9:00am EST
The bulls had a party but Wall Street failed to show up with many traders bagging work for an early and long July 4th vacation week. The shortened session on Thursday produced fresh all-time highs following a better-than-expected jobs report. The clues were there all week the market momentum from June would continue into July and I mentioned the suit-and-ties could be scrambling to play catch-up once they got back to the office.
The Dow gained 92 points, or 0.5%, to finish at 17,068 on Thursday. The blue-chips opened at 16,979 and easily cleared 17,000 on their way to an all-time intraday high 17,074. In early June, I mentioned a push to 17,200-17,300 could come on an overshoot. Support at 16,800 has been solid and is moving up.
The S&P 500 added 11 points, or 0.6%, to settle at 1,985. The index closed just off its all-time peak of 1,985.59 and is less than 1% away from triggering 2,000. Prior resistance at 1,975 will try to hold as fresh support with 1,960 serving as backup.
The Nasdaq popped 28 points higher, or 0.6%, to end at 4,485.93. Tech went out at session highs and remains on track of tripping my upper-end fluff target of 4,500. Near-term support is at 4,450 with 4,000 serving backup.
The Russell 2000 roared over 8 points, or 0.7%, to close at 1,208. The small-caps also ended at session highs and I have talked about 1,210 serving as resistance on the way to 1,225. Any dip back below 1,200-1,190 needs to be watched as a buying opportunity or a short-term top. Earlier in the week, the index “officially” made a fresh all-time high of 1,213.55 following the “deletion” of the run to 1,213.49 on December 23rd, 2013. For new subscribers, here were my comments during the midday update:
“The Russell 2000 opened at 1,212.81 and kissed 1,213.49 in the opening minutes before coming back down to earth. The 5% move could have been a rebalancing act and either marks the high for the year or is one hell of a clue this level will be triggered in January”.
The S&P Volatility Index ($VIX, 10.32, down 0.50) fell nearly 5% on Thursday and touched a new 52-week low of 10.28. The bulls held the 11.50 level throughout the week despite the VIX getting “stretched” on Monday. Single-digits could trigger this week on a continued rally.
June ended last Monday and the breakout from May’s tight trading range produced some incredible gains. The Dow advanced 109 points, or 0.7% while the S&P jumped 37 points, or 1.9%. The Nasdaq surged 166 points, or 3.9%, and the Russell 2000 zoomed 58 points, or 5.1%.
As you can see from the chart below, the Dow and S&P 500 are working on 5-month win streaks with the Nasdaq and Russell 2000 closing higher for the second-straight month.
For the first half of the year, the S&P 500 and Nasdaq both gained 6.9% while the Russell 2000 was up 3.7%. The Dow was the weakest link as it added “just” 2.3%. However, the Dow Transports managed a healthy 11.6% gain so perhaps there is some catching up to do by the blue-chips. The Semiconductor and Biotech Indexes showed the strongest moves as both were up over 20%.
The Monday/ Friday Dow closes continue to bullish despite the bulls losing ground to start the prior 2 weeks. The dips have been modest as you can see from the chart with the losses being minimal. If the blue-chips were to start a week off with a triple-digit loss, it would be a clear sign of trouble ahead.
With the market closed this past Friday, the bulls win streak of 7-straight has been on hold. They will try to make it 8 in-a-row this Friday and it was nice to see an explosion to fresh highs on Thursday to end the week.
I mentioned last week there was a good chance the run to new highs would continue with Wall Street away. With most of the major averages triggering my near-term fluff targets, it is time to take a look at the longer-term charts for clues on the next levels of resistance and where the indexes are at in relationship to my yearend targets.
The Dow came into the year at 16,576 and is up 492 points, or 3%, for the year. In February, my yearend prediction for the Dow was 19,000 for a gain of 15%. Obviously, another 2,000 points over the next 6 months could be challenging but I’m looking for Apple (AAPL, $94.03, up $0.55) to become a blue-chip and join the Dow at some point this year. Additionally, there are a number of Dow stocks that have seriously underperformed the market and are well below their 52-week highs. Goldman Sachs (GS, $169.46, up $2.57) is $12 off its 52-week high north of $181 and JPMorgan Chase (JPM, $57.05, up $0.08) is $4 away from its 52-week peak of $61 and change. International Business Machines (IBM, $188.53, up $0.14) is also down a 12-pack from its 52-week high just south of $201. A continued rebound in these stocks will add a lot of points to the index along with the debut of Alibaba (BABA) on the NYSE. The Dow is made up of just 30 stocks so it’s easy to get an overall snapshot of what is moving the index.
The S&P 500 ended 2013 at 1,848 and is higher by 137 points, or 7.4%, for 2014. My yearend target was for a run to 2,100 for a gain of 14% and is halfway there. The index provides a better picture for the overall market as it is a mixture of stocks covering a broader range of industries. The catcalls for S&P 2,000 have come quickly with a number of brokerage firms now “upping” their yearend price targets. I often mention this is “cheating” as brokerage firms should only get one “educated guess” per year. Their guessing games come from a lack of homework and chart work. There are a number of events that could cause the market to move sideways to lower over the next 6 months (or higher) so I ALWAYS stick to my yearend targets. Revisions make you look like you are didn’t do any studying.
The Nasdaq ended 2013 at 4,176 and has advanced 309 points, or 7.4%, for the first 6 months of 2014. I have called for a possible trip to 5,000, or 20%, and a retest of the 2000 highs. The index finally cleared 4,400 after coming close in March and is at a 14-year peak again. The upper-end of my near-term fluff target has been 4,500. At some point, Tech might be due for a breather but once this level clears, all indications are the bulls won’t stop until they reach all-time highs. There is a big difference between the IPO and dotcom bubble from then and now as the quality of companies are much better with the biggest factor being earnings. The index reached an all-time intraday high of 5,132.52 on March 10, 2000.
The Russell 2000 started the year at 1,163 and is up 45 points, or 3.8%. The small-caps have been the most volatile of the indexes and I have predicted 1,400, or 20%, could come by the end of December. This would equate to a gain of another 17% from current levels.
The S&P 500 Volatility Index is within striking distance of falling into the single-digits and is at 7-year lows. The VIX continues to be the one of the BEST indicators for market direction despite the confusion it has caused and has made the “smartest” people on Wall Street to look pretty dumb. If the VIX does reached single-digits, it will continue to be ignored as more and more traders jump on “the VIX is broken” bandwagon.
I will update the 10-year charts in the next week or two but for now the uptrend channels continue to hold. Economic news will be light this week but 2Q earnings season starts on Tuesday. I have listed all of the companies reporting in the Weekly Wrap and I will be providing coverage on the stocks making moves in the Daily throughout the week.
In the meantime, continue to enjoy the ride but use caution and tighten up stops on long positions in case there is a pullback. I believe the continued fluff targets I gave in early June will trigger but in case they don’t, profits will be protected.
With the hot summer heating up, war, zombies (government) and earnings misses/ warnings are the 3 things that could cause the bulls trouble.
I have updated all the current positions for the portfolios and needless to say, I think you will be impressed with the results through the first half of the year. Remember, the trend is your friend until it ends. Once it does, it’s time to get a new friend.
MEMBERS AREA
Closed Trades for 2014: 64-33 – the Weekly Wrap is 19-4 (83%) for 2014 (104-11, or 90% win rate, since 2011) and is designed for traders that want to use options with less risk. All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
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. I will send out a “Profit Alert” or “New Trade” if I want you to close a position OR if a new trade comes out. Otherwise, follow instructions at all times in the 9am and 12pm-1pm updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
Fortinet (FTNT, $25.28, up $0.20)
August 27 calls (FTNT140816C00027000, $0.70, up $0.05)
Entry Price: $0.55 (6/30/2014)
Exit Target: $1.10
Return: 27%
Stop Target: None
September 28 calls (FTNT140920C00028000, $0.70, up $0.05)
Entry Price: $0.55 (6/30/2014)
Exit Target: $1.10
Return: 27%
Stop Target: None
Action: Shares traded to $25.42 on Thursday and set a 52-week high of $25.46 on July 1st. I have talked about a run to $28-$30 coming once $25 cleared. This level is now serving as fresh support with backup at $24. Earnings are scheduled for late July/ early August.
Rambus (RMBS, $14.68, up $0.48)
August 15 calls (RMBS140816C00015000, $0.70, up $0.15)
Entry Price: $0.60 (6/30/2014)
Exit Target: $1.20
Return: 17%
Stop Target: None
August 16 calls (RMBS140816C00016000, $0.35, up $0.05)
Entry Price: $0.33 (6/30/2014)
Exit Target: $0.65-$1
Return: 8%
Stop Target: None
Action: I still believe RMBS makes a strong push past $15 over the next month once shares clear $14.75. Shares traded to $14.77 on Thursday but were unable to hold this level into the close. There is risk to $14-$13.75. The 52-week high of $14.82 was set on June 23rd. Earnings are tentatively scheduled for next week but there is no hard date listed.
Imax (IMAX, $28.24, down $0.20)
September 30 calls (IMAX140921C00030000, $0.75, down $0.05)
Entry Price: $0.60 (6/30/2014)
Exit Target: $1.20
Return: 25%
Stop Target: None
Action: Shares reached a peak of $28.50 to end the week. A push to $30 could come over the next week or two as long as $28 holds as support.
General Motors (GM, $37.74, flat)
September 32 puts (GM140920P00032000, $0.25, flat)
Entry Price: $0.40 (6/23/2014)
Exit Target: $0.80-$1.20
Return: -38%
Stop Target: None
Action: I like the trade as long as $38 holds and these are cheap options to use as “protection” over the summer months. A close below $36 would help get this trade going in the right direction.
Limelight Networks (LLNW, $3.10, up $0.01)
September 3 calls (LLNW140920C00003000, $0.40, flat)
Entry Price: $0.15 (6/4/2014)
Exit Target: $0.45
Return: 167%
Stop Target: None
December 3 calls (LLNW141220C00003000, $0.55, up $0.05)
Entry Price: $0.20 (6/4/2014)
Exit Target: $0.60
Return: 175%
Stop Target: None
Action: Shares traded up to $3.15 on Wednesday and $3.12 on Thursday. A close above $3.25 would be extremely bullish. Support is at $2.75 but $3 has been holding on pullbacks.
Previous comments:
Shares traded to a high of $3.25 on 6/20 after Tuition Build offered roughly $645 million, or $6.55 a share, for Limelight. The company dismissed the Silicon Valley’s private-equity firm’s offer after basically saying they weren’t experienced enough to run the business.
I have been suggesting a buyout offer would come for Limelight Networks with the company’s cheap market cap and said they would make a very luscious takeover target.
Its litigation issues have decreased dramatically following their recent win against AKAM and they are open to a much bigger marriage.
Roth Capital lifted its Price Target for Limelight Networks to $4.50 from $3 following its recent court win against AKAM. I have already covered the acquisition appeal of the stock and Captain Obvious echoed those comments last week. I was hoping shares would go unnoticed by the suit-and-ties and perhaps they have been reading my updates but I have a much higher target for Limelight. I have said shares could make a run to $5, possibly $8 if the takeover talk heats up over the summer.
Apple, Google, Facebook, Microsoft and Verizon, just to name a few, could take a look at this company as it looks to build out its CDN network. Limelight has a market cap of just $280 million and would be a great acquisition target for Apple. The market cap was just $214 million when I started recommending shares at the end of May at $2.16.
Other 2014 Portfolio OPEN positions (2): 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 I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly, when the trade closes or if the options expire. Click on the 2014 Portfolio link in the Members Area to view ALL open/ closed trades.
McDonald’s July 95 puts (from May 2014) – continue to hold – shares are on the verge of falling below $100 but the options are running out of time.
Apollo Group August 23 puts (from April 2014) – continue to hold – resistance is at $32 and a close below $30 is needed to get this trade going in the right direction.