9:00am (EST) continued….
The Dow declined 41 points, or 0.3%, to finish at 15,837. The blue-chips made a run past 15,900 on the open before testing a low of 15,783 shortly afterwards. The rebound back above 15,900 to 15,942 looked promising but resistance at 16,000 was never really threatened. The lower low and fade into the close opens the door for a test to 15,600-15,400.
The S&P 500 slipped 8 points, or 0.5%, to close at 1,781. The index made a run at 1,800 on the open and kissed 1,795.98 but when the bulls couldn’t clear resistance we knew lower lows might come into play. We said to watch 1,775 as the first wave of support and the bears pushed 1,772.88. The next wave is at 1,750 and a close below this level could be the straw that breaks the bulls’ backs.
The Nasdaq dropped 44 points, or 1.1%, to settle at 4,083. Tech had trouble holding positive territory after making an 8-point yawn to 4,136 and quickly sank support at 4,100 an hour after the open. This setup a test to 4,050 and yesterday’s low was 4,052. We mentioned a print below this level could spell Nasdaq 4,000 and a close below this level would be super bearish.
The Russell 2000 fell 16 points, or 1.4%, to end at 1,127. The bulls made a weak attempt at clearing 1,150 after getting the troops to push 1,147 but we warned of a test to 1,125 on a continued pullback. Monday’s low checked-in at 1,121. There is further risk to 1,110-1,100 and a close below these levels would get 1,075 in the mix.
The S&P 500 Volatility Index ($VIX, 17.42, down 0.72) faded 4% and finished just below 17.50 after spiking to a high of 18.99. We mentioned a close below 17.50 would be nice to start the week but we have penciled-in a possible test to 20-22. From there the bulls face a crucial showdown with the bears as they need to hold the upper layers of resistance or face the possibility of a nasty selloff and major trend change.
The 100-day MA’s (moving averages) held on Monday but could get breeched today if the bears continue their assault. If they hold, it would represent a 5% pullback across the board and where the suit-and-ties have been begging for a buying opportunity. We have prepared for a possible 10% “correction” but you have to be careful catching falling knives. As the pullback has taken us out of a number of great trades, we won’t mind riding the bears’ backs on a continued move lower. We want to remind you once again if there is a new, nasty trend developing (and it seems like there could be), there is a chance the Dow could fall 3,000 points. With yesterday’s decline, the Dow has lost 750 points in 5 trading sessions. This already represents 25% of the possible decline our early chart work is showing. However, we still need to give the bulls a chance to hold the 100-day MA’s.
We still have another week or two before we announce our “official” yearend targets for 2014. There are over 60 years of research we are finishing up and potential headline risks over the near-term and for the year we still need to consider, along with doing some Fibonacci homework.
The bulls have a ton of work to do to save January and we said February is always a tricky month to trade. We have been able to get off to a fast 15-1 start with numerous triple-digit winners so we have a nice cushion to be aggressive or wait for the bigger picture to emerge.
We have added some new ideas to our Watch List to play a further breakdown in a few stocks but we still aren’t ready to go overboard with our next “batch” of trades as the current ranges are still in play. However, if the 100-day MA’s trip there could be a great opportunity to play the panic.
As we head to press this morning, here is how futures look: Dow (+66); S&P 500 (+7); Nasdaq 100 (-14).
Subscribers, check the Members Area for the updates and stay close to your email inboxes after the open in case we have additional Profit Alerts.
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.
Krispy Kreme Doughnuts (KKD, $17.48, down $0.65)
March 16 puts (KKD140322P00016000, $0.75, up $0.17)
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. Resistance is at $18 that was serving as prior support.
This isn’t an earnings trade as the company won’t announce until early-March but we are looking for them to possible warn Wall Street their numbers will come up short. We would almost bet a doughnut the company uses the weather as an excuse if they are going to come up short. The KKD in Our Town never seems to be busy and with the New Year here consumers are cutting back on the fats.
BlackBerry (BBRY, $9.75, down $0.14)
February 11 calls (BBRY140222C00011000, $0.30, down $0.05)
Entry Price: $0.65 (1/22/2014)
Exit Target: $1.30
Return: -54%
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 but we will exit the trade on a drop below $9. Yesterday’s low was $9.47.
Exact Sciences (EXAS, $13.42, down $0.85)
April 19 calls (EXAS140419C00019000, $0.55, down $0.25)
Entry Price: $0.88 (1/22/2014)
Exit Target: $1.75
Return: -38%
Stop Target: None
Action: There is a chance for a breakout past $15 or a drop below $13.50 when earnings come out this week but it is not a hard date. The company should also 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.
PowerShares QQQ (QQQ, $85.90, down $0.84)
February 90 calls (QQQ140222C00090000, $0.20, down $0.10)
Entry Price: $0.75 (1/22/2014)
Exit Target: $1.50
Return: -73%
Stop Target: None
Action: We will likely close the trade if the QQQ’s break below $85. If support holds we may stay in but we will need a close back above $88 by Friday to feel good about it.
Other 2014 Portfolio OPEN positions (4): 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
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.
Caterpillar (CAT, $91.29, up $5.12)
February 87.50 puts (CAT140222P00087500, $0.60, down $2.20)
March 85 puts (CAT140322P00085000, $0.70, down $1.55)
Thoughts: The talking heads were tripping over themselves to talk about CAT’s “good quarter” but shares are setting up for a good short opportunity on a break below $90.
The chart work we drew up over the weekend showed a possible pop to $91 and after reaching a peak of $92.31 on Monday shares closed just below the upper resistance channel we were targeting on a breakout.
If shares reverse course and dip below $190 again, there could be a back test o $187.50-$185 over the near-term. The February 87.50 puts fell nearly 80% yesterday while the March 85 puts fell 70%. We could use these options to play the move lower on a break below $90 and if we do we will send out a New Trade Alert.
iShares Russell 2000 (IWM, $111.79, down $1.66)
February 107 puts (IWM140222P00107000, $0.85, up $0.15)
Thoughts: We could go short on a drop below $111.
Ariad Pharmaceuticals (ARIA, $7.91, down $1.08)
February 8 calls (ARIA140222C00008000, $1.00, down $0.70)
May 11 calls (ARIA140517C00011000, $0.95, down $0.35)
Thoughts: We will likely start new positions on a move back above $9-$10.
Aruba Networks (ARUN, $20.85, up $0.43)
February 22 calls (ARUN140222C00022000, $0.75, up $0.10)
April 25 calls (ARUN140419C00025000, $0.60, up $0.10)
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, $29.27, up $1.19)
February 30 calls (HRB140222C00030000, $0.55, up $0.35)
April 31 calls (HRB140419C00031000, $0.85, up $0.35)
Thoughts: A run past $29 would be bullish but we wouldn’t initiate new positions until shares clear $29.50-$30.
Galena Biopharma (GALE, $5.06, down $0.64)
February 6 calls (GALE140222C00006000, $0.30, down $0.20)
April 9 calls (GALE140419C00009000, $0.45, down $0.15)
Thoughts: We still like the company and the stock and feel a run to double-digit will come but we need to make sure $5.50 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, $57.91, down $3.83)
February 90 calls (TWTR140222C00095000, $0.50, down $0.35)
February 40 puts (TWTR140222P00040000, $0.50, up $0.20)
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.
Fossil (FOSL, $114.71, up $1.43)
February 95 puts (FOSL140222P00095000, $0.90, up $0.15)
Thoughts: Earnings are due out on February 11 and we are expecting a drop below $100 over the next month.
Cliff’s Natural Resources (CLF, $19.40, up $0.07)
February 18 puts (CLF140222P00018000, $0.75, down $0.05)
Thoughts: A close back above $24.50 might get us interested in a bullish trade. A drop below $22 would be bearish for a possible test to $20.