9:00am EST (continued…)
The Dow added 4 points, or 0.03%, to finish at 13,025 on Friday. The blue-chips held 12,800 to start the week but did slip and overshoot to a low of 12,765 on Wednesday. The next area of support is at 12,600-12,500 if the Dow closes below 12,800 and it would be a very bearish break below the 3-year uptrend line if there is further weakness. Short-term resistance is at 13,200-13,250 (see Note) and a close above these levels could lead to a test of the 52-week highs. The Dow started the week at 13,009 and gained 16 points, or 0.1%, by Friday’s close. Year-to-date, the index is higher by 808 points, or 6.6%, but fell 71 points, or 0.5%, for the month of November. (Note: the 100-day MA is at 13,198 but remember this is a 3-year weekly chart.)
The S&P 500 gained a fifth of a point, or 0.02%, to close at 1,416. The index held 1,400 on Monday but closed below this level on Tuesday. Wednesday’s low was 1,385 and a perfect back test to the 200-day MA of 1,384 before the bounce. The index closed above 1,400 at 1,409.93 and we have talked extensively about the 1,410 level giving us a clue for higher prices to 1,425. Thursday’s high was 1,419.70 and Friday checked-in at 1418.86. A close above 1,425 could lead to a run to 1,450-1,475 over the near-term. The S&P 500 started Monday at 1,409 and advanced 7 points, or 0.5%, for the week. For 2012, the index is higher by 159 points, or 12.6%. For November, the S&P was up 4 points.
The Nasdaq slipped 2 points, or 0.06%, to settle at 3,010. Tech held 2,950 to start week, which is the 50-week MA on the 3-year chart below, but fell to a low of 2,935. We called for the 5% pullback in mid-October to 2,900 and we thought this level would be a memory following the print of 2,912 on November 21. Instead of a memory, it is a strong reminder how volatile the market could get on the political rhetoric but the close back above 3,000 on Thursday and the hold on Friday was bullish. Resistance this week will be at 3,050. The Nasdaq came into Monday’s open at 2,966 and zoomed 44 points, or 1.5% points, by the weekend. For the year, the index is higher by 405 points, or 15.6%, and for the month of November, the Nasdaq gained 33 points, or roughly 1%.
The Russell 2000 was down just over a point, or 0.02%, to finish at 821. The small-caps closed above 800 all week long but did test 798 on Wednesday’s pullback at the open. The break below the 200-day MA of 806 was stretched but we wouldn’t get bearish until 780 trips on the downside. The 50-day MA is at 820 and held which was bullish for a run to 830 this week. If 840 is triggered, look for new highs by yearend or sometime in January. The Russell 2000 was at 807 before Monday’s open and jumped 14 points, or 1.8%, by Friday’s closing bell. For 2012, the index is showing a gain of 80 points, or 10.9%. November’s gain was 3 points.
The S&P Volatility Index ($VIX, 15.87, up 0.81) popped 5% higher on Friday and came into the week at 15.14. We said to watch the 17.50 level on a pullback and Wednesday’s high was 16.98 on the selling pressure at the open. This was another good clue support would hold as the VIX finished Wednesday at 15.51, down 0.41 for the session. There is still risk up to 20 because volatility could pick up over the next few weeks so continue to watch 17.50. The bullish case was Friday’s low of 14.89 on the VIX and a continued rally could get the low teens back into play.
The slow start by the bulls was to be expected as the zombies wandered their way back from the Thanksgiving holidays but it didn’t take long before the finger-pointed started. We hate talking politics so let’s keep this short. The red zombies felt the proposal by the blue zombies and Tim Geithner on Friday was a joke.
The plan called for $1.6 trillion in new revenue, $400 billion in entitlement cuts, $50 billion in infrastructure spending, and the best one of all…the power for the head zombie to increase the debt ceiling whenever he wants. Of course, Mr. G was laughed out of the room and shortly after a “stalemate” was declared. The red zombies are against tax hikes and want more spending cuts but they are expected to agree on higher tax rates on the top 2% of America’s wealthy as some point.
We have said a deal would be announced by December 21st because the zombies will not want to work one minute past a 2-week vacation until after the New Year. If talks continue to stall, and they likely will, as long as the bottom of the uptrend channels hold the bulls should be good to go. If there is no deal by yearend, then we could see a 5%-10% pullback.
Wednesday’s action saw the Dow rise and fall 100 points in the same session for the first time all year but it remains to be seen if it was THE bottom. We called the pullback perfectly in mid-October and we said a few weeks ago the indexes were ready to bounce off the Fibonacci retracement levels following the test to support. They have recovered a little more than half and a continued rally could lead to a 100% retracement or a test of the 52-week highs.
December is usually a bullish month for the market so history is on the bulls side. Although the rhetoric is negative, the price actions in the indexes are pointing to a deal getting done. Over the past 30 years, December has been the strongest month of the year for the market with average gains of 2%. We also have the “January Effect” in play that will start in mid-December and is usually a time frame where the small-caps outperform the big-cap stocks through January.
Given the time frames of when we expect a deal and the normal bullish setup for the January Effect to play out, we could have a mini, volatile trading range over the next few weeks. At least that is how we see it until a nice yearend rally takes shape. Remember, the “Santa Claus” rally doesn’t start until after Christmas and when the slick-talking pros miss the action because they are on vacation so be patient.
We have fielded some questions on Gold and Silver so we wanted to go over their charts real quick.
We correctly called the lows in July on Gold and said there would be a rally up to $1,800 that we got in October. There was a break below the $1,700 level in early November but as you can see, the uptrend line held. We are expecting Gold to clear $1,800 in the first quarter of 2013 if support holds.
Silver was a pounding the table “buy” at $26 back in July and we told you to load up on American Eagle coins. Support is strong at $32 and we are expecting a run to $36 on a breakout past $35.
As we head to press, futures are showing a slightly higher open this morning. Dow futures are up 31 points to 13,039 while the S&P 500 futures are higher by 3 points to 1,417. The Nasdaq 100 futures are advancing 11 points to 2,687.
MEMBERS AREA
Do not risk more than 5% of your trading account on any one trade but do try to take ALL of the trades. Please remember, ALL “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless we list one. We will send out a “Profit Alert” or “New Trade” if we want you to close a position OR if a new trade comes out. Otherwise, follow instructions at all times in the 9am and 1pm updates. Also, we will usually give you a heads-up if we think we are going to send an email outside of these time frames. Closed Trades for 2012 (147-54, or 73% win rate, including the Weekly Wrap which is 26-0).
Taser International (TASR, $8.26, down $0.02)
January 10 calls (TASR130119C00010000, $0.20, down $0.05)
Entry Price: $0.15 (11/29/12)
Exit Target: $0.45
Return: 33%
Stop Target: None
March 10 calls (TASR130316C00010000, $0.40, flat)
Entry Price: $0.30 (11/29/12)
Exit Target: $0.50
Return: 33%
Stop Target: None
Action: Taser has been in a strong uptrend but shares fell 8% on a downgrade last Thursday and where we stepped-in. Short-term support is at $8 and then $7.50 should there be further weakness but shares rebounded on Friday to reach a high of $8.48 before ending the session slightly lower. We have a near-term target of $10 and once triggered, shares could trade to $11 by mid-January. A close back above $8.50 this week would be bullish. Our research showed the company would beat earnings and they did and sales are still strong. JP Morgan might have been a little early with their downgrade.
Vivus (VVUS, $11.30, down $0.14)
January 15 calls (VVUS130119C00015000, $0.45, down $0.05)
Entry Price: $0.65 (11/21/12)
Exit Target: $1.30
Return: -23%
Stop Target: None
Action: Vivus traded in a tight range last week with $11.02 the low while the high was $11.81, both on Tuesday. The 50-day MA is at $16.41 and where we believe shares are headed over the next 6 weeks. Support is $11 with $10 serving backup. The Aflac news was big a deal for the company’s obesity drug and should gain traction in the weeks ahead.
Rosetta Stone (RST, $12.78, down $0.07)
January 15 calls (RST130119C00015000, $0.25, down $0.05)
Entry Price: $0.20 (11/19/12)
Exit Target: $1.00
Return: 25%
Stop Target: None
Action: Support is at $12.30, or the 50-day and 100-day MA’s. Short-term resistance is at $13.25 and then $13.50. A break back above these levels should lead to a run past the 52-week high of $14.69. We love the company’s products and they are getting nice sections or displays in the big box stores. To learn a new language can be pricey but they do make it easy.
HealthCare REIT (HCN, $58.89, down $0.12)
December 60 calls (HCN121222C00060000, $0.50, flat)
Entry Price: $1.00 (11/19/12)
Exit Target: $2.00
Return: -50%
Stop Target: None
Action: Shares fell below $60 last Tuesday but support has been holding at $58.50 which is home to the 50-day and 100-day MA’s. A close below these levels could force us out of the trade but we are looking for shares to reclaim $60 and push $62 this week. The dividend yield is at 5% which is why we believe support will hold and our breakeven price is $61 if we have to run the table until the options expire. This has been a solid stock for 2 decades and is near 52-week highs.
Knight Capital Group (KCG, $3.37, up $0.01)
January 2.50 calls (KCG130119C00002500, $0.90, flat)
Entry Price: $0.55 (8/21/12)
Exit Target: $1.10
Return: 64%
Stop Target: None
Action: We got our buyout offer! The current bid is $3.50 but we expect a final price north of $4.
Other 2012 Portfolio OPEN positions (5): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means we would not open any new positions. We are still keeping track of the trades and we will record the results, accordingly, when we close them or if the options expire. Click on the 2012 Portfolio link in the Members Area to view ALL open/ closed trades.
Bank of America January 12.50 calls (2013) (from March 2012) – continue to hold
Solazyme December 12.50 calls (from September 2012) – continue to hold
Lufkin Industries December 45 puts (from November 2012) – half position open
LifeLock December 10 calls (from November 2012) – continue to hold
Monster Beverage January 35 puts (from November 2012) – continue to hold
Apollo Group December 18 puts (from October 2012) – continue to hold
WATCH LIST SECTION
These trades are NOT recommendations. They are trades that we like but have not added to the portfolio as an official recommendation because of market conditions or because we are waiting for better entry prices. We try not to have more than 12-15 open trades at any one time which is why we created a Watch List. We will not list entry prices because these stocks are on the verge of breaking out or they could sell off but these are the trades we are watching as new candidates.
Dunkin’ Brands Group (DNKN, $31.82, up $0.01)
January 32.5 calls (DNKN130119C00032500, $0.80, flat)
March 35 calls (DNKN130316C00035000, $0.70, flat)
Thoughts: We believe Dunkin’ is going to have a huge 2013. Shares could DOUBLE if they can execute their game plan. We will likely buy either or both of these options once $32 triggers.
Nuance Communications (NUAN, $22.24, up $0.18)
December 22 calls (NUAN121222C00022000, $0.80, up $0.10)
January 23 calls (NUAN130119C00023000, $0.70, up $0.10)
Thoughts: We got our close above $22 and we closed out the other half of the December trade on Friday. We wanted to roll the position into January because there is a good chance shares trade to $25 once $22.80 and the 50-day and 100-day MA’s are cleared. Short-term support is at $21.50 followed by $20.
Intel (INTC, $19.57, up $0.04)
January 20 calls (INTC130119C00020000, $0.55, flat)
March 20 calls (INTC130316C00020000, $0.80, flat)
Thoughts: There is talk Intel is trying to persuade Apple into letting them make chips for their products. It would be a big deal for Intel which is losing market share in a dying PC business. Support has been holding at $19 but there is risk down to $17 over the near-term if shares break below $19.
Cree (CREE, $32.31, up $0.77)
December 33 calls (CREE121222C00033000, $0.80, up $0.20)
January 34 calls (CREE130119C00034000, $1.05, up $0.25)
Thoughts: Shares are at 52-week highs and there could be a push to $40 if momentum sticks. A close back below $30 would be bearish.
TiVo (TIVO, $11.70, up $0.16)
December 10 calls (TIVO121222C00010000, $1.75, up $0.20)
January 10 calls (TIVO130119C00010000, $1.80, up $0.20)
Thoughts: Shares are new 52-week highs and could push $16 on a breakout.
MGM Resorts International (MGM, $10.15, up $0.14)
January 10 calls (MGM130119C00010000, $0.55, up $0.05)
March 11 calls (MGM130316C00011000, $0.45, up $0.05)
Thoughts: Shares are within a stone’s throw of tripping their 50-day and 100-day MA’s. They have had trouble clearing the 200-day MA since early May and a close above $11.50 would be super bullish. A test to this level will yield a nice profit and if there is a pullback we would simply close the trade out. This is one of our favorite trades at the moment and the Casino stocks have underperformed all year long.
PowerSharesQQQ (QQQ, $65.80, down $0.11)
December 65 calls (QQQ121222C00065000, $1.45, flat)
December 63 puts (QQQ121222P00063000, $0.30, flat)
Thoughts: A move above the 50-day MA would be bullish for a possible run to $68+ while a drop below $65 and the 200-day MA would be bearish.
S&P 500 Spiders (SPY, $142.15, up $0.04)
December 142 calls (SPY121222C00142000, $1.55, flat)
December 135 puts (SPY121222P00135000, $0.60, flat)
Thoughts: Shares look poised to clear the 50-day MA at $142.31 which could lead to a run to $146. There is slight support at $138 but a break below this level would have us looking at put options.