Option Investor
Newsletter

Daily Newsletter, Monday, 12/28/2009

Table of Contents

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

Market Wrap

Afternoon Rally Keeps the Bull Run at Six Days

by Keene Little

Click here to email Keene Little
Market Stats

I'm filling in for Todd this evening.

Volume was better than last Thursday's half-day session. But that's about all that can be said for it. Volume has been declining every day since a week ago Monday and today's was no different. Will the last one out please turn off the lights.

The market finished in the green today so the winning streak stays alive at six days now. But the win today was courtesy of a few buy programs in the last 30 minutes and in reality it was the last 5 minutes that did the trick. Without the help of some big players who would clearly like to see the market held up into the end of the year (put off taxes due on profits, affect trader mood, make for bigger bonuses, etc.), it was looking like we actually get a correction to the rally.

While there are hints of cracks in the foundation we clearly have a bullish market and the low volume simply makes it easier for the big players to do what they want with it. If they want to hold it up, they hold it up. If they want to sell it off early, they sell it off (with the help of lots of other traders as well). I don't think there will be a lot of buying power but then again it won't take much in this week's market.

The small caps, semiconductors, banks and transports were relatively weak today and closed in the red. I consider those to be the cracks in the foundation. Healthcare and drugs were the leading sectors today but in reality it was a slow day for everyone.

Retail sales were reported today and there was positive news. Most everyone is very interested in seeing a robust consumer who cries out "damn the torpedoes, full spending ahead!" The government figures debt worked so well for us the first time that they want everyone to emulate the government's actions and get ourselves deeper into debt buying stuff we really don't need and presents for people who really don't want the stuff.

But it's good for the country, or so the story goes. This myopic approach to fixing the fundamental problem of too much debt is nothing short of amazing. And the likes of Nobel prize-winning Paul Krugman says we all need to spend more and the government needs to rack up twice the debt we now have in order to save the system. Who am I to argue with a Nobel Prize winner? That would be like me arguing why Obama should not have won the Nobel Peace prize. But we won't go there since after all, it wasn't his fault he won it.

MasterCard's SpendingPulse report showed retail sales between November 1st and December 24th were better than expected and positive. Even accounting for the extra shopping day this year, sales were up (+3.6% and +1.0% excluding the extra day) so buyers did their duty. Online sales were particularly strong, up +15.5% over last year, and Amazon was a strong player in this area. Sales of their Kindle book reader was a significant portion of their sales this year.

Other than that there were no major economic reports and the market was listless for most of the day. As has been typical lately, the day started off with a gap up following an overnight rally in the futures. After failing to get much if any follow through to the gap up, the market pulled back and dropped into negative territory where it languished for most of the day. As already mentioned, the end-of-day jam into the close gave the bulls another win.

I want to look at the NYSE tonight as it's a bigger market than the other indexes we normally look at. The weekly chart shows the two Fibs of interest right here. The 50% retracement of the 2007-2009 decline is at 7284 and the projection for two equal legs up from March is at 7375. Today's high was 7283. The broken uptrend line from March is being retested and the negative divergences suggest the test will be a failure. As I had pointed out in the weekend wrap, where I presented a longer-term view of the market, once the A-B-C bounce completes it should be followed by a resumption of the selling that started from the 2007 high.

NYSE Composite, NYA, Weekly chart

The daily chart shows that broken uptrend line from March-July and how price has been pushing up underneath it for the past few days. This morning's spike up at the open had it tagging its 50% retracement level (actually it was about 1.5 points shy) and then it dropped right back below the trend line. I show a small consolidation/pullback this week and then a final high into next Monday to tag both its broken uptrend line and the top of a potential rising wedge pattern, which cross near 7320. It of course might not stop there (or get there) but it would be a good finish. The risk is for a downside surprise to start at any time.

NYSE Composite, NYA, Daily chart

SPX has a very similar setup in that a small pullback this week followed by a new high into next Monday would tag a Fib projection at 1138 and the top of a rising wedge pattern. It would also achieve two equal legs up from March by tagging 1133. A break below 1105 would be a bearish heads up and below 1094 would confirm the rally is over.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- cautiously bullish above 1133
- bearish below 1094

If I draw the trend line along the highs from October to go through the early December high instead of the November high, SPX is now playing with it. In fact it did a quick throw-over above it this morning and then dropped back below it. This afternoon's late-day jam pushed it right back up to the line. A selloff tomorrow would look like a kiss goodbye and after the throw-over it would look even more bearish. Therefore stay alert to the possibility that we saw the high for the rally this morning and the selling will now start. But ideally we'll get a little larger pullback/consolidation and then final high next Monday (or possibly more, which I show with the RUT chart).

S&P 500, SPX, 120-min chart

Again, with the DOW I'm showing the potential to push a little higher into next Monday and reach its downtrend line from October (log scale) and the top of a rising wedge pattern, both intersecting near 10600 next Monday. A break of its uptrend line from November, nearing 10400, would be a bearish heads up and below 10264 would confirm the selling has begun.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- cautiously bullish above 10500
- bearish below 10264

Instead of showing the Nasdaq 100 (NDX) tonight, I'll show the broader tech index. The Nasdaq reached a potentially important level this morning before selling off. Whether it will be a lasting high or not can't be known yet but I think the downside risk may have been elevated for the techs today. The rally reached the price projection for two equal legs up from November, at 2295, which was also the top of a parallel up-channel for price action since August-September. It left a doji star today so a red candle tomorrow would create an evening star reversal pattern. You can see the mid line of the channel acted as support and resistance which adds credence to the importance of the channel. But only with a break below 2220 will the bulls be in trouble. A break below 2178, the December 17th low, would confirm the bears have control of the ball.

Nasdaq Composite index, COMPQ, Daily chart

Key Levels for COMPQ:
- cautiously bullish above 2300
- bearish below 2220

I want to take a little more in-depth look at the small caps tonight because I think it will be our canary. It led the recovery rally this month and will probably lead the way down. If we see the small caps start to suffer relative to the blue chips, as they did today, it will be a heads up that money is rotating out of the higher-beta stocks and into the safety of the bigger blue chips.

Starting with the weekly chart, the first thing to notice is the rally has stopped at the downtrend line from October 2007 (log scale), drawn through the August 2008 high. It's only the first day of the week but it will be interesting to see whether or not it finishes with a doji star at resistance.

Russell-2000, RUT, Weekly chart

The daily chart below shows a closer view of the downtrend line from October 2007 and how price is actually just shy of it at 640. So I'm showing a couple of different scenarios that I'm going to be watching over the next 1-2 weeks for clues as to where the top might be. It could fail at any time and the dashed line shows the selling could start tomorrow after today's hanging man candlestick. Or it might pullback a little and then rally up to its trend line for a finish next Monday, as discussed for the others as well. A break below 613 would tell me the top is in and to look to short all rallies from there. But if it manages to rally much above 640 then there is Fib potential up to 652, probably into the 2nd week of January.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- cautiously bullish above 625
- bearish below 613

Not shown on the daily chart above is another downtrend line from October 2007 but drawn through the September 2008 high instead of the August 2008 high. That trend line is a little higher and happens to be near the 652 level in the 2nd week of January. As depicted on the 120-min chart below, if price consolidates, pushes a little higher into Monday and then consolidates again (choppy sideways/down kind of move) we should see the last leg up into mid January. As noted on the chart, there are no negative divergences yet warning us of a top, which supports the idea that we'll see a pullback and then new price high with negative divergences. I've seen plenty of highs with negative divergence so this is not a requirement but something I like to see.

Russell-2000, RUT, 120-min chart

Bonds have been selling off fairly strongly this month (freeing up capital for the stock market?) but could be ready for a turnaround. The 20+ year treasury ETF, TLT, has dropped down to possible support at its longer-term uptrend line from June 2007 through the June 2008 low. Nearly at the same level is a price projection at 88.88 where the decline from October would have two equal legs down for a possible completion to an a-b-c pullback. If this area acts as support we should see a rally into January and possibly back up to a downtrend line from October. If it can rally above 93.50 it would tell me there will be a higher rally, probably back above 100, before setting up the next potential turn back down.

20+ Year Treasury ETF, TLT, Daily chart

If the stock market starts to sell off next month, as I think it will, that could cause a rush back into bonds and drive their prices higher (and yields lower). But if TLT breaks much below 88.88, and certainly below the June low of 87.56, it will probably head down to a Fib projection near 84. That would obviously have yields spiking higher and that could start to put a lid over any economic recovery.

Last week it was reported that the 30-year mortgage rate climbed back above 5% for the first time since the end of October. It sounds strange to worry about a 30-year fixed climbing back above 5%. Not long ago I would have killed for even a 6% mortgage. How times have changed. Adjustable rates are climbing back up as well but at a slower rate. I've reviewed in the recent past the difficulty the housing market is likely to have when you consider the number of homes that could come onto the market due to foreclosures as mortgage rates reset higher.

There were many (most?) mortgages that were taken out by buyers in 2005-2007 that were called Alt-A and option-ARMs. Alt-A loans were a step up from subprime but not as good as prime (perhaps they didn't have much if any money for a down payment or their credit rating was not good enough for a prime loan with lower rates). These were people stretching themselves to buy the house that in ordinary lending times would never have been able to get a mortgage.

But the real problem will come from the option-ARMs which are loans that essentially gave many buyers carte blanche to pay whatever they could on the mortgage each month. Or it might have been an interest-only loan with no down payment requirement and no paying down the principal balance. The mortgagees were told not to worry about a ballooning mortgage balance because they could simply remortgage when the mortgage was due to reset at which time they'd be able to get a higher price appraisal and thereby be able to make a larger "down payment" for a better mortgage rate. Oops. There are countless millions of these mortgages out there (which have once again been repackaged and sold to the market as AAA-rated loan portfolios).

This chart is one I've shown before but it's very important, I think, for showing what we can expect to hear more about during the coming year and into 2011. It shows a peak in mortgage resets, primarily from the option-ARMs, in 2010 and then a larger peak in 2011. As we head into the end of 2009 you see we've been in the eye of the mortgage-reset hurricane between the two peaks in 2007 and the twin peaks of 2010 and 2011.

Monthly Mortgage Rate Resets, chart courtesy AgoraFinancial.com

In 2007 we kept being assured that the subprime problem of mortgage defaults was only a minor problem and that it would be contained. The stock market believed the nitwits and kept the party going into October 2007. Then the financial world started to come unglued as it was not at all contained and instead was simply one of the first dominoes to fall over. Now we've got Mortgage-Reset II about to play in the theaters near you and I'm not so sure the stock market is going to believe our government officials if they try to tell us any problem will be contained. This time it's not going to be the poor minorities and disadvantaged who will be losing their homes but instead it will be mainstream America, your neighbor and more influential people who will demand that government do something.

Expect all the stops to be pulled out in an effort to fix the problem this time. We're about to pour a lot more taxpayer money down the black hole. Bloomberg reported last Friday's that the US Treasury agreed to provide Fannie Mae and Freddie Mac as much capital as they will need for the next three years (to keep buying the toxic mortgages being offloaded by the precious banks). The Treasury did this before their authority over these two companies, with Congressional approval, changed at the end of this month. They just committed billions of taxpayer money with Congressional approval. I could be wrong but I think that's unconstitutional, as have been many of the Fed's and Treasury's actions in the past two years.

As an example of the problem moving out of the poorer class and into the more well-to-do class, the highest mortgage failure rate right now are those over $1M. Bloomberg reported total mortgages that are more than 90 days overdue at about 7.4%. Mortgages less than $250K that are more than 90 days overdue are at about 6.3%. But mortgages over $1M have 12% now overdue. Think about that for a moment. These are the people who should know better. If they have a million dollar mortgage one would think they're savvy enough to understand the risks of taking on too much debt or know better than to believe home prices will always go up. Only a brief review of history would show home prices don't always go up and yet even the physicists and mathematicians, the "quants", failed to program in that possibility into their computers. So when supposedly bright and well-heeled people start failing to pay their mortgages you know we've got a fundamental problem.

I've used my daughter's neighborhood before as an example of what I would consider mainstream middle class America and I've watched her development just north of Seattle with interest over the past few years. It was a new development that filled up in 2007-2008 and my daughter and her husband know quite a bit about the financial situation, as related to mortgages, of their neighbors. They've been surprised by the number of buyers who are into option-ARMs and within the past year some are getting in trouble. They've already seen short sales, foreclosures and jingle mail. One neighbor, two doors down and friends of theirs, loaded up a truck one night just before Christmas and moved out without saying anything to anyone or the kids' schools. They just left the house for the bank. My daughter knew they were behind on their payments. So there's another house that will be available on the market and the houses in that neighborhood have already suffered about a 25% decline, meaning it has some catching up to do on the downside and all those option-ARMs will help the process. Also, most buyers in the neighborhood are now underwater, joining the one out three homes that now fall into that category.

This mortgage resetting problem will clearly have a depressing effect on home prices in the coming years and it's not going to help the home builders either. While existing home sales got an uptick in the last report we received last week, new home sales dropped. It's a sign that the home builders are not breaking ground on new homes for next spring and I think that's when many will recognize that once again the spring season is going to be a disappointment and it will call into question the expectations for an economic recovery. After reaching up and tagging its broken uptrend line from March the home builder index looks ready for a continuation lower.

U.S. Home Construction Index, DJUSHB, Daily chart

If the home builders provide a heads up for further troubles in our economy and in the financial markets, we should see the banks leading to the downside as well. Today the BIX dropped back down and broke its H&S neckline again. Only with a last minute rally into the close was the BIX able to close on its neckline. I get the feeling I'm not the only one watching that line.

S&P Bank index, BIX, Daily chart

Shipping oil next year could get a little cheaper. Bloomberg reported today that there are enough oil tankers acting as storage containers right now that they would create a 26-mile long line if placed end to end. They're waiting to unload the oil during the next six months, freeing up the tankers in the process. They're being used to store oil in hopes of catching an increase in oil prices so if prices start to decline there could be a rush to unload the oil which would further depress prices of oil and also supertanker rates. The availability of those ships is expected to cause a 25% decline in shipping rates next year, below what many feel are breakeven rates for the shipping companies.

The combination of a rate drop in supertankers and other shipping rates due to another slowing in the global economy is likely to affect transportation rates felt elsewhere. Even railroad companies have only been able to improve profitability through cost cutting and not through revenue growth. They expect rates to further decline next year. This is all starting to show in the Transportation index as it struggles to make new highs with the broader market. Last week it left a hanging man on Wednesday and a shooting star on Thursday, both at Fib and trend line resistance near 4200. Today's red candle confirms a sell signal from Thursday's shooting star. The pattern is set up for a resumption of the selling which should take the Trannies well below the November low.

Transportation Index, TRAN, Daily chart

The storage of oil could backfire on the oil companies, shipping companies and oil traders. Traders at JPMorgan and Morgan Stanley sought out tankers to store oil in anticipation of getting higher prices. It sounds like déjà vu all over again with 2008. The oil-storage trade is profitable as long as the spread between the price of oil and the storage costs (ship rental, insurance and financing) are in favor of the trader. Last year the spread was 23% but today it's 4%. If the spread goes negative there are going to be a lot of traders scrambling to get rid of their stored oil. That would obviously have a depressing effect on the price of oil which would beget more selling from the tanker storage and it could all create a downward cycle. Therefore it will be interesting to see what oil does from here, now that it has pressed up against resistance.

Tonight I'll look at the oil fund instead of the oil contract. USO has pressed up against its broken 50-dma near 39 and created a doji. If it's followed by a down day on Tuesday it will create an evening star reversal pattern. If it can press a little higher it will have to deal with its downtrend line from October, currently near 39.75, which is also close to its broken uptrend line from February.

US Oil Fund, USO, Daily chart

The US dollar is consolidating sideways but it looks like it could use another leg down as part of a larger correction to its rally. Pulling back to about 77 should be a good setup for further rally. I'm showing the dollar contract but if you want to try a long play on the dollar take a look at UUP.

U.S. Dollar contract, DX, Daily chart

If the dollar continues to rally (after perhaps a little more pullback) we should see downward pressure on stocks and commodities, including gold. I want to show the possibility for more rally (in green) on the GLD weekly chart because from a strictly EW (Elliott Wave) perspective I see that as a good possibility. As long as the uptrend line from November 2008 holds, currently near 104, the upside needs to be respected. It takes a break below 100 to confirm the bears are back in control.

Gold SPDR, GLD, Weekly chart

Unless we get some nasty surprises from the two economic reports tomorrow morning, we should not see much market impact from them. But if there is a negative reaction, especially with the lower volume in this market, selling could get out of hand quickly.

Economic reports, summary and Key Trading Levels

Summarizing tonight's charts, I see some potential for market highs and therefore will continue to caution those who are long the market and holding out (like most fund managers) for next week to potentially do any selling. If selling starts this week it could drop the market quickly since many traders would likely hit the sell button at the same time.

But the week is typically bullish, it's easy to hold up with light volume (which is clearly the agenda right now) and the price pattern would look best with just a correction this week before heading higher into Monday where there are several price projections, time projections and trend lines that tell me it could be an important key reversal kind of day. If you see many charts with key reversals next Monday I'd treat it as serious since it's a setup for a hard reversal to the downside for next month. I believe January will end negative, setting the tone for the year.

The consolidation this week could go sideways rather than pull back much if any. In fact a sideways consolidation would be bullish and increase the likelihood for new highs into next Monday. It's hard to judge price action during a week like last week and this week but price is king and that's what we base our charts on. So go with price and not with a lot of technical indicators such as breadth and momentum which could be somewhat meaningless. It's actually a good week to read and study rather than trade. If you're long the market or waiting to get short the market, it's a good time to simply monitor price action to see if upside targets get hit or downside key levels get broken. Then you can take appropriate action based on price.

So good luck this week, another holiday-shortened one, and I'll be back with you a week from Thursday.

Key Levels for SPX:
- cautiously bullish above 1133
- bearish below 1094

Key Levels for DOW:
- cautiously bullish above 10500
- bearish below 10264

Key Levels for COMPQ:
- cautiously bullish above 2300
- bearish below 2220

Key Levels for RUT:
- cautiously bullish above 625
- bearish below 613

Keene H. Little, CMT

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New Option Plays

Defense Stocks Hit Highs

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

L-3 Communications - LLL - close: 86.80 change: +1.17 stop: 83.90

Why We Like It:
One of the big stories over the Christmas holiday was an alleged terrorist trying to blow up a plane heading into the U.S. This produced some strength in defense stocks today. LLL is a big defense contractor and shares broke out from their sideways consolidation. I'm suggesting very small bullish positions now on today's rally. We should consider this an aggressive, higher-risk trade. Our first target to take profits is at $89.95. Our second and final target is $94.00. We want to exit ahead of the late January earnings report. FYI: The Point & Figure chart is bullish with a $104 target.

Suggested Options:
I'm suggesting either the January $90 calls or the February $90 calls. January options expire in three weeks.

BUY CALL JAN 90.00 LLL-AR open interest=4549 current ask $0.55
-or-
BUY CALL FEB 90.00 LLL-BR open interest= 264 current ask $1.75

Annotated Chart:

Entry  on  December 28 at $ 86.80 
Change since picked:       + 0.00
Earnings Date            01/28/10 (unconfirmed)
Average Daily Volume =        1.0 million  
Listed on  December 26, 2009         



In Play Updates and Reviews

New Play Triggered

by James Brown

Click here to email James Brown

Our new weekend play has been triggered with a surge to new 2009 highs.


CALL Play Updates

EQUINIX Inc. - EQIX - close: 107.96 change: -0.15 stop: 102.75

EQIX tagged a new high this morning and then spent the rest of the day slowly drifting lower. Overall there is no change from my prior comments. The intraday high was $109.21. Our first target is $109.50. Our second target is $113.50. The plan was to use small position sizes to limit risk. I am not suggesting new positions at this time.

Entry  on  December 09 at $103.02
Change since picked:       + 4.94 
Earnings Date            02/10/10 (unconfirmed)
Average Daily Volume =        501 thousand 
Listed on  December 09, 2009         


Intl. Business Mach. - IBM - close: 132.31 change: +1.74 stop: 126.90

Our new call play on IBM is off to a healthy start. A positive article in Barron's over the weekend helped push IBM to new multi-year highs. Our plan was to buy calls at $131.55. If you missed the entry point you could jump in now but with a little patience you might get a better entry point on a dip back toward $131.00-130.00. Our first target is $134.95. Our second target is $139.00. Our time frame is about four weeks. We do not want to hold over IBM's earnings report.

Annotated Chart:

Entry  on  December 28 at $131.55
Change since picked:       + 0.76
Earnings Date            01/19/10 (unconfirmed)
Average Daily Volume =        5.8 million  
Listed on  December 26, 2009         


Infosys Tech. - INFY - close: 55.86 change: -0.13 stop: 51.95

INFY spent the day churning sideways. We have about two weeks left before we need to exit to avoid earnings. I am not suggesting new positions at this time. INFY has already hit our first target 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:       + 3.98
                            /1st target hit @ 55.75 (+7.4%)
Earnings Date            01/12/10 (confirmed)
Average Daily Volume =        1.4 million  
Listed on  December 05, 2009         


Mettler Toledo - MTD - close: 105.73 change: -0.51 stop: 99.45

Traders bought the dip again and MTD held the $105 level. While this is encouraging shares may dip toward the $103.00-102 zone, which is where I'd look for a new entry point. Our first target is $109.00.

Entry  on  December 19 at $102.66 (small positions) /gap down entry
Change since picked:       + 3.07
Earnings Date            02/04/10 (unconfirmed)
Average Daily Volume =        106 thousand
Listed on  December 19, 2009         


Norfolk Southern - NSC - close: 53.59 change: -0.65 stop: 50.95

NSC suffered some profit taking but broken resistance near $53.00 acted as support. This pull back today could be a new bullish entry point to buy calls. 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:       + 1.75
Earnings Date            01/27/10 (unconfirmed)
Average Daily Volume =        5.4 million  
Listed on  November 21, 2009         


NUCOR Corp. - NUE - close: 46.95 change: -0.15 stop: 42.75 *new*

NUE only lost 15 cents on the session but the action today looked bearish with a failed rally at the $48.00 level. Shares are short-term overbought. I'd expect a deeper correction. More conservative traders may want to bump their stops closer to $44.00. Our multi-week target is $49.50. We will plan to exit ahead of the late January earnings report.

Entry  on  December 22 at $ 45.85 (1/2 position or less) /gap higher entry
Change since picked:       + 1.10
Earnings Date            01/28/10 (unconfirmed)
Average Daily Volume =        4.5 million  
Listed on  December 22, 2009         


Precision Castparts - PCP - close: 112.97 change: -1.02 stop: 107.25

PCP is still digesting gains in a sideways move between $112 and $116. The $112-110 zone should offer some support. If the $110 level breaks then look for additional support near $107.50. I'm not suggesting new positions at this time. PCP has already hit our first target at $112.45. Our second target is $118.75. The Point & Figure chart is bullish with a $157 target (it was $131).

Picked on  December 01 at $107.35
Change since picked:       + 5.62
                            /1st target hit $112.45 (+4.7%)
Earnings Date            01/20/10 (unconfirmed)
Average Daily Volume =        817 thousand 
Listed on  November 28, 2009         


Stifel Financial - SF - close: 58.58 change: +0.07 stop: 54.95

Unfortunately SF is not seeing much follow through on its breakout past resistance near $57.00. Shares are just drifting sideways. Readers may want to wait and look for a new dip or bounce near $57.00 as a new entry point before initiating new positions. Our first target is $64.50. Our time frame is January expiration. The P&F chart is bullish and points to a $70 target.

Entry  on  December 22 at $ 58.05
Change since picked:       + 0.53
Earnings Date            02/11/10 (unconfirmed)
Average Daily Volume =        207 thousand 
Listed on  December 16, 2009         


UnitedHealth Group - UNH - close: 31.39 change: -0.29 stop: 27.99

UNH is still slipping and I'm expecting a dip back toward the $31.00-30.00 zone. Readers can use this pull back as a new entry point. The $30 level should offer some support. 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:       + 1.08
Earnings Date            01/21/10 (unconfirmed)
Average Daily Volume =        819 thousand 
Listed on  December 10, 2009         


United Tech. - UTX - close: 70.46 change: +0.10 stop: 67.45

Traders bought the dip near $70.00 and its rising 10-dma this afternoon. The late afternoon bounce looks like a new entry point to buy calls. More conservative traders may want to use a tighter stop loss. Our first target is $74.75. The Point & Figure chart is bullish with a $95.00 target.

Entry  on  December 15 at $ 70.25
Change since picked:       + 0.21
Earnings Date            01/21/10 (unconfirmed)
Average Daily Volume =        4.0 million  
Listed on  December 12, 2009         


Valmont Industries - VMI - close: 81.50 change: -0.28 stop: 78.45

There is no change from my prior comments on VMI. The stock is still consolidating sideways. 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, which suggests this stock could see a short squeeze.

Entry  on  December 10 at $ 81.00
Change since picked:       + 0.50
Earnings Date            02/10/10 (unconfirmed)
Average Daily Volume =        238 thousand 
Listed on  December 05, 2009         


Vertex Pharma - VRTX - close: 43.22 change: +0.18 stop: 39.75

VRTX hit another new 52-week high at $43.53 this morning. More conservative traders may want to take profits early in the $43.50-44.00 zone. I am not suggesting new positions at this time. Our target to exit is at $44.25.

Entry  on  December 03 at $ 40.25
Change since picked:       + 2.79
Earnings Date            02/09/10 (unconfirmed)
Average Daily Volume =        3.2 million  
Listed on  November 23, 2009         


Whirlpool - WHR - close: 82.63 change: -0.32 stop: 75.95

WHR is stuck in the $82-84 zone. I'm still expecting a dip toward $80 before it moves higher. We can use a dip or a bounce near $81-80 as a new entry point to buy calls. More conservative traders may want to adjust their stop loss closer to $80. WHR has already hit our first target at $84.75. Our second target is $89.00. FYI: The Point & Figure chart is bullish with a $103 target.

Entry  on  December 19 at $ 80.76 /gap higher entry
Change since picked:       + 1.87
                             /1st target hit $84.75 (+4.9%)
Earnings Date            02/08/10 (unconfirmed)
Average Daily Volume =        1.6 million  
Listed on  December 19, 2009         


PUT Play Updates

*Currently we do not have any put play updates*


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: 211.61 change: +2.57 stop: n/a

Shares of AAPL hit new highs near $214 a share. The stock rallied on news that analysts have placed a $250 price target on the stock. Plus there was news behind the rumors that AAPL was planning to launch a new tablet PC when it was discovered that AAPL bought the website name iSlate.com back in 2007. I am not suggesting new strangle positions at this time.

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:       +11.70
Earnings Date            01/21/10 (unconfirmed)
Average Daily Volume =       15.1 million  
Listed on  November 30, 2009         


United Parcel Service - UPS - close: 57.96 change: -0.16 stop: n/a

UPS continues to ignore any market movement and remains stuck in its trading range. I'm not suggesting new strangle positions.

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:       - 0.03 
Earnings Date            02/02/10 (unconfirmed)
Average Daily Volume =        4.7 million  
Listed on  November 21, 2009