Option Investor

Daily Newsletter, Wednesday, 12/31/2008

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Table of Contents

  1. New Option Plays
  2. In Play Updates and Reviews

New Option Plays

New Year's Eve: No New Plays

Play Editor's Note: No New Plays Tonight. Enjoy Your New Year's Eve.

In Play Updates and Reviews

Stocks Close the Year on a High Note

CALL Play Updates

Alcon Inc - ACL - close: 89.19 change: +2.74 stop: 84.45

After sleeping for more than a week shares of ACL finally "woke up" today. The stock rallied 3.1% and broke out past its 50-dma and came very close to breaking out past the $90.00 mark. I think traders need to take some profits off the table right here! We were triggered at $85.25 almost ten days ago. It's time to do a little profit taking.

Readers looking for another entry point can wait for a dip near $86.00 or a new relative high over $90.00. 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.

Picked on December 22 at $ 85.25 *triggered     
Change since picked:      + 3.94
Earnings Date           02/04/09 (unconfirmed)
Average Daily Volume =       840 thousand 

Apollo Group - APOL - close: 76.62 change: -0.84 stop: 74.90

Today's action in APOL is not a good sign for the bulls. The market was up in a very broad-based rally and yet APOL failed to participate. That is a warning for us. Furthermore today's trading produced a small bearish engulfing candlestick pattern, which can be interpreted as a one-day bearish reversal pattern.

I would be tempted to buy a bounce in the $76.00-75.50 zone but I'd rather buy calls on a rise above $78.00. There is some resistance near $81.50 so we're setting our first target to exit at $81.00. We will tentatively set a secondary target at $84.90 but I'm not very optimistic. The P&F chart is bullish with an $87 target. APOL has earnings on January 8th and we do not want to hold over the announcement.

Remember, this is an aggressive play and we're using options that expire in less than four weeks.

Picked on December 30 at $ 77.46
Change since picked:      - 0.84
Earnings Date           01/08/09 (confirmed)
Average Daily Volume =       2.3 million  

Bidu.com - BIDU - close: 130.57 change: +3.64 stop: 119.95

BIDU delivered a quick rally toward $132 this morning but then spent the rest of the day trading sideways between $130 and $132. If you don't want to chase the rally here then look for an entry point on a dip near $127.00-126.50. Our short-term target is $139.95. FYI: the P&F chart is bullish with a $212 target.

Picked on December 30 at $126.93
Change since picked:      + 3.64
Earnings Date           02/12/09 (unconfirmed)
Average Daily Volume =       4.2 million  

Caterpillar - CAT - close: 44.67 change: +1.01 stop: 41.80 *new*

The bounce in CAT continued and shares are now challenging mid December resistance near $45.00. I remain wary of the rebound so we're not suggesting new bullish positions at this time. Please note that we're inching up the stop loss to $41.80. Our target is $49.50. The Point & Figure chart is bullish with a $58 target.

Picked on December 16 at $ 43.80
Change since picked:      + 0.87
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =      13.4 million  

Energizer Holdings - ENR - close: 54.14 change: +1.19 stop: 49.45 *new*

Target achieved. ENR posted another gain and hit an intraday high of $54.90. Our first target to take profits was $54.25. Volume actually came in above the norm on today's gain, which is impressive considering the holiday. We are raising the stop loss to $49.45. I am not suggesting new positions at this time.

We have two targets. Our first target is $54.25. Our second target is $59.00. The Point & Figure chart is already bullish with a $68.00 target.

ENR, Energizer Holdings

Picked on December 29 at $ 50.05 *triggered /1st target hit 54.25
Change since picked:      + 4.09
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       798 thousand 

ITT Educational Serv. - ESI - close: 94.98 chg: +1.18 stop: 89.90

ESI continued to run higher after Tuesday's bullish breakout past the trendline of lower highs. Today's action saw three rallies attempts stall near $96.50. This might be suggesting the bulls are tired and ESI is due for a dip. Readers may want to wait for a dip near $93.00 or $92.50 as the next bullish entry point to buy calls. Overall I don't see any changes from our previous comments. Our short-term target is $99.90. I'm considering a secondary target near $105. The P&F chart is bullish with a $111.00 target.

Picked on December 30 at $ 93.80
Change since picked:      + 0.00
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =       831 thousand 

Sunoco Inc - SUN - close: 43.46 change: +0.41 stop: 39.85

SUN is slowly drifting higher with a pattern of higher highs and higher lows. The big gains in crude oil today failed to have any impact on this refiner's stock. If this trend holds up then we can probably expect a dip back toward $41.50 soon.

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

Picked on December 20 at $ 42.30
Change since picked:      + 1.16
Earnings Date           02/04/09 (unconfirmed)
Average Daily Volume =       4.2 million  

PUT Play Updates

Equinix Inc. - EQIX - close: 53.19 change: +0.71 stop: 52.75

There is no change for us with EQIX. We're still sitting on the sidelines waiting for a breakdown under support at $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.

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 

Strangle & Spread Play Updates

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


Lockheed Martin - LMT - close: 84.08 change: -0.21 stop: 79.95

Target achieved. Our target to exit was $84.90. LMT rallied past the $84.90 level several times today but just couldn't get past round-number resistance at $85.00. The stock actually settled lower with buyers somewhat exhausted. Our play is closed but I would keep LMT on your watch list for a dip back toward $80.00 or its 10-dma as a potential entry point to try again.

LMT, Lockheed Martin

Picked on December 29 at $ 80.00 *triggered     
Change since picked:      + 4.08
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =       2.8 million  


AvalonBay - AVB - close: 60.58 change: +2.15 stop: 61.65

The widespread market rally was too much for the bears. Shorts began running for cover and it hit a crescendo late in the day that pushed AVB to an intraday high of $61.78. That was enough to hit our stop loss and close this play. Personally, I think this rally will not hold and shares will reverse lower. I'll be watching for a decline under $59.00 as a potential entry point to buy puts again. Or we could pursue one of the other four REITs listed in Tuesday's update. AVB did hit our first target at $55.10 a couple of days ago.

AVB, Avalon Bay

Picked on December 24 at $ 57.98 *gap down entry
Change since picked:      + 2.60  /stopped out 61.65
Earnings Date           02/04/09 (unconfirmed)
Average Daily Volume =       3.5 million  

Avon Products - AVP - close: 24.03 change: +0.60 stop: 24.05

AVP is another casualty of today's widespread market rally. Bears may have been spooked by Tuesday's close over technical resistance at the 50-dma. AVP continued to drift higher and eventually broke out over resistance at the $24.00 mark hitting our stop loss at $24.05.

AVP, Avon

Picked on December 23 at $ 22.46 /stopped out 24.05
Change since picked:      + 1.57
Earnings Date           02/05/09 (unconfirmed)
Average Daily Volume =       4.6 million  

Capital One Financial - COF - close: 31.89 chg: +1.03 stop: 31.51

COF is another put play that has been closed by the year-end bounce/short-covering. Tuesday saw shares breakout over the $30.00 level and its trendline of lower highs. Today saw COF rally straight toward technical resistance at its 50-dma and stall. Yet it was enough to hit our stop loss at $31.51. My bias on COF is still bearish and I'll be watching for another breakdown under $30.00.

COF, Capital One

Picked on December 23 at $ 29.38 /gap higher entry
Change since picked:      + 2.51
Earnings Date           01/22/09 (unconfirmed)
Average Daily Volume =       8.5 million  

Google Inc. - GOOG - close: 307.65 change: +4.54 stop: 311.00

We almost escaped with our GOOG put play intact. The stock was hovering around the $310 level and under technical resistance at the 50-dma. Unfortunately right at 3:00 p.m. the stock spiked to exactly $311.00, hitting our stop loss, and closing the play. The general trend on GOOG is still bearish so another drop under $300 or $290 might be used as potential entry points for bearish positions.

GOOG, Google Inc.

Picked on December 27 at $300.36 /stopped out 311.00
Change since picked:      + 7.29
Earnings Date           01/29/09 (unconfirmed)
Average Daily Volume =       5.4 million  


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