9:00am (EST)
The Dow jumped 120 points, or 0.9%, to end at 14,000 even. The blue-chips cleared this level to start the week and closed Tuesday at 14,035. Friday was the fourth time the index has held 14K in February but Wednesday’s triple-digit drop gave us a good clue our downside target of 13,800 would be tested. Thursday’s low was 13,834 and a close below this level would get 13,600 and the 50-day MA back in play. The bulls still have a run to 14,200 on their radar and the all-time high of 14,196 but another break below 13,850 would be confirmation that might not be happening. The Dow started Monday at 13,981 and advanced 19, or 0.1%, for the week. Year-to-date, the index is up 896 points, or 6.9%.
The S&P 500 soared 13 points, or 0.9%, to settle at 1,515. The index came into the week looking to clear 1,525 and got it on Tuesday’s close of 1,530. This gave Wall Street hope there would be a run to 1,550-1,575 but the bears easily pushed our 1,510 downside target on Wednesday’s close of 1,511. We said if this level were breeched then there would be a test to 1,500 and that 1,495 needed to hold. Thursday’s low was 1,497 and the close was 1,502. On Friday, the index cleared 1,510 again and will need to hurdle 1,525 this week to keep 1,550 in play. A close below 1,495 will get the bears looking at 1,475-1,450 on another leg lower. The S&P 500 came into the week just under 1,520 and slipped 4 points, or 0.3%, by Friday’s close. For 2013, the S&P 500 is higher by 90 points, or 6.3%.
The Nasdaq surged 30 points, or 1%, to close at 3,161. Tech came into the week struggling to clear 3,200 but was able to on Tuesday’s pop to 3,213. We said there could be a push to 3,225-3250 if this level was cleared on the close but the victory was short-lived. Wednesday’s low was 3,163 and we said if 3,175 failed to hold there would be a test to 3,150. We also said last week if 3,150 failed there could be a further dip to 3,125-3,100 and both of these levels were tested on Thursday’s low of 3,118. Friday’s action was short-covering and the close below 3,175 still favors the bears unless 3,200 is cleared on the close again. The Nasdaq was at 3,192 coming into Tuesday’s session and was down 30 points, or 1%, for the week. YTD, Tech has advanced 143 points, or 4.7%, but is becoming the weakest link for the bulls.
The Russell 2000 popped 11 points higher, or 1.2%, to finish at 916 on Friday. We mentioned last week the small-caps could make a run to 932-933 and Tuesday’s high and close was 932 on the dot. We also warned that a back test to 916 and then 910 was a good possibility following one last possible push before 900 would be back upon us. Wednesday’s low was 913.50 and Thursday’s bottom was 900.48. The bulls were looking to regain 910 on Friday and they did with ease but 925 and 932 will be the real tests. A drop below 900 spells trouble down to 890 and then 870 on panic selling. The Russell 2000 came into the week at 923 and fell 7 points, or 0.8%, before the weekend hit. The index is up 67 points, or 7.9%, so far in 2013.
Here is last week’s chart for the small-caps:
The S&P Volatility Index ($VIX, 14.17, down 1.05) was at 12.46 coming into the week and fell to a low of 12.08 on Tuesday. We started telling you in December the VIX was headed to the low teens and that last week’s chart showed a test to 12 coming. For much of February, we have also said to wait for a close back above 15 before getting bearish and we lowered that target to 14.75 last week. Wednesday’s high was 14.68 and where the VIX closed. Thursday’s close at 15.22 was an eye-opener. The next level we said to watch following the close above 15 was 17.50 but Friday’s close back below 15 needs to be watched. A close below 13.50 this week could be a clue last week was a bear trap.
The circus is back in town and this week will be full of zombie talk not only here at home but from across the pond as well. The Fed zombies, White House zombies, and overseas zombies will play an important role in shaping the market’s direction over the next couple of weeks. Last Wednesday was an “outside day” on the charts and although the S&P continues to ride an 8-week win streak, there could be a rush to the elevators if support is tested again.
There have been a slew of breakdowns in individual stocks and while the indexes held up, last Wednesday and Thursday’s pullbacks were vicious and what we warn about when bull markets go wrong. The Fed said all the right things on Friday and soothed fears they might end “quantitative easing” sooner rather than later and it was game on. One Fed head said he expects the economy to grow by 3% in 2013 but that view is probably 1%, if not 2%, ahead of most expectations.
Bernanke will speak this week and he will need to back up some of the bullish comments made by his buddies. Big Ben can swing the markets and if he looks nervous or shaky it favors the bears. A confident and upbeat Bernanke would be a blessing for the bulls. The overwhelming positive Fed comments from last week should have led to new highs but it didn’t as Tuesday’s peaks were well out of reach.
Another zombie event that will weigh on Monday’s action are the results from Italy’s elections. There are four knuckleheads vying for control of the country and two of them are criminals. Literally. Mario Monti is the current voice for the Italians but he will need to win a majority of the vote to stay in house. If not, he will have to team up with the less of three evils and that could cause some major concerns over Italy’s recovery and its dedication to the euro. Some of the other candidates want to cut the austerity measures that are currently in place and property taxes that would give any zombie a lift in the public polls. The results are expected on Monday and they will weigh on Wall Street.
Of course, the sequester cuts here at home are the main event but the sentiment isn’t as fearful as the “Fiscal Cliff” talks were. There are a lot of investors and Wall Street pros that seem to be shrugging off the March 1 deadline, and in the scheme of things, the $800 billion is insignificant as it is less than 2% of the deficit. However, if the zombies fail to reach an agreement we view it as more political gridlock that will impact the Defense industry and more jobs (and it will be a big deal).
President Obama was the one who agreed to the sequester cuts back in August 2011 and we remember how the market reacted up until there was an agreement. It tanked. The market also took a big dip in December on the Fiscal Cliff worries but rebounded strongly when the can was kicked into May at the beginning of the year. There could be a replay of a pullback and then a rebound on any positive news or actual cuts but buying any dips this week seems risky.
Our chart work for gold has been money over the past 6 months and last week we told you there could be a test to $1,550. Bingo.
Copper also took a hit and could be the story to watch going forward. The strength or weakness in Copper often gives an overall snapshot on the global economy and it too is breaking down. The metal has been in a solid multiyear uptrend but a close below $3.50 could have a nasty impact on the market.
Silver is below $30 and we are ready to buy more when and if it falls to $26. For those of you who have followed us for a few years know we like to buy Silver at these levels and we cannot stress that you should too. While silver is relatively easy to buy, we still believe the metal is undervalued and there is a shortage. The U.S. mint ran out of silver eagles in January and while they now have them in stock, the spot is still $2-$3 higher depending on when you buy. It still means you can get silver for under $30 an ounce but most people don’t realize there is a silver shortage and that it will be at $50 in 5 years.
Silver is below $30 and we are ready to buy more when and if it falls to $26. For those of you who have followed us for a few years know we like to buy Silver at these levels and we cannot stress that you should too. While silver is relatively easy to buy, we still believe the metal is undervalued and there is a shortage. The U.S. mint ran out of silver eagles in January and while they now have them in stock, the spot is still $2-$3 higher depending on when you buy. It still means you can get silver for under $30 an ounce but most people don’t realize there is a silver shortage and that it will be at $50 in 5 years.
We have been super bullish since December but last week we started to take a few short positions. For the Weekly Wrap, we sold some call options into strength and we exited a few positions after our Hard Stops were triggered. With all of the indexes triggering our short to intermediate targets FROM DECEMBER, we said there seems to be more risk to the downside than the upside over the next few weeks. This doesn’t mean the market can’t go higher as we did get higher highs to start the week but we also saw lower lows and lower highs to end the week.
As we head to press, futures are showing a slightly higher open this morning. Dow futures are up 4 points to 13,985 while the S&P 500 futures are higher by a point to 1,515. The Nasdaq 100 futures are advancing 2 points to 2,737.
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 2013: 20-7, for a 74% win rate, including the Weekly Wrap that is 6-1).
Powershares QQQ (QQQ, $67.14, up $0.67)
April 65 puts (QQQ130420P00065000, $0.90, down $0.20)
Entry Price: $1.00 (2/21/13)
Exit Target: $1.50-$2.00
Return: -10%
Stop Target: None
Action: We got into this trade on Thursday’s dip to the 100-day MA at $66. Friday’s close above $67 was still below Tuesday’s low of $67.86. We would like to see $67.50 hold to start the week and we could be forced out of the trade on a break above $68.50. We are looking for the QQQ’s to fall below their 200-day MA to test support at $63.50 and where we will close half or all of the trade.
Spider S&P 500 (SPY, $151.89, up $1.47)
April 142 puts (SPY130420P00142000, $0.85, down $0.30)
Entry Price: $1.15 (2/21/13)
Exit Target: $1.80-$2.30
Return: -26%
Stop Target: None
Action: We got into this on Thursday when the S&P fell below 1,510 like we predicted. We said there would be a test to 1,500 and we were looking for the Spiders to drop below $150. Thursday’s low was $149.94 and they closed below $152 on Friday and what we wanted to see. There is risk up to $155 as the S&P 500 could trade to 1,550 but we believe a quick test to the 50-day MA or $147 (1,475 on the S&P 500) could happen this week and where we want to close all or half of the trade in case there is a bounce.
Cree (CREE, $44.75, up $0.48)
March 42 puts (CREE130316P00042000, $0.65, down $0.15)
Entry Price: $0.85 (2/21/13)
Exit Target: $1.70
Return: -24%
Stop Target: None
Action: There is risk up to $47 and a break above this level could force us out of the trade. Shares fell to a low of $43.44 on Thursday and we are looking for a back test to $38 and the 50-day MA. A break below $38 would get $34 in play as there is a huge gap to fill following the breakout in January.
Baidu (BIDU, $89.18, up $0.41)
March 85 puts (WEEKLY) (BIDU130308P00085000, $0.87, down $0.18)
Entry Price: $0.72 (2/20/13)
Exit Target: $1.50 (closed at 90 cents on 2/22/13)
Return: 25%
Stop Target: $0.90
April 80 puts (BIDU130420P00080000, $1.50, down $0.05)
Entry Price: $1.20 (2/20/13)
Exit Target: $2.40 (closed half @ $1.80 on 2/22/13)
Return: 38%
Stop Target: $1.00, raise to $1.20
Action: Special thanks to our auto-trading partners who worked our orders on Friday for these trades to perfection.
Let’s start with the March 85 puts. We were trying to close half of the trade at $1.50 but the options only reached $1.35 and we may have over calculated the trade as we price in a 40% jump on Friday. The options made a 30% jump so we never got filled. We said if our stop target of 90 cents came into play to close the trade so we did.
For the April 80 puts we wanted to close half at $1.80 or better and our auto-trading buddies pulled the trigger when they reached a peak of $1.82. The options still held up well and have nearly 2 months before they expire.
We got into this trade last Wednesday as we were looking for a quick drop below $90 that we got as shares traded down to $88. The following day shares hit a low of $87.87 and Friday’s low was $87.54. We have a near-term target of $85 for the stock and where we would like to close the other half of our April puts for $2.40. We have a longer-term target of $60 for Baidu so we could be trading this one again or adding more lower priced puts on a close below $86.
Keryx Biopharmaceuticals (KERX, $6.70, up $0.16)
June 10 calls (KERX130622C00010000, $0.40, up $0.05)
Entry Price: $0.70 (2/12/13)
Exit Target: $1.50
Return: -43%
Stop Target: None
Action: Support is trying to hold at $6.50 but the dip to $6.37 last week was slightly bearish. We are expecting a move up to $8 over the near-term but there is risk down to $4.50. Earnings are due out on Wednesday and will be the next catalyst that takes shares higher or lower.
Taiwan Semiconductor (TSM, $18.90, up $0.21)
April 20 calls (TSM130420C00020000, $0.30, up $0.05)
Entry Price: $0.25 (1/3/13)
Exit Target: $0.75
Return: 20%
Stop Target: None
Action: Shares traded to another 52-week high of $19.25 last week and we are expecting a run past $20 by mid-April. The lows came in at $18.62 on Tuesday and $18.63 on Thursday. If the stock closes below $18.25 we will likely exit the trade for a scratch.
MGM Resorts International (MGM, $12.42, up $0.05)
June 15 calls (MGM130622C00015000, $0.25, flat)
Entry Price: $0.40 (1/2/13)
Exit Target: $0.80
Return: -38%
Stop Target: None
Action: We said if earnings disappointed shares could test $12 and last week’s low was $12.01 after the results. There is risk down to $11.50-$11 on further weakness and we will need shares to clear $13 before we can say they have momentum. The March 14 calls will likely expire worthless and took a big hit and that was the good news. We sold them for 32 cents which helped lower our cost basis and if we aren’t called away in mid-March we can sell another option down the road.
Other 2013 Portfolio OPEN positions (3): 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 2013 Portfolio link in the Members Area to view ALL open/ closed trades.
Vivus March 17 calls (from January 2013) – Continue to hold
Apache March 90 calls (from February 2013)– Continue to hold
ADT March 50 calls (from January 2013)– 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.
iShares Russell 2000 (IWM, $91.03, up $1.08)
March 89 puts (IWM130328P00089000, $1.15, down $0.35)
Thoughts: The Russell 2000 tested 900 last week and we believe the iShares could test $87.50 over the near-term.
Allstate (ALL, $46.74, up $0.27)
March 46 puts (ALL130316P00046000, $0.50, down $0.10)
April 45 puts (ALL130420P00045000, $0.65, down $0.10)
Thoughts: We would like to see shares make one last run at $47 and hold. If resistance holds we believe shares could make a back test to $45 and a close below this level would get the 50-day MA and $43 in play.
Crosstex Energy (XTXI, $17.81, up $0.65)
March 17.50 calls (XTXI130316C00017500, $0.70, up $0.20)
March 20 calls (XTXI130316C00020000, $0.10, flat)
Thoughts: Earnings are due this Friday.
Caterpillar (CAT, $91.54, up $0.01)
March 90 puts (CAT130316P00090000, $1.25, down $0.15)
March 87.50 puts (CAT130316P00087500, $0.60, down $0.10)
April 85 puts (CAT130420P00085000, $0.1.05, down $0.10)
Thoughts: Shares traded down to $90.57 last week following the drop below the 50-day MA. We said this move was coming but we were flat footed in getting on the put options as some of the ones we listed last week easily doubled. We said last week if $90 cracks, shares could test $85 if the 100-day and 200-day MA’s start to fall.
Ironwood Pharmaceuticals (IRWD, $14.50, up $0.06)
May 15 calls (IRWD130518C00015000, $1.05, flat)
Thoughts: We have been mentioning shares could retest resistance at $15 and a break above this level could lead to $20 down the road.
