MomentumOptionsTrading.com Morning Update for 7/15/2013

Big Week for Earnings

9:00 am (EST)

The bulls came into July stuck in a trading range but have won back-to-back weeks while Wall Street vacations.  The previous Friday’s convincing close above the 50-day MA’s (moving averages) was a good clue a test to higher levels would come if the bulls got off to a good start for the week.  They did as the market climbed for the second-straight Monday and into Tuesday with Wednesday’s FOMC minutes on deck. 

The meeting minutes were a dude although the market did get a little juiced before finishing lower.  However, the bulls saved their Ace and played it after the close as Ben Bernanke ignited a fire in the after-hours and global markets after promising quantitative easing (QE) forever!  Well, not really, but he did say the Fed would be highly accommodative for the foreseeable future.

Thursday’s push to new highs caught a ton of traders short off guard as many were betting on a pullback and needed an ambulance as they covered their shorts.  Friday’s action was flat for much of the day before some late day buying pushed the indexes into the green ahead of the close.  (read more…)

 

The Dow added 3 points, or 0.02%, to finish at 15,464 on Friday.  The blue-chips needed to clear 15,200 to start the week, or at least hold 15,000, and were successful at making the push past resistance with Monday’s close of 15,224.  This opened the door for a possible test to 15,350 that nearly triggered on Tuesday’s push to 15,320 and close at 15,300.  We mentioned a close above this level could lead to 15,500 but Wednesday’s 8-point pullback was no help.  Thursday’s surge reached 15,483 and Friday morning’s pop to 15,498 was close enough for us to enjoy a cigar on the call.  A close above 15,500 should get 15,800-16,000 in play.  Initial support is at 15,350 and then 15,200.  The Dow started the week at 15,135 and jumped 329 points, or 2.2%, by Friday’s close.  For the year, the blue-chips have advanced 2,360 points, or 18%, after starting at 13,104.

DOW71413

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The S&P 500 gained 5 points, or 0.3%, to end at 1,680.  After clearing resistance at 1,625 and the 50-day MA the prior week, the index made a run at 1,650 with Monday’s intraday pop to 1,644 and close of 1,640.  The index cleared 1,650 with Tuesday’s push to 1,654 and finish at 1,652 that cleared the way for a run to 1,675.  Wednesday’s action was flat but Thursday’s run to 1,676 and close of 1,675 was a picture-perfect predication.  Friday’s dip to 1,672 held 1,670.  The bulls have a good shot a hitting 1,700 as long as 1,650 holds on any back test.  The S&P 500 came into Monday’s session just under 1,632 and surged 48 points, or 3%, for the week.  For 2013, the index is up 254 points, or 17.8%, after starting at 1,426.

SPX71413

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The Nasdaq advanced 22 points, or 0.6%, to settle at 3,600.  Tech got off to a decent start on Monday’s open after trading up to 3,495 but resistance at 3,500 proved a much harder task than holding 3,475.  The index did finish with slight gains to 3,484 and was able to clear and hold resistance with Tuesday’s run to 3,508 and close at 3,504.  The action cleared the way for a test to the 52-week and 12-year high of 3,532 and Wednesday’s run reached 3,522.  We said a run to 3,600 would come if cleared and we were thrilled with Thursday’s blowout to 3,578.  Friday’s pop was the icing on the cake.  The next target for Tech is now 3,650-3,675 over the near-term as long as 3,550 sticks.  The Nasdaq began the week at 3,479 and zoomed 121 points, or 3.5%, by Friday’s closing bell.  Year-to-date, Tech has advanced 581 points, or 19.2%, after starting the year at 3,019.

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The Russell 2000 kicked another field goal (3 points), or 0.3%, to close at 1,036- and a half.  The small-caps came into the week as the New Sheriff in town after clearing and holding the 1,000 mark for the first time all year on the previous Friday.  Needless to say, it was important for the bulls to hold this level and they did with Monday’s push to 1,011.  We have been mentioning since May any CLOSE above 1,000 would lead to 1,025 and Tuesday’s pop to 1,018.93 put the small-caps a 6-pack away from downing our target.  Wednesday’s 2-point pop to 1,020 was followed with Thursday’s run to 1,033.  Friday’s continued push to 1,038 is giving signs 1,050 is going to trigger.  Support is at 1.025 followed by 1,000.  The Russell 2000 was at 1,005 before Monday’s open and was up 31 points, or 3.1%, for the week.  YTD, the small-caps are up a whopping 187 points, or 22%, after starting the year at 849.

RUT71413

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The S&P 500 Volatility Index ($VIX, 13.84, down 0.17) came into the week at 14.89 after closing below 15 on the previous Friday.  We said if this level held the bulls could push 13.50 on new highs in the S&P index.  Thursday’s low was 13.57, Friday’s 13.74.  A close under this level would get 12.50 in the mix, probably around the end of the month or early August and where the bulls could pause.  A print back above 15, and more importantly 17.50, would be bearish down the road. 

VIX71413

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The 2Q earnings season got off to a decent start with Alcoa (AA, $8.10, flat) beating expectations.  The “more important” earnings announcements were later in the week as JPMorgan Chase (JPM, $54.97, down $0.17) and Wells Fargo (WFC, $42.63, up $0.74) posted their numbers on Friday.  Wall Street seems to hate Wells and has favored JPMorgan over the years but Wells Fargo was the bigger bull on Friday. 

We like both stocks and we had a good feeling JPMorgan would clear double-nickels ($55) last week but it didn’t hold into the close.  This was a surprise as the company beat the suit-and-ties forecast by 16 cents.  The stock peaked at $55.87 on Thursday and $55.85 on Friday and a close above $56 could get $60 in play but the zombies are making it harder for the banks to make money.

JPM71413

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Wells Fargo also posted an impressive quarter after coming in a nickel ahead of estimates.  We mentioned earlier this year a close above $36 would be very bullish for a run to the $40’s.  After listening to the company’s earnings call, make that the $50’s over the next 6-12 months.

With the Financial stocks showing leadership, the bulls were able to push past resistance to new highs.  This week it will be up to Goldman Sachs (GS, $160.11, up $2.40) and Tech to carry the torch.  Google (GOOG, $923, up $2.76) will be the biggest name to announce as shares push their way toward quadruple-digits and the $1,000 mark.  There are a fistful of analysts that have come out with a $1,000 price target this year and this could be the quarter shares are justified or denied.  Google reports after the close on Thursday.

International Business Machines (IBM, $192.07, down $0.73) will be an interesting blue-chip to watch after the Dow component was downgraded by none other than Goldman last week.  The company will report their numbers on Wednesday and the 52-week low is $183.20.  Perhaps last week’s downgrade will soften any blow in case of an IBM miss, but we never like buying put options, or betting against strong companies and we wouldn’t be surprised to see IBM match or beat expectations.  We cover all of the major companies reporting in our Earnings sections below but the important part of all of these reports will be guidance for the current quarter and yearend not if they match, beat, or miss expectations. 

As far as the metals, Gold, Silver, and Copper rebounded after a terrible first week of the month.

Gold was especially strong last week as the yellow metal rallied 5% for its best week in 2 years.  Gold closed at $1,283 an ounce on Friday, down 10 cents.  After testing the $1,200 level to start the month, we said there could be a retest to $1,250-$1,300.  We still believe a drop to $1,050 is coming but a close above $1,350 and the 50-day MA would be bullish.

 GOLD71413

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Silver was down 22 cents and finished the week at $19.87.  After testing $18 earlier this month and our near-term target of $17.50, silver is struggling to clear $20.  There is a chance a run to $22 could come if cleared but we are still looking for a possible drop to the mid-teens and where we will start adding to our coin collection.

 SILVER71413

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Copper continues to hold the $3 level after pushing $3.15 late in the week.  A close above $3.25 and the 50-day MA would be healthy but any close below $3 would spell trouble for the stock market.  Copper is a global indicator on the health of the world economies and as long as $3 holds, demand and a continued recovery can be expected.   

 COPPER71413

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We have talked about the recent Friday/Monday closes and for those of you just joining us, we like to see up M/F’s in bull markets.  This indicates money is still flowing into the market while lower M/F’s could suggest money is moving out.  Mixed Monday/ Friday’s suggest a trading range.  With Friday’s positive close, the bulls now have 2-straight up Monday’s and 2-straight higher Friday’s.  China’s GDP (Gross Domestic Product) numbers on Sunday night will have an impact on Monday’s open and anything above 7.5% would be bullish.  A print below 7.5% growth could put the bulls in the hole on Monday’s open.  July options expire this Friday and will also play a major role in the close.

The S&P was able to close above its previous all-time high of 1,669.16 that was hit on May 21 but will need to clear the May 22 intraday high of 1,687.18 this week to get to 1,700.  The Dow surpassed its closing high of 15,409.39 on May 28 and will need to clear 15,542.40 that triggered on May 22, or 15,600, before a run to 15,800 can happen. 

We expect these two indexes to join the party as the Nasdaq is pushing 13-year highs and the Russell 2000 continues to set all-time peaks.  We will warn that July expiration day for July has been bearish in recent years and August could be a pullback month once the earnings season starts to wind down. 

We forecast our year-end targets in late January/ early February every year for the major indexes and some thought we were crazy when we predicted Dow 16,000.  The blue-chips closed at 14,009 on the first trading day of February.  The 2,000 point prediction at the beginning of February represented another 14% gain for the Dow after a 6% pop in January.

The S&P 500 was at 1,513 and we forecasted a possible run to 1,700 by yearend.  The nearly 200-point gain called for another 12% advance following January’s 5% jump.

We predicted 3,800 for the Nasdaq when it was at 3,179 and the 600+ surge would mean another 20% gain for the year after the 5.3% advance in January.

The small-caps were at 911 and we said a run to 1,025 could be in the works by the end of December.  The 114 surge represented a 13% advance following the 6.5% run in January.

The huge returns in January were missed by a ton of traders and Wall Street pros due to the Fiscal Cliff worries and Christmas vacations.  Last week, they were celebrating the long July 4 holiday.  The rally has been called the most hated in the history of Wall Street because those who say it have been on the sidelines or have been buying put options and shorting the market all year long.  They have missed the pullbacks and they don’t do their homework.

Billy Joel may have said it best – we may be wrong but we may be right as far as our yearend targets but like we said in May, we have no plans of changing them.  If the indexes exceed our targets, great, but there is still another 5+ months of trading for the year to go. 

We mentioned in our Daily last week that we expected a continued push higher through this Friday but we could turn cautious in August.  There will be another pullback, maybe not like the one we got in June to the 100-day MA’s, but at some point the market will face the affects of higher gas prices, continued sequestration cuts, and another battle over the debt ceiling in October. 

This is why it makes no sense to us to raise (or lower) yearend prices and the analysts who do are the ones who got it wrong and are jumping on the bull bandwagon.  The bulls have been smooth sailing all year long but choppy waters will arrive at some point.  The bears have shown the ability to strike hard and fast and we doubt we have heard the last of them.

As we head to press, here is how things look:  Dow futures are up 33 points to 15,402 while the S&P 500 futures are higher by 4 points to 1,674.  The Nasdaq 100 futures are advancing 9 points to 3,071.

 

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 tradesor “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: 79-41, including the Weekly Wrap that is 26-3).

 

Sony (SNE, $22.19, down $0.01)

August 24 calls (SNE130817C00024000, $0.60, down $0.05)

Entry Price:  $0.50 (7/11/13)
Exit Target:  $1.00
Return:  20%
Stop Target:  None

August 26 calls (SNE130817C00026000, $0.20, flat)

Entry Price:  $0.20 (7/11/13)
Exit Target:  $0.60
Return:  0%
Stop Target:  None

October 25 calls (SNE131019C00025000, $0.90, flat)

Entry Price:  $0.80 (7/11/13)
Exit Target:  $1.60
Return:  13%
Stop Target:  None

Action:  Shares held $22 on Friday as they try to work their way up to $23-$24.  News that China is lifting the ban of gaming counsels could have a huge impact on this stock.  Support is at $21 and the 50-day MA and we like these trades going forward as long as $20 holds.

SNE71413

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Riverbed Technology (RVBD, $17.15, up $0.13)

August 18 calls (RVBD130817C00018000, $1.00, up $0.10)

Entry Price:  $0.60 (7/9/13)
Exit Target:  $1.20 (closed 1/3 at 80 cents on 7/11/13)
Return:  56%
Stop Target:  70 cents (Hard Stop)

Action:  We have a near-term target of $18-$20 for the stock by mid-August on a close above $17.50.  Support is at $16 and we have set a Hard Stop of 70 cents on the other 2/3’s of the trade to protect profits.

EVBD71413

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JPMorgan Chase (JPM, $54.97, down $0.17)

August 57.50 calls (JPM130817C00057500, $0.40, down $0.15)

Entry Price:  $0.38 (7/8/13)
Exit Target:  $1.00+  (closed 1/2 at 50 cents on 7/11/13)
Return:  18%
Stop Target:  30 cents (Hard Stop)

Action:  We have set a Hard Stop of 30 cents on the other half of the trade.  We would like to see shares start Monday’s session back above $55.  Support is at $52.50 and the 50-day MA but a break below $53.50 will likely knock us out of the trade for a scratch.

JPM71413a

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Aruba Networks (ARUN, $16.98, up $0.27)

August 17 calls (ARUN130817C00017000, $0.75, up $0.15)

Entry Price:  $0.55 (7/8/13)
Exit Target:  $1.10
Return:  36%
Stop Target:  None

Action:  The symmetrical triangle forming is pointing towards a major breakout.  We are looking for shares to make a run at $18, possibly $20 by mid-August.  Support is at $15.50.  We could add the August 18 calls (ARUN130817C00018000) on a breakout and they closed Friday at 40 cents.  The October 22 calls (ARUN1019C00022000) are also at 40 cents.

 

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Apollo Group (APOL, $18.49, down $0.48)

August 16 puts (APOL130817P00016000, $0.30, up $0.05)

Entry Price:  $0.65 (6/26/13)
Exit Target:  $1.30
Return:  -54%
Stop Target:  40 cents

Action:  Shares made a run to $20 following the break above $18 last week.  We will stick with the trade as long as $20.25 holds and the close below $18.50 on Friday was favorable.  We would like to see a trip below $18 this week.

APOL71413

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Rambus (RMBS, $9.75, up $0.01)

August 9 calls (RMBS130817C00009000, $1.00, flat) 

Entry Price:  $0.55 (6/18/13)
Exit Target:  $1.10
Return:  82%
Stop Target:  None

Action:  Earnings are due out on Thursday.  A break above $10 is possible on a match or beat while $9 could come back into play on a miss.  Analysts are looking for 11 cents a share on revenue of $149 million.

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Other 2013 Portfolio OPEN positions (4):  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.

 

MGM Resorts International July 17 calls (from May 2013)– HOLD

Clean Energy Fuels July 16 calls (from May 2013) – HOLD

Spiders Dow Jones July 141 puts (from June 2013) – HOLD

iShares Russell 2000 Index July 90 puts (from June 2013) – HOLD

 

 

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.

 

Nvidia (NVDA, $14.64, up $0.01)

August 15 call (NVDA130817C00015000, $0.42, up $0.01)

Thoughts:  Shares cleared resistance at $14.25 and a close above $14.75 should get $15-$15.50 in play.  Support is at $13.75, if $14,25 fails.  We have a 6-12 month price target of $20 for the stock.

NVDA71413_001

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Finisar (FNSR, $17.18, up $0.48)

August 18 calls (FNSR130817C00018000, $xx, up $0.xx)

Thoughts:  Shares should challenge $20 over the near-term with support moving up from $16 to $17.

FNSR71413_001

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Applied Materials (AMAT, $16.66, up $0.17)  

August 17 calls (AMAT130817C00017000, $0.40, up $0.05)

September 17 calls (AMAT130921C00017000, $0.55, up $0.10)

Thoughts:  We think shares can test $17 over the next month.  Support is at $15.75.

AMAT71413

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Scientific Games (SGMS, $12.59, up $0.18)

August 12.50 calls (SGMS130817C00012500, $0.80, up $0.10)

Thoughts:  We may get into this trade on a close above $12.50.

 

Salesforce.com (CRM, $42.43, up $0.91)

August 45 calls (CRM130817C00045000, $0.75, up $0.20)

November 50 calls (CRM131116C00050000, $1.05, up $0.15)

Thoughts:  We were waiting for $40 to clear before possibly getting into this trade.  If resistance is taken out, we could see shares make a quick run to $42-$43 with a shot at $45. 

CRM71413

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Yahoo (YHOO, $27.23, up $0.19)

August 28 calls (YHOO130817C00028000, $0.75, up $0.05)

Thoughts:  A close back above $27 would be bullish for a run to $30.  Support is at $26. 

 YHOO71413