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Newsletter

Daily Newsletter, Tuesday, 11/15/2005

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Table of Contents

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

Market Wrap

Momentum Slowing

The momentum has slowed after three weeks in rally mode and the arrival at strong resistance levels. The Nasdaq was the weakest link today despite news that George Soros had upped his stake in several tech companies. While the Dow and S&P were still trying to move higher at 1:PM the Nasdaq was already giving up ground. While the Dow and S&P set new relative highs today the Nasdaq could not even match the highs from Monday. Eventually every rally will run into profit taking, especially when reaching resistance at multiyear highs. It does not mean the rally is over but it does produce some needed caution.

Dow Chart - Daily

Nasdaq Chart - 30 min

SPX Chart - 30 min

Economic activity picked up today as the next reporting cycle gets underway. The Producer Price Index jumped +0.7% in October compared to a +1.9% jump in September. Energy prices were again the culprit with a +4.1% gain added to the +7.1% jump in September. Compared to October 2004 the prices headline number is up +5.9%. Core prices, without energy, actually fell -0.3% and are up only +2.0% over October 2004. That was the sharpest drop since 2003. Helping fuel the drop in prices was a -3% drop in auto prices. Energy prices continue to be the fuel behind the headline increases with crude goods up +31.5% over Oct-2004 levels. Natural gas prices rose +20.3% in October and this was on top of a +30.7% jump in September. Residential gas prices are up +38.9% year over year while home heating costs overall are up +50.4%. There is a move underway to drop the "core" number as the indicator of choice given the rise in the energy component in our daily lives. Energy was removed from consideration during the prior oil spikes as they were considered only temporary aberrations due to political events. In today's global economy the energy factor will be a permanent component of everyday spending and some economists feel the core rate should be dropped. I have always thought excluding food and energy was absurd and have said so repeatedly. Nobody I know can live without either.

The NY Empire State Manufacturing Survey jumped to 22.8 from last months 12.1 level. Shipments jumped to 27.6 from 23.5 and backorders rose to 15.1 from only 0.4. However, new orders only rose slightly to 25.9 from 24.9. One of the sharpest component increases was employment, which rose to 16.9 from 9.3. Inventories declined and prices received gained more than prices paid. This suggests the current inflation spike may be easing at the producer level but they are still raising prices to recover their higher costs. The +10.7 jump in the headline number was the strongest jump since July and suggests the hurricane dip has passed. The two year low of -11.1 was set last May.

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Retail sales in October fell only -0.1% and much better than the consensus estimates for a drop of -0.8%. Sales fell mostly on the drop in dollar values of gasoline. This drop in sales at gas stations was offset by year over year growth of +9.9% excluding autos. Sales at auto dealers fell -4.1% and erased a full point from the headline number. This was a very positive report despite the negative headline number. Sales fell where we want them to fall, in gasoline prices, while core sales grew at nearly a +10% rate and the fastest pace in 17 months.

We heard from several retailers this week and the jump in consumer sales does not appear to be floating all boats. Home Depot, the largest home improvement chain, said earnings jumped +17% on strong sales in Q3. HD raised its estimates for the year on expectations that Q4 would be strong. Sales rose +10.5% in Q3 with same store sales up +3.6%. HD raised revenue guidance for the year to between 10-12%. Wal-Mart posted a +10.1% increase in revenue for the quarter and said the holiday season should be strong. On the downside Target said sales would likely be lower than expected and miss its same store sales targets for +4-6%. American Eagle also warned that its Q4 profits would be below prior estimates. JC Penny beat the street for Q3 but guided lower than analysts had expected. Wal-Mart also warned that Q1 could be tough as consumers are faced with paying their credit card bills as well as high winter heating bills. Those mixed messages in the retail sector helped to pressure the indexes after three weeks of gains.

The Dow suffered due to a drop in AIG after the company posted lower than expected earnings. AIG also said some employees had received notices from the SEC regarding a probe into the companies accounting practices. Offsetting that drop was JNJ, which succeeded in adjusting the price it was paying for Guidant to -15% lower as an offset for the business loss due to recalled devices. JNJ jumped +2.50 on the news.

Hurting tech stocks was a downgrade in SNDK by Deutsche Bank to a sell based on valuation and a changing outlook on competition in the sector. Competitor Hynix is ramping up production of a multi-level flash chip that can store more memory than the conventional flash memory chip. Micron and Samsung are said to be partnering with Hynix in this new product. Since a large portion of SNDK revenues come from royalties on the current generation of flash chips this could cut revenue substantially if the use of that chip technology fades. SNDK fell -$4 on the downgrade.

In theory this should have been a good day for techs after news broke that George Soros had upped his stake in several tech companies, some by a factor of more than 5 times. In papers filed with the SEC Soros said he added to positions in INTC, MSFT, MOT, AMZN, EBAY, IBM, LU, TWX and APPL. Soros is betting on a continued increase in globalization of these brands and their products. Emerging economies are creating a surge in tech buying where there was previously limited tech availability. Soros got an unexpected windfall from Amazon today after S&P announced it will be replacing AT&T in the S&P-500. Ma Bell is retiring from the index to go live with one of her kids (SBC) as the acquisition completes. Google had been the expected entry but the S&P index committee snubbed GOOG once again with the nod to Amazon. GOOG fell -$4 on the news and AMZN jumped +$2.

The Nasdaq announced that they were changing their systems to handle 1,2,3 and yes 4 character symbols. No longer will Nasdaq companies be limited to a four-character symbol. Nasdaq said the move would allow it to function as a backup to the NYSE in case of a disaster.

Homebuilders were also weak today after a survey or realtors showed that home sales contracts fell -8% in October. Sales fell -14% on the West Coast, -7% in the Northeast, -8% in the mid-Atlantic and rose +1% in the South. Houses are staying on the market an average of three times longer. A survey of the 48 largest realtors in the country showed that sales were slowing but prices were not falling as much as previously feared. In Q3 prices nationwide actually rose +14.7% according to a survey of 147 markets. However, that compares Q3-2004 and Q3-2005. It does not show what the drop was from prior quarters this year. Be careful how survey numbers are presented. Sometimes the true picture is hidden by the presenter. They also showed that home values in certain parts of the country had accelerated so quickly that those areas could be holding up the overall averages and offsetting drops in other areas. Prices rose +55% in Phoenix, +48% in Orlando and +42% in Fort Myers. All the builders were down but not as much as you might have expected. New home construction numbers are due out on Thursday and traders are likely cautious ahead of the news. I keep looking for Toll Brothers to begin a rebound but it appears to be getting weaker as it struggles with $34. Beazer Homes continues to have the best looking chart but with rates rising I would be cautious of any new positions.

Consumer sentiment probably took another hit today after the Pension Benefit Guaranty Corp warned Congress the money was running out. The PBGC is currently administering 120 plans with a $108 billion balance. They are running a deficit of -$23 billion and it is not getting any better. The pension plan at United Airlines was $10 billion underwater. Current estimates claim there are scores of other pension problems about to surface with liabilities in excess of $450 billion. The PBGC is only liable for payments up to $3800 a month to any one person. Any benefits over that level are erased as the PBGC tries to cope with the rising number of disasters. With the millions of retirees depending on their pensions to live this cut in benefits is sure to be a sentiment depressor and an economic drag that will continue to grow.

December Copper Futures - Daily

Copper prices hit a new all time high at $1.93 today after news broke of massive short positions in China. Reportedly a rogue trader in the State Reserves Bureau in China has amassed nearly $200 million in shorts on copper. The trader, Liu Qibing, is said to have disappeared as China tries to distance itself from his activities. Dead men tell no tales could be the theory here. According to published reports he accumulated a short position of nearly 200,000 tonnes. (Tonne = 1,000 kg or 2,204.62262 pounds) His personal profile on Bloomberg lists him as a "government" trader. It is not unusual for traders to get into trouble and try to trade out of the problem. Many times it produces a snowball of liabilities as increasing leverage is required to produce any hope of rectifying increasingly negative positions. One trader, Nick Leeson, took down Barron Bank several years ago by trying to trade his way out of a relatively minor hole that ended with a -$1.3 billion disaster. After a prison stay Nick has written a book about the experience called appropriately, Rouge Trader. In the Chinese government it is highly unlikely a single trader accumulated positions of this size by himself. China closely monitors and controls what traders are allowed to do. Other participants in the market claim that to accumulate positions of that size he would have had to produce financial guarantees from a very large source leading them to believe it was a government sponsored effort. There are also rumors that another state owned enterprise, Minmetals, has been accumulating a large short position. That company has refused to comment on the situation. Some traders suggested that China was trying to short copper to keep the price low as their demand for the metal grew. However, on Tuesday a separate government agency was to hold China's first ever auction of copper reserves. Quite a potential for conflict there. Let's manipulate the price of copper ahead of the auction and then blame it on a now missing trader. After they hold their auction, prices will fall and they can cover their shorts for a profit. Looks like business as usual for China.

December Crude Oil Chart - Daily

Oil prices rallied early in the day ahead of tomorrows inventory levels but it could not hold its gains. Late afternoon selling pushed it to a new five month low at $56.91. The downtrend is continuing but we may be getting close to a rebound. Colder weather is holding gas prices over $11.50 and traders are just waiting for the first draw down in those inventory numbers to start buying again. I am patiently waiting for that turn to enter new energy positions. Despite the afternoon sell off in oil there were plenty of energy stocks making gains. This suggests the dip buyers are not afraid of a new drop in oil prices. That theory will be tested tomorrow when inventory levels are announced.

GM hit a new 13-year low at $22.50 as fears of a bankruptcy increases. High costs of healthcare, rising pension liabilities and falling sales are adding up to a bankruptcy in 6-12 months according to some analysts. GM responded today saying it has no plans of a bankruptcy filing. Traders laughingly recount hundreds of companies making that statement in the past that eventually filed. Another problem is GM's $31 billion in debt related to automaking that has been downgraded to junk status. GM has $276 billion in total debt with the majority of that held by GMAC. Credit default swaps are trading on an upfront basis meaning holders must pay substantially more to protect themselves against a default by GM. Currently bond holders must pay $12 a year per $100 of the debt to hedge against a default. Normally when companies default swaps go "upfront" a bankruptcy generally appears. Delphi and Delta are two companies where this occurred recently. Both filed bankruptcy. When GM mentioned last week they were going to restate earnings for the last four years it did not help the uneasiness. On Nov-10th Banc America reiterated a sell on GM stock saying they believe rising accounting liability for GM officers could accelerate a bankruptcy filing. BAC feels it is inevitable GM will file and that makes sooner a better decision than later.

Chart of GM - Monthly

The Bernanke hearings dominated the airwaves again on Tuesday and a peculiar thing happened. In a survey on Monday 73% of the respondents thought Bernanke would be good for the markets. By the end of Tuesday that number had declined to only 46%. This is a massive change in direction based on his comments. To be fair it also has to do with the strong stream of analyst reviews as the hearings progressed. It seems that they are reading the future and coming to the same conclusion I have voiced here over the last two months. Bernanke is suffering from the helicopter comment and there is a growing fear he will have to take the Fed rates much higher to prove to the bond market he is for real. In Nov-2002 he referred to helicopters dropping money as a means to head off deflation. He was referring to Milton Friedman's famous comparison of a Fed open market bond operation as "helicopter money drops" given in a 1968 speech. Bernanke alluded to the ability of the Fed to print endless amounts of money if needed to prevent deflation. Now instead of printing money the fear is he will have to reduce money supply until a recession appears just to prove he is macho enough to rule the Fed. The markets are becoming uneasy as his comments this week are evaluated with an eye to the current rate cycle.

With the exception of the Nasdaq the markets tried to push through current resistance despite the retail sales comments and fear of the Fed. The Dow actually traded above its eight month high of 10719 reaching to 10741 before the weight of the Nasdaq finally took hold. The Dow retreated to test Monday's lows and managed to recover some of that lost ground into the close at 10685. This leaves the 10700-10720 resistance level intact and ready for the next attack. Support is rising and somewhere in the 10600 range tonight. That means we still have room for further profit taking but I am not expecting it tomorrow. Most first time resistance tests fail, especially with resistance as strong as that at 10720. Still it was not the Dow that failed but the Nasdaq that dragged it down.

The Nasdaq is the real culprit with resistance at 2205 holding for three consecutive days. This was not a level that stood out on the charts as resistance but one that has formed over the last week as sellers take advantage of the psychological 2200 level. The Nasdaq has risen from 2025 to 2200 in little more than four weeks and that sets up a potential for profit taking from traders trying to lock in profits ahead of year-end. It is not that the +175 points are such a big deal but in reality it is the move from 1890 in late April. We saw the Nasdaq run up to 2219 over three months. +330 points. Many institutions held on during the Q3 drop and now that we have returned to that level they are breathing a collective sigh of relief and taking those profits to lock in bonuses. On a side note the securities industry is expected to pay out a whopping $18 billion in bonuses this year if the indexes stay at this level or higher until year-end. For those bailing at 2205 they are locking in their bonuses. After three months of pain that may seem to be the logical thing to do. However, the volume of selling is still low and there has not been a major change in sentiment. This has the effect of a low volume consolidation at resistance and should not be a problem unless volume increases.

The SPX, like the Dow pushed higher this morning to 1238 and only a handful of points from the multiyear high at 1245 set back in August. Like the Nasdaq we may have seen traders locking in profits as that resistance level is tested. The scuttlebutt on the street is still an expectation of a breakout before Thanksgiving but the proverbial bonus in hand is better than hoping for a larger one in the bush. Support on the SPX is currently 1215 and well below today's 1228 close.

Tomorrow we will get the Consumer Price Index (CPI), Business Inventories and the oil and gas inventories. The CPI is the only one that could move the market negatively. Consensus is for a minor gain of +0.1% in consumer prices and a much stronger number could accelerate those fears that Bernanke will start off his chairmanship with a reign of terror instead of a kindler gentler, easier to understand Fed.

I am still looking for additional gains until Thanksgiving simply because old habits die hard and retail traders are used to seeing a rally ahead of Thanksgiving. After Thanksgiving we will have to take another look at market sentiment to determine direction. I was encouraged by the limited selling in the broader indexes and hopefully that means the dip buyers are alive and well. I would also be careful of risking profits at this level. If you have been following my suggestions you should be long since SPX 1185 and have some nice profits in many stocks. We waited for more than two months for the Dow to dip below 10250 in October and we were rewarded for our efforts from shorting that drop and buying that dip. Now it is time to protect those profits from an unexpected change in sentiment. With initial support on the Dow around 10600 and stronger support at 10525 we could see a substantial decline and still retain the uptrend. The same level is 1215 on the SPX. Do you really want to pin your profits on the hope of a rebound from those levels? How would you feel if those levels broke after you rode your winners down to those levels? How many times has a supposed level of strong support only been a bump in the road on the way to a new low? Quite often although rarely in the period ahead of Thanksgiving. After Thanksgiving the occurrences increase making protection of those profits into the Thanksgiving period even more critical. Tighten up those stops and avoid that woulda, shoulda, coulda guilt trip if disaster strikes. Expect the best but protect against the worst.
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
None None None

New Calls

None today.
 

New Puts

None today.
 

New Strangles

None today.
 


Play Updates

In Play Updates and Reviews

Call Updates

Intl. Bus. Mach. - IBM - cls: 85.53 chg: +1.17 stop: 81.95

IBM proved to be a bright spot in the technology sector weakness today. The stock broke out over significant resistance at the $85.00 mark and lead the GHA hardware index to a gain. Our trigger to buy calls was $85.25 so the play is now open. Technical traders will note that volume came in above average on today's bullish breakout. Our target is the $89.90-90.00 range.

Picked on November 15 at $ 85.25
Change since picked: + 0.28
Earnings Date 01/16/06 (unconfirmed)
Average Daily Volume = 5.6 million

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Intel Corp. - INTC - close: 25.08 chg: -0.30 stop: 23.45

INTC is still struggling under its 100-dma and looks poised to breakdown under the 200-dma and the $25.00 mark. That is okay. We've been expecting a pull back toward the 10-dma currently near 24.60.
Our year-end target is the $26.00-26.50 range.

Picked on November 06 at $ 23.99
Change since picked: + 1.09
Earnings Date 10/18/05 (confirmed)
Average Daily Volume = 51.6 million

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Legg Mason - LM - cls: 114.82 change: -3.03 stop: 109.95

The broker-dealer stocks, which have been a leadership group, finally hit some profit taking today. LM lost 2.57% and we would expect the decline to touch its 10-dma currently at 113.25. Suddenly an early exit doesn't look so bad but we will continue to target the $119-120 range.

Picked on November 02 at $111.69
Change since picked: + 3.13
Earnings Date 10/25/05 (confirmed)
Average Daily Volume = 904 thousand

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NovAtel Inc. - NGPS - close: 28.32 chg: -0.55 stop: 27.75

We remain on the sidelines with NGPS. The stock is still trading inside its $28.00-30.00 trading range for now. If the stock breaks down under the $28 level or the 100-dma at 27.55 we'll probably drop NGPS as a bullish candidate. Our trigger to buy calls is at $30.45 (over Friday's high). If triggered we'll target a move into the $35.00-36.00 range.

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/26/06 (unconfirmed)
Average Daily Volume = 292 thousand

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Rockwell Autom. - ROK - cls: 56.45 chg: -0.17 stop: 53.49

ROK reiterated their 2006 guidance today. Reaction to the news sparked a little bit of volatility but the sideways to up trend remains intact for now. We are targeting a move into the $61-62 range.

Picked on November 03 at $ 55.90
Change since picked: + 0.55
Earnings Date 11/03/05 (confirmed)
Average Daily Volume = 804 thousand
 

Put Updates

None
 

Strangle Updates

(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)

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AmerisourceBergen - ABC - cls: 77.11 chg: +0.37 stop: n/a

Wow! The action in ABC was incredibly anemic today. The company announced it was doubling its cash dividend and it would split its stock 2-for-1 and share closed with a 37-cent gain after failing to breakout of its two-week trading range? This was the perfect opportunity for ABC to make a move before November options expire and it failed. We are not suggesting new strangle positions at this time. The December strangle still has five weeks left with an estimated cost of $2.80 using the December $80 calls (ABC-LP) and the December $70 puts (ABC-XN). Our target for the December strangle is $5.00.

Picked on October 16 at $ 74.81
Change since picked: + 2.30
Earnings Date 11/03/05 (confirmed)
Average Daily Volume = 900 thousand

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Amer. Eagle Out. - AEOS - cls: 23.21 chg: -1.14 stop: n/a

AEOS reported earnings this morning and beat by a penny but guided lower for the fourth quarter. Reaction to the news was naturally negative. The stock gapped lower and at least two analysts firm downgraded the stock. We are no longer suggesting new strangle positions. The current strangle has an estimated cost of $2.35 with the January $27.50 calls (AQU-AY) and the January $22.50 puts (AQU-MX). We are targeting a rise to $4.70.

Picked on November 13 at $ 25.47
Change since picked: - 2.26
Earnings Date 11/15/05 (confirmed)
Average Daily Volume = 3.6 million

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Abercrombie&Fitch - ANF - close: 56.89 chg: -2.64 stop: n/a

The action in ANF today was bearish too and that's not surprising after rival AEOS guided lower for the fourth quarter and TGT issued and earnings warning. However, after the closing bell today ANF reported earnings and beat estimates by 8 cents while guiding higher for the fourth quarter. This positive surprise has pushed shares of ANF back toward the $60 level in after hours trading. We are not suggesting new strangle positions at this time. The options in our strangle are the January $65 calls (ANF-AM) and the January $55 puts (ANF-MK). Our estimated cost was $5.15. We're looking for a rise to $8.50.

Picked on November 13 at $ 59.67
Change since picked: - 2.78
Earnings Date 11/15/05 (confirmed)
Average Daily Volume = 2.7 million

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D.R.Horton - DHI - close: 32.31 chg: -0.10 stop: n/a

There is not much change in DHI. The stock is still trading sideways as investors wait for the earnings report due out tomorrow. We are no longer suggesting new strangle positions at this time. Our strangle strategy involves the January $35 calls (DHI-AG) and the January $30 puts (DHI-MF). Our estimated cost was $3.15. We're aiming for a rise to $6.00.

Picked on November 13 at $ 32.56
Change since picked: - 0.25
Earnings Date 11/16/05 (confirmed)
Average Daily Volume = 3.2 million


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eBay Inc. - EBAY - close: 43.05 chg: -0.48 stop: n/a

A Reuters article that came out late last night mentioned that a fund controlled by billionaire George Soros had made new investments in Intel, Amazon.com, Ebay and increased its stake in Microsoft. Soros is no favorite among the generally conservative investing public but we're still surprised that the news didn't engender more strength in shares of EBAY today. We have three days left before November options expire. Our estimated cost was about $1.05. The November $35 puts (XBA-WG) are virtually worthless so we would not waste the commission trying to sell them - just let them expire. The November $45 calls (XBA-KI) are currently selling at $0.05bid/$0.10ask. It's up to you, the individual trader, to decide at what price do you try and salvage some capital from this play. We're going to lower our target to $0.50.

Picked on October 18 at $ 40.42
Change since picked: + 2.63
Earnings Date 10/19/05 (confirmed)
Average Daily Volume = 18.3 million

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Four Seasons - FS - close: 51.66 chg: +0.86 stop: n/a

FS continued its oversold bounce today and added another 1.6% but remains under what should be short-term resistance at the $52 level. We are not suggesting new strangles at this time. The options in our strangle were the January $60 calls (FS-AL) and the January $50 puts (FS-MJ). Our estimated cost was about $2.60. We're aiming for a rise to $5.00 or more.

Picked on November 08 at $ 55.37
Change since picked: - 3.71
Earnings Date 11/10/05 (confirmed)
Average Daily Volume = 319 thousand

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General Dynamics - GD - cls: 115.50 chg: -0.45 stop: n/a

The good news here is that GD has closed under its simple 100-dma and looks poised to test and potentially break support at the $115 level. The chart does look bearish but we're running out of time with only three days left before November options expire. The options in our strangle are the November $125 calls (GD-KE) and the November $115 puts (GD-WC). Our estimated cost was about $2.00. Currently the Nov. 115 puts are trading at $0.40bid/$0.50ask. We're adjusted our target to $1.00 to try and salvage some trading capital here but if GD bounces from the $115 level then these puts will quickly sink toward zero and we'll have no chance to exit. Readers have to decide whether to exit now or bet on a breakdown.

Picked on October 09 at $119.59
Change since picked: - 4.09
Earnings Date 10/19/05 (confirmed)
Average Daily Volume = 713 thousand

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Harman Intl - HAR - cls: 100.25 chg: +0.25 stop: n/a

There is no change for our play in HAR. The stock continues to oscillate around the $100 level. Murphy's law will dictate that once the November options have expired the stock will shoot off sharply in one direction just to spite us! The options in our strangle were the November $110 calls (HAR-KB) and the November $90 puts (HAR-WR). Traders should try to salvage what they can if HAR makes any attempt at a breakout either direction.

Picked on October 18 at $100.80
Change since picked: - 0.55
Earnings Date 10/19/05 (confirmed)
Average Daily Volume = 739 thousand

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Hutchinson Tech. - HTCH - cls: 24.67 chg: -0.50 stop: n/a

What's this? Is HTCH breaking down again? Today's 2% decline did push the stock under round-number support at the $25.00 mark and its MACD indicator is nearing a new sell signal. We are not suggesting new strangles at this time. The options in our strangle were the January $30 calls (UTQ-AF) and the January $20 puts (UTQ-MD). Our estimated cost was $1.65. We are adjusting our target from $3.00 to breakeven at $1.65.

Picked on October 26 at $ 24.89
Change since picked: - 0.22
Earnings Date 11/01/05 (confirmed)
Average Daily Volume = 666 thousand

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Kos Pharma - KOSP - close: 60.03 chg: +1.75 stop: n/a

Today's gain is bad news for our strangle since it puts us right back where we started. Shares of KOSP added 3% after announcing positive research news about one of its drugs raising "good" cholesterol and cutting artery plaque. The options in our strangle were the November $65 calls (KQW-KM) and the November $55 puts (KQW-WK). We need to be planning to exit on any spike that might breathe new life into the options so we can salvage some trading capital.

Picked on October 20 at $ 59.80
Change since picked: + 0.23
Earnings Date 11/03/05 (confirmed)
Average Daily Volume = 460 thousand

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Lear Corp - LEA - close: 28.11 chg: -0.31 stop: n/a

We see no changes from our weekend update on LEA. We're not suggesting new strangles at this time. The options in our strangle are the January $35 calls (LEA-AG) and the January $25 puts (LEA-ME). We are targeting a rise to $3.20 or more.

Picked on November 06 at $ 30.24
Change since picked: - 2.13
Earnings Date 10/26/05 (confirmed)
Average Daily Volume = 1.8 million

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Loews - LTR - close: 97.27 change: +0.21 close: n/a

LTR hit another new all-time high today. We don't see any changes from our previous updates. The options in our strategy are the December $95 calls (LTR-LS) and the December $85 puts (LTR-XQ). Our estimated cost is about $3.05. We did notice that the December $95 calls hit a high of $4.00 and are currently trading at $3.50bid/$3.90 ask. We have been targeting a rise to $5.00 or more but now we're adjusting our target so that we will exit if LTR-LS hits $5.00 or if shares of LTR hit $99.90 or more.

Picked on October 23 at $ 89.94
Change since picked: + 7.33
Earnings Date 10/27/05 (confirmed)
Average Daily Volume = 602 thousand

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Microsoft - MSFT - close: 27.50 change: +0.23 stop: n/a

MSFT performed another round of its magic act today as the stock continued to levitate higher. Shares are now testing resistance near $27.50 and the stock looks very overbought and due for a pull back. More conservative traders may want to seriously consider exiting right here. The MSQ-LY December $27.50 call hit a high of $0.60 today, which is an +100% rise in value for the cost of our strangle. Our estimated cost was $0.30 for the position. We are planning to exit if the calls hit $0.80.

Picked on October 25 at $ 25.03
Change since picked: + 2.55
Earnings Date 10/27/05 (confirmed)
Average Daily Volume = 64 million

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O'Reilly Auto. - ORLY - close: 30.00 chg: -0.60 stop: n/a

Ouch! ORLY hit some stronger profit taking today. Shares lost almost two percent and fell under its simple 10-dma. Today's decline pushed the November $30 calls (OQR-KF) down to $0.30bid/ $0.50ask. Our estimated cost was about $0.75. Traders might want to exit early to avoid further losses. More aggressive traders may want to bet on another bounce before November expiration but the short-term technical oscillators for the stock look bearish! We are adjusting our target down to $0.75.

Picked on October 09 at $ 28.23
Change since picked: + 1.79
Earnings Date 10/25/05 (confirmed)
Average Daily Volume = 513 thousand

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Verifone Holdings - PAY - cls: 23.95 chg: -0.35 stop: n/a

We see no changes from our weekend update on PAY. We are targeting a rise to $4.50 for our January strangle. Currently the January $22.50 calls (PAY-AX) appear to be the winning side.

Picked on October 12 at $ 19.98
Change since picked: + 3.97
Earnings Date 11/18/05 (unconfirmed)
Average Daily Volume = 259 thousand

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Protein Design Labs - PDLI - cls: 25.92 chg: +0.43 stop: n/a

PDLI produced a bit of an oversold bounce today. We would not be surprised to see the stock rally toward $26.60-27.00 before continuing lower again. We are not suggesting new positions at this time. The options in our hypothetical strangle are the December $30 calls (PQI-LF) and the December $25 puts (PQI-XE). We'll plan to sell if either side rises to $3.25. We have five weeks left before December options expire.

Picked on October 30 at $ 27.70
Change since picked: - 1.78
Earnings Date 11/01/05 (confirmed)
Average Daily Volume = 1.8 million

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Spectrum Brands - SPC - close: 16.39 change: -1.61 stop: n/a

SPC hit another new low today and closed down 1.15% on above average volume. We are not suggesting new strangle positions. Our estimated cost for this strangle was $1.25. The options in our suggested strangle are the December $22.50 calls (SPC-LX) and the December $17.50 puts (SPC-XW). We are aiming for a rise to $2.50 or more. Currently the Dec. $17.50 puts hit an intraday high of $1.95 and are currently trading at $1.75bid/$1.85ask. More conservative traders may want to consider exiting right now with a 44% rise in value.

Picked on November 08 at $ 20.63
Change since picked: - 4.24
Earnings Date 11/10/05 (confirmed)
Average Daily Volume = 576 thousand
 

Dropped Calls

None
 

Dropped Puts

AutoZone - AZO - close: 85.31 chg: -0.76 stop: 84.95

Odds are that Target's (TGT) earnings warning before the opening bell today was the catalyst for AZO's weakness this morning after the open. The stock fell below short-term support at the 10-dma, 50-dma and the $85.00 level to hit our stop loss at $84.95 - closing the play.

Picked on November 13 at $ 86.74
Change since picked: - 1.43
Earnings Date 12/08/05 (unconfirmed)
Average Daily Volume = 1.1 million
 

Dropped Strangles

Inamed Corp. - IMDC - close: 81.28 change: +6.84 stop: n/a

Target achieved! This morning before the bell news hit the wires that Allergan (AGN) had announced an $84/share buyout bid for IMDC. Shares of IMDC gapped open at $82.00 and hit $83.16 before paring its gains. The options in our strangle were the December $75 calls (UZI-LO) and the December $65 puts (UZI-XM). We were targeting a rise to $5.00 or more and this morning the December $75 calls (UZI-LO) gapped open at $7.10 and rose to $8.10 before closing at $6.60bid/$6.80 ask. Our estimated cost was at $2.80. An exit at $7.10 would have been a 153% rise in value.

Picked on October 30 at $ 70.63
Change since picked: +13.63
Earnings Date 11/01/05 (unconfirmed)
Average Daily Volume = 533 thousand
 

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