MomentumOptionsTrading.com Weekly Wrap for 6/8/2014

11:30pm (EST)

1.  Market Summary
2.  Earnings
3.  Weekly Wrap Portfolio Update
4.  Week Ahead

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1.  Market Summary

The small-caps and Tech tested my December 2013 “fluff” targets in March and while it took another 3 months, the broader market triggered fresh all-time highs throughout the week.

The Dow zoomed 88 points, or 0.5%, to finish at session and an all-time of 16,924.28.  The S&P 500 surged 9 points, or 0.5%, to match the blue-chips record as it ended at at all-time high of 1.949.44.

The Nasdaq zoomed 25 points, or 0.6%, to settle at 4,321 and traded to a high of 4,322.  The 52- week high is at 4,371.71.  The Russell 2000 roared 11 points, 1%, to close at 1,165.  The small-caps kissed 1,167 and are just 1% away from clearing 1,175.

The S&P 500 Volatility Index ($VIX, 10.73, down 0.95) closed at session lows.  The bulls ability to hold 12.50 throughout the week was another solid sign fresh highs in the market would come into play.

I reiterated Dow 16,800-17,000; S&P 1900-1,909 (specifically); Nasdaq 4,400-4,500; and Russell 1,200-1,225 in March.  I have talked about the VIX hitting fresh 52-week lows and possibly single-digits all year long while the talking heads continue to get it wrong.

My yearend price targets from February for Dow 19,000; S&P 2,100; Nasdaq 4,800-5,000; and Russell 1,400 may have seemed unrealistic (again) as I said the Dow could move another 3,000 points this year.  The suit-and-ties that said no way 1,900 would trigger in May for the S&P, they were wrong once again with talk of 2,000 now surfacing.

Last year, I showed chart work and said the Dow could move from 13,000 to 16,000 and subscribers were very surprised.  Not after the money they made.

My price targets for 2014 are/ were the HIGHEST out of dozens of Wall Street firms that predicted the S&P would gain just 3%-5% this year.

My chart work is always done in February for yearend price targets, or “educated guesses”.  New subscribers can check the 3/2/2014 Weekly Wrap and the 3/3/2014 Daily for all of the predictions and chart work.

The point I want to make is now that these fluff targets are triggering, the wall or worry becomes that much taller.  All of a sudden, the famous pros that were cautious and said to sell everything are now bullish again.

The bears could have a long hungry summer or they get some action somewhere down the road.

I have much more to cover but I wanted to take the weekend to get more thoughts together and to enjoy last week’s action.  The chart work from last week paid in spades and the real grind begins next week.  For new subscribers, go to last Sunday/ Monday updates to see the channels the bulls cleared.

I predicted in late May there could be a rally through mid-June if there was a break out of the month long, incredibly tight trading range.  I also mentioned the following week is option expiration week.  The next round of earnings start in July.

The May action may have seemed boring but I often remind readers never short a dull market.

The current trades got some nice pops last week but naturally some of the put trades did not.  A rising tide lifts all boats but they can serve as protection in case the waters get choppy later in the month.

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2.  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 (subscription link).  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.

Monday

After the closing bell:  Limoneira (LMNR), Majesco Entertainment (COOL), Synergetics USA (SURG), Triangle Petroleumoration (TPLM)

Tuesday

Ahead of the opening bell:  AEP Industries Inc. (AEPI). Christopher & Banks (CBK), Francesca’s Holdings (FRAN), HD Supply Holdings (HDS), Pep Boys-Manny Moe & Jack (PBY), Science Applications (SAIC)

After the closing bell:  Enzo Biochem (ENZ), NCI Building Systems (NCS), Oxford Industries (OXM), Sportsman’sWarehouse (SPWH), Ulta Beauty (ULTA), United Natural Foods (UNFI), Urstadt Biddle Properties (UBP)

Wednesday

Ahead of the opening bell:  MFRI (MFRI), MVC Capital (MVC)

After the closing bell:  CHC Group (HELI), Culp (CFI), Dominion Diamond (DDC)

H&R Block (HRB)

Sigma Designs (SIGM)

Thursday

Ahead of the opening bell:  IHS (IHS), Methode Electronics (MEI)

BlackBerry (BBRY)

Kroger (KR)

Pier 1 Imports (PIR)

Scholastic (SCHL)

After the closing bell:  Chimera Investment (CIM)

Oracle (ORCL)

Red Hat (RHT)

TIBCO Software (TIBX)

Friday

Ahead of the opening bell:  Ocean Power Technologies (OPTT)

After the closing bell:  None.

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Weekly Wrap Covered Call Portfolio Update (Closing prices as of 6/6/14)

The Weekly Wrap Closed Trade Track Record for 2014 is 15-3, or 82% win rate (100-10, or 91% win rate, overall since the start of 2011

Special Notice:  NLY was closed midweek to lighten the portfolio.  The KO puts were closed but the calls are still open and LLNW was added as a long-term trade since the June position will likely be “called-away”.

Limelight Networks (LLNW, $2.88, up $0.19) stock trade

Original Entry Price:  $2.50 (6/4/14)
Lowered Price from Selling Options:  None
Exit Target:  $5
Return:  15%
Stop Target:  None

Action:  I’m expecting a near-term run to $3.  Shares traded to a high of $2.92 Friday.

Open Interest is at 1,700 on the September 3 calls and just 367 for the December 3 calls.  This means the option market is expecting the move above $3 to come sooner rather than later.

If shares make a run to $3.50, the return should be 200% for each trade.  A close above $4 would make both calls worth $1 and an even bigger payday.

Apple could take a look at this company as it looks to build out its CDN network.  Limelight has a market cap of just $214 million and would be a great acquisition target for Apple.  Litigation risks with this trade have subsided, for now, but I believe the potential to make a double-digit profit over the next month is there.

If shares touch $3 this week, start another with limit orders for another quick, possible trade.  I will send out a Trade Alert if triggered.

Hercules Offshore (HERO, $4.52, up $0.04)

July 4.50 calls (HERO140719C00004500, $0.30, up $0.05)

Original Entry Price:  $4.50 (5/30/14)
Lowered Price from Selling Options:  $4.20
Exit Target:  $7
Return:  8%
Stop Target:  $2

Action:  Near-term resistance is at $4.60 followed by $4.80 and the 100-day MA.  Support is at $4.40 followed by $4.20.

Limelight Networks (LLNW, $2.88, up $0.19)

June 2 calls (LLNW140621C00002000, $0.75, up $0.15)

Original Entry Price:  $2.16 (5/30/14)
Lowered Price from Selling Options:  $1.76
Exit Target:  $3
Return:  64%
Stop Target:  None

Action:  The June 2 calls expire in 2 weeks.  If shares are called away at $2 the return will be 14%.

Coca-Cola (KO, $40.99, up $0.10) strangle option trade

June 41 calls (KO140621C00041000, $0.20, flat)

Original Entry Price:  $0.60 (4/24/14)
Exit Target:  $1.20-$1.50
Return:  -67%
Stop Target:  None

Action:  After 2 months of the flattest trading range ever, the June 40 puts were closed last week.  If shares can clear $42, the position could still make a profit.  If shares can’t clear $41 by Friday, I will likely close the calls.  The trade is down -67% overall.

Kodiak Oil & Gas (KOG, $13.08, up $0.23) Stock Trade

Original Entry Price:  $13.25 (4/14/14)
Lowered Price from Selling Options:  $13.25
Exit Target:  $15
Return:  -1%
Stop Target:  $10

September 15 calls (KOG140920C00015000, $0.45, up $0.05) LEAP Trade

Original Entry Price:  $.0.72 (4/24/14)
Exit Target:  $1.45
Return:  -38%
Stop Target:  None

Action:  I mentioned the close above the 50-day MA would be bullish and would clear the way for a run at $13.  Shares could makes a run at $13.25-$13.50 this week if $13 holds.  Backup support is at $12.75.

Alexza Pharmaceuticals (ALXA, $4.29, flat) Covered Call Trade

Sold June 6 calls (ALXA140621C00006000, $0.05, flat)

Original Entry Price:  $5.53 (3/4/14)
Lowered Price from Selling Options:  $5.03
Exit Target:  $6+
Return:  -12%
Stop Target:  $3

Action:  Support is at $4.20 after the failed test at $4.60.  The June calls expire next week and I will then look at July/ August call options to lower the cost basis.

On 3/4/2014 I recommended buying shares at $5.53 and selling the June 6 calls for 50 cents to lower the cost basis to $5.03.  If the shares are called away in mid-June at $6 the trade will make 20%.

Discovery Laboratories (DSCO, $1.70, down $0.05) Covered Call Trade

Sold June 3 calls (DSCO140621C00003000, $0.05, flat)

Original Entry Price:  $2.42 (1/7/14)
Lowered Price from Selling Options:  $2.02
Exit Target:  $4.50-$5
Return:  -16%
Stop Target:  None

Action:  Support at $1.70 was tested by Friday’s close.  There is further risk to $1.60-$1.50.  Resistance is at $1.90.

On 1/7/2014 I recommended buying shares at $2.42 and selling the April 3 calls for 25 cents to lower the cost basis to $2.17.

On 4/30/14 I recommended selling the June 3 calls for 15 cents to lower the cost basis for the trade to $2.02.  If shares are “called-away” at $3 in mid-June the trade will make 50%.

Pizza Inn Holdings (PZZI, $5.94, down $0.01) Stock Trade

Original Entry Price:  $8.10 (10/11/13)
Lowered Price from Selling Options/ Dividends:  No options available
Exit Target:  $12+
Return:  -27%
Stop Target:  $5

Action:  Pizza Inn recently reported better-than-expected earnings and it appears a bottom may have formed at $5.50-$5.75 if $6 fails to hold.

The company recently added 10 more units into their mix and now has 160 Pie Five shops opening this year and is expanding rapidly.  I believe this will be a $15-$20 stock in 1-2 years and insiders and mutual funds own nearly 40% of the company.  I have already recommended 2 profitable trades when shares were near $3.

Trades on HOLD:  AKS Steel Holding (AKS), DryShips (DRYS), Rambus (RMBS), Bebe Stores (BEBE), Vivus (VVUS), Dendreon (DNDN), Galena Biopharma (GALE) LEAP Trade/ Stock Trade, Zynga (ZNGA)

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4.  Week Ahead

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

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