Option Investor
Newsletter

Daily Newsletter, Tuesday, 11/06/2007

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Table of Contents

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

Market Wrap

So Far So Good

After Monday's dip to support the bulls rallied again but it took all day to find some traction. The Citigroup write down news continued to make waves with fears that other financials would be forced to confess even further losses. It was rumored that Goldman Sachs would announce new write downs after the close even after Goldman said there would be no announcement and no new write downs. Fear of the financials was the predominant drag on the markets early in the day but after the Goldman statement the money center banks started finding buyers as the afternoon progressed. Financials along with techs and energy stocks finally got their act together and the day ended with a big gain.

Dow Chart - 60 min

Nasdaq Composite Chart - 120 min

The only economic report out today was the Job Openings Labor Turnover Survey or JOLTS. The survey showed the hiring rate slowed slightly for the second consecutive month but separations remained flat. This allowed the job market to remain relatively stable despite the minor slowing in hiring. The job openings declined -0.7% to 4,148 in September compared to 4,168 in August. The job openings rate declined -0.1% to 2.9 but the hiring level declined -4.9%. This may sound negative but the rate of decline across all the components was very light. There were 4.677 million people hired in September with 4.355 million separations. This was the lowest rate of separations since late 2004 and was instrumental in keeping the hiring rate positive. The JOLTS report is a calendar month report as opposed to the government non-farm payroll report, which is 15th to 15th. This data suggests continued strength in hiring but no holiday surge. It was neutral for the markets.

Wednesday reports include Mortgage Applications, Productivity and Costs, Wholesale Trade and Consumer Credit. None are expected to be market movers. Crude inventories are likely to be a moving force for crude with expectations for another drop. The official consensus is for a drop of one million barrels but the last couple weeks have produced big surprises and big inventory declines. The problem this week combines delays for tankers due to hurricane Noel and the shutdown of Mexican production due to torrential rains and severe storms. There is no way to quantify the tanker traffic delay but the 2-3 day passing time for Noel to move out of the Caribbean theoretically stalled any tankers headed towards the gulf by 2-3 days. That could produce a timing shortage of 2-4 million barrels. Mexico saw their production and ports shut in for 3-4 days last week due to severe storms and torrential rains. The U.S. imports 1.4 mbpd from Mexico and that shutdown could have caused another 4-6 mb drop in deliveries. This suggests tomorrow's inventory report could see a 3rd week of massive inventory declines. Last week saw a decline of 3.9 mb and the prior week lost 5.3 mb. Another massive decline could easily spike crude another $2-$3 and target that $100 price level.

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On Tuesday crude climbed to $97.10 and another new high on rising geopolitical concerns. A pipeline in Yemen was bombed by terrorists and shut down. The pipeline transports 155,000 bpd. The saboteurs were not identified. The Pakistan problem, while not specifically an oil issue, still caused a rise in tensions. The month long rise in oil prices finally pushed gasoline prices nationwide to more than $3.02 per gallon. Analysts claim if oil does not crash soon we could easily have $4 gasoline by Thanksgiving. We are currently in a low usage period for gasoline but that expires when the travel for Thanksgiving accelerates and then carries over until year-end on holiday travel and shopping. That surge in gasoline demand at the same time heating oil demand soars could put profits back in the refining business but push prices higher. Heating Oil futures surged to a new all time high at $2.61 per gallon today and analysts claim it could hit $3 before winter. The EIA said today that home heating bills this winter would rise +26% to an average of $1841 for those homes heated with oil. Those homes heated with gas would rise only 11% to $900. The EIA also raised its estimates for crude in 2008 to an average of $80 for the entire year. That should be a reality check for those expecting oil to return to $60 in the near future. The EIA said demand could rise 2.1% in the coming year but the global impact of high prices could be the biggest risk. As prices continue to rise we could see the beginning of a global recession triggered by the end of cheap oil prices. Oil accounts for 90% of the world's transportation needs and high prices directly impact the amount of fuel used. Historically every major price spike has been followed by a period of recession as the world adjusted to the higher prices. Once acclimatized world growth continued. This is the worst spike in modern times and common sense suggests it will eventually be followed by an equally painful recession. However, forecasters are not giving that possibility a serious chance until 2009 to 2011. On the surface it appears oil prices are not impacting the economy unless you happen to be running an airline. All the majors carriers have been down big over the last week since every dollar in crude gains costs each airline an average of a million dollars a day. With crude rising $2-$3 a day this has got to be painful for the transportation sector and gasoline/diesel prices have yet to really factor in the spikes in crude.

Gold prices spiked again to $827 and another 28 year high due to the falling dollar. Gold has been soaring since the subprime problem began and accelerated by the falling dollar. Gold has typically been an inflation hedge and a place of safety in volatile markets. Crude is also being seen as a dollar play and an inflation hedge in an expanding global economy. Oil, since it is a shrinking commodity used in vast quantities daily has turned into a better hedge than gold but you could not tell it by looking at the gold chart below. The dollar hit another historic low under 76 intraday. With other countries raising rates and the Fed cutting rates this is not likely to change soon. Analysts do expect an oversold bounce any day now.

US Dollar Index Chart - Daily

Gold Chart - Daily

December Crude Futures Chart - Daily

Beazer rocked the homebuilder sector again with news that sales fell -53% for the quarter and cancellations rose to 68%. The lack of sales that actually close was blamed on the current mortgage disaster. According to some analysts the mortgage market is not functioning. Mortgages are reportedly the hardest to get since record keeping was started 18 years ago. Realtors are claiming better than a 50% default rate from either the inability to get a mortgage on the new home or from the inability for buyers to sell and fund the home they are leaving. Beazer is specifically under the gun because of the multiple current investigations of impropriety in handling loans on homes they sold. Shareholders as well as several analysts are calling for Beazer to boot CEO Ian McCarthy for various operational crimes. Beazer also warned this week they would be taking an additional $230 million in charges for write downs of home prices, land and defaulted land contracts. Beazer suspended its dividend and laid off 25% of its staff (150 workers) in October. Hovnanian (HOV) said their sales cancellation rate was -40% with net contracts down only -10% and deliveries down -19%. They also had some positive points in their outlook. Ironically HOV was down on the day while Beazer was up a buck.

The Citigroup write-downs haunted Goldman Sachs all day. Rumors continued to circulate that they would announce more write-downs after the close. Goldman finally responded saying there were no write-downs and there would be no announcement. GS stock rebounded +$5 after their announcement. Citigroup continued to sink, losing another buck, on worries that new management would want to really clean house and write-down anything even remotely questionable before building their own legacy. That makes sense to me. Write off everything and clean all the skeletons out of the closet so any future news will only be good. If those skeletons begin to show signs of life after being written off the new life will add to future profits. Sounds like a plan to me and odds are good there will be at least one more round of major losses to report. I would be a buyer of Citigroup once the next group of charges have been announced. The FASB board has a new rule, number 157, which will go into effect on Nov-15th. The new rule defines how "Fair Value" is determined for balance sheet assets. With the advent of the subprime problem and the lockup in the credit markets there was no real way to value the CDOs, SIVs, etc, held by financial institutions. Historically fair value was the result of an arms length transaction between two willing parties. With nobody willing to trade those assets the banks were able to continue to carry them on their books for full value. They actually went to great lengths to avoid having one trade that would have determined fair value for all the rest. After Nov-15th there will be a new rule that will force them to value at market even if a trade has not occurred. This could cause a complete new round of write-downs of subprime debt instruments.

Google rose another $16 after Monday's announcement of the Android open source operating system for mobile phones. It remains to be seen how the phones will be accepted by customers but investors are continuing to push the stock price higher. Sanford Bernstein raised their target price to $850 but that appears to be just another bump in the road for Google rather than a stopping point. $1000 is already being discussed and there are no visible potholes ahead. Google closed today at $742.

Elsewhere in the Internet sector the Alibaba Group sold 17% of Alibaba.com in an IPO that spiked +193% higher on the first day of trading. That catapulted the $9 billion company to $25 billion in market cap overnight. Baidu.com, the former favorite only has a $14 billion market cap. Yahoo, a major owner of Alibaba Group fell -1.43 on the news in a classic sell the news event. Yahoo has a 39% stake in Alibaba.com's parent, which kept a 75% stake in the IPO. Yahoo also had a 1.2% direct stake in the IPO. With the newly IPOed Alibaba.com valued at $25 billion Alibaba Group holds 75% worth roughly $18 billion. Yahoo owns 39% of Alibaba Group with that stake worth roughly $7 billion. The 1.2% directly owned stake in Alibaba.com is now worth $300 million. The total valuation of Yahoo's Alibaba investments is about $7.3 billion. Yahoo's valuation before the IPO was about $42 billion. In theory that should put Yahoo closer to $50 billion but in practice we saw YHOO sold on the news. Yahoo has been rising from $22 back in August to its recent high of $34 on expectations of the IPO. That was basically a +50% gain on Alibaba expectations. Remember I said Yahoo's market cap was $42B last week. That gain on expectations was roughly $20 billion. With the IPO value known now at $7.3 billion to Yahoo it means that the $20 billion gain in expectations was $13 billion too much. It also suggests Yahoo still has downside ahead. Yahoo CEO Jerry Yang was under fire during his appearance before the House Committee on Foreign Affairs today. He admitted being a "willing participant" in political witch-hunts in China. Yahoo gave Chinese authorities contact information on a couple web journalists leading them to be arrested. One individual is now serving a 10-year prison term for his published comments. Yang admitted that Yahoo initially denied providing the information. In his defense the Yahoo general counsel blamed China saying the investigation involved "state secrets" and produced an order demanding the info. Yahoo promised to be more thoughtful in future negotiations with countries where information access is restricted.

Under Armour (UA) came under fire from analysts and investors alike as the top three executives announced sudden large sales of stock for roughly $125 million. CEO Kevin Plank said he sold 1.5 million shares at $59 and the first sale since June 2006. SVP of Retail Scott Plank sold 765,000 shares at $59 for $45 million. SVP of Outdoor Kip Fulks sold 150,000 shares at $59. Analysts thought it was odd that all three made unannounced sales in large quantities all at the same time and exactly the same price. The stock fell -8% on Monday and another 4% today. Shares are down -19% since Halloween on analyst worries about a 100% rise in inventory and falling sales. Could it be that those top three executives saw the writing on the wall and decided to bail ahead of retail investors? UA is one of the heaviest shorted stocks with a float of only 21 million shares. Having the officers dumping 2.5 million shares or more than 10% of the float was deadly to the stock price and probably the credibility of the company officers.

Under Armour Chart - Daily

The Caterpillar CEO who painted an ugly forecast about a month ago on CNBC changed his tune today. In an interview today on CNBC he said conditions had changed and we could see a soft landing in Q4 (just slower growth but no recession) and then a recovery in 2008 that could see an accelerated growth rate. The sound bite was played over and over and was credited with some of the positive sentiment moving the market higher.

It was a bright and sunny day for solar stocks SunPower (SPWR) and First Solar (FSLR). First Solar was up +14% or $21 on news it had signed some key supply agreements with Babcock and Brown and Ecostream Switzerland worth up to $1 billion. Panel backlog rose by 557 megawatts for delivery between 2008-2012. In order to meet rising demand they are going to increase manufacturing lines in Malaysia to 16 from the current 12. SunPower spiked +16% or $20 on the SPWR news and some sector upgrades. The solar sector is finally getting the volume it needs to bring prices down and the respect it deserves from analysts. JA Solar (JASO) rose +$5 to $61 and Trina Solar (TSL) also gained +$5 to $64.

After the bell the Nasdaq announced it would acquire the oldest stock exchange in the country, the Philadelphia Stock Exchange, for as much as $700 million. The PHLX was founded in 1790. This will give the Nasdaq an entry into the options market. The PHLX controls about 15% of the options market and a takeover by the Nasdaq is sure to expand that market share.

The big news for Wednesday will be the Cisco earnings after the close. Cisco gained $1 on the day and closed at a new multiyear high not seen since Feb-06 2001. With video use on the Internet growing at light speed the demand for faster communications gear is accelerating worldwide. Cisco's CEO John Chambers continues to claim business around the globe is very strong and he is expected to confirm this one more time on Wednesday. The entire tech sector's health is riding on the Cisco earnings. With Intel, Apple and Microsoft all saying bullish things about PC sales it is almost a guarantee that they will beat earnings estimates and guide higher. If they don't it could get ugly very quickly.

The markets rebounded today because of multiple events. One was the CAT CEO reversing his prior recession call. Another was the flat denial by Goldman Sachs of any further write-downs. This helped power the money center banks to nice gains and provided a lift to the entire financial sector. Even Bear Stearns, the recipient of some new downgrades, managed to gain +$2. Tech stocks continued to lead and that helped pull the broader market higher. Lastly the energy sector rallied on the new high in crude and the prospects for $100 oil on Wednesday. Crude is $97.50 as I type this paragraph.

On Sunday I disclosed my bullish bias for the week and by Monday afternoon I was questioning that stance. Fortunately support held as expected and I will not be forced to eat my words from Sunday. The Dow retested 13500 one more time before rebounding off the lows for a +117 point gain. While this is bullish there are still several hurdles to overcome. The first will the lower high at 13925 set right after the FED rate announcement last Wednesday. That will be the first place the bears could set up a credible defense and we should return to that level by the weekend. This will be a crucial test of bullish and bearish conviction. A breakout there almost guarantees a new high before Thanksgiving.

The year-end fund selling appears to be over and even the Russell saw buying. The Nasdaq pulled back to support at 2780 on Monday and again today. The rebound was strong tacking on +30 points for the day, +45 points from the intraday low to close at 2825 and very close to the prior resistance at 2835 and the recent high at 2860. The Nasdaq is still leading the charge and with great expectations over Cisco's earnings it should continue to move higher. The Nasdaq-100 (NDX) is acting even more bullish and is only 18 points away from a new high breakout. Options on the NDX using the QQQQ ETF are cheap and plentiful.

The S&P-500 tested support at 1490 four times since Oct 19th and each dip was met with strong buying but there was no follow through on all but one dip. Today the S&P rebounded to initial resistance at 1520 and appeared poised to take on the next resistance level at 1550. A strong continued performance by the financial sector on Wednesday will be a big supporting push. The risk to the S&P will be energy stocks. If crude inventories come in negative again on Wednesday it is almost guaranteed we will see $100 oil. That number has been quoted so often as the target there is a strong possibility we could see a sell the news event. I for one will be waiting with mouse finger poised to short crude if that level is reached. Ah, but here is the challenge. Because $100 has been mentioned so much there are probable tens of thousands of other retail traders ready do the same thing. There are probably several hundred institutional traders poised to buy that dip in order to produce another monstrous short squeeze that targets $110. You really can't play this game on crude with a directional bias. The volatility has been so strong that both sides are living Maalox moments almost daily. Getting back to the point it is very possible that energy stocks will anticipate this $100 battle and begin to take profits as crude nears that level. With energy the second largest component of the S&P it could produce a drag on the market once $100 is hit. This is pure speculation but it is something you should watch as the drama unfolds. Heck, since crude is not trading on fundamentals but pure speculation we could just blow through $100 and never look back.

S&P-500 Chart - Daily

Russell Chart - 10 min

I was really encouraged by the action on the Russell late this afternoon. The +17 point rebound back over 800 suggested fund managers were becoming more bullish about a potential year-end rally. The +1.4% gain was the second strongest index behind the NYSE Composite +1.44%, which coincidentally contains a lot of small caps as well. I view this as partial confirmation of my bullish stance from Sunday. If this rally continues past Cisco's earnings I think we are bullet proof until Thanksgiving. After we choke down our fill of turkey and dressing it will be time to reevaluate the market direction for the rest of the year. Continue to buy the dips unless support at Nasdaq 2780 fails.
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
APC None None
ICLR    
NOC    
SMH    
STLD    
TSL    
TSO    
XLF    

Play Editor's Note: We are adding several new plays to the newsletter tonight. In order to save time and space we're going to temporarily eliminate the "Company Description" paragraph.


New Calls

Anadarko Petrol. - APC - cls: 59.87 change: +2.04 stop: 55.99

Why We Like It:
Oil stocks are on the rise as crude oil continues to rally. APC is getting some attention from the analysts after reporting a solid quarter. The stock is poised to breakout over $60.00 soon. We're suggesting a trigger to buy calls above the October high. Our suggested entry point is at $60.55. If triggered our target is the $64.85-65.00 range. More aggressive traders may want to aim higher. Conservative types might want to place their stop closer to $57.50. The P&F chart points to an $86 target.

Suggested Options:
We are suggesting the December calls. Our suggested trigger is at $60.55.

BUY CALL DEC 60.00 APC-LL open interest=1126 current ask $2.95
BUY CALL DEC 65.00 APC-LM open interest=1375 current ask $1.10

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/05/07 (confirmed)
Average Daily Volume = 3.9 million

---

Icon Pub. Ltd. - ICLR - close: 58.79 chg: +1.47 stop: 55.90

Why We Like It:
ICLR has been out performing its peers in the biotech and drug sectors. Shares have a relatively steady stair-step pattern higher and the stock looks poised to step up again. Broken resistance at $56.00 has become new support. We're suggesting today's bounce as an entry point to buy calls. Our target is the $63.50-65.00 range. We would consider this a higher-risk play for the simple reason that volume is so low on both the stock and the options.

Suggested Options:
We are suggesting the December calls.

BUY CALL DEC 55.00 QIQ-LK open interest=57 current ask $6.20
BUY CALL DEC 60.00 QIQ-LL open interest=62 current ask $3.20

Picked on November 06 at $ 58.79
Change since picked: + 0.00
Earnings Date 10/23/07 (confirmed)
Average Daily Volume = 107 thousand

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Northrop Gruman - NOC - cls: 84.48 chg: +1.90 stop: 79.99

Why We Like It:
Defense stocks continue to be market leaders. The DFI index has hit a string of new all-time highs. NOC hit its own all-time high today with a breakout over its $81-84 trading range. We're suggesting traders buy this momentum. After going sideways for months we suspect that NOC could rally into Christmas. Readers can choose to buy calls now or look for another dip in the $82-83 zone. We're suggesting a stop loss at $79.99 but you might be able to get away with a stop near $80.80. Our target is the $89.00-90.00 range. The P&F chart shows a bullish catapult pattern with a $92 target.

Suggested Options:
We are suggesting the December or January calls.

BUY CALL DEC 85.00 NOC-LQ open interest=137 current ask $2.60
BUY CALL DEC 90.00 NOC-LR open interest= 71 current ask $0.85

BUY CALL JAN 85.00 NOC-AQ open interest=1353 current ask $3.70
BUY CALL JAN 90.00 NOC-AR open interest= 386 current ask $1.70

Picked on November 06 at $ 84.48
Change since picked: + 0.00
Earnings Date 10/24/07 (confirmed)
Average Daily Volume = 1.4 million

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Semiconductor Holders - SMH - cls: 34.41 chg: +0.36 stop: 33.29

Why We Like It:
Big cap tech stocks are leading the rally and the semiconductors are trying hard to put in a bottom and rebound. If Intel is any guide then the group should bounce. We are suggesting call positions now although readers may want to wait for a new relative high over $34.75 before initiating positions. Our target is the $36.00-36.50 range. More aggressive traders could aim higher. Keep an eye on the SOX index.

Suggested Options:
We are suggesting the December or January calls.

BUY CALL DEC 32.50 SMH-LZ open interest= 1243 current ask $2.65
BUY CALL DEC 35.00 SMH-LG open interest=14388 current ask $1.09

BUY CALL JAN 35.00 SMH-AG open interest= 8169 current ask $1.57

Picked on November 06 at $ 34.41
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 9.4 million

---

Steel Dynamics - STLD - close: 52.93 chg: +2.62 stop: 49.25

Why We Like It:
Steel and metals stocks were improving today. STLD could be a leader in the group. The stock broke through significant resistance near $50.00 back in October. The recent consolidation retested broken resistance as support. Today's bounce looks like a tempting entry point to buy calls for the next leg higher. Our target is the $57.50-60.00 range. The P&F chart is bullish with a $78 target.

Suggested Options:
We are suggesting the December or January calls.

BUY CALL DEC 50.00 RQL-LJ open interest=1677 current ask $5.60
BUY CALL DEC 55.00 RQL-LK open interest=4927 current ask $2.90

BUY CALL JAN 55.00 RQL-AK open interest=5136 current ask $4.10
BUY CALL JAN 60.00 RQL-AL open interest=2802 current ask $2.30

Picked on November 06 at $ 52.93
Change since picked: + 0.00
Earnings Date 01/23/08 (unconfirmed)
Average Daily Volume = 1.7 million

---

Trina Solar - TSL - close: 63.67 chg: +4.92 stop: 59.85

Why We Like It:
Solar energy stocks were strong today after FSLR jumped 20 points on some news and a bunch of positive analyst comments. TSL produced a big 8% rally and normally we would not want to chase a move that big. However, this stock looks like it has more room to rally. Currently shares are under resistance at the $65.00 mark. We're suggesting a trigger to buy calls at $65.25. If triggered our target is the $72.00-72.50 range near its July highs. We consider this a higher-risk, aggressive play because the stock can be volatile and we have a relatively wide stop loss. Plus, the options are expensive. A $5 or $6 move in the stock is not going to see a super big move in the options because there is so much premium already built in. FYI: An alternative entry point would be another dip or bounce near $60.00.

Suggested Options:
We are suggesting the December calls but we plan to exit ahead of the late November earnings. Our suggested trigger is $65.25.

BUY CALL DEC 65.00 TSL-LM open interest=1059 current ask $6.90
BUY CALL DEC 70.00 TSL-LN open interest=1113 current ask $5.10

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/22/07 (unconfirmed)
Average Daily Volume = 1.6 million

---

Tesoro - TSO - close: 59.13 change: +3.43 stop: 54.59

Why We Like It:
Oil stocks were strong thanks to a rally in crude again. We think TSO looks like an attractive candidate because it has completely digested the October gap higher and is bouncing from what should be support. The gap higher was produced by news that Tracinda corp, owned and directed by Kirk Kerkorian, announced it was trying to buy shares of the company with a tender offer priced at $64.00. We're suggesting a stop loss under yesterday's low. Our target is the $64.00-65.00 range.

Suggested Options:
We're suggesting the December or January calls.

BUY CALL DEC 60.00 TSO-LL open interest=1336 current ask $4.10
BUY CALL DEC 65.00 TSO-LM open interest=4418 current ask $2.25

BUY CALL JAN 60.00 TSO-AL open interest=2823 current ask $5.40
BUY CALL JAN 65.00 TSO-AM open interest=6287 current ask $3.30

Picked on November 06 at $ 59.13
Change since picked: + 0.00
Earnings Date 01/29/08 (unconfirmed)
Average Daily Volume = 5.4 million

---

Financial Sector SPDR - XLF - cls: 31.80 chg: +0.53 stop: 30.65

Why We Like It:
There is a growing expectation that the financials have put in a short-term bottom. Whether or not that's true remains to be seen but this looks like a relatively low-risk entry point to try and catch a bounce. Now this might look like we're trying to catch the proverbial "falling knife" and more conservative traders may want to avoid this play or at least wait for a rally past potential resistance in the $32.00-32.20 zone. We will target the $33.80-34.00 range.

Suggested Options:
We are suggesting the December or January calls. Strikes are at $1.00 increments so there are plenty to choose from.

BUY CALL DEC 32.00 XLF-LF open interest=35914 current ask $1.34
BUY CALL DEC 33.00 XLF-LG open interest=32291 current ask $0.85

BUY CALL JAN 32.00 XLF-AF open interest= 5619 current ask $1.70
BUY CALL JAN 34.00 XLF-AH open interest=114126 current ask $0.81

Picked on November 06 at $ 31.80
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 60.4 million
 

New Puts

None today.
 

New Strangles

None today.
 


Play Updates

In Play Updates and Reviews

Call Updates

Aracruz Celulose - ARA - cls: 77.04 chg: +1.06 stop: 72.49

Our bullish play in ARA has turned positive. Shares gapped higher this morning, consolidated its gains intraday and was rebounding again into the closing bell. This looks like another bullish entry point to buy calls. The P&F chart is bullish with a $93 target. We are leaving our stop loss at $72.49 but more conservative traders could inch their stop closer to the $73.75 area (near Friday's low). We have two targets. Our short-term target is the $79.90-80.00 range. Our more aggressive target is the $82.50-85.00 range.

Picked on October 31 at $ 76.89
Change since picked: + 0.15
Earnings Date 10/09/07 (confirmed)
Average Daily Volume = 427 thousand

---

Boeing - BA - close: 97.70 change: -0.27 stop: 94.85

We were a little surprised by BA's relative weakness but the stock bounced again after testing its 10-dma midday. The afternoon rebound looks like a new entry point to buy calls. More conservative traders may want to wait for a breakout over the 50-dma or the $100 mark. Our target is the $104-105 zone. More aggressive traders could aim for the highs near $107.

Picked on October 29 at $ 97.25
Change since picked: + 0.45
Earnings Date 10/24/07 (confirmed)
Average Daily Volume = 6.3 million

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Deere Co. - DE - close: 160.30 change: +6.02 stop: 152.75 *new*

Target achieved. DE surged 3.9% and broke through resistance at the $160.00 mark. The MACD on the daily chart has produced a new buy signal. Our first target was the $159.50-160.00 range. We are adjusting our stop loss to $152.75. Our second target is the $164.00-165.00 zone.

Picked on November 04 at $152.73
Change since picked: + 7.57
Earnings Date 11/21/07 (unconfirmed)
Average Daily Volume = 2.4 million

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DST Systems - DST - close: 87.82 change: +2.49 stop: 83.45

The broad-market rally helped DST produce a 2.9% gain and a bullish breakout over resistance near $87.00. Our suggested entry point to buy calls was at $87.25 so the play is now open. Our target is the $94.00-95.00 range.

Picked on November 06 at $ 87.25
Change since picked: + 0.57
Earnings Date 10/22/07 (confirmed)
Average Daily Volume = 606 thousand

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Goodrich Corp. - GR - close: 73.36 change: +2.65 stop: 66.90

Shares of GR continue to show a lot of momentum. The stock rose 3.7% hitting new all-time highs. Volume continues to come in above average, which is bullish. If you don't want to chase the move here then wait for a possible dip back toward $71.00-72.00. Our conservative target is the $74.90-75.00 range. Our more aggressive target is the $78.00-80.00 range. The P&F chart is bullish and points to a $99 target. FYI: GR is expected to present at the Goldman Sachs Industrials Conference on November 7th around 3:30 PM ET.

Picked on November 05 at $ 71.05
Change since picked: + 2.31
Earnings Date 10/25/07 (confirmed)
Average Daily Volume = 1.0 million

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Kennametal - KMT - close: 90.07 change: +1.26 stop: 86.90

The widespread market rally may have saved the bulls in KMT but we remain somewhat defensive here. We suggest that readers wait for a new relative high over $91.00 before considering new positions. Readers will want to consider a tighter stop near $87.75. Our target is the $99.00-100.00 range. The P&F chart has a triple-top breakout buy signal with a $102 target. FYI: KMT has a 2-for-1 stock split set for December 19th.

Picked on October 31 at $ 91.21
Change since picked: - 1.14
Earnings Date 10/24/07 (confirmed)
Average Daily Volume = 404 million

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L-3 Comm. - LLL - cls: 113.48 chg: +2.42 stop: 106.90 *new*

It looks like analysts were happy with LLL's comments during their investor conference today. The stock continued to rally and hit new highs and on strong volume. We are adjusting our stop loss to $106.90. We have two targets. Our first target is the $114.00-115.00 range. Our second, more aggressive target is the $118.00-120.00 range. FYI: The P&F chart's bullish target has risen from $133 to $139.

Picked on October 29 at $108.10
Change since picked: + 5.38
Earnings Date 10/25/07 (confirmed)
Average Daily Volume = 627 thousand

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S&P 100 Index - OEX - close: 709.91 chg: +8.20 stop: 694.99

Today looked like important confirmation of the market's recent attempts at a short-term bottom and a bullish reversal. It is not too late to open new bullish plays on the OEX. Just remember that the index is volatile and the options are expensive. More conservative traders may want to see a rally past $710 first. We have two targets. Our first target is the $724-725 range. Our second, more aggressive target is the $734-735 zone. FYI: We would consider this higher-risk!

Picked on November 04 at $704.95
Change since picked: + 4.96
Earnings Date 00/00/00
Average Daily Volume = million

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Petro Canada - PCZ - close: 59.50 change: +2.09 stop: 54.90

Oil stocks rally on strength in crude again. Shares of PCZ broke through resistance near $59.00 and closed at new all-time highs. Volume came in above average, which is normally bullish. Our suggested trigger to buy calls was at $59.25 so the play is now open. Our target is the $64.50-65.00 range.

Picked on November 06 at $ 59.25
Change since picked: + 0.25
Earnings Date 10/25/07 (confirmed)
Average Daily Volume = 742 thousand

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PowerShares NDX ETF - QQQQ - cls: 54.69 chg: +0.62 stop: 52.49

Tech stocks helped lead the market higher. The Qs rallied higher into the afternoon and this looks like another entry point to buy calls. Our stop loss is at $52.49 but more conservative traders might be able to get away with a tighter stop. Our target is the $58.00-60.00 range.

Picked on November 04 at $ 54.42
Change since picked: + 0.27
Earnings Date 00/00/00
Average Daily Volume = 125 million

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Research In Motion - RIMM - cls: 131.09 chg: +3.12 stop: 117.49

Shares of RIMM were upgraded again. This morning before the bell Credit Suisse raised their rating on RIMM to a "buy" and raised their price target from $100 to $160. RIMM gapped open higher at the open and closed with a 2.4% gain. Our target is the $138.00-140.00 range. More aggressive traders could aim higher. The P&F chart is forecasting a $163 target.

Picked on November 04 at $126.95
Change since picked: + 4.14
Earnings Date 12/20/07 (unconfirmed)
Average Daily Volume = 20.9 million

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Siemens - SI - close: 139.52 change: +2.88 stop: 129.75

SI is still in rebound mode and the stock added another 2.1%. Shares are very close to our target in the $139.85-140.00 range. SI does have resistance in the 140.50-141.00 zone but we're going to add a second, more aggressive target in the $144.50-145.00 range. The P&F chart is pretty bullish with a $182 target. FYI: SI trades as an ADR here in the U.S. and will most likely gap open one way or the other every session as the ADR adjusts to trading in Europe.

Picked on October 29 at $135.54 *gap higher entry
Change since picked: + 3.98
Earnings Date 10/27/07 (unconfirmed)
Average Daily Volume = 582 thousand

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Sina Corp. - SINA - cls: 56.05 change: -2.37 stop: 53.45

Ouch! SINA witnessed an intraday drop from $59.00 to $53.83 before bouncing back. Shares still closed with a 4% decline and on strong volume. There were some comments that a rumor was going around that GOOG might buy SINA but that doesn't explain why shares of SINA were trading lower. We couldn't find any specific news to account for the decline. Currently we have two targets. Our first target is the $59.50-60.00 range. Our second, more aggressive target is the $63.00-65.00 range. It looks like SINA will report earnings in the November 8th - 22nd range but we still don't have a confirmed date yet. We do not want to hold over the report.

Picked on October 23 at $ 53.40
Change since picked: + 2.65
Earnings Date 11/08/07 (unconfirmed)
Average Daily Volume = 1.0 million
 

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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Borg Warner - BWA - cls: 103.80 change: +0.30 stop: n/a

We are a little disappointed that BWA did not show more strength today during the market's rally. The stock's afternoon surge struggled with the $105 mark. We are not suggesting new strangle positions. At this time we have two weeks left on November options. The options we suggested for a strangle were the November $100 calls (BWA-KT) and the November $90 puts (BWA-WR). Our estimated cost was $4.50. We want to sell if either option hits $7.25 or more.

Picked on October 23 at $ 95.67
Change since picked: + 8.13
Earnings Date 10/25/07 (confirmed)
Average Daily Volume = 392 thousand

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Express Scripts - ESRX - cls: 64.98 chg: +0.13 stop: n/a

ESRX essentially traded sideways again. We are no longer suggesting new strangle positions on ESRX. The options we suggested for a strangle were the November $65 calls (XTQ-KM) and the November $55 puts (XTQ-WK). Our estimated cost was $1.95. We want to sell if either option hits $3.50 or higher.

Picked on October 21 at $ 59.65
Change since picked: + 5.31
Earnings Date 10/24/07 (confirmed)
Average Daily Volume = 2.1 million

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Intl. Bus. Mach. - IBM - cls: 113.17 chg: -0.23 stop: n/a

Today's relative weakness in IBM, considering tech's leadership in the rally, was a surprise. The lack of a big move on earnings has doomed this strangle play. Unless IBM sees some really big swings in the next couple of weeks this is a bust. Our November strangle suggested the November $125 call (IBM-KE) and the November $110 put (IBM-WB). Our estimated cost was $3.00. We wanted to sell if either option hits $6.00.

Picked on October 15 at $118.03
Change since picked: - 4.86
Earnings Date 10/16/07 (confirmed)
Average Daily Volume = 7.5 million

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Monster Worldwide - MNST - cls: 38.61 chg: +0.17 stop: n/a

MNST broke down under short-term support near $38.00 but managed a nice rebound into the closing bell. We have less than two weeks left on the November options. We are no longer suggesting new positions. The options we suggested for our strangle were the November $40 calls (BSQ-KH) and the November $35 puts (BSQ-WG). Our estimated cost is $1.75. We want to sell if either option hits $2.95 or higher.

Picked on October 23 at $ 37.22
Change since picked: + 1.38
Earnings Date 10/24/07 (confirmed)
Average Daily Volume = 2.0 million
 

Dropped Calls

None
 

Dropped Puts

None
 

Dropped Strangles

None
 

Today's Newsletter Notes: Market Wrap by Jim Brown and all other plays and content by the Option Investor staff.

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