The Nasdaq continues to hold at the highs at 5,100 and the Russell 2000 small caps are actually outperforming. In theory this would suggest fund managers are not afraid of a June swoon and they are already beginning to window dress their portfolios for the end of the half.
The Nasdaq traded over its historic high close of 5,106 intraday to 5,114 but could not hold it. The tech index slipped slightly to close at 5,099 and right at that 5,100 resistance level. When you consider the Dow hit +156 intraday and then gave back -90 points to close at 18,076 and back under the 18,100 resistance I would have expected the Nasdaq to weaken more.
The Russell 2000 actually broke through resistance at 1260 to creep slightly higher by +12 points. The Russell actually close within half a point of the high of the day. There was roughly $500 million to sell at the close on the NYSE and the Russell did not even blink.
One analyst said today that the market does not hang around at highs and lows to give you a chance to make a rational decision on buying or exiting. If the market is going to make a top it is normally a quick spike and then a sudden decline. The same with bottoms. The indexes crash on accelerating selling then suddenly they rebound. He said when a market hangs around resistance long enough it normally moves higher. Holding at resistance gives traders time to consolidate prior gains and time for the shorts to load up again. He said the longer the hang time the more likely the move higher continues.
The hang time on the Nasdaq has been more than two weeks. Every dip was bought but resistance continued to hold. The market action today suggests the tech sector wants to move higher. Whether overseas headlines and U.S. economics will allow it is another question.
The Greek situation will reach a crisis point over the next several days. While it does not directly impact the U.S. markets it will impact Europe and a crash or rebound in Europe will give us direction for a day or two.
The nonfarm payrolls on Friday are also a challenge. A really good number could give us the momentum to break through resistance unless it is so good that the Fed jumps back into the rate hike picture.
We moved into the July positions this week and I only added two because of the long time until expiration. I want to ease into the July portfolio until we see what the market is going to do. In this market six weeks is forever.
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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.
QRVO - Qorovo (Stopped)
QRVO dropped -$7 in four days to stop us out at $81.45. Of course as soon as we were stopped it quit falling so our long put quit rising. I could close the put for a small gain but I am worried about the market. We lost a lot on the short put so I am adding a stop loss to keep from giving back the remaining premium on the long put and if we are lucky QRVO will continue declining with the market.
Closed Short June $80 put, entry $1.14, exit $2.15, -1.01 loss.
Retain long June $75 put, add stop loss at $82.65
LNG - Cheniere Energy (Close)
We had the right play on Cheniere with a bear call spread but the stop was too close. We were stopped out of the short call two weeks ago and LNG has accelerated its decline. I am recommending we close the long call while it still has a little value rather than let it expire.
Close long June $85 call, entry .70, currently .06, -.64 loss.
WYNN - Wynn Resorts (Close)
Wynn has failed to decline for the last two days despite bad news out of Macau. Rather than wait for our stop to be hit I am recommending we close the short call. Wynn can move in a hurry with the right stimulus. The call is only 4 cents today so we are not giving up much and we are reducing the risk.
Close short June $120 call, entry $2.50, currently .04, +$2.36 gain
Retain long June $125 call. No stop.
CLDX - CellDex (Close)
The positive uptrend in CLDX has died. Shares rolled over on news from the cancer conference. Our short put is profitable and I want to close it before it bleeds any more premium. We have a good chance for the long put to rise if this decline continues.
Close Short June $25 put, entry .86, currently .56, +.30 gain.
Retain long June $21 put, no stop.
GMCR - Green Mountain Coffee Roasters (Bear Call Spread)
GMCR posted disappointing earnings and warned about future guidance. Sales of the new brewers were down and subject to repeated recalls. Things were so bad that they are going back and start manufacturing their old models again.
The new brewer for cold carbonated drinks was priced about three times more than what analysts had expected and they are only going to sell them online until 2016. The downgrades have been pouring in and GMCR is in a steep decline.
Earnings August 5th.
Sell short July $90 call, currently $1.36, stop loss $87.65
Buy long July $95 call, currently .71, no stop.
Net credit 65 cents.
HLF - Herbalife (Bull Put Spread)
Herbalife closed at a new seven month high on Tuesday. They are becoming more aggressive on fighting back against Bill Ackman. The created a website called TheRealBillAckman.com that is a serious attack on Ackman and points out a lot of his investing losses from the past and even references to investigations into possible stock trading problems with the SEC. As this information filters through the investing community it should make some copycat shorts reconsider their positions especially when Herbalife shares are rising.
Earnings July 27th.
Sell short July $45 put, currently $1.01, stop loss $49.85
Buy long July $37.50 put, currently .45, no stop.
Net credit 56 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)
CLDX - CellDex (Bull Put Spread)
QRVO - Qorovo (Bull Put 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.
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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.