The Dow dropped 37 points, or 0.2%, to close at 15,521 on Monday. The blue-chips traded in the red all session long and bottomed at 15,482 before making a decent rebound off the lows. Support at 15,400 still looks like a good bet to be tested while another break (and close) above 15,600 would be bullish.
The S&P 500 slipped 6 points, or 0.4%, to settle at 1,685. The index tested a low of 1,681 and held support at 1,675. We have been warning that a close below this level would be bearish for a possible trip to 1,650 but the bulls are still trying to clear 1,700 and are only 1% away.
The Nasdaq declined 14 points, or 0.4%, to finish at 3,599. Tech kissed a low of 3,592 and we have outlined 3,575 as crucial support. A close below this level could lead to a quick trip to 3,500. A close back above 3,600, and more importantly, 3,615 would be bullish for a run to 3,625-3,650.
The Russell 2000 gave back 8 points, or 0.75%, to end at 1,040.6. We were watching the 1,040 level like a hawk as a close below this level would likely get 1,025 and possibly 1,000 in play. A move above 1,055 would be bullish for another run at all-time highs but 1,050 needs to be recaptured, first.
The S&P 500 Volatility Index ($VIX, 13.39, up 0.67) surged 5% and closed just below 13.50 after reaching a peak of 13.86. We have warned about a close above 13.50 that could lead to 15 and where Wall Street will get nervous. A close back below 13 and then 12.50 would signal the bulls are back in control.
We were a little hesitant to open New Trades yesterday because we haven’t got full confirmation of lower prices, yet. We have seen the bulls hold support and the uptrend all year long but if and when it cracks, it could be a nasty fall.
We mentioned yesterday our Watch List was loaded with a bevy of possible New Trades and as we follow these stocks and the market, we have the luxury of picking the best options to give us the highest returns. We are watching Gold, the Transports, and possible earnings plays so stay ready.
As we head to press, futures look like this: Dow (+42); S&P 500 (+4); Nasdaq 100 (+12).
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: 90-45, including the Weekly Wrap that is 27-3).
Walter Energy (WLT, $11.09, down $0.05)
August 9 puts (WLT130817P00009000, $0.20, down $0.03)
Entry Price: $0.30 (7/25/13)
Exit Target: $0.60
Stop Target: None
September 9 puts (WLT130921P00009000, $0.52, down $0.03)
Entry Price: $0.70 (7/25/13)
Exit Target: $1.40
Stop Target: None
Action: Yesterday’s low was $10.68. 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.
Royal Bank of Scotland (RBS, $10.02, down $0.17)
August 10 calls (RBS130817C00010000, $0.35, down $0.10)
Entry Price: $0.55 (7/23/13)
Exit Target: $1.10
Stop Target: None
November 12.50 calls (RBS131116C00012500, $0.20, down $0.05)
Entry Price: $0.20 (7/23/13)
Exit Target: $0.60
Stop Target: None
Action: 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. Monday’s low was $9.91.
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.
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, August 26 calls, October 25 calls (from July 2013) – 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, $114.32, down $1.39)
August 110 puts (IYT130817P00110000, $0.70, flat)
September 105 puts (IYT130921P00105000, $0.90, up $0.05)
Thoughts: We could add puts on a drop below $113.
United Parcel Service (UPS, $86.81, down $0.18)
August 85 puts (UPS130817P00085000, $0.60, flat)
September 82.50 puts (UPS130921P00082500, $0.65, flat)
Thoughts: UPS looks like a good short on a close below $85 if there is further weakness in the stock.
MGM Resorts International (MGM, $15.96, up $0.02)
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, $128.47, down $0.31)
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.
Skyworks Solutions (SWKS, $23.60, down $0.35)
September 26 calls (SWKS130921C00026000, $0.45, down $0.10)
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, $17.72, down $0.25)
August 18 calls (ARUN130817C00018000, $0.65, down $0.15)
October 22 calls (ARUN131019C00022000, $0.45, down $0.10)
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, $41.84, up $0.21)
August 50 calls (weekly) (SCTY130809C00050000, $0.50, 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 $50 if losses come in ahead of expectations. The company is not profitable and has missed Wall Street’s estimates in its first 2 quarters as a publicly traded company by 9 and 10 cents. The current estimate is for a loss of 38 cents, on average, for the recently ended quarter.
If revenues can come in north of $30 million, earnings may not matter as Wall Street will be looking ahead at what potential sales the company may have. Current guesses are for sales of $27 million and a 10% upside surprise could send shares soaring. A wider-than-expected loss or a miss in sales could push shares below $35. The August 35 puts (weekly) (SCTY130809P00035000, $0.90, flat) are expensive but could be used to create a strangle option trade. However, if this becomes an official trade, we will likely play it straight-up with the call options.
Trius Therapeutics (TSRX, $11.40, down $0.35)
August 12.50 calls (TSRX130817C00012500, $0.45, down $0.05)
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, $14.73, up $0.13)
August 12.50 calls (TEAR130817C00012500, $2.60, up $0.20)
September 15 calls (TEAR130921C00015000, $1.25, up $0.10)
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, $43.31, up $0.09)
August 45 calls (CRM130817C00045000, $0.60, up $0.05)
August 40 puts (CRM130817P00040000, $0.25, down $0.05)
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.