9:00 a.m. (EST)
The market experienced a Keith Jackson moment on Thursday as he made today’s headline a famous quote for out of control situations. I have mentioned the recent triple-digit swings in the Dow and a rising VIX could spell heightened volatility into July and that is exactly what is happening.
Headline news has become much more in focus and along with the slew of 2Q earnings reports due out next week, I expect the unexpected to continue. The end result of a Whoa Nelly is that after the fact it produces a surprise, shock or awe at the unexpected behavior. (read more…)
The Dow fell 70 points or 0.4% to settle at 16,915 on Thursday. The blue-chips tanked 180 points on the open to a low of 16,805 before cutting the losses and pushing a high of 16,980. However, the final hour produced another back test to support with 16,900 holding. I have talked about how a break below 16,800 would be bearish and the bulls were testedyesterday. A close above 17,000 would get new highs back in play.
The S&P 500 slipped 8 points, or 0.4%, to end at 1,964. The index tested a low of 1,952 within minutes after the opening bell but also recovered following the 20-point loss to reach 1,969.84. The fade off the highs ended with the bulls holding support at 1,950 while closing above 1,960. A close above 1,970 and more importantly 1,975 keeps fresh highs in the mix.
The Nasdaq dropped a double-deuce (22 points), or 0.5%, to close at 4,396. Tech was punished for a 68-point loss at the start of trading and tested 4,351 before rebounding to clear 4,400. The bulls nearly got back to even after pushing 4,415 but near-term support was stretched after following the close below 4,400. There is further risk to 4,300 if 4,350 cracks while a close above 4,400-4,425 would be bullish heading into next week.
The Russell 2000 sank a 12-pack, or 1%, to finish at 1,161. The small-caps were once again the weakest link as they traded down to 1,151 and led the bandwagon lower. The bulls held the 1,150-1,160 levels but a close below 1,150 would be very bearish.
The S&P 500 Volatility Index ($VIX, 12.49, up 0.94) went ballistic as it soared past 12.50 and made a run to 13.23 on the bears opening ambush. Once the dust settled, the bulls failed to hold the 12.50 level and this could be a warning sign. I have talked about wiggle room up to 13.50 and I am applying the “no flinching rule” I have used in the past until the VIX closes above 15. This means I won’t aggressively start looking for short positions until this level is triggered.
One of the current option trades will be in play this morning as the company is reporting earnings as I go to press. I have given specific trade instructions to exit the position on good news so please read them carefully. I have also updated the other current trades as well.
Stay locked-and-loaded throughout the trading session as I could have Profit Alerts or possibly New Trades ahead of the midday update. If not, I will talk with everyone around noon.
Heading from desk to press, futures look like this: Dow (+8) S&P 500 (+1); Nasdaq 100 (+4).
Closed Trades for 2014: 67-33 – the Weekly Wrap is 20-4 (83%) for 2014 (105-11, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk. All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
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. I will send out a “Profit Alert” or “New Trade” if I want you to close a position OR if a new trade comes out. Otherwise, follow instructions at all times in the 9am and 12pm-1pm updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
Fastenal (FAST, $48.15, down $0.86)
August 50 calls (FAST140816C00050000, $0.75, down $0.35)
Entry Price: $0.80 (7/10/2014)
Exit Target: $1.60
Return: -6%
Stop Target: None
Action: Set limit orders to close half the trade at $1.60 or better. Once filled, set stop limits at $1 on the other half.
If shares slip on an earnings miss, I will update the trade in the midday update.
I’m looking for shares to clear $50 on the open and a possibly push to $52 on a short-squeeze.
I will likely provide an update if we need to take further action ahead of the midday report. Otherwise, stick with the plan.
Fortinet (FTNT, $24.04, down $0.14)
September 28 calls (FTNT140920C00028000, $0.45, down $0.05)
Entry Price: $0.55 (6/30/2014)
Exit Target: $1.10
Return: -18%
Stop Target: None
Action: Shares dropped to $23.45 on yesterday’s open but made a nice recovery to hold $24.
Earnings are due on July 23rd and I believe they will announce a blowout quarter. A close above $25 would be bullish for a run to fresh highs.
Rambus (RMBS, $14.12, down $0.03)
August 15 calls (RMBS140816C00015000, $0.45, flat)
Entry Price: $0.60 (6/30/2014)
Exit Target: $1.20
Return: -25%
Stop Target: None
August 16 calls (RMBS140816C00016000, $0.25, flat)
Entry Price: $0.33 (6/30/2014)
Exit Target: $0.65-$1
Return: -24%
Stop Target: None
Action: Rambus fell below $14 to $13.65 during yesterday’sonslaught but recovered to hold $14. I mentioned there would be further risk if to $13.50 if $14-$13.75 is triggered so today’s close will be crucial. A move above $14.25-$14.50 keeps $15 in play.
Earnings are tentatively scheduled for next week but there is no hard date listed. They will likely be moved out as I have already scanned for the companies reporting next week.
I believe Rambus will beat estimates so I don’t mind staying long.
General Motors (GM, $37.75, down $0.22)
September 32 puts (GM140920P00032000, $0.25, flat)
Entry Price: $0.40 (6/23/2014)
Exit Target: $0.80-$1.20
Return: -38%
Stop Target: None
Action: I would like to see a close below $36 today. Resistance is at $38.
Limelight Networks (LLNW, $2.82, down $0.03)
September 3 calls (LLNW140920C00003000, $0.30, down $0.05)
Entry Price: $0.15 (6/4/2014)
Exit Target: $0.45 (closed 1/4 at $0.35 on 7/8/14)
Return: 117%
Stop Target: None
December 3 calls (LLNW141220C00003000, $0.40, down $0.05)
Entry Price: $0.20 (6/4/2014)
Exit Target: $0.60 (closed 1/4 at $0.45 on 7/8/14)
Return: 113%
Stop Target: None
Action: Shares tested support as yesterday’s low was $2.75. A close below this level could lead to $2.50 but I’m cheerleading for a pop back above $3 today. These are longer-term options so there is plenty of time to wait for another takeover offer north of $6.
Other 2014 Portfolio OPEN positions (2): 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 I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly, when the trade closes or if the options expire. Click on the 2014 Portfolio link in the Members Area to view ALL open/ closed trades.
McDonald’s July 95 puts (from May 2014) – close the trade for a nickel today as shares have stubbornly held $100 throughout the time frame the position was open. I got this one wrong and I doubt shares will fall below $95 within the next 2 weeks.
Apollo Group August 23 puts (from April 2014) – continue to hold – shares are below $30 and a drop under $28 would help get this trade rolling again.