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Daily Newsletter, Tuesday, 11/29/2005

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Table of Contents

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

Market Wrap

Moving As Expected

Despite apparently stellar economic news the markets have been moving lower as we expected. I cautioned several times over the last few weeks that the week after Thanksgiving could be weak and so far the markets appear to be following the plan. It is not because any fundamental changed but simply profit taking and consolidation in place from the six weeks of gains. So far it is rather tame profit taking given the magnitude of the gains.

Dow Chart - Daily

Nasdaq Chart - Weekly

SPX Chart- Weekly

On the surface it was a spectacular day for economic reports and possibly a preview of what is to follow. The first report out this morning was Durable Goods with a blowout jump of +3.4%. Consensus estimates were in the +1.2% range after the prior month loss of -2.0%. Transport orders provided most of the bounce with new orders ex-transportation rising only +0.3%. Obviously just looking at the headline number would have you believe that the economy was exploding but taking out those large and erratic airline orders puts it back into perspective. Airline orders can amount to billions of dollars a month and are very sporadic although Boeing has been on a roll recently. Looking at a graph of durable goods for the last year looks like a witches smile with alternating spikes and dips nearly every month. Should we be happy this was a spike month? Actually it was a neutral month and it should be Fed neutral. Yes, we should be happy for a Fed neutral report and one that shows continued growth in the economy now that the initial hurricane impacts have faded. This suggests the fourth quarter got off to a good start and numbers should continue strong into year-end.

The biggest report of the day was a spike in New home Sales to 1,424,000 units on an annualized basis. This is a new record high and the largest increase in 12 years. Where is that housing decline? On Monday we saw a decline in existing home sales to 7.09 million units and down from 7.29 million in September. One day we are in a steep decline of -2.7% in existing housing and the next we are seeing a +13% jump in new homes. What gives? The new home numbers are derived from a builder survey where they report new "contracts" signed not new closings. The existing home sales were based on actual closings. While signing a contract can be counted as a sale for today's numbers it does not mean you will close the deal. Many builders accept token amounts of money to contract a new house but in many cases your liability is only that deposit. You can walk and leave the builder hanging. The builder just sells the house to somebody else and likely for more money given the housing market for the last several years. Here is the rub. The New Homes Sales survey released today has a margin of error of +/- 17.7%. That is a whopping margin of error that spans 35 percentage points. This does not mean we should not discard the data but we should interpret it with caution. Sales in the West jumped +47%, Northeast +43%, South +1.9% and Midwest fell -9%. The margin of error on the sales in the West is +/- 56% to illustrate the volatility of the numbers. Inventory to sales did continue to rise despite a drop of inventory on hand from 4.7 months to 4.3 months. Actual homes for sale came in just below 500,000 and a +20% gain year over year. That should raise some eyebrows. If you are selling your home you can rejoice in the numbers since John Doe buyer will only see the headline but almost analysts agree it will be revised sharply downward in December. Homebuilders were unable to take advantage of the good news with most of them down for the second day in a row. Investors took advantage of the morning news spike to exit positions while analysts were criticizing the numbers.

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Fannie Mae said today that they expected home sales to drop -7% in 2006. They said Fall of 2005 would be a peak in housing due to a slowing consumer in 2006. The consumer may argue with that based on the jump in Consumer Confidence for November. Confidence jumped to 98.9 from 85.2 in October. Present conditions jumped to 114.0 from 107.8 and expectations jumped to 88.8 from 70.1. That suggests consumers are looking for better times ahead rather than in December. The jump in confidence was said to be on lower gasoline prices and a better outlook on jobs. Buying plans rose for everything but autos. Anybody even remotely interested has been seduced into buying a new car over the last two years and that means there is far less interest in buying the current round of offerings. Retailers said consumers voted with their wallets last weekend and the numbers were huge. Visa reported that customers charged $9.6 billion on Visa cards over the Black Friday weekend. This was a +16% jump over 2004. Cyber Monday attracted $505 million in online Visa charges for a +26% jump over 2004. It is the holiday season and consumer sentiment should continue to climb through December but could decline in January as those Visa bills begin to come due.

Wednesday continues the flood of economic reports with GDP, NAPM-NY, Chicago PMI, Kansas Fed Survey, Beige Book and Oil Inventories. The GDP will be a major report with estimates calling for a jump to +4.1% for Q3 compared to +3.8% in Q2. I am worried that the big decline in auto sales in September could derail that estimate. The Chicago PMI is expected to decline -2 points to 60.7 but whisper numbers are starting to call for a gain instead. Wednesday should be a news intensive morning but market volatility is not expected. Thursday continues the deluge with 10 economic releases the biggest of which is the ISM with estimates of a drop to 57.8 from 59.1. Friday is headlined with the Jobs report and official estimates for a gain of +210,000 jobs. Merrill Lynch is expecting a gain of +230,000.

In stock news it was a day where the headliners were the losers. Calpine (CPN) announced that Peter Cartwright, founder, CEO, President and Chairman, along with CFO Robert Kelly would be stepping down after failing to return CPN to profitability. CPN has been under pressure after spending $17 billion to build new power plants over the last 15 years. They sold their oil and gas properties last year at what they thought was the top in the market with expectations of being able to buy gas cheaper this year. It was not the top and gas doubled and fears of a bankruptcy are growing. The stock fell -56% today on a volume of 186 million shares. In 2001 when the stock was $58 that would have been an enormous amount of money. Instead the drop to only 54 cents at the close was only a drop in the bucket as investors threw up their hands in disgust. After the close today S&P announced it was removing CPN from the S&P-500 and adding Genworth Financial (GNW). Genworth was the recent spin-off from GE. The change will take affect after the close of trading on Thursday. Yes, Google was snubbed again. CPN had a market cap as of the close today of $307 million and ranked 500th in the index. Genworth had a market cap of $16 billion. This could cause some selling in the S&P as index managers adjust their weightings to compensate. GNW jumped $1.50 in after hours on the news.

Chart of Calpine - Monthly

Chart of Google - Weekly

Google suffered its largest lost ever of -$19.94 or -4.7% to $403.80 after two firms issued downgrades on the stock. This came only one day after UBS announced a $500 price target. Merrill Lynch said Google was starting to attract negative publicity due to its aggressive encroachment into other companies business. Funny, I thought that is what capitalism is all about, gaining market share at the expense of others. Dell prospered on that model for a decade without attracting negative publicity. Stanford Institute of Equity Research said the risk/reward no longer justified a buy rating at these levels. Google is now said to be fairly valued at 45 times 2006 earnings. This compares to Yahoo 42x, Ebay 45x and Amazon at 40x. However, it does not take into account that Google is growing at 2-4 times the rate of everyone else. If they ever split their stock, say 10-1, it would hit $500 post split ($50) in a matter of seconds.

Gold prices rose to $502.30 overnight as the buying in precious metals continues. It retreated to $494.30 intraday but recovered to touch $500 again at the close. There is a real battle of minds going on among analysts as to why gold is soaring. Some say it is a predictor of future inflation and a rush to safety. Others claim it is higher demand due to global growth. I reported last week that several countries were adding to gold reserves and reducing investment in other currencies ahead of a coming global slowdown. I also believe that OPEC nations, especially Saudi Arabia, are pouring oil dollars into gold ahead of a devaluation of the dollar on the next round of oil price highs. The U.S. has the most to lose of any other country once Peak Oil has passed and other governments know it. The U.S. economy will experience severe inflation and an eventual recession when the oil ceases to flow freely. I believe the spike in gold is due to other countries planning for this eventuality. Helping fuel this short squeeze is a drop in output from South Africa. The Gold ETF (GLD) closed at a new historic high at $49.80.

Chart of Gold - Daily

Chart of Oil - Daily

Natural Gas Chart - Daily

Oil prices fell again after the Saudi Oil Minister Ali Naimi said on Saturday that OPEC is unlikely to cut production at its meeting in Kuwait next month. The current OPEC ceiling has been 28 mbpd for the 10 members excluding Iraq but they have been pumping at full capacity at levels over 30 mbpd to compensate for the hurricane shortages. Naimi said that prices are a "little high" and OPEC would attempt to moderate those prices. It is thought that OPEC is now targeting $55 as their base rate. Venezuela's Chavez has been calling for production cuts to keep oil prices nearer to $60. Oil inventory levels announced tomorrow are not expected to show a significant build. Refineries are being repaired and daily refining volumes are increasing. That should lead to an eventual draw down in crude levels. Natural gas storage levels announced on Thursday should show another week of draws as the cold weather continues. The blizzard in the Midwest over the weekend is moving toward the Northeast and causing strong demands on natural gas. If this weather continues we could begin to see some substantial draws in both natural gas and heating oil.

The busiest hurricane season on record will expire tomorrow but not before tropical storm Epsilon became the 28th storm of the season. Epsilon is not a threat at 850 miles east of Bermuda but it still counts. According to forecasters 2006 should be a strong hurricane season as well. Glad I don't live on the Gulf coast and forced to play hurricane roulette every year. Forecasters are still calling for a colder than normal winter due to the same weather patterns that produced the record hurricane season. Winter may have gotten a slow start with 70-degree weather in the Northeast today but it appears to be picking up speed.

The nice weather in New York may be from a sunny disposition from all the workers at Goldman Sachs. It is estimated that Goldman will dole out $11 billion in bonuses for 2005. Yes, Goldman is a public company (GS) but it still acts like a private one. I am thinking about giving up my day job and going to work for Goldman based on these numbers below. Estimated bonuses for secretaries begin at $15,000, junior analyst's $70K and associates $95K. Sound good? It only gets better. 250 managers will get more than $2 million EACH, executive managers $3M and senior managers $3M. Those are the paupers compared to the higher rungs on the ladder. There are numerous managers, traders, equity specialists, etc, getting from $20M to $40M for their efforts. Many get more than the officers but don't worry about them. The vice chairman gets $17M, CFO $19M, president $29M and CEO $29M. Stockholders, they get a dividend yield of a measly 0.76%. The stock did appreciate +30% so far in 2005 but fell -$5 when news of the bonuses hit the wires. This is one company where it may be more profitable to work for instead of own.

The Dow posted a new high for November at 10959 as the economic headline numbers rippled through the markets. Unfortunately once aircraft were removed from the Durable Goods Orders and analysts shredded the New Home Sales faster than a Gulf hurricane through a subdivision it was unable to hold its gains. The Dow fell back to close at 10889 and the second consecutive close under 10900. As I mentioned earlier it is not the fault of the Dow, although half of the components are still down for the year. The Dow is up +7% since the October-27th lows and it simply needs a rest.

The Nasdaq has given up more ground than the Dow with a close today at 2233 and well off the 2269 high from Friday. The minor -6 point loss for the day was a yawner and nothing to get excited about. Dip buyers are alive and well but are still waiting for a real dip to buy. I would expect them to appear in greater numbers around 2220 but the lack of any material selling today may convince them to pony up to the bar at tomorrow's open if the GDP is decent. The Nasdaq high on Friday at 2269 was +4 points over the resistance high from June 2001 at 2264. This could be a bump on the next test but I do expect it to eventually break. Nasdaq 2300 would be my target for December. The SOX also pulled back from two days of fighting resistance at 485 but the consolidation was only minimal and is finding support at 475.

The SPX struggled all day but managed to maintain a fractional gain at the close. 1257 appeared to be the battle line and defenders managed a last minute goal line stand. Like the Nasdaq we could see buyers appear at 1250 but after today's battle a good GDP number could attract some before that level is reached.

The key here is timing. We expected a pause this week and it arrived right on schedule. No harm, no foul and no damage. The profit taking has been negligible given the gains and the only question is whether buyers will get a deeper dip before the next move higher begins. I am expecting higher highs before year-end but I am not as optimistic as some who are expecting numbers in the 12,000 area on the Dow. I would expect 11,000 to be broken but guesstimates over 11K are few and far between with 11350 a likely target. I think our true target is 1300-1315 on the SPX. Any gains over those levels would be appreciated but unexpected. We all know buyers and sellers tend to reach extremes so anything is possible when end of year buyers return. Just keep your stops tight as we approach the holidays because traders are going to want to lock in those bonuses. The next three weeks could be choppy with an upward bias but after Christmas all bets are off. I feel I have guided you well over the last year with accurate market calls that produced profits. I warned well in advance of October that 10250 would be the low in October and 10230 was the actual number. I told you to begin buying at 1185 in October once I thought the bottom was in. We have rallied +75 points since. If you feel this type of market analysis is helpful in making money then I suggest you take advantage of the year end special this year when it appears in your inbox soon. 2006 could be rocky and I can't wait for it to begin. I hope you feel that way as well.
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
TSCO NFLX None

New Calls

Tractor Supply - TSCO - cls: 52.13 chg: +1.38 stop: 49.95

Company Description:
Tractor Supply Company operates 562 stores in 34 states, focused on supplying the lifestyle needs of recreational farmers and ranchers. The Company also serves the maintenance needs of those who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located in towns outlying major metropolitan markets and in rural communities. The Company offers the following comprehensive selection of merchandise: (1) equine, animal and pet products, including everything necessary for their health, care, growth and containment; (2) maintenance products for agricultural and rural use; (3) hardware and tool products; (4) seasonal products, including lawn and garden power equipment; (5) truck, trailer and towing products; and (6) work clothing for the entire family. (source: company press release or website)

Why We Like It:
TSCO is a retailer that tends to march to the beat of its own drum. The company presented at an investor conference today and any news from the conference may have attributed to TSCO's relative strength in today's market. Current the stock has been consolidating sideways under resistance near $52.50. We're going to suggest a trigger to buy calls at $52.75. This way we can catch the breakout but hope to avoid any false starts. More conservative traders may want to wait for a move over $53.00. If TSCO trades over the $53 level again it should produce a new buy signal on its Point & Figure chart. Our six-week target is the $57-58 range.

Suggested Options:
We are suggesting the January calls. We do not plan on holding over TSCO's January earnings report.

BUY CALL JAN 50 QTF-AJ open interest=1302 current ask $4.50
BUY CALL JAN 55 QTF-AK open interest= 280 current ask $2.15

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/18/06 (unconfirmed)
Average Daily Volume = 428 thousand
 

New Puts

Netflix - NFLX - close: 27.00 chg: -0.58 stop: 28.55

Company Description:
Netflix is the world's largest online movie rental service, providing more than three million subscribers access to over 50,000 DVD titles. Under the company's most popular program, for $17.99 a month, Netflix subscribers rent as many DVDs as they want and keep them as long as they want, with three movies out at a time. There are no due dates, no late fees and no shipping fees. DVDs are delivered for free by the USPS from regional shipping centers located throughout the United States. Netflix can reach more than 90 percent of its subscribers with generally one business-day delivery. Netflix offers personalized movie recommendations to its members and has more than 1 billion movie ratings. Netflix also allows members to share and recommend movies to one another through its Friends(TM) feature. (source: company press release or website)

Why We Like It:
Heavily shorted NFLX is once again testing the bottom of its rising channel. One could argue a play in either direction for NFLX. The old market maxim is "the trend if your friend". Well currently the trend in NFLX is up. A bounce from the bottom of its rising channel here could be a new bullish entry point. However, we suspect that NFLX could be poised for another consolidation lower. The weekly MACD is very close to a new sell signal. Meanwhile yesterday the stock was downgraded. We're going to suggest a trigger at $25.99 to open the play. Until NFLX trades at or below our trigger we'll sit on the sidelines. If we are triggered we'll target a drop to the $22.50 level. Obviously the biggest risk here is a short squeeze, which is certainly a possibility of the Santa Claus rally makes an appearance this year.

Suggested Options:
We're going to suggest the January puts. We do not plan on holding over NFLX's January earnings report.

BUY PUT JAN 27.50 QNQ-MY open interest=3178 current ask $2.75
BUY PUT JAN 25.00 QNQ-ME open interest=3092 current ask $1.55

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/18/06 (unconfirmed)
Average Daily Volume = 1.4 million
 

New Strangles

None today.
 


Play Updates

In Play Updates and Reviews

Call Updates

Dominion Res. - D - close: 77.09 chg: -0.11 stop: 74.75

Another down day for oil and a lackluster day for natural gas did not foster much buying in shares of D. Of course D is also an electric utility stock but the Utility index saw its early gains fade. Bad news from already troubled Calpine (CPN -56%) didn't help the sector. The overall pattern remains bullish for D but traders may want to wait a bit on initiating new positions. It looks like the stock is going to pull back and retest support in the $76.00-76.50 region (we're watching the $76.40 mark). Look for signs of a bounce before considering calls. More conservative traders may want to wait for a move over the simple 50-dma (78.75) or even the $80 level before considering longs.

Picked on November 27 at $ 78.24
Change since picked: - 1.15
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume = 1.8 million

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Goldman Sachs - GS - close: 130.45 chg: -0.65 stop: 128.49

The broker stocks continued to see profit taking on Tuesday. Shares of GS broke down under the $130.00 level on an intraday basis and its short-term technicals do not look that healthy. A bounce from the $130 level could be used as a new bullish entry point but we'd be careful examining new entries and would probably wait for a bounce from $130 to cross the $131.50 mark again before going long calls. We plan to exit the day before its earnings report. We are targeting a move into the $139-140 range.

Picked on November 20 at $131.58
Change since picked: - 1.13
Earnings Date 12/15/05 (confirmed)
Average Daily Volume = 3.6 million

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Hovnanian - HOV - close: 49.31 change: -0.06 stop: 47.45

The new home sales report came in better than expected this morning. This news lifted the housing sector but only temporarily. Shares of HOV quickly pulled back from its highs of the session and are nearing short-term support at its 10-dma. Readers can watch for a bounce from the 10-dma or the $48 level as a new bullish entry point. Until then we would not begin new long positions.

Picked on November 21 at $ 49.25
Change since picked: + 0.06
Earnings Date 12/07/05 (unconfirmed)
Average Daily Volume = 1.5 million

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NovAtel Inc. - NGPS - close: 30.46 chg: +0.35 stop: 27.75

Tuesday was a quiet session for NGPS. The stock traded in a narrow 60-cent range all day. More importantly the stock held support at the $30.00 level. The pull back in the major indices may not be over yet so we hesitate to suggest new long positions here in NGPS. However, a bounce from here could be used as a new entry point. If NGPS breaks down any further the $28 level is the next level of significant support. Our target is the $35.00-36.00 range by year-end.

Picked on November 21 at $ 30.45
Change since picked: + 0.01
Earnings Date 01/26/06 (unconfirmed)
Average Daily Volume = 292 thousand

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Phelps Dodge - PD - cls: 133.44 chg: +1.96 stop: 124.99

PD drifted higher today after some positive analyst comments on the metals sector. We don't see any changes from our previous updates on PD. More conservative traders might want to consider tightening their stop losses. Our year-end target is the $139.90-140.00 range. More conservative traders may want to target the October high near $138.50.

Picked on November 18 at $131.25
Change since picked: + 2.19
Earnings Date 01/26/06 (unconfirmed)
Average Daily Volume = 2.7 million

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Polaris Ind. - PII - close: 48.54 change: -0.61 stop: 45.95

PII pulled back to its first line of support near the 10-dma today. A bounce from here could be used as a new bullish entry point. Further declines under the $48 level would suggest PII is headed toward the 50-dma. Our year-end target is the $54-55 range under its simple 200-dma.

Picked on November 21 at $ 48.47
Change since picked: + 0.07
Earnings Date 01/12/06 (unconfirmed)
Average Daily Volume = 467 thousand

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Rockwell Autom. - ROK - cls: 56.15 chg: -0.00 stop: 54.80

There is no change in shares of ROK today and no change from our previous updates. We're expecting ROK to pull back and retest the $55 level, which should be support.

Picked on November 03 at $ 55.90
Change since picked: + 0.25
Earnings Date 11/03/05 (confirmed)
Average Daily Volume = 804 thousand

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Walter Inds. - WLT - close: 50.26 change: +0.00 stop: 45.95

If you're the optimistic type then we can probably label WLT's lack of movement today a show of strength. It's noteworthy that WLT is holding above broken resistance, now new support, at the $50.00 level. A bounce from here can be used as a new bullish entry point but we'd probably look for a move over $51.00-51.25 before initiating new longs. If the stock continues to fall the next level of support would be the $48 level. The P&F chart looks very bullish with a $67 target. We believe shares can run into the $57-58 range before year's end.

Picked on November 20 at $ 51.50
Change since picked: - 1.24
Earnings Date 10/26/05 (confirmed)
Average Daily Volume = 927 thousand
 

Put Updates

Invitrogen - IVGN - close: 64.50 chg: +2.14 stop: 66.05

Positive broker comments on IVGN this morning sparked a rally that was fueled by volume almost twice the normal. The sudden show of volume on the bounce could be bad news for the bears and put holders! The big risk now is that IVGN will announce some sort of positive earnings news at its analyst day on December 14th. If you're a conservative trader this deviation from our plan and sudden show of volume is a good excuse to exit early right here! We're going to keep the play alive since IVGN is still under resistance at the $66.00 level. We would not suggest new positions at the moment.

Picked on November 27 at $ 63.06
Change since picked: + 1.44
Earnings Date 01/26/06 (unconfirmed)
Average Daily Volume = 1.2 million
 

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: 80.50 chg: +1.19 stop: n/a

Good news! ABC broke through resistance at the $80.00 mark to close at a new all-time high. That puts the calls in our strangle in a much better position. We are not suggesting new strangle positions at this time. Our current strangle involves the December $80 calls (ABC-LP) and the December $70 puts (ABC-XN). Our estimated cost was $2.80. Our current target is for a rise to $5.00 in the strangle.

Picked on October 16 at $ 74.81
Change since picked: + 5.74
Earnings Date 11/03/05 (confirmed)
Average Daily Volume = 900 thousand

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Amer. Eagle Out. - AEOS - cls: 22.35 chg: -0.77 stop: n/a

Retail stocks continued to slide and AEOS was one of the worst performers with a 3.3% decline on very strong volume. The move today broke down below its two-month trend of higher lows. We are not suggesting new strangle positions at this time. 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: - 3.09
Earnings Date 11/15/05 (confirmed)
Average Daily Volume = 3.6 million

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Abercrombie&Fitch - ANF - close: 60.62 chg: -0.98 stop: n/a

ANF continues to drift back toward the $60.00 level, which should be support. 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: + 1.82
Earnings Date 11/15/05 (confirmed)
Average Daily Volume = 2.7 million

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Chicago Merc. Exchg. - CME - cls: 370.10 chg: -1.20 stop: n/a

Yet another volatile day for shares of CME. The stock dipped towards $358 twice today before rebounding back to the $370 level. Volume was pretty heavy at more than twice the norm. We are not suggesting new strangle positions at this time. Our current play involves the January $400 calls (CMJ-AK) and the January $350 puts (CMJ-MA). Our estimated cost was $26.70. We're aiming for a rise to $40.00 in the strangle before January options expire.

Picked on November 20 at $375.90
Change since picked: - 5.80
Earnings Date 01/24/06 (unconfirmed)
Average Daily Volume = 879 thousand

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D.R.Horton - DHI - close: 35.50 chg: -0.07 stop: n/a

A better than expected new home sales report helped lift the housing sector early this morning but the group failed to hold any of its gains. DHI didn't move much and continues to tread just above its simple 10-dma. Meanwhile in the news DHI announced a $500 million stock buy back program, which should be longer-term bullish for the stock. We are not suggesting new strangles at this time. Our current play 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: + 2.94
Earnings Date 11/16/05 (confirmed)
Average Daily Volume = 3.2 million

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Four Seasons - FS - close: 49.90 chg: -0.11 stop: n/a

Interesting... FS closed under the $50.00 level for the first time since its post-earnings sell-off. Are shares finally ready to begin the next leg down? 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: - 4.75
Earnings Date 11/10/05 (confirmed)
Average Daily Volume = 319 thousand

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Hutchinson Tech. - HTCH - cls: 27.46 chg: +0.62 stop: n/a

The relative strength in shares of HTCH today is good news! The stock bounced from its intraday low and posted gains with volume coming in above average. This tends to confirm the nascent up trend. 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 have adjusted our initial target from $3.00 to breakeven at $1.65 since the post-earnings reaction was not as big as expected.

Picked on October 26 at $ 24.89
Change since picked: + 2.58
Earnings Date 11/01/05 (confirmed)
Average Daily Volume = 666 thousand

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Lear Corp - LEA - close: 27.99 chg: +0.06 stop: n/a

There is virtually no change in LEA and we see no change from our previous update on the stock. The consolidation in LEA is narrowing so we can expect a move, either direction, pretty soon. Odds are the prevailing, bearish trend will continue. We are no longer suggesting new strangle positions. 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: - 2.25
Earnings Date 10/26/05 (confirmed)
Average Daily Volume = 1.8 million

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Loews - LTR - close: 97.26 change: +0.03 close: n/a

Technicals suggest that LTR is poised to turn lower but the stock is stubbornly holding on to its November gains as it churns sideways under the $98 level. More conservative traders may want to exit here to salvage their position. If LTR does turn lower we won't have a lot of time for the stock to rebound before December options expire! We're not suggesting new plays. 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 plan to exit if our strangle rises to $5.00 or if shares of LTR hit 99.90.

Picked on October 23 at $ 89.94
Change since picked: + 7.47
Earnings Date 10/27/05 (confirmed)
Average Daily Volume = 602 thousand

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Verifone Holdings - PAY - cls: 22.67 chg: -0.18 stop: n/a

We don't see a lot of change in PAY. We've been expecting shares to pull back toward support near the $22 level and that's what it is doing. The company is due to report earnings on December 1st and that should spark some new volatility into our January strangle. We're not suggesting new positions here although it might pay off to consider a new strangle with the $20 puts and $25 calls but you'd need to open any new plays before PAY reports earnings. Our current strangle involves the January $22.50 calls (PAY-AX) and the January $17.50 puts (PAY-MW). Our estimated cost was $2.60 and we're aiming for a rise to $4.50 or more.

Picked on October 12 at $ 19.98
Change since picked: + 2.69
Earnings Date 12/01/05 (confirmed)
Average Daily Volume = 259 thousand

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Protein Design Labs - PDLI - cls: 27.87 chg: +0.07 stop: n/a

We see no changes from our weekend update. We are not suggesting new strangle positions. The options in our strangle are the December $30 calls (PQI-LF) and the December $25 puts (PQI-XE). Our estimated cost was at $1.80. We'll plan to sell if either side rises to $3.25.

Picked on October 30 at $ 27.70
Change since picked: + 0.17
Earnings Date 11/01/05 (confirmed)
Average Daily Volume = 1.8 million

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Spectrum Brands - SPC - close: 17.82 change: -0.34 stop: n/a

So far so good. SPC continues to drift lower. We are not suggesting new strangle positions at this time. 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.

Picked on November 08 at $ 20.63
Change since picked: - 2.62
Earnings Date 11/10/05 (confirmed)
Average Daily Volume = 576 thousand

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Questar Corp. - STR - close: 74.40 chg: +0.09 stop: n/a

Natural gas prices rallied somewhat despite more talk of warmer weather this winter. The bounce in natural gas seemed to stall STR's decline. We are no longer suggesting strangle positions in the stock. Our strangle involves the January $80 calls (STR-AP) and the January $70 puts (STR-MN). Our estimated cost was $5.10 and we're aiming for a rise to $9.50 or more.

Picked on November 20 at $ 76.25
Change since picked: - 1.85
Earnings Date 01/26/05 (unconfirmed)
Average Daily Volume = 716 thousand

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Texas Ind. - TXI - close: 49.88 chg: +0.48 stop: n/a

TXI rallied back to the top of its short-term trading range today and then failed at its simple 50-dma. The stock is still trading in our suggested entry window of $49.00-51.00 and the closer to $50.00 the better! The options in our strangle are the January $55 calls (TXI-AK) and the January $45 puts (TXI-MI). Our estimated cost is $2.70. We're looking for a rise to $5.00 or more.

Picked on November 27 at $ 49.57
Change since picked: + 0.31
Earnings Date 12/15/05 (unconfirmed)
Average Daily Volume = 354 thousand

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Valero Energy - VLO - close: 95.40 chg: +0.13 stop: n/a

We see no change from our previous update on VLO. We are not suggesting new strangle plays any longer. Our current play involves the January $110 calls (VLO-AB) and the January $90 puts (VLO-MR). Our estimated cost was $5.85 and we're aiming for a rise to $9.50. VLO is due to split 2-for-1 on December 16th so our post-split target will be a rise to $4.75.

Picked on November 21 at $101.00
Change since picked: - 5.60
Earnings Date 01/30/06 (unconfirmed)
Average Daily Volume = 10.7 million
 

Dropped Calls

Intl. Bus. Mach. - IBM - cls: 89.10 chg: -0.01 stop: 84.85

Target achieved. Early strength in shares of IBM pushed the stock to $89.94 this morning before pulling back. Our target was the $89.90-90.00 range. The stock looks short-term overbought and now that it has reached round-number resistance at the $90.00 level we'd expect some profit taking. We'll watch for a bounce from the $85 level as a potential new entry point.

Picked on November 15 at $ 85.25
Change since picked: + 3.85
Earnings Date 01/16/06 (unconfirmed)
Average Daily Volume = 5.6 million

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Novastar Fincl. - NFI - cls: 28.81 chg: -1.44 stop: 29.24

The stronger than expected new home sales report this morning had a negative affect on interest-sensitive stocks like NFI. Interest rates spiked higher and shares of NFI fell sharply through support at the $30.00 level on strong volume. We were stopped out at $29.24.

Picked on November 23 at $ 31.65
Change since picked: - 2.84
Earnings Date 02/06/06 (unconfirmed)
Average Daily Volume = 621 thousand
 

Dropped Puts

None
 

Dropped Strangles

None
 

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