MomentumOptionsTrading.com Weekly Wrap for 3/30/2014
11:30pm (EST)
1. Market Summary
2. Veeva Systems (VEEV) Near 52-week Lows
3. Earnings
4. Weekly Wrap Portfolio Update
5. Week Ahead
(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section.)
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1. Market Summary
“The bulls made a nice recovery off the prior week’s test to support but Wall Street wasn’t celebrating as more and more slick talking pros are calling for a pullback. Words and terms like “frothy”, “bubblicious”, “toppy”, and “irrational” were used to describe the push to new highs but it made no sense as the market was indeed reaching fresh highs.
While the action on Friday wasn’t thrilling, the movement for the week was bullish and the current environment is playing out a lot like last year. Fund managers are underperforming the market as most pros pencil-in their usual 5%-8% advance for the year and are now playing catchup. They have missed the momentum stocks and they have been waiting for the mother of all pullbacks to get the chance to get in. It is that simple. The hated rally from 2013 is still here.
With gains of 25%-30% across the board in 2013, it can be hard to expect the same types of moves in 2014 for the major indexes. However, the 10-year chart work we did in late February showed a good possibility for gains up to 20% for 2014.
For new subscribers, our possible yearend upside targets are Dow 19,000 (+15%); S&P 2,100 (+14%; Nasdaq 4,800-5,000 (+15%-20%); and for the Russell 1,400 (+20%).
We have also listed some nasty downside targets: Dow, 14,000 (-16%); S&P 1,550 (-16%); Nasdaq 3,200 (-23%) and for the Russell 950 (-18%) – if the 10-year uptrend lines fail to hold.
We do expect, at some point this year, there could be a pullback, correction, or selloff but there will be plenty of warning signs so we aren’t too worried about one if and when it happens. We would love to see a correction in the 10%-20% magnitude because we also play the short side but for now we are playing the cards being dealt.
We mentioned if the bulls recovered last week there could be the possibility of the current trading range extending into April. This might be when there could be a market top (maybe not) but no damage was done by the bears last week. This doesn’t mean they can’t strike quickly but we talked about the market entering a possible sweet spot to coincide with an April high once there is a breakout (or breakdown) out of the trading range.
Again, Friday’s action was slightly disappointing but there were a couple of factors that weighed on Tech and the blue-chips.
To start, Biotech stocks are struggling and were a major drag on Friday. We saw cracks throughout the week as some of the Biotech plays we have open in our Daily and Weekly Wrap suffered setbacks. The sector was a big influence in leading 2013 higher and the stocks have done well in 2014 but they were absolutely hammered on Friday.
Much of the pressure came from the zombies who are taxing medical instruments and are starting to look at the high costs associated with some of the most promising drugs coming to market.
Gilead Sciences (GILD, $72.07, down $3.46) sank nearly 5% on Friday after a few Democrats questioned the costs associated with the high price of the company’s hepatitis C drug, Sovaldi. Each pill is $1,000 and a cycle costs $84,000 for patients. This is a tremendously high cost to taxpayers but so is the US debt budget.
The success rate for patients taking Sovaldi is 90% with less side effects versus a previous success rate of about half with more serious side effects using other therapies.
Biotech stocks make up a good portion of the PowerShares QQQ Trust (QQQ, $89.00, down $1.29) and the selloff in the sector helps explain much of Friday’s weakness in the Nasdaq.
There are a number of ways to get a quick snapshot of the sector by following the Market Vectors Biotech ETF (BBH, $94.16, down $4.85), Nasdaq Biotechnology Index ($NBI, 2,577, down 119), or the S&P Biotech Spiders (XBI, $153.15, down $6.68). All were down over 4% on Friday.
The test to the 50-day MA’s on the Biotech ETF’s could be an early warning signal more trouble is ahead for the sector.
We covered Nike’s (NKE, $75.21, down $4.06) stellar earnings report on Friday and how they spooked Wall Street with their currency remarks going forward. Shares were down 3% in our midday update but we said they looked like they could be headed to $75 as there was continued weakness into the close. Friday’s low was $75 on the button and we mentioned there could be risk to $70.
The 5% drop into the close accounted for 26 negative Dow points. Goldman Sachs (GS, $166.95, down $2.27) accounted for 14 red points and if these 2 Dow components would have finished flat, the Dow would have been up a dozen points on Friday.
We would be surprised but not shocked if Nike shares did test $70 as the close below both the 50-day and 100-day MA’s was extremely bearish. The 200-day MA is just north of $71 and the uptrend line at $72.
There is wiggle room down to $74 and if this level holds on Monday, there might be a short-term bounce back to $78. We would look at April call options to play the possible move but a dip below $74 might suggest a short-term put option trade. Nike is on our Daily Watch List for next week.
The Financial stocks also pulled back following a decent week as we mentioned the first part of the bank stress tests would be bullish. We expected a “sell the news event” on Friday despite 29 of the 30 largest banks getting a passing grade from the Fed to withstand another financial crisis if one were to occur.
The second part of the bank stress tests are due out after Wednesday’s close and will determine if banks are holding adequate levels of capital required under the new reforms. If so, the banks would then be allowed to deploy even more of their capital back into “the system” for dividends and share buybacks. This would be more bullish than last week’s news and why Wall Street took a wait-and-see attitude. If the Financial stocks can raise their dividends, they should continue to push new highs.
We mentioned it would be important for the Financial Select Spiders (XLF, $21.80, down $0.14) to hold its 50-day MA and that we wanted to see a close back above $22 last week. The close at $22.03 on Monday easily relieved any concerns we had and by Friday the Financial Spiders reached a 52-week peak of $22.65. A run to $24-$25 into April would is possible on continued strength.
We often talk about the importance of Monday/ Friday closes and how much of this year’s action has occurred on these days.
For March, the Dow fell 153 points on the first Monday and gained 31 points the following Friday. There was a 34 point dip on the 10th and a 43 point drop on the 14th. St. Patty’s 181 point pop coupled with this past Friday’s fall make it 2 down/ 1 up Monday’s and 2 down/ 1 up Friday’s for the blie-chips. This is a bearish sign but the losses on the Monday/ Friday closes have been minimal and the 1% pop and drop on the big Monday’s offset each other.
Although stretched to the upside and downside, it confirms our theory a trading range would develop. Remember, solid up Friday and Monday’s are usually bullish as it means money is moving or staying in the market. Down and ugly Monday/ Friday’s can indicate cash is moving out of the market and mixed M/ F closes can spell trading ranges.
March is historically a bullish month but we have been warning the back half can be bearish as some of the bloom comes off the rose. There have been some nasty losses over the past decade during the last week of March as fund managers lock-in first quarter gains (if they have any) and the quarterly rebalance of the indexes. While this will be the last week, the end of the month occurs next Monday.
At current levels, the Dow is down 19 points for the month, the S&P 500 is up 7 points, the Nasdaq is lower by 32 points, and the Russell 2000 has gained over 10 points, or nearly 1%.
We mentioned at the start of the year the small-caps (and Tech) could outperform in a higher market and we will zone in on the small-caps and 1,171.87 as our major clue for the week. This was the mid-month low and just below support at 1,175. A break below 1,170 would be a clear warning sign the bears are waking up.
This clue, along with the VIX, the Monday/ Friday close, and the bank stress test news should determine if there is a continued run to new highs or a continued trading range with the possibility of fresh lows.
If the bulls can make it through this week without giving up ground or at least hold the first waves of support, April will be looking good.” (from 3/23/2014 Weekly Wrap…)
The market tested the first wave of support to start the week as Biotech and Momentum stocks continued their pullback and weighed on the indexes. There was a slight rebound on Tuesday that lasted into Wednesday’s open which teased us (but not Wall Street) a breakout to new highs was on the horizon. However, out of nowhere, the bears struck quickly as the Dow closed nearly 200 points off its high.
There was continued selling pressure on Thursday as the bears cracked the next waves of support but we mentioned the bulls did well by keeping the losses in check and holding down the 100-day MA’s (moving averages) on the rebound. Friday’s action started off extremely strong but the trading pattern of another late fade also played out. While the talking heads and slick talking pros continued their pounding of the table for a continued lower market, we said to stay strong as nothing was broken.
It may have been our best “call” of the year as word quickly spread after the market closed that Putin called Obama. (continued…)
The Dow added 58 points, or 0.4%, to close at 16,323 on Friday. The blue-chips started the with an opening run to resistance at 16,400 after reaching 16,380 but the enthusiasm faded shortly afterwards. The bears pushed a low of 16,215 – a loss of 165 points from the high, but were unable to crack support at 16,200. The close at 16,276 was a good sign support might hold and Tuesday’s run to 16,407 and close above 16,350 at 16,367 looked bullish. Wednesday’s high reached 16,466 and came within spitting distance of reaching our 16,500-16,600 near-term target but the 99-point drop by the close was deflating as the Dow finished at its session low. There was weakness to 16,191 on the open that stretched support but looked bullish as the bulls rebounded to test 16,300 afterwards. We said a close above 16,350 would be bullish for this week and the bulls missed our mark after trading to a high of 16,414. A close below 16,200 would be bearish and we could start new put positions on a break below 16,100 and the 50-day and 100-day MA’s as we would expect 15,600 and the 200-day MA to come into play. For the week, the Dow gained 21 points, or 0.1%, after starting at 16,302 and is down 253 points, or 1.5%, for 2014.
The S&P 500 gained 9 points, or 0.5%, to settle at 1,857 to end the week. The index traded up to 1,873.34 on Monday but once again failed to clear resistance at 1,875. This was a good clue a back test to 1,850 would come and the bears were right on cue as the low checked-in at 1,849.69. The close at 1,857 held support and Tuesday’s test to 1,871 kept the bulls in the game as the S&P finished at 1,865. We talked about the tease to 1,875.92 on Wednesday but the bears stormed the floor by the close to push a low of 1,852. Support at 1,850 held but we said to watch the 1,840 level as we felt it would be where Wall Street would toss in the towel. Thursday’s low reached 1,842 and the close at 1,849 after a test to 1,855 opened further risk to 1,825-1,800. Friday’s run to 1,866 looked good at clearing our 1,860 bullish signal for this week but it may have been close for government work. A close above 1,875 keeps our 1,900-1,909 targets in play while a close below 1,840 and the major MA’s will likely lead to 1,800. The S&P 500 came into the week at 1,866 and slipped 9 points, or 0.5%, by Friday’s close. For the year, the index has gained 9 points, or 0.5%.
The Nasdaq advanced 4 points, or 0.1%, to end at 4,155 on Friday. Tech made a run to resistance at 4,300 but the run to 4,289 on Monday was followed by a triple-digit drop to 4,190 and a test to support at 4,200. The close at 4,226 was followed by Tuesday’s low of 4,203 before a bounce to 4,274.32. However, we said to watch for 4,275 to clear and when it didn’t, we knew there could be trouble. The close at 4,234 and below 4,250 was a warning sign 4,175-4,150 could trip on a break below 4,200 and Wednesday’s close landed at 4,173. The index fell below its 50-day MA and tested its 100-day Ma on Thursday before tapping out at 4,151. Friday’s high touched 4,144 and fell short of 4,150 before Tech fell into negative territory and kissed 4,144. If the bears can crack 4,125 and the 100-day MA there could be further risk to 4,000 and the 200-day MA. A close above 4,200 would keep our April fluff targets of 4,400-4,500 in the mix. The Nasdaq was at 4,276 coming into the week and tanked 121 points, or 2.8%. Tech is back into negative territory by 21 points, or 0.5%, year-to-date.
The Russell 2000 popped a third of a point higher (0.37), or 0.03%, to close at 1,151. The small-caps needed to clear 1,200 to start the week and fell short with Monday’s feeble attempt to 1,196 at the open. The bears quickly sensed weakness and pushed a thunderous low of 1,169 before the bulls held 1,175 into the close at 1,178. Tuesday’s resurgence to 1,190 was wiped out by the closing bell as the index ended flat (-0.18 points). We mentioned there was still risk to 1,150 and the 50-day MA and the close was an omen as Wednesday’s drop reached 1,155 into the close. We have warned any close below 1,150 and the 100-day MA would likely lead to 1,125-1,100. Thursday’s low of 1,146 was textbook as the index came within a half-point of breaking below its 100-day MA before testing 1,161. However, the bears won the session by getting to 1,151 by the bell. Friday’s high reached 1,167 and we were cheerleading for a finish above 1,160. If cleared on Monday, followed by 1,175 – there is still a chance our April fluff target of 1,225 triggers. The Russell came into Monday’s open at 1,193 and was punished for 42 points, or 3.5%, for the week. YTD, the small-caps are now down a 12-pack, or 1%.
The S&P 500 Volatility Index ($VIX, 14.41, down 0.21) came into the week right at 15 and the battle lines were 17.50 and 13.50. Monday’s high reached 16.07 before a low of 14.56 and close at 15.09. This may have been the best clue that volatility would be crazy but kept in check. Tuesday’s low reached 13.96 with an outside close at 14.02. The bulls pushed 13.46 on Wednesday that got us excited but the close at 14.93 was deflating. However, 15 held with the close at 14.96 so we weren’t too worried. Thursday’s high reached 15.63 before the VIX settled lower at 14.62. This was an extremely bullish signal and lead to Friday’s dip to 13.73. We were unable to light a cigar over the weekend as the bears held 13.50 and the half-point close below 15 kept Wall Street on its toes. We have talked about a test to 11 on one last possible bull run and while it maybe unthinkable, we can’t rule out a single-digit VIX at some point in 2014. However, we still have to check our blinders for the bears and 17.50 and we have talked about “no flinching” until 18.50 trips. This is our possible trend change trigger.
We said the bulls needed to survive last week and while the bears did some damage, there were some bullish signs that we saw that still have us on the bulls’ side.
The crosscurrents were in full force last week and the catcalls for a bear market, continued, selloff were the loudest we have heard in over a year. You would think the bears have dominated the month but it’s been a split. Monday will be the last trading day for the month and while we doubt the bulls get a full sweep, they could depending on the geopolitical rhetoric.
The Dow came into March at 16,321 and is up 2 points for the month. The S&P needs just 2 points to clear 1,859 to end the March in the green. The Nasdaq will have to make a run of 154 points (nearly 4%) and will need to clear 4,308 and the Russell 2000 has to put up 34 points, or 3%, to clear its opening March start at 1,183.
There were only 2 down months in 2013 for the market. January 2014 ended with a loss. February was up and a mixed/ lower March would certainly paint a bearish outlook. It could also mean a trading range.
The Monday/ Friday closes have also been mixed in March. The blue-chips were on the verge of falling 3 in-a-row but ended the skid with Friday’s big win. The bulls won a few M/F’s in March and kept the losses in check on the down days for the most part but the bears one a big one as well. This choppiness also indicated a trading range but we said a up Friday and this Monday would be a beautiful springboard into April. We will be rubbing the rabbit’s foot ahead of Monday’s open.
The current environment is that everyone hates the market right now. This could include you and we would be fibbing if we didn’t say last week bothered us as well as we had a couple of bullish trades go against us in our Daily. We limited our exposure in the Weekly Wrap as we have not recommended a bullish trade since early March and we scaled back a number of trades to lock-in profits or to avoid losses. We also said it is too early to go short or to look at put options.
We cannot stand to have losing trades but they are part of the business and if you are new with us, we often mention trading ranges can be extremely difficult to trade. Still, we are happy to be where we are at as both of our Portfolios for the Weekly and Daily are showing gains.
Now is not the time to panic. While we may have been early with some of our trades and are down on others, we limited our exposure as we have been talking about the current trading ranges all month long.
There were a lot of comments that the market is confused, it needs to pullback, too many IPO’s, high margin-debt, it is due for a crash. It could be and our downside bearish targets are plastered on our desktops, laptops, and mobile devices on when we feel comfortable going short.
This is the bearish the market has felt in over a year and we said we would ride the bulls backs until the bears cracked the 200-day MA’s at the start of 2013 when we predicted Dow 16,000.
The last time the S&P 500 traded below its 200-day MA was November 2012.
Riding the bulls back…that hasn’t changed. Might we get caught? Yeah. However, we are betting on the bevy of economic news this week to pull the bulls off the mat and possibly get them to push new highs. Much of last week’s news was bullish and we are expecting more of the same this week.
The good news is April is historically the BEST month for the Dow during the bull cycles from November thru April. It is also important to note that the bullish runs usually occur BEFORE April earnings season and why we have been mentioning a possible sweet spot developing.
The first “big” company to report Q1 earnings will Alcoa (AA, $12.38, down $0.11) NEXT Tuesday (4/8) when Alcoa (AA, $12.48, down $0.11). The former blue-chipper has done well since getting booted from the Dow as shares reached a 52-peak of $12.75 on Friday before slipping into the close.
The Alcoa April 13 calls (AA140419C00013000, $0.23, down $0.03) traded up to 35 cents on heavy volume. Over 7,000 contracts traded on Friday and Open Interest is pushing 46,000.
The 3-year chart shows a test to $14-$15 could come and while the April 13’s may look tempting, the Alcoa May 13 calls (AA140617C00013000, $0.39, down $0.07) would buy more time for the trade to play out.
The breakeven points would be $13.23 in less than 3 weeks with the April 13’s or $13.39 by mid-May for the May 13’s. Then again, both could be nice trades if the bulls run to new highs to start April.
We will be watching Alcoa in our Daily for a possible trade and we thought it would be an interesting stock to watch this week as it will once again “unofficially” kickoff earnings season.
As far as the zombie news, Putin called Obama to discuss a proposal to end the conflict in Ukraine, the White House reported after the market closed on Friday. It was an important step that Wall Street was unprepared.
Of course, Obama wants Putin to be just like him and wants Putin to use his phone AND his pen. It seems the President wants Russia to put something in writing as proof Putin is serious. The 2 head zombies sent backups to start the saber rattling as Secretary of State John Kerry and Russian Foreign Minister Sergey Lavrov will meet to discuss the next steps.
Obama also said cooler heads would only prevail was if Russia pulled back its forces. This story is only the beginning of what could be something good or something that could blowup fast (no pun intended).
Our April options have just under 3 weeks before expiration and we don’t have that many trades open because we prepared for the trading range. At some point, we may have to go short stocks for our Weekly Wrap or buy put options for our Daily but let’s watch how the cards play out.
Last week’s flop was nasty but we are hoping this week’s turn and next week’s river cards will be enough to win the pot.
As we head from desk to press: Dow futures are up 51 points to 16,291 while the S&P 500 futures are higher by 6 point to 1,856. The Nasdaq 100 futures are advancing 14 points to 3,577.
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2. Veeva Systems (VEEV) Near 52-week Lows
By Michael Bryant
Key of Technicals Used In Following Article
Cloud computing helps companies save money by shifting from costly in-house software to subscription-based software providers. This technology is expected to revolutionize health care in the United States over the next decade, with the North American health care cloud computing market projected to grow from $1.75 billion to $6.5 billion by 2018. Veeva Systems (VEEV, $26.91, up $0.91) could provide investors a good way to profit from this boom?
Founder Peter P. Gassner received a bachelor of science in computer science from Oregon State University in 1989. He started in his career as a relational database developer for IBM (IBM). A relational database organizes and stores data in tables. In 1994, he joined PeopleSoft as chief architect and general manager of application platform PeopleTools. He joined Salesforce.com (CRM) in 2003 as Oracle (ORCL) made a hostile bid for PeopleSoft. While at Salesforce.com, he helped build the technology into the most successful SaaS platform in the industry.
Gassner believed that industry-specific business problems would best be addressed by industry-specific, cloud-based solutions. At the time, the life sciences industry largely continued to rely on information technology (IT) systems to meet industry-specific needs such as sales, marketing, quality management, and new drug submissions. As a result, life sciences companies were largely unable to implement cloud-based solutions for many of their critical business functions. To address this, he teamed up with Matt Wallach, a Harvard business graduate and former general manager at Siebel Systems’ Pharmaceuticals and Biotechnology division, to form Verticals onDemand in 2007.
Over the years leading up to its IPO, the company grew fast. In April 2009, it changed its name to Veeva Systems. Between 2010 and 2013, it made $27 million in net profits. The majority of the cloud and software-as-a-service companies have not managed to become so profitable so quickly. Further, Veeva Systems only needed to raise $4 million in venture capital since it was founded, far less than most cloud computing companies. Thus, its business model seems very strong.
On October 16, 2013, the company went public, listing on the New York Stock Exchange. It offered about 13 million shares at $20 a share, above its expected range of $16 to $18, raising $261 million. This gave it a valuation of $2.4 billion with quarterly revenues of $34 million. The company was profitable with 67% of revenue coming from subscriptions. Total revenue for the last six months increased 70% from a year ago. Investors seem thrilled with its rapid growth, pushing the shares up 85% in its first day of trading, closing around $37.
Its Veeva CRM (customer relationship management) suite enables pharmaceutical sales representatives, managers, and consulting professionals to manage, track, and optimize interactions with healthcare providers on a single integrated solution. It is built on the backbone of Salesforce’s popular web based CRM system, thanks to a deal that grants Veeva the right to sell Salesforce’s Platform Unlimited Edition alongside its own solution. Further, the deal restricts Salesforce.com from competing against Veeva in the pharmaceutical and biotech industries. In return, Veeva has to pay Salesforce.com annual payments that, over time, will equal or exceed a minimum order commitment of $500 million by 2025.
Its Veeva Vault allows drug companies to track prescribing habits, clinical trial progress, regulatory filings, quality management, manufacturing, sales, and marketing.
Its Veeva Network offers help to companies in the life sciences create and maintain a record of the healthcare professionals and healthcare organizations with which they interact.
On March 18th, the company reported 4th quarter earnings for fiscal 2014.
- Revenue was $62 million, up from $54 million in the 3rd quarter, and up from $39 million a year ago.
- Earnings were $0.05 a share, same as that in the 3rd quarter, but up from -$0.03 a share a year ago.
- Fiscal year 2014 subscription services revenue came in at $146.6 million, up 100% year-over-year. 4th quarter subscription services revenues came in at $45.7 million, up 89% year-over-year.
- As of January 31, 2014, the company had 198 total customers, including 147 Veeva CRM customers, 69 Veeva Vault customers, and 6 Veeva Network customers.
- The company recorded record sales within the Vault product line.
- For fiscal year 2014, the company achieved a subscription services revenue retention rate of 166%.
On May 7th after the bell, the company will report 1st quarter results for the three months ending April 30th. Analysts estimate the company will earn $0.05 per share on $63.4 million. The company expects total revenues between $62.5 and $63.5 million and earnings between $0.05 and $0.06. The company also expects continued consolidation among cloud-based technology companies that could lead to significantly increased competition. However, this consolidation could boost the stock price, as there may be a slim chance that it could be a takeover target.
The company has 33 of the 50 biggest pharmaceutical companies as customers, including Bayer (BAYRY), Gilead (GILD), and Merck (MRK). But none of the 198 customers account for more than 10% of sales.
The overall market for life sciences software is rapidly evolving, highly competitive, and subject to changing regulations, technology, and shifting customer needs. Its Veeva CRM solutions compete with companies such as Oracle (ORCL) and Cegedim SA (CGM.PA) and IMS Health Holding, which is planning an IPO in the next two weeks. Its Veeva Vault solutions compete with companies such as Microsoft (MSFT), EMC (EMC), OpenText (OTEX), and Computer Sciences Corporation (CSC). Its Veeva Network customer master solution competes also with data providers such as Cegedim SA, and IMS Health Holding. However, as a whole, it has few, if any, pure-play competitors.
At $26.91, the stock is way below target of $44.00 made by the 3 analysts recorded by Thomson/First Call. Mean target is $45.33, median target is $44.00 and high target is $48.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.0, unchanged from a week ago.
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Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
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Strong Buy |
2 |
2 |
2 |
2 |
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Buy |
2 |
2 |
2 |
2 |
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Hold |
2 |
2 |
2 |
2 |
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Underperform |
0 |
0 |
0 |
0 |
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Sell |
0 |
0 |
0 |
0 |
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3. Earnings
The companies in BOLD, we are looking at as possible trades and we may list call or put options on them in our Daily Newsletter. If they become official recommendations, we sent out Trade Alerts or include them in our 9am and 1pm updates that come out during the week (Quotes are from 3/28/14 close)
By Catherine Tierney
Monday
Before the open: American DG Energy (ADGE), Camelot Information Systems (CIS), China Automotive Systems (CAAS), HomeCapital (HCAP), InterOil (IOC), Millipore (MIL), Newtek Business Services (NEWT), PurchasePro.com (PPRO), SORL Auto Parts (SORL, $4.30, down $0.01), Synthetic Biologics (SYN), UTi Worldwide (UTIW)
CalMaine Foods (CALM, $57.51, up $0.60)
April 60 calls (CALM140419C00060000, $0.75, up $0.10)
April 55 puts (CALM140419P00055000, $0.65, down $0.10)
Thoughts: The option chains only trade in $5 increments and this kept us out of a possible trade on Friday along with the bid/ ask widening.
In late December, the company beat estimates by 3 cents and revenue was $25 million above estimates. Shares were at $60.37 but traded flat the following session, down 14 cents on 12/31/13. The first day back in 2014, shares fell nearly $3 to close at $57.40 and were below $50 by the end of January. Shares are right at December levels and there is a chance another move of $10, either way, comes by the end of April.
The 52-week peak is north of $60 and a break above this level will likely lead to some fluff to $65 on a blue-sky breakout. However, if the company disappoints, shares could easily fall below $55 and test $50. The late January and early February low was $48.90 and this level would likely be tested if the company totally drops the ball. A break below the “double bottom” could lead to a further breakdown to the mid to lower $40’s.
The company has beat and tied estimates the past 3 quarters and missed in the prior one before those. The last two have been a beat by 4 cents, a match, and the two before were wild with a 52-cent beat and 13-cent miss.
There are only 2 suit-and-ties with estimates and they are expecting earnings anywhere from a profit of $1.22 or $1.59. Needless the say, the chance for a huge beat or miss will be there.
This could make the headlines although investors won’t know there are only 2 analysts covering a $57 stock.
The cost for both options would have been $1.40-$1.50 on Friday. We would have needed to get into them on friday as the company reports before Monday’s open.
The breakeven point is for shares to make a move above $61.50 or a drop below $53.50. Another worry was that shares will have to make the move in the next 3 weeks.
We can “follow” the trade for education purposes and if shares trade flat we could look at a trade with May options.
After the close: American Realty Investors (ARL), Axion Power International (AXPW), Bovie Medical (BVX), ChinaNet Online Holdings (CNET), CVD Equipment (CVV), Cytomedix (CMXI), Eagle Bulk Shipping (EGLE), Gas Natural (EGAS), Flexible Solutions (FSI), Hallwood Group (HWG), Houston American Energy (HUSA), Industrial Services of America (IDSA), Jgwpt Holdings (JGW), Kingold Jewelry (KGJI), Lifeway Foods (LWAY), Mines Management (MGN), Naugatuck Valley Financial (NVSL), Rainmaker Systems (RMKR), Retractable Technologies (RVP), Spanish Broadcasting System (SBSA), THT Heat Transfer Technology (THTI), Verint Systems (VRNT, $45.55, up$0.01) – options thinly traded, WidePoint (WYY)
Tuesday
Before the open: Blount International (BLT), Pyramid Oil (PDO), Saratoga Resources (SARA), Wireless Telecom Group (WTT)
After the close: Advanced Emissions Solutions (ADES), American Spectrum Realty (AQQ), Grupo (GTMAY), Hollywood Media (HOLL), LookSmart (LOOK), Primus Telecommunications (PTGI)
MagnaChip Semiconductororation (MX, $14.52, up $0.29)
April 15 calls (MX140419C00015000, $0.50, up $0.10)
April 12.50 puts (MX140419P00012500, $0.25, flat)
Thoughts: These options are thinly traded but open interest is decent. The bid/ask is within 10 cents and we believe shares could make a 10% move based on their numbers.
Apollo Education Group (APOL, $32.85, up $0.45)
April 35 calls (APOL140419C00035, $1.15, up $0.18)
April 30 puts (APOL140419P00030000, $0.90, down $0.10)
Thoughts: The stock we love to hate. Shares often move 10% or more and while we are bearish on the stock, shares seem to hang above $30. We have listed a possible strangle option trade but we will likely sit for this earnings session.
Wednesday
Before the open: Acuity Brands (AYI), Monsanto (MON), Omnova Solutions (OMN, $10.13, down $0.05), Unifirst (UNF)
After the close: Mitcham Industries (MIND), National American University (NAUH), Resources Connection Inc. (RECN), Texas Industries (TXI), Transcontinental Realty Invest (TCI)
Dominion Diamond (DDC, $13.44, up $0.02)
May 15 calls (DDC140517C00015000, $
August 15 calls (DDC140816C00015000, $0.30, flat)
Thoughts: Thinly traded options but we are curious about the company and could do further research down the road. For now, we will likely hang tight and listen to their conference call.
Thursday
Before the open: China Ceramics (CCCL), EDAP (EDAP), Eltek (ELTK), GenCorp (GY), Greenbrier Companies (GBX), RPM International (RPM, $40.79, up $0.06)
International Speedway (ISCA, $33.02, up $0.02)
April 35 calls (ISCA140419C00035000, $0.25, flat)
April 30 puts (ISCA140419P00030000, $0.30, flat)
Thoughts: We don’t expect a big move on earnings so we have no interest in the trade but we listed it in case there is a breakout or breakdown.
Perry Ellis International (PERY, $13.53, down $0.01)
April 15 calls (PERY140419C00015000, $0.25, flat)
April 12.50 puts (PERY140419P00012500, $0.25, down $0.05)
Thoughts: Shares are near 52-week lows and any good news could lead to a strong rebound. However, the company has reported losses in the past 2 quarters but was profitable the previous 2 before. We don’t actively follow the company but we could this week if we see an opportunity to go long or short.
Schnitzer Steel Industries (SCHN, $28.55, down $0.01)
After the close: Franklin Covey (FC), GigaMedia (GIGM), NeoPhotonics (NPTN), SeaChange International (SEAC, $10.09, down $0.05), SYNNEX Corporation (SNX)
Global Payments (GPN, $70.53, up $0.56)
April 75 calls (GPN140419C00075000, $0.80, down $0.10)
Thoughts: Wide bid/ ask but the chart is bullish.
Micron Technology (MU, $21.91, down $0.33)
April 23 calls (MU140419C00023000, $0.85, down $0.15)
April 20 puts (MU140419P00020000, $0.58, up $0.07)
Thoughts: Analysts are growing bearish on the stock but they should report another solid quarter.
Friday
Before the open: AZZ (AZZ), China Synergy (CSUN), Synergy Resources (SYRG)
Carmax (KMX, $45.67, up $0.22)
April 47 calls (KMX140419C00047000, $1.00, down $0.05)
Thoughts: We have had success with KMX is the past as we are usually bullish on the company. The winter weather likely effected sales but they are a solid company so they could still surprise to the upside.
After the close: Skyline (SKY)
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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 3/28/14)
Our Weekly Wrap Closed Trade Track Record for 2014 is 12-3, or 80% win rate (97-10, or 91% win rate, overall since the start of 2011).
Current Trades
Alexza Pharmaceuticals (ALXA, $4.35, up $0.06) Covered Call Trade
Sold June 6 calls (ALXA140621C00006000, $0.15, flat)
Original Entry Price: $5.53 (3/4/14)
Lowered Price from Selling Options: $5.03
Exit Target: $6+
Return: -14%
Stop Target: $3
Action: Shares tested support at $4 and the December low of $4.12 after kissing $4.20 last week. A close below $4 will likely lead to $3.75-$3.50 but we are looking for this level to hold. Resistance is now at $4.50-$4.60. We opened this position in early March and we prepared for weakness by selling the June call for $0.50. Although we are down double-digits, we don’t mind holding this low-priced gem through the current market turbulence as we like the company’s long-term prospects.
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, $4.42, down $0.05) Covered Call Trade
Sold April 6 calls (ZNGA140419C00006000, $0.02, flat)
Original Entry Price: $5.63 (3/4/14)
Lowered Price from Selling Options: $5.33
Exit Target: $6+
Return: -17%
Stop Target: $3
Action: Zynga got zapped again after trading lower throughout the week and down to $4.26 intraday on Friday. We wanted to see the $4.20 level hold, and while it did, there is further risk to $4 on a close below the 100-day MA. It was nice to see that we have some backers on board this trade as S.A.C. Capital Advisors reported a 5.3% stake in the company. Resistance is at $$4.80-$5.
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, $2.92, down $0.07) LEAP Trade
October 7 calls (LEAPs) (GALE141017C00007000, $0.30, flat)
Original Entry Price: $1.15 (2/10/13)
Exit Target: $2.30
Return: -74%
Stop Target: None
Galena Biopharma (GALE, $2.22, down $0.15) Stock Trade
Original Entry Price: $5.17 (2/10/14)
Lowered Price from Selling Options: $5.17
Exit Target: $10
Return: -57%
Stop Target: $1.00
Action: We are going to place Galena on HOLD as we are going to ride out the storm. While we like to make monthly double-digit returns, this has always been a longer-term buy and hold stock for us. Our first GALE trade made 189% and we were smart by taking profits on the shares surge to nearly $8. We also recommended an 800% winning call option trade for our Daily after we “called” the breakout. If shares fall below $2 and drift near $1 then we would have to reconsider our position as it would then become a “penny” stock to us. However, we are looking for shares to retest $3 one the biotech selloff subsides and then we can go from there.
From last week:
Galena reported earnings last Monday and traded to a low of $2.54 after the company aired its dirty laundry. The $0.46 loss was overlooked as Wall Street focused on the SEC investigation. Two brokerage firms came out on Wednesday and defended the stock saying the shakedown should not affect the value of the company’s assets. We mentioned the negative news involving their knuckleheads managers would crush the momentum in the stock as we had some tremendous profits riding the wave from under $3 to nearly $8. We still like the company’s pipeline and hopefully Galena’s management has no more shenanigans up their sleeves. However, we have set a Hard Stop at $1.75 in case shares continue in their downward channel.
Discovery Laboratories (DSCO, $2.21, up $0.03) Covered Call Stock/ Option Trade
Sold April 3 calls (DSCO140419C00003000, $0.05, flat)
Original Entry Price: $2.42 (1/7/14)
Lowered Price from Selling Options: $2.17
Exit Target: $4.50-$5
Return: 2%
Stop Target: $1
Action: Shares drifted lower throughout the week and we mentioned a close below $2.20 will likely lead to $2 and the 200-day MA. Short-term resistance is at $2.30 and the 100-day MA. We will be able to sell another call option in a few weeks or we can reduce our exposure by exiting the trade if we are up or are at a breakeven point. However, we also like this company a lot so we don’t mind holding this single-digit gem as well.
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%.
Pizza Inn Holdings (PZZI, $5.69, up $0.11) Stock Trade
Original Entry Price: $8.10 (10/11/13)
Lowered Price from Selling Options/ Dividends: No options available
Exit Target: $12+
Return: -30%
Stop Target: $5
Action: We said last week we Pizza Inn’s management team and the company would need a little time to prove themselves once the first 100 stores are up and running. They must have been reading our newsletter as they announced the hiring of Chris Smith, who has been involved in the growth of Chipotle Mexican Grill and Smashburger.
A close back above $6 would indicate the smart money is still staying in. Support at $5.50 has been holding up.
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, $3.25, up $0.11)
Original Entry Price: $5.25 (1/3/11)
Lowered Price from Selling Options: $4.60
Exit Target: $5
Return: -29%
Stop Target: $2
Action: Shares flirted with $3 and the 200-day MA and a close below this level would likely lead to $2.75. Resistance is at $3.20.
Trades on HOLD (5): AKS Steel Holding (AKS), Rambus (RMBS) on the verge of a breakout, Bebe Stores (BEBE) private equity offering coming north of $8? From 2011, Vivus (VVUS), Dendreon (DNDN) from 2012.
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5. Week Ahead
Here is a chart of the events for the week ahead:
