9:00am (EST) continued…
The Dow added 34 points, or 0.3%, to end at 13,610 on Friday. The blue-chips traded down to 13,424 on Tuesday but the bears had trouble pushing 13,350. This is now the second wave of short-term support should 13,500 fail to hold this week. The index peaked at 13,661 on Friday and the close above the 13,600 level gets our fluff targets from September of 13,800-14,000 back in play. The Dow began the week at 13,437 and gained 173 points, or 1.3%, following Friday’s close. For the year, the blue-chips are higher by 1,393 points, or 11.4%.
The S&P 500 slipped a half-point, or 0.03%, and finished at 1,460. The index held positive territory on Monday all session long and dipped to 1,439 on Tuesday. The bears were trying to push 1,425 but the 1-point dent was all they could muster for the week as short-term support has moved up to 1,435. Wednesday’s close at 1,450 opened the door for a run back to 1,475 and Friday’s high was 1,470. Our chart work from mid-August showed a possible push to 1,500 in September and we have mentioned for a few weeks the bulls need to hold 1,475 on the close before we can expect a run. The 52-week high of 1,474.51 came on September 14. The S&P 500 started Monday at 1,440 and finished the week up 20 points, or 1.4%. YTD, the index is up 203 points, or 16.2%
The Nasdaq fell a baker’s dozen (13 points), or 0.4%, to close at 3,136. Tech tested the 3,100 level on Monday and Tuesday after dipping to a low of 3,103 and 3,101, respectively. There was further risk down to 3,050 if the bears had popped this level but 3,100 has held every day since September 6, except for one, which is when the Nasdaq closed at 3,093 (September 27). On the flip side, the bulls continue to have trouble with the 3,150 level which was tested midweek. The index closed at 3,149 on Thursday after testing 3,153 and we wanted to see a close above 3,175 on Friday for confirmation of a run to our September fluff targets of 3,200-3,250. The high was 3,171 but Tech gave back all of its gains and then some by the closing bell. The Nasdaq came into the week at 3,116 and was able to advance 20 points, or 0.6%, despite lagging the other indexes. For 2012, the index is showing a gain of 531 points, or 20.4%.
The Russell 2000 lost 2 points, or 0.2%, to settle at 842. The small-caps started the week with a gain and held positive territory until Wednesday which is when the index tested 835. This level was tested again on Thursday and is just above short-term support at 830 followed by 820. We have said a close above 850 could lead to a run to 875-900 and Friday’s high was 853. The Russell 2000 was at 837 before Monday’s opening bell and was up 5 points, or 0.7%, following Friday’s close. Year-to-date, the index has advanced 102 points, or 13.8%.
The S&P Volatility Index ($VIX, 14.33, down 0.22) was at 15.73 to start the week and traded up to 16.50 on Tuesday’s pullback. This is well below bearish resistance at 17.50 and the close below 15 for the week gets the low teens back in the mix on a continued rally.
The first clue we were looking for last week was the close on Monday. The bears had won 3-straight Friday/ Monday’s but that streak was snapped as the Dow and S&P 500 were up 0.5%, on average, Monday. This past Friday was negative but the blue-chips were up and the VIX closed lower. The Monday win was only the second in 4 months for the bulls and if this Monday is negative then we can still use the closes as clues money is still moving out of the market.
Shares of Alcoa (AA, $9.09, up $0.02) were up for the week but we wanted to see a close past $9.20 as indication the company might report better-than-expected earnings. Alcoa has beaten Wall Street’s estimates the last 2 quarters, and they still might, but after opening higher, shares finished lower for the session back in July. They will confess on Tuesday before the bell.
As far as the overall 3Q earnings picture, the suit-and-ties are looking for quarterly earnings to decline by 2%. The biggest sector that could drag down results are the oil and gas companies. Many of the pencil-pushers have said overall earnings would be up 2%, if not for their weaker-than-expected results. However, there were some big Tech names that have already warned which makes this a treacherous earnings season to trade.
In some cases, the bar has been lowered from the previous quarter so some companies could surprise to the upside. There will also be a few high profile companies who didn’t warn over the past week or two that could miss by a penny or three. These companies could see their stock prices hammered if they miss estimates by a mile and investors’ wonder why they didn’t warn.
We have also said the Financial stocks needed to show some strength and over the past few weeks they have. JPMorgan Chase (JPM, $41.71, down $0.11) and Wells Fargo (WFC, $35.48, down $0.13) will report their numbers on Friday so watch how they trade this week.
The biggest development we saw on Friday was how Apple (AAPL, $652.59, down $14.21) traded. We profiled 2 sweet option trades for the Daily last week using Apple call options as we said to watch for the $650 level to hold last Tuesday. Shares made a run to $675 two days later which we said was resistance and where to close the trade at. The 2 call option trades made 100% and 50%, respectively, in 48 hours. We are thinking about playing Apple this week but we could be playing it to the downside if $650 doesn’t hold.
Apple is a big component of the market and any weakness trickles down to the major averages just like it does when shares are rallying. The Nasdaq makes up 20% of the Nasdaq so a test back to $620 would spell trouble for Tech and the market, overall. If $650 holds and Apple announces the iPad mini this week like we have predicted then shares could push $675 or even $700 again. Monday could be a big swing day and we will be watching the stock like a hawk at the open.
Europe will be back in the news this week, specifically Greece and Spain. There were rumors Spain would ask for a bailout over the weekend but they will likely wait a couple of more weeks before doing so. Greece wants the European Central Bank (ECB) to give them more money or forgive more debt so this situation is only worsening and could be in the headlines this week.
The charts are bullish and if the bulls can hold or advance the flag to start the week, we could see a push towards our upper end price targets. The fundamentals do not support a further rally but we have to trade what is in front of us and respect the wall of worry. At the same time, we are preparing for some sort of pullback, perhaps major, and when we will get defensive.
We said last week to respect October’s history but we also know you can’t fight the trend or the Fed which is why we have done well with call options over the past couple of months. We still have some defensive positions open in our Daily for protection and if the market continues higher we should get called away from a few more trades in our Weekly.
There are still a number of headwinds, both positive and negative, facing the market but by the end of the week, we should see one side emerge from the current 3-week trading range. The bulls have shown strength all year long but the bears might growl once more before they go in hibernation for the rest of the year.
As we head to press, futures are showing a slightly lower open this morning. Dow futures are down 45 points to 13,491 while the S&P 500 futures are lower by 6 points to 1,450. The Nasdaq 100 futures are off by 13 points to 2,791.
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 “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. Closed Trades for 2012 (131-43, or 75% win rate, including Weekly Wrap which is 24-0).
JC Penney (JCP, $23.96, up $0.19)
November 22 puts (JCP121117P00022000, $0.90, down $0.10)
Entry Price: $0.95 (9/28/12)
Exit Target: $1.90
Return: -5%
Stop Target: None
Action: Shares traded to a low of $23.20 last week and resistance at $24 held on Friday. There is a chance shares could test $25 again but we are looking for a close below $22 this week which should get $20 and the teens back in play.
First Solar (FSLR, $20.07, down $2.48)
October 20 puts (FSLR121020P00020000, $1.30, up $0.80)
Entry Price: $0.85 (9/28/12)
Exit Target: $1.70 (closed half at $1.25 on 10/5/12)
Return: 50%
Stop Target: 90 cents (Hard Stop)
Action: We closed half of the trade on Friday following the drop below $20. Shares fell 11% and kissed a low of $19.68 as the options reached a peak of $1.52. We have set a Hard Stop of 90 cents on the other half of the trade. Resistance is at $22-$23 but we are expecting a test down to $18.50-$18 this week.
Buffalo Wild Wings (BWLD, $87.02, down $0.21)
November 70 puts (BWLD121117P00070000, $0.95, down $0.05)
Entry Price: $1.25 (9/26/12)
Exit Target: $2.20
Return: -24%
Stop Target: None
Action: Shares traded to a high of $89.90 after an analyst upgraded the stock on Friday. We said there was risk up to $90 and a move above this level could lead to a run to $95-$100 and new 52-week highs. We would like to see shares close below $85 this week which should get $80 back in play. Earnings are due out on October 23.
TiVo (TIVO, $10.31, down $0.15)
November 10 calls (TIVO121117C00010000, $0.70, down $0.10)
Entry Price: $0.70 (9/25/12)
Exit Target: $1.40
Return: 0%
Stop Target: None
Action: Shares traded up to $10.61 to start the week and we were looking for a close above $10.50 which has been short-term resistance. A move above this level should lead to a run at $11-$11.50. Support should hold at $10 on a pullback which was prior resistance.
KLA-Tencor (KLAC, $47.12, down $0.03)
October 45 puts (KLAC121020P00045000, $0.30, down $0.05)
Entry Price: $0.55 (9/20/12)
Exit Target: $1.10
Return: -45%
Stop Target: None
Action: Shares traded to a high of $48.94 to start the week and touched $48.02 on Friday. Resistance has held at $48 with risk to $50 and a break above this level will crush the premiums left in these puts. We would like to see a close below $46 this week and our breakeven point on the trade is $44.45. A break below $46 should lead to the low $40’s but we are running out of time as these option expire next Friday.
Akamai Technologies (AKAM, $39.41, down $0.01)
October 40 calls (AKAM121020C00040000, $0.65, down $0.05)
Entry Price: $0.90 (9/17/12)
Exit Target: $1.80
Return: -28%
Stop Target: None
Action: Akamai traded to a 52-week high of $39.90 on Friday and we said a break above $40 could lead to a run at $45. Shares ended the session down a penny and support has been strong at $38. The options traded to a high of 94 cents on Friday which gave us a brief profit but we are waiting for the surge past $40 to come which is why we left the trade open. We would like to see $40 trigger to start the week and our breakeven point is $40.90 by next Friday.
Taiwan Semiconductor Manufacturing (TSM, $16.07, down $0.09)
January 15 calls (TSM130119C00015000, $1.50, down $0.10)
Entry Price: $0.90 (9/11/12)
Exit Target: $1.80
Return: 67%
Stop Target: $1.30 (HARD STOP)
Action: Shares hit a 52-week high of $16.31 on Friday before pulling back. We have said shares could run to $20 by yearend and the next level of resistance should come in at $17. Support has been moving up and is now at $15. We have a Hard Stop in place to protect profits should shares retreat.
Solazyme (SZYM, $10.96, down $0.29)
December 12.50 calls (SZYM121222C00012500, $0.50, down $0.10)
Entry Price: $0.70 (9/5/12)
Exit Target: $1.40
Return: -29%
Stop Target: None
Action: Shares went out at their lows for the week after touching a low of $10.93 on Friday. Support has been solid at $11 with backup at $10. A move above the 100-day and 200-day MA’s would be bullish and could lead to a test of $12.50.
Knight Capital Group (KCG, $2.58, down $0.02)
January 2.50 calls (2013) (KCG130119C00002500, $0.30, flat)
Entry Price: $0.70 (8/21/12)
Exit Target: $1.40
Return: -45%
Stop Target: None
Action: Knight Capital traded up to $2.76 last week but there is still risk down to $2. Shares were near $2.80 when we entered this trade back in August after tumbling from $10 to $2.50 in late July on the company’s trading fiasco. We think a buyout offer north of $5 could be in the cards by yearend.
Other 2012 Portfolio OPEN positions (5): 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 2012 Portfolio link in the Members Area to view ALL open/ closed trades.
Apollo Group October 24 puts (from August 2012) – Earnings October 16
Pepsico October 75 calls (from August 2012)
Bank of America January 12.50 calls (2013) (from March 2012)
eBay October 52.50 calls (from September 2012)
Tiffany & Co. October 60 puts (from September 2012)
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.
Valero Energy (VLO, $31.82, down $0.72)
November 34 calls (VLO121117C00034000, $0.70, down $0.25)
November 31 puts (VLO121117P00031000, $1.20, up $0.30)
Thoughts: A move above $34 could lead to a run at $40 while a drop below $31 would be bearish.
LinkedIn (LNKD, $118.83, down $3.15)
November 95 puts (LNKD121117P00095000, $1.20, up $0.25)
Thoughts: Resistance has been tight at $122.50 and a break above $125 would be bullish. We may use these put options on a move below $115.
Citrix Systems (CTXS, $71.57, down $3.08)
November 60 puts (CTXS121117P00060000, $0.90, up $0.20)
Thoughts: Shares could test $70 over the near-term and a break below this level could lead to the low $60’s. We listed the November 65’s on Thursday but given Friday’s drop we are now following the 60’s. This is our favorite trade if we add one this week.
Sina (SINA, $62.47, down $0.63)
November 55 puts (SINA121117P00055000, $1.90, up $0.10)
Thoughts: Resistance is at $65 which is where we would love to see a back test to but shares could test $45 if $55 doesn’t ho;d on a break below $60.
American Express (AXP, $58.56, up $0.19)
November 60 calls (AXP121117C00060000, $0.85, flat)
October 60 calls (AXP121020C00060000, $0.35, down $0.05)
Thoughts: Shares could make a run past $60 if the Financial stocks show strength.
