9:00am (EST) continued…
The bears took another step in setting the next major trend as the market’s slide on Wednesday put another nail in the bulls coffin. There were some good Tech earnings after the close that could delay a more significant pullback but the signs continue to come in that January will end in the red.
The Dow declined 189 points, or 1.2%, to settle at 15,738. The blue-chips quickly fell below 15,900 on the open and tested support at 15,800 for much of the session before taking a late day dip to 15,708. We specifically said to watch 15,703 and the index came within 5 points of triggering another sell signal that we will talk more about this weekend. We have been mentioning a close below 15,800 would be super bearish that could lead to a test down to 15,600-15,400 over the near-term. A close above 15,800-15,900 would be bullish but not convincing until 16,000 clears.
The S&P 500 sank 18 points, or 1%, to finish at 1,774. The index opened just above 1,790 but quickly tested 1,775 after trading down to 1,770. We have talked about this level in recent weeks and said a close below 1,775 could lead to 1,750. The bulls need to clear 1,780 today but the lower lows and close below support was bearish and signaled a sell signal for us.
The Nasdaq fell 46 points, or 1.1%, to end at 4,051. We have been chirping that a close below 4,100 would be bearish for a test to 4,050-4,025 and yesterday’s low was 4,044. The next wave of support would comes in at 4,000-3,950 on a close below 4,050.
The Russell 2000 tanked 16 points, or 1.4%, to close at 1,122. The small-caps lead the parade lower and the finish below 1,125 was another sell signal. The low checked in at 1,119 and we have said 1,110-1,100 would be be in play on a drop below 1,125. The bulls will need to clear 1,140 again before we would feel safe betting on them as this level is now 1.5% away. A close below 1,100 gets 1,075-1,050 on the bears map.
The S&P 500 Volatility Index ($VIX, 17.35, up 1.55) jumped 10% and tested 18 before settling below 17.50. Monday’s high was 18.99 so this will be the first level to watch for a sign 20-22 could trip.
As we head from desk to press, futures look like so: Dow (xx); S&P 500 (xx); Nasdaq (xx).
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 tradesor “Exit Orders” in your brokerage account unless we list one. We will send out a “Profit Alert” or “New Trade” 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 2014: 15-1- the Weekly Wrap is 7-1 for 2014 (92-8 since 2011) and is designed for traders that want to use options with less risk.
Caterpillar (CAT, $90.62, down $1.85)
March 85 puts (CAT140322P00085000, $0.85, up $0.30)
Entry Price: $0.75 (1/28/2014)
Exit Target: $1.50
Return: 13%
Stop Target: None
Action: We believe shares will dip below $90 again and possibly push $85 over the next 6 weeks. Resistance is at $92.50.
Ariad Pharmaceuticals (ARIA, $7.60, down $0.44)
March 10 calls (ARIA140322C00010000, $0.75, down $0.20)
Entry Price: $0.95 (1/28/2014)
Exit Target: $1.90
Return: -21%
Stop Target: 40 cents
May 11 calls (ARIA140517C00011000, $0.90, down $0.15)
Entry Price: $1.05 (1/28/2014)
Exit Target: $2.10
Return: -14%
Stop Target: 50 cents
Action: We feel as though shares will trade to the mid-to high double-digits, soon, or there will be a takeover of the company for possibly $20+ a share. We will use stops to protect our overall profits in case shares do a back test to $7 but we think $10 trips and shares never look back. However, these are not Hard Stops.
Krispy Kreme Doughnuts (KKD, $17.96, down $0.49)
March 16 puts (KKD140322P00016000, $0.65, up $0.10)
Entry Price: $0.70 (1/27/2014)
Exit Target: $1.40
Return: -7%
Stop Target: None
Action: We are expecting a near-term test to $15 for KKD and the chart shows the potential for shares to drop to $14 based on the “gap” that needs to be filled. We have wiggle room to $20 before the drop to $15 comes.
BlackBerry (BBRY, $9.95, down$0.09)
February 11 calls (BBRY140222C00011000, $0.25, down $0.05)
Entry Price: $0.65 (1/22/2014)
Exit Target: $1.30
Return: -62%
Stop Target: None
Action: There could be a back test to $9-$8.50 if volatility picks up but we still like the position. A close back above $10.50 would be bullish.
Exact Sciences (EXAS, $12.90, down $0.39)
April 19 calls (EXAS140419C00019000, $0.45, down $0.10)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -49%
Stop Target: None
Action: The company should get some FDA news in March on its Cologuard drug. These are April options with 3 months until expiration and we plan to hold through the volatility because we want to be in when the March news is released and why we do not have a Stop Limit listed. There could be further weakness and we may have to put the trade on hold but this will be a major event and we will hold the trade open win, lose, or draw.
Other 2014 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 2013Portfolio link in the Members Area to view ALL open/ closed trades.
SLM February 27 calls (from January 2014)
General Electric March 28 calls (from January 2014)
PulteGroup February 22 calls (from January 2014)
Sony February 19 calls (from January 2014)
April 20 calls
PowerShares QQQ February 90 calls (from January 2014)
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.
Philip Morris (PM, $79.44, down $1.37)
February 77.50 puts (PM140222P00077500, $.0.70, up $0.30)
March 75 puts (PM140322P00075000, $0.65, up $0.20)
Thoughts: The drop below $80 was bearish and we have a near-term target of $75 on the stock.
Dupont (DD, $60.71, up $1.14)
February 57.50 puts (DD140222P00057500, $0.35, down $0.20)
March 62.50 calls (DD140322C00062500, $0.80, up $0.35)
Thoughts: The bulls and bears will battle over the $60 level and there are a number of ways we can play this. Both options together would make a nice strangle option trade with a chance for a nice 50%-100% return. We could also go long on a move above $60.75 and the 100-day MA but if shares stay fall below $59 there could be a test to double-nickels ($55).
iShares Russell 2000 (IWM, $112.97, up $1.18)
February 107 puts (IWM140222P00107000, $0.55, down $0.30)
Thoughts: We could go short on a drop below $111.
Aruba Networks (ARUN, $20.33, down $0.21)
February 22 calls (ARUN140222C00022000, $0.60, down $0.05)
April 25 calls (ARUN140419C00025000, $0.45, down $0.05)
Thoughts: We were stopped out of the February 21’s last week for a 108% gain and we could add one or both of these options on a pop past $22.
H&R Block (HRB, $29.13, down $0.18)
February 30 calls (HRB140222C00030000, $0.50, down $0.05)
April 31 calls (HRB140419C00031000, $0.80, down $0.05)
Thoughts: A run past $29 would be bullish but we wouldn’t initiate new positions until shares clear $29.50-$30.
Galena Biopharma (GALE, $5.28, down $0.25)
February 6 calls (GALE140222C00006000, $0.35, down $0.05)
April 9 calls (GALE140419C00009000, $0.40, down $0.10)
Thoughts: We like the company and the stock and feel a run to double-digit will come but we need to make sure $5 holds as support. We have listed the April 10 calls to buy the trade more time and to get through the volatility and we can use these options on another break above $7.
Twitter (TWTR, $59.45, down $0.99)
February 90 calls (TWTR140222C00095000, $0.55, down $0.05)
February 40 puts (TWTR140222P00040000, $0.45, up $0.05)
Thoughts: Earnings are due out on February 5 and we believe shares will either be above $80 or testing $40 after the announcement is made. We will update this trade throughout the week to see if there is a possible playfor next week.
Linn Energy (LINE, $32.80, down $0.19)
March 34 calls (LINE140322C000354000, $0.50, down $0.05)
March 30 puts (LINE140322P00030000, $0.45, up $0.05)
Thoughts: Shares could be setting up for a nice strangle trade.
Fossil (FOSL, $112.75, down $1.71)
February 95 puts (FOSL140222P00095000, $1.05, up $0.10)
Thoughts: Earnings are due out on February 11 and we are expecting a drop below $100 over the next few weeks. We may take a small position next week if shares continue their downtrend.