9:00am (EST) continued…
The Dow dropped 68 points, or 0.4%, to close at 16,462. The blue-chips traded in the red from start to finish and touched a low of 16,416. Support at 16,400 has held for the First Five Days and a close below this level could get nasty. The bulls are still trying to clear and hold resistance at 16,500-16,600 by the weekend.
The S&P 500 slipped a half-point, or 0.02%, to finish at 1,837. The index tested 1,831 after the opening bell but pushed 1,840 (and a higher high) for the second straight session shortly afterwards. A close above 1,840 is the green light we are waiting for to trigger a run to 1,850 again. A close below 1,825 would suggest January is going to be rough.
The Nasdaq popped a 12-pack, or 0.3%, to settle at 4,165. Tech was strong following an opening test to 4,145 and traded to 4,171 before a late day dip in the afternoon back to even. The bulls came close to opening the flood gates at 4,175 bit need to be careful not to give up 4,150 on the close.
The Russell 2000 declined a fifth of a point, or 0.01%, to end at 1,157. The small-caps came close to clearing 1,160 again but were brushed back at 1,159. The bears came within 2 points of triggering 1,150 (again) but missed by 2 points.
The S&P 500 Volatility Index ($VIX, 12.87, down 0.05) traded in a tight range but finished just off its low after pushing 13.24. The bears failed at clearing 13.50 and the bulls are struggling to get under 12.50.
Today’s action could be flat to tight as the market awaits Friday’s Nonfarm Payrolls report. We aren’t expecting too much volatility until then but anything can happen between now and then.
Futures are slightly up as we head to press and look like this: Dow (+39);,S&P 500 (+3); Nasdaq 100 (+5).
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: 5-0- the Weekly Wrap is 2-0 for 2014 (87-7 since 2011) and is designed for traders that want to use options with less risk.
Sony (SNE, $18.25, up $0.93)
February 19 calls (SNE140222C00019000, $0.55, up $0.30)
Entry Price: $0.45 (1/8/2014)
Exit Target: $0.90
Return: 22%
Stop Target: None
April 20 calls (SNE140419C00020000, $0.65, up $0.30)
Entry Price: $0.55 (1/8/2014)
Exit Target: $1.10
Return: 18%
Stop Target: None
Action: The call options were very active yesterday and some of the out-of-the-money calls had big boy volume. The February 20 calls (SNE140222C00020000, $0.35, up $0.10) traded over 6,800 contracts while the April 22 calls (SNE140419C00022000, $0.30, up $0.15) traded over 5,000 contracts. The options we are in had steady volume as well but we went closer in with the call options and will likely take half profits at $20. A close above this level could lead to $22 and where we would look to close the rest of the trade. Support is at $17.50 and will like the position as long at $17 holds up.
Galena Biopharma (GALE, $6.24, up $0.88)
January 2.50 calls (GALE140118C00002500, $3.70, up $0.80)
Entry Price: $0.30 (11/11/13)
Exit Target: $0.90 (closed a quarter @ $1 on 11/21/13, closed a quarter @ $1.50 on 12/10/13, closed a quarter @ $3.50 on 1/8/14)
Return: 708%
Stop Target: $2.25, raise to $3 on remaining quarter position (Stop Limit)
February 6 calls (GALE140222C00006000, $0.85, up $0.45)
Entry Price: $0.40 (1/7/2014)
Exit Target: $0.80, raise to $1.20
Return: 113%
Stop Target: 30 cents
Action: We have been calling for a run for GALE to reach $7 and we were re-raised when a brokerage firm upgraded their Price Target from $6 to $9. Obviously, our research is getting much love on Wall Street and while we don’t want to get into a Price Target war, most stocks that trip $9 eventually reach $10 if the momentum is there. We believe the bevy of analysts jumping on our bandwagon is bullish and the momentum is strong. We will go on record by saying we now have a Price Target of $10 for GALE.
Yesterday’s low on the January 2.50’s was $3.10 so we have raised the Stop Limit to $3 to protect the remaining quarter position. The February 6 calls surged to a high of $1.15 and we probably should have locked-in a quarter profit but we stayed aggressive as we believe a run past $7 could come by Friday’s close. If so, we will likely take profits on the rest of the January 2.50’s, and a quarter on the February 6’s. We have a loose Stop Target on the February 6’s but it is still a just a target. We don’t expect it to trip but if shares fall back below $6 and then $5.50 it could come into play.
General Electric (GE, $27.21, down $0.08)
March 28 calls (GE140322C00028000, $0.40, down $0.05)
Entry Price: $0.45 (1/7/2014)
Exit Target: $0.90
Return: -11%
Stop Target: None
Action: Shares are right at their 20-day MA at $27.24 and there is risk to $26.80 and the 50-day MA on continued weakness. Resistance is at $27.50-$28. The company will report earnings on January 17.
PulteGroup (PHM, $19.75, up $0.21)
February 22 calls (PHM140222C00022000, $0.25, flat)
Entry Price: $0.40 (1/3/14)
Exit Target: $0.80
Return: -38%
Stop Target: None
Action: Shares traded to a low of $19.48 and we said we would stick with the trade as long as $19 holds. The 20-day MA is at $19.08. PulteGroup announces their numbers on January 30.
H&R Block (HRB, $29.48, up $1.01)
February 30 calls (HRB140222C00030000, $0.85, up $0.45)
Entry Price: $0.65 (1/3/14)
Exit Target: $1.30
Return: 31%
Stop Target: None
Action: Shares surged 4% on Wednesday and reached a peak of $29.89. The 52-week is at $32.09 and a close above $30 will get new highs in play.
Other 2014 Portfolio OPEN positions (0): 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.
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.
Aruba Networks (ARUN, $18.85, up $0.67)
February 20 calls (ARUN140222C00020000, $0.80, up $0.25)
February 21 calls (ARUN140222C00021000, $0.50, up $0.20)
Thoughts: Shares have been strong this week and are breaking out of a trading range.
Cliff’s Natural Resources (CLF, $24.56, up $0.11)
January 26 calls (CLF140118C00026000, $0.25, flat)
February 28 calls (CLF140222C00028000, $0.55, down $0.03)
Thoughts: If shares can clear $26.75-$27 we may send out a New Trade Alert. There could also be a back test to $24 so we may have to wait for it to complete.
Osiris Therapeutics (OSIR, $17.70, up $0.78)
February 19 calls (OSIR140222C00019000, $1.10, up $0.30)
May 21 calls (OSIR140517C00021000, $1.60, up $0.50)
Thoughts: We had a feeling when the bid/ask tightened up shares could make a move towards $20 but the widened again on yesterday’s 5% jump in the stock. The call options now have February strikes up to 40 and we don’t recall them being listed yesterday or earlier this week, or last week for that matter. This could be a significant clue shares are on the verge of a massive move but the out-of-the-money calls will have to be worked to get the best prices.
Spiders Gold Shares (GLD, $118.12, down $0.70)
February 122 calls (GLD140222C00122000, $1.25, down $0.25)
February 114 puts (GLD140222P00114000, $1.45, up $0.15)
Thoughts: We would love to see a test to $120 before a possible drop to $110. Monday’s peak at $120.39 may have been the short-term top we have been looking for.
Exact Sciences (EXAS, $13.715, down $0.19)
January 13 calls (EXAS140118C00013000, $0.80, down $0.05)
February 14 calls (EXAS140222C00014000, $0.70, down $0.15)
Thoughts: We like the February 14 calls at current levels as we have said a run to the mid-teens was coming. Shares could push $20 on continued momentum and a break above $15. A close back below $12.50 would signal a possible short-term top.
Under Armour (UA, $86.90, up $0.12)
February 95 calls (UA140222C00095000, $1.10, flat)
Thoughts: Shares are approaching 52-week highs again and a break above $88 should lead to $90+. Shares should trip $100 at some point in 2014 and earnings on January 27 could be the catalyst to get shares pushing triple-digits.
Ariad Pharmaceuticals (ARIA, $6.46, down $0.26)
January 7 calls (ARIA140118C00007000, $0.30, down $0.10)
February 8 calls (ARIA140222C00008000, $0.45, down $0.10)
May 9 calls (ARIA140517C00009000, $0.85, down $0.05)
Thoughts: We will likely use the February or May calls to get back in this name. Shares are volatile so we can use these options to play quick moves as they are very liquid. If shares clear $7 again we could send out a New Trade Alert.
Barrick Gold (ABX, $17.96, down $0.31)
February 19 calls (ABX140222C00019000, $0.75, up $0.05)
February 18 puts (ABX140222P00018000, $0.85, up $0.05)
Thoughts: If Gold can make a run back to $1,300 the miners might get a lift. These options were very active yesterday as nearly 2,400 contracts traded. The 200-day MA is at $18.64 and a close above this level would be bullish if it held. If shares fall back below $18 we could go short by using the puts.
Millennial Media (MM, $7.36, down $0.10)
May 10 calls (MM140517C00010000, $0.65, down $0.05)
Thoughts: Shares are in a nice uptrend and a test to $8 could be in the works. Notice the “golden cross” that has formed with the 20-day MA breaking through the 50-day MA (check 1/5/14 Weekly Wrap for chart). A close back below $7 would be bearish and would signal the end of the momentum.
We believe Millennial Media is a takeover target that could catch a bid from one of the bigger players in the game.
PowerShares QQQ (QQQ, $87.31, up $0.19)
January 87 calls (QQQ140118C00087000, $0.80, up $0.05)
February 90 calls (Qqq140222C00090000, $0.50, up $0.03)
Thoughts: We will likely wait for a break above $88 before going long. A break below $87 could lead to a near-term test of $85 on further weakness.
Morgan Stanley (MS, $31.56, up $0.04)
February 32 calls (MS140222C00032000, $0.95, flat)
Thoughts: If support holds at $30.50 along with the Financial sector, we like these calls for a push past $32.
iShares Russell 2000 (IWM, $114.86, up $0.15)
January 116 calls (IWM140118C00116000, $0.50, flat)
January 111 puts (IWM140118P00111000, $0.20, flat)
Thoughts: We could go short on a close below $112.50 or long on a pop past $115. At current levels the options together might make a good strangle trade.
Imax (IMAX, $28.56, up $0.08)
February 31 calls (IMAX140222C00031000, $0.45, flat)
March 33 calls (IMAX140322C00033000, $0.40, flat)
Thoughts: We believe Imax is a takeover target in 2014. We have covered the company since shares were under $3 in 2008 and said it would be a $10-$20 and then a $30 stock before we suggesting selling it. Disney is an obvious choice as a partner but a Chinese company could make a sweet offer north of $40 for a 33% premium from current levels.
PowerShares QQQ (QQQ, $87.31, up $0.19)
March 80 puts (QQQ140322P00080000, $0.50, down $0.03)
April 79 puts (QQQ140419P00079000, $0.65, down $0.02)
Thoughts: We want to show you early how to prepare and play a possible downside slide and these puts have done well since last week when we profiled them. If the QQQ’s test $90 like we hope they will, we can follow different puts on the way up to maximize our entry point on a pullback that may take a few weeks. A back test to $85 could also be in the works.
Twitter (TWTR, $59.29, down $2.17)
February 90 calls (TWTR140222C00095000, $0.90, down $0.30)
February 45 puts (TWTR140222P00045000, $1.80, up $0.35)
Thoughts: We may have to wait a few more weeks but there could be an earnings trade coming.
International Business Machines (IBM, $187.97, down $1.74)
February 180 puts (IBM140222P00180000, $2.50, up $0.75)
January 190 calls (IBM140118C00190000, $1.00, down $0.75)
Thoughts: We will get a chance to short this stock at some point and we may take a swing if $187.50 holds.