MomentumOptionsTrading.com.com Weekly Wrap for 12/22/13
11:30pm (EST)
1. Market Summary
2. Osiris Therapeutics (OSIR) – Stem to Growth
3. Earnings
4. Weekly Wrap Portfolio Update
5. Week Ahead
(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section.)
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1. Market Summary
“Thebears got their second-straight weekly win and have put the bulls in a December hole. Last week’s win was impressive as the bears cracked several layers of support as continued taper worries weighed on the market.
We mentioned this week’s FOMC meeting could cause Wall Street to book profits and start planning for vacations early as a quarter of them have penciled-in a December taper. Given the steep declines from last week, our game plan is setting up nicely as we said these will be the ones that miss a possible year-end rally.
We have covered why we don’t believe there will be a taper cut this week and we have mentioned this could be Big Ben’s last meeting before Janet Yellen takes over. Bernanke could decide to start a QE pullback but it would be a surprise given his comments of what he wanted to see from the economy.
There will also be a vote this week on Yellen’s confirmation as the next Fed Head after the FOMC meeting. This would also be a great opportunity for Bernanke to step down early and pass the baton to Yellen ahead of his official departure date.
The potential curveball ahead of the FOMC meeting will be the budget deal that was reached between the zombies last week. Although it appears to be a done deal, the Senate still has to vote and there is talk it could be close. There are zombies from both sides that aren’t happy with the Paul Ryan led budget deal and it could be close on officially getting it into law.
The FOMC will be watching these developments and a failed budget agreement could rattle the market since it has already been priced in and one we said would happen. Hopefully, there are no “green eggs and ham” being served on Tuesday’s White House breakfast buffet.
As far as the rest of the week, the Housing sector will be in focus with economic news and a number of companies reporting earnings. New Home Sales, Existing Home Sales and the Housing Market Index will be released throughout the week. More importantly, the Philly Fed Manufacturing and the Kansas Fed Manufacturing reports will also weigh on market direction. Here is a chart of the Home Construction Index:
The market is at a crucial point as additional selling pressure will get the 50-day MA’s and the 100-day MA’s in play. With the VIX spiking past 15, there could be enough volatility for a push to 17.50-20 if the major MA’s are violated. This will be one of the more interesting developments along with the small-caps as they closed a smidge below their uptrend line. To sum things up, the VIX and Russell 2000 should provide the best clues on market direction this week.
Friday is also December option expiration day and Quadruple Witching as all options expire. This is historically a bullish event but with the FOMC meeting and economic news ahead, volatility could get even more elevated.
We have mentioned the January Effect, the possible upcoming Santa rally, and the seasonal patterns that show December is the best month for small-caps and the second best month for the S&P 500. In fact, the Russell 2000 has moved higher 85% of the time over the past 20 years with an average gain of 3.3% in December. The S&P 500 has ended December option week higher in 22 out of the past 28 years.
The Russell 2000 is down 3% for the month so a 3.3% rally from the end of November close would put the small-caps at near 1,150.
Despite the bearish tone last week, the Dow did closer higher on Monday and Friday. The gains weren’t much but a win is a win. If the blue-chips can show some strength on Monday, it could be a good sign but the gains will need to be impressive. If not, there could further selling pressure down to the 100-day MA’s before a possible yearend recovery.” (from 12/15/2013 Weekly Wrap…)
The start to the week was interesting as futures favored the bears in Sunday night trading before a massive turnaround ahead of Wall Street’s open on Monday. We mentioned the 150-point swing in our midday update and although the bulls had a strong day, volatility remained elevated heading into the Fed’s midweek FOMC meeting.
Tuesday was a flat day and we mentioned the next triple-digit move in the Dow could set the next trend. While most of our indicators were pointing towards a breakout there were a few bearish signs that needed to be cleared. Futures were up on Tuesday night and with the slick-talking pros calling for a pullback, the recipe was ripe for a massive breakout.
Wednesday’s session was choppy ahead of the afternoon announcement and when the Fed actually did taper, the market soared. We have learned over the years when there is too many people leaning on one side of the boat, it tips over. The breakout to new record closing highs sent the bears running for the exits as the bulls held the majority of their gains.
Thursday’s session was a rest day and a slight back test to support that had served as prior resistance but mentioned December option expiration day has been bullish over the past 30 years. Friday’s surge to our yearend fluff targets capped off a wonderful week and with just 6 trading days left for 2013, we are closing in on our sixth-straight year of profits. (continued…)
The Dow advanced 42 points, or 0.3%, to end at 16,221 on Friday. The blue-chips surged 129 points on Monday to close at 15,884 after reaching a high of 15,930. The bulls made a run at the 20-day MA again on Tuesday but fell 9 points before Wednesday’s breakout. The index zoomed 292 points and made a run at our 16,200 fluff target on the Fed news after finishing at 16,167. The Dow just missed its intraday Black Friday high of 16,174.50 but reached a high of 16,194 on Thursday. We have mentioned if this level is cleared it could lead to a run to 16,500-16,600 for the blue-chips. Friday’s high reached 16,287. Support is at 16,200-16,000 on a pullback with 15,800 serving as backup. For the week, the Dow surged 466 points, or 3%, after starting at 15,755. For the year, the blue-chips are up 3,117 points, or 23.8%.
The S&P 500 soared 9 points, or 0.5%, to settle at 1,818. The index added 11 points and made a run to 1,792 but missed our closing target of 1,790 on Monday. There was another back test to 1,775 on Tuesday as the S&P fell to a low of 1,777 and ended with a 3-point loss to 1,781. The 20-day MA was just below 1,800 and we had penciled-in a 50-point move going into Wednesday’s session that would get the index pushing our 1,825 fluff target or testing 1,750. The bears pushed a low of 1,767 the instant the taper cut was announced but zoomed to 1,811 by the closing bell. The 45-point swing was incredible to watch and Thursday’s 1-point pullback to 1,809 showed the rally had staying power. We have said if 1,825 clears the bulls could make a run to 1,850 and Friday’s high reached 1,823.75. Near-term support is at 1,810-1.800 with 1,775 helping out on a break below these levels. The index came into Monday’s session at 1,775 and was up 43 points, or 2.4%, for the week. Year-to-date, the S&P 500 has advanced 392 points, or 27.5%.
The Nasdaq zoomed 46 points, or 1.2%, to finish at 4,104. The bulls needed to get Tech past 4,025 to start the week and did well on Monday after the index gained 28 points to finish at 4,029. Tech kissed a high of 4,043 and we wanted to see a finish above 4,050 but we would have to wait. Tuesday’s 6-point loss pushed the index back below 4,025 following a run to 4,043. The bears pushed a low of 4,011 as support at 4,000 held but we mentioned there was risk down to 3,950 if the market didn’t like the Fed’s actions. We also said a close above 4,050 would get our 4,200 yearend fluff target in play and Wednesday’s action got the ball rolling. The Nasdaq jumped 46 points to finish at 4,070 after testing a low of 3,979. Tech missed its intraday high of 4,081 by 11 points from the prior week and did a back test on Thursday to 4,045 before ending at 4,058. Friday’s high kissed 4,111. Support is at 4,050-4,000. The Nasdaq began the week a point above 4,000 and rallied 103 points, or 2.6%, by Friday’s close. For 2013, Tech has gained 1,085 points, or 35.9%.
The Russell 2000 rose 21 points, or 1.9%, to end at 1,146 on Friday. The small-caps made a run at 1,120 and the 20-day MA to start the week to end at 1,119.85. We wanted to see the bulls clear 1,125 by the close as this would get 1,135-1,150 back in play. The index slipped a point to 1,118 on Tuesday but showed some strength late in the day after trading slightly above 1,120 again and we said the action was bullish. The Russell rocketed 15 points on Wednesday after the Fed’s decision to taper and got our yearend fluff target of 1,150 back on the map. The previous high of 1,147 triggered in late November but the bears pushed support one last time on Thursday as the index fell 8 points to close at 1,125. Imagine that. However, we said the next close above 1,135 would get new all-time highs back in play and Friday’s intraday high touched 1,147.12 – another record for the small-caps. Support is at 1,125 with help at 1,110-1,100 on a serious pullback. The Russell 2000 was at 1,107 before Monday’s open and added 39 points, or 3.6%, for the week. YTD, the small-caps are higher by 297 points, or 35%.
The S&P 500 Volatility Index ($VIX, 13.79, down 0.36) came into the week at 15.76 and faced risk up to 17.50. The VIX stayed elevated into Wednesday’s Fed meeting as the high reached 16.75 ahead of the announcement. The VIX fell 15% and back below 15 to end at 13.80 afterwards. We mentioned last week a close back below 13.50 would be bullish for a continued rally and a push towards the 52-week low of 11. Thursday’s low was 12.89 while Friday’s low checked-in at 13.12.
We heard comments last week from one market guru that he doesn’t pay any attention to the VIX until it is over 20 as he was commenting that the index is near its lows. He also said volatility was subdued but his remarks show just how little homework the professionals do. The VIX has given us some of the BEST clues on predicting the market’s moves and it will continue to do so in 2014.
The talking heads were in overdrive last week and were flip flopping ahead and after the all important Federal Open Market Committee (FOMC) meeting last week. The central bank’s decision that it would begin to “taper” its $85 billion a month quantitative easing (QE) program led to a sharp rally by the bulls that quickly took the major indexes back to record highs.
The market had been waiting for a taper cut and the Fed said all the right things as it also indicated that its key interest rate would stay at rock bottom levels even longer than previously anticipated. The overnight rates will stay near zero well past the period that the U.S. unemployment rate falls below 6.5%.
We did some flip-flopping ourselves because we moved our forecast out from the summer to a possible December taper into next year. One of main reasons was that the Fed had not tightened monetary policy in December for the past 40 years as they prefer initiating policy changes after the New Year and in the first quarter.
The Fed Heads’ decision was nearly a clean sweep with only Boston Fed President Eric Rosengren voting not to taper. He reasoned unemployment levels were still “elevated” and that inflation was still below the 2% target.
We mentioned Big Ben could be the wild card in the Fed’s final decision to taper or not to taper and Bernanke did what most on Wall Street figured he wouldn’t do. In his last hurrah, he tapered. He said the recovery was not yet complete but as long as the current economy continued to remain on the track the market could expect tapering to continue at a measured pace until completed. In other words, he created a textbook “sell the rumor, buy the news” setup that crushed the bears. A cloud of uncertainty was finally lifted as the taper will begin in January. The $10 billion cut was split evenly between mortgage backed securities and long-term Treasury bonds.
As a result, Gold tanked after the Fed’s decision was announced and fell below the $1,200 level. The yellow-metal will likely end 2013 with its worst performance in over 30 years. We have been telling you Gold could fall to $1,175-$1,150 an ounce by yearend and this quote is from our September 15th Weekly Wrap:
“Gold ($1,327.60, up $6.70) continues to break down like a rented mule following the drop below $1,400. The yellow metal rebounded on Friday but had a terrible week, falling over $60, or 4%.
We have said Gold could test $1,175-$,1,150 this year and following a rebound in August off the 50-day MA to a high of $1,434, this could be the slide that gets it there. The next wave of support is at $1,300 and a close below this level would be the green light to go short.” (END)
Silver was hit even harder last week after giving up the $20 level. We have been waiting for $17.50 to come into play for Silver as we would like to add more to our portfolio but the huge “spot” prices in American Eagles are still there.
The market commentators were gleaming as if the rally to new highs was led by Santa Clause and not the bulls. We have said the blabber mouths always get this wrong and many of them were fearing the worse if the Fed tapered. Like little kids growing up, most of them were pouting on the pullback during the first two weeks of December. They instantly starting singing “Santa Clause is Coming to Town” following the 300-point surge in the blue-chips on Wednesday.
One last time, the “official” Santa Clause rally, if there is one, is the last five trading days of December and the first two of January.
The market fell 2% last Christmas on the day before and the first 2 days afterwards before rally into January. The whammy was the perfect excuse for the slick talking pros to take profits last year and maybe this is how this week plays out. It might also be a great setup for us if the action follows last year’s losses and the rebound afterwards plays out.
If we do get the slight pullback to support on Tuesday and into Thursday, the plan might be to buy call options for our Daily portfolio on the indexes. We will be listing which call options to play on our Watch List in Monday morning’s Daily update.
Of course, we would like to see a continued rally without a pullback as we are still long the market with stocks and call options. The charts have been giving us great clues and will continue to do so. We have outlined the downside risks and when to go short with put options. Until then, the trend remains our friend.
This will be a short week for trading as Wall Street closes on Tuesday at 1pm (EST) and of course, the market will be closed on Wednesday. Monday, Wednesday and Friday are normal trading sessions.
As we head to press, futures are showing a strong open: Dow futures are up 46 points to 16,227 while the S&P 500 futures are higher by 7 points to 1,821. The Nasdaq 100 futures are advancing 18 points to 3,550.
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2. Osiris Therapeutics (OSIR) – Stem to Growth
By Michael Bryant
Key for Technicals Used In Following Article
With the stem cell field still in its infancy, could Osiris Therapeutics (OSIR, $16.75, up $1.20) be a good way to play the sector?
Founder Dr. Arnold Caplan was born in Chicago, Illinois in 1942, and earned a bachelor of science in chemistry from the Illinois Institute of Technology in 1963. There he did research work on the chelative structure of reduced glutathione. A chelate is a compound consisting of a central metal atom attached to a large molecule, called a ligand, in a cyclic or ring structure. Glutathione is a small protein composed of three amino acids (cysteine, glutamic acid and glyceine) that works as an antioxidant.
Caplan then received a Ph.D. from Johns Hopkins University Medical School in 1966, where he studied the separation, identification, and characterization of the inner and outer mitochondrial membranes. After completing a post doctorate study at Johns Hopkins, he did a post doctorate at Brandeis University where he studied nicotinamide-antagonized teratogens on cartilage and muscle development. Nicotinamide is a water-soluble vitamin that is part of the vitamin B group. A teratogen is a drug or chemical substance capable of interfering with the development of an embryo that may lead to birth defects or developmental malformations.
From 1969 to 1975, Caplan became an assistant professor for the Departments of Biology and Anatomy (Medical School) at the Case Western Reserve University in Cleveland, Ohio. He then became co-director of the Cellular and Molecular Biology Training Program there from 1975 to 1991. While at the university, he studied technology to isolate a specific type of stem cells known as mesenchymal stem cells (MSCs).
Stem cells are needed for the body to continuously renew (rejuvenate) various tissues/organs. They can be broken into two classes, embryonic stem cells and adult stem cells (also called tissue-specific stem cells). Adult stem cells in the bone marrow can further be divided into hematopoietic stem cells, which form all the types of blood cells in the body, and MSCs, also known as skeletal stem cells. As of today, every organ and tissue is believed to likely have its own stem cells.
MSCs can make several types of skeletal tissue cells, such as cartilage, bone, tendon, ligament fat, and dermis. At Case Western Reserve University, Caplan recognized MSCs had tremendous therapeutic potential and treat life-threatening diseases, such as bone and cartilage diseases. He hoped to find new, innovative human health care protocols of using tissue engineering to repair skeletal tissues. In 1989, he submitted and obtained patents for the use of MSCs in transplants and gene therapy. In 1992, he founded the first stem cell company, Osiris Therapeutics, based on his work. Lead investors were Peter Friedli’s venture capital firm Friedli Corporate Finance and Kevin Kimberlin’s venture capital firm Spencer Trask & Company.
However, it was not until 1998 that the company determined its MSCs were safe enough to enter human trials. That year, it treated its first patient while evaluating the safety and efficacy of remestemcel-L (human MSCs) for the treatment of graft versus host disease (GvHD). In GvHD, immune cells from the transplanted stem cell or bone marrow attack the body’s cells as if they were a foreign substance. Remestemcel-L, branded Prochymal, was expanded as treatment for Crohn’s Disease and acute myocardial infarction (also known as a heart attack).
On August 4, 2006, the company completed its IPO of 3.5 million common shares at $11 per share, at the low end of the expected price range of $11 to $13, and raising a net total of $36.9 million. This represented about 12.9% of the 27.1 million outstanding shares.
As can be seen in its therapeutics pipeline shown below, Prochymal is being evaluated in Phase 3 clinical trials for GvHD, Crohn’s disease, and acute radiation syndrome (ARS). The anti-inflammatory properties and tissue regeneration capabilities of adult stem cells may allow effective treatment of ARS caused by high levels of radiation exposure. Prochymal is the only stem cell therapeutic given both orphan drug and fast track status by the FDA.
In November 2008, the company partnered with Genzyme (GENZ) for the development and commercialization of Prochymal and Chondrogen. Clinical research demonstrated that injection of Chondrogen in patients with osteoarthritis significantly reduces pain, protects cartilage, and reduces bone degenerative changes. The company has a collaborative agreement with Juvenile Diabetes Research Foundation for the development of Prochymal as a treatment for the preservation of insulin production in patients with newly diagnosed type 1 diabetes mellitus.
The company’s biosurgery segment focuses on biologic products for orthopedic, wound healing, and surgical procedures by harnessing the body’s natural healing ability. It has four products listed below.
- Grafix – for acute and chronic wounds, including diabetic foot ulcers and burns
- Ovation – for surgical wound healing and natural tissue repair
- OvationOS – for bone repair
- Cartiform – for cartilage restoration
A few important dates:
- On May 17, 2012, the company received the world’s first regulatory approval for stem cell-based therapy. Canadian regulators approved its drug Prochymal to treat children suffering from GvHD.
- On February 19, 2013, the European Medicines Agency gave Prochymal orphan drug title for a stem cell therapy, making it easier to seek a buyer or partner for the treatment.
- On August 13th, shares more than doubled after its Grafix treatment closed three times as many diabetic foot ulcers as standard care.
- In October, the company made an agreement with a wholly-owned subsidiary of developing biotherapeutic company Mesoblast (MBLTY) for the acquisition of Osiris’ culture-expanded MSC business, including Prochymal, in a transaction worth up to $100 million in initial consideration and milestone payments as well as future royalties.
- On December 20, the company received $15 million in milestone payments from Mesoblast for successful completion of the transfer of assets relating to the Prochymal business. As a result of the transaction, the company expects to report a profit for the 4th quarter 2013 and full fiscal year.
The company is expected to report 4th quarter earnings sometime between March 3rd and 7th. Analysts estimate the company will earn $0.65 per share on $32.91 million. Revenue and earnings are expected to spike in the 4th quarter due to milestone payments.
Revenue (blue line) touches total expenses (red line) in the 3rd quarter, so the company could become profitable in the 4th quarter, as the company expects. And both revenue and earnings remain on an upward trend when subtracting out the milestone payments.
While many of the products in the pipeline compete with traditional sources, the company has no pure play competitors.
At $16.75, the stock is between its median target of $14.50 and its high target of $22.00 made by the 2 analysts recorded by Thomson/First Call. Mean target is $14.50, and low target is $7.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 3.5, unchanged from a week ago.
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3. Earnings
The companies in BOLD, we are looking at as possible trades and we may list call or put options on them in our Daily Newsletter. If they become official recommendations, we sent out Trade Alerts or include them in our 9am and 1pm updates that come out during the week (Quotes are from 12/20/13 close)
Monday
Before the bell: Piedmont Natural Gas (PNY), Stalnaya Gruppa Mechel (MTL)
After the close: CalAmp (CAMP), China BAK Battery (CBAK), China Finance Online (JRJC), Forward Industries (FORD), Nevada Gold & Casinos (UWN)
Tuesday
Before the bell: None
After the close: NeoPhotonics Corporation (NPTN)
Wednesday
Market closed. Merry Christmas!
Thursday
Before the bell: Cooper Tire & Rubber Company (CTB), Golden Energy Marine Corp (SHIP)
After the close: Industrial Services of America (IDSA)
Friday
Before the bell: GlobalTech Appliances (GAI), Linktone (LTON)
After the close: None
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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 12/20/13)
Our Weekly Wrap Closed Trade Track Record for 2013 is 41-4 (85-6, overall since the start of 2011).
Special Notice: We closed our Krispy Kreme Doughnuts (KKD, $19.09, up $0.45) Short Position last week to get our Track Record to 41-4 for the year. We would like to see a failed test at $20 where we may go short again.
Opko Health (OPK, $9.03, up $0.22)
March 10 calls (OPK140322C00010000, $0.95, up $0.10) LEAP OPTION
Original Entry Price: $0.70 (12/17/13)
Exit Target: $1.40-$2.10
Return: 36%
Stop Target: None
Action: We decided to get back into this trade on the drop to $8.17 last week. It completed the perfect back test as shares traded lower on the company’s acquisition news. This is typically the case on this type of news. We mentioned the company’s CEO recently purchased 150,000 shares ranging from $8.55-$9.12. We went long back in September when shares dropped near $8 and made over 200% with these same March call options. We are looking for lightening to strike the shorts twice as we are expecting major news from the company this month. A close above $9.50 would be bullish. Support is at $8.50 with risk down to $8.
Ariad Pharmaceuticals (ARIA, $6.43, up $0.91) Stock Trade
Original Entry Price: $4.95 (10/25/13)
Lowered Price from Selling Options: $4.95
Exit Target: $8-$10
Return: 30%
Stop Target: $2
Action: Shares traded to a low of $3.83 and stayed below $4 to start the week but surged 13% to a high of $4.37 on Tuesday. Shares ended at $4.16 before Wednesday’s surge to $5.04. The close at $4.98 was beautiful as shares peaked at $5.58 and settled at $5.52 on Thursday. Friday’s high reached $7.75 on news the FDA said the company could resume marketing of the drug, Iclusig, here at home. Europe also has the drug under review and we said to expect good news on both fronts.
On a technical level, there is a gap to fill from $6 to $18. Shares were recently upgraded by Stifel to a “Buy” rating from “Hold” with a $7 Price Target. They raised it to $10 Friday on the news.
WhiteWave Foods Company (WWAV, $21.84, down $0.17)
January 22.50 calls (WWAV140118C00022500, $0.50, down $0.10)
Original Entry Price: $0.55 (11/11/13)
Exit Target: $1.10
Return: -9%
Stop Target: None
Action: Shares traded to a low of $21.89 on Monday and $21.98 on Tuesday as support held at $22 throughout the week until Friday. Shares finished at their low for the session and the close below $22 gets $21.50 in play. A drop below this level could force us out of the trade. We have a near-term Price Target of $25 on the stock that should trigger on a close above $22.50 and then $23.50.
H&R Block (HRB, $28.54, up $0.06)
January 30 calls (HRB140118C00030000, $0.25, flat)
Original Entry Price: $1.10 (11/5/13)
Exit Target: $2.20
Return: -77%
Stop Target: None
April 32 calls (HRB140419C00032000, $0.60, down $0.05) LEAP Option
Original Entry Price: $0.95 (11/5/13)
Exit Target: $1.90+
Return: -37%
Stop Target: None
Action: Shares tested support at $27.50 midweek as support held before the close back above $28 late in the week. Shares reached a peak of $28.79 on Friday and resistance is at $29.50. If cleared we are expecting a run past $30 to $32. A close below $28 again might force us out of the trades.
Millennial Media (MM, $6.68, down $0.45) Stock Trade
Original Entry Price: $6.95 (10/25/13)
Lowered Price from Selling Options: $6.95
Exit Target: $14
Return: -4%
Stop Target: $5
February 10 calls (MM140222C00010000, $0.25, down $0.05) LEAP Option
Original Entry Price: $0.50 (10/25/13)
Exit Target: $1.00
Return: -50%
Stop Target: None
Action: Shares cleared $6.50 to start the week and made a run past $7 before Friday’s pullback. Support at $6.25 has been solid and is moving up as we would like to see $6.50 hold on any pullback this week. We believe the company is a takeover target that could catch a bid from Twitter or Facebook and why we are playing the LEAPs. A close above $7.25 would be bullish for a run to $8.
Boston Scientific (BSX, $11.84, up $0.22) Stock Trade
Original Entry Price: $12.29 (10/21/13)
Lowered Price from Selling Options: $12.29
Exit Target: $15
Return: -4%
Stop Target: $10
January 13 calls (BSX140118C00013000, $0.07, flat)
Original Entry Price: $0.45 (10/21/13)
Exit Target: $1.35
Return: -84%
Stop Target: None
Action: Near-term support is at $11.50 and a close below $11.25 would be bearish. A close above $12 could lead to $12.20-$12.50. There was a recent analyst upgrade to Outperform from Market Perform after favorable results for the company’s Precision Spectra system.
Pizza Inn Holdings (PZZI, $7.69, down $0.23) Stock Trade
Original Entry Price: $8.10 (10/11/13)
Lowered Price from Selling Options/ Dividends: No options available
Exit Target: $12+
Return: -6%
Stop Target: $7
Action: Shares struggled holding $8 throughout the week and closed below this level on Thursday at $7.92. The low of $7.83 held the 100-day MA but there is risk to $7.50-$7.40 on continued weakness. The symmetrical triangle forming is signaling a breakout (or breakdown).
ALC Hospitality is the latest to join the Pie Five craze as they were awarded 38 franchises last week. The units will be developed near Our Town in northern VA, Maryland and DC. This gets the number of Pie Fie stores in development for 2014 to 150 and we love this stock as a long-term core holding. This is our third trade on PZZI as we have been bringing you this story since shares were under $4. It is not too late to get in as we have said the stock could run to $15-$20 over the next 12-24 months.
Aruba Networks (ARUN, $17.74, up $0.47) LEAP Option Trade
January 20 calls (ARUN140118C00020000, $0.20, up $0.05)
Original Entry Price: $1.45 (10/11/13)
Exit Target: $2.90
Return: -86%
Stop Target: None
Action: Aruba made a nice bounce past $17 last week and is pushing the next layer of resistance at $17.75. If shares can clear $18-$18.25 there could be a run to $20+ as long as $17 holds as support this time around. We still believe this company is a takeover target as well.
Sonus Networks (SONS, $3.06, down $0.02)
Original Entry Price: $3.73 (9/9/13)
Lowered Price from Selling Options: $3.73
Exit Target: $5
Return: -18%
Stop Target: $2.50
Action: Sonus made a run past $3 to $3.10 and could be setting up for a run back to $3.30. Support is at $2.70 on a close back below $3.
Galena Biopharma (GALE, $4.03, down $0.03)
Original Entry Price: $2.12 (7/8/13)
Lowered Price from Selling Options: $2.12
Exit Target: $5
Return: 90%
Stop Target: $3.75 (Limit Stop)
Action: Shares fell below $4 on Monday and tested a low of $3.84 midweek before holding $4 into Friday’s close. Our stop limit is at $3.75 and will take us out of the trade if triggered. We are still looking for a run past $5 and a close above $4.20 would be bullish.
Oppenheimer recently initiated coverage of the stock with a Price Target of $6. This is a buck higher than our near-term Price Target of $5. There is little analyst coverage on the Street but the company is starting to get noticed.
Exact Sciences (EXAS, $12.06, up $0.12)
Original Entry Price: $13.55 (6/11/13)
Lowered Price from Selling Options: $12.40
Exit Target: $16+
Return: -3%
Stop Target: $10.45
Action: Shares continue to hold their uptrend line with support at $11.75. There is risk down to $11.50-$11.25 on a break below this level. A pop past $12.25-$12.50 would be bullish and could lead to a run to the mid-teens.
We recommended buying Exact Sciences at $13.55 on 6/11/13. On 7/11/13 we sold the August 15 calls for 55 cents that lowered our cost basis to $13.
On 9/10/13 we sold the October 14 calls for 60 cents that lowered our cost basis to $12.40.
Trades on HOLD (7): DryShips (DRYS), AKS Steel Holding (AKS), Rambus (RMBS), Bebe Stores (BEBE), Vivus (VVUS, $9.74, down $0.10), Dendreon (DNDN, $3.32, down $0.06)
Special Notice: We are closing Rare Element Resources (REE, $1.20, down $0.09) on Monday’s open as part of our yearend tax strategy. This was one of our very early picks when we started the newsletter 3 years ago and there has been no life in this stock since we added it. It was a speculative play and we got caught up in the hype of rare earth minerals instead of looking at the company’s book more closely. We still like all of our other trades and we may average down a few of them this week or next.
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5. Week Ahead
Here is a chart of the events for the week ahead:
