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Daily Newsletter, Tuesday, 11/07/2006

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Table of Contents

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

Market Wrap

Pre-Election Rally

I (Keene Little) will be filling in for Jim who is on leave for some family business. We've had one heck of a rally the past two days, one of the strongest we've seen in the rally of the past few months. It was a nice little present for the incumbents in office. As I write this (early afternoon on the west coast) preliminary results show the Democrats doing well so the Republican incumbents don't seem to have been helped much by anything the market has done. As I've seen in many articles written recently, "It's Iraq stupid."

Talk to ten different people about how well the stock market will do under various scenarios of who's in control of which house and the presidency and you'll get ten different answers. Bottom line is I don't think it matters a whole lot. Generally speaking though it seems the street likes gridlock since the government is forced to be more fiscally frugal and has a tougher time making new laws. What they're saying of course is that we the people are much better off with a do-nothing government. Some might say that's been the case for the past many years (wink).

Many investors are banking on a year-end rally though. The statistics show November/December to be generally bullish anyway. In those cases where we went from total political unity (both houses and the president from one party) to a split to total or partial gridlock (6 times since 1945), the S&P 500 rose an average of +4.8%. There seems to be no end to the bullishness we're seeing in the market these days. VIX is still near record lows although interestingly it rose today after its initial drop at this morning's open. Perhaps a little worry is creeping in here. That could be bullish (the wall of worry) or it could be a signal that the end of the run is near.

From a technical perspective we were primed and ready for the past 2-day rally. The pullback last week came right down to strong support and it looked like we should get a bounce this week. I will admit that I'm a bit surprised to look at this 2-day "bounce" since the strength of it has surprised me. But is it really strong? A look under the hood says perhaps not and we'll review some of those signals. We're also very close to achieving some important levels as we head into a potential Fibonacci turn date window. The pieces are in place for a major high to get put in but obviously price is king and we'll follow that signal above all others.

There was only one economic report today and that didn't come until the afternoon. It was Consumer Credit for September which came in at $1.2B vs. expectations for $5.5B and a significant drop from the revised $9.1B for August (which was revised higher from $2.6B). So whether it was up from the original number or down from the revised number if you average the two readings you get close to the expected $5.5B. But sticking with the $1.2B that was the most it's dropped since April 1992. Obviously retailers are hoping to see that turn around as we head into the holiday season.

Retailers have issued some less-than-rosy sales forecasts and the previous durable goods numbers also show a consumer that appears to be slowing down. With the leveling off, and dropping, of home prices, the piggy bank known as the housing ATM looks to be drying up. Without that source of "income" we will very likely find the consumer slowing their spending considerably. All eyes on holiday spending patterns since that should be a very good clue for what's coming.

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The news out of the home builders also continues to be less than rosy. Toll Brothers (TOL 28.04 -0.01) and Beazer Homes (BZH 42.07 +0.13) both reported declining numbers but today looks like much of that has been priced in. That's debatable but for now that's what it looks like. TOL, known for its McMansions, reported a 57% decline in new home contracts for Q4 as compared to a year ago. Revenues were down 10% which was more than had been expected by the street. Its backlog for new homes fell 25%. It continues to get hit by higher contract cancellations which rose to 37% from 18% in Q3, so basically a doubling of its cancellation rate.

Nearly a quarter of its cancellations are for homes in the Orlando, FL area and northern CA. Also hurting earnings are the write-downs the company is taking on land that is either owned or they had options to buy. They will be writing off between $50M and $100M for the last quarter. TOL expects to update its earnings forecast for 2007 in its conference call scheduled for December 5th which is when it will also release full Q4 results.

But TOL lowered its estimate for fiscal 2007 to a range of 6,300 and 7,300 homes, down from its previous forecast of 7,000 to 8,000 deliveries. As their Chief Executive Robert Toll said, "We continue to look for signs that a recovery is imminent but can't yet say that one is in sight." This is a significant statement by someone who should know. The market pretty much ignored his comment, or feels it's already priced in. I don't think so.

BZH reported a 44% drop in its quarterly earnings, coming in at $91.9M vs. $164.4M a year ago. But they trimmed costs/losses and were able to beat expectations for profits by reporting $2.10 a share vs. $1.89 expected. But they lowered their earnings forecast for 2007. They're citing problems getting houses sold which require deep discounting now. New orders are down 58%.

Some additional news that just warms my heart (Not!) is that the investment bankers, the ones who are raping and pillaging this market for personal gain (personal comment), will be getting 20% bonuses this year. These are the brokers for equities and asset management. The brokers for retail, fixed income and commercial will only get a paltry 5-10%. The trading by the mega banks has been condoned and supported by our Fed and SEC and I hope that some day some people get thrown in jail for the shenanigans going on. We have corruption at the highest levels of government and banking and I look forward to a good cleaning of our collective house.

And now off my soapbox. Boeing (BA 84.85 +4.37) got a big boost today on news that FedEx (FDX 115.03 +1.07) said it would buy 15 jets from BA, with an option to buy 15 more, after canceling A380 orders to Airbus, citing delays in deliveries. The news gave the Trannies a little lift as well.

I had shown a chart of calculated M3 money supply last Thursday because I felt it did a pretty good job at showing us what's been happening in the money-creation department. The spike up in money added to the monetary system, especially since August, has been dramatic. As has our stock market gone parabolic in its climb, so too has the money supply. Think there might be a link? I certainly do. So I was curious to see what happened on that chart last week considering the sell off we had in the stock market.

M3 Money Supply, calculated, Weekly chart, courtesy nowandfutures.com

As you can see there was quite a dip in the rate of change (light blue line) last week. The amount of M3 actually dropped last week. And the stock market sold off as well. Still don't think there's a link between the two? The mega banks get the money from the Fed and buy up the market with it, adding their own considerable trading capital to it now. And then they get fat 20% bonuses for their efforts. I only wish we could see this calculated M3 reported on a daily basis (but the numbers from the Fed for this are only reported weekly). I'd be willing to bet there was quite a bit of Fed money pouring into the markets yesterday and today.

Let's move onto the other charts to see if we just might be getting close to putting in some kind of top here.

DOW chart, Daily

The DOW got a nice bounce off the bottom of its steep up-channel (after doing a little head fake break below it). We got a minor new high today, just in time for all the good people going to the polls today. It probably won't matter but it was a good effort by the Manipulators. Price stalled at the mid line of the up-channel and this is quite common to see for the last leg up in the pattern. It remains to be seen if this is the last leg up but any break now below last week's low would be a confirmed sell signal--it would be a break of its uptrend confirmed with a break of its last low. Until that happens stay with the trend but keep that exit door blocked open in case there's a mad rush for it.

From a weekly perspective, something I've been showing each Thursday for SPX, I thought I'd review the DOW's weekly chart. We're hitting some potentially important Fibonacci levels.

DOW chart, Weekly

Using Fib projections off the internal waves since the October 2002 bottom I get a first Fib target at 12198.2. This is where the 2nd leg up in the 2002-2006 rally is equal to 62% of the 1st leg up, a very common relationship, particularly when the 2nd leg up is losing momentum as we've seen for a long time in the rally this year.

The other Fib projection (hard to see since it blends in with the other one) is for the move up from October 2005. That shows 12197.1 for an upside target based on two equal legs up from that October low. Today's high was 12196. Close enough? Time will tell.

SPX chart, Daily

Like the DOW, SPX bounced off the bottom of its steep up-channel at last week's low and hit potential resistance at the channels mid line. As I had mentioned last week, the break in the rising bottoms of its MACD and RSI is a big heads up that we probably have a trend change in the making. I had mentioned we could get another price high and that it would likely be associated with more bearish divergences. This is very apparent on all charts. This can still rally higher but keep that exit door propped open.

Nasdaq chart, Daily

The COMP is once again testing its high near 2375. It actually made a new high but couldn't hold it. Like the others it too found resistance at the mid line of its steep up-channel. Also like the others this one is sporting all kinds of bearish divergences at this high. It needs to keep going otherwise we'll recognize in hindsight the strong sell signal here. But it takes a break below last week's low to confirm a breakdown.

SMH semiconductor holder, Daily chart

The semis continue to show relative weakness over the past couple of months and that continues to be a heads up that something is not right with the rally we've seen. A lot of money is going into big caps (driving the major indices higher) but the lack of participation in the semis is never a good sign. In the meantime it's looking like SMH is forming a H&S over the past couple of months. Today's rally failed to touch its 200-dma and closed below its 50-dma where it's been struggling since mid October.

BIX banking index, Daily chart

I had mentioned last week that the short term pattern would look better with another leg up (for its 5th wave in the move up from August) and it appears we're getting it. It doesn't necessarily have to make a new high (5th waves often truncate) but it will manage a new high if it can tag its Fib projection target at 401.38. If the bulls can keep this going then the top of its up-channel near 405 is upside potential. But with the continuation in the bearish divergences I'm not so sure we're going to see much more here. I know, you've heard that before.

Securities broker index, Daily chart

Like the banks I was thinking this could use another minor new high and we might get it. So far the brokers are finding resistance at its broken uptrend line from May 2005. Maybe it'll walk its way a little higher under this trend line.

U.S. Home Construction Index chart, DJUSHB, Daily

The bullish thing I see for the home builders is that it's holding above its broken downtrend line and may be inching its way down for a retest of the line for support. A break back down below 600 says another rally leg is probably not going to happen. But until then there's still hope for a leg up to the 200-dma and top of its bear flag near 730.

Oil chart, December contract, 120-min chart

Oil is slowly making its way out of its downtrend but not showing a whole lot of enthusiasm yet. After breaking its downtrend line from August oil is pulling back for what should be a retest of that line. I'm expecting a higher bounce out of this. The 120-min chart here looks like it's ready to roll back over so the bulls will need to step back in now. The daily chart continues to show bullish divergence for a continuation higher. What I don't like, from a bullish perspective, is the bounce so far looks like a 3-wave corrective bounce. The bounce can easily press higher but being corrective suggests we haven't seen the lows yet.

Oil Index chart, Daily

The oil index has been predicting a bounce in the price of oil, or it's simply been participating in the exuberance of the broader stock market. At any rate the short term pattern looks good for a small press higher but then it should be ready for a larger correction. If the pullback forms a choppy sideways/down kind of move then that will be bullish. But as I depict, I'm thinking this could be the end of the correction to the August-September decline and we should see the next leg down start soon.

Transportation Index chart, TRAN, Daily

The Trannies got a bounce off the bottom of its up-channel, like the broader market, and daily MACD turning back up near the zero line looks bullish. The short term pattern supports the idea we'll see at least a retest of the October high but I'm thinking not much more than that before it rolls back over. Stick with the uptrend until it breaks and then get shorty.

U.S. Dollar chart, Daily

I can't get an updated chart from QCharts for some reason so I'm showing last Thursday's chart. There's not much of change since then anyway and I wanted to remind you of the pattern I think is playing out--an ascending triangle with support just above $85. It should make a run back up to the $87 area now before starting another big decline into 2007. Based on this interpretation I see gold doing just the opposite here.

Gold chart, December contract, Daily

Gold is stalling at its broken uptrend line from August 2005. It might even be stalling at its potential H&S neckline (blue trend line) which would be even more of a bearish setup for gold. But based on the US dollar's pattern I'm thinking gold will consolidate in the descending wedge shown with the brown trend lines. Another pullback towards $560 could set up a strong rally into 2007.

Results of today's economic reports and tomorrow's reports include the following:

Economic reports are light this week. We only had the one today and only Crude Inventories on Wednesday. The rumors are that crude inventories will show an increase and that's what has prompted a bit of a sell off in oil the past couple of days. Obviously a draw down in inventories could spike the price of oil. I don't think the stock market is paying much attention to oil these days (they're too giddy drinking and asking "What, me worry? Of what?"? Wo be to the unwary. Anyway, as I commented on the oil chart above, it's ready to rally, or at least it needs to rally in order to maintain a bullish picture here. If it drops then the oil stocks could be finished with their rally as well.

Bottom line for me, after seeing the strong rally the past two days, is that we could be set up for a sell the news once the election is over. We've seen this happen time and again. If we get a sell off on Wednesday then the pundits will spin the news to match the outcome in the market. It's never the other way around. Along with the potential for a sell the news event we came very close to some important Fibonacci numbers for the DOW.

Some of the other indices and sectors could use a little higher but definitely not necessary. The bearish divergences, on long term time frames as well as short time frames, tell us to be cautious now. We're into the Fibonacci turn date window of November 3-17. The Bradley Model shows a turn at the end of November though to basically we have the month of November as a turn month. That's not very helpful for day to day trading but it does give us a heads up that we probably won't have a rally into the end of the year.

It's also a warning to continue pulling your stops up behind you as this rallies higher. If you got stopped out of any of your positions as some 20-dma's were broken last week (a head fake break to suck in the shorts needed to provide this week's rally) you may be annoyed at missing this week's rally. Don't be. You exercised sound money management rules. It's also much riskier to chase the last couple of percentage points in a rally. Jumping back in long now is way too risky in my opinion. Look to stay flat or for an opportunity to get short.

If you like playing the short side I think we've got a nice setup coming. I'd consider legging into some longer term plays such as put options. I'd go out January or even March 2007 at a minimum so that you can enjoy any drop in December (but take profits before Christmas). If you play shorter term moves then it could be better to wait for a confirmed break down and then get short on a bounce back to support-turned-resistance.

Good luck on Wednesday and don't be afraid to let the dust settle in the morning. I'll see you on the Market Monitor or back here on Thursday.
 


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

CNOOC Ltd - CEO - close: 83.90 change: -0.89 stop: 82.89

Crude oil futures turned lower following yesterday's gains. The commodity lost $1.09 to close under $59 a barrel. This weighed on the oil sector indices and shares of CEO. Volume in CEO came in above average, which is bearish given the decline. Yet thus far the overall pattern remains bullish although momentum is fading and a drop under $83 could be bad news for the bulls. We're still waiting for a breakout over resistance at the $85.00 level. Our suggested entry point to buy calls is at $85.25. If triggered our target is the $89.50-90.00 range.

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/31/06 (confirmed)
Average Daily Volume = 264 thousand

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Cerner Corp. - CERN - close: 50.27 chg: +1.32 stop: 46.90

Networking stocks continued to rally on Tuesday and this time shares of CERN decided to participate. The stock soared 2.69% and broke out over round-number, psychological resistance at the $50.00 mark. Furthermore CERN broke out higher on above average volume which is bullish. Our target is the $52.00-52.50 range.

Picked on October 30 at $ 48.05
Change since picked: + 2.22
Earnings Date 10/19/06 (confirmed)
Average Daily Volume = 662 thousand

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GlobalSantaFe - GSF - close: 53.60 chg: -0.70 stop: 49.39

After two days of sharp gains GSF hit some profit taking today down 1.28%. A pull back in crude oil futures didn't help matters. We remain optimistic but GSF is facing technical resistance with the 200-dma near $55.00. A dip or bounce near the $52.00-52.50 region could be used as a new entry point. Our target is the $57.50-58.00 range.

Picked on November 05 at $ 52.39
Change since picked: + 1.21
Earnings Date 11/01/06 (confirmed)
Average Daily Volume = 3.4 million

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Holly Corp. - HOC - close: 48.99 change: -1.07 stop: 47.95*new*

HOC produced another day or relative weakness with a 2.1% decline. We are concerned. Technical indicators are starting to turn negative. Lack of follow through higher on last Friday's breakout is also a key event. More conservative traders may want to exit early right here to limit losses. We're raising our stop loss to $47.95 and we're not suggesting new positions with HOC under $50.00.

Picked on November 05 at $ 50.75
Change since picked: - 1.76
Earnings Date 11/01/06 (confirmed)
Average Daily Volume = 1.1 million

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Petroleo Brasileiro - PBR - cls: 90.11 chg: -0.24 stop: 85.65

A dip in crude oil back under $59 a barrel put the brakes on the rally in PBR. Fortunately, the profit taking in PBR was pretty mild. This may have been due to positive analyst comments from Lehman Brothers. We would still consider new positions here but readers have a choice. You could wait for a new relative high over $91.40 or wait for a pull back toward $89 and its 10-dma as a new entry point. Our target is the $95.00-96.00 range. FYI: PBR is a Brasilian stock traded as an ADR here in the U.S. One risk traders are facing is the company's earnings report. We cannot find a specific date or even a history of recent earnings reports. The risk is that they announce a negative report while we're trading them.

Picked on November 06 at $ 90.05
Change since picked: + 0.06
Earnings Date 00/00/06 (unconfirmed)
Average Daily Volume = 2.5 million

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Transocean - RIG - close: 75.65 change: -0.87 stop: 69.99

RIG suffered some profit taking today but it may prove to be a new entry point. Traders bought the dip, twice, near $74.75 and the rebound pushed shares back above the $75 level. We would consider new positions right here. We have two targets. Our conservative target is the $79.50 level. Our aggressive target is the $84.00 level.

Picked on November 05 at $ 75.07
Change since picked: + 0.58
Earnings Date 11/02/06 (confirmed)
Average Daily Volume = 7.6 million

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Schlumberger - SLB - cls: 64.01 chg: -0.34 stop: 60.95

SLB is another oil stock that endured a mild pull back today. Traders bought the dip at $63.25 and SLB still looks poised to breakout over the $65 level soon. Our target is the $67.50-68.00 range. SLB is an oil services company and the services sector tends to be a little more volatile than the rest of the oil sector.

Picked on November 05 at $ 63.50
Change since picked: + 0.51
Earnings Date 10/20/06 (confirmed)
Average Daily Volume = 9.8 million

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Vimpel Comm. - VIP - close: 64.79 chg: -0.20 stop: 62.49

We do not see any changes from our previous updates. We're still suggesting an early exit for conservative traders and we're not suggesting new positions. Don't forget that we're dealing with a rising environment of risk due to the earnings report. The company is expected to report this month but we can't find a specific date. Estimates for when VIP will announce range from November 7th to November 23rd. Our target is the $67.50-70.00 range.

Picked on October 12 at $ 62.17
Change since picked: + 2.62
Earnings Date 11/17/06 (unconfirmed)
Average Daily Volume = 1.0 million
 

Put Updates

Alcon Inc. - ACL - close: 106.18 chg: -0.07 stop: 110.01

In spite of the market's strength today shares of ACL still closed in the red. Shares rallied to $107.48 before rolling over again. This might be a new entry point to buy puts but we'd be careful opening new put plays with the major averages posting gains! More conservative traders may want to tighten their stops toward the $108 level. Our target is the $100.10-100.00 range.

Picked on October 31 at $105.75
Change since picked: + 0.43
Earnings Date 10/23/06 (confirmed)
Average Daily Volume = 520 thousand

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Advanced Micro Dev. - AMD - cls: 21.56 chg: +0.17 stop: 22.05

Semiconductor stocks continued to rebound on Tuesday. The SOX index rose 1.9% but remains under technical resistance at its 200-dma (for now). Shares of AMD under performed its peers with a 0.79% gain and remains under resistance at the $22.00 level. Yesterday we suggested that more conservative traders may want to exit early and cut their losses now and we're repeating that suggestion today. We're going to hang on another day or two and see if AMD reverses at the $22 level or breaks out. We're not suggesting new positions with AMD above $20 at this time. Our target is the $17.50-17.00 range.

Picked on October 29 at $ 20.86
Change since picked: + 0.70
Earnings Date 10/18/06 (confirmed)
Average Daily Volume = 23.0 million

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Amazon.com - AMZN - close: 38.77 chg: +0.56 stop: 40.25

Tuesday proved to be a strong day for Internet stocks. The INX Internet index rose 1.3%. Shares of AMZN added 1.4% and closed at a new three-month high. Today's gain follows yesterday's bounce from its rising 10-dma. The stock is quickly approaching resistance at the $39.00 level. We were expecting AMZN to pull back and fill the gap from late October but right now tech stocks seem too strong. Will AMZN reverse at $39.00 or additional resistance at $40.00? If you're looking for a new entry point wait for the failed rally to appear. We're using a relatively wide stop loss above $40 to give AMZN room to maneuver. Our target is the $35.00-34.00 range.

Picked on October 29 at $ 38.24
Change since picked: + 0.53
Earnings Date 10/24/06 (confirmed)
Average Daily Volume = 7.9 million

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Cardinal Health - CAH - cls: 64.04 chg: -0.14 stop: 64.85

The bounce in CAH is struggling under the $65.00 level. This is good news but we're going to stick to our plan regarding entry points. Right now we're waiting for a breakdown under support at $63 and again near $62.35. Our suggested entry point to buy puts is $61.99. If triggered our target is the $58.00-57.50 range. Be prepared for a bounce on CAH's initial test of the $60 level.

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/27/06 (confirmed)
Average Daily Volume = 1.3 million

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Capital One Finc. - COF - cls: 77.57 chg: -1.11 stop: 80.05

The oversold bounce in COF may already be fading. Shares lost 1.4%. We remain bearish but we're not suggesting new positions at this time. Our target is the $75.10-75.00 range.

Picked on October 31 at $ 79.33
Change since picked: - 1.76
Earnings Date 10/18/06 (confirmed)
Average Daily Volume = 2.4 million

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Centex - CTX - close: 49.69 change: -0.65 stop: 52.55

Homebuilders are under performing the market. The DJUSHB home construction index lost 1.1% thanks to some negative earnings guidance from TOL and BZH. Shares of CTX lost 1.29% and closed under support at $50.00 and its 100-dma. We were suggesting a trigger to buy puts at $49.75 so the play is now open. Our target is the $45.50-45.00 range.

Picked on November 07 at $ 49.75
Change since picked: - 0.06
Earnings Date 01/23/06 (unconfirmed)
Average Daily Volume = 2.1 million

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Intercont.Exchange - ICE - cls: 87.12 chg: +2.22 stop: 82.55

ICE continued to bounce on Tuesday and the stock is challenging resistance in the $89-90 range. Fortunately, we're still spectators at this point. We're waiting for a breakdown under support at the $80.00 level. We may want to switch directions if ICE can breakout over the $90 level. Right now our suggested entry point to buy puts is at $79.85. If triggered our target is the $75.15-75.00 range. More conservative traders may want to exit at the rising 50-dma near $75. FYI: A decline under $81.00 would reverse the P&F chart into a new sell signal. More aggressive traders may want to consider opening early positions under $81.00.

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/02/06 (confirmed)
Average Daily Volume = 1.6 million

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Lehman Brothers - LEH - cls: 75.50 chg: -0.65 stop: 77.01

LEH failed to see any follow through on yesterday's bullish reversal. This is good news for the bears but we're not out of the woods yet. Another strong day in the major averages could fuel another round of gains for the broker-dealers. We would wait for a new decline under $74.50 before considering new put positions. Our target is the $70.25-70.00 range.

Picked on November 05 at $ 74.43
Change since picked: + 1.07
Earnings Date 12/13/06 (unconfirmed)
Average Daily Volume = 3.6 million

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Pantry Inc. - PTRY - close: 52.52 change: +0.48 stop: 56.01

Tuesday's trading in PTRY may prove to be a new entry point to buy puts. The stock rallied to $53.57 this morning and then began to drift lower. This looks like a failed rally under its sliding 10-dma. Our target is the $48.00-47.00 range but we do expect a bounce on PTRY's initial test of the $50 level. We do not want to hold over the November 16th earnings report.

Picked on October 29 at $ 54.05
Change since picked: - 1.53
Earnings Date 11/16/06 (confirmed)
Average Daily Volume = 383 thousand

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Univ.Forest Prod. - UFPI - cls: 44.55 chg: -0.28 stop: 48.05

Bears can probably breathe a sigh of relief. UFPI produced a failed rally under the $46.00 level today. Traders may want to use this as a new entry point to buy puts. However, we'd be careful about starting new bearish positions with the major averages posting gains. More conservative traders may want to think about tightening their stops toward the $46 level. We're aiming for a decline into the $41.00-40.00 range.

Picked on October 24 at $ 46.13
Change since picked: - 1.02
Earnings Date 10/16/06 (confirmed)
Average Daily Volume = 192 thousand
 

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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Bear Stearns - BSC - cls: 148.23 chg: -1.04 stop: n/a

BSC produced a failed rally near $150 and its 10-dma. Is this the end of its oversold bounce and the beginning of the next move lower? We're not suggesting new positions at this time. The options in our strangle are the November 155 call (BSC-KK) and the November 145 put (BSC-WI). Our estimated cost was $4.00. We're planning to exit if either option rises to $6.00 or more. FYI: Don't forget that November strikes expire in less than three weeks.

Picked on October 22 at $150.19
Change since picked: - 1.96
Earnings Date 12/14/06 (unconfirmed)
Average Daily Volume = 1.6 million

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Cephalon - CEPH - close: 72.70 change: +0.79 stop: n/a

The rally continues in CEPH. The stock added 1.09% on strong volume. We're not suggesting new positions at this time. The options in our strangle are the December $75 call (CQE-LO) and the December $65 put (CQE-XM). Our estimated cost was $3.45. We plan to see if either option rises to $4.90 or more.

Picked on October 29 at $ 69.35
Change since picked: + 3.35
Earnings Date 11/02/06 (confirmed)
Average Daily Volume = 2.0 million

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ConocoPhillips - COP - close: 60.99 chg: -0.06 stop: n/a

There is no change from our previous updates on COP. Currently this play is in big trouble with the lack of a directional move. Our target is breakeven at $1.15 but more conservative traders may want to try and exit at a fraction of our estimated cost (50%, 75%, etc). We're not suggesting new positions. Our suggested options were the November $65 call (COP-KM) and the November $55 put (COP-WK).

Picked on October 15 at $ 60.03
Change since picked: + 0.96
Earnings Date 10/25/06 (confirmed)
Average Daily Volume = 9.8 million

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Blue Nile - NILE - cls: 36.05 chg: +0.20 stop: n/a

NILE produced a real oversold bounce this morning but the rebound ran out of steam at $37.33. The ensuing sell-off late this afternoon definitely looks bearish. We're not suggesting new positions at this time. Our estimated cost was $2.40 and we're planning to sell if either side of our strangle rises to $3.90. The options in our suggested strangle are the January $45 call (JWU-AI) and the January $35 put (JWU-MG).

Picked on October 29 at $ 38.92
Change since picked: - 2.87
Earnings Date 10/30/06 (confirmed)
Average Daily Volume = 226 thousand
 

Dropped Calls

NTL Inc. - NTLI - close: 27.00 chg: -0.33 stop: 26.75

Time is up for our NTLI play. It was our plan to exit today at the closing bell to avoid holding over the company's earnings report expected tomorrow.

Picked on October 26 at $ 27.41
Change since picked: - 0.41
Earnings Date 11/08/06 (confirmed)
Average Daily Volume = 2.4 million
 

Dropped Puts

CDW Corp. - CDWC - cls: 65.79 chg: +0.73 stop: 66.25

Another rally in tech stocks pushed CDWC higher this morning. We've been stopped out at $66.25. We added the play on a breakdown under support at the $64.00 level but that proved to be a bear trap. Now shares are challenging resistance in the $66.00-66.60 region.

Picked on November 02 at $ 63.90
Change since picked: + 1.89
Earnings Date 10/18/06 (confirmed)
Average Daily Volume = 762 thousand

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DIAMONDS ETF - DIA - close: 121.55 chg: +0.54 stop: 121.16

We have been stopped out of the DIA at $121.16. A follow through rally on Monday's big gain pushed the DIA to $121.88. This EFT and the DJIA index looks very overbought and way overdue for a correction but so far the bulls aren't giving up.

Picked on November 02 at $119.80
Change since picked: + 1.75
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 6.6 million

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PACCAR Inc. - PCAR - cls: 59.61 chg: +0.25 stop: 60.55

We are jumping ship with PCAR. The stock is still trading under resistance at the $60.00 level but recent moves are reversing the technicals back toward a move bullish stance. Aggressive traders may want to keep the play alive. We're suggesting an early exit before PCAR breaks out over $60 and stops us out. Really nimble traders may even want to switch to calls if PCAR trades over $60.50 or $62.50.

Picked on October 29 at $ 59.42
Change since picked: + 0.19
Earnings Date 10/24/06 (confirmed)
Average Daily Volume = 1.4 million

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NASDAQ-100 ETF - QQQQ - cls: 42.83 chg: +0.29 stop: 42.81

The bulls continued to run the show on Tuesday and the NASDAQ Composite and the NASDAQ 100 managed to breakout over resistance on an intraday basis and hit new relative highs. This pushed the Qs to 43.09 before paring its gains. That stops us out at $42.81.

Picked on November 02 at $ 41.75
Change since picked: + 1.08
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 106 million

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Semiconductor HOLDRs - SMH - cls: 33.59 chg: +0.63 stop: 34.15

We have been stopped out of SMH at $34.15. The SMH semiconductor holders rose to $34.42 intraday thanks to big gains by components ALTR, BRCM and NVLS. Unfortunately for the bulls SMH pulled back from its highs and closed under a cloud of significant moving averages.

Picked on November 03 at $ 32.95
Change since picked: + 0.64
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 17.7 million
 

Dropped Strangles

None
 

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