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MomentumOptionsTrading.com Weekly Wrap for 7/7/13

11:30pm (EST)

1.  Market Summary 

2.  Earnings

3.  Weekly Wrap Portfolio Update 

4.  Week Ahead

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1.  Market Summary   

The bulls opened with a strong run to the 50-day MA’s (moving averages) on Friday and were met with a right hook by the bears that knocked them back down to even shortly afterwards.  However, unlike what we saw the bears do a few weeks ago with their failure at holding down the 100-day MA’s, the bulls cleared resistance while holding their ground. 

The bears penetrated the 100-day MA’s in mid-June but they didn’t have the force or momentum to push the 200-day MA’s (at least not yet).  The charts clearly show the break above the 50-day MA’s but many of the pros today are likely to say it was on low volume. 

We were slightly surprised by the 1% move and the fluff past resistance but the last time Wall Street got caught flat-footed on a trading day after the July holiday resulted in a 3% pop.  This means there could be another 2% push higher that will likely lead to a test of this year’s highs, or, it was a classic head fake in what could be a continued trading range.  With 2Q earnings starting this week, a 2% move is possible, either way. 

The Dow surged 150 points, or 1%, to close at 15,135 ob Friday.  The blue-chips traded to a high of 15,137 and we would be convinced a test to new highs, or 15,500, could be coming if 15,200 clears.  A drop below 15,000 today would be bearish and 14,800 would be even worse.

The S&P 500 gained 16 points, or 1%, to settle at 1,631.  The index closed near its high for the session and the finish above 1,625 could lead to a run to 1,650.  A close above this level would be very bullish and could cause a wave of short covering.  A close back below 1,625 and more specifically, 1,614, would get 1,600 back in the mix.

The Nasdaq added 36 points, or 1%, to finish at 3,479.  We mentioned last week a close above 3,450 would be bullish for a possible push to 3,475 to 3,500.  A close back below 3,450 today or this week would be troubling for a retest of 3,400.

The Russell 2000, zoomed 14 points, or 1.4%, and finally closed above 1,000 at 1,005.  The bulls had cleared this level 5 previous times but failed in each attempt before Friday’s victory.  The New Sheriff led the rally and we have been mentioning a trip to 1,025 could come into play if the small-caps cleared 1K on a close.  A back test to 990 is possible on any weakness and a close back below 980-975 would be bearish.

The S&P Volatility Index ($VIX, 14.89, down 1.31) tanked 8% and close below our magical 15 level.  We said if the bulls could get the VIX back under the mid-teems there could be a test to new highs but there are a few more hurdles they must clear.  A rebound back above 16 and then 17.50 would mean a classic bull trap was set by the bears.

We will have to see how the first part of Monday’s session and the next few days play out but if the 50-day MA’s hold, we could be adding New Trades for both the Daily and Weekly Wrap newsletters.

As we head to press:  Dow futures are up 5 points to 15,081 while the S&P 500 futures are higher by a point to 1,628.  The Nasdaq 100 futures are advancing 7 points to 2,964.

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2.  Earnings 

The companies in BOLD, we are looking at as possible trades and we may list call or put options on them in our Daily Newsletter.  If they become official recommendations, we sent out Trade Alerts or include them in our 9am and 1pm updates that come out during the week.

By Catherine Tierney

Monday

AA, HLSS, IGTE, SCLN

 

Tuesday

HELE, HITK, PENX, WWW

 

Wednesday

ADX, CNL, FAST, MSM, FIZZ, PSMT, TXI, YUM

 

Thursday

OZRK, LEDS, MSN, PPHM

 

Friday

JOEZ, TYL, WBS, WFC

 

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3.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 7/7/13)

Our Weekly Wrap Closed Trade Track Record for 2013 is 26-3 (70-5, overall since the start of 2011).

Petrobras (PBR, $12.25, down $0.80) fell another 6% on Friday after hitting our $12.50 Hard Stop on the open.  Shares traded to a low of $12.03.  We are disappointed shares have fallen to the low teens and we certainly got this one wrong.  The turmoil in Brazil and the country’s government has been a 1-2 punch that has weighed heavily on the stock and we would rather not be around when it hits single-digits. 

Current Trades

 

Nvidia (NVDA, $14.24, up $0.11)

August 15 call (NVDA130817C00015000, $0.35, flat)

Original Entry Price:  $14.07 (6/27/13)

Lowered Price from Selling Options:  $13.72

Exit Target:  $20+

Return:  4%

Stop Target:  $11

Action:  Shares cleared their 50-day MA on Friday’s close.  There is resistance at $14.50-$14.75 but a close above the latter should get $15 in play.  Support is at $13.75.  We have a 6-12 month price target of $20 for the stock.  

We recommended buying Nvidia at $14.07 on 6/27/13.  We also sold the August 15 calls for 35 cents which lowered the cost basis to $13.72.  If we are called-away at $15 in mid-August, the trade will make 9%.

 

Finisar (FNSR, $17.18, up $0.48)

July 16 calls (FNSR130720C00016000, $1.75, up $0.25)

Original Entry Price:  $15.79 (6/25/13)

Lowered Price from Selling Options:  $15.04

Exit Target:  $16+

Return: 14%

Stop Target:  $12

Action:  Shares finally cleared resistance at $17 and could make a quick run to $20 on continued strength.  This level will now try to hold as short-term support with $16.50 serving as backup.  We will likely get called away in a couple of weeks so we may start a new position on continued strength.

We recommended buying Finisar at $15.79 on 6/25/13.  We also sold the July 16 calls for 75 cents which lowered our cost basis to $15.04.  If we are called-away at $16 in mid-July, the trade will make 6%.   

 

Exact Sciences (EXAS, $14.10, up $0.15)

Original Entry Price:  $13.55 (6/11/13)

Lowered Price from Selling Options:  $13.55

Exit Target:  $16+

Return:  4%

Stop Target:  $10 

Action:  Shares are at decade highs and could test $17 on a breakout.  We have a yearend target of $20.  Support is at $13.50.  We could sell an August call options at current levels to lower our cost basis but we would rather wait for a breakout before doing so.

 

Pizza Inn Holdings (PZZI, $5.93, up $0.19)

Original Entry Price:  $5.40 (6/11/13)

Lowered Price from Selling Options:  $5.40 (no options listed)

Exit Target:  $10+

Return: 10%

Stop Target:  $2

Action:  Shares are still in a trading range but a close above $6 would be bullish.  Support is at $5.

 

Bank of America (BAC, $13.06, up $0.23)

Original Entry Price:  $13.15 (6/11/13)

Lowered Price from Selling Options:  $13.15

Exit Target:  $15+

Return: -1%

Stop Target:  $10

Action:  The close back above $13 on Friday was bullish and the next level of resistance is at $13.25.  Support is at $12.50.  We would like to write August or September call options against this position once shares clear $13.75.

 

Dendreon (DNDN, $4.48, up $0.14)

August 6 calls (DNDN130817C00006000, $0.15, up $0.03)

Original Entry Price:  $4.91 (4/2/13)

Lowered Price from Selling Options:  $4.36

Exit Target:  $8+

Return:  3%

Stop Target:  $2

Action:  Dendreon cleared near-term resistance at $4.25 and has a hurdle here at $4.50.  A close above this level should get $5 in play.  Support is at $4.

We recommended buying Dendreon at $4.91 on 4/2/13.  We also sold the August 6 calls for 55 cents which lowered our cost basis to $4.36.  If we are called-away at $6 in mid-August, the trade will make 38%.

Trades on HOLD (6):  DryShips (DRYS, $1.80, down $0.01), AKS Steel Holding (AKS, $3.01, down $0.04), Rare Element Resources (REE, $1.86, up $0.03), Rambus (RMBS, $9.40, up $0.19), Bebe Stores (BEBE, $5.87, up $0.16), Vivus (VVUS, $12.38, up $0.07).

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4.  Week Ahead

Here is a chart of the events for the week ahead:

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