11:30pm (EST)
1. Market Summary
2. Targeting American Homes 4 Rent (AMH)
3. Earnings
4. Weekly Wrap Portfolio Update
5. Week Ahead
1. Market Summary
“Last week, we talked about the impressive gains the indexes made in February and we wanted to expand our thoughts on how it could effect March.
The month of March has been bullish over the past 30 years with the S&P 500 trading higher in 20 of them with an average gain of 1.4%. There is usually strength mid-month followed by weakness near month end.
This past February was super bullish following the strong rebound off the beginning of the month lows as the S&P 500 jumped 4%.
Usually when there is a stellar gain in February, the better the return for March can be. When the S&P 500 has finished with a gain of more than 2% in February, over the past 40 years, the March gains have averaged 2.5%.
Even better, over that same time period, even when February was negative, the March pops have averaged 1% and the S&P has been finished in positive territory 65% of the time. When the index has gained 2+% in February the index has been positive for March 80% of the time.
However, we have mentioned in recent years volatility has been off the charts and the last week of March can be brutal as fund managers lock-in any 1Q profits to make the books look pretty.
The same scenario could be playing out this year like it did last as most fund managers are behind the market’s gains for the year. This means they could keep chasing the market higher into the end of March but being long over the weekend has its risks given the current geopolitical tensions and saber rattling.
The Monday/ Friday closes have been mixed of late and we wanted to cover the action in February (and last week) following the 4% gain on the Dow. To review, the January Monday/ Friday closes produced 717 points of the Dow’s 878 point loss for the month.
In February, there were 3 trading Monday’s and 4 Friday sessions. The Monday’s in February lost 215 points on the Dow while the Friday’s produced a gain of 312 points for an overall gain of 92 points. We mentioned last week the Dow gained 623 points in February, or 4%, and this was only a 15% contribution.
For March, last Monday the Dow fell 153 points and was up must 31 points on Friday.
For our new subscribers, we watch the Monday/ Friday closes as one of our market indicators on price action as weak M/F endings are usually bearish and indicates money may be moving out of the market. Up Monday/ Friday closes are usually bullish and can indicate money is moving into the market.
The current M/F closes feel bearish and if this Monday and Friday are negative, it could be a good clue a short-term top is in. A bullish Monday/ Friday close this week would likely signal a breakout on the Dow.
As a side note, the losses for the Dow on the first trading day of the month for 2014 have been brutal with the bears accounting for 614 negative points. This could also be an important market clue if there is window-dressing at the end of this month as somebody could be made an April fool.
This past weekend was the 5-year anniversary of a 5-year bull run that has seen the S&P 500 gain 182% since bottoming at 666 intraday on March 6, 2009.
The number itself represented a devilish view of the market at the time and something we vividly remember as most stocks were crushed when the market went to hell in a hand basket. Most seasoned pros and investors panic during selloffs and corrections because they don’t know how to play pullbacks but not us. We were busy recommending PUT options to our subscribers as we loved every minute of it.
The Dow touched a low of 6,469 in March 2009 and lost HALF its value after peaking at 13,136 on May 19, 2008. The 51% drop took just 10 months. Even scarier, the blue-chips were at 10,850 to start October 2008 and fell 40% in just 5 months before bottoming at 6,469. The Dow has rebounded 154% since then.
The rise since the aforementioned 2009 lows has been staggering to say the least but we wanted to cover the selloff that preceded the lows because it is important to always respect the bears. We often say the bulls like to take the stairs higher while the bears like to use the elevator. We could care less where the market is really headed because we play the trend but it is important to know how each side like to roll.
As a side note, the Nasdaq is up 245% and the Russell 2000 is up 253% since the March 2009 lows.
Needless to say, looking at the gains, it is easy to say the market is frothy and why the talking heads keep questioning the rally. Of course, they worry over pullbacks as well and are just cheerleaders of the market. We rely more on chart work than emotion and as many of you know, we have been lights out in calling this incredible rally for a few years now.
We said last week we expect 1,909 to trigger before a possible pullback but we have also said the S&P 500 could trade to a high of 2,100 by yearend. For new subscribers, here is the 10-year chart we drew up in February and our yearend prediction on the index. (S&P 10-year chart)
We also wanted to show the Russell 2000 with the mysterious print of 1,213 on December 23, 2013 that has been erased from the history books. We saved the chart from the beginning of the year for this particular reason and at current levels, the index would be at a double-top. These types of technical patterns can be bullish or bearish.
The month of March can feel ominous as it represents additional market bottoms (and tops). In addition to the 5-year celebration off the 2009 lows, this month also represents the 11-year anniversary bounce from the 2003 market bottoms as well as the 14-year mark of the 2000 market peak.
As the indexes test their upper channels, our fluff targets from December are still in play and we recently made a strong case for S&P 1,909 before a possible pullback. This level could be challenged this month if the geopolitical events do not escalate but the tensions could lead to some choppy action for the remainder of the month.
If support holds on a pullback from here, we might have to wait until April before our fluff targets are triggered. However, if the 10-year uptrend lines are penetrated by the bears then there could be a correction coming that Wall Street isn’t prepared for.
We hate talking politics and we have no way of knowing what will or won’t happen between Russia/ Ukraine and all other sides involved over the next several weeks. We would love to say the saber-rattling ends peacefully but we don’t expect that to be the case. When zombies are in charge anything can happen so we have to watch the rear-view mirror.
There have been major market turns in March but not really any major pullbacks in March since the 2009 lows. March is usually a bullish month for the market, overall, with weakness in the back half. April is also bullish, historically, before the “sell in May and go away” possibility comes into play.
If the bulls can get off to a good start on Monday and hold any significant gains there could be a continued rally this week. If not, we will be watching key support levels for clues of a further slide or a possible trading range developing.” (from 3/9/2014 Weekly Wrap…)
The market trended lower throughout last week as the bears pushed support and are zeroing in on the 50-day MA’s (moving averages). Worries over China, Russia and Ukraine, and the growth prospects here at home weighed on the indexes as the S&P 500 joined the Dow into negative territory for the year.
The bulls are still holding gains on the Nasdaq and Russell 2000 and the Transports are still up 1% for the year. Biotech and the Financial stocks also slipped but are still in the green but Wall Street and the world took insurance out ahead of Crimea’s vote to join Russia. (continued…)
The Dow fell 43 points, or 0.3%, to close at 16,065 on Friday. The blue-chips tested the first wave of support at 16,350 on Monday after trading to a low of 16,334 but held 16,400. Tuesday’s high reached 16,460 on the open but another failed attempt at 16,500 led to a lower low of 16,325 and a close at…16,351. Wednesday’s 13-point attempt to 16,364 was a weak effort to recover 16,400 and resulted in another lower low as the index touched 16,260 before ending at 16,340. This was a good clue 16,200-16,000 would be tested and the close on Thursday split the difference at 16,108. The bears pushed 16,084 and got a close below the 50-day MA and on Friday pushed 16,046 and the 100-day MA. This level did not hold in late January and any dip below 16,000 could easily lead to 15,800-15,600 this week. A close below the latter and the 200-day MA would be extremely bearish. If the bulls can recover just 1% and are able to clear 16,200 on Monday’s open, there could be a massive short-covering rally to new highs. For the week, the Dow declined 387 points, or 2.4%, after starting at 16,452 and is down 511 points, or 3.1%, for 2014.
The S&P 500 slipped 5 points, or 0.3%, to settle at 1,841. The index traded down 1,867 but was able to hold support at 1,875 to start the week after closing at 1,877. Tuesday’s run to 1,882 on the open failed to clear Friday’s high of 1,883 and was the first troubling sign as the bears forced a low of 1,863 and finish at 1,867. We mentioned a close below 1,875 could lead to a back test to 1,850 and Wednesday’s low reached 1,854 before the index rebounded to end in the green by a point. It was short-lived as the S&P dropped a double-deuce (22 points) on Thursday and traded down to 1,841 before ending at 1,846. Friday’s bottom reached 1,839 and we said in our midday update we wanted to see 1,840 hold into the close. There is risk to 1,825 and the 50-day MA on a close below this level. This would also get 1,800 and the 100-day MA in play if 1,825 fails. If these levels are breached there would be further risk to 1,775-1,750 and the 200-day MA. The bulls can stop the bleeding with an instant rebound past 1,850-1,860 on Monday’s open but need to get back above 1,875 before 1,900 can be considered again. This is only 2% away and our 1,909 near-term fluff target is roughly 3% away. The S&P 500 came into the week at 1,878 and was down 37 points, or 2%, by Friday’s close. For the year, the index is down 7 points, or 0.4%.
The Nasdaq declined 15 points, or 0.4%, to end at 4,245. Tech tested a low of 4,307 to start last week but held support at 4,300 while finishing at 4,334 (down 2 points). Tuesday’s fall to 4,295 also held near-term support with the 4,307 ending but the lower low and break below 4,300 suggested a further dip to 4,250-4,200, quickly. That we got as Wednesday’s trip reached 4,270 but the 53-point bounce off the low ended with a 16-point win to 4,323. We were looking for 4,350 to clear on Thursday and after a run to 4,339.90, the bottom fell out as the index gave back nearly 100 points and tested a low of 4,242 before closing at 4,260. Friday’s low checked-in at 4,241. The bears would love to get the action below 4,200 and the 50-day MA to start the week while the bulls will once again shoot for 4,300. If cleared, it would keep our December fluff targets of 4,300-4,400 in play. The Nasdaq was at 4,336 coming into the week and dropped 91 points, or 2.1%. Tech is still up 69 points, or 1.7%, year-to-date.
The Russell 2000 gained nearly 5 points, or 0.4%, to finish at 1,181 on Friday. The small-caps fell below support at 1,200 and touched 1,193 an hour into Monday’s open but held this level by a half point by the close to close at 1,200.54. We mentioned there would be risk to 1,175 if the bears got below this level and Tuesday’s drop to 1,183 and finish at 1,187 did the trick. Wednesday’s bottom reached 1,177 before a huge rebound to 1,191 by the closing bell. Thursday was a different story. Following a quick test to 1,195, the bears held resistance and broke through the next wave of support to kiss 1,171 before the bulls held 1,175 by a point. Friday’s low touched 1,173 but no one was really talking about the positive day the small-caps had and one of the reason there could be a huge rebound this week. There is risk to 1,150 and the 50-day MA on a close below 1,175 while a pop back above 1,190-1,200 would keep our near-term target (and possible short-term top) of 1,225 in the mix. The Russell came into Monday’s open at 1,203 and gave back 22 points, or 1.8%, for the week. YTD, the small-caps are showing an 18 point gain, or 1.5%.
The S&P 500 Volatility Index ($VIX, 17.82, up 1.60) came into the week at 14.11 and cleared 15 to start the week. We have been saying “no flinching” until 17.50 clears on the close and with 15 holding through Wednesday, the action was still bullish. The midweek peak reached 15.64 but Thursday’s action was a test of nerves as the VIX reached 16.66 and finished at 16.22. Friday’s action continued to favor the bears as they were pushing 17.50 but this level held until our midday Daily update at 2pm. However, as you can see from the 30-minute chart below, the VIX spiked 30 minutes after our update and reached a peak of 18.22 before settling above 17.50.
Punch us once because we twitched on the 10% pop but this level could be “stretched”. However, punch us twice on Monday as there is further risk to 20 on Monday’s open and it triggers. A move above this level will likely lead to 22 and from there could be a surge to 30. This would likely lead to a test of the 200-day MA’s for the major indexes. A close back below 17.50 on Monday and then 15 by week’s end would alleviate some of the current pressure.
The bears are crying wolf once again but after a year of false breakdowns we have become accustomed to their catcalls. While we correctly predicted a test to our near-term downside targets, we remained patient as we said there were bullish signs support would hold. However, there were a few bearish developments late on Friday that showed signs there could be further weakness.
We were ready for another 2-step downslide like the one the market experienced in late January and into February with the bears playing the geopolitical tension card. The flop was Monday through Wednesday’s action with the turn on Thursday and Friday. The bears went all-in again and could be reloading if there is a bounce on Monday and how we are playing this week.
There are other bearish developments that will at some point derail the bulls and they could come this week depending on what the zombies do but let’s take a look at some other indicators we are watching.
We wanted to talk about the tremendous rebound in Gold that has lasted throughout the year after the yellow-metal bottomed in December and finished Friday at $1,182 an ounce. We correctly predicted a back test to $1,200 last year and we said a “double-bottom” could be forming down near $1,175 in December. We figured a back test to $1,200-$1,250 was a given and when $1,300 cleared, we took notice.
The move above the 200-day MA in February has been bullish and there are “golden crosses” forming with the 50-day MA crossing over the 100-day MA and rapidly approaching the 200-day MA. Friday’s high reached $1,388 an ounce and near-term resistance at $1,400 could be cleared this week. There is additional overhead resistance at $1,450 and a move above this level could easily lead to a run to $1,500. There is risk down to $1,350 and would suggest additional selling pressure on a close below this level. If this were the case, $1,300 could be tested and where buyers might step in as long as the 200-day MA holds.
Silver also bottomed in December at $19 and while we were hoping to load the truck up at $17.50, we never got the chance. Friday’s high reached $21.80 with a close at $21.46. Short-term resistance is at $22. A close above this level could lead to a near-term run to $23-$24. Support is at $20.
One major worry we are watching is the destruction in Copper which closed below $3 on Friday. As you can see from the 5-year weekly chart, Copper is in the process of testing it mid-2010 lows and a close below $2.75 would suggest further weakness. We have talked about Copper being a great barometer of global growth as a print above $3 indicates demand is steady but not great. As copper drops, stocks tend to follow, especially Chinese stocks, which have a strong correlation to copper.
There are worries that the recent Chinese data is leading to a massive slow down in the country that has been growing for some time. The country’s head zombie stated the country’s economy may underperform in the months ahead and could drop below 7.5% growth.
The recent corporate debt defaults are also troubling and could lead a “Lehman” moment at some point as they are only likely to increase. China may be letting more skeletons out of their closets as the government has said there won’t be any bailouts. We are looking forward to the day Wall Street doesn’t worry as much about China but this is an ominous sign for the world’s second-largest economy and could cause ripple effects down the road. For now, these developments seem to be in in the rearview mirror.
We are watching the Financials like a hawk as we have mentioned they needed to show some leadership on the next leg higher. While we have our favorites, a quick snapshot of the sector to see if there is strength or weakness, we suggest following the Financial Select Spiders (XLF, $21.80, down $0.14). The index is on the verge of testing its 50-day MA and a close below $21.50 would suggest further weakness down to $20. We would like to see support hold and a rally back above $22 this week.
A positive catalyst could be the upcoming bank stress tests results that are conducted on the largest US banks to determine how prepared they are to withstand another financial crisis if one were to happen.
The Federal Reserve will release these results on Thursday and the news should be very favorable for the market. The tests are required under the banking reform legislation the zombies passed after the 2008 financial crisis and will include the results for J.P. Morgan Chase (JPM), Bank of America (BAC), Citigroup (C), Goldman Sachs (GS) and Wells Fargo (WFC).
We have a possible call option trade on another Financial stock on our Daily Watch List that could be an active trade this week if the Financial stocks show some strength. Last year, similar zombie tests showed 17-of-18 of the largest US banks could easily withstand a possible economic meltdown worse than the 2008 crisis but let’s hope we never have to experience that again.
There are additional test results that will be released next week on Wednesday that will show if banks are holding adequate levels of capital required under the new reforms. Both results will be come after the market closes at 4pm. This will make March option expiration Friday that much more interesting.
Obama has issued some “tough words” for Putin and Russia and possible sanctions by the US and other European countries could come this week following the vote for Crimea to join with Russia late Sunday night.
The talking heads will babble about the 95% support rate but the ballot had only two questions with the only possible answer to each question being “yes”. The people voting could only check one box and if two were checked, the vote was discarded. If none were checked, the zombies probably checked one of them to make it look official. It was “dummy-proof” so it didn’t matter which box was x-ed.
The baked-in-the-cake outcome will cause additional zombie rhetoric on Monday and possible US and European sanctions. Reports are Putin used “his phone (no pen)” to call Obama and ease concerns.
We aren’t sure if Putin told the President if there are 80,000 Russian troops on the ground, 270 tanks, nearly 200 armored vehicles, 90 “get to the” choppers (sorry, we couldn’t resist), 20 ships, 140 military aircraft, and 380 artillery weapons surrounding Crimea.
We mentioned last week Putin was slow-playing this situation but another fear is that China could enter the controversy and retaliate against any Russian sanctions. Stay tuned.
Trading ranges lead to breakouts or breakdowns, and the longer they are, the more powerful they can be. Our feeling is the current range is only temporary and although it did get stretched to the downside there is further stretch to the upside.
Good or bad – geopolitical headlines, the economy, China, and upcoming 1Q earnings will all play a major role in determining the next trend. If the sanctions are seen as a slap on the wrist, the markets could rebound. However, if the saber-rattling turns worse with aggression, the bears could be joining the attack with lower levels on their map.
Futures opened slightly positive on Sunday evening (6pm EST) and have been mixed but are trading slightly lower as the news continues to come in surrounding Russia and Crimea. This means the open on Monday could be flat.
As we head from desk to press: Dow futures are down 6 points to 15,986 while the S&P 500 futures are lower by 1 point to 1,832. The Nasdaq 100 futures are declining 4 points to 3,617.
= = = = = = = = = = = = = = =
2. Targeting American Homes 4 Rent (AMH)
By Michael Bryant
Key of Technicals Used In Following Article
Real Estate Investment Trusts (REITs) have been hit hard last year as the fear of higher interest rates has made income investments such as REITs less popular. As a result, many REITs have gone on sale. American Homes 4 Rent (AMH, $16.83, down $0.17) has managed to avoid a large crash in its stock price, unlike several other REITs. Since its IPO, the stock has made a modest gain but we believe more steady gains are on the way.
Founder and billionaire B. Wayne Hughes was born on September 28, 1933 to a sharecropper in Gotebo, Oklahoma. Having been wiped out by the Dust Bowl, his father moved the family to California and got a job winding coils that went into refrigeration units. Wayne grew up in East Los Angeles and earned a bachelor’s degree in business from University of Southern California’s Marshall School of Business in 1957. While he was in college, he drove a truck to earn money. He had also joined Phi Kappa Psi Fraternity in 1955.
In 1972, he noticed a self-storage warehouse while diving in Texas. Stopping to take a look, he saw it was filled to capacity and figured it would be a good investment. So he bought some land in San Diego for $50,000 and put up a building with 200 self-storage spaces. On August 14th, he teamed up with Kenneth Q. Volk and founded Malibu, California-based Public Storage (PSA). Each year, he gradually expanded the company, buying more buildings. Today, the company has become one of the largest landlords in the world and people can rent garage-size rooms at its warehouses to store furniture, clothes, etc.
Taking advantage of the housing crash, Hughes founded American Homes 4 Rent in 2012. He started buying thousands of houses, mostly at foreclosure auctions, to rent as more people found homeownership out of reach. A record level of foreclosures made it harder for millions of Americans to qualify for a mortgage. The company quickly became the second-biggest owner of single-family rentals after Blackstone Group (BX). In North Texas, it is the largest institutional investor of foreclosed homes. The company will likely sell off its single-family home portfolio as home prices rebound.
On August 1, 2013, the company went public with listing on New York Stock Exchange before the bell. It offered 44.1 million shares at $16 a share, at the low end of the offering range of $16 to $18, and raised $705.9 million. However, it raised almost 44% less than the $1.25 billion amount estimated in an initial prospectus by the company in June. Share opened for trading at $15.59 and ended the day at $15.60.
At the time of its IPO, the company had a market cap of $3.5 billion. It had 14,210 properties nationwide. Revenue was $6.6 million and book value was $2.4 billion. Thus, its price/book was 1.4. Compared to competitor American Residential Properties’ (ARPI) price/book of 0.9, investors were paying a premium on American Homes 4 Rent’s shares.
The premium could be due to the fact that the company invests in markets where it can quickly acquire assets with a high occupancy and steep discount, thus having high cash flow return. It is buying homes at more than 25% below prior peaks and replacement cost. Further, the rental home market is expected to grow from $17 billion to over $100 billion over the next few years.
- On January 8, 2014, it was reported that the company’s vice-president David Goldberg bought 4,000 shares, or $97,916, of the company’s stock. Then 20 days later, he purchased an additional 1,721 shares, or $42,159, of stock.
- On February 21st, Chief Financial Officer Peter Nelson resigned to pursue other career interests. Nelson had been the company’s CFO since 2012. The company has not yet announced a successor.
- On March 12th, the company declared a quarterly distribution of $0.05 per Class A common share payable on April 10th to shareholders of record as of March 25th.
American Homes 4 Rent and Colony Homes, the second and third largest single-family landlords, have been buying less homes as home prices rise. Prices have risen 24% since the post-bubble low in March 2012, which was about when corporate buyers started buying rapidly. The rate of U.S. foreclosures fell to its lowest level in eight years in the 4th quarter as higher prices allowed more delinquent homeowners to sell without taking a loss. American Homes 4 Rent added 2,001 homes in the quarter ending December 31, down 32% from the previous quarter’s 2,941 homes.
On March 13th, the company reported 4th quarter results for the three months ending December 31st:
- Revenue was $64.89 million, up 31.1% from $49.46 million for the 3rd quarter of 2013 but missing analysts’ estimates of $65.58 million.
- Non-GAAP earnings was $0.11 per share, missing analysts’ forecasts of $0.12 per share. GAAP earnings was -$0.05 per share, an increase from -$0.31 per share a year ago.
- Net operating income from leased properties was $40.0 million, an increase of 26.6% from the 3rd quarter.
- Single-family properties were 23,268, an increase of 9.4% from 21,267 in the 3rd quarter.
- From January 1, 2014 through February 28, 2014, it acquired an additional 1,533 homes, increasing the portfolio to 24,801.
- Total portfolio occupancy grew to 74.5% as of December 31, 2013.
- Tenant renewal rate was 73.4%.
On May 22nd after the bell, the company will report 1st quarter results for the three months ending March 31st. Analysts estimate the company will earn $0.14 per share on $77.67 million.
Revenue seems to be growing very fast, but has slowed in the 4th quarter. Meanwhile, total expenses seem to continue growing at a near-exponential rate. The gap between total expenses and revenue narrowed in the 3rd quarter, but widened in the 4th quarter. Unless the rise in total expenses decreases or the rise in revenue increases, we don’t see the company turning a profit over the near-term but the company should easily meet or beat analysts’ estimates.
Although Blackstone Group (BX), the largest owner of single-family homes for rent, is the company’s biggest competitor, private equity firm Blackstone Group owns much more than just homes. Thus, the only pure-play competitors are American Residential Properties (ARPI) and Silver Bay Realty Trust (SBY). Another pure-play competitor is privately-held Santa Monica, California-based Colony Capital LLC.
At $16.83, the stock is below its low target of $18.00 made by the 9 analysts recorded by Thomson/First Call. Mean target is $18.67, median target is also $18.00 and high target is $21.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.4, unchanged from a week ago.
|
|
Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
|
Strong Buy |
1 |
1 |
1 |
1 |
|
Buy |
2 |
2 |
2 |
2 |
|
Hold |
5 |
5 |
5 |
5 |
|
Underperform |
0 |
0 |
0 |
0 |
|
Sell |
0 |
0 |
0 |
0 |
Final Thoughts: Shares are right at their 50-day MA ($16.71) and there is further risk to $16 and where we would like to buy the stock. If support holds and shares can clear $17.50, we may add the stock for a run to $20.
= = = = = = = = = = = = = = =
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 3/14/14 close)
By Catherine Tierney
Monday
Before the open: AMS, ACRE, BLT, BUKS, FVE, HNR, INO, IVAN, JASO, JRCC, JGW, KUTV, LIWA, OFS, PTX, PLPC, STRL, TNP, VTNC, YONG
After the close: ACFN, APP, APRI, CHRM, CWCO, EFUT, ENZN, FF, GNK, GNE, GLPW, GORO, HIIQ, INTX, XXIA, LFL, DSS, ROYL, TWER, VHI, WPCS, ZAZA
Galena Biopharma (GALE)
Tuesday
Before the open: ATV, ANCUF, ADGE, CCL, CUK, DSW, FDS, MBT, RNA, YGE
Carnival (CCL, $38.42, down $0.09)
March 39 calls (CCL140322C00039000, $0.35, down $0.05)
April 36 puts (CCL140419P00036000, $0.50, up $0.05)
Thoughts: Earnings are due out before Tuesday’s open so if we take positions it would be before Monday’s close. Shares could clear $40 and the 50-day MA on good numbers or fall to $36 and the 200-day MA on a miss and lowered guidance.
Hertz Global Holdings (HTZ, $25.98, up $0.17)
April 28 calls (HTZ140419C00028000, $0.70, up $0.05)
April 24 puts (HTZ140419P00024000, $0.60, down $0.05)
Thoughts: There is risk to $23 on an earnings disappointment. Shares could rally on better-than-expected numbers and we are more bullish than bearish on the stock.
After the close: AERI, BTX, EEI, GAIA, BRSS, GURE, OXGN, PSUN, PRKR, RENN
Adobe Systems (ADBE)
Oracle (ORCL, $37.60, down $0.05)
April 39 calls (ORCL140419C00039000, $0.60, flat)
Thoughts: The past 2 quarters have been rough but if the company’s sales team got the message there could be an earnings surprise.
Wednesday
Before the open: ATU, ESLT, FedEx (FDX), General Mills (GIS)
KB Home (KBH, $17.51, down $0.17)
April 18 calls (KBH140419C00018000, 0.70, flat)
April 17 puts (KBH140419P00017000, $0.70, up $0.05)
Thoughts: We have played bullish positions recently in KBH and this will be a big quarter for the company. They could say the weather played a major role in a miss or they could say nothing and business is good.
Vera Bradley (VRA, $26.48, down $0.79)
April 30 calls (VRA140419C00030000, $0.50, down $0.35)
April 22.50 puts (VRA140419P00022500, $0.50, up $0.15)
Thoughts: Shares will likely make a 15%-20% move and we tried a strangle trade in late 2013 that was a dud. Although we are usually more bearish than bullish, it is hard to predict how Wall Street will react because they love the stock and has been a past darling.
We like these calls and puts for a possible double-digit return as a strangle trade. However, a move of less than 10% will likely crush the premiums so we aren’t thrilled with the risk/ reward.
After the close: BONE, CLC, CWTR, CRM, FNV, HMPR, MLHR, IMH, LUB, PSTR, SVA, SOQ, TLYS, WSCI, ExOne (XONE)
Guess (GES, $28.53, down $0.14)
April 30 calls (GES140419C00030000, $0.75, down $0.30)
April 28 puts (GES140419P00028, $1.20, up $0.05)
Thoughts: Shares usually trade higher after the company reports their numbers and the better retailers have been coming in with decent numbers.
Jabil Circuit (JBL, $17.73, down $0.05)
April 19 calls (JBL140419C00019000, $0.45, flat)
April 16 puts (JBL140419P00016000, $0.30, up $0.05)
Thoughts: We have usually been bullish on this stock in the past but we have listed puts as insurance.
Thursday
Before the open: BGMD, BSI, BURL, CRME, CATO, NPD, ZX, DLIA, ENMD, FLML, IHS, INS, MCS, NTS, PESI, RGDX, SCHL, TRVN, UTSI
ConAgra Foods (CAG)
Lennar (LEN)
Movado Group (MOV, $42.57, up $0.36)
Thoughts: The options are thinly traded and would be hard for us to get liquid fills so we are not listing any. However, we have been profiling this stock off and on for 2 years and when shares were in the low $20’s. We should have made it a Weekly Wrap holding and could if their numbers stay strong.
After the close: AIR, AEZS, AMBT, AMBI, BAMM, ENVI, ILIU, KFS, NWY, RALY, SCVL, SLW, TIBX, VRNG, WTSL
Cintas (CTAS)
Nike (NKE, $78.32, down $0.21)
March 80 calls (NKE140322C00080000, $1.15, down $0.10)
April 80 calls (NKE140419C00080000, $1.80, down $01.10)
Thoughts: We hit some monster winners on Nike call options in the past and shares could zoom past $80 on another earnings beat. We have been hesitant to plat the past 2 quarters but Nike always seems to beat the Street and raises guidance. We have an alternative play in our Daily instead of Nike as these calls are a little rich but they should do well as the shoe business remains white-hot.
Friday
Before the open:
Darden Restaurants (DRI, $49.22, up $0.21)
April 52.50 calls (DRI140419C00052500, $0.35, flat)
Thoughts: This company is a mess as its Red Lobster and Olive Garden need a major overhaul but much of the bad news might be baked into the cake. Although most traders will want to go short, if management has plans to do something about the problems instead of providing the weather excuse, shares could rally.
Tiffany (TIF, $91.90, down $0.34)
April 95 calls (TIF140419C00095000, $1.70, down $0.25)
April 85 puts (TIF140419P00085000, $0.95, up $0.05)
Thoughts: Shares could move 5%-10% on the company’s earnings results.
After the close: NLP
= = = = = = = = = = = = =
4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 3/14/14)
Our Weekly Wrap Closed Trade Track Record for 2014 is 12-2 (97-9, or 91% win rate, overall since the start of 2011).
Special Notice: Biodel (BIOD, $3.26, up $0.10) was stopped out on Monday for a scratch after shares fell below $3.25. The Discovery Laboratories (DSCO, $2.33, up $0.02) Stock Trade made us 3% after our Stop Limit order triggered at $2.50. We are still long a covered call on DSCO.
Current Trades
Alexza Pharmaceuticals (ALXA, $5.11, down $0.04) Covered Call Trade
Sold June 6 calls (ALXA140621C00006000, $0.30, flat)
Original Entry Price: $5.53 (3/4/14)
Lowered Price from Selling Options: $5.03
Exit Target: $6+
Return: 2%
Stop Target: $3
Action: Shares fell below support is at $5.25 and the 50-day MA late in the week and tested the 100-day and 200-day MA’s on Friday before closing north of $5. A close below $5 could lead to $4.70. A pop back above $5.20 would suggest the selling pressure is over.
On 3/4/2014 we recommended buying shares at $5.53 and selling the June 6 calls for 50 cents to lower our cost basis to $5.03. If we are called away in mid-June at $6 the trade will make 20%.
Zynga (ZNGA, $5.46, down $0.06) Covered Call Trade
Sold April 6 calls (ZNGA140419C00006000, $0.20, down $0.03)
Original Entry Price: $5.63 (3/4/14)
Lowered Price from Selling Options: $5.33
Exit Target: $6+
Return: 2%
Stop Target: $3
Action: Near-term support is at $5.40 and a level we said to watch for in Friday’s Daily. There is further risk to $5.20-$5 but we feel as though shares are on the verge of clearing $6. A close above $5.80 should lead to a breakout that could take shares to $8.
The company has some new games coming out over the next few months including a slick new version of Zynga Poker. We believe the company is a takeover target based on the potential revenue poker could bring to the company although Zynga doesn’t plan to monetize anytime soon. Perhaps Carl could shake up the board because there is billions to be made if Zynga can monetize their poker app.
On 3/4/2014 we recommended buying shares at $5.63 and selling the April 6 calls for 30 cents to lower our cost basis to $5.33. If we are called away in mid-April at $6 the trade will make 13%.
Galena Biopharma (GALE, $3.14, up $0.12) LEAP Trade
October 7 calls (LEAPs) (GALE141017C00007000, $0.40, flat)
Original Entry Price: $1.15 (2/10/13)
Exit Target: $2.30
Return: -65%
Stop Target: None
Galena Biopharma (GALE, $3.14, up $0.12) Stock Trade
Original Entry Price: $5.17 (2/10/14)
Lowered Price from Selling Options: $5.17
Exit Target: $10
Return: -39%
Stop Target: $2.50
Action: We mentioned support at $3 could be tested on the break below $3.50. Friday’s low reached $2.90 and tested the 200-day MA for the second-straight session. Earnings are due out this week and there is risk down to $2.50-$2 if they disappoint. A close back above $3.50 would be bullish.
Discovery Laboratories (DSCO, $2.33, up $0.02) Covered Call Stock/ Option Trade
Sold April 3 calls (DSCO140419C00003000, $0.xx, flat)
Original Entry Price: $2.42 (1/7/14)
Lowered Price from Selling Options: $2.17
Exit Target: $4.50-$5
Return: 7%
Stop Target: $1
Action: We still like the longer-term prospects of the company and why we are writing covered calls on a second position but biotech started to show weakness last week. Support at $2.50 was triggered on Thursday’s plunge and the next wave of support is at $2.20. A close below this level will likely lead to $2 and the 200-day MA. Resistance is at $2.50 that served as prior support.
On 1/7/2014 we recommended buying shares at $2.42 and selling the April 3 calls for 25 cents to lower our cost basis to $2.17. If we are called away in mid-April at $3 the trade will make 39%.
Opko Health (OPK, $9.66, up $0.34) LEAP Option Trade
March 10 calls (OPK140322C00010000, $0.20, up $0.05) LEAP OPTION
Original Entry Price: $0.70 (12/17/13)
Exit Target: $1.40
Return: -71%
Stop Target: None
Action: Set limit orders to close the trade at $1 or better this week.
The March options expire this Friday and while it is still possible we can make a profit, we will need a surge past $10 at the beginning of the week. Shares traded up to $9.60 on Thursday’s open before fading and closing below $9.50. Friday’s pop above this level was bullish and our breakeven point is $10.70. We will send out a Profit Alert if our Limit Order is reached and we will be monitoring the trade daily.
Pizza Inn Holdings (PZZI, $6.04, up $0.02) Stock Trade
Original Entry Price: $8.10 (10/11/13)
Lowered Price from Selling Options/ Dividends: No options available
Exit Target: $12+
Return: -25%
Stop Target: $5
Action: Shares closed above the first wave of resistance at $6 to start the week and held this level into Friday’s close. The next wave of resistance is at $6.25 but there is still risk to $5.75. Last week’s low was $5.79 and we mentioned a bottom could be in. New subscribers can start nibbling and if there is a drop below $5.75 we will be looking to establish a second position.
The company has 150 Pie Five shops opening this year and is expanding rapidly. We believe this will be a $15-$20 stock in 1-2 years and insiders and mutual funds own nearly 40% of the company.
DryShips (DRYS, $3.40, down $0.12)
Original Entry Price: $5.25 (1/3/11)
Lowered Price from Selling Options: $4.60
Exit Target: $5
Return: -26%
Stop Target: $2
Action: Friday’s close below the 100-day MA opened the door for a test to $3.20 and possibly $3 on continued weakness. We would like to see the stock recover the $3.50 level and then resistance at $3.75-$3.80 this week.
Trades on HOLD (5): AKS Steel Holding (AKS), Rambus (RMBS)
Bebe Stores (BEBE) private equity offering coming north of $9?, Vivus (VVUS), Dendreon (DNDN)
= = = = = = = = = = = = = = =
5. Week Ahead
Here is a chart of the events for the week ahead:
