11:30pm (EST)
1. Market Summary
2. Weekly Wrap Portfolio Update
3. Week Ahead
= = = = = = = = = = = = = = =
1. Market Summary
The bulls went into July looking strong but left the month looking weak. Of course, everything in between was a range bound market that produced stair-stepping highs before the elevator drop on Thursday and follow through on Friday. The bulls had a decent lead entering the month but the bears managed to breakthrough several layers of support that has caused some serious technical damage.
The Dow declined 70 points, or 0.4%, to close at 16,493 on Friday. The bulls tried to recover the 16,600 level after making a run to 16,584 but it quickly faded as the bears pushed a low of 16,437 midday. I mentioned there could be further risk to 16,300-16,250 on a continued pullback and any drops below this area will likely lead to 16,000. A close back above 16,600 and 100-day MA (moving average) would be bullish. For the week, the Dow gave back 467 points, or 2.8%. For 2014, the blue-chips are down 83 points, or 0.5%. (Dow ended 2013 at 16,576).
The S&P 500 slipped 5 points, or 0.3%, to settle at 1,925. The index tried to recover the 1,940 level on Friday but fell short after a push to 1,937. I talked about further risk to 1,900 and the 100-day MA on a close below 1,925 and Friday’s low touched 1,916. There is additional help at 1,875 if 1,900 is penetrated. Near-term resistance is at 1,940-1,950 and the 50-day MA. The S&P declined 53 points, or 2.7%, for the week. Year-to-date, the index is higher by 77 points, or 4.2%. (S&P 500 finished 2013 at 1,848).
The Nasdaq dropped 17 points, or 0.4%, to end at 4,352. Tech traded up to 4,385 on Friday’s open but struggled with the 4,400 level before fading to a low of 4,324. I had talked about a test to 4,375-4,350 and the 50-day MA if the bears cracked 4,400 but there is now risk to 4,300-4,200 on continued weakness. For the week, the Nasdaq gave back 97 points, or 2.2%. For 2014, Tech is up 176 points, or 4.2%. (Nasdaq closed 2013 at 4,176).
The Russell 2000 fell 5 points, or 0.5%, to finish at 1,114. I mentioned Thursday’s close below 1,125 could lead to 1,110-1,100 and Friday’s low reached 1,107. There is additional support at 1,080-1,075 if 1,100 fails to hold. Resistance is at 1,125-1,140 and the 200-MA. For the week, the small-caps fell 29 points, or 2.6%, and are down 49 points, or 4.2%, YTD. (Russell 2000 ended 2013 at 1,163).
The S&P 500 Volatility Index ($VIX, 17.03, up 0.08) breeched 17.50 on Friday after trading to a high of 17.57. I have been warning that any close above 15 would lead to 17.50 with further risk to 20-22. Wednesday’s spike above 13.50 and run past 14 was a good clue the VIX would trip these levels. A close back below 15 this week would be mildly bullish.
The Dow fell 263 points, or 1.5% in July while the S&P 500 dipped nearly 30 points, or 1.6%. It was the first losing month for both indexes since January. The Nasdaq dropped 38 points 0.8%, while the Russell 2000 tanked 73 points, or 6.2%.
| Dow | S&P 500 | Nasdaq | Russell 2000 | |||||
| Points | Percent | Points | Percent | Points | Percent | Points | Percent | |
| 1/31/2013 | 448.03 | 3.30% | 35.69 | 2.42% | 29.87 | 0.97% | 28.67 | 3.26% |
| 2/28/2013 | 193.91 | 1.44% | 16.57 | 1.16% | 18.06 | 0.65% | 9.02 | 1.09% |
| 3/29/2013 | 524.05 | 3.68% | 54.51 | 3.56% | 107.33 | 3.37% | 40.43 | 4.37% |
| 4/30/2013 | 261.26 | 1.83% | 28.38 | 1.88% | 61.27 | 1.98% | -4.08 | -0.24% |
| 5/31/2013 | 275.77 | 1.88% | 33.17 | 2.11% | 127.12 | 3.80% | 36.69 | 3.92% |
| 6/28/2013 | -205.97 | -1.27% | -24.46 | -1.40% | -52.66 | -1.44% | -6.67 | -0.54% |
| 7/31/2013 | 589.94 | 3.90% | 79.45 | 4.85% | 223.12 | 6.39% | 67.78 | 6.76% |
| 8/30/2013 | -689.23 | -4.51% | -52.76 | -3.13% | -36.50 | -0.94% | -34.36 | -3.22% |
| 9/30/2013 | 319.36 | 2.17% | 48.58 | 2.96% | 181.61 | 4.97% | 62.89 | 6.07% |
| 10/31/2013 | 416.08 | 2.78% | 74.99 | 4.43% | 148.23 | 3.95% | 26.36 | 2.54% |
| 11/29/2013 | 540.66 | 3.44% | 49.27 | 2.80% | 140.18 | 3.57% | 42.74 | 3.89% |
| 12/31/2013 | 490.25 | 3.05% | 42.55 | 2.37% | 116.70 | 2.87% | 20.75 | 1.87% |
| 1/31/2014 | -877.81 | -5.38% | -65.77 | -3.56% | -72.71 | -1.66% | -32.76 | -2.74% |
| 2/28/2014 | 622.86 | 3.95% | 76.86 | 4.28% | 204.24 | 4.94% | 52.15 | 4.62% |
| 3/31/2014 | 135.95 | 0.88% | 12.89 | 0.73% | -109.13 | -2.49% | -9.99 | -0.73% |
| 4/30/2014 | 123.18 | 0.80% | 11.61 | 0.69% | -84.43 | -1.86% | -46.18 | -3.86% |
| 5/31/2014 | 136.33 | 0.85% | 39.62 | 2.11% | 128.06 | 3.12% | 7.64 | 0.79% |
| 6/30/2014 | 109.43 | 0.67% | 36.66 | 1.90% | 165.56 | 3.85% | 58.46 | 5.08% |
| 7/31/2014 | -263.30 | -1.53% | -29.56 | -1.47% | -38.41 | -0.80% | -72.89 | -6.19% |
| Averages | Dow | S&P 500 | Nasdaq | Russell 2000 | ||||
| 2013 | 263.68 | 1.81% | 32.16 | 2.00% | 88.69 | 2.51% | 24.19 | 2.48% |
| 2014 | -1.91 | -0.03% | 11.76 | 0.67% | 27.60 | 0.73% | -6.22 | -0.43% |
| Total | 165.83 | 1.15% | 24.64 | 1.51% | 66.18 | 1.85% | 12.98 | 1.41% |
It has been 33 months since the S&P 500 has experienced a 10% selloff and while it is too early to say this is the start of one, it bears watching.
Some of the early signs came during the prior week with the Dow struggling on Friday and Monday and again last week. Although the Dow managed a gain last Monday, the blue-chips have fallen four of the past six Monday’s. The chart below shows the Monday closes on the Dow for the year.
| Change | ||||||
| Open | High | Low | Close | Points | Percent | |
| 1/6/2014 | 16,474.04 | 16,532.99 | 16,405.52 | 16,425.10 | -44.89 | -0.27% |
| 1/13/2014 | 16,434.03 | 16,453.13 | 16,240.60 | 16,257.94 | -179.11 | -1.09% |
| 1/27/2014 | 15,879.05 | 15,942.77 | 15,783.55 | 15,837.88 | -41.23 | -0.26% |
| 2/3/2014 | 15,697.69 | 15,708.54 | 15,356.17 | 15,372.80 | -326.05 | -2.08% |
| 2/10/2014 | 15,793.63 | 15,801.79 | 15,733.69 | 15,801.79 | 7.71 | 0.05% |
| 2/24/2014 | 16,102.27 | 16,300.04 | 16,102.27 | 16,207.14 | 103.84 | 0.64% |
| 3/3/2014 | 16,321.71 | 16,321.71 | 16,071.25 | 16,168.03 | -153.68 | -0.94% |
| 3/10/2014 | 16,453.10 | 16,453.10 | 16,334.20 | 16,418.68 | -34.04 | -0.21% |
| 3/17/2014 | 16,066.37 | 16,270.34 | 16,066.37 | 16,247.22 | 181.55 | 1.13% |
| 3/24/2014 | 16,303.28 | 16,380.51 | 16,215.56 | 16,276.69 | -26.08 | -0.16% |
| 3/31/2014 | 16,324.22 | 16,480.85 | 16,324.22 | 16,457.66 | 134.60 | 0.82% |
| 4/7/2014 | 16,414.15 | 16,421.38 | 16,244.01 | 16,245.87 | -166.84 | -1.02% |
| 4/14/2014 | 16,028.29 | 16,184.76 | 16,028.29 | 16,173.24 | 146.49 | 0.91% |
| 4/21/2014 | 16,408.92 | 16,459.78 | 16,402.08 | 16,449.25 | 40.71 | 0.25% |
| 4/28/2014 | 16,363.20 | 16,500.37 | 16,312.66 | 16,448.74 | 87.28 | 0.53% |
| 5/5/2014 | 16,509.75 | 16,547.92 | 16,377.09 | 16,530.55 | 17.66 | 0.11% |
| 5/12/2014 | 16,584.82 | 16,704.84 | 16,584.82 | 16,695.47 | 112.13 | 0.68% |
| 5/19/2014 | 16,490.35 | 16,526.26 | 16,442.12 | 16,511.86 | 20.55 | 0.12% |
| 6/2/2014 | 16,716.85 | 16,756.64 | 16,682.07 | 16,743.63 | 26.46 | 0.16% |
| 6/9/2014 | 16,926.08 | 16,970.17 | 16,912.92 | 16,943.10 | 18.82 | 0.11% |
| 6/16/2014 | 16,765.56 | 16,802.14 | 16,722.86 | 16,781.01 | 5.27 | 0.03% |
| 6/23/2014 | 16,946.50 | 16,954.27 | 16,896.09 | 16,937.26 | -9.82 | -0.06% |
| 6/30/2014 | 16,852.49 | 16,871.27 | 16,801.94 | 16,826.60 | -25.24 | -0.15% |
| 7/7/2014 | 17,063.83 | 17,063.83 | 16,992.45 | 17,024.21 | -44.05 | -0.26% |
| 7/14/2014 | 16,950.93 | 17,088.43 | 16,950.93 | 17,055.42 | 111.61 | 0.66% |
| 7/21/2014 | 17,095.11 | 17,095.11 | 16,974.34 | 17,051.73 | -48.45 | -0.28% |
| 7/28/2014 | 16,956.91 | 17,001.38 | 16,877.72 | 16,982.59 | 22.02 | 0.13% |
| Averages | Points | Percent | ||||
| 2014 | -2.33 | -0.02% | ||||
Following a 10-straight win streak, the Dow has now fallen two-straight Friday’s. Here are the Friday closes for the Dow in 2014:
| 1/3/2014 | 16456.89 | 16518.74 | 16439.30 | 16469.99 | 28.64 | 0.17% |
| 1/10/2014 | 16453.62 | 16487.65 | 16379.02 | 16437.05 | -7.71 | -0.05% |
| 1/17/2014 | 16408.02 | 16495.26 | 16378.80 | 16458.56 | 41.55 | 0.25% |
| 1/24/2014 | 16203.29 | 16203.29 | 15879.11 | 15879.11 | -318.24 | -1.96% |
| 1/31/2014 | 15847.19 | 15847.19 | 15617.55 | 15698.85 | -149.76 | -0.94% |
| 2/7/2014 | 15630.64 | 15798.51 | 15625.53 | 15794.08 | 165.55 | 1.06% |
| 2/14/2014 | 16018.08 | 16175.55 | 15985.39 | 16154.39 | 126.80 | 0.79% |
| 2/21/2014 | 16135.92 | 16191.92 | 16093.80 | 16103.30 | -29.93 | -0.19% |
| 2/28/2014 | 16273.23 | 16398.95 | 16226.09 | 16321.71 | 49.06 | 0.30% |
| 3/7/2014 | 16424.53 | 16505.70 | 16398.86 | 16452.72 | 30.83 | 0.19% |
| 3/14/2014 | 16106.32 | 16165.05 | 16046.99 | 16065.67 | -43.22 | -0.27% |
| 3/21/2014 | 16332.69 | 16456.45 | 16290.79 | 16302.77 | -28.28 | -0.17% |
| 3/28/2014 | 16267.77 | 16414.86 | 16267.77 | 16323.06 | 58.83 | 0.36% |
| 4/4/2014 | 16576.02 | 16631.63 | 16392.77 | 16412.71 | -159.84 | -0.96% |
| 4/11/2014 | 16168.87 | 16168.87 | 16015.32 | 16026.75 | -143.47 | -0.89% |
| 4/25/2014 | 16503.26 | 16503.26 | 16333.78 | 16361.46 | -140.19 | -0.85% |
| 5/2/2014 | 16562.34 | 16620.06 | 16488.31 | 16512.89 | -45.98 | -0.28% |
| 5/9/2014 | 16551.23 | 16588.77 | 16498.71 | 16583.34 | 32.37 | 0.20% |
| 5/16/2014 | 16447.32 | 16498.99 | 16414.32 | 16491.31 | 44.50 | 0.27% |
| 5/23/2014 | 16544.49 | 16613.07 | 16544.49 | 16606.27 | 63.19 | 0.38% |
| 5/30/2014 | 16697.33 | 16721.22 | 16648.85 | 16717.17 | 18.43 | 0.11% |
| 6/6/2014 | 16839.64 | 16924.28 | 16839.64 | 16924.28 | 88.17 | 0.52% |
| 6/13/2014 | 16734.64 | 16787.89 | 16718.60 | 16775.74 | 41.55 | 0.25% |
| 6/20/2014 | 16920.62 | 16978.02 | 16920.62 | 16947.08 | 25.62 | 0.15% |
| 6/27/2014 | 16846.90 | 16862.73 | 16773.84 | 16851.84 | 5.71 | 0.03% |
| 7/11/2014 | 16918.31 | 16949.46 | 16860.3 | 16943.81 | 28.74 | 0.17% |
| 7/18/2014 | 16978.16 | 17113.51 | 16977.52 | 17100.18 | 123.37 | 0.73% |
| 7/25/2014 | 17079.5 | 17082.33 | 16915.65 | 16960.57 | -123.23 | -0.72% |
| 8/1/2014 | 16,561.70 | 16,584.75 | 16,437.07 | 16,493.37 | -69.93 | -0.42% |
As you can see, the Dow hasn’t experienced a Monday/ Friday decline in the same week since early April. For new subscribers, I often say mixed Monday/ Friday closes tend to suggest a trading range has formed while higher and lower M/F’s suggest an up or down trend is in place. This Monday’s close will be important, as well as Friday’s, to see if money is flowing back into the market, or out of.
I recommended 15 trades for the Daily from late May through the end of June and closed 12-straight winners over that time frame and into late July. I also warned that a mini-trading range could develop and that played out like a fiddle before the last day of July 2% pullback. There were 10 recommendations last month and those trades will likely wind up 7-3.
I also warned of May’s tight trading range and for the Weekly Wrap, I only recommended 2 trades. I got aggressive in June with a half-dozen recommendations. Five of the eight trades were closed for average double-digit winners and the other 3 are still in play. In July, I only recommended 2 trades for the Weekly Wrap.
My point is, I have done well navigating the trading ranges and my fluff targets for the major indexes from December finally triggered during the late June/ early July run to fresh all-time highs. My yearend targets from February for the indexes are much higher than current levels. I also said the 200-day MA’s needed to hold across the board throughout 2014 and that the threat of war needed to simmer. If they didn’t, I showed in the charts there could be a nasty correction at some point this year.
Predicting market tops, bottoms, up/ down trends and trading ranges are extremely difficult and why I spend literally 100 hours a week researching and studying the market.
My catalyst for the move to higher highs in June was in anticipation for a good 2Q earnings season. That we got as 70% of the companies that have reported have topped Wall Street’s expectation. However, the number of earnings warnings for the current quarter are on the rise with companies pricing in lower growth.
There were a lot of reasons the talking heads were giving for the end of the week pullback – including Argentina’s debt default, the Fed’s statements, and geopolitical events. My take is the market was setting up for a “buy the rumor, sell the news” once the flood of 2Q earnings were released.
It remains to be seen if the selling pressure continues and the indicators I follow have been great tools for predicting market direction. August could see continued weakness as it is historically one of the worst months for the market. I wouldn’t be surprised to see the selling pressure continue into this week and perhaps next before a rally back to resistance but gauging the volatility will be the hard part.
Ahead of Monday’s open, futures look like this: Dow (+49), S&P 500 (+6); Nasdaq 100 (+9).
= = = = = = = = = = = = = = =
2. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 8/1/14)
The Weekly Wrap Closed Trade Track Record for 2014 is 22-4, or 85% win rate (107-11, or 91% win rate, overall since the start of 2011)
Special Notice: The Kodiak Oil & Gas (KOG, $14.72, down $0.82) LEAP Trade was closed last week for an overall profit of 24%.
Current Trades
Apple (AAPL, $96.13, up $0.53)
Original Entry Price: $98.40 (7/28/14)
Lowered Price from Selling Options/ Dividends: $98.40
Exit Target: $120
Return: -2%
Stop Target: $85
Dividend Yield: 2.1%
Action: Shares traded to a low of $94.81 on Friday but held near-term support at $95. There is further risk to $93.50 and the 50-day MA. A close above $97.50 would set up another run at $100.
Pizza Inn Holdings (PZZI, $7.45, down $0.02) Stock Trades
Original Entry Price: $6 (7/9/14)
Lowered Price from Selling Options: No options available
Exit Target: $8, raise to $10
Return: 24%
Stop Target: $7 (Stop Limit)
Original Entry Price: $8.10 (10/11/13)
Lowered Price from Selling Options: No options available
Exit Target: $12+
Return: -8%
Stop Target: $5
Action: Shares traded to a low of $7.01 to start the week but rebounded to clear $7.50 on Wednesday. The $7.75 level was tested the following two sessions before shares finished flat for the week. A close above $7.75-$8 would be bullish for a run at the 52-week high north of $9.
The stop limit is at $7 to protect profits on the second position (7/9/14). The other position is a long-term core holding (10/11/13). Near-term support is at $7 and the 200-day MA.
Previous comments:
The company announced further expansion plans. Pizza Inn is now on track for 200 stores. I believe this will be a $15-$20 stock in 1-2 years with insiders and mutual funds owning nearly 40% of the company. I have already recommended 2 profitable trades for the Weekly Wrap when shares were near $3.
CubeSmart (CUBE, $18.07, down $0.14) stock trade
Original Entry Price: $18.62 (6/23/13)
Lowered Price from Selling Options/ Dividends: $18.49
Exit Target: $22
Return: -2%
Stop Target: $14
Dividend Yield: 2.8%
Action: Shares traded to a low of $18.02 on Friday but held the 100-day MA. There is further risk to $17.75 on a stretch and a close below $17.50 would be bearish. Resistance is at $18.50 and the 50-day MA. Earnings are due out August 7.
The company paid a dividend of 13 cents on 6/27/2014 to lower the cost of the trade to $18.49.
Limelight Networks (LLNW, $2.49, down $0.08) stock trade
Original Entry Price: $3.00 (6/9/14)
Lowered Price from Selling Options: None
Exit Target: $5
Return: -17%
Stop Target: None
Action: I mentioned there was further risk to $2.40-$2.20 on a close below $2.50. Friday’s low reached $2.45. Resistance is at $2.75. The company will announce earnings on Monday and talk about why they declined a takeover offer north of $6.
Previous comments:
Shares traded to a high of $3.25 on 6/20 after Tuition Build offered roughly $645 million, or $6.55 a share, for Limelight. The company dismissed the Silicon Valley’s private-equity firm’s offer after basically saying they weren’t experienced enough to run the business.
I have been suggesting a buyout offer would come for Limelight Networks with the company’s cheap market cap and said they would make a very luscious takeover target.
Its litigation issues have decreased dramatically following their recent win against AKAM and they are open to a much bigger marriage.
Roth Capital lifted its Price Target for Limelight Networks to $4.50 from $3 following its recent court win against AKAM. I have already covered the acquisition appeal of the stock and Captain Obvious echoed those comments last week. I was hoping shares would go unnoticed by the suit-and-ties and perhaps they have been reading my updates but I have a much higher target for Limelight. I have said shares could make a run to $5, possibly $8 if the takeover talk heats up over the summer.
Apple, Google, Facebook, Microsoft and Verizon, just to name a few, could take a look at this company as it looks to build out its CDN network. Limelight has a market cap of just $280 million and would be a great acquisition target for Apple. The market cap was just $214 million when I started recommending shares at the end of May at $2.16.
Hercules Offshore (HERO, $3.39, down $0.14)
Original Entry Price: $4.50 (5/30/14)
Lowered Price from Selling Options: $4.20
Exit Target: $7
Return: -19%
Stop Target: $2
Action: The drop below $3.60 was bearish and could lead to $3.25-$3. Resistance is at $3.50-$3.60. I may sell a longer-term option this week to lower the cost basis but I want to wait to see how shares open. If I do, I will send out a Trade Alert update.
On 5/30/2014 I recommended buying shares at $4.50 and selling the July 4.50 calls for 30 cents to lower the cost basis to $4.20.
Alexza Pharmaceuticals (ALXA, $4.79, down $0.04) Covered Call Trade
Sold September 5 calls (ALXA140920C00005000, $0.30, flat)
Original Entry Price: $5.53 (3/4/14)
Lowered Price from Selling Options: $4.68
Exit Target: $6+
Return: 2%
Stop Target: $3
Action: Shares held their 200-day MA throughout the week but there is further risk to $4.50. Friday’s low reached $4.65. Resistance is at $5.
On 3/4/2014 I recommended buying shares at $5.53 and selling the June 6 calls for 50 cents to lower the cost basis to $5.03.
On 6/23/2014 I recommended selling the September 5 calls for 35 cents to lower the cost basis of the trade to $4.68. If shares are called away at $5 by mid-September the trade will make 7%.
Discovery Laboratories (DSCO, $1.55, down $0.02) Covered Call Trade
Sold October 2 calls (DSCO140101900002000, $0.25, flat)
Original Entry Price: $2.42 (1/7/14)
Lowered Price from Selling Options: $1.67
Exit Target: $4.50-$5
Return: -7%
Stop Target: None
Action: Friday’s low reached $1.53. The May and 52-week low is at $1.51 and a break below this level could lead to $1.40-$1.25. Resistance is at $1.75 and the 50-day MA.
The company recently announced Phase 2 trials for Aerosurf have begun.
On 1/7/2014 I recommended buying shares at $2.42 and selling the April 3 calls for 25 cents to lower the cost basis to $2.17.
On 4/30/14 I recommended selling the June 3 calls for 15 cents to lower the cost basis for the trade to $2.02.
On 6/23/2014 I recommended selling the October 2 calls for 35 cents to lower the cost basis of the trade to $1.67. If shares are called away at $2 by mid-October the trade will make 20%.
Rambus (RMBS, $11.48, down $0.03)
Original Entry Price: $17.83 (11/14/11)
Lowered Price from Selling Options: $16.38
Exit Target: $18-$20
Return: -30%
Stop Target: $10
Action: I said there could be further risk to $11.75-$11.50 and Friday’s close reopened a possible back test to $11 and the 200-day MA. Resistance is at $11.75-$12.
Previous comments:
Shares tanked $11 in late November 2011 from $18 to $7 on a court ruling the company had infringed on certain patents. I originally recommended this trade on a favorable court ruling.
The outlook for Rambus has improved over the past 6 months with a profitable quarter and a recent deal with Qualcomm.
I want to sell another call option on this position but would like to see shares clear $15-$16 before doing so.
On 11/14/2011 I recommended buying shares at $17.83 and selling the December 20 calls for $1.45 to lower the cost basis to $16.38.
Trades on HOLD: AKS Steel Holding (AKS), DryShips (DRYS), Bebe Stores (BEBE), Vivus (VVUS), Dendreon (DNDN), Galena Biopharma (GALE) LEAP Trade/ Stock Trade, Zynga (ZNGA)
= = = = = = = = = = = = = = =
3. Week Ahead
Here is a chart of the events for the week ahead:
