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MomentumOptionsTrading.com Weekly Wrap for 5/27/13
Bulls Looking to Get Back on Track
11:30pm (EST)
The market ended flat on Friday following a dip at the open that defined near-term support. The bulls were trying to avoid a 3-session skid for the first time this year and for the most part they did as the blue-chips ended higher. The bears, however, have the momentum as they got their first weekly win since mid-April and will be looking to snap a 20-straight Tuesday losing streak against the Dow.
The uptrend is still intact and Friday’s action was slightly bullish as the bears never really threatened major support following Wednesday and Thursday’s pullbacks. This week will be less busy as the market deals with the holiday shortened week and extended Wall Street vacations but volatility could remain. Light trading volumes can produce erratic swings in the indexes and headline risk will play a larger role in moving the market as 1Q earnings season is basically over.
The Dow gained 8 points, or 0.1%, to close at 15,303 on Friday. The blue-chips traded down to 15,199 on Friday and Thursday’s low was 15,180. We are expecting a test down to 15,000, possibly 14,800, if the index closes below 15,200. Resistance is at 15,500.
The S&P 500 slipped a point, or 0.1%, to end at 1,649. The bulls tried to hold 1,650 but the tests to 1,635 and 1,636 to end the week is suggesting 1,625-1,600 could be in play on further weakness. A move back above 1,668 would be bullish.
The Nasdaq dropped a third of a point, to settle at 3,459. Friday’s low was 3,429 and Thursday’s was 3,422. Paper-thin support is at 3,425 followed by 3,400 with resistance at 3,500. A close above this level would be bullish for another run at 3,600.
The Russell 2000 fell a hundredth of a point to finish at 984. The bulls run to 1,000 and resistance wasn’t challenged until midweek and the back test to 970 and 973 by Friday held support. The 3% drop in 2 sessions off the high is a reminder how fragile and quick the market is and a close below these levels could lead to 950.
The S&P 500 Volatility ($VIX, 13.99, down 0.08) stayed below 15 after trading up to 14.79 on Friday, and 15.11 on Thursday. A close above this level would be bearish and anything over 17.50 would suggest a possible trend change is coming.
Futures are showing a strong open but we need to watch any pops and flops: Dow (+45); S&P 500 (+5); Nasdaq 100 (+14).
Special Note: We have updated the current trades and we will have our weekly charts for you next week as we took our first weekend break of the year to enjoy the holiday weekend. We rode some rollercoasters at an amusement park to prepare for the upcoming volatility and we had a blast! We do feel the market could experience some wild price swings this summer so we wanted to get ready for it. Remember, we LOVE playing the downside and a market correction just as much as bullish breakouts and we couldn’t think of a better way to keep our mind sharp as we prepare for a possible fun and profitable ride.
Weekly Wrap Covered Call Portfolio Update (Closing prices as of 5/24/13)
Our Weekly Wrap Closed Trade Track Record for 2013 is 18-1 (62-3, overall since the start of 2011).
We closed 3 more winning covered call trades last week that got our 2013 Track Record to 18-1. Keryx Biopharmaceuticals (KERX, $8.03, flat) was closed at $8.06 for a 20% gain. We closed magicJack VocalTec (CALL, $16.43, down $0.04) for a 2% gain. Cisco Systems (CSCO, $23.34, down $0.67) was closed for a 14% profit after the $23.50 Hard Stop triggered.
Current Trades
Goodyear Tire & Rubber (GT, $14.55, down $0.03)
Original Entry Price: $12.90 (5/14/13)
Lowered Price from Selling Options: $12.90
Exit Target: $18
Return: 13%
Stop Target: $14, raise to $14.25 (Hard Stop)
Action: Shares tested a low of $14.03 on Thursday’s pullback but rebounded on Friday. Our near-term target is $15-$16, with a possible push to $17. If $14.25 trips our Hard Stop will automatically close the trade for a 10% return.
Petrobras (PBR, $18.20, up $0.09)
Original Entry Price: $18.77 (5/14/13)
Lowered Price from Selling Options: $18.77
Exit Target: $25
Return: -3%
Stop Target: $15
Action: Shares made a run past resistance at $19 and traded up to $19.17 and $19.12 by midweek. Thursday’s low was $17.86 but support at $18 held with the close of $18.11. Friday’s low was $17.99 and there is further risk to $17 if support doesn’t hold but we are expecting a run to $20 over the next few weeks and where we will look to sell a call option.
Diversified Restaurant Holdings (BAGR, $7.25, up $0.25)
Original Entry Price: $6.90 (5/8/13)
Lowered Price from Selling Options: No options available
Exit Target: $10
Return: 5%
Stop Target: $6.95 (Hard Stop)
Action: Shares reached a peak of $7.65 on Wednesday and we wanted to see a close above $7.50 to get $8 in play. Shares couldn’t hold this level into the close as they finished at $7.35. Thursday’s pullback to $7.01 held support at $7 but a close below this level will likely lead to $6. We have set a Hard Stop just above breakeven in case support fails to hold. We love the company’s future but if support fails and we can get in at cheaper levels, even better.
Bank of America (BAC, $13.24, up $0.03)
Original Entry Price: $13.10 (5/8/13)
Lowered Price from Selling Options: $13.10
Exit Target: $15
Return: 1%
Stop Target: $12
Action: Shares traded up to $13.73 on Wednesday but couldn’t hold resistance at $13.50. There was a back test to $13 on Thursday’s pullback as shares kissed $12.82 but held support. There is further risk down to $12.50 but Friday’s action also held support. We have a near-term target of $14-$15 for BAC but we don’t mind holding shares through what could become a volatile summer.
Genworth Financial (GNW, $10.35, down $0.15)
June 11 calls (GNW130622C00011000, $0.18, down $0.04)
Original Entry Price: $9.88 (4/2/13)
Lowered Price from Selling Options: $9.48
Exit Target: $15+
Return: 9%
Stop Target: $8
Action: Shares struggled with $11 all week and tested support at $10 on Thursday after kissing $10.10. If support holds and shares clear $11, Genworth could make a run at $12-$13. Our 6-12 month target is $15.
We recommended buying Genworth Financial at $9.88 on 4/2/13.
On 5/1/13 we sold the June 11 calls for $0.40, which lowered our cost basis to $9.48. If we are called away at $11 in late June the trade will make 16%.
Dendreon (DNDN, $3.89, down $0.02)
August 6 calls (DNDN130817C00006000, $0.20, flat)
Original Entry Price: $4.91 (4/2/13)
Lowered Price from Selling Options: $4.36
Exit Target: $8+
Return: -11%
Stop Target: $2
Action: Dendreon traded in a tight 19 cent range all week. There is risk down to $3.50 but we would like to see shares clear and hold $4.25 this week.
We recommended buying Dendreon at $4.91 on 4/2/13. We also sold the August 6 calls for 55 cents which lowered our cost basis to $4.36. If we are called-away at $6 in mid-August, the trade will make 38%.
Apollo Group (APOL, $20.99, up $0.14) (Short Position)
Original Entry Price: $16.10 (3/4/13)
Lowered Price from Selling Options: None
Exit Target: $12
Return: -23%
Stop Target: $22.50 (Hard Stop)
Action: Shares traded up to $21.75 by Tuesday before falling to $20.12 on Thursday’s selloff. We have set a Hard Stop to close the trade if $22.50 is triggered. A drop back below $20 is what we want this week.
We recommended shorting Apollo Group at $16.10 on 3/4/13.
Solazyme (SZYM, $11.14, up $0.44)
Original Entry Price: $12.35 (8/9/12)
Lowered Price from Selling Options: $11.55
Exit Target: $15+
Return: -4%
Stop Target: None
Action: Shares pushed a high of $11.71 before the bottom fell out on Wednesday’s back-draft to $10.57. Shares tested $10.36 on Thursday before Friday’s 4% pop and the close back above $11 was good to see. We believe shares will reach $15 over the next 6 months once they clear $12. Support is back at $10.
We recommended buying SZYM at $12.35 on 8/9/2012 and for every 100 shares to sell the September 12.50 calls for 80 cents. This lowered the cost basis to $11.55.
Scientific Games (SGMS, $9.23, up $0.23)
Original Entry Price: $11.10 (3/20/12)
Lowered Price from Selling Options: None
Exit Target: $15
Return: -17%
Stop Target: $7
Action: Resistance at $9.50 held on Monday and Tuesday and was the high for both sessions. Shares tested $9 midweek and fell to a low of $8.79 on Thursday.
Rick Rouse
Chief Options Strategist
Rick@MomentumOptionsTrading.com
“What Are You Doing TODAY to become a millionaire TOMORROW?”
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(888) 898–0837
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