9:00am (EST)
“We hate talking politics and we have no way of knowing what will or won’t happen between Russia/ Ukraine and all other sides involved over the next several weeks. We would love to say the saber-rattling ends peacefully but we don’t expect that to be the case. When zombies are in charge anything can happen so we have to watch the rear-view mirror.
There have been major market turns in March but not really any major pullbacks in March since the 2009 lows. March is usually a bullish month for the market, overall, with weakness in the back half. April is also bullish, historically, before the “sell in May and go away” possibility comes into play.
If the bulls can get off to a good start on Monday (they didn’t) and hold any significant gains there could be a continued rally this week. If not, we will be watching key support levels for clues of a further slide or a possible trading range developing.” (from the 3/10 Monday morning Daily)
We like to look over our Weekly Wrap notes to keep our emotions in check and these were our thoughts as we hit the pillow early Monday morning. Thursday’s pullback, correction, selloff or decline has every slick talking Wall Street pro using these nouns and one adjective to describe the action but the bottom line was the bears did some damage as the situation involving Russia/ Ukraine heightened.
We mentioned today’s close would be more important than yesterday’s but let’s peel back the onion to see who’s really going to be crying by the closing bell and into next week.
The Dow dropped 231 points, or 1.4%, to settle at 16,108. The blue-chips traded up to 16,405 but made a 321-point dive to 16,084 before ending slightly off the low. The index is in between our 16,200-16,000 downside targets but there is further risk to 15,900-15,800 today. From there things get ugly. A close above 16,200 would be bullish for next week.
The S&P 500 sank 22 points, or 1.2%, to close at 1,846. The index traded just below resistance at 1,875 after dancing with 1,874 but the 6-pack celebration quickly faded. The bears tackled support at 1,850 and pushed 1,841 ahead of the close. There is further weakness to 1,825-1,810 today while a close above 1,850 would stop the bleeding.
The Nasdaq got hammered for 63 points, or 1.5%, to end at 4,260. The bulls came close to clearing resistance at 4,350 after kissing 4,339 but Tech was in the red 30-so minutes after the open. We mentioned the bears would target 4,275-4,250 on a drop below 4,300 and Thursday’s low reached 4,242. A dip below 4,250 again or a close could signal a test to 4,200. The bulls need a 1% effort today to clear 4,300 ahead of the weekend but 4,275 might be a good enough sign next week could be bullish.
The Russell 2000 was ripped for 14 points, or 1.2%, to finish at 1,176. The small-caps missed clearing 1,200 by 5 points on the open but folded like a cheap lawn chair after testing a low of 1.171. The bulls managed to hold support at 1,175 but the bears are targeting 1,860-1,850 on continued weakness. The bulls would like to get the action back above 1,190 as they know 1,200 might be a tall order ahead of the weekend.
The S&P 500 Volatility Index surged ($VIX, 16.22, up 1.75) zoomed 12% and cleared 15 after reaching a peak of 16.66. We have been warning that 17.50 is the “new 15” level and not to flinch until cleared on the close but this level could be challenged. “On the close” is the key take away as this could lead to 20-22 next week while a dip back towards 15 would ease some concerns despite what will be a headline watching weekend.
We have been limiting our exposure to the current volatility and while we were thisclose to jumping on a few index put option trades yesterday, we wanted to see how today’s action plays out, first.
There will be a plenty of opportunities to play the downside if the bears continue their assault on the bulls but one of the reasons we were so successful last year (and for 6-straight) is because we avoided these pitfalls and traps. The Dow has dipped below its 50-day MA (moving average) and the other indexes will be at or below theirs if the downside targets we have listed are tested.
The market went through a lot of this drama in 2013 (check side notes on our 2013 Track Record) and again in early February but the bulls have held strong each and every time. This go around could be different but experience tells us usually when too many knuckleheads are leaning on one side of the boat…
As we head from our device to yours, futures look like this: Dow (+12); S&P 500 (+3); Nasdaq 100 (+5).
We have added some additional index plays, long and short, to our Watch List to take advantage of the current volatility. We normally don’t like to take new trades on Friday but we may roll the dice to get an early jump on next week if we like the playing field. For this reason, we could have an early Trade Alert ahead of our midday update. Otherwise, we will see be back around Wall Street’s lunch break.
MEMBERS AREA
Closed Trades for 2014: 29-9 – the Weekly Wrap is 12-2 for 2014 (97-9, or 92% win rate, since 2011) and is designed for traders that want to use options with less risk.
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.
Zynga (ZNGA, $5.52, down $0.27)
April 5.50 calls (ZNGA140419C00005500, $0.40, down $0.16)
Entry Price: $0.55 (3/12/2014)
Exit Target: $1.10
Return: -27%
Stop Target: None
Action: We would like to see $5.50 hold but there is risk to $5, if $5.40 fails to hold. Watch this level today as it will be important we if we decide to stay or roll. If shares can reach $6.50 by mid-April these options will double from our entry price and why we want to leave it open.
Verizon (VZ, $46.03, down $0.33)
April 45 puts (VZ140419P00045000, $0.75, up $0.10)
Entry Price: $0.62 (3/10/2014)
Exit Target: $1.30
Return: 21%
Stop Target: 60 cents
Action: We would love to see a close below $45.50 today.
We believe shares could test $40 over the longer-term and fall below $45 over the near-term. Resistance is at $48. If shares do rebound, we could protect profits.
Opko Health (OPK, $9.32, down $0.09)
April 10 calls (OPK140419C00010000, $0.50, flat)
Entry Price: $0.65 (3/4/2014)
Exit Target: $1.30
Return: -23%
Stop Target: None
Action: Shares traded to $9.60 on Thursday before finishing slightly lower in a rough market. Resistance remains at $9.50-$10 and a close above the latter would be super bullish for a run to $12-$13 on short covering. Support is at $9-$8.75.
Kodiak Oil & Gas (KOG, $11.37, down $0.02)
June 13 calls (KOG140621C00013000, $0.45, flat)
Entry Price: $0.70 (2/13/2014)
Exit Target: $1.40
Return: -38%
Stop Target: None
Action: We believe the company is a takeover candidate that could get a bid north of $15. Support is at $11. Resistance is at $11.75.
Exact Sciences (EXAS, $13.21, down $0.55)
April 19 calls (EXAS140419C00019000, $0.40, down $0.10)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -55%
Stop Target: None
Action: Support is at $13. Resistance is at $14.50 and a move above this level should get us back near even.
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 (6): 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 mkh jb√ 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
Ariad Pharmaceuticals March 10 calls (from January 3014)
May 11 calls (from January 3014)
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.
PowerShares QQQ (QQQ, $89.28, down $1.28)
April 90 calls (QQQ140419C00090000, $1.20, down $0.55)
April 87 puts (QQQ140419C00087000, $1.00, up $0.35)
Thoughts: We could go long on a pop back above $90 or short on a dip below $87.50.
iShares Russell 2000 (IWM, $117.05, down $1.37)
April 120 calls (IWM140419C00120000, $1.15, down $0.50)
April 112 puts (IWM140419P00112000, $1.40, up $0.35)
Thoughts: We could go short on a drop below $117.50 or long on a pop back above $118.50.
S&P 500 Spiders (SPY, $185.18, down $2.10)
April 190 calls (SPY140419C00190000, $0.75, down $0.45)
April 175 puts (SPY140419P00175000, $1.00, up $0.35)
Thoughts: We could use these puts for a short-term trade on weakness.
Ingersoll-Rand (IR, $57.56, down $1.39)
April 60 calls (IR140419C00060000, $0.60, down $0.75)
Thoughts: We could be getting a good entry point on a prior winner but we need to figure out if shares have bottomed before possibly jumping in. These options fell 55% yesterday but will double from current levels if $61.20 triggers again.
Philip Morris (PM, $79.23, up $0.06)
April 77.50 puts (PM140419C00077500, $1.25, down $0.05)
Thoughts: A back test to $75 could be coming.
Finish Line (FINL, $26.77, down $0.16)
April 30 calls (FINL140419C00030000, $0.30, flat)
May 30 calls (FINL140517C00030000, $0.65, flat)
Thoughts: We could be getting a good entry point but the bid/ ask on both call options is wide and may keep us out of the trade. We may try to work an order but we want to do some chart work before pulling the trigger on a possible trade.
Morgan Stanley (MS, $31.44, flat)
April 33 calls (MS140419C00033000, $0.45, flat)
Thoughts: We like these calls on a break above $32.50.
Valero Energy (VLO, $54.04, down $1.25)
April 57.50 calls (VLO140419C00057500, $0.95, down $0.40)
Thoughts: There could be a run past double-nickels ($55) coming.