9:00am (EST)

“It was a busy week for the market as Bernanke and 2Q earnings created a lot of noise.  The Financial stocks continue to shine a bright light on the sector and IBM was a major help in getting the Dow over its hump on Thursday but fell in sympathy on Friday following the Microsoft beating.  Goldman Sachs (GS, $164.36, up $0.30) was a little early on their downgrade of the stock but could be right over the longer-term if revenues don’t pick up.  There were a number of deals the company didn’t close in the second quarter that will get wrapped up this quarter and maybe a reason why they raised full-year guidance.  However, there is still risk down to $190 for IBM and a close below this level would be bearish for the Dow and the market.

IBM72913

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The nicest surprise of the week came from Bank of America (BAC, $14.75, down $0.01) which saw its shares zoom past $14 midweek after they came in with a better-than-expected quarter.  We have been on the BAC bandwagon since its trip to the single-digits a few years ago and we said there would be a return to its glory days.  The company reported a profit of $0.32 a share on revenues of $22.73 billion versus expectations for $0.25 a share on $22.79 in revs.  Although revenues came in slightly below the bar, the company said tangible book value was $13.30 and its book value was north of $20.  We have pounded the table for a few years now that shares would be back in the mid-teens with a shot at $20.  (see chart below in our Weekly Wrap Portfolio)

Shares were at $5 and change when we first started recommended the stock and covered calls back in December 2011.  We are currently on our seventh covered call trade and we will likely have it closed in early August as we sold calls against the position just before the breakout.

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Some of the knuckleheads will say covered call trading limits your upside and to a degree it does, but if shares continue to get called away it doesn’t mean you can’t start ANOTHER position.  We try to make 10%+ a month in a safe way and the fact that we are in a strong stock makes it even better.  If you had invested $1,000 in BAC at Christmas in 2011 and purchased 200 shares for your stocking, you would have a 90% return if our current trade holds up.  Not bad for 18 months of work.   

On the flip side, Google and Microsoft were a major disappointment after both companies missed Wall Street’s forecasts.  Google fell to nearly $850 in after-hours trading on Thursday but the dip was bought as Friday’s low checked-in at $875.  The fact shares nearly held $900 was bullish but the company’s cost-per-click continued to decline (-6%) for the fifth-straight quarter.  Revenues were still up 20% compared to the previous quarter but margins are also slipping.  We mentioned there were 4 or 5 $1,000 price targets for Google but shares will need to recover $930 before we would agree.  Otherwise, we see risk down to $850-$825 on a close below $875.  Google trades MINI options and we will look at mini puts for the Daily newsletter if support cracks.

GOOG72913

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This week will be the busiest week for earnings with many of the “mid-tier” companies reporting.  The heavy-hitters have already swung but there are a number of marquee names coming to bat this week.  Apple (AAPL, $424.95, down $6.81) on Tuesday, Facebook (FB, $25.88, down $0.30) and Caterpillar (CAT, $85.65, down $0.07) on Wednesday, Amazon.com (AMZN, $305.23, up $1.12) on Thursday.

The Dow will have nearly a third of its components reporting their numbers so we would expect support or continued new highs to be triggered this week.  Apple will shape the direction Tech will take and we wouldn’t be surprised if they missed Wall Street’s expectations.  The bar is already low as analysts have been slashing numbers all year so Apple could meet or beat expectations but it’s doubtful.  What will be important is their product development cycle update.  Other than that, a dividend hike would be nice and a 10-1 stock-split but the odds of these two share-friendly surprises happening are slim and none.  We cover all of the companies reporting in our earnings section below and we could play a few of these names in the upcoming week for our Daily newsletter.

Gold flirted with the $1,300 level all week and reached a high of $1,299.70 midweek.  Friday’s high was $1,297 and a close above $1,300 should get $1,325 in play but we still believe $1,350 needs to clear before we see a rush back into gold.  A close below $1.275 would be bearish for a retest of $1,250-$1,200.

Silver made a run past $20 on Wednesday but resistance was too much as it immediately fell back towards $19.  We still believe a test to $17.50 is in the cards but a close above $20 would be slightly bullish.  We have mentioned over the past few months and longer-term, there is a chance silver falls to $15 but we will start nibbling at $17.50.

As far as the MFer’s, the Monday/ Friday closes continue to be bullish.  The Dow started the week with its third-straight up Monday and Friday’s recovery was a victory.  The Hat Trick for recent Monday’s was bullish for the blue-chips and even more impressive was the fact this past Friday was July expiration and has been bearish in recent years.  Remember, one of the easiest ways to keep track of where the market could be heading is to watch the M/F closes as up days mean money is moving back or into the market and investors are staying long over the weekend.  A reverse means stocks are getting sold and mixed M/F sessions signal a trading ranges.

We commented last week (again) on the most hated rally ever on Wall Street.  It could remain that way if the current uptrend holds for the rest of the year like we believe it will.  We mentioned in our video last week for our trading course, How to Trade Options on Momentum Stocks, that we expect 1,600 to hold on the S&P 500 for the rest of the year.

The suit-and-ties were caught flatfooted as they stood pat ahead of Bernanke’s testimony but there were little clues the market dropped that we could hit new highs.  The first was IBM.  We knew if the company could beat earnings and raise guidance shares would rebound.  We have talked about the stock being the biggest component on the Dow and the gains on Thursday helped push the index past resistance at 15,500.

Other clues:  The VIX stayed below 15, we had an up Monday, support at 3,575 held for Tech and the Financial stocks showed leadership.  We mentioned last week we should see continue to see higher highs but we have given you the clues to watch for in case we do get a pullback. 

The Dow made its 22nd record close for the week on Thursday while the S&P 500 made its 21st all-time closing high.  For the month of July, the Dow is up 634 points, or 4%, and the S&P 500 has gained 86 points, or 5%.  The Nasdaq has surged 185 points, or 5%, while the Russell 2000 has zoomed 73 points, or 7%.

All of the major indexes are rapidly approaching our yearend target of Dow 16,000; S&P 1,700; Nasdaq 3,800; the Russell 2000 has cleared our 1,025 target and has even triggered our 1,050 fluff target.  The 2013 gains aren’t unbelievable because we predicted them at the beginning of February.  What is body-tingling is how fast the market has climbed in 6+ months and the incredible bounce off the 100-day MA’s.

It feels like the current rally could last through July and our other yearend targets could come into play on continued strength.  At that point, it could be time to look at short positions heading into August and September but betting against the bulls or waiting on them to fall out of bed has punished a lot of traders this year.”  (from 7/21/2013 Weekly Wrap…)

The market stretched its winning streak to 4-straight weeks with an asterisk as the S&P 500 came up just short of joining the streak.

The bulls continued their push to new highs throughout the week but the bears made a little noise and showed some real signs of waking up.  Near-term support was tested late in the week and Friday’s pre-market action had the makings for a nasty day.

We mentioned the futures market was predicting a possible triple-digit drop on the Dow for the end of the week session and within the first hour of trading, the bears poured it on.  However, like we have witnessed all year, the dip was bought.  (read more…)

The Dow added 3 points, or 0.02%, to close at 15,558 on Friday.  The blue-chips traded in a tight 60-point range to start the week but made a nice push to 15,604 on Tuesday.  The close at 15,567 was bullish but Wednesday’s peak was only 15,602 before a drop to 15,500 as the low checked-in at 15,496.  The 25 point loss and failure to hold 15,600 was bearish.  Thursday’s drop to 15,455 opened the door for a test to 15,400 but the Dow added 13 points by the close to end at 15,555.  Friday’s tumble to 15,405 held support as there was a tremendous 155-point rebound by the final bell.  A close above 15,600 should lead to 15,800-16,000 while a finish below 15,400 will likely get 15,200-15,000 in play.  The Dow started the week at 15,543 and was up 15 points, or 0.1%, by Friday’s close.  For the year, the blue-chips have gained 2,454 points, or 18.7%.

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The S&P 500 popped nearly 2 points, or 0.1%, to settle at 1,691.  The S&P continued its push towards 1,700 with Monday’s pop to 1,697.61.  We have mentioned a close above this level gets 1,725 in play but Tuesday’s high was 1,698.78 and Wednesday’s peak was 1,698.38 before a freefall to 1,682.  The failure to clear 1,700 and the lower low on Wednesday was bearish and got 1,675 back in the mix.  Thursday’s low was 1,680 and Friday’s bottom was 1,676 before the 15 point rebound.  There is risk down to 1,650 on another back test and failure at 1,675 while a close above 1,700 would lead to another breakout to new all-time highs.  The S&P 500 came into Monday’s session at 1,692 and slipped a half-point, or 0.03%, for the week.  For 2013, the index is higher by 265 points, or 18.6%.

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The Nasdaq jumped 8 points, or 0.2%, to end at 3,613.  Tech reclaimed the 3,600 on Monday’s run to start the week and had hopes of reaching 3,625 if it held this level.  Tuesday’s peak was 3,606.28 and Wednesday’s high was 3,606.19 before a flush down to 3,573.  We have warned a close below 3,575 would get 3,550-3,500 back into the picture and Wednesday’s close was 3,579.60.  Thursday’s low was 3,579.20 and the slight decline and hold of support at the open was bullish as the Nasdaq cleared 3,600 (again) by the close.  However, there was another test to support on Friday’s open as the bears touched 3,581 before the bulls nearly pushed monthly highs.  A close above 3,615 to start the week could clear the way for a push to 3,625-3,650 but another drop below 3,600 and specifically, 3,575 might signal July’s run is over a little early.  The Nasdaq began the week at 3,587 and gained 26, or 0.7%, by Friday’s closing bell.  Year-to-date, Tech has advanced 594 points, or 19.7%.

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The Russell 2000 gave back a 6-pack, or 0.5%, on Friday to end at 1,048.  The small-caps needed to hold 1,050 to start the week if it was going to push new all-time highs and touched 1,054.68 and 1,056.86 on Monday’s and Tuesday’s attempts at 1,075.  Wednesday’s peak was 1,055 before the bottom fell out and a drop to 1,042 came from nowhere.  We mentioned last week a close back below 1,040 could get 1,025 back in the mix.  Thursday’s dip to 1,040.79 was as close as the bears would get before the bounce back over 1,050 and close at 1,054.  Friday’s low was 1,042 but the index failed to make it into positive territory during Friday’s turnaround.  The small-caps have given some of the best clues all year so watch 1,040 and 1,057 this week for a breakdown or breakout to fresh highs.  The Russell 2000 was at 1,050 before Monday’s open and dipped 2 points, or 0.2%, for the week.  YTD, the small-caps are up 199 points, or 23.5%.

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The S&P 500 Volatility Index ($VIX, 12.72, down 0.25) came into the week at 12.54 and we have nailed the action all year on the VIX.  We been mentioning a run to 1,700 on the S&P would get 12.50 in play and that 1,725 would lead to 11 on the VIX.  Monday’s low was 12.29 and Tuesday’s bottom was 12.07.  Wednesday’s pullback in the market pushed the VIX back past 13 midweek and we warned a top could be in on the S&P if the VIX closed above 13.50 and will likely happen if 1,675 triggers.  Thursday’s peak was 13.54 and Friday’s high was 13.73 before the drop back below 13 by the close.  If the bears can get a close above 13.50, 15 will come quickly and where Wall Street would get nervous.

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The earnings parade continued last week with a number of big surprises and a few notable misses during the peak of the season.  More than a third of the S&P-500 companies reported their numbers and for the most part, beat expectations.

Apple (AAPL, $440.99, up $2.49) was the biggest name that came in with a beat while Facebook (FB, $34.01, down $0.35) was a huge surprise after blowing by Wall Street’s estimates.

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We covered both reports in our Daily along with Starbucks (SBUX, $73.36, up $5.19) but some of the disappointments included Caterpillar (CAT, $82.06, down $0.08), Netflix (NFLX, $246.31, down $0.43) and Amazon.com (AMZN, $312.01, up $8.61) which bucked the trend and ended higher after announcing their numbers.

The scorecard or bottom line looks like this: 66% of companies have beat expectations; 10% have matched; and 24% have missed forecasts.  On the surface, bulls would call this a successful quarter thus far but the slick talking bears are saying the beats are coming from aggressive cost cutting and revenues are missing due to slowing demand from a sluggish economy.

The Monday/ Friday closes continue to be positive for July as the blue-chips have been up 4-straight Monday’s and 3-of-4 Friday’s although the last 2 have been by the skin of their teeth.  This past Friday was a victory but the action hasn’t felt as bullish as previous weeks.  However, wins are wins and money is still moving into the market.  This Monday and Friday could be a test as Japan’s market is starting the week off with a drubbing (more on this in a minute).

From time-to-time we also like to check in on the Transports as they can also help in predicting market direction.  The Dow Transports had been struggling with the 6,600 level and took a significant hit last week.  The index came within spitting distance of falling below its 50-day MA and a close below this level would be bearish.

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United Parcel Service (UPS, $86.99, up $0.16) and FedEx (FDX, $104.58, down $0.29) reported disappointing earnings earlier this month and have weighed on the sector.  Excuses from a slower global economy to a shift to lower cost services were made for the misses.  We have traded FedEx a number of times over the years but the put options in UPS look good on a close below $85 if there is further weakness in the stock.

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July has been a terrific month for the market and is usually the strongest during the third-quarter.  August and September are typically weak months as mutual managers rebalance their portfolios ahead of October (which has a history of being nasty) to lock-in gains.  However, post-election years can be bullish but the upcoming zombie talk over the debt-ceiling (it’s back…) will likely hurt the market if the chatter starts early.

Predicting the market on a day-to-day basis is hard enough but longer-term clues and historic patterns can be big helps in predicting price direction. 

With 2Q earnings season winding down, and economists expecting more growth in the third and fourth quarters, economic news will become more relevant in the coming weeks.  This week brings the latest FOMC minutes and the July unemployment numbers, 2 very big deal reports that will likely move the market.

The bulls are showing gains upwards of 5% for the month and the wheels would have to come off the wagon for them to lose July which ends Wednesday.  Stranger things have happened and a 3-day slide would have to carry a lot of momentum for the bears to pull the upset.  The bears are known for their inconvenience and can strike quickly and at a moment’s notice.  The stair-stepping higher often leads to elevator drops like the one we saw in June and what we are currently seeing in the Transports.

The market continues to feel like it can move higher but we are once again getting warning signs a pullback is eminent.  We will continue to play the trend but we closed out a half-dozen winning trades last week for our Daily on the move higher.

We have fluff targets of Dow 15,800-16,000; S&P 1,700-1,725;  Nasdaq 3,650-3,700 and Russell 1,075-1,100 on a continued move higher but some of these are our yearend targets so we are a little cautious on how much further the bulls can push before there is a pullback.  We have mentioned the rally could last through the end of July but the bulls appear to be stumbling at the finish line as the market experienced lower lows throughout the week after higher highs to start.

We will need to be careful in going long put options or short the market because it is possible a trading range forms if there is a pullback and support holds.  If not, we have our clues to go short but we want to be 100% certain before opening the floodgates for New Trades for both the Daily and Weekly Wrap.

Japan’s market is taking a nasty hit as we have been watching the action throughout the night.  This could have an impact on the overseas markets and here at home as futures have been declining:  Dow futures are down 29 points to 15,469 while the S&P 500 futures are lower by 3 points to 1,683.  The Nasdaq 100 futures are declining 5 points to 3,066.

 

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: 90-45, including the Weekly Wrap that is 27-3).

Special Notice:  Folks, I have jury duty this morning,  last one until possibly September then I am done for another 3 years.  I may get lucky and not get picked, and if so, we will be back for the Daily at normal times.  Otherwise, we may be late.  – Rick

 

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Walter Energy (WLT, $11.14, up $0.20)

August 9 puts (WLT130817P00009000, $0.23, down $0.10)

Entry Price:  $0.30 (7/25/13)
Exit Target:  $0.60
Return:  -23%
Stop Target:  None

September 9 puts (WLT130921P00009000, $0.55, down $0.20)

Entry Price:  $0.70 (7/25/13)
Exit Target:  $1.40
Return:  -21%
Stop Target:  None

Action:  The 52-week low of $9.88 was hit in late June and a test to $10 is likely over the next few weeks.  Our near-term target is $8.  If these levels crack, there is a chance $7 comes into the mix.  We will stick with the trade as long as resistance at $12 holds as there is risk up to $14 on a close above this level.

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Royal Bank of Scotland (RBS, $10.19, down $0.28)

August 10 calls (RBS130817C00010000, $0.45, down $0.20)

Entry Price:  $0.55 (7/23/13)
Exit Target:  $1.10
Return:  -18%
Stop Target:  None

November 12.50 calls (RBS131116C00012500, $0.25, flat)

Entry Price:  $0.20 (7/23/13)
Exit Target:  $0.60
Return:  25%
Stop Target:  None

Action:  Shares tested a high of $10.50 midweek and is near-term resistance before falling back to support at $10 on Friday.  There is risk down to $9.75 and the 50-day MA on further weakness and where we could exit if it doesn’t stick.  The 52-week high is at $11.84 and a move above $10.50 and then $10.80 would be the signal a test to $12 is likely.  We believe shares can trade up to $15 over the next 6 months where we will start selling call options.

 

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Other 2013 Portfolio OPEN positions (2):  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.

Apollo Group August 16 puts (from June 2013) – HOLD – We still like this trade and will bring back coverage once shares fall below $18.  We will close the trade if the stock clears $20, and if we do, we will send out a Trade Alert.

Sony August 24 calls (from July 2013), August 26 calls, October 25 calls – Support is at $21 and the 50-day MA and we will bring back coverage on a close back above $22.  We will close the trade if shares fall below $20.

 

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.

 

iShares Dow Jones Transportation Average (IYT, $115.71, up $00.69)

August 110 puts (IYT130817P00110000, $0.70, down $0.10)

September 105 puts (IYT130921P00105000, $0.85, down $0.10)

Thoughts:  The Dow Transports had been struggling with the 6,600 level and took a significant hit last week.  The index came within spitting distance of falling below its 50-day MA and a close below this level would be bearish.  We could add puts by using the IYT iShares on a drop below $113. 

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United Parcel Service (UPS, $86.99, up $0.16)

August 85 puts (UPS130817P00085000, $0.60, down $0.05)

September 82.50 puts (UPS130921P00082500, $0.65, down $0.05)

Thoughts:  UPS looks like a good short on a close below $85 if there is further weakness in the stock.
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MGM Resorts International (MGM, $15.94, up $0.11)

September 17 calls (MGM130921C00017000, $0.40, flat)

Thoughts:  Earnings are due out August 6.  A close above $16.50 this week would be bullish heading into the event.  A drop below $15.25 this week would be bearish.

 

Spider Gold Shares (GLD, $128.78, up, $0.11)

August 123 puts (GLD130817P00122000, $0.90, flat)

September 118 puts (GLD130921P00118000, $1.20, flat)

Thoughts:  We would like to see a failed test to $130 and we could go short this week if it looks like resistance will hold.

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Skyworks Solutions (SWKS, $23.95, down $0.46)

September 26 calls (SWKS130921C00026000, $0.55, down $0.15)

Thoughts:  If shares clear $25, we will likely get back into this trade.  We have also listed some September calls that will allow the trade more time to develop if resistance is cleared.  Support is at $23.50 and a close below this level would have us looking at short-term puts.

 

Aruba Networks (ARUN, $18.00, up $0.61)

August 18 calls (ARUN130817C00018000, $0.80, up $0.20)

October 22 calls (ARUN131019C00022000, $0.55, up $0.15)

Thoughts:  Shares are in a tight range with a breakout to $20 possible.  A drop an close under $17.50 would be bearish.

 

SolarCity (SCTY, $41.53, up $1.44)

August 45 calls (weekly) (SCTY130802C00045000, $0.45, up $0.10)

Thoughts:  Earnings are out August 7.  Support is at $40 with risk down to $37.50 on a close below this level.  A break above $$42.50 could lead to another test of $45 and a move above this level would be bullish.

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Trius Therapeutics (TSRX, $11.75, up $0.03)

August 12.50 calls (TSRX130817C00012500, $0.50, flat)

September 15 calls (TSRX130921C00015000, $0.40, flat)

Thoughts:  A run to $15 could be coming and the call option pits have been active.  Support is at $11 but could be shaky down to $9 if there is continued weakness.

 

TearLab (TEAR, $14.60, up $0.73)

August 12.50 calls (TEAR130817C00012500, $2.40, up $0.60)

September 15 calls (TEAR130921C00015000, $1.15, up $0.25)

Thoughts:  There August 12.50 call options were at $0.80 and the September 15’s at 40 cents last Monday.  Earnings are due out in early August.

 

Salesforce.com (CRM, $43.22, flat)     

August 45 calls (CRM130817C00045000, $0.55, down $0.05)

August 40 puts (CRM130817P00040000, $0.30, flat)

Thoughts:  We could be at a perfect price point to make this a strangle option trade.  There could be a back test to $42 and where we may establish a position if support holds.  We would consider puts on a drop back below $41.50.