9:00am
The indexes have dropped on the first trading day of the month in all three to start 2014 and yesterday’s pullback was the first 2-session skid in a month for the Nasdaq and S&P 500.
The market took the first punch of the Russian/ Ukraine crisis in the gut but held its breath to hold support levels into the close. Economic news on Monday was somewhat positive but the overall concern was the escalating tensions between Russia and Ukraine.
The Dow dropped 153 points, or 0.9%, to finish at 16,168 on Monday. The blue-chips traded to a low of 16,071 before rebounding to hold the 16,100 level but ending below 16,200. The next triple-digit move could be crucial for the short-term trend as a close above 16,200 would be bullish while a drop below 16,000 would be bearish.
The S&P 500 slid 13 points, or 0.7%, to settle at 1,845. The index traded down to 1,834 before rebounding to test 1,850. The bulls are looking to get back above this level while the bears will be trying to get the action below 1,840 on a close.
The Nasdaq tanked 31 points, or 0.7%, to end at 4,277. Tech opened under 4,275 and tested 4,250 after trading down to 4,239. The close above 4,275 was mildly bullish but there is still risk to 4,225-4,200 on continued weakness. A close back above 4,300 again would help the bulls regain some footing.
The Russell 2000 gave back a 6-pack, or 0.6%, to end at 1,176. The small-caps traded down to 1,164 after falling below the 1,175 level but was able to hold support into the close. There is further risk to 1,150 but if the bulls can hold 1,175 there is a good chance 1,200 still triggers.
The S&P 500 Volatility Index ($VIX, 16, up 2) surged back above 15 after trading to a high of 16.78. The bears did some damage yesterday but need to clear 17.50 before we would pursue new put option trades. The bulls will try to get the VIX back below 15 ahead of Friday’s Nonfarm Payroll report.
We mentioned one talking head said they don’t worry about the VIX until it is over 20 and they were right on cue with their comments again yesterday. When asked about the spike in the VIX, the slick talking pro said not to pay attention to the VIX until it trips 25.
This makes NO SENSE because if the VIX trades to 25 there will be a ton of money to be made on the short side from current levels and why we are watching the 17.50 level. What makes no sense with this person’s “theory” is that the VIX would be up over 50% if it made that type of move.
The bottom line is that the VIX does play an important factor in determining market direction so ignore what you hear in TV land by people that DON’T do homework.
As we head from desk to press, here is how futures look: Dow (+155); S&P 500 (+17); Nasdaq 100 (+35).
We have added a number of new trades on our Watch List that could become official recommendations so stay locked-and-loaded ahead of our midday update. Subscribers, check the Members Area for the latest updates and to see which trades we have on deck.
MEMBERS AREA
Do not risk more than 5% of your trading account on any one trade but do try to take ALL of the trades. Please remember, ALL “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any tradesor “Exit Orders” in your brokerage account unless we list one. We will send out a “Profit Alert” or “New Trade” if we want you to close a position OR if a new trade comes out. Otherwise, follow instructions at all times in the 9am and 1pm updates. Also, we will usually give you a heads-up if we think we are going to send an email outside of these time frames. Closed Trades for 2014: 22-8 – the Weekly Wrap is 9-2 for 2014 (94-9, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk.
Ingersoll-Rand (IR, $60.13, down $1.01)
April 62.50 calls (IR140419C00062500, $0.90, down $0.30)
Entry Price: $0.90 (2/27/2014)
Exit Target: $1.80
Return: 0%
Stop Target: 90 cents
Action: We have a near-term target of $64-$65. If reached, these options will easily double from our entry price. Support will try to hold at $60 on any pullback with $59 serving as backup. The April options have 45 days before expiration.
Discovery Laboratories (DSCO, $2.67, up $0.03)
April 2 calls (DSCO140419C00002000, $0.80, flat)
Entry Price: $0.65 (2/24/2014)
Exit Target: $1.00-$1.30
Return: 23%
Stop Target: 60 cents
Action: Shares continue to climb higher after the break out of the symmetrical triangle but Friday’s close felt bearish. Support is at $2.50 but we are still looking for shares to test $3.
World Wrestling Federation (WWE, $23.20, up $0.28)
March 30 calls (WWE140322C00030000, $0.25, flat)
Entry Price: $0.40 (2/18/2014)
Exit Target: $0.80
Return: -38%
Stop Target: None
Action: We are expecting a pop past $25 with a possible run to $30. Support is at $22.
Kodiak Oil & Gas (KOG, $12.12, up $0.31)
March 12 calls (KOG140322C00012000, $0.55, up $0.10)
Entry Price: $0.60 (2/13/2014)
Exit Target: $1.20
Return: -8%
Stop Target: None
June 13 calls (KOG140621C00013000, $0.75, up $0.05)
Entry Price: $0.70 (2/13/2014)
Exit Target: $1.40
Return: 7%
Stop Target: None
Action: Support is at $11.50 with $11.25 serving backup. We are still expecting a run to $12.50-$13 over the near-term. We also believe the company is a takeover candidate and why we are also long the June calls.
Ariad Pharmaceuticals (ARIA, $8.58, down $0.11)
March 10 calls (ARIA140322C00010000, $0.30, down $0.05)
Entry Price: $0.95 (1/28/2014)
Exit Target: $1.90
Return: -68%
Stop Target: None
May 11 calls (ARIA140517C00011000, $0.75, down $0.05)
Entry Price: $1.05 (1/28/2014)
Exit Target: $2.10
Return: -29%
Stop Target: None
Action: We are expecting a pop to $10 over the next few weeks. Support is at $8 with $7 serving backup.
Revenues should grow during the current quarter with the re-launch of Iclusig in the U.S. The company could also have a new drug debut in the second half of 2014 and why we also suggested longer-term options on this trade as well.
The water cooler talk is that Eli Lilly has made a “friendly approach” to buy the company and is willing to pay up to $20 a share. GlaxoSmithKline is also in the hunt along with Shire.
We have said there is a HUGE gap to fill on the stock’s drop from $23 to a 52-week low of $2. Eli is trying to get the company for cheap as it currently has a $1.25 billion market-cap.
Exact Sciences (EXAS, $13.55, up $0.10)
April 19 calls (EXAS140419C00019000, $0.50, flat)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -43%
Stop Target: None
Action: Resistance is at $15 and a move above this level should get us back near even. Support is at $12.50.
The company should get some FDA news in March on its Cologuard drug. These are April options with 2 months until expiration and we plan to hold through the volatility because we want to be in when the March news is released. We do not have a Stop Limit listed.
Other 2014 Portfolio OPEN positions (5): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means we would not open any new positions. We are still keeping track of the trades and we will record the results, accordingly, when we close them or if the options expire. Click on the 2013Portfolio link in the Members Area to view ALL open/ closed trades.
Sony April 20 calls (from January 2014) – continue to HOLD
General Electric March 28 calls (from January 2014) – continue to HOLD
Caterpillar March 85 puts (from January 2014) – continue to HOLD
McDonald’s March 90 puts (from February 2014) – continue to HOLD
Apollo Education Group March 29 puts (from February 2014) – continue to HOLD
WATCH LIST SECTION
These trades are NOT recommendations. They are trades that we like but have not added to the portfolio as an official recommendation because of market conditions or because we are waiting for better entry prices. We try not to have more than 12-15 open trades at any one time and why we have a Watch List. We will not list entry prices because these stocks are on the verge of breaking out or they could sell off but these are the trades we are watching as new candidates.
Opko Health (OPK, $9.40, down $0.12)
March 10 calls (OPK140322C00010000, $0.30, down $0.05)
April 10 calls (OPK140419C00010000, $0.60, down $0.05)
Thoughts: If shares clear $10 we could go long.
S&P 500 Spiders (SPY, $184.98, down $1.31)
March 188 calls (SPY140322C00188000, $0.70, down $0.45)
Thoughts: We could go long again on a move back above $186.
H&R Block (HRB, $31.94, up $0.30)
April 33 calls (HRB140419C00033000, $0.90, up $0.10)
Thoughts: Shares traded up to $32.42 midweek but couldn’t hold $32 by Friday’s close. Earnings are due out this week.
Philip Morris (PM, $80.45, down $0.46)
March 82.50 calls (PM140322C00082500, $0.40, down $0.15)
April 75 puts (PM140419C00075000, $0.55, up $0.15)
Thoughts: We said a close above $80 could lead to $82.50. A back test to $75 could be coming afterwards and this could be setting up for a decent strangle trade.
Krispy Kreme Doughnuts (KKD, $18.56, down $0.46)
March 18 puts (KKD140322P00018000, $0.80, up $0.10)
April 17 puts (KKD140419P00017000, $0.65, up $0.10)
May 17 puts (KKD140517P00017000, $0.85, up $0.10)
Thoughts: Resistance is at $20 and we have added the May 16 puts as an additional way to play KKD’s possible drop to $10 by the summer.
Verizon (VZ, $47.31, down $0.27)
March 49 calls (VZ140322C00049000, $0.30, down $0.05)
April 45 puts (VZ140419P00045000, $0.60, up $0.05)
Thoughts: Shares are on the verge of clearing the 200-day MA at $48.14. If shares clear $48.50 we could go long as they could reach $50-$52. If resistance holds, we could go short at some point so we have also listed put options. Shares have been volatile of late.
iShares Russell 2000 (IWM, $116.89, down $0.63)
March 115 puts (IWM140322P00115000, $1.30, up $0.20)
Thoughts: We could go short on a drop below $115 or long on a close above $117.50.
Alexza Pharmaceuticals (ALXA, $5.55, up $0.07)
June 6 calls (ALXA140621C00006000, $0.40, flat)
Thoughts: These options look like a bargain if shares make a run past $6.
