Who would have thought at the close on Tuesday that the Nasdaq would rebound to close at a new high on Wednesday? While I expected the market to rebound I did not expect a new high the next day.

You can thank the very active M&A activity for the big gains. Netflix, Nvidia, Broadcom and Avago were just a few of the names posting solid gains on M&A rumors and activity. The problem here of course is whether the gains will last. The trouble with gains on headlines is that they are normally one day events.

One problem for Thursday could be the Broadcom acquisition by Avago. The board was rumored to be meeting Wednesday night to discuss the potential purchase after talks concluded. No price was given but some analysts said it could be as high as $58. So what happens if a) Avago decides BRCM spiked too much and pass on the acquisition? Or b) what if the price is only $52?

In both cases Broadcom shares will crash on Thursday. Broadcom is a Nasdaq component and the $10 spike today helped push the index higher. If it crashes tomorrow it could drag the Nasdaq down with it.

On Tuesday the down volume was 5:1 over advancing volume. Today advancing volume was only 3:1 over declining. Yesterday volume was 6.3 billion shares. Today only 5.9 billion. The internals are still weak. Wednesday was powered by a decent short squeeze because the negativity on Tuesday prompted many traders to load up on shorts.

The Dow rebound failed to return to the prior resistance at 18,200. This could be just one more dose of volatility as we near the end of the month. I still believe June could be positive but that does not mean we are going straight up. There could be a meaningful dip before a June rally. We need to be cautious and not overload our positions.

None of our positions were stopped out over the last week and the individual charts are moving in the right direction. Keep your fingers crossed that the market volatility is constrained as we ease into June.

Jim Brown

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Current Portfolio

Current positions

Current Position Changes

Stop Loss Updates

Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.

No changes to existing positions

New Recommendations

CLDX - CellDex Therapeutics (Bull Put Spread)

Celldex is a biopharmaceutical company that develops, manufacturers and commercializes novel therapeutics in the USA. They have multiple drugs in late stage trials and all of them are positive.

Celldex reported earnings that were better than expected and updated investors on the drugs in their pipeline. The information was warmly received and shares have moved higher ever since. On May 13th they released some data from a phase 1/2 study CDX-301 and CDX-110 at the American Society of Clinical Oncology meeting in Chicago. That data was also positive. Shares are recovering from the second biotech wreck in late April.

Earnings July 29th.

Sell short June $25 put, currently 75 cents, stop loss $26.65
Buy long June $21 put, currently .35 cents no stop.
Net credit 40 cents.

QRVO - (Bull Put Spread)

Qorovo is a tech company that provided radio frequency solutions for mobile, infrastructure and aerospace/defense applications in the USA and internationally. They have their own chip foundry to make their specialized chips and prevent hacking of their designs and processes. They have a heavy military product offering and are leading in their field. They were started in 1991 but they just went public in January.

Since January 15th seven brokers have either initiated or upgraded QEVO with/to a buy rating.

Earnings August 5th.

Sell short June $80 put, currently .90, stop loss $81.45
Buy long June $75 put, currently .40, no stop.
Net credit 50 cents.

Existing Play Recommendations

Links to original play recommendation

WYNN - Wynn Resorts (Bear Call Spread)

LNG - Cheniere Energy (Bear Call Spread)

FSLR - First Solar (Bear Call Spread)

DDD - 3D Systems (Bear Call Spread)

GPRO - GoPro (Bull Put Spread)

TRGP - Targa Resources (Bear Call Spread)

SWIR - Sierra Wireless (Bear Call Spread)

Prices Quoted in Newsletter

At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.

The prices quoted in the newsletter are the end of day prices in most cases.

When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.

For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.

For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.

All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.