MomentumOptionsTrading.com Weekly Wrap for 6/29/2014

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  

Volatility picked up on Friday as the small-caps rebalanced with the bulls ending the week on a high note.  The bears split the weekly win with the bulls and the consolidation was healthy for a continued push to higher highs despite the continuous calls for a selloff.  (read more…)

The Dow gained 5 points, or 0.03%, to settle at 16,851 on Friday.  The blue-chips traded in negative territory throughout the day and fell to a low of 16,773 before a final hour rally to 16,862.  The bulls are still within 1% of triggering 17,000 but the bears have cracked 16,800 for 3-straight sessions.  A close above 16,900 would be bullish to start the week while a close below 16,800 could lead to 16,600.  The all-time high of 16,978 was set the previous Friday.  For the week, the Dow dropped 96 points, or 0.6%.

DOW62914

The S&P 500 added 3 points, or 0.2%, to close a shade under 1,961.  The index tested a low of 1,952 before ending a half-point off its high.  Support at 1,950-1,940 held throughout the week and the close back above 1,960 was bullish.  I have talked about fluff to 1,975-2,000 and last Tuesday’s high reached 1,968.17.  The index was down 2 points, or 0.1%, for the week.

SPX62914

The Nasdaq soared 19 points, or 0.4% to finish just under 4,398 ahead of the weekend.  Tech came within spitting distance (twice) of triggering 4,400 (again) after a run to 4,398.85 on Friday.  Last Tuesday the index kissed 4,399.87.  My December fluff target was for a run to 4,400-4,500.  Close but no cigar, yet.  The low for the week checked in at 4,339 and was also triggered the prior week.  However, the bulls held 4,350 throughout the week so any close below these levels might suggest continued weakness to 4,325-4,300.  Otherwise, a run to 4,500 is still in the works.  For the week, the Nasdaq advanced nearly 30 points, or 0.7%.

NAS62914

The Russell 2000 surged nearly 9 points, or 0.7%, to end at 1,189.50.  The small-caps went out at session highs on Friday and just missed clearing 1,190.  A run past 1,200 could be in the mix as long as 1,175-1,170 holds.  The index dipped below the latter midweek to 1,168 and there would be further weakness to 1,150 if the bears can get a close below these levels.  The index was up a point0.1%, for the week.

RUT62914

The S&P Volatility Index ($VIX, 11.26, down 0.37) fell 3% on Friday and closed back below 11.50.  I talked all week about the 11.50-12.50 area as a key battleground to watch last week (and again this week).  The bears pushed a high of 12.51 on Thursday but the bulls kept single-digits alive with the close back below “support”.

VIX62914

There is one trading day left in June and this is going to be a short week for the market with a ton of important economic news due out.  The market will close early on Thursday and Wall Street is off for the July 4th holiday on Friday.

The Dow came into the month at 16,717 while the S&P 500 started at 1,923.  The Nasdaq rolled into June at 4,242 and the Russell 2000 was at 1,134.

Obviously, it would take a complete Monday meltdown for the bears to get the monthly win but they do have a shot at taking the blue-chips with a 1% attack.  The S&P 500 is up 2% for the month and has not had an intraday swing of 1% in 47 trading sessions.  Furthermore, the index has not had a weekly swing of more than 2% since mid-April.  In other words, the S&P looks safe for a monthly win along with Tech and the small-caps.

The Monday/ Friday closes have still been bullish despite the Dow having its 8-session win streak snapped to start the week.  Last Monday’s low of 16,896 was only a 51-point drop decline and the bulls made up 41 points by the close.

Friday’s was negative for much of the day before a surge into positive territory during the final hour of trading.  This extended the bulls winning streak to 7-straight Friday wins.

More on the VIX…

I cannot tell you the number of talking heads that have now said the VIX is broken, unreliable, is a non-factor, is at dangerously low levels, and so on.  “When the VIX is low, its time to go” has been echoed numerous times throughout the year and for every knucklehead that has bashed the VIX – its time to shut your pie-hole as it continues to be a great clue for volatility.  Charts don’t lie and it is important to remember the VIX still does matter.

I mentioned the rebalancing might be a bullish event as the Russell 1000, 2000 and 3000 indexes have all reached new record highs in the past year.  Some of the Wall Street pros were betting against the rebalance by selling or shorting the indexes or stocks that were going to be dropped in hopes of cashing-in from the downward pressure the rebalance might create.

Needless to say, those that were short the indexes were covering into the close after throwing in the towel.  I mentioned the Russell shuffle is usually a bullish day with volume surging ahead of the close and Friday’s action was picture perfect.

I was also fortunate enough to get us into a small-cap play for the Weekly Wrap that zoomed 23% on Friday after the stock was added to the Russell family of indexes.

The pros might not know this but research and homework do pay off.  I found an undiscovered small-cap stock to play the continued housing recovery a couple of months ago and suggested subscribers get in last Monday.  I had no clue the company was being considered for the Russell Microcap until Thursday but I will take the bonus package.

The indexes have triggered my December fluff targets and I have given additional upside targets into July if the rally continues.  It is hard to say if new highs will be hit this week but I mentioned on Friday I expected higher highs next month.

With a short trading week, I often say the suit-and-ties like to take a few extra days off because they believe they have “earned” it.  With the anemic performances most hedge funds and mutual funds have turned in this year, most of them should be working overtime as most are underperforming the market.

The market has done well around holidays as traders believe they won’t miss any action but normally they do.  Despite a shortened week, there will be plenty of action as Fed Head Janet Yellen is scheduled to speak on Wednesday about “financial stability”.  She seems to have the Bernanke Touch when it comes to helping or hindering the market with her comments which has been good for the bulls.

Ahead of Thursday’s open, the Nonfarm Payroll report for June is due out along with the May trade deficit numbers and June ISM figures from the services sector.

The resilient but boring, teflon market has been frustrating for some folks with more talk of it still being the most hated rally in Wall Street’s history.  Those that have said that are either short and have been punished or they have been sitting on the sidelines waiting for a “correction”.

There will be a time when the opportunity to short the market presents itself but for now, the bulls seem likely to push higher highs.  The bears still need to be respected but so do the bulls.

Futures look like this ahead of Monday’s open:  Dow (+8); S&P 500 (+1); Nasdaq (+3).

 

Special Notice:  Next week I will cover the longer-term charts for the indexes and where they are in relationship to my yearend targets.  I will also be covering the upcoming 2Q earnings season and some of the hottest IPOs over the past 3 months.

 

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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

Ahead of the open:  Stalnaya Gruppa Mechel (MTL), SWK Holdings (SWKH)

After the close:  Advanced Photonix (API), Castle Brands (ROX), Hollywood Media (HOLL), Investors Real Estate Trust (IRET), Mandalay Digital Group (MNDL), Sport Chalet (SPCHB)

 

Tuesday

Ahead of the open:  Acuity Brands (AYI), Lihua International (LIWA)

After the close:  A. Schulman (SHLM), CalAmp (CAMP), Paychex (PAYX)

 

Wednesday

Ahead of the open:  Constellation Brands (STZ), Frischs Restaurants (FRS), Golden Energy Marine (SHIP), Greenbrier Companies (GBX), Unifirst (UNF)

After the close:  Noah Education Holdings (NED), SYNNEX (SNX), Texas Industries (TXI)

 

Thursday

Ahead of the open:  International Speedway (ISCA), ITT Educational Services (ESI)

After the close:  None

 

Friday

Market closed. Enjoy July 4th!

 

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3.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 6/27/14)

The Weekly Wrap Closed Trade Track Record for 2014 is 18-4, or 82% win rate (103-11, or 90% win rate, overall since the start of 2011)

 

Huttig Building Products (HBP, $5.45, up $1.04) stock trade 

Original Entry Price:  $4.30 (6/23/14)

Lowered Price from Selling Options:  None

Exit Target:  $6-$8

Return:  27%

Stop Target:  $2, raise to $4.75 (Stop Limit)

Action:  Shares soared 24% on Friday after the company was added to the Russell Microcap Index.  Volume surged to 151,000 compared to average daily volume of 14,000.

I mentioned there was no analyst coverage on Wall Street but the addition into the index could catch some eyes.  Support was at $4 but the gap up could establish a new base at $5.  My upside target of a run to $6-$8 just got that much closer on the blue-sky breakout.  I have raised the Stop Limit of $2 to $4.75 to protect profits and ensure a double-digit gain.

Previous comments:

This is a small-cap stock with a market-cap just over $100 million.  The company has been in business for over 125 years and is a long-term bet on a continued “housing recovery”.  Shares have been publicly traded for 5 years and have gone undiscovered by the Wall Street pros.

HBP62914

CubeSmart (CUBE, $18.50, up $0.38) stock trade

Original Entry Price:  $18.62 (6/23/13)

Lowered Price from Selling Options:  None

Exit Target:  $22

Return:  -1%

Stop Target:  $14

Action:  The company will pay its quarterly dividend of 13 cents on 7/15/14.  This will lower the cost basis of the trade to $18.49.  Support is at $18 with risk to $17.80.  Resistance is at $18.75.

Previous comments:

This was a recommendation from last year that made a nice double-digit return in under 3 months.

I brought you their story in the low teens at $13.  Shares have been in a tight trading range for months but are on the verge of a breakout.

Options do trade on CubeSmart but I would like to see a run past the 52-week high of $19.69, or $20 before making this a covered call trade.  The stock also yields 3%.

CUBE62914

Limelight Networks (LLNW, $3.02, down $0.01) stock trades

Original Entry Price:  $3.00 (6/9/14)

Lowered Price from Selling Options:  None

Exit Target:  $5

Return:  1%

Stop Target:  None

 

Original Entry Price:  $2.50 (6/4/14)

Lowered Price from Selling Options:  None

Exit Target:  $5

Return:  21%

Stop Target:  $2.70 (Stop Limit)

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

Previous comments:

Shares traded to a high of $3.25 on 6/20 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.

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.

LLNW62914

Hercules Offshore (HERO, $4.00, flat)

July 4.50 calls (HERO140719C00004500, $0.10, flat)

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

Lowered Price from Selling Options:  $4.20

Exit Target:  $7

Return:  -5%

Stop Target:  $2

Action:  Shares traded to a low of $3.90 last week but held $4.  There is risk to $3.75 on a close below this level.  Resistance is at $4.20.

HERO62914

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.

 

Alexza Pharmaceuticals (ALXA, $4.57, up $0.05) Covered Call Trade 

Sold September 5 calls (ALXA140920C00005000, $0.30, flat)

Original Entry Price:  $5.53 (3/4/14)

Lowered Price from Selling Options:  $4.68

Exit Target:  $6+

Return:  -2%

Stop Target:  $3

Action:  I recommended selling the September 5 calls for 35 cents on 6/23 to lower the cost basis of the trade to $4.68.  If shares are called away at $5 by mid-September the trade will make 7%.

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.

ALXA62914

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, $1.79, up $0.13) Covered Call Trade

Sold October 2 calls (DSCO140101900002000, $0.40, up $0.05)

Original Entry Price:  $2.42 (1/7/14)

Lowered Price from Selling Options:  $1.67

Exit Target:  $4.50-$5

Return:  7%

Stop Target:  None

Action:  I recommended selling the October 2 calls on 6/23 for 35 cents to lower the cost basis of the trade to $1.67.  If shares are called away at $2 by mid-October the trade will make 20%.

The company announced Phase 2 trials for Aerosurf have begun.  The close above the 50-day MA was bullish and sets up a run to $2 if $1.80 clears.  Support is at $1.70 with risk to $1.60-$1.50.

DSCO62914

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, $6.20, up $0.13) Stock Trade

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

Lowered Price from Selling Options/ Dividends:  No options available

Exit Target:  $12+

Return:  -23%

Stop Target:  $5

Action:  Shares tested resistance at $6.25 on Friday and a close above this level would be bullish for a run to $6.50-$6.75.  Support is at $6 with back up at $5.75.

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.

PZZI62914

Rambus (RMBS, $14.29, up $0.05)

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

Lowered Price from Selling Options:  $16.38

Exit Target:  $18-$20

Return:  -13%

Stop Target:  $10

Action:  Shares traded to another 52-week high of $14.82 to start the week but the close at $14.53 was bearish.  A back test to $14 ensued the rest of the week and there is risk ton$13.75 on a close below this level.  A close above $14.50-$14.75 keeps $15 in play.

Previous comments:

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.

RMBS62914

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:

ECOcal62914