MomentumOptionsTrading.com Weekly Wrap for 6/9/13

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MomentumOptionsTrading.com Weekly Wrap for 6/9/13

11:30pm (EST)

1. Market Summary

2. Put Salesforce.com (CRM) on Your Watch List

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

“Before we get into Friday’s action, let’s talk about the bullish May the bulls closed out. The Dow gained 276 points, or nearly 2%, while the S&P 500 jumped 33 points, or 2%. The Nasdaq added 157 points, or 3%, and the Russell 2000 advanced 37 points, or 3%. The gains in May have came following a nasty pullback to start the month and one to end it. The good news is that there has not been a 3-session losing streak on the Dow this year and the market as a whole has now gone 180 days, or nearly 6 months, since there has been a 5% pullback.

The bulls had their first winning May since 2009 are on a 20-straight Tuesday win streak with the blue-chips. We had a good feeling May would be a breakout month for the bulls following the 2-month trading range and while we are uncertain as of now on how June will play out, there is a chance for a “summer rally” instead of the “summer doldrums” that most of the Wall Street pros are predicting.

The last week of May is historically weak and while we were disappointed the bulls couldn’t snap their own 2-week losing streak, the damage was minimal. It will be important for the bulls to get off to a good start on Monday, and if they do, then maybe they can work some Tuesday magic again. The first trading day of June has been bullish 75% of the time over the past 25 years and in recent years the gains have been 1%-2%. June also caps the Nasdaq’s historic “8-month run” that starts in November. If Tech can hold its footing, along with the Financial stocks, these two sectors could give the bulls some stability until earnings season in July heats up.

Gold is backtracking towards its previous lows and we said another close below $1,400 would be a warning sign for a possible drop to $1,350 again. We still believe a test to $1,300 is in the works, possibly $1,250. Gold needs to rebound back above $1,450 before the selling pressure is abated.

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Silver pushed $22 again on Friday after testing $20 the prior week. While there was a slight back test to $23, we have said silver could test $17.50 over the summer and we called the recent dip to $20. The “spot” prices on silver is still in the $4-$5 range and it could be $8 if silver drop to $17. The dealers will tell you demand for silver is off the charts and while we would love to be able to get Silver for under $20, we may not get that opportunity if the spot stays high.

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We mentioned over the holiday weekend that volatility would be picking up and last week was a taste on how volatile the market can become. While our markets experienced 1% daily swings, it is nothing compared to the action on Japan’s Nikkei. The index tanked 5% last Thursday and is down 14% off it recent peaks. This has lead to some of the volatility here at home but much of the damage has come from the Fed on if and when they may taper their bond purchases.

We don’t see this as a big deal if the Fed were to cut back on their bond purchases because at some point you have to take the training wheels off the “economic recovery”. There will be more Fed speak this week along with a host of other economic reports so be prepared for continued volatility.

We are in good shape for both our Daily and Weekly Wrap portfolios as we have Hard Stops in place to protect profits. We have gotten off to a great start for the first half of the year and it will be important for us to guard against another possible trading range or an eventual 5% pullback. June may or may not be a breakout or breakdown month but we do believe it will be volatile. (from 6/2/2013 Weekly Wrap)

Wall Street played out like a Hollywood Blockbuster that had a lot of action, drama, and emotion with a happy ending for the bulls. The bears were left crying after coming so close, the closest they have been all year, in cracking major support and causing chaos and panic.

Much of the week was spent worrying on if and when the Fed would taper their current $85 billion a month spending spree and Friday’s Nonfarm Payroll report. A number too high or too low would have got the already overblown topic into overdrive but the market gods delivered the “perfect” number as the 50-day MA’s (Moving Average) held up and the continuation of a trading range still in place. (read more…)

The Dow zoomed 207 points, or 1.4%, to close at 15,248 on Friday. The blue-chips started the week off with strong gains and a push to resistance following the prior Friday pullback. The Monday close of 15,254 made us cautious because we said the bulls needed to clear 15,300 to keep the rally alive. Tuesday’s have been terrific all year but the Dow’s win streak of 20-straight ended with the drop back down to 15,177. We have been mentioning any closes below this level could lead to 14,800 if 15,000 failed and we got that on Wednesday and Thursday as the Dow closed at 14,960 and tested 14,844. The Thursday close above 15,000 was a good clue the bulls would rally on Friday but we are still at the same support and resistance levels. A move above 15,300-15,350 would confirm a continuation rally is in place and a test to new all-time highs (15,542), or 15,600. A break below 15,000 again, and then specifically, 14,800 would favor the bears. The Dow came into the week at 15,115 and advanced 133 points, or 0.9%, by Friday’s close. For 2013, the blue-chips are up 2,144 points, or 16.4%.

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The S&P 500 soared 21 points, or 1.3%, to settle at 1,643. The index gained 10 points on Monday to push 1,640 following a break below 1,625 to 1,622. The drop below support gave us a great warning sign 1,600 would come into play. The bears tested 1,623 on Tuesday before holding 1,630 into the close but Wednesday’s drop to 1,607 was well telegraphed. The bears got a little fluff on Thursday’s open as they pushed 1,598 but the bulls were able to make a run to 1,625 by the close after ending at 1,622. We didn’t think the bulls had enough energy to clear 1,650 on Friday but they did reach a high of 1,644. If cleared this week, the index could test 1,675, or new all-time highs. A close below 1,600 needs to be watched carefully as it could lead to a quick dip to 1,550. The S&P 500 started Monday’s session at 1,630 and was up 13 points, or 0.8%, for the week. For the year, the index is up 217 points, or 15.2%.

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The Nasdaq jumped 45 points, or 1.3%, to finish at 3,469. Tech tested a low of 3,419 on Monday and was down 36 points, or 1% before rebounding to hold 3,450. The close at 3,465 was just short of our 3,475 target and what we want to see for a continuation rally past 3,500. The bulls pushed 3,482 on Tuesday before the bottom fell out as the index ended at 3,445 and below 3,450. We mentioned a test to 3,400 was possible if this level failed to hold and Wednesday’s trip to 3,397 made us look like geniuses as the Nasdaq finished at 3,401. The bulls faced further risk down to 3,350 if 3,375 failed on Thursday but the best the bears could do was 3,378. The close at 3,424 was a good omen 3,450 could clear on a good Nonfarm payrolls number and Friday’s peak was 3,471. We wanted to see Tech trip 3,475 by the close as it would have reaffirmed 3,500 was coming back into the mix but it was close enough for government work. The bulls are less than 1% away from clearing resistance but a close below 3,400 still spells trouble. The Nasdaq began the week at 3,456 and added 13 points, or 0.4%, by Friday’s closing bell. YTD, Tech has gained 450 points, or 14.9%.

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The Russell 2000 popped 8 points higher, or 0.8%, to end at 987. The small-caps tested support at 975 on Monday’s pullback to 976 but added a 6-pack by the close and went out at 990. The index was just 1% away from clearing 1,000 but after a high of 994 on Tuesday, support was tested again at 975 before the close at 981. We have been warning that a break below this level would lead to 950 and on Wednesday the bears kissed 967 and got a close of 968. Thursday’s 5-point drop to 963 didn’t have the mustard to push 950 and the bulls were able to rebound to clear 975 again after getting the index to 979 by the close. This was a good clue Friday’s numbers could spark a run to 1,000 but the bulls only reached 989 as the index lagged the other 3. Same deal for this week. A close above 1,000 would be bullish while a drop below 975 again would be bearish. The Russell 2000 was at 984 before Monday’s open and was up 3 points, or 0.4%, for the week. For 2013, the small-caps are up 138 points, or 16.3%.

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The S&P 500 Volatility Index ($VIX, 15.14, down 1.49) fell 9% on Friday and we nailed the action all week. On Thursday morning before the market opened and before Friday’s rebound we had this to say in our Daily:

“The bulls have been in this spot before during their incredible 2013 run. In April, the VIX went through a similar pattern and traded up to 18.20 before falling back to 13 a week later. In late February, the VIX was pushing 20 after trading up to 19.28 but held 20 before working its way back below 15 a week later. Both times a selloff looked imminent but the market rebounded fast and furious.

We have been mentioning a close above 15 and then 17.50 could lead to 20 but it remains to be seen if we get the correction everyone seems to want or if we get another powerful, quick rally that leaves the suit-and-ties in the dust a week from now.” (END)

A close back below 15 to start the week and then 14 would confirm a rally is in place for a test to new highs while a close above 17.50 would likely lead to a test towards 20 again. The VIX closed at 17.50 on Wednesday and pushed a high of 18.51 on Thursday.

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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.

Futures look like this as we head to press: Dow futures are up 22 points to 15,230 while the S&P 500 futures are higher by 2 points to 1,641. The Nasdaq 100 futures are advancing by 7 points and are at 2,987.

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Key of Technicals Used In Following Articles

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2. Put Salesforce.com (CRM) on Your Watch List

By Michael Bryant

Cloud computing is the next big thing but is this space becoming like the next dot com bubble, where several unproven businesses are bid up to exceptionally high valuations? Salesforce.com (CRM, $39.61, up $1.55) seems to fall under this category but shares are worth a look.

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The company’s Marketing Cloud suite allows businesses to listen and engage with customers on public social networks, such as Facebook, Twitter, and blogs. Its Salesforce Platform enables its customers, independent software vendors, and third-party developers to develop applications in various programming languages, including Java. The company also offers professional services, including consulting, deployment, and training services to its customers to learn how to use its social and mobile cloud solutions. The company sells and markets its services via subscriptions.

Founded in 1999by former Oracle (ORCL) executive Marc Benioff, the company made news on June 4^th with another acquisition, a $2.5 billion deal to buy ExactTarget, a nearly 55% premium to the stock’s closing price of $22.06. Since Salesforce’s IPO in 2004, it has expanded through the acquisitions of some one dozen companies. ExactTarget was Saleforce’s biggest deal ever, and it sells software as a service (SaaS) solutions which include cloud computing services with customizable software to companies. While the acquisitions fueled growth, Salesforce’s profitability suffered. As can be seen in the revenue graphs shown later on, total expenses have exceeded revenue after 2011. The CEO says that current spending will increase future growth. This is the same approach Amazon (AMZN) took.

On June 8^th, Salesforce hired Keith Block, Oracle’s executive vice president of North America sales and consulting, to become its president and vice chairman of its board of directors. Given Keith Block’s position at helping Oracle grow, his hiring should provide the catalyst to move the stock higher. The stock has fallen from $47 after it reported 1^st quarter earnings of $0.10 per share based on non-GAAP net income on May 20^th. Using GAAP, it would have reported a loss. This discrepancy is said to be mainly due to stock compensations, but investors were obviously not pleased.

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Americas and Asia Pacific can help cancel out any weakness in Europe. Further, with plenty of space to grow in Asia Pacific, the company may have a bright future. However, one must worry that too much revenue is focused on the United States and what happens when U.S. growth slows.

Salesforce issued guidance for the 2^nd quarter with earnings of $0.11-0.12 on revenues of $931-936 million. Analysts estimate the company will earn $0.11 per share on $935 million. As shown in the graphs below, analysts’ revenue target seems easily attainable. But earning may not meet estimates.

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Over the last three years, the price has generally followed the rise in revenue, and seemed to ignore the rising total expenses and shrinking gross margin. The plunge in earnings was a surprise.

Three of its biggest competitors are Oracle (ORCL), SAP AG (SAP), and Microsoft Dynamics, a division of Microsoft (MSFT). Last year, Oracle purchased Eloqua for $810 million. Eloqua is similar to ExactTarget, offering many of the same types of services. Another emerging competitor is International Business Machines (IBM), which just recently acquired the largest privately held cloud computing firm, SoftLayer. SoftLayer serves over 20,000 clients and has 13 data centers worldwide. This addition will more than double the number of datacenters IBM has to 23.

While Oracle and SAP are its two top competitors, they both do more than just what Salesforce does. Though Amazon (AMZN) is in a different industry (retail), it does have a similar business model as Salesforce. Thus, we compare it to these three companies to get an approximate idea of whether it is overvalued or undervalued.

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At $39.61, shares are trading between the low target of $22.50 and its mean target of $48.51 made by 42 analysts recorded by Thomson/First Call. The medium target is $50.00, and the high target is $60.00. 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, up from 2.1 a week ago.

	Current Month	Last Month	Two Months Ago	Three Months Ago
Strong Buy	14	14	13	13
Buy	24	24	23	23
Hold	2	2	3	3
Underperform	2	2	1	1
Sell	3	3	3	3

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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 6/7/13 close)

By Catherine Tierney

Monday

Accretive (AH, $11.24, down $0.01), Amira Nature (ANFI, $9.15, up $0.26), Annie’s (BNNY, $39.17, up $0.95), Casey’s (CASY, $62.26, up $0.68), City (CHCO, $39.39, down $0.01), Diamond (DMND, $16.24, up $0.60), KMG Chemicals (KMG, $22.45, up $0.27), Limoneira (LMNR, $19.47, up $0.30), Mercury Systems (MRCY, $9.32, down $0.04), Pep Boys (PBY, $12.55, up $0.20), Perfumania (PERF, $5.76, down $0.06), Phoenix (PNX, $42.85, down $0.13), Pier 1 Imports (PIR, $24.13, up $0.46), Sonic (SONC, $13.78, up $0.39), Stewart Enterprises (STEI, $13.05, up $0.02)

Tuesday

AEP (AEPI, $82.42, up $0.06), DGT (DGTC, $13.01, up $0.01), Medical Action (MDCI, $7.27, down $0.43), National Technical (NTSC, $13.97, up $0.29, Oxford (OXM, $63.96, up $0.47), Piedmont Natural Gas (PNY, $33.90, down $0.04), Ulta Salon Cosmetics & Fragrance (ULTA, $85.65, down $1.24)

Wednesday

Agilysys (AGYS, $12.67, up $0.11), Culp (CFI, $17.71, down $0.05), H&R Block (HRB, $29.84, up $0.71), Korn/Ferry (KFY, $17.68, up $0.12), Luby’s (LUB, $8.60, Flat), The Men’s Wearhouse (MW, $35.88, up $0.30), PVH (PVH, $113.70, up $1.77), Rand Logistics (RLOG, $5.48, up $0.09), Sigma Designs (SIGM, $5.10, up $0.23)

Thursday

ALCO (ALCS, $9.62, down $0.08), Cherokee (CHKE, $13.49, up $0.16), Rentrak (RENT, $23.32, up $0.31), Restoration Hardware (RH, $56.71, up $0.16), Synutra (SYUT, $5.29, up $0.20)

Friday

None worth mentioing

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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 6/7/13)

Our Weekly Wrap Closed Trade Track Record for 2013 is 22-1 (66-3, overall since the start of 2011).

We closed 4 more winning trades last week Goodyear Tire & Rubber (GT, $15.14, down $0.68); Solazyme (SZYM, $12.32, up $0.53); Bank of America (BAC, $13.66, down $0.17); Diversified Restaurant Holdings (BAGR, $7.37, up $0.17)

Riverbed Technology (RVBD, $16.01, down $0.03)

June 16 calls (RVBD130622C00016000, $0.47, down $0.03)

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

Lowered Price from Selling Options: $14.93

Exit Target: $18-$20

Return: 7%

Stop Target: $12

Action: Shares traded to a low of $14.83 twice last week before surging past $16 on Thursday. Friday’s high was $16.13 and we said a close above $16.25 and the 100-day MA would be bullish. If cleared, the next level of resistance is at $16.50 with fluff up to $18. Support is at $15.

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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, $16.65, down $0.57)

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

Lowered Price from Selling Options: $18.77

Exit Target: $25

Return: -11%

Stop Target: $15

Action: Shares closed above $18 to start the week but never made a run to resistance at $19. We warned that a break below $17.50 would be bearish for a test down to $17 and Wednesday’s action did the trick. Thursday’s low was $16.93 but shares held $17 by the close. However, Friday’s low of $16.55 gets $15 and the 52-week low of $14.40 in play. If shares fall below $15 we will likely close the trade. If we do, we will send out a Trade Alert.

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Genworth Financial (GNW, $10.92, up $0.35)

June 11 calls (GNW130622C00011000, $0.21, up $0.07)

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

Lowered Price from Selling Options: $9.48

Exit Target: $15+

Return: 15%

Stop Target: $8

Action: Shares traded slightly higher to start the week but we had a feeling when resistance at $11 didn’t clear there could test support at $10.25. Thursday’s low was $10.26 before shares recovered to clear $10.50. There is backup support at $10 but we are looking for shares to clear $11 again if the Financial sector can hold at current levels and rebound to new highs.

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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, $3.90, up $0.02)

August 6 calls (DNDN130817C00006000, $0.15, 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 cleared $4 on Monday but failed to make a run to resistance at $4.25 after kissing $4.10 Monday and Tuesday. The low checked-in at $3.83 and we mentioned near-term support was at $3.80. A close below this level could lead to $3.50. We would like to see shares clear $4.25 this week.

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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%.

Apollo Group (APOL, $21.30, up $1.04) (Short Position)

Original Entry Price: $16.10 (3/4/13)

Lowered Price from Selling Options: None

Exit Target: $12

Return: -24%

Stop Target: $22.50 (Hard Stop)

Action: The close above the 200-day MA was bullish and although our fundamental analysis may be spot on, we could be forced out of this trade. We still have some wiggle room up to $22.50 but this could be challenged on a close above $22. We would like to shares a drop and close below $20 over the near-term.

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We recommended shorting Apollo Group at $16.10 on 3/4/13.

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: 5%

Stop Target: $9, raise to $11.10 (Hard Stop)

Action: Shares cleared $11 to start the week and we mentioned a close above this level could lead to $13. The high on Wednesday and Thursday was $11.50 and this was cleared on Friday’s push to $12. We would like to wait for $13 to trip before selling a call option. We have also raised the hard Stop from $9 to $11.10 after getting back to even. If there is a back test to $11, we won’t fight it and will look to replace the trade with another covered call recommendation. We would be disappointed because we like the company for the long haul.

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Here is last week’s longer-term chart:

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Trades on HOLD (6): DryShips (DRYS, $1.81, up $0.02), AKS Steel Holding (AKS, $3.34, down $0.01), Rare Element Resources (REE, $1.85, down $0.05), Rambus (RMBS, $8.07, up $0.04), Bebe Stores (BEBE, $5.85. down $0.12), Vivus (VVUS, $14.26, up $0.16)

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5. Week Ahead