The Dow slipped 26 points, or 0.2%, to finish at 11,232 on Friday’s shortened session. We went into the week looking for 11,600 to hold but that level was taken out on Monday. Our next downside targets were 11,400 and then 11,200, which held, but there is risk down to 10,800 this week if current levels don’t hold. If the bulls can get past 11,400 (black line, purple circles) then they could make a run back towards 11,600 and then 12,000 but the news has got to be awfully good. For the week, the Dow dropped 564 points, or 4.8%, and is now down 346 points, or 3%, YTD.
The S&P 500 dipped 3 points, or 0.3%, to settle at 1,158. We knew the close below 1,200 on Monday would lead to lower lows and once the 1,175 level was busted on Wednesday, we said the bulls would need to hold 1,150. They did, but there could be a test down to 1,100 if things don’t get better. If the bulls can reclaim 1,200 and the 50-day MA there could be hope for a test back to 1,275 by Christmas. For the week, the S&P gave back 57 points, or 4.7%, and is off 99 points, or 7.9%, for 2011.
The Nasdaq got whacked for 18 points, 0.75%, and closed at 2,441 on Friday. Tech was the main punching bag and we knew when 2,550 broke on Monday, it would be important for 2,500 to hold. When this level was penetrated on Wednesday, we said to watch 2,450 which also failed on Friday. The charts are pointing towards a possible test to 2,350 and from there it gets ugly. We would like to see current levels hold with the bulls making a push back towards 2,600. From there, if the momentum is strong, the bulls could challenge 2,700 by year-end. For turkey week, the Nasdaq declined 131 points, or 5.1%, and is showing a loss of 211 points, or 8%, for the year.
One also pointed out on Friday that the S&P Volatility Index (VIX, 34.47, up 0.49) had managed to stay below 36 which was bullish as you can see from the chart. A drop below 30 could be in the cards on a rebound rally while a close above 36 could lead to panic selling with a trip to 40+ more than likely.
The European Union will likely make a move at some point and they will be meeting Tuesday and Wednesday. We also mentioned the game of chicken being played between some of the countries that make up the eurozone but the end result is that while we don’t think there will be a head-on collision, there could be some scrapes, but everyone will survive.
Futures
MEMBERS AREA
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Clean Energy Fuels (CLNE, $11.10, down $0.26)
January 12.50 calls (CLNE120121C00012500, $0.65, down $0.05)
Entry Price: $0.70 (11/25/11)
Exit Target: $1.40
Return: -7%
Stop Target: None
Action: The January options have 53 days before they expire. There is strong support at $10 but we are looking for a pop to $14 by then. If so, the options would be worth at least $1.50, or a double from our recommended entry price.
Symantec (SYMC, $15.33, down $0.21)
January 16 calls (SYMC120121C00016000, $0.65, down $0.05)
Entry Price: $0.70 (11/25/11)
Exit Target: $1.40
Return: -7%
Stop Target: None
Action: This has been one of our favorite stocks to follow this year and we have played the options rather well. Our latest pick will yield us nearly 50% on a run back to $17 and the options would double on a pop to $17.50. However, shares need to hold $15-$14 this week for us to stay bullish.
Eaton (ETN, $40.55, down $0.32)
January 47.50 calls (ETN120121C00047500, $0.55, flat)
Entry Price: $0.55 (11/25/11)
Exit Target: $1.10
Return: 0%
Stop Target: None
Action: We are looking for the $40 level to hold but realize there is risk down to $38. If the bulls can hold short-term support then we could see a test back to the $46 level over the next few weeks which should give us a tidy return on these call options. A move past resistance could get us back to $50.
Tesla Motors (TSLA, $31.66, up $0.21)
January 35 calls 2012 (TSLA120121C00035000, $1.10, up $0.10)
Entry Price: $1.10 (11/25/11)
Exit Target: $2.20
Return: 0%
Stop Target: None
Action: The $30 level represents strong support with backup at $29. We are looking for shares to make a run past $35 with a possible breakout to blue-sky territory.
PowerShares QQQ (QQQ, $52.88, down $0.41)
December 50 puts (QQQ111217P00050000, $0.75, up $0.05)
Entry Price: $0.70 (11/21/11)
Exit Target: $1.05-$1.40
Return: 7%
Stop Target: None
Action: We are looking to exit this trade on a break below $52.50. There could be a test down to $51 on further weakness and we will probably exit the trade if $54 trips.
Juniper Networks (JNPR, $20.17, down $0.38)
January 25 calls (JNPR120121C00025000, $0.35, down $0.10)
Entry Price: $0.65 (11/21/11)
Exit Target: $1.30
Return: -46%
Stop Target: None
Action: Support at $20 is crucial this week and if taken out could lead to a test down to $18. We are looking for a break back above $22 with a shot at $25+ by mid-January.
Solazyme (SZYM, $12.08, up $0.39)
March 15 (2012) calls (SZYM120317C00015000, $1.10, up $0.10)
Entry Price: $0.80 (11/9/11)
Exit Target: $1.60
Return: 38%
Stop Target: None
Action: Shares traded up to $12.70 on Friday. Resistance is at $14 while support at $11 has been strong.
Newpark Resources (NR, $7.85, down $0.11)
December 10 calls (NR111217C00010000, $0.25, flat)
Entry Price: $0.60 (11/4/11)
Exit Target: $1.20
Return: -58%
Stop Target: None
Action: Shares are right at $8 which is support but there is further risk down to $7.50.
Taiwan Semiconductor Manufacturing (TSM, $12.07, down $0.13)
December 12.50 calls (TSM111217C00012500, $0.25, down $0.05)
Entry Price: $0.50 (10/26/11)
Exit Target: $1.00
Return: -50%
Stop Target: None
Action: Our breakeven point is a close above $13 by mid-December, technically. The 52-week high is $14 and support is strong at $12.
Other 2011 Portfolio OPEN positions (8): 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.
Lufkin Industries December 80 calls (from September 2011)
JDSU Uniphase January 20 calls (from August 2011)
January 16 calls (from August 2011)
Alcoa December 13 calls (from October 2011)
Skyworks Solutions January 25 calls 2012 (from October 2011)
Rambus December 20 calls (from November 2011)
Las Vegas Sands December 52.50 calls (from November 2011)
JPMorgan January 36 calls (2012) (from November 2011)
iShares Russell 2000 December 79 calls (from November 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 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.
Precision Cast Parts (PCP, $152.93, up $0.88)
December 170 calls (PCP111217C00170000, $0.60, flat)
December 130 puts (PCP111217C00130000, $0.70, down $0.10)
Thoughts: We may need to use a strangle trade or two to play this volatility. This stock is a great candidate and could fall below $150 or push $160 on a rebound.
SanDisk (SNDK, $45.56, down $0.23)
December 50 calls (SNDK111217C00050000, $0.60, down $0.05)
January 52.50 calls 2012 (SNDK120121C00052500, $1.05, down $0.10)
Thoughts: There is further risk down to $44 which is where we may start to nibble. A close back above $46 would be bullish.
Polaris Industries (PII, $56.10, down $0.79)
December 62.50 calls (PPI111217C00062500, $0.65, down $0.20)
December 50 puts (PPI111217P00050000, $0.90, up $0.15)
Thoughts: Support is strong at $52 while resistance is at $60. This is another strangle option trade we are watching but we are more bullish than bearish on the stock.
Vivus (VVUS, $9.34, down $0.35)
December 10 calls (VVUS111217C00010000, $0.70, down $0.10)
March 14 calls 2012 (VVUS120317C00014000, $1.60, down $0.10)
Thoughts: Vivus fell thru short-term support at $10 and could test $9. We would wait for a close above $10 for a few days before getting back in.
