The market continued its winning ways to start the week as the bulls pushed towards fresh all-time highs. The Dow came within 30 points of triggering 17,000 while the S&P 500 reached an all-time intraday peak of 1,955.55.
Tuesday’s sloppy action favored the bears for much of the session before the bulls made a late day run to get the split.
Wednesday’s action was dominated by the bears as they snapped a 5-session skid while the VIX closed above 11.50. It would prove to be a warning sign.
The bulls were defenseless on Thursday as they tried to hold fresh support that served as prior resistance but gave back more ground. The bears won their second-straight session for the first time since mid-May as they made a push towards the second levels of support. The VIX closed right at 12.50 and left no clues as to how Friday’s action would play out.
Needless to say, Friday was an important day for both sides as the battle over support and resistance would be important going into the weekend.
The Dow added 41 points, or 0.3%, to finish at 16,775 on Friday. The blue-chips traded to an all-time intraday high of 16,970.17 to start the week before going out at 16,943. There was a dip to 16,897 on Tuesday but the bulls fought back to get a 3-point win by the closing bell. Wednesday’s triple-digit pullback to 16,843 held support at 16,800 but I talked about risk to 16,600 on dips below this level. Thursday’s drop to 16,703 ended with a close at 16,734 before Friday’s slight rebound. On Tuesday morning (6/10) I said there could be a push to 17,250-17,300 on an overshoot past 17,000 but the second wave of support needs to hold.
The S&P 500 gained 6 points, or 0.3%, to end at 1,936 ahead of the weekend. The index traded to an all-time intraday high of 1,955.55 on Monday before settling at 1,951. Tuesday’s back test to 1,944 ended with a 1-point loss. I talked about 1,940 holding or there would be risk to 1,925 and Wednesday’s low reached 1,940.08 with a close back below 1,950 to 1,943. Thursday’s bottom touched 1,925.78 before a rebound to 1,930. The bears pushed 1,927 on Friday. I said 1,975-2,000 could trigger on continued closes above 1,950 and the next up or down 15 points from here could determine the next trend for the month.
The Nasdaq advanced 13 points, or 0.3%, to end at 4,310 to end the week. Tech traded to 4,346 and closed 10 points off this level to open the week. Tuesday’s trip to 4,319 ended in a 2-point victory to 4,338 before a drop to 4,315 and a 7-point loss on Wednesday. I talked about risk to 4,275-4,250 on a close back below 4,300 and Thursday’s low reached 4,284 with the bears holding 4,297 by the bell. Friday’s dip to 4,288 was minor and the close back above 4,300 was bullish. The 52-week high of 4,371.71 from early March is still in play with fluff up to 4,400-4,500.
The Russell 2000 popped 3 points higher, or 0.3%, to close at 1,162 on Friday. The small-caps reached a peak of 1,179 and cleared 1,175 with Monday’s push past resistance. However, Tuesday’s back test to 1,166 and close at 1,172 suggested the bulls weren’t quite ready to push 1,200 again. Wednesday’s low reached 1,161 with support at 1,160 holding. I cautioned a close back below this level could lead to 1,150 and the bears clawed at 1,156 and 1,154 to end the week. A close back below 1,150 will likely lead to 1,125-1,120.
The S&P 500 Volatility Index ($VIX, 12.18, down 0.38) came into the week at 10.73 but traded higher on Monday’s record push to all time highs before closing at 11.15. Tuesday’s low of 10.93 and finish at 10.99 might have suggested a short-term top was in and I talked about 11.50 and 12.50 coming into play on a further back test by the bears. Wednesday’s close was at 11.60 and Thursday’s 12.56. From Thursday morning’s update:
“I said the bulls had wiggle room to 12.50 but a close above this level would favor the bears. The recent 52-week and multi-year low is at 10.73 so the bulls likely need to hold the 11.50 level by the weekend. A close in between at 12 would be a coin-flip for next week.”
I have talked about the possibility of a single-digit VIX all year long but again, it is too early to tell if it happens sooner rather than later. This week could help in determining that time frame and a close above 13.50 would be very bearish over the near-term.
Wall Street has been playing catch up in June as many of the traders that took extended vacations in May try to show some kind of positive return. However, the end of the week pullback followed by Friday’s slight rebound is showing just how fragile the market really is.
The Dow fell triple-digits mid-week for the first time since May 20 and followed it with a triple-digit loss on Thursday. It was the first back-to-back triple-digits losses for the blue-chips since May 14-15.
I talked about the tight trading throughout May and reminded readers that a big breakout (or breakdown) would come once resolved. The VIX gave the BEST clues the bulls would win the war.
The “fluff targets” I gave in late December finally triggered after a close run in March. Here were my comments on 12/29/13:
“There is the possibility of the bulls pushing (Dow) 16,800-17,000 by late January…
The (S&P 500) index made a run to 1,844.89 at the opening but fell short of my 1,850 fluff target. If cleared, there could be a push to 1,875-1,900…
If cleared, the bulls could push Nasdaq 4,400-4,500…
If the bulls can clear this level (1,175) a run past 1,200 could come…(END)
The S&P 500 came into the year at 1,848. The yearend price targets from the top brokerage firms ranged from 1900-1,975 from my research in February.
Goldman Sachs (GS, $186.89, down $0.07) was at 1,900 and penciled-in a 3% move. An analyst from Bank of America (BAC, $15.44, up $0.02) estimated the S&P 500 might trigger 2,000. I found a total of 10 firms in the 1,900 range.
Morgan Stanley (MS, $31.59, down $0.14) tried to be smooth by guessing 2014 as a yearend target along with Oppenheimer. This is a 9% gain for the year. The high estimate came from an analyst out of JP Morgan (JPM, $57.04, flat) as they penciled-in 2075, a move of 12%.
I went on record in the February 24 Weekly Wrap with my yearend targets and said the S&P could make a run at 2,100. Obviously, there could be upgrades to yearend targets as some of the ten I found in the 1,900’s are upping their yearend price targets. (I have also predicted Dow 19,000; Nasdaq 4,800-5,000; and Russell 1,400 – providing the major MA’s hold up and there isn’t a war or conflict involving the US).
The famous pros that have flip-flopped are now back on the bulls bandwagon. Cramer, Gartman, Tepper, Icahn and a host of others having said they were growing extremely bearish over the past few months and into May. Now, all of a sudden, they are/ were cheerleading the higher highs. Cramer urged caution again on Thursday after hyping up the market Monday on fresh highs.
I have never met them duds and like their personalities but don’t get me wrong, the divergence and the chart work they didn’t do caused them to panic. That and they don’t follow the VIX.
The divergence I talked about in March and April is clear in this monthly chart for the indexes that show the gains and losses.
The Monday/ Friday closes have been bullish since mid-April as you will see from the charts below. The Dow is up the past 8-straight Monday’s and will be looking for 9-in-a-row to start the week. The Monday ahead of June expiration has been bearish in recent years as the blue-chips have fallen 10 of the past 16 but hopefully they can keep their Friday momentum.
The charts below show how Monday’s have performed this year.
The Friday closes have also been bullish since early May as well with the blue-chips finishing higher 6-straight sessions. The charts below show the Friday movements for 2014.
Tuesday’s have been less bullish in recent weeks as the Fed continues to wind down their QE program. I’ve mentioned banks have used the extra funds to put to other uses instead of making loans but they are running out of options as the printing presses wind down. The charts below show the action on Tuesday’s for 2013 and 2014.
The smart suit-and-ties have said all year long this is a stock picker’s market and that really is the truth. There are opportunities to go long AND short but the put options trades must be well timed and fundamentals must be breaking down. Chart work has been important to help keep emotions in check and to find the best trades.
While June has been a fun ride, during mid-term election years it has not been too kind to the bulls as it is the worst month of the year for the Dow and S&P, historically. However, the Nasdaq and Russell 2000 can rally into June during their 8-month bullish cycle that starts in November despite it being the 10th worst month for the 2 indexes.
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.
The Fed will host a 2-day meeting this week and it’s also June option expiration week. Additionally, I am not a geopolitical expert and hate writing about politics but I mentioned Friday there could be US air strikes in Iraq and this was echoed throughout the weekend. Time is running short and US ships are “in the area” to give the President “options”.
The market can go up in the face of war but usually suffers a serious pullback if our country gets involved. One of my headlines to start the month was that June could be volatile. There is still a chance the bulls push higher highs but they need a continued rebound to start the week.
If the second layers of support I have mentioned start to crack, there is a good chance the 50-day and 100-day MA’s come back into play.
Wall Street likes to label the time from now into August as the summer doldrums but I have a feeling it will be everything but boring this week and this summer.
Ahead of the open, futures look like this: Dow (-44); S&P 500 (-6); Nasdaq (-11).
Closed Trades for 2014: 50-29 – the Weekly Wrap is 15-3 (83%) for 2014 (100-10, 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.
Rambus (RMBS, $13.64, down $0.05)
August 15 calls (RMBS140816C00015000, $0.45, down $0.05)
Entry Price: $0.40 (6/13/2014)
Exit Target: $0.80
Stop Target: None
Action: Shares traded to a high of $14.11 last Thursday and a close above this level should get $18-$20 in play. The chart shows the huge drop in late November 2011 from $18 to $7 on a court ruling the company had infringed on certain patents.
Rambus is a current Weekly Wrap holding and I have covered the company’s litigation issues over the years. The outlook has improved over the past 6 months with profitable quarters and a recent deal with Qualcomm.
Shares are pushing fresh 52-week highs and the option pits have been exploding. Short-term support is at $13 and I like the trade as long as $12 holds.
Kodiak Oil & Gas (KOG, $13.79, up $0.15)
July 14 calls (KOG140721C00014000, $0.55, up $0.05)
Entry Price: $0.35 (6/11/2014)
Exit Target: $0.70
Stop Target: 40 cents (Stop Limit)
Action: Shares traded to $13.84 last week and made a nice recovery off the Friday morning low of $13.47. A close above $14 would be bullish and get 52-week highs in play.
The stock could be setting up for a run to $15 that would easily double or triple these call options. They would be worth at least 70 cents if $14.70 is triggered by mid-July and $1-$1.05 if $15 is reached. Support is at $13.50-$13. I have set a stop limit of 40 cents to protect profits.
Hercules Offshore (HERO, $4.83, up $0.04)
October 5 calls (HERO141018C00005000, $0.45, up $0.05)
Entry Price: $0.35 (6/11/2014)
Exit Target: $0.70
Stop Target: None
Action: Hercules traded to a high of $4.83 on Thursday and Friday. A run to $5-$6 could be in the works over the summer. Support is at $4.60 and the 100-day MA followed by $4.40.
Imax (IMAX, $26.98, up $0.17)
September 28 calls (IMAX140920C00028000, $0.95, flat)
Entry Price: $0.60 (6/5/2014)
Exit Target: $1.20
Stop Target: 70 cents (Stop Limit)
Action: A close above $27-$27.50 would be bullish for a run towards $28-$30. Friday’s high was $26.99. Support is at $26.50 and the 50-day MA. I have a Stop Limit of 70 cents to protect profits.
Limelight Networks (LLNW, $2.83, down $0.09)
September 3 calls (LLNW140920C00003000, $0.30, flat)
Entry Price: $0.15 (6/4/2014)
Exit Target: $0.45
Stop Target: None
December 3 calls (LLNW141220C00003000, $0.40, down $0.05)
Entry Price: $0.20 (6/4/2014)
Exit Target: $0.60
Stop Target: None
Action: Shares traded to a high of $3.19 to start the week as bandwagon jumpers stormed in.
Roth Capital lifted its Price Target for Limelight Networks to $4.50 from $3 following its recent court win against AKAM. I have already covered the acquisition appeal of the stock and Captain Obvious echoed those comments last week. I was hoping shares would go unnoticed by the suit-and-ties and perhaps they have been reading my updates but I have a much higher target for Limelight. I have said shares could make a run to $5, possibly $8 if the takeover talk heats up over the summer.
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.
I mentioned support at $2.75 could be tested following the close back below $3 on Thursday and Friday’s low was $2.75. If tested again, I might start taking profits.
Apple, Google, Facebook, Microsoft and Verizon, just to name a few, could take a look at this company as it looks to build out its CDN network. Limelight has a market cap of just $280 million and would be a great acquisition target for Apple. The market cap was just $214 million when I started recommending shares at the end of May at $2.16.
Fortinet (FTNT, $23.62, up $0.19)
July 25 calls (FTNT140719C00025000, $0.45, flat)
Entry Price: $0.25 (6/4/2014)
Exit Target: $0.50 (closed half @ $0.45 on 6/11/14)
Stop Target: 25 cents, raise to 30 cents (Stop Limit)
July 24 calls (FTNT140719C00024000, $0.75, flat)
Entry Price: $0.45 (5/30/2014)
Exit Target: $0.90 (closed half @ $0.80 on 6/11/14)
Stop Target: 50 cents, raise to 60 cents (Stop Limit)
Action: I still believe a run to $25 and fresh 52-week highs are coming as long as support holds. The current 52-week high is at $23.93.
Support is at $22.50-$22. I have raised the Stop Targets and have made them Stop Limits to protect the other halves of the trades.
Twitter (TWTR, $36.90, up $0.11)
January 50 calls 2015 (TWTR150117C00050000, $2.00, up $0.10) LEAP option
Entry Price: $1.75 (5/8/2014)
Exit Target: $3.50 (closed half @ $2.10 on 6/12/14)
Stop Target: $1.50, raise to $1.70 (Stop Limit)
Action: Shares are testing the 50-day MA and a close above $37.50 would be bullish for a run to $38-$40. Support is at $35. I have moved the Stop Target from $1.50 to $1.70 and have made it a Stop Limit on the other half of the trade to protect profits.
Bed, Bath & Beyond (BBBY, $60.23, down $0.24)
June 60 puts (BBBY140621P00060000, $0.45, up $0.10)
Entry Price: $0.60 (5/14/14
Exit Target: $0.90 (Limit Order)
Stop Target: None
August 55 puts (BBBY140816P00055000, $0.60, up $0.10)
Entry Price: $0.63 (5/14/14
Exit Target: $1.25 (Limit Order)
Stop Target: None
Action: Shares traded to a low of $59.98 on Friday. The June puts made a tremendous comeback last week and why I say to always trust your chart work. Of course, the premium in the June calls will evaporate quickly this week so I’d like to see a close below $60 on Monday.
The break even point on the June puts is at $59.40, technically, by Friday’s close as the entry price was 60 cents. I do not want to carry the trade into Friday but might have too. I have set Limit Orders to exit the trade at 90 cents.
The August puts still have plenty of time to wait for a continued breakdown. Earnings are due out next week.
Other 2014 Portfolio OPEN positions (3): 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) – continue to hold
McDonald’s July 95 puts (from May 2014) – continue to hold
Apollo Group – continue to hold