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Daily Newsletter, Monday, 4/14/2014

Table of Contents

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

Market Wrap

It was time.

by Linda Piazza

Click here to email Linda Piazza
Market Internals

Introduction

Today, it was time for a relief rally despite building tensions in the Ukraine. Some market participants will also point Citigroup's beat on earnings-per-share and the broad-based gains in March's retail sales as the impetus for the gains. Those two events certainly helped prime the futures for a move higher. However, it was time for a relief rally, and some of the recently beaten-down momentum stocks such as biotechs and techs produced early gains. Now we have to determine if today's move was anything more than a relief rally.

During the overnight session, heightened tensions in the Ukraine added to the anxiety that kept overseas financial markets on tenterhooks. In the last few days, pro-Russian activists seized more buildings in Ukrainian cities. Russia claims that these activists are Ukrainian citizens in favor of annexation by Russia. Western governments claim that many were well-armed Russian special forces in unmarked uniforms.

U.S. and Russian envoys clashed at a special session of the UN's Security Council. The Ukrainian government warned activists and/or rebels that they could expect a full-scale security operation to be employed against them if they did not disperse. The deadline passed. By the middle of our trading day, news sources reported that the Ukrainian army had fired at the pro-Russian activists.

Today, U.S. Treasury Secretary Jacob Lew noted that all G-7 members support increasing sanctions against Russia. The remarks were made as the U.S. signed a $1 billion loan guarantee to the Ukraine. Jim Brown has detailed some of the financial impacts on the Ukraine due to the standoff.

Meanwhile, Russian President Vladimir Putin expressed his concern about the Ukrainian situation. As we learned today, a Russian attack warplane spent about 90 minutes on Saturday flying low over the USS Donald Cook, a guided missile destroyer positioned in the western Black Sea. The pilot did not respond when the crew radioed warnings and asked the pilot's intentions.

Despite a late-afternoon swoon that threatened the day's gains, the SPX managed a gain of 0.82 percent; the Dow, 0.91 percent; and the NDX, 0.81 percent. The RUT gained 0.35 percent, and the SOX, 0.83 percent. In the afternoon swoon, the RUT sank below Friday's low before bouncing off that low.

Goldman Sachs maintains its year-end $1,050/ounce price target for gold, the firm said today. Gold futures (/GC)for June delivery settled at 1,327.50, up 8.5 points. Silver futures (/SI) for May delivery settled at 20.010, up 0.064 points. Copper futures (/HG) for May delivery settled at 3.0475, up 0.0060 points. Light sweet crude futures (/CL) for May delivery settled at 104.05, up 0.31.

Monday's Developments

Attendees at the IMF meetings this weekend expressed disappointment with the U.S. delay in ratifying the 2010 agreement. That agreement would give emerging markets more power, among other changes. In the U.S., some Republican lawmakers oppose the changes because of the possible additional funds needed to support those emerging markets. Others in the U.S. question what they consider a penny-wise-pound-foolish stance of the U.S.

With all these pressures being asserted, several Asian bourses chopped either side of the flat-line level last night. The Nikkei 225 was one that spent some time in positive territory, but, at the end of the day, it had lost 0.36 percent. The Hang Seng gained 0.15 percent, and the Straits Times, 0.52 percent. China's Shanghai Composite percent gained 0.05, but it had spent most of the trading day in negative territory. A buying surge at the close brought it into positive territory.

This morning, the Eurozone's Industrial Production fell below expectations, but the prior result was revised slightly higher. In other news in Europe, the EU plans to push through a series of reforms this week before the European Parliament disbands before the May elections. Those rules include European Central Bank supervision of top lenders in the Eurozone, beginning in November. Guidelines also include those under which banks will be allowed to fail and more regulation of commodity trading and high-frequency trading.

European bourses struggled this morning but rose off their lows after our retail sales report and Citigroup's earnings report pushed up our futures. The FTSE 100 gained 0.34 percent; the DAX, 0.26 percent; and the CAC 40, 0.43 percent. Spain's IBEX 35 couldn't make it all the way into positive territory, however, and closed down 0.17 percent. Italy's FTSE MIB closed higher by 0.55 percent.

The U.S. calendar for the day began with March Retail Sales. The U.S. Census Bureau reported that March's retail and core retail sales rose 1.1 and 0.7 percent, respectively, beating expectations. The core number excludes automobile sales. Experts had predicted a gain of 0.8 percent in the headline number and 0.5 percent in the core number. Moreover, the gain in the prior retail sales figure was revised higher to 0.7 percent, up from the previous 0.3 percent.

This jump in the headline retail sales was the sharpest rise in the since September 2012. Sales at general merchandise and department stores rose the most since March 2007. Moreover, gains proved broad-based, showing up in ten out of thirteen major categories. This broad-based result validates the conclusion that the dip seen early in the year was temporary, at least in part due to the brutal weather.

The Census Bureau also reported February's Business Inventories. Inventories rose 0.4 percent, slightly below the expected 0.5 percent gain and in line with January's 0.4 percent gain. The ratio of inventory to sales remained stable at 1.31.

Moody's weekly Business Confidence sank to 34.4 from last week's 35.5. Moody's still believes business sentiment is "sturdy" and "steadfastly strong." However, the firm did note that the assessment by businesses of current conditions had softened in recent weeks. Moody's pointed out that hiring intentions have improved.

In March, survey respondents told the Federal Reserve Bank of New York that they were more confident about job prospects, the bank reported. Respondents thought they were about 48.95 percent likely to find a new job if they lost their current job, up from the prior month's 46.1 percent. Younger workers were particularly optimistic, the bank reported. The survey was a national one, not a regional one.

The CBO updated its budget projections for 2014-2024, saying the updated figures project $23 billion less in deficits for fiscal 2014 than the prior estimate. The deficit has fallen as a percentage of GDP for the fifth year in a row. At a projected $492 billion if current laws concerning federal taxes and spending do not change, the fiscal year 2014's deficit is 2.8 percent of the GDP and well below the 9.8 percent in 2009 as the nation dealt with the recession.

In addition, the CBO said that the "projected cumulative deficit from 2015 through 2024 is $286 billion less" than its previous estimate. This was true even though revenues are also less than previously estimated for that period. Projected outlays dropped more due to lower-than-projected subsidies related to the Affordable Care Act and other reductions in projected costs. The CBO said that the overall impact of the ACA will be to reduce deficits. However, the agency said that unless current laws are changed, the deficit would grow again after 2015. Moreover, the agency expects percentage of debt held by the public to increase.

Companies reporting earnings today included Citigroup (C, 47.67, up 1.99 or 4.36 percent), expected to earn $1.14 per share according to FactSet and $1.18 per share according to Zacks Investment research. C beat both forecasts, reporting earnings of $1.23 a share on revenue of $20.12 billion, and adjusted earnings of $1.30 a share. The year-ago EPS was $1.29 per share. Analysts had predicted $19.37-19.47 billion in revenue for the quarter, down from the $20.5 billion reported a year ago. No guidance was offered for the next quarter.

Cost-cutting measures and lower losses on credit cards are partly responsible for the beat, some experts concluded. The bank also revealed that it will close about a third of its Korean consumer banks. The CEO characterized the quarter as difficult but mentioned strong performances in both consumer and institutional businesses. However, the report reveal lower financing activity and a decline in the bank's fixed income group, some experts said. Experts will also be parsing the reports for information about Citi Holdings, Citigroup's "bad bank." Citigroup has resolutely reduced the percentage of assets the entity represents, reducing any negative impact from Citi Holdings.

J.B. Hunt didn't have such good news. J.B. Hunt (JBHT, 74.29, up 2.78 or 3.89 percent) reported earnings of $0.58 per share. Zacks Investment Research predicted earnings of $0.63 per share, and other sources expected $0.61 per share. Year-ago earnings were $0.61 per share. Revenues were in line with consensus at $1.4 billion. Winter storms appeared to have hurt load growth in the Intermodel unit but helped the Integrated Capacity Solutions unit because it created a tighter trucking market for that unit.

Kinder Morgan Inc. (KMI, 32.44, up 0.15 or 0.46 percent) had been listed as reporting today, but today it announced its Kinder Morgan First Quarter Results Webcast for April 16 at 3:30 pm CT. Zacks Investment Research forecasts earnings of $0.36 per share, with year-ago earnings at $0.28 per share.

Google (GOOG, 532.52, up 1.92 or 0.36 percent) said today that it would buy Titan Aerospace. The company manufactures solar-powered drones. Titan Aerospace was courted by Facebook for a while before FB bought a different manufacturer of solar-powered drones.

Kraft (KRFT, 56.21, up 0.57 or 1.02 percent) introduced a new image campaign for its Maxwell House division.

T-Mobile US Inc. (TMUS, 29.74, down 0.27, 0.90 percent) said today that it will not charge its customers overage penalties. Calling the practice greedy and predatory, the CEO said Verizon, Sprint and AT&T should stop charging those penalties, too. Of course, T-Mobile recently raised the price of its unlimited wireless data plan by $10.00 a month.

JA Solar Holdings Co. (JASO, 10.05, up 0.73 or 7.83 percent) said it will ship more solar cells and modules in the first quarter than previously expected. Those shipments will be more than 620 megawatts with the previous expectations set at 580-610 megawatts. Meanwhile, Trina Solar Limited (TSL, 10.85, down 0.71 or 6.14 percent) guided forecasts for first-quarter sales lower, to 540-470 megawatts from the prior expectation of 670-700 megawatts. TSL said full-year estimates remain the same, but this quarter's sales are impacted by a pending agreement on import prices in the EU. TSL said demand remained strong in Europe.

Herbalife (HLF, 53.75, up 2.27 or 4.41 percent) was also back in the news due to rumored investigations by the FBI and Department of Justice. The company said it has no knowledge of either investigation.

Mondays tend to be days when pharmaceutical or medical device companies report results. Unless you're knowledgeable about how drug trials or device patent concerns can impact such companies, and maybe even if you do, these stocks can take you on a wild ride. Research carefully before trading any of these. Today, pharmaceutical company AbbVie (ABBV, 46.83, up 0.37 or 0.80 percent) reported results of a hepatitis C development program. Lexicon Pharma (LXRX, 1.55, down 0.04 or 2.52 percent) reported results in a Phase 2 clinical trial of a type 1 diabetes drug. Edwards Lifesciences (EW, 81.00, up 8.03 or 11.00 percent) has been granted a preliminary injunction that would limit the U.S. sales of Medtronic's (MDT, 58.08, down 1.12 or 1.89 percent) CoreValve system.

Let's look at daily charts.

Charts

Those new to my Monday Wraps might find the following 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 rectangles, usually green for upside and red for downside. Orange rectangles 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 rectangle, 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.

Legend for Keltner Channels and Moving Averages:

This legend references the SPX chart that follows, but all charts are set up employing the same Keltner levels. This legend's colors, etc., can be referenced for all charts.

Annotated Daily Chart of the SPX:

The Keltner configuration that now spans from about 1,790-1,812 has proven important in the SPX's trading pattern for more than a year. Tests of this configuration have produced bounces during that time. On retests of that support, most daily closes have been above that configuration with a few exceptions, and bounces have followed the retests. The SPX's responsiveness to this configuration extends back longer than the nine months depicted here, but the chart loses clarity on publication when extended back any further.

Therefore, consistent daily closes beneath this configuration currently from about 1,790-1,812 would mark a change in the long-term tenor of the SPX. Until the SPX produces consistent daily closes beneath that configuration or one daily close significantly below it, however, the SPX continues a long-term pattern that it has employed through a long climb. The drop toward this retest has undoubtedly been painful, but the SPX has not yet broken its long-term pattern.

We will see that some major indices have broken similar patterns, however, warning us that the SPX could break through, too. Those who hope for more stability in the markets would prefer that the SPX bounce hard with prices soon sustaining levels back above the red 9-ema, likely to be located near 1,854 by the time it could be tested. They want to see consistent daily closes first above about 1,854 and then last week's high and then the recently reached 1,897.28 intraday high.

For now, however, with what we will soon see from other indices, market participants need to be on the watch for rollover potential on any bounces. We don't know for sure whether the SPX will continue its long-term pattern or fall through that long-term support as other indices have done. Watch out for potential rollovers on bounces to about 1,840-1,854, about 1,869-1,886, and about 1,893-1,911.

In the event that the SPX does lose the potential support on daily closes that currently extends down to about 1,790, the Keltner setup suggests that such action will set a new potential downside target of 1,690-1,710. A ten percent drop off the 1,897.28 high is within that target range, at 1,707.55. The completion of a 10-percent drop within that Keltner target should provide a strong incentive for dip-buyers to step in if the SPX should drop that far.

Only the most rabid bear or would-be dip buyer wants the SPX to drop that far, of course. Interim historical support exists before a drop of that degree, with that interim support near 1,775 and 1,740-1,750. I have seen indices drop straight to seemingly impossible lower Keltner targets, but if a drop of that caliber occurs, the RUT and NDX will reach 10 percent drops far sooner than the SPX. Bounces might occur when those indices hit 10 percent drops and the SPX might be carried higher, too, especially if the SPX is hitting something like that 1,775 level that we all memorized so well on the way up.

What's the bottom line? Sustained daily closes beneath about 1,790 would change the long-term tenor of the SPX's behavior. Even without that confirmation, be watchful of rollover potential on any bounces.

Annotated Daily Chart of the Dow:

Although that same Keltner support configuration mentioned in the SPX discussion once was important long-term support on daily closes for the Dow, too, the Dow has lately more often broken through the support of the green 120-ema and shoved the other (purple) Keltner boundary lower before bouncing. In early February, the Dow even produced a few daily closes well below the purple channel's lower boundary before the Dow bounced. Some of the Dow's component stocks have lately proven more volatile than we imagine that staid old index to be, so the Dow's boundaries have not been as reliable as benchmarks as they once were.

Therefore, we probably can't consider the Dow as having broken that long-term pattern until it produces consistent daily closes below about 15,675 and perhaps not until those closes are consistently below 15,600. Unfortunately, we can all see the early February swing low just below that, too, waiting to lend its support near 15,400.

It's obviously going to be difficult to predict when the Dow has broken through the most important support. Clearly, sustained daily closes beneath 15,400 confirm the breakdown, confirming a double-top formation. The next potential Keltner target below that is down at about 14,940-15,060.

Before the Dow confirms that double top on the daily chart and sets that potential lower target near 15,000, it has potential support on daily closes at about 15,920-16,020 and 15,680-15,800 and 15,600. Many bulls will have been glad to see today's bounce occur from the highest of those potential support zones.

Bulls should remain cautious, however. The chart is troublesome enough that market participants should watch for rollover potential at each successive potential Keltner or historical resistance zone. Potential resistance on daily closes could occur at 16,200-16,300, 16,400-16,430, and 16,520-16,630, for example. The Keltner setup suggests that even with sustained daily closes above the recent all-time intraday high of 16,631.63, the Dow would soon face potential resistance extending up to about 16,800. However, surprised shorts and pleased-as-punch bulls might breeze right up toward 17,000 if that double-top formation is exceeded.

Bottom line: Be careful about pinning too many hopes on the Dow exceeding its recent double-top formation to the upside. It could happen. Many of us were certainly fearful of downside potential when the Dow was printing its early February lows. For now, however, watch for rollover potential on any bounces.

Annotated Daily Chart of the NDX:

By Friday, the NDX had tested the same important Keltner configuration noted on the other charts, even pushing one of the channel lines lower. Is that configuration as important for the NDX as for other indices, given the NDX's different behavior with respect to moving averages?

In February, the NDX dipped to test the same important Keltner configuration, bounding upward again after that test was completed, validating its importance. The last test before that had been in June, 2013, when the NDX also pushed one Keltner boundary lower before rebounding again. Clearly, it has some relevance, but its test in late 2012 saw the NDX overrun the configuration before it rebounded, so, like the Dow, it might be difficult to determine where the break will occur if only Keltner channels are utilized. Fortunately, we have historical support to watch, too.

Historical and potential Keltner support on daily closes all converge from about 3,400-3,447, and we saw today's bounce begin after Friday's test of that region.

Therefore, sustained closes beneath about 3,400 must be considered a potentially valid benchmark. Sustained closes beneath about 3,400, with an emphasis on "about," set a potential downside target of 3,185-3,227.

Keep in mind another important number between 3,400 and that next Keltner target: 3,364.49 represents a ten-percent drop off the 3,738.32 intraday high produced on 3/6. Therefore, if the NDX sustains daily closes beneath about 3,400, be prepared for the possibility that the decline could be stopped near that 3,364.49 level or at least by the historical and round-number support at about 3,300-3,330. If the markets are in free fall, all bets are off, however.

What happens if the NDX continues its bounce right now? Because of the conditions of the markets and the season, market participants should be wary of rollover potential as next upside targets are approached, with those targets at 3,510-3,555, 3,600-3,645, and of course from 3,700-3,740.

Bottom line: The NDX bounced where it needed to bounce in order to avoid changing its long-term tenor, but that bounce still looks tenuous for now. As with other indices, watch for rollover potential at potential resistance levels.

Annotated Daily Chart of the RUT:

By last Friday, the RUT had also fallen to test the important Keltner configuration that has marked long-term support for the RUT on most daily closes. The RUT's quick drop pushed one of those boundary lines lower, weakening the potential support. Sustained daily closes beneath about 1,090 would set a potential Keltner downside target near 1,040. However, that 1,090 level is important for another reason: 1,091.54 represents a ten-percent drop off the 1,212.82 intraday high reached on March 4. On any decline, the RUT could get to that 10-percent drop quite quickly, and then we'll see if dip buyers are ready to step in.

If the RUT does barrel through that 1,090 level on daily closes, there's another barrier or two to be broken through before the Keltner target can be approached. Those barriers include the February swing low near 1,080 and potential historical support near 1,060. As has been mentioned, I've seen these seemingly impossible Keltner downside targets achieved in a quick move, so I don't ignore them. However, neither would I suggest ignoring the close convergence of the figure representing ten-percent drop of the intraday high as well as round-number and historical support near 1,090-1,100 and then near 1,080 and 1,060, too.

If the RUT continues to bounce off today's low, market participants should now be aware of rollover potential as each upside potential target is reached. The closest are currently located just ahead at 1,120 and then at about 1,136-1,150 and 1,159-1,175. Two others are marked on the chart, but they may be shoved considerably higher by a sharp rally that drives up through the lower levels mentioned.

Annotated Daily Chart of the RVX, the RUT's Volatility Index:

As of Friday, the RVX had hit the upper boundary of a Keltner channel that contains most RVX values. Although the RVX can and does exceed this boundary on daily closes, such incursions up through the upper boundary on daily closes often mark the end of a RUT decline if the decline is of the garden variety we've seen over the last couple of years. Therefore, bears should be watchful of bounce potential in the RUT if the RVX turns down from the purple channel's upper boundary or from an incursion up through that boundary, but no one should count on such a move. We don't know yet if this drop is a garden-variety drop of the type seen in the last few years.

The VIX setup is similar, but the relevant Keltner channel boundary for the VIX is now set at about 18.79-19 percent for the VIX. The VIX ended the day at 16.11.

Tomorrow's Economic and Earnings Releases

This week's important economic events are carried forward from Jim Brown's weekend Wrap.

In the wee hours of the morning tomorrow morning, Germany's important ZEW Economic Sentiment is expected to dip to 46.3 from the prior 46.6. The Eurozone's CPI will also be released, but Germany's often draws more attention.

Companies reporting earnings tomorrow include SCHW (BMO), CSX (AMC), IBKR (AMC), INFY, INTC (AMC), JNJ (BMO), KO (BMO), LLTC (AMC), WWW, and YHOO (AMC). With Alibaba planning an IPO, YHOO's earnings will be much watched.

What about Tomorrow?

When prices are moving as big as they have been recently, we cannot attach too much importance to these intraday charts and the levels of possible support and resistance they might offer. I have as usual marked levels of potential support and resistance, levels that will offer potential next targets as previous ones are exceeded, but we can't expect those possible S/R levels to be the benchmarks that they might be in a calmer market. In addition, a big move at the open will scramble all those markers anyway. I will leave the potential S/R levels marked with rectangles, but tonight I will discuss generalities about what bulls or bears may hope to see.

Annotated 30-Minute Chart of the SPX:

The SPX, like many other indices, had begun producing a potential potential inverse (or reverse) head-and-shoulders formation since Friday, with the Friday morning low forming one shoulder, the Friday afternoon low forming the head, and this afternoon's early drop appearing to be forming the other shoulder. Then prices fell harder than would normally be anticipated during one 30-minute period. Is that still a viable formation? The 30-minute close during the period that brought the severe drop was at the appropriate shoulder level. I tend to watch closes more than intra-period moves. Still, this one is iffy, isn't it?

While I don't believe that these formations are as helpful as they once were and particularly not in these kinds of market conditions, let's imagine that this one was not negated by that one quick drop and reversal this afternoon and that the inverse or reverse head-and-shoulders formation means something. If that were true, what would we need to see to have the potential short-term bullishness confirmed? If the SPX is strengthening and would-be dip-buyers growing more bold, 30-minute closes should hold above or only slightly below the level of the Friday morning right shoulder and then climb from there. They should then exceed last Tuesday's low near 1,837 and maintain 30-minute closes above that.

On this index and most others, 30-minute closes above last Tuesday's lows would mark an early sign that the short-term tenor might be changing. If that happens and the SPX builds on the gains, watch for rollover potential as the green 120-ema is approached. The next level to watch is last Thursday's early morning high of 1,872.53. Unless market sentiment is particularly strong or shorts particularly scared, I would expect a pullback attempt as that Thursday morning high is approached, somewhere near 1,870-1,875.

What happens if the SPX rolls over and falls through that right shoulder and produces 30-minute closes beneath it? Watch for a possible double-bottom formation. If the SPX doesn't fall much below Friday's low on 30-minute closes and soon rebounds, bulls may be showing some willingness to step in again. Just as was true of the potential inverse or reverse head-and-shoulders formation, that short-term strength would need to be confirmed by a push higher than last Tuesday's low. Then all the other concerns about levels of rollover potential are repeated.

Annotated 30-Minute Chart of the Dow:

The Dow's version of a potential inverse or reverse head-and-shoulders formation at the bottom of the recent decline held up fairly well with this afternoon's sharp drop. The 30-minute close was well within a likely second shoulder level, and the Dow bounced quickly after that test.

Market participants will consider the Dow's formation confirmed at various levels because the second shoulder is a bit loosely formed, but confirmation would be stronger if the Dow could maintain 30-minute closes above last Tuesday's low near 16,180. If that confirmation should occur and the Dow keeps climbing, watch for potentially strong resistance on 30-minute closes at the green 120-ema, wherever it might be by the time it is tested, and then again at last Thursday's high, so at about 16,450. I would expect a pullback attempt, at least, near that 16,450 level unless prices are just barreling higher, and that pullback could easily bring the Dow back to the green 120-ema, if not lower.

What if the Dow prices drop first thing tomorrow? If the Dow maintains 30-minute closes above or near Friday's low and soon bounces, bulls may still be taking over on a short-term basis, but that would need to be confirmed by consistent 30-minute closes above last Tuesday's low. Again, watch for rollover potential the green 120-ema and last Thursday's early high.

Annotated 30-Minute Chart of the NDX:

Those are deep shoulders on that inverse or reverse head-and-shoulders formation on the NDX's chart, but this afternoon's quick late-day drop does not appear to have negated the formation. The NDX probably needs to maintain 30-minute closes above about 3,450 and bounce from there to maintain the idea that it's producing such a formation and hasn't dropped below the second-shoulder level. The NDX barely meet those parameters on this afternoon's quick drop when it closed that 30-minute period just above that 3,450 level.

The NDX's bounce would need to maintain 30-minute closes above about 3,490 before it confirmed the formation and the short-term bullishness. If that confirmation occurs and the NDX builds on this short-term strength, watch for potentially strong resistance on 30-minute closes at the green 120-ema and then again at last Wednesday's late day high. Prepare for rollover potential near 3,600-3,605 if that level is closely approached.

If the NDX's potential inverse head-and-shoulders formation falls apart tomorrow, would-be short-term bulls would like to see 30-minute closes hold at or above the lower yellow-orange rectangle marked on the chart. If 30-minute closes hold at or above that zone and then the NDX bounces, bulls may be taking over short-term, but that impression would need to be confirmed by consistent 30-minute closes above about 3,490, just as was needed with the inverse head-and-shoulders formation. If that confirmation comes, watch for the same potential rollover danger levels as were pointed out for the other formation: at the green 120-ema and the 3,600-3,605 level.

Annotated 30-Minute Chart of the Russell 2000:

The RUT also formed a potential inverse or reverse head-and-shoulders formation today, and then fell hard through the possible second shoulder level and Friday's low. That action of course negated the inverse or reverse head-and-shoulders formation and warns us that the other indices could follow its performance rather than their more bullish possibilities.

Would-be bulls at least wanted to see the RUT sustain 30-minute closes at or above that lowest yellow-orange rectangle, and that barely occurred before the RUT bounced.

The RUT of course did not hit an equal bottom level but rather a lower bottom level this afternoon, but the difference was slight. Confirmation of a double-bottom-ish formation would technically come with 30-minute closes above 1,126.31, but I would suggest that requiring 30-minute closes above 1,128 would be safer as confirmation. There's the possibility that the RUT could again fall back from 1,126-1,128 and retest the bottom before bulls feel comfortable pushing the RUT up past that zone. If the RUT does plow up through 1,126-1,128 and continue gaining, RUT traders should watch for rollover potential at the green 120-ema and 1,160.

You might notice that, when discussing these intraday charts, I haven't mentioned what happens if all these indices roll over tomorrow and drop through their recent lows on the way to . . . where? I haven't noted any downside targets on these 30-minute charts. That's because these indices will then all have outrun their targets on these charts as well as the one-hour charts. Look to the daily charts for possible targets in that case.

Be wary of quickly reversed early moves tomorrow morning, but consistent 30-minute closes beneath Friday's low--and today's, in the case of the RUT--should have you looking at those daily charts for possible downside targets. And holding onto your hats. You may also have to hold onto your hats in the case of a more rabid relief rally. Use the levels pointed out as potential benchmarks, but be ready at any time for the kind of late-day action we had today, too.

Linda Piazza


New Option Plays

Energy & Specialty Retail

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Diamondback Energy, Inc. - FANG - close: 70.12 change: +2.52

Stop Loss: 67.75
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings in May
New Positions: Yes, see below

Company Description

Why We Like It:
FANG is in the basic materials sector. They are an oil and gas company, based in Texas. The stock has been showing relative strength during the market's recent declines.

Last week FANG provided a Q1 2014 production guidance update. They expect Q1 production to rise +30% from the prior quarter. FANG also raised their full-year 2014 production guidance by +10%.

The stock looks poised to break out past resistance near $70.00. If that happens FANG could see some short covering. The most recent data listed short interest at 37% of the small 32.5 million share float. That's plenty of fuel for a short squeeze.

We are suggesting a trigger to buy calls at $71.25. We are not setting an exit target yet but plan to exit prior to earnings in mid May.

FYI: The Point & Figure chart for FANG is bullish with an $85 target.

Trigger @ 71.25

- Suggested Positions -

buy the May $75 call (FANG1417E75) current ask $1.80

Annotated Chart:

Entry on April -- at $---.--
Average Daily Volume = 948 thousand
Listed on April 14, 2014


NEW DIRECTIONAL PUT PLAYS

Lumber Liquidators - LL - close: 84.70 change: -0.98

Stop Loss: 88.35
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings on April 30th
New Positions: Yes, see below

Company Description

Why We Like It:
LL is in the services sector. The company operates a specialty retailer of hardwood flooring. This stock was a big winner in 2012 and 2013. Unfortunately the long-term up trend appears to be in trouble. Shares have been trending lower since its post-earnings rally in February failed near the $110 level. It now appears that traders are selling every rally.

LL had been trying to hold support in the $85-86 region but just broke through it on Friday and confirmed the relative weakness today. Monday's low was $83.91. We're suggesting a trigger to buy puts at $83.80. Readers may want to use small positions because there are already a lot of bears in this name. The most recent data listed short interest at 27% of the small 24.4 million share float. That could make any bounce a volatile one.

Plan on exiting prior to LL's earnings report on April 30th. We are not setting an exit target just yet. FYI: The Point & Figure chart for LL is bearish with a $72 target.

Trigger @ $83.80

- Suggested Positions -

Buy the May $80 PUT (LL1417Q80) current ask $3.40

Annotated Chart:

Weekly Chart:

Entry on April -- at $---.--
Average Daily Volume = 761 thousand
Listed on April 14, 2014



In Play Updates and Reviews

Monday's Session A Bumpy Ride

by James Brown

Click here to email James Brown

Editor's Note:

The market managed gains on Monday but it was a bumpy ride for investors with a lot of intraday swings.

GPOR and AVGO hit our entry triggers. SSYS hit our stop loss.


Current Portfolio:


CALL Play Updates

Caterpillar Inc. - CAT - close: 102.78 change: +1.33

Stop Loss: 99.75
Target(s): 109.00
Current Option Gain/Loss: + 5.9%
Time Frame: exit PRIOR to earnings on April 24th
New Positions: see below

Comments:
04/14/14: CAT surged off its morning lows and outperformed the broader market with a +1.3%. Shares are still below resistance in the $103.50 region.

Earlier Comments:
Our exit target is $109.00. However, we do not have much time for CAT to perform. The company is scheduled to report earnings on April 24th and we do not want to hold over the announcement.

- Suggested Positions -

Long MAY $105 call (CAT1417E105) entry $1.52

04/08/14 triggered @ 102.35

Entry on April 08 at $102.35
Average Daily Volume = 5.9 million
Listed on April 07, 2014


Gulfport Energy - GPOR - close: 74.00 change: +0.00

Stop Loss: 71.70
Target(s): 79.50
Current Option Gain/Loss: -14.2%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
04/14/14: Hmm... it was a disappointing session for GPOR. Shares displayed some volatility today with a spike lower this morning that quickly reversed into a rally to new highs. Our trigger to buy calls was hit at $74.25. GPOR managed to hit an intraday high of $75.75. Unfortunately the stock gave back all of its gains to close flat on the session. We should be cautious here. The sharp pullback from its highs might be interpreted as a potential top.

- Suggested Positions -

Long May $75 call (GPOR1417E75) entry $3.85*

04/14/14 triggered @ 74.25

Entry on April 14 at $74.25
Average Daily Volume = 1.45 million
Listed on April 12, 2014


QUALCOMM Inc. - QCOM - close: 79.14 change: +1.13

Stop Loss: 77.40
Target(s): to be determined
Current Option Gain/Loss: - 7.4%
Time Frame: Exit PRIOR to earnings on April 23rd
New Positions: see below

Comments:
04/14/14: QCOM managed to outpace the market's bounce today with a +1.4% gain. The stock closed near its high for the day, which should bode well for tomorrow morning.

Earlier Comments:
Prepare to exit prior to QCOM's earnings report on April 23rd.

- Suggested Positions -

Long MAY $80 call (QCOM1417E80) entry $1.87

04/09/14 opened on Wednesday morning.

Entry on April 09 at $79.26
Average Daily Volume = 2.0 million
Listed on April 08, 2014




PUT Play Updates

Advance Auto Parts - AAP - close: 117.20 change: +0.95

Stop Loss: 120.25
Target(s): 110.50
Current Option Gain/Loss: + 12.5%
Time Frame: exit PRIOR to earnings on May 15th
New Positions: see below

Comments:
04/14/14: AAP recovered about half of Friday's declines but it's worth noting that AAP did close well off its Monday highs. Traders might want to look for a drop below today's low (115.76) as an alternative entry point to buy puts.

- Suggested Positions -

Long May $115 PUT (AAP1417Q115) entry $3.20

04/11/12 triggered @ 117.25

Entry on April 11 at $117.25
Average Daily Volume = 752 thousand
Listed on April 10, 2014


Avago Technologies - AVGO - close: 58.82 change: +0.29

Stop Loss: 60.35
Target(s): 53.00
Current Option Gain/Loss: -23.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/14/14: During the market's afternoon swoon we saw shares of AVGO dip to new relative lows and hit our trigger at $58.35. I don't see any other changes from our weekend new play comments.

FYI: It should not be a stock-moving event but investors may want to be aware that AVGO is in the process of acquiring LSI Logic for $6.6 billion. The acquisition is expected to be completed in the first half of 2014.

FYI: The Point & Figure chart for AVGO is bearish with a $52 target.

- Suggested Positions -

Long May $57.50 PUT (AVGO1417Q57.5) entry $2.10*

04/14/14 triggered @ 58.35

Entry on April 14 at $58..5
Average Daily Volume = 2.1 million
Listed on April 12, 2014


Lockheed Martin Corp. - LMT - close: 155.82 change: +2.00

Stop Loss: 158.25
Target(s): 146.00
Current Option Gain/Loss: -17.0%
Time Frame: exit PRIOR to earnings on April 22nd
New Positions: see below

Comments:
04/14/14: LMT produced a bounce today and managed to outperform the major indices with a +1.3% gain. More conservative traders might want to consider adjusting their stops closer to today's high (157.16).

Earlier Comments:
Our target is $146.00 but keep a wary eye on the $150.00 mark, which is potential round-number support.

This is a short-term trade. LMT is scheduled to report earnings on April 22nd and we do not want to hold over the announcement.

- Suggested Positions -

Long May $150 PUT (LMT1417Q15) entry $2.35*

04/12/14 triggered @ 154.50
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on April 11 at $154.50
Average Daily Volume = 1.7 million
Listed on April 10, 2014


CLOSED BEARISH PLAYS

Stratasys Ltd. - SSYS - close: 96.78 change: +2.20

Stop Loss: 100.50
Target(s): 81.00
Current Option Gain/Loss: -15.7%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/14/14: SSYS was too volatile for us. Shares popped open higher this morning after Goldman Sachs initiated coverage with a "buy" rating and a $146 price target. The gap higher did affect our entry point on the option (providing a lower price).

SSYS managed to trade up to $100.57 before the bounce ran out of steam and shares retreated back under the $97 level. Unfortunately our stop loss was at $100.50.

*Small Positions*

May $90 PUT (SSYS1417Q90) entry $3.50 exit $2.95* (-15.7%)

04/14/14 stopped out at $100.50
04/14/14 trade opens on gap higher at $97.16

Annotated Chart:

Entry on April 14 at $97.16
Average Daily Volume = 1.3 million
Listed on April 12, 2014