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Newsletter

Daily Newsletter, Monday, 4/29/2013

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

It's a Strange World

by Linda Piazza

Click here to email Linda Piazza
Market Internals

Introduction

It's a strange world when investors and traders react to last week's disappointing economic news in China and the U.S. by sending equity futures higher in pre-market trading. Some pundits theorized that investors now anticipate that easy money policies will be extended here and that the ECB will lower rates this week. Some experts pointed to end-of-the-month window dressing. Those of us with a penchant for technical analysis have noted that when the 4/17-4/18 tests of historical support held, bears were likely anxious to cover their short positions and bulls were certainly encouraged to buy again. With recent highs within sight again on many indices and today exceeded on the NDX, bulls might continue to be encouraged.

The gains in futures did not prove surprising, but the big question was whether they would hold. The week ahead offers several potential potholes which might cause bulls to stumble, and potential strong resistance lurked just ahead on many indices.

In the early trading, almost all categories were higher, with equities, bonds, and metals all moving higher. We don't usually see all those rising at the same time, so market participants could have been excused if they felt cautious about making predictions for the day's end until the winners and losers were declared. Those watching volume patterns would have noted that advancers stayed well ahead of decliners on equity indices, and up volume tended to be 3-5 times down volume, at least in early trading. I don't have the ability to check longs and shorts on futures contracts, but gold-related companies, at least, performed similarly. A glance at a heat map showed varying shades of green with only an occasional pink or light red spot. Many of those pink and red spots related to China. One such stock was CEA, China Eastern Airlines' ADR.

Usually each morning I can build a scenario for what I think will happen by the end of the day, a scenario against which I measure the correctness of my suppositions about the market. Today, I had no idea where the indices might be positioned at the end of the day, no idea of what a likely scenario might be. I thought it likely that indices would post further gains in the middle of the day but would they crater at the end of the day or build on those gains? Many pulled off their highs of the day, but the pullbacks were minimal. The SPX gained 0.72 percent; the Dow, 0.72 percent; and the NDX, 0.93 percent. The RUT rose 0.77 percent, and the SOX, 1.27 percent. The similarities in gains perhaps spoke of institutional buying, but the buying certainly wasn't outstanding. The day was a low-volume one. Volatility indices declined.

The early gains in bonds was at least partly retraced by the end of the day. Despite tame inflation and lower economic activity, metal and energy futures gained. Gold futures for June delivery gained 0.9 percent. Silver futures for July delivery rose 1.6 percent. Platinum futures for July delivery rose 2.1 percent. The /CL contract rose 1.6 percent to $94.46. Some thought the gains due to the prospect of prolonged Fed easing, but perhaps only in a roundabout way. The prospect of prolonged Fed easing dropped the dollar futures (/DX), and those metal and energy futures contracts are priced in dollars. In addition, the London Metal Exchange rules are blamed for creating shortages in metals, despite ample supply. Those rules concern the release of stockpiles. This concern mainly impacts zinc and other metals used in the manufacture of steel.

Monday's Developments

In Asia, both the Nikkei 225 and China's Shanghai Composite were closed for bank holidays. The Hang Seng was open and gained 0.15 percent, and the Straits Time gained 0.39 percent. China's Shanghai Composite will remain closed until Wednesday.

European bourses moved higher. The FTSE 100 gained 0.47 percent; the DAX, 0.72 percent; and the CAC 40, 1.54 percent. Spain's IBEX 25 gained 1.80 percent, and Italy's FTSE MIB, 2.20 percent. In Italy, a ten-year bond auction brought higher bid-to-cover rates and lower yields than have been seen recently. The new prime minister has named a coalition government, contributing to a feeling that the country was stabilizing.

While Europe appeared reassured by Italy's stabilization and lower debt servicing costs, other geopolitical pressures heightened. A bomb attack in Syria targeted the prime minister's car. Syria announced that he had survived the attack, and he was seen later chairing a meeting. This weekend, news programs debated the degree of certainty that should be attributed to intelligence that the Syrian government had used chemical weapons against the Syrian rebels. That degree of certainty is important since President Obama has pledged that the use of chemical weapons could prompt intervention.

Today's roster of economic releases started before the market open with March's Personal Income, Personal Spending and Core PCE Price Index. This news was a bit of old news since last week's first quarter GDP report incorporated this information.

Experts predicted a rise of 0.2 percent for personal spending, less than the previous 1.1-percent gain. The report number was in line with expectations, at 0.2 percent. Personal income was expected to rise 0.4 percent, also less than the prior 0.7 percent gain, and it disappointed, toting up only a 0.2 percent gain. The Core PCE Price Index was expected to show a 0.1 percent gain, in line with the prior 0.1 percent gain, but the number was flat.

The report was applauded in some financial newsletters. Some experts had feared that spending, an important component to the U.S. economic activity, would slow more than anticipated and inflation would kick up. This report reassured market watchers that the economy wasn't cratering, at least. Perhaps it was just time for a pause after the first quarter's strong increase in spending. It should be noted that the core PCE Price Index excludes food and energy costs.

At 10:00 am ET, March's Pending Home Sales and Moody's Weekly Business Confidence Survey both appeared. Prior pending home sales had fallen 0.4 percent but were expected to gain 1.1 percent this month. They gained more than expected, at 1.5 percent. Early equity index gains had paused ahead of this number, but the release was greeted with more gains.

Moody's Weekly Business Confidence Survey numbered 28.6, just a tad over the prior 28.5. This was the first gain, however, since the number topped out at 32.7 in the March 18 report. Moody's labeled business sentiment as "holding up ok, despite the recent downshifting in economic growth," the most tepid praise I think I've ever read in an economic report. Still, despite pricing that "isn't too bad," soft hiring and soft demand for office space, Moody's concluded that confidence remains "consistent with growth at the high end of the economy's potential." I'm just reporting what they said. I don't claim to understand the conclusion.

The Texas Manufacturing Survey report, produced by the Federal Reserve Bank of Dallas, was labeled "Growth in Texas Manufacturing Activity Stalls." Production tumbled from 9.9 to -0.5, with that -0.5 level showing that activity was flat when compared to March's. Capacity utilization, shipments and new orders all tumbled. So did the general business activity and company outlook components, both falling into negative territory. Expectations for future business fell heavily. However, employment rose.

The news wasn't all good in the labor market components. Hours worked tumbled further into negative territory. Components measuring price pressures showed that pricing pressures eased. Indices measuring costs for raw materials, finished goods, and wages and benefits all subsided.

Story stocks included J.C. Penney (JCP, 17.19, up 0.19 or 1.21 percent). Several news sources have reported that Goldman Sachs (GS, 145.11, up 1.00 or 0.69 percent) will fund JCP's turnaround effort. GS has reportedly agreed to a five-year $1.75 billion loan, with JCP's real estate securing the loan. The company's CFO noted that, since the loan allows for funding working capital, retiring or paying off existing debt or other purposes, the company can now advance toward a successful future.

Prior to this announcement, many have doubted the company's viability, as is evidenced by the company's 27.73 percent short float. Many of those shorts were likely forced to cover this morning. By ninety minutes after the open, JCP's volume had already nearly met the average daily volume, and volume was almost double average daily volume by the close.

Unlike many equities, WalMart (WMT, 78.39, down 0.65 or 0.82 percent) turned down in early trading. Reduced gasoline prices and the 3.2 percent gain in consumer spending for the first quarter, announced in concert with today's personal spending number, was supposed to be supportive of companies such as WMT. Someone forgot to tell WMT investors. Perhaps it was a buy-the-rumor, sell-the-fact reaction. Sometimes when these discounters sink and luxury goods retailers such as Tiffany's (TIF, 73.06, up 0.13 or 0.18 percent) rise, we speculate that the economy might be strengthening and sentiment might be changing. That's a difficult conclusion for me to reach right now, but I must at least acknowledge the possibility.

Apple (AAPL, 430.12, up 12.92 or 3.10 percent)filed SEC paperwork today for a debt offering, Reuters reported. Last week, the company announced that it might sell debt for the first time ever in order to buy back shares and help finance a $100 billion capital return to shareholders. Only $45 billion out of AAPL's $145 billion in cash is available in the U.S., so there is not enough to fund these needs without the bond offer.

Despite AAPL's first quarterly decline in profits in more than a decade, pundits believe that investors will snap up any bond offer from AAPL. Details have been awaited since last week's surprise announcement. Deutsche Bank and Goldman Sachs will reported lead investor calls. In addition, some AAPL experts attributed the gains to a leaked document that prompted speculation that the company could launch its iPhone 5S as early as July.

Boeing (BA, 91.90, down 0.95 or 1.02 percent) shares declined. At least one source blamed the decline on an unfavorable Barron's article. However, BA has been producing a number of candles with long upper and lower wicks after last week's jump higher. Buyers and sellers are still battling it out, deciding whether the jump higher will stick or not. I'm not so certain that the article caused the pullback rather than some uncertainty among investors and need to digest recent gains.

Eaton Corporation plc (ETN, 60.28, up 1.63 or 2.78 percent), a diversified industrial manufacturer, reported earnings. ETN's acquisition of Cooper Industries was given the credit for record quarterly sales and profits. The company reported earnings of $0.84 per share, beating the consensus expectation by $0.05. In what has become a theme for this reporting season, however, revenues were $5.31 billion versus the expected $5.42 billion. Although headlines touted their reaffirmation of expectations for the second quarter, the numbers appear to have been guided lower. The guidance is now $1.05-1.15 per share after non-recurring items are excluded, and expectations appear to have been pegged at $1.12. The average of the range is below that $1.12. In what also could be the theme for this reporting quarter, the company added that this year will be one in which their "results will depend more on . . . execution than on global growth." Nevertheless, investors initially sent the stock higher, although the day's close was well beneath the 62.03 high of the day.

Deutsche Bank (DB, 43.85, up 1.58 or 3.74 percent) reported earnings of 1.71 euros per share with revenue of 9.4 billion euros. Expectations had been for $1.32 euros per share on revenue of 9.07 billion euros. The company announced plans to raise 2.8 billion euros in capital.

Embattled Herbalife (HLF, 38.75, up 0.48 or 1.25 percent) reported earnings after the close. The company has beaten both EPS and sales expectations for 16 quarters in a row. Analysts wondered if the company could add another quarter to that record, given the costs the company is incurring in defending itself against Bill Ackman's accusation that it's running a Ponzi scheme. The company reported earnings of $1.27 per share and revenue of $1.12 billion. The company had been expected to report $1.07 per share on revenue of $1.12 billion. The company raised its forecast for the 2013 year from the prior $4.45-$4.65 to $4.60-$4.80, but the new $1.14-$1.18 per share expectation for the second quarter was below expectations of $1.26.

Biogen (BIIB, 223.61, up 10.01 or 4.69 percent) reportedly benefited from strong sales of its new multiple sclerosis drug Tecfidera.

Moody's (MCO, 59.69, up 4.57 or 8.29 percent) and McGraw-Hill (MHP, 53.45, up 1.45 or 2.79 percent) settled a lawsuit filed by King County, Washington, Abu Dhabi Commercial Bank and twelve other plaintiffs. McGraw-Hill had extra incentive to settle: It reports tomorrow. The lawsuit alleged fraudulent credit ratings for structured investments in the period leading up to the financial crisis. The settlement allows the companies to avoid a trial. Don't we all think we should get part of that pie?

Let's look at daily charts for an overview. One thing we will find that's different in the last two weeks is that indices have begun producing big daily candles, indicative of increasing volatility. In addition, prices have begun whipping back and forth across twisting 9-ema's. The rally patterns are no longer clean. They're breaking apart. No firm conclusions can be made about what happens next until a new pattern--rally or decline--asserts itself. New upside breakouts need to be sustained, with pullbacks again bouncing from a rising 9-ema, before we can feel confident that the rally pattern has been renewed.

Charts

Those new to my Monday Wraps might find the following two paragraphs useful when interpreting my charts. Those who have read the Wraps can skip straight to the charts. I set up nested Keltner channels on my charts. It's a run-of-the-mill channeling system like the more familiar Bollinger Bands. As with those more familiar BB's, channel boundaries are often targets for upside or downside moves. They also mark levels where prices might find support or resistance on closes. When several channel lines converge, that potential resistance or support might appear stronger, just as it would if 20-, 50- and 100-sma's all converge in one spot.

For the benefit of subscribers, I mark potential upside and downside target/support/resistance levels with ovals, usually green for upside and red for downside. Orange ovals are sometimes used when the darker-colored ones would not allow for a clear examination of the next target. From now on, I will mention the nearest potential support or resistance level in the discussion on the chart, but not the further-out ones. They can be located on the charts if price breaks through the nearest levels on consistent daily closes. If an interpretation such as "support levels appear stronger than resistance, so up looks more likely than down" is possible, I'll tell you. Often we traders must be able to defend our trade against a move in either direction.

As with any type of potential support or resistance, those with profits should be protective of those profits as support or resistance is tested. If prices find support and climb, look to the next higher oval, even one just broken through, as potential resistance. Do the reverse when resistance is breached. Hopefully, this format provides you with the information you need without requiring all night to read as happens when I list each potential support or resistance level individually.

Annotated Daily Chart of the SPX:

Since April 4, the SPX has made two trips between 1540 support and 1595-1600 resistance. The increased volatility has also been evidenced by the large-bodied daily candles, much increased in size from those that preceded these more recent candles. While such a sharp increase in volatility often accompanies rounding or topping behaviors, all we know for certain is that the previous clean rally pattern has been broken. We really don't know much about next direction until the SPX sustains daily closes above about 1600 or below about 1540. Unfortunately, that large noisy range proves problematic for traders trying to manage positions such as calendars, iron condors and butterflies, trades that depend on prices staying within the 1.5-2.00 standard deviation that makes managing the trades possible.

The next zone of potential resistance on daily closes for the SPX spans from about 1595-1610. Therefore, upside breakouts above the 1597.35 previous swing high might find next resistance rather quickly. Remember this before you pile into long positions on a minimum breakout above that previous swing high. There was no breakout today. Both Keltner and historical resistance held.

In the past, we would have looked to the red 9-ema as potential support on any pullback, but the SPX has been chopping back and forth across that moving average for several weeks now. While bulls would like to see that former rally pattern reinstituted and that moving average again hold as support on daily closes during any pullbacks, we can't yet count on that happening. Stronger potential support lies in a range from about 1536-1554. Bulls want to see that support hold on daily closes, if tested.

Lower downside potential targets are marked in case that 1536-1554 zone should fail on sustained daily closes. If that should happen, traders should prepare for the possibility that a new declining pattern should assert itself. Be aware that, although the red 9-ema is often support on pullbacks in a rally pattern, declining patterns prove more volatile. Prices often roar up to the top of the gray channel, cutting right through the red 9-ema, before they roll down again.

Annotated Daily Chart of the Dow:

Hampered by BA, WMT, and VZ, the Dow Jones Industrials did not charge quite as close to its previous swing high as did the SPX. As happened with the SPX, Keltner resistance held. Further gains this week will find potential resistance in a range from about today's high up to about 14930, where I estimate that the upper boundary of the grey channel would be pushed on any continued gains. The Dow needs to sustain daily closes above that zone before we consider a breakout confirmed, at least in my opinion.

When the rally pattern was cleaner, we would have looked at the red 9-ema as potentially strong support on pullbacks, but the Dow's clean rally pattern has also broken apart. We unfortunately don't know much about next direction as long as daily closes remain below about 14930 and above about 14400, the bottom of the next strong potential support range.

Bulls of course would like to see a new rally pattern proclaim itself by continued bounces from a rising red 9-ema, but we can't count on that yet, given the volatility over the last few weeks. On declines, the pattern tends to be different, with prices more often zooming through the red 9-ema, all the way to the top of the grey channel, before turning lower again. That's what you'll prepare for if a declining pattern should confirm. Lower potential targets are marked in case the Dow should break through the 14400-ish potential support on daily closes.

Annotated Daily Chart of the NDX:

Today, the NDX charged up to a new recent high. "Recent" in this case means a new high not seen since November, 2000. Gains in AAPL and GOOG certainly helped, but AMZN's decline did not.

The NDX's gains brought the index up to the next potential resistance zone, extending from about 2875-2900, where I estimate that the upper boundary of the grey channel could be pushed on further gains. The 4/10-4/11 push into the same Keltner setup was followed by a sharp pullback, but bears should certainly prepare for the possibility that the NDX could break out of the tested resistance zone to the upside. If the NDX should sustain closes above about 2900-2905, the next potential upside target is marked on the chart.

The NDX's next potential support lies in the 2790-2820 range, but the NDX has been regularly crossing this Keltner setup on pullbacks. Stronger potential support lies at about 2737-2767, the "must hold" zone for bulls. Unfortunately, between the resistance zone mentioned and this potentially strong support zone, we really don't know much except that the NDX is still holding in the upper or bullish half of its Keltner channels, delineated by the green 120-ema.

Annotated Daily Chart of the RUT:

As has been true lately, the RUT lagged the other indices, not closely approaching its previous 954 high, nor even breaking above a descending trend line that can be drawn from its 954 high a few weeks ago. Technically, the RUT maintains a potential upside target in the 953.75-967 range, where next strong resistance can be presumed. However, the way the RUT has churned across its red 9-ema in recent weeks gives little confidence in new targets predicated on behavior with respect to the 9-ema.

Bulls need to see sustained daily closes above 954, at the least, before they feel that a breakout attempt has begun. Then would need to prepare for a potential pullback by 967, if not before.

When the rally pattern was cleaner, we would have watched the RUT's behavior with respect to the red 9-ema on pullbacks. Now we shouldn't have too much confidence that this support would kick in, given the recent more volatile behavior of the RUT. A potential support zone from about 887-902 looks stronger. This is a "must" support zone for bulls. Failure to find support on daily closes by the lower end of that zone sets up a much deeper potential downside target.

Like the other indices, the RUT's pattern on declines is somewhat different than that on rallies. While the RUT does sometimes find resistance at the 9-ema on declines, relief rallies are more volatile than tame pullbacks during rallies. They can carry prices all the way to the upper boundary of the grey channel before they roll down again.

Annotated Daily Chart of the Dow Jones Transports:

As is often true, the transports may give us some clues. This index has been pulling back in a channel that has the possibility of being a bull-flag type channel. It's a bit wider than the bulls would like to see and it's extended a bit too long in time, but the possibility still exists that the transports will break to the upside. Today the transports charged up to the top of that channel but found resistance there and did not closely approach the prior 6291.65 high. Be aware that the transports and RUT usually lead the charge. They're not usually followers, so the fact that they were taking the part of followers today with respect to previous highs alerts us to be careful of assumptions. BA's decline of course hit the transports, too.

Bulls want to see the transports break to the upside out of this channel. They do not want to see the transports roll down from the channel resistance test, and they especially don't want to see it break through the channel's declining support.

Tomorrow's Economic and Earnings Releases

This week's important economic events are carried forward from Jim Brown's weekend Wrap. I did note that China's HSBC Manufacturing PMI had been appended to Monday's original listing on that weekend chart, but that date might have changed. Two other sources say that the final reading will not be reported until Wednesday night at 9:45 pm ET. It should be noted that China is on a bank holiday tonight, so if that number should be released tonight, we will not be able to see the reaction of their stock market, at least.

What about Tomorrow?

I've switched to 15-minute charts for this view today.

Annotated 15-Minute Chart of the SPX:

The SPX ran up and hit upper resistance on 15-minute closes, then retreated slightly into the close. That close set up the potential for the SPX to pull back toward 1590 and then toward 1585 if the 1590 level did not hold. However, all it takes tomorrow morning is a small rise above the 1594 level, sustained through a couple of 15-minute closes, to undo those potential downside targets. On a short-term basis, the SPX has tended to find support on 15-minute closes at the 9-ema and resistance there on declines, so behavior in accordance with that 9-ema may be watched for further guidance if the SPX should charge higher rather than retreat.

Annotated 15-Minute Chart of the Dow:

Similarly, the Dow charged up to the highest Keltner boundary shown here and pulled back to set a new potential downside target. That target is near 14779 but likely would be closer to 14775 before it could be tested for support. If the Dow does continue to pull back and fails to hold 14775 support through 15-minute closes, the next potential support might be found near 14730-14735. A failure to hold support there on sustained 15-minute closes sets the lowest marked target.

If the Dow instead breaks higher tomorrow morning, potential resistance levels are marked. On these 15-minute charts, the Dow has tended to find support on 15-minute closes at the 9-ema on rallying periods and resistance there on declines, so the behavior of the Dow with respect to that moving average can be watched if the Dow instead breaks higher tomorrow morning.

Annotated 15-Minute Chart of the NDX:

As was true of all the indices shown, the NDX charged up to upper Keltner resistance on this chart. That action pushed the defining channel line higher this morning, and the NDX retested it at its higher level in the afternoon, producing that new high. By the close, the NDX had retreated, setting a new short-term downside target near 2860-2962. The next target lies at about 2842-2851, if support isn't found at the first target. A lower potential target is also marked.

As with the other indices, the NDX could easily jump up a few points tomorrow morning and undo that downside target. This could be accomplished by a couple of 15-minute closes above the 9-ema, now at about 2871 but likely a couple of points higher if the NDX gains first thing tomorrow morning. Like the other indices, prices have tended to bounce up from the 9-ema on rallying periods and have found resistance at that average on declining periods. Therefore, a breakout above the 2880-ish highest resistance could be watched for sustainability by watching behavior related to the 9-ema.

Annotated 15-Minute Chart of the Russell 2000:

As is often true of the RUT, this index slightly overran highest resistance on this short-term chart this morning but it never truly pulled free of this resistance. It was as if this index had its feet mired in mud, if I can be allowed a little anthropomorphism. The RUT also retreated by the end of the day, tentatively setting a new short-term downside target near 940. However, that setting of that downside target was so tentative that it can't entirely be trusted. If the RUT does decline tomorrow morning and if support near 940 does not hold, the next potential downside targets are marked.

If the RUT should jump higher tomorrow morning, the last swing high at 944.67 awaits as potential resistance. The 15-minute 9-ema has also served as support on most 15-minute closes during short-term rallies and resistance on 15-minute closes during short-term declines. Therefore, it can be watched to gauge sustainability of any move.

What have we seen today? In many indices, we've seen strong gains that either closely challenged or exceeded the last swing highs. However, those charges were similar to the last wide swings indices have made between strongest resistance and strongest support, and Keltner resistance held in most. Without sustained breakouts to the upside, we don't know anything except that these indices are repeating behavior performed twice in the last few weeks. Moreover, the RUT and the $DJT, usually the leaders in either direction, were not among the indices that most closely challenged--or in the NDX's case, exceeded--prior highs.

After this weekend's chart studies, I had expected to feel a bit more positive about the market's upside potential than I feel today, especially with the gains we saw on global bourses. What I'm left with today is the possibility, due to the RUT's and $DJT's behavior along with the low volume and similar percentage gains on so many indices, that we may in fact be seeing some window dressing. The strong gains must be acknowledged, but they also must be compared to the prior recent swing up into these same zones. Are we certain of carry-through action past tomorrow? I was left uncertain.

Arguing against those lingering doubts were the strong advancers/decliners and up volume/down volume comparisons. I'm certainly not completely out of the market, but I did not size up again this month, as I intended, and I most certainly took advantage of the low implied volatilities to add a cheap Armageddon put when I entered my monthly trade last week.

If I'm uncertain, so is Pimco Chief Executive Mohamed El-Erian. Speaking at the Milken Institute Global Conference in Los Angeles, he pegged the odds of the Fed's program working at 50/50.


New Option Plays

Rolling Over

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Wyndham Worldwide Corp. - WYN - close: 60.48 change: -0.78

Stop Loss: 61.55
Target(s): 56.00
Current Option Gain/Loss: Unopened
Time Frame: 2 to 3 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
It looks like the rally in WYN has run out of gas. This company operates in the lodging industry. They operate hotels and a large number of time-share (vacation ownership) locations. With the U.S. and global economy appearing to slow down it could put pressure on consumers and any consumer discretionary spending.

WYN had a nice rally from its November lows near $48 to $65. Unfortunately the stock has failed near $65 multiple times now and it has broken down through several key moving averages. Now WYN is about to breakdown under the $60.00 mark.

I am suggesting a trigger to buy puts at $59.75. If triggered our target is $56.00. Nimble traders could aim for the simple or exponential 200-dma instead.

FYI: The Point & Figure chart for WYN is bearish with a $54 target.

Trigger @ 59.75

- Suggested Positions -

buy the May $60 PUT (WYN1318Q60) current ask $1.15

Annotated Chart:

Entry on April -- at $---.--
Average Daily Volume = 1.4 million
Listed on April 29 2013



In Play Updates and Reviews

Moment of Truth

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 index has rallied toward its early April highs and resistance near 1600. Will it breakout or will it reverse?

We closed our AMT trade today.
STMP was triggered.


Current Portfolio:


CALL Play Updates

Conns Inc. - CONN - close: 43.56 change: -0.79

Stop Loss: 43.45
Target(s): 49.50
Current Option Gain/Loss: -48.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/29/13: Our CONN trade may not be long for this world. The stock failed at resistance near $45.00 again this morning and proceeded to fall to a -1.78% decline. The intraday low was $43.46. Our stop loss just happens to be $43.45. Odds are pretty high we are going to see CONN hit our stop tomorrow. I am not suggesting new positions.

Earlier Comments:
CONN has a high amount of short interest and a small float. A breakout past resistance could spark another short squeeze.

- Suggested Positions -

Long May $45 call (CONN1318E45) open $1.95

04/29/13 CONN is underperforming and looks poised to hit our stop loss tomorrow

Entry on April 25 at $45.10
Average Daily Volume = 758 thousand
Listed on April 24 2013


Gilead Sciences - GILD - close: 51.09 change: -0.29

Stop Loss: 49.95
Target(s): 56.50
Current Option Gain/Loss: -40.7%
Time Frame: Exit PRIOR to earnings on May 2nd
New Positions: see below

Comments:
04/29/13: I am surprised that shares of GILD were not weaker today. It was disclosed that the FDA has sent GILD a rejection letter for two potential HIV treatments. The two drugs are already part of a four-in-one pill treatment but GILD wants to market them separately. The FDA is asking for more information before they can approve it.

Meanwhile shares of GILD drifted lower and look poised to test support near $50.00 again. We only have a couple of days left and readers may want to exit early now.

I am suggesting we exit our GILD positions on May 1st, at the closing bell, assuming shares don't hit our stop loss first.

Earlier Comments:
I do consider this a more aggressive entry point.

- Suggested Positions -

Long May $52.50 call (GILD1318e52.5) entry $1.94

04/29/13 prepare to exit on May 1st, at the close
04/27/13 new stop loss @ 49.95
Prepare to exit on April 30th at the closing bell

Entry on April 15 at $52.25
Average Daily Volume = 11.7 million
Listed on April 13 2013


L Brands, Inc. - LTD - close: 49.94 change: -0.55

Stop Loss: 49.40
Target(s): 54.50
Current Option Gain/Loss: Unopened
Time Frame: Exit PRIOR to earnings in mid-May
New Positions: Yes, see below

Comments:
04/29/13: There was no follow through on last week's rally in LTD today. Shares pulled back with a -1.0% decline, underperforming the broader market and the XRT retail ETF. Technically today's session has created a bearish engulfing candlestick reversal pattern.

At the moment I am suggesting a trigger to buy calls at $50.85. If triggered our target is $54.50 but we do not want to hold over the mid-May earnings report. This trade may only last a couple of weeks. FYI: The Point & Figure chart for LTD is bullish with a $68 target.

Trigger @ 50.85

- Suggested Positions -

buy the Jun $50 call (LTD1322F50)

Entry on April -- at $---.--
Average Daily Volume = 2.7 million
Listed on April 27 2013


Ross Stores - ROST - close: 65.72 change: +0.60

Stop Loss: 63.45
Target(s): 69.00
Current Option Gain/Loss: + 3.2%
Time Frame: exit prior to earnings in late May
New Positions: see below

Comments:
04/29/13: ROST managed to keep the rally going and added another +0.9% on Monday. Shares might be considered very short-term overbought. Do not be surprised to see a dip back toward the $65-64 area.

- Suggested Positions -

Long Jun $67.50 call (ROST1322F67.5) entry $1.55

Entry on April 26 at $65.25
Average Daily Volume = 2.3 million
Listed on April 25 2013


PUT Play Updates

Atlas Air Worldwide - AAWW - close: 37.65 change: -1.06

Stop Loss: 39.25
Target(s): 33.50
Current Option Gain/Loss: -29.4%
Time Frame: exit PRIOR to earnings on May 2nd
New Positions: see below

Comments:
04/29/13: AAWW tried to rally this morning but traders sold into strength and shares pared their gains. AAWW looks poised to break down further but we're running out of time. The company is scheduled to report earnings on May 2nd, before the opening bell. I am suggesting we plan on closing positions on April 30th (Tuesday) at the closing bell. I am not suggesting new positions at this time.

- Suggested Positions -

Long May $37.50 PUT (AAWW1318Q37.5) entry $1.70

04/27/13 only a couple of days left!
prepare to exit on April 30th at the closing bell
04/24/13 new stop loss @ 39.25

Entry on April 17 at $38.00
Average Daily Volume = 262 thousand
Listed on April 16 2013


Agrium Inc. - AGU - close: 92.91 change: +1.78

Stop Loss: 92.05
Target(s): 85.25
Current Option Gain/Loss: Unopened
Time Frame: Exit prior to earnings on May 9th
New Positions: Yes, see below

Comments:
04/29/13: Nearly all of the agricultural chemical stocks were up today. AGU continues to lag behind its peers but we may need to abandon any short-term bearish plans on the stock. If AGU can produce any follow through on today's bounce we'll likely drop it.

Earlier Comments:
I am suggesting a trigger to buy AGU puts at $89.75. If triggered our target is $85.25. More aggressive traders could certainly aim lower. The Point & Figure chart for AGU is bearish with an $82 target.

NOTE: AGU could see some volatility when investors react to earnings from its rivals. POT is due to report earnings on April 25th. CF reports in early May.

Trigger @ 89.75

- Suggested Positions -

buy the May $90 PUT (AGU1318Q90)

Entry on April -- at $---.--
Average Daily Volume = 1.5 million
Listed on April 23 2013


S&P500 ETF - SPY - close: 159.30 change: +1.06

Stop Loss: 160.50
Target(s): 150.25
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
04/29/13: This is it! The moment of truth. Does the S&P 500 (and the SPY) breakout past their all-time highs set two weeks ago? Or does the market reverse and form a bearish double top?

We are adjusting our entry point to buy puts on the SPY from $157.00 to $157.50. If triggered our stop remains $160.50. The target is $150.25.

Earlier Comments:
This is a much more aggressive entry point since the S&P 500's trend is still higher. Traders will want to strongly consider limiting your position size to reduce your exposure.

Trigger @ 157.50

- Suggested Positions -

buy the May $155 PUT (SPY1318Q155)

04/29/13 adjust entry trigger to $157.50
04/23/13 adjust strategy: new trigger @ $157.00,
new stop loss @ 160.50, new target @ 150.25
adjust option strike to 2013 May $155 put

Entry on April -- at $---.--
Average Daily Volume = 130 million
Listed on April 18 2013


Stamps.com Inc. - STMP - close: 33.02 change: -0.12

Stop Loss: 34.05
Target(s): 30.00
Current Option Gain/Loss: -11.3%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
04/29/13: Our new trade on STMP has been triggered at $32.50. Shares spiked lower at the open but spent most of the day drifting higher before paring gains in the last couple of hours. We have a stop loss at $34.05. More conservative traders could use a stop closer to Friday's high.

This is a higher-risk, aggressive trade that STMP will see some profit taking after its +41% rally in four days. We want to keep our position size small to limit risk.

*Small Positions* - Suggested Positions -

Long May $35 PUT (STMP1318Q35) entry $2.65

04/29/13 triggered.

Entry on April 29 at $32.50
Average Daily Volume = 235 thousand
Listed on April 27 2013


VMware, Inc. - VMW - close: 71.24 change: -0.22

Stop Loss: 72.85
Target(s): 62.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
04/29/13: VMW continues to underperform the broader market. I don't see any changes from my weekend comments.

I am suggesting a trigger to buy puts at $69.75. If triggered our target is $62.50. More aggressive traders could aim lower. The Point & Figure chart for VMW is bearish with a $42 target.

Trigger @ 69.75

- Suggested Positions -

buy the Jun $67.50 PUT (VMW1322R67.5) current ask $2.20

Entry on April -- at $---.--
Average Daily Volume = 2.5 million
Listed on April 27 2013



Longer-Term Play Updates



Chicago Bridge & Iron Co. - CBI - close: 52.89 change: -0.39

Stop Loss: 49.25
Target(s): 62.50
Current Option Gain/Loss: July's: + 0.0% or Jan's: -1.7%
Time Frame: 3 to 4 months
New Positions: see below

Comments:
04/29/13: Remember, I am expecting this to be a volatile week both before and after CBI reports earnings on May 2nd, after the closing bell. Today is looks like CBI is retreating from short-term resistance at the $54.00 level.

Please review our original play description on this page here.

- Suggested Positions -

Long 2013 Jul $55 call (CBI1320G55) Entry $2.20*

- or -

Long 2014 Jan $60 call (CBI1418A60) Entry $2.90*

*option entry price is an estimate since the option did not trade at the time our play opened.

Entry on April 22 at $51.53
Average Daily Volume = 2.5 million
Listed on April 20 2013


CLOSED BULLISH PLAYS

American Tower Corp. - AMT - close: 83.04 change: +0.07

Stop Loss: 80.95
Target(s): 84.50
Current Option Gain/Loss: + 60.9%
Time Frame: Exit prior to earnings on May 1st
New Positions: see below

Comments:
04/29/13: Monday was a quiet session for AMT. The stock churned sideways and posted a minor bounce after Friday's pullback. Our plan was to exit positions at the closing bell to avoid holding over the earnings report.

- Suggested Positions -

May$80 call (AMT1318E80) entry $2.05 exit $3.30 (+60.9%)

04/29/13 scheduled exit at the close
04/27/13 new stop loss @ 80.95, new target at $84.50
prepare to exit on Monday, April 29th, at the closing bell
04/25/13 new stop loss @ 80.40, readers may want to exit now since our option has doubled (+100%).

chart:

Entry on April 11 at $80.25
Average Daily Volume = 2.2 million
Listed on April 09 2013