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Daily Newsletter, Saturday, 12/27/2008

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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 Redux

The malls were busier on Friday than at any time in the 2008 holiday season. After monster declines in pre-holiday sales retailers were offering blowout door buster sales to liquidate merchandise as consumers redeemed their gift cards.

Market Statistics
[Image 1]

Friday was the lowest volume day of the year and market reporters were struggling to find something to report. Retailers and the after Christmas sales were the headline on every broadcast. Amazon was the bright spot with an announcement that the 2008 holiday season was their best ever. Amazon said it saw a 17% increase in orders for its busiest day. Amazon said customers ordered more than 6.3 million items on Dec-15th compared to its peak day in 2007 of 5.4 million items. Amazon said its peak shipping day saw 5.6 million packages hit the road compared to only 3.9 million on the biggest day in 2007. Amazon's best sellers included the Nintendo Wii game console, Samsung's 52-inch LCD HDTV and Apple's iPod Touch. Analysts claim Amazon may have gotten a boost from the bad weather during the last two weeks before Christmas. Shoppers may have decided to stay home and shop on the Internet instead of fighting the snow and ice storms to go to the mall. Amazon said the weight of GPS devices shipped weighed more than 151 Mini Cooper autos. The average Mini Cooper weighs around 2600 pounds so that means Amazon shipped nearly 400,000 pounds of GPS devices. I have stated before that I can't comprehend the scale required to ship 5.6 million packages in one day. Amazon has really perfected the art of mass merchandising. However, their press release did not mention anything about profit margins. The opening bounce in AMZN was quickly sold on fears their margins shrank significantly in order to compete with brick and mortar store specials and prices at other online retailers.

Unfortunately it was not so good for the rest of the retail sector. The MasterCard Spending Pulse survey for December showed that sales were down overall by -5.5%. This was the first time holiday sales have fallen in 40 years. Inside the sector, sales of luxury items were down -34.5%, electronics -26.7% and clothing -19.7% to highlight a few. Ecommerce sales were only off -2.3% overall and again showed shoppers were moving their buying habits from the mall to the PC. Retailers expect $47 billion in merchandise to be returned with the largest percentage of that in clothing. Retailers were trying to capture buyers headed to the malls to return clothing and redeem gift cards with sales of 50-70% off. Online retailers were blasting out millions of emails with the same door buster ads. Anything they don't want to carry into 2009 was being dumped below cost in most cases.

Oil prices rallied +2.28 to $37.65 on news from the UAE that they were going to cut production more than expected. The UAE is the 5th largest oil exporter and they notified buyers they would cut supplies of crude for February delivery by 10% to 15% depending on the grade. The Abu Dhabi National Oil Co (ADNOC) was expected to cut but not this drastically. The projected deliveries for February had already been lowered but ADNOC revised their projections leaving buyers scrambling for additional supplies. OPEC said they were going to cut by 2.2 mbpd on January 1st but so far Saudi Arabia had been the only country to actually advise buyers of the actual reductions by grade and delivery point. With the UAE joining forces with Saudi it is possible the market is starting to put more credence in the announced cut. We know for sure that everyone will NOT cut as agreed but getting 65% or even 75% of the announced cut would eventually be bullish for prices. OPEC president Chakib Khelil said the group might call another emergency meeting before March if prices extend their slide. Coming only 10 days after the Dec-17th meeting the announcement was purely political in an attempt to bolster prices.

The global recession is taking a toll on oil consumption. Japan, the 3rd largest oil consumer saw consumption fall -5.7% in the current year and is expected to fall another -5% in 2009. China Offshore (CNOOC) said it was likely to scale down or delay some projects since the current economics of oil made those projects unfeasible. U.S. crude inventories fell -3.1 million barrels last week but at current demand levels there are still 59 days of supply in the global market and OPEC likes to keep supplies closer to 50-52 days. That is an extra 600 million barrels of oil clogging up the market and it could take many months to erase that surplus.

There were no economic reports on Friday. Next week does have a couple reports that could move the markets. I doubt more bad news will have a material impact but any better than expected news could help to create some buying interest. On Tuesday we will get the Chicago Purchasing Managers Index or PMI for December. The index is not expected to decline much further below its reading of 33.8 in November and any rebound however slight would be bullish. Unfortunately I think the odds are slim. On Friday the Institute of Supply Management (ISM) report for December is expected to fall to 35.5 and another multi decade low. This is the national manufacturing index and the regional reports have been ugly. We could easily see another substantial decline in the ISM. Coming on the first trading day of 2009 it could set the stage for trading in early January. In November new orders declined to 20.4 and the lowest level since 1980. New orders have only fallen below 30 four times in the last 53 years. Next Friday's report could set some new 30 year lows in several components.

Economic Calendar
[Image 2]

GM rebounded +11% after its GMAC unit got permission to convert to a bank holding company and will be eligible for Treasury loans. GM has a 49% stake in GMAC. Giving GMAC a TARP lifeline will help the struggling financial company make more auto loans and boost the dealer financing program. This is a positive event for GM and would be the second lifeline in a week available to the automaker. Cerberus Capital, which owns Chrysler, owns 51% of GMAC. Under the deal to recognize GMAC as a bank holding company both automakers will have to cut back ownership to 10% for GM and 14.9% for Cerberus. This is inline with Federal rules to prevent companies from using ownership in a bank holding company to finance their failing businesses. GM will transfer its excess stake to a trustee approved by the Treasury and that trustee will sell that stake over the next three years in order to protect the value of the investment. Cerberus will distribute its excess stake directly to Cerberus investors. This has got to be killing Cerberus because for a long time they wanted to own all of GMAC. They had hoped to swap Chrysler to GM for GM's 49% stake in GMAC. Now they are seeing their own position broken up as well as GM's. Just being approved to be a bank holding company does not solve the loan problem. The Fed also is requiring GMAC to convert $30 billion in existing debt to stock and raise an additional $2 billion in capital on its own. So far GMAC has only raised $750 million in total from its parents GM and Cerberus. The equity swap/raise had to be completed by 11:59 PM on Friday.

Wal-Mart announced it was going to start selling the Apple iPhone this weekend at basically full price. The 8GB 3G phone will sell for $197 and the 16GB version for $297. Each comes with a 2-year service agreement with AT&T. Wal-Mart said its price match program would allow local stores to match the prices of any local competitor. There had been rumors that Wal-Mart would be selling a stripped down version for $97 as a new price point but that did not come true. Wal-Mart is known for low priced products but it still sells high dollar products as well. It appears they believe the iPhone has enough consumer appeal to keep the original price point at least for the foreseeable future.

The S&P is on track for the worst annual percentage drop since 1931 and the second worst year ever. To say 2008 was a bad year would be an understatement. If you chart all the bear markets over the last 50 years you get the list below. The average decline is 33% over a period of 13 months. The current bear market ranks as the worst in the last 50 years with the two closest comparisons having declines in the 48-49% range. That could suggest we are at a level where a rebound could begin. With the average months of duration at 13 months we are right there again. There is nothing in history to assure us the end is in sight but we are running out of negative news. How much more negative can we get than losing half our investment banks and ten of the largest financial companies in the US? Fund failures, scams and hundreds of billions in hedge fund withdrawals have crippled the confidence in the fund system but there is still plenty of cash on the sidelines waiting for the all clear signal.

Bear Markets
[Image 3]

Stock mutual funds saw $15.5 billion in outflows in the week ended on Wednesday according to TrimTabs Investment Research. This is the time of year when cash is supposed to flow into mutual funds not out of them. I fear there will be an even larger withdrawal once we exit the 2008 tax year.

As we head into the last three trading days of 2008 the Dow struggled to move off support at 8400. The volume was by far the lowest of the year at only 2.3 billion shares across all markets. This was only one third of Wednesday's anemic volume and one fifth of a normal trading day. The market could have closed at 10:AM and nobody would have noticed. The Dow gained +47 points and far less than what you would normally see in a year-end rally period. The Dow chart is negative and I fully expect 8400 to break next week. I continue to expect a retest of 8000 or possibly a retest of 7500.

Dow Chart
[Image 4]

The Nasdaq chart is not any better with a struggle to hold over support at 1500. The Nasdaq is typically the beneficiary of year-end money as retail traders place their bets for the coming year. Unfortunately the boom in the Nasdaq ended the prior week with the retest of resistance at 1600. There has been no interest in techs since the 17th and bad news continues to flow from the chip sector. Hardly a day goes by without some news of lower earnings and lower sales in 2009. Morgan Stanley's semiconductor analyst sees earnings for chip companies in 2009 to be down -78% and chip stocks to be down -15% to -30% from today's levels. An analyst with Canaccord Adams is predicting 2009 PC sales will fall another -10% to -15% and far more than the consensus estimate of -6%. I know smart investors are supposed to buy when nobody else will but I think there is more pain to come. Remember, Q4 is supposed to be the best quarter for tech earnings and Q1 is normally the worst. The retail numbers for December for consumer electronics were down -26.7%. If they were down this much in a bullish month how bad are sales going to be in Q1 when consumers are faced with paying the holiday bills and fighting to keep their jobs. Falling home prices have crippled the consumer and they can no longer use their homes for ATMs. This is going to continue to weigh on the consumer electronics and PC sectors. Real support is still 1400 and we could see that over the next two weeks.

Nasdaq Chart
[Image 5]

The SPX revisited support at 860 again last week and the bounce was minimal. I believe that support will break over the next two weeks. So many of the S&P stocks are now under $10 and quite a few under $5 there are many funds that cannot invest in those stocks because of share price limits. Those that can invest in low priced stocks almost always have position limits for number of shares. Even it they wanted to buy more they can't. That means any year-end retirement contributions will probably find their way into blue chip stocks if they are not met by withdrawals the first week in January. S&P 860 is support followed by 815 then 750.

SPX Chart
[Image 6]

The Russell 2000 remains the lone chart with any kind of bullish bias. The uptrend still has not broken but the Russell still lost -2% for the week. The chart looks heavy to me and ready to break to the downside like the Dow and Nasdaq. Fund managers will probably try to window dress the Russell into year-end but I suspect January will see support at 450 or lower retested.

Russell 2000 Chart
[Image 7]

Even though I am expecting a support retest over the next two weeks I am not expecting the November lows to be broken. I believe the bottom is in but it could be sometime before a new bull market appears. I cannot imagine what news could break that would push the markets to new lows. This has been the worst bear market in 50 years and the worst year for the S&P since 1931. Valuations are a fraction of what they were since 9/11 and there are many good companies to buy. Unfortunately until we get some visibility on a rebound in future earnings those valuations could go even lower. Earnings for Q4 are going to be horrific and Q1 may be even worse. A year ago ABN Amro was purchased by RBS for $100 billion with help from STD, BAC and Fortis. Very few people have even heard of ABN Amro. A year later in November 2008 for the same $100 billion you could buy Barclays, Deutsche Bank, Merrill Lynch, Goldman Sachs, Morgan Stanley and Citigroup. Not individually, you could buy the entire group for $100 billion. Even though those valuations have risen slightly many analysts would tell you that is still not a good deal. Citigroup at $6 is still being shorted by many analysts on fears they have billions more in write-downs to confess.

The challenge for 2009 is still the credit crisis. Until banks begin making loans the entire system is going to remain stagnant along with the equity markets. Obama is expected to ride into office on a white horse and rescue the economy from its current state of gridlock. His infrastructure stimulus may do that but not in January or February and maybe not even in 2009. Infrastructure is a long-term stimulus program not an immediate fix. The Obama inauguration event is another hindrance to the markets. The press keeps reporting that 2-4 million people could show up in Washington for the event. This is a terrorist target of incredible proportions. Security is going to be extremely tight but protecting more than 2 million people on foot from terrorists who don't care if they die is a tall order. The worry about a potential terrorist event could weigh on the markets until Jan 21st.

I believe 95% of investors are waiting with money burning a hole in their account for an all clear signal from the Fed, Treasury, financial sector and the market. Once it appears a credible rebound has begun we could see a rapid recovery. Unfortunately that could be spring before we see the blooms from the seeds planted by the Treasury and the Fed. The economy has a long way to go before it is healthy again. Over the last two years we have seen 148,000 retail stores close or announce their plans to close. They employed 650,000 workers. This is a direct result of the crash in the housing sector. Consumers accustomed to writing a check on their rapidly rising home equity were suddenly cut off as their equity accounts went negative. This is not something that can be corrected over the next couple of months. This will take a long time to rebuild that equity and remove the payment burden from the consumer. This is prompting most analysts to predict a flat and choppy equity market for 2009. Most feel the markets will close higher but the gains will be limited. Let's hope they are wrong.

Somewhere in the future is a magic domino. Once that domino falls in the right direction it will trigger a chain reaction of improvements in the economy and that will trigger a new bull market. Today we don't know what that domino represents but rest assured it is out there. We may not recognize it when it falls but we will be able to look back months later and instantly see what it was. I believe the current market is a buying opportunity we have not seen in decades. Unfortunately there is no green light that will suddenly appear on the floor of the NYSE. There is no bell that will ring and tell us the new bull market has started. There is no starter pistol firing in full view of television news reporters. We have to be proactive in seeking out value and potential in the current market.

Today investors are like gardeners. We need to be planting investment seeds in hopes of future fruit. Like a gardener those seeds could take weeks or even months before they sprout. The ground above them may seem bleak and barren as the winter snow and ice keeps the seeds dormant. Eventually the sun will shine on the market and our seeds will grow. I have absolutely NO DOUBT that a couple years from now we will look back and be very thankful we planted those investment seeds. They will probably grow with astonishing speed once sprouted because the trillions in worldwide government stimulus will eventually produce massive inflation. It always happens that way. Given the magnitude of the stimulus it would be nearly impossible for inflation not to occur. That makes investments today in hard commodities like steel, copper, oil, etc, that are denominated in dollars, especially suitable for large gains in years to come. China and India have seen their massive economic growth slow significantly but they are still growing. Once the recession is over they will explode once again. Emerging markets today may be out of favor but their sheer masses of people guarantees they will rebound in the future. ETFs on the various emerging markets will prosper.

This has been a tough year to be in the newsletter business. Every week brought new and unbelievable occurrences. It is extremely hard to even imagine the news events of the last twelve months much less realize they actually happened. For long only traders it has been horrendous. 401Ks are now 201Ks or so the punch line goes. It may be funny for market reporters to repeat that each week but it is not funny for the men and women who actually suffered through it and saw their life savings depleted. I will tell you today that the future is bright. It may not be bright for early 2009 but it will be bright for 2010 and later. Do not despair and take your money out of your stock investments. Continue to make those routine contributions and you will be rewarded. This is the greatest buying opportunity in decades and you get to participate and profit from it.

ONLY THREE DAYS LEFT - If you have not taken advantage of our year-end renewal special yet I suggest you do so quickly. We were not able to get as many DVDs as we wanted and are cutting off the special a lot sooner than in prior years. When we run out of DVDs the renewal page will be taken down. This is the cheapest rate for the entire year and includes $250 in free gifts.

You get not ONE but FOUR DVDs worth over $200!

[Image 8]

Everybody gets TWO mouse pad calendars. These are very worthwhile even if you don't trade options. For an entire year you never have to look for a calendar because it is always under your mouse. Market holidays, FOMC meetings, Crude expirations and of course option expiration dates.

[Image 9]

Everyone gets this entire package with their subscription!

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Thank you in advance for your continued support of Option Investor.

Jim Brown


Index Wrap

KEY TEST AHEAD

THE BOTTOM LINE :

I wrote last week on some different ways of measuring what I think is a very tough resistance overhang to this market and the different ways that this can be measured technically. Add to what I talked about last time is now a recent resurgence of bullish sentiment, which in my experience is too much to suggest that we're going to see the major indexes punch through resistance.

I'll review in the individual stock index commentaries specifics on the various technical means of measuring technical resistance I wrote about last weekend as implied by:

1. The upper end of downtrend price channels as seen on my charts.

2. The 55-day moving averages. I look at the 55-day, a fibonacci number, but this average is very close to the more 'typical' 50-day average.

3. 13-day Relative Strength Index (RSI) levels that are nearing areas that have preceded tradable tops in the last few months.

4. Non-confirmation of volume as there's yet to be a strong volume surge to match the relative price buoyancy of the past 3 weeks.

In addition to these foregoing technical considerations, bullish sentiment as measured by my indicator, rose substantially in the past week, which isn't generally a prelude to another up leg.

I would also caution against a dogmatic viewpoint however as a breakout above the downtrend channels and above the 50/55-day moving averages that is sustained is also not something to 'fight' by stubbornly staying in or initiating new long put positions or other bearish strategies. Because a trend development is surprising doesn't make the market 'wrong' so to speak, just that there may be some turn of events ahead that isn't apparent now; e.g., an economic bottoming and upturn sooner than current estimates.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

Key near resistance in the S&P 500 (SPX) is at the down trendline, intersecting currently around 889 and at the prior line of (up) swing highs around 918. 'Resistance' is also suggested by the 21-day moving average just over recent highs and by the level of the 55-day average which lies in the same area as the down trendline.

A decisive upside penetration of the 889 to 918 price zone that is sustained beyond a day or two would be bullish and suggests a further move higher. Fairly major resistance is anticipated in the 1000 area.

A zone of nearby technical support highlighted on the daily SPX chart below is between 850 and 815. A close below 815 would suggest potential for a retest of the prior low around 740 or perhaps even for a new down leg to as low as 600. However, on the long-term weekly charts, there appears to be substantial support at 800 on a weekly closing basis.

Rather than a big new down leg it seems more likely that on a substantial decline, support will be found in the 740 area, with rebound potential after.

[Image 1]

I'm continuing to keep an eye on the 13-day RSI seen above. The RSI has gotten close to the area where prior rallies in recent months have subsequently faltered or reversed.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) Index is getting close to resistance implied by the down trendline intersecting around 430/431 currently which is also resistance implied by the 55-day average. Before this level is reached, OEX would have to punch through the 21-day moving average, currently at 423. Above the 430 area resistance, implied by the prior upswing high, is at 445. A close above 445, not reversed in the following trading session, would be bullish and suggest potential back up to the 483 to 495 area.

A zone of support is noted on the OEX daily chart below at 396-410. A close below 396 would be bearish and if not reversed (back to the upside) the following day would suggest a fall to the prior low around 360, or perhaps to as low as the lower end of the downtrend channel. However, a decline back to the 360 area should again see substantial buying interest coming in.

[Image 2]

MARKET SENTIMENT:

Bullish sentiment, as seen on my 'CPRATIO' indicator above, shot up recently to levels at the red dashed line at 1.7 that suggest another decline is coming on a contrary opinion basis. The timing suggested for such a downturn to begin is probably not longer than by mid-week, although it could occur in the week after, when volume picks up.

DOW 30 (INDU) AVERAGE; DAILY CHART:

I won't repeat the same things on the bearish significance of the downtrend channel in the Dow 30 Average (INDU), just that it's the same as in the S&P indexes. Key resistance in INDU is between 8606 (21-day average) and 8683 (55-day) to 8700 at the down trendline. A close above 8700 that was more than a 1-day affair would suggest a bullish breakout. Next resistance in that case is at 9000, the area of prior highs as noted at the red down arrow. Above 9000 there's clear sailing as far as prior highs, until the 9650 area.

Near support is at 8350 down to 8145. If 8145 is pierced on a closing basis, there's no potential technical support based on prior intraday lows until INDU gets down to the 7500-7450 area.

[Image 3]

I'd again make the point that the recent rally high put the INDU 13-day RSI seen above into an 'overbought' area in terms of what's been 'typical' for the period shown on the lower indicator portion of the daily INDU chart above.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

Key nearby technical resistance in the Nasdaq Composite Index (COMP) is the same as last week; i.e., at 1600. A close above 1600 would be bullish, especially if buying interest/support developed on subsequent pullbacks to this area. Next resistance as far as chart points is seen at the prior 1786 high.

Near-term support is in the 1500 area, then down at 1400 and is unchanged from last week. I'd repeat my assessment that a close below 1400 would imply renewed downside momentum with next potential support at the prior lows around 1300.

[Image 4]

NASDAQ 100 (NDX) DAILY CHART:

Friday's close at 1185 saw the index just a hair's breath from resistance at the 21-day moving average, standing at 1187 currently. The Nasdaq 100 (NDX) would break out above its downtrend channel with a move above 1220, resistance implied both by the down trendline and the 55-day average. Like the S&P and Dow, NDX is nearing key or pivotal technical resistance.

I see it as unlikely that NDX will achieve a sustained advance above 1200-1220, but if it does there's another key test not far above, at prior highs in the 1250 area. Above 1250, next chart resistance is suggested by the prior 1383 high.

Nearby technical support is in the 1157 area, then at 1091. A close below 1090 that lasted more than 1-2 days, suggests renewed downside momentum and a potential re-test of prior lows in the area of the 11/21 intraday low at 1018.8

[Image 5]

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

Key resistance in the Nasdaq 100 tracking stock (QQQQ) is at 30/30.5. A close above 30.0 to 30.5, especially for more than a a day, would suggest renewed upside momentum and a next potential upside in the stock to the 34 area.

Near support is at 28.5, then down in the 26.8 area and lastly at the prior low for the current decline at 25 even.

Volume continues to contract which is not surprising for the recent holiday period. However, in the New Year, a bullish upside price breakout above 30-30.5 not ALSO accompanied by a volume surge would be suspect as to such a rally's staying power.

[Image 6]

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) seems to be on the verge of piercing resistance at 481, at its 55-day average. If it can do so and sustain such a move, upside potential is suggested to as high as the 550 area, at its prior high and the upper end of its broad downtrend channel.

It seems unlikely that RUT will lead a rally and achieve a new up leg, with a 'breakout' type move in RUT likely only if the major indexes also see further rallies ahead. So far, the key (55-day) moving average has been a 'stopper' to rally attempts. Stay tuned on what develops in the New Year!

Key near support is at 440, then 416 and lastly at the prior low for the Sept-Nov decline, at 371.

[Image 7]

I tend to measure overbought/oversold levels with RUT on a longer 21-day basis, rather than 13 as seen above. The 21-day RSI is at a more or less neutral reading, suggesting neither an overbought or oversold condition.



GOOD TRADING SUCCESS & HAPPY NEW YEAR!!



NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS

CHART MARKINGS:

1. Technical support or areas of likely buying interest and highlighted with green up arrows.

2. Resistance or areas of likely selling interest and notated by the use of red down arrows.

I WRITE ABOUT:

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 (i.e., 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

Defense, Finance, Internet & More!


NEW DIRECTIONAL CALL PLAYS

Energizer Holdings - ENR - close: 49.60 change: +1.16 stop: 46.99

Why We Like It:
ENR has produced an impressive rebound off its November lows. The last several days has seen shares consolidate sideways under resistance at $50.00. This consolidation is narrowing and suggesting the next move will be a bullish breakout higher. The Point & Figure chart is already bullish with a $68.00 target.

We are suggesting readers buy calls at $50.05. If triggered we'll use a stop loss at $46.99, which is under price support at $47.00 and under the 10-dma. We have two targets. Our first target is $54.50. Our second target is $59.00.

Suggested Options:
We are suggesting the January or February calls. However, keep in mind that we do not want to hold over the late January earnings report.

BUY CALL JAN 45.00 ENR-AI open interest= 137 current ask $5.90
BUY CALL JAN 50.00 ENR-AU open interest= 368 current ask $2.70
currently $50s are the highest strike for January.

BUY CALL FEB 50.00 ENR-BU open interest=4743 current ask $4.70
BUY CALL FEB 55.00 ENR-BK open interest= 641 current ask $2.60

Annotated Chart:
ENR

Picked on December xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       798 thousand 


Lockheed Martin - LMT - close: 81.11 change: +1.89 stop: 77.45

Why We Like It:
LMT is showing relative strength again with a 2.3% gain on Friday. The stock has broken out past its 50-dma and the $80.00 mark. I am wary of the move on Friday due to holiday volume but the short-term trend is up and the defense sector has been out performing the broader market.

We are suggesting readers buy calls on a dip into the $80.00-79.00 zone with a stop loss at $77.45. If triggered our target is $84.90. More aggressive traders may want to aim higher. FYI: The P&F chart is bullish with a $90 target.

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

BUY CALL JAN 75.00 LMT-AO open interest= 522 current ask $7.40
BUY CALL JAN 80.00 LMT-AP open interest=1121 current ask $3.80
BUY CALL JAN 85.00 LMT-AQ open interest=1334 current ask $1.45

BUY CALL FEB 80.00 LMT-BP open interest=  21 current ask $6.10
BUY CALL FEB 85.00 LMT-BQ open interest=  10 current ask $3.60

Annotated Chart:
LMT

Picked on December xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =       2.8 million  


NEW DIRECTIONAL PUT PLAYS

Franklin Resources - BEN - close: 59.64 change: -1.06 stop: 63.11

Why We Like It:
BEN, a.k.a. Franklin Templeton Investments, is in the asset management business and with investors spooked things could be challenge in 2009. The stock has produced a bearish double top near $66.00 and last week saw shares break their bullish trend of higher lows. Plus, BEn has broken down under round-number support at $60.00.

We are suggesting readers buy puts now. More conservative traders may want to wait for a little more confirmation with a low under $57.40. We have two targets. Our first target is $55.25. Our second target is the $50.50 mark since the $50.00 level could offer support.

Suggested Options:
We are suggesting the January or February puts but traders should plan to exit before the January earnings report.

BUY PUT JAN 65.00 BEN-MM open interest= 124 current ask $7.20
BUY PUT JAN 60.00 BEN-ML open interest= 641 current ask $4.10
BUY PUT JAN 55.00 BEN-MK open interest= 834 current ask $2.10

BUY PUT FEB 55.00 BEN-NK open interest=  3  current ask $4.60
BUY PUT FEB 50.00 BEN-NJ open interest= 10  current ask $2.95

Annotated Chart:
BEN

Picked on December 27 at $ 59.64
Change since picked:      + 0.00
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =       1.4 million  


Equinix Inc. - EQIX - close: 52.30 change: +0.68 stop: 52.75

Why We Like It:
The rebound in EQIX, while impressive, is fading. The stock looks like it is forming another lower high inside its long-term bearish trend. Short-term technical indicators are rolling over. We don't want to open positions just yet. EQIX still has some support near $50.00.

Our suggested entry point to buy puts is $49.75. If triggered we have two targets. Our first target is $45.05. Our second target is $40.50. More aggressive traders may want to aim lower.

Suggested Options:
We are suggesting the January or February puts but traders should plan to exit before the February earnings report.

BUY PUT JAN 55.00 FQS-MK open interest= 451 current ask $4.90
BUY PUT JAN 50.00 FQS-MJ open interest= 665 current ask $2.20
BUY PUT JAN 45.00 FQS-MI open interest= 369 current ask $0.90 

BUY PUT FEB 50.00 FQS-NJ open interest= 10  current ask $4.90
BUY PUT FEB 45.00 FQS-NI open interest= 27  current ask $3.10

Annotated Chart:
EQIX

Picked on December xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           02/11/09 (unconfirmed)
Average Daily Volume =       990 thousand 


Google Inc. - GOOG - close: 300.36 change: -2.59 stop: 311.00

Why We Like It:
Let me start by saying any time we play GOOG it is considered an aggressive, higher-risk trade. The stock can see very big intraday swings and the options are always expensive. This play is even a little bit more risky because we can't really draw any conclusions from the last couple of days due to the holiday lack of volume. Yet the general trend is pretty evident. The stock is headed lower.

We are suggesting bearish positions now. More conservative traders could wait for a drop under $290.00 to initiate positions. We're going to play with what is a very tight stop for GOOG at $311. If you really want to tighten your risk then try a stop around $307. Our first target is $281.00. Our second target is $265. More aggressive traders could aim for $250. The Point & Figure chart points to $252.

Suggested Options:
We are suggesting the January or February puts but traders should plan to exit before the January earnings report. Please note that there are two different root symbols.

BUY PUT JAN 300 GGD-MT open interest=4543 current ask $14.40
BUY PUT JAN 290 GGD-MR open interest=2479 current ask $10.60
BUY PUT JAN 280 GGD-MP open interest=3942 current ask $ 7.60
BUY PUT JAN 270 GOU-MN open interest=4526 current ask $ 5.30

BUY PUT FEB 280 GGD-NP open interest= 418 current ask $17.90
BUY PUT FEB 260 GOU-NL open interest= 194 current ask $11.80

Annotated Chart:
GOOG

Picked on December 27 at $300.36
Change since picked:      + 0.00
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       5.4 million  



In Play Updates and Reviews

Stocks Sleep Through Christmas


CALL Play Updates

Alcon Inc - ACL - close: 85.83 change: +0.46 stop: 83.75

ACL spent the post-Christmas Friday consolidating sideways. Shares reversed Wednesday's minor decline but overall nothing changed. I would wait for ACL to breakout past the very short-term trend of lower highs before considering new bullish positions. That would mean waiting for a rise over $87.00. Unfortunately, the stock is now facing technical resistance at its 50-dma, which has fallen toward the $89.80 region. If ACL can push past the $89-90 zone it would be a bullish breakout past the neckline of an inverse head-and-shoulders pattern with a potential bullish target of $110 or more. This coincides with the Point & Figure chart's bullish target of $110. Our upside target is $99.00.

Suggested Options:
If ACL provides another entry point we would use the January or February calls but we would not hold over the February earnings report.

Annotated Chart:
ACL

Picked on December 22 at $ 85.25 *triggered     
Change since picked:      + 0.58
Earnings Date           02/04/09 (unconfirmed)
Average Daily Volume =       840 thousand 


Caterpillar - CAT - close: 42.72 change: +0.81 stop: 39.95

CAT continues to show some relative strength. The stock added another 1.9% on Friday. I remain cautious because the technical picture is mixed with both bearish and bullish indicators. Yet it's worth noting that CAT has not broken the bullish trend of higher lows. More conservative traders could raise their stops toward last week's low around $40.60. We're going to keep our stop under clearly defined support at $40.00 for now. Another reason I'm cautious is that traders should not put too much confidence behind such low-volume moves like Friday's bounce. Our target is $49.50. The Point & Figure chart is bullish with a $58 target.

Suggested Options:
We are not suggesting new bullish positions at this time.

Annotated Chart:
CAT

Picked on December 16 at $ 43.80
Change since picked:      - 1.08
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =      13.4 million  


Research In Motion - RIMM - close: 40.85 change: -0.17 stop: 39.45 *new*

RIMM has spent the last four days consolidating its post-earnings breakout higher. The drift back toward $40.00 was not unexpected. More aggressive traders may want to jump in here. I still think RIMM might see another push toward the $40.00 mark. Friday's low was only $40.45. We are going to try and limit our risk by raising the stop loss to $39.45. I would buy a dip close to $40.00 or better yet a bounce from $40.00. Another strategy would be to wait for RIMM to break this four-day trend of lower highs, which would probably mean waiting for a rise over $41.50 as your next entry point.

We have two targets. Our first target is $44.95. Our second target is $48.00. FYI: The P&F chart is bullish with a $56 target.

Suggested Options:
If RIMM provides another entry point we would buy the January or February calls. Probably the $40 or $45 strikes.

Annotated Chart:
RIMM

Picked on December 22 at $ 41.50
Change since picked:      - 0.65
Earnings Date           12/18/08 (confirmed)
Average Daily Volume =        25 million  


Sunoco Inc - SUN - close: 42.53 change: +0.42 stop: 39.85 *new*

Crude oil broke its multi-day losing streak but it didn't have much affect on SUN. Shares of oil refiner SUN continue to churn sideways above previous resistance at $40.00 and its 200-dma. Friday's could be considered a new bullish entry point to buy calls. We are going to raise our stop loss to $39.85, which is about 20 cents under the 10-dma and still under round-number support at $40.00. More patient traders may want to wait and see if SUN retests the $40 level again before initiating new positions.

The P&F chart is very bullish with a $54 target. Our target is $47.00.

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

Annotated Chart:
SUN

Picked on December 20 at $ 42.30
Change since picked:      - 0.23
Earnings Date           02/04/09 (unconfirmed)
Average Daily Volume =       4.2 million  


PUT Play Updates

AvalonBay - AVB - close: 57.04 change: -0.56 stop: 63.01 *new*

AVB continued to drift lower on Friday. The stock has broken its bullish trend of higher lows and almost all of its technical indicators have turned bearish. We would still consider new positions here or wait for a bounce back to what should be resistance near $60.00 as another entry point. We are adjusting the stop loss to $63.01. More conservative traders might want to try a tighter stop.

We have two targets. Our first target is $55.10. Our second target is $50.55. FYI: The Point & Figure chart currently points to $50.00.

Suggested Options:
We would use the January or February puts.

Annotated Chart:
AVB

Picked on December 24 at $ 57.98 *gap down entry
Change since picked:      - 0.94
Earnings Date           02/04/09 (unconfirmed)
Average Daily Volume =       3.5 million  


Avon Products - AVP - close: 22.68 change: +0.05 stop: 24.05

It's been two days since we added AVP as a put play and shares haven't moved much. We don't see any changes in our strategy. This is still an entry point to buy puts. More conservative traders may want to wait for a drop under $22.00 before initiating positions. The simple 50-dma overhead at $23.50 offers technical resistance and more conservative traders may want to tighten their stops closer to $23.50.

We have two targets. Our first target is $20.25. Our second target is $18.60. FYI: The Point & Figure chart is bearish with an $11 target.

Suggested Options:
We would use the January or February puts.

Annotated Chart:
AVP

Picked on December 23 at $ 22.46
Change since picked:      + 0.22
Earnings Date           02/05/09 (unconfirmed)
Average Daily Volume =       4.6 million  


Capital One Financial - COF - close: 29.48 chg: +0.08 stop: 31.51

COF is drifting sideways and the closer it inches toward $30.00 the better our entry point to buy puts. Consumers are in trouble. The economy is slowing down. Real estate isn't improving. Delinquent accounts at COF are going to go up. The mid December bounce is an opportunity to buy puts. I expect the stock to challenge is lows and probably break them.

Our first target is $25.50. Our second target will be a new relative low at $21.00. FYI: The P&F chart is bearish with a $17 target.

Suggested Options:
We would use the January or February puts.

Annotated Chart:
COF

Picked on December 23 at $ 29.38 /gap higher entry
Change since picked:      + 0.10
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =       8.5 million  


Strangle & Spread Play Updates

*Currently we do not have any Strangle or Spread play updates*

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