MomentumOptionsTrading.com Weekly Wrap for 8/11/13
11:30pm (EST)
1. Market Summary
2. Some Recent Initial Public Offerings (IPOs) to Watch
3. Earnings
4. Weekly Wrap Portfolio Update
5. Week Ahead
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1. Market Summary
“The bulls had a stellar July although the last 2 weeks of the month were a little choppy before last week’s surge to historic all-times highs (again). Many of the slick-talking pros missed the July 5 rally because they wanted a vacation and figured the “summer doldrums” would set in and didn’t want to be long ahead of the Fed minutes and Nonfarm Payrolls report.
Like May, we said July would be a special month and that new highs could come into play until the end of the month. The Dow and Tech reached fresh 52-week and multi-year peaks up until the last day and the S&P 500 and Russell 2000 joined them on Thursday and Friday to start August.
The blue-chips started the July at 14,909 and gained 749 points, or 5%, while the S&P 500 added 103 points, or 6%, after coming in 1,606. The Nasdaq ended June at 3,403 and surged 286 points, or 8%, for the month while the Russell 2000 came into July at 977 before zooming 83 points, or 8%. Wow. These were the best July gains in 3 years and they were ridiculously good as they are normally YEARLY gains for the stock market.
Much of Tech’s strength can be attributed to Apple (AAPL, $462.54, up $5.86) as it made a nice move from $396 to Friday’s peak for a gain of 17%. The $400 level served as major support and we mentioned a run to $450 could come if earnings were well received by Wall Street. Shares are near a “triple-top” breakout and a run past $465 and the 200-day MA at $472.50 could lead to a quick test of $500. This would equate to a 10% move in the stock from current levels and would be the tide that keeps all boats lifted.
Gold closed at $1,312 an ounce on Friday, up $4. The yellow-metal is struggling to clear and hold its 50-day MA at $1,322 and we said a few weeks ago not to get excited until Gold clears $1,350 to go long. We also reiterated our belief Gold could test $1,100-$1,050 later this year and we may go short the metal on a close below the $1,300 by playing the Spider Gold Shares (GLD, $126.36, down $0.25) put options.
Silver is in the same boat as it has struggled at clearing and holding $20. Friday’s close was $19.84, up $0.24, but the low checked-in at $19.18. We have mentioned a close and hold above $20 could lead to $22 but the 50-day MA has also been a beast and our downside target of $17.50 continues to look more likely than a trip to double-deuces.
The bears made a little noise on Monday as they snapped the bulls 4-straight win streak but Friday’s rebound made it 2-straight for the bulls and they have won 4-out-of-5 of the past Friday/ Monday sessions. Combined with the positive closes and a strong start to August, this bodes well for the next few weeks as the market continues to see money moving into instead of out of the market.
The M&A (merger and acquisition) sector is also heating up and this is usually market positive. There have been a flurry of M&A deals in recent weeks at very substantial premiums and this action is bullish as it shows confidence continues to improve. If companies believe there are some hidden gems that will create great synergies and add to their bottom line this trend could continue.
Last week, Community Health Systems made a bid for Health Management Associates for $3.9 billion. Perrigo shelled out $8.6 billion for Elan in cash and stock while Trius Therapeutics, a stock that was on our Daily Watch List, also received a takeover offer.
In the prior week, there was a deal between Cisco Systems and Sourcefire for $2.7 billion. AT&T fell in love with Leap Wireless and agreed to pay $1.2 billion and assume its debt of $2.8 billion. Meanwhile, Bally Technologies got married to SHFL Entertainment for $1.3 billion.
There are also a number of solid Initial Public Offerings (IPO’s) hitting Wall Street and the quality of the companies going public are impressive. There are some new and exciting opportunities to invest in up and comers and we will cover some of the most recent ones in next week’s Weekly Wrap.
We mentioned in our Daily that Thursday’s breakout could add a few more weeks of bullishness to the market despite August being a bearish month, historically. However, in recent years when July is up, August usually follows suit.
The S&P 500 joined the Russell 2000 in triggering our yearend targets and the Dow and Nasdaq are just 3% away. For those of you just joining us, in early February our 2013 price targets were: Dow 16,000; S&P 500 – 1,700; Nasdaq 3,800; and Russell 2000 – 1,025.
We mentioned in May as we approached these targets we wouldn’t be changing them like the talking heads looking for air time do. We wouldn’t mind being “wrong” if all of these targets are taken out because we have done extremely well this year trading the bull run and the breakout to historic highs.
Economic news will be light and earnings will start to wind down this week and into August. The slick talking pros will say August is a “good time” for a pullback and while we could see some choppiness to new highs, we still feel as though the wild card that could punish the market or slow the bulls is the upcoming debt ceiling debate in September. The taper talk has garnered more headlines, or the most, as many of the talking heads have said this will be the time the Fed tapers. We doubt it but the debt ceiling debate will be heated as the zombies prepare for war.
The Head zombie has no plans on budging (or budgeting) or compromising and in 2011, the market tanked as the Democrats and Republicans drag America through the mud. The Dow fell over 2,000 points from an intraday high of 12,751 on July 21 to a low of 10,604 by August 9 in 2011. Ten of the 12 sessions were nasty downside hits before a bottom formed. This is how quickly the bears can strike and while market history may not repeat itself, it’s worth mentioning as sometimes it does.
The other serious threat to a significant pullback or correction could be of course, a terrorist attack and with 20 or so U.S embassies being closed over the weekend, there is a heightened threat. We hate talking about such negativity but between the zombies and terrorists, we need to watch our rear-view mirror while trying to still play the upside.” (from 8/4/2013 Weekly Wrap…)
The market started the week mixed with the blue-chips slipping for the second-straight Monday while Tech and small-caps held their own by setting record highs. However, Tuesday was a down day as the taper talk heated up but the pullback was more technical than news driven.
The bears stretched their win streak to 3-straight on Wednesday as the market tested prior support but the bulls were able to recoup half of the losses by the close. There were some slightly bullish signs from Wednesday that led us to believe Thursday would be a turnaround session, and it was, but Friday’s pullback left the major indexes stuck in the mini-trading range from mid-July. (read more…)
The Dow fell 73 points, or 0.5%, to finish at 15,425 on Friday. The blue-chips came into the week looking to make a run 15,800-16,000 following the close above 15,600 during the prior week. This level was tested on Monday’s pullback to 15,584 and close at 15,612. This opened the door for a test to 15,400 and Tuesday’s low checked-in at 15,473. Wednesday’s run to 15,421 ended with a close at 15,470 as the bears made it 3-straight session wins. Thursday’s low was 15,418 before a rebound and positive close to 15,498. The high checked-in at 15,557 but when 15,600 didn’t clear we had a feeling Friday would be another test to support. We have mentioned 15,400-15,350 as levels to watch for further downside risk and Friday’s low was 15,346 before the close back above 15,400. The next level of support is at 15,200-15,000 if the Dow closes below 15,350 this week. A close back above 15,500 and then 15,600 could get new all-time highs in play again. The Dow started the week at 15,658 and declined 233 points, or 1.5%, by Friday’s close. For the year, the blue-chips have gained 2,321 points, or 17.7%.
The S&P 500 slipped a 6-pack, or 0.4%, to settle at 1,691. The bulls came into the week looking to make a run to 1,725 but spent all of Monday defending the 1,700 level. The low was 1,703 before a 2-point loss to end the day at 1,707. Tuesday would be a different story as the index fell to a low of 1,693 before finishing at 1,697. The close below 1,700 got 1,675 back on the map but there is a sliver of support at 1,685. Wednesday’s bottom happened to be 1,684.91 and the close at 1,690 felt bullish. However, Friday’s dip to 1,686 still keeps our downside targets in play. A close below 1,675 could signal a short-term trend change to 1,650-1,625. If the bulls can reclaim 1,700 this week there is a chance for another run to all-time highs and maybe 1,725 but that could be a big “if” if there is further weakness on Monday. The S&P 500 came into Monday’s session at 1,709 and was lower by 18 points, or 1.1%, for the week. For 2013, the index has advanced 265 points, or 18.6%.
The Nasdaq declined 9 points higher, or 0.3%, to close at 3,660. Tech was within spitting distance of 3,700 coming into Monday’s open and reached 3,694 before a fade to 3,581. The close at 3,692.95 was positive but Tuesday’s trip down to 3,654 tested support at 3,650. The close below 3,675 to 3,665 was bearish and Wednesday’s low was 3,633 before the close at 3,654. This was slightly bullish but Thursday’s run to 3,675.71 ended at 3,669 suggested more weakness. Friday’s low was 3,649.69. There is further risk to 3,625-3,600 on a close below 3,650 while a finish above 3,675 would be bullish for another run to 3,700-3,725. The Nasdaq began the week at 3,689 and gave back 29 points, or 0.8%, by Friday’s closing bell. Year-to-date, Tech has surged 641 points, or 21.2%.
The Russell 2000 dipped 1 point, or 0.1%, to end at 1,048 on Friday. The small-caps had plans of pushing 1,075 and they started the week off with a nice 4-point gain to 1,063 after testing 1,057. The positive close was slightly bullish but support at 1,050 was still in play. Tuesday’s low was 1,050.08 before a finish at 1,052. We have mentioned for 2 weeks any close below 1,050 would get 1,040 in the mix and a level the bulls desperately need to hold. Wednesday’s low was 1,042 and the close at 1,044 looked bearish but Thursday was an all green day with the high coming in at 1,051.82. However, the Russell closed at 1,049.47 and was unable to clear 1,050. Friday’s high was 1,051.51 but ended with the same deal. A close below 1,040 would get 1,025-1,000 back in the picture while a close above 1,050 and then 1,060 would be bullish. The Russell 2000 was at 1,059 before Monday’s open and dropped 11 points, or 1.1%, for the week. YTD, the small-caps are up 199 points, or 23.4%.
The S&P 500 Volatility Index ($VIX, 13.41, up 0.68) came into the week at 11.98 and we specifically said not to get nervous until a close above 13.50 occurs and not to flinch until 15 trips. The VIX ended Monday’s session lower to 11.84 but spiked to 12.93 on Tuesday. We buckled up for a pop past 13.50 on Wednesday and the high was 13.91 but the bears got no cigar as the index finished at 12.98. Thursday’s high was 13.13 before a slightly lower finish to 12.73. Friday’s high was 13.66. Same deal for this week and a close below 12 could be bullish for the next leg up. One of the more respected market pros said the VIX has become useless but we have used it for 20 years and as you can see, it is still giving us excellent tells on the action.
The bulls had a rough start to the week as the bears relied on a number of zombies and taper talk to slow the recent momentum following the break to new highs to start August. Near-term support that had served as prior resistance during July’s mini-trading range was paper thin so we figured prior support levels would be tested if they failed.
We aren’t sure what the odds are in Vegas for QE tapering to begin in September but it seems most of the “smart” money is betting on it. We must be the “dumb money” because we have said for months we don’t expect the zombies to do a tap dance anytime soon, especially with a still troubled jobs market and a possible government shutdown.
We wish those last 2 words in the prior paragraph would come true and we have talked about the upcoming budget battle between the zombies who are on vacation until the second week of September. Believe it or not, they still have a month away before the have to come back to the Hill.
The zombies will then have 3 weeks of political posturing to coincide with raising the government’s debt ceiling by September 30 – the cutoff date for government funding.
Nothing in D.C. gets done until the very last minute and the real danger for the market will be the shenanigans and back-and-forth bickering. We are sure a resolution will get done because the zombies live off us, the taxpayers, but the process and debate over the debt ceiling could slow the current recovery if both sides bunker down like reports have them doing. Five bucks says John Boehner cries by the end of by the time a deal eventually gets done.
BTW, zombie pay for members of Congress make a minimum of $175,000 a year, get over 200 days a year of “vacation” time, free airline travel, free (sweet) car and gas allowance, free healthcare that is and won’t be Obamacare and free gym memberships. They have no guilt living these lavish lifestyles with excessive pay so expect a deal to get done to support their habits.
We do see a chance of Fed Head Ben Bernanke trimming back the $85 billion a month of QE in December as the Head Zombie has already shown him the door. There are already names circulating on who will be the next Fed Head Zombie but Big Ben will at least want to start the process of unwinding the Fed’s balance sheet before hitting the road in January. Then again, he might leave it to his successor to decide when to turn off the printing presses but with the upcoming budget battle, we doubt the Fed cuts back in September in case there is an implosion.
If taper talk is all the bears have as ammo then they are in trouble. Last week’s action felt bearish with the Dow leading the way lower and cracking near-term support. However, we have learned this year to be more patient with trading ranges as they have tricked the Wall Street pros who have been betting on a major pullback all year long and evrytime there is a dull market.
We were bullish in late December 2012 and said 2013 could be a special year for the bulls as we predicted gains north of 20% based on our chart work. The S&P 500 was at 1,426 to start the year and when we gave a yearend target of 1,700 we had quite a few emails asking what we were smoking.
Understandable as there were no Price Targets of 1,700 for the S&P by any of the brokerage houses or Wall Street firms. There were a few for 1,600 but now there are 10 and counting for the S&P to trigger 1,700. Dow 16,000 when the blue-chips were barely above 14,000? People thought we were crazy but not after the index cleared 15,600 earlier this month.
While these targets are still in play, it remains to be seen if there is a pullback before they are triggered again. For those of you just joining us, we don’t change Price Targets during the year because why put a target out if you are going to change it?
We mentioned midweek that Thursday would be crucial for a bulls win following the 3-session slide as the Dow and S&P 500 have not finished lower 4-straight all year long. That streak is still intact.
There have been 4 three-day losing streaks for the S&P 500 this year. The first was in mid-March when the index fell from 1,560 to 1,548 after setting new highs. There was no selloff as the S&P was testing 1,570 by month end.
In late May, the S&P 500 slipped from 1,669 to 1,649 in 3 days but held support. In June, the index fell from 1,642 to 1,612 and tested the 100-day MA so there was a pullback of some sorts that shook out the weak hands. Last week’s 3-session skid started at 1,709 to 1,690.
If the streak lasted to 4 and if the S&P would have closed below 1,685 last Thursday then we would have felt safer in possibly going short but we still would have waited for a few more clues. Support has held all year long for the most part and with all of the predications for the proverbial 5%-10% correction, the bulls could still surprise Wall Street (again).
The major indexes are well above their 50-day MA’s and these levels will need to be watched, first, before we would turn bearish. Write these levels down and stick them on your desktop: Dow 15,264; S&P 1,652; Nasdaq 3,516; Russell 1,020.
If our near-term support targets of Dow 15,350; S&P 1,675; Nasdaq 3,625; Russell 1,040 crack, the aforementioned 50-day MA’s could come into play this week. If not, and the bulls clear resistance, the indexes could challenge new highs one last time before the zombies get back from vacation.
This week is August expiration and options expire this Friday on the close. We mentioned at the end of July the first few weeks of August are typically bearish and although last week was down, the first few days of August were super bullish and the market is showing some gains for the month.
The Dow is down 72 points but take away Friday’s losses and the blue-chips would be up for the month. The S&P 500 is higher by a 6-pack. The Nasdaq has advanced 34 points and the Russell 2000 has added 3 points. The VIX was at 13.45 and is lower.
We mentioned on Friday we had a feeling this week could be bullish but with the lower close we also said the first part of the week could be bearish. Wednesday’s Tech earnings could be the bulls savior if the bears get off to a good start.
A lot of traders are looking to short the market at current levels and no one seems to be bullish on one last pop to new highs except us. We have done well betting against the crowd all year long and over the past decade, August expiration Friday’s have been bullish, but choppy in the past few years.
The good news is that while the slick talking pros are giving August no chance, price action is proving otherwise.
Our portfolios are light as the Daily is winding down the remaining trades from July and we only have a few open positions with some coming down to the wire this week. We should have a few trades from the Weekly Wrap closing on Friday for nice gains so we don’t have to be hero’s at this point in the game.
The bottom line is the indexes are back in the mini-trading range from late July before the breakout to new highs. We have given crystal clear targets to watch for on a breakout or breakdown so we will let the action come to us.
As we head to press, futures look like this but have been improving: Dow futures are down 10 points to 15,365 while the S&P 500 futures are lower by 1.40 points to 1,684.80. The Nasdaq 100 futures are up a point to 3,114.
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2. Some Recent Initial Public Offerings (IPOs) to Watch
By Michael Bryant
Key of Technicals Used In Following Article
As the economy slowly heals from the 2008 financial crisis, Initial Public Offerings (IPOs) have picked up speed. Two of the hottest IPOs in the last twelve months were Solarcity (SCTY, $38.34, up $0.43) and Chinese social platform YY (YY, $41.60, down $0.39), which are up 400% and nearly 300% respectively. We will quickly go over each.
The company installs the solar panel system for free, owns the equipment, and maintains it. It makes money by: SolarLease, where the homeowner pays each month, or SolarPPA, where the homeowner pays per kilowatt-hour (kWH). Further, if the homeowner chooses, he can also fully prepay SolarLease so that he does not have any ongoing monthly bills.
On December 13, 2012, SolarCity issued 11.5 million shares at $8 per share, raising $92 million. It had hoped to sell 10 million shares of its stock at $13 to $15 per share, raising approximately $151 million. On its first trading day, shares rose 47%.
The leasing and installing business is far safer than selling panels, which undergoes stiff competition from Chinese manufacturers. In 2011, it was the #1 residential solar installer in the United States. It expects to install 60% more panels in 2013 than it did in 2012. We expect solar installations will only increase in the future, especially if solar panel prices continue to fall and we still like the stock. We made 14% for the Weekly Wrap trading the name at the beginning of the year but obviously should have held on for further gains.
On November 21, 2012, YY issued 7.8 million shares at $10.50 per share, raising $81.9 million. It had hoped to sell its stock at $10.50 to $12.50 per share. It was the first Chinese company to debut shares in the United States since April, after a flood of attacks on Chinese smallcaps in 2010 for using fraudulent accounting practices. At $10.50 a share, YY was priced at nine times earnings for the first nine months at the IPO. So it should be no surprise that shares rose. On its first trading day, shares rose 7.7%.
It features a virtual currency which users can earn through activities such as karaoke or creating tutorial videos, then convert to real cash. Duowan.com originally targeted gamers, by providing information on online games and other resources for users and online game players, but added features to include video streaming and chat features for uses such as concerts, sport, and fashion. Users can buy “virtual roses” for those who post videos. This exchange along with sales of other virtual items and game tokens that users may purchase for use in online activities on YY’s platform is how it currently makes money. Thus, YY is more like an online entertainment and education provider with live performers, games, and teachers than like Facebook (FB).
Founded in 2005 by CEO Li Xueling, the company had a 84.2% market share of real-time online group voice communication in China in 2011. It remains one of the leaders in the online games market in China, as Duowan.com is the number two game media website in the most populous nation. A fundraiser led by Tiger Global in January 2011 valued the company at $1 billion.
The company reported 2nd quarter profit on Thursday, August 1st after the bell. Shares jumped in early trading on Friday. Revenue soared 118% from a year ago to $66.7 million, above expectations. Average revenue estimate was $55.63 million. Earnings came in at 35 cents per ADS, up from a slim loss a year earlier, beating by 14 cents. In the current quarter, it said it expects revenue growth of about 90% year over year. Analysts estimate it will earn 21 cents on $62.93 million for the 3rd quarter and 23 cents on $68.03 million for the 4th quarter. Shares ended Friday slightly lower.
In spite of surging revenue and questionable business practices, the company, like other Chinese smallcaps in the past, has recently come under scrutiny of possible fraud. Analysts still do not know exactly how the business works, and the CFO has refused to tell them. The company had approximately 70.5 million monthly active users on YY in August 2012, but since users do not have to use their real name, numbers could be overstated or fabricated. Further when the SEC asked for the audit work from Deloitte, the Chinese government made a ruling not to allow inspection of the audit work citing national security. Billionaire investor Lei Jun sold over 500,000 shares of YY at $27 per share. While the company could be legitimate, RINO International (RINO) was another Chinese smallcap that rose over 1000% in the year after its IPO in 2010, but later became nearly worthless as it admitted to fraud.
At $41, the stock is between its mean target of $40.88 and its high target of $58.00 made by the 4 analysts recorded by Thomson/First Call. Median target is $40.75, and low target is $24.00. 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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Over the last three weeks, dozens more companies have gone public. Three of them have seen their shares rise significantly. Here are a few we like but need more chart work to develop (and options to trade) before they could become official recommendations.
Sprouts Farmers Market (SFM) – 8/1 (IPO price: $18.00, current price: $38.84)
On the day of its IPO, The Fresh Market had a market cap of $912 million. It operated 100 stores across 20 states. Sprouts has 1.6 times that, and 2012 revenues were about $2 billion. Sprouts expanded from 31 stores at the start of 2009 to a projected 150 by the end of the summer of 2012. Sprouts estimates that it could own up to 1,200 stores over the long haul. Whole Foods targets opening 1,000 total stores. So the company plans to be bigger than Whole Foods, a hard but not impossible feet.
Onconova Therapeutics (ONTX) – 7/25 (IPO price: $15.00, current price: $29.40)
Myelodysplastic syndromes (MDS) is formerly known as preleukemia and is estimated to cause about 10,000 – 20,000 new cases each year in the United States alone. It is also believed that the number of cases increases with age and that the number of cases for patients over 70 may be as high as 15 per 100,000. The number of new cases of head and neck cancers in the United States was 40,490 in 2006. Pancreas cancer affected an estimated 43,000 people in the United States in 2010. Lymphomas represent about 5.3% of all cancers (excluding simple cell skin cancers) in the United States and 55.6% of all blood cancers. Thus, if all drugs are approved, one can expect at least 90,000 cases each year for the United States alone.
Agios Pharmaceuticals (AGIO) – 7/24 (IPO price: $18.00, current price: $30.00, up $0.15)
This company seems promising as it has a big financial backer in Celgene.
There were a half-dozen IPO’s last Friday but one that stuck out from last week is Intrexon (XON, $29.09, up $4.36). We are so tempted to buy shares under $30 this week, or at least half positions so look for a Trade Alert if we pull the trigger for a short-term trade while we do more research this week.
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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 8/9/13 close)
By Catherine Tierney
Monday
AMAP, ARPI, BRSS, Buckeye Technologies (BKI), CTWS, Dillard’s (DDS), EGL, Gol Airlines (GOL), HMIN, Interoil (IOC), JHX, NTI, PNX, ROMA, SORL, Sysco (SYY)
Tuesday
Brocade Communications (BRCD ), Cree (CREE), DATE, JDS Uniphase (JDSU ), JKHY, LXFT, Millennial Media (MM ), SeaWorld Entertainment (SEAS, $35.91, up $0.21) – wide bid/ask on options, TAM, VAL
Wednesday
Agilent Technologies (A), ABMC, CACI, Cisco (CSCO), CRWS, Deere (DE), GILT, HCLP, HOLI, LWAY, Macy’s (M ), NetApp (NTAP ), NetEase (NTES), OSIS, PF, Silver Wheaton (SLW), TW, VIPS
Thursday
ARX, Applied Materials (AMAT, $15.67, up ($0.02), Bally Technologies (BYI), BGG, Country Style Cooking Restaurants (CCSC), GK, GSOL, Kohl’s (KSS), Nordstrom (JWN), PRGO, Wal-Mart (WMT)
Friday
Charm Communications (CHRM), CEAI, EJ
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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 8/9/13)
Our Weekly Wrap Closed Trade Track Record for 2013 is 28-3 (72-5, overall since the start of 2011).
Royal Bank of Scotland (RBS, $10.24 ,up $0.09)
Original Entry Price: $10.35 (7/23/13)
Lowered Price from Selling Options: $10.35
Exit Target: $14
Return: -1%
Stop Target: $10
Action: Shares tested the $10.75 and the 50-day MA on Monday and Tuesday before Wednesday’s break above $10. Resistance at $10.20 was tested on Thursday and cleared on Friday’s high of $10.29. The 52-week high is at $11.84 and a move above $10.50 would be bullish while a close A close below $9.65 and the 50-day and 100-day MA’s would be bearish. We may sell the September 10 calls (RBS130921C00010000, $0.55, up $0.05) on Monday to lower our cost basis below $10 and if we do we will send out a Trade Alert.
Psychemedics (PMD, $13.06, up $0.06)
Original Entry Price: $11.65 (7/23/13)
Lowered Price from Selling Options: $11.65 (no options available)
Exit Target: $14
Return: 12%
Stop Target: $10, raise to $11.50
Action: Shares made a run to $13 on Monday, reaching a peak of $12.79 before fading into the close. The company announced earnings that beat the Street and a quarterly dividend of 15 cents that will be paid this month. This will lower our cost basis to $11.50. Tuesday’s push to $13.10 was impressive but we were looking for $13 to hold. Wednesday’s high was $12.96 and there was a break above $13 again on Thursday to $13.03. Friday’s push to $13.14 and close were 52-week peaks. Our 6-12 month target is $15 for the stock.
Rite-Aid (RAD, $3.15, up $0.01)
Original Entry Price: $2.90 (7/23/13)
Lowered Price from Selling Options: $2.90
Exit Target: $6
Return: 9%
Stop Target: $2
Action: Shares slipped throughout the week and tested a low of $3.08 on Wednesday before slightly rebounding on Thursday and Friday. A close above $3.20 this week would be bullish while a drop below $3 could lead to $2.70.
Galena Biopharma (GALE, $1.95, down $0.09)
Original Entry Price: $2.12 (7/8/13)
Lowered Price from Selling Options: $2.12
Exit Target: $5
Return: -8%
Stop Target: $1
Action: Shares held $2 all week before Friday’s 4% pullback. The high checked-in at $2.10 on Monday and Friday’s low was $1.88. Support is at $1.75-$1.65. A close above $2.10, but more importantly $2.20 and the 100-day MA, would be a sign shares are on the verge of a breakout.
Sonus Networks (SONS, $3.47, down $0.03)
August 3 calls (SONS130817C00003000, $0.45, down $0.05)
Original Entry Price: $3.00 (7/8/13)
Lowered Price from Selling Options: $2.65
Exit Target: $6
Return: 31%
Stop Target: $1
Action: Sonus traded in a tight range before Thursday’s pop past $3.50 to $3.58. Resistance is at $3.75 but we will get called away for a profit this Friday as long as $3 holds. Support is at $3.30. If we are called away at $3 we may start new positions.
We recommended buying Sonus Networks at $3.00 on 7/8/13. On 7/11/13 we sold the August 3 calls for 35 cents which lowered the cost basis to $2.65. If we are called-away at $3 in mid-August, the trade will make 13%.
Nvidia (NVDA, $14.49, down $0.21)
August 15 call (NVDA130817C00015000, $0.05, down $0.25)
Original Entry Price: $14.07 (6/27/13)
Lowered Price from Selling Options: $13.72
Exit Target: $20+
Return: 6%
Stop Target: $11m raise to $13.75
Action: Shares pushed $15 throughout the week but fell to a low of $14.11 on Friday. Support is at $14 followed by $13.75. The 52-week high is $15.48 and a close above $15 should lead to new peaks. If we are not called away at $15 on Friday, we will likely sell another call option or place a Hard Stop of $13.75 on the position.
We recommended buying Nvidia at $14.07 on 6/27/13. We also sold the August 15 calls for 35 cents that lowered the cost basis to $13.72. If we are called-away at $15 in mid-August, the trade will make 9%.
Exact Sciences (EXAS, $13.04, up $0.09)
August 15 calls (EXAS130817C00017000, $0.05, flat)
Original Entry Price: $13.55 (6/11/13)
Lowered Price from Selling Options: $13
Exit Target: $16+
Return: 0%
Stop Target: $10
Action: The close below $13 and the 50-day MA to start the week was bearish and lead to a test of $12.50. Thursday’s rebound back towards $13 and Friday’s close above it kept us out of the red and we would like to see a push towards $13.50 this week. The August 15 calls will likely expire worthless and we can sell additional calls to lower the cost basis, or set a Hard Stop at $13 if we are up.
We recommended buying Exact Sciences at $13.55 on 6/11/13. On 7/11/13 we sold the August 15 calls for 55 cents which lowered our cost basis to $13. If we are called-away at $15 in mid-August, the trade will make 15%.
Pizza Inn Holdings (PZZI, $7.05, up $0.27)
Original Entry Price: $5.40 (6/11/13)
Lowered Price from Selling Options: $5.40 (no options available)
Exit Target: $10+
Return: 33%
Stop Target: $6.50, raise to $6.65 (Hard Stop)
Action: We wanted to see Pizza Inn hold $7 following the breakout past this level at the end of July. The drop below $7 on Tuesday got $6.50 back in play but the low for the rest of the week was $6.75 and could be forming as new support. A close above $7.50 would be bullish.
Dendreon (DNDN, $3.39, down $1.20)
August 6 calls (DNDN130817C00006000, $0.01, down $0.09)
Original Entry Price: $4.91 (4/2/13)
Lowered Price from Selling Options: $4.36
Exit Target: $8+
Return: -22%
Stop Target: $2
Action: Dendreon spiked above $5 during Monday’s session, reaching a peak of $5.38 and closing at $5.23. Tuesday’s trip to $5.34 looked promising but shares ended the session back below $5 to $4.99. This would lead to a back test to $4.50 and Wednesday’s low was $4.63. Thursday’s low was $4.59 before the bottome dropped out on Friday’s 26% spanking. We were looking for $4 to hold on the disappointing report and the open at $3.82 was a sign $4 would now serve as resistance.
We knew the company’s outlook on Provenge would move the shares and their fundamentals are deteriorating but we went with this trade due to the rich premiums. There is further risk down to $3 but at these levels the company may get a takeover bid as the market cap is just %500 million. Dendreon still has a pipeline and Provenge could gain traction down the road but we will likely have to wait for a push near $4 before selling another call option.
We recommended buying Dendreon at $4.91 on 4/2/13. We also sold the August 6 calls for 55 cents that lowered our cost basis to $4.36. If we are called-away at $6 in mid-August, the trade will make 38%.
Trades on HOLD (6): DryShips (DRYS, $2.04, up $0.02), AKS Steel Holding (AKS, $3.57, up $0.07), Rare Element Resources (REE, $2.08, down $0.11), Rambus (RMBS, $9.22, down $0.17), Bebe Stores (BEBE, $5.71, up $0.19), Vivus (VVUS, $13.63, down $0.53)
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5. Week Ahead
Here is a chart of the events for the week ahead:
