9:00am (EST) continued…
The Dow dipped 45 points, or 0.3%, to settle at 16,425. The blue-chips traded to a high of 16,532 on the open but faded 127 points off the high to kiss a low of 16,405. Support at 16,400 held like a rock but a break below this level and then 16,350 could lead to 16,200-16,000. A close above 16,500-16,600 would be bullish for a run to 16,800-17,000.
The S&P 500 sank 5 points, or 0.25%, to end at 1,826. The index made a run to 1,837 but briefly fell below the 1,825 level after testing a low of 1,823. The bulls need to clear 1,840 to get new highs in play while a close below 1,825 will likely lead to a test to 1,810-1,800.
The Nasdaq declined 18 points, or 0.4%, to end at 4,113. Tech opened 5 points higher and kissed 4,139 but immediately reversed course to test 4,103. We mentioned there could be a back test to 4,100 following last week’s close below 4,150 to start the year with further risk to 4,050. The bulls held the first wave of support and a close above 4,150 again could get 4,175-4,200 back in the mix.
The Russell 2000 tanked 9 points, or 0.8%, to finish at 1,147. The small-caps tried to clear 1,160 on the open and reached 1,159.85 before plunging below 1,150 to an intraday low of 1,146.97. There is further risk to 1,135 and a break below this level could lead to 1,125-1,100.
The S&P 500 Volatility Index ($VIX, 13.55, down 0.21) flirted with 14 but traded down to 13.22 and closer lower for the session. This was slightly bullish but the bulls need to get below 12.50. A CLOSE above 15 would be bearish.
We have added some new candidates to our Watch List today on a few stocks that are making solid moves and are in a strong uptrend. We have a bevy of calls and puts plays to unleash as official new trades but we are still waiting for clues on which direction the indexes are headed.
We also have 4Q earnings heating up and while there are some names we are looking at this week, the real action starts next week and will carry on until the end of the month. There is no need to rush the action as better opportunities and setups are on the horizon.
As we head from desk to press, here is how futures look: Dow (+17); S&P 500 (+2); Nasdaq 100 (+4).
We still have some nice pin action going with one of our current trades as it has approached a 558% return since early November. We have raised the Stop Limit to protect profits on our remaining half position so lets go see where things are at inside the Members Area.
Special Notice: We could have action today for our Weekly Wrap with Profit Alerts and New Trades so look for an update around midday along with the Daily shortly afterwards.
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 tradesor “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 2014: 4-0- the Weekly Wrap is 1-0 for 2014 (86-7 since 2011) and is designed for traders that want to use options with less risk.
Pulte Group (PHM, $19.84, down $0.20)
February 22 calls (PHM140222C00022000, $0.30, down $0.10)
Entry Price: $0.40 (1/3/14)
Exit Target: $0.80
Return: -25%
Stop Target: None
Action: Shares traded up to $20.25 but touched $19.71 yesterday. We are expecting a push past $22 by mid-February. Support at $20-$19.75 and we will stick with the trade as long as $19 holds.
H&R Block (HRB, $28.48, down $0.80)
February 30 calls (HRB140222C00030000, $0.50, down $0.20)
Entry Price: $0.65 (1/3/14)
Exit Target: $1.30
Return: -23%
Stop Target: None
Action: We are expecting a run past $31 that should get us 100% return as long as $28.50 holds on any back test. This level was stretched with Monday’s close just below this level and we have wiggle room down to $28. The recent volatility has been frustrating but is still pointing towards a run past $30.
Galena Biopharma (GALE, $5.20, up $0.11)
January 2.50 calls (GALE140118C00002500, $2.70, up $0.10)
Entry Price: $0.30 (11/11/13)
Exit Target: $0.90 (closed a quarter @ $1 on 11/21/13, closed a quarter @ $1.50 on 12/10/13)
Return: 558%
Stop Target: $2 on remaining half position, raise to $2.25 (Stop Limit)
Action: We mentioned Oppenheimer recently initiated coverage of the stock with a Price Target of $6 and we believe a run to $7 could come as we will re-raise Opperheimer a buck to sweeten the pot.
We will continue to adjust our Stop Limit if shares move higher. If there is a back test to $4.75 we will likely be stopped out. We need to be out of the remaining half of the trade by NEXT Friday as we want to close the position instead of exercising the call options as they will be in-the-money.
There is little analyst coverage on the Street but the company is starting to get noticed.
Other 2014 Portfolio OPEN positions (0): 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.
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.
Ariad Pharmaceuticals (ARIA, $6.82, down $0.33)
January 7 calls (ARIA140118C00007000, $0.45, down $0.20)
February 8 calls (ARIA140222C00008000, $0.55, down $0.20)
May 9 calls (ARIA140517C00009000, $0.95, down $0.15)
Thoughts: We were stopped out of the January 7 calls on Monday and we will likely use the February or May calls to get back in. Shares are volatile so we can use these options to play the quick moves as they are very liquid. If shares clear $7 again we could send out a New Trade Alert.
Barrick Gold (ABX, $18.35, up $0.20)
February 19 calls (ABX140222C00019000, $0.75, up $0.05)
February 18 puts (ABX140222P00018000, $0.85, down $0.15)
Thoughts: If Gold can make a run back to $1,300 the miners might get a lift. These options were very active yesterday as nearly 2,400 contracts traded. The 200-day MA is at $18.64 and a close above this level would be bullish if it held. If shares fall back below $18 we could go short by using the puts.
Millennial Media (MM, $7.50, up $0.14) Stock Trade
May 10 calls (MM140517C00010000, $0.70, up $0.05) as a follow-up trade.
Thoughts: Shares are in a nice uptrend and a test to $8 could be in the works. Notice the “golden cross” that has formed with the 20-day MA breaking through the 50-day MA (check 1/5/14 Weekly Wrap for chart). A close back below $7 would be bearish and would signal the end of the momentum.
We believe Millennial Media is a takeover target that could catch a bid from one of the bigger players in the game. We aren’t sure if it will come by late February or not but we are watching the May 10 calls as the open interest is pushing 2,000 contracts. We are expecting a move past double-digits over the next 6 months and we could go long on a break above $7.75 with these call options.
PowerShares QQQ (QQQ, $86.32, down $0.32)
January 87 calls (QQQ140118C00087000, $0.50, down $0.20)
February 90 calls (Qqq140222C00090000, $0.35, down $0.15)
Thoughts: The break below $87 could lead to a near-term test of $85 on further weakness. We will likely wait for a break above $88 before going long.
Morgan Stanley (MS, $31.62, up $0.11)
February 32 calls (MS140222C00032000, $1.00, up $0.05)
Thoughts: If Support holds at $30.50 along with the Financial sector, we like these calls for a push past $32.
iShares Russell 2000 (IWM, $113.76, down $0.93)
January 116 calls (IWM140118C00116000, $0.35, down $0.35)
January 111 puts (IWM140118P00111000, $0.40, up $0.05)
Thoughts: We could go short on a close below $112.50 or long on a pop past $115. At current levels the options together might make a good strangle trade.
Imax (IMAX, $28.63, down $0.65)
February 31 calls (IMAX140222C00031000, $0.50, down $0.20)
March 33 calls (IMAX140322C00033000, $0.40, down $0.15)
Thoughts: We believe Imax is a takeover target in 2014. We have covered the company since shares were under $3 in 2008 and said it would be a $10-$20 and then a $30 stock before we suggesting selling it. Disney is an obvious choice as a partner but a Chinese company could make a sweet offer north of $40 for a 33% premium from current levels.
Sony (SNE, $17.30, up $0.12)
February 18 calls (SNE140222C00018000, $0.50, flat)
April 19 calls (SNE140419C00019000, $0.55, flat)
April 15 puts (SNE140419P00015000, $0.40, flat)
July 13 puts (SNE140719P00013000, $0.30, flat)
Thoughts: There is risk down to $16.50 but Sony could be a buyout candidate in 2014. Apple would be a perfect match. We may wait for $18 and the 50-day MA to clear before going long. We have listed some put options as well in case shares do fall below $16.50. Notice the Island Clusters in the chart. This shows extreme volatility but a break above the major MA’s could lead to a run to $20.
Cliff’s Natural Resources (CLF, $24.65, down $0.40)
January 26 calls (CLF140118C00026000, $0.35, down $0.15)
February 28 calls (CLF140222C00028000, $0.65, down $0.15)
Thoughts: If shares can clear $26.75-$27 we may send out a New Trade Alert. There could also be a back test to $24 so we may have to wait for it to complete.
Osiris Therapeutics (OSIR, $16.24, up $0.08)
February 19 calls (OSIR140222C00019000, $0.60, flat)
Thoughts: We will have to use strict limit orders to get into this trade as the bid/ask is a little wide. We are expecting a run past $20 over the near-term.
PowerShares QQQ (QQQ, $86.32, down $0.32)
March 80 puts (QQQ140322P00080000, $0.65, flat)
April 79 puts (QQQ140419P00079000, $0.80, flat)
Thoughts: We want to show you early how to prepare and play a possible downside slide and these puts have done well since last week when we profiled them. If the QQQ’s test $90 like we hope they will, we can follow different puts on the way up to maximize our entry point on a pullback that may take a few weeks. A back test to $85 could also be in the works.
Twitter (TWTR, $66.29, down $2.71)
February 90 calls (TWTR140222C00095000, $2.65, down $0.90)
February 45 puts (TWTR140222P00045000, $1.20, flat)
Thoughts: We may have to wait a few more weeks but there could be an earnings trade coming.
Gold Shares (GLD, $119.50, up $0.21)
January 115 puts (GLD140118P00115000, $0.40, flat)
January 119 calls (GLD140118C00119000, $1.75, flat)
Thoughts: We would love to see a back test to $120 before a possible drop to $110. Shares traded to a low of $114.46 on the open but rebounded to clear $117. The options traded up to $2.25 before falling to a low of $1.19. We have listed a bullish call option as a way to play a the possible rebound to $120.
International Business Machines (IBM, $186.00, down $0.64)
January 180 puts (IBM140118P00180000, $0.35, down $0.10)
January 190 calls (IBM140118C00190000, $0.50, down $0.15)
Thoughts: We will get a chance to short this stock at some point and we may take a swing if $187.50 holds.