MomentumOptionsTrading.com Weekly Wrap for 10/20/13

11:55pm (EST)

 

1.  Market Summary 

2.  Noodles & Company (NDLS) Building Momentum

3.  Earnings

4.  Weekly Wrap Portfolio Update 

5.  Week Ahead

 

(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section.)

 

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1.  Market Summary  

“The market hates uncertainty and survived a major breakdown last week as the bears pushed fresh lows following the continued uncertainty over the debt ceiling debate and government shutdown.  There have been a handful of times this year where the market may have gotten ahead of itself and when it does and starts to pullback, the worst is feared.

We mentioned last week the trading ranges could get stretched to the downside if talks stalled between the zombies stalled and by Wednesday, 3-month lows were in play.  Although it may not have been a capitulation moment, the bulls got a bounce off the midweek lows following nearly a 1,000 point pullback on the Dow.

The blue-chips reached an intraday all-time peak of 15,709 on September 18 and bottomed to a low of 14,719 on last Wednesday’s pullback.  The bulls were able to recover over half of the losses in 2 sessions by Friday’s close.

In August 2011, the last time the zombies played musical chairs with the debt ceiling, the Dow started the month at 12,143 and proceeded to fall to a low of of 10,801 by August 19.  The index then rallied to a high of 11,550 over the next month and closed at 11,408 on September 20 after the zombies kicked the can down the road to the current fork.  Side Note:  Three days later (September 23, 2011) the Dow was at 10,638 and had made lower lows after the Fed pushed Operation Twist.  By the end of October 2011 the Dow was pushing 12,250 before ending the month at 11,955.

The whipsaw action from last week could pick up dramatically this week and over the next month and we wanted to cover this to prepare you for what could happen if volatility remains high.

The market rallied off its lows in hopes that the zombies were close to an agreement and that the government would open up on Monday as a deal would be reached over the weekend.

Well, believe it or not, negotiations between the zombies have reached an impasse as the Head Zombie continues to play hardball.  The President is trying to squeeze the Senate Republicans after they sent their zombies home for the holiday following a breakdown in talks on Saturday.

The latest news is the Senate has proposed  a deal that would effectively increase the borrowing limit for 3 months instead of the rumored 6 weeks offered by the House with less purse strings.

If the knuckleheads have not made any meaningful progress ahead of Monday’s Wall Street open, Columbus Day could be a hot mess.  The bond market will be closed due to the holiday but stocks and options will trade.

Our boots to the ground research unveiled some interesting stories that could be developing and some things to think about in the upcoming weeks.

Our local CarMax (KMX, $47.93, up $0.64) is located 50 miles outside of the zombie’s headquarters and have cut back the hours of some of their employees during the government shutdown.  It seems they do a ton of business with the workers commuting to DC but with the shutdown, they were “forced” to furlong their workers.

kmx102013

Problem is, the hard-working employees at CarMax won’t be getting any back pay like the zombies that are on “vacation” during the shutdown.  Again, not our words and one of the zombie’s quotes, and we said there would be a “bill” passed that will give the government workers their back pay.  There were a number of other companies, especially ones tied to government contracts, that we could talk about as they furloughed their employees but the zombie shutdown will have a huge impact on jobs and the economy.

The President was hoping the market would tank so the Republicans would cave in.  He warned Wall Street should be worried and that the current government shutdown is different.  Neither has happened, yet, so we are wondering if he is now worried.

The zombies were due for recess starting Sunday and were hoping they would be on vacation on Monday.  We mentioned ahead of the shutdown that prior zombie strikes had little impact on the market with stocks rising in the month following a resolution.  This time could be different as the market could breakout to new highs or crumble like a cookie.

While headlines out of DC will have a major impact on the market, 3Q earnings are also underway and kick in to second gear this week.  We have listed a ton of the companies confessing and possible options trades in our Earnings section for the Weekly Wrap and we will be following them throughout the week in our Daily to take advantage of the volatility.

We don’t like trading options when the market is range bound, the volatility mKs it worth it as some of our biggest trades of the year have come in recent weeks and why it is important to always have some chips on the table than none at all.The 3-week trading range continued last week as the market will now enter a fourth week of volatile action with possible head fakes to the upside and downside.

It will be another important Monday as the Dow started last week with its fourth-straight Monday loss.  The blue-chips had been down 2 of the 3 past Friday’s and made it back-to-back Friday wins.  The mixed M/F closes usually define trading ranges and that is what we are seeing.  With futures pointing towards a lower open to start this Monday’s session, downside support levels we have outlined will come into play once again.  If support holds and a deal is reached before the zombies turn into pumpkins, we could see a repeat of last week’s action with a breakout to the upside.  A deal would have to wow Wall Street though as a 6-week can kick could have adverse affects.”  (from 10/13/2013 Weekly Wrap…)

The market traded lower to start the week after zombie talks broke down and no deal was reached to reopen the government or raise the debt ceiling over the weekend but the bulls ended their Monday curse by holding support and getting the win.  Tech and the small-caps reached fresh 52-week highs but the DC drama played out during Tuesday’s session as the indexes finished lower and back below support.

Futures were showing a higher open for Wednesday as the overseas markets traded and had improved ahead of Wall Street’s open as word spread the zombies were once again close to a deal.  The bulls were betting on a backdoor handshake as they pushed resistance out of the gate and cleared it once the talking heads reported the zombies had come to an agreement.  Although the market finished off its highs, the majority of the gains held as a bill was expected to be signed ahead of Thursday’s open.

For the traders and short sellers expecting a sell-the-news event, they  were certainly disappointed following the signature from Obama to reopen the government and raise the debt ceiling.  The Dow finished lower by 2 points but the other major indexes gained 0.7%, on average to set new 52-week and all-time highs.  Friday’s session was icing on the cake as the bull train left the station and continued chugging higher. (continued…)

The Dow added 28 points, or 0.2%, to settle at 15,399 on Friday.  The blue-chips opened the week with a break below 15,200 and a test down to 15,136 but bouncing 172 points off the lows to clear 15,300.  Resistance at 15,350 was next but Tuesday’s close back below 15,200 kept 15,000 in play.  The Dow made a higher low at 15,161 and closed at 15,168 and had a 1% cushion but didn’t need it as Wednesday’s peak reached 15,374.  Thursday was a dude but Friday’s high to 15,412 gets 15,500-15,600 in play.  Support is at 15,200-15,000.  For the week, the Dow gained 162 points, or 1.1%, after starting at 15,237.  For the year, the blue-chips are up 2,296 points, or 17.5%.

DOW102013

The S&P 500 jumped 11 points, or 0.7%, to finish at 1,744.  The index was trying to hold 1,700 coming into the week and did following the close at 1,710 but not before a pullback to 1,692.  We mentioned 1,725 could be challenged if 1,710 stuck but Tuesday’s pullback to 1,695 and close at 1,698 put those plans on hold for the bulls but only for a day.  Although the close back below 1,700 was disappointing the higher low was a good sign.  Wednesday’s surge to 1,721.76 came close to nailing our first fluff target of 1,725 to settle at 1,733.  We said a move past 1,725 could push new highs up to 1,750 and Thursday’s run to 1,733 was a good sign.  We said that morning the S&P could trade up to 1,775-1,800 if triggered and the bulls are a 6-pack away.  A close back below 1,725 and then 1,710 could signal a top is in.  The S&P 500 came into Monday’s session at 1,703 and was higher by 41 points, or 2.4%, for the week.  Year-to-date, the index has zoomed 319 points, or 22.3%.

SPX102013

The Nasdaq soared 51 points, or 1.3%, to close at 3,914.  Tech stocks were weak on Monday’s open and pushed the Nasdaq down to 3,766 but 3,750 held before a strong run  back above 3,800 by the close.  The bulls came within 3 points of making a fresh 52-week high and we mentioned a close above 3,825 could lead to 3,850.  Tuesday’s pullback to 3,794 and low of 3,789 was also a higher low as 3,775 held.  Wednesday’s surge to 3,840 was a good clue 3,850 would trip and we have mentioned there is a chance at 4,000 by yearend.  That could come much sooner rather than later as Thursday’s high reached 3,863 and Friday’s surge past 3,900 puts 4,000 within 3% of the bulls reach.  A close back below 3,825-3,800 would be bearish.  The Nasdaq began the week at 3,791 and zoomed 123 points, or 3.2%, by Friday’s close.  For 2013, Tech has gained 881 points, or 29.6%.

NAS102013

The Russell 2000 popped 12 points, or 1.1%, to end at 1,114 on Friday.  The small-caps came into the week challenging 1,100 but needed to hold 1,075.  Monday’s opening dip to 1,076 was picture perfect before the index set another all-time high at 1,090.  Tuesday’s dip pushed 1,077 and the close at 1,079 made traders nervous but support held and Wednesday’s run to 1093 set another all-time high.  Thursday’s close at 1,102 was enough to triggered our 1,100 target and we said a run to 1,115-1,125 could come by the end of the week if hit.  Friday’s high was 1,115.  We have penciled-in 1,150 as the next area of resistance and the top of the next uptrend channel.  A close back below 1,100-1,090 and then 1,075 would help the bears.  The Russell 2000 was at 1,084 before Monday’s open and surged 30 points, or 2.8%, for the week.  YTD, the small-caps are higher by 264 points, or 31.2%.

RUT102013

The S&P 500 Volatility Index ($VIX, 13.04, down 0.44) came into the week at 15.72 and favored the bulls on a close below 15 and the bears on a close above 17.50.  Monday’s choppy session led to a higher finish as the VIX closed at 16.07 and stayed elevated throughout the day.  Tuesday’s action pushed the VIX to a high of 18.67 but the close at 18.66 held 20.  A close above this level would have been bearish but Wednesday’s 20% plunge pushed the VIX back below 15 with the close coming in at 14.90.  We said there was a good chance the bulls push 13.50 once they got the VIX back below 15 but we didn’t think they would do it in a day or the following session as the VIX closed at 13.48 on Thursday after flopping another 8%.  Friday’s low was 12.34 and the 52-week low is at 11.05.  It is possible a push to 10 comes on continued momentum and watch for the 2 warning signs at 13.50 and 15 if the S&P 500 index starts to slip and falls below 1,725 and then 1,700.

VIX102013

The zombies quickly headed for the exits last Wednesday after their “vacation” was delayed by 72 hours.  They had dragged their feet to get a bill passed before America turned into a pumpkin as they took one last round of jabs at attacking each other before they agreed to kick the can down the road into January.  The zombies technically did not set a new debt limit and essentially decided to “suspend” the debt limit until the first week of February.   They promised to talk about a budget by mid-December but don’t expand your lung capacity waiting for that to happen.

The Dow fell 1,000 points during the 2011 squabble over the debt ceiling and this time around was no different.  The Christmas rally will be important to watch this year as it will give us a goof clue ahead of January on which way the market is perceiving things.  Remember, the historic “Santa Claus” rally doesn’t start until after Christmas so file this in the memory bank as it will be a good tell.  For now, we will leave things there with the zombie talk as we are glad it is over for now.  We hate writing about politics but it does affect the market.

For the traders that were betting on a pullback, they were burned by the deal and better-than-expected numbers from a number of heavy hitters.  We covered Google’s (GOOG, $1,011.41, up $122.61) massive move (and how $1,000 could have been turned into $20,000 with call options) as well as some of the other big names and this week the floodgates open.  We have profiled up to 20 earnings trades for this week and trying to pick the best 5 was hard.  We will cover some of them in the Daily and Weekly but there is no way we will take all of them and further research is needed on some of them.    

Apple (AAPL, $508.89, up $4.39) doesn’t report earnings until next week and shares have been under pressure for much of the year so we wanted to talk about them this week following the break above $500 again.  The volatility has caused an endless debate from Wall Street to Main Street on if shares are undervalued or overvalued.  We use both fundamental and technical analysis in predicting a stock’s possible future move and the chart has turned favorable for Apple in our opinion.

Shares cleared $500 for the first time since early September on Wednesday and the run has been perfectly telegraphed by the recent golden crosses.  The blue line on the chart is the 50-day MA, currently at $487.62.  The green line on the chart shows the 100-day MA turning up and is currently at $458.76.  The red line is the 200-day MA that is showing a downtrend and is currently at $451.49.

A golden cross forms when a shorter-term moving average (MA) crosses above a longer-term moving average.  This is considered a bullish sign because the shorter-term MA reflects the most recent price action relative to the longer-term MA.  Obviously, the bigger the difference in MA’s the better but having 2 or 3 can be used for confirmation of a continued uptrend.

A “classic” golden cross signal is when the 50-day MA crosses above the 200-day MA and from the Apple chart below (red circle) you can see where this occurred in early September.  A second golden cross has also formed as you can see where the 100-day MA has crossed over the 200-day MA.

AAPL102013

Our chart work is showing a run to $550 is in the works and if it is, Tech should trigger 4,000 this week or next.  Apple will be holding an “event” this week so expect some new product news.  We doubt a watch or TV will be rolled out but if they are, shares will explode higher.

We mentioned earlier the bulls finally got a Monday win after 4-straight losses and have won the past 2 Fridays and 4-out-of-the-last-5.  Monday’s win was a good clue the market would have a good week and with Friday’s up close, the trend is higher.

We believe the last 9 trading days of the month will be bullish if the market can get off to a good start on Monday.  If there is a pullback but small in nature, that would be okay as the indexes could see a little choppiness to start the week following last week’s surge to new highs.  The bulls appear as though they will push higher highs and we have great clues and downside targets to watch for and to confirm a top is in if they start coming into play on a pullback.

We are expecting a very busy week for both our Daily and Weekly Wrap so please check you email inboxes every hour or so as there will be a lot of action.  We are running a little late tonight due to the number of charts and possible trades we have outlined but the playbook is ready and it could be another very profitable week for us.

As we head to press, futures look like this:  Dow futures are up 25 points to 15,341 while the S&P 500 futures are higher by 2 points to 1,739.  The Nasdaq 100 futures are advancing 7 points to 3,348.

 

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2.  Noodles & Company (NDLS) Building Momentum 

By Michael Bryant

 

Noodles & Company (NDLS, $46.89, up $0.87) has traded in a tight range since its Initial Public Offering (IPO) and could be poised for a breakout.  While short-term valuations may be stretched, there could be a upcoming trade if shares clear $50.

Charta102013

Founded in 1995, Noodles & Company aimed to do what no one else was doing at the time: serving fresh food fast.  After eating at Mamie’s Asian Noodle Shop in Greenwich Village, New York, former Pepsi marketing executive Aaron Kennedy thought there were not enough restaurants that served noodle dishes, which are not only healthy and cheap but also a staple for many international foods.  Kennedy saved up $73,000 and raised $200,000 from 24 friends and family members, and the first Noodles & Company was opened in October 1995, in the Cherry Creek neighborhood of Denver, Colorado.  He then teamed up with real estate developer and his Augustana College friend, Tom Weigand, to open a second location in Madison, Wisconsin, the following March.

In April 1996, a negative review by the Wisconsin State Journal nearly killed the company.  The journalist praised the company’s revolutionary idea but criticized the taste of the food.  After having lost $42,000 in the first three months, Kennedy had his management team examine each element of the business.  They compared each dish at the struggling Madison restaurant to that offered by Chicago noodle shops.  The menu was reworked, more experienced managers were hired, and an architect redesigned the restaurant’s layout with “warmer” colors, such as red, orange, and yellow.  Prices were raised to make the food more profitable.

Chartb102013

The changes worked and the company expanded rapidly.  From 1996 to 2000, revenues grew from $330,000 to $13 million.  And 2008 revenue came in at $170 million.  Food critics named it the best fast-food restaurant.  It also gained a reputation as a good place to work.  From 2002 to 2007, its locations grew from 37 to 142, 22 of which were franchises.

On December 29, 2010, the Noodles & Company was acquired by private equity partners Argentia Private Investments and Catterton Partners.  Argentia put in $90 million for a 44.69% stake, while Catterton invested $91 million for a 45.19% stake.  Argentia is a private equity investment vehicle for Public Sector Pension Investment Board, one of Canada’s largest pension investment managers.  Catterton took stakes in Bloomin’ Brands (BLMN), owner of Outback Steakhouse, P.F. Chang’s, and several other restaurant chains over the last decade.  Thus, Catterton was well experienced in the sector and knew how to create value in the restaurant business.

Chartc102013

On June 27, 2013 after the bell, Noodles & Company went public, pricing 5.36 million shares at $18, above the expected $13 to $15 range.  Shares opened the next trading day at $32 a share, 77% above the IPO price, and closed up 104.2%.  It was one of the best first day returns for a U.S. IPO since 2001.  Catterton Partners owns 10.5 million shares of the company, $336 million based on the $32 opening price.  Argentia Private Investments owns 10.38 million shares, or $332 million.  Neither private equity firm sold shares in the IPO.

At the time, the company’s enterprise value was 14.6 times its adjusted EBITDA of $36.3 million.  Revenue was $300 million in 2012, and comparable store sales growth in 2012 was 5.4%, higher than in both 2011 and 2010.  The number of restaurants reached 339 locations, 51 of which were franchises.  It plans to open 38 to 42 new company owned locations for 2013, and expects to grow to 2,500 stores over the next 15 to 20 years.  Since franchising allows a chain to grow more quickly, the company may need to increase the percentage of franchises to company-owned restaurants.

Known as “Your World Kitchen,” the company offers international and American noodle dishes, as well as soups, salads, pasta and sandwiches.  With all the variety of fresh fruit and vegetable toppings, the restaurants carry just less than 500 dishes.  Popular dishes include the sweet and spicy Japanese Pan Noodles, zesty Pesto Cavatappi, and creamy Wisconsin Mac & Cheese (all shown below).  Most pasta entrees come vegetarian, but have optional protein toppings such as tofu, chicken, beef or shrimp.  It also sells flat bread and deserts, like rice crispy treats.  It also has seasonal items and noodle-less entrees were added in response to the trend for low-carb diets.  A gluten-free fusilli were added in April 2013.  Customers order at the counter and are served at their table, usually within 5 to 7 minutes.  The average check is approximately $8 per person.  And orders can be also made online.

Chartd102013

The average restaurant generates $1.18 million in revenue and $263,000 in store profit annually. Since 2008, compound annual revenue growth has been 15.2%.  Operating income has grown 67.5% annually on a compounded basis over the same period.  Its management team consists of several former McDonald’s (MCD) and Chipotle executives.  And it does not take tips.  Instead, it hires servers and pays them a good salary so they would not work for a tip but for the good of the company.  This helps enhance the atmosphere and lets them only hire servers who are happy to serve others.  A great management team and happy workers is a recipe for success.

Charte102013

On August 8th, the company reported 2nd quarter earnings for the three months ending July 2nd.  Revenues came in better than expected, 18% year or year.  It saw its 15th consecutive quarter of positive comparable sales growth.  Sales rose 4.4%, and customer traffic rose 2.4%.  They forecasted a full-year profit of $0.39 to $0.41/share.

The next earnings announcement is expected on Thursday, November 7th after the bell.  Analysts estimate the company will earn $0.11 per share on $91.01 million.  As shown in the graphs and table below, analysts’ revenue and earnings estimates seem easily attainable from previous quarter.

EPS

2nd quarter 2013   (6/13)

3rd quarter 2013   (9/13)

4th quarter 2013   (12/13)

Actual

0.13

Estimate

0.12

0.11

0.11

 

chartf102013

Due to its niche business, there is no prominent direct competitor.  Its closest publicly-traded competitor is Chipotle Mexican Grill (CMG).  The company has also been competing with Panera Bread (PNRA) for years.  Both of these fast casual restaurants are not pasta oriented, but they serve “healthy” options like those at Noodles & Company.

Chartg102013

At $47, the stock is slightly above its median target of $46.00 made by the 7 analysts recorded by Thomson/First Call.  Mean target is $44.43, high target is $51.00, and low target is $35.00.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.7, unchanged from a week ago.

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

1

1

2

0

Buy

1

1

0

0

Hold

6

6

6

6

Underperform

0

0

0

0

Sell

0

0

0

0

Shares have traded in a relatively tight range since the IPO but could be on the verge of testing $50.  A move above this level could lead to blue-sky territory and a run to $60.   Bullish traders can use the November 55 calls (NDLS131116C00055000, $0.75, up $0.10) on a move past $49.75.  If shares fall below $42.50, the November 40 puts (NDLS131116P00040000, $1.40, down $0.30) can be used to go short.

NDLS102013

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3.  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 (Quotes are from 10/18/13 close)

By Catherine Tierney

 

We have listed 20 possible earnings plays for our Weekly and Daily as possible trades.  If we take action or become official recommendations, we will send out a Trade Alert.  Obviously, we won’t take all of them but we do plan to be busy this week.

 

Monday

ACC, AOS, AGYS, BCC, BMRC, BXS, CATY, CHKP, CTG, DFS, ELS, FUBC, FWRD, GCI, HAL, HAS, HLX, HMA, HSTM, ICUI, LII, MAN, McDonald’s (MCD, $95.20, down $0.27), NVR, OHI, OMCL, OFIX, PROV, REIS, RCII, ROC, RCKY, SCCO, STEL, SCL, SYNL, USAP, VMW, WYNN, ZION , Netflix (NFLX, $333.50, up $3.40) options too expensive to play

 

PetMed Express (PETS, $16.86, up $0.59)

November 17.50 (PETS131116C00017500, 0.65, up $0.35)

Thoughts:  There was heavy call buying in these options on Friday.

 

Linn Energy (LINE, $27.42, up $0.31)

November 29 calls (LINE131116C00029000, $0.60, down $0.05)

November 25 puts (LINE131116C00025000, $0.55, down $0.10)

Thoughts:  The chart looks very bullish for LINN for a possible push past $30.  This is a volatile stock and while we are bullish, this trade could do well as a strangle play as well and why we listed the puts as protection for those that want safety with the trade.  Estimates range for a profit of 2-37 cents by the 13 suit-and-ties that follow the stock so there could be a big surprise, or disappointment.  A 10% move will put shares are $30 or $25.

 

MagicJack (CALL, $13.44, down $0.01)

November 15 calls (CALL131116C00015000, $0.35, flat)

Thoughts:  We have played magicJack in the past as a covered call trade and on earnings.  We are bullish on a run to $15 if numbers come in better than expected.

 

Tuesday

ABAX, ACE, AKR, ALTR, APOL, AXE, ABG, BKU, BRCM, CLMS, CPLA, CIT, COH, CBST, DLTK, DAL, EMC, EXAC, FRX, FCX, FULT, GNTX, GLF, HOG, HA, IEX, IDXX, ITW, IRWD, KMB, LXK, LMT, MANH, MHFI, MCRI, MLI, NBR, NUS, PNR, PNRA, PEBO, PII, PCH, R, RSH, RAI, RFMD, RUSHA, SIAL, SBNY, SFG, SUPX, TWIN, UTX, VOCS, WCN, WAT, WHR

 

iRobot (IRBT, $36.63, up $0.95)

November 40 calls (IRBT131116C00040000, $1.15, up$0.35)

Thoughts:  We like these calls for a run to $40 but we aren’t sure if Wall Street is going to like their numbers.

 

DuPont (DD, $59.62, down $0.02)

November 60 calls (DD131116C00060000, $0.60, down $0.05)

Thoughts:  Shares are near 52-week highs and a run to $65 could be coming.

DD102013

Cree (CREE, $73.86, up $1.02)

November 80 calls (CREE131116C00080000, $2.10, up $0.60)

Thoughts:  These options are expensive to play as an earnings trade and will likely keep is on the sideline.  A run to $80 could come on good earnings numbers.

 

Zix (ZIXI, $4.83, up $0.06)

May 5 calls (ZIXI140517C00005000, 0.45, flat)

Thoughts:  Possible LEAP trade.

 

Travelers (TVR, $86.58, up $0.56)

November 90 calls (TVR131116C00090000, $0.50, flat)

Thoughts:  We like these options for a push past $90.

 

Juniper Networks (JNPR, $20.82, up $0.13)

November 22 calls (JNPR131116C00022000, $0.45, flat)

Thoughts:  We like these calls as a lottery play as the options are cheap.

 

Wednesday

ARG, ALGT, AEP, AT&T (T, $34.61, up$0.17), BEAV, BANR, BA, BDN, BMY, EAT, Capital Source (CSE, $12.75, up $0.11), CAKE, CMO, CBZ, CTXS, CLW, CMC, CMRE, CSGP, CVA, CCI, DPS, ETFC, LLY, EFX, ETH, EVR, RE, FFIV, DAVE, FDML, FOrR, FBHS, GD, HRC, TILE, IXYS, JAKK, LEG, LAD, LO, LSI, LL, MPX, MTH, MSA, MORN, MSI, NDAQ, NEO, EDU, NLSN, NSC, NVEC, ORLY, OCR, TIS, OSIS, OC, PDFS, PDH, Popular (BPOP, $25.27, up $0.14), RJF, ROL, RES, SBRA, SIX, SKX, STMP, SRCL, SWFT, SYMC, SYA, TAL, TNC, TER, TEX, TESS, TBI, TUP, UNF, VAR, WLP, WYN

 

TriQuint Semiconductor (TQNT, $8.46, up $0.11)

November 9 calls (TQNT131116C00009000, $0.35, up $0.05)

Thoughts:  Shares could make a run to $10 on an earnings beat.  The past 2 quarters have been losses but analysts are expecting 10 cents a share.

TQNT102013

Caterpillar (CAT, $87.34, up $1.49)

November 90 calls (CAT131116C00090000, $0.80, up $0.40)

November 82.50 puts (CAT131116P00082500, $0.55, down $0.25)

Thoughts:  The break above $85 last week was bullish and could push shares past $90 if the company can surprise the suit-and-ties with an earnings beat.  We aren’t too bullish on the company but the breakout past resistance was strong.  There could be a small profit if these options are used as a strangle trade.

 

Akamai Technologies (AKAM, $52.15, up $0.11)

November 60 calls (AKAM131116C00060000, $0.57, up $0.06)

January 60 calls (AKAM140118C00060000, $1.10, down $0.15)

February 65 calls ( AKAM140222C00065000, $0.95, down $0.15)

Thoughts:  We love Akamai as we have followed the company for years and have said it is a takeover candidate.  Shares can be tricky to trade and why we listed possible longer-term plays as the company has matched, beat and missed earnings twice over the past 4 quarters.  This could be their breakout quarter and we like all of these options.  We could go long this week in both our Daily and Weekly Wrap and if we do it will likely be Tuesday afternoon.

 

Cadence Design Systems (CDNS, $14.48, up $0.06)

November 15 calls (CDNS131116C00015000, $0.35, flat)

November 16 calls (CDNS131116C00016000, $0.15, flat)

Thoughts:  We may be doing a feature story on this company in the upcoming weeks and the calls should double on a move past $15.

CDNS102013

8×8 (EGHT, $11.95, up $0.96)

November 12.50 calls (EGHT131116C00012500, $0.40, up $0.20)

February 15 calls (EGHT140222C00015000, $0.40, up $0.15)

Thoughts:  We have been following this cloud company for the past 2 quarters and shares are pushing 52-weeks highs.  Last time out, shares jumped from $8.68 to $9.34 in July after announcing earnings.  Shares are pushing 52-week highs and a run to $14-$15 could be in the works.  This is one of our favorite plays that could become an official recommendation for our Daily newsletter.  We may also run with the February LEAPs for the Weekly Wrap and if we do we will likely get into them on Monday afternoon or Tuesday.

EGHT102013

 

Thursday

Amazon.com (AMZN, $328.93, up $18.16), MMM, SHLM, AAN, ALK, ALXN, AB, ASPS, AHT, ACAT, ALV, BABY, BLL, BHE, BJRI, BCO, BC, BBW, CA, CAB, COG, CAM, CRI, CSH, CELG, CERN, CHH, Cliff’s Natural Resources (CLF, $23.02, up $0.13), CMS, CCE, CFX, CL, COLM, CTCT, DECK, DLX, DV, DO, DDE, DVD, DOW, DST, DNKN, EMN, ECO, WIRE, ESV, FII, FOE, FLS, Ford (F, $17.53, up $0.07), BEN, FSL, GNRC, GNC, GPI, HERO, HSY, HOME, IP, KBR, KKR, KLAC, KMG, LSTR, LAWS, MCK, MDP, MSFT, MNRO, NCR, N, NBL, OUTR, POL, PCP, QLGC, RDWR, RYN, RTN, REV, RXN, RCL, ScanSource (SCSC, $35.63, up $0.60), SLAB, HOT, SIRI, STC, TROW, TKR, Under Amour (UA, $85.29, $3.17), VCI, VRSN, WDC, XRX, ZMH, ZNGA

 

Ingram Micro (IM, $24.02, up $0.14)

December 25 calls (IM131221C00025000, $0.45, up $0.10)

Thoughts:  The call options have been active and we like these options for a move past $26.

 

Boston Scientific (BSX, $12.28, down $0.10)

November 13 calls (BSX131116C00013000, $0.25, down $0.03)

January 13 calls (BSX140118C00013000, $0.50, down $0.05)

Thoughts:  We like this company for a possible covered call trade for the Weekly and these options as a possible earnings trade.  The company has beaten estimates of 9 cents a share the past 2 quarters.  Analysts have pegged 9 cents a share again for the just ended quarter.  Another beat could vault shares towards $14.  The January 13 calls traded over 1,200 contracts this past Friday.

BSX102013

Bemis (BMS, $39.08, down $0.02)

January 40 calls (BMS140118C00040000, $0.80, flat)

Thoughts:  We like these options as a possible long-term play for the Weekly Wrap.  If we take action, it could be on Wednesday.

 

AutoNation (AN, $50.18, up $0.51)

November 55 calls (AN131116C00055000, $0.30, up $0.05)

Thoughts:  These options could do if shares jump $1-$2 on earnings.

 

Friday

ACO, ACN, B, BNCN, DTE, ETN, FET, GIFI, LEA, LM, LIFE, MCO, NOV, PSTB, PG, PFX, SHW, SPG, UPS, VTR, WBC, WY, WETF

 

AbbVie (ABBV, $48.33, up $0.16)

November 50 calls (ABBV131116C00050000, $0.50, down $0.10)

Thoughts:  We have this stock on our Watch List but we have only been following the company for a month.  It’s an actively traded stock that is poised for a major breakout.

ABBV102013

Re/Max Holdings (RMAX, $29.35, up $0.12)

November 30 calls (RMAX131116C00030000, $0.60, flat)

Thoughts:  Housing is slumping according to the experts but Re/Max could come in with decent numbers.

 

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4.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 10/18/13)

Our Weekly Wrap Closed Trade Track Record for 2013 is 39-4 (83-6, overall since the start of 2011)

 

Special Notice:  Opko Health (OPK, $xx) went parabolic last week and we knew when shares cracked $10 they could be off to the races.  We recommended a covered call trade when the stock was at $8.34 and we sold the October 9 calls (OPK131019C00009000, $1.10, up $0.05) to lower the cost basis to $8.09.  Needless to say, the trade was called away for 11%.  Even better, the March LEAP options are up triple-digits and we closed half to lock-in profits.

 

The Vera Bradley (VRA, $21.00, up $0.22) strangle option trade was closed and lost 31%. 

 

Current Trades 

Pizza Inn Holdings (PZZI, $7.96, down $0.04) Stock Trade

Original Entry Price:  $8.10 (10/11/13)

Lowered Price from Selling Options/ Dividends:  No options available

Exit Target:  $12+

Return:  -2%

Stop Target:  $9

Action:  Shares dipped below $8 to start Monday after closing at $7.99 and trading to a low of $7.73.  The intraday highs were above $8 the rest of the week with support at $7.75 holding up.  There is risk down to $7.50-$7 but we are expecting a move past double-digits by yearend.  The company has over 100 Pie Five stores that are slated to open into 2014 and we love this stock as a long-term core holding.

PZZI102013

Aruba Networks (ARUN, $18.75, up $0.18) LEAP Option Trade

January 20 calls (ARUN140118C00020000, $1.20, up $0.10)

Original Entry Price:  $1.45 (10/11/13)

Exit Target:  $2.90

Return:  -17%

Stop Target:  $0.70 

Action:  Shares held $19 to start the week but closed below this level on Tuesday’s pullback to $18.77.  Shares dipped to a low of $18.50 by Thursday before Friday’s slight rebound.  Support is at $18.50 but there is risk down to $18.  A close back above $19 and then $19.50 would be bullish.

ARUN102013

Opko Health (OPK, $11.60, down $0.35)

March 10 calls (OPK140322C00010000, $2.50, down $0.60) LEAP Option Trade

Original Entry Price:  $0.75 (9/19/13)

Exit Target:  $2.00 (closed half @ $2.70 on 10/15/2013)

Return:  247%

Stop Target:  $1.00, raise to $2 (Limit Stop)

Action:  Shares came into the week at $10.07 and reached a high of $12.84 during Tuesday’s session and where we locked-in profits on half the trade.  We closed half of the trade into strength.  OPK kissed $12.95 on Wednesday before losing a penny into the close to finish at $12.27 but tested $11.75.  Thursday’s low held $12 before Friday’s 6% drop.  Shares made nearly a 30% from Monday to Wednesday’s peak and the profit taking was expected.  There is risk down to $11-$10 on a continued retracement but we are still expecting shares to reach $15 over the next 6 months.  We have raised the Limit Stop on the other half of the trade to $2 that will take us out if there is further weakness.

OPK102013

Sonus Networks (SONS, $3.47, flat)

Original Entry Price:  $3.73 (9/9/13)

Lowered Price from Selling Options:  $3.73

Exit Target:  $5

Return:  -7%

Stop Target:  $3

Action:  Sonus struggled with resistance at $3.50 but kissed it on Thursday and reached $3.56 on Friday.  A drop below $3.20 would be bearish while a move above $3.50 would be bullish for a run to $3.80.  Earnings are due out next Tuesday.

SONS102013

Krispy Kreme Doughnuts (KKD, $23.52, up $0.10) Short Position

Original Entry Price:  $18.92 (9/4/13)

Lowered Price from Selling Options:  None

Exit Target:  $16

Return:  -20%

Stop Target:  $24, raise to $26

Action:  Krispy Kreme tested support at $22 before reaching a 52-week high of $24.23 on Friday.  Resistance at $24 has been holding and while there could be a run to $25-$26, we still like this trade.  At some point, valuation will matter so we don’t mind holding the trade during a rising tide.  A close back below $22 would have us headed in the right direction again.

KKD102013

Galena Biopharma (GALE, $2.22, up $0.02)

Original Entry Price:  $2.12 (7/8/13)

Lowered Price from Selling Options:  $2.12

Exit Target:  $5

Return:  5%

Stop Target:  $1

Action:  Shares held $2 to start the week and cleared resistance at $2.20 by Wednesday with the close at $2.24.  Shares tested $2.20 on Thursday and $2.18 on Friday before adding a couple of pennies.  If $2.20 fails to hold, support is at $2.  The next level of resistance comes in at $2.40.

GALE102013

Exact Sciences (EXAS, $11.26, up $0.01)

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

Lowered Price from Selling Options:  $12.40

Exit Target:  $16+

Return:  -9%

Stop Target:  $10.45

Action:  Shares fell to a low of $9.82 on Monday and $9.98 on Tuesday while holding $10 by the closes.  Wednesday’s 6% pop to $10.60 was good to see but shares needed to clear $11 and they did with another 6% jump on Thursday to $11.25.  Shares tested $10.98 on Friday and support at $11 will try to hold.  If not, another test to $10 could come.  The October 14 calls expired on Friday and we will sell another call option when shares clear $12.  We are targeting the January 13 calls (EXAS140118C00013000, $1.15, flat) to lower our cost basis and if we take action this week we will send out a Trade Alert.

EXAS102013

We recommended buying Exact Sciences at $13.55 on 6/11/13.  On 7/11/13 we sold the August 15 calls for 55 cents that lowered our cost basis to $13.

On 9/10/13 we sold the October 14 calls for 60 cents which lowered our cost basis to $12.40.

 

Trades on HOLD (7):  DryShips (DRYS, $3.42, down $0.07), AKS Steel Holding (AKS, $4.13, up $0.20), Rare Element Resources (REE, $2.25, down $0.02), Rambus (RMBS, $9.31, down $0.13),Bebe Stores (BEBE, $5.86, down $0.02),Vivus(VVUS, $11.19, up $0.88), Dendreon (DNDN, $2.65, down $0.03)

 

= = = = = = = = = = = = = = =

 

5.  Week Ahead 

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

Ecocal102013