9;00am (EST) Continued…
The Dow went out on Friday’s high and the 52-week high is 12,876. We said the index could push 13,000 if these resistance levels were cleared but let’s get there first before we talk about the next wave. If the index closes below 12,600 this week there could be a test back down to 12,350 with 12,200 providing backup. The Dow began Tuesday at 12,422 and added nearly 300 points, or 2.4%, for the week. For the year, the blue-chips are up 500 points, or 4.1%.
The S&P 500 added a point, or 0.1%, and closed at 1,315 after spending much of the day in the red. The index touched a low of 1,309 on Friday but the bulls made a run in the final 15 minutes of trading to stick the landing. We said last week if the S&P closed above 1,300 we could see fluff up to 1,325-1,350 which is a little over 2% from our near-term top-end target. We also said a close above 1,325 would be needed to keep the momentum going for January so we will be watching this level like a hawk. A break back below 1,300 could lead to a pullback to 1,275-1,250. For the week, the S&P jumped 26 points, or 2%, after starting at 1,289. YTD the index is up 58 points, or 4.6%.
The Nasdaq dipped 2 points, or 0.1%, to finish at 2,786. We said last week if Tech came in with all spades on their earnings, the index could challenge the 52-week high of 2,887. If Google wouldn’t have dropped the ball, we would be talking about Nasdaq 3,000. If the bulls stall here, the bears will try to reclaim anything under 2,750-2,700, first, then 2,600. The Nasdaq started the week at 2,710 and advanced 76 points, or 2.8%, by Friday’s close. For 2012, Tech is up 181 points, or 7%.
The S&P Volatility Index ($VIX, 18.28, down 1.59) began the week at 20.91 and finally fell below the 20 level on Thursday’s pop to finish at 19.87. On Friday, the VIX dropped another 8%. The VIX did break above the 22.50 level on Wednesday, which we said to watch carefully, but didn’t CLOSE above it as it ended the session at 22.20. We said this level would be “resistance” for the bears and that a move above 25 would signal a short-term top in the S&P 500.
The Russell 2000 also had a nice week as it ended Friday’s session at 784, up 2 points, or 0.3%. We got a great signal from this index when the bulls cleared our 750 target during the prior week’s rally which we said could lead to a run to 800. Friday’s high of 785 was right near resistance and 850 could come into play on a breakout. On a pullback, 750 will need to hold as support. A break below this level would put 700 back into play. For the week, the index was up 20 points or 2.7% and is up 44 points, or 5.9%, for the year.
Our thoughts from last week:
“The charts are showing one last possible push to resistance and the indexes could get there on better-than-expected numbers. Even if the big-name corporations can just match expectations, the market could test the July 2011 highs before pulling back for a breather.” (END)
Nothing has changed from last week and we said we expected the bears to make a late season appearance in February as they have been hibernating all winter. This is one of the reasons we took our foot off the gas pedal on Friday and closed a few trades in the Daily newsletter. Sure, we want to see a continued rally and we will ride the wave until it hits shore but we are getting nervous that when Wall Street starts to go all-in, that is when the bears will strike.
Greek starting making headlines again on Friday as they were trying to get another debt deal done over the weekend. Many of the talking heads and Wall Street pros were thinking a deal would be reached which triggered a late session buying program and took the indexes to their highs of the day right at the close. It also put them at the July highs and the charts show the wall of worry the bulls have been climbing.
Greece is asking for a lot of help on the 350 billion Euros it owes and they are asking the private investors to take a 50%-75% haircut because they cannot pay the current tab. They are also asking for an interest-only loan for 10 years and will need to pay nearly $15 billion in March on the current loan.
Needless to say, talks have broken down ahead of today’s meeting between the European Union’s (EU) Finance Ministers which puts Greece in a pickle. Everybody and their brother were certain this was a done deal which made us nervous. The charts also show that “one last push” to resistance.
If no deal is reached this week, the country would likely default because a new deal would take weeks, if not months, to approve. This event will likely stall the rally. If a deal is done today then we can expect a run to the April highs.
The market was also expecting a rate cut out of China over the weekend that also didn’t happen and Apple will report earnings on Tuesday. If they miss Wall Street’s expectations and the Greece debt deal drags out, the bears could have a short-term feast.
Futures are down as we write and look like this: Dow (-29), S&P (-5), Nasdaq (-7).
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 “Trade Update” 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 but it is rare that we do.
Aflac (AFL, $47.91, up $0.78)
February 48 calls (AFL120218C00048000, $1.50, up $0.30)
Entry Price: $0.75 (1/19/12)
Exit Target: $1.50 (closed half at $1.35 on 1/20/2012)
Return: 90%
Stop Target: $0.50
Action: We told you the break above $44 would be powerful which is why we jumped on this trade Thursday morning. Our near-term target is $50 and a break above $54 would lead to a monster breakout. A pullback below $42 would be bearish.
We would like to add the August 55 calls (AFL120818C00055000, $1.55, up $0.15), which were at 70 cents last Wednesday, but only if there is a pullback in Aflac. If the market continues higher this week, we may add the February 50’s which closed at 65 cents on Friday.
Scientific Games (SGMS, $11.71, down $0.32)
February 12.50 calls (SGMS120218C00012500, $0.30, down $0.05)
Entry Price: $0.20 (1/18/12)
Exit Target: $0.40
Return: 50%
Stop Target: None
July 15 calls (SGMS120721C00015000, $0.50, down $0.10)
Entry Price: $0.35 (1/18/12)
Exit Target: $0.70
Return: 43%
Stop Target: None
Action: We got in this trade on the break above $11 and you can see where resistance at $12 will be the first hurdle shares need to clear. Shares hit a high of $12.06 on Thursday and fell. We would like to see a close above $12 this week as our near-term target is $14.
Carrizo Oil & Gas (CRZO, $23.09, down $0.95)
April 30 calls (CRZO120421C00030000, $0.65, down $0.35)
Entry Price: $1.20 (1/17/12)
Exit Target: $2.40
Return: -46%
Stop Target: None
Action: We were trying to plat the breakout above $30 but shares got slammed after reaching a peak of $29.50 earlier this month. We were hoping $24 would hold and we may bail on the trade if $22 falls. A break above $24, then, $26 will keep us in the trade.
Vivus (VVUS, $12.04, down $0.32)
February 14 calls (VVUS120218C00014000, $0.60, flat)
Entry Price: $0.70 (1/12/12)
Exit Target: $1.40
Return: -14%
Stop Target: None
Action: This is a 3-year chart for Vivus and you can see the pending Qnexa news will be an all-or-nothing pop or drop for our options. We expect to hear news by mid-February but we are hoping to get good words sooner. Support at $12 has been strong lately following the breakout and an approval could easily carry shares to $20. A further delay or rejection will knock shares down to $5, if $8 doesn’t hold.
Westport Innovations (WPRT, $35.09, up $0.50)
April 40 calls (WPRT120421C00040000, $1.50, up $0.10)
Entry Price: $1.30 (1/12/12)
Exit Target: $2.60
Return: 15%
Stop Target: $1.00
Action: This is a 2-tear chart for Westport which looks amazing. We have a $40+ price target for shares by mid-April and the 52-week high is $36.10 which was set last Tuesday. A break below $34 could signal a short-term top but support is good at $32.
Coach (COH, $64.84, down $0.16)
February 55 puts (COH120218P00055000, $0.50, up $0.05)
Entry Price: $0.95 (1/11/12)
Exit Target: $1.50-$1.90
Return: -47%
Stop Target: None
Action: Coach will report earnings on Tuesday. They have beaten Wall Street’s estimates for the last 4 quarters by an average of 3 cents each quarter. We got into the trade on when shares looked like they were headed below $60 and they dipped to a low of $59.74 which was a short-term bear trap. Shares traded to the top of resistance on Thursday and Friday after testing support at $62.50 to start the wee.
Earnings are on Tuesday and we are hoping they miss estimates. Even if they beat, Coach would almost have to say something good going forward. A miss and lowered guidance should get shares below double-nickels ($55) by week’s end. At least that is how we see it playing out. A beat and raise could power shares past $70. In other words, this will be an all-or-nothing trade, probably, based on earnings.
Solazyme (SZYM, $11.19, up $0.14)
March 15 calls (SZYM120317C00015000, $0.40, flat)
Entry Price: $0.45 (1/10/12)
Exit Target: $1.00
Return: -11%
Stop Target: None
Action: Shares touched a low of $10.16 last Wednesday which has served as long-term support. A break below would lead to $9. If $11 can hold, we should see another charge towards $13 which is where we would look for a breakout up to $15. We did a big write-up on this company a few months ago for our Weekly Wrap and our 2012 price target is $20, $15 by July.
OCZ Technology Group (OCZ, $7.63, up $0.09)
February 9 calls (OCZ120218C00009000, $0.25, flat)
Entry Price: $0.60 (1/9/12)
Exit Target: $1.20
Return: -58%
Stop Target: None
Action: The $7.50 level has been a battle ground and the bears and short-sellers are pushing for $6. The short-interest is over 22 million shares and it would take over 22 days to cover. Any positive news could send the shorts covering. The company is a leader in the switch to SSD’s (solid-state drives) from HHD’s (hard-disk drives) which are gaining market share. We still have a month for this trade to play out so we are going to roll with it as we look for a run to $10.
Microsoft (MSFT, $29.71, up $1.59)
July 30 calls (MSFT120721C00030000, $1.45, up $0.65)
Entry Price: $0.75 (1/6/12)
Exit Target: $1.50+
Return: 93%
Stop Target: 75 cents, raise to $1 (HARD STOP)
Action: We closed the other half of the February 28 calls at $1.25 which gave us an average closing price of $1. While we did leave a little on the table, we still have the July calls to play a continued move higher in Microsoft. We have a Hard Stop at $1 but may sell half early if shares have trouble cracking $30. We believe shares will be at $35 at some point in 2012 but a pending market pullback could halt the recent momentum although we hope that is not the case. Short-term support is at $28 following the surge higher last week.
MGM Resorts (MGM, $12.64, down $0.16)
June 14 calls (MGM120616C00014000, $1.00, down $0.05)
Entry Price: $0.48 (1/6/12)
Exit Target: $1.00 (closed half at $1.00 on 1/18/2012)
Return: 108%
Stop Target: 80 cents (HARD STOP)
Action: We closed the other half of the February 11 calls at $2 to give us an average closing price of $1.80 for the position and a 131% return. We still have the June calls to play a further move to the upside but if our stop is hit, we are gone. This would happen on a break below $12. Our near-term target is $15 for MGM but shares could hit $20 this year or early next year.
Newpark Resources (NR, $9.35, up $0.04)
March 10 calls (NR120317C00010000, $0.60, flat)
Entry Price: $0.95 (1/3/12)
Exit Target: $1.90 (closed half at $1.20 on 1/10/2012)
Return: -5%
Stop Target: 50 cents
Action: After hitting a 52-week high of $10.62 on the 10th, shares have tested short-term support at $9 and dipped to a low of $8.88 last week. There is a further chance of a trip to $8 if weakness persists but the trend is still bullish. We have the March calls which have nearly 2 months before they expire so we have some time on our side.
Chesapeake Energy (CHK, $20.96, up $0.28)
April 25 calls (CHK120421C00025000, $0.55, flat)
Entry Price: $1.25 (12/21/11)
Exit Target: $2.50
Return: -56%
Stop Target: 60 cents
Action: We mentioned if $22 didn’t hold a test to $20 could come. This 3-year chart shows how important it is to hold this level. Shares touched a 52-week low of $20.41 last week and if $20 doesn’t hold a trip to $18 and us buying put options could happen. We would like to see a break back above $22 over the next few weeks but natty gas stocks are out-of-favor right now. However, notice the time frame from last year after shares were beaten down then bounced. We are also thinking of adding Chesapeake to our Covered Call portfolio for the Weekly Wrap.
Other 2012 Portfolio OPEN positions (0): These are trades that are still open in the portfolio that have longer expiration dates or 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 the options expire. Click on the 2012 Portfolio link in the Members Area to view ALL open/ closed trades.
None
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.
Seagate Technology (STX, $20.02, up $0.18)
February 21 calls (STX120218C00021000, $0.70, up $0.05)
March 21 calls (STX120317C00021000, $0.95, up $0.05)
Thoughts: We recommended the February 19 calls (STX120218C00019000, $1.65, up $0.10) when shares were under $18 on January 6th at 70 cents. Our near-term target was $20 which is why we closed the trade. The calls made 100% and we were on the fence on leaving it open over the weekend because we also said shares could reach $22 if $20 was taken out. If the market and $20 hold up, we may get back into this trade with the 21’s.
Taiwan Semiconductor Manufacturing (TSM, $13.97, down $0.29)
April 15 calls (TSM120421C00015000, $0.30, down $0.05)
Thoughts: We initiated coverage of Taiwan in late November when shares were under $13. At the time, we went with the January 12.50 calls (TSM120121C00012500, $1.50, down $0.30) because we expected a run past $13 but after an initial pop to $13.30 a week later, shares spent the rest of December testing $12 before putting this level behind it to start 2012. We rolled out of the January’s for no gain at the start of the year to get into the February and they ended up doubling but we still closed the February 12.50 calls for 82%. We like this April calls a ton and may pull the trigger no matter what the market does because they look cheap. A 10 contract trade would cost $300 and if the stock is at $16 the calls would be worth $1, or 233%, from current levels. In other words, this looks like a great risk/ reward trade and one we may hope on Monday after the open. In November, we said shares could hit $16 in early 2012.
Potash (POT, $44.75, down $0.79)
February 47.50 calls (POT120218C00047500, $0.80, down $0.25)
March 50 calls (POT120317C00050000, $0.90, down $0.15)
Thoughts: We would like to see a drop down to $44, first, and we may get back into POT if $46 is cleared. We like the March calls a little more because it buys us more time for shares to make a run past $50 and the 200-day MA.
Nucor (NUE, $42.87, down $0.03)
February 44 calls (NUE120218C00044000, $0.65, down $0.05)
April 45 calls (NUE120421C00045000, $1.20, down $0.10)
Thoughts: We told you that the chart for NUE is a thing of beauty and an easy read. It looks as though shares could easily test $45 and then $47+. A break below $41 would break the bullish trend.
Pepsico (PEP, $66.28, up $0.37)
February 67.50 calls (PEP120218C00067500, $0.55, up $0.10)
April 70 calls (PEP120421C00070000), $0.40, up $0.05)
April 67.50 calls (PEP120421C00065000, $1.10, up $0.05)
Thoughts: Last Thursday, the Feb 67.50’s opened at 29 cents, the April 67.50’s opened at 75 cents while the April 70’s opened at 27 cents. We wanted to buy a couple of these options but our portfolio was super full. We like the April 67.50’s for under a buck if they drop this week.
Philip Morris (PM, $74.52, up $0.74)
February 75 calls (PM120218C00075000, $1.20, up $0.15)
March 77.50 calls (PM120317C00077500, $0.75, up $0.05)
Thoughts: We had our alert at $72.50 to look at these calls earlier last week but shares dipped to a low of $72.85 before rebounding. We would like to see a test back to this area but a break above $75 could have us on board one of these call options. We tried playing a breakout past $80 at the beginning of the month but we made a wise move by getting out flat as you can see the decline to support. A break below $71 would be bearish and have us looking at puts.
FedEx (FDX, $91.57, down $1.47)
February 95 calls (FDX120218C00095000, $0.95, down $0.65)
Thoughts: The dip down to $89-$90 held last week and shares are still in a bullish uptrend. A break below $87.50 would be bearish but all indications are the stock is going to test $100+ sometime over the next few months.
Tempur Pedic International (TPX, $61.21, down $1.60)
February 65 calls (TPX120218C00065000, $2.50, down $0.20)
Thoughts: A break above $64 would be bullish and could lead to a run past $70 while a drop below $58 would be bearish.
Freeport-McMoran Copper & Gold (FCX, $43.10, down $1.27)
February 45 calls (FCX120218C00045000, $0.95, down $0.60)
Thoughts: We said a couple of weeks ago when shares broke $40 it would be bullish a shares tested $45 all week before Friday’s pullback. Our bullish 2012 target for Freeport is $55-$60 but a break below $40 would be bearish short-term.
Achillion Pharmaceuticals (ACHN, $9.47, down $1.15)
February 15 calls (ACHN120218C00015000, $0.20, down $0.25)
March 15 calls (ACHN120317C00015000, $0.45, down $0.25)
Thoughts: We should have listed put options last Tuesday because we said a test back to $8 could come. Shares sank all 4 days and we still may be setting up for a nice strangle option trade.