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Daily Newsletter, Saturday, 2/13/2010

Table of Contents

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

Market Wrap

Signs of Green Shoots in the Market?

by Jim Brown

Click here to email Jim Brown

The Dow shook off a -160 point loss at Friday's open that was caused by worries over China, negative earnings guidance and a realization that the Greece problem had not been solved.

Market Statistics

The markets started off very negative on Friday after China raised the level of reserves banks must hold by +0.5% for the second time in 2010. This spooked the financial markets and sent commodities crashing on worries that China was really going to slow growth. The move by China ahead of their week long New Year celebration that starts on Saturday is another attempt to slow the loan activity level, which had started off the year with a sharp increase in loans.

Banks in China loaned 1.39 trillion yuan in January for the third largest monthly total on record. That compares to a record of 9.6 trillion in loans for all of 2009. The hike in the reserve requirement surprised some analysts because earlier this week the inflation numbers came in at only 1.5% and a level that should have kept the central bank on hold. The new reserve requirements mean that banks will have to keep 16.5% of their assets in reserve at the central bank. The 50 basis point hike will remove about 300 billion yuan from circulation.

Raising the reserve rates is a favorite method for China to remove liquidity. They raised reserve rates about nine times in 2007 and the discount rate six times. The central bank is expected to raise interest rates in Q2 and again in Q3. The central bank pretty much confirmed it would begin a series of tightening steps over the coming months when it promised to normalize monetary conditions. Analysts worry that China might be moving too quickly to slow growth and could end up slowing the global recovery.

The market was also weak after the EU nations offered Greece support but no money. The 16 countries that use the euro currency said only that "we will take determined and coordinated action, if needed, to safeguard financial stability in the euro as a whole." EU leaders said they would seek advice from the International Monetary Fund (IMF) after an assessment is due in March. Greece still needs to borrow 54 billion euros ($75 billion) to fund its 2010 budget. With the EU leaders offering only moral support the odds of borrowing money at a reasonable rate are falling.

Remember the rumor earlier last week about a German led bailout of Greece? Well, German officials are trying very hard to put that rumor to rest saying, "we won't let Greece be alone but there are rules and they have to be respected." That was seen as a "tough love" message to not expect anything from Germany.

Greek Prime Minister George Papandreou has promised to cut the deficit to 8.7% of GDP in 2010 from 12.7% in 2009 and the highest in the EU. Markets doubt he can do it because cuts of that magnitude would produce severe civilian unrest. Unions have already shutdown schools, airports and hospitals over the last several days to protest the austerity measures and a major 500,000-worker strike is scheduled for Feb-24th.

The Euro had rallied on Tuesday on the optimistic rumor of the German bailout. It crashed back to a new eight-month low on Friday at 135.25 to the dollar. On Friday Greece revised its GDP numbers lower for the last nine months meaning the debt to GDP numbers could be even higher than previously estimated. The European Commission immediately asked for the power to audit the Greek numbers in light of the 40 billion in debt the country hid in published documents last year. The commission wants to be sure there are no more cockroaches in the cupboard that Greece failed to disclose.

Chart of the Euro

The Q4 GDP for the entire Eurozone rose only +0.1% after a +0.4% rise in Q3. For the entire year the Eurozone GDP fell by -4.0%. Germany, the biggest economy in the group, registered zero GDP growth in Q4 while Italy and Spain saw their GDP shrink. According to Eurostat, the statistical office of the EU, Greece's economy shrank -0.8% in Q4. Eurostat also said industrial production in the zone fell by -1.7% in December. Germany's statistical office said the country's recovery lost momentum at the end of 2009.

The outlook for the Eurozone is not good. Albert Edwards, a strategist at Societe General, said the Southern European countries are trapped in an over valued currency and suffocated by low competitiveness, a condition that will eventually breakup the euro bloc. "Any help given Greece merely delays the inevitable breakup of the Eurozone."

It was comments like those that started our markets off on the wrong foot on Friday. Problems in U.S. economics also helped push equities lower. The Consumer Sentiment for February fell to 73.7 from the yearly high of 74.4 in January. Survey respondents expected high unemployment to continue and most expected no gains in home values or income for the year ahead. The current conditions component rose sharply to 84.1 from 81.1. However, the expectations component fell sharply to 66.9 from 70.1 and well below the analyst expectations for a gain to 71. The 12-month outlook dropped to 79 from 84. Falling consumer confidence means consumers are going to continue being cautious with their spending.

Consumer Sentiment Chart

Business Inventories for December declined by -0.2% from +0.4% in November. The drop was opposite of an expected gain of +0.2%. The drop in inventories after two months of gains suggests there is the potential for a strong replenishment cycle over the coming months.

Business Inventories

The economic calendar for next week is fairly busy and there are a couple earnings reports that will attract attention. Monday is President's Day and a holiday in the markets. There are no reports on Monday and some of the normal weekly reports have been pushed back a day.

The price indexes would normally be of importance but since there is no inflation in sight they should be ignored by the market, unless of course inflation suddenly appears in one of the reports. The Philly Fed survey is the next most important with a look at the manufacturing conditions in the Fed's Philadelphia region.

Probably the most important is the FOMC minutes for the January meeting. With China trying to slow down growth the market is going to expect the Fed to make changes soon. Bernanke's submitted testimony last week also suggested the Fed was going to take away the punch bowl soon. The minutes from the meeting tell analysts how far along in this process the FOMC was in late January. Thomas Hoenig voted against the last statement and favored a change in the "extended period" clause. However, Bernanke used the exact same extended period language in his prepared testimony submitted to the House Financial Services Committee on Wednesday. I do not expect the FOMC minutes to tell us anything we do not already know but it is always a volatile release.

Economic Calendar

The important earnings next week are Hewlett Packard, Dell, Wal-Mart, PriceLine and Kraft. These are important because they are influenced by consumer spending trends. The consumer is the important part of this recovery and with plenty of cautious guidance from other earnings reporters these will be watched to see if they say something different. Wal-Mart is the largest consumer outlet in the U.S. and what they say will matter.

PriceLine is important because of vacations and business travel. We will be able to tell if travel trends are slowing or accelerating. Dell and Hewlett Packard are an after thought to the PC earnings reports we have already seen but they both serve consumers and businesses.

These will be the last of the big cap majors to report for Q4. After this week the Q4 cycle is officially over although there will still be some stragglers every week. We are only couple weeks away from the start of the Q1 earnings cycle with mid quarter updates and about four weeks from the warnings/guidance period. We are officially half way though Q1 and analysts are busy updating their estimates for Q1 and the full year. Every day that passes now there is a flurry of upgrades/downgrades based on the sector earnings from Q4.

Ingersoll Rand (IR) was the latest Q4 reporter to really stink up the market. IR said sales fell -9.9% and more than analysts had expected. Their competitor United Technology reported a similar 13.5% drop in sales for Q4. IR warned that construction activity remained weak and that was dragging down sales of commercial heating and cooling equipment. The IR CEO warned "We expect challenging U.S. and European construction markets for most of the year and North American commercial markets to decline through the first quarter." On the conference call the CFO said U.S. supermarket chains had cut back on capital spending and weakened demand for refrigerated cases and air conditioning systems. IR reported profits of 48-cents that were below the analyst estimates of 53-cents. IR shares lost 8% on Friday.

Ingersol Rand Chart

Buffalo Wild Wings (BWLD) reported earnings that rose +8% but missed street estimates and Wings crashed and burned. Revenue increased +19.6% but same store sales rose only +2.6%. For a specialty store like BWLD the same store numbers are key. Once the public tires of your menu it becomes very tough to keep posting gains. A company can post overall revenue increases as long as they keep opening stores as we have seen from SBUX, PNRA, KKD, etc. Once they quit opening new stores the comparisons become extremely difficult. Customers tend to burn out on the same specialty menu and begin to stray. If BWLD breaks support at $40 I would start wondering if the Buffalo sauce is starting to lose its addictive appeal.

Buffalo Wild Wings Chart

Not every specialty restaurateur is doomed but it takes a special talent to keep the shoppers coming back year after year. The Cheesecake Factory (CAKE) reported a breakeven quarter but gained +4% on Friday on a marginal increase in revenue and sharp rise in operating margins. The stock is up +145% over the last year so somebody likes mango surprise ice tea. Personally, as somebody raised in the south on real ice tea, I would rather go hungry than eat at CAKE so they are not making those profits from me.

Panera (PNRA) also posted gains on Friday after Q4 profits rose +14% and revenue grew by 2.6%. I though when they had declined to $30 from $76 in 2008 they were going to follow KKD down the tubes but they got their act together and are back at $74 today. I like Panera as a restaurant and a stock given their rebirth and apparent return to profits.

Chipolte Mexican Grill (CMG) was the big fast food winner on Friday with a +3.75 gain to nearly $105. CMG saw its net income rise +86% to $389 million and earnings per share spiked 90% to 99 cents. Obviously that would be a lot of extra burritos to manage that kind of growth. It was not a secret ingredient in the tacos but some book cooking that produced the results. They bought back a ton of shares during the quarter so earnings per remaining share skyrocketed. Still, they must be soaking their beans in a highly addictive solution because they have $270 million in cash and only $3.9 million in debt. Whatever they are doing it has proved to be the right menu for investors with a 97% gain over the last year to close at a new two-year high on Friday at $104.

Chipolte Mexican Chart

Dow component 3M (MMM) lost a buck after Bank America downgraded them to underperform and predicted slow growth during the second half of 2010. 3M joined UTX and Boeing as the biggest losers on the Dow for Friday.

Alcoa and other materials and commodity stocks fell sharply on worries that China's attempt to slow growth would also slow the global recovery and demand for commodities.

Crude prices fell from nearly $76 on Thursday to $72.66 on Friday on the China demand worries and on a rise in inventory levels on the EIA report. The normal Wednesday report was delayed until Friday because of the snow in Washington. The EIA said crude inventory levels rose by 2.4 million barrels in the prior week. This was far less than the API report on Tuesday, which said inventories rose by 7.2 million barrels. The reports rarely agree but over the long term they always report the same thing. Each are produced from different records with a different cutoff. Note in the chart below the difference between reports but they always return to the same levels.

EIA - API Comparison Chart

The API is reporting crude levels at 337.6 million barrels and the EIA at 331.4 mb. Which one will turn out to be correct? Using the EIA numbers crude levels are -5.5% below February 2009 levels.

Gasoline inventories rose by 2.3 million barrels to 5.9% above year ago levels. Refinery utilization spiked sharply to 79.1% from 77.7% in the prior week. Utilization should remain under 80% until the spring maintenance period is over. Crude prices normally bottom around President's Day and then begin their climb as summer gasoline production increases. They normally top out in July/August once it is clear there will be enough inventory of oil and refined products to survive disruptions from the hurricane season.

The price of oil was also hit by the sharp rise in the dollar on Friday as a Greek bailout became less clear. The dollar is poised to break above 80.50 on the dollar index if comments out of the EU Finance Minister meeting on Monday/Tuesday do not assure traders Greece will not be a problem. Crude futures expire on the 22nd so there could be some serious volatility next week.

Crude Oil Chart

Everybody is worried about a Greek debt default and nobody was paying attention to the U.S. bond auction last week. On Wednesday the U.S. sold $16 billion in 30-year Treasuries. Maybe I should say, they auctioned $16 billion instead of sold. There are three types of bidders in a Treasury auction. Direct bidders buy direct from the Treasury Dept and consist of entities like the FED or a U.S. government agency or GSE.

Indirect bidders buy through one of the 18 primary dealers authorized to handle transactions. Indirect buyers are normally foreign governments or central banks. The primary dealers also buy for resale. Primary dealers have to bid on the securities offered in order to make sure the auction does not fail. If they are forced to purchase some debt they have to resell it, sometimes at a discount to free up their capital. Think of them as inventory purchasers of last resort. When nobody else bids the primary dealers have to step up. You don't want to see a lot of primary dealer purchases because it means there were not enough bids.

In Wednesday's auction of 30-year Treasuries the primary dealers bought 47%, indirect buyers 28% and direct buyers 24%. That was a record percentage for direct buyers. There are no records of who those direct buyers are. These are the equivalent of mystery bidders. This could be the Fed or other government entities buying to support the auction and give the illusion of sufficient bidding. From post auction documents we know that the Fed itself did buy 11% of the debt. The indirect buyers at 28% was a sharp decline from the 39.9% average. Indirect buyers are normally foreign governments. That is a troubling drop in purchases by entities that have supported us in the past.

I have been warning you for months that the U.S. was eventually going to have a failed auction that will collapse the house of cards and Wednesday's auction was a warning that we are getting closer.

Another past problem returned on Friday to plague investors. The credit default swaps on Dubai debt spiked to 630 basis points and within 4 points of the November high when the potential default was first announced. This suggests something is happening that has not yet hit the news.

Dubai CDS Chart

Dubai World, owned by Dubai, has debts of more than $60 billion. A Dubai World subsidiary, Nakheel, has billions in property developments and construction on many projects were halted when the recession hit. Without any completions it was impossible for Nakheel to pay off the construction loans when they came due. One loan was in the form of a sukuk or Islamic Bond for $3.52 billion. Abu Dhabi loaned Dubai $10 billion. Of that amount $4.1 billion was used to pay off Nakheel's sukuk and the rest of the money went to pay Dubai World's obligations through April 30th. Over 100 banks are in discussions with Dubai World on the $60 billion it still owes. From the rate of climb on the CDS it would appear the discussions are not going well. This will continue to roil the markets if the problems are not resolved and a new debt crisis is imminent.

On the local front Berkhire B Shares were added to the S&P-500 at Friday's close. BRK.B shares traded 23 million shares on Thursday. On Friday they traded 316 million shares and most of it was order on close buying. That volume means $24.3 billion in Berkshire B shares changed hands on Friday. That has got to be an all time record for market cap traded in one day. Buffet always said he did not want to split his stock because small share prices caused speculative trading while large share prices attracted long term investors.

Buffett had to agree to the 50:1 split in order to complete the Burlington Northern acquisition and avoid a taxable event for BNI shareholders. Buffet had to agree to liquefy his stock as part of the deal with BNI. Shareholders of BNI received $15.87 billion in cash, 80,932 Class A shares and 21 million class B shares. Berkshire became eligible for inclusion in the S&P when they split the stock because it met the liquidity rules for S&P. Since BNI was leaving the S&P it made sense to replace BNI with Berkshire.

Index fund managers buying $24 billion in Berkshire shares on Friday had to sell $24 billion of the other 499 stocks in the S&P. I believe that has been a hidden reason for some of the negativity in the market over the last couple days. $24 billion is a lot of selling even when it is spread over 499 stocks. The next big milestone is the potential inclusion of BRK.B shares in the Russell indexes in June. With their new liquidity they would now qualify.

However, the Russell board has said they view Berkshire as a mutual fund of sorts. Berkshire owns 80+ companies, some of which are still traded and exist in the Russell Indexes. Russell does not put funds in their indexes. This is one more hurdle that Buffet may not be able to cross. The Russell indexes have over $4 trillion in fund investments benchmarked to them worldwide. An inclusion into the Russell would produce another huge round of buying.

When I started writing this commentary on Friday night I was still bearish. By the time I finished on Saturday morning I had changed to borderline bullish. As I research and write each topic I look at charts on each stock mentioned plus several hundred more that never make it into the commentary. Each commentary starts out with a central theme but that theme becomes diffused as each story thread unravels into a dozen sub-threads that are followed to see if there is an underlying relevance or a hidden reason for what happened to the story in that market day.

In my travels this weekend I saw a hundred charts that looked something like the SanDisk and Southern Copper charts below. Rising wedges and rounded double bottoms were everywhere. James and I have a market direction discussion late every Friday night. I pointed out my observations and he correctly reminded me that each one was actually just a bear market bounce until the overhead resistance actually broke.

SanDisk Chart

Southern Copper Chart

I tend to be early on turning point calls and I have paid dearly for that in the past. I have also been on the money and was rewarded handsomely. In considering the outlook for this week I kept coming back to two nagging points. The first is that there is no real reason to buy stocks right now with an entire list of negative points that I won't bother repeating here. Any one of them could tank our markets for several weeks without any warning.

The second point is the reverse of the first one. The market is fully aware of those pending problems and has failed to complete the sell off that started on January 20th. We are roughly four weeks into a decline and we quit declining. The last week the markets posted a gain was the week ended on Jan-8th. There were higher highs in the week ending on the 15th but the Thr/Fri decline took us negative for the week and that loss stretched for four weeks. This was the first week in five that the markets posted gains. They did it with negative economics, dozens of earnings misses and lower guidance, multiple sovereign debt problems, geopolitical concerns in Iran, etc. When the bad news bulls use these bullet points as stepping-stones it is time to pay attention for a possible change in market sentiment.

In the opening graphic you may have noticed I highlighted the Russell 2K, Dow Transports and the Semiconductor Index. All three are considered road signs for market health. If small caps are rising, mutual fund managers are confident the worst is over. If transports are climbing, investors are supposed to be confident about the economic future. Chip stocks are supposed to lead tech stocks out of any market weakness. All three indexes were top performers last week. The energy sector and oil services were also strong on renewed demand expectations prior to China's move on Friday.

A negative factor continues to be the financials. The banking sector was the only sector to post a loss last week. The prospect of debt defaults, new regulation and new taxes on banks is proving to be a strong headwind. Dow Jones reported that the largest U.S. banks have $176 billion in exposure to the four weakest European countries. According to Barclays Capital, 73 banks have $82 billion in exposure to Ireland, $68 billion to Spain, $18 billion to Greece and $8 billion to Portugal. Barclays said the actual risk was limited because the majority of the loans were low-risk collateralized transactions. JP Morgan has $18 billion exposure to Spain while Bank of New York has $2.32 billion exposure to Ireland.

Also weighing on the banks was a warning by Elizabeth Warren, the Chairman of the TARP oversight committee. She warned on Thursday that commercial real estate loans have the potential to wreck the U.S. economy unless regulators prepare now for the coming onslaught of defaults. The report said between 2010-2014 about $1.4 trillion in commercial real estate loans will reach the end of their terms and nearly half are currently underwater. If economic conditions and tighter lending standards mean that borrowers can't refinance, "hundreds" of banks could fail and the economy would suffer. The panel unanimously approved the report.

Warren told reporters on a conference call "There is a serious problem coming and it will hit an already weakened financial system." Small and midsized banks are going to bear the brunt of these loans. The panel found that nearly 3,000 banks have concentrations in commercial real estate loans, including 2,115 banks with only $100 million to $1 billion in total assets. The panel recommends more capital injections for small banks or another government fund to guarantee loans held by smaller banks as well as extending the TALF due to expire this year. The panel also said many small banks should be allowed to fail. "The panel is clear that government cannot and should not keep every bank afloat. Neither should it turn a blind eye to the dangers of unnecessary bank failures and the impact on communities."

I believe it will be hard for the markets to rally far with this cloud hanging over the economy. Unfortunately this is a long-term problem that can't be solved over the next several months. I am not sure investors are focused on the coming problem even though much has been written about it over the last year. I have touched on it a dozen times but it is kind of like peak oil. If you can't see it today and it is not impacting your wallet today then it is out of sight and out of mind.

The banking sector is trading sideways today because of the short-term problems. However, the farther we get into 2010 the closer the long-term problems will become. I believe investors are starting to be concerned even though they don't really understand all the problems.

For the market this is a cancer eating away at the foundations. The broader markets rarely rally for more than a few days if financials are not a part of the rally. In humans, cancers are not always evident on the surface and take a long time to grow into a problem large enough to be recognized and treated. Normally by the time that happens the treatment is far from pleasant and in some cases the cure is worse than the disease.

I believe the broader market wants to rally. Investors have shaken off negative events one after the other and they believe that all the bad news is priced in. Unfortunately I also believe the average investor really does not understand the implications of the current list of problems. They are just tired of hearing about them and they want to get on with the recovery. Traders are longing for the instant gratification of a V bottom recovery and they are ignoring the long-term implications of the worst recession in 80 years.

In the back of their mind they know the U6 unemployment is 17% or roughly 25 million Americans. They know it will take 2-3 years for jobs to return to normal even if we had a robust recovery underway. They know real estate prices could take years to recover. They know there are four million projected foreclosures in 2010. They know the option ARM reset in 2010-2011 is going to add another wave of housing problems. I could go on but you get the picture.

Instead of worrying about all the problems they look impatiently at Apple at $200 and wonder why it is not breaking out to new highs. They see Google flat lining a $530 and wonder why it is still trading $100 off its highs. Why is Goldman Sachs stuck at $150? They paid back the TARP, slashed their bonuses and have no exposure to sovereign debt or hometown commercial real estate. Everyone wants the instant gratification of a rally even when there is no justification for a rising market.

This is why I think the markets are refusing to go down any further. Is it enough to produce a lasting rally, I don't know? It seems like every day that passes brings some new problem that causes some volatility but the impact is temporary. Investors have a short memory and an even shorter amount of patience.

We are still in the "why buy" period between Q4 and Q1 earnings. Despite the early January rally domestic stock funds saw net inflows of only $2.7 billion for the entire month. There were heavy inflows early in the month but also heavy outflows late in the month. International equity funds took in $8.1 billion and the biggest inflows since December 2007. Bond funds were still the big winners with inflows of $28 billion.

Equity ETFs saw $16.7 billion withdrawn in January. That was a 4.8% drop from the December levels. The SPDR SPY ETF had $15.1 billion in outflows. All this data came from Morningstar on Friday.

What does it say for the health of the overall market when there was 10 times the amount of money put into bond funds than equity funds in January? That would appear to me that more than a few investors are worried about the direction of equities.

So where does all this conflicting information leave me this weekend? I think it is the classic confusion of human emotions. The charts look like they want to break through resistance and rally because our emotional bias is normally bullish. I want Goldman to break over the 200-day at $162 so I can buy the breakout but that is an emotional bias not a technical bias. I want SanDisk to break over the wedge resistance at $27 so I see it through my rose-colored chart reading glasses as about to happen. I want to switch to a bullish bias so I see potential bullish breakouts everywhere I look. If I had a bearish bias I would see a potential failure at resistance in every chart.

In times like these we seize on the points that fit our bias and ignore the points that conflict. I like the strong performance of the Russell, Transports and Semiconductors. Unfortunately they don't make up the entire market. They are leading indicators not hard confirmation of a reversal. For next week and probably the next several weeks we need to remain patient and let the market show us where it is going rather than try to pick a path for it. There is always time for an entry. We don't always have to be first in line.

Volume over the last three days has been flat at eight billion shares per day. Actually this was the first Thr/Fri in four weeks that did not see volume spike to 12 billion shares each day. Why? Is the selling over or was the news too confusing? Since it was Friday before expiration and before a long weekend you would have expected a substantial increase in volume. Given the rebound from -160 on the Dow I was actually shocked to see a volume of only 8 billion shares. Normally a strong rebound produces strong volume. That would suggest there were not as many shorts as in the prior weeks. There were fewer positions to be stopped out.

The Dow rallied back from the prior Friday dip to 9835 and settled into a 100-point range from 10,000-10,100. I told you on Tuesday I would still be cautious until the Dow moved back over 10,300 and we are not even close. Initial support is 10,000 and we are nearer to support than resistance making the Dow chart neutral to slightly bearish for direction but we do have four consecutive days of higher lows.

Dow Chart

The S&P-500 remains stuck below initial resistance at 1080 and well below strong resistance at 1100. The range narrowed as the week progressed and the S&P could be coiling for an option expiration breakout or the potential to be pinned to 1080 on expiration. Actually the max-pain strike is 1100. ($110 for the SPY) The difference in open interest between 1090-1110 was negligible so anywhere in that range would equate to the most options expiring worthless. If you move outside that 20-point range there are far more open interest in put options with strikes below 1080 than call options above 1120. This should provide a positive bias of sorts as we near expiration. Of course the impact of options at expiration is only material if there are no other news events slapping the market around.

S&P-500 Chart

The Nasdaq is being led higher by the chip sector and is approaching the resistance at 2195. The corresponding max pain point would be 2225 as calculated by using the option open interest on the QQQQ. Both 2195 and 2225 are strong resistance so a continued tech rally would have to clear both levels to confirm. Hewlett Packard and Dell both report next week and HPQ has a chance at moving the needle on the Nasdaq. Dell is no longer a major Nasdaq mover but their analysis of the 2010 PC market and guidance will still be relative. Initial support on the Nasdaq is 2140.

Nasdaq Composite Chart

QQQQ Chart

SOX Chart

The Russell 2000 is accelerating higher after its touch of the 10% correction level at 584 last week. The max-pain point on the Russell IWM ETF is $62 and you can see why when looking at this chart. Just over 620 is the resistance high from Sept/Oct at 623 as well as downtrend resistance from Oct-2007 (red) so this level will be critical. IF and that is a capital IF, the Russell breaks through the 620+ level the January resistance highs were 648. A breakout there could be a real fireworks show with 100 points of clear air until 755. A move over 620+ would trigger some serious short covering so I would suggest you be prepared with an IWM long "IF" that occurs.

Russell 2000 Chart

In summary it appears the markets are setting up for expiration with a slightly positive short-term bias but with longer-term problems. We could see a move higher next week but it may only be temporary.

In case you are unaware, Sunday, Feb. 14, is Chinese New Year's Day, the start of the new year of 4708. It is the Year of the Tiger. Monday & Tuesday are public holidays in Singapore as well as in Hong Kong and China. The closing of their markets will give U.S. markets nothing to key from until later in the week.

We are a long way from out of the woods from local problems and there are quite a few global challenges to provide distractions. I would be cautious and patient until we get confirmation of any rebound before loading up the truck.

Jim Brown

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Index Wrap

A Mixed Bag

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

While technically the market looks to me like it is in recovery mode, an 'irregular' downside correction with one more down leg, can't be ruled out just yet. The pattern to date fulfills what is usually the case with corrections within an overall (major) uptrend: that of a decline, a rebound, followed by an even sharper decline that may or may not fall as far (from peak to trough) as the first sell off.

In rarer instances there is a THIRD downswing, making the correction a more 'complex' one than the 'simple' and more common a-b-c (down-up-down) pattern. The complex pattern is that of an irregular a-b-c-d-e correction. I don't mean to make this an alphabet soup of complexity and go too deeply into wave analysis, but corrections do tend to follow key wave pattern.

I'll mostly make a case that recent major index lows have completed a bearish correction and that the major up trend will slowly reassert itself. The possibility of another sell off that takes out the lows of the last decline isn't major in my mind. However, when looking at key stocks, it is still a mixed bag in terms of the numbers that appear to be in recovery mode. So, how will we know that bullish strategies are looking 'safer'?

In an uptrend, whether that trend is re-emerging or ongoing, the quality of the advance and clues to the strength of upside momentum is gauged not only by the rallies, but what happens on the declines. If a next decline only retraces a shallow amount of this first rebound from the 2/5 lows and a subsequent rally after that has more stocks participating on the upside, I'd say that the bulls are back in business.

If there's a decline back to the (2/5) lows, followed by a recovery and setting up a double bottom, this is a strong buy. If the (2/5) lows are pierced, then wait for a next buying opportunity. I'd rather buy pullbacks then short rallies at this point. The strongest recovery action so far is with the big cap tech stocks as reflected in the Nasdaq 100 (NDX) Index. The Russell 2000 is also seeing some decent buying in its stocks.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) chart pattern hasn't yet quite completed a bullish turnaround, although SPX has had a decent rebound from its 1044 low. A move above 1100 is needed to suggest that the Index is back on a bullish track. This is not to suggest that a bottom is not already in place (I think it most likely is), but to say that there is not yet sufficient upside progress to turn the intermediate-term trend back up. The drop in bullish sentiment and the oversold readings in at least the 13-day Relative Strength Index (RSI) also suggest that the technical background is favorable for continued upside progress and at least a test of resistance in the 1100 area, once SPX first clears near resistance at 1080.

Near support comes in around 1060, with pivotal support at the recent 1044 low; if this level is pierced on another sell off, my long-standing target is to around 1030, maybe a bit lower and closer to 1000. I see little risk of a decisive downside penetration of 1000 on a closing basis.

Bullish sentiment as seen above in my indicator has continued in the past week to reflect a more cautious market outlook, unlike the prior situation of high CPRATIO readings reflecting an over-optimistic view of market prospects. The Relative Strength Index (RSI), on a daily chart basis, also suggests rally potential with the RSI having fallen recently into definite oversold territory.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart is still somewhat mixed. While a bottom to the recent decline is probably in place, a rebound to back above 505 is needed to suggest renewed upside momentum on an intermediate-term basis and consistent with the still long-term uptrend in the Market.

I wrote last week that OEX (and the other major indices) appeared to have completed the pattern or 'structure' of a "typical bearish correction, within an overall uptrend... (a) second decline tends to bring to a close the a-b-c correction pattern and allow a period of at least sideways movement and price stability if not a definite rally phase." There's nothing to change my mind about yet in this regard.

Near support is at 488, then at the prior low in the 482 area. Near resistance was apparent this past week in the 496-497 area. More 'pivotal' resistance then comes in around 505, extending to 508. 505 looks like it is a potential supply overhang. A move above 500-505, with an ability to stay above 500, is what's needed to suggest the downside correction of mid-Jan to early-Feb has run its course.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow (INDU) Average has cleared minor resistance at 10000-10018. Only the media talking heads place huge importance on 10000 although it is a very identifiable price with some history. As far as the risk of another downswing and challenge to the prior 9835 low, I'm not ruling it out as a possibility but it doesn't look likely to me today.

As to the downside risk of say, being long DJX calls, I'd just note again per my last week's commentary, that "While its possible that INDU might, in some further weakness, test support in the 9700-9680 area, doing so runs counter to some encouragingly signs" (of a bottom).

Very near support is in the 9980 area, with next and key support suggested by the prior 9835 low, with major support at 9700-9680.

I didn't note it on my INDU daily chart here, but near resistance is at 10140-10160, extending up to 10200. A pivotal resistance then is suggested by the prior rally high at 10315, with fairly major resistance beginning around 10400.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) chart would present an evolving or strengthening bullish pattern if the Index next clears 2200-2225. Right now the chart is encouraging for a bottom. If prices continue to work higher in tech, it will look like a V-bottom has formed.

Near resistance as noted comes in around 2200, extending to 2227. Fairly major resistance begins at 2270, then reaching 2325.

Near support in COMP is seen around 2130, then down to 2100, with major support beginning in the area of the early-November low at 2024.

Sentiment readings have moderated from the 'overbought' high bullish figures seen in early to mid-January and as recently as early-February which is a bullish plus in a 'contrary opinion' sense.

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) is maintaining a bullish recovery after completing a 2/3rds, 66%, retracement of the late-October to mid-January run up. A retracement of this amount (66%) is within what I consider to be the 'normal' retracement parameters of a prior uptrend. No reversal (of the dominant trend) was/is suggested.

Moreover, a prior important upside chart gap got 'filled in' once NDX hit 1734 and that also suggested an area of support was reached. I don't anticipate lower lows than seen already at 1712 (intraday). That dip was of course a bit under the 1734 level that was an exact 66% retracement. I tend to 'throw out' such anomalies; a result of a final bout of panic-selling.

Near support is at 1734, then around 1712, with fairly major support suggested by the important 1652 low of late-October, which came at the end of another a-b-c correction.

Near resistance comes in around 1788, with next resistance in the 1818 to 1826 area. A move back above the 50-day average would be a bullish plus, as already seen with a few key tech stocks; e.g., Intel (INTC), with CSCO (Cisco Systems) and AAPL (Apple) also hovering around this key moving average as of this past week.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQQ) looks to have formed a V-shaped bottom, with a next key test of this bullish pattern coming in at 44.0 resistance. A next key resistance then is seen around 44.8.

Near support is in the 42.75 area, then at the prior 42.1 intraday low.

The volume pattern, as suggested by the upward trending On Balance Volume (OBV) line, continues to suggest that there's accumulation of the stock of late and supports the case for higher prices ahead for the current recovery rally. The jumps in daily trading volume as prices went into free fall in late-January into early-February looks like it reflects significant 'capitulation' by previously bullish holders of the stock. This is a positive sign for those who bought the last dip.

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) Index, after its brief mini waterfall decline to 580, has rebounded strongly along with the Nasdaq. RUT has some way to go to regain the rate of trendline ascent it had until the sell off and trendline break of late-January. Nevertheless, the Index has some decent current upside momentum.

Next resistance is coming up at 616, extending to around 620. Tougher resistance comes in at 633 and then at the previously broken up trendline, currently intersecting at 647, which is also near the prior 649 high.

Near support is at 600, then around 580 and next at 568, support implied by the late-November intraday low.

GOOD TRADING SUCCESS!



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 bullish 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 tend to 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

If You Trade At All

by James Brown

Click here to email James Brown

Editor's Note:

Once again I am urging readers to be cautious here. Stocks are having difficulty with their oversold bounce from support. This sideways choppiness is evidence of investor confusion as the market tries to sort out all of the ramifications of China trying to slow its economy, the rebound in Europe stalling, the European debt crisis with Greece and similar countries, and some truly lackluster economic data out of the U.S.

Sometimes the best trade is no trade at all. It's okay to sit back and wait. There is always another opportunity. On a very short-term basis the stock market acts like it wants to trade higher. However, I want to point out that this could very easily be a bear-flag formation that will eventually breakdown into a new leg lower.

I am suggesting some bullish candidates today but they're all very aggressive trades. I would use small positions to limit your risk if you trade them at all.


NEW DIRECTIONAL CALL PLAYS

Autozone Inc - AZO - close: 160.85 change: +2.20 stop: 154.95

Why We Like It:
I've had my eye on AZO for a while. Back on January 27th I thought it might have been a bearish entry point with the failed rally but there wasn't much follow through. Shares have been building on technical support with its rising 50-dma. The stock garnered an upgrade from Citigroup on Feb. 8th. This past Friday shares broke through round-number resistance at $160.00. Overall the stock is showing relative strength. It did not breakdown with the S&P 500 and now it's challenging the December highs. Odds are good the rally continues.

The late December 2009 high was $161.33. I am suggesting we open bullish call positions at $161.75. If triggered our first target is $167.50. We might consider adding a second target down the road. The Point & Figure chart is very positive with a bullish signal forecasting a $198 target.

Suggested Options:
Use a trigger at $161.75. I'm suggesting the March $165 calls.

BUY CALL MAR 165 (AZO1020C165) open interest=1657 current ask $3.00

Annotated Chart:

Entry  on  February xx at $ xx.xx <-- TRIGGER @ 161.75 (small positions)
Change since picked:       + 0.00
Earnings Date            03/02/10 (unconfirmed)
Average Daily Volume =        538 thousand 
Listed on  February 13, 2010         


Wynn Resorts - WYNN - close: 63.04 change: -1.92 stop: 61.99

Why We Like It:
The casino stocks can be a volatile bunch but if you can catch the beginning of a trend it can be very profitable. Shares of WYNN soared on Thursday with an apparent breakout from a sideways consolidation along support (see chart). Unfortunately there was no follow through on Friday. WYNN is due to report earnings in less than two weeks and I suspect the stock could see a pre-earnings run. WYNN's performance might be heavily influenced by rival LVS, who reports earnings on Feb. 17th this week.

I want to see some confirmation in shares of WYNN so I'm suggesting a trigger to buy small bullish call positions at $65.51. This would be above Thursday's high and above all its significant moving averages. If triggered at $65.51 our target is $71.90, just under the January highs. This is definitely an aggressive play with a short-term time frame and a volatile sector.

Suggested Options:
If triggered at $65.51 I am suggesting the March $70 calls.

BUY CALL MAR 70.00 (UWY1020C70) open interest=2097 current ask $1.39

Annotated Chart:

Entry  on  February xx at $ xx.xx <-- TRIGGER @ 65.51 (small positions)
Change since picked:       + 0.00
Earnings Date            02/23/10 (unconfirmed)
Average Daily Volume =        2.2 million  
Listed on  February 13, 2010         


United States Steel - X - close: 47.98 change: +0.97 stop: 43.99

Why We Like It:
We bought the bounce in X back on February 4th and then gave up immediately when there was no follow through. It looks like we should have held on. Traders have bought the dip near $44.00 several times now. Shares are now rebounding past technical resistance at its 100-dma. The move over the past couple of weeks looks like a short-term bottom.

Last week I considered it an aggressive buy and I still consider X an aggressive, higher-risk buy today. Use small positions at current levels (or you could wait for a dip back toward $46.50 as your entry point). Our first target is $51.75. Our second target is $54.00.

Suggested Options:
I am suggesting the March $50 calls.

BUY CALL MAR 50.00 (X1020C50) open interest=8677 current ask $2.24

Annotated Chart:

Entry  on  February 13 at $ 47.98 (small positions)
Change since picked:       + 0.00
Earnings Date            04/27/10 (unconfirmed)
Average Daily Volume =       23.3 million  
Listed on  February 13, 2010         



In Play Updates and Reviews

Oversold Bounce Is Struggling

by James Brown

Click here to email James Brown

Investors are still nervous and confused. Stocks remain somewhat oversold and could easily rebound but the market is lacking a catalyst to lift stocks higher. The path of least resistance may still be down.


CALL Play Updates

Freeport McMoran - FCX - close: 73.68 change: -0.49 stop: 68.75

Euro weakness gave the dollar a little lift and commodities struggled on Friday. Shares of FCX gapped open lower only to rebound off their lows. The short-term trend is still up. I don't see any changes from my prior comments. After forming a double bottom near its 200-dma FCX is poised to rally toward resistance at its 50 and 100-dma near $78.00.

We have already taken profits once. Our second and final target is $77.50. I am not suggesting new positions at this time but nimble traders can certainly try new positions here although you may want to consider a tighter stop loss.

Suggested Options:
No new positions at this time.

Annotated Chart:

Entry  on  February 06 at $ 70.23 
Change since picked:       + 3.45
                                /take profits now @ 74.17 (+5.6%)
Earnings Date            04/22/10 (unconfirmed)
Average Daily Volume =       20.6 million  
Listed on  February 06, 2010         


PUT Play Updates

Apple Inc. - AAPL - close: 200.38 change: +1.71 stop: 210.51

Friday morning shares of AAPL were upgraded to a buy and given a $280 price target. This helped the stock outperform the market with a 0.8% gain and a close over round-number resistance at the $200 mark. Yet the rally stalled at its 50-dma. A little oversold bounce would be normal but I would wait for the bounce to stall or roll over before initiating new positions. Look for additional resistance near $205. More conservative traders may want to lower their stops closer to $206.

Our first target to take profits is at $182.50. Our second target is $165.00 although we might exit at the 200-dma. This is an aggressive trade and I'm suggesting small positions.

Suggested Options:
Wait for a new entry point. I was suggesting the March $180 puts.

Annotated Chart:

Entry  on   January 28 at $201.08 (small positions)/gap open entry
Change since picked:       - 0.70
Earnings Date            01/25/10 (confirmed)
Average Daily Volume =         26 million  
Listed on   January 28, 2010         


Abbott Labs - ABT - close: 53.93 change: +0.39 stop: 55.05

ABT is still churning sideways between technical support at its 100-dma and overhead resistance near $55 and its 50-dma (54.25). On a very short-term basis the recent bounce does look bullish. I'm suggesting readers wait for the bounce to fail and roll over before initiating new positions. our first target is $50.15. More aggressive traders can target the 200-dma or support near $48.00.

Suggested Options:
Wait for the bounce to fail. I'm suggesting the March $50 puts.

Annotated Chart:

Entry  on  February 10 at $ 52.80
Change since picked:       + 1.13
Earnings Date            04/21/10 (unconfirmed)
Average Daily Volume =        7.5 million  
Listed on  February 09, 2010         


Franklen Resources Inc. - BEN - close: 97.86 change: -0.13 stop: 105.26 *new*

BEN has been trading sideways for a week now. Traders are buying the dip near $96 but the stock has found new resistance near $98.50. The stock is going to break one way or the other. If it moves higher we can look for resistance near $100 and at the 50-dma near $105. I'm not suggesting new bearish positions at this time. Please note that the 200-dma has risen to $92.64. I am raising our exit target from $92.50 to $93.50. I'm also adjusting the stop loss down to $105.26.

Suggested Options:
No new positions at this time.

Annotated Chart:

Entry  on   January 30 at $ 99.59 /gap higher entry point (small positions)
Change since picked:       - 1.73 
Earnings Date            01/28/10 (confirmed)
Average Daily Volume =        1.2 million  
Listed on   January 30, 2010         


General Dynamics - GD - close: 67.95 change: +0.15 stop: 70.55

GD is still churning sideways. Traders bought the dip again on Friday morning. I would expect a bounce toward the 50-dma (near 68.63) or toward the $70.00 level. We're better off waiting for the bounce to fail and roll over before initiating new positions. There is potential support at $65 and the exponential 200-dma but we want to aim for the simple 200-dma near $62.01. Our official exit target is $62.60.

Suggested Options:
Wait for a new entry point (failed rally). I'm suggesting the March $65 puts.

Annotated Chart:

Entry  on  February 10 at $ 67.64
Change since picked:       + 0.31
Earnings Date            04/28/10 (unconfirmed)
Average Daily Volume =        2.4 million  
Listed on  February 10, 2010         


Goldman Sachs - GS - close: 153.93 change: -0.12 stop: 156.05

Shares of GS are still going nowhere fast. The consolidation is actually narrowing and that would suggest a breakout is imminent. If shares move higher they should find resistance at $160 and the converging 50 and 200-dma near $162. Technically seeing the 50-dma cross under the 200-dma is called a "death cross" because it's very bearish longer-term. Overall I don't see any changes from my prior comments. GS could chop around the $150-160 zone for days. If we see a really clearly defined failed rally near the $160 level we might jump in. Otherwise we'll stick to the plan, which is using a trigger to buy puts at $147.45. If triggered our first target to take profits is at $138.00.

Suggested Options:
If GS hits our trigger I am suggesting the March $140 puts.

Annotated Chart:

Entry  on  February xx at $ xx.xx <-- TRIGGER @ 147.45
Change since picked:       + 0.00
Earnings Date            04/13/10 (unconfirmed)
Average Daily Volume =         17 million  
Listed on  February 00, 2010         


Gymboree - GYMB - close: 41.76 change: -0.09 stop: 42.26

I think our GYMB play could be in trouble. We originally listed the February $40 puts. February options only have four trading days left. GYMB has been showing relative strength the last two weeks with a bounce toward resistance near $42.00. I am not suggesting new bearish positions at this time. I'm reducing our exit targets to one at $35.50.

Suggested Options:
No new positions at this time.

Annotated Chart:

Entry  on   January 23 at $ 39.74 
Change since picked:       + 2.02
Earnings Date            03/04/10 (unconfirmed)
Average Daily Volume =        513 thousand 
Listed on   January 23, 2010         


Intl. Bus. Mach. - IBM - close: 124.00 change: +0.27 stop: 131.55

IBM has been trading sideways in the $122-124 zone for days now. It looks like shares want to bounce. The stock should find technical resistance at its 100-dma and the 50-dma (near $128 for the 50-dma). Our plan has not changed. I'm suggesting a trigger to buy puts at $127.00. If triggered at $127.00 our first target is $122.00. Our second target is the 200-dma.

Suggested Options:
If triggered I am suggesting the March $125 puts.

Annotated Chart:

Entry  on  February xx at $ xx.xx <-- TRIGGER @ 127.00
Change since picked:       + 0.00
Earnings Date            04/20/10 (unconfirmed)
Average Daily Volume =        8.2 million  
Listed on  February 03, 2010         


Infosys Tech. - INFY - close: 54.03 change: -0.24 stop: 55.15

The oversold bounce in INFY has stalled right where we expected it to near the 50-dma. It is certainly possible that the rebound continues but the $55 level should also offer overhead resistance. More conservative traders may want to wait for shares to reverse before launching new put positions. Our first target is $50.15. Our second target is $46.50. The plan was to use the March $50 puts.

Suggested Options:
I was suggesting the March $50 puts.

Annotated Chart:

-2nd Entry-
Entry  on  February 11 at $ 53.90
Change since picked:       + 0.13
Earnings Date            04/15/10 (unconfirmed)
Average Daily Volume =        1.5 million  
Listed on   January 25, 2010         


JPMorgan Chase - JPM - close: 38.95 change: -0.07 stop: 41.65

The oversold bounce in the banks has definitely stalled as investors worry about the pace of economic growth and the European debt challenges. JPM should have resistance near $40.00 and its 200-dma. If shares do make it past the 200-dma there should be additional resistance at the 50-dma near $41.25. It appears that the 50-dma will cross under the 200-dma soon, which is a very bearish signal. I'm suggesting readers open positions on a bounce or failed rally near $40.00. Our first target to take profits is at $35.25. Our second target is $32.00.

Suggested Options:
If you hold the February $38 puts you only have four days left before February options expire. I also suggested the March $35 puts, which should still work for us.

Annotated Chart:

Entry  on   January 26 at $ 38.44 
Change since picked:       + 0.51
Earnings Date            04/15/10 (unconfirmed)
Average Daily Volume =         46 million  
Listed on   January 26, 2010         


Mckesson Corp. - MCK - close: 58.99 change: +0.00 stop: 62.51

MCK has been consolidating sideways in the $58-59 zone for a week now. If shares do rebound we can look for resistance near $60.00 and again near the 50 and 100-dma near $61.50. While we can open positions now I'm suggesting readers wait for a bounce or failed rally near the 50-dma. Our first target to take profits will be $54.00.

Suggested Options:
If you're holding the February $55 puts you may want to exit early now! The March $55 puts I suggested still work for us.

Annotated Chart:

Entry  on   January 30 at $ 58.82 
Change since picked:       + 0.17
Earnings Date            01/26/10 (confirmed)
Average Daily Volume =        2.8 million  
Listed on   January 30, 2010         


MEDCO Health Solutions - MHS - close: 62.12 change: -0.66 stop: 64.26

So far so good. MHS bounced just as expected and hit our trigger to buy puts at $62.75. I would still consider positions now but you could choose to wait for shares to challenge their 50-dma near $63.65. The 50-dma and the $64.00 level should be overhead resistance. Our first target is $57.50.

Suggested Options:
I am suggesting the March $60 puts.

Annotated Chart:

Entry  on  February 11 at $ 62.75 
Change since picked:       - 0.63
Earnings Date            02/23/10 (unconfirmed)
Average Daily Volume =        3.2 million  
Listed on  February 09, 2010         


Retail Holders - RTH - close: 91.54 change: -0.35 stop: 94.10

There was no follow through on Thursday's bullish reversal candlestick. News from the Commerce Department that retail sales rose in January had no real affect on the sector or the market. If the RTH does bounce we can look for resistance near $93 and its 50-dma. I am suggesting new positions now or on a bounce near $93.00. Our first target is the $87.00 level. The 200-dma will probably be support. The RTH moves kind of slow so make sure you use an option that gives you enough time.

Suggested Options:
I originally suggested the March $90 puts. Readers may want to consider April puts.

Annotated Chart:

Entry  on   January 23 at $ 91.42 
Change since picked:       + 0.12
Earnings Date            --/--/--
Average Daily Volume =        1.7 million  
Listed on   January 23, 2010         


SIEMENS - SI - close: 85.06 change: -2.07 stop: 92.05 *new*

It was a good day for the bears. European markets trended lower. Shares of SI gapped open lower in the U.S. and closed under technical support at their 200-dma. The 50-dma has fallen to $91.77 so I'm lowering our stop loss to $92.05. I am not suggesting new positions at this time. SI has already hit our first target at $87.55. Our second and final target is $81.00.

Suggested Options:
No new positions at this time.

Annotated Chart:

Entry  on   January 26 at $ 94.34 /gap higher entry
Change since picked:       - 9.28
                            /1st target hit @ 87.55 (-7.1%)
Earnings Date            01/26/10 (confirmed)
Average Daily Volume =        368 thousand 
Listed on   January 26, 2010         


United Technology - UTX - close: 65.69 change: -1.02 stop: 69.05

The trend is down as UTX sank toward its recent lows but traders bought the dip near $65.00 again. That's the second time in a week. It's possible this is a bullish double bottom forming. While the trend is bearish I hesitate to launch new positions at this moment. Shares might still rebound toward $68.50 or the 50-dma near $69.00. Our target to take profits is $61.00 near the rising 200-dma.

Suggested Options:
No new positions at this time.

Annotated Chart:

Entry  on  February 04 at $ 66.38 
Change since picked:       - 0.69
Earnings Date            04/21/10 (unconfirmed)
Average Daily Volume =        5.1 million  
Listed on  February 04, 2010         


CLOSED BULLISH PLAYS

Teva Pharmaceutical - TEVA - close: 58.86 change: +0.56 stop: 56.45

Time is up. TEVA rallied higher into the weekend. Shares look poised to challenge the $60 level soon. Unfortunately we're out of time. Our plan was to exit on Friday at the closing bell to avoid holding over earnings on Tuesday morning (market is closed on Monday).

Chart:

Entry  on  February 02 at $ 57.58 
Change since picked:       + 1.28 <-- early exit (+2.2%)
Earnings Date            02/16/10 (confirmed)
Average Daily Volume =        6.0 million  
Listed on  February 02, 2010