MomentumOptionsTrading.com Weekly Wrap for 10/27/13
11:30pm (EST)
1. Market Summary
2. WhiteWave Foods Company (WWAV) Could be a Wave to Ride
3. Earnings
4. Weekly Wrap Portfolio Update
5. Week Ahead
(We apologize for the later than usual delivery tonight but we had a ton of research to do to reaffirm our price targets. 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
“The zombies quickly headed for the exits last Wednesday after their “vacation” was delayed by 72 hours. They had dragged their feet to get a bill passed before America turned into a pumpkin as they took one last round of jabs at attacking each other before they agreed to kick the can down the road into January. The zombies technically did not set a new debt limit and essentially decided to “suspend” the debt limit until the first week of February. They promised to talk about a budget by mid-December but don’t expand your lung capacity waiting for that to happen.
The Dow fell 1,000 points during the 2011 squabble over the debt ceiling and this time around was no different. The Christmas rally will be important to watch this year as it will give us a goof clue ahead of January on which way the market is perceiving things. Remember, the historic “Santa Claus” rally doesn’t start until after Christmas so file this in the memory bank as it will be a good tell. For now, we will leave things there with the zombie talk as we are glad it is over for now. We hate writing about politics but it does affect the market.
For the traders that were betting on a pullback, they were burned by the deal and better-than-expected numbers from a number of heavy hitters. We covered Google’s (GOOG, $1,011.41, up $122.61) massive move (and how $1,000 could have been turned into $20,000 with call options) as well as some of the other big names and this week the floodgates open. We have profiled up to 20 earnings trades for this week and trying to pick the best 5 was hard. We will cover some of them in the Daily and Weekly but there is no way we will take all of them and further research is needed on some of them.
Apple (AAPL, $508.89, up $4.39) doesn’t report earnings until next week and shares have been under pressure for much of the year so we wanted to talk about them this week following the break above $500 again. The volatility has caused an endless debate from Wall Street to Main Street on if shares are undervalued or overvalued. We use both fundamental and technical analysis in predicting a stock’s possible future move and the chart has turned favorable for Apple in our opinion.
Shares cleared $500 for the first time since early September on Wednesday and the run has been perfectly telegraphed by the recent golden crosses.The blue line on the chart is the 50-day MA, currently at $487.62. The green line on the chart shows the 100-day MA turning up and is currently at $458.76. The red line is the 200-day MA that is showing a downtrend and is currently at $451.49.
A golden cross forms when a shorter-term moving average (MA) crosses above a longer-term moving average. This is considered a bullish sign because the shorter-term MA reflects the most recent price action relative to the longer-term MA. Obviously, the bigger the difference in MA’s the better but having 2 or 3 can be used for confirmation of a continued uptrend.
A “classic” golden cross signal is when the 50-day MA crosses above the 200-day MA and from the Apple chart below (red circle) you can see where this occurred in early September. A second golden cross has also formed as you can see where the 100-day MA has crossed over the 200-day MA.
Our chart work is showing a run to $550 is in the works and if it is, Tech should trigger 4,000 this week or next. Apple will be holding an “event” this week so expect some new product news. We doubt a watch or TV will be rolled out but if they are, shares will explode higher.
We mentioned earlier the bulls finally got a Monday win after 4-straight losses and have won the past 2 Fridays and 4-out-of-the-last-5. Monday’s win was a good clue the market would have a good week and with Friday’s up close, the trend is higher.
We believe the last 9 trading days of the month will be bullish if the market can get off to a good start on Monday. If there is a pullback but small in nature, that would be okay as the indexes could see a little choppiness to start the week following last week’s surge to new highs. The bulls appear as though they will push higher highs and we have great clues and downside targets to watch for and to confirm a top is in if they start coming into play on a pullback.” (from 10/20/2013 Weekly Wrap…)
The market started the week with a mixed session as the blue-chips had another down Monday along with the small-caps, but not by much, with Tech and the broader-market showing some strength. Most of the suit-and-ties were calling for a pullback following the prior week’s high so the action was favorable and lead to Tuesday’s rally which again set new all-time highs despite a weaker-than-expected Nonfarm Payrolls report. The “official” unemployment rate dropped to 7.2% as August numbers were revised but we often mention the real rate of unemployment in our great country is north of 15%.
There was a little weakness in Tuesday’s session as Tech and the small-caps danced in the red briefly and were good clues for Wednesday’s pullback as the market fell 0.5%, on average. The good news for the bulls was that they held support and rebounded on Thursday to push resistance. Friday’s session was a little choppy as the bears tried to get back to even following an opening pop from the Tech sector but the bulls pushed weekly highs right into the close to keep their momentum going. (continued…)
The Dow added 61 points, or 0.4%, to close at 15,570 on Friday. The blue-chips made a run at 15,410 to start the week before slipping to a low of 15,362 shortly after the open. Near-term support at 15,350 held and the Dow only fell 7 points by the close. Tuesday’s run to 15,518 was bullish as the close above 15,400 kept 15,600 in play. Wednesday’s back test to 15,350 also ended with a close above 15,400 and Thursday’s high reached 15,528 with a close at 15,509. The 52-week high is at 15,709 and could trigger this week or next if 15,500-15,350 holds. If so, expect a run to 15,800-16,000 that could signal the top before a possible pullback. For the week, the Dow gained 171 points, or 1.1%, after starting at 15,399. For the year, the blue-chips are up 2,467 points, or 18.8%.
The S&P 500 advanced 7 points, or 0.4%, to finish at 1,759.77. The S&P was flat to start the week after trading in a 7-point range and making a run to 1,747 and a low of 1,040. The index traded to a high of 1,747 and we mentioned if cleared it would get 1,775-1,800 in the mix. Tuesday’s peak at 1,759 ended with a close at 1,754 but Wednesday’s 8-point pullback kept 1,725 in play as the index ended at 1,746 but it was a higher low than Monday’s close. Thursday’s pop back above 1,750 to 1,752 was kept 1,775-1,800 in play and Friday’s high reached 1,759.82. We mentioned a close above 1,760 would be bullish for a continued run into this week. This could be close enough but a drop below 1,750 and then 1,740 would be bearish. The S&P 500 came into Monday’s session at 1,744 and was higher by 15 points, or 0.9%, for the week. Year-to-date, the index has rocked 334 points, or 23.4%.
The Nasdaq popped 14 points, or 0.4%, to finish at 3,943. Tech tested paper-thin support at 3,900 on Monday but finished the session with a 6-point win to 3,920. We mentioned a close above 3,925 should get 3,950-4,000 in play and Tuesday’s run reached 3,947 with the close at 3,929. Wednesday’s drop below 3,900 to 3887 worried Wall Street but the bulls held support by the close. Thursday’s high reached 3,932 and the close above 3,925 was key as Friday’s peak reached 3,961. Needless to say, the talking heads were behind us in calling for Nasdaq 4,000 after being bearish all week and throwing in the towel. The Nasdaq began the week at 3,914 and jumped 29 points, or 0.7%, by Friday’s close. For 2013, Tech has tacked on 910 points, or 30.6%.
The Russell 2000 slipped a half-point, or 0.04%, to end at 1,118 on Friday. The small-caps ended Monday’s session with a 2-point loss after testing 1,117. We mentioned undefined resistance stood at 1,125 and Tuesday’s high reached 1,121 before Wednesday’s test down to 1,105. Support at 1,100 held with the close coming at 1,110. Thursday’s surge back to 1,120 and close at 1,118 still kept 1,150 in play on a close above 1,125. Friday’s high reached 1,121.92. The Russell 2000 was at 1,114 before Monday’s open and was up 4 points, or 0.3%, for the week. YTD, the small-caps are higher by 264 points, or 31.7%.
The S&P 500 Volatility Index ($VIX, 13.09, down0.11) came into the week at 13.04 and we said not to flinch on a pullback in the market until 15 tripped. The VIX started the week slightly higher and reached a peak of 14.21 on Wednesday during the pullback to support on the S&P. The close below 13.50 at 13.42 was a good clue a rebound would come on Thursday and Friday’s low reached 13.08. The 52-week low is at 11.05. We are expecting a close below 12.50 this week and like we said, don’t get bearish, or “nervous”, until 15 trips on the VIX.
There were a lot of bullish developments that confirmed the market would continue its push towards new highs despite a mini-trading range and continued calls for a pullback by the market pros. Of course, we weren’t in that camp as our charts were still showing upside potential as long as fresh support levels held that served as prior resistance.
The back tests on the indexes and the VIX were great clues the bulls would be heading to higher ground but we also got confirmation from other sectors to reaffirm the move. We mentioned last week a breakout to new highs could last through October and into November so it was good to see the Dow Jones Transportation Average join the party.
One of the Dow Theories of technical analysis is that the Transports should mirror the blue-chips rise to new highs to confirm the uptrend. Although the Transports have reached new highs while the Dow hasn’t, they don’t have to reach new highs simultaneously to confirm the uptrend. However, the less time in between the new highs it takes for the Dow to catch up, the stronger the signal.
The 52-week high for the Dow is 15,709 and is 139 points away, or less than 1%. This is one trading day so ideally it would very bullish if the Dow cleared this level to start the week, especially on a Monday.
Apple (AAPL, $525.96, down $5.95) shares came into the week just south of $509 and peaked just north of $533 on Friday. We mentioned last week a run to $550 could be coming and with the company reporting earnings after the close on Monday, we said on Friday the stock could be north of $575 or south of $475 based on a 10% move.
There are 47 Wall Street analysts that follow the company and expectations are for the company to report a profit of $7.93 a share on revenue of $36.84 billion, on average. The high estimate is $8.49 a share with a low estimate of $7.23. Apple has beaten estimates the last 3 quarters but missed a year ago during this time frame.
We think the momentum is there for shares to rally on an earnings beat of $8.50 or more and while that could be a lot to ask, Apple typically sandbags their quarterly numbers and we believe sales in China will come in much better than anticipated.
Apple is also gaining market share with its iRadio and recently released a number of new products. Although there was no watch announcement, the hiring of Angela Ahrendts, former CEO of Burberry, is a good indication one is coming. She won’t be joining Apple until early next year but with Buffet’s recent comments on management, these were good clues Apple is getting its house in order as it gears up to take on Samsung and Google.
Shares of Apple will weigh on Tech during Tuesday’s session and could be the wild card that helps push the Nasdaq past 4,000. Of course, an earnings miss it could have the same major impact and if shares fall below $500 its likely the Nasdaq will test 3,900.
Facebook (FB, $51.95, down $0.49) will be announcing their numbers on Wednesday and will also have an influence on the market. Shares have made an incredible rebound since bottoming in the mid-teens and have rewarded the patient investors who bought even after the IPO.
This quarter could be one of the most important quarters for Facebook as Wall Street will want to see continued mobile ad growth. If they can top estimates of 18 cents on revenue of $1.87 billion then shares could soar. However, they not only need to beat estimates, they need to smash them. A profit of $0.22 a share or more and revenue of over $2 billion could push shares towards $60. A disappointing quarter or a lowered outlook could easily hammer shares back below $50 and down to $47.50.
The Fed news midweek will also be a market-moving event as the talking heads bring back the taper talk. We have been on record since May saying the Fed wouldn’t taper until December at the earliest but that could now get pushed out until next March. The wording in their policy statement will be key and the devil will be in the details but if the market sees QE lasting into 2014, the bulls could push continued new highs. If the taper tap dance is indicated to be coming to an end sooner than later then the market could take a hit.
The zombie shutdown has caused some of the recent economic data to come in late and incomplete and the Fed usually relies on these numbers to make their statements. A muddy or cloudy picture will likely keep the printing presses on and with another zombie battle slated for January the Fed isn’t easing anytime soon.
The Monday/ Friday closes on the Dow were mostly positive although there was a slight dip in the blue-chips on Monday. If the Dow can start the week on a positive note and if Apple says some good things then we expect the upper channels of our charts for the indexes to get tested throughout the week with a flat Friday. A lower Monday, a weak Apple and Facebook report(s), a rising VIX, a break in support levels, and a lower Friday will be clues a possible top is in.
As we head to press, futures look like this: Dow futures are up 64 points to 15,561 while the S&P 500 futures are higher by 7 points to 1,760. The Nasdaq 100 futures are advancing 14 points to 3,388.
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2. WhiteWave Foods Company (WWAV) Could be a Wave to Ride
By Michael Bryant
Spin-offs could lead to value plays and WhiteWave Foods Company (WWAV, $20.12, up $0.11) could be one of these value plays.
White Wave was founded in September, 1977, by Steve Demos in Boulder, Colorado. Born on April 24, 1949 in Philadelphia, Demos attended Bowling Green University in Ohio, majoring in political science and philosophy. After graduating in 1970, he tried tofu for the first time on a trip with a friend, found it to be a good source of protein, and liked the flavor. In 1971, he became a vegetarian, and in 1972, he started to learn Buddhism. In 1976, he thought of opening a tofu shop while serving tofu in a commercial kitchen. Though he had no money, he started tofu company White Wave after receiving a $2,000 loan from talented architect and builder Anton Rogers, who he met in 1977.
At first, he and his cooks worked on little pay. White Wave was setup as a sole proprietorship in a 300 square foot rented quarters at 1738 Pearl Street in Boulder, Colorado. The front one-third of the shop was used for a retail deli and the back two-thirds for food production. Starting with only three products (Nigari Tofu, Black Walnut Mushroom Tofu, and Lemon Herb Tofu), it soon expanded into making sandwiches, which led to salads, drinks, pies, cakes, and muffins. By 1978, it introduced plain, honey-sweetened, and carob-maple soymilk. The soymilk was also used to make Coconut Cream Pie and Tofu-Agar Pies filled with various fruits. Before long, it was making a host of tofu deli products, including tofu pizza, Mexican entrees, and tofu dogs. To help attract customers, the deli also sold many unknown foods including 10-15 varieties of Japanese and American miso. Later that year, it began distributing a number of its most popular products to other retailers. The tofu manufacturing business was booming, and Polar Bean soy ice cream was a hit.
White Wave changed its structure to a partnership in 1978. A year later, it started making tempeh, a soy product made by partially cooking the beans and then pressing them into a patty. And a year after that, it changed its structure again from a partnership to a corporation with 6 stockholders. In 1981, the deli business, which was time-consuming and far less profitable (if it made a profit at all) than the tofu manufacturing business, was closed. By 1984, it became America’s second largest tempeh producer, making 5,850 pounds a week. That same year, it produced 10,000 pounds of tofu and became a regional company, shipping tofu via many distributors in Chicago, Detroit, Dallas, Salt Lake City, and Phoenix.
When White Wave was struck with a crisis in late 1984, where it lost $60,000 in six months, Demos laid off all managers who were not producing day-to-day results. He then compromised with creditors to allow the company to pay off its debts over a one year period instead of declaring bankruptcy. All creditors agreed to this plan. By mid-1986, the debts had been paid off.
Later that year, White Wave bought Soyfoods Unlimited, the third largest tempeh manufacturer in America. Soyfoods became a wholly owned subsidiary, and White Wave signed a supply agreement with Soyfoods. By the fall of 1987, White Wave became the biggest tempeh manufacturer in America.
Tofu production was also strong, averaging 15,000 pounds a week in mid-1987. A priority was the plan to pasteurize the tofu to give longer shelf life. After several years of selling tofu vacuum packed in a box, White Wave introduced a water pack without the box for the Asian-American market and some of the Caucasian market, since they are not used to vacuum pack, and they prefer softer tofu, which cannot be vacuum packed.
In 2002, White Wave was sold to Dean Foods (DF) for just under $300 million. Dean Foods had also acquired the International Delight brand, which sold the first flavored non-dairy liquid coffee creamer marketed in the United States, in 1997. In 2002, Dean Foods entered into an expanded licensing arrangement with Land O’Lakes Incorporated to use the LAND O’LAKES brand across the United States for value-added milk and cultured dairy products. In 2004, Dean Foods completed the acquisition of Horizon Organic Holding, owner of the Horizon Organic brand of organic milk and dairy products. In 2004, Dean Foods consolidated all these brands into WhiteWave Foods Operating Company. In 2009, WhiteWave acquired Alpro, a leader in plant-based foods and beverages in Europe. Alpro also owned Provamel, a leading brand of organic soy-based products distributed in European health food stores.
On October 26, 2012, Dean Foods completed an initial public offering of 23 million Class A shares of WhiteWave at a price of $17.00 per share, above the expected range of $14 to $16 a share, and raising $391 million. The stock began trading on the New York Stock Exchange under the ticker WWAV at $19 per share, 12% above the IPO price. But the stock ended the day at $16.75. Following the IPO, Dean Foods will own at least 80% of The WhiteWave’s common stock. Dean Foods intends to distribute its remaining interest in WhiteWave to shareholders in a tax-free distribution.
This distribution took place on May 23, 2013, where Dean Foods spun off most of its remaining stake in WhiteWave by offering 47,686,000 Class A shares and 67,914,000 Class B shares to shareholders of record as of May 17. Dean Foods kept 34.4 million Class A shares, nearly a 19.9% stake in WhiteWave. But instead of distributing shares, it decided to sell them in the open market and distribute the cash to shareholders. Then on July 17th, Dean Foods sold nearly 29.9 million Class A shares in a public offering price of $17.75 per share. This left Dean Foods with 4.5 million shares of WhiteWave remaining.
European sales did not change from 2011 to 2012, while North American sales grew. We can probably expect the same result in 2013.
On October 1st, the Russell 3000 component was identified as having a larger market cap than the lower end of the S&P 500. This is a bullish sign, since if the S&P 500 does include the stock, then fund managers who track the index will be forced to buy the stock.
The company reports 3rd quarter earnings on Thursday, November 7th before the bell. Analysts estimate the company will earn $0.18 per share on $633.13 million. As shown in the graphs below, analysts’ revenue estimates seem easily attainable from previous quarter. But earning estimates may fall short.
European sales did not change from 2011 to 2012, while North American sales grew. We can probably expect the same result in 2013.
On October 1st, the Russell 3000 component was identified as having a larger market cap than the lower end of the S&P 500. This is a bullish sign, since if the S&P 500 does include the stock, then fund managers who track the index will be forced to buy the stock.
The company reports 3rd quarter earnings on Thursday, November 7th before the bell. Analysts estimate the company will earn $0.18 per share on $633.13 million. As shown in the graphs below, analysts’ revenue estimates seem easily attainable from previous quarter. But earning estimates may fall short.
The company competes with Kraft (KFT) and General Mills (GIS) as well as grocery stores that sell their own brands of milk and dairy products. But its only two closest pure-play competitors are Danone (DANOY) and Lifeway Foods (LWAY).
At $19.26, the stock almost halfway between its low target of $17.00 and its median target of $22.00 made by the 9 analysts recorded by Thomson/First Call. Mean target is $21.22, and high target is $25.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.3, unchanged from a week ago.
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Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
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Strong Buy |
3 |
3 |
3 |
2 |
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Buy |
5 |
5 |
5 |
4 |
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Hold |
5 |
5 |
4 |
4 |
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Underperform |
0 |
0 |
0 |
0 |
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Sell |
0 |
0 |
0 |
0 |
We will wait until after the earnings report to see where shares settle before thinking about an investment but we do like the company’s product mix.
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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 10/25/13 close)
By Catherine Tierney
Monday
Apple (AAPL), ADVS, ADC, ARE, AVD, AWI, APAM, ARP, BOH, BHLB, BIIB, BWP, BKW, CGI, CYOU, CHE, CHFC, CHMG, CNA, CNO, CGNX, CMP, CEB, CR, CTS, DENN, DCOM, DM, DRC, DCO, EDR, EEQ, EPIQ, FDEF, FLIC, FMC, GBL, GGP, GSE, HAE, HLIT, HIG, HLS, HTZ, IPHS, IART, JLL, KAMN, KRC, KEX, LINN, L, MAC, MIC, MRLN, MAS, MELI, MRK, MSTR, NEU, NTRI, OII, PRE, PRK, PCL, PMCS, PPS, PSB, PMD, RBC, RGA, RNO, ROP, RTI, SAFT, SANM, STX, SIGA, SOHU, SMP, SXI, TEN, TWI, UNS, WTM
Extra Space Storage (EXR, $48.65, up $0.44)
December 50 calls (EXR131221C00050000, $0.90, up $0.15)
Thoughts: Shares are pushing 52-week peaks and the company has beaten estimates the last 2 quarters.
Herbalife (HLF, $66.37, down $1.22)
November 70 calls (HLF131116C00070000, $2.50, down $0.70)
November 60 puts (HLF131116P00060000, $2.25, up $0.15)
Thoughts: These options are a little pricey to play as a strangle trade and as a directional trade. Shares could surge past $70 or drop below $60 based on earnings.
ViroPharma (VPHM, $39.12, up $0.08)
November 45 calls (VPHM131116C00045000, $0.50, down $0.05)
Thoughts: A lottery play on a chance shares soar on earnings.
Tuesday
3D Systems (DDD, $58.64, up $0.94), ACHC, ACT, AFL, APD, ALR, AGN, AFG, AMP, AME, ANAN, ADM, Baidu (BIDU), BGFV, BBOX, BXP, BWLD, CBT, CAP, CALX, CRS, CRUS, CLD, CVD, CRY, CMI, XRAY, DLR, DIN, DWA, ECL, EA, ETR, FIS, FSP, FDP, GK, GNW, GABC, GILD, GOV, LOPE, HGR, HCC, HCP, ICON, ISIS, IVR, JBLU, JCI, KIM, LLL, LBY, LifeLock (LOCK, $14.14, up $0.04), LinkedIn (LNKD, $240.70, down $2.59), LYB, MX, MDC, NCI, OXY, GLT, PCAR, PAG, PFE, PLT, KWR, QCOR, RRC, REMY, RYL, SNH, SFLY, SolarWinds (SWI), SONS, TTWO, SKT, TECH, GT, TGI, ULTI, VLO, VSH, Waste Management (WM, $43.75, up $0.38), Western Union (WU), YELP
Aetna (AET, $61.82, up $0.12)
November 65 calls (AET131116C00065000, $0.45, down $0.05)
Thoughts: These calls could do well if Aetna meats estimates.
Chicago Bridge & Iron ($74.62, up $0.18)
November 77.50 calls (CBI131116C000775000, $0.80, down $0.05)
Thoughts: We are expecting a strong quarter for CBI this week and this is one of our favorite plays as an official recommendation for our Daily.
Wednesday
ACCO, GAS, AMT, ATR, ARRS, ADP, CAR, BYI, RATE, BDC, BAH, Boston Beer (SAM, $243.25, down $1.25), CDI, CPF, CHDN, CHUY, COHR, FIX, CSC, GLW, DXPE, BOOM, EEP, EGN, EXPE, Facebook (FB, $51.95, down $0.45), GRMN, GM, HBI, HVT, HPY, H, IPI, JDSU, JNY, KS, KONA, LVLT, MAR, MET, MUR, OIS, PKI, PCG, PX, PL, RCKY, ROVI, Ruckus Wireless (RKUS, $16.19, down $0.45), SEE, SKUL, SodaStream (SODA, $60.06, up $0.04), S, SAVE, STE, Taser (TASR, $15.09, down $0.26), TFX, THOR, TOWR, V, VNR, WLT, WEX, WMB, XL
Crocs (CROX, $13.68, up $0.01)
November 13 puts (CROX131116P00013000, $0.45, flat)
Thoughts: The company missed earnings last time out with shares tanking from $16.98 to $13.55.
Thursday
ACOR , AAP, ABC, AHS, CAH, CI, CLX, COP, DRII, BAGL, EPD, EPL, ERIE, EL, FFG, FRT, XOM, FSLR, GPX, HTSI, HSH, HME, IMMR, I, IRM, ITT, JRN, KRG, KOG, LECO, MPC, MA, MOD, MHK, MYL, NEM, NI, NU, OHI, OSK, PRGO, PSA, PWR, Q, Steve Madden (SHOO, $35.00, down $0.04), TWC, WRI, WNR, WWE
Catamaran (CTRX, $49.10, down $0.65)
November 52.50 calls (CTRX131116C00052500, $0.65, down $0.30)
Thoughts: These calls could be active this week as traders position for a possible push past $50.
Beam (BEAM, $68.65, up $0.47)
November 72.50 calls (BEAM131116C00072500, $0.55, up $0.05)
Thoughts: We have been bullish on this name in the past.
Pilgrim’s Pride (PPD, $14.45, up $0.06)
December 17.50 calls (PPD131221C00017500, $0.55, up$0.05)
Thoughts: The option pits have been active in this name.
Friday
AXL, BLT, BPL, CBM, CBOE, CDW, CVX, CHD, CTB, DW, NPO, XLS, GWR, GEL, HEES, MSG, NEE, NRF, OXM, PNM, RRD, RUTH, SHEN, SUP, UPL, WCG
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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 10/25/13)
Our Weekly Wrap Closed Trade Track Record for 2013 is 40-4 (84-6, overall since the start of 2011)
Special Notice: Opko Health (OPK, $11.60, down $0.xx) took a hit at the beginning of the week and we were stooped out of the other half of our March 10 calls (OPK140322C00010000, $2.50, down $xxx) LEAP options for a 213% win.
Millennial Media (MM, $6.95, up $0.12) Stock Trade
Original Entry Price: $6.95 (10/25/13)
Lowered Price from Selling Options: $6.95
Exit Target: $14
Return: 0%
Stop Target: $5
February 10 calls (MM140222C00010000, $0.50, up $0.05) LEAP Option
Original Entry Price: $0.50 (10/25/13)
Exit Target: $1.00
Return: 0%
Stop Target: None
Action: A close above $7 could be bullish for a near-term run up to $7.25-$7.50. Support is at $6.75-$6.50.
Here was our write-up on Friday:
Shares are heavily discounted following the company’s IPO in late March 2012. The stock opened at $25 and reached $27.90 before closing at $24 on its first day of trading. It has been all downhill since the debut as shares tested $10 six weeks later. The recent low of $5.87 was touched in early April and shares appear to have bottomed.
The company is a big player in the mobile ad space and is turning the corner on profits. Shares are down 75% from their IPO and we feel as though double-digit prices are just around the corner. The 6 analysts that follow the stock have pegged Millennial losing a penny a share or profiting as high as 11 cents a share. The average estimates is 4 cents.
If earnings come in north of 4 pennies, shares should get a lify of 5%-7% but if they come in at 12 cents or better the stock could zoom 10%-20%. Earnings are due out in mi-November.
Boston Scientific (BSX, $11.62, up $0.08)
Original Entry Price: $12.29 (10/21/13)
Lowered Price from Selling Options: $12.29
Exit Target: $15
Return: -5%
Stop Target: $3
January 13 calls (BSX140118C00013000, $0.20, flat)
Original Entry Price: $0.45 (10/21/13)
Exit Target: $1.35
Return: -56%
Stop Target: None
Action: Our homework was spot on as the company reported a great quarter with earnings coming in at 17 cents a share versus estimates for 9 cents a share. Revenue of $1.74 billion topped forecasts for $1.73 billion. The company also said Q4 numbers would come in at 18-20 cents a share versus expectations for 13 cents and full year numbers of 70 cents a share versus expectation for 44 cents a share.
Of course this really doesn’t matter as shares are getting spanked. It could be because their CFO is “transitioning” out of the role but these were fantastic numbers and why trading earnings can be frustrating. Wells Fargo came out and said today’s weakness is a buying opportunity. Duh.
The 50-day MA is at $11.60 and shares closed above this level on Friday. The 20-day MA is at $11.92 and a move back above $12 would be bullish. Support is at $11.25 and a close below $11 would be bearish.
Pizza Inn Holdings (PZZI, $8.42, down $0.27) Stock Trade
Original Entry Price: $8.10 (10/11/13)
Lowered Price from Selling Options/ Dividends: No options available
Exit Target: $12+
Return: 4%
Stop Target: $9
Action: Shares surged 6% to start the week to close at $8.47. Shares traded up to $8.70 midweek after making a back test to $8 but tested the highs the rest of the week. A close above $8.75 could lead to a run to $10 over the near-term. Support is at $8 with backup at $7.50. The company has over 100 Pie Five stores that are slated to open into 2014 and we love this stock as a long-term core holding. We haven’t tried their pizza yet and we plan to once the company gets its stores open in Richmond or Baltimore. If you have been into a store or have tried their grub, send us email and let us know your thoughts.
Aruba Networks (ARUN, $18.28, down $0.19) LEAP Option Trade
January 20 calls (ARUN140118C00020000, $0.90. down $0.10)
Original Entry Price: $1.45 (10/11/13)
Exit Target: $2.90
Return: -38%
Stop Target: $0.70
Action: Shares touched $18 on Friday and there is further risk to $17 and the 100-day MA on a close below this level. A break back above $19 and then $19.50 (200-day MA) would be bullish.
Sonus Networks (SONS, $3.33, down $0.06)
Original Entry Price: $3.73 (9/9/13)
Lowered Price from Selling Options: $3.73
Exit Target: $5
Return: -11%
Stop Target: $3
Action: The symmetrical triangle is pointing towards a breakout past $3.70 or a breakdown below $3.30 when earnings are released on Tuesday.
Krispy Kreme Doughnuts (KKD, $24.00, down $0.54) Short Position
Original Entry Price: $18.92 (9/4/13)
Lowered Price from Selling Options: None
Exit Target: $16
Return: -21%
Stop Target: $24, raise to $26
Action: There is risk up to $25-$26 and we still like this trade. At some point, valuation will matter so we don’t mind holding the trade during a rising tide. A close back below $22 would have us headed in the right direction again.
Galena Biopharma(GALE, $2.23, down $0.04)
Original Entry Price: $2.12 (7/8/13)
Lowered Price from Selling Options: $2.12
Exit Target: $5
Return: 5%
Stop Target: $1
Action: Support is at $2.20 and a close below $2 would be bearish. Resistance is at $2.40 and a move past $2.50 would be bullish.
Exact Sciences (EXAS, $11.09, down $0.05)
Original Entry Price: $13.55 (6/11/13)
Lowered Price from Selling Options: $12.40
Exit Target: $16+
Return: -11%
Stop Target: $10.45
Action: Support will try to hold at $11 and a pop past $11.50 could get $12 back in play again and where we will look to sell another call option.
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 which lowered our cost basis to $12.40.
Trades on HOLD (7): DryShips (DRYS, $2.87, up $0.03), AKS Steel Holding (AKS, $4.27, up $0.02), Rare Element Resources (REE, $2.10, down $0.01), Rambus (RMBS, $8.55, down $0.16), Bebe Stores (BEBE, $5.97, up $0.08), Vivus (VVUS, $9.39, down $0.10), Dendreon (DNDN, $2.53, up $0.12)
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5. Week Ahead
Here is a chart of the events for the week ahead:
