MomentumOptionsTrading.com Weekly Wrap for 10/6/13
11:30pm (EST)
1. Market Summary
2. A Closer Look at Phoenix New Media Limited (FENG)
3. Earnings
4. Weekly Wrap Portfolio Update
5. Week Ahead
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1. Market Summary
“Despite all the drama, the market finished mixed for the week but you wouldn’t know it by the headlines. The Dow and S&P 500 are the most widely followed indexes and are close to breaking down while the Nasdaq and Russell 2000 are on the verge of possible breakouts.
Monday is the last day of the month and it has been a September to Remember for the bulls. The Dow is up 448 points or 3% while the S&P 500 is higher by 58 points, or 4%. The Nasdaq has advanced 192 points, or 5%, and the Russell 2000 has jumped 63 points, or 6%.
Tuesday is the start of October and a month known for steep selloffs. Much of the worry last week was over the budget battle that will come down to the wire as the zombies have until midnight Monday to come to an agreement or face a government shutdown.
The House has been working overtime this weekend and voted on Sunday in favor to attach a repeal of the tax on medical devices and to delay the implementation of Obamacare for 1 year.The taxes on medical devices are designed to help pay for Obamacare and the revised legislation also includes a provision that would allow employers and health care providers to opt out of mandatory contraception coverage. The Senate will send the revised bill right back to them on Monday.
We all know where the President stands on the Affordable Care Act, otherwise known as Obamacare. Since he firmly believes this is the best plan for America and with his fingerprints and name all over it, he said on Friday “undoing Obamacare is not going to happen.”
As the House and Senate play musical chairs, the House must remember Obama has to sign any bill passed by them and the Senate. The Republicans have the weaker hand as any bill without Obamacare is going to be vetoed by the President. The Democrats in the Senate only needs 51 votes to block the bills and they control 54 tickets in the chamber. Our best guess is there will be a last minute agreement if the zombies work until the deadline but chances are they won’t.
The start of the week could be volatile depending on the headlines but the back half of the week is just as important with Nonfarm Payrolls due out on Friday. The suit-and-ties are looking for a gain of 180,000 jobs compared to the 169,000 jobs added in August. We correctly predicted there would not be a taper cut in September but believe it or not, there is already talk of “Octaper” when the Fed meets in a month.
If the Nonfarm Payrolls come in above expectations the taper talk will once again heat up but until the Fed sees sustained job growth above 200,000 a month, they will not consider changing policy.
One sector that will sway direction in the coming weeks, along with upcoming 3Q earnings, is the Financial stocks. The sector has been in a downtrend and the bulls will need them to hold support and rebound. The bears are looking for a continued breakdown.
The Financials Select Sector Spiders (XLF, $20.05, down $0.08) came close to topping their July high of $20.93 but have fallen below the 50-day and 20-day MA’s since the mid-September peak of $20.82.There is risk down to $19.75 and the 100-day MA and as long as the uptrend holds there could be a bullish trade going forward. If there is a breakdown below $19.75, it would suggest a shorting opportunity to $18.75 and the 200-day MA.
We often talk about the Monday/ Friday closes and after positive closes in early September, the past 3 M/F finishes have been nasty for the Dow. The bulls will need to get off to a good start this Monday or there could be a further weakness ahead.
We doubt the zombies come to an agreement before Wall Street closes so the chance for a lower start to the week is there. It will also be the last day of the month so expect some “window dressing” from the fund managers that will want to lock-in winners. Friday is Nonfarm Payrolls and the news could have a major impact on the market. Good or bad.” (from 9/29/2013 Weekly Wrap…)
The cat-and-mouse, dog-and-pony show kicked into high gear last week as the government officially shut down for the first time in 17 years, the war of words between the zombies weighed on the market throughout the week with the recent trading range getting “stretched”. The bears did some damage as they tested another wave of support but like we mentioned last week, the small-caps and Tech were showing strength and managed to trigger new highs.
The Dow and S&P finished the week lower while the Nasdaq and Russell 2000 posted gains. This will be the last week for the zombies to jockey for position because the following week will become a came of chicken and cheeks if there is no resolution to the government debacle. With 3Q earnings starting up, delayed economic reports, and hurricane season approaching, not to mention it is October, there will be plenty of “other” news to follow to take away from the circus in DC. (continued…)
The Dow added 76 points, or 0.5%, to close at 15,072 on Friday. The blue-chips started the week with a dip below their 50-day and 100-day MA’s to 15,086. We mentioned a break below 15,200 would lead to a test to 15,000 and possibly 14,800. There was a back test to 15,200 on Tuesday with the peak at 15,208 but Wednesday’s low reached 15,044 before the index held 15,100 by the close. This level served as a buffer before Thursday’s free-fall to 14,947 and close at 14,996. Friday’s rebound was good for the bulls but they will need to clear 15,250-15,300 to regain the momentum. There is risk down to 14,600 and the 200-day MA if 14,800 fails to hold. For the week, the Dow fell 185 points, or 1.2%, after starting at 15,258. For the year, the blue-chips are higher by 1,969 points, or 15%.
The S&P 500 gained a dozen points, or 0.7%, to settle at 1,690. We said to watch the 1,675 level to start the week following the failure to hold 1,700 the previous week. Monday’s low reached 1,674.99 before a close of 1,681. Tuesday’s rebound reached a peak of 1,696 and the close at 1,695 was slightly bullish but another failed test at resistance and 1,700 set the stage for Wednesday’s drop to 1,680 and Thursday’s test to 1,670. The index held the 50-day MA on each close and Friday’s rebound bought some breathing room. However, another test below 1,675 could lead to a test of the 100-day MA, or 1,650. A close above 1,700 would be bullish but we would wait for 1,710 to confirm a trend change. The S&P 500 came into Monday’s session at 1,691 and slipped a point, or 0.1%, for the week. Year-to-date, the index is up 265 points, or 18.5%.
The Nasdaq advanced 33 points, or 0.9%, to end at 3,807. Tech needed to hold 3,775 to start the week or faced risk down to 3,750-3,725. Monday’s open of 3,737 split the middle with the low checking in at 3,734. The index held 3,750 with the close of 3,771 and the rebound led to Tuesday’s surge past 3,800 to 3,817.98. Wednesday’s peak reached 3,819 before Thursday’s plunge to 3,753. The close at 3,774 was bullish as support at 3,750 held and Friday’s high reached 3,812. We have said if the bulls can hold this level there could be a fluff run to 4,000. A close below 3,750 could lead to a tumble to 3,700 and the 50-day MA. The Nasdaq began the week at 3,781 and gained 26 points, or 0.7%, by Friday’s close. For 2013, Tech has advanced 774 points, or 26.1%.
The Russell 2000 jumped 7 points, or 0.7%, to finish at 1,078 on Friday. The small-caps faced risk down to 1,050 following the previous Friday’s close below 1,075. Monday’s open at 1,065 led to a low of 1,061 before a half-point loss to 1,073.79. This set up Tuesday’s run to all-time highs of 1,087 and got our 1,100 fluff target in play. There was no follow through on Wednesday as the index gave back 5 points before Thursday’s dip down to 1,064 and close at 1,070. Friday’s high was 1,080. We have been warning a print below 1,050 and the 50-day MA would be bearish. Anything below 1,040 could lead to 1,025-1,000. If the bulls can clear 1,090 a run past 1,100 and up to 1,125 could be in the mix by yearend. The Russell 2000 was at 1,074 before Monday’s open and advanced 4 points, or 0.4%, for the week. YTD, the small-caps are higher by 228 points, or 27%.
The S&P 500 Volatility Index ($VIX, 16.74, down 0.93) fell 5% and closed back below the 17.50 level. The previous Friday’s close above 15 was a great clue resistance would be tested and the VIX kissed 17.49 on Monday before ending at 16.60. This gave traders an extra day’s warning as the VIX tried to get below 15 with Tuesday’s test to 15.47. Wednesday’s close at 16.60 was a sign 17.50 would come into play again and Thursday’s high checked-in at 18.71 before the close at 17.67. A close above 20 has the potential to shock Wall Street for a ride up to 30 if 22-23 fails on an overshoot and panic comes into play. The bulls will be looking to get the VIX back below 15 and the 100-day MA to start the week. A close below 14.50 and the 50-day and 200-day MA’s could signal another run to new highs on the S&P that could push 1,725-1,750 if the low teens come back into play.
There always seems to be calm before a big storm and last week’s market action felt that way despite the choppy waters the market is in. The Dow and S&P 500 continue to fold like cheap lawn chairs while the Nasdaq (Tech) and the Russell 2000 (Small Caps) hit new 13-year and all-time highs.
The Nasdaq made good on our outlook it would trip 3,800 this year and now joins the S&P 500 and the Russell 2000 in nailing our 2013 targets from early February. The Dow is the last holdout and will need to reach 16,000 by the end of December to make us a perfect 4 for 4.
Besides the current drama that is still unfolding with the zombie shutdown, the next big catalyst that could have a profound effect on the market and our yearend targets are upcoming earnings. The start of 3Q earnings season is finally here and it is great news as it will add to the current volatility. Even better, we finally have a new kicker!
After years of being the “official” Dow component to kick-off earnings season, Alcoa (AA, $7.96, up $0.10) was booted from the index last month and no longer carries that title. The first Dow component to report earnings this week will be JPMorgan Chase ($57.67, up $0.73) and we are officially giving them the crown although they won’t report until Friday. Alcoa reports earnings on Tuesday and is now considered preseason ball.
The recent additions of Nike (NKE, $72.14, up $0.50), Goldman Sachs (GS, $156.55, down$0.30) and Visa (V, $190.48, up $1.83) were perfect stocks to add to the index as they are high-priced momentum traded names. We certainly wouldn’t classify them as “industrial” stocks as a model the Dow Jones Industrial Average was originally created by but these names are classic “blue-chippers”. A rebound and run back to new highs from these stocks would be enough to get the Dow to 16,000 at some point over the next 3 months assuming the rest of the blue-chips follow suit.
The 3 new musketeers could bring some much needed muscle to possibly get the Dow past resistance and towards our-year end target but they will need help if other headlines worsen. Nike recently reported their 1Q earnings and posted another solid quarter that pushed shares to fresh all-time highs. The company is on a fiscal year different from a normal calendar year and why Nike reported in late September. Otherwise, they would be the official kicker for earnings season if they had waited a week.
Goldman and Visa will report their numbers on 10/17 and 10/30, respectively. Both stocks rallied to new 52-week highs after the announcement on September 10th they would be added to the Dow.
Goldman Sachs was just below $160 and reached $170 before officially being added to the Dow a few weeks later. Shares are now below $160 again and could move $15-$20 points based on their results and outlook next week. Note to ourselves; REMEMBER to check the Weekly options for GS next Wednesday as they will be dirt cheap. There will be a lottery play with cheap call and/ or put options that could do very, very well.
Visa was just under $185 and rallied just north of $200 over the same time period. Visa could also be a nice earnings trade using November options. The company reports after the October options expire and we can look to see where shares are at the following week.
Wall Street’s expectations are mostly cautious as the suit-and-ties aren’t expecting blowout numbers. Most analysts are looking for revenue growth to be flat or lower but there are some companies that will pull off better growth than others. It remains to be seen if the healthier companies will be rewarded with a higher stock price or if they will be dragged down by the weaker links.
As we head into the upcoming earnings season, 90 S&P 500 companies have given negative earnings guidance which tops the 88 that warned last quarter. This has knocked the expected growth rate for the just ended quarter down from 6% to under 3% and there could be even more warnings in the weeks ahead.
Companies now have the perfect excuse next to my dog ate my homework. The government shutdown will now be the top dog, uh, excuse to blame for no work getting done.
The Dow experienced another negative Monday, its third-straight and was down 2-straight Friday’s entering the weekend. The 5-session M/F slide came to an end with this past Friday pop and a positive Monday could be bullish signals if there is follow through. We often mention when there are multiple negative Monday/ Friday closes, it usually means money is moving out of the market. Last week, $1.3 billion in worldwide cash left the market while $2 billion was taken off the table in the emerging markets.
This could be a bullish sign as we have seen this movie play out all year when the market appears to be on the verge of a selloff. Each time there has been a powerful snapback rally as investors and the Wall Street pros have missed the train rides higher.
We saved the worst for last because we hate talking politics but it is something we must cover.
Come Monday, the first government shutdown in 17 years will be at day number 6 and is the average length of the past 17 zombie vacations since 1976. While some workers will be returning on Monday, the chances of the current one ending today to make this a nice little statistic are slim and none. Slim left the building last week and if there are “None” breakthroughs this week, October 17 could become the biggest (and saddest) day in American history.
October options expire on the 18th. If the zombies wait until the last minute or after the market closes on October 17, that Friday could be one of the most volatile days in stock market history.
We are still getting great clues from most of the technical indicators we follow on the market’s direction that has allowed us to stay one step ahead of most all year long. There is no need to do anything differently and no reason to panic as we have a number of ways we can profit on a continued breakdown or another break to the upside out of the current 3-week trading range.
Hopefully, cooler heads will prevail this week and the Keystone Kops running our country will come to some type of agreement, resolution, can-kicking, or handshake. If not, it means next week could be one of the biggest events in American history and one that will severely affect Wall Street.
As we head to press, the bulls are once again behind the 8-ball: Dow futures are down 79 points to 14,919 while the S&P 500 futures are lower by 11 points to 1,674. The Nasdaq 100 futures are declining 16 points to 3,218.
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2. A Closer Look at Phoenix New Media Limited (FENG)
By Michael Bryant
The general consensus for inventors is to be cautious when buying the stock of a Chinese company. There have been several fraud cases against Chinese companies, mainly smallcaps that undergo an RTO (reverse takeover). A RTO is a type of merger used by private companies to become publicly traded without resorting to an initial public offering. One of the most famous recent frauds was RINO International. Is Phoenix New Media Limited (FENG, $12.26, up $0.34) also a fraud? Or is the company safe to invest in it?
A wholly owned subsidiary is a company whose common stock is 100% owned by another company, called the parent company. For example, American Broadcasting Company (or ABC) is a wholly owned subsidiary of Walt Disney (DIS). Thus, a non-wholly owned subsidiary is a company whose common stock is not 100% owned by the parent company. VMware (VMW) is a non-wholly owned subsidiary of EMC Corp. (EMC), who owns 80% of VMware. Phoenix New Media is 64.8% owned by Phoenix Satellite.
Founded on March 31, 1996 and based in Hong Kong, Phoenix Satellite Television Holdings is a leading Chinese language satellite TV broadcaster of news, information, and entertainment with six different television channels:
- Phoenix Chinese Channel – a Mandarin Chinese language channel
- Phoenix Movies Channel – a pay-television service in China and worldwide
- Phoenix InfoNews Channel – a 24-hour news channel
- Phoenix North America Chinese Channel (which broadcasts on both EchoStar and DirectTV)
- Phoenix Chinese News and Entertainment Channel (which serves Europe)
- Phoenix Hong Kong Channel – a Cantonese (Yue Chinese) language channel
Their broadcast reaches over 150 countries around the world with an estimated audience of 300 million, about half from Mainland China. The company is 19.9% owned by China Mobile (CHL), while Xing Kong Chuan Mei Group/Fox International Channels Asia, a subsidiary of 21st Century Fox (FOX), owns 17.6%. It spun off the web portal and telecommunications services offered by its subsidiary, Phoenix New Media, on May 11, 2011.
In its initial public offering, Phoenix New Media sold 12.78 million ADSs (American Depositary Shares) on the NYSE at $11 each, below the expected $12 – $14 initial price range, raising $140 million. ADSs offer investors the opportunity to invest in foreign companies without dealing with currency conversions. Each ADS represents eight of the company’s shares as listed in China. The company is not an RTO, so that removes some controversy. The lockup period, the time in which institutional investors or insiders are not allowed to sell shares, ended November 8, 2011. So such investors had a lot of time to sell shares if they wanted to.
Its website (ifeng.com) provides news, finance, entertainment, fashion, military affairs, history, real estate, digital books, and videos. It also provides blogging, micro-blogging, user surveys, comment posting, and discussion forums. Personalized features are available through ucenter.ifeng.com. Its video channel (v.ifeng.com) offers free on-demand online video, live Phoenix TV broadcasts, online subscription video services, and pay-per-view online video service. The video channel also offers mobile subscription and pay-per-view video services, mobile video applications, and video content sales. Its mobile channel (3g.ifeng.com) offers a mobile website and mobile services, including newspaper services, digital books services, digital reading applications, and mobile games services. Users can also share content on its internet site and through its mobile site.
The company makes money by offering paid services such as content subscriptions, pay-per-view videos, and game services. It focuses on delivering premium, high quality content to the affluent and highly educated groups in China. While many media companies focus on appealing to younger generations, it relies on older generations who retain interests in more traditional media sources. Paid service revenues comprised 81.9%, 68.9% and 61.3% of total revenues in 2008, 2009 and 2010, respectively. It also makes money by selling advertising space on its websites, videos, and mobile devices. Net advertising revenues collectively accounted for 18.1%, 31.1% and 38.7% of total revenues in 2008, 2009 and 2010, respectively.
Change in management is seen as a good thing if it brings in more skill to the company. On August 9th, the company announced that Ms. Betty Yip Ho will become its Chief Financial Officer (CFO), on October 8th. Mr. Ya Li will step down as interim CFO on October 8th. Ms. Ho seems very experienced as she has over 20 years of professional experience working for publicly listed companies. She served as CFO and Executive Director for A8 Digital Music Holdings Limited from 2007 to 2011, and CFO for Rock Mobile from 2011 to 2013. This is definitely a positive for the company in the short run.
On August 12th after the bell, the company reported net income jumped 120% to $12.6 million in the 2nd quarter ending in June while sales increased 29% to 364.2 million Yuan ($59.5 million). That exceeded its own forecast of 341 million Yuan given in May. Shares soared 23% to $8.91. For the 3rd quarter, analysts expect revenue of 377.58 million Yuan.
September was a big month for the company. On September 12th, Chief Operating Officer and Acting CFO Mr. Ya Li presented in the 86Research Investor Tour at Four Seasons Hotel in Beijing. Then on September 16th, Mr. Li presented in the Barclays Internet Bus Tour at Crowne Plaza in Zhongguancun technology hub, Beijing. And lastly on September 27th, Mr. Li presented in the Goldman Sachs Investor Tour at the company’s office in Beijing. In all the presentations, he tried to rally institutional investors about the company’s bright future.
The company’s launch of ifeng Mobile Station video application for the iPhone and iPad in Apple’s App Store in 2010 may pay off. China, which last year overtook the U.S. as the world’s biggest smartphone market, is projected to capture 35% of global handsets shipment this year, up from 30% in 2012. That could be big for companies that display mobile ads. Then on September 23rd, Apple reported that it sold a record breaking 9 million iPhone 5S and 5C models over the weekend. This is a big jump from the 5 million iPhone 5 devices Apple sold in three days last year. That is also a lot of potential app downloads.
The company may benefit from a general rally in Chinese stocks. In August, policy makers in China said they will seek “stable and healthy” development of the property market. This caused a rally in Chinese property stocks. Then on September 23rd, Chinese manufacturing activity was reported to have hit a six-month high, easing fears that China’s economy will stall.
The September 30th deadline for government shutdown may not hurt the stock as much as U.S. companies. If Congress does not meet the deadline and the government shuts down, almost all stocks listed on the NYSE will likely fall. If Congress passes something before the deadline preventing a government shutdown, most stocks on the NYSE will likely jump. We expect they will pass something, but it may be best to wait till Tuesday morning to see what Congress does in the hours leading up to midnight on Monday.
The company’s top competitors as content and service providers include NetEase.com (NTES), Sina Corporation (SINA), and Sohu.com (SOHU). NetEase is engaged in online gaming and provides an internet portal, e-mail, and wireless value-added services businesses in China. Sina operates an online brand advertising portal that provides news, sports, business coverage and personal finance columns, entertainment, and video products. It also operates Weibo.com that allows users to share text, photo, video, and music. Its mobile value-added services include news and information, ring tones, mobile games, and pictures. Sohu provides online media, search, gaming, and mobile services in China.
At $12.26, the stock is between its median target of $11.00 and its high target of $13.86 made by the 6 analysts recorded by Thomson/First Call. Mean target is $11.13, and low target is $9.40. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 1.8, unchanged from a week ago.
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|
Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
|
Strong Buy |
1 |
1 |
0 |
0 |
|
Buy |
5 |
4 |
4 |
4 |
|
Hold |
0 |
0 |
1 |
1 |
|
Underperform |
0 |
0 |
0 |
0 |
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Sell |
0 |
0 |
0 |
0 |
We would shy away from making this a covered call trade but there could be an option trade down the road based on a break above resistance or a drop below support.
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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 10/4/13 close)
By Catherine Tierney
Monday
CORR, DRH, HCSG, HTLD, NVR, OFIX, SCIE, TWGP
Tuesday
Alcoa (AA), Yum Brands (YUM, $71.53, up $1.09)
MG, PLUG, WWW,
Wednesday
Cost Wholesale (COST, $114.44, up $0.02), Del Frisco’s Restaurant (DFRG, $19.56, down $0.25), Family Dollar Stores (FDO, $72.55, up $0.21), Fastenal (FAST, $51.26, up $0.27), Zep (ZEP, $16.23, up $0.08)
ADTN, HELE, RPM, VOXX,
Thursday
Safeway (SWY, $31.63, down $0.10)
ANGO, ATNY, HAWK, EOPN, IGTE, LNN, MASC, MU, OCZ, OZRK, VAC
Friday
JPMorgan Chase (JPM, $52.67, up $0.73), Wells Fargo (WFC, $41.30, up $0.30)
JOEZ, ODC, WBS
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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 10/4/13)
Our Weekly Wrap Closed Trade Track Record for 2013 is 34-3 (78-5, overall since the start of 2011)
Opko Health (OPK, $9.97, up $0.18) Covered Call
October 9 calls (OPK131019C00009000, $1.10, up $0.10)
Original Entry Price: $8.34 (9/19/13)
Lowered Price from Selling Options/ Dividends: $8.09
Exit Target: $10+
Return: 23%
Stop Target: $6, raise to $9
March 10 calls (OPK140322C00010000, $1.45, up $0.05) LEAP Option Trade
Original Entry Price: $0.75 (9/19/13)
Exit Target: $1.50, raise to $2.00
Return: 93%
Stop Target: $1.00 (Limit Stop)
Action: Shares were hot last week as they made steady highs and reached a 52-week peak of $10.22 with Thursday’s blast past double-digits. The previous high of $10 was reached at the end of August. Prior resistance at $9 will now try to hold as support if there is a pullback. We will get called away from our stock position if shares remain above $9 by October 18 for a double-digit gain. We will exit our March call options if shares retreat below $9 and trigger our stop limit target. This will lock-in a 33% return if there is a pullback. If shares can clear and hold $10 all week there is a chance $12-$14 comes into play.
We recommended buying Opko Health at $8.34 on 9/19/13 and selling the October 9 calls for 25 cents which lowered our cost basis to $8.09. If we are called away in mid-October at $9 the trade will make 11%.
Vera Bradley (VRA, $20.93, up $0.78) Strangle Option Trade
October 20 calls (VRA131019C00020000, $1.25, up $0.40)
Original Entry Price: $0.80 (9/10/13)
Exit Target: $1.60 (closed at $1.10 on 9/16/2013)
Return: 38%
Stop Target: None
October 17.50 puts (VRA131019P00017500, $0.05, flat)
Original Entry Price: $0.80 (9/10/13)
Exit Target: $1.60
Return: -88%
Stop Target: None
Action: Shares tested $21 and the 50-day MA for the majority of the week and held $20. A break above $22 would be the final nail in the coffin for a comeback on the puts. The losses will be limited to 31% if the put options expire worthless, meaning shares stay above $17.50 by mid-October. The trade is down 28% overall.
Kodiak Oil & Gas (KOG $12.81, up $0.27)
Original Entry Price: $10.80 (9/9/13)
Lowered Price from Selling Options/ Dividends: $10.80
Exit Target: $15
Return: 19%
Stop Target: $11.25, raise to $12.25 (STOP LIMIT)
March 11 calls 2014 (KOG140322C00011000, $2.40, up $0.25)
Original Entry Price: $1.20 (9/9/13)
Exit Target: $2.40
Return: 100%
Stop Target: $1.40, raise to $2.00 (STOP LIMIT)
Action: Shares cleared $12 to start the week and pushed a fresh 52-week high of $12.87 on Friday. The break out of the prior uptrend channel into a higher channel is bullish. Near-term support will now try to hold at $12.50 and we will likely exit these trades if shares drop below $12.25. We have said shares could push the mid-teens when we first got into the trade so we are looking for the momentum to continue. We could take half-profits as well on the March 11 calls on a surge past $13 this week as we are up triple-digits it would make it a risk-free trade moving forward. If we do, we will send out a Trade Alert.
Sonus Networks (SONS, $3.46, up $0.11)
Original Entry Price: $3.73 (9/9/13)
Lowered Price from Selling Options: $3.73
Exit Target: $5
Return: -7%
Stop Target: $3
Action: Shares tried to make a run past resistance at $3.50 with Tuesday’s (and Friday’s) push to $3.48 but the low of $3.31 on Thursday keeps $3.20 in play. A break below the 100-day MA could lead to $3 while a close above $3.50 would be bullish.
Annaly Capital Management (NLY, $11.53, down $0.19)
Original Entry Price: $11.70 (9/6/13)
Lowered Price from Selling Options/ Dividends: $11.35
Exit Target: $15
Return: 2%
Stop Target: $10, raise to $11.40 (Limit Stop)
Action: Support at $11.50 and we have said there is risk down to $11 on a close below this level. The 50-day MA is at $11.39 and our cost basis is $11.35. Resistance is at $12. Just to be safe, we have raised our stop target to $11.40 and have made it a Stop Limit to lock-in a small profit.
Annaly Capital Management (NLY, $11.53, down $0.19)
Original Entry Price: $11.70 (9/6/13)
Lowered Price from Selling Options/ Dividends: $11.35
Exit Target: $15
Return: 2%
Stop Target: $10, raise to $11.40 (Limit Stop)
Action: Support at $11.50 and we have said there is risk down to $11 on a close below this level. The 50-day MA is at $11.39 and our cost basis is $11.35. Resistance is at $12. Just to be safe, we have raised our stop target to $11.40 and have made it a Stop Limit to lock-in a small profit.
A dividend of 35 cents was paid on 9/30/2013 and lowered our cost basis to $11.35.
Krispy Kreme Doughnuts (KKD, $22.68, up $1.50) Short Position
Original Entry Price: $18.92 (9/4/13)
Lowered Price from Selling Options: None
Exit Target: $16
Return: -17%
Stop Target: $22, raise to $24
Action: Krispy Kreme held $19 after testing a low of $19.27 to start the week but kissed $20 by Wednesday. Shares closed just below this level but we said if triggered it could lead to a test to $21-$22. Thursday’s high was $21.21 before Friday’s surge past resistance. We will give the trade wiggle room up to $24 and a close below $22 to start the week and $20 by week’s end would be nice.
NPS Pharmaceuticals (NPSP, $34.79, up $0.09) LEAP Option
January 31 calls (NPSP140118C00031000, $7.50, up $0.10)
Original Entry Price: $1.40 (8/29/13)
Exit Target: $2.80 (closed half at $2.90 on 9/10/13)
Return: 271%
Stop Target: $2.50, raise to $5 (Limit Stop on a Quarter)
Action: NPS continued its amazing run following a dip near $31 to start the week. Shares closed below $32 but recovered to push $33.75 the following day. We said when shares cleared $30 back in mid-September they would challenge $35 and Thursday’s peak reached $35.72. Friday’s high was $35.49 and we wanted to see a close above $35. We have since gone on record and said a run to $40 could be in the works if momentum held but we will start exiting the rest of the trade if shares fall below $32. Support is at $34 but it is fresh.
Galena Biopharma (GALE, $2.29, down $0.10)
Original Entry Price: $2.12 (7/8/13)
Lowered Price from Selling Options: $2.12
Exit Target: $5
Return: 8%
Stop Target: $1
Action: Shares made a surge past resistance at $2.20 to start the week and reached a high of $2.58 on Thursday. The move past the August high of $2.53 was bullish but needs to stick to get $3 back in the mix. A close back below $2.20 keeps $2-$1.90 in play.
Exact Sciences (EXAS, $11.80, up $0.01)
October 14 calls (EXAS131019C00014000, $0.05, flat)
Original Entry Price: $13.55 (6/11/13)
Lowered Price from Selling Options: $12.40
Exit Target: $16+
Return: -5%
Stop Target: $10.45
Action: Shares fell to a low of $11.65 on Monday but held support at $11.50. There is risk down to $11 on a break below this level. Resistance at $12 was also tested and a close above this level would get $12.50 back in the picture. We have less than 2 weeks before the October 14 calls expire and we can look to sell another call option at the end of the month, providing shares are above $12.50.
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 which 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. If we are called away in mid-October at $14 the trade will make 13%.
Trades on HOLD (7): DryShips (DRYS, $3.78, up $0.07), AKS Steel Holding (AKS, $4.02, up $0.15), Rare Element Resources (REE, $2.49, up $0.10), Rambus (RMBS, $9.36, up $0.04), Bebe Stores (BEBE, $6.10, down $0.02), Vivus (VVUS, $11.06, up $0.01), Dendreon (DNDN, $2.78, down $0.04)
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5. Week Ahead
Here is a chart of the events for the week ahead:
