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Daily Newsletter, Tuesday, 02/19/2008

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Table of Contents

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

Market Wrap

Need Dramamine?

If you were riding the waves of today's market it was more like a white water rafting trip than a leisurely pleasure cruise. Seasick pills were definitely needed with the triple digit swings. The Dow opened up +155 points to 12505, dropped -108, rebounded back to 12475 and then plunged to close at 12337 after a 200-point range for the day. The drop was unsettling for the bulls given the relatively positive news of the day.

The good news to start the day came from the NAHB Housing Market Index. The index rose for the second consecutive month and there were positive comments from various officials in the housing sector. That was very positive for market sentiment at the open. The index rose to 20 in February, up from 19 in January. The cycle low was 18 set in December. Buyer traffic increased to 19 in February, up from 14 in January and the cycle low of 13 in December. The regional indicators all rose by multiple points except for the Midwest region. The Northeast spiked +3 points to 24 compared to a +2 point gain in the South to 24. The West also rose +2 points but only reached 15 and is still lagging the rest of the country. The last 5-months appears to have been a bottom on the index but the sector has a long way to go to reach the 2005 cycle high at 65. With interest rates low and the buying season about to start the odds are very good the sector will continue to improve for the next several months.

NAHB Chart

As a contrarian indicator the Risk of Recession report this morning was also bullish. However, it would be a stretch for traders to see it that way. The risk of recession rose to 60% at the end of January compared to 23% as recently as September. The index is the highest it has been since 2001. This may not seem bullish at first but it means the Fed is going to continue to be aggressive to fight this trend as long as inflation remains manageable. The market is normally very bullish coming out of recession lows and the higher the risk the faster the Fed will act and the quicker the recovery will appear. Factors pushing the risk higher are the falling job markets, declining consumer confidence, stock market weakness, housing market weakness, higher energy prices and the weaker dollar. The next Fed meeting is March 18th and we have a full slate of economic reports between now and then to convince the Fed that action is still needed.

Recession Probability Chart

The opening bounce in the market was also due to the resignation of Fidel Castro as president of Cuba. He was president for 49 years and the longest continuous term in the world. He has been ill for the last 2-years and his brother Raul Castro has been filling in for Fidel. Under Cuban law the newly chosen Parliament will choose a 31-member council of state on Sunday. That council will then choose a new president. Even though the process would appear to have a democratic tone most Cuba watchers expect power to remain in Castro's inner circle, many of whom hold positions in the cabinet. The resignation did not come as much of a shock since many have been expecting him to relinquish office or simply die for the last couple of years. There were celebrations in Cuban neighborhoods in the U.S. but life in Cuba went on pretty much as usual. Companies that would benefit from a change in the regime and a resumption of relations with the U.S. saw their shares move higher. The Herzfeld Caribbean Basin Fund (Nasdaq:CUBA) spiked 17% to $8.71. Unless the council surprises everyone with a pick out of left field the Cuban government and its policies should continue to be cutoff from American trade for some time. The news was positive for the market in a sentiment perspective but there was no immediate basis in fact for the gains.

Wal-Mart (WMT) reported earnings that rose +4% in Q4 after its holiday focus on low prices paid off. WMT executives said the company expects a sales bounce when the stimulus checks hit the mail in May. Wal-Mart has 127 million shoppers at its U.S. stores every week. While earnings and sales were good there was a depression when Wal-Mart guided lower for Q1 and full year. Wal-Mart now expects earnings to be in the range of $3.30-$3.43 and analysts were already expecting $3.43.

Wyeth (WYE) won a case in a Maryland court on whether the mercury based vaccination preservative Thimerosal causes autism. If you are a parent you probably have strong feelings about this topic. Wyeth may have won this battle but the war is far from over. The judge ruled it was "generally accepted in the scientific community that Thimerosal in vaccines does not cause or contribute to neurodevelopmental disorders such as autism." That finding cost Wyeth untold millions of dollars in legal fees and while it was a win in their favor there are plenty of other parents waiting to continue the war. In the U.S. the autism rate is 1 in 150 compared 1 in 5,000 just a couple of decades ago and 1 in 10,000 in other countries. The jump in Autism began as children born between 1987-1992 reached vaccination age. There may not be a link according to the Maryland court but autism rates are 27 times higher for children who have been vaccinated compared to those who have not received a Thimerosal vaccination. Reportedly other countries, which have banned Thimerosal have seen dramatic drops in their autism rates. Recent studies have found that senior citizens over 60 have a 900% greater chance of Alzheimer's if they have had more than 5 flu shots with Thimerosal since age 55. The statistics above should convince everyone to question whether you or anyone you know should risk any shot that includes Thimerosal despite the findings of the Maryland court. Wyeth gained +1.79 on the news.

Onyx Pharmaceuticals (ONXX) was crushed for a -26% drop or -$12 on news that a late stage lung cancer trial on Nexavar produced more deaths than those who took chemo alone. ONXX also reported earnings but declined to give any guidance and blamed dynamic market conditions. Earnings were actually a loss of 21 cents compared to analyst estimates for only 7 cents.

Hewlett-Packard (HPQ) reported earnings after the close of 86 cents and that was 5 cents better than the street expected. Revenue rose +13% to $28.5 billion and nearly a billion over the $27.6 billion analysts expected. HPQ also raised guidance for the current quarter to 86 cents compared to the 82 cents expected. HPQ also said full year profits could rise to $3.50-$3.54 compared to estimates of $3.36 by analysts. Shipments in the computer division rose 27% in Q4. Ink cartridges remain the most profitable division with a 7% rise to $1.15 billion in quarterly profits. HPQ said it expected to pay higher prices for components in Q1 and that suggests Dell could be hurting. The last several quarters HPQ has hogged the components and Dell has had to do with the crumbs and less desirable components in some cases. Dell used to beat HPQ like a rented mule earlier this decade but now the shoe is on the other foot and Dell is the one suffering from their declining market share. HPQ jumped more than $2 in after hours.

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Crocs (CROX) was not as fortunate despite an 84% jump in Q4 profits. CROX beat the street by a penny with earnings of 45 cents but reiterated 2008 guidance that was lower than analysts were expecting. CROX expects to earn $2.70 in 2008. Inventory accumulation was also an issue.

HD-DVD meet Sony Betamax. It is official and the winner is Blu-ray. Toshiba threw in the towel today and said it would halt production of the HD-DVD product after losing support from too many big players in the DVD arena. Toshiba had been cutting prices drastically and offering free DVDs to try and compensate for lower acceptance of the HD-DVD product. Globally 6.3 million Blu-ray boxes have been sold compared to only a million or so of the HD-DVD players.

Oil prices spiked +$4.51 today to close the afternoon session at $100.01 and a new record close. I don't have enough fingers to count all the reasons given for the spike but I did not hear even once that it was short covering ahead of futures expiration. The current March contract ceases trading on Wednesday and everyone expecting the normal Feb-Mar decline into spring was caught short. The fuel for this short squeeze was blamed on a refinery explosion in Texas that took a 67,000 bpd refinery offline for what could be months. The keywords there are "67,000 bpd." That is a drop in the bucket when U.S. refining capacity is already running 10% below normal at 85%. Refiners have taken capacity offline to compensate for weaker demand as we move into the seasonal spring decline. Heating oil demand drops to near zero and summer gasoline has yet to be in demand. The 67,000 bpd loss is just noise.

We also heard that Hugo Chavez said he was not serious when he said he would cut oil deliveries to the U.S. as a result of the Exxon squabble. We already knew he was all bark and no bite since the U.S. refineries are the only ones setup to process his specific grade of crude. If he cut us off he would have nowhere to go and he is too smart to cut his lifeline of oil dollars just to make a political statement. He would survive as Venezuelan dictator about as long as you and I would survive without food.

OPEC was also blamed for the spike after several spokesmen said there was little chance of a rise in production and any change would be a cut. There were an equal number of spokesmen saying they would likely leave production at its current level when they meet in two weeks and that would be enough excess capacity to rebuild global inventories.

There was a news report that Nigerian rebel leader Henry Okah had been killed or died in custody and the rebels threatened to attack every oil installation if it was true. Late in the day it was reported that Okah was alive and well and still in custody. The government said they would supply proof within 24 hours to diffuse the situation. The rebels have eased their attacks on oil facilities over the last few weeks and there were fears a dead Okah would produce an all out war on the energy sector.

Lukoil reported it had stopped deliveries to Germany because of a disagreement over price. It is the second delivery halt in the last twelve months to Germany. German refineries said they had access to other supplies and refineries were running at full production. This news about Lukoil is still a long-term problem even if the dispute is solved. The Russian oil companies are pursuing a government plan to systematically assert their dominion over Europe. Europe is dependent on Russian gas and oil and Russia is making sure they know it by hiking prices at will. When the various countries refuse to pay it Russia cuts off the supplies and calls it a pricing disagreement. This is only going to get worse as global supplies shrink and Europe has fewer energy supply choices. European states are less likely to take sides against any future Russian political position if they know their energy lifeline is at risk. Still, it had no impact on the price of crude today despite what you might have heard in the news. Expectations are for another 2 million barrel rise in crude inventories on Wednesday. That would be the 6th consecutive week of builds totaling more than 20 million barrels with demand slowing. It is hardly a reason to push prices higher. Subscribers to the LEAPS newsletter bought puts on a key oil equity at today's close.

Crude Oil Chart - March Futures - Daily

The high cost of feed grains prompted Smithfield Foods (SFD) to announce a cut in its sow herd by as much as 5%. That would equate to 50,000 animals but the impact to pig production would be more than 800,000 to 1 million per year as that breeding capacity is removed from the market. Smithfield said as long as U.S. policy favored corn ethanol over food the price of food for consumers would keep rising.

Dow Chart - Daily

The Dow was up +155 at the open and ended the day at -10. This is not a positive day given the recent history of the markets. More often than not the markets have been selling off into the close and traders are routinely shorting the rallies. This type of end of day sell off is damaging to market sentiment. Traders who bought the various dips are getting a bloody nose on every rally. Eventually they will decide it is less painful to wait on the sidelines rather than jump in the ring with Lennox Lewis whenever the opening bell rings. The Dow decline put it right back at initial support at 12300 and very close to critical support at 12125. There is an increasing expectation among analysts that the markets are setting up for a retest of the January lows. I have not bought into that scenario yet but the evidence is growing. A break under 12125 would have every bear in the market piling on for a potential 500-point drop. The Dow welcomed two new components today. Bank America (BAC) and Chevron (CVX) were added to the Dow-30 and Altria (MO) and Honeywell (HON) were removed.

List of Current Dow Components

The Nasdaq declined nearly 50 points off its opening high to close right on 2305 and right at initial support. Actually it is slightly under initial support and right on the verge of a critical breakdown. I can justify some of the decline as fear of Hewlett Packard earnings but that may have only be part of the problem. The severity of the afternoon decline was definitely related to a sell program and that could have been due to some option expiration residue. Of course that is sheer speculation but still a possibility. I am concerned that the lack of an after hours rebound in the Nasdaq futures even after the HPQ earnings suggests there is more downside ahead.

Nasdaq Chart - Daily

S&P-500 Chart - Daily

The S&P-500 was actually the tamest of the indexes with only a 16-point spike at the open that it held until the sell program hit at 2:30. Closing at 1348 for a loss of only one point put it right back in the middle of its recent range at 1350. The financial sector was also flat for the day and gave the S&P relief from that selling pressure. I would be mildly bullish based on just the S&P or the Russell but I am becoming increasingly cautious that current support at 1340 and again at 1320 may not hold.

The Russell has been our sentiment indicator for fund managers and it closed well off its highs but still positive for the day at 702. The Russell continues to maintain a minor uptrend but that trend may be weakening. Russell 720 remains initial resistance and 695 initial support. I would be concerned if the Russell breaks this support level. I would look for support at 685 to reappear but I would not be so eager to buy the next dip to that level. I am right on the verge of turning bearish and a drop under 695 would turn me neutral and a drop under 685 would be a short for me this week.

Russell Chart - Daily

The only positive in the market internals is the lack of volume. Across all exchanges today total volume was only 6.278 billion shares. Six of the last seven days have had less than 7 billion shares traded. That single day exception was just slightly over seven. Volume back in the December drop was over 10 billion shares for more than a week. Low volume now could be just a lack of conviction as we await the Fed and inflation data but it is a worry for the bulls. Of course low volume on down days is always seen as lack of conviction by the bears.

On Wednesday the market has a couple of headwinds in the CPI and the FOMC minutes. The CPI is expected to show that inflation is rising quickly and that could put the Fed on hold. China just reported that inflation rose at a record 7.1% level in January and that inflation is being passed through the system to us. Import prices from China have risen for nine consecutive months. Rising crude prices are pushing U.S. inflation higher and gasoline futures made a new high today. In a period where oil and gasoline prices should be falling this is going to pressure the normal seasonal inflation declines. Food inflation as a result of global demand and crops being diverted to corn ethanol has pushed food prices to multiyear highs. It would be a real surprise if the CPI showed anything but a large rise in inflation. That puts the focus back on the FOMC minutes at 2:PM and a look inside the Fed when they cut rates at the last meeting in January. Remember there was a dissenting vote at that meeting and any increase in inflation pressures will likely increase that dissention. I am afraid the market is at a crossroads and should the Fed be viewed as moving to the sidelines the market is NOT going to be pleased.

Jim Brown  



New Plays

New Option Plays

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

New Calls

Boeing - BA - close: 85.37 change: +0.19 stop: 83.99

Company Description:
The Boeing Company is the world's largest aerospace and defense businesses specializing in innovative and capabilities- driven customer solutions. Headquartered in Chicago, The Boeing Company is a $66.4 billion business with 159,000 employees worldwide. (source: company press release or website)

Why We Like It:
BA looks like a potential play here for the bulls. The company dropped some bad news today suggesting they won't "rule out" any further delays for the Dreamliner production. The market did not respond negatively and traders were buying the dip late this afternoon. Shares tested short-term support at the 50-dma on Friday. We're suggesting readers buy calls now. We'll use a stop at $83.99. More conservative traders might be able to get away with a slightly tighter stop but if the major averages move down with any significant tomorrow we would expect to be stopped out. Our short-term target is the $89.50-90.00 range or the 100-dma, which ever is hit first.

Suggested Options:
We are suggesting the March calls.

BUY CALL MAR 85.00 BA-CQ open interest=3843 current ask $2.90
BUY CALL MAR 90.00 BA-CR open interest=3565 current ask $0.85

Picked on February 19 at $ 85.37
Change since picked: + 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 6.5 million
 

New Puts

None today.
 

New Strangles

None today.
 


Play Updates

In Play Updates and Reviews

Call Updates

Apple Inc. - AAPL - close: 122.18 change: -2.45 stop: see details

What we expected to be more of an explosive rebound in AAPL has turned into a flop. Shares are rolling over and as we discussed over the weekend AAPL looks poised to retest support near $120.

AAPL play #1 - directional calls

The action in the NASDAQ looked pretty negative today but AAPL is nearing support at $120. We would consider new positions right here. Yet if you're patient we might get a better entry point closer to $120 tomorrow. Our stop loss is under the early February low. More conservative traders may want to use a stop closer to $120. Our target is the $139.00-145.00 range.

AAPL play #2 - Credit put spread

For the credit put spread we want to wait for signs of a bounce before launching new positions. The options we suggested were buying the March $110 put and selling the March $120 put.

AAPL play #3 - Sell Naked Puts

Again, look for a bounce before launching new naked put positions. We had suggested selling the March $150 put with plans to buy it back when AAPL hits $139.00.

Picked on February 10 at $125.48
Change since picked: - 3.30
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 44.4 million

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Atwood Oceanics - ATW - cls: 93.40 change: +3.03 stop: 87.45

Oil-related stocks were big winners today thanks to the sharp advance in crude oil to $100 a barrel. ATW broke out over resistance near its 50-dma and posted a 3.3% gain. We would consider new positions here but the patient trader might want to wait for a dip back toward $91.50-90.00 as an alternative entry point. Our target is the $99.00-100.00 zone. FYI: ATW has a moderate amount of short interest, about 7.4% of the 27.6 million-share float. That is about 4 days worth of short interest.

Picked on February 17 at $ 90.37
Change since picked: + 3.03
Earnings Date 05/08/08 (unconfirmed)
Average Daily Volume = 654 thousand

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CF Industries - CF - close: 126.88 change: +8.51 stop: 109.49

Our bullish play on CF is off to a strong start. Shares gapped open higher at $121.03 and surged to a 7.2% gain and a new high. We were suggesting a trigger to buy calls at $121.01 so the open this morning would have triggered us. If you missed the entry point look for a dip back into the $122-120 zone as an alternative entry. Our target is the $138.00-140.00 zone. The Point & Figure chart is bullish with a $141 target. FYI: The most recent data puts short interest at 6.8% of the 53.4 million-share float. That is only 1.8 days worth of short interest but a breakout higher could certainly spark some short covering. Plus, CF is due to present at the basic materials conference on Feb. 20th.

Picked on February 19 at $121.03 *triggered/gap higher
Change since picked: + 5.65
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 2.8 million

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Monsanto - MON - cls: 117.87 change: +2.52 stop: 107.85

Almost all the fertilizer-related companies were trading higher today. MON rose close to 2.2% and is testing resistance at $120 again. We would consider new positions here but readers have a choice. You could wait for a breakout over $120 or a dip back toward $116-114. We have two targets. Our first target is the $127.00 level. Our second target is the $137.00-140.00 range. As we discussed earlier a move over $118 triggered a new P&F chart buy signal, which now forecasts a $157 price target. These have been very volatile stocks so readers should consider them aggressive, higher-risk plays. FYI: MON is presenting at the Morgan Stanley Basic Materials Conference 2008 on February 21st

Picked on February 12 at $118.09 *gap higher entry
Change since picked: - 0.22
Earnings Date 04/03/08 (unconfirmed)
Average Daily Volume = 7.1 million

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Mosaic - MOS - close: 109.55 change: +6.18 stop: 89.45

Target achieved. Shares of MOS, another fertilizer company, surged almost 6% and hit an intraday high of $111.73. Our first target was the $109.75 mark. Volume was above average on the day, which is a good sign. Shares also managed to maintain most of its gains unlike the broader market. We would not suggest new positions at current levels but look for a dip back to the $105-103 zone as a potential entry point. Our second, more aggressive target is the $118.00-120 zone. These are very volatile stocks with a lot of intraday spikes. We would consider this a more aggressive, higher-risk play. FYI: We are adjusting our stop loss to $97.45.

Picked on February 12 at $101.83 *gap higher entry
Change since picked: + 7.72
Earnings Date 04/09/08 (unconfirmed)
Average Daily Volume = 5.8 million

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Nucor - NUE - close: 63.89 change: +1.88 stop: 58.45

NUE posted a 3% gain today and challenged round-number resistance at the $65.00 level. Investors are encouraged about demand for iron and steel and believe the industry will be able to raise prices. We would still consider new positions here or wait for a dip back into the $63.00-61.00 region. Our target is the $68.00-70.00 zone since the $70.00 level is likely to be significant resistance. The P&F chart is bullish with a $76 target.

Picked on February 17 at $ 62.01
Change since picked: + 1.88
Earnings Date 04/17/08 (unconfirmed)
Average Daily Volume = 5.0 million

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Petroleo Brasileiro - PBR - cls: 117.66 chg: +3.21 stop: 109.45*new*

The crude oil rally lifted the ADR shares of PBR to a new all-time high over resistance at the $120 level. PBR was unable to hold $120.54 but still posted a 2.8% gain. We would consider new positions here but readers could choose to look for a dip near $115 or a new high over $120 to open plays. Please note that we are raising our stop loss to $109.45. We are considering a second target near $140. Currently, our target is the $128.00-130.00 range. The move over $116 has produced a new Point & Figure chart buy signal. Actually it is a quadruple-top bullish breakout buy signal with a $150 target (it was a $138 target last week). FYI: Another risk is PBR's earnings report. We can't find an earnings date and they normally report in mid February. That is a risk because we do not like to hold over an earnings report.

Picked on February 12 at $116.00 *triggered
Change since picked: + 1.66
Earnings Date 02/12/08 (unconfirmed)
Average Daily Volume = 7.6 million

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Potash - POT - close: 152.50 change: +4.62 stop: 136.99

POT tagged a new all-time high of $156.31 this afternoon. The stock continues to look bullish as it tries to push through resistance in the $150-155 region. We would still consider new positions here or on a dip near $150-147. We have two targets for POT. Our first target is the $158.00-160.00 range. Our second, more aggressive target is the $168.00-170.00 zone. More aggressive traders may want to aim significantly higher. The Point & Figure chart is forecasting a $222 target. Again, this is a very volatile stock. Readers should consider it an aggressive, higher-risk trade. Aggressive traders could put their stop under the 50-dma. FYI: It looks like POT's CEO was the catalyst behind today's fertilizer rally. A Bloomberg article out today discussed the CEO's views that rising food demand in China and India will power the industry for years. The article also mentioned that management is so confident they almost chose to take the company private last month.

Picked on February 12 at $147.50 *triggered
Change since picked: + 5.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 5.9 million

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Smith Intl - SII - close: 62.73 change: +2.21 stop: 58.45

SII, another oil service play, rose sharply following the rally in crude today. If you missed today's bounce then consider waiting for a dip into the $62.00-60.00 zone as a new entry point to buy calls. We are considering a second, more aggressive target in the $68-70 range. Right now our target is the $64.25-65.00 zone. The P&F chart for SII is very bullish with a $77 target.

Picked on February 17 at $ 60.52
Change since picked: + 2.21
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 3.5 million

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Yahoo! Inc. - YHOO - close: 29.01 change: -0.65 stop: n/a

The drama continues with the MSFT-YHOO deal. MSFT's Bill Gates said they are not raising the $31-a-share bid. Meanwhile YHOO has adopted a huge change in its severance package for employees should management change in the next two years. YHOO lost 2.19% on the session. This could all be more posturing for an eventual deal but we want to remind readers that this could definitely fall apart and we would lose all of our speculative gamble here. Currently the word on this deal is that MSFT is gearing up for a proxy fight to force YHOO to accept their bid. This play remains an aggressive bet that MSFT will eventually raise its bid into the $33-34-35 zone thus today's dip only makes the $32.50 option even cheaper. You might want to consider buying the $30 option. We were looking at March strikes.

Picked on February 17 at $ 29.66
Change since picked: - 0.65
Earnings Date 04/17/08 (unconfirmed)
Average Daily Volume = 54 million
 

Put Updates

Ambac Fincl. - ABK - cls: 9.94 change: -0.28 stop: n/a

Late last week the news was that FGIC was asking to be separated into two companies. One with the strong and profitable municipal bond business. The other with its CDO and mortgage-related businesses. Now speculation is running rampant that ABK and MBI will do the same. Currently there are talks that ABK is trying to raise $2 billion in capital to shore up its books and keep its triple A credit rating. Overall we do not see any changes from our previous comments. Currently we are suggesting the May puts and a speculative out of the money March call as a hedge to protect us if a bailout deal does get done. Many on Wall Street expect something to occur this week but it could drag out to next week. The options we suggested were the May $5 or $2.50 puts and the March $20 call.

Picked on January 27 at $ 11.54
Change since picked: - 1.60
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 10.9 million

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Bear Stearns - BSC - cls: 80.02 chg: -2.77 stop: 85.05*new*

There was no new merger news to prop up shares of BSC so the stock slipped 3.3% and closing near round-number support at $80.00. We suspected that shares would move lower today. We remain bearish on the stock and would consider new puts at current levels. Our target is the $71.00-70.00 zone. Our biggest risk is that a bailout plan for the bond insurers does get done (and probably this coming week). If plan is announced and the street thinks it has a good chance of actually coming to pass then shares of BSC are bound to rally sharply due to its exposure to the sub-prime mess.

Picked on February 11 at $ 79.49 *triggered
Change since picked: + 0.53
Earnings Date 03/13/08 (unconfirmed)
Average Daily Volume = 7.4 million

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FedEx - FDX - close: 89.25 change: +1.33 stop: 90.55 *new*

There are not any good reasons for FDX to be up today. A rally in crude oil to $100 a barrel only hurts FDX's profit margins. Yet shares added 1.28% and on decent volume. One possible catalyst for today's strength is Wal-Mart's (WMT) better than expected earnings, which might suggest the economy isn't so bad. Look for a new decline under $88.00 before considering new puts. There is potential support at $86 but our target is the $81.00-80.00 zone.

Picked on February 10 at $ 88.00
Change since picked: + 1.25
Earnings Date 03/20/08 (unconfirmed)
Average Daily Volume = 3.2 million

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W.W.Grainger - GWW - close: 74.54 chg: -0.58 stop: 80.05

GWW continues to look bearish and the stock produced a bearish engulfing candlestick. Shares also set a new relative low. Our target is the $70.75-70.00 zone.

Picked on February 10 at $ 76.65
Change since picked: - 2.11
Earnings Date 04/16/08 (unconfirmed)
Average Daily Volume = 1.0 million

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iShares DJ Financial - IYF - cls: 86.72 chg: -0.59 stop: 91.85

Wall Street remains concerned over the financials and their exposure to the sub-prime crisis. The IYF rallied toward $89 this morning and then faded. We remain bearish here. More conservative traders will want to strongly consider adjusting their stop closer to $90.00. We're aiming for a test of the $80.00 region. Our official target is the $81.00-80.00 zone.

Picked on February 06 at $ 88.62
Change since picked: - 1.90
Earnings Date 00/00/00
Average Daily Volume = 1.1 million

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MBIA Inc. - MBI - close: 11.70 change: -0.54 stop: n/a

The big news in MBI today was a change in leadership. CEO Gary Dunton has resigned. In his place is Joseph Brown, who was the previous CEO and Chairman. Overall we do not see any changes from our prior comments. Currently we are suggesting the May puts and a speculative out of the money March call as a hedge to protect us if a bailout deal does get done. Many on Wall Street expect something to occur this week but it could drag out to next week. The options we suggested were the May $7.50, $5.00 or $2.50 puts. We recently added a deep out of the money call, the March $22.50 call, as a hedge in case a rescue plan does get announced and the stocks react to it. (at this point you may want to consider the March $20 call instead)

Picked on January 27 at $ 14.20
Change since picked: - 2.50
Earnings Date 01/31/08 (confirmed)
Average Daily Volume = 15.2 million

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Mohawk Ind. - MHK - cls: 72.93 chg: +0.86 stop: 78.05

MHK produced a minor oversold bounce today. Potentially fueling the move was the better than expected earnings from WMT, which suggests the economy may not be so bad. Plus, the new homebuilder confidence index edged up one point from multi-year lows. We remain bearish on MHK and would still suggest new puts on a failed rally near $75.00. There is potential support at $70.00 but we're aiming for the $66.50-65.00 zone near its January 2008 bottom.

Picked on February 14 at $ 73.70
Change since picked: - 0.77
Earnings Date 02/13/08 (confirmed)
Average Daily Volume = 907 thousand

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Myriad Genetics - MYGN - cls: 37.88 chg: +0.24 stop: 40.51

MYGN traded sideways in a very narrow range for almost the entire session. We do not see any changes from our weekend comments. Our MYGN target is the $36.00-35.00 range. More aggressive traders may want to aim lower. The Point & Figure chart is bearish with a $34 target. FYI: We always consider a biotech stocks to be a more aggressive, higher risk play because you never know when an FDA decision will be released or some clinical trial info will come out that could send the stock moving sharply either direction.

Picked on February 07 at $ 39.75 *triggered
Change since picked: - 1.87
Earnings Date 02/05/08 (confirmed)
Average Daily Volume = 801 thousand

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Sears Holding - SHLD - cls: 96.31 chg: -2.44 stop: 100.25

SHLD continues to build on its bearish pattern and it has been tough waiting and watching it occur. Shares produced a failed rally pattern near $100 and its 50-dma today. The intraday high was actually 101.81. That was an early morning spike that quickly failed. The stock closed at new three week lows and looks poised to breakdown under $95 soon. We are strongly tempted to suggest new put positions right here, especially considering another bearish engulfing candlestick pattern today. However, we're going to wait and stick to our plan. Currently our official entry point to buy puts is at $94.75. If triggered at $94.75 our target is the $86.00-85.00 range. We do not want to hold over the end of February (now confirmed) earnings report.

Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/28/08 (confirmed)
Average Daily Volume = 3.0 million

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Simon Properties - SPG - cls: 83.37 chg: -1.14 stop: 90.15

SPG produced a failed rally at $86.00 this morning and the move looks like a new entry point for puts (as we suggested this weekend). Or readers could wait for a new decline under $82.40 as an entry point. Our target is the $76.00-75.00 range.

Picked on February 07 at $ 84.39 *triggered
Change since picked: - 1.02
Earnings Date 02/01/08 (confirmed)
Average Daily Volume = 2.7 million

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Legacy Vulcan - VMC - cls: 66.50 chg: -0.14 stop: 70.86

We do not see any changes from our weekend comments on VMC. We would still consider new put positions here. This looks like a spot to capture a drop back toward the January lows. Our target is the $60.50-60.00 zone. The stop loss is a little bit wider than we would like but VMC can see some big $3-$4 swings intraday so readers should consider this an aggressive, higher-risk play.

Picked on February 17 at $ 66.64
Change since picked: - 0.14
Earnings Date 04/30/08 (unconfirmed)
Average Daily Volume = 2.1 million
 

Strangle Updates

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

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CROCS Inc. - CROX - close: 32.08 chg: -1.35 stop: n/a

It was a volatile morning for CROX as investors tried to make some last minute adjustments before earnings. Shares produced a bearish failed rally pattern at the 50-dma this morning and eventually closed down 4.18% on strong volume. The real news was the earnings report out after the closing bell today. Wall Street was looking for an EPS of 44 cent a share. CROX beat by 1 cent but then issued an earnings warning. Management still claims that CROX will see 20% to 30% earnings growth over the next few years. After hours reaction to the news was a drop toward $27.00 a share. We are no longer suggesting new strangle positions. The options we had suggested were the March $40 calls (CQJ-CH) and the March $25 puts (CQJ-OE). Our estimated cost was $2.50 and we wanted to sell if either option hits $4.25 or higher. Watch those puts tomorrow morning!

Picked on February 17 at $ 33.43
Change since picked: - 1.35
Earnings Date 02/19/08 (confirmed)
Average Daily Volume = 5.2 million
 

Dropped Calls

None
 

Dropped Puts

Devon Energy - DVN - close: 96.20 chg: +3.00 stop: 95.15

An unexpected rally in crude oil and natural gas helped push shares of DVN up through major resistance at the $95.00 level this morning. We would have been stopped out at $95.15. Hopefully when the stock gapped open at $95.00 no one chose to open new put positions.

Picked on February 17 at $ 93.20
Change since picked: + 3.00
Earnings Date 05/01/08 (unconfirmed)
Average Daily Volume = 3.5 million
 

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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