Option Investor
Newsletter

Daily Newsletter, Thursday, 6/28/2012

Table of Contents

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

Market Wrap

Market Slumps Health Care Jumps

by Thomas Hughes

Click here to email Thomas Hughes
Rising joblessness and weaker than expected GDP data has investors worried about the second half of the year. The Supreme Courts landmark ruling on Obama care helped push the markets lower while giving hospitals a boost.



Initial jobless claims fell from an upwardly revised 392,000 to 386,000 in the week ending June 23. The number is still high,despite the larger than expected fall. The four week moving average of initial claims also fell this week, by 750, to 386,750. The trend in jobless claims is still to the upside and at elevated levels.


Continuing claims fell by 15,000 to a seasonally adjusted 3.3 million. This number has been holding steady over the last month, just off this years lows.


Total claims for unemployment, which lags initial claims by two weeks, gained for the first time this year. Total claims rose by just over 71,000 to 5.9 million. The rise in initial and continuing claims during June is starting to make itself seen in the total claims figures.


The final revision for first quarter GDP was also released today. The number was confirmed at the previously released 1.9%. The release was not unexpected but some of the internal figures were below expectations and are leading further speculation on the quality of growth in the second half of the year. Consumer spending, which accounts for about 70% of US economic activity, grew by 2.5%, slower than the previously estimated 2.7%. Exports and business inventories also grew less than expected. Exports gained 4.2% versus the estimated 7.2% and business inventories grew by $54.4 billion, $3.3 billion less than expected.


Speculation over the second quarter outlook was over shadowed by the supreme court ruling on Obama care. The court ruled that the law as written is constitutional and sparked heated debate. Health care stocks jumped on the news while health insurers declined. The Health Care Spider (XLV) dropped today on heavy volume. The downward move was halted at the 30 day moving average, which is pointing up. The ETF is approaching resistance at $38.

Health Care Spider, daily

Health care providers like Universal Health Services and Team Health Holdings made significant gains on the supreme court ruling. These companies provide health services in the form of hospitals, clinics and staffing, all areas set to benefit from the new health reform laws. Universal Health Services climbed more than 7.5% on high volume. Team Health Holdings also gained significantly, climbing close to 9% today and making a new all-time high. Today's gains could be short lived as the health law is not yet in effect.

Universal Health Services, daily

Team Health Holdings, daily

Oil fell again today on continued worries of Eurozone trouble and slowing world growth. Light sweet crude led the decline, losing $2.31. Brent crude and gasoline also fell. The iPath S&P Crude Oil Total Return ETF (OIL) fell today in tandem with the drop in crude prices. The ETF has been trending down for two months and broke long term support in today's session.

iPath S&P Crude Oil Total Return ETF, daily

Gold and other precious metals were also hit hard today. The price of gold fell more than $27 during the day, coming close to $1550 an ounce. Silver was the hardest hit of the metals, losing more than 2.5%. The CBOE gold index fell by 2% today.

CBOE gold index, daily

JPMorgan hit the headlines again today. This morning a release stated that losses from the London Whale could total $9 billion. Later on in the day, further reporting revealed that the estimation was more than a month old, was a worst case scenario and that JPMorgan has nearly completed exiting the bad trades. Shares of the stock fell below the short term moving average for a time before rallying into the close.

JPMorgan, daily

The Financial Sector Spider is trading near the middle of its 12 month range. The ETF fell about 1.5% intraday but recouped most of the days loss before the closing bell.

XLF, daily

AOL announced a $400 million stock buyback plan today. The move is the first of several that are re-investing proceeds from patent sales to Microsoft earlier this year. The stock jumped in early trading and managed to hold onto some of the gains through the close of trading. Today's jump in price pierced a resistance level and could signal further advancement.

AOL, daily

Rupert Murdoch's announcement of the splitting of News Corp has kept the stock price up this week. The stock made a break out earlier this week and looks strong in the near term.

News Corp, daily

About two dozen companies released earnings statements today. Nike, Smith & Wesson, Family Dollar and Research in Motion were prominent on the list. Nike shares were hit hard during the day in anticipation of earnings released after the bell. The shares continued their fall in after hours trading when Nike announced it's profits were shrinking in the face of growing revenue.

Nike, daily

Smith & Wesson announced after the bell that quarterly and yearly profits increased by 27 and 20% respectively. The gains were made on improving sales and reduced overhead costs. The stock climbed in after hours trading, gaining roughly 10%.

Smith & Wesson, daily

Family Dollar stores reported the 17th consecutive quarter of double digit earnings growth. Comparable store sales drove earnings growth with a 5% increase over last year. Earnings per share were $1.05, a company record. Total income in the period increased by over 12% and were positively impacted by two sale-leaseback transactions. Management also reaffirmed this years guidance in the statement. The stock opened sharply lower but found support during the day.

Family Dollar, daily

Research in Motion also reported after the bell today. The Blackberry maker has been struggling with sales of its Blackberry devices and a new CEO this year. The Zacks consensus estimate was for a loss of $0.02 per share, a massive 100% drop from the same period last year. The actual results were far worse. RIMM posted a net loss of $0.99 per share and has pushed back the release of Blackberry 10 until early 2013. In the release the company also stated that it is going to be laying off 5,000 employees. The shares, which had been suffering, took a beating in after hours trading dropping close to 20%.

Research in Motion, daily

Stifel Nicolas initiated coverage on Ford Motor Company with a hold rating. Slow sales were cited as a reason for the rating. Several other analysts have been commenting on Ford recently with an average price target around $12. The stock is currently trading around $10, where the stock has had support in the past.

Ford Motor Company, daily

The volatility index climbed earlier today, crossing back above the 20 level, but fell before the close to end the day at $19.71.

Volatility Index, daily

Futures were down about 80 points this morning before the release of economic data. The basically expected news failed to move the markets one way or the other. After the open, the major indexes maintained their ground until the Supreme Court ruling on Obama care added bearish momentum to the mornings trading. Following the announcement stocks began to slide, hitting their lows for the day around 2:30.

A late day rally brought the Dow Jones index back up above 12500, a previously important support/resistance level. Today's move was made on weak volume and mixed internals. Advancing stocks were outnumbered by declining stocks by about 1:2 for most of the day. The Nasdaq suffered more than the NYSE or AMEX, with an advance/decline ratio closer to 1:3. The afternoon rally brought more stocks into the green.

Dow Jones Industrial Average, one day

Dow Jones Industrial Average, daily

The S&P traded in a similar range as the Dow. The broader index recovered enough ground to close just below the short term moving average. Momentum remains weakly bullish.

S&P 500, daily

The Nasdaq suffered the steepest loss today, closing down by more than 1%.

Nasdaq, daily

I am expecting to see more sideways market action as traders and investors prepare for the second half of the year. The economic data is mixed, showing a growing but listless economy and deteriorating business conditions. Tomorrow look out for Personal Income and Spending figures, Chicago PMI reading and the Michigan Sentiment indicator. Next week look out for June data including car sales and job creation figures.

Thomas Hughes


New Plays

Storage & Memory

by James Brown

Click here to email James Brown

Editor's Note:

Additional Trading Ideas:

In addition to tonight's new candidate, consider these stocks as possible trading ideas and watch list candidates. Many of these need to see a break past key support or resistance:

(bullish ideas) IR, HCN, DDD, IPHS, SYNC, JBSS, AMSG, JBHT

(bearish ideas) RUE


NEW BEARISH Plays

SanDisk Corp. - SNDK - close: 34.70 change: -0.71

Stop Loss: 35.35
Target(s): 31.25
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
SNDK is in the data storage and flash memory industries. The stock has seen a very sharp decline in the second quarter but the oversold bounce is rolling over (again). Now SNDK is flirting with a breakdown under support in the $35-34 zone.

Today's low was $34.00. I am suggesting a trigger to open bearish positions at $33.90. If triggered our target is the early June low. We'll plan to exit at $31.25. More aggressive traders could aim for the $30 level instead.

Trigger @ 33.90

Suggested Position: short SNDK stock @ (trigger)

- or -

buy the Jul $33 PUT (SNDK1221S33) current ask $0.95

Annotated chart:

Entry on June xx at $ xx.xx
Earnings Date 07/19/12 (unconfirmed)
Average Daily Volume = 5.5 million
Listed on June 28, 2011



In Play Updates and Reviews

A Mixed Day for Retail Stocks

by James Brown

Click here to email James Brown

Editor's Note:
It was an odd day for retail stocks with some underperforming and some outperforming the market.

Both TJX and KSS were stopped out.

Current Portfolio:


BULLISH Play Updates

ACI Worldwide, Inc. - ACIW - close: 43.13 change: -0.30

Stop Loss: 41.25
Target(s): 49.00
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
06/28/12 update: ACIW dipped to short-term support near $42.00 and its 10-dma before bouncing. Aggressive traders could use this intraday bounce as a new entry point (if the market opens positive tomorrow) but I am suggesting we stick to our plan and use a trigger to open positions at $44.05.
FYI: The Point & Figure chart for ACIW is bullish with a $56 target.

Trigger @ 44.05

Suggested Position: buy ACIW stock @ (trigger)

Entry on June xx at $ xx.xx
Earnings Date 07/26/12 (unconfirmed)
Average Daily Volume = 318 thousand
Listed on June 27, 2011


McMoRan Exploration - MMR - close: 12.70 change: +0.40

Stop Loss: 9.49
Target(s): 13.50
Current Gain/Loss: +22.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/28/12 update: MMR continues to shine. The stock is powering past resistance levels and surging to multi-week highs. The $13.00 level could be resistance so readers will want to seriously consider taking profits right here! The Aug. $10 call has risen to (bid) $3.05.

I am not suggesting new positions at this time.

Earlier Comments:
MMR could see a short squeeze. The most recent data listed short interest at 21% of the float. I do see potential resistance at $11.50 and the simple 200-dma but we're setting our multi-week target at $13.50.

current Position: Long MMR stock @ $10.35

- or -

Long Aug $10 call (MMR1218H10) Entry $1.45

06/28/12 the $13 level could be resistance. Readers will want to seriously consider taking profits right here!
06/19/12 triggered @ 10.35

Entry on June 19 at $10.35
Earnings Date 07/17/12 (unconfirmed)
Average Daily Volume = 2.5 million
Listed on June 18, 2011


Sprint-Nextel Corp. - S - close: 3.26 change: +0.13

Stop Loss: 2.89
Target(s): 3.70
Current Gain/Loss: + 4.2%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
06/28/12 update: Sprint was also showing some relative strength today. The stock rallied +4.1% and is approaching its recent highs. The 300-dma near $3.30 could prove to be resistance. I am not suggesting new positions at this time.

current position: Long S stock @ $3.13

Entry on June 20 at $ 3.13
Earnings Date 07/26/12 (unconfirmed)
Average Daily Volume = 53 million
Listed on June 19, 2011


Six Flags Entertainment - SIX - close: 53.11 change: +0.12

Stop Loss: 49.95
Target(s): 56.50
Current Gain/Loss: + 2.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/28/12 update: SIX spent the session churning sideways but did close on its highs for the day. I am not suggesting new positions at this time.

Our target is $56.50. FYI: The Point & Figure chart for SIX is bullish with a $68 target.

current Position: Long SIX stock @ $52.05

06/26/12 triggered @ 52.05

Entry on June 26 at $52.05
Earnings Date 07/24/12 (before the opening bell)
Average Daily Volume = 512 thousand
Listed on June 25, 2011


Ventas, Inc. - VTR - close: 61.85 change: +0.86

Stop Loss: 57.90
Target(s): 64.50
Current Gain/Loss: + 3.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/28/12 update: VTR displayed relative strength and broke out to new all-time highs. Readers may want to consider raising their stop loss.

current Position: Long VTR stock @ $59.71

06/23/12 triggered on the gap down at $59.71
06/18/12 Entry point conditions were not met this morning.
Adjust strategy to buy a dip at $60.00.

Entry on June 25 at $59.71
Earnings Date 08/02/12 (unconfirmed)
Average Daily Volume = 1.9 million
Listed on June 16, 2011


Zumiez, Inc. - ZUMZ - close: 38.18 change: -1.09

Stop Loss: 38.40
Target(s): 44.00
Current Gain/Loss: unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Comments:
06/28/12 update: ZUMZ underperformed today with a -2.7% decline. Shares are churning between resistance at $40 and potential support at the 50-dma. If ZUMZ does not improve soon we will drop it as a candidate.

Earlier Comments:
Shares of this action sports related apparel company could see a short squeeze. The most recent data listed short interest at 19.4% of the very small 22.3 million share float.

I am suggesting a trigger to launch bullish positions at $40.05. We'll aim for $44.00.

Trigger @ 40.05

Suggested Position: buy ZUMZ stock @ (trigger)

- or -

buy the Aug $45 call (ZUMZ1218H45)

Entry on June xx at $ xx.xx
Earnings Date 08/23/12 (unconfirmed)
Average Daily Volume = 531 thousand
Listed on June 26, 2011


BEARISH Play Updates

Acme Packet, Inc. - APKT - close: 17.96 change: +0.12

Stop Loss: 21.05
Target(s): 17.00
Current Gain/Loss: + 9.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
06/28/12 update: Thursday was a quiet session for APKT with the stock churning sideways under the $18.00 level. Readers may want to take profits now. I am not suggesting new positions at this time.

Earlier Comments:
More aggressive traders could aim lower since the Point & Figure chart for APKT is bearish with a $13.00 target. We want to keep our position size small since being short APKT is a popular position. The most recent data listed short interest at 18.7% of the 58.2 million share float.

*Small Positions*

current Position: short APKT stock @ $19.90

- or -

buy the Jul $20 PUT (APKT1221S20) entry $1.50

06/28/12 readers may want to take profits now
06/25/12 triggered @ 19.90

Entry on June 25 at $19.90
Earnings Date 07/19/12 (unconfirmed)
Average Daily Volume = 1.6 million
Listed on June 21, 2011


BJ's Restaurants, Inc. - BJRI - close: 37.01 change: -0.13

Stop Loss: 39.35
Target(s): 35.10
Current Gain/Loss: + 1.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
06/28/12 update: BJRI hit a new 52-week low, trading under $37.00, on an intraday basis. Shares should have short-term resistance near $38.00 and its 10-dma if BJRI manages a bounce. I am not suggesting new positions at this time.

Earlier Comments:
Let me warn you now that being short BJRI is a popular position with the most recent data listing short interest at 22% of the very small 24.5 million share float. That does raise the risk of a short squeeze. Readers may want to keep their position size small or play the options instead.

current Position: short BJRI stock @ $37.69

- or -

Long Jul $40 PUT (BJRI1221S40) Entry $2.86

06/25/12 triggered on gap down at $37.69

Entry on June 25 at $37.69
Earnings Date 07/19/12 (unconfirmed)
Average Daily Volume = 496 thousand
Listed on June 23, 2011


Eaton Corp. - ETN - close: 37.48 change: -0.09

Stop Loss: 38.51
Target(s): 35.25
Current Gain/Loss: +5.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/28/12 update: ETN is little changed for the day. Shares continue to churn sideways inside the $37-38 zone. Readers may want to take profits now.

current Position: short ETN stock @ $39.54

- or -

Long Jul $40 PUT (ETN1221S40) Entry $1.45

Entry on June 21 at $39.54
Earnings Date 07/23/12 (unconfirmed)
Average Daily Volume = 5.7 million
Listed on June 20, 2011


7 Days Group Holdings Ltd. - SVN - close: 10.21 change: +0.11

Stop Loss: 10.65
Target(s): 8.50
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
06/28/12 update: SVN came close but the stock did not hit our trigger to open positions. The stock dipped to $9.96 before bouncing. Currently, I am suggesting a trigger to open small bearish positions at $9.95. If triggered we'll use a stop loss at $10.65, just above today's high. Our exit target is $8.50.

Trigger @ 9.95*SMALL Positions*

Suggested Position: short SVN stock @ (trigger)

Entry on June xx at $ xx.xx
Earnings Date 08/16/12 (unconfirmed)
Average Daily Volume = 88.7 thousand
Listed on June 27, 2011


CLOSED BULLISH PLAYS

The TJX Companies - TJX - close: 41.60 change: -0.65

Stop Loss: 41.15
Target(s): 47.00
Current Gain/Loss: - 4.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
06/28/12 update: The relative weakness in TJX was a bit surprising. The stock broke down under a small cloud of moving averages including the 20, 30, 40, and 50-dma. Our stop loss was hit at $41.15.

closed Position: Long TJX stock @ $43.24 exit $41.15 (-4.8%)

- or -

Jul $45 call (TJX1221G45) Entry $0.40 exit $0.05 (-87.5%)

06/28/12 stopped out at $41.15
06/27/12 TJX hit $42.00 as expected.

chart:

Entry on June 19 at $43.24
Earnings Date 08/14/12 (unconfirmed)
Average Daily Volume = 5.7 million
Listed on June 18, 2011


CLOSED BEARISH PLAYS

Kohl's Corp. - KSS - close: 44.55 change: +0.99

Stop Loss: 44.26
Target(s): 40.10 & 38.00
Current Gain/Loss: - 2.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
06/28/12 update: It was an odd day for retail stocks. TJX sank while KSS rallied. Shares of KSS outperformed the market with a +2.2% gain and hit our stop loss at $44.26.

closed Position: short KSS stock @ $43.05 exit $44.26 (-2.8%)

- or -

Jul $42 PUT (KSS1221S42) Entry $0.85 exit $0.45 (-47.0%)

06/28/12 stopped out at $44.26
06/25/12 trade opened on gap down at $43.05 (below our trigger of 43.20)

chart:

Entry on June 25 at $43.05
Earnings Date 08/09/12 (unconfirmed)
Average Daily Volume = 4.75 million
Listed on June 23, 2011