MomentumOptionsTrading.com Weekly Wrap for 6/16/13

MomentumOptionsTrading.com Weekly Wrap for 6/16/13

11:30pm (EST)

1. Market Summary

2. Applied Materials (AMAT)a Solid Semiconductor Equipment Play

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

“There were a number of streaks in play last week that were snapped or continued that favored both the bulls and bears. We mentioned the Dow’s 20-win Tuesday streak ended but the most important streak was the bulls not losing 3-straight sessions, something they haven’t done all year but were on the verge of doing on Thursday before the big bounce off the lows.

The other streak still favoring the bulls are the Friday/ Monday (and Tuesday) closes. The Dow hasn’t had a lower Friday/ Monday since mid-April when the index fell 8/100th of a point and 266 points on a F/M close. The last F/M negative close before that was mid-March.

The Dow had fallen 206 points on the previous Friday and stayed green this past Monday from star to finish. Friday was an up day and this Monday could be a continuation of the rally. If not, next Friday and Monday’s closes “bear” watching but so far the up to mixed F/M closes means cash is still coming into the market and not exiting.

We mentioned the negativity heading into Friday’s Nonfarm Payroll numbers could catch everyone off guard and that they could miss the next leg up. The slick talking pros were preparing for the 5%-10% pullback that was finally coming but it came and went while they were running for cover ahead of Friday’s unemployment numbers.

Although the bears were unable to get a close below the 50-day MA’s, it is worth noting the damage they did and how quickly pullbacks can come. The blue-chips reached an intraday high of 15,542 on May 22 and last Thursday’s low checked-in at 14,844. The nearly 700-point move, or 4%, from the high to low came n 10 trading sessions. The S&P 500 dropped 5%, from 1,687 to 1,598 over the same time frame.

If the bulls are able to get off to a good start on Monday and clear short-term resistance, a break to new highs could occur. The Wall Street pros that were saying to sell or watch out for the June swoon could start to chase on a breakout to new highs and another 5% behind those that stayed long.

Of course, we have been preparing for a trading range that is now entering its fourth week. It is important to identify flat action although the volatility can make it hard to see a trading range developing. We wanted to show the trading ranges on the charts because if this one continues into summer we will need to be careful with our directional trades.

Trading ranges are great for writing covered call options (Weekly Wrap) on solid stocks but the environment it a little harder for directional option trading (Daily) because they expire and you have to be right within a given time period.

We recommended a few put option trades to take advantage of the test to the 50-day Ma’s for the Daily and while we one one and will probably lose one, we still should make an overall gain.

The 2013 Daily track record shows how hard trading ranges can be and while we try to trade through them, we are going to be a little more careful with this one because we don’t need to push things and we were able to identify this one early.

We are 19-3 since late April and we are showing incredible gains for the year. Please don’t think we are boasting. We only mention this because when the market is trending, directional option trading is easier and we had an incredible May when everyone said to go away.

These lucrative months help offset trading ranges and trades that go against you and why it is always important to be in the market at all times. However, it is also important to make sure you preserve capital or have the ability to reload your account to survive trading ranges.

Gold traded in a tight range for much of the week before Friday’s 2% hit. The yellow metal tried to clear resistance at $1,425 and was holding $1,400 before falling $28 to close at $1,384. We mentioned last week another close below this level could lead to $1,350 and our downside target remains $1,250 an ounce at some point this year. A close above $1,425 would be bullish but we would wait for $1,450 to trigger to confirm the selling pressure is over.

Silver tested $23 all week before dropping a whopping 4% on Friday. The poor man’s gold got hit for 86 cents to settle at $21.66. The close below $22 opens the door for another possible test to $20 and our downside target and back-the-truck up buy could come at $17.50.

If the market continues higher, metals could become weaker so we are watching this relationship carefully. If there is a 10% or more market correction this year, Gold and Silver could become a safe haven but right now its hard to trust them.

Economic news will be much lighter this week and with earnings slowing to a crawl, the market could be subject to overseas news and zombie talk here at home. If the Nekkie can hold up, the bulls have a good chance at extending last week’s gains and making a run at previous all-times highs.

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China’s May economic data was weak and the news over the weekend came in below expectations. While the chances are good the bulls push resistance in June, July will set the stage on a continued breakout or the mother of all breakdowns with 2Q earnings on deck.

Until then, we will continue to monitor the trading range and realize they can get stretched at the top and bottom like we have seen. We will continue to give you the breakout targets to watch for to go long or buy calls as well as the downside targets to watch for to use put options or go short.” (from 6/9/2013 Weekly Wrap)

The market traded in a tight range to start the week but it didn’t take long or the volatility to pick back up. The bears and bulls split Monday’s session as Tech and the small-caps ended with gains but the downside action over the next 2 days would once again threaten the 50-day MA’s (moving averages).

Thursday was looking like a terrible day for Wall Street as Japan’s Nikkei dropped over 6% and the selloff had spread around the world before Wall Street woke up for breakfast. Futures were showing heavy losses on the open but it is always darkest before dawn as they started to improve dramatically ahead of the jobless claims report. The bulls got some good news when they came in better-than-expected as futures turned slightly positive afterwards.

The indexes still opened slightly lower on Thursday but the 50-day MA’s held for the fourth time this year as the bulls mounted a serious comeback to reclaim support.

The bounce off the lows and the bottom of the trading range gave the bulls some breathing room but Friday’s pullback gave the bears the edge for the week. The major indexes finished right where we expected them and the charts from our weekend homework are showing more volatility ahead this week. (read more…)

The Dow dropped 106 points, or 0.7%, to close at15,070 on Friday. The blue-chips traded to a high of 15,300 to start the week but ended 10 points lower at 15,238 after testing 15,211. Tuesday’s trip to 15,086 was a warning sign 15,000 would be tested and Wednesday’s low was 14,981. This capped the Dow’s first 3-straight session slide all year with the index closing at 14,995. Thursday’s rebound to 15,176 was encouraging but Friday’s triple-digit pullback keeps 14,800 in play on another break below the 50-day MA. We have warned 14,600 and the 100-day MA would be the bears next target on further weakness but a close back above 15,200 and then 15,350 would be clues a test of all-time highs is still possible. The Dow came into the week at 15,248 and lost 178 points, or 1.2%, by Friday’s close. For 2013, the blue-chips have gained 1,966 points, or 15%.

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The S&P 500 slipped 9 points, or 0.6%, to settle at 1,626. The index tried to clear 1,650 on Monday’s open and made a run to 1,648 but this area of resistance has been a bull headache all month. The S&P ended the session a half-point lower but tested 1,625 on Tuesday. There was further risk to 1,600 and Wednesday’s low was 1,610. The bears tripped 1,608 on Thursday’s open but gave back 1,625 after the index rallied 28 points to close at 1,636. Friday’s pullback put the index back at Tuesday’s price points. We have warned of risk down to 1,575 on a close below the 50-day MA, or 1,600, and the 100-day MA is at 1,571. A close below these levels means 1,550 on an overshoot. The bulls could gain a ton of momentum once they crack 1,650 that could take them up to 1,675 and a test of all-time highs near 1,700. The S&P 500 started Monday’s session at 1,643 and was down 17 points, or 1%, for the week. For the year, the index is up 200 points, or 14.1%.

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The Nasdaq fell 22 points, or 0.6%, to finish at 3,423. Tech has struggled with the 3,500 level that was last kissed at the end of May. Monday’s run to 3,484 was another failed effort but the index did close higher to end at 3,473. When mentioned the bulls needed to clear 3,475 or faced risk to 3,450 again and Tuesday’s trip to 3,436 proved this theory right. Wednesday’s close at 3,400 posed more risk down to 3,350 and the 100-day MA, or 3,300. These levels could be tested on a close below 3,375 and the 50-day MA. Thursday’s low was 3,387 before the rebound to 3,451 and the close of 3,445. Friday’s pullback keeps the action near the bottom of the current trading range. A close above 3,500 is 2% away and could be achieved if Bernanke and Oracle make surprise announcements. The Nasdaq began the week at 3,469 and declined 46 points, or 1.3%, by Friday’s closing bell. YTD, Tech has advanced 404 points, or 13.4%.

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The Russell 2000 gave back 8 points, or 0.8%, to end at 981. The small-caps traded to of 992 to start Monday’s session and ended near its high of the day after adding 5 points. We mentioned on Tuesday morning there hasn’t been a close above the 1,000 mark all year and it was important the bulls made a push to this level but the open at 985 was a clue 975 would come back into the mix. Wednesday’s bottom checked-in at 971 and the close at 972 kept the 50-day MA and our 950 downside target in play. The 100-day MA is at 942. The bears pushed 971 on Thursday’s open but the rebound to 989 was super bullish although we knew when 990 didn’t clear on the close it couldn’t be trusted. Friday’s peak at 990.35 on the open was just below Thursday’s peak of 990.87. A close above 990 is 1% away and if the bulls can trigger 995, the Russell would be poised for its first close above 1,000 and is also just 2% away. The Russell 2000 was at 987 before Monday’s open and dropped a 6-pack, or 0.6%, for the week. For 2013, the small-caps are up 132 points, or 15.5%.

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The S&P 500 Volatility Index ($VIX, 17.15, up 0.74) followed the prior weeks’ pattern as we said any closes above 17.50 would lead to a possible test to 20. Monday’s session was flat for the most part and Tuesday’s push to 17.14 was a preview of things to come. Wednesday’s high was 18.60 and the close was at 18.59. The bulls held check as Thursday’s high was 18.58 and the close at 16.41 set them up for a possible push back below 15. However, Friday’s finish put the VIX back in neutral territory. A close above 20 favors the bears and a break out of the current trading range. A close below 15 would favor the bulls for another run at all-time highs.

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There were a number of streaks that were in play last week as the bears made another attempt at cracking major support. The Dow’s Tuesday loss streak reached 2-straight after 20-straight wins and was sandwiched in between the bears first 3-day win streak against the index.

We mentioned mid-week the test to the lows was the fourth attempt by the bears this year to crack major support and the second in 2 weeks. We have talked about the current trading range for weeks but the charts are showing more important technical developments.

As you can see from the red lines on our chart work, symmetrical triangles are forming and they are often points of indecision. The indexes have been making lower highs and lower lows in recent weeks off the May highs and the attempts to push higher have been met with selling pressure.

This week, the indexes will need to push higher highs and higher lows on heavier volume as there is a tendency for weak volume while symmetrical triangles take shape. The good news is that these patterns or formations usually lead to an explosive move in the direction of the trend which has been bullish all year. Of course, technical patterns can fail and a series of lower highs and lower lows again this week could push the indexes out of their symmetrical triangles the other way.

The Friday/ Monday closes also turned bearish as the Dow ended both days lower last week. A lower M/F close this week would show more money is moving to the sidelines. The Dow has not finished lower on three-straight M/F sessions this year so it will be important for the bulls to get off to a good start this week and finish in positive territory.

The headlines from the upcoming week should be enough to rattle the indexes out of their current technical patterns with the FOMC meeting and some noteworthy earnings announcements. The Fed will release their decision on interest rates on Wednesday and there is little to no chance in a change in policy. Ben Bernanke will once again be the focal point of the news and with all of the tapering talk, he will need to soothe the fears that the Fed isn’t still fully committed.

We aren’t sure how or why there is such a tapering tantrum going on because Big Ben has said he doesn’t plan on cutting quantitative easing until the unemployment rate reaches 6.5%. We believe the Fed won’t taper or cut back their $85 billion monthly tab until at least 2014 and if Benny were to say this, the market would explode higher.

Bernanke has done well playing his poker hand and while he may not say this, he will say something bullish because he cannot afford to let the market go into a tailspin.

As far as earnings, FedEx (FDX, $99.12, down $0.46), Jabil Circuit (JBL, $19.42, down $0.29), Micron Technology (MU, $12.76, down $0.15), Red Hat (RHT, $45.81, down $0.04), Oracle (ORCL, $33.77, down $0.48) and Darden Restaurants (DRI, $52.54, down $0.74) will confess their numbers to Wall Street.

June option expiration is this Friday and it will also be mark quadruple expiration. This is when stock index futures, stock index options, stock futures and stock options all expire at the same time and can lead to extreme volatility.

Over the past 15 years, the Dow ended lower on the opening Monday 9 times. This puts the odds at 60% the bears take the session but June option expiration week is usually bullish in bull markets. In recent years, on Friday June expiration weeks, the market has finished split with the bears and. Bulls winning 7 apiece. Given the history it wouldn’t be surprising to see a flat week with the bears winning the first half and the bulls taking the back half.

We are still in the bullish camp but we mentioned last Thursday if major support is broken then we would put on our Bear hats and start nibbling on put options. The levels to go short are: Dow 12,800; S&P (500) 1,595; Nasdaq 3,375; and Russell (2000) 960.

All of these levels are just below the prior week’s lows and should trigger the next wave of support we covered with the indexes, or the 100-day MA’s. A close above resistance before the Fed comments would be bullish.

Futures look like this as we head to press: Dow futures are up 55 points to 15,043 while the S&P 500 futures are higher by 7 points to 1,625. The Nasdaq 100 futures are advancing by 712 points and are at 2,949.

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Key of Technicals Used In Following Articles

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2. Applied Materials (AMAT)a Solid Semiconductor Equipment Play

By Michael Bryant

Applied Materials (AMAT, $15.41, down $0.19) has been surging lately as solar demand picks up.

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Michael A. McNeilly co-founded the company in 1967 to manufacture equipment and silane, SiH₄, for the semiconductor industry. Silane is use to coat glass fibers to create better adhesion to the polymer matrix. Before co-founding the company, McNeilly noticed that most people in the semiconductor industry did not know the chemistry behind processing of semiconductors. There was no way to utilize a variety of hazardous chemicals and other materials for device production. He set out to fill that gap by starting Apogee Chemical in 1965, which became known as the first supplier of chemicals for depositing silicon and silicon compounds on the West Coast. Two years later, he left Apogee and with a $7,000 loan from his father-in-law and co-founded AMAT.

The company went public on October 5, 1972 selling 300,000 shares at $10 a share, raising $2.5 million. Having gone through 9 stock splits since its IPO, price can be calculated to be at a split-adjusted price of $0.035 per share. Thus, AMAT have made many people who had bought the IPO very wealthy. Someone who invested $1000 in 1972 would now have $440,285 just by accounting the stock splits and price increase.

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The company operates in four segments: Silicon Systems Group, Applied Global Services, Display, and Energy and Environmental Solutions.

· The Silicon Systems Group segment develops manufacturing equipment used to fabricate semiconductor chips or integrated circuits. This segment offers atomic layer deposition, chemical vapor deposition, physical vapor deposition, electrochemical deposition, rapid thermal processing, ion implantation, chemical mechanical planarization, wet cleaning, wafer metrology and inspection, and systems that etch or inspect circuit patterns.

· The Applied Global Services segment provides products and services to improve operating efficiency, reduce operating costs, and reduce environmental impact of semiconductor, display, and solar manufacturers. The segment’s products consist of spares, services, certain earlier generation products, remanufactured equipment, and products that have reached a particular stage in the product lifecycle.

· The Display segment offers products for manufacturing thin film transistor LCDs for televisions, personal computers (PCs), tablet PCs, smartphones, organic light-emitting diodes (OLEDs), and other display technologies.

· The Energy and Environmental Solutions segment includes products for fabricating crystalline-silicon (c-Si) solar photovoltaic cells and modules, as well as high throughput roll-to-roll coating (web) systems for flexible electronics and other applications.

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The company recently released 2nd quarter earnings back in mid-May. Numbers impressed investors as they continued bidding the stock price up. This was the second consecutive quarter with more than $2 billion in new orders. Net sales of $1.97 billion were up 25% from the previous quarter. Non-GAAP adjusted EPS of $0.16 exceeded the expectations but revenue is still down from the previous year. GAAP was a loss of 11 cents per share mainly due to a 43% fall in Energy and Environmental Solutions orders. Analysts estimate the company will earn $0.19 per share on $2.06 billion for the 3^rd quarter. As shown in the graphs below, analysts’ revenue target seems easily attainable from 1^st quarter revenue but earnings may barely meet estimates.

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The company’s two main competitors are KLA-Tencor (KLAC) and Lam Research (LRCX). KLAC is the leading process diagnostics and control company in the semiconductor equipment industry. LRCX acquired Novellus Systems (NVLS) in June of 2012. NVLS was one of the top competitors to AMAT. Germany’s Aixtron SE (AIXG) also competes with AMAT, particularly in the solar cell business.

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At $15.41, the stock is between its low target of $10.00 and median target of $15.50 made by the 17 analysts recorded by Thomson/First Call. Mean target is $15.82, and high target is $20.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.5, up from 2.6 a week ago.

	Current Month	Last Month	Two Months Ago	Three Months Ago
Strong Buy	4	4	4	4
Buy	5	3	3	3
Hold	7	8	8	9
Underperform	2	2	2	2
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 6/14/13 close)

By Catherine Tierney

Monday

Accretive (AH, $11.14, down $0.06), Daxor (DXR, $7.30, Flat), Discover (DFS, $47.34, down $0.76), IHS (HIS, $109.77, down $0.98), International Bancshares (IBOC, $20.74, down $0.73), Korn/Ferry (KFY, $17.27, down $0.46), Mercury (MRCY, $9.26, down $0.25), The Phoenix Companies (PNX, $43.78, down $0.40), Selectica (SLTC, $8.40, down $0.20)

Tuesday

Adobe (ADBE, $42.84, down $0.46), Barnes & Noble (BKS, $19.37, down $0.07), La-Z-Boy (LZB, $18.84, down $0.19)

Wednesday

Actuant (ATU, $32.74, down $0.72), ChinaEdu (CEDU, $5.99, Flat), CLARCOR (CLC, $54.12, down $0.75), FedEx (FDX, $99.12, down $0.46), Finisar (FNSR, $14.21, down $0.38), Jabil Circuit (JBL, $19.42, down $0.29), Red Hat (RHT, $45.81, down $0.04), Steelcase (SCS, $14.30, down $0.03)

Thursday

American (AMSWA, $8.35, down $0.13), The Kroger Co. (KR, $34.79, down $0.27), Oracle (ORCL, $33.77, down $0.48), TIBCO (TIBX, $21.55, up $0.31)

Friday

CarMax (KMX, $46.41, down $0.58), Carnival (CCL, $33.84, down $0.08), Darden (DRI, $52.54, down $0.74)

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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 6/14/13)

Our Weekly Wrap Closed Trade Track Record for 2013 is 22-2 (66-4, overall since the start of 2011).

Blackberry (BBRY, $14.44, up $0.02)

Original Entry Price: $13.70 (6/11/13)

Lowered Price from Selling Options: $13.70

Exit Target: $15+

Return: 5%

Stop Target: $10

Action: Shares traded down to $13.50 on Wednesday’s low but were upgraded on Thursday to a “Buy” from a “Hold” on better mobile sales. The company will announce earnings at the end of the month and there is risk down to $12 on a miss if $13.50 fails. If numbers come in ahead of expectations, shares could trade up to the $16-$18 range. Friday’s high was $14.93 and we came close to selling the July 16 calls (BBRY130720C00016000, $0.70, up $0.05) had $15 tripped. They traded to a high of 85 cents on Friday. If we can get $1 or more for these calls it would lower our cost basis to $12.70. If we would get called away at $16 the trade would make 14%. We will send out a Trade Alert if we do sell these calls this week.

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Exact Sciences (EXAS, $12.34, down $0.71)

Original Entry Price: $13.55 (6/11/13)

Lowered Price from Selling Options: $13.55

Exit Target: $16+

Return: -9%

Stop Target: $10

Action: Shares made a run at all-time and decade highs last week and a breakout to $20 could be in the works on a close above $13.50. Support is at $11 if $12 fails followed by the major MA’s at $10.50.

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Pizza Inn Holdings (PZZI, $5.16, down $0.01)

Original Entry Price: $5.40 (6/11/13)

Lowered Price from Selling Options: $5.40 (no options listed)

Exit Target: $10+

Return: -4%

Stop Target: $2

Action: Shares may have bottomed after reaching a high of $9 back In May. There is risk down to $4.50 and a break below this level could lead to $4. We are looking for a run past $6 for a quick 10% and we love this stock for the long-term.

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Bank of America (BAC, $13.07, down $0.14)

Original Entry Price: $13.15 (6/11/13)

Lowered Price from Selling Options: $13.15

Exit Target: $15+

Return: -1%

Stop Target: $10

Action: There is risk down to $12.75 and the 50-day MA and from there the 100-day MA on further weakness. A close back above $13.60 should get $14 in play again.

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Riverbed Technology (RVBD, $16.09, up $0.02)

June 16 calls (RVBD130622C00016000, $0.35, flat)

Original Entry Price: $15.17 (5/29/13)

Lowered Price from Selling Options: $14.93

Exit Target: $18-$20

Return: 8%

Stop Target: $12

Action: We will get “called-away” from the stock if shares hold $16 by Friday’s close. Shares traded to a high of $16.56 on Friday and we were looking for a close above $16.50. We believe the company is a takeover target and we have a near-term price of $18 for the stock with a shot at $20 by mid-July. Support is at $15.50.

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We recommended buying Riverbed at $15.17 on 5/29/13. We sold the June 16 calls for 24 cents which lowered our cost basis to $14.93. If we are called-away at $16 in mid-June, the trade will make 7%.

Petrobras (PBR, $15.64, down $0.72)

Original Entry Price: $18.77 (5/14/13)

Lowered Price from Selling Options: $18.77

Exit Target: $25

Return: -17%

Stop Target: $15

Action: Shares fell to a low of $15.57 midweek and we have patience down to $15. The close back above $16 to $16.36 on Thursday’s 4% move was good to see but the gains we lost with Friday’s pullback. Resistance is at $17.

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Genworth Financial (GNW, $11.00, down $0.06)

June 11 calls (GNW130622C00011000, $0.17, down $0.07)

Original Entry Price: $9.88 (4/2/13)

Lowered Price from Selling Options: $9.48

Exit Target: $15+

Return: 16%

Stop Target: $8

Action: Shares kissed $10.68 last Wednesday when the talking heads were writing off the Financial stocks. While there is still risk down to $10 on a break below $10.50, we could get called away if shares stay at or above current levels. We will make 16% if it happens or we can write another call option if it doesn’t. We have followed Genworth for years and at the start of the year we said this stock could trade into the mid-teens over the next 6-12 months.

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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 June the trade will make 16%.

Dendreon (DNDN, $4.05, down $0.01)

August 6 calls (DNDN130817C00006000, $0.17, flat)

Original Entry Price: $4.91 (4/2/13)

Lowered Price from Selling Options: $4.36

Exit Target: $8+

Return: -7%

Stop Target: $2

Action: Dendreon made a run at $4.25 midweek and traded up to $4.34 on Thursday before closing the week just north of $4. We have been waiting for a break above resistance at $4.25 to clear for a run to $5+. We believe the company is also a takeover target down the road so we don’t mind waiting this one out.

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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%.

Scientific Games (SGMS, $11.64, up $0.21)

Original Entry Price: $11.10 (3/20/12)

Lowered Price from Selling Options: None

Exit Target: $15

Return: 4%

Stop Target: $11.10, raise to $11.25 (Hard Stop)

Action: Shares traded to a high of $11.80 last week, and $11.75 on Friday. Resistance is at $12 and a break above this level should lead to $14-$15. Support is at $11 and our Hard Stop of $11.10 didn’t trigger on Thursday’s low of $11.22. We have raised the Hard Stop to $11.25 just in case this level is tested again.

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Trades on HOLD (6): DryShips (DRYS, $1.82, down $0.05), AKS Steel Holding (AKS, $3.57, down $0.05), Rare Element Resources (REE, $1.88, down $0.02), Rambus (RMBS, $8.66, up $0.03), Bebe Stores (BEBE, $5.79. down $0.06), Vivus (VVUS, $13.81, down $0.14).

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5. Week Ahead