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 an “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.
12:35pm (EST)
Research In Motion (RIMM, $39.59, up $0.61)
July 32.50 puts (RIMM110716P00032500, $0.55, down $0.05)
Entry Price: $0.75 (6/6/11)
Exit Target: $1.50
Return: -27%
Stop Target: None
Action: Shares have traded to a low of $37.66 but are filling in some gaps before resuming its downtrend to the mid to lower $30’s.
Zagg (ZAGG, $10.78, down $0.18)
July 12 calls (ZAGG110716C00012000, $0.45, flat)
Entry Price: $0.35 (6/1/11)
Exit Target: $0.70
Return: 29%
Stop Target: None
Action: The $10.50 level should act as support after the breakout from the week before. The low for today is $10.66. We have a price target of $14 by mid-July for Zagg and if reached these options will be worth $2+.
Rediff.com India (REDF, $10.01, down $0.27)
October 15 calls (REDF111022C00015000, $0.80, down $0.10)
Entry Price: $1.25 (6/1/11)
Exit Target: $2.50
Return: -32%
Stop Target: 65 cents
Action: These options have 137 days before they expire and we feel shares can hit $20 when the momentum comes back into this stock.
Polycom (PLCM, $61.15, up $1.14)
July 62.50 calls (PLCM110716C00062500, $2.80, up $0.45)
Entry Price: $1.25 (5/31/11)
Exit Target: $2.50
Return: 124%
Stop Target: $1.25, raise to $2.00 (Hard Stop on first half)
Action: The 52-week high is $61.70 and shares have reached $61.28 today. We would love to see a close above $62. We have also set a HARD STOP on half the trade at $2.00 should shares retreat. We would like to close half into continued strength and yes we are being greedy but the pop over $62 should lead to $65, quickly, which is where we are looking to close the first half of the trade.
Darling International (DAR, $18.17, down $0.25)
July 20 calls (DAR110716C00020000, $0.30, down $0.10)
Entry Price: $0.50 (5/27/11)
Exit Target: $1.00
Return: -40%
Stop Target: None
Action: Shares will need to reach $20.50 which is our breakeven point. At $21, the options are a double. We will need the $18 level to hold this week.
Vivus (VVUS, $8.00, down $0.25)
September 10 calls (VVUS110917C00010000, $0.30, down $0.05)
Entry Price: $0.65 (5/20/11)
Exit Target: $1.30
Return: -54%
Stop Target: None
Action: There could be continued weakness in Vivus due to Friday’s fallout but we like this trade over the long-term.
MGM Resorts International (MGM, $14.20, up $0.01)
September 17 calls (MGM110917C00017000, $0.50, flat)
Entry Price: $0.70 (5/13/11)
Exit Target: $1.40
Return: -29%
Stop Target: None
Action: The September options have 102 days before they expire and we think MGM can hit $20 by then.
Seattle Genetics (SGEN, $19.22, up $0.28)
September 20 calls (SGEN110917C00020000, $2.15, flat)
Entry Price: $1.50 (5/9/11)
Exit Target: $3.00
Return: 43%
Stop Target: $1.60
Action: We like the rebound back above $19 but we would be more interested in a close above $20.
Dendreon (DNDN, $40.52, down $0.83)
August 50 calls (DNDN110820C00050000, $0.65, down $0.15)
Entry Price: $1.85 (4/14/11)
Exit Target: $3.70
Return: -65%
Stop Target: None
Action: We are looking for the $40 level to hold.
Other 2011 Portfolio OPEN positions (6): 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 2011 Portfolio link in the Members Area to view ALL open/ closed trades.
Vivus June 14 calls (from January 2011)
eBay July 40 calls (from February 2011)
RF MicroDevices August 10 calls (from February 2011)
KLA-Tencor June 48 calls (from May 2011)
Alpha Natural Resources June 44 puts (from May 2011)
Starbucks June 38 calls (from May 2011)
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 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.
S&P 500 Spiders (SPY, $130.04, down $0.38)
June 128 put (SPY110618P00128000, $1.00, up $0.05)
Thoughts: If the S&P fails at support, or more specifically 1,295, then we are looking at a drop to 1,270-1,275. These are not the weekly options which we thought about using but we do expect to be at new highs by the end of June or in July. However, we are looking for a quick test lower before the bulls rebound.
RealD (RLD, $24.73, down $0.66)
July 25 puts (RLD110716P00025000, $2.10, up $0.30)
Thoughts: RealD could face downward pressure to $22 and will report earnings this week. Our gut is telling us they are going to have a lousy quarter and a break below $22 could lead to the teens.
Kraft Foods (KFT, $34.10, flat)
September 35 calls (KFT110917C00035000, $0.60, flat)
Thoughts: Watch for now.
Caterpillar (CAT, $100.70, down $0.40)
July 95 puts (CAT110716P00095000, $2.10, up $0.20)
Thoughts: A break below $100 will lead to a breakdown to $95 which was prior resistance.
Freeport-McMoRan (FCX, $50.28, up $0.36)
July 55 calls (FCX110716C00055000, $0.80, up $0.05)
July 44 puts (FCX110716P00044000, $0.60, down $0.05)
Thoughts: Watch this strangle trade for now but we have a feeling it could do well.
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10:15am (EST)
Research In Motion (RIMM, $37.83, down $1.15)
Buy to OPEN July 32.50 puts (RIMM110716P00032500, $0.75, up $0.15)
Action: All signs are pointing towards a test to the low $30’s. Use limit prices at current levels but do not pay over 80-85 cents for these options.
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Friday’s Nonfarm payroll report showed 54,000 jobs were created in May, the fewest since September 2010, versus expectations for 165,000 new pay checks. After three-straight months that featured an increase of more than 200,000 jobs, this was it? The unemployment rate rose to 9.1% from the prior rate of 9.0% as 14 million unemployed Americans still need a J-O-B.
For the past month, it has been obvious the economy is losing steam while at the same time there seems to be a gridlock on Capitol Hill over the growing U.S. deficit and how to get OUR house in order.
The bulls have used the argument of a recovery economy and better corporate earnings over the past 6 months but these catalysts seem to have hit a brick wall. First-quarter earnings have been okay but there we some notable misses and the latest reports show housing remains in the doldrums and consumers are starting to worry about $4 gas.
Add it all up and it spelled the fifth-straight weekly loss for the Dow, its longest losing streak in over 6 years. For those of you who have been with us for a while usually know we are lights out in predicting where the market is headed. We said in October 2010, the rally would last thru April 2011. We called for a pullback in May and into June and we are now at a crucial point on where the market could be headed.
The Dow dropped 97 points on Friday to settle at 12,151. The index reached a low of 12,104 intraday which split our downside target of Dow 12,200-12,000. After a monster rally on Tuesday that took the Dow to a high of 12,547, the blue-chips looked poised to challenge our upside target of 12,600 on Wednesday. Wrong. The Dow got spanked for 280 points and finished below 12,350 at 12,290 that day. Support had been breached which we knew could cause some trouble if Friday’s numbers were weak. From here, if the 12,000 level fails, look for 11,750-11,800 to come into play this week. Upside resistance will be 12,350.
The S&P 500 fell 13 points and closed right on 1,300. The index dipped to a low of 1,297.90 after challenging our target of 1,350 on Tuesday and Wednesday. Both days, the index reached a peak of 1,345.20 (EXACTLY) which can now be looked at as a short-term “wicked hard” double-top considering the 45 point plunge by Friday’s close, or 3%. This area remains a huge hurdle the bulls face but their bigger issues are downside pressure to 1,275 if the 1,300 level fails to hold. From there, a break below 1,275 could lead to 1,250.
The Nasdaq was once again the weakest link as it got hammered for 36 points, or 1.3%, to end the week at 2,737. As usual, the market gave us a “mixed” signal as we were looking for Tech to hold 2,750. The index kissed 2,835 on Tuesday and closed above our 2,800 upside target. On Wednesday, we touched 2,834 before falling off a cliff as the Nasdaq finished at 2,769 on the close. We are looking for another run back to 2,850 and said support was strong at 2,750. Now that this level has been taken out, look for 2,725-2,700 to come into play if there isn’t a bounce this week.
The Russell 2000 is also facing key support levels as it closed at 808, down 28 pints, or 3.4% for the week.
While it appears as though the sun is going to explode and all signs are pointing towards the bears doing some damage, let’s not forget the bulls do have a few things working in their favor.
Manufacturing may be a little weaker but continues to show expansion which we mentioned last week in one of our updates and auto sales were slow due to supply chain interruptions. The quake that hit Japan is starting to get absorbed and the country is getting back on its feet more quickly than many had anticipated.
Commodities are coming down which makes the cost of doing business cheaper and there is the possibility of a QE3. Although many of the market pros hate the idea of another round of quantitative easing don’t count it out. It may not come at the end of June but don’t rule it out down the road.
So yes, while there may be a short-term pullback or correction, it would be welcomed on two fronts. One, if the bears break through another layer of downside support, there may be an opportunity for some quick trades to profit from a selloff. Two, if lower level support levels hold then we can start to look for longer-term trades for the back-half of the year as we expect Dow 14,000; S&P 1,450-1,500; and Nasdaq 3,400 to come into play by Christmas or early 2012.
Finally, the S&P 500 Volatility Index (^VIX, 17.95, down 0.14) remained under 20 after reaching a high of 20.03 on May 23. This level held all last week after trading to a peak of 19.87 on Friday, which is bullish, for the moment.
These will be the clues to look for in going short this week but don’t be surprised if the bulls hang around or we stay in a trading range.
MEMBERS AREA
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 an “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.
9:00am (EST)
Zagg (ZAGG, $10.99, down $0.20)
July 12 calls (ZAGG110716C00012000, $0.45, down $0.10)
Entry Price: $0.35 (6/1/11)
Exit Target: $0.70
Return: 29%
Stop Target: None
Action: The $10.50 level (black line) should act as support after the breakout from the week before. We have a price target of $14 by mid-July for Zagg and if reached these options will be worth $2+.
Rediff.com India (REDF, $10.28, down $0.47)
October 15 calls (REDF111022C00015000, $0.90, down $0.15)
Entry Price: $1.25 (6/1/11)
Exit Target: $2.50
Return: -28%
Stop Target: 65 cents
Action: Shares are right at short-term support (red line) but there is longer-term support above $9 (black line).
Polycom (PLCM, $60.01, up $0.64)
July 62.50 calls (PLCM110716C00062500, $2.35, up $0.25)
Entry Price: $1.25 (5/31/11)
Exit Target: $2.50
Return: 88%
Stop Target: $1.25
Action: We got our close over $60 on Friday. The July options have 42 days before they expire and we mentioned how stock-splits are normally bullish events. Polycom will split 2-for-1 in a couple of weeks and we are looking for the pre-split momentum to continue. If Friday would have been a good day, shares probably would have taken out their 52-week high of $61.70.
Darling International (DAR, $18.42, down $0.57)
July 20 calls (DAR110716C00020000, $0.40, down $0.15)
Entry Price: $0.50 (5/27/11)
Exit Target: $1.00
Return: -20%
Stop Target: None
Action: Oh my Darling dropped 3% on Friday and the options took a slight hit. These are “cheap” calls that we like to trade with profits from higher premium trades so we don’t worry about the percentage loss of a stop target since the premium was under 75 cents. These types of trades are “speculative” and are aimed at hitting the home run.
The good news with this trade is that we have well over a month for the stock to reach $20.50 which is our breakeven point. At $21, the options are a double. We will need the $18 level (black line) to hold this week.
Vivus (VVUS, $8.25, down $0.29)
September 10 calls (VVUS110917C00010000, $0.35, down $0.15)
Entry Price: $0.65 (5/20/11)
Exit Target: $1.30
Return: -46%
Stop Target: None
Action: Vivus traded to a low of $7.69 on Friday but rebounded and managed to close above $8. This area has been strong support but if broken could lead to a trading range of between $6-$8.
Vivus took a hit after Orexigen Therapeutics (OREX, $2.12, down $1.06) announced that it couldn’t reach an agreement with the FDA on a trial design for its Contrave weight loss drug and has halted development. This led to speculation that Vivus may have to delay the submission of its weight loss drug until mid-2012 or later.
We have said time-and-time again that WE think Vivus has the best shot at getting a diet drug to market so we believe the news is positive because it lessens the competition. In any event, let’s see if the $8 level holds this week.
MGM Resorts International (MGM, $14.19, down $0.58)
September 17 calls (MGM110917C00017000, $0.50, down $0.20)
Entry Price: $0.70 (5/13/11)
Exit Target: $1.40
Return: -29%
Stop Target: None
Action: MGM will need to hold the $14 level or face the risk of further downside pressure. These options have 4 months before expiration and our price target is $20 for the stock. If reached, these options will be worth at least $3.
Seattle Genetics (SGEN, $18.94, down $0.36)
September 20 calls (SGEN110917C00020000, $2.15, flat)
Entry Price: $1.50 (5/9/11)
Exit Target: $3.00
Return: 43%
Stop Target: $1.60
Action: Seattle Genetics hit a new 52-week high on Tuesday’s open but lost 58 cents for the week. We are looking for $18.50 to hold (black line) but realize a test back down to $17 could come if this level is taken out.
Seattle Genetics opened at $15.80 and shares were at $15.50 at 10am on 2/27/10. The March 17.50 call option could have been sold for 90 cents. This lowered the cost basis to $14.60.
On 4/4/11, the June calls could have been sold for 75 cents which lowered the cost basis to $13.85. If shares are called away at $17.50 in mid-June the trade will make 26%.
Dendreon (DNDN, $41.35, down $0.12)
August 50 calls (DNDN110820C00050000, $0.80, flat)
Entry Price: $1.85 (4/14/11)
Exit Target: $3.70
Return: -57%
Stop Target: None
Action: We may have to bail on Dendreon at $40 which held all last week. If this level is breeched, shares will likely fall to $37, possibly $35, if the market gets weaker. However, we also feel a breakout is coming over the next month or two so we don’t want to be out of the trade because important news is coming on their production facilities.
Other 2011 Portfolio OPEN positions (6): 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 2011 Portfolio link in the Members Area to view ALL open/ closed trades.
Vivus June 14 calls (from January 2011)
eBay July 40 calls (from February 2011)
RF MicroDevices August 10 calls (from February 2011)
KLA-Tencor June 48 calls (from May 2011)
Alpha Natural Resources June 44 puts (from May 2011)
Starbucks June 38 calls (from May 2011)
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 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.
Research In Motion (RIMM, $38.98, down $1.45)
July 35 puts (RIMM110716P00035000, $1.15, up $0.40)
Thoughts: We were thisclose to releasing a trade on Friday after our midday update but we held off. These options opened at 75 cents and were near 80 cents shortly after our update. Our near-term target was $38 (red line) for RIMM and we got whipsawed out of our other RIMM trade last week. We were stopped out by pennies but we were right on with this breakdown. As you can see, a break below $38 could lead to the low $30’s, or worse.
RealD (RLD, $25.39, down $1.18)
July 25 puts (RLD110716P00025000, $1.80, up $0.40)
Thoughts: RealD could face downward pressure to $22 and will report earnings this week. Our gut is telling us they are going to have a lousy quarter and a break below $22 could lead to the teens.
Kraft Foods (KFT, $34.10, down $0.32)
September 35 calls (KFT110917C00035000, $0.60, down $0.15)
Thoughts: These same options are right near our entry price from our first Kraft trade we recommended back in early May. The trade made 50% in 2 weeks. We’re going to check the chart over the weekend and let’s see where we are at on Monday.
Caterpillar (CAT, $101.10, down $1.09)
July 95 puts (CAT110716P00095000, $1.90, up $0.20)
Thoughts: A break below $100 (black line) will lead to a breakdown to $95 (red line) which was prior resistance.
Freeport-McMoRan (FCX, $49.93, up $0.15)
July 55 calls (FCX110716C00055000, $0.75, up $0.05)
July 44 puts (FCX110716P00044000, $0.65, down $0.10)
Thoughts: Watch this strangle trade for now but we have a feeling it could do well.
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