9:00 a.m. (EST)
The market broke out to new highs to start the week but had trouble holding resistance ahead of the Head Fed’s update on Thursday. Early morning surges past resistance failed until Janet Yellen gave the all clear signal that enabled the bulls to HOLD resistance once she spoke.
Friday’s highs’ to blue-sky territory was met with a late day pullback that erased all of the session’s gains before a mixed finish. Wall Street was spooked by a report Russian troops were moving into Ukraine that had traders scrambling to lock-in profits ahead of the weekend.
Despite the choppiness, the bulls easily dominated February following a rough start and head into March looking to challenge our December fluff targets. However, we warned March could get insanely volatile as the bears likely make a reappearance at some point and Friday proved that point.
“We mentioned last week there could be another 1% move higher and now that the bulls have pushed the upper trading ranges and channels, figuring out where the market is headed from here is the fun part.
There is still another week of February to trade and at current levels the bulls have a good lead. The Dow is up 405 points while the S&P 500 is higher by 54 points. The Nasdaq has gained 160 points and the Russell 2000 has advanced 34 points. The average gain is 3% across the board.
We have said February is always a tricky month to trade and this one has been especially volatile. The drop at the first of the month to the 100-day and 200-day MA’s was telegraphed and looked like the real deal but like we saw for nearly all of 2013, support held and there was no 10% pullback.
The bears have cried wolf so many times over the past 2 years that the little boy has turned bullish as no correction has come. However, if and when it does, Wall Street will be screaming wolf as any back test could be swift and jaw-dropping.
We mentioned the weather would play an important role in forward guidance/ earnings misses going forward and sure enough there were a number of companies blaming snow AND higher energy costs as the main reasons they fell short of Wall Street’s expectations.
It remains to be seen where the market is between now and the first week of April so March could be crucial in deciding our yearend forecasts.
There were a number of bearish signs in January that we have already talked about but February has been bullish. If the bulls can cruise into this upcoming Friday without much damage the indexes could continue to make new highs. If resistance holds, and the bears start wave riding support, March could get ugly.
We are still on the fence if a 5%-10% back test comes or not but we do believe there could be one between April-July with a bottom coming in October. In the meantime, the indexes could form a trading range into 1Q earnings resistance holds and there is a pullback with support.
We talked in January there could be a 3,000 point swing this year with the Dow dancing around the 16,0000 level that would put the blue-chips at 19,000 or 13,000. We spent a lot of time over the weekend thinking of the best and worst case scenarios and without further ado, here is how we see the market unfolding this year.
For the Dow, we have listed a possible high target of 19,000, or a 16% drop to 14,000 for 2014.
For the S&P 500, we have listed a possible high target of 2,100, or a 16% finish to 1,550 for the year.
For the Nasdaq, we have listed a possible high target of 4,800-5,000, or a 23% loss near 3,200 for 2014.
For the Russell 2000, we have listed a possible high target of 1,400, or a 18% decline to 18%.
We have been fortunate enough to come close to our yearend predictions for the past two years and we were one of the few, if not only options newsletter that said the Dow would gain 3,000 points last year. We are probably the only newsletter that said in January the Dow could move another 3,000 points again this year so let’s see how it plays out.” (from 2/24/2014 Weekly Wrap…)
The market broke out to new highs to start the week but had trouble holding resistance ahead of the Head Fed’s update on Thursday. Early morning surges past resistance failed until Janet Yellen gave the all clear signal that enabled the bulls to HOLD resistance once she spoke.
Friday’s highs’ to blue-sky territory was met with a late day pullback that erased all of the session’s gains before a mixed finish. Wall Street was spooked by a report Russian troops were moving into Ukraine that had traders scrambling to lock-in profits ahead of the weekend.
Despite the choppiness, the bulls easily dominated February following a rough start and head into March looking to challenge our December fluff targets. However, we warned March could get insanely volatile as the bears likely make a reappearance at some point and Friday proved that point. (continued…)
The Dow added 49 points, or 0.3%, to finish at 16,321 on Friday. The blue-chips came into the week needing to clear 16,200 and traded up to 16,300 on Monday before ending at 16,207. The triple-digit gain of 104 points was a tease as the index closed at 16,179 and 16,198 heading into Thursday’s Fed news. We pointed out the lower lows on Tuesday and Wednesday were bullish and Thursday’s high reached 16,276 with a close of 16,272. Friday’s high reached 16,398 before the late day pullback to 16,226 and we said a close above 16,300 would be bullish. Near-term support will now try to hold at 16,200 with 16,000-15,800 serving backup. Resistance is at 16,350 followed by 16,500-16,600. A close above this level keeps out near-term target of 16,800-17,000 in play.
For the week, the Dow jumped 218 points, or 1.4%, after starting at 16,103 and is down 255 points, or 1.5%, for 2014.
The S&P 500 gained 5 points, or 0.3%, to settle at 1,859.45. The bulls needed a close past 1,850 to confirm the next leg higher and started Monday’s session with a run to 1,858.71. The 11-point close to 1,847.61 were followed by 2-straight finishes at 1,845 with 1,840 holding on Tuesday and Wednesday. Thursday’s pop to 1,854.53 ended with a close of 1,854.29 and confirmed a possible run to 1,875-1,900. We wanted to see 1,860 hold after Friday’s high of 1,867.92 and the bulls missed it by a half-point. Support at 1,850 represents prior resistance and a close below this level could lead to a back test 1,825. Any close below this level gets 1,810-1,800 in play. Watch 1,860 on Monday’s open to confirm the run 1,875-1,900. The S&P 500 came into the week at 1,836 and was up 23 points, or 1.3%, by Friday’s close. For the year, the index is higher by 11 points, or 0.6%.
The Nasdaq slipped 11 points, or 0.25%, to end at 4,308 on Friday. Tech was less than 1% away from clearing 4,300 and reached a peak of 4,311 on Monday before finishing at 4,292. Tuesday’s run touched 4,307 before a backtest to 4,275 and rebound to 4,287. Wednesday’s high was 4,316 with a close of 4,292 before Thursday’s rally to 4,322 and close at 4,318. Friday’s intraday peak was 4,342 before a plunge to 4,275. The close above 4,300 keeps our December fluff target of 4,400-4,500 on the map but the bulls need to clear and hold 4,350 first. Support is at 4,275 followed by 4,250-4,200. The Nasdaq was at 4,263 coming into the week and added 45 points, or 1.1%. Tech is up 132 points, or 3.2%, year-to-date.
The Russell 2000 dropped 5 points, or 0.4%, to close at 1,183 on Friday. We said the small-caps needed a close above 1,175 to confirm an extended rally and Monday’s peak reached 1,180 before a finish at 1,174.55. The 10-point win was bullish but was followed a test to 1,170 on Tuesday with a lower close of 1,173. However, Wednesday’s climb to 1,188 and close at 1,181 was perhaps the best clue the bulls might push 1,200 (again) over the near-term. Thursday’s run and close at 1,187.94 was an “official” new all-time closing high and Friday’s high of 1,193.50 is now the official all-time intraday peak. The prior “official” all-time intraday high of 1,188.06 was cleared but we continue to remind our readers the December 23 “unofficial” intraday high of 1,213.49. This level is a little more than 2% away with resistance at 1,200. Support is at 1,175 and any close below this level sounds could lead to 1,160-1,150. The Russell came into Monday’s open at 1,164 and advanced 19 points, or 1.6%, for the week. YTD the small-caps are showing a 20 point gain, or 1.7%.
The S&P 500 Volatility Index ($VIX, 14.00 down 0.04) came into the week at 14.68 and we said the bulls needed a close below 13.50 while holding 15 to confirm the breakout. Monday’s and Tuesday’s high of 14.83 finished with lower finishes and closes of 14.24 and 13.67, respectively. Wednesday’s backtest to 14.54 ended with a close at 14.35. We mentioned these were good clues Thursday could be a bullish day as the VIX held 15 on the open and during Yellen’s testimony. The high checked-in at 14.69 before a close just north of 14. Friday’s low reached, drumroll please…13.49 before the close right at 14. The bulls will once again try to get a close below 13.50 that could lead to 11-10 and 52-week lows while the bears will be looking to sniff 15. If 15 triggers, we mentioned last week not to flinch until 17.50 trips and when we would start looking at new put option trades.
The bulls bounced back in February as the market finished 4%-5% higher and is now green for the year across the board.
The Dow finished 623 points higher, or 4%, for the month while the S&P 500 added 77 points, or 4%. The Nasdaq jumped 205 points, or 5%, in February and the Russell 2000 advanced 53 points, or 5%. Impressive.
We talked about the possibility of a trading range forming last week until Thursday and for the most part one did. We also mentioned midweek the bulls were showing signs of a jailbreak on higher highs and higher lows along with the VIX holding 15. Friday’s run to new highs was picture perfect and we warned we still needed to watch the bears despite the breakout. As we saw on Friday, they came knocking, quickly.
We gave our 10-year Price Targets for the major indexes last week and we wanted to expand on some of the factors that weighed on how we got to our “educated guesses”.
The S&P 500 has traded above its 200-day MA for well over a year after breaking below this level and recovering in November-December 2012. Looking back over the past 10 years, this has happened a couple of times as the index has had similar runs in mid-2006 to late-2007 and in mid-2009 to late-2010. The current bull run is the the third longest active streak and could be considered both bullish and bearish. The odds get greater each day that passes the law of averages will catch up but new record highs could be set first.
The current 200-day MA for the S&P 500 is at 1,727 and represents a decline of 7% from current levels. If the current rally were to last into March/ April and the index reaches 1,909 – a 10% pullback would push the index down to 1,727. At 1,909 – a 5% pullback would equate to 1,818.
Our fluff target of 1,900 could get “stretched” to or past 1,909 but this is when we would become extremely cautious.
We mentioned there was a good chance our December fluff targets would come into play so the current rally could easily last into March as Wall Street and more and more traders expect a pullback. Although there was a scare back at the start of February, the bulls held support for the most part as the prior trading range was simply stretched.
The VIX continues to be an excellent indicator for us despite the idiotic quotes some of the slick talking pros have said this year. One well-known talking head says they pay no attention to the VIX until it gets over 20.
We have talked about the VIX on a Daily basis for a few years now because it really does help with market direction. For our new subscribers, historically when the VIX is below 15, the market is bullish. A VIX over 20 usually indicates down markets and nervouness. We have talked about the VIX testing 11 and 52-week lows, and even the single-digits, so we still believe the bulls will ring that bell before there is a major pullback.
A lower VIX near 11-10 would likely get the indexes to our fluff targets with a stretch to the upside. The roadmap for the bulls could be a test to 11 by mid-March with a continued rally into April and where we could expect a market top.
Of course, this is our most bullish outlook over the near-term and while we have penciled-in downward geopolitical events for 2014, no one saw Russia’s sudden move into Ukraine coming.
This is important so please pay close attention.
Besides the snow storm set to hit the East Coast, futures are showing a possible bear attack on Monday and a nasty open (and why we kept a few put positions open in our Daily). We aren’t worried about our Weekly Wrap positions because we like all of the companies we own stock in but options are a different beast.
At 8pm Sunday night, Dow futures were down 145 points to 16,162. The S&P 500 futures were lower by 19 points to 1,838. The Nasdaq 100 futures were declining 37 points to 3,658.
This means the Dow will likely open below 16,200 and the S&P 500 below 1,840. The Nasdaq will likely see an open below 4,275.
We have talked about expecting a possible 10%-20% pullback at some point in 2014 – providing major support levels fail. We covered those last week and the 10-year uptrend lines are at: Dow (15,500); S&P 500 (1,750); Nasdaq (4,000); and Russell 2000 (1,100). If these downside levels trigger, then our lower end Price Targets for 2014 would become our focus.
This means there will be a GREAT chance to make a wheelbarrow of money if there is a major pullback by using put options. And that could happen soon if support doesn’t hold.
We weren’t too happy our Head Zombie rushed at making some hasty comments towards Putin and Russia on Friday an hour after Wall Street closed. The United States and other countries can’t do much about the pending invasion and our President’s threats have fallen on deaf ears in the past. Thank goodness, there was no red line mentioned but hopefully cooler heads prevail.
With the geopolitical outlook uncertain, and major economic news due out this week, volatility could become insane. Friday’s Nonfarm Payroll report and unemployment numbers will also play a major role in helping the bulls or bears take control of support.
As we head to press (2am EST), futures have improved but are still red: Dow futures are down 89 points to 16,218 while the S&P 500 futures are lower by 12 point to 1,845. The Nasdaq 100 futures are declining 24 point to 3,671.
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: 21-8 – 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.
Ingersoll-Rand (IR, $61.14, up $0.61)
April 62.50 calls (IR140419C00062500, $1.20, up $0.20)
Entry Price: $0.90 (2/27/2014)
Exit Target: $1.80
Return: 33%
Stop Target: 90 cents
Action: We have a near-term target of $64-$65. If reached, these options will easily double from our entry price. Support will try to hold at $60 on any pullback with $59 serving as backup.
S&P 500 Spiders (SPY, $186.29, up $0.47)
March 188 calls (SPY140322C00188000, $1.15, up $0.20)
Entry Price: $0.75 (2/27/2014)
Exit Target: $1.50 (closed half @ $1.35 on 2/28/14)
Return: 67%
Stop Target: $1 (Hard Stop)
Action: We closed half of the trade Friday to lock-in profits as we were worried the bears might show up. They did and nearly got back to even but there was a little bounce into the close. We have a Hard Stop of $1 on the other half of the trade that will likely trigger at the open.
Discovery Laboratories (DSCO, $2.64, down $0.09)
April 2 calls (DSCO140419C00002000, $0.80, down $0.05)
Entry Price: $0.65 (2/24/2014)
Exit Target: $1.00-$1.30
Return: 23%
Stop Target: 60 cents
Action: Shares continue to climb higher after the break out of the symmetrical triangle but Friday’s close felt bearish. Support is at $2.50 but we are still looking for shares to test $3.
World Wrestling Federation (WWE, $22.92, up $0.18)
March 30 calls (WWE140322C00030000, $0.25, flat)
Entry Price: $0.40 (2/18/2014)
Exit Target: $0.80
Return: -38%
Stop Target: None
Action: We are expecting a pop past $25 with a possible run to $30. Support is at $22.
Kodiak Oil & Gas (KOG, $11.81, up $0.09)
March 12 calls (KOG140322C00012000, $0.45, up $0.05)
Entry Price: $0.60 (2/13/2014)
Exit Target: $1.20
Return: -25%
Stop Target: None
June 13 calls (KOG140621C00013000, $0.70, up $0.15)
Entry Price: $0.70 (2/13/2014)
Exit Target: $1.40
Return: 0%
Stop Target: None
Action: Support is at $11.50 with $11.25 serving backup. We are still expecting a run to $12.50-$13 over the near-term.
Ariad Pharmaceuticals (ARIA, $8.69, down $0.30)
March 10 calls (ARIA140322C00010000, $0.35, down $0.15)
Entry Price: $0.95 (1/28/2014)
Exit Target: $1.90
Return: -63%
Stop Target: None
May 11 calls (ARIA140517C00011000, $0.80, down $0.10)
Entry Price: $1.05 (1/28/2014)
Exit Target: $2.10
Return: -24%
Stop Target: None
Action: We are expecting a pop to $10 over the next few weeks. Support is at $8 with $7 serving backup.
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.
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, $13.45, down $0.85)
April 19 calls (EXAS140419C00019000, $0.45, down $0.15)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -49%
Stop Target: None
Action: Resistance is at $15 and a move above this level should get us back near even. Support is at $12.50.
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 and why we have 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.
H&R Block (HRB, $31.64, down $0.05)
April 33 calls (HRB140419C00033000, $0.80, flat)
Thoughts: Shares traded up to $32.42 midweek but couldn’t hold $32 by Friday’s close. Earnings are due out this week.
Philip Morris (PM, $80.91, up $0.13)
March 82.50 calls (PM140322C00082500, $0.55, up $0.05)
April 75 puts (PM140419C00075000, $0.40, down $0.10)
Thoughts: We said a close above $80 could lead to $82.50. A back test to $75 could be coming afterwards and this could be setting up for a decent strangle trade.
Krispy Kreme Doughnuts (KKD, $19.02, down $0.49)
March 18 puts (KKD140322P00018000, $0.70, up $0.10)
April 17 puts (KKD140419P00017000, $0.55, up $0.05)
May 17 puts (KKD140517P00017000, $0.75, up $0.10)
Thoughts: Resistance is at $20 and we have added the May 16 puts as an additional way to play KKD’s possible drop to $10 by the summer.
Verizon (VZ, $47.58, up $0.08)
March 49 calls (VZ140322C00049000, $0.35, down $0.05)
April 45 puts (VZ140419P00045000, $0.55, down $0.05)
Thoughts: Shares are on the verge of clearing the 200-day MA at $48.14. If shares clear $48.50 we could go long as they 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.
iShares Russell 2000 (IWM, $117.52, down $0.47)
March 115 puts (IWM140322P00115000, $1.10, up $0.20)
Thoughts: We could go short on a drop below $115 or long on a close above $117.50.
Alexza Pharmaceuticals (ALXA, $5.48, down $0.13)
June 6 calls (ALXA140621C00006000, $0.40, down $0.10)
Thoughts: These options look like a bargain if shares make a run past $6.