9:00am (EST) continued…)
The Dow dropped 27 points, or 0.2%, to close at 16,179. The blue-chips opened lower and traded down to 16,147 but rebounded to reach 16,254 before slipping below resistance. Support remains at 16,000 with 15,800 serving as backup. The bulls need a close above 16,200 to confirm the next leg higher.
The S&P 500 slipped 2.5 points, or 0.1%, to settle at 1,845. The index traded to another all-time intraday high of 1,852.91 after fading to a low of 1,840.19. The bears held resistance at 1,850 while the bulls held 1,840 and a level we said to watch this week to the downside. Further help is at 1,825.
The Nasdaq fell 5 points, or 0.1%, to finish at 4,287. Tech traded past 4,300 to 4,307 before testing support at 4,275. The low checked-in at 4,275.80 and a break below this level could lead to 4,250. A close above 4,300 would be bullish for March and would keep our fluff target of 4,400-4,500 in play.
The Russell 2000 declined a half-point, or 0.05%, to end at 1,173.95. The small-caps reached a peak of 1,179 after testing a low of 1,171. The first wave of support is at 1,160 on any dips below 1,170 followed by 1,150. The bulls are trying to clear 1,175 on the close to keep 1,200 in play.
The S&P 500 Volatility Index ($VIX, 13.67, down 0.57) traded up to 14.83 but fell another 4% while finishing just outside the 13.50 level. If the bulls can get a close below this level, the VIX could test its 52-week low of 11. If the bears can tackle 15 a short-term top could be in.
We mentioned a trading range could be developing last week and although there have been pops to new highs, the market seems to be waiting on Janet Yellen’s comments in a Q&A session with the zombies on Thursday. If she is cool as a cucumber the bulls could be ready for a jailbreak.
Futures are showing a dull open as we head from desk to press: Dow (+33); S&P 500 (+5); Nasdaq 100 (+8).
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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: 20-8 – the Weekly Wrap is 9-2 for 2014 (94-9, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk.
Discovery Laboratories (DSCO, $2.59, flat)
April 2 calls (DSCO140419C00002000, $0.70, flat)
Entry Price: $0.65 (2/24/2014)
Exit Target: $1.00-$1.30
Return: 8%
Stop Target: None
Action: Shares recently made a break out of a symmetrical triangle and appear to be headed to $3. This would get the options to a least $1.00-$1.10. Support is at $2.40.
World Wrestling Federation (WWE, $23.71, down $0.28)
March 30 calls (WWE140322C00030000, $0.25, flat)
Entry Price: $0.40 (2/18/2014)
Exit Target: $0.80
Return: -38%
Stop Target: None
Action: Shares traded to a high of $24.32 before closing below $24 for the second-straight session. We are expecting a pop past $25 with a run to $30 if the company’s subscription model gets off to a good start on Thursday. Support is at $22. These are cheap options with 23 days before expiration so we still have time for a breakout but the closes below $24 have been frustrating.
Kodiak Oil & Gas (KOG, $11.92, down $0.26)
March 12 calls (KOG140322C00012000, $0.50, down $0.15)
Entry Price: $0.60 (2/13/2014)
Exit Target: $1.20
Return: -17%
Stop Target: None
June 13 calls (KOG140621C00013000, $0.65, down $0.10)
Entry Price: $0.70 (2/13/2014)
Exit Target: $1.40
Return: -7%
Stop Target: No
Action: Earnings are due out on Thursday. We have a near-term target of $12.75 if shares can clear $12.50. Support is at $11.50 if $12 fails to hold.
H&R Block (HRB, $32.19, up $0.64)
March 32 calls (HRB140322C00032000, $1.10, up $0.30)
Entry Price: $0.60 (2/11/2014)
Exit Target: $1.20 (2/21/14 closed a third @ $0.85)
Return: 69%
Stop Target: 60 cents, raise to 80 cents (Hard Stop)
Action: Shares finally cleared $32 and closed at 52-week highs on Wednesday. Shares are now in Allman Brothers’ territory and could kiss $35 over the near-term. There was a slight dip to $31.50 that we are looking for to hold as near-term support. We are also watching the April 34 calls (HRB140419C00034000, $0.60, up $0.10) as a “piggy-back” trade and if we add them to the portfolio, we will send out a Trade Alert. We have raised the Hard Stop from 60 cents to 80 cents in case there is a pullback. Yesterday’s low on the options was 81 cents.
Ariad Pharmaceuticals (ARIA, $8.67, up $0.04)
March 10 calls (ARIA140322C00010000, $0.35, down $0.10)
Entry Price: $0.95 (1/28/2014)
Exit Target: $1.90
Return: -63%
Stop Target: None
May 11 calls (ARIA140517C00011000, $0.80, flat)
Entry Price: $1.05 (1/28/2014)
Exit Target: $2.10
Return: -29%
Stop Target: None
Action: Shares traded to a high of $9.13 after the company reported better-than-expected earnings. Revenues should grow during the current quarter with the re-launch of Iclusig in the U.S. The company could also have a new drug debut in the second half of 2014 and why we also suggested longer-term options on this trade as well.
We are expecting a pop to $10 over the next few weeks. Support is at $7 with $6 serving backup.
The water cooler talk is that Eli Lilly has made a “friendly approach” to buy the company and is willing to pay up to $20 a share. GlaxoSmithKline is also in the hunt along with Shire.
We have said there is a HUGE gap to fill on the stock’s drop from $23 to a 52-week low of $2. Eli is trying to get the company for cheap as it currently has a $1.25 billion market-cap.
Exact Sciences (EXAS, $14.00, up $0.04)
April 19 calls (EXAS140419C00019000, $0.60, flat)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -32%
Stop Target: None
Action: Resistance is at $15 and a move above this level should get us back near even.
Support is at $11.75. The company should get some FDA news in March on its Cologuard drug. These are April options with 2 months until expiration and we plan to hold through the volatility because we want to be in when the March news is released. We do not have a Stop Limit listed.
Other 2014 Portfolio OPEN positions (5): 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.
Sony April 20 calls (from January 2014) – continue to HOLD
General Electric March 28 calls (from January 2014) – continue to HOLD
Caterpillar March 85 puts (from January 2014) – continue to HOLD
McDonald’s March 90 puts (from February 2014) – continue to HOLD
Apollo Education Group March 29 puts (from February 2014) – continue to HOLD
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.
Philip Morris (PM, $79.93, up $0.76)
March 77.50 puts (PM140322P00077500, $0.45, down $0.17)
April 75 puts (PM140419C00075000, $0.65, down $0.10)
Thoughts: Shares may have peaked with resistance at $80 holding for much of February. A close above this level could lead to $82.50. A back test to $75 could be coming.
Ingersoll-Rand (IR, $59.65, down $0.32)
March 60 calls (IR140322C00060000, $1.05, down $0.30)
April 62.50 calls (IR140419C00062500, $0.70, down $0.25)
Thoughts: The April calls have 51 days before expiration and allow us more time for a close above $60 and a possible run to $65. We were stopped out of the March calls for a gain of 65%. Shares traded to a high of $60.15 yesterday and the 52-week peak is at $63.42. Earnings aren’t due out until late April so we do not have to worry about that headline risk, unless the company comes out and confirms or raises guidance. That could be THE NEWS that gets shares to fresh 52-week highs.
Krispy Kreme Doughnuts (KKD, $18.07, down $0.20)
March 17 puts (KKD140322P00017000, $0.60, down $0.05)
March 16 puts (KKD140322P00016000, $0.35, down $0.05)
May 16 puts (KKD140517P00016000, $0.65, flat)
Thoughts: Resistance is at $18.50 and we have added the May 16 puts as an additional way to play KKD’s possible drop to $10 by the summer. Shares have been in a tight trading range and are signaling a big breakout or breakdown is coming the longer they stay range bound.
Verizon (VZ, $46.29, up $0.06)
March 49 calls (VZ140322C00049000, $0.30, flat)
April 44 puts (VZ140419P00044000, $0.65, flat)
Thoughts: Shares are on the verge of clearing the 200-day MA at $48.27. If shares clear $48.50 we could go long as shares could reach $50-$52. If resistance holds, we could go short at some point so we have also listed put options. Shares have been volatile of late.
S&P 500 Spiders (SPY, $184.84, down $0.07)
March 189 calls (SPY140322C00189000, $0.55, flat)
March 175 puts (SPY140322P00175000, $0.45, flat)
March 173 puts (SPY140322P00173000, $0.36, flat)
Thoughts: We could go short on a close below $182.50. Long on a close above $185.
iShares Russell 2000 (IWM, $116.63, up $0.12)
March 110 puts (IWM140322P0011000, $0.50, flat)
March 113 puts (IWM140322P00113000, $0.90, flat)
Thoughts: We could go short on a drop below $115 or long on a close above $117.50.
Alexza Pharmaceuticals (ALXA, $5.63, up $0.17)
June 6 calls (ALXA140621C00006000, $0.50, up $0.10)
Thoughts: These options look like a bargain if shares make a run past $6.