MomentumOptionsTrading.com Weekly Wrap for 12/8/13
11:30pm (EST)
1. Market Summary
2. Ariad Pharmaceuticals (ARIA) Still Risky but FDA Could Rescue Shares
3. Earnings
4. Weekly Wrap Portfolio Update
5. Week Ahead
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Special Notice: We have been battling ice storms all day and apologize for the delay. We lost power and had to relocate the office overnight but warmer weather is ahead so we should be back on track by Monday morning. We could have Trade Alerts of Trade Updates after the open on Monday so stay locked-and-loaded.
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1. Market Summary
“We mentioned a few weeks ago once the indexes broke out of their trading ranges we expected a rally to last until mid-December. All of our bullish indicators are playing out well as the Dow Theory trends we covered in early November played out like a fiddle and was our first sign a break out of a sticky trading range was coming. The Monday/ Friday closes have also been great clues but the Dow did slip this past Friday. A higher Monday might make this a non-issue but if the blue-chips close lower on Monday, the bears could be getting ready for an attack.
We have talked about the small-caps leading the way higher on a breakout and that trend is also playing out like we penciled-in. The Russell 2000 also shows strength from mid-December into January and will shape the “January Effect”. We will discuss this historical trend in the next week or two along with the Santa Claus rally that DOES NOT start UNTIL AFTER Christmas. The suit-and-ties and talking heads get this wrong every year and can get disappointed on down days ahead of Christmas. They will say the Santa rally is fading or isn’t coming but if there is one it will come during the last 5 days of the month and the first 2 trading days of the year.
If the aforementioned trends start to reverse, we will know the bears are hungry. On the flip side, the bulls could be setting some traps ahead of the blow-off the roof top type rally that often accompany an over-extended bull market. This means while there could be some weakness this week, as long as support holds, the market should chug along nicely into yearend.
Either way, the action promises to be exciting in December and while our chips are on the bulls, we need to protect them and start cashing them in if there is a pullback and support starts to crack.”(from 12/1/2013 Weekly Wrap…)
The bears left some good clues on Black Friday that this past week would be volatile and we warned a test to support could come following a run by the bulls to fresh all-time highs.
The week started off with a lower Monday and a test to the first wave of support followed by a close below on Tuesday. Wednesday’s pullback got the second layers of support in play and our downside targets were right on point as they also held.
Thursday’s action was choppy and the final numbers favored the bears heading into Friday’s Nonfarm Payroll report. The big negative was the VIX ending above 15. However, there were also some bullish signs as the small-caps finished the day higher while the major indexes held support with higher lows than Wednesday.
This gave us an inkling the bulls might rebound after four days of selling pressure and they didn’t let us down as Friday’s rebound nearly gave the bulls the weekly win. (continued…)
The Dow surged 198 points, or 1.3%, to close at 16,020 on Friday. The blue-chips traded to a high of 16,098 on Monday’s open before fading below 16,000 and finishing at 16,008. We mentioned a close below this level would get 15,800 and the second layer of support in play and Tuesday’s drop to 15,859 and close at 15,914 took care of both assumptions. The drop below the 20-day MA pointed to more weakness and Wednesday’s back test to 16,000 was the perfect setup before the freefall to 15,791. The 169-point swing ended with a close at 15,889. Thursday’s low reached 15,809 and was also a good sign the bulls would rebound as Friday’s high reached 16,022. Resistance is at 16,100 and a close above this level will get our yearend fluff targets of Dow 16,200-16,350 back in play. A close below 15,800 will likely lead to a test to 15,600 and the 50-day MA. For the week, the Dow fell 66 points, or 0.4%, after starting at 16,086. For the year, the blue-chips are up 2,916 points, or 22.3%, after starting at 13,104.
The S&P 500 zoomed 20 points, or 1.1%, to settle at 1,805.09. The index made a run to 1,810 to start the week but fell short of clearing Black Friday’s all-time high of 1,813 and challenging our near-term target of 1,825. The bears went to work shortly afterwards and pushed a low of 1,798 with the S&P ending just a point above 1,800. We warned a test to 1,775 could come on a close below the this level and Tuesday’s low reached 1,787 with a close at 1,795. The bulls tried to rebound on Wednesday and reclaim 1,800 but fell just short after kissing 1,799.80. The index traded down to 1,779 afterwards and we said to look for 1,775 to hold and recovered by the close to end with just a 2-point loss to 1,792. Thursday’s low reached 1,783 before Friday’s run to 1,806. Resistance is at 1,810 and a run to 1,825 could come if cleared while a close below 1,800 and then 1,775 would likely lead to a test to 1,750 and the 50-day MA. The S&P 500 came into Monday’s session at 1,805.81and slipped 3/4’s of a point, or 0.04%, for the week. Year-to-date, the index has advanced 379 points, or 26.6%, after coming into the year at 1,426.
The Nasdaq jumped 29 points, or 0.7%, to finish at 4,062. Tech came within a point of clearing fresh 52-week highs with the opening pop to 4,068 but the rest of the day was a battle as the index tested 4,040 and closed at 4,045. We mentioned on Tuesday morning the bulls had a 1% cushion before 4,000 tripped and that a close below this level would get 3,950 in the mix. We also said if the bulls held there was still a good chance they could push 4,200 over the near-term. The low for the day was 4,022 and we said specifically to watch 4,025 as a pivot point. The close checked-in at 4,037. Wednesday’s action saw nearly a 50-point swing with the bulls testing 4,051 while the bears pushed 4,004 before settling at 4,038. Thursday’s low reached 4,025.26 and we yelled bingo with the close at 4,033. Friday’s run reached 4,069.86 and represented a fresh 52-week intraday high. The Nasdaq began the week at 4,059 and added 3 points, or 0.1%, by Friday’s close. For 2013, Tech has soared 1,043 points (started at 3,019.51), or 34.5%.
The Russell 2000 added 9 points, or 0.8%, to end at 1,131 on Friday. The small-caps led Monday’s charge lower as they spent the entire session in the red and traded down to 1,127 before ending 2 points higher, Support at 1,125 held but we cautioned there was further weakness to 1,110-1,000 on a close below this level. Tuesday’s low of 1,119 ended with a close at 1,123 that led to Wednesday’s wild ride. The index made a run past resistance at 1,125 to 1,129 but fell nearly 2% to 1,111 before rebounding to 1,121 by the close. Near-term support at 1,110 held and we said if the bulls could reclaim 1,025-1,030 there could be another run to all-time highs and our fluff target of 1,150. Thursday’s action was bullish as the small-caps held positive territory for much of the session and finished in the green at 1,122. Friday’s high reached 1,135 and the 52-week high is at 1,147 reached on BF. The Russell 2000 was at 1,142.89 before Monday’s open and gave back nearly a 12-pack, or 1%, for the week. YTD, the small-caps are higher by 282 points (started at 849), or 33.2%.
The S&P 500 Volatility Index ($VIX, 13.79, down 1.29) came into the week at 13.70 and we talked about the 5% pop on Black Friday. We have been warning NOT to flinch (or get bearish) until 15 trips and Monday’s high reached 14.31 with a close at 14.23. The close back above 13.50 was a warning sign 15 would be tested and Tuesday’s high reached 15.04 before a close at 14.55. We didn’t flinch on Wednesday’s peak of 15.71 because the VIX finished at 14.70 but we did on Thursday. The VIX closed at 15.08 and we had a decision to make. We could have started bearish positions and loaded up on index put options on Thursday’s close and ahead of Friday’s Nonfarm Payroll report. This is what a lot of short sellers did but they were burned as that strategy has failed all year. We trusted our gut and said to stay long and we should have backed that up with call options but we didn’t need the added risk as we still have a number of bullish trades still open. A close back below 13.50 to start the week would be bullish but 15 is still in play with a possible stretch to 17.50 on negative headlines.
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.
As we head to press, futures look like this: Dow futures are up 28 points to 16,041 while the S&P 500 futures are higher by 3 points to 1,808. The Nasdaq 100 futures are up 7 points to 3,511.
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2. Ariad Pharmaceuticals (ARIA) Still Risky but FDA Could Rescue Shares
By Michael Bryant
Ariad Pharmaceuticals (ARIA, $4.07, down $0.50) seems to be making a comeback after the stock took a big fall in October and continues to be volatile.
The company was founded in 1991 by Larry Bock, David Blech, and Harvey Berger. Later known as the “King of Biotech,” Blech graduated from New York’s Baruch College and earned a Master’s in Music Education at the Teacher’s College of Columbia University. In 1980, he was working as a stockbroker while trying to become a songwriter. That fall, biotechnology pioneer Genentech went public, and its share price doubled the first day. He saw this as an opportunity. He had previously been successful in quickly tripling his money in the stock market, but lost it all just as quickly. He decided it was easier to start a company. He developed a plan for a genetics company, which was named Genetic Systems. He found an article in a science magazine about Robert Nowinski’s work at the Fred Hutchinson Cancer Research Center in Seattle on a new technology involving monoclonal antibodies. Blech teamed up with Nowinski, raised $1 million, and took the company public. In 1986, Bristol-Myers Squibb (BMY) acquired Genetic Systems for nearly $300 million. Blech went on to found or co-found many other biotechs including Celgene, DNA Plant Technology, Neurogen, Incyte Pharmaceuticals (INCY), Alexion Pharmaceuticals (ALXN), Neurocrine Biosciences (NBIX), Cytosorbents, and Intellect Neurosciences. He attracted top scientists, directors, and advisers by offering them stock and a chance to get rich. In 1990, he formed D. Blech & Company, a registered broker-dealer involved in underwriting biotechnology issues. The firm was underwriter for Ariad.
Co-founder Larry Bock graduated in biochemistry from Bowdoin College and has an MBA in Finance/Entrepreneurial Studies from the Anderson School at the University of California, Los Angeles. After graduation, he spent three years as a researcher for Genentech, where his team demonstrated the world’s first recombinant DNA vaccine. He then spent many years in the venture capital industry, starting as an intern, associate, and then general partner. Like Blech, Block also founded, co-founded, or financed many other biotechs including Metra Biosystems, Pharmacopeia (PCOP), Neurocrine Biosciences, Argonaut Technologies (AGNT), and Caliper Technologies (CALP).
Principal founder Harvey Berger has a degree in biology from Colgate University and an M.D. degree from Yale University School of Medicine. He currently serves as the company’s Chief Executive Officer, Chairman of the Board, and President. From 1986 to 1991, he worked in executive management positions at Centocor, a biotechnology company that initially focused on developing new diagnostic assays using monoclonal antibody technology. Wanting to start a company, he met with Larry Bock and David Blech. They chose to use a hot new technology called signal transduction and gathered well-known names on the advisory board along with an experienced management team to win investors. Blech provided seed funding for the company.
Drugs typically work at the cell surface level, so this technology was revolutionary and made it possible to design drugs targeting disease-causing signals and disrupting them without side effects.
Investors, hyped about the company’s prospects, helped it raise $46 million in a private placement on January 22, 1992, even as it had an unproved technology and no products in sight. This made it the largest startup deal in biotech history.
On May 27, 1994, the company sold 2,125,225 units in an initial public offering, each unit containing one share of common stock and one warrant to purchase one share of common stock. The company raised net proceeds of $14,500,000 after deducting selling commissions and offering expenses. Of the units being sold, 1,900,000 were offered to the public at a price of $8.00 per unit, and 225,225 units were offered to Genentech at a price of $8.88 per unit. Units were quoted on the NASDAQ under the symbol (ARIAZ).
On September 19th, the publicly traded units issued in the IPO were separated into 2,125,225 shares of common stock and an equal number of warrants. Common stock was quoted under the ticker (ARIA) and warrants were quoted under the ticker (ARIAW) on the NASDAQ.
On September 22nd, D. Blech & Company, Ariad’s underwriter, was in violation of net capital rules and ceased operations, dragging biotech share prices down with it. David Blech was sentenced to five years probation for securities fraud and attempting to manipulate biotech stock prices. But when he finished his probation, he went back to stock manipulation which led him to start a four-year prison sentence in 2012.
On December 14, 2012, the FDA approved Iclusig (ponatinib) to treat adults with chronic myeloid leukemia (CML) and Philadelphia chromosome positive acute lymphoblastic leukemia (Ph+ ALL), two rare blood and bone marrow diseases. The drug blocks certain proteins that promote the development of cancerous cells. It is taken once a day to treat patients with chronic, accelerated, and blast phases of CML and Ph+ ALL whose leukemia is resistant or intolerant to a class of drugs called tyrosine kinase inhibitors (TKIs). Iclusig targets CML cells that have a particular mutation, known as T315I, which makes these cells resistant to currently approved TKIs. Wholesale price is about $115,000 a year, 15% higher than the drug’s competitors’.
Global sales of Novartis’ (NVS) tyrosine kinase inhibitor Gleevec were $4.7 billion in 2011. But about 20% to 30% of patients have cancers that do not respond to Gleevec or develop resistance to it. Bristol-Myers Squibb’ (BMY) Sprycel attempts to fill this gap, but some patients still do not respond to it. In August, the company said that after patients had failed one tyrosine kinase inhibitor, doctors were increasingly turning to Iclusig as the second choice rather than prescribing the other first-line tyrosine kinase inhibitor that had not been used. It estimates there are 2,500 patients in the United States, 3,800 in Europe and 600 in Japan that are resistant or intolerant to existing therapy. CEO Dr. Harvey Berger said he expected annual sales to reach $600 million to $800 million in a few years.
However, on October 9th, shares fell about 70% as the company announced that Iclusig causes serious arterial thrombosis (blood clots) in more patients than previously reported. After 11 months, serious arterial thrombosis occurred in 8% of patients, but follow-up data from its pivotal trial show that the number of patients increased to 11.8% after patients were treated for a median of 24 months. The stock fell another 44% after announcing that the FDA temporarily suspended sales of Iclusig due to blood clot risks.
But on November 22nd, shares surged 40% after the Committee for Human Medicinal Products of the European Medicines Agency recommended the continued use of Iclusig. Instead of pulling the drug from the market, the EMA decided to make recommendations to minimize the risk of adverse vascular events. We expect the FDA to eventually do the same.
At $4 and change, the stock is above its median target of $2.50 made by the 14 analysts recorded by Thomson/First Call. Mean target is $3.43, low target of $2.00, and high target is $12.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 3.2, unchanged from a week ago.
|
|
Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
|
Strong Buy |
6 |
6 |
9 |
9 |
|
Buy |
5 |
5 |
11 |
9 |
|
Hold |
11 |
11 |
4 |
4 |
|
Underperform |
1 |
1 |
0 |
0 |
|
Sell |
1 |
1 |
0 |
0 |
This is a risky stock that could recover if the FDA reverses course but we are in on a technical basis and would like to see a move past $6. (chart work below)
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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 12/6/13 close)
Monday
ABM, ALOG, CASY, CMTL, ENZ, FEIM, GEF, HITK (thinly traded), Layne Christensen (LAYN, $15.72, down $0.38) wide bid/ask, MCC, Pep Boys (PBY, $13.44, up $0.07) 5%-10% move, PVH, SCIE, TPLM, Vail Resorts (MTN, $74.90, down $0.04) always moves, ZOLT (research)
Constellation Brands (STZ, $70.65, up $0.57)
December 70 calls (STZ131221C00070000, $1.50, up $0.45)
December 72.50 calls (stz131221C00072500, $0.40, up $0.15)
Thoughts: We missed the bullish breakout from the $30’s and shares look poised for a run past $75 or for a pullback to $65.
Tuesday
AZO, AVNR, BLIN, BURL, CENT, HRB (earnings), HDS, IRET, KMG (possible), LDOS, PLAB, PTRY, Smith & Wesson (SWHC, $12.21, up $0.23) 5%-10%
Toll Brothers (TOL, $32.89, up $0.15)
December 34 calls (TOL131221C00034000, $0.55, up $0.05)
Thoughts: These options traded over 2,200 contracts on Friday and there could be a run past $35 coming. We already have an open call play on the housing sector for the Daily so we will likely sit on the sidelines with this trade but we like it. The company reports ahead of Tuesday’s open so you will need to be in before Monday’s close if you want some action.
Wednesday
ASYS, Costco Wholesale (COST, $122.06, up $1.11), Hooker Furniture (HOFT, $16.62, up $0.58), Men’s Wearhouse (MW, $50.73, down $0.40) 5%-10% move, MNR, NDSN, OXM (possible), SIGM, Vera Bradley (VRA, $23.20, down $0.78) stangle trade or puts
Joy Global (JOY, $55.98, up $0.45)
January 60 calls (JOY140118C00060000, $1.10, up $0.20)
Thoughts: We have traded this name in the past and we could get into these call options if shares clear $57. Earnings are due out on Wednesday.
Thursday
Adobe Systems (ADBE, $55.60, down $0.56), APFC, CHKE, CNSI, HOV, LULU, ZQK
Restoration Hardware (RH, $72.52, down $0.52)
December 80 calls (RH131221C00080000, $1.40, down $0.60)
December 65 puts (RH131221P00065000, $1.35, up $0.25)
Thoughts: This was a recent IPO we use to follow in the past on a company we were bearish on when the stock traded. The company went private (or bankrupt, we can’t remember) and was recently reintroduced through the IPO. Maybe things have turned around from a decade ago and we love their stores but we have no clue how shares are going to react. The options have a hefty premium and are overpriced and another reason we will likely sit out but it will be interesting to see how shares react.
Friday
OPTT, VALU
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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 12/6/13)
Our Weekly Wrap Closed Trade Track Record for 2013 is 40-4 (84-6, overall since the start of 2011).
Ariad Pharmaceuticals (ARIA, $4.07, down $0.50) Stock Trade
Original Entry Price: $4.95 (10/25/13)
Lowered Price from Selling Options: $4.95
Exit Target: $8-$10
Return: -18%
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.
WhiteWave Foods Company (WWAV, $21.78, up $0.29)
January 22.50 calls (WWAV140118C00022500, $0.30, up $0.05)
Original Entry Price: $0.55 (11/11/13)
Exit Target: $1.10
Return: -45%
Stop Target: None
Action: A close above $22 would be bullish for a breakout to new highs. A drop below $20.75 would be bearish and could put $20 in play. We still believe shares can reach $25 by mid-January that would get these options to at least $2.50 for a monster return. However, if shares fall below $20 we will likely close the trade.
H&R Block (HRB, $29.01, up $0.47)
January 30 calls (HRB140118C00030000, $0.65, up $0.15)
Original Entry Price: $1.10 (11/5/13)
Exit Target: $2.20
Return: -41%
Stop Target: None
April 32 calls (HRB140419C00032000, $0.85, up $0.15) LEAP Option
Original Entry Price: $0.95 (11/5/13)
Exit Target: $1.90+
Return: -11%
Stop Target: None
Action: Shares are breaking out of their symmetrical triangle that usually leads to a huge move forthcoming. With earnings due out after Tuesday’s close, shares will likley zoom past $30 or retest $27.50-$27 as we are expecting at least a 5% move. A 10% pop will push shares near $32 or down to $26. A close above $29.50 might suggest they will come in with better-than-expected numbers.
Millennial Media (MM, $6.19, down $0.08) Stock Trade
Original Entry Price: $6.95 (10/25/13)
Lowered Price from Selling Options: $6.95
Exit Target: $14
Return: -11%
Stop Target: $5
February 10 calls (MM140222C00010000, $0.20, flat) LEAP Option
Original Entry Price: $0.50 (10/25/13)
Exit Target: $1.00
Return: -60%
Stop Target: None
Action: We mentioned a close below $6.25 could lead to a retest of $6 and last week’s low was $6.10 midweek. The next layer of support is at $5.75. A close above $6.45-$6.50 would be bullish for a run past $7. We believe the company is a takeover target that could catch a bid from Twitter or Facebook and why we are playing the LEAPs.
Boston Scientific (BSX, $11.85, up $0.51) Stock Trade
Original Entry Price: $12.29 (10/21/13)
Lowered Price from Selling Options: $12.29
Exit Target: $15
Return: -4%
Stop Target: $10
January 13 calls (BSX140118C00013000, $0.15, up $0.05)
Original Entry Price: $0.45 (10/21/13)
Exit Target: $1.35
Return: -67%
Stop Target: None
Action: We were faked out in the Daily after shares fell below their 100-day MA but we should have allowed for room down to $11. Friday’s rebound to the 20-day and 50-day MA’s could lead to a break past $12 and a test to the 52-week high of $12.48. There was an analyst upgrade to Outperform from Market Perform after favorable results for the company’s Precision Spectra system.
Pizza Inn Holdings (PZZI, $8.25, down $0.10) 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: Resistance remains at $9 and a close above this level should get double-digits in play. Support is at $8. The company has over a 115 Pie Five stores that are slated to open in 2014 and we love this stock as a long-term core holding. This is our third trade on PZZI as we have been bringing you this story since shares were under $4. It is not too late to get in as we have said the stock could run to $15-$20 over the next 12-24 months.
Aruba Networks (ARUN, $17.48, down $0.41) LEAP Option Trade
January 20 calls (ARUN140118C00020000, $0.25, down $0.10)
Original Entry Price: $1.45 (10/11/13)
Exit Target: $2.90
Return: -83%
Stop Target: None
Action: Shares made a run at $18 but had trouble clearing the 50-day MA before falling 2% and back to support at $17.50. There is further risk down to $17-$16.50 but we still like the company as a takeover target as we wait for $20 to trigger.
Sonus Networks (SONS, $2.91, up $0.05)
Original Entry Price: $3.73 (9/9/13)
Lowered Price from Selling Options: $3.73
Exit Target: $5
Return: -22%
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 $3.15 and the 50-day MA would be bullish.
Krispy Kreme Doughnuts (KKD, $19.97, up $0.24) 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: Krispy Kreme beat Wall Street’s estimates by a penny, but revenues missed and they lowered guidance. “Adjusted” earnings came in at $0.16 a share versus the suit-and-ties forecast for $0.15 a share. Revenues for the quarter checked-in at $114.2 million versus estimates for $114.6 million. Same-store-sales were up 3.7% here at home but international sales are struggling and are going south.
We have been bearish on the stock since early September and have said shares could trade into the mid-teens this year and Tuesday’s low was $19.57. The next layer of support is at $19 followed by $18.25. Resistance is trying to hold at $20 but could get stretched to $22 and the 100-day MA on a back test.
Galena Biopharma(GALE, $4.43, down $0.11)
Original Entry Price: $2.12 (7/8/13)
Lowered Price from Selling Options: $2.12
Exit Target: $5
Return: 109%
Stop Target: $3.50, raise to $3.75
Action: Shares traded to another fresh 52-week peak of $4.52 on Monday and topped that with Tuesday’s surge to $4.77 before fading to $4.15. Galena closed above $4.50 on Wednesday and Thursday before slipping below this level on Friday. Support is at $4 followed by $3.50. We have raised the Stop Target and have made it a Limit Stop to protect profits.
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, $12.12, down $0.09)
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: Shares held $12 until midweek but tested a low of $11.81 midweek. Support is at $11.75 and the 20-day MA with risk down to $11.25. The stock tested $12.50 to start the week and a close above this level would be bullish for a run past $13 that could lead to $14-$15.
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, $3.50, down $0.10), AKS Steel Holding (AKS, $5.70, down $0.20), Rare Element Resources (REE, $1.50, down $0.04), Rambus (RMBS, $8.58, up $0.02), Bebe Stores (BEBE, $5.31, down $0.05), Vivus (VVUS, $9.73, up $0.10), Dendreon (DNDN, $3.01, down $0.01)
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5. Week Ahead
Here is a chart of the events for the week ahead:
