Option Investor

Daily Newsletter, Saturday, 3/29/2014

Table of Contents

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

Market Wrap

Tax Selling Over?

by Jim Brown

Click here to email Jim Brown

The last week of March lived up to its seasonal trend with a decline in all the major indexes except for the Dow and NYSE.

Market Statistics

The Russell 2000 was the leader for the week and it led to the downside with a -3.51% drop followed by the Nasdaq with a -2.83% decline. The Dow actually posted a small gain for the week as big caps were favored as a place to store cash in a weak market.

Historically the market declines in the last week of March just over 71% of the time. That historical trend just gained another data point after last week. Analysts attribute it to portfolio rebalancing before quarter end where managers finally take profits from those stocks they held over the December 31st tax year in hopes of squeezing out a few more gains. I think the main reason for the selling is the coming income tax deadline on April 15th. Investors are closing positions and taking cash out of the market in order to pay their taxes. That is probably the same reason for fund managers reducing positions. Investors are withdrawing money from funds to pay taxes and fund managers have to reduce positions to maintain cash positions. Whatever the reason for the seasonal end of March decline it was right on schedule.

Biotechs or bio-wrecks continued to be the weakest sector with another -6.67% decline. Critical support levels have broken and the dip buyers, including me, thinking the 100-day average would hold have taken additional losses. This continued implosion in the sector with the biggest gains would appear to support the tax selling theory. The bio-wrecks were up +66% last year and more than 31% YTD in late February and that gain has been cut to only +7.5% YTD. That is a major -17% decline from the high with no end in sight.

There was a weak slate of economic reports and they were ignored by the market. The final revision of the Consumer Sentiment for March rose slightly from 79.9 to 80.0. That is still the lowest level since December. The present conditions component rose fractionally from 95.4 to 95.7. The expectations component declined from 72.7 to 70.0 as the economic outlook for consumers seems to be deteriorating. Analysts immediately blamed the weather.

Employment issues continue to dominate sentiment. The Household Survey showed that nearly 7 million full-time workers were pushed to part-time status in February. That is the third worst month on record. That suggests consumers worked less hours and received less money on their paychecks in March. Add to that the increase in insurance costs and blue collar consumers are under pressure.

Next week has a very heavy economic calendar. This is the week for ISM and Employment. The ISM manufacturing is on Tuesday and it is expected to improve only slightly despite the warmer weather in March. Any improvement would be appreciated after dipping to 51.3 in January and rising to 53.2 in February. Any gain from here would be seen as strengthening in the manufacturing sector.

The ISM Nonmanufacturing Index will be on Thursday and it is expected to rise from 51.6 to 53.0. Warmer weather does help service businesses a lot more than manufacturing.

The employment reporting begins on Tuesday with the Intuit Small Business Employment followed by the ADP Employment on Wednesday. The consensus estimate for the ADP report is a gain of +193,000 jobs. The range for that consensus varied from 150,000 to 220,000.

The Nonfarm Payrolls on Friday is expected to show a gain of +206,000 jobs for March compared to +175,000 in February. The range on the estimates goes from 175,000 to 275,000. Clearly analysts believe the employment situation picked up significantly in March.

If the payroll reports fail to reach the consensus I doubt the market will really care since any shortfall will be blamed on the weather unless the number is dramatically lower. However, if the number is significantly higher we could see an adverse reaction because investors will immediately begin to factor in a rapid end to QE and the beginning of rate hikes. We need a Goldilocks number in the Nonfarm report of something in the +185,000 range. That is strong enough to suggest growth but not strong enough to suggest a rapidly improving economy. Slow and steady wins the race.

Also on tap for next week is the official China Manufacturing PMI. While the actual number is thought to be largely fictitious it could still upset the market if it is unexpectedly low. The HSBC China PMI fell to 48.1 last week but the government number will likely be more politically correct in the low 50s.

Janet Yellen will speak on Monday morning and the market will be watching to see if she tries to walk back the "considerable period = six months" comments from the post FOMC press conference. With Bullard trying to talk up rates she may try to push sentiment more in the opposite direction of lower rates for a longer time.

Lastly the ECB meets on Thursday to decide rates. There are some expectations they will do something to drive rates lower and possibly begin their own QE program. Officials from the German Bundesbank made comments last week suggesting they had dropped their objections to QE by the ECB. They had been vocal opponents and having them become converts could mean there is a coming change in the monetary policy by the ECB.

The market got a gift from a Fed head on Friday. Chicago Fed President Charles Evans said "I personally doubt the Fed funds rate is going to start to increase before the middle of 2015. It is more likely to be late, after the middle of 2015. I would actually like to hold off until early 2016 for the first rate increase." He added he expects the Fed funds rate to be at 1.25% at the end of 2016.

That makes him the second most dovish person at the Fed based on the long term projections released at the March meeting. The documents don't tell us who is more dovish only that they expect rates in 2016 to be .75%.

Evans warned that global economies were not ready for the Fed to normalize rates. He said "if we go out and pound that message repeatedly, then it gives every economy a chance to get their own house in order and deal with their own financial situation and we will all grow together." When the Fed raises rates it rapidly strengthens the dollar and sends bond yields higher. If other countries are not taking steps to offset the strengthening dollar then their economies weaken.

The comments by Evans offset the extremely hawkish comments by St Louis Fed President James Bullard earlier in the week. Bullard said he saw rates rising early in 2015 and ending the year at 3.0% with rates rising to 4.0% to 4.25% in 2016. Most Fed heads are expecting something in the 3% range at the end of 2016. Fed funds futures are projecting a 50% chance of the first rate hike being June 2015.

In stock news Tesla (TSLA) got some good news. The NHTSA board said an investigation into the two fires caused by a Model S running over large chunks of road debris had concluded. The NHTSA said there was no defect in the Model S and they ended the investigation. At the same time Tesla said they had made a change in all Model S cars made since March 6th. The new cars would have the addition of a titanium skid plate under the car to protect against road debris puncturing into the batter compartment. Tesla also sent notices to existing owners telling them they could come in and get the upgrade if they were worried about the problem. Tesla stressed it was not a recall but a voluntary upgrade for those that wanted it.

Late Friday the State of New York said Tesla could continue to operate its five company owned stores in the state but could not add more. The company won a similar deal in Ohio where it can keep the two existing stores and add one more.

Tesla shares rallied +$5 on the news in regular trading and another $2 in afterhours to $214.41.

This was IPO Friday and it was not a good day to go public. Everyday health (EVDY) priced at $14 and closed at $13.50. 2U Holdings (TWOU) priced at $14 and closed at $13.98 after dipping as low as $11.77. Aerohive Networks (HIVE) priced at $10 and traded down to $8.81 before rebounding at the close to end at $10.25. Bluerock Residential Growth (BRG) priced at $14.50 and closed at $14.55.

CBS Outdoor (CBSO) priced at $28 and closed with a small gain at $29.50. CBS Outdoor has 330,000 outdoor advertising signs in the U.S. and 26,200 in Canada and Latin America. After the IPO the plan is to convert to a REIT.

The winner was Energous (WATT), which priced at $6, opened at $9.50 and closed at $10.40 for a 76% gain. They produce wireless charging systems for tablets and phones.

Caesars Entertainment (CZR) fell -7.4% after saying it will offer 7 million shares worth $147 million. Shares fell to $19.52 and the lowest level since December 10th. Shares have fallen -25% this month. Caesars has $23 billion in debt and does not generate enough cash to pay its expenses. The company said it was going to close the Harrah's casino in Tunica Mississippi because of declining revenue. Gambling revenue in Las Vegas has declined -20% over the last month according to the Nevada Gaming Control Board. An affiliate, Caesar Growth Partners is trying to raise $2 billion in debt to purchase four casinos from Caesars Entertainment Operating Co. The company said it had received a letter from some debt holders challenging that asset transfer. The future is not bright for Caesars.

Red Hat (RHT) reported earnings Thursday night of 39 cents compared to estimates of 37 cents on revenue of $400 million. On the conference call the company disappointed analysts with their projections for 2014. Earnings forecast for Q1 was a range of 32-33 cents and analysts were expecting 37 cents. For the full year they guided earnings between $1.54-$1.56 and analysts were looking for $1.62. Shares declined -7% on Friday.

Restoration hardware (RH) reported earnings of 83 cents and revenue of $471.7 million compared to estimates of 83 cents and revenue of $493 million. That was a miss but they made up for it in their guidance. They guided for Q1 for a range of 9-11 cents and analysts were expecting 7 cents. For the full year they guided for $2.14-$2.22 compared to estimates for $2.17. That compares to previous guidance of $1.71-$1.74. Shares spiked +13% on the news.

Blackberry (BBRY) shares fell -7% to $8.40 after reporting a loss of 8 cents compared to estimates for a loss of 55 cents. Revenue was $976 million, down from $2.7 billion and missing estimates for $1.1 billion. CEO John Chen is getting plenty of praise from analysts but the stock is still tanking. Chen said Blackberry should be cash flow positive by year end and profitable next year. Where have we heard that before? Chen said Blackberry is probably a quarter ahead of schedule in its restructuring plans.

If Chen can return Blackberry to profits and just get the share price back over $20 he will be a hero. It would take a team of superheros to return it to its former glory at $148.

Visa (V) settled a class action suit over card swipe fees last December for $5.7 billion. Visa and MasterCard (MA) were charged with price-fixing and violating antitrust laws. About 8,000 retailers elected not to join in the settlement and seek their own remedy. Walmart (WMT) was one of those 8,000 companies. Walmart filed suit against Visa for $5 billion claiming the company charged excessive swipe fees. Other giants like Amazon (AMZN) and Target (TGT) also opted out of the settlement. The National Retail Federation (NRF) wants to overturn the settlement claiming Visa and MasterCard have begun levying excessive surcharges in lieu of the swipe fees and not in the spirit of the settlement.

Visa's future looks bad. Agreeing to settle for $5.7 billion is pretty much a guilty plea in the class action case. Although Visa probably did not have to admit wrong doing it won't be hard to prove using the data presented in the class action. That means Walmart and hundreds of those 8,000 companies that opted out of the settlement are going to win judgments. This is going to be in the tens of billions of dollars. The only bright side is that it will take years to wind through the courts.

Amazon (AMZN) has a big announcement scheduled for next week in New York and everyone believes it will be the long-rumored set-top streaming-video device linked to a subscription service. The Wall Street Journal said last week it would be a free service but an Amazon spokeswoman later said there were no plans for a free service. By acknowledging there would be no free service but not denying the announcement would be about streaming video she basically confirmed the rumors.

The streaming video service is rumored to include movies, commercials, television programming and music videos. This will probably be another benefit of the Amazon Prime subscription and available to others for a monthly fee. Prime members already have access to thousands of members using a PC or other device ported to their TV. The new service will give Amazon a new revenue stream and you can bet it will be at a discount to Netflix. I would not be surprised to see hundreds of commercials for Amazon products like the Kindle embedded in the video streams.

Amazon shares were caught up in the downdraft last week to close just under support at $340. They need a blockbuster announcement to push them higher. Meanwhile Netflix (NFLX) has lost -$100 since the $458 high on March 6th. Multiple competing announcements from Apple, Comcast and others have clouded the future for Netflix.

The AAII Sentiment Survey for Friday showed the number of bulls still outweighs the number of bears but those neutral on the market were in the majority. Bullish respondents were 31.2% and bearish 28.6% with 40.2% neutral. While the bullish and neutral numbers were about 10% off their long term averages the bearish camp was only 2% above normal. It seems you just can't convert a bull to a bear but you can confuse them enough to be temporarily neutral.

The social media sector has been decimated almost as bad as the bio-wrecks. The social media ETF (SOCL) is down -15% since the March 7th high. Facebook is down -17%, Twitter -20% and LinkedIn -12%. Google is down -9% and I list them here because of YouTube and Google Circles. I suspect Google's upcoming 2:1 stock split has also weighed on the stock price. The confusion over the class C non-voting stock investors will be getting next week is dragging the price lower.

Of the top ten sectors in the market only the Energy sector (XLE) and the Utility sector (XLU) posted gains last week. Utilities normally rise when investors expect the broader market to move lower. Investors wait out the expected correction while collecting dividends in the Utility sector. Seeing the XLU close near a new 52-week high suggests there are a lot of investors looking for a safe port in the coming storm.

The energy sector was up on rising oil prices and the constant talk about exporting oil and natural gas to help Europe escape the bonds of Russia. Apparently many investors don't understand the stupidity of those making the calls for exports. We import nearly 8 million barrels of oil per day for our own use. Why would we want to export oil to Europe when we don't have enough of our own?

We could export enough LNG to make a difference IF we had any export facilities and IF they did not take billions of dollars and 7-10 years to permit and build and IF we actually had a surplus of natural gas production of our own. None of those IFs currently exist. We hear constantly that the U.S. has 200 years of gas reserves and fracking has produced far more gas than we can use. Unfortunately that is mostly BS. Current gas supplies in storage are at 10 year lows. Active rigs drilling for gas are at 19 year lows. Gas production in 2013 was an average of 71.16 Bcf per day. Gas consumption averaged 71.33 Bcf per day and more than we produced. So exactly where is that gas going to come from to ship to Europe when we barely have enough for ourselves and any material export capability will not be completed until 2018-2020?

The broader markets were not as negative last week as it appeared on the surface. The majority of the damage was done in the Nasdaq and Russell 2000. The Dow actually closed positive for the week and the S&P only lost -9 points. However, the Nasdaq lost -121 points or -2.83% and the Russell -42 points or -3.5%. Unfortunately those two indexes were the leaders on the way up and now they are leading on the way down. Both closed near the lows for the week.

The S&P came very close to critical support at 1,840 and it is hard to believe the index set a new intraday high at 1,883 the prior Friday. The only bright point came from the vigorous rebound on Friday morning that lifted moods for a couple hours before the rebound failed and we drifted back towards the lows.

For next week the range to watch continues to be from support at 1,840 to resistance at 1,880. The percentage of S&P stocks under their 50-day average declined to 68.4%.

The Bullish Percent Index (BPI) for the S&P declined to 72%. That means 72% of the S&P stocks are still showing a buy signal on a Point & Figure chart.

The Dow gained +150 points at the open on Friday but then lost those gains to trade flat at 2:30. A short covering rally at the close lifted it back to a +58 point gain. Despite all the triple digit gyrations all week the Dow ended the week with a +20 point gain and closed right in the middle of the recent range.

There is nothing to be learned from the Dow last week. Dips were bought on low volume and spikes were sold on slightly higher volume. The Dow was not the battleground. All the fireworks were on the Nasdaq. The Dow has initial support at 16,200 followed by 16,050 with resistance at 16,400 followed by 16,450.

The Nasdaq lost -121 points for the worst week in 17 months. The index ended Friday with a +4 point gain on short covering ahead of the weekend. The index still closed near the lows for the week.

The low for the week was 4,131 and very close to critical support at 4,100. The prior support at 4,200 broke on Thursday and was then strong resistance on Friday. To say the bio-wrecks were the reason for the Nasdaq losses would be an understatement. On Friday only 3 of the top 25 losers were not a biotech or pharmaceutical stock. Eventually this group is going to find a bottom and traders will come roaring back into these former winners. Until then we watch and wait.

The 100-day average at 4,134 should be interim support followed by 4,100. Resistance is now 4,200, 4,250 and 4,325.

The Russell 2000 again proved to be our market sentiment indicator. I cautioned on Tuesday that Russell support at 1,172 was the key for the rest of the week. That support level failed at 1:PM on Wednesday and the rest is history. The index fell to 1,146 on Thursday, a level that was tested four times intraday with only small rebounds. The index spiked +16 points at the open on Friday but gave it all back to trade negative until just before the close where it gained +0.37 for the day. That is hardly a bullish sign.

The 100-day average at 1,146 is now support and that is also horizontal support from January. I don't have a lot of confidence it will hold but March is over and April is typically a bullish month. If the Russell can remain above this 1,146 level on Monday I would feel better about the rest of the week.

April was the first month to gain +1,000 Dow points in a single month according to the Stock Trader's Almanac. Since 2006 April has been positive every year with an average gain of +3.4% on the Dow. Let's hope this trend continues.

Focus on the Russell 2000 and the 1,146 level for guidance. Buy a rebound, sell a breakdown.

Random Thoughts

Let's not forget that the QE taper is actually a tightening of monetary policy. It may be from very accommodative to less accommodative but it is a tightening that is leading to a period where rates could be hiked. QE did help the markets. During QE1, which started in Nov 2008, the S&P rose +36%. Between QE1 and QE2 the S&P declined -9%. During QE2 the S&P rose +24%. Between QE2 and Operation Twist the S&P declined -12%. During Operation Twist the S&P rose +22%. QE3 began on 9/13/12 and Twist ended on 12/31/12 so there was no intervening period. During QE3 the S&P rose +24% until the taper announcement. Since the beginning of the QE taper the S&P has only risen +3% and it has been a very tough market.

As the taper progresses and QE shrinks the market is likely to weaken further. Since the recession the market has been fed with a solid stream of QE. When the Fed tried to end the various QE programs and put the markets on a diet they reacted negatively. The taper is just a way of ending the QE addiction without going cold turkey. QE and the accommodative Fed are going to end. The markets are going to react negatively. We can count on it.


Putin is trying to calm tensions surrounding the Ukraine. Late Friday he called President Obama and appeared to try and set the stage for a peaceful solution to the Ukraine problem. He has been massing troops, tanks and gunships on the Ukrainian border. As many as 100,000 troops have now been moved to the border area. President Obama said earlier on Friday the troops were not on exercises as Putin had claimed and it appeared he had ulterior motives and could be preparing to move into Ukraine. Obama warned that he had just met with the G7 and EU officials and serious sanctions would result if Putin moved into the Ukraine. A few hours later Putin called to chat.

Apparently the existing sanctions are causing problems for rich Putin backers and they are tightening the leash on their attack dog. In the chat with Obama he warned that Russia would have to invade Ukraine if the threats on Russian-speakers inside that country continued. Putin has received permission from the Russian parliament to send the armed forces into Ukraine if necessary.

That was the threat but the substance of the conversation was on a peaceful solution. President Obama quickly dispatched Kerry to meet with the Russian Foreign Minister to discuss a resolution. I believe Putin was playing his last card. "You calm the remaining voices over my annexation of Crimea and I will back off Ukraine." Putin is a strategic thinker. He already got what he wanted in Crimea and by bluffing an invasion of Ukraine he can negotiate from a position of strength. If he wanted all of Ukraine nobody could stop him. By giving President Obama and the G7 leaders a way to "win" on the Ukrainian situation they can claim victory on the sanctions and everyone backs down peacefully. Six months from now the sanctions can be quietly ended and the Crimean annexation will be history.

The "apparent" attempt in defusing the Ukrainian situation could give the markets a boost at the open on Monday. Whether that boost appears or lasts more than a few minutes with Janet Yellen scheduled to speak at 9:55 is the $64,000 question.

I wonder how many readers even remember the $64,000 Question quiz show from 1955-1958 where that was the top prize. I guess I need to update my references to something more recent so our younger readers can participate. In case you are wondering that $64,000 would be worth $560,000 today.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"No possible rapidity of fire can atone for habitual carelessness of aim with the first shot."
Theodore Roosevelt, The Wilderness Hunter, 1893


Index Wrap

Nasdaq May Be At Or Near a Bottom

by Leigh Stevens

Click here to email Leigh Stevens

The Nasdaq Composite (COMP) and the big cap Nas 100 (NDX) have now retraced a Fibonacci 62% of their last run up (or very close to that in the case of COMP), found support at their up trendlines and have reached 'fully' oversold readings, at least at the top end of that zone. If a tech bottom is at hand, the S&P 500 (SPX) could break out above its relatively narrow 1840-1880 trading range.

Moreover, the sideways trend in SPX and the big cap S&P 100 (OEX) has 'thrown off' prior overbought extremes seen at the late-November Market peak. SPX and OEX are now registering a more 'neutral' mid-range reading in terms of the 13-day (and 8-week) Relative Strength Index. This pattern tends to 'set up' increased potential for a next up leg; at least in a bull market this is the pattern.

March, which often brings a seasonally mixed to lower price trend, ahead of Q1 earnings reports, is about over. March 'madness' doesn't just pertain to correctly guessing the college basketball tournament winners! Gee I missed getting them ALL correct and collecting the offered billion dollars!! Don't know how that happened :-) !!!

The charts and my associated commentaries below will tell the story of what may lay next or at least my version of it.



The S&P 500 (SPX) index remains within its bullish uptrend channel but within SPX's broad uptrend, the Index has been going sideways since late-February within an 1840-1880 trading range. Generally, chartists assume, myself included, that sideways trends after a prolonged advance are consolidations ahead of another advance. Supporting this view so to speak is the fact that SPX is holding above the key 50-day moving average. Very strong index trends will tend to also trade above their 21-day averages, which isn't the case recently, although the S&P is trading mostly above this average and not far below it.

The sideways SPX trend also means that the Relative Strength Index or RSI continues to drift lower and this puts into a 'neutral' mid-range reading, which can be a 'set up' to a next advance. The broad S&P 500 index is holding up well in the face of the downside correction in the Nasdaq, which is also a bullish factor.

Bullish sentiment in the form of my daily volume ratio in CBOE calls to puts for equities has drifted lower, which in a contrary opinion sense, is bullish, 'perverse' that this may seem. I think all that's needed for another run up in the S&P is Nasdaq to put in a low for the current correction, which I think is near at hand for reasons discussed above and below with my Composite and the Nas 100 index commentaries.

SPX support is suggested at 1840, extending to 1830; next support then looks like it would come in around 1810, extending to 1800-1790. Near resistance is highlighted at prior intraday highs at 1880. Next resistance is projected for the upper end of SPX's broad uptrend channel.


The S&P 100 (OEX) chart suggests the Index is holding up well in the face of sector weakness elsewhere. More so than the broader S&P 500, the big cap OEX is maintaining Closes mostly above its 21-day moving average. It's true that the 830-832 area is turning back rally attempts but not by much and in the face of tech stock weakness of late, this performance is mildly bullish and suggests that the line of recent highs will be pierced ahead. Especially as we get into Q1 earnings announcements and the more seasonally and bullishly favorable April time frame.

Another technical note is that OEX has not even retraced what I consider a 'minimal' Fibonacci 38% retracement of its last advance or up leg dating from a 770 low.

Support is suggested at 810-806, extending to 800 and what would amount to a 50% retracement of the last upswing. Near resistance is highlighted at 830 and extends to 832. Next key resistance I measure around 845 at this juncture.

The 13-day RSI has drifted down toward a mid-range 50 reading and that's about as low as I think we'll see in this price momentum type indicator. Stay tuned on that!


Within an overall bullish trend, the Dow 30 (INDU) daily chart shows the same sideways pattern as the S&P 100 which I think is a marking time pattern ahead of more news, especially on Q1 earnings, which look like they will be ok on balance even given the severe winter weather. I'm not the best judge of that here on the Pacific Coast, which has had a seasonally warm Dec-March period. I sympathize with my New York/Midwest friends though!

Of the 30 Dow stocks, we're down to 8 (from 10) this week (CAT, DD, JNJ, JPM, MRK, MSFT, PFE and UNH) that continue to have bullish patterns OR at least haven't had apparent downside reversals or ones continuing in corrections. For example, AXP has faltering above 90 with 94 acting as a key resistance, NKE traced out a minor double top at 80 and V also witnessed a minor double top in the 233 area before falling under a prior line of support at 220. Individual stock assessments of the 30 are not always the end all-be all, as a majority of Dow stocks tend to get bid up when a rally comes in.

The Dow has had a 'minimal' 38% retracement and then rallied, which is a bullish plus. Support is seen at the prior intraday low at 16060. Next support is suggested in the low 15900 area.

Near resistance is seen at 16500, with next resistance at the prior 16600 high.


I wrote last week on and showed on an hourly chart basis, how the Nasdaq Composite (COMP) was in a bearish rounding top pattern suggestive of further downside ahead. Now however, at recent lows, COMP has retraced close to a 'Fibonacci' 62% of its early-February to early-March advance, which is about as much of a correction as we tend to see in the major indexes short of a 'round-turn' 100% correction back to a prior low; and how double bottom lows sometimes occur.

I don't assess COMP falling back to the 4000 area of the key prior low and figure the 4100 area as the lowest low for the current correction. I've noted support at 4145, at the up trendline, where we've seen COMP stop at already and this being yet another bullish factor.

Near resistance is highlighted in the 4250 area, then at 4333, extending to the prior intraday top around 4370.

A secondary bullish influence may result from COMP having reached a 'fully' oversold RSI reading, which was also seen in early-February just ahead of the rally that occurred from the dip under 4000 up to early-March highs around 4370.


The Nasdaq 100 (NDX) chart is bearish on a short-term basis, within an overall bullish uptrend. There are several 'technical' (as in technical analysis) reasons why I assess NDX as being at or close to a correction low which I've discussed already but here they are again in synopsis: 1.) Technical support likely having been reached at NDX's longstanding up trendline. 2.) Support suggested by completion of a Fibonacci 62% retracement of the last upswing; Retracements of 62-66 per cent are a common stopping point for bull market corrections. 3.) NDX is again at an 'oversold' reading according to the 13-day Relative Strength Index, which I also find as a good omen for the index in question to be at or near at least an interim, if not 'final', bottom.

Support is highlighted by green up arrows at 3560, extending to the 3540 area. If these levels are pierced and the downside correction resume, I've projected a next downside target and potential support to come in the 3500 area. If there was a sharp intraday dip to this area, I'd be looking at buying April NDX calls. This would add to bullish positions suggested in the 3550 area by the extent of the downside retracement and oversold readings. It's higher risk of course to ASSUME a bottom will be made before there's an actual upside rebound.

Overhead resistance is seen in the 3650 area, then at 3700. Very pivotal resistance then begins at the prior highs made at 3738.


The Nasdaq 100 tracking stock, QQQ, is short-term bearish, within an overall bullish uptrend. QQQ remains, barely, within my projected broad multimonth uptrend price channel.

For the reasons listed above for the underlying Nasdaq 100 Index, I anticipate that the QQQ ETF is at or near a bottom. I've noted expected/anticipated support coming in around 86.6, with support extending to near or at 86 even. If there is a decisive downside penetration of 86, I've noted a next downside target and potential next 'support' at 85.

As is common in corrections in QQQ we've seen daily trading volume 'spike' higher on downside price breaks. Just when I'd look to be buying in the 62-66% retracement area, traders/investors are selling or shorting on breaks of anticipated chart supports. This is the psychological pattern that favors many of the savviest most successful traders who buy when others are selling.

Near resistance is pegged in the 89 area, then above 90, at 90.6, extending to prior intraday highs at 91.3


The Russell 2000 (RUT) has retraced 50% of its last advance and got to the 1150 area; I wrote last week that " a decline to the 1150 area is the most I envision currently." Stay tuned on what the next few days bring as to the truth of my statement from a week ago.

Key resistance is seen in the 1170 area, then around 1190, extending then to prior highs ranging from 1205 to 1212.

Near support is down to 1150-1147 and if this area is penetrated by much at all we could be looking at a retest of trendline support implied by a dip to RUT's up trendline, currently intersecting in the 1130 area.

As with the Nasdaq, I consider RUT to be in bullish territory based on it having again reached what I rate as a 'fully' oversold condition in terms of the Relative Strength Index indicator. Rallies from at or near this level of 'oversold' (between 35-40 in the 13-day RSI) has been quite common in the bull market to date for the Russell.


New Option Plays

Software, Oil Services, & Mobile Chipsets

by James Brown

Click here to email James Brown

Editor's Note:

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

(bullish ideas)

(bearish ideas)


Tableau Software, Inc. - DATA - close: 76.20 change: +2.34

Stop Loss: 72.75
Target(s): 87.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
DATA is in the technology sector. The company provides business analytics software. They also offer their analytics software to the cloud computing industry. You could argue that DATA is in its own bear market with a drop from $100 to $72 over the last few weeks.

The stock did look like it got ahead of itself in February and started to correct lower in March. Then about a week ago the sell-off accelerated after DATA came out with a secondary offering of four million shares at $89.25. Investors hate seeing their investment diluted and four million new shares was more than 10% of the float.

The good news is that DATA appears to have found support in the $72-75 zone. While the NASDAQ was falling last week DATA did not participate. If Friday's bounce sees any follow through the stock could see some short covering. The most recent data listed short interest at 13% of the small 29 million share float.

I am suggesting small bullish positions if DATA can trade at $76.50. If triggered our target is $87.50.

April options only have three weeks left. I suggest the May calls.

Trigger @ 76.50

- Suggested Positions -

Buy the Apr $80 call (DATA1419D80) current ask $2.25

- or -

Buy the May $80 call (DATA1417E80) current ask $6.00

Annotated Chart:

Weekly Chart:

Entry on March -- at $---.--
Average Daily Volume = 1.7 million
Listed on March 29, 2014

Halliburton Company - HAL - close: 59.46 change: +1.37

Stop Loss: 57.75
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
HAL is in the basic materials sector. The company is one of the largest oil services company. The number of rigs in service is at a decade high. That means lots of business for their oil services at HAL. The energy industry is sprinting to keep up the pace of drilling in U.S. shale formations. This has helped lift HAL to new all-time highs.

The stock is nearing what could be round-number resistance at $60.00. We're suggesting a trigger to buy calls at $60.25. We are not setting an exit target yet.

Trigger @ 60.25

- Suggested Positions -

Buy the May $60 call (HAL1417E60) current ask $1.84

Annotated Chart:

Entry on March -- at $---.--
Average Daily Volume = 7.7 million
Listed on March 29, 2014

QUALCOMM Inc. - QCOM - close: 79.28 change: +0.23

Stop Loss: 77.75
Target(s): to be determined
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
QCOM is in the technology sector. The company makes digital communication equipment based on CDMA technology in addition to other wireless and Internet technologies. A large chunk of their revenues come from licensing their technology.

The company has enjoyed strong demand for its mobile chip sets thanks to consumer demand for 3G and 4G smartphones. Wall Street does not seem very worried about the Chinese government investigating QCOM for monopoly charges.

The $80.00 level could be round-number, psychological resistance. Therefore we're suggesting a trigger to buy calls at $80.25. We're not setting an exit target yet but the Point & Figure chart for QCOM is bullish with a $90 target.

Trigger @ $80.25

- Suggested Positions -

Buy the May $80 call (QCOM1417E80) current ask $1.87

Annotated Chart:

Entry on March -- at $---.--
Average Daily Volume = 10.5 million
Listed on March 29, 2014

In Play Updates and Reviews

Early Friday Gains Fade

by James Brown

Click here to email James Brown

Editor's Note:

The Friday morning rally faded but the major indices still managed to close with gains.

CHTR has been removed. We are suggesting an immediate exit for the AEGR, MNST, and TGT trades.

Current Portfolio:

CALL Play Updates

ASML Holdings - ASML - close: 91.83 change: -0.14

Stop Loss: 89.75
Target(s): 99.50
Current Option Gain/Loss: -36.8%
Time Frame: exit prior to earnings on April 16th
New Positions: see below

03/29/14: ASML delivered a quiet session on Friday with shares hovering near their simple 10-dma. It is disappointing to see the stock fail to participate in the market's bounce on Friday. I am not suggesting new positions at this time.

FYI: The Point & Figure chart for ASML is bullish with a $104 target.

- Suggested Positions -

Long Apr $95 call (ASML1419D95) entry $1.90*

03/19/14 triggered @ 92.25
*option entry price is an estimate since the option did not trade at the time our play was opened.


Entry on March 19 at $92.25
Average Daily Volume = 1.6 million
Listed on March 18, 2014

Chicago Bridge & Iron - CBI - close: 85.06 change: +1.38

Stop Loss: 82.85
Target(s): 94.75
Current Option Gain/Loss: -33.9%
Time Frame: 4 to 6 weeks
New Positions: see below

03/29/14: CBI delivered a strong bounce on Friday, outperforming the market with a +1.6% gain. We are raising our stop loss up to $82.85.

Earlier Comments:
Our target is $89.50. More aggressive investors could aim higher since the Point & Figure chart for CBI is bullish with a $111 target.

- Suggested Positions -

Long Apr $85 call (CBI1419D85) entry $2.80

03/29/14 new stop @ 82.85
03/26/14 new stop @ 81.30
03/18/14 adjust exit target from $89.50 to $94.75
03/04/14 triggered @ 84.50


Entry on March 04 at $84.50
Average Daily Volume = 1.16 million
Listed on March 01, 2014

CVS Caremark - CVS - close: 74.26 change: +0.13

Stop Loss: 73.45
Target(s): 79.75
Current Option Gain/Loss: -34.9%
Time Frame: 4 to 8 weeks
New Positions: see below

03/29/14: CVS spent most of Friday's session drifting sideways. The intraday low was $73.85. I would wait for a new rally past $75.00 before initiating new positions.

- Suggested Positions -

Long May $75 call (CVS1417E75) entry $2.23

03/26/14 triggered on gap higher at $75.78, suggested trigger was $75.10


Entry on March 26 at $75.78
Average Daily Volume = 5.4 million
Listed on March 24, 2014

Lockheed Martin - LMT - close: 160.54 change: +1.66

Stop Loss: 157.90
Target(s): to be determined
Current Option Gain/Loss: Apr$160c: -12.5% & Jun$165c: - 5.8%
Time Frame: 4 to 8 weeks
New Positions: see below

03/29/14: LMT shot higher on Friday morning but momentum stalled shortly after 10:00 a.m. Traders may want to wait for a rise past $162.00 before considering new bullish positions. We are moving our stop loss to $157.90.

- Suggested Positions -

Long Apr $160 call (LMT1419D160) entry $3.20

- or -

Long Jun $165 call (LMT1421F165) entry $3.40*

03/29/14 new stop @ 157.90
03/25/14 triggered @ 160.75
*option entry price is an estimate since the option did not trade at the time our play was opened.


Entry on March 25 at $160.75
Average Daily Volume = 2.0 million
Listed on March 24, 2014

3M Company - MMM - close: 134.20 change: +1.36

Stop Loss: 131.40
Target(s): to be determined.
Current Option Gain/Loss: -20.3%
Time Frame: Exit PRIOR to earnings on April 24th
New Positions: Yes, see below

03/29/14: MMM displayed some relative strength on Friday with a +1.0% gain. Shares are now poised to challenge short-term resistance near $135.00. More conservative traders may want to move their stop closer to $132.00.

- Suggested Positions -

Long May $135 call (MMM1417E135) entry $2.95*

03/26/14 triggered @ 134.66, suggested entry was $134.65
*option entry price is an estimate since the option did not trade at the time our play was opened.


Entry on March 26 at $134.65
Average Daily Volume = 3.0 million
Listed on March 25, 2014

Cimarex Energy Co. - XEC - close: 119.75 change: +3.03

Stop Loss: 113.75
Target(s): 128.50
Current Option Gain/Loss: Apr$120c: - 5.4% & Jun$125c: - 1.8%
Time Frame: 4 to 8 weeks
New Positions: see below

03/29/14: Some of the energy names were showing relative strength on Friday. XEC was leading the way with a +2.59% gain. XEC did fail to maintain its breakout past resistance at the $120.00 level. If you are looking for an entry point consider waiting for a rise past $120.75 again.

- Suggested Positions -

Long APR $120 call (XEC1419D120) entry $3.49

- or -

Long JUN $125 call (XEC1421F125) entry $5.40

03/27/14 new stop @ 113.75
03/21/14 triggered @ 118.25


Entry on March 21 at $118.25
Average Daily Volume = 1.3 million
Listed on March 20, 2014

PUT Play Updates

Aegerion Pharmaceuticals - AEGR - close: 44.87 change: +1.22

Stop Loss: 48.25
Target(s): 40.25
Current Option Gain/Loss: +31.8%
Time Frame: exit PRIOR to April expiration
New Positions: see below

03/29/14: Warning! AEGR's performance on Friday is concerning.

The stock traded down to $40.50. Traders bought the dip there twice in rapid succession and then AEGR rebounded higher. By Friday's closing bell AEGR was outperforming the market with a +2.8% gain. This could just be an oversold bounce but it could also be a bullish reversal near support at $40.00. Unfortunately our exit target was $40.25.

We are suggesting an immediate exit now to try and lock in any potential gains.

Earlier Comments:
I am suggesting small positions because biotech stocks can be volatile and AEGR already has short interest nearing 20% of its small 28.3 million share float. The Point & Figure chart for AEGR is bearish with a $41 target.

*small positions to limit risk*

Long Apr $45 PUT (AEGR1419P45) entry $2.20*

03/29/14 exit immediately on Monday morning.
03/27/14 new stop @ 48.25
03/24/13 triggered @ 46.90


Entry on March 24 at $46.90
Average Daily Volume = 1.3 million
Listed on March 22, 2014

Allergan Inc. - AGN - close: 121.05 change: +0.52

Stop Loss: 124.10
Target(s): 116.20
Current Option Gain/Loss: - 8.3%
Time Frame: exit PRIOR to April expiration
New Positions: see below

03/29/14: Citigroup raised their price target on AGN from $130 to $140 on Friday morning. Shares of AGN reacted with a spike higher from $120.50 to $123.75. After briefly trading above technical resistance at the 50-dma AGN reversed. This move could be used as a new bearish entry point. We are moving our stop loss down to $124.10.

- Suggested Positions -

Long Apr $120 PUT (AGN1419P120) entry $3.60

03/29/14 new stop @ 124.10
03/27/14 triggered @ 121.90


Entry on March 27 at $121.90
Average Daily Volume = 2.5 million
Listed on March 26, 2014

Monster Beverage - MNST - close: 69.49 change: +0.93

Stop Loss: 70.10
Target(s): 63.00
Current Option Gain/Loss: -52.9%
Time Frame: exit prior to April expiration
New Positions: see below

03/29/14: The bearish momentum in MNST is stalling. The stock spent Tuesday, Wednesday, and Thursday consolidating sideways. Friday's bounce is a breakout above the 10-dma. MNST should still have resistance at the $70.00 mark and likely at its 50-dma (near 70.55). However, we are choosing to exit early now to avoid further losses. Plan on exiting Monday morning.

- Suggested Positions -

Long APR $65 PUT (MNST1419P65) entry $0.85

03/29/14 prepare to exit on Monday morning
03/27/14 new stop @ 70.10
03/22/14 new stop @ 71.10
03/20/14 triggered @ 69.00


Entry on March 20 at $69.00
Average Daily Volume = 1.7 million
Listed on March 19, 2014

Target Corp. - TGT - close: 59.98 change: +0.24

Stop Loss: 60.20
Target(s): 55.15
Current Option Gain/Loss: -47.0%
Time Frame: exit PRIOR to April expiration
New Positions: see below

03/29/14: I have been cautioning readers about the lack of follow through lower in shares of TGT this past week. The stock looks like it is coiling for a breakout higher, past resistance near $60.00.

Tonight we're suggesting an immediate exit on Monday morning to cut our losses early.

- Suggested Positions -

Long Apr $60 PUT (TGT1419P60) entry $1.68

03/29/14 prepare to exit on Monday morning
03/27/14 new stop @ 60.20
03/25/14 triggered @ 58.80


Entry on March 25 at $58.80
Average Daily Volume = 6.9 million
Listed on March 22, 2014

Twitter, Inc. - TWTR - close: 47.30 change: +0.98

Stop Loss: 47.35
Target(s): 41.85
Current Option Gain/Loss: +105.5%
Time Frame: 3 to 5 weeks
New Positions: see below

03/29/14: TWTR almost hit our stop loss on Friday.

The oversold bounce in shares of TWTR continued on Friday with a +2.1% gain. The intraday high was $47.34. Our stop loss is at $47.35. If there is any follow through higher on Monday we will see shares hit our stop.

Earlier Comments:
TWTR currently has 544.7 million shares outstanding. There is a major lock up expiring on May 6th when another 474 million shares will come available for sale by insiders. It seems unlikely that TWTR is going to rally ahead of such a massive lock up expiration. TWTR can be a volatile stock. Therefore we are suggesting small positions to limit risk.

- Suggested Positions -

Long Apr $50 PUT (TWTR1419P50) entry $1.80

03/26/14 new stop @ 47.35
03/25/14 new stop @ 53.55
03/24/14 new stop @ 54.15
03/20/14 new stop @ 55.15
03/18/14 adjust the exit target from $46.50 to $41.85
03/15/14 adjust exit target from $50.25 to $46.50
03/12/14 trade opens at $54.25


Entry on March 12 at $54.25
Average Daily Volume = 11.4 million
Listed on March 11, 2014


Charter Communications - CHTR - close: 122.41 change: +1.15

Stop Loss: 122.55
Target(s): 110.25
Current Option Gain/Loss: Unopened
Time Frame: Exit prior to April expiration
New Positions: see below

03/29/14: CHTR is not cooperating. We were hoping for a breakdown below support near $120. Shares outperformed the market instead with a +0.9% gain on Friday.

Our trade is not open yet. Tonight we're removing CHTR as a candidate. Readers may want to keep this stock on their radar screen for a breakdown below support.

Trade did not open

03/29/14 removed from the newsletter, suggested trigger was $119.75


Entry on March -- at $---.--
Average Daily Volume = 1.2 million
Listed on March 27, 2014