MomentumOptionsTrading.com Weekly Wrap for 12/15/13
11:30pm (EST)
1. Market Summary
2. Nektar Therapeutics (NKTR) – A Rich and Sweet Drug Company
3. Earnings
4. Weekly Wrap Portfolio Update
5. Week Ahead
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1. Market Summary
“The Dow and S&P 500 saw their 8-week win streaks snapped as the bears pushed multiple layers of support throughout the week. However, after 4 days of selling pressure, the bulls rebounded big time on Friday to nearly grab the weekly win. Their efforts fell short for the most part as the major indexes finished the week lower but Tech managed a small gain and the VIX closed back below 15.
Much of the pullback was based on taper tampering as strong economic news had the talking heads predicting a December cut by the Fed but on a technical basis it was simply a back test to support.
We mentioned all week the action was bearish despite the bullish headlines and the official estimate for Friday’s Nonfarm Payrolls report had been for a gain of 185,000 jobs. Most of the suit-and-ties were penciling in a gain of over 200,000 coming into the week but some whisper numbers were upped in the 250,000-300,000 range.
The thinking on Wall Street was a number north of 250,000 would been an automatic guarantee for a December QE (quantitative easing) taper announcement. With a gain of “just” 203,000 jobs and slightly above estimates, it was the perfect number. The unemployment rate dropped to 7%.
As the taper talk continues, we have said since the summer that we did not expect the Fed to make a move until MAYBE December and we have been right so far. This is one of the main reasons we stayed bullish in October and November.
The next FOMC meeting is scheduled for Tuesday, December 17, and there will be a number of Fed Heads speaking throughout the week starting on Monday. This will likely lead to some volatility and possibly a continued trading range into next week as every word they say will be debated.
We now do not expect the Fed to reduce QE until March as they have said they want to see unemployment under 6.5% and jobs gaining over 200,000 a month, consistently. When the holidays end there will be job cuts and we haven’t even mentioned the zombies. We feel the Fed wants to be 100% certain the economy is rebounding before they make any cuts to the $85 billion monthly infusion but with Bernanke on the way out, there could be a curveball.
The bulls did well on Monday/ Friday closes in October and November and although the Dow ended higher this past Friday, Black Friday along with this past Monday’s pullback was the first lower Monday/ Friday close since late September. For those of you just joining us, positive Monday/ Friday closes usually means money is moving into the market while lower M/F’s could signal cash is moving to the sidelines.
The deadline for a budget deal is this Friday and the event could bring added volatility. The zombies gave the budget to a bipartisan committee after the government shutdown to come up with a solution that could be passed by both the House and Senate. While there is chatter a deal is going to be reached, we wouldn’t hold our breath.
The Financial stocks held up well to start the week with some names hitting fresh 52-week peaks. Most of them pulled back as the rest of the week played out but held support. We have mentioned this sector needs to show strength into yearend if the bulls are going to push higher ground as they have lagged the major averages all year long.
The Financial Select Spiders (XLF, $21.39, up $0.29) closed below their 20-day MA on Thursday but bounced back on Friday. The XLF has not fallen below $21 since mid-November so a close below this level needs to be watched as it would get the 50-day and 100-day MA’s in play. A close above $21.65 will lead to a breakout to new highs and possibly a run past $22 over the near-term.
A retest to support would also be good as talk of Friday’s gains not holding would make the rounds and flush out more traders. The talking heads will denounce a Christmas rally isn’t coming and the Wall Street pros will be looking to take early vacations.
As long as support holds, this would be the perfect setup for new highs by yearend as the small-caps strengthen and the Christmas rally officially begins. Remember, the Santa rally, if one comes, covers the last 5 trading days of the year and the first two in January.” (from 12/8/2013 Weekly Wrap…)
The bears followed the same game plan last week as the prior week as they kept steady pressure on the bulls while taking Friday off. The bulls held support for the most part but some damage was down as a test to the 50-day MA’s (moving averages) were pushed but overall the market is behaving just like we want expected. (continued…)
The Dow added 16 points, or 0.1%, to close at 15,755 on Friday. The blue-chips started the week off with a fight and held positive territory for much of the session following a dip to 16,015 after the open. The high checked-in at 16,058 but the 5-point win was unimpressive as it would be the peak for the week. Tuesday’s test to 15,969 held the 20-day MA but Wednesday’s drop to 15,827 didn’t. Support at 15,800 held but we have been mentioning if broken could lead to 15,600. Thursday’s low reached 15,703 with a close at 15,739 before Friday’s slight rebound to a high of 15,792. The 50-day MA is at 15,654 and will provide a buffer before 15,600 on further weakness while a close back above 15,800 and then 16,000 would be a nice-setup for a yearend rally. For the week, the Dow fell 265 points, or 1.7%, after starting at 16,020. For the year, the blue-chips are up 20.2%.
The S&P 500 slipped a fifth of a point, or 0.01%, to settle at 1,775. The S&P 500 needed to clear 1,810 to start the week but the bulls couldn’t hold the run to 1,811. The S&P did set a new closing high at 1,808.37 but it was all downhill from there. Tuesday’s dip to 1,801 held the 1,800 level but we mentioned a 25-point swing could be setting up. Wednesday’s low reached 1,780 and support held at 1,775 before Thursday’s dip to 1,772 and finish at 1,775.50. Friday’s high reached 1,780 before the flat finish. A close below 1,775 will get 1,750 and the 50-day MA in play while a break back above 1,785 to start the week would be bullish. The 20-day MA is at 1,795. The S&P 500 came into Monday’s session at 1,805 and was down 30 points, or 1.7%, for the week. Year-to-date, the index has advanced 24.5%.
The Nasdaq advanced nearly 3 points, or 0.1%, to finish at 4,000.98. Tech cleared fresh 52-week peaks after trading up to 4,081 on Monday and we mentioned our fluff target of 4,200 was just 3% away. We also warned support at 4,000 was just 2% away as we wanted to see 4,075 hold into the close. Tuesday’s high reached 4,074 and we knew when 4,075 didn’t trip there was going to be a back test. The index sank below 4,000 to 3,998 on Wednesday before closing at 4,003. The close below the 20-day MA opened the door for a test to 3,950-3,900 but Thursday’s low only reached 3,993. The close at 3,998 worried Wall Street but we said Friday should be a bounce back day. We would have liked to have seen a close above 4,025 after the index reached 4,017 but the bulls fell short. The close above 4,000 was slightly bullish but 4,010 and a finish above the 20-day MA would have been better. The Nasdaq began the week at 4,062 and declined 62 points, or 1.5%, by Friday’s close. For 2013, Tech has gained 32.5%.
The Russell 2000 popped 4 points higher, or 0.3%, to end at 1,107 on Friday. The small-caps needed to clear 1,135 to start the week while holding 1,125 and traded up to 1,134 on Monday’s open. The opening pop and drop reached a low of 1,126 and we have been mentioning a close below 1,125 would lead to a back test to 1,110-1,100. Tuesday’s high reached 1,131 but the close at 1,119 was the clue lower prices would be in store. Wednesday’s low checked-in at 1,099.74 with a close at 1,101.50. Thursday’s low reached 1,099.67 but the higher close was our clue the selling pressure might be over as we were calling for a Friday rebound. Friday’s high reached 1,1109.51 and we wanted to see a close above 1,110. If the bulls can clear this on Monday, the small-caps could have a good week and make a run at 1,125-1,135. Another test and close below 1,100 will likely lead to a test down to 1,075. The Russell 2000 was at 1,131 before Monday’s open and gave back 24 points, or 2.2%, for the week. YTD, the small-caps are higher by 30.3%.
The S&P 500 Volatility Index ($VIX, 15.76, up 0.22) came into the week at 13.79 and made an interesting 2% drop into the close after trading just past 14 to 14.07 on Monday. The looked “funny” as we mentioned a close below 13.50 would be bullish. Tuesday’s 3% pop to 13.91 had our guard back up as the peak reached 14.22. We flinched on Wednesday as the index closed at 15.31 and we said the 11% jump was more volatile than the prior week’s close at 15.08. Wednesday’s high reached 15.43 and Thursday’s peak hit 16.09. We have talked about risk up to 17.50 on a close above 15 and although Friday’s high of 15.80 was a lower high than Thursday’s, the VIX still ended higher. A close above 17.50 could lead to a scary ride to 20+. A close back below 13.50 this week would be bullish for the start of a year-end rally.
The bears got their second-straight weekly win and have put the bulls in a December hole. Last week’s win was impressive as the bears cracked several layers of support as continued taper worries weighed on the market.
We mentioned this week’s FOMC meeting could cause Wall Street to book profits and start planning for vacations early as a quarter of them have penciled-in a December taper. Given the steep declines from last week, our game plan is setting up nicely as we said these will be the ones that miss a possible year-end rally.
We have covered why we don’t believe there will be a taper cut this week and we have mentioned this could be Big Ben’s last meeting before Janet Yellen takes over. Bernanke could decide to start a QE pullback but it would be a surprise given his comments of what he wanted to see from the economy.
There will also be a vote this week on Yellen’s confirmation as the next Fed Head after the FOMC meeting. This would also be a great opportunity for Bernanke to step down early and pass the baton to Yellen ahead of his official departure date.
The potential curveball ahead of the FOMC meeting will be the budget deal that was reached between the zombies last week. Although it appears to be a done deal, the Senate still has to vote and there is talk it could be close. There are zombies from both sides that aren’t happy with the Paul Ryan led budget deal and it could be close on officially getting it into law.
The market is at a crucial point as additional selling pressure will get the 50-day MA’s and the 100-day MA’s in play. With the VIX spiking past 15, there could be enough volatility for a push to 17.50-20 if the major MA’s are violated. This will be one of the more interesting developments along with the small-caps as they closed a smidge below their uptrend line. To sum things up, the VIX and Russell 2000 should provide the best clues on market direction this week.
Friday is also December option expiration day and Quadruple Witching as all options expire. This is historically a bullish event but with the FOMC meeting and economic news ahead, volatility could get even more elevated.
We have mentioned the January Effect, the possible upcoming Santa rally, and the seasonal patterns that show December is the best month for small-caps and the second best month for the S&P 500. In fact, the Russell 2000 has moved higher 85% of the time over the past 20 years with an average gain of 3.3% in December. The S&P 500 has ended December option week higher in 22 out of the past 28 years.
The Russell 2000 is down 3% for the month so a 3.3% rally from the end of November close would put the small-caps at near 1,150.
Despite the bearish tone last week, the Dow did closer higher on Monday and Friday. The gains weren’t much but a win is a win. If the blue-chips can show some strength on Monday, it could be a good sign but the gains will need to be impressive. If not, there could further selling pressure down to the 100-day MA’s before a possible yearend recovery.
As we head to press, futures are putting the bulls in a hole before Wall Street open: Dow futures are down 56 points to 15,645 while the S&P 500 futures are lower by 8 points to 1,760. The Nasdaq 100 futures are declining 13 points to 3,440.
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2. Nektar Therapeutics (NKTR) – A Rich and Sweet Drug Company
By Michael Bryant
Nektar Therapeutics (NKTR, $10.53, down $0.21) had a rollercoaster ride since its IPO but now as the dust has seemingly cleared and new drugs on the horizon, is it time to buy the stock?
The FOMC will be watching these developments and a failed budget agreement could rattle the market since it has already been priced in and one we said would happen. Hopefully, there are no “green eggs and ham” being served on Tuesday’s White House breakfast buffet.
As far as the rest of the week, the Housing sector will be in focus with economic news and a number of companies reporting earnings. New Home Sales, Existing Home Sales and the Housing Market Index will be released throughout the week. More importantly, the Philly Fed Manufacturing and the Kansas Fed Manufacturing reports will also weigh on market direction. Here is a chart of the Home Construction Index:
Co-founder John S. Patton was born in Columbus, Ohio in 1946. His father was a successful dairy scientist at Pennsylvania State University. Growing up with an interest to explore the world, Patton planned to become a marine biologist. Since Pennsylvania State University did not offer marine biology, he enrolled in zoology and earned a bachelor of science in 1967. He then received a master’s in science in oceanography from the University of Rhode Island in 1973, and a Ph.D. in biology from the Scripps Institution of Oceanography at the University of California, San Diego, in 1976. He studied fat digesting enzymes at the Lund University, Sweden and finished his post doctorate there in 1977. He then went to Harvard Medical School where he did microscopy of fat digestion and discovered all the phase transitions that occur in fat digestion. He finished his post doctorate there in 1979.
From 1979 to 1985, Patton taught and did marine and fat absorption research at the University of Georgia’s Marine Science and Microbiology Department. One of the areas he studied was how fish absorbed fat through their intestines. This caught the interest of Genentech, a San Francisco-based biotechnology company, who hired him in 1985 to find a way to get proteins into the body without needles. He discovered that proteins could be delivered without a needle, but through the lungs and not the gastrointestinal tract. Thus, the proteins had to be inhaled. Genentech got a patent on the technology, but after five years of research, funding for Patton’s project was cut.
After leaving Genentech in 1990, Patton teamed up with Robert M. Platz, an aerosol specialist employed by the Stanford Research Institute. Using his own money, Patton started Inhale Therapeutic Systems in July 1990. Genentech gave the two founders a license to use the company’s inhaled delivery patent, provided they did not enter the growth hormone business. Thus, the two chose to focus on insulin. The partners nearly drained their savings to keep Inhale afloat before receiving funding from Onset Ventures in 1991.
With new seed money, the two hired scientists and engineers specializing in pharmaceutics, mechanical engineering, fluid dynamics, aerodynamics, and combustion science to help with developing an inhaled insulin device. First, liquid insulin had to be turned into a powder which would become a liquid once in the body, since insulin only remained biologically active in a liquid state. The powder also had to be large enough so it could not be easily exhaled. Once the powder was created, the next step was to engineer a device that could operate without batteries and be able to deliver the powder over 100 times the speed of a household aerosol can. The company also wanted to deliver a complete dose of insulin within one breath, which had never been done before.
On March 1, 1994, Inhale Therapeutic Systems completed its IPO of 2,150,000 common shares at $7.50 per share, below the expected price range of $11 to $13. The company raised a net total of $15,063,750. Shares started trading on the Nasdaq under ticker INHL.
In 1995, Pfizer (PFE) partnered with the company to fund the development of Exubera, the first inhalable insulin product. In 2001, Inhale Therapeutic paid $200 million for U.K.-based Bradford Partide Design and $191 million for Alabama-based Shearwater. Bradford Partide, a company formed and spun off by Bradford University, specialized in the use of supercritical fluids (gases under enough pressure and heat to take on the characteristics of a fluid) to engineer the size, shape, and properties of dry powder particles. The Shearwater acquisition gave Inhale a portfolio of products using PEGylation technology. In 2003, the company changed its name to Nektar Therapeutics and trade on Nasdaq under the ticker symbol NKTR.
After hundreds of hours of computer simulations and testing formulations of dried insulin, the company discovered the right recipe: a mixture of insulin, glycine (an amino acid), citrate (the salt of an organic acid found in humans), and mannitol (a sugar used in drugs administered into a vein). In January 2006, Exubera received approval from U.S. Food and Drug Administration (FDA) and the European Medicines Evaluation Agency (EMEA) for use by adult diabetics. Nektar manufactured the insulin powder, for which the company received manufacturing revenues from Pfizer, and it also received royalties based on sales and Pfizer’s cost of goods sold. Exubera sold for between $4 and $5 for a daily dose, and sales were projected to reach $2.8 billion by 2010, when the product was expected to control as much as 30% of the market for insulin.
However, patients were not interested. On October 18, 2007, Pfizer pulled the plug on Exubera, returning all rights to Nektar. While inhaled insulin seemed like an attractive alternative to patients afraid to stick themselves with needles multiple times a day, many patients reported that the needle sticks were not that much of a hassle, and the needles themselves have gotten so thin that they cause virtually no pain.
While the insulin partnership with Pfizer did not work out, the company managed to form other partnerships with several leading pharmaceutical companies. Its PEGylation technology can help make drugs more effective. The partnerships led to the development of a total of nine approved products, which generate over $7 billion a year in annual global sales.
In addition, the company has six drugs in phase III trials (two of which are royalty-bearing licensing partnerships) and two drugs (Naloxegol and LEVADEX) that completed phase III trials, as can be seen in the table below.
Naloxegol, an opioid antagonist (a drug used to counteract the effects of narcotics), is designed for the treatment of opioid-induced constipation (OIC), which affects about 28 to 35 million people annually worldwide. Opioids bind to specific proteins called opioid receptors that are located in the brain, spinal cord, and gastrointestinal (GI) tract, and thus are able to block the brain’s ability to perceive pain. When the opioids bind to certain opioid receptors in the GI tract, constipation may occur. Under the company’s agreement, AstraZeneca has responsibility for the development, global manufacturing, and marketing of Naloxegol. Nektar is eligible to receive up to $235 million in aggregate payments upon the achievement of certain regulatory milestones, as well as up to $375 million to certain sales milestones. Nektar is also eligible to receive significant double-digit royalties on net sales worldwide.
A New Drug Application (NDA) was filed for Naloxegol in the United States, while a Marketing Authorization Application (MAA) was filed in the EU and Canada. Basically, both applications are the same. On September 27, 2013, the European Medicines Agency (EMA) accepted the MAA, triggering AstraZeneca to pay $25 million milestone payments to Nektar within five business days of acceptance. Then On November 19th, the FDA accepted the NDA, triggering AstraZeneca to pay $70 million milestone payments to Nektar within five business days of acceptance. If approved, the drug will be the first once-daily oral peripherally-acting mu-opioid receptor antagonist (PAMORA) for patients with OIC. Based on the cash on hand at the end of the company’s last quarterly filing, with these payments, Nektar should have a cash and investment position of approximately $250 million dollars at the end of the year.
The FDA will hold an advisory panel meeting from March 10th to 14th in 2014 to discuss issues with drugs being developed for opioid-induced-constipation. The submission of the NDA was based on positive data from the core Phase III KODIAC program, which included four clinical trials designed to evaluate the safety and efficacy of Naloxegol for the treatment of OIC.
LEVADEX’s NDA was rejected by the FDA on April 16th of this year on concerns about the manufacturing process of the canisters. The drug is an inhaled form of dihydroergotamine designed to treat patients suffering from migraine attacks. More than 36 million Americans suffer from migraines. The FDA outlined some regulatory issues with the chemistry, manufacturing, and controls process. Partner Allergan refiled another NDA which is still pending.
On November 8th, the company reported that NKTR-102 met its primary goal of halting the spread of breast cancer in 55% of patients after six weeks of treatment. The company had expected only 25% of patients would meet that goal.
The company does not report 4th quarter earnings till Thursday, February 27th. Analysts estimate the company will earn -$0.17 per share on $49.26 million. Revenue consists mainly from manufacturing and supply agreements with its collaboration partners but also royalties, licenses, and collaborative agreements. In the 3rd quarter, year-over-year revenue jumped 230.8% to $60.9 million, better than analysts’ estimates of just $51.4 million in revenue. Earnings came in at -$0.14 per share, better than the -$0.25 per share which analysts expected.
Revenue (blue line) has already started to surge and with total expenses (red line) being nearly flat over the last three quarters, revenue seems to soon pass total expenses. Thus, the company will turn profitable. Analysts expect this to happen in the 1st quarter of next year. However, analysts estimate that revenue will fall in the 4th quarter before rising again. We do not think revenue will fall in the 4th quarter. We also do not see earnings growth slowing in the 4th quarter, as analysts predict. Thus, the company could beat on both earnings and revenue.
While many of the drugs in the pipeline compete with traditional sources, the company has no pure play competitors.
As of Wednesday, December 11th, Nektar made up 5.21% of the First Trust NYSE Arca Biotechnology Index Fund ETF (FBT).
At $10.53, the stock is between its low target of $9.00 and its median target of $14.00 made by the 8 analysts recorded by Thomson/First Call. Mean target is $14.00, and high target is $20.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.1, unchanged from a week ago.
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Last Month |
Two Months Ago |
Three Months Ago |
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Strong Buy |
2 |
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Buy |
6 |
6 |
6 |
5 |
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Hold |
1 |
1 |
1 |
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1 |
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Sell |
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3. Earnings
The companies in BOLD, we are looking at as possible trades and we may list call or put options on them in our Daily Newsletter. If they become official recommendations, we sent out Trade Alerts or include them in our 9am and 1pm updates that come out during the week (Quotes are from 12/13/13 close)
Monday
Before the open: Integrated Electrical Services (IESC), Nevada Gold & Casinos (UWN), Timberline Resources (TLR)
After the close: ChinaEdu Corp (CEDU), Dataram (DRAM), FuelCell Energy (FCEL), Rick’s Cabaret International (RICK), Stewart Enterprises (STEI), WPCS International (WPCS), Zoltek Companies (ZOLT)
Tuesday
Before the open: CSP (CSPI), FactSet Research Systems (FDS) Ku6 Media (KUTV), Sanderson Farms (SAFM)
After the close: Alliant Computer Systems (ALCS), Heico (HEI), Jabil Circuit (JBL), Origen Financial (ORGN), Oxygen Biotherapeutics (OXBT), Velti (VELT), VeriFone Holdings (PAY)
Jabil Circuit (JBL, $19.07, down $0.03)
January 18 puts (JBL140118P00018000, $0.40, flat)
Thoughts: We have been bullish on JBL in the past but shares look like they could drop below $18 if earnings come in below expectations.
VeriFone Holdings (PAY, $24.41, up $0.09
January 27 calls (PAY140118C00027000, $0.50, down $0.05)
January 23 puts (PAY140118P00023000, $0.60, flat)
Thoughts: Shares could move 10% on earnings. We are slightly bullish on the stock but we are still doing research on what numbers they could post.
Wednesday
Before the open: FedEx (FDX), General Mills (GIS), Lennar (LEN), LGI Homes (LGIH), Park Electrochemical, (PKE), Stalnaya Gruppa Mechel (MTL)
After the close: Apogee Enterprises (APOG), Arrowhead Research (ARWR) , Biodel (BIOD), Herman Miller (MLHR), Industrial Services of America (IDSA), Oracle (ORCL), Paychex (PAYX), Steelcase (SCS), Tower Group International (TWGP)
FedEx (FDX, $137.90, up $1.56)
December 145 calls (FDX131221C00140000, $0.80, up $0.30)
Thoughts: These call options are expensive and expire on Friday. The January options could be used but we normally don’t trade options on stocks over $100.
Oracle (ORCL, $33.23, down $0.37)
December 32 puts (ORCL131221P00032000, $0.30, up $0.05)
January 32 puts (ORCL140118P00032000, $0.60, up $0.05)
Thoughts: This is our favorite earnings trade for the week and while we have listed December puts, we will likely use the January puts if take action. Shares could test $30 if Oracle pulls up lame on its earnings numbers.
Thursday
Before the open: Accenture (ACN), Actuant (ATU), Bio-Reference Laboratories (BRLI), Carnival (CCL), Carnival PLC (CUK), ConAgra Foods (CAG), Darden Restaurants (DRI), IEC Electronics, KB Home (KBH), Marcus (MCS), MGC Diagnostics (MGCD), Neogen (NEOG), Optical Cable (OCC), Pier 1 Imports (PIR), Rite Aid (RAD), Scholastic (SCHL), Winnebago Industries (WGO), Worthington Industries (WOR)
After the close: AAR (AIR), China BAK Battery (CBAK), China Finance Online (JRJC), Cintas (CTAS), Forward Industries (FORD), Luby’s (LUB), NeoPhotonics (NPTN), Nike (NKE), Red Hat (RHT), TIBCO Software (TIBX)
Carnival (CCL, $35.99, up $0.65)
January 33 puts (CCL140118P00033000, $0.35, down $0.15)
Thoughts: A close above $36.50 ahead of earnings might be a bullish sign but we feel shares could test the low $30’s if the company offers weak guidance going forward.
Nike (NKE, $76.40, up $0.17)
December 80 calls (NKE131221C00080000, $0.65, flat)
January 80 calls (NKE140118C00080000, $1.10, flat)
January 72.50 puts (NKE140118P00072500, $1.10, down $0.05)
Thoughts: Nike has been hot when reporting earnings over the past 2 years and that trend could continue. Shares made a sharp pullback last week after pushing $80 and we mentioned it could offer a good buying opportunity. Either that, or it was an early warnings sign that shares could test $70 if Wall Street doesn’t approve of its earnings report. It would be hard to bet against Nike but we have listed some puts options as a way to play a possible strangle option trade.
Friday
Before the open: BlackBerry (BBRY), Carmax (KMX), Finish Line (FINL), Piedmont Natural Gas (PNY), Shiloh Industries (SHLO), Walgreen (WAG)
After the close: ASA (ASA)
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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 12/13/13)
Our Weekly Wrap Closed Trade Track Record for 2013 is 40-4 (84-6, overall since the start of 2011).
Ariad Pharmaceuticals (ARIA, $3.97, down $0.07) Stock Trade
Original Entry Price: $4.95 (10/25/13)
Lowered Price from Selling Options: $4.95
Exit Target: $8-$10
Return: -20%
Stop Target: $2
Action: On a technical level, there is a gap to fill from $6 to $17. There is risk down to $2, or worse, on negative developments.Shares were recently upgraded by Stifel to a “Buy” rating from “Hold” with a $7 Price Target.
WhiteWave Foods Company (WWAV, $22.67, up $0.01)
January 22.50 calls (WWAV140118C00022500, $1.00, flat)
Original Entry Price: $0.55 (11/11/13)
Exit Target: $1.10
Return: 82%
Stop Target: None
Action: Shares traded to a high of $23.53 on Monday on news the company agreed to acquire Earthbound Farm for $600 million. The deal will add 7 cents to WhiteWave’s bottom line. The options reached $1.40 on news and we probably should have closed half the trade as the position was up 155%. We have a near-term Price Target of $25 on the stock that should trigger on a close above $23.50. We could exit the trade if shares fall below $22. If so, we will send out a Trade Alert.
H&R Block (HRB, $28.04, down $0.11)
January 30 calls (HRB140118C00030000, $0.10, flat)
Original Entry Price: $1.10 (11/5/13)
Exit Target: $2.20
Return: -91%
Stop Target: None
April 32 calls (HRB140419C00032000, $0.55, flat) LEAP Option
Original Entry Price: $0.95 (11/5/13)
Exit Target: $1.90+
Return: -42%
Stop Target: None
Action: The company missed earnings by a nickel and fell short on revenue when they reported earnings last week. Management is hoping 2014 is a turnaround year. Shares tested $27 following the news but rebounded to clear $28 late in the week. Resistance is at $29 and if cleared would be bullish. A close below $27 would force us out of the trades.
Millennial Media (MM, $6.42, up $0.14) Stock Trade
Original Entry Price: $6.95 (10/25/13)
Lowered Price from Selling Options: $6.95
Exit Target: $14
Return: -8%
Stop Target: $5
February 10 calls (MM140222C00010000, $0.25, flat) LEAP Option
Original Entry Price: $0.50 (10/25/13)
Exit Target: $1.00
Return: -50%
Stop Target: None
Action: Shares challenged $6.50 all week and we mentioned a close above $6.45-$6.50 would be bullish for a run past $7. Support at $6.25 has been holding with $6 serving as backup. We believe the company is a takeover target that could catch a bid from Twitter or Facebook and why we are playing the LEAPs. The symmetrical triangle that has formed usually leads to a massive breakout (or breakdown).
Boston Scientific (BSX, $11.39, down $0.09) Stock Trade
Original Entry Price: $12.29 (10/21/13)
Lowered Price from Selling Options: $12.29
Exit Target: $15
Return: -7%
Stop Target: $10
January 13 calls (BSX140118C00013000, $0.15, up $0.05)
Original Entry Price: $0.45 (10/21/13)
Exit Target: $1.35
Return: -82%
Stop Target: None
Action: Near-term support is at $11.25 and a close below this level would be bearish. A pop past $13.50 and then $13.75 would suggest a run to $12 could be in play. There was a recent analyst upgrade to Outperform from Market Perform after favorable results for the company’s Precision Spectra system.
Pizza Inn Holdings (PZZI, $8.24, down $0.06) Stock Trade
Original Entry Price: $8.10 (10/11/13)
Lowered Price from Selling Options/ Dividends: No options available
Exit Target: $12+
Return: 2%
Stop Target: $7
Action: Support is at $8 with resistance at $9 as you can see from the current 3-month trading range below. A break out of the box could lead to a 10% move.
ALC Hospitality is the latest to join the Pie Five craze as they were awarded 38 franchises last week. The units will be developed near Our Town in northern VA, Maryland and DC. This gets the number of Pie Fie stores in development for 2014 to 150 and we love this stock as a long-term core holding. This is our third trade on PZZI as we have been bringing you this story since shares were under $4. It is not too late to get in as we have said the stock could run to $15-$20 over the next 12-24 months.
Aruba Networks (ARUN, $16.13, down $0.03) LEAP Option Trade
January 20 calls (ARUN140118C00020000, $0.15, flat)
Original Entry Price: $1.45 (10/11/13)
Exit Target: $2.90
Return: -90%
Stop Target: None
Action: Shares traded to a low of $15.97 on Thursday and $16 on Friday. A close below $16 will likely led to $15 and possibly 52-week lows. We will give the trade wiggle room to $15 and we would like to see $17 clear this week.
Sonus Networks (SONS, $2.74, down $0.04)
Original Entry Price: $3.73 (9/9/13)
Lowered Price from Selling Options: $3.73
Exit Target: $5
Return: -27%
Stop Target: $2.50
Action: Support is at $2.70 with risk down to $2.50 on a close below this level. A rebound above $2.90 and the 20-day MA would be bullish.
Krispy Kreme Doughnuts (KKD, $18.04, down $0.22) Short Position
Original Entry Price: $18.92 (9/4/13)
Lowered Price from Selling Options: None
Exit Target: $16
Return: 5%
Stop Target: $26
Action: Our patience has finally paid off. We were going to send out a Trade Alert on Friday’s dip to $17.80 but we we are holding out for a test to $17.50. Resistance is at $19 that served as prior support.
Galena Biopharma(GALE, $4.14, down $0.05)
Original Entry Price: $2.12 (7/8/13)
Lowered Price from Selling Options: $2.12
Exit Target: $5
Return: 95%
Stop Target: $3.75 (Limit Stop)
Action: Our Stop Target came into play last week after shares fell below $4 to a low of $3.70 during Wednesday’s session. We have now made this a Limit Stop. Shares rebounded to clear $4 again and resistance is at $4.50.
Oppenheimer recently initiated coverage of the stock on Tuesday with a Price Target of $6. This is a buck higher than our near-term Price Target of $5. There is little analyst coverage on the Street but the company is starting to get noticed. If shares do reach $6 we will bank nearly a 200% gain.
Exact Sciences (EXAS, $12.14, up $0.30)
Original Entry Price: $13.55 (6/11/13)
Lowered Price from Selling Options: $12.40
Exit Target: $16+
Return: -2%
Stop Target: $10.45
Action: Resistance is at $12.25-$12.50 and a close above this level would be bullish for a run past $13 that could lead to $14-$15. Support is at $11.50 and the 50-day MA with risk down to $11 on a close back below these levels.
We recommended buying Exact Sciences at $13.55 on 6/11/13. On 7/11/13 we sold the August 15 calls for 55 cents that lowered our cost basis to $13.
On 9/10/13 we sold the October 14 calls for 60 cents that lowered our cost basis to $12.40.
Trades on HOLD (7): DryShips (DRYS, $3.66, up $0.17), AKS Steel Holding (AKS, $5.96, up $0.20), Rare Element Resources (REE, $1.36, down $0.04), Rambus (RMBS, $9.54, down $0.03), Bebe Stores (BEBE, $5.01, down $0.01), Vivus (VVUS, $9.74, down $0.10), Dendreon (DNDN, $3.32, up $0.11)
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5. Week Ahead
Here is a chart of the events for the week ahead:
