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Daily Newsletter, Monday, 4/28/2014

Table of Contents

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

Market Wrap

Oops! Bank of America Miscalculated

by Linda Piazza

Click here to email Linda Piazza
Market Internals

Introduction

Today, the U.S. reacted to increased tensions in the Ukraine this weekend by imposing further sanctions. These sanctions were directed toward seven high-profile Russians and 17 companies. Despite a big jump in pending sales and other encouraging data today, that tension in the Ukraine and bad news from Bank of America added to the caution traders already felt after last week's performances in the markets. Indices dropped. Then key support levels were hit, and a massive relief bounce brought many indices back into positive territory.

The SPX gained 0.32 percent; the Dow, 0.53 percent; and the NDX, 0.34 percent. The RUT, however, lost 0.53 percent, and the SOX, 0.64 percent. The Dow Jones Transports were flat, down 0.02 percent. The VIX, the SPX's volatility index, lost 0.64 percent, but the RVX and VXN both gained. Consumer staples and telecom services produced gains today. Defensive utilities gained. Some momentum stocks such as FB and LNKD lost ground again.

Gold futures (/GC)for June delivery settled at 1299.0, down 1.8 points. Silver futures (/SI) for May delivery settled at 19.588, down 0.103 points. Copper futures (/HG) for May delivery settled at 3.1100 down -0.0145. Light sweet crude futures (/CL) for June delivery settled at 100.84, up 0.24 points.

Monday's Developments

Asian bourses suffered from heightened tensions in Ukraine, including the parading of European monitors held by pro-Russian activists, as well as from a hangover from Friday's U.S. market performance. The Nikkei 225 dropped 0.98 percent; the Hang Seng, 0.41 percent, and the Straits Times, 0.76 percent. Trading volume on the Nikkei was characterized as light ahead of a holiday for that exchange tomorrow and a BOJ decision later in the week. China's Shanghai Composite lost 1.62 percent.

Most European bourses started off in the green and stayed there all day. The FTSE 100 gained 0.22 percent; the DAX, 0.48 percent; and the CAC 40, 0.38 percent. Spain's IBEX 35 rose 0.14 percent but was one of the indices that flirted with negative levels. Italy's FTSE MIB gained 0.34 percent after having briefly dipped into negative territory.

The National Association of Realtors reported the March U.S. Pending Home Sales. Pending sales jumped well above expectations, rising 3.4 percent. The number reported represents month-over-month change in homes contracted to be sold but still pending the closing transaction. This number excludes new homes. Analysts had predicted a rise of 1.0 percent, with the prior number having dropped 0.8 percent.

Pending homes have been disappointing for the last several months, but that wasn't true this month with the first gain in nine months, the National Association of Realtors announced. In addition, the prior February number was revised higher. Lest the exhilaration rise too high, the association pointed out that March's 97.4 is still well below March 2013's 105.7. Indices in the Northeast, South and West all gained, but the index for the Midwest slipped 0.8 percent. All four remain below March 2013 levels. Because the brutal weather and inventory problems led to lower sales for the first quarter, the association believes it's unlikely that total sales for this year will match 2013 sales.

The Federal Reserve Bank of Dallas presented its April Dallas Fed Manufacturing Survey, produced after surveying about 100 manufacturers. This index rose for the 11th month in a row, the Dallas Fed reported, jumping from 10.8 to 17.1. That 17.1 marks the headline number's highest number in four years. The headline number as well as some of the component indices pointed to an acceleration in growth. New orders, shipments, and capacity utilization measures all rose, with shipments producing the strongest showing in four years. Employment measures jumped, with the general employment index rising to its highest level in two years. Raw materials costs eased while selling prices and wages rose. Respondents proved optimistic about future business conditions.

Moody's weekly Business Confidence has dropped to 30.4 from the mid 30's levels of several weeks ago. Mark Zandi, Moody's analyst summarizing the report, admits that the business confidence numbers are off their highs but points out that those were record highs. The number of companies reporting hiring intentions (40 percent) still figures well above those reporting that they will reduce payrolls (10 percent). The softening in the headline number comes from perceptions of current conditions while U.S. companies remain optimistic about conditions in the coming summer.

Story stocks today included Pfizer (PFE, 32.04, up 1.29 or 4.20 percent), revealing today that the latest of two recent approaches to AstraZeneca had been rebuffed. AstraZeneca had previously rejected a $98.9 offer in January, and this bid to reopen talks was rebuffed because it offered no appealing specifics. If PFE can eventually entice the U.K.'s AstraZeneca into a deal, the acquisition would be the largest ever acquisition of a British company by a foreign corporation and would also rank among the largest deals ever accomplished in the pharmaceutical space. PFE reports earnings on May 5, according to Yahoo! Finance.

Forest Laboratories (FRX, 89.50, down 0.34 or 0.38 percent) fared better than PFE in meeting its acquisition goals. FRX announced its acquisition of Furiex Pharmaceuticals (FURX, 103.05, up 22.90 or 28.57 percent), a drug development collaboration company, for $95 a share. Friday's close was $80.15. Since Actavis (ACT, 196.90, down 1.17 or 0.59 percent) is courting FRX, FRX cleared the acquisition of FURX with ACT. Up to $30 a share will additionally be offered if FURX obtains regulatory approval for its treatment for irritable bowel syndrome and FRX acquires the rights to that drug, too. FRX will sell royalties to two of FURX's drugs to Royalty Pharma to reduce the purchase price it pays for FURX. (Anyone confused yet? Just wait until you get to the discussion about the Comcast/Time Warner/Charter deal later in the Wrap.)

This merger-and-acquisition Monday seemed to be almost as much about ending M&A talk as beginning it. Reuters reported that WalMart (WMT, 79.76, up 1.14 or 1.45 percent) spent about $334 million to enter and then exit its joint venture with India's Bharti Enterprises. The company paid about $234 million in debt to exit the deal and had originally paid $100 million to take a 50-percent stake in the company. The net loss resulting from the joint venture, presumably after income from the joint venture was deducted, was $151 million.

Newmont Mining Corporation (NEM, 24.67, down 1.78 or 6.73 percent) released a letter it sent to Barrick Gold (ABX, 17.33, down 0.56 or 3.13 percent). The letter ends the merger talk between the two companies, saying "it has become evident to us over the past several weeks that the type of constructive, mutually respectful and partnership-oriented relationship necessary to realize the potential benefits of that combination does not yet exist."

Companies reporting earnings today included Charter Communications (CHTR, 140.05, up 10.04 or 7.72 percent), reporting before the open. A 15-percent increase in residential video subscribers pushed first quarter revenue to $2.2 billion from a prior $1.92 billion. The net loss was $0.35 per share, below the year-ago $0.42 per share loss.

Perhaps another announcement related to CHTR trumped the earnings announcement, however. Comcast (CMCSA, 51.70, up 0.73 or 1.43 percent) is divesting itself of about 3.9 million subscribers. In exchange for $7.3 billion, Charter will receive about 1.4 million of Comcast's existing Time Warner Cable (TWC, 140.95, up 1.54 or 1.10 percent) customers. Also, CHTR will form a holding company that will take a 33-percent position in a spinoff that Comcast plans. Through these actions, that holding company of CHTR's will then acquire about 2.5 million Comcast customers.

Also, about 1.6 million CHTR customers will be swapped with about 1.6 million TWC customers. This complex deal was structured to help the Comcast/Time Warner Cable merger get past regulatory hurdles and is contingent on the completion of that merger.

Oil and gas exploration and production company Murphy Oil Corporation (MUR, 64.12, up 0.39 or 0.61 percent) has been taking part in discussions to sell its Malaysia assets to Japanese energy firms, says Mergermarket. Reuters had first revealed that MUR might sell off its Asian assets back in February. The company is also reportedly in active discussions to sell the Milford Haven refinery in Wales, news that had first been disclosed in early April.

Bank of America (BAC, 14.95, down 1.00 or 6.27 percent) took its place among story stocks today when the bank announced that it would suspend its share repurchase and dividend increase for 2014. The U.S. Federal Reserve told the bank to redo a plan submitted as part of the required annual stress tests and said the bank couldn't raise shareholder capital distribution until that plan was resubmitted and approved. My favorite headline concerning this announcement was from Business Insider: "We Screwed Up Calculating How Much Capital We Have." Enough said.

Corning Inc. (GLW, 20.97, up 0.23 or 1.11 percent) beat expectations when reporting this morning. Adjusted diluted earnings were $0.31 per share with revenues of $2.39 billion. Thomson Reuters had predicted earnings of $0.30 per share on revenue of $2.30 billion. In the year-ago period, the company reported $0.30 a share on revenue of $1.81 billion. The CEO was upbeat about the rest of the year, speaking of the company's momentum.

National Oilwell Varco, Inc. (NOV, 77.31, down 6.16 or 7.38 percent) reported earnings of $1.40 per share after a tax charge on revenues of $5.78 billion. Shareholders didn't like something about the report. Within minutes of the open, news sources reported that the company's stock had dropped so heavily that it was the worst performing component stock of the SPX.

Expectations by Capital IQ consensus for NOV were for $1.39 per share on revenue of $5.79 billion. Revenues rose 8.9 percent year over year. The company's report admitted that operating profit had dropped 10 percent from the previous quarter, but countered that by pointing out the year-over-year increase. The company also mentioned $2.33 billion in new capital orders as well as a record backlog in orders as well as reasons for increased demand for the drilling equipment it produces.

Herbalife (HLF, 58.85, up 1.02 or 1.76 percent) reported after the close. The company reported $1.50 per share on revenues of $1.3 billion. Thomson Reuters pegged expectations at $1.19 per share on revenue of $1.23 billion. Year-ago levels were $1.27 per share on revenue of $1.12 billion. The company raised guidance for the current quarter and year-end results, but those estimates don't include the costs for defending itself against lawsuits filed by the FTC and mulled over by other state and federal agencies. Some analysts believe the earnings are not the big concern with HLF: those potential investigations are, they believe. The company cut its dividend in order to beef up a share buyback program.

The Hartford Financial Services Group (HIG, 34.47, down 0.51 or 1.46 percent) also reported after the close. The company had risen after that report and was last at $35.00 as this report was prepared. Straight from HIG's report are the following results: "The Hartford Reports First Quarter 2014 Core Earnings of $564 Million, Or $1.18 Per Diluted Share, And Net Income Of $495 Million, Or $1.03 Per Diluted Share." Capital IQ Consensus had predicted earnings of $0.93 per share, but whether that was core, diluted or net was not clarified. The company also announced that it would sell Japan annuity company HLIKK to a subsidiary of ORIX Corporation for $895 million.

After the close, shares of Gogo Inc. (GOGO, 18.38, up 0.13 or 0.71 percent) dropped and were last at 15.00. AT&T (T, 35.08, up 0.59 or 1.71 percent) and Honeywell (HON, 92.46, down 0.19 or 0.21 percent) announced a plan to build an air-to-ground network to provide 4G in-flight broadband service. GOGO is a current in-flight broadband provider, but it has had its detractors. HON also announced a quarterly dividend of $0.45 per share, payable on June 10 to shareholders of record on May 22.

Today, Frontier Airlines said those booking economy-class tickets will have to pay $20-50 to place a bag in the overhead bin. Price depends on whether they buy tickets online, are frequent flyers or wait to check the bag until they arrive at the gate.

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, but the setup is the same across all the Keltner-based charts shown today. You can refer to this legend for moving average and Keltner channel colors.

Annotated Daily Chart of the SPX:

The SPX has been testing potential support on daily closes that currently extends from about 1,847-1,863. Is the SPX eventually going to break lower as have indices such as the NDX and RUT? Frankly, it's amazing that the SPX hasn't been yet dragged down by the actions of those other indices. Today, the SPX dropped down to test the lower end of the support zone, bouncing strongly to close back above the 9-ema and that support zone.

According to Keltner evidence, the SPX would need to sustain daily closes beneath about 1,847 before it breaks down out of the current consolidation pattern. Today's low was just above that level, but the SPX found support and bounced. The Keltner setup suggests, however, that if the 1,847-ish support fails on daily closes, a potential new downside target is indicated from about 1,795-1,820. That 1,795-1,820 zone is an important one for the SPX. The index has been finding support there on most daily closes for more than a year, even on the deepest declines. In early February, the SPX closes briefly breached that configuration, but most such breaches have been brief. Sustained daily closes beneath about 1,795, then, would be a change in long-term tenor for the SPX and would suggest a deeper decline. The Keltner channels set up a potential target in that case close to 1,700, but we of course would expect some kind of buy-the-dip action near February's low.

What if the SPX holds up instead and builds on today's bounce off the low? Sustained daily closes above about 1,863 open up the possibility that the SPX will climb toward the next potential upside target from about 1,880-1,890. Such a move would just be chopping around within a recent consolidation zone, however, and would not necessarily indicate renewed strength. To see renewed strength, bulls would first need to see sustained closes above about 1,890. Even if the SPX pushes above about 1,890 on daily closes, strong rollover potential exists from April's 1,897.28 intraday high up to about 1,915. If the SPX is able to sustain daily closes above that, a higher potential target is also marked on the chart, but that target might have been pushed slightly higher by the time it could be approached.

Annotated Daily Chart of the Dow:

The Dow has also been testing a potential support zone on daily closes, with that zone extending from about 16,250-16,410. The Keltner setup suggests that sustained daily closes beneath about 16,250 would set a potential downside target of about 15,997-16,100, although of course it's possible that historical and round-number support near 16,200 might prompt at least a buy-the-dip attempt, whether or not that attempt is sustained. Do not expect a buy-the-dip attempt to surface or endure if the Dow is barreling lower, however.

Sustained daily closes below about 15,997 would set a potential target near 15,800-15,910. Although that 15,800-ish Keltner potential support level has been important in recent years for the Dow, in the most recent tests, the Dow has been breaching that support by 100-200 points and for several days. In other words, it's tended to overrun that support. Is it sustained closes beneath about 15,800 that will be the benchmark for when the Dow has changed its long-term tenor, or is it sustained daily closes beneath 15,600 support or beneath the February low? Unfortunately, the Dow's tendency to overrun potential support or resistance levels the last few months do not make it possible to pick out on specific benchmark. We can just look at next potential targets if that support is breached, as we have been doing.

What if the Dow can continue today's bounce and daily close above 16,410? Such action increases the chances that the Dow might make an attempt at its next potential upside target, at about 16,539-16,644. Sustained daily closes above about 16,410 and below about 16,644 constitute chop within a consolidation zone and don't tell us much about ultimate direction, unfortunately.

Sustained daily closes above about 16,644 target the next Keltner resistance zone from about 16,710-16,840. That zone presents strong rollover potential. Sustained daily closes above about 16,840 target the highest marked target, but it will likely have moved before it can be closely approached.

Annotated Daily Chart of the NDX:

A glance at the NDX's price levels with respect to the Keltner channel lines being tested shows us immediately that the NDX underperforms the SPX and Dow. That quick visual evidence is one reason Keltner channels can prove helpful.

Of course, we'd be able to tell that from the price action anyway. Let's look at what's going on. The NDX has been testing potential support on daily closes that extends from about 3,480-3,520. Today, the NDX dipped deeper within that support zone but bounced strongly after breaching 3,500.

Sustained daily closes beneath about 3,480 would set a potential downside target at about 3,390-3,430, and any test of that area will prove scary for bulls and bears alike. Not only is that zone of particular importance in terms of long-term behavior with respect to the Keltner level being tested, but also it includes the neckline level of a possible head-and-shoulders formation on the daily chart. While I don't trust those formations as much as I might have in the early 2000's, they still tell us something about market sentiment.

Sustained (not a one-day minor incursion below it) daily closes beneath about 3,390 would suggest that the NDX is setting a potential downside target near 3,200. This would also be the current bottom of the NDX's broadening formation. That would be above the downside target predicted by a confirmed head-and-shoulders formation. It's possible that the Keltner target would get pushed closer to about 3,120 by the time it could be tested, and the lower, descending trendline of the broadening formation will also be sinking.

Before I counted on any 3,200-ish or 3,100-ish target being hit during a downturn, however, I would counsel watching for buy-the-dip action beginning at about 3,300-3,330, where round-number and historical support lie. If the NDX is barreling lower, however, don't count on such buy-the-dip action.

What if the NDX can build on today's bounce and sustain the current daily closes above about 3,520? The Keltner setup suggests that if it can sustain daily closes above about 3,520, it could reach for a potential upside target near 3,570-3,622, but the wise trader would be alert to rollover potential from that zone if it is tested. If the NDX can sustain daily closes above about 3,622, the short-term bull can breathe easier, a bit. The next potential upside target above that is from about 3,710-3,750. There's increased rollover potential at that level, where the March high converges with round-number and potential Keltner resistance. A higher target near 3,800 and the top of the broadening formation is also marked, but that target would likely be pushed higher by the time it could be tested.

Annotated Daily Chart of the RUT:

And here's the RUT, producing the saddest chart of them all until the end-of-day bounce. On Friday, the RUT violated the support that the NDX tests today. Friday's close set a potential downside target for the RUT of about 1,090-1,107, and the RUT proceeded to fall toward and then into that target zone today, hitting a low of 1,102.26. The RUT's chart shows how quickly that drop can happen but also how rabid a buy-the-dip, scare-the-shorts bounce can be.

As I mentioned a couple of weeks ago, that 1,090-1,107 zone also includes the level that represents a ten-percent drop from the RUT's 1212.82 intraday high produced on March 4, with that ten-percent drop from the intraday high at 1091.54. The confluence of round-number support, historically significant Keltner potential support and the completion of a ten-percent drop should be strong potential support for the RUT and was certainly strong enough to prompt dip buying from the levels tested today. However, should be does not necessarily equate to will be in the future.

Is that truncated (in time and price) second shoulder a real shoulder for a head-and-shoulder formation? Although I would prefer to see more symmetry with the first shoulder both in price level and time spent forming the shoulder, I can't discount the formation entirely. Therefore, it's possible that sustained daily closes beneath that potential support down to about 1,090 would confirm a head-and-shoulders formation and set a new downside target. It also would set a new downside target on a Keltner basis, with that potential Keltner target projected to be at about 1,025-1,040. However, the RUT also chopped out historical support in 20-point intervals on the way higher, so potential support might be found at 1,080 and again at 1,060.

While I still watch formations such as head-and-shoulder formations because they do tell us something about market sentiment, I don't count on them being as predictive as they once were, and it was always possible--even in the old days--for them to be rejected. What would it take to reject this one? A lot. It's better that we talk about short-term potential upside targets. If the RUT should climb immediately, building on today's bounce, watch for rollover potential at 1,133-1,143 and again at 1,151-1,163. The Keltner setup suggests that sustained daily closes above about 1,163 sets a new upside target near 1,200, but I would caution that January's high near 1,180 might present lots of rollover potential, too. So, again, we see potential resistance in the same approximate 20-point intervals as we see potential support on the way down.

The RUT continues to look dangerous.

Annotated Daily Chart of the Dow Jones Transports:

Like the SPX and the Dow, the Dow Jones Transports has pulled back but has not sent off alarm signals yet. So far, it's just a pullback. The NDX and RUT remain the indices to watch for such signals as they're the closest to breaking down.

Tomorrow's Economic and Earnings Releases

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

Market watchers might note that the Nikkei 225 exchange will not be open tonight due to a bank holiday in Japan.

Companies reporting earnings tomorrow include AFL (AMC), BSX (BMO), CMI (BMO), EBAY (AMC), MAR (BMO), MGM (BMO), MRK (BMO), RVBD (AMC), and TWTR (AMC), among others.

What about Tomorrow?

Annotated 60-Minute Chart of the SPX:

This chart indicates the decline off last week's high as the SPX traveled from the top of the purple Keltner channel down through that channel. The SPX slipped all the way to the bottom of its 45-ema based (purple) channel, testing potential support on 60-minute closes that extends from about 1,850-1,855. Finding support at the bottom of this channel, as it often does during regular trading patterns, the SPX bounced sharply, driving all the way up through the gathered potential resistance at 1,860-1,868. Sustained 60-minute closes above about 1,868 set up the potential for a climb to 1,880-1,887, where potential Keltner resistance joins the resistance offered by last week's high. A higher potential target is marked in case the SPX can sustain 60-minute closes above the resistance zone near last week's high.

However, the SPX did not break out above a trendline that could be drawn off last week's high, and the 60-minute candle left an upper shadow or candle wick, nearly pulling back inside what had looked like a potential resistance zone. It's possible that the SPX will need to pull back to retest support, either near 1,860-1,868 or near today's low. Sustained 60-minute closes below 1,850, however, will set a potential swing target near 1,815-1,819. A sharp decline can push that target lower.

Annotated 60-Minute Chart of the Dow:

The Dow's setup is similar. Dow prices fell to test potential Keltner support on 60-minute closes from about 16,280-16,320, then bounced sharply from that potential support zone. The Dow's bounce took it up through the next potential resistance zone but didn't take it high enough to burst up through a trendline that could be drawn from last week's high. The last 60-minute candle left an upper shadow or candle wick, too.

If the Dow continues bouncing tomorrow, the next potentially strong resistance zone predicted by the Keltner channels is at about 16,540-16,580, where Keltner potential resistance converges with last week's high. If the Dow can sustain 60-minute closes above about 16,580, it sets an upside target near 16,750. That target is marked but is likely to be shoved higher by a sharp move toward it of the kind seen in relief rallies.

What if the Dow drops back into that highest yellow-orange zone or even through today's low? If it sustains 60-minute closes below about 16,280, it sets a potential downside target near 16,000. That target is centered near 16,000 now but would likely be shoved lower if the Dow dropped sharply toward it.

Annotated 60-Minute Chart of the NDX:

The NDX also dropped to test the potential Keltner support at the same bottom Keltner channel line today, with that support on 60-minute closes stretching from about 3,490-3,508. Like the other indices, the NDX bounced sharply, but, unlike those others, it did not break up through the next layer of potential resistance on 60-minute closes. That resistance stretches from about 3,533-3,558. If the NDX can sustain 60-minute closes above about 3,558, it sets a potential upside target near 3,595-3,613, where resistance on 60-minute closes could be strong. Sustained 60-minute closes above about 3,613 set a potential upside target near 3,700. That target is likely to be shoved higher if a sharp relief bounce sends prices toward it.

If the NDX instead rolls over at the currently tested resistance zone and sustains 60-minute closes below about 3,530, it is likely headed into a retest of today's low. Sustained 60-minute closes beneath about 3,490 set a new potential downside target near 3,400. A sharp decline will push that potential target lower.

Annotated 60-Minute Chart of the Russell 2000:

The RUT's underperformance of the other indices is obvious on this chart. The purple channel's bottom support could not sustain the RUT. Prices broke through and tumbled almost to the lower Keltner channel line. In fact, prices did tumble through to the original downside target at the time the RUT began sustaining 60-minute closes beneath that purple channel line on Friday.

Today's end-of-day bounce was huge as far as point action was concerned, but the RUT lost a lot of its last-hour gains, and, most significantly, it did not sustain 60-minute closes back inside the purple channel. That channel and the converging 9-ema still served as resistance on 60-minute closes rather than support.

While the other indices' charts look more promising, the RUT's still suggests more strongly that this index could roll over and retest today's low or even this month's low. If that happens and the RUT can't hold above the prior 1,095.79 intraday low from earlier this month and especially above the 1,090 level, look to the daily chart for a next potential downside target.

Those who hope for steadying in this index want to see sustained 60-minute closes above about 1,120. Then they want to see the RUT push through successive layers of potential resistance and hold those levels as support when retested. The nearest potential resistance levels on 60-minute closes after the current one are at 1,128-1,135 and 1,140-1,148. Those are likely to be pushed higher by any sustained gains, and the highest of the two could even be shoved up toward last week's 1,157.87 intraday high. Currently the Keltner setup suggests that if the RUT sustains 60-minute closes above about 1,148, it sets a potential upside target near 1,185, but I would be aware of that potentially strong resistance near 1,157.87, too.

I look at those long shadows or wicks underneath today's candle bodies and think that they would ordinarily predict that the declines are over and it's rally time. What are we left with? As I wrote, I began noticing that many momentum stocks ended the day with losses--not all, as AAPL certainly didn't--but FB and many others did.

I'm more troubled than I think I should be, but those indications do trouble me. Let's look for a moment at the more promising news. The RUT nearly retested the 4/15 swing low, and dip buyers were ready and waiting. Other indices held up even better, not coming close to the April low, and they produced those long lower shadows or wicks, too. Relief rallies can be rabid, and short-term traders should spend some time tonight planning how they'll adjust their trades or when they'll capture bullish profits if the gains tomorrow or after the FOMC meeting are indeed rabid.

Yet, I didn't load up on calls this afternoon but instead adjusted within normal parameters for my trade. The RUT's 60-minute chart and the stop on the very first significant resistance zone don't leave me as cheery as that long candle shadow or wick on the daily chart should. In addition, the behavior of the momentum stocks and the transports' small candle body for the day undermined my confidence in predicting a rally. Traders should also spend some time thinking about what they'll do to adjust if the indices roll over tomorrow and head even lower.

The continued tension in the Ukraine, economic releases and earnings reports tomorrow, and the beginning of this month's FOMC meeting all present opportunities for erratic market action. I'll say this: if we don't see big follow-through on today's late-day bounce within a day or two, something is wrong.

Linda Piazza


New Option Plays

Rising REITs

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Ventas, Inc. - VTR - close: 65.73 change: +1.38

Stop Loss: 64.75
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
VTR is in the financial sector. The company is a REIT focused on the healthcare industry. The company reported earnings last week that beat Wall Street's estimates on both the top and bottom line. Management reaffirmed their 2014 guidance. Investors could be viewing the healthcare REITs as a safe haven trade in a volatile market. VTR's stock also offers a 4.5% dividend yield compared to a 10-year U.S. treasury yielding less than 2.7%.

Technically VTR appears to have formed an inverse head-and-shoulders pattern with a slanted neckline on the weekly chart. The stock has also found recent support near $64.00. We're suggesting investors wait for a move above the April high ($66.30). The newsletter's suggested entry point is $66.35 with a stop at $64.75.

Trigger @ 66.35

- Suggested Positions -

Buy the Aug $65 call (VTR1416H65) current ask $2.50

Annotated Chart:

Weekly Chart:

Entry on April -- at $---.--
Average Daily Volume = 1.6 million
Listed on April 28, 2014



In Play Updates and Reviews

A Crazy Day

by James Brown

Click here to email James Brown

Editor's Note:

The Dow Industrials produced multiple triple-digit moves in today's session. The NASDAQ composite was off -1.49% at its worst levels of the session. Then equities bounced this afternoon.

Bill Griffeth, on CNBC, called it a "crazy day" for the markets.

Traders are reacting to every headline regarding the Ukraine-Russia situation.

We saw our NUS trade get stopped out.


Current Portfolio:


CALL Play Updates

Adobe Systems - ADBE - close: 60.40 change: -1.21

Stop Loss: 59.45
Target(s): to be determined
Current Option Gain/Loss: -52.1%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
04/28/14: The profit taking in ADBE continues with shares falling to support near $60.00. The intraday low was $59.62 before the stock bounced. This area should be support but readers may want to wait and see if the major indices open positive tomorrow before launching new positions.

- Suggested Positions -

Long Jul $65 call (ADBE1419G65) entry $3.20

04/21/14 ADBE opened at $64.00

Entry on April 21 at $64.00
Average Daily Volume = 4.8 million
Listed on April 19, 2014


Devon Energy - DVN - close: 70.28 change: -0.12

Stop Loss: 69.45
Target(s): 74.75
Current Option Gain/Loss: -13.4%
Time Frame: exit PRIOR to earnings on May 7th
New Positions: see below

Comments:
04/28/14: DVN also pulled back to what should be support near $70.00 and its simple 10-dma. The intraday low was $69.65. Our stop loss is at $69.45. I would be tempted to buy calls again on a rise above $70.55.

We will plan on exiting prior to earnings on May 7th. FYI: The Point & Figure chart for DVN is bullish with a $95 target.

- Suggested Positions -

Long May $70 call (DVN1417E70) entry $1.94*

04/17/14 triggered @ 70.35
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on April 17 at $70.35
Average Daily Volume = 3.7 million
Listed on April 16, 2014


Diamondback Energy, Inc. - FANG - close: 70.96 change: -0.48

Stop Loss: 69.25
Target(s): to be determined
Current Option Gain/Loss: -44.1%
Time Frame: exit PRIOR to earnings in May
New Positions: see below

Comments:
04/28/14: FANG dipped below the $70.00 level before paring its losses. Shares fell to $69.32 intraday. Our stop loss is at $69.25. I would be tempted to buy calls above $71.55 but readers may want to wait for a new close above its 10-dma.

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

- Suggested Positions -

Long May $75 call (FANG1417E75) entry $1.70*

04/25/14 adjust stop to $69.25
04/21/14 new stop @ 69.45
04/19/14 new stop @ 68.75
04/16/14 triggered @ 71.25
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on April 16 at $71.25
Average Daily Volume = 948 thousand
Listed on April 14, 2014


Potasch Corp. of Saskatchewan - POT - close: 35.84 change: +0.12

Stop Loss: 34.45
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 months
New Positions: Yes, see below

Comments:
04/28/14: POT continued to inch higher today. I don't see any changes from our weekend newsletter's new play description on POT.

Earlier Comments:
(some of my earlier comments) The March high in POT's share price was $36.29. We are suggesting a trigger to buy calls at $36.50. We're not setting an exit target just yet. We'll start with a stop at $34.45.

FYI: rival potash producers Agrium (AGU) and Mosaic (MOS) both report earnings on May 6th. Their results and guidance could influence trading in POT.

Trigger @ $36.50

- Suggested Positions -

Buy the Sept $35 call (POT1420i35)

Entry on April -- at $---.--
Average Daily Volume = 5.0 million
Listed on April 26, 2014




PUT Play Updates

Catamaran - Corp. - CTRX - close: 38.73 change: -0.22

Stop Loss: 40.65
Target(s): to be determined
Current Option Gain/Loss: + 0.0%
Time Frame: Exit PRIOR to earnings on May 1st
New Positions: see below

Comments:
04/28/14: CTRX tagged new two-week lows near $38.00 before paring its losses. I don't see any changes from my weekend comments.

Earlier Comments:
CTRX is scheduled to earnings again on May 1st. We do not want to hold over the announcement. We're not setting at target to tonight but I would probably aim for the $35 region.

FYI: The Point & Figure chart for CTRX is bearish with a long-term $23 target.

- Suggested Positions -

Long May $40 PUT (CTRX1417Q40) entry $2.20

04/21/14 CTRX opened @ $39.06

Entry on April 21 at $39.06
Average Daily Volume = 3.3 million
Listed on April 19, 2014


QIWI Plc - QIWI - close: 26.89 change: -0.66

Stop Loss: 30.25
Target(s): to be determined
Current Option Gain/Loss: - 8.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
04/28/14: Our new play on QIWI is off to a good start. Shares underperformed the market with a -2.39% decline. The stock gapped down this morning at $27.37. I don't see any changes from the weekend newsletter's new play description.

Earlier Comments:
I suggest small positions to limit risk. We're not setting an exit target yet but the P&F chart for QIWI is bearish with a $19 target.

*Small Positions* - Suggested Positions -

Long Jun $25 PUT (QIWI1421R25) entry $2.50

04/28/14 trade opened. QIWI gapped down at $27.37

Entry on April 28 at $27.37
Average Daily Volume = 657 thousand
Listed on April 26, 2014


Ralph Lauren Corp. - RL - close: 151.47 change: -1.62

Stop Loss: 156.15
Target(s): to be determined
Current Option Gain/Loss: +10.8%
Time Frame: exit PRIOR to earnings on May 9th
New Positions: see below

Comments:
04/28/14: RL underperformed the market with a -1.0% decline. Shares were a lot lower intraday, trading near $149.00. I don't see any changes from my weekend comments.

Earlier Comments:
If you are patient enough traders could aim for a drop toward $140. The Point & Figure chart is actually very bearish and forecasting at $112 target. We're not setting an exit target yet but plan on exiting positions prior to RL's next earnings report on May 9th.

- Suggested Positions -

Long May $150 PUT (RL1417Q150) entry $3.70

04/26/14 new stop @ 156.15
04/24/14 triggered @ 152.45

Entry on April 24 at $152.45
Average Daily Volume = 891 thousand
Listed on April 21, 2014


Toyota Motor Corp. - TM - close: 107.07 change: +0.58

Stop Loss: 109.25
Target(s): 100.50
Current Option Gain/Loss: + 4.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/28/14: After a multi-day drop TM managed a miniature bounce today with a +0.5% gain. Look for resistance near $108.00.

Earlier Comments:
Our target is $100.50. However, we will plan to exit prior to TM's earnings report in May. The company has not set a date yet but we expect the announcement to be in the first half of May and will update our exit when they publish their earnings date. FYI: The Point & Figure chart for TM is bearish with a $90 target.

- Suggested Positions -

Long May $105 PUT (TM1417Q105) entry $1.11

04/26/14 new stop @ 109.25
04/23/14 TM opens at $108.28

Entry on April 23 at $108.28
Average Daily Volume = 602 thousand
Listed on April 22, 2014



CLOSED BULLISH PLAYS

Nu Skin Enterprises - NUS - close: 86.16 change: -1.58

Stop Loss: 85.45
Target(s): $96.50
Current Option Gain/Loss: -17.7%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
04/28/14: NUS traded below its 10-dma and hit our new stop loss at $85.45. It is worth noting that shares bounced near the $85.00 mark. Readers may want to keep this stock on their watch list for a close above resistance near $90.00.

- Suggested Positions -

May $90 call (NUS1417E90) entry $3.04 exit $2.50* (-17.7%)

04/28/14 stopped out
*option exit price is an estimate since the option did not trade at the time our play was closed.
04/26/14 new stop @ 85.45
04/22/14 set bullish exit target at $96.50
04/21/14 triggered @ 84.50

chart:

Entry on April 21 at $84.50
Average Daily Volume = 1.8 million
Listed on April 19, 2014