9:00am (EST)
Futures were showing a nasty open for Wall Street on Monday following Russian’s “invasion” into Ukraine but quickly rebounded on Tuesday after softer words were spoken. The market still had to worry about the unemployment numbers and traded in a tight range until Friday’s surprisingly strong Nonfarm Payrolls report. The surge at the open to prior resistance and fresh all-time highs ended on a sour note as the indexes ended mixed and showed signs of weakness heading into the weekend.
“The bulls bounced back in February as the market finished 4%-5% higher and is now green for the year across the board.
The Dow finished 623 points higher, or 4%, for the month while the S&P 500 added 77 points, or 4%. The Nasdaq jumped 205 points, or 5%, in February and the Russell 2000 advanced 53 points, or 5%. Impressive.
We talked about the possibility of a trading range forming last week until Thursday and for the most part one did. We also mentioned midweek the bulls were showing signs of a jailbreak on higher highs and higher lows along with the VIX holding 15. Friday’s run to new highs was picture perfect and we warned we still needed to watch the bears despite the breakout. As we saw on Friday, they came knocking, quickly.
We gave our 10-year Price Targets for the major indexes last week and we wanted to expand on some of the factors that weighed on how we got to our “educated guesses”.
The S&P 500 has traded above its 200-day MA for well over a year after breaking below this level and recovering in November-December 2012. Looking back over the past 10 years, this has happened a couple of times as the index has had similar runs in mid-2006 to late-2007 and in mid-2009 to late-2010. The current bull run is the the third longest active streak and could be considered both bullish and bearish. The odds get greater each day that passes the law of averages will catch up but new record highs could be set first.
The current 200-day MA for the S&P 500 is at 1,727 and represents a decline of 7% from current levels. If the current rally were to last into March/ April and the index reaches 1,909 – a 10% pullback would push the index down to 1,727. At 1,909 – a 5% pullback would equate to 1,818.
Our fluff target of 1,900 could get “stretched” to or past 1,909 but this is when we would become extremely cautious.
We mentioned there was a good chance our December fluff targets would come into play so the current rally could easily last into March as Wall Street and more and more traders expect a pullback. Although there was a scare back at the start of February, the bulls held support for the most part as the prior trading range was simply stretched.
The VIX continues to be an excellent indicator for us despite the idiotic quotes some of the slick talking pros have said this year. One well-known talking head says they pay no attention to the VIX until it gets over 20.
We have talked about the VIX on a Daily basis for a few years now because it really does help with market direction. For our new subscribers, historically when the VIX is below 15, the market is bullish. A VIX over 20 usually indicates down markets and nervouness. We have talked about the VIX testing 11 and 52-week lows, and even the single-digits, so we still believe the bulls will ring that bell before there is a major pullback.
A lower VIX near 11-10 would likely get the indexes to our fluff targets with a stretch to the upside. The roadmap for the bulls could be a test to 11 by mid-March with a continued rally into April and where we could expect a market top.
Of course, this is our most bullish outlook over the near-term and while we have penciled-in downward geopolitical events for 2014, no one saw Russia’s sudden move into Ukraine coming.
This is important so please pay close attention.
Besides the snow storm set to hit the East Coast, futures are showing a possible bear attack on Monday and a nasty open (and why we kept a few put positions open in our Daily). We aren’t worried about our Weekly Wrap positions because we like all of the companies we own stock in but options are a different beast.
At 8pm Sunday night, Dow futures were down 145 points to 16,162. The S&P 500 futures were lower by 19 points to 1,838. The Nasdaq 100 futures were declining 37 points to 3,658.
This means the Dow will likely open below 16,200 and the S&P 500 below 1,840. The Nasdaq will likely see an open below 4,275.
We have talked about expecting a possible 10%-20% pullback at some point in 2014 – providing major support levels fail. We covered those last week and the 10-year uptrend lines are at: Dow (15,500); S&P 500 (1,750); Nasdaq (4,000); and Russell 2000 (1,100). If these downside levels trigger, then our lower end Price Targets for 2014 would become our focus.
This means there will be a GREAT chance to make a wheelbarrow of money if there is a major pullback by using put options. And that could happen soon if support doesn’t hold.
We weren’t too happy our Head Zombie rushed at making some hasty comments towards Putin and Russia on Friday an hour after Wall Street closed. The United States and other countries can’t do much about the pending invasion and our President’s threats have fallen on deaf ears in the past. Thank goodness, there was no red line mentioned but hopefully cooler heads prevail.
With the geopolitical outlook uncertain, and major economic news due out this week, volatility could become insane. Friday’s Nonfarm Payroll report and unemployment numbers will also play a major role in helping the bulls or bears take control of support.” (from 3/2/2014 Weekly Wrap…)
Futures were showing a nasty open for Wall Street on Monday following Russian’s “invasion” into Ukraine but quickly rebounded on Tuesday after softer words were spoken. The market still had to worry about the unemployment numbers and traded in a tight range until Friday’s surprisingly strong Nonfarm Payrolls report. The surge at the open to prior resistance and fresh all-time highs ended on a sour note as the indexes ended mixed and showed signs of weakness heading into the weekend. (continued…)
The Dow gained 31 points, or 0.2%, to close at 16,452 on Friday. The blue-chips tested prior support levels at 16,200-16,000 on Monday after trading down to 16,071 and closing at 16,168. The 153-point drubbing and test to the 50-day MA was erased by Tuesday’s rebound to 16,419 and close at 16,395. We mentioned a close above 16,350 would be bullish for a run to 16,500-16,600. Wednesday’s back test to 16,360 held support and Thursday’s run to 16,450 were good clues Friday might be bullish. The Dow came within 71 points of its break even point for the year after kissing 16,505 but the fade into the close didn’t look good. The first wave of support is at 16,350 followed by 16,200. A close above 16,500-16,600 would be bullish for a run to 16,800-17,000. For the week, the Dow advanced 131 points, or 0.8%, after starting at 16,321 but is still down 124 points, or 0.75 %, for 2014.
The S&P 500 added a point, or 0.05%, to finish at 1,878. The index dropped below its first wave of support at 1,850 after testing a low of 1,834 and ending at 1,845 on Monday but easily held the 50-day MA at 1,827. Tuesday’s surge to 1,876 cleared the next wave of resistance at 1,875 but the close at 1,873 suggested we would have to wait until the Nonfarm Payrolls report before a breakout. Wednesday’s session was a tight 5-point trading range with a slight dip by the close but there was strength on Thursday as the index closed at all-time highs. The close at 1,877 set the stage for a run to 1,900 and Friday’s high reached 1,883.57. As long as 1,875 holds the bulls have a shot at our 1,909 target. A close below this level would suggest 1,850 could come into play. The S&P 500 came into the week at 1,859 and was up 19 points, or 1%, by Friday’s close. For the year, the index is higher by 30 points, or 1.6%.
The Nasdaq fell 16 points, or 0.4%, to end at 4,336. Tech opened under 4,275 and tested 4,250 after trading down to 4,239 on Monday but we mentioned the close above 4,275 was mildly bullish. There was further risk to 4,225-4,200 on continued weakness but Tuesday’s bounce to 4,357 and close above 4,350 kept our near-term target of 4,400-4,500 in play. There was a dip to 4,344 on Wednesday before a run to 4,362 and a 6-pack win to 4,357. Thursday’s high reached 4,371.71 before a test to 4,341 and a negative finish to 4,352. Friday’s peak reached 4,371.39 but the lower high AND lower low of 4,319 suggests further weakness. Support at 4,300 will need to hold and if it doesn’t a test to 4,250-4,200 could come quick. A close above 4,375 would be bullish for a continued run higher. The Nasdaq was at 4,308 coming into the week and added 28 points, or 0.7%. Tech is up 160 points, or 3.8%, year-to-date.
The Russell 2000 slipped 1 point, or 0.1%, to finish at 1,203 on Friday. The small-caps traded down to 1,164 after falling below the 1,175 level on Monday but was able to hold support after closing at 1,176. We mentioned there was further risk to 1,150 but Tuesday’s snap-back rally reached 1,212.82 with a close at 1,208. We have been expecting a trip back above 1,200 following the December 23 print that we will talk about later and said there is fluff to 1,225 on a close above this level. However, this would be the high for the week as the index made lower highs the rest of the week. More troubling was the fact 1,199 was the low as it reopened the door for a back test to 1,175. A move above 1,213 could lead to 1,225 but a close below 1,200 would be bearish. The Russell came into Monday’s open at 1,183 and jumped 20 points, or 1.7%, for the week. YTD, the small-caps are showing a 40 point gain, or 3.4%.
The S&P 500 Volatility Index ($VIX, 14.11, down 0.10) came into the week at 14 and cleared 15 after testing 16.78 on Monday’s pullback. We have mentioned not to flinch until 17.50 is triggered and Tuesday’s drop back below “support” was bullish as the VIX ended at 14.10. The bulls spent the rest of the week trying to get below 13.50 as 15 held and Friday’s low checked in at…you guessed it, 13.51. A close below 13.50 could lead to a test to 11 and 52-week lows that would likely push the S&P past 1,900. If there is weakness, 15 could come into play again but we aren’t thinking about put options until 17.50 clears.
Last week, we talked about the impressive gains the indexes made in February and we wanted to expand our thoughts on how it could effect March.
The month of March has been bullish over the past 30 years with the S&P 500 trading higher in 20 of them with an average gain of 1.4%. There is usually strength mid-month followed by weakness near month end.
This past February was super bullish following the strong rebound off the beginning of the month lows as the S&P 500 jumped 4%.
Usually when there is a stellar gain in February, the better the return for March can be. When the S&P 500 has finished with a gain of more than 2% in February, over the past 40 years, the March gains have averaged 2.5%.
Even better, over that same time period, even when February was negative, the March pops have averaged 1% and the S&P has been finished in positive territory 65% of the time. When the index has gained 2+% in February the index has been positive for March 80% of the time.
However, we have mentioned in recent years volatility has been off the charts and the last week of March can be brutal as fund managers lock-in any 1Q profits to make the books look pretty.
The same scenario could be playing out this year like it did last as most fund managers are behind the market’s gains for the year. This means they could keep chasing the market higher into the end of March but being long over the weekend has its risks given the current geopolitical tensions and saber rattling.
The Monday/ Friday closes have been mixed of late and we wanted to cover the action in February (and last week) following the 4% gain on the Dow. To review, the January Monday/ Friday closes produced 717 points of the Dow’s 878 point loss for the month.
In February, there were 3 trading Monday’s and 4 Friday sessions. The Monday’s in February lost 215 points on the Dow while the Friday’s produced a gain of 312 points for an overall gain of 92 points. We mentioned last week the Dow gained 623 points in February, or 4%, and this was only a 15% contribution.
For March, last Monday the Dow fell 153 points and was up must 31 points on Friday.
For our new subscribers, we watch the Monday/ Friday closes as one of our market indicators on price action as weak M/F endings are usually bearish and indicates money may be moving out of the market. Up Monday/ Friday closes are usually bullish and can indicate money is moving into the market.
The current M/F closes feel bearish and if this Monday and Friday are negative, it could be a good clue a short-term top is in. A bullish Monday/ Friday close this week would likely signal a breakout on the Dow.
As a side note, the losses for the Dow on the first trading day of the month for 2014 have been brutal with the bears accounting for 614 negative points. This could also be an important market clue if there is window-dressing at the end of this month as somebody could be made an April fool.
This past weekend was the 5-year anniversary of a 5-year bull run that has seen the S&P 500 gain 182% since bottoming at 666 intraday on March 6, 2009.
The number itself represented a devilish view of the market at the time and something we vividly remember as most stocks were crushed when the market went to hell in a hand basket. Most seasoned pros and investors panic during selloffs and corrections because they don’t know how to play pullbacks but not us. We were busy recommending PUT options to our subscribers as we loved every minute of it.
The Dow touched a low of 6,469 in March 2009 and lost HALF its value after peaking at 13,136 on May 19, 2008. The 51% drop took just 10 months. Even scarier, the blue-chips were at 10,850 to start October 2008 and fell 40% in just 5 months before bottoming at 6,469. The Dow has rebounded 154% since then.
The rise since the aforementioned 2009 lows has been staggering to say the least but we wanted to cover the selloff that preceded the lows because it is important to always respect the bears. We often say the bulls like to take the stairs higher while the bears like to use the elevator. We could care less where the market is really headed because we play the trend but it is important to know how each side like to roll.
As a side note, the Nasdaq is up 245% and the Russell 2000 is up 253% since the March 2009 lows.
Needless to say, looking at the gains, it is easy to say the market is frothy and why the talking heads keep questioning the rally. Of course, they worry over pullbacks as well and are just cheerleaders of the market. We rely more on chart work than emotion and as many of you know, we have been lights out in calling this incredible rally for a few years now.
We said last week we expect 1,909 to trigger before a possible pullback but we have also said the S&P 500 could trade to a high of 2,100 by yearend. For new subscribers, here is the 10-year chart we drew up in February and our yearend prediction on the index. (S&P 10-year chart)
We also wanted to show the Russell 2000 with the mysterious print of 1,213 on December 23, 2013 that has been erased from the history books. We saved the chart from the beginning of the year for this particular reason and at current levels, the index would be at a double-top. These types of technical patterns can be bullish or bearish.
The month of March can feel ominous as it represents additional market bottoms (and tops). In addition to the 5-year celebration off the 2009 lows, this month also represents the 11-year anniversary bounce from the 2003 market bottoms as well as the 14-year mark of the 2000 market peak.
As the indexes test their upper channels, our fluff targets from December are still in play and we recently made a strong case for S&P 1,909 before a possible pullback. This level could be challenged this month if the geopolitical events do not escalate but the tensions could lead to some choppy action for the remainder of the month.
If support holds on a pullback from here, we might have to wait until April before our fluff targets are triggered. However, if the 10-year uptrend lines are penetrated by the bears then there could be a correction coming that Wall Street isn’t prepared for.
We hate talking politics and we have no way of knowing what will or won’t happen between Russia/ Ukraine and all other sides involved over the next several weeks. We would love to say the saber-rattling ends peacefully but we don’t expect that to be the case. When zombies are in charge anything can happen so we have to watch the rear-view mirror.
There have been major market turns in March but not really any major pullbacks in March since the 2009 lows. March is usually a bullish month for the market, overall, with weakness in the back half. April is also bullish, historically, before the “sell in May and go away” possibility comes into play.
If the bulls can get off to a good start on Monday and hold any significant gains there could be a continued rally this week. If not, we will be watching key support levels for clues of a further slide or a possible trading range developing.
As we head from desk to press, futures are showing a lower ahead of Monday’s open: Dow futures are down 34 points to 16,420 while the S&P 500 futures are lower by 5 points to 1,875. The Nasdaq 100 futures are declining 6 points to 3,702.
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: 24-8 – the Weekly Wrap is 10-2 for 2014 (95-9, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk.
Aruba Networks (ARUN, $21.83, up $0.53)
April 23 calls (ARUN140419C00023000, $0.80, up $0.15)
Entry Price: $0.65 (3/5/2014)
Exit Target: $1.30
Return: 23%
Stop Target: 65 cents
Action: We believe shares could make a run past $25 and challenge its 52-week high of $26.26 on a close above $23.50. Support is at $20.50. If shares slip today we could close the trade for a slight profit but we are looking for support to hold.
Opko Health (OPK, $9.19, up $0.20)
April 10 calls (OPK140419C00010000, $0.50, up $0.10)
Entry Price: $0.65 (3/4/2014)
Exit Target: $1.30
Return: -23%
Stop Target: None
Action: Shares tested support at $9 before holding this level into the weekend. There is further risk to $8.75-$8.50 on a close back below $9. Resistance remains at $9.50-$10 and a close above the latter would be super bullish for a run to $12-$13 on short-covering.
Ingersoll-Rand (IR, $61.94, up $0.62)
April 62.50 calls (IR140419C00062500, $1.35, up $0.25)
Entry Price: $0.90 (2/27/2014)
Exit Target: $1.80
Return: 50%
Stop Target: 90 cents (Hard Stop)
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.
Discovery Laboratories (DSCO, $2.60, up $0.02)
April 2 calls (DSCO140419C00002000, $0.80, flat)
Entry Price: $0.65 (2/24/2014)
Exit Target: $1.00-$1.30
Return: 23%
Stop Target: 65 cents
Action: Support at $2.50 was tested on Monday and the next wave of support is at $2.40 and the 50-day MA. A close back above $2.70-$2.75 would be bullish.
World Wrestling Federation (WWE, $29.64, down $0.16)
March 30 calls (WWE140322C00030000, $1.85, down $0.05)
Entry Price: $0.40 (2/18/2014)
Exit Target: $1.60, raise to $3 (3/5/14 closed half @ $0.80, 3/6/14 closed a quarter at $1.80)
Return: 253%
Stop Target: $1.20 (Hard Stop on remaining quarter)
Action: Set limit orders to exit at $3 or better on the last quarter position.
We said we wanted to see a close above $30 but there was weakness into the close following an incredible surge to $31.90 following our midday update on Friday. We should have set an exit target at $2.50 or higher as the options kissed $3.10.
Near-term support is at $28 and where we will likely get stopped out of the remaining quarter position. We would love to see a continued run past $30 on Monday’s open but our Hard Stop is at $1.20 will protect profits.
Kodiak Oil & Gas (KOG, $12.05, up $0.08)
June 13 calls (KOG140621C00013000, $0.70, flat)
Entry Price: $0.70 (2/13/2014)
Exit Target: $1.40
Return: 0%
Stop Target: None
Action: We believe the company is a takeover candidate that could get a bid north of $15. Resistance is at $12.50. Support is at $11.75 on a close below $12.
Exact Sciences (EXAS, $13.62, down $0.07)
April 19 calls (EXAS140419C00019000, $0.50, flat)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -43%
Stop Target: None
Action: Support is at $13. Resistance is at $14.50 and a move above this level should get us back near even.
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 (6): 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 mkh jb√ 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
Ariad Pharmaceuticals March 10 calls (from January 3014)
May 11 calls (from January 3014)
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.
Finish Line (FINL, $27.75, up $0.24)
April 30 calls (FINL140419C00030000, $0.60, up $0.10)
May 30 calls (FINL140517C00030000, $0.95, up $0.20)
Thoughts: Shares were up 1% on Friday while its cousin, Foot Locker was surging 9%. We covered the explosive profits in the FL call options and the shoe business is exploding. We could boggle you on so many stats but let’s stick to the options for now. But it is an interesting subject.
We mentioned the weather kept us out of the Foot Locker trade last week and Nike can be a crowded trade. What’s interesting with Finish Line is that the company also operates 660 Macy’s stores.
Morgan Stanley (MS, $32.21, up $0.37)
April 33 calls (MS140419C00033000, $0.78, up $0.15)
Thoughts: We like these calls on a break above $32.50.
Valero Energy (VLO, $52.99, up $0.11)
April 52.50 calls (VLO140419C00052500, $2.55, up $0.05)
Thoughts: For those of you that got into this trade last week, keep riding the wave but start locking in profits.
S&P 500 Spiders (SPY, $188.26, up $0.08)
March 185 puts (SPY140322P00185000, $0.95, down $0.05)
Thoughts: We could use these puts for a short-term trade on weakness.
Philip Morris (PM, $80.34, down $0.57)
April 77.50 puts (PM140419C00077500, $1.15, up $0.30)
Thoughts: We said a close above $80 could lead to $82.50. A back test to $75 could be coming afterwards.
Verizon (VZ, $47.15, down $0.31)
April 45 puts (VZ140419P00045000, $0.50, up $0.05)
Thoughts: 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.
iShares Russell 2000 (IWM, $119.70, down $0.04)
April 113 puts (IWM140419P00113000, $1.00, flat)
Thoughts: We could go short on a drop below $119.
