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.

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.

 

 

MEMBERS AREA

 

Closed Trades for 2014: 63-33 – the Weekly Wrap is 18-4 (82%) for 2014 (103-11, or 90% 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 the 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.  I will send out a “Profit Alert” or “New Trade” if I 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, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.

 

General Motors (GM, $36.62, down $0.28)

September 32 puts (GM140920P00032000, $0.35, flat)

Entry Price:  $0.40 (6/23/2014)

Exit Target:  $0.80- $1.20

Return:  -13%

Stop Target:  None

Action:  GM announced 3 more recalls after Friday’s close for another 475,000 vehicles.

Shares ended at session lows into the close and a drop below $36 would be bearish.  Resistance at $37 was stretched and I like the trade as long as $38 holds.

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

September 3 calls (LLNW140920C00003000, $0.35, flat)

Entry Price:  $0.15 (6/4/2014)

Exit Target:  $0.45

Return:  125%

Stop Target:  None

 

December 3 calls (LLNW141220C00003000, $0.45, flat)

Entry Price:  $0.20 (6/4/2014)

Exit Target:  $0.60

Return:  133%

Stop Target:  None

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.

LLNWa62914

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 I would not open any new positions.  I’m still keeping track of the trades and will record the results accordingly, when the trade closes or if the options expire.  Click on the 2014 Portfolio link in the Members Area to view ALL open/ closed trades.

 

McDonald’s July 95 puts (from May 2014) – continue to hold

Apollo Group August 23 puts (from April 2014) – continue to hold