MomentumOptionsTrading.com Weekly Wrap for 6/22/2014

11:00pm (EST)

 

1.  Market Summary

2. Earnings

3. Weekly Wrap Portfolio Update 

4.  Week Ahead

 

(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section.)

 

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1.  Market Summary  

The month of June has historically been a nightmare for the bulls but with the bears on the ropes from the May breakout, the run to all-time highs continues.  There are six trading days left for the month and the bulls have momentum.

The bears could roll over into 2Q July earnings season as most Wall Street pros start to take early vacations (again) but geopolitical events from around the world are still in play. (read more…)

The Dow added 25 points, or 0.2%, to settle at 16,947 on Friday.  The blue-chips traded to an intraday all-time high of 16,978 and remain on track to trip 17,000.  On 6/10/14, I said there could be a push to 17,250-17,300 on an overshoot past 17,000 but the second wave of support needed to hold.  Support at 16,800 has been solid and a close below this level could be a warning sign.  Backup support is at 16,600.  The Dow is up 230 points for the month.

DOW62214

The S&P 500 added 3 points, or 0.2%, to close just below 1,963.  The index also traded to another fresh 52-week and all-time high of 1,963.91 before closing a point off its peak.  I have mentioned if 1,950 held there could be a run to 1,975-2,000.  Any closes back below this level, and more specifically, 1,940 would be bearish.  The S&P 500 is up nearly 40 points for the month.

SPX62214

The Nasdaq jumped nearly 9 points, or 0.2%, to end at 4,368.  Tech also kissed a fresh 52-week high of 4,368.80 and is less than 1% away from triggering my 4,400-4,500 fluff targets from December.  As long as 4,350-4,325 holds as support there is a good possibility for higher highs.  A close below 4,300 could signal a short-term top.  The index is up 126 points for June.

NAS62214

The Russell 2000 advanced 4 points, or 0.4%, to finish at 1,188.52.  The small-caps went out near their session high and remain on a mission to tag 1,200 again.  Fresh support at 1,175 needs to hold on any back test this week.  There is risk to 1,160 on a close below this level.  The index is up 54 points for the month.

RUT62214

The S&P 500 Volatility Index ($VIX, 10.85, up 0.23) traded to another 52-week and 7-year low of 10.34 on Friday.  I have broken the record in saying the index will test single-digits this year but the skip to single-digits will irritate Wall Street even more once it does.  There were several prominent “Wall Street” pros that came on tv and continued their bashing of the VIX on Friday.  At least 3 suit-and-ties said the index was a useless indicator but to the contrary, it has been one of the BEST market tools I use and has been for over a two decades.

VIX62214

The bulls are working on a 9-session Monday win streak for the Dow and will be looking to make it 10 to start the week.  The Friday closes have been just as bullish with the blue-chips up 7-straight with his past Friday’s push to all-time highs.

The VIX continues to hold 11.50-12.50 and a drop into single-digits is still in play.  I have talked about additional fluff for the market and June could end with a bang if the bulls get below 10.

The small-caps could lead the bullish run into July as the indexes rebalance after the close on this Friday.  It is an annual event every June as new stocks are shuffled-in while older ones with lesser rank are shipped out.  This could also help the Monday/ Friday closes and signal money is continuing to flow into the market.

Heading from desk to press, futures look like this:  Dow (+12); S&P 500 (+2); Nasdaq 100 (+3).

 

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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.

 

BlackBerry (BBRY) was a huge win for the Daily last week and was an earnings trade I was bullish on.

 

Monday 

Ahead of the open:  None

After the close:  Micron Technology (MU), Sonic (SONC)

Tuesday

Ahead of the open:  Neogen (NEOG), Walgreen (WAG)

After the close:  AeroVironment (AVAV), Apogee Enterprises (APOG), EXFO (EXFO), Kewaunee Scientific (KEQU), Landec (LNDC), The9 (NCTY)

Wednesday

Ahead of the open: Apollo Education Group (APOL), Barnes & Noble (BKS), Carnival (CCL), General Mills (GIS), Lennar (LEN), Lindsay Manufacturing (LNN), Monsanto (MON)

After the close:  Bed Bath & Beyond (BBBY), CACI International (CACI), Cinedigm (CIDM), H.B. Fuller (FUL), Herman Miller (MLHR), Progress Software (PRGS)

 

 Thursday

Ahead of the open:  Accenture (ACN), ConAgra Foods (CAG), Golden Energy Marine (SHIP), McCormick & Co (MKC), Schnitzer Steel Industries (SCHN), Shaw Communications (SJR), Winnebago Industries (WGO), Worthington Industries (WOR)

After the close:  Aehr Test Systems (AEHR), CalAmp (CAMP), Guangshen Railway (GSH), Nike (NKE), Western Asset Municipal (MHF)

 

Friday

Ahead of the open:  Commercial Metals (CMC), Finish Line (FINL), KB Home (KBH)

After the close:  ASA (ASA)

 

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3.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 6/20/14)

The Weekly Wrap Closed Trade Track Record for 2014 is 16-4, or 80% win rate (101-11, or 90% win rate, overall since the start of 2011)

Special Notice:  The Limelight Networks (LLNW, $2.99, flat) covered call trade was closed for a profit.  The Coca-Cola (KO, $41.88, down $0.10) strangle option trade was closed last Monday for a loss. (Closed Trade 2014 Portfolio included)

 

Limelight Networks (LLNW, $2.99, flat) stock trades 

Original Entry Price:  $3.00 (6/9/14)

Lowered Price from Selling Options:  None

Exit Target:  $5

Return:  0%

Stop Target:  None

 

Original Entry Price:  $2.50 (6/4/14)

Lowered Price from Selling Options:  None

Exit Target:  $5

Return:  20%

Stop Target:  $2.70 (Stop Limit)

Action:  Shares traded to a high of $3.25 last Monday after Tuition Build offered roughly $645 million, or $6.55 a share, for Limelight.  The company dismissed the Silicon Valley’s private-equity firm’s offer after basically saying they weren’t experienced enough to run the business.

I have been suggesting a buyout offer would come for Limelight Networks with the company’s cheap market cap and said they would make a very luscious takeover target.

Its litigation issues have decreased dramatically following their recent win against AKAM and they are open to a much bigger marriage.

A close above $3.25 should get shares rolling again.  Support is at $2.75.

LLNW62214

Previous comments:

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.

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.

 

Hercules Offshore (HERO, $4.36, down $0.37) 

July 4.50 calls (HERO140719C00004500, $0.20, down $0.30)

Original Entry Price:  $4.50 (5/30/14)

Lowered Price from Selling Options:  $4.20

Exit Target:  $7

Return:  4%

Stop Target:  $2

Action:  Shares traded to a high of $5.05 to start the week but were pounded on Friday after contract talks with Chevron fell through in Angola.

This was a bid deal naturally, but the drop was a little overdone.  Support is at $4.40 followed by $4.20.  Resistance is at $4.50-$4.60.

HERO62214

On 5/30/2014 I recommended buying shares at $4.50 and selling the July 4.50 calls for 30 cents to lower the cost basis to $4.20.

 

Kodiak Oil & Gas (KOG, $14.51, up $0.15) Stock Trade

Original Entry Price:  $13.25 (4/14/14)

Lowered Price from Selling Options:  $13.25

Exit Target:  $15

Return:  10%

Stop Target:  $13.35, raise to $14 (Stop Limit)

 

September 15 calls (KOG140920C00015000, $1.05, up $0.10) LEAP Trade

Original Entry Price:  $.0.72 (4/24/14)

Exit Target:  $1.45 (Limit Order on HALF)

Return:  46%

Stop Target:  75 cents (Stop Limit)

Action:  Set Limit Orders to close HALF of the September 15 calls at $1.45 on Monday.  If filled, I will send out a Profit Alert along with further instructions.  I have a Stop Limit of 75 cents to ensure the trade is profitable on a pullback.

The Stop Limit of $13.35 on the stock trade held to start the week following a dip to $13.40 on Tuesday.  Shares traded to a high of $14.76 on Friday and I have raised the Stop Limit on this trade to $14 to protect profits.

A run past $15 is still in the works.

KOG62214

Alexza Pharmaceuticals (ALXA, $4.50, up $0.07) Covered Call Trade

Original Entry Price:  $5.53 (3/4/14)

Lowered Price from Selling Options:  $5.03

Exit Target:  $6+

Return:  -10%

Stop Target:  $3

Action:  The June 6 calls expired last Friday and I will be looking to sell another call option (July or August) this week.  I want to find the best near-term option to sell and want to see how the prices open before doing so.  I will send out a Trade Alert once I find the best play.

Shares are in an uptrend and a close above $4.65 and the 100-day MA would be bullish.  Short-term support is at $4.40 followed by $4.30 and the 50-day MA.

ALXA62214

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.

 

Discovery Laboratories (DSCO, $1.72, flat) Covered Call Trade

Original Entry Price:  $2.42 (1/7/14)

Lowered Price from Selling Options:  $2.02

Exit Target:  $4.50-$5

Return:  -14%

Stop Target:  None

Action:   The June 3 calls expired last Friday and I will look at selling July or August call options this week as well with this trade.

Support at $1.70 continues to hold and the chart shows the tight trading range that has formed since mid-May.  This usually translates into a big move one the trading range is resolved.  There is risk to $1.60-$1.50 on a breakdown below $1.70.  A close above $1.80 and the 50-da MA would be bullish.

DSCO62214

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.

 

Pizza Inn Holdings (PZZI, $6.15, up $0.08) Stock Trade 

Original Entry Price:  $8.10 (10/11/13)

Lowered Price from Selling Options/ Dividends:  No options available

Exit Target:  $12+

Return:  -24%

Stop Target:  $5

Action:  Shares are trending higher and tested resistance at $6.25 to start the week.  A close above this level would be bullish for a run to $6.50-$7.  Support is at $6 with back up at $5.75.

PZZI62214

Previous comments:

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.

 

Rambus (RMBS, $14.69, up $0.04) 

Original Entry Price:  $17.83 (11/14/11)

Lowered Price from Selling Options:  $16.38

Exit Target:  $18-$20

Return:  -10%

Stop Target:  $10

Action:  Shares made a run at $15 on Tuesday after kissing $14.70Rambus kissed $14.71 and a fresh 52-week high.  A close above $14.70 keeps $15 in play.  Support is at $14.50 with backup at $14.  I have a Stop Limit of 70 cents on the other half of the trade.

I have said a close above $15 should get $18-$20 in play.  Shares tanked $11 in late November 2011 from $18 to $7 on a court ruling the company had infringed on certain patents.  I originally recommended this trade on a favorable court ruling.

The outlook for Rambus has improved over the past 6 months with profitable quarters and a recent deal with Qualcomm.

I may also sell another call option on this position as well but would like to see shares clear $15-$16 before doing so.

RMBS62214

On 11/14/2011 I recommended buying shares at $17.83 and selling the December 20 calls for $1.45 to lower the cost basis to $16.38.

 

Trades on HOLD:  AKS Steel Holding (AKS), DryShips (DRYS), 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:

ECOcal62214