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Sunday, October 31st, 2010
11:00pm (EST)
1. Market Summary
2. Momentum Stocks Still Worth Watching
3. Can American Tower Power Higher?
4. Aruba Networks Finding Strength
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1. Market Summary
Although the numbers don’t show it, the bulls took another step closer towards powering through resistance. Trading was flat on Friday as Wall Street prepares for this week’s key events which include more earnings, the latest decision on monetary policy from the Fed, and the midterm elections.
The Dow gained 4 points on Friday to close at 11,118. The index hit a high of 11,266 on Monday and we have been looking for a close above 11,200 to confirm a continuation of the bullish trend. Although the index fell 14 points, or 0.1%, for the week, the blue-chips gained 330 points, or 3.1% in October, and are up 6.6% YTD (year-to-date). We still think the index can trade up to 11,500-11,600 on a break above 11,200 with 11,000-10,800 acting as near-term support.
The S&P 500 fell less than a point and settled at 1,183. The index hit a high of 1,196 but was unable to crack our 1,200 target as it gained less than a point and went nowhere for the week. However, for October, the S&P popped 42 points, or 3.7%, and a run to 1,300 is in the cards if the bulls can break resistance while support remains in the 1,170-1,175 area with additional backup at 1,150. YTD, the index is up 6.1%.
The Nasdaq was the one index we did confirmation on for another leg up although Friday’s session was flat. Tech closed above our 2,500 target and the index is at 2,507 after clearing this hurdle last Wednesday. For the week, the Nasdaq added 28 points, or 1.1%, and for the month it gained nearly 140 points, or 5.9%. We have our sights set on 2,600-2,700 over the near-term and support is at 2,450, but, the monthly close above 2,500 for the first time since May 2008 was big for the bulls. The Naz is up 10.5% for 2010.
Many of the pros and talking heads are calling for a pullback following this week’s fireworks but we think there is a chance the bulls’ power through resistance. If not, look for support to hold and if it doesn’t then the bears haven’t gone into hibernation just yet.
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2. Momentum Stocks Still Worth Watching
Since August, we have been highlighting certain companies as we expand our coverage of stocks and a company’s outlook in our Weekly Wrap. Some of these stocks appear on our Watch List which is in our Members Area and they are companies we feel may be overvalued or undervalued. We wanted to further expand on what to watch for in these particular names heading forward and just to remind you that sometimes buying or shorting a stock can make you pretty good returns as well. We love to trade options but they are time sensitive and sometimes the story takes a little longer to play out which can affect the outcome or your trades.
Even though we may not recommend a specific trade when we profile a stock, our coverage of these individual companies are a great place to start as you begin to build your own trading strategies. We wanted to do some quick reviews of some of the companies we have highlighted, where that stock is today, and where any future trade may lie.
We first brought you Best Buy (BBY, $42.98, up $0.08) on August 1, and said “Best Buy looks cheap at these levels and if we were stock buyers we would start half positions here under $35.”
The stock was at $34, then proceeded to get as low as $31 by the end of the month. Since then the stock has vaulted higher into the pre-holiday season and is up 20%-25% depending on where you got in. That’s a real nice return compared to CD’s and there could be more upside as its 52-week high is $48.83. We would continue to hold but would close the position if shares fall below $39.50.
On August 8, we initiated coverage of Baidu (BIDU, $110.01, down $2.16) when shares were $86. Shares dipped to a low of $76 by the end of the month but have also returned 20%+ return in two months. We waited for our entry pointy and were able to turn our homework into nearly a 50% return for our subscribers by using call options. We mentioned in our Members Area that we expected a 20 point move after they announced earnings when the stock was at $100 and so far it has captured half it, hitting a high of $113.78 last Thursday.
We also talked about gold in early August, highlighting the SPDR Gold Shares (GLD, $132.68, up $1.38) as a way to play the metal, and why it would do well in October. Gold was at $1205/ounce and the GLD was around $117, now gold is at $1357 and the GLD is up 13%. Folks, we may get a short term pullback in gold, but the story remains intact. Gold is going to go higher as it is acting like another “currency” thanks currency wars that are currently going on.
For the long-term, any dip could be viewed as a buying opportunity for almost all of the precious metals and we like silver as well. The iShares Silver Trust (SLV, $24.17, up $0.17) is the way to play this metal and we are looking at some options on this one as well as Pan American Silver (PAAS, $31.92, up $0.58) which hit a fresh 52-week high on Friday. PAAS has been on our Watch List off and on over the past few weeks.
In mid-August, we profiled Freeport McMoRan (FCX, $94.79, down $0.69) and said “If you believe that gold can go to $1,300/ounce and copper can go to $3.50/lb (at $1,214/ ounce and $3.25/ pound, respectively, at the time) then this stock could easily move back to the $80-$90 range.” The stock sits above those targets and we highlighted it at $70. This company has basically become a copper ETF and is volatile. We have been mentioning strangle trades on this one although none have been official recommendations, yet, but if you bought the stock you are now up 35%. We think shares can run to $120 but we would place stops in at $87.50 to lock in gains of 25%.
These are just a few of the stocks we have brought to you over the past few months and the most popular. We have gotten the most emails on these so we wanted to cover them again and we will review a few more next week so you know where we stand with those stocks as well. Today, we also bring you two new ones…
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3. Can American Tower Power Higher?
American Tower (AMT, $51.61, down $0.13) is a wireless infrastructure company that owns, operates, and develops communication sites which consist of basic wireless towers. They have over 20,000 towers in the U.S. and approximately 7,000 towers in Mexico, Brazil, and India. The company recently added some towers in Chile as well.
We have been talking endlessly about the mobile internet build-out that is occurring around the world and we cover several ways to play this theme in our option trading manuals, How to Trade Options on Momentum Stocks, and Momentum Stocks Watch List, by explaining what moves these sectors.
American Tower is right in the middle of this space and is a money-making machine with a sweet business model. They build the wireless tower for a fixed cost, then sit back and collect the rent. Mobile phone providers continue to add more and more transponders to those towers to handle the massive amount of increased traffic the smart phone revolution is already bringing to the networks and their current towers are like ATM’s with plenty of room for growth still ahead.
The company has been around since 1996 and went public in 1998. The stock hit an all-time high of $54.71 in March of 2000, and has spent the last decade getting back to even. The 52-week high is $52.34 which was hit in early October.
Last year, American Tower reported revenues of $1.7 billion, and the current market cap of the company is about $21 billion. They are expecting full year 2010 revenues of $1.9 billion with earnings of $0.89 a share.
We will get third quarter earnings for this company on Friday with Wall Street expecting $0.20 a share. Last quarter, analysts had penciled in $0.21 a share and the company blew those estimates away by reporting a profit of $0.25 a share. The stock does have a spooky side. It trades at almost 48 times next year’s earnings, which for any company is pretty lofty, but they are expecting revenue growth of over 20% next year.
American Tower is committed to returning money to their shareholders, and they have been doing this through buybacks of their stock but we think it’s time they pay a dividend. There has been talk of the company becoming a REIT which would send the stock surging but given their growth rate, we see shares trading above $60 over the 6 months, regardless.
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4. Aruba Networks Finding Strength
Aruba Networks (ARUN, $21.93, up $0.44) is another Tech company that is surfing the mobile intent wave by connecting local and remote users to a company’s IT resources through distributed enterprise networks. In other words, they help to get data from point A to point B swiftly and more secure with their AirWave Wireless Management Suite which helps manage wireless networks and prevent intrusion.
The company was founded in 2002 and went public in March of 2007 at $14. Shares hit a high of $23 four months later and traded to a low of $2 in late 2008. The stock has clawed its way back near its all-time highs and during that time, revenues have increased 85% and now stand at $266 million for 2010. Next year looks even better with 2011 projected revenues of $350 million so they have been growing despite the tough economic environment.
Aruba just finished their fiscal 2010 year and they will announce 1Q 2011 earnings on November 18 with the expectation they will report $0.11/share. You know the business is growing when their first quarter earnings are expected to exceed their previous full year’s earnings which is the case here.
Priced at 44 times earnings and with a market cap of $2.1 billion, the company is pretty well valued on the surface, as well. If you go out a little further though, Aruba is expected to grow at a 25+% growth rate, and with 2012 projected earnings of $0.61/share, this gets the P/E back in the 30’s.
We have mentioned the space they are in as being a great one, even in a recession. Their products also boost productivity, which is music to corporate America’s ears. As we go over these numbers and valuations, however, the one thing that continues to pop up in our mind because of the space they are in is “takeover target”.
We talk about finding these gems in our trading manual and at a 50% premium (or $30 stock price) this is only a $3 billion deal for a company that is growing like crazy. Thanks to the Fed and free money, that kind of deal is possible for a wide variety of suitors.
We doubt Aruba looks at their selves as an acquisition target because the company itself has been fairly acquisitive in the past. They acquired the wireless security business of Network Chemistry in late 2007, and in 2008 they purchased Airwave Wireless. This year, in May, they bought Azalea Networks in a cash and stock deal worth $40 million. The company specializes in wireless outdoor networks.
We will be listening to the company earnings call to get more clues on where they are headed in a few weeks, but in the meantime, if we see an opportunity to trade options on this one, we will let our subscribers know.
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We will be back Monday morning at 9am (EST) with a look at the week ahead and what companies are reporting earnings. We also want to remind you this is the last day to get a free 1-month membership to our Members Area with the purchase of our option trading manual.
Tags: binary options, call option, put option, Stock Market Weekly Wrap
Posted in Company Commentary, Weekly Wrap | Comments Off
Sunday, March 7th, 2010
7:00pm (EST)
“Baby, we were born to run…”
The bulls had a theme song last week and were singing all day long Friday as the market surged following the unemployment report. The Labor Department said employers cut 36,000 jobs last month, better than the 50,000 cuts and 9.8% forecast by Wall Street’s wizards.
The unemployment rate held steady at 9.7% and is seen as the most important measure of the economy’s health. The U.S. unemployment hit 10.1% in October but is slowly recovering as employers gain confidence in the economic recovery.
Another good tidbit of news…the Federal Reserve reported Friday that consumer borrowing rose by nearly $5 billion in January, surprising the pencil pushers who were looking for borrowing to decline by $4.5 billion. The helps lift the market to new highs in the final hour of trading as it was the first gain after a record 11 straight declines. It was also the largest increase since July 2008.
As a result, the market climbed more than 1% as all three indexes continue to push towards their January highs. It was also the bulls’ best week since early October 2009.
The Dow rose 122 points, or 1.2%, to finish the week at 10,566. The index toppled the 10,500 level for the first time since mid-January and showed a weekly gain of 2.3%, or 241 points. The Dow’s high for 2010 is 10,767.
The S&P 500 jumped 16 points, or 1.4%, to close at 1,138. For the week, the index advanced 3.1%, or 34 points, and is within shouting distance of the January 1,050 high.
Finally, the Nasdaq surged 35 points, or 1.5%, to settle at 2,326. Tech added an impressive 3.9% for the week, or 88 points, which is the EXACT high that was set in January.
We kind of expected the “Christmas rally” to stall in January as the targets we had set back in August were nearly hit. In last Sunday’s Weekly Wrap we mentioned the targets of 1,175 for the S&P 500; 2,275 for the Nasdaq; and 10,800 for the Dow. We said there was a good chance for a rally and a “retest of the January highs over the next few weeks could come into play.
Well, here we are. Given the current sentiment, there could be a “rush” by some investors to get back into the market and this is what we have been planning for. We said on Friday in our Members Area that we think Monday will be a HUGE day for the market. A tide to lift all boats so to speak…
The weekend futures were showing strength on Saturday but are pretty much flat as we go to press. The Dow futures were showing a 114 point pop but have slipped and are currently unchanged; S&P 500 futures are showing a half point gain after being up 14; the Nasdaq futures are up 2 points.
If we do get another week-long rally, then our NEW short-term targets would be Dow 11,000; S&P 500 1,200; Nasdaq 2,400.
This week, several retailers will post earnings as the sector appears to be recovering from a year-long slump. We have one trade we are eyeballing and will probably be recommending put or call options on a few more.
As far as economic news, there will be plenty to digest. The monthly trade deficit will come out Thursday but little change is expected for January from the month before. On Friday, we get February retail sales and January business inventories, while the Reuters/University of Michigan issues its preliminary reading for the March consumer sentiment index.
We would love to see the market continue its winning ways and maybe Saturday’s futures were giving us clues on where we could be headed. We still believe we can at least test the 2010 highs this week and possibly higher but nothing is a given in the stock market. We could test and fall right back into the trading range. We mentioned earlier that the Dow hit a high of 10,767 which we reached in mid-January. Two weeks later, the index was struggling to hold 10,000.
There are still plenty of headwinds the market faces and any hint of an economic recovery could lead to higher interest rates. We don’t think this is necessarily bad news but small businesses and start-ups are still getting shunned for loans so the the Fed will be walking a tight rope. This is where the jobs are created and we are still seeing many big firms cut back.
We will be back Monday morning with the earnings preview and we will have a complete update for all of our open trades as well as several new trades in the offering or waiting in the wings. See you at 9am, folks!
Tags: option picks, option signals, options alerts, Stock Market Weekly Wrap, stock options trading
Posted in Market Analysis, Market Commentary, Weekly Wrap | Comments Off
Sunday, December 20th, 2009
10:40pm (EST)
The bulls were looking for a big push higher in the market on Friday and although they ended the day in positive territory, it wasn’t enough to take the win away from the bears for the week.
The Dow ended at 10,328, up 20 for the session but down 143 points for the week. The index hit a high of 10,566 and the bulls pushed that number until Wednesday when a late day sell-off led to Thursday’s 133 point decline. The bulls’ effort was noteworthy but the market still remains in a tight trading range.
The Nasdaq was strong on Friday as it added nearly 32 points to close at 2,211 while the S&P 500 advanced 6 to close at 1,102. The Tech-heavy Nasdaq ended the week with a 21 point gain while the S&P 500 fell 4.
The trend is still higher and we still have near-term targets of 10,800 for the Dow; 2,275 on the Nasdaq and 1,175 for the S&P 500. We made these predictions in August and we thought we would have hit them by now. We probably would have but the Black Friday Dubai debacle killed the momentum.
There is still a chance the market rallies over the next 10 days although we continue to hear the talking heads calling for a pullback. In a sideways market it’s easy to say we head lower, especially after the run the bulls have had since March. The bears are banking on a higher dollar but we think the problem is with the euro, not the dollar.
The market CAN go higher as the dollar continues to rally but Wall Street experts don’t feel like this is the case. We also think Bernanke and the Fed should have raised rates which would have sent a strong message that the economy was on the mend despite 10% unemployment.
Another catalyst that could lead the market higher is that investors who might normally sell stocks for tax purposes late in the year could likely to hold off this time around. The rally is only nine months old and this means any capital gains on your investments would be considered short-term profits by the IRS. This doesn’t really affect us as option traders but it means a much higher tax rate for gains on stocks held for more than a year.
A couple of issues the bulls will have to face this week include the huge winter storm that may have kept shoppers home on a critical holiday shopping weekend. This will hurt the brick-and-mortar stores and we could see shares of Amazon.com (AMZN, $128.48, up $1.57), UPS (UPS, $57.98, down $0.25) and FedEx (FDX, $84.95, up $0.48) challenge their 52-week highs this week and next.
It also appears the White House and Senate leaders have the necessary votes to pass the health-care bill this week. This will likely be a market moving event as the legislation is predicted to extend coverage to more than 30 million Americans who lack coverage.
The bill will also ban industry practices such as denial of insurance on the basis of pre-existing medical conditions. The pencil pushers feel it will help reduce deficits by about $130 billion over 10 years, and much more down the road. We shall see.
As far as earnings for the week, there are a few companies worth mentioning that report on Monday: ConAgra Foods (CAG, $22.16, up $0.02), Jabil Circuit (JBL, $14.80, up $0.38) and Walgreen (WAG, $36.64, down $0.67) could be on the move.
As we head to press, Dow futures are 9, Nasdaq futures are up 2 while the S&P 500 futures are up a point. We still have to see how the overseas markets trade before Monday’s opening bell but the bulls are ready. We will be back in the morning with the current trades and a fresh update.
Tags: call option trading, chicken option trades, ConAgra Foods earnings, Covered Calls, Dow, momentum stock option trading, Nasdaq blog, option trade picks, option trading online, options blog, options mentoring, options newsletters, options track record, put option trading, Rick Rouse, Stock Market Weekly Wrap, stock option trade pick service, straddle option trades, strangle option trades, support and resistance levels, triple-digit option trades, Walgreen's earnings
Posted in Earnings, Economic News, Market Analysis, Weekly Wrap | Comments Off
Sunday, October 18th, 2009
11:30pm (EST)
MARKET COMMENTARY
Friday was a rough day for the bulls as the Dow fell 67 points, or 0.7%, to close the week at 9,995. However, the Dow managed to break the 10,000 level last week and closed above it on Wednesday and Thursday. We were prepared for a “down” Friday as we mentioned that 7 out of the last 10 years were negative on October expiration day. It would have been nice to see 10,000 hold but we don’t think the bulls are too worried.
Most of the talking heads (or bears) were talking down the number and were trying to do the “shrug of the shoulders, simply a number” routine. Well, just like any star receiver in the NFL would do, the NYSE (New York Stock Exchange) passed out “Dow 10,000″ hats on the floor and the party was on Wednesday and Thursday. The hangover came Friday but the bulls aren’t ready to leave. Either the bears put up a fight or this party is just getting started.
Sure, earnings were mixed as companies continue to miss top-line revenue numbers, but overall, the comments have been very encouraging. Some stocks rocked and some rolled over but when you hear a company’s CEO say… “While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future.” That was Google’s (GOOG, $549.85, up $19.92) CEO, Eric Schmidt who made those remarks.
There were a lot of investors betting against “Goog’s” on Friday when the company reported earnings but they came out smelling like a rose. Can I be the first to say Goog’s will be a $1,000 stock by 2011? Well, maybe…I don’t carry quite the weight that other Wall Street analysts do but they were tripping over each other to raise their price target on Friday. Because I had nothing better to do, I took a look at some options in Google just to “see” what would happen if Google hit a $1,000 by 2011.
My, my, my…did you know that a $2,500 investment in a certain Google call option would give you a return of $25,000 by buying only 1 option contract? I profile the trade in the Members Area but I’m still on the fence with it. The interesting thing is that the stock wouldn’t have to make it to $1,000. If Google just managed to break $800 in 2010, the trade would still be a double…
For the week, the Dow added 131 points, or 1.3%, and finished at 9,995. The S&P 500 got did slightly better as it gained 1.5%, or 16 points, and closed at 1,087. The Nasdaq was higher by 17 points, or 0.8%, and settled at 2,156.
Here we our thoughts from Thursday before the market opened:
“The Dow is at 10,015 (up 145 points yesterday), the Nasdaq is at 2,172 (+32) and the S&P 500 (+19) is at 1,092. So where do we go from here? If you will notice from my 8/23 notes, we could hit 2,275 on the Nasdaq and 1,175 for the S&P 500. For the Dow, we could see 10,300-10,400 if the rally continues. Now, we may not see these levels during earnings season but there’s a good shot we end 2009 at those aforementioned levels.”
We were 70% sure we would have a down day on Friday but those are still our near-term targets.
On the earnings front, Financial stocks were a mixed bag. Bank of America (BAC, $17.26, down $0.84) and Citigroup (C, $4.59, down $0.16) reported lousy 3Q numbers as both banks reported losses. BofA reported a wider-than-expected loss of $0.26, sending the shares down 5% on Friday, while Citigroup reported a $0.27 loss, dropping its shares 3% on Friday and nearly 8% for the week.
Goldman Sachs (GS, $184.37, down $4.26) beat Wall Street’s estimates as earnings per share came in at a staggering $5.25 while sales topped $12 billion. Everybody and their grandmother was expecting a pullback and we got one, but, somehow we have a feeling if the rally continues, Goldman breaks $200.
And on another sad note, Galleon Group founder and billionaire Raj Rajaratnam will be joining Bernie and the boys. Dude was arrested Friday and charged with securities fraud and insider trading. When will these knuckleheads learn?
As we look ahead towards Monday’s open, futures are showing a slightly lower open but we will have plenty of fireworks. We will be back in the morning by 9am (EST) with a BIG list of the companies reporting earnings this week AND our Current Trade updates. Imax (IMAX, $10.85) continues to push new highs and is our latest trade making a push for a triple-digit return.
If you are not a current subscriber, you can sign up anytime between now and Monday to get our updates instantly emailed to you before the opening bell.
Tags: option trade picks, options blog, options mentoring, options track record, Stock Market Weekly Wrap
Posted in Company Commentary, Market Analysis, Market Commentary, Option Trades, Stock Earnings, Trading Psychology, Weekly Wrap | Comments Off
Sunday, March 15th, 2009
1. Commentary
2. Intel Jumps
3. Triple Witching Friday
4. Earnings
5. Current Trades
6. Monday Morning Playbook
7. Closing Thoughts
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1. Commentary
We got the bounce we were looking for. After testing its lows and being pushed to its limit, the market caught fire last week as the financial stocks led the way with a 35% gain. I mentioned last week in the Weekly Wrap that we needed some catalysts to take the market higher and even if we didn’t we could still get a “bear market bounce”. We got both.
Some of the things being talked about could be catalysts like the suspension of mark-to-market accounting and the reinstitution of the uptick rule, but it’s important not to get too excited because the market still has a long way to go before any sustained rally will stick.
The springboard that propelled the market to bounce off its lows came on Tuesday when Barney Frank said he believes the SEC will reinstate the uptick rule as early as next month. That, and the fact that a couple of the big banking names said they had earned a profit in the first two months of 2009.
Thursday was another big day for the market, which rallied on better-than-expected retail sales data, and more positive news out of the financial sector. Friday was a choppy day but all three of the major indexes finished the week on a four-day winning streak.
As a result, the Dow rallied 9.0% and added nearly 600 points to finish as 7,223. The Nasdaq jumped nearly 140 points, or 10.5%, to close at 1,431 while the S&P 500 charged 73 points higher, or 10.7%, and ended the week at 756. The closes represent a signifcant step in the market holding its support levels but we will need further proof that what the governement is doing is going to work before the bulls are ready to run.
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2. Intel
Back in January, I talked about Intel (INTC, $14.70, up $0.18) after the company reported earnings and how the shares might be stuck in the $12-$14 range over the next few months. Here is the piece from the 1/18/09 Weekly Wrap (quotes are from January):
“Intel (INTC, $13.74, up $0.45) got through the week in relatively good fashion despite a 90% drop in the company’s 4Q profits. The company reported profits of $234 million, or $0.04 a share as revenue fell 23% to $8.2 billion. Intel issued two revenue warnings for the quarter over the past three months and didn’t provide much guidance for the current quarter except to say it expects sales of $7 billion.
The results met Wall Street’s expectations and analysts believe there could be a turnaround in store by the second half of the year. The stock was at $14.15 heading into the week and traded as low as $12.71. The 52-week low is $12.06 and traders had to be pleased that the stock held this level.
The January 20 2010 calls (WNLAD, $0.68, down $0.01) were trading for 92 cents and the January 15 2010 calls (WNLAC, $1.93, down $0.04) were going for $2.30 and both got cheaper. The premiums were a little juiced as you can see and I still don’t think they are attractive enough to go long. If you are thinking of buying the stock, you could maybe write covered calls on them but I still think there are better opportunities than Intel.
We will keep an eye on the stock and see if things pick up but right now I think shares are stuck in the $12-$14 range.” –
The January 20 2010 calls are now at 60 cents but the January 15 2010 calls are going for $2.10. Intel hit a low of $12.30 on Monday and $12.07 the Friday before that so my prediction held up pretty well. However, the stock has broken through three key resistance levels and a break above $15.50 could help the stock rally even further.
The shares broke through their 20, 50, and 100-day moving averages and appear ready to challenge its 200-day average of $17-$18. Even if the stock doesn’t break this level, if the market can continue to rally, then there may be an opportunity for a quick trade. I’m not really interested in the 2010 calls although they could do well. Instead, the April 15 calls (NQDC, $0.75, up $0.05) look appealing at current levels but only if the market continues its rally.
Another interesting option is the March 15 calls (NQCC, $0.22, unchanged) which option traders are most likely to target this week. The stock is only 30 cents out-of-the-money and if Intel can get to $16 by the end of the week then these calls will be worth $1. That is a tall order but even if the stock only makes it to $15.50, these calls will be worth 50 cents or 100% higher from current levels. Again, I like the April 15′s way more than the March 15′s but keep an eye out on how they do.
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3. Triple Witching Friday
This Friday is “Triple Witching” and I wanted to explain what this means and what impact it could have on the market. Triple Witching is when the contracts for stock index futures, stock index options, and stock options all expire on the same date. Triple witching happens four times a year and occurs on the third Friday of March, June, September and December. It is an event dubbed as “Freaky Friday” on Wall Street.
I have talked about the key support levels for the Dow, Nasdaq and S&P 500 and despite the title, triple witching has actually proved to be a bullish time for the market. In fact, 9 of the past 12 triple-witching expiration weeks have been positive.
That means over the past three years, the market has advanced, as the bears close out their short positions in the options and futures markets which in turn helps the market. It can have a huge impact as their actions will help shape the market substantially this week.
No one has really talked about this yet but expect this to be the Monday morning water cooler talk which will pick up steam as we head closer to Friday. With the rally we got last week, chances are we continue higher this week given the history.
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4. Earnings
Monday: Connecticut Water Service (CTWS, $19.88, up $0.94) and Landry’s Restaurants (LNY, $4.56, up $0.06).
Tusday: AAR (AIR, $11.64, up $0.46), Adobe Systems (ADBE, $18.68, down $0.75), Consolidated Water ($7.88, up $0.60), ($38.95, up $1.16), FactSet Research Systems ($38.95, up $1.16) and Guess (GES, $15.12, up $0.24).
Wednesday: Cintas (CTAS, $20.95, up $0.35), Darden Restaurants (DRI, $28.60, up $0.48), General Mills (GIS, $52.60, up $0.60), Nike (NKE, $44.67, up $0.08) and Oracle (ORCL, $15.56, down $0.07).
Thursday: Barnes and Noble (BKS, $18.82, up $0.41), Blockbuster (BBI, $0.65, up $0.18), FedEx (FDX, $38.00, down $0.56), Ross Stores (ROST, $33.01, down $0.05) and Winnebago (WGO, $4.95, up $0.40).
Friday: Kirkland’s (KIRK, $2.99, down $0.01).
The earnings calendar is limited this week with just about 100 companies reporting. First-quarter earnings season will not “officially” start until April. However, there a few firms that will actually be reporting 1Q results as companies with fiscal quarters ending in February start to release results.
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5. Current Trades
Amgen (AMGN, $51.25, up $0.98)
April 55 calls (YAADK, $1.05, up $0.20)
Entry Price: 90 cents (2/27/09)
Exit Target: $1.50 (Open)
Return: 15%
March 47.50 puts (AMQOW, $2.40, up $0.45)
Entry Price: $1.25 (2/27/09)
Exit Price: $2.50 (3/6/09)
Return: 100%
Amgen added 5% for the week after dropping 4% the week before. We bought the March 47.50 puts as insurance and got a quick double while maintaining our long position. The break above $50 was nice to see and we may have seen the bottom at $45. If the stock can build on its momentum this week, we could hit our target price.
Bank of America (BAC, $5.76, down $0.09)
The May 6 calls (BYOEF, $1.50, down $0.05)
Entry Price: 75 cents (3/11/09)
Exit Target: $1.50 (Open)
Return: 100%
July 10 calls (JLWGB, $0.51, down $0.08)
Entry Price: 30 cents (3/11/09)
Exit Target: 60 cents (Open)
Return: 67%
On Wednesday, in the “Banking on Bank of America” blog I talked about the idea of going long on these call options and they have already performed well. I left these two positions open because they have plenty of time left before expiration but you will notice that both have reached 100% returns. The July calls traded as high as 65 cents on Friday. Of course, the smart money closed half of the trade at 100% profits and let the rest ride.
IBM (IBM, $90.36, down $0.04)
April 95 calls (IBMDS, $2.25, down $0.10)
Entry Price: $1.20 (3/6/09)
Exit Target: $2.40
Return: 90%
IBM bounced back last week after hitting a low of $83 on Monday. The stock closed near its highs on Thursday and Friday which was a bullish sign. The calls did hit a high of $2.40 on Friday but I did not send out an alert. If the market can continue its winning ways then the April 95′s will continue to provide us with exceptional gains.
Potash (POT, $76.76, down $0.90)
April 100 calls (PYPDT, $1.45, down $0.35)
Entry Price: $1.70 (3/4/09)
Exit Price: $2.25
Return: -25%
After a slow start, this trade finally came to life last week as Potash added $10 for the week. The calls traded as high as $1.85 on Friday so we were slightly positive for a minute as the shares were pushing $80. Springtime is here this week which means the farmers are starting to spread fertilizer on their fields. The risk for this trade is the news that several potash producers in Russia have dropped prices 25%, putting pressure on others to do the same. Potash, the company, has responded by slashing production which should help support prices. Because of this, I’ve lowered the exit target to $2.25 and raised the stop to $1.25.
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6. Monday Morning Playbook
Here are a few trades I’m watching this week. If I take any action I will mention it in the blog, otherwise, hang tight until you hear the whistle blowing.
General Mills is bouncing off its lows and a lot of analysts were upgrading this stock at the end of 2008. ConocoPhillips got hammered last week and could be a good rebound trade. Morgan Stanley looks strong and IBM could make a run to $95 if the market can rally.
General Mills April 55 call (GISDK, $0.90, up $0.15)
ConocoPhillips April 40 call (COPDH, $1.00, down $0.35)
Morgan Stanley April 30 call (MSDF, $1.40, up $0.50)
IBM April 100 call (IBMDT, $1.00, unchanged)
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7. Closing Thoughts
Oil finished at $46.25/ barrel, down 78 cents on Friday. OPEC decided today not to directly cut oil output in an effort to raise prices, instead it will focus on stopping individual members from producing above their quotas.
Crude oil has risen nearly 20% in three weeks and if the demand continues it could mean increasing industrial production in the future which could push oil past $50/ barrel. I don’t see demand rising at a rapid pace and the decision by OPEC not to cut should stabilize prices in the $40-$50 range. If OPEC would have lowered output limits it would have likely resulted in higher crude prices.
Members also agreed to meet in special session on May 28 to review prices and supply so we shouldn’t have to worry about any surprises. However, if OPEC believes that crude is too cheap when it meets again, it could reduce oil’s output levels. Right now, even OPEC knows the economy is too fragile to cut production.
Futures are up as I go to press. The Dow futures are up 30, Nasdaq futures are up 5, S&P 500 futures are up 6. The futures are up before Bernanke’s “60 minutes” 15-minutes of fame so we will see how we look in the morning.
Rick Rouse
Rick@OptionsMentoring.com
Tags: General Mills, IBM, Intel, Potash, Stock Market Weekly Wrap
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MomentumOptionsTrading.com Weekly Wrap for 10/31/10
Sunday, October 31st, 2010
11:00pm (EST)
1. Market Summary
2. Momentum Stocks Still Worth Watching
3. Can American Tower Power Higher?
4. Aruba Networks Finding Strength
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1. Market Summary
Although the numbers don’t show it, the bulls took another step closer towards powering through resistance. Trading was flat on Friday as Wall Street prepares for this week’s key events which include more earnings, the latest decision on monetary policy from the Fed, and the midterm elections.
The Dow gained 4 points on Friday to close at 11,118. The index hit a high of 11,266 on Monday and we have been looking for a close above 11,200 to confirm a continuation of the bullish trend. Although the index fell 14 points, or 0.1%, for the week, the blue-chips gained 330 points, or 3.1% in October, and are up 6.6% YTD (year-to-date). We still think the index can trade up to 11,500-11,600 on a break above 11,200 with 11,000-10,800 acting as near-term support.
The S&P 500 fell less than a point and settled at 1,183. The index hit a high of 1,196 but was unable to crack our 1,200 target as it gained less than a point and went nowhere for the week. However, for October, the S&P popped 42 points, or 3.7%, and a run to 1,300 is in the cards if the bulls can break resistance while support remains in the 1,170-1,175 area with additional backup at 1,150. YTD, the index is up 6.1%.
The Nasdaq was the one index we did confirmation on for another leg up although Friday’s session was flat. Tech closed above our 2,500 target and the index is at 2,507 after clearing this hurdle last Wednesday. For the week, the Nasdaq added 28 points, or 1.1%, and for the month it gained nearly 140 points, or 5.9%. We have our sights set on 2,600-2,700 over the near-term and support is at 2,450, but, the monthly close above 2,500 for the first time since May 2008 was big for the bulls. The Naz is up 10.5% for 2010.
Many of the pros and talking heads are calling for a pullback following this week’s fireworks but we think there is a chance the bulls’ power through resistance. If not, look for support to hold and if it doesn’t then the bears haven’t gone into hibernation just yet.
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2. Momentum Stocks Still Worth Watching
Since August, we have been highlighting certain companies as we expand our coverage of stocks and a company’s outlook in our Weekly Wrap. Some of these stocks appear on our Watch List which is in our Members Area and they are companies we feel may be overvalued or undervalued. We wanted to further expand on what to watch for in these particular names heading forward and just to remind you that sometimes buying or shorting a stock can make you pretty good returns as well. We love to trade options but they are time sensitive and sometimes the story takes a little longer to play out which can affect the outcome or your trades.
Even though we may not recommend a specific trade when we profile a stock, our coverage of these individual companies are a great place to start as you begin to build your own trading strategies. We wanted to do some quick reviews of some of the companies we have highlighted, where that stock is today, and where any future trade may lie.
We first brought you Best Buy (BBY, $42.98, up $0.08) on August 1, and said “Best Buy looks cheap at these levels and if we were stock buyers we would start half positions here under $35.”
The stock was at $34, then proceeded to get as low as $31 by the end of the month. Since then the stock has vaulted higher into the pre-holiday season and is up 20%-25% depending on where you got in. That’s a real nice return compared to CD’s and there could be more upside as its 52-week high is $48.83. We would continue to hold but would close the position if shares fall below $39.50.
On August 8, we initiated coverage of Baidu (BIDU, $110.01, down $2.16) when shares were $86. Shares dipped to a low of $76 by the end of the month but have also returned 20%+ return in two months. We waited for our entry pointy and were able to turn our homework into nearly a 50% return for our subscribers by using call options. We mentioned in our Members Area that we expected a 20 point move after they announced earnings when the stock was at $100 and so far it has captured half it, hitting a high of $113.78 last Thursday.
We also talked about gold in early August, highlighting the SPDR Gold Shares (GLD, $132.68, up $1.38) as a way to play the metal, and why it would do well in October. Gold was at $1205/ounce and the GLD was around $117, now gold is at $1357 and the GLD is up 13%. Folks, we may get a short term pullback in gold, but the story remains intact. Gold is going to go higher as it is acting like another “currency” thanks currency wars that are currently going on.
For the long-term, any dip could be viewed as a buying opportunity for almost all of the precious metals and we like silver as well. The iShares Silver Trust (SLV, $24.17, up $0.17) is the way to play this metal and we are looking at some options on this one as well as Pan American Silver (PAAS, $31.92, up $0.58) which hit a fresh 52-week high on Friday. PAAS has been on our Watch List off and on over the past few weeks.
In mid-August, we profiled Freeport McMoRan (FCX, $94.79, down $0.69) and said “If you believe that gold can go to $1,300/ounce and copper can go to $3.50/lb (at $1,214/ ounce and $3.25/ pound, respectively, at the time) then this stock could easily move back to the $80-$90 range.” The stock sits above those targets and we highlighted it at $70. This company has basically become a copper ETF and is volatile. We have been mentioning strangle trades on this one although none have been official recommendations, yet, but if you bought the stock you are now up 35%. We think shares can run to $120 but we would place stops in at $87.50 to lock in gains of 25%.
These are just a few of the stocks we have brought to you over the past few months and the most popular. We have gotten the most emails on these so we wanted to cover them again and we will review a few more next week so you know where we stand with those stocks as well. Today, we also bring you two new ones…
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3. Can American Tower Power Higher?
American Tower (AMT, $51.61, down $0.13) is a wireless infrastructure company that owns, operates, and develops communication sites which consist of basic wireless towers. They have over 20,000 towers in the U.S. and approximately 7,000 towers in Mexico, Brazil, and India. The company recently added some towers in Chile as well.
We have been talking endlessly about the mobile internet build-out that is occurring around the world and we cover several ways to play this theme in our option trading manuals, How to Trade Options on Momentum Stocks, and Momentum Stocks Watch List, by explaining what moves these sectors.
American Tower is right in the middle of this space and is a money-making machine with a sweet business model. They build the wireless tower for a fixed cost, then sit back and collect the rent. Mobile phone providers continue to add more and more transponders to those towers to handle the massive amount of increased traffic the smart phone revolution is already bringing to the networks and their current towers are like ATM’s with plenty of room for growth still ahead.
The company has been around since 1996 and went public in 1998. The stock hit an all-time high of $54.71 in March of 2000, and has spent the last decade getting back to even. The 52-week high is $52.34 which was hit in early October.
Last year, American Tower reported revenues of $1.7 billion, and the current market cap of the company is about $21 billion. They are expecting full year 2010 revenues of $1.9 billion with earnings of $0.89 a share.
We will get third quarter earnings for this company on Friday with Wall Street expecting $0.20 a share. Last quarter, analysts had penciled in $0.21 a share and the company blew those estimates away by reporting a profit of $0.25 a share. The stock does have a spooky side. It trades at almost 48 times next year’s earnings, which for any company is pretty lofty, but they are expecting revenue growth of over 20% next year.
American Tower is committed to returning money to their shareholders, and they have been doing this through buybacks of their stock but we think it’s time they pay a dividend. There has been talk of the company becoming a REIT which would send the stock surging but given their growth rate, we see shares trading above $60 over the 6 months, regardless.
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4. Aruba Networks Finding Strength
Aruba Networks (ARUN, $21.93, up $0.44) is another Tech company that is surfing the mobile intent wave by connecting local and remote users to a company’s IT resources through distributed enterprise networks. In other words, they help to get data from point A to point B swiftly and more secure with their AirWave Wireless Management Suite which helps manage wireless networks and prevent intrusion.
The company was founded in 2002 and went public in March of 2007 at $14. Shares hit a high of $23 four months later and traded to a low of $2 in late 2008. The stock has clawed its way back near its all-time highs and during that time, revenues have increased 85% and now stand at $266 million for 2010. Next year looks even better with 2011 projected revenues of $350 million so they have been growing despite the tough economic environment.
Aruba just finished their fiscal 2010 year and they will announce 1Q 2011 earnings on November 18 with the expectation they will report $0.11/share. You know the business is growing when their first quarter earnings are expected to exceed their previous full year’s earnings which is the case here.
Priced at 44 times earnings and with a market cap of $2.1 billion, the company is pretty well valued on the surface, as well. If you go out a little further though, Aruba is expected to grow at a 25+% growth rate, and with 2012 projected earnings of $0.61/share, this gets the P/E back in the 30’s.
We have mentioned the space they are in as being a great one, even in a recession. Their products also boost productivity, which is music to corporate America’s ears. As we go over these numbers and valuations, however, the one thing that continues to pop up in our mind because of the space they are in is “takeover target”.
We talk about finding these gems in our trading manual and at a 50% premium (or $30 stock price) this is only a $3 billion deal for a company that is growing like crazy. Thanks to the Fed and free money, that kind of deal is possible for a wide variety of suitors.
We doubt Aruba looks at their selves as an acquisition target because the company itself has been fairly acquisitive in the past. They acquired the wireless security business of Network Chemistry in late 2007, and in 2008 they purchased Airwave Wireless. This year, in May, they bought Azalea Networks in a cash and stock deal worth $40 million. The company specializes in wireless outdoor networks.
We will be listening to the company earnings call to get more clues on where they are headed in a few weeks, but in the meantime, if we see an opportunity to trade options on this one, we will let our subscribers know.
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We will be back Monday morning at 9am (EST) with a look at the week ahead and what companies are reporting earnings. We also want to remind you this is the last day to get a free 1-month membership to our Members Area with the purchase of our option trading manual.
Tags: binary options, call option, put option, Stock Market Weekly Wrap
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