The Dow soared 49 points, or 0.35%, to close at 13,993 on Friday. The blue-chips traded to a low of 13,866 on Monday and support at 13,800 was a half-percent away. The rebound on Tuesday carried the index back above 14,000 and Wednesday’s dip of 13,913 was higher than Monday’s. However, Thursday’s pullback at the open worried the Nervous Nellie’s but we said to watch for 13,850 to hold which it did as the low checked in at 13,852. We will still be watching 13,850-13,800 as a warning sign but Friday’s high of 14,022 still keeps 14,200 in play over the near-term. The all-time high for the Dow is 14,198 and anything above is blue-sky territory for the blue-chips. The Dow started the week at 14,009 and gave back 16 points, or 0.1%, by Friday’s close. The index is up 889 points, or 6.8% for the year.
Here is last week’s 15-year chart for the Dow:
The S&P 500 jumped 8 points, or 0.6%, to settle at 1,517.93. The index fell below 1,500 to start the week and finished at its session low of 1,495. We have mentioned since the beginning of February the bulls needed to hold 1,490 on any pullback or they would face risk down to 1,475-1,450. They are listening to us as Tuesday’s finish back above 1,500 was confirmation. There was a dip to 1,498 on Thursday but we said if 1,510 could trigger by the close we should see a higher Friday. We got 1,509.39 which was close enough for government work. Friday’s push to 1518.31 was a fresh 5-year high and keeps our 1,525 target in play. We said there is a chance 1,550-1,575 triggers if this level is cleared but that would be asking a bit much before a pullback. The all-time peak for the S&P is 1,576 and is still 3% away but attainable. The index started Monday at 1,513 and was up 5 points, or 0.3%, for the week. For 2013, the S&P 500 is showing a gain of 92 points, or 6.4%.
Last week’s 15-year chart for the S&P 500:
The Nasdaq soared 29 points, or 0.9%, to close at 3,193.87. Tech got spanked on Monday as the index fell to a low of 3,130 and closed at 3,131. We said in our midday update to look for 3,125 to hold again if 3,150 broke and Tuesday’s rebound to 3,171 reassured us a test to new highs was coming. We wanted to see a close above 3,175 but the index finished lower over the next 2 days. Thursday’s trip to 3,135 intraday still held support and the close above 3,150 each day was bullish. Friday’s surge to 3,196.89 just missed the 52-week high of 3,196.93 we said to watch for. We mntioned 3,250 is possible over the near-term if this level is cleared which is another 1.5% (with Apple rebounding and something we discuss below). The Nasdaq was at 3,179 before Monday’s open and added 15 points, or 0.5%, for the week. The Nasdaq is showing a gain of 174 points, or 5.8%, for 2013.
Tech’s chart from last week:
The Russell 2000 advanced over 5 points, or 0.6%, to end at 913.67 and another all-time high. However, it wasn’t easy. The small-caps dropped below 900 to start the week after kissing 898 and closing at 899. Tuesday’s rebound to 908 eased our concerns as 900 held and the low came in at 902. Wednesday advance to 911 and the previous Friday’s highs were good clues 925 was still in play. This level is just over 1% away and we can’t rule out 930-935 on an overshoot. We will continue to monitor any pullback to 900 but don’t get nervous until 890 cracks. This would lead to a test down to 875-850 and where the money-managers are dying to get in at. The Russell 2000 started the week at 911.20 and added over 2 points, or 0.3%, by Friday’s close. YTD, the index has advanced 64 points, or 7.6%.
The S&P Volatility Index ($VIX, 13.02, down 0.48) continues to trade below 15 and fell over 3% on Friday. Wall Street got nervous on Monday when the VIX reached 14.75 but the one clue we told you to watch, and repeated it again, was for the 15 level to hold. Thursday’s brief pullback got the VIX to 14.41 but Friday’s low was 12.89. The VIX could test 11-10 on one last hooray and the 52-week low is 12.29 which was hit in mid-January before a pullback.
Here is last week’s longer-term chart work for the VIX:
We are halfway through 4Q numbers that continue to come in ahead of Wall Street’s estimates. Nearly 70% of the companies that have reported have beaten the suit-and-ties forecasts but let’s not forget the bar was lowered coming into the season. They have stayed on the sidelines in raising earnings and that could be good news for the bulls come 1Q earnings in April. If companies continue to come in with better-than-expected numbers, it would be helpful for a continued rallied but this is the last “big” week before the announcements start to slow.
Tech finally showed some strength as Apple (AAPL, $474.98, up $6.76) was up over $20 for the week and may have bottomed (at least temporarily) at $440. We mentioned a few weeks ago the company’s weight on the indexes and any rally in Apple will help the bulls push new highs on the S&P 500 and Nasdaq.
We have a feeling Apple shares could push $500-$510 before eventually falling back below its 52-week low of $435, to maybe $410-$400. This would coincide with the pending 5%-10% pullback that will come at some point. If shares clear $510 then we would expect a rally up to $550 but Apple needs a wow product instead of refreshes or they need to get busy on the acquisition path to push growth again.
As far as a new product, we are hearing Apple is working on a watch-type device that could operate on the same platform as the iPhone. Then there is the TV which may or may not be in the works for 2013.
As far as marriages, we have mentioned time-and-time again Apple should buy TiVo (TIVO, $13.21, up $0.25) and the no-brainer would be Twitter but two more companies they should go after are American Tower (AMT, $77.06, $1.17) and Akamai Technologies (AKAM, $35.42, up $0.16).
American Tower would be the biggest merger as the company’s market cap is north of $30 billion but they operates as a REIT (real estate investment trust) and it would give Apple a powerful wireless and communication infrastructure or platform to build out it business. It might take care of the shareholder lawsuit that popped up as Apple could say it needs its $140 billion war chest to make these type of acquisitions.
Akamai just got a 15% haircut after disappointing the Street and missing estimates. Shares dropped from $41 to $35. Its market-cap is just over $6 billion and they provide content delivery.
Besides Apple, Merger and Acquisitions (M&A) could fuel a higher rally in 2013 as things pickup and we are starting to see early signs that it could be a great year for M&A deals. Historic Price-to-Earnings ratio on the S&P 500 have been much higher and companies have loads of cash on their balance sheets. Plus, money is cheap as dirt to borrow (if you can get a loan) and sooner or later the banks will let go of their purse strings.
The Dow Transportation Index ($TRAN) is approaching 6,000 following last week 54-point pop and is up over 11% for the year. We have also mentioned this index as a key indicator of bullishness or bearishness and the steps the bulls have been climbing are staggering. If the bears take the elevator down, it could be a quick trip to 5,400 on any market pullback or correction. A drop below 5,800 would be a good clue to load up on index put options so keep this in mind down the road.
We continue to see mixed to up Monday/ Friday closes and the last time the S&P finished lower on a M/F was mid-January and that was only by a fraction. We will have to watch this week’s action because February Friday option expiration has been bearish in recent years and will be here this Friday. This would mean the bulls need a good start to the week or the odds favor a negative M/F close for the first time in over a month. The market will be closed the following Monday and ahead of a 3-day weekend so there may be some profit taking.
The bulls are on a 6-week win streak and, although the Dow slipped a little last week, the index traded above its previous week’s high on Friday. We have given you a few simple clues to watch for to the upside on all of the indexes and we have called this market right for months despite everyone’s fear for a pullback. We don’t say this to toot our horn but to remind you that it is important to trade your plan no matter what the pros and talking heads are telling you.
We continue to say that calling a market top is never easy but we have been on point since early December as out 4% upper-end targets and fluff targets have triggered. We could say we are surprised but all of the clues were laid out like bread crumbs and we have marked our trail if and when there is a retreat.
The market is following the same pattern as last year where a lot of the pros were not in the game coming into the New Year. They were out and called for a pullback through March as money-managers fell behind the curve and played catch up all year. We always remind our subscribers the pros like to pack it in sometimes a little early to take long vacations and when there was little action before Christmas, most were flat. Most were worried about the Fiscal Cliff. And most of them have missed this year’s surge. There is still a lot of head scratching on Wall Street as to why the market continues higher and there are a lot of money managers and investment newsletters still calling for a correction. Last year’s market pullback didn’t come until April and while there are some serious headwinds facing us over the near-term, keep this in mind as well.
There has been some bipartisanship between the zombies lately and if they can avoid the March sequester, or looming budget cuts, and come to some type of an agreement, the bulls will have more reasons to push new highs. The head zombie will be speaking Tuesday in his State of the Union address and although his talk has been brash of late, we are hoping he tones it down a little and talks more about a compromise than kicking the can down the road.
The targets we need to watch for on a possible downside correction are as follows: Dow 13,800; S&P (500) 1,490; Nasdaq 3,125; Russell (2000) 890 and when the VIX cracks 15. Otherwise, we mentioned the bulls haven’t come this far not to ring the bell on new 52-week peaks for ALL of the indexes and all that remain are the blue-chips and Tech. If the indexes get there, great, and we will continue to stay long. If not, wait for the downside targets to trigger before going short.
As we head to press, futures are showing a higher open this morning. Dow futures are up 17 points to 13,943 while the S&P 500 futures are higher by a 2 points to 1,514. The Nasdaq 100 futures are gaining 4 point to 2,776.
MEMBERS AREA
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 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. Closed Trades for 2013: 14-3, for an 82% win rate, including the Weekly Wrap that is 2-0).
Apache (APA, $84.65, up $0.91)
March 90 calls (APA130316C00090000, $0.75, up $0.10)
Entry Price: $0.85 (2/6/13)
Exit Target: $1.30-$1.70
Return: -12%
Stop Target: None
Action: We believe the company will match estimates and provide a slight beat on revenues. We are expecting shares to make a run to $90+ on a beat-and-raise, otherwise, a trip to $79 could be in the mix.
ADT Corp. (ADT, $47.67, down $0.48)
March 50 calls (ADT130316C00050000, $0.50, down $0.20)
Entry Price: $0.65 (1/28/13)
Exit Target: $1.30
Return: -23%
Stop Target: None
Action: We did not like the price action on Friday. We have a near-term price target of $55 if shares can close above $49-$50 this week, otherwise, we might bail on the trade. A close below $47 would be bearish and likely force us out the options.
Wells Fargo (WFC, $34.79, up $0.13)
February 35 calls (WFC130216C00035000, $0.20, up $0.05)
Entry Price: $0.73 (1/7/13)
Exit Target: $1.50
Return: -73%
Stop Target: None
Action: You can see the tight range shares have been in since we opened the trade. This is never good for an option trade. We would like to see a close above $35.25 today. Resistance is at $36 and where we will make a profit. Our breakeven point is $35.73 for these options by this Friday. Support is at $34.
Taiwan Semiconductor (TSM, $18.45, up $0.15)
April 20 calls (TSM130420C00020000, $0.20, flat)
Entry Price: $0.25 (1/3/13)
Exit Target: $0.75
Return: -20%
Stop Target: None
Action: Shares are at fresh 52-week peaks. We have a near-term target of $20-$22 by mid-April for the stock. However, if shares fail to hold $18, we may close the trade and move on.
MGM Resorts International (MGM, $13.51, up $0.57)
June 15 calls (MGM130622C00015000, $0.55, up $0.15)
Entry Price: $0.40 (1/2/13)
Exit Target: $0.80
Return: 38%
Stop Target: None
Action: We have been waiting for online gambling to make inroads and last week’s and New Jersey is the latest state that could be joining the party. We mentioned a move back above $13.50 would be bullish and we were rooting for shares to close above this level on Friday. The momentum could carry shares to $14-$15 over the near-term and we have a $20 Price Target for MGM in 2013. Short-term support was at $12.50 and we would like to see $13.25 hold on a pullback. Earnings are due out on February 20.
Here was last week’s 2-year chart on predicting a breakout:
We may add the March 14 calls (MGM130316C00014000, $0.40, up $0.20) if shares continue to show strength. They were at 30 cents during or midday update on Friday. If we add to the position, we will send out a Trade Alert.
TiVo (TIVO, $13.21, up $0.25)
May 15 calls (TIVO130518C00015000, $0.75, up $0.05)
Entry Price: $0.50 (1/2/13)
Exit Target: $1.00
Return: 50%
Stop Target: None
Action: We would like to see a close above $13.50 this week. Support is moving up but shares are getting a little more volatile which could mean a big move is coming. We have a target of $18 for TiVo but we are watching support at $12.75 and the bottom uptrend line like a hawk.
Other 2013 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 2013Portfolio link in the Members Area to view ALL open/ closed trades.
Fossil February 70 puts (from December 2012) – Earnings are due out on Tuesday and we were encouraged by last week’s dip below $100. Hopefully, this was the signal for a big miss and lowered guidance. If shares stay above $100 on continue stair stepping, these calls will expire worthless. If we get it right, shares could test $70 on terrible numbers and an elevator drop like last year.
Vivus March 17 calls (from January 2013) – Vivus traded up to $13.98 on Friday after regaining some momentum and clearing $13 midweek. Shares got a lift after the results from its obesity drug Qsymia showed reduced risk factors for heart disease and a story we said to watch for last week. We wanted to see a close above $13.50 and shares ran into resistance at $14 on Friday. If cleared shares could make a run to $18. Support is at $12 but moving up.
Sony February 16 calls (from February 2013) – Our breakeven point is $16.40 and we will need shares there by Friday’s close. This could be an island reversal setting up which means a back test to $13.50 is coming if support at $14.50 fails and we could trade puts on the breakdown.
WATCH LIST SECTION
These trades are NOT recommendations. They are trades that we like but have not added to the portfolio as an official recommendation because of market conditions or because we are waiting for better entry prices. We try not to have more than 12-15 open trades at any one time which is why we created a Watch List. We will not list entry prices because these stocks are on the verge of breaking out or they could sell off but these are the trades we are watching as new candidates.
DeVry (DV, $29.93, down $0.48)
March 25 puts (DV130316P00025000, $0.20, up $0.05)
March 35 calls (DV130316C00035000, $0.20, down $0.05)
April 25 puts (DV130420P00025000, $x)
Thoughts: Shares zoomed past $30 after last week’s earnings beat but we think a test back down to $27-$26 is coming. We would like to use 27.50 puts but these options only trade in $5 increments. This is why the March put options are “cheap” but we think they could double. We have also listed the March 35 calls as shares could test $35 before a longer-term decline. Watch $32 before going long. Student debt is at a $1 trillion and counting.
Generac Holdings (GNRC, $40.54, up $0.80)
March 45 calls (GNRC130316C00045000, $0.85, up $0.25)
August 50 calls (GNRC130817C00050000, $1.70, up $0.20)
Thoughts: We like the April calls as a long-term play but there could be a “sell the news event” on earnings this week which would give us a better setup down the road.
KeryxBiopharmacuticals (KERX, $6.62, down $0.07)
June 8 calls (KERX130622C00008000, $0.80, flat)
June 5.50 puts (KERX130622P00005500, $0.65, flat)
Thoughts: We are still researching this name and could do a feature story in our Weekly Wrap next week. Shares could move $3 over the next few months based on the chart.
Ruckus Wireless (RKUS, $24.97, up $3.54)
March 30 calls (RKUS130316C00030000, $0.45, up $0.25)
Thoughts: Shares zoomed 17% on Friday and earnings are due out on Tuesday. We may list put options to play as a strangle trade in our midday update for a safer trade but the action is leading us to believe a big move is coming.
Ironwood Pharmaceuticals (IRWD, $13.30, up $0.10)
May 15 calls (IRWD130518C00015000, $0.60, flat)
Thoughts: Watch for now but shares could be headed above $15.
Cypress Semiconductor (CY, $10.17, up $0.33)
March 11 calls (CY130316C00011000, $0.15, up $0.05)
June 10 calls (CY130622C00010000, $0.95, up $0.15)
Thoughts: We have thought of adding this stock to our Weekly Wrap when shares dipped below double-digits again last week. There could be room for a short-term trade for the Daily in the meantime.
Molson Coors Brewing (TAP, $44.41, up $0.10)
April 50 calls (TAP130420C00050000, $0.40, flat)
July 50 calls (TAP130720C00050000, $0.75, flat)
Thoughts: We believe shares could trade to $60 by the summer.
AOL (AOL, $33.72, up $2.31)
February 32 calls (AOL130216C00032000, $2.00, up $0.95)
February 28 puts (AOL130216P00028000, $0.05, down $0.05)
Thoughts: We traded AOL last year and got burned which is why we listed this trade last week. We had a feeling they would post good numbers but again didn’t trust them. We should have made this an official strangle trade but the call premiums were a little juicy for us. Still, we could have made 100%. The calls traded up to $3.40 and the gains easily offset the puts which dropped like a rock.
Caterpillar (CAT, $96.85, up $0.74)
March 92.50 puts (CAT130395P00092500, $1.00, down $0.30)
Thoughts: We would like to see shares test $100 again. Shares could test $93 over the near-term if resistance holds and we would get aggressive with April puts options on a drop below $93.
Exact Sciences (EXAS, $10.87, up $0.01)
April 15 calls (EXAS130420C00015000, $0.55, flat)
Thoughts: A break above $12 would be bullish. The 52-week high is at $12.30. Support is at $10.75 but there is risk down to $10.25.
