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Daily Newsletter, Monday, 11/26/2007

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Table of Contents

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

Market Wrap

Credit Concerns Trump Mixed Black Friday's Trend

After posting gains early in the session on mixed Black Friday sales reports, stocks finished at their lows of the session as credit concerns weighed heavily on this year's holiday sales trends and U.S. economic outlook.

The S&P 500 Index (SPX.X) 1,407.22 -2.32% threatened to post its first back-to-back session gain for the month as stocks opened mixed-to-higher at the open on some conflicting retail sales trends and industry analysts comments.

The National Retail Federation trade group said on Sunday that there were 4.8% more shoppers out over the four-day holiday weekend (Thursday-Sunday), but the average customer spent 3.5% less than last year's four-day comparison.

A more optimistic report had research firm ShopperTrak RCT saying that retail jumped 8.3% on Friday versus last year, and 7.2% for Friday and Saturday combined. ShopperTrak said the two day sales trends were "absolutely stronger" than anticipated. In addition, ShopperTrack said it had forecast total sales for the holiday season as rising 3.6% versus last year.

"I had one store manager tell me: "If it had a plug on it, it did well" said Jefferies & Co analyst Daniel Binder, who commented that early trends at some of the nation's large discounters had electronics as big sellers over the weekend.

Mr. Binder thought Wal-Mart (NYSE:WMT) $45.11 -1.35%, Target (NYSE:TGT) $55.22 -3.41%, Costco (NASDAQ:COST) $65.38 -2.37% and BJ's Wholesale (NYSE:BJ) $33.96 -1.27% were "in the sweet spot" as high-definition televisions become cheaper and accessible to the mass market.

Needham & Co analyst Christine Chen said "I think this holiday is going to be very promotional," pointing to chains like Talbots (NYSE:TLB) $13.18 -4.90%, AnnTaylor (NYSE:ANN) $30.53 -5.18%, Chico's FAS (NYSE:CHS) $10.21 -1.82% and Coldwater Creek (NASDAQ:CWTR) $8.04 -4.51%, which cater to mature women.

Ms. Chen said Talbots (TLB) and AnnTaylor (ANN) did not have what she would consider to be huge crowds of shoppers this weekend.

What Talbots and AnnTaylor may have lacked this weekend, Yahoo! Inc. (NASDAQ:YHOO) $25.22 -3.48% may have gotten too much of.

Yahoo! said its e-commerce system buckled under strain of a surge in online shopping, and left some merchants disappointed over lost orders. According to DowJones, Yahoo's network became overloaded at 05:30 AM EST.

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Hmmmm... go to the mall this weekend, check out some prices, then go to the 9-5 job, get a cup of coffee, turn on the computer, and check out on-line prices?

Having traded as high as $39.39 on 10/31/07, Overstock.com (NASDAQ:OSTK) $23.38 -2.70% might be worth a look as it closes just under its trending higher 150-day SMA at $23.45.

As the holiday shopping season begins, tomorrow morning's November consumer confidence reading at 10:00 AM EST will draw trader's scrutiny. Current forecast is for 91.5.

But just after 10:00 AM EST, buyers looked to have vanished faster than you can say "attention shoppers" as economic data had buyers clutching their wallets and purses.

The Chicago Fed said its National Activity Index dropped to -0.73 in October from September's -0.30. October's reading was the lowest since January. Production-related indicators came in at -0.39 in October, while employment-related indicators were also negative at -0.20.

Today's economic news had to have had some negative impact, as we'll get November's Chicago PMI on Friday. Economists are currently forecasting an expansionary reading of 50.5 after October's contraction measure of 49.7.

Financials gave back all of Friday's bounce after UBS downgraded mortgage-lenders Freddie Mac (NYSE:FRE) $24.50 -7.44% and Fannie Mae (NYSE:FNM) $28.92 -10.18% to "neutral" from "buy."

Senator Charles Schumer reportedly urged regulators to examine the risks involved with the increased lending by the Federal Home Loan Bank of Atlanta to Countrywide (NYSE:CFC) $8.64 -10.46%, where that report seemed to accelerate today's weakness in the financials.

Citigroup (NYSE:C) $30.70 -3.15% did see trade under the $30.00 after CNBC reported the banking giant is on the verge of announcing a large layoff that could have 45,000 positions eliminated.

Despite a weaker dollar trade again today, NYMEX January Crude Oil futures (cl08f) settled down 48-cents, or -0.49% after CNBC said Saudi Arabia had boosted output ahead of OPEC's December 5 meeting.

I could not find any reports as to what amount, but last week the Oil Movements consulting firm said that OPEC is expected to boost crude oil output by 720,000 barrels a day in the four weeks to December 8.

Just after todays close, the Energy Information Agency (EIA) said the average retail price for gasoline in the U.S. fell by $0.20/gallon last week to $3.097/gallon.

NYSE and NASDAQ Internals -

It is generally thought that the bulk of institutional traders take the day off on Friday and while Wednesday's final hour of trade saw a significant decline and lack of buying, Friday's session was up, up, and away with few sellers to be found.

Today's internals were negative at the a/d line and there was some "ooomph" behind it with the NYSE Short Term Trade (TRIN) never falling below 1.00 today, and rising to its close.

NASDAQ's Short Term Trade (TRINQ) wasn't overly bullish, but it at least wavered either side of 1.00. Buyers stepped aside in the final hour with TRINQ higher to the close.

Shorts do look as if they're doing some covering the last few days ad the number of new lows at both the NYSE and NASDAQ hover just above recent inflection points.

NASDAQ's number of new lows suggests greater stability to me.

While the 11/20/07 number of new lows (414) were just shy of the 445 new lows from 11/08/07, this subtle observation does suggest to me that institutional shorts are locking in some gains when they have an opportunity during weakness among four and five-lettered stock symbols.

Global Equity Benchmarks/ Dollar Index/ Oil/ Gold

You can probably do the math and see that today's trade for the major U.S. equity benchmarks (-2.32% for S&P 500) would have had the SPX pretty much "in line" with European bourses at their Monday closes.

If U.S. bulls are going to ramp things higher this week, we might just get a read from Britain's FTSE-100, Germany's DAX and France's CAC-40 when they finish up Tuesday's trade. If they're higher at tomorrow's close, then a stronger-than forecast consumer sentiment reading at 10:00 AM EST could really bring in some short covering for the major U.S. benchmarks tomorrow.

I've noted over the years that STOCK PRICES are one MAJOR influencing factor on consumer sentiment, and let's face it, the above table doesn't suggest an UPSIDE surprise regarding consumer sentiments.

Therefore, be ready for it!

World Bullish % Bell Curve - As of Friday's Close

If we think consumer sentiment may be damaged due to stock prices here in the U.S. (U.S. All Stocks), which includes stocks listed on the NYSE, NASDAQ and AMEX, where roughly 35% of the point and figure charts would show a point and figure chart "buy signal" associated with the chart, then Tokyo and European (Europe, London, XETRA/Frankfurt) would also suggest a negative tone toward equities.

I don't look at Dorsey/Wright and Assoc. World Bullish % Bell Curve each day, and once a week, if not once a month is sufficient. They tend to move slowly and methodically, but the above bell curve is telling as to the general weakness currently observed for many stocks around the globe.

S&P 500 Index (SPX) - 10-point box

At last Monday's close, the SPX was threatening a spread triple bottom sell signal at 1,430, and on Tuesday, that level was traded.

I must confess that I was a bit surprised that the SPX didn't just "cave in" with supply (O) quickly outstripping demand (X) to the 1,380 level and a next support level.

Here's a quick look at StockCharts.com's S&P 500 Bullish % ($BPSPX) and traders and investors can easily make the tie with the above chart and the 1,380 level as the $BPSPX also nears it mid-August relative low chart measure of 34%.

S&P 500 Bullish % ($BPSPX) - 2% box chart

According to StockCharts.com, roughly 37%, or 185 of the 500 stocks that comprise the broad S&P 500 Index currently show a "buy signal" still intact on their point and figure chart.

I wanted to update this widely followed bullish % (Dorsey/Wright's symbol is BPSPX).

Should we see a 32% measure, it would be deemed VERY BEARISH longer-term, and would have this market once again in "bear confirmed" status.

On 10/19/07, I do know for fact that Dorsey/Wright's BPSPX reversed back lower to "bull correction" status at 64.00%, and more than likely, StockCharts.com's $BPSPX reversed back lower around that time.

It takes some MEANINGFUL amounts of BUYING (X) and SELLING (O) to move these internal indicators of demand (X) and supply (O).

You can view other major market bullish % for FREE and StockCharts.com.

The VERY BROAD NYSE Bullish % ($BPNYA), the VERY BROAD NASDAQ Composite Bullish % ($BPCOMPQ), the narrower S&P 100 Bullish % ($BPOEX), the narrower NASDAQ-100 Bullish % ($BPNDX) are those most institutional traders and investors will follow.
 


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

Constellation Energy - CEG - cls: 99.15 chg: -0.38 stop: 94.45

CEG continues to show resilience. The stock rallied toward its recent highs before paring its gains. The minor loss today is pretty good considering the market-wide sell-off and triple-digit loss for the DJIA. At this time we would look for another dip and watch for a bounce in the $97.50-98.00 region as a potential entry point for bullish positions. However, considering the market environment (bearish) we'd be hesitant about opening any bullish positions. If you're feeling conservative then readers might want to raise their stop loss toward $96.00. The trend remains bullish. Our target is the $107.50-110.00 range.

Picked on November 20 at $100.56
Change since picked: - 1.41
Earnings Date 01/31/08 (unconfirmed)
Average Daily Volume = 1.3 million

---

Energizer - ENR - close: 111.21 chg: -0.90 stop: 104.99

A midday spike to $112.81 was enough to hit our suggested trigger at $112.75 and open our bullish play in ENR. The trend still looks bullish but considering the market's weakness we would suggest extra caution if you're considering bullish plays. At this time we'd expect ENR to dip back toward $110 maybe $109. Watch for a bounce before considering new positions. Our target is the $119.00-120.00 range. We'll use a stop loss at $104.99 but more conservative traders could probably get away with a tighter stop near $107.50 or 109. The P&F chart points to a $157 target.

Picked on November 26 at $112.75 *triggered
Change since picked: - 1.54
Earnings Date 01/28/08 (unconfirmed)
Average Daily Volume = 511 thousand

---

Express Scripts - ESRX - close: 62.77 chg: -2.06 stop: 62.45

Watch out! ESRX traded higher this morning but the strength quickly faded. It wasn't until the major indices began to sell-off this afternoon that ESRX broke down under the $64.00 mark. When shares traded under $64 profit taking began in earnest. ESRX lost 3.17% in what looks like a bearish reversal. We expect to be stopped out first thing Tuesday morning. ESRX might offer new trading opportunities down the road. The first level we would watch is potential support near $60 and its 50-dma.

Picked on November 13 at $ 64.67
Change since picked: - 1.90
Earnings Date 02/07/08 (unconfirmed)
Average Daily Volume = 2.4 million

---

Flowserve - FLS - cls: 89.79 change: -3.25 stop: 88.45

We added FLS due to its relative strength in the face of some nasty market sell-offs last week. That relative strength seemed to evaporate today. The stock has painted a bearish reversal signal with today's bearish engulfing candlestick pattern. Shorts will try and pile on and push it lower. We are not suggesting new positions at this time and odds look good that we'll be stopped out tomorrow.

Picked on November 25 at $ 93.04
Change since picked: - 3.25
Earnings Date 02/28/08 (unconfirmed)
Average Daily Volume = 724 thousand

---

Gilead Sciences - GILD - cls: 41.91 change: -1.41 stop: 41.74

After trading sideways for a week GILD has finally broken down under its 50-dma and the $42.00 level. This looks like a bearish entry point as GILD looks headed for the $40 region and its 200-dma. We are suggesting an early exit immediately. The only reason we do not close the play is that GILD could bounce from its early November lows. However, we would bet on being stopped out tomorrow morning.

Picked on November 13 at $ 43.11
Change since picked: - 1.20
Earnings Date 01/31/08 (unconfirmed)
Average Daily Volume = 7.6 million

---

Synaptics Inc. - SYNA - close: 56.12 chg: 0.84 stop: 50.95

SYNA continued to show relative strength and broke out higher from its two-week trading range. Shares added 1.5% on decent volume in spite of the market weakness today. We were suggesting a trigger to buy calls at $56.55 so the play is now open. Our short-term target is the $61.50-62.00 range. The P&F chart is bullish with a $65 target.

Picked on November 26 at $ 56.55 *triggered
Change since picked: - 0.43
Earnings Date 01/24/08 (unconfirmed)
Average Daily Volume = 1.1 million

---

ExxonMobil - XOM - close: 85.68 chg: -2.61 stop: 82.99

The bullish bounce in XOM is struggling. Oil stocks were hit with some heavy profit taking. The OIX oil index lost 2.7% and XOM lost 2.95%. There is growing speculation that Saudi Arabia will raise its production levels following the OPEC meeting next week and that pulled crude oil futures to a loss today. Keep a close eye on shares of XOM. The $85-84 zone and the rising 200-dma should be support. Wait for a bounce before considering new bullish positions. More conservative traders might want to adjust their stops toward $84.00. We are leaving our stop under the 200-dma. Our target is the $92.50-95.00 range. More conservative traders may want to lock in some gains near $90.00. More aggressive traders might want to narrow their exit range to the $94-95 zone.

Picked on November 13 at $ 86.75
Change since picked: - 1.07
Earnings Date 01/31/08 (unconfirmed)
Average Daily Volume = 24.2 million
 

Put Updates

Apollo Group - APOL - close: 70.02 change: -1.08 stop: 73.01

APOL broke down under support at $70.00 early this morning and hit our trigger to buy puts at $69.75. Unfortunately there was no follow through on the breakdown, which is a serious concern. If the markets continue lower tomorrow then odds are good that APOL will decline as well. We would wait for a new move under $69.75 or today's low at $69.61 before initiating new put positions. Our target is the $65.25-65.00 range. More aggressive traders may want to aim lower.

Picked on November 26 at $ 69.75 *triggered
Change since picked: 0.27
Earnings Date 02/07/08 (unconfirmed)
Average Daily Volume = 2.4 million

---

Celgene - CELG - close: 60.34 change: -2.01 stop: 63.01

The BTK biotech index out performed the broader market indices but the sector still looks poised to move lower. Leading the way is CELG, which lost 3.2% today. What makes today's decline even more bearish is that the stock was actually upgraded this morning before the open. Shares of CELG have broken through technical support at the 200-dma but they have not fallen past the October low at $60.26 or round-number support at $60.00. We need to see a breakdown under support so we're suggesting a trigger to buy puts at $59.90. If triggered our target is the $55.25-55.00 zone. Please note that any time you play a biotech company there is a higher level of risk. You never know when there will be a positive or negative press release about some drug, some clinical trial or some news from the FDA or a rival that could send shares of a biotech stock gapping either direction.

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked: 0.00
Earnings Date 01/31/08 (unconfirmed)
Average Daily Volume = 4.3 million

---

Canadian Pacific - CP - cls: 60.43 change: -0.67 stop: 65.26

CP continues to slip. We suspect that the stock, looking more and more oversold, will bounce at the $60.00 level. A failed rally at or under the 10-dma could be used as a new entry point but you may want to tighten your stop loss. Our target is the $57.50-57.00 range. The Point & Figure chart is bearish and points to a $51 target

Picked on November 19 at $ 62.85
Change since picked: - 2.42
Earnings Date 01/30/08 (unconfirmed)
Average Daily Volume = 553 thousand

---

ESSEX Property - ESS - close: 99.28 change: -4.82 stop: 107.31

Shares of ESS can be volatile and the stock almost erased two days of gains with a 4.6% decline today. We would seriously consider lowering our stop to $105.51 after today's drop. The move under $102 and the $100 level looks like a new entry point for puts but more conservative traders may want to see a new relative low first (under $99.00). Our target is support in the $94.00-93.00 range. The P&F chart is much more bearish with a $78 target.

Picked on November 20 at $101.75
Change since picked: - 2.47
Earnings Date 10/31/07 (confirmed)
Average Daily Volume = 272 thousand

---

J.B.Hunt - JBHT - close: 24.11 change: -0.20 stop: 26.11

We do not see any changes from our previous comments. As expected the $25.00 level acted as short-term overhead resistance. Our target is the $22.50-22.00 range. The new P&F chart sell signal has seen the price target fall from $20 to $18.

Picked on November 20 at $ 24.95
Change since picked: - 0.84
Earnings Date 01/29/08 (unconfirmed)
Average Daily Volume = 1.8 million

---

PACCAR - PCAR - close: 46.32 change: -1.87 stop: 50.26

The bounce in PCAR is rolling over. Today's move looks like a new entry point for bearish positions. However, some readers may want to wait for a little more confirmation so look for a drop under $46.00. Our target is the $42.50-42.00 range. The Point & Figure chart is forecasting at $38 target.

Picked on November 16 at $ 46.99 *triggered
Change since picked: - 0.67
Earnings Date 01/30/08 (unconfirmed)
Average Daily Volume = 2.7 million

---

Regency Centers - REG - cls: 62.61 chg: -5.00 stop: 67.51*new*

REG just got hammered today. The stock lost 7.39% and did so on big volume. Shares are only 11 cents from our target in the $62.50-62.00 range. We're not suggesting new positions at this time. Please note our new stop loss at $67.51. Odds are good that REG will hit our target tomorrow morning. Please note REG does have an investor "day" scheduled for Thursday, Nov. 29th.


Picked on November 18 at $ 67.56
Change since picked: - 4.95
Earnings Date 10/27/07 (unconfirmed)
Average Daily Volume = 570 thousand
 

Strangle Updates

None
 

Dropped Calls

None
 

Dropped Puts

None
 

Dropped Strangles

None
 

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

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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