11:00pm (EST)
1. Market Summary
2. Rosetta Stone (RST) – A Key to Understanding
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. We are sorry for tonight’s delay but we wanted to cover everything before we went to press.)
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1. Market Summary
“We said last week there was a good chance the mini trading range the market had been in was about to crack and all signs were favoring the bears. The move lower from the previous 5-week trading range served as serious resistance and the breakdown from the current trading range could lead to a possible correction if the zombies aren’t careful.
Of course, the big worry as soon as the Presidential Election ended was the Fiscal Cliff and the rhetoric that would come on Friday. The Republicans have made it clear they are against raising taxes on individuals and businesses making more than $250,000 because of the impact it will have on future economic growth. They argue 7 million jobs will be lost.
The Democrats want to raise taxes, implement ObamaCare which is already forcing companies to cut back on employee hours so they won’ t have to offer healthcare benefits, and increase taxes on capital gains and dividends.
Needless to say, this is going to get nasty and it won’t be solved anytime soon. If the zombies can’t come to agreement on nearly $600 billion in spending cuts and tax increases by yearend, the talk is the U.S. economy will go into another recession. Unemployment could surge above 9% by the end of next year, or 20% if you count the people who have given up working that the government doesn’t count.
We aren’t Vegas, but the odds of the zombies pushing the U.S. off the cliff are running at 5-to-1, or 20%, but could increase if Congress drags its feet. There are talks scheduled for this Friday at the White House (Monday or Tuesday was just way too soon we suppose) and Thanksgiving is next week. Given the lines in the sand that were drawn this past Friday, this leaves the earliest we see something getting done is December.
This leaves the bulls in a volatile situation which is only likely to pick up from here on out until these issues are resolved.
As the rest of the world watches our soap opera play out, headlines from across the pond could also come back into play. There were more riots in Greece last week after the country approved additional austerity measures to ensure an upcoming aid payment. The country continues to blow through cash and will try to raise 3 billion euros on Tuesday in an attempt to sell debt through bonds. Why any investor would buy these bonds or why Greece continues to get more money baffles us because they can’t ever pay it back.
Same deal with Spain. The country so far has refrained from asking for an “official” bailout that would trigger bond purchases from the European Central Bank but it could be coming. We aren’t sure how the markets will react to this news that could also hit this week but the ECB wants Spain to ask for a handout so that it will reduce the yields on their bonds.
The fight over money, taxes, and power between the zombies will weigh on the market over the near-term as earnings wind down and the holiday’s comes around. However, we did mention the week before Thanksgiving is usually bullish and the indexes are due for a bounce. It is also November options expiration week and it will only add to the volatility.
Over the past 18 years, the Dow has traded higher for the week in 15 of them. However, Monday’s have been bearish 7 out of the last 12 during November option expiration week with a nasty loss of nearly 3% in 2008. The index fell from 8,497 to 8,273 which would be roughly 350 Dow points at current levels.
Friday November expiration has seen the Dow rally 7 out of the last 9 years with 2008 showing jaw dropping gains. The blue-chips surged nearly 500 points, or 6.5%, after moving from 7,552 to 8,046. We mentioned on Friday some of the wild price swings the Dow endured in 2008 and while we don’t believe the index will see a 3% or 6% single-day drop, it could happen over the next few weeks if there is continued weakness and the finger-pointing becomes middle fingers between the Republicans and Democrats.
While we have penciled in a possible rebound, we still believe our 5% targets for all of the indexes will trigger and we often remind you that once there is a breakout or breakdown out of a trading range there are fluff targets.
From our 10/28/12 Weekly Wrap:
“There are a ton of fund managers that are underperforming the market and some of them have been caught on the wrong side of the recent volatility trying to make up for lost ground. At some point, there could be a bottom and strong rally but we have to be prepared for both cases. It was good to break out of the trading range to the downside but they too can sometimes get “stretched” at the top and at the bottom so we have to realize this as well.
So how low could the indexes go if the 200-day MA’s break and there is panic selling?
The Dow touched a low of 12,035 in early June and the mid-July low was 12,492. The June 4 low for the S&P 500 was 1,266 while the July low was 1,325. The Nasdaq lows were 2,726 and 2,837 in June/ July while the Russell 2000 kissed 729 and 765, respectively”. (END) (from11/11/2012 Weekly Wrap/ Monday Morning Outlook)…
The market started the week off in a tight range and ended flat for the session. It was the calm before the storm as the bears spent the next 2 days hammering the bulls. The major indexes easily tested our mid-October downside targets of Dow 12,600; S&P 1,350; Nasdaq 2,900; Russell (2000) 780 and as you can see from our aforementioned comments from above, our “fluff” targets.
The bears kept the pressure on into Thursday but lower levels of support came into play as there was a slight bounce off the July lows heading into Friday’s Fiscal Cliff talks. The zombies gave the bulls something to nibble on as they acknowledged a deal could be in the works but can the market trust them is the question.
The Dow gained 46 points, or 0.4%, to finish at 12,588 on Friday. The blue-chips held 12,800 to start the week but closed below 12,600 on Wednesday and right on the downside (orange) channel we drew up last week. The next area of support is at 12,350 if the Dow closes below 12,500 and Friday’s low was 12,471. Thursday’s low was 12,496. Short-term resistance is at 12,600 and if the bulls can gather enough momentum to clear 12,800, the rebound could be on. The Dow started the week at 12,815 and fell 227 points, or 1.8%, by Friday’s close. Year-to-date, the index is showing a gain of 371 points, or 3%, but has lost over 500 points in 2 weeks and 1,000 points in a little over a month.
Last week’s chart for the Dow:
The S&P 500 added 6 points, or 0.5%, to close at 1,359. The index held 1,375 on Monday but we said a close below this level would lead to 1,350, quickly. Tuesday’s close of 1,374.53 was THE perfect clue the market was going to fall 2% for the week. The S&P kissed a low of 1,352 on Wednesday and smooched 1,343 on Friday. We have been mentioning a close below 1,350 could lead to 1,325-1,300 but the bulls held near-term support for now. Resistance is at 1,375 followed by 1,400 but watch for a close above 1,365 for a clue there could be a bounce this week. The S&P 500 started Monday at 1,379 and gave back 20 points, or 1.5%, for the week. For 2012, the index is higher by 102 points, or 8.1%.
This is the S&P’s chart from last week:
The Nasdaq advanced 16 points, or 0.6%, to settle at 2,853. Tech held our mid-October 5% downside target of 2,900 on Monday but we outlined further risk down to 2,825-2,800 last week if 2,850 didn’t hold. If there is a break below 2,800, the wheels could fall off the wagon as the Nasdaq could drop another 10% to 2,500, worse-case-scenario. Thursday’s low was 2,826 and Friday’s low was 2,810. If the bulls can reclaim 2,875 this week there could be a push towards 2,900 by Black Friday. The Nasdaq came into Monday’s open at 2,904 and was down 51 points, or 1.8%, by the weekend. For the year, the index is higher by 248 points, or 9.5%.
Here is how Tech looked last week:
The Russell 2000 jumped 7 points, or 0.8%, to finish at 776. The small-caps needed 5 points to clear and hold 800 on Monday which was another clue we were watching and the high of 797.73 looked weak. The bulls made a slight attempt at 800 again on the Tuesday’s open but the break below the 200-day MA last week was just too much to overcome. The next wave of support was at our mid-October target of 780 which gave way on Wednesday with the close of 773. “There could be an overshoot to the downside of 760 if there is panic selling and from there it gets ugly” was our quote from last week and Thursday’s and Friday’s low was 763 and 765, respectively. If the bulls can reclaim 780, there could be a push to 800 this week. However, the index will need to clear and hold its 200-day MA before we would trust a possible sustained rally into year end. The Russell 2000 was at 795 before Monday’s session started and dropped 19 points, or 2.4%, by Friday’s closing bell. For 2012, the index is showing a gain of 36 points, or 4.8%.
Here is the Russell 2000 from last week:
The S&P Volatility Index ($VIX, 16.41, down 1.58) fell 9% on Friday and came into the week at 18.61. We have been warning of a continued move up to 20 but the bulls were able to get the VIX back below 17.50 on Monday which held up until Wednesday’s close. The low came in at 15.93 and on a continued rally the VIX should fall below 15. However, Thursday’s high was 18.64 before the close at 17.99 and Friday’s peak was 18.50, showing the bears haven’t gone away.
The market tested its July lows on Wednesday/ Thursday and all that is left is a test to the June lows to complete the process. The Dow touched a low of 12,471 on Friday and the mid-July low was 12,492. The July low for the S&P 500 was 1,325 and Friday’s bottom was 1,343. The Nasdaq traded down to 2,837 in July and Friday’s drop to 2,810 wiped that out. The Russell bottomed at 765 in July and touched 763 to end the week.
We talked about the possibility of the Dow losing 1,000 points ahead of last week’s massive drop and here were our thoughts on Tuesday (November 13) at lunch break with the Dow at 12,879:
“Perhaps there will be some good news, some handshakes, some back-slapping and fist pumping by both sides as some sort of compromise is reached but we remember the debacle from August 2011 when the knuckleheads bickered over raising the debt ceiling and in the process, knocked ruined the country’s triple-A credit rating (for what it was worth). The Dow was pushing 12,750 in late July before losing 2,000+ points and bottoming at 10,604 on August 9 back in 2011.
The Dow rebounded 1,000 points off its lows after the debt ceiling cloud was lifted in August 2011 and was pushing 11,700 by the end of the month.
With volatility picking up over the last few weeks, all signs are pointing towards a major move in the market by yearend. We love how history often repeats itself and if the same scenario plays out again, the Dow could be at 13,800 or 11,800. This would equate to an 8% move, either way.” (END)
It is important we keep this in mind because the technical picture can change on a dime. We have done well calling the downside momentum and now we have to figure out if and when a rebound will come. It’s doubtful the June lows come into play (this week) unless the negotiations fall apart and to review, they are: Dow 12,035; S&P 500 – 1,266; Nasdaq 2,726; Russell 2000 – 729.
The Fiscal Cliff is really a bunch of noise and here’s why. Over the past 50 years, the U.S. debt ceiling has been raised over 70 times. In 2001, the DC was raised 11 times alone so there is no reason why to believe it won’t happen again. It’s just a matter of when the zombies come to an agreement and they already have a deadline. This gives us a timeframe.
Often times when we get fluff or overshoot targets there is a “capitulation” day (or 2) that usually occurs. As we approached our downside targets last week, we factored in an 8% move which means the market could have another 4%-5% to go to the downside. Capitulations days are hard to predict and they are hard to buy because there is blood in the streets as the old Wall Street saying goes. It will be hard for you to buy call options when the market is sinking like a ship but we will use January, February, or March options to give us time once we get the signal. This may not come until mid to late-December when there is a handshake.
There is a snowball’s chance in Hawaii the zombies of Congress get a deal announced this week but because of the Thanksgiving Holiday, we doubt it. This leaves the earliest an agreement might be reached is next week or by the first week in December. Volatility will certainly pick up over the next 2 weeks.
Companies have $1.2 trillion on their books but they are hoarding cash because of the Fiscal Cliff and the uncertainty of a sustained economic recovery. Small businesses are getting ready for higher taxes and ObamaCare and they are cutting workers. It costs a company $6,000 a year per employee to give them a nice healthcare package. On 50 people, a company would save $300,000 by only offering their workers 32 hours or less a week which would be considered “part-time”. They would not qualify for health benefits and to make matters worse, most of these jobs are minimum wage.
If you believe unemployment is bad now, just wait.
These are some of next year’s problems that will plague the market, along with possible higher taxes and higher rates on capital gains but there will be a rally once the debt ceiling is officially raised. In the meantime, we will continue using puts options to butter our bread and we will look to short any bounce as long as resistance holds. We will need to be quick to lock-in profits because we don’t want them to become toast if there is a rebound, or powerful snapback rally that could be coming.
The week of Thanksgiving is usually bullish with the best gains coming on Wednesday and Black Friday’s. The market closed on Thursday, obviously. Given the way support held on hopes of a deal coming together, there could be some follow through from Thursday’s overshoot which triggered some of the Fibonacci 61.8% retracement levels. This is a form of technical analysis often used to determine support and resistance levels by drawing a trendline between two extreme points (September highs) and then dividing the vertical distance by the Fib ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.
The selling pressure over the past 2 weeks has been intense so there is reason to believe the market should bounce over the near-term as long as support holds.
As we head to press, futures are showing a slightly higher open for Monday. Dow futures are up 28 points to 12,598 while the S&P 500 futures are higher by 4 points to 1,363. The Nasdaq 100 futures are advancing 8 points to 2,541.
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Key of Technicals Used In Following Articles
2. Rosetta Stone (RST) – A Key to Understanding
By Michael Bryant
Founder Allen Stoltzfus envisioned using computer technology to simulate the way that people learn their native language—with pictures and sounds in context, and with no translation. The idea was that translation slowed down the process of learning another language by making one think of their native language first. In 1992 he founded Fairfield Language Technologies with his brother-in-law, John Fairfield, who had a Ph.D. in computer science. After being sold to investment firms ABS Capital Partners and Norwest Equity Partners, it changed its name to Rosetta Stone after its product.
The software package is sold in different levels which are sometimes combined together. For example, the German Level I set costs about $237; the German Level I, II, and III set costs about $475; and the German Level I, II, III, IV, and V set costs about $602. Alternately, one can purchase a subscription to its Complete Online Access for about $397 for 12 months. The subscription includes interactive software, live online lessons, language games, and TOTALe Companion. Each lesson concludes with an opportunity to simulate a real-life conversation with Rosetta Stone Milestones.
Languages it offers include Arabic, Chinese (Mandarin), Dari (northwestern Persian), Dutch, English (British), English (American), Filipino (Tagalog), French, German, Greek, Hebrew, Hindi, Indonesian, Irish, Italian, Japanese, Korean, Latin, Pashto (Afghani), Persian (Farsi), Polish, Portuguese (Brazil), Russian, Spanish (Latin America), Spanish (Spain), Swahili, Swedish, Turkish, Urdu (Pakistan), and Vietnamese. A few notable major languages not offered is Portuguese (Portugal), Bengali (Bangladesh), Chinese (Wu), and Punjapi (northwestern India and eastern Pakistan). Plus, there are dozens of other languages not covered. Thus, the company has plenty of room to expand.
On April 15, 2009, the company sold 6.25 million shares at $18 a share after the bell, raising $112.5 million. This was above the estimated $15 to $17 price range. The next day, the stock started trading on the New York Stock Exchange at $25, reached a high of $26.27, and closed at $25.12. Since then, the stock stumbled amid reports of weaknesses in its US business, resulting in the cancellation of a second offering.
The company tries to focus more on sales to corporations and the federal government than cash-sensitive consumers. It is developing an Arabic learning product for the Army. Major customers include the U.S. Army, Department of Homeland Security, and the State Department’s Foreign Service Institute in Arlington. In the latest quarter, consumer sales made up 77.4% of total revenue, while institutional sales made 22.6% of total revenue. Despite efforts to shift, these percentages have stayed about the same since 2010.
On October 31st, Rosetta Stone settled its three-year trademark infringement lawsuit with Google, which agreed to collaborate with it to combat online ads for counterfeit goods and prevent the misuse and abuse of trademarks on the Internet. This is important for the company, which must protect its brand. It had claimed that Google’s sale of its trademarks to third-party advertisers for use in Google’s keyword search optimizer, AdWords, was trademark infringement.
Last week, the company reported numbers that were slightly disappointing as revenue beat expectations but earnings missed expectations. The company also said full-year earnings will come in at a loss of between -$0.20 and -$0.30, below consensus estimates of -$0.18 for the fiscal year. The good news is that according to the graphs below, subscription and service revenue is rising steadily. Even though product revenue is on a slight decline, total revenue is slightly rising. Further, the 4th quarter (12/12) seems to have a cyclical rise in revenue. The company’s next earnings announcement will come in late February or early March.
There are almost no publicly traded competitors. Rosetta Stone’s chief rival, Berlitz, is privately held. Price/sales is 0.97, and its revenue/share is 13.11, indicating the stock may be slightly undervalued. Current ratio is still a comfortable 1.84, having enough current assets to cover current liabilities but if it goes lower, that could spell trouble. Debt is zero, a good sign for any small-cap but the most bullish statistic is institutions and insiders are buying, and short sellers are covering.
A change in management can be very bullish news. On Wednesday November 14th, it named James Bankoff to its board. Bankoff’s experience with the online industry should help the company further grow its subscription and service business. Bankoff has played in top management of Vox Media, The Verge, Polygon, Providence Equity Partners, and AOL.
At $12.55, the stock is between its low target of $12.00 and its median target of $13.00 made by the 3 analysts recorded by Thomson/First Call. Mean target is $13.67, and high target is $16.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.6, unchanged from a week ago.
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Last Month |
Two Months Ago |
Three Months Ago |
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Strong Buy |
0 |
0 |
0 |
0 |
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Buy |
2 |
0 |
0 |
0 |
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Hold |
4 |
6 |
6 |
6 |
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Underperform |
0 |
0 |
0 |
0 |
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Sell |
0 |
0 |
0 |
0 |
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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 11/16/12 close)
By Catherine Tierney
Monday
Agilent (A, $35.81, up $0.06), America First Tax Exempt (ATAX, $6.01, up $0.12), America’s Car-Mart (CRMT, $41.92, up $0.17), Bob Evans Farms (BOBE, $35.05, up $0.02), Brocade Communications (BRCD, $5.26, down $0.08), ChinaEdu (CEDU, $6.03, up $0.04), Cracker Barrel Old Country Store (CBRL, $62.07, up $0.21), CVD Equipment (CVV, $8.00, Flat), Diana Containerships (DCIX, $5.52, up $0.19), Dycom Industries (DY, $15.33, up $0.71), FNB United (FNBN, $11.02, up $0.11), Focus Media (FMCN, $24.84, down $0.34), Jack in the Box (JACK, $25.03, down $0.07), Krispy Kreme Doughnuts (KKD, $7.23, up $0.35), The Laclede (LG, $38.75, up $0.52), Lake Shore (LSBK, $10.35, Flat), Lowe’s (LOW, $31.98, up $0.58), Mayflower (MFLR, $10.26, up $0.28), New Jersey Resources (NJR, $39.13, up $0.13), Nuance (NUAN, $20.35, up $0.01), Perfect World (PWRD, $10.15, down $0.16), Permian Basin (PBT, $12.83, up $0.15), Phoenix (PNX, $21.96, down $0.22), PMC Commercial Trust (PCC, $6.60, up $0.03), Prudential of Pennsylvania (PBIP, $6.00, up $0.08), Qihoo 360 Technology (QIHU, $22.98, down $0.05), Saba (SABA, $7.62, down $0.12), Savannah (SAVB, $9.22, Flat), Ship Finance (SFL, $14.69, up $0.37), Shoe Carnival (SCVL, $22.58, up $0.23), Technical Communications (TCCO, $5.65, Flat), Tyson Foods (TSN, $16.88, up $0.12), United Bancshares (UBOH, $9.48, up $0.01), Urban Outfitters (URBN, $35.05, up $0.23)
Tuesday
American Woodmark (AMWD, $22.48, up $0.10), Amira Nature Foods (ANFI, $7.39, down $0.04), Astro-Med (A LOT, $8.81, Flat), Best Buy (BBY, $13.75, down $1.50), Brown Shoe (BWS, $14.97, down $0.06), Campbell Soup (CPB, $36.64, up $0.39), Chico’s FAS (CHS, $18.02, up $0.40), ChipMOS TECHNOLOGIES (IMOS, $10.53, up $0.11), Citi (CTRN, $11.81, down $0.18), Courier (CRRC, $10.62, down $0.08), Daktronics (DAKT, $8.27, up $0.24), Diana Shipping (DSX, $7.24, up $0.18), DSW (DSW, $59.15, up $0.76), Eaton Vance (EV, $29.71, up $0.45), Fred’s (FRED, $13.08, up $0.05), H. J. Heinz (HNZ, $58.07, up $0.16), Hewlett-Packard (HPQ, $12.85, down $0.23), Hormel Foods (HRL, $30.87, up $0.26), IEC Electronics (IEC, $6.65, down $0.15), Inergy (NRGY, $18.55, up $0.65), Inergy Midstream (NRGM, $22.69, up $0.42), Jiayuan.com (DATE, $5.53, down $0.02), Kirkland’s (KIRK, $8.77, down $0.11), Medtronic (MDT, $41.10, up $0.23), Patterson (PDCO, $35.25, up $0.68), Perceptron (PRCP, $5.56, up $0.09), Powell (POWL, $38.93, up $0.49), QAD (QADB, $11.96, Flat), Raven (RAVN, $26.00, up $0.36), salesforce.com (CRM, $144.30, up $3.57), SandRidge Permian Trust (PER, $16.94, up $0.41), ShangPharma (SHP, $7.75, up $0.14), Signet Jewelers (SIG, $51.58, up $0.34), Stein Mart (SMRT, $7.08, up $0.15), Tech Data (TECD, $43.69, up $0.04), Valspar (VAL, $56.67, up $0.95), Tilly’s (TLYS, $14.94, up $0.26), Zale (ZLC, $6.96, up $0.07)
Wednesday
Continental Materials (CUO, $11.20, Flat), Deere (DE, $85.25, down $0.14), Donaldson (DCI, $32.77, up $0.63), GasLog (GLOG, $10.56, up $0.01), Naugatuck Valley Financial (NVSL, $6.78, Flat), Northeast Community (NECB, $5.18, up $0.03), Pandora Media (P, $7.18, down $0.18), StealthGas (GASS, $7.08, up $0.28), Youku Tudou (YOKU, $17.02, down $0.73)
Thursday
First Savings Financial (FSFG, $18.83, up $0.83), Genesco (GCO, $54.97, up $0.95)
Friday
Fidelity (FSBI, $20.84, down $0.24), Sonic Foundry (SOFO, $7.45, up $0.15)
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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 11/16/12)
Our Closed Trade Track Record for 2012 is 26-0 (42-0, overall since 2011): TASR +25%, ARNA +117%, SZYM +11%,BAC +26%, EFTC +8%, SZYM +55%, VVUS +38%, CALL +19%, BAC +20%, SYMC +16%, DAR +20%,TIVO +5%, MGM +22%, ZNGA+13%, SGMS +6%, VVUS +17%, F +8%, AA +7%, CLNE +27%, DNDN +18%, MGM +19%, ACAS +3%, P +9%, BAC +6%, AA +3%, TIVO +6%.
Special Notice: Our 2 trades from last week did not open so we have adjusted the entry prices.
NEW TRADES!!!
Bank of America (BAC, $9.43, up $0.04)
Action: Set limit prices at $8.50 for half positions. Buy full positions on a move above $10.
We mentioned there could be a pullback to $9 and Friday’s low was $8.92. We lowered our limit price to $8.50 from $8.75 in case there is while a move above $10 would be super bullish.
CubeSmart (CUBE, $13.11, up $0.03)
Action: Set limit orders to buy the stock at $12.00 (half position).
Shares traded to a low of $12.59 on Friday and we were trying to get in at $12.50. We have lowered the limit order to $12. The 52-week high is $13.46.
We will send out a Trade Alert if these prices are triggered but in the meantime, let’s see if we can get better prices by using limit orders.
CURRENT TRADES
Solazyme (SZYM, $7.19, down $0.61)
Original Entry Price: $12.35 (8/9/12)
Lowered Price from Selling Options: $11.55
Exit Target: $15+
Return: -38%
Stop Target: $5
Action: Solazyme went on a wild ride last week. Shares reached a peak of $8.70 on Thursday after the company beat earnings while announcing new partnerships with Bunge (BG, $70.33, down $0.07) and Archer Daniels (ADM, $24.96, up $0.48). However, shares finished below $8 on Thursday and fell another 8% on Friday to finish the week lower. There is risk down to $6 but we believe in the company’s future prospects. We may add to the position if $6 does come into play.
We recommended buying the stock at $12.35 on 8/9/2012 and for every 100 shares to sell the September 12.50 calls for 80 cents. This lowered the cost basis to $11.55.
Vivus (VVUS, $10.33, up $0.06)
Original Entry Price: $22.70 (7/27/12)
Lowered Price from Selling Options: $20.90
Exit Target: $30+
Return: -51%
Stop Target: $15
Action: Shares were rebounding to start the week and pushed $11.58 on Tuesday and closing at $11.44. Short-term resistance is $11.50-$12.00 but Vivus broke below $10 on Thursday and kissed $9.86. The longer-term chart from last week showed risk to $8 and will likely be tested on another dip below $10.
We recommended buying the stock at $22.70 on 7/27/2012 and for every 100 shares to sell the August 24 calls for 95 cents. This lowered the cost basis to $21.75.
On 9/6/12 we sold the September 24 calls for 40 cents which lowered our cost basis to $21.35.
On 10/16/12 we sold the October 23 calls for 45 cents which lowered our cost basis to $20.90.
Antares Pharma (ATRS, $3.65, up $0.06)
Original Entry Price: $4.94 (7/13/12)
Lowered Price from Selling Options: $3.94
Exit Target: $8+
Return: -7%
Stop Target: None
Action: The November options expired last week and we will write another call once shares clear $4 again. The stock fell to a low of $3.35 on Friday and we have mentioned there is risk down to $3.20-$3.00 but we like the company’s drug pipeline and royalty payments it receives.
We recommended buying the stock at $4.94 on 7/13/2012 and for every 100 shares to sell the August 5 calls for 70 cents. This lowered the cost basis to $4.24.
On 9/6/12 we sold the November 5 calls for 30 cents which lowered our cost basis to $3.94. If we are called away at $5 in mid-November the trade will make 27%.
Pizza Inn (PZZI, $3.14, up $0.25)
Original Entry Price: $4.50 (2/22/12)
Lowered Price from Selling Options: No options available
Exit Target: $9
Return: -30%
Stop Target: None
Action: There were a couple of positive headlines last week for the stock which caused a pop to $3.48 on Tuesday and $3.45 on Friday. The company got a sweet CEO to run its expansion plans. We said a close above $3 would be bullish and this level will now try to hold as support. The uptrend line has been holding steady but a close below $2.50 would be bearish. We have a feeling if $3 can hold it might be the last time $2.50 is tested as the company builds out its pie stores. A close above $3.50 could lead to $4, quickly.
We recommended buying the stock at $4.50 on 2/22/12.
MGM Resorts (MGM, $9.64, up $0.27)
Original Entry Price: $13.77 (2/2/12)
Lowered Price from Selling Options: $12.67
Exit Target: $15
Return: -24%
Stop Target: None
Action: MGM tested a low of $9.15 midweek after support at $9.40 failed on Monday. This opened the door for a test to $9 and the $8.80 August low. We would like to see shares regain $10 this week and a move above $10.50 would be bullish.
We recommended buying the stock at $13.77 on 2/2/2012 and for every 100 shares to sell the March 15 calls for 45 cents. This lowered the cost basis to $13.32.
On 3/20/12 we recommended selling the April 14 calls for $0.65 which lowered the cost basis to $12.67.
NewparkResources (NR, $6.87, flat)
Original Entry Price: $9.45 (7/27/11)
Lowered Price from Selling Options: $7.85
Exit Target: $11
Return: -12%
Stop Target: None
Action: Newpark held $6.50 and was up 29 cents for the week. We said if the $6.40 level could hold, we would expect shares to challenge $7 over the near-term as the company recently reported great earnings numbers.
We recommended buying the stock at $9.45 on 7/27/2011 and for every 100 shares to sell the August 10 calls for 50 cents. This lowered the cost basis to $8.95.
On 9/15/2011 we recommended selling the December 10 calls for $0.85 which lowered the cost basis to $8.10.
On 1/25/2012 we recommended selling the March 12.50 calls for $0.25 which lowered the cost basis to $7.85.
Trades on HOLD: DryShips (DRYS, $1.70, up $0.03), AKS Steel Holding (AKS, $3.57, down $0.06), Rare Element Resources (REE, $3.16, up $0.09), Rambus (RMBS, $4.07, down $0.04), Patriot Coal (PCXCQ, $0.13, flat), OCZ Technology Group (OCZ, $1.17, down $0.09), Bebe Stores (BEBE, $3.50, down $0.05), Scientific Games (SGMS, $6.93, down $0.02), Antares Pharma February (2013) 7.50 calls
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5. Week Ahead
Here is how the week looks as far as economic news:
Special Notice: Due to the Holiday season, we will not be publishing the Weekly Wrap on 11/25/2012. It is rare we miss a week but we want our writers and employees (and myself) to enjoy the nice break. We will come back recharged with charts and possible new picks on December 2nd. Although we won’t be going to press next week, If there is any action we need to take on our current positions, we will send out a Trade Alert.