3,216.  Tech fell below the 3,250 level and closed below 3,225.  A dip below 3,200 and then 3,190 could spark additional selling pressure down to 3,150.

The Russell 2000 got whacked for 35 points, 3.8%, to settle at 907.  The small-caps held the 900 level after kissing 904.91 but a close below this level, or more specifically, 895 could lead to a massive rush to the exits.  Wall Street fund managers will be quick to book their first quarter gains if they believe this is the correction everyone has been waiting for.

The S&P Volatility Index ($VIX, 17.27, up 5.21) zoomed 43%, yes 43%, and cleared 15.  We said to get nervous on a close above 15 and a print above 17.50 could spark a run to 20, or worse.  This is when we will load up on put options.

This week will likely continue to be volatile and while its too early to say the bears have control, they do have our attention.  Futures were up last night and have remained that way as we head to press:  Dow (+142); S&P 500 (+15); Nasdaq 100 (+26).

 

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: 35-16, for a 69% win rate, including the Weekly Wrap that is 10-1).

 

Special Notice:  I apologize for not sending out the midday update on Monday and have received all of your emails.  I had an update ready at 11am as my day would be busy but our internet went whacky for a few hours and I purposely wait until the last minute to mail my taxes to the zombies.  I wanted to do a late day update but as the events started to unfold in Boston, it didn’t seem or feel right.

In any event, this will be a volatile week and most of the trades we have open are April options that expire this Friday.  Trading in these types of environments are very difficult and most of the trades were started earlier this year from other “batches”.  We will only have 4 open positions after this Friday and while I am hopeful all of the April trades come back to turn us a profit, some won’t.

I have been careful opening our next new batch of trades because I want to let the current positions play out.  I also wanted to watch the last 2 weeks of April for clues on how May and June could play out.  It’s hard to say how well the market might hold up or if yesterday’s breakdown was the start of something more serious but we will be in GREAT shape as we roll into our next batch of trades.

The closed trade portfolio is up 22% for the year but I realize we could be back to even if some of the current April trades go against us.  No worries, we have the rest of the year to play this gig and at some point there could be a pullback in the market similar to gold or silver.  For those of you who have never played a correction or a 10%-20% pullback, don’t get nervous because you can easily make triple-digits on put options if and when the bears attack in full force.  Please look at some of the trades and profits from 2008 and 2009 to see why we are never worried about playing selloffs.

But for now, uptrend lines are holding so let’s sit tight and see how the rest of the week plays out.

Thanks and send us your comments or questions anytime.

Rick

 

Current Trades

Symantec (SYMC, $23.95, down $0.30)

May 25 calls (SYMC130518C00025000, $0.45, down $0.10)

Entry Price:  $0.60 (4/11/13)
Exit Target:  $1.20
Return:  -25%
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 our money on a move past $26.  We will likely close the trade on a drop below $22.

 

Yahoo (YHOO, $23.98, down $0.71)

May 25 calls (YHOO130518C00025000, $0.65, down $0.10)

Entry Price:  $0.65 (4/11/13)
Exit Target:  $1.30
Return:  0%
Stop Target:  None

Action:  Yahoo will announce earnings after the close today and we expect the stock could move 5%-10% in afterhours.  If the company significantly beats estimates and raises guidance, shares could pop 15%-20%.  Our near-term target is $28 but $22 could trip if they disappoint the suit-and-ties.  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.

 

Keryx Biopharmaceuticals (KERX, $7.72, down $0.33)

June 10 calls (KERX130622C00010000, $0.40, down $0.05)

Entry Price:  $0.70 (2/12/13)
Exit Target:  $1.40
Return:  -43%
Stop Target:  None

Action:  Near-term support is at at $7.50 with $7 serving as backup.

Other 2013 Portfolio OPEN positions (9):  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.

Ironwood Pharmaceuticals April 20 calls (from March 2013)

May 20 calls (from March 2013)

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)

MGM Resorts International June 15 calls (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, $82.27, down $2.78)

May 80 puts (CAT130518P00080000, $1.80, up $0.95)

May 82.50 puts (CAT130518P00082500, $2.90, up $1.40)

Thoughts:  Shorting CAT on Friday’s has worked out well by Monday’s closes.  This is a trend we have been following so keep it in mind.

Earnings are due out on April 22.  We would love to see a back test to $85 now ahead of the event.  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, $47.48, down $2.35)

May 42.50 puts (SINA130518P00042500, $1.10, up $0.50)

Thoughts:  Support at $50 had been holding and this now near-term resistance.  If shares close below $47, we will likely go short for a test down to the low $40’s.

 

Bank of America (BAC, $11.98, down $0.19)

June 13 calls (BAC130622C00013000, $0.22, down $0.03)

Action:  Support has been solid at $11.75 since early March and there is further help at $11.50, or the 100-day MA.  W are waiting for a trip past $12.50 before possibly going long.

 

Spider S&P 500 (SPY, $155.12, down $3.68)

May 155 puts (SPY130518P00154000, $2.90, up $1.85)

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, $68.56, down $1.43)

May 71 calls (QQQ130518C00071000, $0.30, down $0.25)

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, $90.11, down $3.53)

May 90 puts (IWM130518P00090000, $2.25, up $1.50)

Thoughts:  We would wait for a close below $92 before possibly going short.