9:00am (EST)

 

The market was closed last Monday for Memorial Day that left Wall Street facing a Tuesday open and a short-covering rally.  The bulls have done well on Terrific Tuesday’s for much of the year and returned to form following a push to all-time highs.

Wednesday’s action produced another fresh high on the S&P 500 but the other major indexes struggled with prior resistance levels.  The bears got the win by taking 3 of the 4 major indexes lower but it would be short-lived.

Thursday return to positive territory was led by the S&P 500’s continued run to the moon but resistance held for the most part.  The small-caps acted bullish but the blue-chips and Tech lagged.

Friday’s action was sluggish for much of the session before a late day revival gave the bulls a split with the bears and a May victory.

9:00am EST

The Dow gained 18 points, or 0.1%, to finish at 16,717 on Friday.  The blue-chips traded to a high of 16,688 on Tuesday and gained 69 points but gave back 42 on Wednesday to settle at 16,633.  I mentioned throughout the week I wanted to see a close above 16,700 and Thursday’s push into the bell ended with a peak to 16,698.74.  The index opened lower on Friday and kissed 16,648 before a final hour rally to 16,721.  I’m expecting my upside target from December of 16,800-17,000 to trigger this week of next.  Support has been solid at 16,600 with backup at 16,400-16,350.  For the week, the Dow advanced 111 points, or 0.7%, after starting at 16,606.  The blue-chips are now up 141 points, or 0.9%, for 2014 (Dow ended 2013 at 16,576).

DOW6114

The S&P 500 added 3 points, or 0.2%, to settle at 1,923 to end the week.  The index danced with my March 1,909 fluff target throughout Tuesday and reached an all-time intraday peak of 1,912.  I have said there could be additional fluff to 1,925 on a close above 1,909 after predicting the run to 1,900 in December.  Wednesday’s high reached 1,914 before a 2-point loss as the S&P closed at 1,909.  This was a perfect clue 1,925 could trip and Thursday’s rebound to 1,920 all but confirmed higher highs.  Friday’s back test to 1,916 set the stage for the run to 1,924 into the close.  There could be additional fluff to 1,950-1,960 as long as fresh support at 1,909-1,900 holds.  The S&P 500 came into the week at 1,900 and roared 23 points higher, or 1.2%, by Friday’s close.  For the year, the index is higher by 75 points, or 4.1% (S&P 500 ended 2013 at 1,848).

SPX6114

The Nasdaq declined 5 points, or 0.1%, to close at 4,242 ahead of the weekend.  The run past 4,200 on Tuesday was impressive as I mentioned it was a major hurdle the bulls needed to clear and the war they had to win.  Tech zoomed more then 1% to finish at 4,237 and looked poised to clear 4,250.  Wednesday back test to 4,225 was followed with a surge to 4,247.95 into Thursday’s close.  Friday’s high reached 4,252 before a fade to 4,221.  The action suggests another test to 4,300 is in the cards and my fluff target of 4,400-4,500 from December is still a possibility.  I have warned last week another close back below 4,200-4,175 might suggest a top is in.  The Nasdaq was at 4,185 coming into the week and soared 57 points, or 1.4%.  Tech is higher by 66 points, or 1.6% year-to-date (Nasdaq ended 2013 at 4,176).

NAS6114

The Russell 2000 dropped over 5 points, or 0.5%, to close at 1,134 on Friday.  The small-caps faced resistance at 1,140-1,150 coming into the week after clearing 1,125 on the prior Friday.  Tuesday’s surge to 1,144 and close at 1,142 was textbook on the short covering rally with the Russell leading the way higher.  Wednesday’s back test to 1,136 wasn’t worrisome as the low of 1,132 easily held support.  Thursday’s rebound to 1,141 and close at 1,140 suggested another run at 1,150 was coming.  However, Friday’s lower low at 1,130 needs to be watched.  The bulls did push a fractional higher high than Thursday by reaching 1,141.73 but they failed to clear Tuesday’s high.  Overhead resistance remains at 1,150 with 1,175-1,200 waiting in the wings.  A close back below 1,125, and more specifically the 200-day MA, could also signal a short-term top is in.  The Russell came into Tuesday’s open at 1,126 and gained 8 points, or 0.7%, for the week.  YTD, the small-caps are still down 29 points, or 2.5% (Russell 2000 Dow ended 2013 at 1,163).

RUT6114

The S&P 500 Volatility Index ($VIX, 11.40, down 0.17) was basically flat throughout the week as resistance at 12.50 held.  The VIX spiked to 11.84 shortly after the open on Tuesday but was in a steady decline afterwards and closed at 11.51.  Wednesday’s peak reached 11.86 while Thursday and Friday tops were 11.82 and 11.70. Lower highs and lower lows throughout the week suggests a continued decline.

I continue to mention the VIX getting more attention as the slick talking pros weigh in on the 7-year lows but they continued to say all the wrong things.  I have gone on record since last year saying the VIX could reach single-digits this year if the S&P 500 makes it to my yearend 2,100 target.  I have also mentioned on Tuesday that it is too soon to tell if the VIX dips below 10 into June/ July or if it happens later in the year, or, if at all.  A close above 12.50 might be healthy and would put get more chatter about the VIX going as this would be the first warning sign.  However, I often talk about how charts get “stretched” and the bulls have room to 13.50 before I would get excited about the possibility of loading up on bearish positions.

VIX6114

For the second-straight year there was no sell in May and go away which is Wall Street’s answer for early vacations.  Despite some end of the week weakness, the bulls used a 4-day rally to cement the monthly win.

The Dow started May at 16,580 and gained 137 points or 0.8% while the S&P came in at 1,884 and added 39 points, or 2.1%.  The Nasdaq jumped 128 points, or 3%, after coming into May at 4,114 while the Russell 2000 advanced 8 points, or 0.8%, after rolling in at 1,126.

The biggest development from last week was the drop in 10-year bond yields which fell to 2.44% and is at levels not seen since last June.  Below is a 2-year weekly chart showing a test to 2% is a real possibility.

$tnx6114

The talking heads say the bond market is “smarter” than the stock market but I mentioned a few months ago there are a ton of slick-talking pros that have been on the wrong side of this trade for much of the year.

You can clearly see in the aforementioned chart the peak into December 2013 and the slow fade since.  The theory goes as the yield drops, it is usually a good indicator that money is moving out of the market and into bonds.  With the indexes pushing new highs again, this theory hasn’t worked.

I am not a “bond” trader so I haven’t fretted over the 10-year note because I play the market’s trend and not bond yields.  However, it is still important to follow these developments.  At some point, a continued drop in yields could hurt stocks but the charts (and the VIX) are much more reliable indicators than predicting how low yields can go.

Side note:  The water-cooler talk is the “smart money” is saying that the drop in the 10-year treasury is really due to the decline of the Chinese Yuan and not money moving out of the market.

I like to use the Monday/ Friday closes to get a feel for if money is moving in or out of the market.  There is a lot of chatter about the market hitting fresh highs on “low volume” but I ignore this noise as well.

The Friday closes in May were much better than April as the Dow is riding a 4-session Friday win streak.  Monday’s have been positive 5-straight sessions.  Since there was no Monday trading last week, it was good to see a second-straight up Tuesday.

I have talked about watching Tuesday’s recently as they have been bullish for much of the year.  However, May’s action shows 2-out-of-3 triple-digit pullbacks with a 20-point gain sandwiched in between before last Tuesday’s 69-point pop for the Dow.

I have talked about a continued rally into mid-June and there are a number of events this week that could help or hinder this prediction.

First, is the 50th Annual Meeting of the American Society of Clinical Oncology (ASCO) being held in Chicago.  The meeting kicked-off on Friday and will last through Tuesday.  There are hundreds of companies that are presenting with lung cancer, leukemia, and immunotherapy being the hot topics.  Any cure for cancer is always good news.

This could give the Biotech sector a continued lift following the drubbing in March and April.  The Market Vectors Biotech Index (BBH, $90.62, down $0.15) cleared its 50-day MA last week after hurdling its 200-day MA the prior week.  The index faces resistance at $93.50 and the 100-day MA but another death-cross is forming (red circles).

bbh6114

The other cool gathering is Apple’s Worldwide Developer Conference on Monday.  While it would be nice to see them introduce a new toy, I’m more focused on the 7-for-1 Apple (AAPL, $633, down $2.38) stock-split.  It has been funny seeing the analyst upgrades north of $700 in recent weeks but they haven’t mentioned the upcoming split.  I will talk more about this in Monday’s Daily Midday Update as the option chains will become much more cheaper to trade but expect shares to be on the move this week.

(See my thoughts about how to trade options on stock-splits on Page 109 in my trading manual, How to Trade Options on Momentum Stocks).

There is also major economic news due out this week highlighted by the unemployment reports on Wednesday and Friday.  The ECB meeting could also influence the market and geopolitical risks are an ongoing concern.

In the 12/29/13 Weekly Wrap these were my thoughts on the Dow:

“There is the possibility of the bulls pushing 16,800-17,000 by late January if they can clear 16,600 but a break below 16,200-16,000 would be bearish.” (End)

After struggling to clear 16,600 by mid-January, I warned of the pending pullback that pushed the index briefly below its 200-day MA by February as I have always said this is one of the hardest months to trade.  However, I remained bullish as I said the market cycle would be bullish through April and possibly into May.  Bingo.

For the S&P 500, I have said to remain bullish until 1,900 triggers, specifically 1,909, with additional fluff to 1,925.

My extended target for the Nasdaq in December was 4,400-4,500.  The index triggered 4,344 in late March.

The Russell 2000 (or a fat finger) gave me an incredible clue just before Christmas.  Here were my thoughts on December 23, 2013 at 2pm (EST):

“As the market continues to make a run at our yearend fluff targets, one interesting development was the action in the small-caps.  We have been calling for the Russell 2000 to make a run past 1,150 and possibly up to 1,175 once the rally resumed and today’s OPEN surpassed those targets.

The Russell 2000 opened at 1,212.81 and kissed 1,213.49 in the opening minutes before coming back down to earth.  The 5% move could have been a rebalancing act and either marks the high for the year or is one hell of a clue this level will be triggered in January.” (End)

This has been “erased” from the charts as well as historical data for the Russell 2000 but a story the financial news never really covers.  After peaking at 1,182 and clearing 1,175 in January, the small-caps broke down like a rented mule.  However, the market left me that one clue just before Christmas that 1,200 would trip and it did on March 4th.

The “divergence” I talked about before Wall Street knew what was hitting them has now left the flip-floppers and slick-talking pros feeling bullish again.

I have rambled a lot and there is much more to cover but let’s just see how the next few weeks play out.  The market could get a “blow-off” top or is putting in a top and by mid-June all of my extended fluff targets could trigger, or not.

From here, it will be back to the yearly and monthly charts to see how the summer might play out but let’s roll with bullish expectations for the next 2 weeks as some of the hedge-funds play catch-up and start to chase for performance.

Of course, I have predicted much higher prices by the end of the year as my S&P 500 target is 2,100 (from late February).  However, I gave myself some outs and said there could also be a blood in the street type selloff at some point this year.  Any war will make this a reality and summers are hot and another drop below the major MA’s would not be good.  Zombies do crazy things when the heat is on.

Futures are pointing towards a higher open Monday morning:  Dow (+25); S&P 500 (+2): Nasdaq 100 (+2).

 

MEMBERS AREA

Closed Trades for 2014: 48-28 – the Weekly Wrap is 14-3 for 2014 (99-10, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk.  All trades are dated and time stamped so new subscribers can look at our past history to see how the trades have played out.

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 trades or “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 12pm-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.

Special Notice:  There are 4 June trades that will either be profitable, cut for a loss, or expire in less than 3 weeks.  This is a time period I call the “danger zone”.  I have shown how some option trades can be down 75%-90% and make tremendous comebacks.  APOL is a recent example.  However, sometimes these options don’t come back.  A closed trade that losses 85% might look better than a 100% loss but the bottom line is I still got it wrong.  Also remember, sometimes I like to keep “insurance” in case there is a fat finger day or the bears strike quickly.  Bulls like to take the stairs up while the bears prefer the elevators.   

 

Fortinet (FTNT, $22.47, down $0.20)

July 24 calls (FTNT140719C00024000, $0.50, down $0.05)

Entry Price:  $0.45 (5/30/2014)

Exit Target:  $0.90

Return:  11%

Stop Target:  None

Action:  Shares are setting up for a run past $25. The 52-week high is just below $24 and if momentum catches, shares could run to $30.  Support is at $22 and the 50-day MA.

FTNT6114

CVS Caremark (CVS, $78.32, up $0.66)

July 80 calls (CVS140719C00080000, $0.80, up $0.20)

Entry Price:  $0.52 (5/28/2014)

Exit Target:  $1.10 (closed 1/3 @ $0.80 on 5/30/14)

Return:  54%

Stop Target:  60 cents (Stop Limit)

Action:  I suggested closing a third of the trade at 80 cents on Friday to lock-in gains.  The calls traded to a high of 84 cents when shares traded to a high of $78.49.

I’m still expecting a run past $80 over the month but wanted to ensure the trade was profitable in case there is some slippage following last week’s run to fresh 52-week peaks.  Short-term support is at $77 followed by $75.

CVS6114

Apollo Group (APOL, $26.80, up $0.13)

June 25 puts (APOL140621P00025000, $0.40, down $0.05)

Entry Price:  $0.55 (4/28/2014)

Exit Target:  $1.10 (limit order to close half)

Return:  -27%

Stop Target:  None

 

August 23 puts (APOL140816P00023000, $0.70, flat)

Entry Price:  $0.70 (4/28/2014)

Exit Target:  $1.40 (limit order to close half)

Return:  0%

Stop Target:  None

Action:  The close below $27 and the 200-day MA opened the door for another test to $26.  A break this level should lead to the low $20’s.  Strong resistance is at $28.  The downtrend line is still holding but I’d really want to see a free fall below $26 by Friday’s close, or Bill Ackman announce his short position as reported by the talking heads.

APOL6114

Bed, Bath & Beyond (BBBY, $60.85, down $0.45)

June 60 puts (BBBY140621P00060000, $0.65, flat)

Entry Price:  $0.60 (5/14/2014)

Exit Target:  $1.20

Return:  8%

Stop Target:  None

 

August 55 puts (BBBY140816P00055000, $0.60, flat)

Entry Price:  $0.63 (5/14/2014)

Exit Target:  $1.25

Return:  -5%

Stop Target:  None

Action:  Shares traded to another fresh 52-week low of $60.29 but failed to finish below my $60.50 target.  Support is at $60 and a break below this level will likely lead to $57.50-$55.  An analyst downgrade would be nice this week. Resistance is at $61.50-$62.50.

BBBY6114

Twitter (TWTR, $32.44, down $1.56)

January 50 calls 2015 (TWTR150117C00050000, $1.20, down $0.30) LEAP option

Entry Price:  $1.75 (5/8/2014)

Exit Target:  $3.50-$5

Return:  -31%

Stop Target:  None

Action:  Support has moved up to $32.50.  Resistance is at $35-$37.50.

TWTR6114

McDonald’s (MCD, $101.43, up $0.09)

July 95 puts (MCD140719P00095000, $0.30, flat)

Entry Price:  $0.70 (5/6/2014)

Exit Target:  $1.40

Return:  -57%

Stop Target:  None

Action:  The break below $101.50 was bearish and a close below $100 should get this trade moving in the right direction.  There is risk to $105.  These options have nearly 2 months before they expire so there is plenty of time for the trade to play out.

MCD6114

Other 2014 Portfolio OPEN positions (2):  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 2014 Portfolio link in the Members Area to view ALL open/ closed trades.

 

iShares Russell 2000 June 103 puts (from May 2014)

Kirkland’s June 15 puts (from May 2014)