MomentumOptionsTrading.com Weekly Wrap for 1/5/2014

11:30pm (EST)

 

1.  Market Summary 

2.  Bitauto Holdings (BITA) Shares continue to be Volatile

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 bulls took a breather on Friday as Wall Street worried over interest rates but while the 10-year Treasury Note did close above the all-important 3% level, the losses were minimal.  At some point, higher interest rates and a tapering Fed could become bearish headwinds for the market but with only 2 more trading days left in 2013, the bulls will be trying to end the year with a bang.” (from 12/29/2013 Weekly Wrap…)

The bulls put a feather in their December cap with the indexes ending higher for the 10th time in 12 months in 2013.  The market ended the year at record highs but the bears won the week and are making some noise to start 2014.  (continued…)

The Dow advanced 28 points, or 0.2%, to close at 16,470 on Friday.  The blue-chips traded to a high of 16,588 intraday on the last trading day of the year and came within a 12-pack of triggering our 16,600 fluff target.  We mentioned a close above this level could lead to Dow 16,800-17,000 but we warned the first day back could be trouble for the market.  The index fell 135 points on Thursday after testing a low of 16,416 and support at 16,400-16,350 before rebounding on Friday.  The low of 16,439 also held support but a break below these levels could lead to a quick test to 16,200-16,000.  The 20-day MA is at 16,155 and the 50-day MA is 15,944.  For the week, the Dow fell 8 points, or 0.05%, and is down 107 points, or 0.6%, for 2014.

DOW1514

The S&P 500 The S&P 500 slipped six-tenths of a points, or 0.03%, to settle at 1,831.27.  The index made a run at our yearend fluff target of 1,850 from November and reached a peak of 1849.44 on December 31 intraday before closing at 1,848.  We warned of a possible back test to 1,825 on the first day back and Thursday’s low checked-in at 1,827.74.  Friday’s bottom was 1,829.13.  Another run and close above 1,850 is possible on a rebound and if cleared could lead to 1,875-1,900 over the near-term.  However, if the bears crack 1,825 expect a test to 1,810-1,800.  The 20-day MA is at 1,811 and the 50-day MA is at 1,792.  The S&P 500 came into the week at 1,841 and dropped a dime, or 0.5%, by Friday’s close.  For the year, the index is off 17 points, or 0.9%.

SPX1514

The Nasdaq declined 11 points, or 0.3%, to finish at 4,131.  We had a fluff zone of 4,150-4,200 for the index on the close above 4,000 in late November and Tech pushed 4,177.73 intraday on the last trading day for 2013.  We warned of the battleground forming at 4,150 and said a close below this level might trigger 4,125-4,100 over the near-term.  A close below this level would likely lead to a back test to 4,050-4,000.  Thursday’s low reached 4,131 and Friday’s low was 4,124.96.  If this represents a temporary double-bottom, a run towards 4,200 could come by month’s end.  A close above this level could lead to 4,400-4,500 on a possible euphoric top.  The 20-day MA is at 4,087 and the 50-day MA is 4,010.  For the 4 trading sessions, the Nasdaq was down 24 points, or 0.6%, and is lower by 45 points, or 1.1%, year-to-date.

NAS1514

The Russell 2000 gained 5 points, or 0.5%, to end at 1,156.  The small-caps pushed 1,165 and came within 1% of triggering our 1,175-1,200 upper yearend targets again as the 1,200 level was tripped on December 23.  We will talk more about this short-lived volatile ride next week but for now these levels ate still in play as long as 1,150 holds as support.  Thursday’s low reached 1,146.60 but the close at 1,150.72 held the bears in check.  This was a good clue a short-term bottom could be in but a close below 1,150 will likely lead to a back test to 1,125-1,100.  The 20-day MA is at 1,136 and the 50-day MA is 1,122.  The 100-day MA is at 1,090.  These levels will provide EXCELLENT clues for a test to lower levels if triggered.  The Russell dipped 5 points, or 0.4%, for the week and is down 7 points, or 0.65%, YTD.

RUT1514

The S&P 500 Volatility Index ($VIX, 13.76, down 0.47) is still in rocky territory but the 3% drop on Friday was bullish.  The VIX pushed 14.35 by yearend and we said “don’t flinch until 15 trips”.  We used this rally cry in October, November, and into December to guide us through the volatility and we have a good feeling the VIX will help us to continue to provide pinpoint accuracy for the market as we have reviewed.  At this point, it feels like the market is holding Ace-Eight unsuited as a close above 15 favors the bears while a close below 12.50 would get the bulls headed back to higher highs.  We talk more about the VIX below but these will be the levels to watch this week and into next.  With the bulls and bears playing poker, this week’s flop could determine next week’s turn and river and how much money is risked to win the pot.

VIX1514

The bulls enjoyed a sweet December as the Dow gained 490 points, or 3%; the S&P 500 soared 43 points, or 2%; the Nasdaq jumped 117 points, or nearly 3%; the Russell 2000 added 21 points, or 2%.

The final numbers for 2013 are impressive:  The Dow was up 3,472.56 points, or 26.5%; the S&P 500 surged 422.17 points, or 29.6%; the Nasdaq zoomed 1,157.08 points, or 38.3%; the Russell 2000 rocketed 314.29 points higher, or 37%.

Other sectors that did well include the S&P Spiders Biotech Index (XBI, $130.42, down $0.42) as it roared 50% higher:

GOLD1514

And the S&P Spiders Broker Index ($XBD, $160.91, up $1.03) as it went on a parabolic 70% rise.

June and September were the only down months in 2013 and the indexes have held their 100-day MA’s for more than xx months.

The official results of the Santa Claus rally are now in the books and while there was an appearance with a few gifts, the market also got some coal in its stocking.

The Dow was at 16,294 at the start of the Santa Claus rally and added 175 points while the S&P 500 closed at 1,827.99 on December 23rd and added 3 points over the seven trading sessions.  The Nasdaq started at 4,148.90 and was DOWN 17 points while the Russell 2000 was at 1,157 and slipped a point.  The Dow’s 1% gift was the only present worth mentioning as the overall results weren’t much to cheer about.

Last year’s Santa Claus Rally was jolly as the S&P 500 gained 2% over the 7-day trading period and went on to post a zippy 30% in 2013.

The theory is if stocks fail to rally during the holiday season, it often foreshadows a difficult year ahead for the market.  In some cases it could signal the start of an outright bear market. The S&P’s 3-point pop was positive but not much to write home about.

Gold fell 28% in 2013 after finishing just above the $1,200 level.  The yellow-metal tested a low of $1,181.40 in late December nearly fell into our yearend $1,175-$1,150 target zone from July.

GOLDb1514

Silver tested a low of $18.72 in late December and came with a buck and change of triggering our yearend target of $17.50.

SILVER1514

Both Gold and Silver may have made short-term and possibly longer-term bottoms but any closes below the December lows will rekindle our lower-end price targets.

First Five Days of January are another important market tell and usually dictate how January might play out.  The first two days of 2014 are favoring the bears so the bulls will need to get off to a good start on Monday.

If the market is up over the first five trading days of the New Year, it often leads to more gains for the rest of the year.  Since 1950, when the market rose during the first five trading days, the S&P 500 went on to post full-year gains 85% of the time.

However, if the market trades lower over the first five trading days, it can be a good tell on how the year might finish by yearend.  Since 2000, the market has began the year lower five times.  In the years 2000, 2001, 2005, 2007 and 2008, the average loss for the S&P 500 was -11% following a lower first five trading days of the year.  If the bulls don’t rebound by Wednesday, they could have a hard time with history class in 2014.

The market will have plenty of news to trade on this week as earnings season gets underway and with Friday’s Nonfarm Payroll report.  We have listed the major companies reporting this week in our Earnings section of the Weekly Wrap but we will likely wait until next week to trade options.

We wanted to cover our prior 15-year charts for all of the indexes this week as well as we showed you the near-term charts, first, to give you a better view of where the indexes could be headed while showing new subscribers how we came up with our Price Targets.  We also like to wait until January finishes up before making our yearend predictions and we do want to show you last year’s chart for the Dow (and other indexes) as we were probably THE ONLY newsletter that predicted a 3,000 point gain for the blue-chips.  The index cleared this level mid-November and we said a run to 16,500-16,600 could come on fluff.

DOWc1514

Here were our thoughts in the February 4, 2013 Weekly Wrap:

we expect maybe another 2% rise over the next few weeks, followed by a 5%-10% dip by April.  By then, we should know if the economy is “growing” or “stimulating” the way the zombies expect.

The one aforementioned sentence we want to remind you of this:

“The gains can be even staggering during post-election years as some periods have seen the market move 20% higher.”

A less than bullish, but still double-digit gains from here would be Dow 15,400; S&P (500) 1,650; Nasdaq 3,500; Russell (2000) 1,000 for 2013.  These targets are roughly 10% from current levels with some adjustments.

To get to our 2013 yearend targets, we took all of the bullish (and bearish) factors and split the difference of an advance of 10%-20% higher along with the price channels we have drawn for you.

Now for the drumroll…

Dow 16,000; S&P (500) 1,700; Nasdaq 3,800; Russell (2000) 1,025 

(END)’’ 

Final 2013 Results:  Dow 16,576; S&P 1,848; Nasdaq 4,176; Russell 1,163.  

Here was our chart work for the S&P and we penciled-in a rise to 1,700:

SPXc1514

Here was our chart work for the Nasdaq and 3,800:

NASc1514

And one last chart on one of the BEST technical indicators, the S&P Volatility Index:

VIXc1514

As you can see, we had factored in a move to 11-10 for the VIX and the 52-week low of 11.05 was hit by mid-March.  The recent low of 11.69 was triggered the day after Christmas.  The VIX is currently at 13.76 and this week or next could see a pop past 15 or a drop below 12.50 as we mentioned earlier.

We will talk more about the technical warnings we have been seeing over the past few weeks and months in our next issue of the Weekly Wrap and by then we will know how the first five days played out.  We will also take a peak at the longer-term charts as well.

Last week’s volume was weak so there is a chance buyers step in to start the week as most of Wall Street returns back to work following their long holiday vacations.  However, a weaker Monday needs to be watched along with Wednesday’s close to see if the bears are gaining momentum.  If they are, we can expect extreme volatility going forward as the bulls face reality.

Earnings, Fed Speak and Nonfarm payrolls will be the market moving headlines this week.

As we head to press, futures are showing a slightly lower open to start the week on weaker China economic data:  Dow futures are down 14 points to 16,393 while the S&P 500 futures are lower by 2 points to 1,823.  The Nasdaq 100 futures are off a point to 3,531.

 

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2.  Bitauto Holdings (BITA) Shares Continue to be Volatile 

By Michael Bryant

 

Bitauto Holdings (BITA, $30.68, down $0.54) has been on a rollercoaster ride since its IPO with a 52-week high of $35.04 in late November off a 52-week low $7.06.

Charta1514

Born in 1974, founder William Bin Li received his bachelor’s degree in sociology and a minor in law from Peking University.  In 1996, he started his first business, Beijing Antarctic Technology Development, doing web hosting while a student at Beijing University studying computer engineering.  In 1999, he helped start DangDang (DANG), which claimed to be the Amazon (AMZN) of China but is largely an online book and audio content retailer.  In 2000, he founded Bitauto E-Commerce Company with a $1.5 million investment from a state-run car dealer.

Li, who served as director and president until 2006, bought 100% ownership of the company in the first few years.  With the company burning through cash, Li and six other guys worked without pay out of Li’s apartment for the next four years.  To pay the bills, they came up with an inventory software program and advertisement platform for auto dealers.  In 2002, Li and Weihai Qu, Bitauto’s future senior vice president, co-founded Beijing C&I Advertising Company (CIG), one of Bitauto’s SPEs in China, to provide digital marketing solutions to automakers.  A special purpose entity (SPE) is a legal entity, usually a limited company or partnership, created to fulfill specific objectives.  By the end of 2004, the Chinese auto market started to surge and business picked up.

In 2005, Beijing Bitauto Information Technology Company, another SPE, was incorporated to manage bitauto.com that focuses on new automobiles and ucar.cn, which started in 2006 and focuses on used automobiles.  On October 21, 2005, Bitauto Holdings was incorporated in the Cayman Islands as a holding company for all these businesses.  Li became chairman of the board of directors and chief executive officer.

In 2007, the company acquired 100% of British Virgin Islands-based Autoworld Media, which provides television advertising services to China’s auto industry.  From 2007 to 2008, it acquired several SPEs that provide automobile advertising services through radio, television, newspapers, and magazines.

From 2005 to 2009, sale of new automobiles in China grew by a compounded annual growth rate of 24.2%, thanks to increasing urbanization, as well as the growth in the middle class.  This trend along with the rapid growth of the internet in China helped Bitauto expand.  In 2009, China overtook the United States as the world’s largest automobile market with 13.6 million vehicles sold in China vs. 10.4 vehicles sold in the United States.  In 2010, the company displayed ads for 69% of Chinese auto companies.  Revenue came in at $43 million, while it recorded a net loss of $9 million.

On November 17, 2010 after the bell, the company raised $127 million by offering 10.6 million ADSs (American Depositary Shares) at $12, at the high end of the price range of $10 to $12.  Shares started trading on the New York Stock Exchange at $13.05 the next day and closed at $12.20.

In November 2011, the company acquired Beijing Bitcar Interactive Information Technology, a provider of mobile internet sales tools for the auto industry.  Then in April 2012, it re-launched its used car business on new website taoche.com, which was easier for users to remember.  The name change was also expected to enhance the brand awareness.  The Chinese word “tao” carries the meaning “searching with pleasure” and “taoche” implies “a pleasant shopping experience for cars.”  Traffic to ucar.cn website was automatically redirected to taoche.com website.

The company operates in four segments: the bitauto.com advertising business, the EP platform business, the taoche.com business, and the digital marketing solutions business.  Below is a snapshot of the company’s website: http://bitauto.com.  The site lists new car models, has links to pictures and videos, and arranges cars by price.  It also provides consumers with up-to-date new automobile pricing and promotional information, specifications, reviews, and consumer feedback.  The advertising business generates revenues by providing subscription services to dealers of new automobiles in China to help them effectively market their automobiles to consumers.  It also sells advertising to automakers and dealers.  Further, it provides marketing applications for subscribers to launch their advertisement on third-party websites, including portals operated by Tencent (TCEHY) and Netease (NTES), as well as social networking sites Renren (RENN) and Kaixin, and China’s largest search engine, Baidu.com (BIDU).

Chartb1514

 

Translated into English by Google Chrome

 

Website http://taoche.com/ has the same format as that of bitauto.com, except it is for used automobiles.

The EP (known as Easypass until 2012) platform business provides internet digital marketing and customer relationship management (CRM) applications to auto dealers in China.  The platform enables dealer subscribers to create their own online showrooms, list pricing and promotional information, provide dealer contact information, place advertisements, and manage customer relationships to help them effectively market their automobiles to consumers.  The digital marketing solutions business provides website creation and maintenance, online public relations, online marketing campaigns, and advertising agent services for automakers.

From 2010 to 2012, the company grew revenues at average annual pace of 57%.

On November 2, 2012, AutoTrader Group purchased 9 million shares, or approximately 21.8% of the company’s total outstanding shares.  Operator of the largest digital auto market in the United States, it purchased shares at $6.50 per share or $58.5 million total.  Bitauto’s senior management, specifically Li, Jingning Shao (president), Andy Xuan Zhang (chief financial officer), and Weihai Qu (senior vice president), also purchased approximately 2.4% of the company at a total purchase price of $6.5 million.  Apparently, this news helped cause the stock to reverse course.  Since its IPO, shares have fallen to a low of $3.51 on June 15, 2012.

On November 7, 2013, the company established a joint venture with Kelley Blue Book and the China Automobile Dealers Association (CADA).  The joint venture combines Bitauto’s deep, local market understanding and solid customer base within China’s used car market, Kelley Blue Book’s 87-year history of providing vehicle values, and CADA’s trusted position in the industry, as well as its exclusive access to extensive data on China’s used car market.

As of November 11th, China had 93 million private passenger cars and a population of 1.36 billion.  The United States has approximately 62 million cars and a population of 317 million.  If China’s automobile density becomes like that of the United States, it would have 266 million cars.  Thus, the company still has a lot of potential growth.

The company does not report 4th quarter earnings until early March.  Analysts estimate the company will make $77 million in revenue.  The company expects to generate a revenue increase in the range 31.0% to 33.8% year-over-year.  It expects non-GAAP diluted earnings per ADS to come in at $0.36 a share.

Chartc1514

Analysts expect revenue (blue line) to grow at the nearly the same pace from the year ago quarter.  They also expect revenue growth to increase on a quarter-to-quarter basis.  Good news is that total expenses (red line) were nearly flat from the 2nd to the 3rd quarter.  If total expenses remain nearly flat, the company will be about to increase profits.

Chartd1514

At $30 and change, the stock is above its high target of $30 made by the 2 analysts recorded by Thomson/First Call.  Mean target and median target is $29.15, and low target is $28.30.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 1.0, unchanged from a week ago.

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

2

2

2

2

Buy

0

0

0

0

Hold

0

0

0

0

Underperform

0

0

0

0

Sell

0

0

0

0

The chart is pointing towards a test to $28, possibly $24 on a back test and where we would evaluate an entry point as we don’t want to chase.  A close above $32 would be bullish for a run to $34 again.

BITA1514

 

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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 1/3/14 close)

By Catherine Tierney

 

Monday

AZZ (AZZ), Bassett Furniture Industries (BSET), Calavo Growers (CVGW), Electro Rent (ELRC), Park Electrochemical (PKE), Schulman A (SHLM), Sonic (SONC), Synergy Resources (SYRG), Zep (ZEP)

 

Sonic (SONC, $19.72, down $0.12)

January 20 calls (SONC140118C00020000, $0.55, down $0.05)

February 20 calls (SONC140222C00020000, $0.90, down $0.10)

January 20 puts (SONC140118P00020000, $0.90, up $0.10)

Thoughts:  We have covered Sonic in our Weekly Wrap in the low teens and it’s good to see the company growing up.  Earnings have come in right on cue for the past 4 quarters as they have matched estimates.  In October, shares fell 39 cents after the earnings announcement and in late June, shares gained 12 cents.  The open interest is low on the call side and with little price movement, this is not a great candidate for an options trade.  An earnings beat or miss could spark a 5% move and the January 20 puts do have a decent amount of open interest for a possible trade.  We will likely sit on the sidelines with this one.

SONC1514

Tuesday

Apollo Education Group (APOL), Commercial Metals (CMC), Container Store Group (TCS), Franklin Covey (FC)IHS (IHS), Micron Technology (MU), Team (TISI)

 

Apollo Education Group (APOL, $27.03, up $0.14)

January 25 puts (APOL140118P00025000, $0.70, down $0.05)

January 30 calls (APOL140118C00030000, $0.55, up $0.05)

Thoughts:  For those of you that have followed us over the years, you know we have always been bearish on Apollo Group as it is one of our favorite ways to play the $1 trillion in student debt loans.  We have covered the company’s “shady” history and we believe this is a low-teens to single-digit stock.  However, shares have been in a strong uptrend of late and that could continue depending on how the company spins its earnings report.  If we do take action, it will likely be a strangle option trade and where we would use both options to play a possible 10%-15% move on the news.

APOL1514

Container Store Group (TCS, $42.66, down $1.12)

January 45 calls (TCS140118C00045000, $1.15, down $0.30)

February 45 calls (TCS140222C00045000, $2.20, down $0.65)

Thoughts:  The options are expensive and shares will need to make a 7% move or more for these calls to make us a decent profit.  There is the chance for a double-digit move in the stock on a blowout quarter but this will be the company’s first announcement since becoming public.  Analysts are expecting a profit of 8 cents a share on revenue of $189 million.  We like to study the history of earnings and possible moves but the lack of research will likely keep us out of any trade along with the high premiums.

TCS1514

Wednesday

Bed Bath & Beyond (BBBY), Constellation Brands (STZ), Global Payments (GPN), Mistras Group (MG), Monsanto (MON), MSC Industrial Direct (MSM), Richardson Electronics (RELL), RPM International (RPM), Ruby Tuesday (RT), Schnitzer Steel Industries (SCHN), Texas Industries (TXI), Greenbrier Companies (GBX), UniFirst (UNF), VOXX International (VOXX)

 

WD-40 (WDFC, $75.75, up $1.75)

January 80 calls (WDFC140118C00080000, $1.00)

Thoughts:  We have watched shares zoom from the $50’s to mid $70’s but we have not taken any action on what we thought was a boring stock.  One of the main reasons we have not traded the options is due to the low volume and lack of open interest in the call options.  The bid/ ask is also extremely wide so limit orders would be hard to get filled.

The company has blasted by earnings estimates the past year, beating estimates by 8 cents, 10 cents (twice), and 13 cents over the past 4 quarters.  There are only 4 analysts that cover the stock and their estimates are for WD-40 to earn 73 cents a shares on revenue of $97.9 million.

WDFC1514

Thursday

Acuity Brands (AYI), Alcoa (AA), AngioDynamics (ANGO), Barracuda Networks (CUDA), Ceres (CERE), E2open (EOPN), Family Dollar Stores (FDO), Helen of Troy (HELE), Material Sciences (MASC), PriceSmart (PSMT), SuperValue (SVU), Synnex (SNX)

 

Alcoa (AA, $10.57, up $0.04)

January 11 calls (AA140118C00011000, $0.19, up $0.03)

January 10 puts (AA140118P00010000, $0.11, flat)

Thoughts:  Shares have been on a roll since they were booted from the Dow and have moved from $8 to double-digits.  The stock had been mired in a trading range for years but the recent breakout could continue with a strong quarter.

The January 11 calls traded over 1,800 contracts on Friday and the January 10 calls (AA140118C00010000, $0.67, up $0.01) traded nearly 3,200 contracts.  Also of note, the January 10 puts traded over 2,500 contracts on Friday.

If our arm was twisted we would take a shot on the January 11 calls as a possible trade or even the February 11 calls (AA140222C00011000, $0.32, up $0.03) as a “safer” trade as they traded over 4,300 contracts on Friday.

AA1514

Family Dollar Stores (FDO, $66.41, up $0.35)

January 65 puts (FDO130118P00065000, $1.50, down $0.30)

Thoughts:  Earnings have come in higher by 2 cents the past 2 quarters bit the prior 2 were misses of a penny and 6 cents.  The current forecast is for Family Dollar to report 69 cents a share on sales of $2.51 billion.  We believe they come up short for the recently ended quarter.

FDO1514

Friday

None worth mentioning

 

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4.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 1/3/14)

Our Weekly Wrap Closed Trade Track Record for 2014 is 1-0 (86-7, overall since the start of 2011). 

We closed our first winner for 2014 as shares of WhiteWave Foods Company (WWAV, $23.68, up $0.11) reached fresh 52-week peaks last week.  The trade returned 82% in just under 2 months.  The January 22.50 calls (WWAV140118C00022500, $1.00, up $0.50)

 

Opko Health (OPK, $8.58, up $0.17)

March 10 calls (OPK140322C00010000, $0.60, up $0.05) LEAP OPTION

Original Entry Price:  $0.70 (12/17/13)

Exit Target:  $1.40-$2.10

Return:  -14%

Stop Target:  None

Action:  Shares may have formed a “double-bottom” at $8.17 and $8.18 as the recent lows but a break below $8 will likely lead to $7.50.  A push past $9 could lead to a run at $9.50 and the 20-day and 100-day MA’s.

OPK1514

Ariad Pharmaceuticals (ARIA, $7.15, down $0.11) Stock Trade

Original Entry Price:  $4.95 (10/25/13)

Lowered Price from Selling Options:  $4.95

Exit Target:  $8-$10

Return:  44%

Stop Target:  $5.75 (Stop Limit)

Action:  Ariad traded down to $5.92 to start the week but closed at $6.55.  Tuesday’s rebound reached $6.98 but failed to clear short-term resistance at $7.  However, Thursday’s run to $7.75 matched the December 20 intraday high and is serving as a “double top”.  A close above this level will likely get $10 and the 100-day MA in play.  Support is at $7 with risk to $6-$5.50.  We have set a stop limit at $5.75 to protect profits.

ARIA1514

H&R Block (HRB, $29.28, down $0.10)

January 30 calls (HRB140118C00030000, $0.30, flat)

Original Entry Price:  $1.10 (11/5/13)

Exit Target:  $2.20

Return:  -73%

Stop Target:  None

April 32 calls (HRB140419C00032000, $0.70, flat) LEAP Option

Original Entry Price:  $0.95 (11/5/13)

Exit Target:  $1.90+

Return:  -26%

Stop Target:  None

Action:  We have been waiting for a close above $29.50 that we said could lead to a run past $30 and up to $31.50-$32.  We need a move past $30 this week to feel comfortable into next week and our breakeven point on the January 30 calls is at $31.10.  We have plenty of time for the April 32 calls to make us a profit and to offset some of the January 30 calls if we end up with a loss.  The February 30 calls (HRB140222C00030000, $0.65, flat) can be used to play a breakout above $29.75-$30.  A close below $29-$28.50 would be bearish.

HRB1514

Millennial Media (MM, $7.50, up $0.14) Stock Trade

Original Entry Price:  $6.95 (10/25/13)

Lowered Price from Selling Options:  $6.95

Exit Target:  $14

Return:  8%

Stop Target:  $6

February 10 calls (MM140222C00010000, $0.25, flat) LEAP Option

Original Entry Price:  $0.50 (10/25/13)

Exit Target:  $1.00

Return:  -50%

Stop Target:  None

Action:  Shares are in a nice uptrend and a test to $8 could be in the works.  Notice the “golden cross” that has formed with the 20-day MA breaking through the 50-day MA and on its way to passing the 100-day MA.  There is a gap to fill up to $8.20 to $8.75 and where we expect to get back to even or exit for a slight profit if possible.  A close back below $7 would be bearish and would signal the end of the momentum.

We believe Millennial Media is a takeover target that could catch a bid from one of the bigger players in the game.  We aren’t sure if it will come by late February or not but we are watching the May 10 calls (MM140517C00010000, $0.70, up $0.05) as a follow-up trade.  The open interest is pushing 2,000 contracts so option traders are expecting a move past double-digits over the next 5 months.  The August 10 calls (MM140816C00010000, $1,10, flat) are also intriguing as they only have open interest of 16 contracts but the bid/ask is tight and within 20 cents.  The January (2015) 10 calls (MM150117C00010000, $1.65, up $0.05) have open interest of over 10,000 contracts and could be a compelling buy at current levels if a bid comes in north of $15 or if shares double on their own without a takeout offer.

MM1514

Boston Scientific (BSX, $11.93, up $0.02) Stock Trade

Original Entry Price:  $12.29 (10/21/13)

Lowered Price from Selling Options:  $12.29

Exit Target:  $15

Return:  -3%

Stop Target:  $10

January 13 calls (BSX140118C00013000, $0.05, flat)

Original Entry Price:  $0.45 (10/21/13)

Exit Target:  $1.35

Return:  -89%

Stop Target:  None

Action:  A close above $12 could lead to $12.20-$12.50.  Near-term support is at $11.75 and the 50-day MA.  A close below $11.50 would be bearish.  We are also running out of time with our January calls so we need the run to $13 to come this week or we may be forced out of the options.

BSX1514

Pizza Inn Holdings (PZZI, $7.99, down $0.10) Stock Trade

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

Lowered Price from Selling Options/ Dividends:  No options available

Exit Target:  $12+

Return:  -1%

Stop Target:  $7

Action:  Shares traded up to $8.29 for the fourth day in a row on Monday but flirted with $8 to close out 2013.  There is risk down to $7.75-$7.50 on a break below the 100-day MA.  We would like to see a close above $8.25 and the 20-day MA over the near-term.

ALC Hospitality is the latest to join the Pie Five craze as they were awarded 38 franchises in December.  The units will be developed near Our Town in northern VA, Maryland and DC.  This gets the number of Pie Fie stores in development for 2014 to 150 and we love this stock as a long-term core holding.  This is our third trade on PZZI as we have been bringing you this story since shares were under $4.  It is not too late to get in as we have said the stock could run to $15-$20 over the next 12-24 months.  (Sonic, from our earnings section, was a good example on how shares moved from $10-$20 on strong growth and just matching earnings.)

PZZI1514

Aruba Networks (ARUN, $17.73, up $0.42) LEAP Option Trade

January 20 calls (ARUN140118C00020000, $0.10, flat)

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

Exit Target:  $2.90

Return:  -93%

Stop Target:  None 

Action:  Shares have struggled clearing the 50-day and 100-day MA’s and the chances of $20 coming into play are slim.  If shares can clear $18.50 by Friday’s close, we will hold the trade open into expiration.  If shares are trading below $18.50 by 3;50pm THIS FRIDAY (01/09/14), close the trade to save any premium that may be left.

ARUN1514

Sonus Networks (SONS, $3.04, down $0.04)

Original Entry Price:  $3.73 (9/9/13)

Lowered Price from Selling Options:  $3.73

Exit Target:  $5

Return:  -18%

Stop Target:  $2.50

Action:  Support is at $3 and the 20-day and 50-day MA’s with backup at $2.90.  Shares continue to struggle at $3.20-$3.25 and the 100-day MA but a break above this level would be bullish.

SONS1514

Galena Biopharma (GALE, $5.09, up $0.01)

Original Entry Price:  $2.12 (7/8/13)

Lowered Price from Selling Options:  $2.12

Exit Target:  $5

Return:  140%

Stop Target:  $3.75, raise to $4.25 (Stop Limit)

Action:  Shares cleared $5 on the last trading day of the year and reached an intraday and 52-week high of $5.30.  We have been in this trade since July and our near-term target of $5 has been cleared.  We mentioned Oppenheimer recently initiated coverage of the stock with a Price Target of $6 and we believe a run to $7 could come as we will re-raise Opperheimer a buck to sweeten the pot.

We have also raised our Stop Limit up to $4.25 and just below the 20-day MA.  We will continue to adjust our Stop Limit if shares move higher.  If there is a back test to $4.50 we should be safe but a break below near-term support could force us out of the trade.

GALE1514

Exact Sciences (EXAS, $12.08, up $0.26)

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

Lowered Price from Selling Options:  $12.40

Exit Target:  $16+

Return:  -3%

Stop Target:  $10.45

Action:  Shares reached a peak of $12.46 intraday last Monday but reversed course to test $11.53 the following session.  The rebound above $12 and on the 20-day MA was good to see but $12.50 would be even better.  We mentioned there was risk down to $11.50-$11.25 on a break below this level $11.75 and that continues to be the case.

EXAS1514

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 that lowered our cost basis to $12.40.

 

DryShips (DRYS, $4.27, down $0.04)

Original Entry Price:  $5.25 (1/3/11)

Lowered Price from Selling Options:  $4.60

Exit Target:  $6

Return:  -7%

Stop Target:  $4

Action:  We said shares could make a run past $5 but after hitting this level the prior Friday, the stock fell to a low of $4.23 last Thursday and Friday.  There is further risk down to $4 on a close below $4.20 while a run back towards $4.75 would be bullish on another close above $4.50.

DRYS1514

Trades on HOLD (5):  AKS Steel Holding (AKS), Rambus (RMBS), Bebe Stores (BEBE), Vivus (VVUS), Dendreon (DNDN)

 

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5.  Week Ahead 

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

Ecocal1513