MomentumOptionsTrading.com Weekly Wrap for 11/10/13
1. Market Summary
2. Special 1-Year Subscription Offers – Guess the Dow, Win a NEW iPad!
3. Horizon Pharma (HZNP) Looks Like A Rising Star
5. Weekly Wrap Portfolio Update
6. 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
“October has a history of big crashes but the bulls sailed through the month with minor scratches as they pushed all-time highs. The bears might be waking up but they have several layers of support to crack before there is a trend change.
The Dow came into October at 15,129 and gained486 points, or 2.8%, for the month. The S&P 500 was at 1,681 and was up 80 points, or 4.5%. The Nasdaq jumped 151points, or 3.9%, after starting the month at 3,771 while the Russell 2000 advanced 22 points, or 2.5%, after starting at 1,073. The Dow Transports surged 5.9%.
Last week we touched on 1 of the basic 6 Dow Theory technical analysis as we talked about the blue-chips and their relationship to the Dow Transports. The Dow Theory was created by Charles Dow who was the first editor of the Wall Street Journal and with the index being the last index NOT to trigger our year-end target (from February we remind you), we wanted to cover why the blue-chips are still on track to push 16,000.
We mentioned the Dow would need to trigger a new high sooner rather than later following the Dow Transports surge to fresh all-time highs. That was achieved in 3 days and was a bullish sign as we said the sooner it came, the stronger the signal.
Another Dow Theory we like to follow is volume as it confirms price trends. When the Dow (or market) moves on low volume, there could be a bevy of reasons why and can cause choppiness. However, when price movements are accompanied by higher volume, it usually represents a more accurate trend.
This could be where the classic Wall Street saying “the trend is your friend” comes from as it confirms the direction in which the market anticipates continued movement. Although volume is not at robust levels, it has improved since August and could explode in November and December on a continued breakout and a possible blow off top that has yet to come.
A third Dow Theory is that a trend exists until definitive clues prove that they have ended. We often talk about “clues” and “market noise” as there might be a temporary move in the direction opposite of the current trend but like we have seen all year, the trend will soon resume the prior move. In other words, the trend should be given the benefit of the doubt during reversals or tests to support and why we have stayed calm and bullish.
We talked about all of the noise last week and we mentioned determining whether a top or high for the market is or the start of a new trend is one of the hardest crystal balls to read. This is why we use a number of other, simple to follow technical analysis to confirm or refute the current action. We like to use Channels and the Moving Averages to help us predict where prices are headed along with market sentiment, history, the VIX and a few others.
The other 3 main Dow Theories that are also in play are “movement”, “phase” and the fact the market is discounting all news. We will talk more about the technical analysis of each of these theories next week to wrap up our lesson but the first 3 are still showing a continued uptrend.
The Dow is also at a triple-top and these types of chart patterns can be bullish or bearish but this one looks bullish. The blue-chips peaked in August and September and are on the verge of a triple-top breakout as the index is in an uptrend. These types of setups are usually reliable and a breakout on higher volume would confirm another rally that should carry the Dow towards our yearend target of 16,000.
Although the Monday/ Friday closes have been mixed in the past few weeks, the bears have not scored big on Monday’s and support has held while the bulls continue to make Friday’s a good ending to the week. A higher M/F close this week would be bullish.
The only bearish signal we are seeing is the small-caps as the close below 1,100 needs to be respected. There could be a shakedown to 1,075 to flush out the weaker hands but if there is a close below this level, the Dow fails at its triple-top, and a rising VIX would be cause for concern as a possible trend change would be developing.” (from 11/3/2013 Weekly Wrap…)
The bulls got a solid Monday win as the Dow ended higher for the first time in 3 to start the week. The small-caps also snapped out of their recent funk as they led the charge higher. Tuesday’s have been bullish of late but there was no follow through as the indexes traded flat ahead of Wednesday’s breakout.
The bulls pushed resistance and fresh all-time highs midweek but the divergence and sector rotation caused a dip in Tech and the small-caps. This hangover lasted on Thursday despite a European rate cut and ahead of Friday’s Nonfarm Payroll report. To Wall Street’s surprise, the economy added 204,0000 jobs and the bullishness flushed the weaker hands out of the pot as the suit-and-ties that were once again screaming for a market top. As a result, the bulls closed out another winning Friday to take 3-of-4 of the indexes and the weekly win. (continued…)
The Dow zoomed 168 points, or 1.1%, to close at 15,761 on Friday. The blue-chips came into the week needing to hold fresh support at 15,600 that served as prior resistance. Monday’s low of 15,588 was quickly bought as the index reached a peak of 15,658. The bears put up a good fight on Tuesday as they pushed a triple-digit loss and a low of 15,522 before the bulls recovered and held 15,600 by the close. This was a great clue the bulls were going to push the previous all-time high of 15,721 and they did with Wednesday’s run to 15,750. Thursday’s peak reached 15,797 on the open and came within 3 points of hitting our 15,800 target before the bears attacked and pushed support at 15,600. The low checked-in at 15,586 and kept 15,400-15,350 in play but Friday’s recovery kept the uptrend intact as the blue-chips reached a peak of 15,764. A close above 15,800 gets our yearend target of 16,000 on the map. For the week, the Dow added 146 points, or 0.9%, after starting at 15,615. For the year, the blue-chips are up 2,657 points, or 20.3%.
The S&P 500 soared 23 points, or 1.3%, to settle at 1,770. The index came into the week with a 1% cushion above solid support at 1,750. The S&P dipped to 1,761 shortly after Monday’s open but ended near its high of 1,768.78. Tuesday’s trip to 1,755 made Wall Street nervous but 1,750 held as the index went out at 1,762. Wednesday’s trip to 1,773 fell short of tripping our 1,775 target that gets 1,800 in play and the close at 1,770 was bullish. Thursday’s peak at 1,774.54 came within a half-point of making that happen but the bears took over and cracked support at 1,750 with the close of 1,747. There was further weakness to 1,725-1,700 on a continued pullback but Friday’s high reached 1,770.78 to keep 1,775 on the radar. The S&P 500 came into Monday’s session at 1,761 and was up 9 points, or 0.5%, for the week. Year-to-date, the index has surged 344 points, or 24.2%.
The Nasdaq jumped 62 points, or 1.6%, to finish at 3,919. Tech started Monday’s session needing to clear 3,925 while holding 3,900. The bears tried to make some noise with a 3-point basket to start the week but the bulls rolled up 14 points by the close and pushed 3,937. Tuesday’s opening drop to 3,909 shook out some of the weaker hands as the index recovered and pushed 3,950. The high came within 3 points of triggering our go target to 4,000. Wednesday’s peak reached 3,955 before the flush down to 3,920 and close at 3,931. We mentioned in the Daily the dip below 3,925 could lead to a back test to 3,900 and then 3,850 on a break below this level. The bulls tried to recover on Thursday but after reaching 3,939 the bottom fell out as the low reached 3,855. There was further downside risk to 3,825-3,800 but the second wave of support held and Friday’s close back above 3,900 looked good although we would have liked to have seen 3,925 clear. The Nasdaq began the week at 3,922 and was slipped 3 points, or 0.1%, by Friday’s close. For 2013, Tech has is up a cool 900 points, or 29.8%.
The Russell 2000 gained 21 points, or 1.9%, to end at 1,099.97 on Friday. The small-caps held positive territory all session long on Monday as they bounced back over 1% to reclaim the 1,100 after closing at 1,108. We mentioned a close above 1,110 would be a good clue another run to 1,125 would come but Tuesday was a struggle following another back test to 1,100 and close at 1,103. Wednesday’s high reached 1,109 but we mentioned the close at 1,098 opened the door for a test to 1,075. Thursday’s session was mostly red following a pop to 1,103 as the low checked-in at 1,078. Friday’s open was green and the high reached 1,101. A close above 1,110 on Monday would be bullish. The Russell 2000 was at 1,095 before Monday’s open and added 4 points, or 0.4%, for the week. YTD, the small-caps are higher by 251 points, or 29.5%.
The S&P 500 Volatility Index ($VIX, 12.90, down 1.01) came into the week at 13.28 and went on another wild ride but not as crazy as the week before. The index traded up to 13.92 on Monday’s open but fell to 12.93 by the close. We have been calling for a test to 12.50 on a continued rally or a breakout to new highs and by Wednesday’s session the VIX had dipped to 12.67 while closing at 12.68. Thursday’s high reached a peak of 14.14 but easily held resistance at 14.50 after finishing at 13.91. We have said for a few weeks not to flinch until the VIX CLOSES above 15 and its 50-day and 100-day MA’s. Friday’s close back below 13.50 and near its lows for the week still keeps our 12.50 target in play with a stretch down to 12.
The bulls and bears had a slugfest last week as both sides stretched support and resistance inside the current 2-week trading range. The chaos caused some of the weaker hands to fold as the market pros continue to say a top is in but the Dow and S&P 500 closed out a fifth-straight week of gains. The blue-chips are up 689 points, or 5%, while the S&P 500 is higher by 80 points, or 5%, as well, over that time period.
The small-caps are also up and Tech sneezed. The Russell 2000 got back on track following a dip the prior week and is up 4-out-of-5 weeks. The small-caps have advanced a double-deuce (22 points), or 2%. Meanwhile, Tech fell for the second-straight week but is up triple 1’s (111 points), or 3%, over the same 5-week time period.
The mini-trading range over the past few weeks has pushed the Dow and S&P to the top of their trading ranges while the Nasdaq and Russell 2000 are near the lower end of theirs. This type of “divergence” can look bearish but we warned not to get too emotional as we prepared for a possible pause and some sector rotation.
Of course, we do want to point out how fast the indexes can tank when momentum does slow as the bears can throw a 2% punch in a matter of hours like the one we witnessed last week. The rebounds can also be just as strong though as we have seen the dips bought for much of the year.
The puzzle will be figuring out when the dips won’t be bought.
The headline risk will be here shortly once the zombies get back together in DC but with earnings starting to wind down and an improving economy, the outlook is good for another week or two and possibly into December. It has been nice not to talk about the zombies and we will try to keep it that way until they force our hand.
We mentioned on Friday the Financial sector was showing some strength as we noticed a number of our favorite banking stocks getting pops. It could be time for us to enter another Bank of America (BAC, $14.32, up $0.52) trade as shares could be on the verge of a breakout if the sector itself can regain some momentum. The 52-week peak for BAC is just north of $15 and we have been riding shares higher from $5 for 2 years with Weekly Wrap recommendations.
The Finance Spiders (XLF, $20.86, up $0.28) are the best way to get an overall snapshot of the sector and it’s no secret they have been underperforming the broader market since peaking over a month ago. We wanted to do some homework before playing a possible breakout and buying options on Friday and here is our analysis.
After clearing resistance at $20 in mid-October, the index failed to hold the breakout and was making lower lows before Friday’s rebound. The XLF tested a low of $19.48 in early October and zoomed over 10% before the false breakout at resistance and a test to $21. The 50-day MA has easily held and the chart shows the Spiders now dancing with the 20-day MA. The huge move on Friday reversed a week of losses and another run past $20 could lead to $22-$23.
This part will be in our revised 2014 option trading manual (with a video) and is how we “find” trades. You should NEVER trade a stock or options unless you have done some kind of chart work.
We like to use a number of indicators to help us determine a trade setup and all signs are bullish for a possible call option trade. If the XLF can clear $21 then it would b a great signal to go long on a projected move to new highs.
The nearest month options (November) expire this week so it is important to give the trade enough time to work in your favor. An option that expires in less than a week is considered a lottery play but they can easily make triple-digits if there is a 3%-5% move in a few days.
The XLF November 21 calls (XLF131116C00021000, $0.08, up $0.05) jumped 167% from the prior close and expire this week. As you can see from the Yahoo Finance quote below, the options are very liquid as over 6,600 contracts traded on Friday and Open Interest is north of 47,000.
These call options expire this Friday, or 5 days from Monday’s open. The calls could make money, or be “in-the-money” if shares are above $21 by Friday’s close. If the XLF closes at $21.08 the trade would break even, technically, if you paid 8 cents and got in prior to Friday’s close. If the XLF trades to $20.16 the trade would be a double (100%) and at $20.24 a triple (200%).
The XLF also trades WEEKLY options and the November 21 WEEKLY calls (XLF131129C00021000, $0.15, up $0.08) were up 114% from the prior close and would give you nearly 3 weeks of time if opened on Monday (11/11/13).
If you get in at 15 cents on Monday, the XLF would need to get to $21.15 for the trade to break even by the end of the month. At $21.30 the trade would be a double and at $21.45 the calls would triple.
A safer play would be the December 21 calls (XLF131221C00021000, $0.31, up $0.14) as they provide 6 weeks before expiration. The break even point is $21.31 if purchased at Friday’s close. A triple-digit return would come at $21.62 and if our Price Target of $22 trips the trade would return 200% by Christmas.
As we wind out the last 2 months of the year, the bullish case is there are another 12-18 months of gains and the market is still underpriced. The bearish case is that the market is at bubblious levels as valuations are at their highest levels in 3 years. We have been bullish all year long and we can’t wait until there is a major correction but until that time comes we will continue to ride the wave.
For those of you that are new subscribers and may not know how to play a down market, don’t get nervous as the profits can be just as explosive. At some point in 2014 (or sooner) things will get ugly and there will be a 10%-20% correction. The suit-and-ties will say we told you so but this will be when we start using put options to make even more profits that promise to be just as explosive as the call options plays we have banked on all year long.
In 2008, when the Dow was following 300, 500 and 700 points on any given day we used put options to make our subscribers an incredible amount of money and you can view our 2008 track record to see the types of gains that were made.
These days are in the future and we remind you of support on a daily basis because the market can turn on a dime. Investors get scared and the pros will tell you to stay out of the market when it is violent and like they are now.
For those of you that have followed us for a long time, you know we are not bullish or bearish by heart because if you are it limits your trading ability and you have wiped out half your playbook for possible option trades if you don’t like playing the downside or pullbacks and corrections.
While we continue to enjoy the bullish ride, there will be plenty of possible put option trades in 2014 as Obamacare and another possible zombie battle over the budget starts to take shape in December and into January. The good news for now is that we are still bullish and since 1928, 82% of the time the market has closed higher over the last 2 months of the year.
We have all the clues we need and plenty of warning signs to prepare for the eventual pullback but we continue to see higher prices through November and possibly into December until the charts tell us otherwise.
As we head to press, futures look like this: Dow futures are off 17 points to 15,683 while the S&P 500 futures are lower by 2 points to 1,763. The Nasdaq 100 futures are down a six-pack to 3,354.
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2. Special 1-Year Subscription Offers – Guess the Dow, Win a NEW iPad!
It is that time of year where we offer our best discounts and our best deal on subscriptions to our Daily and Weekly Wrap newsletters. The reason we do this simple. It gives new traders wanting to learn the stock and options market and an incredible discount and seasoned traders the opportunity to receive all of our stock and option recommendations for an entire year without interruption.
To be a successful trader of the market, you must do your homework every day and every weekend. It requires 100 hours a week of hard work as you have to plan for events, draw charts, prepare for earnings, watch overseas markets, the political picture and to identify trends before they develop or how long they will last.
In fact, one of our favorite quotes from the history books when it comes to market survival:
“If you are ready to give up everything else – to study the whole history and background of the market and all the principal companies… as carefully as a medical student studies anatomy – … and, in addition, you have the cool nerves of a great gambler, the sixth sense of a clairvoyant, and the courage of a lion, you have a ghost of a chance.”
We are proud to say we are closing out our 6th-straight year of profitability and we doubt there are many option newsletters that can make this claim. If any.
We know to trade up, down, flat and volatile markets and we have proven ourselves year after year with twice Daily updates and a 6-year Track Record that profiles ALL of our trading recommendations. Most financial newsletters don’ have Track Records so how can you possibly trust them.
The option websites that promise huge returns only talk about their wins, not the losses. Some of them will count a winning trade twice if they recommended closing out half positions but that is a smoke-and-mirror tactic that hides the true overall performance of a portfolio and the percentages on if they were right or wrong about a trade.
We don’t roll that way and this is why many option newsletters have come and gone over the years. We could name names but the so called “pros” that aren’t around anymore hurt the market and investor’s trust.
It is one of the main reasons we have verified results through our auto-trading partners and why we have grown our relationships in the business. All of our trade recommendations are time-stamped and dated and with several auto-trading partners that take the trades for our subscribers. In other words, we are very transparent.
We do this to earn investors trust because we know people are skeptical and sometimes find it hard to believe you can make more in one option trade than most people make in a year. Seriously.
There is also the risk of one trade losing money and we always try to have 5-15 open trades at once. The key to successful option trading is riding the tend and taking quick profits on stocks that move 5%-10%.
When a stock moves 5%-10%, and sometimes 20%, the option gains can be 100%, 300%, and even 500%-800% in some cases.
We often hear the Average Joe can’t make money in the market bit what we don’t hear is the reason they failed is because they didn’t do their homework. Luckily you have us and we enjoy what we do.
However, we do like to teach investors about stocks and the market because we believe everyone has the potential to manage their own money and to find there own trades.
We have written an option trading manual that explains how to become a successful option trader that includes bi-monthly videos. By taking charge of your financial investments it will empower you to learn the market in a way you never knew was possible.
Would you like to tell your friends about a $4 pizza stock that is now and $8 and could go to $20 over the next 12-24 months. You can if you are a member of our Weekly Wrap. Or how about telling your friends about an earnings trade that returned 200% in a day? Or a biotech that made you 400%. You can if you are a subscriber to our Daily.
You can also find these trades on your own by reading our option trading manual, How to Trade Options on Momentum Stocks and watching our videos. Here is a link that will describe the course benefits and what it covers:
The course is valued at $895 and will be included at NO CHARGE with your purchase of a 1-year membership to our Daily newsletter.
The regular price of a 1-year deal to the Daily is $924, a discount of 40% instead of the $129 monthly price. If we knock that price down to $789, it will be a 50% discount and you will get our updated copy of the options trading course for 2014. The new manuals will ship in December and will be mailed to your doorstep at no charge.
You will need this coupon code to the Special Offer (please copy and paste)
Coupon code: 9AD21
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We are also offering our Weekly Wrap that is now an astounding 84-5 since inception with numerous triple-digit winners. This newsletter is for investors that may only want to trade 2-4 times a month instead of 4-5 a week for the Daily.
The Weekly Wrap is a “safer” way to play options as we use a mixture of different strategies to play the market. We have a Track Record of nearly 70% for all of our option trades but this newsletter has a 95% success rate!
You can save 50% on a 1-year deal to the Weekly Wrap by using this coupon code:
Please go here for the Weekly Wrap subscription:
This coupon works for all subscription models for the Weekly Wrap but not the Daily.
To encourage you to sign up for both newsletters for a 1-year deal, we are offering this bonus to all of our subscribers that do.
If you purchase a 1-year deal to both our newsletters, you will have the opportunity to win the newest version of the iPad!
In December 2012, we acquired NextOptions.com – a successful options website with hundreds of subscribers and thousands of readers. Our goal has been to get more coverage of our Weekly Wrap to give our research team the credit they deserve. The newsletter has posted an amazing 84-5 Track Record since 2011. We are 40-4 this year.
We offered NextOptions subscribers an incredible discount to stay with us through the transition and you have been well rewarded as we have doubled a $10,000 trading account this year for the Weekly Wrap. NextOptions subscribers, Thank You for your trust in us. Current Momentum Options subscribers, Thank You for supporting us from the start.
We use a mixture of covered calls and stock trading ideas to make solid double-digit monthly gains and we have recently added LEAPs, straddle and strangle options trades with possible returns of 100% or more. (A recent LEAP call option trade returned our subscribers 198%).
We also profile one company a week and we cover a bevy of possible earnings trades and where we get our ideas for our Daily newsletter. The Weekly Wrap contains the exact same official trade recommendations for both MomentumOptionsTrading.com and NextOptions.com so there is no difference between the 2 sites except for some of the Daily content.
We are also giving away one American Eagle Silver coin a month by guessing the Dow. Details are on the NextOptions.com website and it does not cost anything to enter but you do have to be a member.
As far as winning the iPad, once you have signed up for BOTH the 1-year Daily subscription and the 1-year Weekly Wrap you will need to have your entry on where the Dow will close at the end of DECEMBER by November 30, 2013 by midnight.
Emails need to be sent to support at either site:
– with the subject line “Dow iPad Guess”. We will also send you an email to verify your guess in case those of you have problems. You will need to enter 2 decimals as well to your end of year guess for the Dow.
For current MomentumOptionTrading Weekly Wrap readers, you can still keep your subscription with us but you will have to visit NextOptions.com to enter the monthly contest to win a shiny silver dollar. However, you cans still signup for the iPad contest and have the emails from MomentumOptionsTrading.com. All of the trades are the same and are released at the same times with updates as needed for both sites.
If you have any questions, please feel free to email or call us. We have added extra staff but please realize we will be slammed with this offer.
Please do us a favor and tell your friends about us and encourage them to use the special discount coupon code. Remember, your subscription should be a tax write-off (check with your accountant) so take advantage of the tax laws.
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3. Horizon Pharma (HZNP) Looks Like A Rising Star
By Michael Bryant
Horizon Pharma (HZNP, $4.86, up $1.12) has done really well over the last few months and rocketed 30% higher on Friday. We prepared this report all week as the company was originally scheduled to report earnings on Monday, December 11.
Dr. George Tidmarsh founded venture capital-backed Horizon Therapeutics (also known as Horizon Pharma USA) in 2005 to fill the void in safer pain medications created when Vioxx was withdrawn from the market. The popular painkiller Vioxx was withdrawn by Merck (MRK) on September 30, 2004 because of concerns about increased risk of heart attack and stroke due to long-term, high-dosage use. However, Merck withheld information about Vioxx’s risks from doctors and patients for over five years, which was estimated to have resulted in 88,000 to 140,000 cases of serious heart disease and several fatalities. Multiple lawsuits were filed after it was disclosed that Merck hid the information.
Tidmarsh, who also founded Threshold Pharmaceuticals (THLD) in 2001, received a B.S. in Microbiology from Stanford University. He then earned an M.D. and Ph.D. from the Stanford University School of Medicine. From 2005 to 2008, Tidmarsh served as Horizon’s Chief Executive Officer, during which the company successfully completed four Phase I and two large Phase III trials, including the registration trials for Duexa (later renamed Duexis). Formally HZT-501, the drug targeted the widespread product void in the mild-to-moderate pain market left by inhibitors such as Vioxx, which either had been taken off the market or prescribed less due to elevated cardiovascular risk.
On April 1, 2010, Horizon Therapeutics and Nitec Pharma AG of Switzerland merged to form Horizon Pharma. Then on July 27, 2011, the company raised $49.5 million by selling 5.5 million shares to the public at $9 a share, below its expected range of $10 to $12. This gave the company a market cap of about $173 million. The FDA approved its first drug Duexis (a combination of ibuprofen and famotidine) for rheumatoid arthritis and osteoarthritis on April 23, 2011. The combination can also reduce upper gastrointestinal ulcers in arthritis patients who take ibuprofen alone.
Rheumatoid arthritis (RA) is an autoimmune disease that results in tissues lining the joints to become swollen, stiff, and inflamed. In an autoimmune disease, the body’s natural defense system attacks the joints. RA affects between 0.5 and 1% of adults in the developed world with between 5 and 50 per 100,000 people newly developing the condition each year. It is estimated that about 1.5 million people, or about 0.6% of the U.S. adult population, have RA.
There is no cure for RA, but treatments can improve symptoms and slow the progress of the disease. Disease-modifying antirheumatic drugs (DMARD) are the primary treatment for RA and work by suppressing the body’s immune and/or inflammatory systems. They are often used in combination with pain relievers and NSAIDs (non-steroidal anti-inflammatory drugs) such as ibuprofen and naproxen. The most commonly used DMARD is methotrexate with other frequently used agents including sulfasalazine and leflunomide.
Then on July 26, 2012, the FDA approved anti-inflammatory drug Rayos, a delayed-release version of the corticosteroid drug prednisone, which is sold in Europe under the brand name Lodotra by Horizon’s Swiss-based partner Mundipharma. Rayos was designed for patients to take before they go to bed. The drug’s proprietary outer layer dissolves slowly in the digestive system, releasing the common pain-relieving steroid prednisone after four hours when patients need it most. Although Horizon sought FDA approval for RA, the FDA allowed the drug to be sold for treatment of a broad range of diseases including RA, polymyalgia rheumatica (PMR), psoriatic arthritis (PsA), ankylosing spondylitis (AS), asthma, and chronic obstructive pulmonary disease (COPD). Patients with RA often experience pain in the overnight hours and stiffness in the morning.
On October 22, 2013, the company filed lawsuit against Par Pharmaceuticals, the fifth largest generic pharmaceutical company in the United States. Par, which was bought by private equity firm TPG Capital, filed an Abbreviated New Drug Application (ANDA) with the FDA for a generic version of Rayos. The lawsuit alleges that Par has infringed Horizon’s patents by filing an ANDA seeking approval from the FDA to market generic versions of Rayos prior to the expiration of the patents. The two companies had already settled a patent infringement lawsuit involving Horizon’s drug Duexis in August.
On Oct 29, 2013, the company reported that data from its Circadian Administration of Prednisone in Rheumatoid Arthritis-1 (CAPRA-1) clinical trial showed that patients with rheumatoid arthritis (RA) treated with Rayos had significant and sustained improvement in morning symptoms when given at bedtime. The time to reach its thresholds was quicker with Rayos than conventional prednisone, and patients who switched quickly manifested comparable responses.
The company reports 3rd quarter earnings on Monday, November 11th. Analysts estimate the company will earn -$0.25 per share on $18.31 million.
Despite not being profitable, the red line (total expenses) in the first graph is not rising as fast as the blue line (revenue). Thus, it can be assumed that, given the current trend continues, the company could become profitable as early as the first half of next year. Gross margin (revenue minus cost of revenue) grew in the last two quarters, a very bullish sign. Note that revenue is the sales plus contract revenue minus sales discounts and allowances. Since contract revenue is very small compared to sales, we can ignore it. Sales growth increased last quarter, but since sales discounts and allowances also increased, revenue growth was the same as the previous quarter. So watching the trend of sales discounts and allowances may be something to keep an eye on, as it could hinder the company from becoming profitable.
Looking at the year over year earnings graph, analysts see earnings growth to slow in the 3rd and 4th quarters. But interestingly, they see year over year revenue rising in the 3rd and 4th quarters. Thus, the company could beat on earnings, but revenues could miss or meet.
Update!!!: Horizon reported a loss of just 3 cents on revenue of $26.2 million so our analysis was spot on.
Duexis competes with other branded NSAIDs including Celebrex and Arthrotec, marketed by Pfizer (PFE), and Vimovo, developed by Pozen (POZN) and marketed by AstraZeneca (AZN). Lodorta competes with a number of pharmaceuticals on the market to treat RA. However, it has no pure play competitors.
At $4.86, the stock is below its low target of $6.00 made by the 4 analysts recorded by Thomson/First Call. Mean target is $6.88, median target of $6.75 and high target is $8.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 1.8, unchanged from a week ago.
Two Months Ago
Three Months Ago
The fundamentals seem strong, and we believe the company will beat on earnings and meet on revenues. We think it has a bright future and we like the stock at these levels.
We were hoping to get all of our subscribers in this trade on Monday morning but obviously we are a day late as the near-term November call options exploded on the good news.
The November 4 calls (HZNP131116C00004000, $0.90, up $0.75) would have been a lottery trade but the options were cheap enough and offered a great risk/ reward setup based on our research. They closed Thursday’s session at 15 cents and soared 500% on Friday after closing at 90 cents.
The December 4 calls (HZNP131221C00004000, $0.95, up $0.35) were up nearly 60% and would have been a “safer” trade and the December 5 calls (HZNP131221C00005000, $0.50, up $0.30) jumped 150% after closing Thursday’s session at 20 cents.
While we feel Charlie Browned by the early news, we will continue to watch Horizon Pharma and if we add shares to the portfolio(s) we will send out a Trade Alert.
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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 11/8/13 close)
ACHN, CRMT, ARPI, ANFI, ABFS, BTN, CYD, CTWS, CORE, CTIB, EDG, ENZY, ESE, ESP, FRF, FTEK, BRSS, GSE, HAYN, HOLX, NVIV, NMFC, NTI, OPK, ORVL, PEGA, PERY, RDNT, RLGT, ROCM, SDT, PER, SEMG, SLP, SOFO, SPRD, STAN, BEE, USEG, VECO, VSAT, VIPS, WLH
Dick’s Sporting Goods (DKS, $54.11, up $0.67)
December 57.50 calls (DKS131221C00057500, $0.75, up $0.10)
December 50 puts (DKS131221P00050000, $0.80, down $0.10)
Thoughts: Shares are in an uptrend and could push $60 if DKS comes in ahead of numbers. If not, or they lower guidance, shares could test $51 or worse. We are thrilled about this strangle option trade and we will likely sit on the sidelines but we are more bullish than bearish on the stock.
Rackspace Hosting (RAX, $48.54, up $0.86)
November 50 calls (RAX131116C00050000, $2.40, up $0.65
November 45 puts (RAX131116P00045000, $1.45, down $0.10)
Thoughts: This is an important quarter for the company and while we like them they are hard to trust and why we have also listed put options. The options are also very expensive as we have listed November options that expire this week. If we aren’t playing these, we certainly don’t like the December chains either. Perhaps, selling options against the stock is another option but we don’t go naked. Ever.
ASEI, BSTC, BWC, CACH, HTHT, CIMT, CCM, CPA, CORR, DHI, DF, DIOD, DNDN, DISH, DM, EGL, EVEP, EVOL, FVE, FI, GFN, GTE, HNR, HWCC, INFU, INSY, LMIA, LXFT, CALL, MWE, MPAA, NAFC, NQ, NRG, NS, NSH, PKOH, RDA, SCLN, SJI, SYPR, TMHC, TPRE, USAT, WWD, WX, ZAZA
Sina (SINA, $76.04, down $2.06)
December 80 calls (SINA131221C00080000< $3.75, down $1.05)
Thoughts: Shares could make a big move when the company reports earnings on Tuesday.
ANW, AFCE, ASUR, CACB, CAAS, CSCO, CUI, EJ, EVHC, XONE, GILT, GFF, HMTV, IDRA, LXFR, M, MBI, MM, NTES, PNNT, PF, PGR, REED, SEAS, SXE, TPH, ULTR, YUME, TTEK, SEAS
RE/ Max (RMAX, $27.59, down $0.77)
December 30 calls (RMAX131221C00030000, $0.50, down $0.55)
Thoughts: We like the calls for a possible push towards $30 when the company reports on Wednesday. If we take action on Tuesday, we will send out a Trade Alert. The symmetrical triangle that has formed is pointing towards a major breakout (or breakdown).
Canadian Solar (CSIQ, $28.65, up $2.40)
December 25 puts (CSIQ131221P00025000, $1.55, down $0.80)
Thoughts: Shares seem to be overextended and a drop back below $25 could come when the solar stocks cool off.
AMAT, BONA, BRKS, CNTY, CTCH, CEP, DANG,
EMES, GLOG, GSL, GSOL, HP, HMIN, JHX, KSS, LWAY, MANU, MATW, MTSC, MGAM, NSLP, JWN, PENX, SANW, SBH, SORL, TDG, TYC, VIAB, WMT, WSM
Agilent Technologies (A, $50.78, up $0.73)
December 52.50 calls (A131221C00052500, $0.95, up $0.15)
Thoughts: We played a bullish call option trade on this name last time out that did well.
CHRM, PLCE, KTEC, MMS, OMI, PNX,PCYO, QCCO
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5. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 11/8/13)
Our Weekly Wrap Closed Trade Track Record for 2013 is 40-4 (84-6, overall since the start of 2011).
H&R Block (HRB, $27.85, up $0.49)
January 30 calls (HRB140118C00030000, $0.50, up $0.10)
Original Entry Price: $1.10 (11/5/13)
Exit Target: $2.20
Stop Target: None
April 32 calls (HRB140419C00032000, $0.95, $0.10) LEAP Option
Original Entry Price: $0.95 (11/5/13)
Exit Target: $1.90+
Stop Target: None
Action: We got into this trade just as shares looked as though they would clear $30 but resistance held followed by a sharp pullback to the 200-day MA. Shares closed above this level but there is still risk down to $27-$26.50. A close below the latter could force us out the trade but we still believe $30 trips and a run to $35 is coming over the next 6 months.
Millennial Media (MM, $6.71, down $0.17) Stock Trade
Original Entry Price: $6.95 (10/25/13)
Lowered Price from Selling Options: $6.95
Exit Target: $14
Stop Target: $5
February 10 calls (MM140222C00010000, $0.55, flat) LEAP Option
Original Entry Price: $0.50 (10/25/13)
Exit Target: $1.00
Stop Target: None
Action: Shares tried to hold the 50-day MA at $7 all week and traded up to $7.13 on Friday. Resistance is at $7.25 and a close above this level could lead to a run to $8. Support is at $6.75-$6.50.
Boston Scientific (BSX, $11.88, up $0.24) Stock Trade
Original Entry Price: $12.29 (10/21/13)
Lowered Price from Selling Options: $12.29
Exit Target: $15
Stop Target: $3
January 13 calls (BSX140118C00013000, $0.20, flat)
Original Entry Price: $0.45 (10/21/13)
Exit Target: $1.35
Stop Target: None
Action: Shares tried to clear and hold $12 at the beginning of the week but were testing support at $11.75 and the 50-day MA with Thursday’s pullback. The second wave of support is at $11.25 and a close below this level would be bearish if shares continue to struggle. A close above $12.25 would signal a bottom is in and a run back to new highs would be in play.
Pizza Inn Holdings (PZZI, $8.22, up $0.10) Stock Trade
Original Entry Price: $8.10 (10/11/13)
Lowered Price from Selling Options/ Dividends: No options available
Exit Target: $12+
Stop Target: $9
Action: Pizza Inn traded in a tight range all week and held $8 following a couple of dips below this level. There is additional help at $7.75. A close above $8.25 gets $8.50-$8.75 back in the mix and a close above $9 will spark a quick run to double-digits. 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. We have been bringing you this story since shares were under $4.
Aruba Networks (ARUN, $18.05, up $0.41) LEAP Option Trade
January 20 calls (ARUN140118C00020000, $0.85, up $0.15)
Original Entry Price: $1.45 (10/11/13)
Exit Target: $2.90
Stop Target: $0.70
Action: Shares made a run at $19 before Thursday’s freefall below the 50-day and 100-day MA’s. Support at these levels held with Friday’s close but there is still risk to $16.50. A close below this level would likely force us out the trade but a run past $20 is still possible and the options have over 2 months before they expire. The 200-day MA is at $19.26 and a break above this level would be bullish.
Sonus Networks (SONS, $2.97, up $0.01)
Original Entry Price: $3.73 (9/9/13)
Lowered Price from Selling Options: $3.73
Exit Target: $5
Stop Target: $2.50
Action: Sonus just missed clearing $3 with Friday’s run to $3.03. Support at $2.90 was solid but there is still risk down to $2.75-$2.50. A rebound above $3 will get us looking at selling longer-term call options to lower our cost basis.
Krispy Kreme Doughnuts (KKD, $25.08, up $0.33) Short Position
Original Entry Price: $18.92 (9/4/13)
Lowered Price from Selling Options: None
Exit Target: $16
Stop Target: $26
Action: There is risk up to $28-$30 on a breakout above resistance at $26. We still like this trade and at some point, valuation will matter. We would like to see a close back below $24 this week.
Galena Biopharma (GALE, $2.14, down $0.09)
Original Entry Price: $2.12 (7/8/13)
Lowered Price from Selling Options: $2.12
Exit Target: $5
Stop Target: $1
Action: Shares made a strong push at $2.40 and are setting up for a run past upper resistance at $2.50. The January 2.50 calls (GALE140118C00002500, $0.30, up $0.05) traded over 1,300 contracts on Friday so there could be some news forthcoming as traders plan for a trip past $3.
Exact Sciences (EXAS, $11.39, up $0.59)
Original Entry Price: $13.55 (6/11/13)
Lowered Price from Selling Options: $12.40
Exit Target: $16+
Stop Target: $10.45
Action: Shares are still struggling with the 50-day and 200-day MA’s and a close above these levels should get $12 back in the picture. The 100-day MA is at $12.32 and where we will look to sell call options again but there is still risk down to $10.75 as last week’s low checked-in at $10.77. Further support is at $10 on a close below this level.
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.
On 11/xx/13 we sold the December 12 calls for 70 cents which lowered our cost basis to $11.70
Trades on HOLD (7): DryShips (DRYS, $3.06, up $0.19), AKS Steel Holding (AKS, $5.38, up $0.27), Rare Element Resources (REE, $1.71, up $0.03), Rambus (RMBS, $8.46, up $0.28), Bebe Stores (BEBE, $5.76, up $0.67), Vivus (VVUS, $8.60, up $0.18), Dendreon (DNDN, $2.57, up $0.19)
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6. Week Ahead
Here is a chart of the events for the week ahead: