Option Investor

Daily Newsletter, Saturday, 11/29/2008

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Table of Contents

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

Market Wrap

Black Friday, Green Markets

After months of worry over holiday spending several major retailers said Black Friday sales were stronger than their expectations. The markets rallied for the fifth straight day and became stronger as those retail reports hit the wires.

Market Statistics
[Image 1]

There were no economic reports of note on Friday but next week is packed full of important reports. Leading off the list is the national Institute of Supply Management Index or ISM. This is the best look at the health of the manufacturing sector for the month. Estimates for the ISM are for a drop to 38.4 and the lowest level since the early 1980s. Based on the negative news coming out of the manufacturing sector we could see a negative surprise on the ISM.

ISM Chart
[Image 2]

The next reports traders will be watching will be the ISM Services and Fed Beige book on Wednesday. The ISM Services will be anticlimactic after the ISM Manufacturing on Monday but still a possible trigger for market movement. The Fed Beige book is a look at business conditions across all 12 Fed regions. This report turned sharply negative in early October and it is expected to be substantially worse since it will cover changes in conditions over the last 45 days. This could be a real market mover.

The Factory Orders on Thursday have been in decline for the last three months but this is a severely lagging report. Everybody agrees the business conditions took a sharp turn downward in October and that is the period next week's report will cover. Expectations are for a drop of -2.8%.

Last but definitely not least is the Non-Farm Payrolls for November at 8:30 on Friday. Last month's report showed a loss of -240,000 jobs and a sharp revision lower to the prior two months numbers. Estimates for November are for job losses in the 300,000 to 375,000 range. A normal recession range would be monthly losses of 350,000 jobs. We have not gotten there yet but we are getting close.

Economic Calendar
[Image 3]

Initial reports from the war zone suggest holiday shopping on normally the busiest day of the year was not as bad as many expected. Several retailers reported sales and traffic were higher and this put a positive spin on the reports from the malls. Opening the doors to shoppers who had been in line for up to 36 hours was still a hazardous task. One Wal-Mart employee in New York was trampled and killed by the crush of customers. The crowd knocked the man to the ground and broke the doors out of their frame in the rush to get into the store. Two people were killed in a Toys "R" Us store after a gunfight broke out. It was not clear what started the argument.

While shopping was still frantic, store operators said the shoppers were being very picky about what the bought. Sale items were sold out very quickly but normal store merchandise was not moving at a rapid pace. Store operators said the crowds were at least as large as last year but total dollars sold may not match last year. Most agree they marked down more items and overall prices were lower than in 2007. That would require more shoppers buying more merchandise to equal 2007 dollar volume. Flat screen TVs were the leading seller and it was not surprising with the blowout prices being offered. Several chains were offering 50-inch Panasonic plasma HDTVs for under $1000. Smaller 24-30 inch LCDs were flying off dealer shelves. This is high dollar inventory the stores wanted to dump before the feeding frenzy faded.

A spokesman for Taubman, which operates 24 malls in 13 states, said home appliances like pots and pans and coffee makers were moving well in their malls. They saw this as shoppers staying close to home and buying necessities. Macy's reported 5,000 shoppers in line for the 5:AM opening at the New York store. Macy's also said small appliances were moving well along with heavily discounted winter clothing. Retailers needed a positive surprise after experiencing the worst October in 16 years.

Carl Icahn did some early holiday shopping as he added 6.8 million shares of Yahoo to his portfolio to bring his total to 76 million. This brought his total holdings to 5.5% of YHOO outstanding shares. This is essentially a bet that once Jerry Yang has left the building the next person coming through the doors will be Steve Ballmer with a deal in hand. It is also an average down play for Icahn since his other 4% of YHOO shares were bought at a significantly higher price. YHOO closed up +9% on Friday and +23% from last Friday's lows.

Despite the gain in Yahoo, tech stocks were the weak sector keeping the Nasdaq in negative territory for much of the day. There were two major tech warnings on Friday. Panasonic (PC) cut its prior sales forecast by 90% due to the weakening economy. This was really a shock since their last forecast was just a month ago. That means the outlook has changed drastically in just the last four weeks. Panasonic says profits will now be only 30 billion yen ($315 million). That is down from their prior forecast of 310 billion yen. The Panasonic CFO said, "We have been hit by an economic slump that we have never experienced before." Panasonic stock lost -18% for the day.

STMicroelectronics (STM) shares lost -8% on Friday after warning that Q4 revenue will come in significantly below prior estimates. STM said customer demand has dropped off sharply and it will have to cut back on manufacturing and sourcing from third parties to make up for the slowdown. STM is one of the largest contract manufacturers of chips and circuit boards in the world.

Computer makers traded down early after JP Morgan said global computer sales could be off more than 5% in 2009 with desktops off as much as 19%. Laptops could see an increase of up to 10% but revenue overall for computer companies would be down about 13%. Average selling prices were expected to continue to decline another 12% meaning manufacturers would have to sell substantially more product just to equal 2008 sales. It is a double gotcha for computer makers. Sales are slowing and prices are dropping. Asian computer makers Acer and Asus are expected to be pushing low cost notebooks aggressively and would likely capture a larger market share than Dell and Hewlett-Packard.

Ebay caught a downgrade from Argus Research to hold from buy on worries the auction site will see slowing sales as the economy slides lower into the recession. Argus expects Ebay sales to decline in Q4 and for at least the first half of 2009. I am not sure I agree with Argus. I do a lot of buying and selling on Ebay and I do see a lot more auctions on Ebay since they went to the fix priced "good to cancelled" listings on Nov 1st. A particular brand of computer equipment I buy has gone from 3-4 pages of listings to 15 pages just since Nov-1st. The reason for this is the move to add major retailers to the mix. Several months ago Ebay let Buy.com list their inventory on Ebay and today there are more than 766,000 active Buy.com listings. Buy.com's feedback ratings have rocketed from zero to more than 369,000 since they started listing on Ebay. Since less than 10% of buyers give feedback that means Buy.com has sold nearly four million items on Ebay over the last year. That is four million items they would not have sold without Ebay. Lately I have seen several other online stores begin to list their items on Ebay suggesting Ebay is moving to the Amazon model of selling for other retailers rather than just the mom and pop sellers growing their Ebay business. If this trend continues Ebay will be the winner since they get a listing fee on every auction and a final sale fee on everything that sells. I think Argus may have missed the boat on the Ebay downgrade although I can see Ebay revenue per auction declining. In order to get these big companies to start up an Ebay department they had to lower the listing fees. That helps me and other hobby sellers but it is too early to tell if the fee cut was offset by the increased number of auctions. Also, whenever times get tough many consumers turn to Ebay to turn unwanted items into cash as well as pickup things they want at a steeply discounted price.

Research from the Bespoke Group showed the last several weeks had been the most volatile market ever. They calculated the average absolute daily range of the S&P at 3.82% per day over the last 50 days. The only time this has happened in the past was 1933. The average for a "normal" market back in Feb-2008 was only 0.33% per day.

Absolute Daily Range Chart
[Image 4]

Friday was a throw-away day as far as determining market direction. Volume for the half day of trading was an extremely weak 4.1 billion shares compared to an average of 13.5 billion for the five days ending on Tuesday. I did not include the 9 billion from Wednesday because that was a quasi holiday as well. The Dow and S&P completed five consecutive days of gains for the first time since July-2007. The Dow & S&P also had their best 5-day percentage gain since 1933. Those gains came from a severely oversold market and daily announcements of various bailout programs. The leading sector for the week was the brokerage sector with a gain of 38% followed by Housing at +34% and Banking at +26%. Those were the sectors with the highest short interest and the worst outlook until last week. Today banks are rebounding after Treasury said they would not allow any further failures of a major bank. The housing sector rallied on a sharp drop in mortgage rates after the Treasury said they would buy billions in mortgage-backed securities. The 30-year rate fell under 6% and mortgage refi applications nearly tripled.

Last week's gains could have been short covering on the various news events but those same events are starting to have an impact on investor and consumer sentiment. With mortgage rates falling and loans actually getting made, home buying is likely to increase. Remember, very few people have been in the market to buy a home since the bubble began to burst. If it appears a price bottom has formed with mortgages nearing record low rates then now is the time to start shopping again. Citigroup hit a low of $3.05 on the 21st and closed at $8.32 on Friday. That is a +173% gain in a week. GM hit $1.70 on the 20th and closed at $5.29 on Friday for +211% gain. Goldman Sachs hit $47.41 the prior Friday and traded over $80 only a week later for a +67% gain. It would appear that the bottom is behind us. Those gains are well past simple short covering.

You could throw in the normal month end buying and the normal holiday cycle into the mix as reasons the markets rallied. I am sure there was some impact from those cycles but they would have had little effect if funds were still in liquidation mode. There has not been a material end of day sell program since the 20th. Of course a market in rally mode does not produce margin calls or trigger too many sell stops. I would bet those still exist and have been trailing us higher just in case. We are far from being out of the woods but we can see daylight from here. At least I hope that is daylight and not a truck headed our way.

The Dow traded firmly over initial resistance at 8500 and now appears to be targeting 9000 as the next major battle. There is plenty of congestive resistance and plenty of bears still in denial so any move higher may be a struggle. We have come a very long way and at nearly every pause point since early October there will be traders wanting to get out of their positions. They have prayed the trader's prayer over and over for the last two months. "Please let me out of this long trade without a loss and I will never be this stupid again." With every tick higher they are moving closer to their entry points and recovery of their lost capital. This is the way resistance points are formed. Short-term traders make bad bets and end up being long-term investors, not by choice but by making bad choices. The bears are watching those inflection points and will take any hesitation as a sign of weakness and a reason to go short again. I hope they do just that. Every short becomes a stepping-stone in a bull market. Every short covering rally adds excitement for the bulls and reinforces their conviction.

Dow Chart
[Image 5]
S&P-500 Chart
[Image 6]

The S&P has also moved into congestive resistance between 850-1000 and could find the road higher pitted with potholes. For the S&P the 1000-point level is a clear target and an even clearer breakout point. A move over 1000 would erase two months of the "most volatile market ever" and confirm a new bull market in progress. A move over 1000 will be a +35% rebound off the lows. That is far more than a normal bear market rebound. Of course there are still more than 100 points to be fought and gained before we reach that 1000 level. The S&P did gain over +150 since last Friday's lows so there is a track record to build on.

The Nasdaq is still the weakest link as it struggles to hold over 1500. The almost daily profit warnings from major tech companies and downgrades by analysts are truly creating a wall of worry for tech bulls to climb. The next major resistance is 1800 but that seems weeks away at the current two steps forward, one step backward rate. I would just appreciate the Nasdaq if it could just remain positive. Any actual gains would be a plus.

Nasdaq Chart
[Image 7]
Russell 2000 Chart
[Image 8]

The Russell has gained 101 points since its dip to 371 the prior Friday. That equates to a +27% gain in four days. It also means fund managers are buying small caps and that is a definite improvement in sentiment over the prior week. The Russell spiked +7 points in the closing minutes of trading on Friday. I attribute that to short covering and end of month portfolio shuffling. Either way I continue to view the Russell as the best indication that investor sentiment has changed. We may not be in full rally mode yet but I definitely believe the worst is behind us.

For next week the four biggest events will be the ISM on Monday, automakers begging for money on Tuesday, Beige Book on Wednesday and Non-Farm Payrolls on Friday. Of those, assuming the automakers don't get turned down, the payroll report on Friday is the biggest and followed closely by the Beige Book. However, is there anybody who has not heard we are in a recession and losing jobs? I think the bad news is priced into jobs unless there is a major miss of expectations. I do NOT think we are going to continue straight up. The Dow is up +1380 points from last Friday's lows. There is a profit-taking day in our future and it could be ugly as market makers try to find support. If we do get a sell off they can temporarily withhold their bids just to see where real support appears. That will then give them an idea of how aggressive to be on the next rebound. I am in buy the dip mode until proven wrong.

Jim Brown

Index Wrap


THE BOTTOM LINE : The market in terms of the lead S&P 500 (SPX) index has now retraced a little over a quarter or 25% of its last downswing; i.e., the decline dating from the mid-August high to the recent (11/21) low. A bottom may have been signaled when SPX held key support at 800 (and its July-October '02 lows at 793) on a closing basis.

A bullish development that I wrote about recently was seen in the high level of bearishness ahead of recent lows. Beside this key contrarian technical and psychological type indicator, I've been writing for a while now about the potentially bullish falling wedge pattern, which has now been pierced on the upside.

The falling wedge formation is rare, but tends to be quite reliable as a predictor when you see it in the indices and in individual stocks. The pattern is that of a downward price trend bounded by two intersecting down-sloping trendlines. The two trendlines can be quite steep and will intersect when projected out into the future.

Since I didn't write my usual Trader's Corner article on Thursday, I will pen one tomorrow (Sunday) on the WEDGE chart pattern and go into this one in detail; there is also the bearish rising wedge. The revamped and much improved Option Investor wed site now allows its contributors to update at any time and send a special e-mail to subscribers as well without being dependent on an HTML editor. Hooray!

I would caution that this bullish chart breakout that I'm describing has to be viewed in the context that the move above the declining bearish down trendline was on the truncated low volume Friday session. These patterns don't always of course work out in the expected direction or have the upside follow through that is an average; e.g., a further 20 to 30 percent, even a 40%, rise from the breakout point at the trendline.

Stay tuned on this analysis of upside potential and stay cautious, especially as traders got quite bullish at the beginning of this past week. This economy has got a long way to go to recover even though there's the historical tendency for the market to bottom several months ahead of an actual upturn.



Key near resistance is at 900, 915-917 then 1000-1007 in the S&P 500 (SPX) as noted on the daily chart below. SPX managed a close above its 21-day moving average which is a bullish plus but this was also seen at the last upswing high when the index reached 1007.

Support is evident in the 800 area then is suggested by the prior recent low at 741. Major support is still anticipated on a fall to the 700 area.

I noted last week that: "The only bullish (chart) pattern potential is still seen in the falling wedge formation which can suggest potential for an upside breakout move ahead, especially as prices get nearer to the apex of that falling wedge-type triangle."

We got the beginnings of the breakout move by the end of the past week but a key test lies ahead as to what upside follow develops if any. Important also is to what degree prices pull back; a shallow correction maintains bullish potential such as for a move back up to the 1000 area.

[Image 1]


I also noted last week that "What keeps me off the short side overly much at this point is suggested by my call/put indicator seen in conjunction with the S&P 100 (OEX) daily chart below; more on this below the chart."

Given the oversold condition I wrote about last week, it wasn't a stroke of genius to look for rebound potential from a new low at the lower trendline. OEX didn't fall to support anticipated at 350 or anyway near 300 major support. I've noted support around 350 at the trendline, but there's the prior 361 low as support also; higher support comes in around 387.

Immediate resistance is at 440, then comes in around 456; pivotal resistance has to be seen at the prior upswing high at 483, extending then to 495-500.

[Image 2]

SENTIMENT: As I wrote above, trader sentiment shot up to the 'overbought'/high bullishness level seen on the CPRATIO graph above early in the past week. This cautions me that this rally might not be sustained after what is already a pretty good (25%) rebound.


Key resistance in the Dow 30 Average (INDU) is in the 8920 to 9000 area, then at 9160, with fairly major resistance coming in at 9615-9630.

I wrote last time that "...I thought that 'major' support was at 75 in terms of DJX and I covered some remaining DJX puts there and again took a small plunge into Dow Index calls on that dip below 7500 in INDU where I had an alert set. Stay tuned on this trade!"

Well, so far that Dow Index (DJX) call buy is looking pretty good and I've raised my exiting 'stop' out point to 79.5 in terms of the Dow Index. I did take exit some of those calls on the move up into the low-8500 area in INDU.

Major support is at 7450-7500, with significant technical support around 8000, and above that at 8185-8200.

[Image 3]


The Nasdaq Composite Index (COMP) is lagging on the upside; COMP hasn't yet pierced its 21-day average at 1558, but did manage to pop up above the upper down trendline. Next resistance above 1558-1600 is at 1680-1700. Fairly major resistance is suggested at the prior rally high at 1786; call 1786 to 1700 as major next resistance.

Support is at 1425, then at 1380, 1295 and at 1240.

I did go into the wedge pattern some last week as I described the formation as having several alternating 'touches' to the upper and lower down trendlines, which was also seen in COMP. I projected a breakout move on an advance above 1500. Now the question is how much upside follow through there is. 1700, maybe 1800, is an upside possibility, especially if COMP doesn't fall back below 1450.

[Image 4]


The Nasdaq 100 (NDX) has resistance at 1200 to 1212 that needs to be overcome to suggest a next upside move to 1280 and perhaps back up the 1380 area again.

Technical support is at 1085-1115, then around 1020 and suggested down at the lower trendline at 970.

[Image 5]


I noted last week that I covered "some remaining shorts in QQQQ as it got to 25 which triggered a buy at market, also putting me net long a little." Wish I had bought MORE...but like everyone no doubt I often think that if the trade goes my way!

Near resistance in QQQQ is at the 29.9-30.0, then at 32 and finally at 34 which is a very pivotal level if the Q's get up there again.

Technical support is at 26.7, then at 25 and lastly in the low-24 area as suggested by the lower trendline.

I'd say the same as last week that "A close above 30, not reversed the next day would be bullish." Stay tuned on that!

[Image 6]


The Russell 2000 (RUT) remains within a bearish downtrend channel, but has had a good-sized rebound off its last low which better defined that line.

The key test regarding further bullish potential is what happens on a move into the 492-500 area assuming RUT gets there. A close above 500 not reversed the following day would suggest potential to re-test next resistance in the 550 area.

Support is at 420-427, then at 400 and at the prior low in the 370 area.

[Image 7]




1. Technical support/areas of likely buying interest are highlighted with green up arrows.

2. Resistance/areas of likely selling interest: red down arrows. [Gray up/down arrows: support/resistance levels that got pierced]


3. Index price areas where I have a bullish bias or interest in buying index calls, selling puts or other bullish strategies.

4. Price levels where I suggest buying index puts or adopting other bearish option strategies.

5. Bullish or Bearish trader sentiment and display the graph of a CBOE daily call to put volume ratio for equities only (CPRATIO) with the S&P 100 (OEX) chart. However, this indicator pertains to the market as a whole, not just OEX. I divide calls BY puts rather than the reverse (the put/call ratio). In my indicator a LOW reading is bearish and a HIGH reading bearish, consistent with other overbought/oversold indicators.

Trading suggestions are based on Index levels, not a specific option (month and strike price) and entry price for that option. My outlook often focuses on the intermediate-term trend (next few weeks) rather than the next several days of the short-term trend.

Having at least 3-4 weeks to expiration tends to be my guideline for trade entry choice. I attempt to pick only what I consider to be 'high-potential' trades; e.g., a defined risk point would equal in points only 1/3 or less of the index price target.

I favor At The Money (ATM), In The Money (ITM) or only slightly Out of The Money (OTM) strike prices so that premium levels are not as cheap as would otherwise be the case, which helps in not overtrading an account. Exit or stop points, as well as projected profitable index price targets, are based on my technical analysis of the underlying indexes.

New Option Plays

Buy The Dip

Play Editor's Note: The stock market just delivered its best five-day run in several decades. While this is encouraging we don't want to chase the move. Looking at the big picture we are still in a bear market. The last two weeks may have produced a significant bottom but we don't know yet if it is "the" bottom. I do think there is more upside but we want to see a correction first within this rally. After a +20% or more rebound I'd expect a 5% pull back or more before stocks begin moving higher again.

Don't forget that it is up to the individual trader to decide which month and which strike price best suits your trading style and risk.

New Option Plays
Call Options Plays
Put Options Plays
Strangle Options Plays
AMZN None None


Amazon.com - AMZN - close: 42.70 change: +1.26 stop: 38.70

Why We Like It:
News reports from Friday suggested that Black Friday turned out better than expected for retailers. Of course expectations were pretty low and it may have been a one-day pop for retailers as we still have almost four weeks left before Christmas. However, the upbeat reports should spell good news for "cyber Monday" where hordes of consumers spend their time at work surfing the web and ordering Christmas gifts. AMZN is always expected to be a big winner here and if investor confidence is improving then AMZN may look cheap here at 50% off its highs.

We still don't want to chase the bounce. Our plan is to buy a dip. We are suggesting readers buy calls on a pull back into the $40.50-40.00 zone with a stop loss at $38.70. We are listing two targets. Our first target is $44.50. Our second target is $48.50. FYI: The P&F chart recently produced a new buy signal with a $53 target.

Suggested Options:
We are suggesting the December calls. More conservative traders may want to buy January calls instead. Decembers expire in three weeks.

BUY CALL DEC 40.00 ZQN-LH open interest=3599 current ask $5.35
BUY CALL DEC 42.50 ZQN-LV open interest=4696 current ask $3.85
BUY CALL DEC 45.00 ZQN-LI open interest=6749 current ask $2.65

Annotated Chart:

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =      12.7 million  

Apollo Group - APOL - close: 76.84 change: -0.01 stop: 69.90

Why We Like It:
Education stocks have been out performing the market and APOL has helped lead the sector higher. The stock broke out from a multi-week consolidation in the $65-70 range and looks poised to make a run at resistance near the $80-81 zone. We want to buy a dip. Our plan is to buy calls on a pull back into the $73.00-72.00 range with a stop loss at $69.90. Our target is the $79.75 mark. FYI: The Point & Figure chart is bullish with a $99 target.

Suggested Options:
We are suggesting the December calls. More conservative traders may want to buy January calls instead. Decembers expire in three weeks.

BUY CALL DEC 70.00 OAQ-LN open interest=4475 current ask $9.10
BUY CALL DEC 75.00 OAQ-LO open interest=3737 current ask $5.50
BUY CALL DEC 80.00 OAQ-LP open interest=3348 current ask $2.85

Annotated Chart:

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           01/06/09 (unconfirmed)
Average Daily Volume =       4.0 million  

DIAMONDS - DIA - close: 88.30 change: +1.12 stop: 81.90

Why We Like It:
I don't want to sound like a broken record here but the market just delivered a huge move and we are due for a correction (a.k.a. profit taking). Stocks don't move in a straight line for very long. It's always a variation of two steps forward, one step back. We want to buy the dip. Our plan is to buy calls on a dip into the $84.00-83.00 zone with a tight stop loss at $81.90. If triggered we have two targets. Our first target is $89.00. Our second target is $93.00.

Suggested Options:
We are suggesting the December calls. More conservative traders may want to buy January calls instead. Decembers expire in three weeks. Strikes are available at $1.00 increments.

BUY CALL DEC 84.00 DAV-LF open interest=3469 current ask $7.00
BUY CALL DEC 88.00 DAV-LJ open interest=6603 current ask $4.45
BUY CALL DEC 90.00 DAV-LL open interest=15131 current ask $3.30

Annotated Chart:

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =      48.5 million  

Lockheed Martin - LMT - close: 77.11 change: +3.58 stop: 69.90

Why We Like It:
LMT just produced a bullish breakout over resistance at the $75.00 level. If you look at the intraday chart is almost looks like a bullish inverse head-and-shoulders pattern, which would forecast a move toward the $82-83 zone. Normally we would be tempted to buy calls right here. However, our big picture expectation is for the market to correct. LMT should follow suit. We want to buy calls on a dip into the $73.50-72.00 zone with a stop loss at $69.90. If triggered we have two targets. Our first target is $78.50. Our second target is $81.50.

Suggested Options:
We are suggesting the December calls. More conservative traders may want to buy January calls instead. Decembers expire in three weeks.

BUY CALL DEC 70.00 LMT-LN open interest= 394 current ask $8.70
BUY CALL DEC 75.00 LMT-LO open interest= 588 current ask $5.10
BUY CALL DEC 80.00 LMT-LP open interest=1071 current ask $2.40

Annotated Chart:

Picked on November xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =       3.6 million  

In Play Updates and Reviews

Taking Profits Again

Play Editor's Note: We are suggesting that readers take profits on most of our bullish plays. Meanwhile we're not suggesting new entries on our current strangle plays. The stock market looks overdue for a dip.

CALL Play Updates

Entergy Corp. - ETR - close: 85.10 change: +1.20 stop: 79.99

ETR is hanging in there. It was a little frustrating to see the stock consolidate while the rest of the market was in rally mode last week but ETR still looks bullish here. Shares digested the breakout from Nov. 21st and bounced from a test of technical support at its 10-dma and 50-dma. The stock should be poised to rally higher from here. More conservative traders may want to use a stop loss under Wednesday's low of $81.36.

The P&F chart is bullish with a $104 target. We're setting two targets. Our first target to take profits is $92.50. Our secondary target is $97.50. Keep a wary eye on possible resistance at the 100-dma and exponential 200-dma overhead.

Annotated Chart:

Picked on November 22 at $ 85.76
Change since picked:      - 0.66
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       2.3 million  

Intuitive Surgical - ISRG - close: 132.53 change: - 2.14 stop: 119.99

We don't see any changes from our previous comments. ISRG failed to build on Wednesday's gains but the profit taking on Friday was pretty minor. We would still consider taking some profits right here. We're not suggesting new positions at this time but would look for a dip to and bounce from the $125 region as a possible entry point. Our exit target is $139.50. More aggressive traders may want to aim higher but we would expect resistance near $150. Last week the Point & Figure chart produced a new buy signal with a $180 price target. More conservative traders may want to use a stop loss around $125 instead.

Annotated Chart:

Picked on November 25 at $120.25 /gap down entry point
Change since picked:      +12.28 /originally listed at $124.39
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       1.4 million  

PUT Play Updates

*Currently we do not have any put play updates*

Strangle & Spread Play Updates

SPDR GOLD Trust - GLD - close: 80.31 change: -0.07 stop: n/a

Gold just marked its biggest monthly gain (+14%) since September 1999. The U.S. dollar has bounced back in the last couple of days and yet gold prices are holding up when normally they would be moving down in reaction to the strong dollar. The GLD has been consolidating under resistance at its 100-dma and exponential 200-dma for the last four days in a row. The short-term trend is up but the GLD looks short-term overbought and due for a dip. We are not suggesting new strangle positions at this time. Readers should note that we only have three weeks left before December options expire.

What is a strangle?
A strangle involves buying both an out-of-the-money call and an out-of-the-money put. We don't care what direction the stock goes as long as it moves one direction. If the stock moves far enough one side of our trade will rise in value and pay for the entire trade and make a profit.

-December Strangle-

We suggested readers buy the December $75 call (GVD-LW) and the December $70 puts (GVD-XR). Our estimated cost was $6.30. We want to sell if either option hits $12.00.

Annotated Chart:

Picked on November 09 at $ 72.50
Change since picked:      + 7.81
Earnings Date           00/00/00
Average Daily Volume =      19.3 million  

Ultra S&P500 ProShares - SSO - close: 26.60 change: +0.59 stop: n/a

The S&P 500 just delivered one of its best weekly gain in decades. Can it continue? We think stocks are short-term overbought and due for a dip. Hopefully the up trend can continue for a few more weeks. We have three weeks left before December options expire. Remember, this play is neutral. We really don't care what direction the market goes but we do need it to move!

We're not suggesting new positions at this time.

Note: The SSO is an ultra-long ETF that typically moves twice the daily performance of the S&P 500 index.

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.

-December Strangle Details-
We suggested readers buy the December $30.00 call (SOJ-LD) and the December $20.00 put (SOJ-XT). Our estimated cost is $3.75. We want to sell if either option hits $6.00.

Annotated Chart:

Picked on November 12 at $ 24.84
Change since picked:      + 1.76
Earnings Date           00/00/00
Average Daily Volume =       126 million  


iShares Russell 2000 - IWM - close: 47.34 change: +0.47 stop: 42.49

Target achieved? Not really. Our target to exit was $48.00. Most quote services are going to list the intraday high for the IWM at $48.26. Unfortunately that appears to be a bad tick. The IWM didn't breakout past $47.00 until very late in the day and it didn't trade over $47.51. We're going to call it quits anyway. This smallcap ETF is up about 9.4% since we picked it, which is good enough in our book. We would watch the IWM for another entry point after it has had time to correct and digest this big bounce.


Picked on November 25 at $ 43.27 /gap down entry
Change since picked:      + 4.07 /originally listed at $44.22
Earnings Date           00/00/00
Average Daily Volume =       119 million  

Priceline.com - PCLN - close: 69.00 change: +1.34 stop: 60.95

It's time to take profits in PCLN. After some discussion we are suggesting readers exit our PCLN play early. The stock is up almost 13% since we picked it. Furthermore Friday marked the second day in a row that PCLN came within three cents of our target at $69.90 and just couldn't make it. The breakout pattern over the last couple of weeks is still bullish but we would rather exit now and look for a new entry point after PCLN has had time to correct. The stock could easily dip back to the $62-60 zone before bouncing again. I do think it will break $70 again but not before pulling back first.


Picked on November 25 at $ 61.10 /gap down entry point
Change since picked:      + 7.90 /originally listed at $62.82
Earnings Date           02/12/09 (unconfirmed)
Average Daily Volume =       1.9 million  

Sears Holding - SHLD - close: 36.25 change: -0.90 stop: 31.58

SHLD almost hit our aggressive, secondary target at $39.50 on Friday. News reports that store traffic was strong on "Black Friday" and that sales may not be quite as bad as expected gave the retailers an early lift. Shares of SHLD hit an intraday high of $39.23 before paring its gains. The stock has already surpassed our early target at $34.90. We are suggesting readers exit completely. Retailers could see some sell-the-news type of move this week. We might be tempted to buy SHLD again if it can bounce somewhere in the $30-33 zone.


Picked on November 22 at $ 31.58 /gap open higher/1st target hit
Change since picked:      + 4.67 /originally listed @ 30.44
Earnings Date           12/02/08 (confirmed)
Average Daily Volume =       2.2 million  


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