Option Investor
Newsletter

Daily Newsletter, Tuesday, 12/15/2009

Table of Contents

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

Market Wrap

Waiting On The Fed

by Jim Brown

Click here to email Jim Brown

We have seen this pattern many times before. Equities rise based on hopes for an optimistic Fed outcome then cautious bulls began to get nervous and move to the sidelines to avoid an unpleasant surprise. Add in the sharp increase in inflation in this morning's reports and there is even more reason for caution.

Market Stats Table

The economic calendar today was not kind to investors. The biggest pothole for the market was the explosion of inflation in the Producer Price Index on the day that the FOMC is meeting to discuss inflation and rates. Prices at the producer level rose by a whopping +1.8% due in part to rising food and energy prices. Excluding food and energy the core rate still showed a +0.5% jump. For an indicator that normally moves in .1% to .2% increments this was a major spike. In the chart below for 2009 you can see that inflation at the producer level is rapidly increasing.

Producer Price Index Chart

Gasoline and other energy products were responsible for much of the headline gain. However, food prices also rose with vegetable, pork and milk prices rising sharply. It appears that the economic slack the Fed was hoping would restrain inflation is not working. Now that the economy is in rebound mode the cost of living is going up again. This is a mixed message. If the market can support rising prices that suggests the economy is strengthening. On the negative side this also means the Fed's timetable for raising rates may be accelerating. The timing and content of this report was troubling to the market even though nobody expects the Fed to make any changes to their announcement on Wednesday. Despite these rising prices there were several economists that still believe we are at risk for a deflationary trend because of slowing demand. They believe this is a temporary blip in prices and prices will turn down again.

Another negative for the market was the sudden drop in the NY Empire State Manufacturing Survey. The headline number for December fell sharply to 2.6 from 23.5 and missed consensus estimates by a mile for a rise to 24.5. This was the second monthly decline from the high of 34.6 in October. This significant drop of 32 points over only two months is very disturbing to economists and increases fears of a double dip recession. The December reading was the lowest level since July.

In the table below I marked the high levels from October and the serious changes in only the last 60 days. Most notable is the drop in unfilled orders to -21 in December from 2.6 in October and the drop in new orders from 30.8 in October. Moody's believes this is the result of post stimulus depression where the economy got an initial boost from the stimulus including the cash for clunkers and now is going into withdrawal as the initial programs begin to wind down.

Empire State Manufacturing Chart

Empire Survey Table

The NAHB Housing Market Index fell for the third month, as homebuilders grew more pessimistic during December. The headline number fell to 16 from 17 and now -3 points off its high of 19 in September. Expectations were for an increase of 1 point to 18. The prospective buyer traffic component was unchanged at 13. This is nearly twice the low of 7 seen last December and the all time low for this survey. Analysts were surprised to see the declines since Congress extended the buyer incentives and mortgage loans are becoming easier to get in some areas.

NAHB Housing Market Index Chart

While all the consumer reports were negative today the Industrial Production report for November posted a gain of +0.8% and well over the +0.5% consensus estimates. The increase in manufacturing output was +1.1% and the largest since August. The strength was broad based with durable goods increasing +1% and nondurables +1.1%. Metal production rose +6.3% and that is an input for later stage manufacturing of finished products. Business equipment production rose a minor +0.4% but computer equipment production fell -2.6% for the 19th consecutive monthly decline. Capacity utilization rose to 71.3% from 70.6%. That is the highest level since December 2008 but still well below normal levels of 80% or better. With inventory levels still very low this suggests we will continue to see improvements in the manufacturing sector.

Industrial Production Chart

The economic elephant in the room today was quiet and invisible but everyone knew it was still there. That is of course the FOMC meeting, which started today and concludes tomorrow with the 2:15 announcement. The Fed has a lot to consider. Inflation is rising but is not yet a problem. Employment is improving but it could be just a seasonal bounce. The economy is improving with a sharp increase in business inventories suggesting the Q4 GDP could be over 5%. On one hand the Fed has to be concerned about an economy that could move into overheat mode very quickly but on the other hand there is the potential for the post stimulus depression.

Despite all the conflicting indicators Bernanke has to deal with his comments during his confirmation hearing last week that the Fed will continue to remain on hold for an "extended period." That should mean the Fed is on hold this week and will remain on hold. Most analysts still don't expect the Fed to begin raising rates until the second half of 2010 although some of those are starting to favor a move in the second quarter. How they word the announcement on Wednesday will determine how aggressively analysts change their forecasts.

The morning started out negative after Austria nationalized a troubled financial institution, Hypo Alpe Adria. That is a unit of German bank BayemLB. Austria took over the bank to keep it from sliding into bankruptcy after making lots of bad loans in Eastern Europe. BayemLB said Austria took a 67.08% stake in Hypo Alpe Adria for the symbolic price of one Euro or $1.46 dollars. Both BayemLB and Austria said the move was necessary because of the systemic importance to Austria and to southeastern Europe. BayemLB lost $3.75 billion Euros with the takeover by Austria. There are also rising worries about a default on sovereign deby by Greece, Ireland and Spain.

Why the bank takeover news is relative to the U.S. markets is because of its impact on the Euro and the dollar. The Euro plunged on the news and the dollar rallied to a new 3-month high at 76.96 on the dollar index. With that kind of spike in the dollar I am surprised the U.S. markets did not trade significantly lower. This is a bullish event because it shows that investors are beginning to increase their confidence in the U.S. economy and are becoming less worried about the impact of the dollar abroad.

Wells Fargo (WFC) completed its secondary offering of $10.65 billion in common stock at $25 per share and the offering was 15% oversubscribed and actually netted Wells $12.25 billion. Wells issued the offering to raise money to exit the TARP program. That should have been good news for the banking sector but the dilution factor is weighing on the banks. Two weeks ago Bank of America raised $19.3 billion with a secondary offering at $15 and adding roughly 1.3 billion shares to its outstanding total. Citigroup is expected to price a $20.5 billion offering late tonight or early Wednesday at roughly $3.25 per share or 6.2 billion shares. Talk about some massive dilution! The already have 22.8 billion outstanding and this will get them very close to 30 billion shares. I can't even comprehend these numbers and the odds of a reverse split soon are about 100%. The government owns billions at $3.25 per share and Citi closed today at $3.57 so the Citigroup offering has got to be somewhere between those numbers. All together that is over $51 billion in new shares coming to market in the last two weeks and there are numerous other banks preparing to do the same thing. That is a lot of cash taken out of the market to support a handful of banks.

Look up in the sky, is that a bird or a plane? No, it is not just a plane it is the super plane from Boeing. The long awaited 787 Dreamliner finally took off today for its maiden flight. The flight was cut short because of weather in Seattle but from all appearances everything went according to plan. There were hundreds of people on hand at the runway to see if it would actually fly and it did with the chase planes following it through every maneuver. Boeing has spent $13 billion developing this plane with the focus on fuel economy. Supposedly it will consume 15% to 20% less fuel and that is an airlines greatest expense. Boeing has orders for more than 800 and even before it flew today it was one of the most successful new models in aviation history. It will still be years before most airlines will actually receive their planes but today was a good first step.

Boeing 787 Taking Off

The airlines are going to need help with fuel costs according to the International Air Transport Association. The IATA predicts that airlines will lose $11 billion for all of 2009 and another $5.6 billion in 2010 do mostly to the rising cost of fuel. Passenger traffic declined -4.1% in 2009 but is expected to rise +4.5% in 2010. The IATA represents 230 airlines carrying 93% of international traffic. They project that fuel costs will be 26% of all operating costs in 2010. They are projecting the average price of crude to be $75 in 2010. The IATA said that fares would continue to decline because of the increased competition and the new larger planes like the 787 and the Airbus A380. Air traffic is due to plunge again once oil demand returns and the next price cycle pushes it back over $125 by 2012.

OPEC released its latest demand estimate for 2010 and called for oil demand to rise by +800,000 bpd to 85.13 million barrels per day. That was a +70,000 bpd increase from their November forecast. They believe the first half of the year will remain weak but escalate sharply once the global economic rebound finds some traction. Crude prices rose today breaking the 9-day losing streak. Considering the dollar was up sharply the gain in crude prices was even more startling. Crude rebounded to just over $71 after trading as low as $68.59 on Sunday night. The current crude futures contract expires on Monday and OPEC meets on Tuesday to officially confirm they are not changing production targets. Since they are already producing two million barrels per day over their "official quotas" the entire process is a sham anyway. The meeting and the announcement is only for show because they will pump whatever they can get away with and not crush prices.

Crude Oil Chart

After the bell today Adobe Systems (ADBE) reported earnings that beat the street and said demand was growing. Adobe said they were "hopeful" the increase in business would continue in 2010 but refrained from issuing a full year forecast. Adobe will release a new Creative Suite and Acrobat in 2010 and those two products account for 90% of Adobe's revenue. Adobe released CS4 just as the economy crashed and the timing could not have been worse. Adobe posted earnings excluding items of 39 cents and beating the 37-cent estimate. They projected Q1 revenue of $800-$850 million and ahead of the $798 million estimate. Shares were unchanged after the release.

Best Buy reported earnings that beat the street but the shares were crushed after it said margins would suffer. You may remember in my weekend commentary I cautioned that should Best Buy whine about lower margins it would not go well for the retail sector. The damage started with Best Buy with an 8% drop today and that tanked the retail index. Every retailer I checked was down with the exception of Ross Stores, which was up on their inclusion in the S&P-500 at the close on Friday. Best Buy reported earnings of 53-cents compared to 18-cents in Q4-2008. The consensus estimates was for earnings of 43-cents.

You would think that a 10-cent beat would overcome some of the weak margin worry but there is little "margin" for error. Best Buy said gross margins would decline from 1% to only .8% in the current quarter. That is so absurdly low it is ridiculous. They would make more money by putting in a snack bar and soda fountain in each store and charging for parking. Less than 1% gross margin on sales of $12 billion is a lot of work and a lot of risk. If only one thing goes wrong they could be back in the loss column.

Best Buy Chart

Next up on the earnings parade are DRI, FDX, NKE, PIR, RIMM, PALM, RAD and WGO on Thursday. FedEx and RIMM will be the key ones to watch with DRI and NKE another read on the retail trends. I saw today that Nike has offered to help Tiger Woods out with his desire to disappear for an indefinite period. They offered an idea for plastic surgery that would change his appearance. Do you think it makes him less recognizable?

Plastic Surgery for Tiger?

GE made news today with their guidance for 2010. They expect to record flat profits across their industrial segments because of sluggish demand for jet engines, electric turbines, locomotives and other heavy equipment. They believe the worst is behind us but the immediate future is still not bright. GE said it was ready to invest in growth now that the recession was over. Considering Jeff Immelt is normally overly optimistic and most GE forecasts are eventually lowered the outlook for GE's stock price is flat. Analysts had expected earnings of 89-cents in 2010 compared to 99-cents in 2009. With GE competitors forecasting solid growth you wonder why GE is so glum. UTX predicted +10% growth last week. 3M predicted +9% growth the week before. GE Capital is still a drag on GE and the parent is still trying to scale down that business but it is a slow process. GE shares were flat for the day with only a fractional decline.

We knew in advance that Tuesday was likely to be a lackluster day in the markets. The surprise spike in inflation during a Fed meeting was an added weight on equities. Volume was surprisingly strong at 8.2 billion shares although that is not a strong day under normal conditions. I was expecting something in the high 6B range as we waited for the Fed announcement. I suspect the inflation news scared a lot of traders to the sidelines and the impending announcement on the Citi secondary offering created nearly one billion shares of volume there alone. That was nearly five times Friday's volume on Citi. Citi was down more than 10% for the week just before the close.

The Dow declined to 10,450 to wait for the Fed decision. After trading over 10,500 yesterday for the fourth day since December began, it was an easy opportunity to take profits ahead of the Fed. Today's trading had nothing to do with the markets or market sentiment. It was simply a throwaway day while we wait on the Fed. The closing level was immaterial in that there was no big decline. 10450 has been initial support since November 23rd but it has also failed every support test. It is more like a bus stop than a train station. The market pauses there whenever it passes but only briefly.

The only two numbers that matter this week are 10,500 and 10,265. Both have been visited multiple times and both remain unbroken for more than temporary intraday spikes. Once the Fed announcement is behind us the markets are going to pick a direction and I suspect one of those levels will be broken before the holidays. Considering the inflation news today and the relatively small decline I think the market is poised for another attempt at new highs if the Fed does not spoil the party.

Dow Chart

The S&P, like the Dow remains stuck in its recent range between 1085 and 1115. The 1115 level is the 50% retracement of its loss from the 1561 high close on Oct-7th 2007. This level has been solid resistance with traders using the 1110-1115 range to take profits and establish new shorts since Mid November. The decline to 1107 today was a non-event. As I said earlier traders were just passing time today and taking some cash off the table in case of a Fed surprise.

S&P-500 Chart

The Nasdaq is a slightly different story. The 2200 level had been strong resistance since Nov-16th and we closed 12 points above that level on Monday. Today's decline to close just over 2200 was bullish since that establishes prior resistance as new support. At least that is the theory. Like in the case of the Dow and S&P we really can't apply too much logic and interpretation to today's trading. On the surface the Nasdaq appears cautiously bullish but at 2:15 Wednesday afternoon it will be an entirely different picture. Support is 2160, 2140 and 2120. Overhead short-term resistance is 2125 and long-term resistance is 2150 and the 61% Fib retracement of the bear market drop.

Nasdaq Chart

Like the Nasdaq the Russell broke over strong resistance at 606 and then returned to use that resistance as support on Tuesday. The combination of the Nasdaq and the Russell doing exactly the same thing in the same week is very bullish. However, there is still the cloud of the Fed meeting. I would revert to short-term bullish mode if these two indexes can close over support again on Wednesday after the Fed announcement.

Russell Chart

The canary in the coalmine is still the NYSE Composite. It has failed to return to resistance and continues to show greater weakness than the other indexes. Where the other indexes are breaking out to new highs the NYSE is showing weakness. This is a reason to remain cautious on the positive signs on the Nasdaq and Russell.

NYSE Chart

In summary, everything hinges on the Fed announcement. Despite the bullish signals in the Nasdaq and Russell the NYSE is still flashing caution. However, a continued breakout on the Nasdaq/Russell would negate the short-term caution on the NYSE but it would remain a longer-term caution for the first week of January. We can't predict how the market will react to the Fed announcement other than there will be volatility. It is what happens on Thursday that counts. Once the news has had time to settle the real market should return on Thursday. This is also expiration week so there will be pressures to pin stocks to their max pain points after the meeting. This could restrain any move or create a massive short squeeze if the Fed news is better than expected.

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New Option Plays

Waiting On the Fed

by James Brown

Click here to email James Brown

Editor's Note:

Today was a little disappointing. Monday's action looked like the market was finally poised to breakout past the top of the current trading range. Sadly stocks failed again. The market is likely to trade sideways tomorrow as investors wait for the FOMC decision on interest rates due out around 2:15 p.m. Wednesday afternoon.

No one expects Ben Bernanke and his crew to raise rates at this meeting so the focus will be on their comments regarding the state of the economy and their future outlook on monetary policy.

No new plays tonight. Let's see how the market reacts to the Fed news.



In Play Updates and Reviews

One Play Triggered

by James Brown

Click here to email James Brown

We had one bullish play hit our trigger to buy calls. We're also trimming a couple of stocks from the list.


CALL Play Updates

Bucyrus Intl. - BUCY - close: 53.84 change: +1.03 stop: 49.85 *new*

BUCY continues to bounce. The stock hit $54.54 at its high today. Traders may want to start taking profits early right here. I am raising our stop loss to $49.85. We'll plan to take profits at $54.90.

FYI: Tomorrow could see some volatility. Rival JOYG reports earnings tomorrow morning and their results could easily influence trading in BUCY. loss.

Entry  on  December 09 at $ 50.72 
Change since picked:       + 3.12
Earnings Date            02/18/10 (unconfirmed)
Average Daily Volume =        2.8 million  
Listed on  December 01, 2009         


Capella Education - CPLA - close: 76.79 change: +1.85 stop: 72.40

It was a very good day for CPLA. The stock rallied through resistance at the $75.00 level and closed at new 2009 highs. Both our November 24th entry and November 30th entry suggested the December $75 calls, which closed at near $2.30 today. I strongly suggest readers start taking profits now! Officially our target to exit is $78.50. We only have three days left for December options and a close under $75.00 means our options expire worthless. (The option value on Nov. 30th was $0.75)

Picked on  November 24 at $ 72.55
Change since picked:       + 4.24
Earnings Date            02/11/10 (unconfirmed)
Average Daily Volume =        126 thousand 
Listed on  November 24, 2009         


EQUINIX Inc. - EQIX - close: 106.01 change: +0.35 stop: 99.75

EQIX hit new highs at $107.15 but eventually closed nearly unchanged on the session thanks to the market's afternoon slide. Our target is $109.50. The plan was to use small position sizes.

Entry  on  December 09 at $103.02
Change since picked:       + 2.99
Earnings Date            02/10/10 (unconfirmed)
Average Daily Volume =        501 thousand 
Listed on  December 09, 2009         


Fedex Corp. - FDX - close: 91.36 change: +0.80 stop: 86.75 *new*

FDX closed at new highs again. More conservative traders might want to use an even tighter stop. The stock has already hit our first target near $90.00. We're currently aiming for $94.90. However, we will probably exit tomorrow or Thursday. Our original trade suggested December $85 calls, which expire after Friday. I am raising our stop loss to $86.75.

Picked on  December 01 at $ 85.75 
Change since picked:       + 5.61
Earnings Date            12/17/09 (confirmed)
Average Daily Volume =        2.6 million  
Listed on  November 30, 2009         


F5 Networks - FFIV - close: 51.02 change: -0.49 stop: 47.99

There was no follow through on FFIV's bounce from Monday. It looks like we might get another chance to buy calls on a dip near $50.00 soon. Our stop loss is a little wide so keep your position size small. Our first target to take profits is at $54.90. Our second target is $57.45.

Entry  on  December 09 at $ 52.08
Change since picked:       - 1.06
Earnings Date            01/20/10 (unconfirmed)
Average Daily Volume =        1.2 million  
Listed on  December 09, 2009         


Infosys Tech. - INFY - close: 53.31 change: -0.09 stop: 49.90

INFY hit new highs near $53.98 this morning but eventually closed in the red as the market reversed. Look for short-term support near $52.00. Our first target to take profits is at $55.75. Our second and final target is $59.50. We will plan to exit ahead of the January 12th earnings report.

Entry  on  December 05 at $ 51.88 /gap down entry point
                           /originally listed at $52.46
Change since picked:       + 1.43
Earnings Date            01/12/10 (confirmed)
Average Daily Volume =        1.4 million  
Listed on  December 05, 2009         


General Dynamics - GD - close: 69.67 change: -0.99 stop: 67.45

It's no surprise to see a little bit of profit taking. I suggested yesterday that a dip or a bounce near $69.00 could be an entry point to add to our positions.

Our first target to take profits in GD is $74.95. FYI: The Point & Figure chart is bullish with a $105 target.

Entry  on  December 14 at $ 70.66 (half position)
Change since picked:       - 0.99
Earnings Date            01/27/10 (unconfirmed)
Average Daily Volume =        1.6 million  
Listed on  December 14, 2009         


MSC Industrial Direct - MSM - close: 47.25 change: -0.14 stop: 44.90

The trend is still up but we're running out of time. We only have a few days left before December options expire. I would use a move over $47.50 as a new entry point but buy January or March calls.

Picked on  November 17 at $ 46.62
Change since picked:       + 0.63
Earnings Date            01/07/10 (unconfirmed)
Average Daily Volume =        513 thousand 
Listed on  November 17, 2009         


Norfolk Southern - NSC - close: 52.78 change: -0.30 stop: 49.75

The failure to hold the $53.00 level is a little disappointing. Readers may want to wait for a new relative high (over 53.33) before launching new positions. Our first target is now $56.50. Our second and final target is $59.50. Our time frame is several weeks. FYI: The Point & Figure chart is bullish with a $65 target.

Picked on  November 21 at $ 51.84 (small positions)/gap higher entry
Change since picked:       + 0.94
Earnings Date            01/27/10 (unconfirmed)
Average Daily Volume =        5.4 million  
Listed on  November 21, 2009         


Precision Castparts - PCP - close: 112.44 change: -1.11 stop: 107.25

PCP suffered a little profit taking. Shares look like they should find short-term support near $109-108. PCP has already hit our first target at $112.45. Our second target is $118.75. The Point & Figure chart is bullish with a $131 target.

Picked on  December 01 at $107.35
Change since picked:       + 5.09
                            /1st target hit $112.45 (+4.7%)
Earnings Date            01/20/10 (unconfirmed)
Average Daily Volume =        817 thousand 
Listed on  November 28, 2009         


UnitedHealth Group - UNH - close: 31.32 change: +0.37 stop: 26.99

UNH is creeping higher and posted a 1.1% gain, out performing the rest of the market. This is an aggressive, lottery-ticket style of trade. Volume is rising on the rally.

Our first target is $34.00. Our longer-term target is $36.00. Our time frame is several weeks. If you buy March calls you might want to think about holding over the late January earnings report.

Entry  on  December 10 at $ 30.31 
Change since picked:       + 1.01
Earnings Date            01/21/10 (unconfirmed)
Average Daily Volume =        819 thousand 
Listed on  December 10, 2009         


United Tech. - UTX - close: 70.25 change: +0.34 stop: 67.45

UTX is still showing relative strength and the stock broke out over resistance at the $70.00 level. Shares also hit our trigger to buy calls at $70.25. Our first target is $74.75. The Point & Figure chart is bullish with a $95.00 target.

Chart:

Entry  on  December 15 at $ 70.25
Change since picked:       + 0.00
Earnings Date            01/21/10 (unconfirmed)
Average Daily Volume =        4.0 million  
Listed on  December 12, 2009         


Valmont Industries - VMI - close: 81.56 change: +0.02 stop: 78.45

VMI is still fighting with short-term resistance at the $82.00 level. Our first target to take profits is at $84.90. Our second target is $88.75. FYI: The most recent data list short interest at 9% of the very small 20.1 million-share float.

Entry  on  December 10 at $ 81.00
Change since picked:       + 0.56
Earnings Date            02/10/10 (unconfirmed)
Average Daily Volume =        238 thousand 
Listed on  December 05, 2009         


Vertex Pharma - VRTX - close: 41.56 change: +0.96 stop: 38.35

VRTX set a new closing high for the year and is about to hit its November 11th high at $41.75. I would not be surprised to see a little profit taking near $41.75 but as long as the market doesn't tank we're looking for a breakout. Our target to exit is at $44.25. My time frame is several weeks.

Entry  on  December 03 at $ 40.25
Change since picked:       + 1.31
Earnings Date            02/09/10 (unconfirmed)
Average Daily Volume =        3.2 million  
Listed on  November 23, 2009         


Weyerhaeuser - WY - close: 43.11 change: +0.60 stop: 40.75

Wow! What amazing timing. Last night we added WY to the play list as a candidate to buy calls. This morning the Board of Directors announces plans to convert the company's equity status to a Real Estate Investment Trust (REIT), claiming it will make the company more profitable. It also means that WY will have to play a special dividend to shareholders to distribute profits. They plan to convert some time in 2010 and will try to pay most of the dividend in stock. Obviously we didn't know the company's plans or how the stock would react.

Shares of WY gapped open higher at $46.42 and hit $46.80 intraday (although if I look at the intraday chart it looks like WY almost hit $48.00). The gap higher killed our entry point. I hope readers did not buy calls with the stock up $4.00 at the open. The January $43 calls I listed doubled at the open only to fall back toward yesterday's values on the sell-off. Credit Suisse downgraded the stock to under perform on the news.

At this time I am suggesting we take a step back to see what happens next. We'll re-evaluate an entry point after we see how WY trades tomorrow. No new positions at this time.

Entry  on  December 14 at $ xx.xx 
Change since picked:       + 0.00
Earnings Date            02/05/10 (unconfirmed)
Average Daily Volume =        1.6 million  
Listed on  December 14, 2009         


PUT Play Updates

Freeport McMoran - FCX - close: 78.09 change: -0.75 stop: 80.55

The action in FCX today looks like a new bearish entry point. The stock produced a failed rally near $80.00 and its 50-dma, which is perfect! I'm suggesting the January $75 puts.

Remember, we should consider this an aggressive, higher-risk trade because the dollar, commodities, and shares of FCX can be somewhat volatile. The plan was to use very small positions to limit risk. Our first target is $72.50.

Entry  on  December 12 at $ 76.81 
Change since picked:       + 1.28
Earnings Date            01/26/10 (unconfirmed)
Average Daily Volume =       12.6 million  
Listed on  December 12, 2009         


Goldman Sachs - GS - close: 162.74 change: -3.36 stop: 170.25

GS sinks again. This time shares lost 2% and closed near their lows for the session. We don't have much time left before December options expire (3 days). I am adjusting our targets. We want to take profits at $160.20. We'll set our second and final target at $156.00.

Picked on  November 25 at $168.75
Change since picked:       - 6.01
Earnings Date            12/15/09 (unconfirmed, could be in January)
Average Daily Volume =        9.5 million  
Listed on  November 21, 2009         


Strangle & Spread Play 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.)

Apple Inc. - AAPL - close: 194.17 change: -2.81 stop: n/a

There is no change from my prior comments. December options expire in three days. I am not suggesting new strangle positions at this time.

We have an aggressive December strangle and a less aggressive January strangle. The options in the December strangle were the December $210 calls (AJL-LV) and the December $190 puts (APV-XR). Our estimated cost is $3.83. We want to sell if either option hits $8.00 or more.

The options in the January strangle were January $220 calls (AJL-LV) and the January $180 puts (APV-XR). Our estimated cost is $5.60. We want to sell if either option hits $10.00 or more.

Picked on  November 30 at $199.91
Change since picked:       - 5.74
Earnings Date            01/21/10 (unconfirmed)
Average Daily Volume =       15.1 million  
Listed on  November 30, 2009         


Goldman Sachs - GS - close: 162.74 change: -3.36 stop: n/a

There is no change from my prior comments. December options expire in three days. I am no longer suggesting new strangle positions on the stock.

The options suggested were the December $180 calls (GPY-LP) and the December $160 puts (GPY-XL). Our estimated cost is about $4.61. We may want to sell if either option hits $3.50 or higher just to recoup some capital.

Picked on  November 21 at $171.67 /gap open entry
Change since picked:       - 8.93
Earnings Date            12/15/09 (unconfirmed, could be January)
Average Daily Volume =        9.5 million  
Listed on  November 21, 2009         


Ultra(Long)-S&P500 - SSO - close: 37.81 change: -0.36 stop: n/a

It looks like this trade is doomed. The S&P 500 can't breakout from its trading range. We only have a few days left. I'm not suggesting new strangle positions at this time.

The options suggested for this strangle were the December $40 calls (SUC-LN) and the December $34 puts (SOJ-XH). Our estimated cost was $1.70. We want to sell if either option hits $3.00 or higher.

Picked on  November 11 at $ 37.08
Change since picked:       + 0.73
Earnings Date            --/--/--
Average Daily Volume =         32 million  
Listed on  November 11, 2009         


United Parcel Service - UPS - close: 59.25 change: +0.26 stop: n/a

UPS has broken out from its trading range but it's too little too late for the December options.

December Strangle
The options suggested for this trade were the December $60 calls (UPS-LL) and the December $55 puts (UPS-XK). Our estimated cost is $1.05. We want to sell if either option hits $1.95 or more.

January Strangle
The options suggested for the January strangle were the January $60.00 calls (UPS-AL) and the January $55.00 puts (UPS-MK). Our estimated cost was $1.35. I would plan to sell if either option hit $3.50 or more.

Picked on  November 21 at $ 57.99 /gap open entry
Change since picked:       + 1.26 
Earnings Date            02/02/10 (unconfirmed)
Average Daily Volume =        4.7 million  
Listed on  November 21, 2009         


CLOSED BULLISH PLAYS

Ishares Financial - IYF - close: 51.11 change: -0.75 stop: 49.99

I am giving up on the financials. This sector has been under performing for weeks and today the banks led the market lower. We want to exit early right here. The plan was to limit our risk with smaller positions.

Chart:

Entry  on  December 03 at $ 52.60
Change since picked:       - 1.49 <-- early exit (-2.8%)
Earnings Date            --/--/--
Average Daily Volume =        3.1 million  
Listed on  December 02, 2009         


CLOSED BEARISH PLAYS

Bucyrus Intl. - BUCY - close: 53.84 change: +1.03 stop: 51.90

Nimble traders might consider short-term puts if it looks like BUCY is going to roll over under resistance near $55.00. It does not look like BUCY is going to hit our trigger to buy puts at $48.95 any time soon so I'm dropping it as a candidate.

Chart:

Picked on  December 01 at $ xx.xx <-- TRIGGER @ 48.95, small positions
Change since picked:       + 0.00         *never opened*
Earnings Date            02/18/10 (unconfirmed)
Average Daily Volume =        2.8 million  
Listed on  December 01, 2009