Hawk's Weekly Dispatch

Transcription

1 Hawk's Weekly Dispatch Trading Quote of the Week "In this business if you're good, you're right six times out of ten. You're never going to be right nine times out of ten." - Peter Lynch Weekly Technical and Sentiment Outlook Technical: Stocks continued an impressive uptrend with 4 straight weekly higher closes to start We closed Friday right below the 123.6% Fibonacci extension of the 6 month range at 1,503. The first measured move target of 1,515 is still in play and resistance of the channel up off the prior highs comes in at 1,520 that aligns with the 138.2% Fibonacci extension and a good upside target for this leg of the rally, while an aggressive view due to the strength of this trend would suggest a 1,605 target being the 1,475/1,345 range break projection. I would expect a move up to around 1,520/1,525 and then look for a modest pullback to trend support and re-test the prior breakout at 1,475 to build a higher base, or possibly as low as 1,450 where the 50 day EMA is coming into play. I continue to monitor closes versus the rising 6 and 10 day EMAs for signals of the short term momentum.

2 Sentiment: The most recent AAII Sentiment Survey showed that bullish sentiment jumped 8.4% to 52.3% at a 2 year high, well above the 39% historical average, while bearish sentiment fell 3.1% to 24.3%, below its 30.5% historical average. The latest equity fund flows report showed that in December there was outflows of $20.7B and in 2012 net outflows for the year of $18.1B, but the latest week saw $2.9B of inflows and continues the early 2013 trend of money moving into equities. The NAAIM Survey of Manager Sentiment came in at and remains elevated, but still below the 88.1 reading from 12/26. As of Friday's close 997 stocks made New Highs and just 69 New Lows, and 82.5% of stocks trading above the SMA50 and 76.3% above the SMA200. The NYSE Summation Index continues to climb in a strong trend and now above the 1,000 level, and keep in mind it peaked at 1,343.3 in the early 2012 rally. The CBOE Equity Put/Call Ratio closed Friday at 0.64, right in the middle of its historical range, and the Index Put/Call similar with a 0.95 reading. Much of the markets uncertainties have been removed between the European Debt Crisis, Chinese Slowdown, and the US Fiscal Cliff, and now the US Debt Ceiling has been extended. The lack of fear is being shown in the VIX that is at 5+ year lows, but looking forward on the futures curve we can expect volatility to pick-up in March/April, but gives this rally time to grind higher defying the skeptics. The early takeaway from earnings has been positive with a lot of beats on the top and bottom line. Economic Data continues to improve as well with the PMI readings for China and Europe positive last week as well as improved investor confidence in Europe. In conclusion, although sentiment is nearing too much optimism, it appears well-founded because there are a lot of reasons to be optimistic, and most importantly the current market action shows that a major asset allocation shift from Treasuries to Stocks is underway and can catapult markets for weeks, even months. Trade Details: Options Hawk Institutional Trade of the Week News Corp (NWSA) on Thursday traded the July $28/$30 1X2 Call Spread 6,250X12,500 contracts at a $0.30 debit per spread, a $187,500 position that makes maximum profits with shares at $30 on July expiration, and would profit $1,062,500. The spread profits in the $28.30 to $31.70 range. NWSA shares were trading $27.40 when the trade was made, so positioning for modest upside through July. Trade View: Fundamental Analysis: News Corp has been consistently reporting strong earnings and the $63.44B Co. trades 13.7X FY13 earnings, 1.63 PEG, 1.87X Sales, and 2.43X Book. Shares look to have some upside at this valuation, but not a lot and aligns with the strategy. NWSA shares would gain strong on any news of a breakup, a name often considered to be

3 a likely candidate. On 1-23 Citi reiterated a Buy and raised its target to $32.50 from $26, while Barclays raised to $31 from $30 on Options Open Interest: The NWSA April $24 calls and $20 puts each have more than 15,000 in Open Interest, and started with 5,850 of each on , long strangles at $1.97. On a trader bought 50,000 January 2014 $30/$35 OTM call spreads at $1.15 at the PHLX. On bullish traders rolled 4,400 January $24 calls out to April $27 calls. Technical Analysis: NWSA shares are flagging below $27.50 and saw high volume selling on 1-24, possibly due for a pullback to $25.50 support which would provide a long opportunity. The $25.50/$18.50 leg breakout measures to a target of $32.50 by June It is a name worth waiting for a pullback to $ Options Radar Daily Freebies Recap (Available Daily on OptionsHawk by 2pm at "Options Radar" on Menu) 1/25: Nvidia (NVDA) bullish positioning continues today with 6,000 September $14 OTM calls bought to open $1.06, and after 6,000 June $12 calls bought yesterday. 1/24: Potash (POT) climbing to highs and nearing a major breakout with the Ag stocks strong after Agrium (AGU) gave a monster guidance boost, and POT reports 1/31 after MOS had fairly strong earning early this month. Traders active in Potash March $45/$40 bull risk reversals today at $0.01 debits, nice high risk/reward play if willing to be long POT at $40. 1/23: Electronic Arts (EA) opening sale of 7,500 March $14 straddles at $1.52 ahead of 1/30 earnings, expecting shares to remain range bound 1/22: Anadarko Petro (APC) bullish flag set-up and plenty of longer-dated large call Open Interest, especially in May where today a large buyer of 10,000 $90 OTM calls at $1.40 1/21: Gold (GLD) with April $180/$195 call spread bought 20,000X, earlier the June 28 (Q) $175/$185 ratio call spread bought 18,300X36,600 at $0.15 debit. Both trades looking for significant upside for Gold through June.

4 Weekly Small Cap Growth Bullish Chart and Fundamentals Natural Grocers (NGVC) is a recent IPO in the organic foods group, a theme for 2013 and beyond, and the $465M Co. trades 34.6X FY13 earnings, 1.38X Sales and 6.37X Book with 25% EPS growth seen for FY13 after EPS growth of 89.75% in FY12. NGVC will report earnings on 1/31, a risk, but came in-line with estimates last report. NGVC should be able to generate 20%+ growth for a long period with room to expand, and expect robust same store sales growth. On the chart I like how NGVC is moving through its 50 day SMA on strong volume and past a short-term trend resistance from the post-ipo highs at $25. The $20 level is the optimal buy point, and would look for an eventual break through $22.50 resistance for a move to $27. Weekly Earnings Snapshot Preview Merck (MRK) will report earnings 2/1 before the open and the Street expects $0.81 EPS and $11.47B in Revenues, and $3.68/$45.65B for FY13. Merck shares have closed lower on earnings 4 of the last 6 reports, but the 2 upside moves were also the largest magnitude, and an average 6 quarter max move of 2.35%. The $132.1B Pharma trades 11.8X FY13, 2.76X Sales, and 2.37X Book with a 3.96% dividend yield. On 1-22 JP Morgan reiterated Overweight and a $52 target, while on 1-16 Jefferies cut its target to $47. On the chart Merck shares closed Friday at multi-day highs and broke through its 50 day SMA and past downtrend resistance, setting up for a move back to $45+, a very bullish chart. Merck's February IV at 14.4% compares to March at 14.4%, so no real bid-up for earnings. Merck did see feverish call buying after 3pm on Friday with 10,850 February $43 calls bought at $0.83 and 2,500 March $45 calls at $0.27. On a trader put on 10,000 February/April $43 calendar call spreads, but the February short calls have since been bought back while 24,000 April $43 calls in OI and 33,000+ in April $45 call OI. Trade to Consider: Long the MRK April $43 Calls at $1.35

5 Weekly Options Trade Idea BP shares have consolidated back to the 20 day on lighter volume after a strong volume run, and formed a bullish flag pattern. The longer term chart sets up for a move back to early 2012 highs at $47. The $140B Oil Co. remains cheap on valuation at 8.6X earnings, 0.37X Sales and 1.19X Book with a 4.9% yield. Trade Idea: Long BP February (1) Weekly $44 Calls at $0.35 (Target $1.50 Exit) Options Action Trade Highlight of the Week Cyberonics (CYBX) shares are down 16.85% in a month and comes after I first highlighted unusual put buying on with the July $50 puts at $4.10 that then saw steady accumulation. The puts have gained to $9.50 from $4.10, more than a 100% gain. Original Options Radar Report: "Cyberonics (CYBX) drawing unusual put buying for the second straight day with 1,500 July $50 puts at $4.10 to $4.20 for $535K put premium. Cyberonics (CYBX)reaffirmed its 2013 outlook yesterday, but today traded 250X daily put volume as a block of 2,500 July $50 puts was bought to open at $4.10 with a $3.50/$4.10 bid-ask. CYBX has been a top performer the past year but could put in a topping candle this week after closing 3.4% lower today and back below the level it broke out past earlier this week. The $1.48B VNS Therapy medical equipment Co. trades at a rich multiple, 29.1X FY13 earnings, 1.8 PEG, 6.27X Sales and 21.5X cash flow. "

6 Zillow (Z) shares have climbed firmly off its lows and now up 30% in a month. With shares near new lows on I highlighted unusual buying of 4,500 February $25 calls at $2.40 to $2.60. Those calls are currently priced at $11.50 and some positions rolled to higher strikes, but a 350% gain. Original Options Radar Report: "Zillow (Z) trading 4X daily calls with 4,500 February $25 calls bought to open at $2.40 to $2.60 for $775,000 call premium, Net Delta +150K, major bullish surge in options action with shares cut in half from the September highs, down big after the latest earnings report. Shares are back near post-ipo lows, and seems like an opportunity for a high growth name closely tied to the housing recovery. Shares were hit on a weaker than expected Q4 view. The $803M Co. trades 44.5X forward earnings, 1.86 PEG, 7.85X sales and sees 75% EPS growth for FY13, so one of the top growth names. Zillow does have 32.7% of its float short, so the calls may be hedging a short position. Barclays slashed its target to $35 on 11-6 and Benchmark to $40." Please Visit OptionsHawk.com for More Content and for Information on Premium Subscription Services Disclaimer: Not Investment Advice or Recommendation Any descriptions "to buy", "to sell", "long", "short" or any other trade related terminology should not be seen as a recommendation. The Author may or may not take positions in any of the names mentioned, and is not obligated to disclose positions, nor position sizes. Content is for informational and educational purposes only. You alone will need to evaluate the merits and risks associated with the use of this content. Decisions based on information provided are your sole responsibility, and before making any decision on the basis of this information, you should consider (with or without the assistance of a financial and/or securities adviser) whether the information is appropriate in light of your particular investment needs, objectives and financial circumstances. Investors should seek financial advice regarding the suitability of investing in any securities or following any investment strategies. No reference to any specific security constitutes a recommendation to buy, sell or hold that security or any other security. Nothing constitutes investment advice or offers any opinion with respect to the suitability of any security, and the views expressed on this website should not be taken as advice to buy, sell or hold any security. In preparing the information contained in this website, we have not taken into account the investment needs, objectives and financial circumstances of any particular investor. This information has no regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this information and investments discussed may not be suitable for all investors. Additional Notes - This Weekly Dispatch is Expected to be Sent Weekly on Sunday's. As a free piece of content there will be week's that it will not be issued depending on time constraints, vacations, etc.