MomentumOptionsTrading.com Weekly Wrap for 9/15/13
11:30pm (EST)
1. Market Summary
2. Kodiak Oil & Gas (KOG) is a Great Play on the Fracking Boom
3. Earnings
4. Weekly Wrap Portfolio Update
5. 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 market made it through one of September’s major events following the release of Friday’s Nonfarm Payroll report. Although the gain of 169,000 jobs for August was 7,000 ahead of expectations, we mentioned the lower revisions to the June and July numbers. What we didn’t mention is that the 3-month average is now under 150,000 and well below what the Zombies said they needed to see before cutting back on Quantitative Easing (QE).
Ben Bernanke and the Fed Heads have said they want to see and unemployment rate of 6.5% and sustained job growth of 200,000 before cutting back on QE. The unemployment rate fell from 7.4% to 7.3% but this is deceptive as more and more people drop out of the labor force.
The numbers for July job growth were lowered by 58,000 to only a net of 105,000 added. Needless to say, the Zombies are seeing the unemployment rate drop but for the wrong reasons with less jobs being added. The labor force participation rate fell to 63.2% in August and is at its lowest level since 1978.
This picture keeps QE on through yearend and into 2014 so any September tapering could already be factored into the market. We have repeatedly said that we do not expect the Fed to cut back on its bond purchases in September but there is a ton of pressure to trim $10-$20 billion off the $85 billion a month budget.
There will be more clarity next week with the September FOMC meeting and Fed speak afterwards and is another upcoming headline risk event.
This week will be all about Syria and we will try to keep this one short because no one knows what will happen until a strike does occur. There are too many what if’s to list but the main one is how the market reacted to Russia’s role.
Russia’s President, Vladimir Putin, rattled Wall Street on Friday when he said he would stand by Syria if the U.S. launched a military strike against the country. His comments were seen as fighting words but the market recovered after they were clarified. Instead of a possible battleship game at sea with the U.S. as feared, Russia said it would supply Syria with advanced anti-aircraft and anti-missile systems.
There are 3 Russian ships that are nestled off the Syrian coast with a fourth vessel, carrying a “special cargo”, in route to the area. Russia has been Syria’s biggest arms supplier and with tensions running high, anything can happen.
President Obama will be addressing the nation on Tuesday to gain more support for a strike on Syria. The zombies will be briefed Monday night and a vote should come by the end of the week. We have gone on record saying there will not be enough votes and Obama has gone to the mic to say he doesn’t need approval.
Our thoughts is that it is too late to strike Syria now and the best bet is to wait for another chemical attack that will likely happen either way. The recent “red line” episode wasn’t the first and won’t be the last. After the vote on Syria, expect the debt ceiling debate to take center stage and something we will cover more in-depth next week.
The geopolitical rhetoric will be market moving events but we will trust the technical charts and indicators instead of wondering what the zombies will do. However, we cannot stress enough how volatile the market could become this month and next.
Earnings are still trickling in as off cycle companies wrap up their reports with others starting to prepare for October’s third-quarter releases. It will be an important season as full-year guidance comes into play and 2014 outlooks.
As far as specific stocks, Apple (AAPL, $498.22, up $2.95) will be a major player in moving the indexes as it will showcase some new products on Tuesday. They could also announce a new China deal with a major carrier that could easily generate 100-150 million users at the drop of a hat.
We have heard of new colors for the upgraded iPhones as gold, silver and red could be the new flavors of choice with a thumbprint signature to activate instead of the painful slide Samsung has made fun of. We also expect cheaper iPhones, an upgraded iPad announcement, along with a newer version of its Apple TV.
Shares have been on the move of late and have been dancing with the $500 level after a low of $386 in July, $380 in May This could be a classic buy the rumor, sell the news event as a few analysts have started to upgrade the price targets for the stock north of $600. However, this could also be a breakout event if Apple drops hints of future projects. If so, we could see a run to $525-$550 on a close above $510.
We will also be watching some of the major stocks of the Dow, including International Business Machines (IBM, $183.03, down $1.12) and Caterpillar (CAT, $83.39, up $0.44) for clues of a Dow decline below support. IBM is the leading Dow component and makes up 11.4% of the index. CAT is second at 6.6%. Together they make up nearly 18% of the blue-chips.
IBM has been testing 52-week lows and could drop to $175 on a break below $181:
We have traded CAT off and on throughout the years as both bullish and bearish positions and this year it has been mostly bearish. Shares could fall into the $70’s on a close below $81.50:
The 3 aforementioned stocks (AAPL, IBM, CAT) should be watched this week along with the Monday and Friday closes on the Dow. The bulls got a break last Monday as the market was closed but Tuesday was an up day. Friday was a down day and has been mixed in recent weeks.
The 10-Year Treasury Note Yield ($TNX) reached a peak of 2.98% last week and the fear is once 3% triggers, money will pour out of stocks and into bonds. The Fed could take advantage of this situation and announce a small taper cut for now and say another one wouldn’t seem likely until 2014. This would be bullish but the FOMC announcement isn’t until next week and by then the Fed could be too late to stop a 3% print.
As far as our positions, we have bullish and bearish positions in both our Daily and Weekly Wrap portfolios and our hope is to cash out a few more trades on a rally through Wednesday to the top of the trading ranges before a possible back test to support.” (from 9/8/2013 Weekly Wrap…)
The bulls followed our game plan and rallied through resistance to start the week with Tech pushing new 52-week highs. We mentioned at the beginning of the month the bulls could rally in September following a bearish August through the 9/11 anniversary of the terrorist attacks on our nation. We then expected a pullback as the charts were showing possible double tops forming and on Thursday, the bears made a little noise as the indexes did finish lower.
Of course, the bears needed a follow-through on Friday to confirm the pullback but the bullish developments during the week were too much to overcome. The bulls appear poised to touch the top of the trading ranges and set new highs but this week could go either way as there a still a few more major headlines the market must deal with. (read more…)
The Dow gained 75 points, or 0.1%, to end at 15,376 on Friday. The blue-chips cleared the 15,000 level to start the week with a triple-digit gain and tested our 15,200 target on Tuesday’s run to 15,192. We mentioned a close above this level would get 15,350-15,400 in play and Wednesday’s surge reached 15,326. There was a pullback to 15,300 on Thursday following a high of 15,345 but Friday’s burst reached 15,380. A close above 15,400 would get 15,600 and all-time highs in play again. Support is at 15,200. For the week, the Dow was up 454 points, or 3%, after coming in at 14,922. For 2013, the blue-chips have gained 2,272 points, or 17.3%.
The S&P 500 advanced 4 points, or 0.3%, to settle at 1,688. The index needed to clear 1,675 after moving past 1,650 the prior week and reached a peak of 1,672 on Monday. This was a good clue the next layer of resistance would crack and Tuesday’s run to 1,684 accomplished the mission and put 1,700 back in the mix. Wednesday’s high checked-in at 1,689.13 and Thursday’s peak reached 1,689.97 before a dip to 1,681 and close at 1,683. Friday’s rebound touched 1,688.73. If 1,700 is cleared on the close this week, there could be a run to 1,725 on a break above 1,710. Support is at 1,675. The S&P 500 came into Monday’s session at 1,655 and was up 33 points, or 2%, for the week. Year-to-date, the index is higher by 262 points, or 18.4%.
The Nasdaq popped a 6-pack, or 0.2%, to finish at 3,722. Tech was on track to challenge 3,700 after clearing 3,650 during the previous week and Monday’s 46-point surge was enough to get a close of 3,706. The move put 3,750-3,800 in the picture and Tuesday’s run to 3,729 and close above 3,725 was bullish. Wednesday was a lower high as the bulls could only muster a run to 3,726 following a dip to 3,704 but 3,700 held as short-term support. Thursday’s pop to 3,731 was a higher high and well short of 3,750 but the lower low of 3,713 was slightly bullish. Support is at 3,700 followed by 3,650. The Nasdaq began the week at 3,660 and surged 62 points, or 1.7%, by Friday’s closing bell. For the year, Tech has advanced 703 points, or 23.3%.
The Russell 2000 added 5 point, or 0.5%, to close at 1,054 on Friday. The small-caps needed to clear two hurdles at 1,040 and 1,050 before the bulls were out of the woods and did so with Monday’s close at 1,046 (up 16 points) and Tuesday’s finish at 1,055 (up 9 points). Wednesday’s run reached 1,057.56 before a slightly lower close and Thursday’s drop to 1,048. Friday’s rebound keeps 1.075 in the mix but a break below 1,050 and 1,040 would signal a top. The Russell 2000 was at 1,029.55 before Tuesday’s open and was up 24 points, or 2.4%, for the week. YTD, the small-caps have zoomed 204 points, or 24.1%.
The S&P 500 Volatility Index ($VIX, 14.16, down 0.13) came into the week at 15.85 and we talked about how the bulls needed to get below 15 in order to push resistance. We also said a close below 13.50 would be bullish for possible new highs while a close above 17.50 would be bearish. The VIX tested a low of 15.22 on Monday and dropped to 14.53 on Tuesday’s rally. Wednesday’s drop to 13.82 nearly got the bulls there but Thursday’s pop back above 14 kept the bears in the game. However, Friday’s high was only 14.55 and short of 15 as the bears missed a golden opportunity ahead of the weekend. Same deal for this week.
We wanted to update our thoughts on the 3 stocks we said to watch last week as we mentioned how important they would be in shaping the technical picture. The chart we drew up on International Business Machines (IBM, $192.17, up $1.44) had shares testing $187.50, or the top of its downward channel (purple lines), on continued strength. Shares rallied slightly past resistance to the 50-day MA on Wednesday after gaining $4, or 2%, on deal-making news. The pop was good enough for 28.5 Dow points as the index pushed 15,350 and its next wave of resistance. Shares could see further strength to $197.50 and a close above this level would be bullish for a push past $200.
The downtrend channel for Caterpillar (CAT, $87.01, up $0.17) was at $85 but shares broke above their 200-day MA after closing at $87.13 midweek. There is a chance shares make a run to $90 over the near-term but we are watching the $84 level as a possible short opportunity down the road.
A symmetrical triangle had formed on Apple’s (AAPL, $464.90, down $7.79) chart and is usually a classic sign a huge breakout, or breakdown is forthcoming. Shares came into the week and needed to clear $510 based on our chart work from last week. We knew when Monday’s peak only reached $508 and Tuesday’s open produced a lower high ahead of the midday announcement there could be trouble. The stock fell $12 by the close and tanked another 5%, or $27, to close at $467 after failing to announce a China deal (and no new products). The 50-day MA at $463 was tested on Thursday and Friday and a close below this level would be bearish for a test down to $450-$440. A rebound past $475 would take some of the pressure off shares.
The changes in the Dow we reported on last week were very bullish news and we wanted to comment on them in more detail as well. Alcoa (AA, $8.08, down $0.08), Bank of America (BAC, $14.49, up $0.01), and Hewlett-Packard (HPQ, $22.07, up $0.11) were dropped from the index while with Goldman Sachs (GS, $164.00, up $0.65), Nike (NKE, $67.91, down $0.17) and Visa (V, $189.00, up $3.94) taking their place.
The addition of the 3 newest “blue-chips” will significantly change the ratio of the index as it is price weighted. We mentioned International Business Machines is the heaviest weighted stock and that Goldman Sachs and Visa will now take over as the second and third heaviest, respectively, when they are added to the Dow on next Monday’s open.
Alcoa, Bank of America and Hewlett-Packard were the three lowest priced stocks in the Dow and were replaced by two in the triple-digits. Nike was trading over $100 before Christmas of last year and did a 2-for-1 split the day after. To put this in perspective, the 3 “old” blue-chips stocks totaled just over a 2% weighting in the Dow because of their low prices. IBM alone is 11%.
The 3 new blue-chip stocks will create additional volatility and larger moves in the Dow as all of them are capable of making huge price swings. The buying of these stocks could create some upside bias as fund managers add them to their portfolios. These additions should also create the juice needed for the bulls to make a run at our yearend target of Dow 16,000 we set back in February.
Gold ($1,327.60, up $6.70) continues to break down like a rented mule following the drop below $1,400. The yellow metal rebounded on Friday but had a terrible week, falling over$60, or 4%. We have said Gold could test $1,175-$,1,150 this year and following a rebound in August off the 50-day MA to a high of $1,434, this could be the slide that gets it there. The next wave of support is at $1,300 and a close below this level would be the green light to go short.
Silver ($22.28, up $0.51) tanked nearly 6% for the week after testing $22 and a late August high of $25 following a low of $19. Silver held its 50-day MA of $21.40 but a close below this level should lead to $20-$19. We have been waiting for $17.50 to come into play before we said we would start adding Silver to our portfolio and we are hoping the current tumble takes it there. However, we talked about the huge “spot” prices in the American Eagles back in August and why we didn’t nibble then.
When Silver dropped to $19, spot prices were $5-$6 on a single coin through the US mint and on eBay they weren’t much better.
One of the main reasons Gold and Silver has taken a beating is due to the easing of the geopolitical tensions concerning Syria. Expectations for a QE taper cut and a rebounding dollar also weighed on the metals. However, if Syria does something stupid during a shakedown or if the Fed doesn’t do a taper cut, Gold and Silver could rebound sharply.
The bulls finally got a positive Monday/ Friday close on the Dow for the first time since July. Monday’s have been weaker than Friday’s over the past few months and this week’s M/F closes could be crucial. If the bulls get a win to start the week and can make it past the Fed with a positive Friday close, the market could see new highs. If the Dow finishes with a lower M/F close this week it could be signs of an upcoming pullback into the current trading range.
It was too early to tell if the market had “cleared” the Syria news but as tensions eased last week, the market reached new highs. There has been some more progress this weekend on getting the country to give up its chemical weapons but nothing is a given until the U.S. ships leave the area.
The main event this week will be the Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday. A decision on whether or not the Fed will taper or cut back its bond purchases is expected at 2pm, midweek. How much of this is factored into the market is the bigger question.
Wall street has been expecting the Fed to cut its bond purchases and that might imply that a little bit of tapering is already factored into the market. We have been in the camp that a QE cutback won’t come until December and with the amount of taper talk all summer it could be a shock to the market if the zombies don’t do one.
We mentioned earlier one of our February targets for the market was Dow 16,000. We also said the S&P 500 would trigger 1,700 and the Russell 2000 would trip 1,025. When those targets were hit over the summer, we didn’t raise them like many of the Wall Street pros did. Instead, we prepared for a choppy range that we have played flawlessly as we called a test to the bottom and at the end of August we said the indexes would reach the top of their ranges.
There could be a little more fluff as the Nasdaq makes a bid at our 3,800 target (and the Dow shoots for 16K), but as we have seen with our other prices targets, when reached, there has been a pullback. We still believe these targets will trip but we are cautious as the market still must deal with a debt-ceiling resolution and upcoming 3Q earnings.
As we head to press, futures look like this: Dow futures are up 177 points to 15,474 while the S&P 500 futures are higher by 18 points to 1,700. The Nasdaq 100 futures are advancing 33 points to 3,204.
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2. Kodiak Oil & Gas (KOG) is a Great Play on the Fracking Boom
By Michael Bryant
Kodiak Oil & Gas (KOG, $11.00, up $0.01) has emerged as one of the leaders in the Bakken Shale despite the company’s small size. Competition in the region is fierce but we believe the company will succeed in competing with the other heavyweights, or, it could become a takeover target.
The company was incorporated on March 17, 1972 in the British Columbia, Canada as Pacific Talc, a small miner and processor of talc. A mineral composed of hydrated magnesium silicate, talc is used in paper, plastic, and paint coatings. On November 12, 1998, the company changed its name to the Columbia Copper Company. On September 28, 2001, it moved its headquarters from British Columbia to the Yukon Territory and changed its name to Kodiak Oil & Gas. On September 23, 2003, it put all of its U.S. oil and natural gas properties into a wholly-owned subsidiary Kodiak Oil & Gas (USA), which was based in Colorado. The subsidiary was then spun off and started trading on the TSX Venture Exchange on September 28, 2001.
Kodiak Oil & Gas (USA) initially focused on the acquisition of natural gas lands in Wyoming. Their first project was a coalbed methane project in the Vermillion Basin of southwestern Wyoming, referred to as the Pacific Rim CBM Prospect. The company teamed up with CP Resources LLC, who agreed to pay the costs to drill two wells on the Pacific Rim CBM Prospect. Based on the drilling results, a third party entered into an agreement with CP Resources in June 2003 to jointly explore the Pacific Rim CBM Prospect.
In 2004, it started drilling in the oil-prone Williston Basin. The quality of the source rock made it more likely to generate oil than gas. By 2006, it had accumulated 59,239 gross (38,212 net) acres there. Meanwhile, it had acquired 41,845 gross (26,293 net) acres in the Vermillion Basin.
In March 2006, the company raised $36,537,239 in a private placement of 19,514,268 shares of common stock to accredited investors. Then on June 21, 2006, it started trading on the American Stock Exchange. Using the raised funds, it acquired 8,000 gross acres in the Bakken Shale of North Dakota.
Natural gas production revenues were $558,768 for the nine months ended September 30, 2006 from six wells in the Green River Basin. Oil production revenues were $2,252,499 for the same period from seven wells it operated in the Williston Basin. Further, as of September 30, 2006, it owned natural gas and oil leasehold interests covering approximately 108,326 gross (68,789 net) acres, of which 102,726 gross (65,563 net) acres were undeveloped.
As of December 31, 2012, the company had estimated proved reserves of 80.9 million barrels (MMBbls) of oil and 83.1 billion cubic feet of natural gas. It reports 3rd quarter earnings on Thursday, October 31st after the bell. Analysts estimate the company will earn $0.19 per share on $259.83 million. The revenue estimates look a little too bullish, as the revenue line suddenly spikes higher after the 2nd quarter. This could be due to the added acreage, but we are a little skeptical. But the earning estimates seem easily attainable.
Then on August 28th, competitor Whiting Petroleum (WLL) acquired 17,282 net acres in the Bakken for $260 million, about $15,000 per acre. Not long after that, competitor Oasis (OAS) acquired 161,000 net acres in the oil rich Williston Basin of North Dakota for $1.52 billion. This is an even cheaper price of $9,440 per acre. Production is expected to increase by 9,300 BOE per day to a total of 43,000 BOE per day. Notice the total BOE per day. Kodiak’s total production is expected to an average of 37,000 BOE per day. Oasis’ total production is expected to average 43,000 BOE per day. Oasis’ production is only 1.16 times Kodiak’s. But Oasis’ market cap is more than 1.16 times higher than Kodiak’s stock.
At $10.67, the stock is between its median target of $11.00 and its low target of $10.00 made by the 19 analysts recorded by Thomson/First Call. Mean target is $11.92, and high target is $19.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.3, unchanged from a week ago.
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Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
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Strong Buy |
3 |
4 |
4 |
4 |
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Buy |
11 |
12 |
11 |
10 |
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Hold |
9 |
8 |
9 |
8 |
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Underperform |
0 |
0 |
0 |
0 |
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Sell |
0 |
0 |
0 |
0 |
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3. 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. 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 (Quotes are from 9/13/13 close)
By Catherine Tierney
Monday
AIR, AHPI, CSUN, CTAS, CVT, Darden Restaurants (DRI, $x), call/ put options, DRAM, DXR, ECT, ECTY, ERA, KB Home (KBH, $x) call/ put options, MSON, OFIX, PKE, PNX, RTI, WPCS
Tuesday
Adobe Systems (ADBE, $x) call options, ALCS, CIM, DCIN, ELMD, FactSet Research Systems (FDS, $x) call options,
Wednesday
Apogee Enterprises (APOG, $x) call/ put options, CLC, Cracker Barrel (CBRL, $x) call options, FedEx (FDX, $x) call/ put options, General Mills (GIS, $x), Manchester United (MANU, $x) thinly traded, Oracle (ORCL, $x) call/ put options, SCS, TWGP
Thursday
ConAgra Foods (CAG, $x), IHS, MCS, Pier 1 Imports (PIR, $x) put/ call options, Rite Aid (RAD, $x) call options, Tibo Software (TIBX, $x) call/ put options
Friday
None worth mentioning
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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 9/13/13)
Our Weekly Wrap Closed Trade Track Record for 2013 is 33-3 (77-5, overall since the start of 2011)
Vera Bradley (VRA, $20.11, up $1.26) Strangle Option Trade
October 20 calls (VRA131019C00020000, $1.20, up $0.60)
Original Entry Price: $0.80 (9/10/13)
Exit Target: $1.60
Return: 50%
Stop Target: None
October 17.50 puts (VRA131019P00017500, $0.30, down $0.20)
Original Entry Price: $0.80 (9/10/13)
Exit Target: $1.60
Return: -63%
Stop Target: None
Action: Set limit orders to close the calls at $2.00 or better.
We got a nice recovery on Friday and we didn’t send out a Trade Alert because shares appeared like they were going to close above $20 and they did. Overall, the trade is still down 6% but if we can get $1.70 or more for the calls on today’s open, this trade will be profitable no matter what the puts do. We have set a limit order to exit the calls at $2 today but we may have to come down to $1.70 if shares can push $21. From there, we could have a free put option that doesn’t expire until mid-October.
Kodiak Oil & Gas (KOG $11.00, up $0.01)
Original Entry Price: $10.80 (9/9/13)
Lowered Price from Selling Options/ Dividends: $10.80
Exit Target: $15
Return: 2%
Stop Target: $8
Action: Shares were pushing 52-week highs throughout the week and reached $11.28 on Wednesday. The next level of resistance is at $11.50 and if cleared a run to $12 could come. Near-term support is at $10.75.
Kodiak Oil & Gas (KOG $10.80, up $0.13) LEAP Option Trade
March 11 calls 2014 (KOG140322C00011000, $1.25, down $0.05)
Original Entry Price: $1.20 (9/9/13)
Exit Target: $2.40
Return: 4%
Stop Target: $0.60
Action: If shares make a run past $13 by next March, we will easily double our money.
Sonus Networks (SONS, $3.65, flat)
Original Entry Price: $3.73 (9/9/13)
Lowered Price from Selling Options: $3.73
Exit Target: $5
Return: -2%
Stop Target: $3
Action: Shares tested a low of$3.62 on Tuesday and Wednesday and support is at $3.50. We are expecting a close above $3.75 and resistance for a possible push to $4 and where we will wait to sell call options.
Annaly Capital Management (NLY, $12.00, up $0.24)
Original Entry Price: $11.70 (9/6/13)
Lowered Price from Selling Options/ Dividends: $11.70
Exit Target: $15
Return: 3%
Stop Target: $10
Action: Shares made a run at $12 to start the week but slipped to $11.44 during Tuesday’s session before holding $12 by Friday’s close. Near-term support is at $11.75 with $11.25 providing backup. We believe shares will recover to the mid-teens over the next 6-12 months and the current yield on the stock is over 13%. The quarterly dividend payment is at 40 cents and should be paid this month.
Krispy Kreme Doughnuts (KKD, $19.60, up $0.30) Short Position
Original Entry Price: $18.92 (9/4/13)
Lowered Price from Selling Options: None
Exit Target: $16
Return: -3%
Stop Target: $22
Action: Krispy Kreme tested $20 at the beginning of the week, reaching $19.84 on Tuesday before falling back to test $19 on Thursday. Friday’s rebound wasn’t strong enough to clear $20 and we will stick with the trade as long as $22 holds. There is a “gap” to fill at $16 and our target is $15 for the stock.
NPS Pharmaceuticals (NPSP, $28.23, up $0.97) LEAP Option
January 31 calls (NPSP140118C00031000, $2.70, up $0.70)
Original Entry Price: $1.40 (8/29/13)
Exit Target: $2.80 (closed half at $2.90 on 9/10/13)
Return: 100%
Stop Target: $0.70, raise to $1.40
Action: We closed half of the trade last Tuesday after shares made a run at $30. Tuesday’s high of $29.53 got the calls to $2.95 and we closed half at $2.90 to make it a risk free trade. Shares dipped to a low of $27.94 on Wednesday and $27.16 before bottoming at $26 on Friday and recovering. We will likely close the other half of the trade on a break below $26 but we are still looking for a run past $30 and where we could add more call options.
Galena Biopharma (GALE, $1.94, down $0.34)
Original Entry Price: $2.12 (7/8/13)
Lowered Price from Selling Options: $2.12
Exit Target: $5
Return: -8%
Stop Target: $1
Action: Support at $2.20 was tested on Tuesday after a push to $2.47 and resistance ($2.50) to start the week. We knew a close above or below these levels would lead to further strength or weakness but we were surprised by the “spot” offering the company did by selling shares at $2. The company likely raised capital to fund further research and we still like its pipeline. Use the current weakness as a buying opportunity if you haven’t established positions.
Exact Sciences (EXAS, $12.62, down $0.27)
October 14 calls (EXAS131019C00014000, $0.35, down $0.10)
Original Entry Price: $13.55 (6/11/13)
Lowered Price from Selling Options: $12.40
Exit Target: $16+
Return: 2%
Stop Target: $10.45
Action: We sold the October 14 calls last Tuesday (9/10) for 60 cents to lower our cost basis to $12.40. Shares traded above $13 on Tuesday and Wednesday but were testing support at $12.50 by Friday’s close. There is further support is at $12 on continued weakness but we are looking for a run past $13 to stick this week.
We recommended buying Exact Sciences at $13.55 on 6/11/13. On 7/11/13 we sold the August 15 calls for 55 cents which lowered our cost basis to $13.
On 9/10/13 we sold the October 14 calls for 60 cents which lowered our cost basis to $12.40. If we are called away in mid-October at $14 the trade will make 13%.
Pizza Inn Holdings (PZZI, $7.30, down $0.08)
Original Entry Price: $5.40 (6/11/13)
Lowered Price from Selling Options: $5.40 (no options available)
Exit Target: $10+
Return: 35%
Stop Target: $6.95 (Hard Stop)
Action: The stock pushed resistance at $7.50 to start the week and held a low of $7.25 on Monday, Tuesday and Friday. Support is trying to move up from $7 to $7.25 but is still in play while a close above $7.50 should get $8 on the map again.
Trades on HOLD (7): DryShips (DRYS, $2.90, down $0.01), AKS Steel Holding (AKS, $3.98, up $0.04), Rare Element Resources (REE, $2.49, up $0.14), Rambus (RMBS, $8.46, up $0.01), Bebe Stores (BEBE, $5.72, down $0.09), Vivus (VVUS, $10.12, down $0.03), Dendreon (DNDN, $3.02, down $0.09)
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5. Week Ahead
Here is a chart of the events for the week ahead:
