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Daily Newsletter, Saturday, 12/11/2010

Table of Contents

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

Market Wrap

New High Friday

by Jim Brown

Click here to email Jim Brown

Friday was a new two-year high for the Nasdaq, S&P, Russell, Wilshire 5000, NYSE Composite and the Dow Transports. Only the Dow itself failed to keep pace.

Market Statistics

Helping push the markets higher was a stronger than expected Consumer Sentiment report for December. The headline number jumped to 74.2 from 71.6 in November. This is the highest level we have seen since June's 76.0 reading. The summer decline ahead of the elections appears to have ended and sentiment has surged +6.5 points in just the last two months.

The rebound in December was due to a strong increase in the present conditions component from 82.1 to 85.7. This is the highest level for that component since January 2008. The expectations component rose from 64.8 to 66.8. Consumers appear to be pleased with the outcome of the election. I wrote last month I expected a large spike once the election was behind us. Once the tax compromise is passed I expect another large spike. Consumers are always happy about keeping more of their own money and not being faced with the incredible shrinking paycheck.

This was good news for the market. As consumer sentiment improves market sentiment will improve.

Consumer Sentiment Chart

On the negative side the budget deficit for November was -$150.4 billion. That was a 25% increase over November 2009 and the largest November deficit on record. Revenues were up +12% but outlays increased by +18%. The government's fiscal year begins in October and for the first two months the deficit has totaled $290.8 billion. The government is projecting a $1.3 trillion deficit for the entire year or 9% of GDP.

After a week of limited economics the coming week has a full calendar. Leading off will be the FOMC meeting on Tuesday. That will be the highlight of the week and although there will be no change in rates the Fed is expected to update the status of the QE2 program. The dollar is rising along with bond yields and that is exactly the opposite of what the QE2 program is supposed to accomplish. Some analysts believe the Fed may halt the program, stretch it out or scale it down in the face of improving economics. Late Friday the NY Fed said it would spend $105 billion in QE2 treasury purchases next month. That is right inline with their announced targets so there appears to be no slacking off yet. This makes the Tuesday announcement of critical performance.

Following the FOMC announcement in importance are the two price indexes. The Producer Price Index and the Consumer Price Index will show how much inflation or lack of inflation is currently working its way through the system. Next up is the first of the regional Fed manufacturing reports with the Philly Fed Survey. The Philly Survey is seen as the best correlation to the national ISM two weeks later.

Jobless Claims will be also be closely watched as the numbers continue to trend lower and closer to the high 300,000 range. That first week with a jobless claims number starting with a three will be very market positive. Jobless claims have not been under 400K since June 2008. The weekly high was 674,000 in March 2009. The low for this cycle was 410,000 two weeks ago.

Economic Calendar

Bonds continued to sell off with yields on the 10-year approaching six-month highs on expectations lawmakers will eventually reach a compromise on the tax deal. Add in the spike in consumer sentiment and the improvement in the recent regional surveys and bonds are not looking like a safe haven any more.

Pimco, the world's largest bond fund, is raising its forecast for U.S. growth next year as policy makers pump in a "massive amount" of stimulus into the economy, according to CEO Mohamed El-Erian. Pimco raised their estimates for growth to the 3.0-3.5% range from 2.0-2.5%. JP Morgan raised their estimate to 3.5% and Morgan Stanley raised estimates to 4% from 2.9%.

The trade deficit narrowed by 13% in October to $38.7 billion and smaller than the lowest estimate of 78 economists surveyed by Bloomberg. It was also the smallest deficit since January. Exports were the strongest since August 2008 because Mexico and China bought record amounts of U.S. products.

Edward Yardeni said in an interview on Friday his 2011 year-end target is between 1400-1500 because of improving global fundamentals and expected earnings on the S&P of $100 in 2011. He made the point that calculating the future of the S&P is easy with an even $100 in earnings. If you believe the S&P at the end of a robust 2011 should have a PE of 17 or 18 then the S&P would be 1700-1800. (17 x $100 earnings) He did not go that far in his predictions but left the door open for observers to pick their own number.

He also reminded everyone the third year of a presidential election cycle has averaged a 20% gain since 1962. There are various political reasons for that trend that I won't go into here. That historical trend along with the post recession rebound could produce a surprising rally in 2011.

One of the big market movers on Friday was GE with a 3.5% gain because they raised their dividend for the second time this year. GE raised their dividend by 17% from 12-cents to 14-cents. Personally that is about as exciting as a week old newspaper but there are people who get excited about those kinds of increases.

Shortly after GE announced its dividend increase Honeywell said it was raising its annual dividend +10% from $1.21 to $1.33 per share.

With corporations currently holding nearly $2 trillion in cash many analysts believe half of the companies in the S&P will raise their dividends in 2011. With nearly 50 S&P companies already yielding near 5% the outlook for equities is much better than bonds.

I warned you on Thursday night we were expecting economic news and a possible rate hike out of China on Friday and Saturday. The news was not good. China's consumer prices rose +5.1% driven by higher costs for food. That was well above the 4.7% consensus by analysts. It was also significantly higher than the 4.4% rate in October. Producer prices rose by 6.1% and a full point over estimates. Industrial output rose +13.3%, also stronger than analyst estimates. Retail sales jumped +18.7% and fixed asset investments rose by 24.9% year to date, also higher than expected. Their trade surplus was $22.9 billion. (That compares to our trade deficit of $38.7 billion) Broad money supply or M2 rose by 19.5% and the fastest gain in six months. M2 has risen +55% over the past two years and yuan denominated loans have risen 60% to 47.4 trillion yuan from their low in November 2008. China wants to limit that to 7.5 trillion yuan in 2011.

China responded to these exploding numbers by raising the reserve rate another 50 basis points and the sixth time they have raised the rate this year. This will pull another $53 billion out of banks and into the government account. Chinese economists were meeting on Saturday and they were expected to announce an interest rate hike in addition to the reserve hike. As of 6:PM Saturday there had been no announcement. One prominent Chinese official said in a speech China could not afford to raise rates because it would attract too much money to the country and push inflation higher. China is already under fire for its strong currency and raising rates would only make it stronger. This should be an interesting decision by Chinese officials.

They need to do something or they are going to flame out. I can't even comprehend an 18.7% jump in retail sales in November. The U.S. is expecting a +1% increase when sales are reported on Tuesday. Chinese auto sales spiked +27% in November to 1.7 million vehicles. Think about that number. Sales for the year have already reached 16.4 million vehicles with 18 million expected by year-end. Streets are becoming so crowded some cities are rationing license plates. In Shanghai the available plates are sold by auction and prices average $6,000 or more.

When reporters on TV talk about the growth in emerging markets and the boom in China I don't think the majority of listeners actually understand how fast they are growing. Those numbers above are simply astounding. More than anything else it brings home for me the rapid approach of peak oil. A country growing that fast is ramping up its consumption of crude products by numbers we can only guess at. Officially oil demand in November was reported to have increased +9.4% in China but I expect it was more. Just adding 1.7 million vehicles a month is a monster increase in fuel demand. If each one of them ONLY burned 5 gallons per week that is an increase of 202,000 barrels of gasoline per week. Next month you add another 1.7 million vehicles and so on. You would think eventually gasoline consumption would go down because the cities will be so gridlocked with cars nobody will be moving. They don't have the systems of lights and interchanges we have in America. Analysts believe China will have 200 million passenger cars by 2020 from less than 85 million today. There are 199 million vehicles of all types in China today and that is expected to double. Add 200 million vehicles in ten years and what does that do to oil demand?

China understands this problem and they are spending a fortune to delay it. A person in one of five pilot cities can buy a 150,000 yuan ($23,000) electric car for about 80,000 yuan ($12,121). The central government will give them a 60,000 yuan subsidy and the local government will donate another 10,000 yuan. China wants to have five million electric cars on the road by 2020 to cut down on the amount of oil they are going to need. Sorry guys but doing the math on that last paragraph still puts you in a heap of trouble. 85 million cars today going to 200 million by 2020 for an increase of 115 million and only 5 million are going to be electric? That is a drop in the proverbial bucket for cutting oil demand.

I am going out on a limb here and predict they will have far less than 200 million cars because peak oil's arrival in 2014 is going to make gasoline so expensive nobody in China will be able to afford to drive. Peak oil is going to be a game changer and produce the mother of all global recessions and it will be here before you know it.

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In stock news Tenet Healthcare (THC) turned down an offer from Community Health (CYH) of $6 per share or $7.3 billion including debt and called the offer inadequate. Shares of THC rallied +55% to $6.65 as the biggest percentage mover in the market. Tenet then started trash talking Community Health in an effort to prevent a higher offer. Tenet said it had serious concerns about Community Health's ability to integrate and operate a business like Tenet and then meet its own guidance for 2011 given Community's slowing growth. (ouch) Tenet sent a letter to Community saying they were worried about Community's debt levels, excessive leverage and risky capital structure. Tenet evidently thought by highlighting certain questionable items in the Community closet the board might not be so ready to up the ante for Tenet.

However, this offer puts Tenet in play and even with the 55% spike in the stock price analysts are betting there is another offer coming from somebody else. Offers tend to wake up the competition and trigger other offers. Raymond James said the Community offer was "grossly undervalued." Hospital operator Health management Associates was mentioned as a potential bidder.

Tenet Chart

Kindle sales are exploding and sales of real books are not. At least that is what Borders Group was saying on Friday. BGP posted a bigger loss than expected and a steep drop in sales. The company said it could face some credit issues if liquidity does not improve. Borders said traditional book sales were declining thanks to the proliferation of e-readers and electronic books. Odds are growing of a merger of Barnes & Noble and Borders as they combine to take on Amazon. Borders shares fell 11% on the news.

Green Mountain Coffee Roasters (GMCR) lost 10% on Friday after posting lackluster results and saying prior guidance was unreliable. A couple analysts came out in support of GMCR but they were less than convincing. Saying prior guidance was unreliable and then canceling future guidance is not particularly a confidence builder for shareholders.

Beckman Coulter (BEC) rallied +26% after saying it had retained Goldman Sachs to review offers. Apparently several private equity firms are interested in a firm that generates lots of cash and will see a significant increase in demand from the health care reform. Blackstone and Apollo are two of the companies interested in BEC. Charles River Labs (CRL) is also being pushed by two large investors to sell after receiving expressions of interest from PE firms.

National Semi (NSM) shares lost 8% after their disappointing earnings on Thursday night. Two of National's three largest customers placed healthy orders for holiday products but the third company lowered its orders. Everyone is wondering which phone company is the sick one. More than 25% of National's chips go into mobile phones. We know Apple is not having any trouble with sales so that narrows the field. I would think it is a toss up between Motorola and Nokia.

The Youku.com (YOKU) IPO on Wednesday soared from its opening price of $27 to a high of $50 on Friday. It was a brief 15 minutes of fame. The stock closed well off its $50 high at $36.80 and a loss of $5 on the day as revelations about its business started going public. The company said it only made $30 million for the last nine months and at the highs of the day had a $5 billion market cap. It also disclosed the content on its website could be found objectionable by Chinese authorities. It appears people who thought it was a bargain three days ago found out that reality was very different.

Bernie Madoff's oldest son Mark, the one that turned him over to the FBI, committed suicide on Saturday because he could no longer endure the hostility directed at him by investors and the public. Mark was never charged with any crime and he and his brother repeatedly claimed they knew nothing of the scheme until their father broke down and confessed. Saturday was the two-year anniversary of the call to the FBI. Mark hanged himself in his apartment in New York. He left behind his wife and two kids ages 2 and 4.

Mark Madoff

The Nasdaq has posted gains for eight consecutive days but retail investors still don't trust the rally. There is still a high degree of denial even though five of the top six indexes have broken out to new multiyear highs. I don't know why it is so hard for people to accept the trend and the reasons behind it.

I had quite a few readers email me after Thursday night's market commentary. One of them, a subscriber since 1999 and a fund manager reminded me of the famous Jesse Livermore quote.

"It is not our duty as speculators to be on the bull side or the bear side, but upon the winning side."

That has never been more true. We can get ourselves all twisted up in knots worrying about the various things impacting the economy and end up watching the markets run away from us because we are distracted about what might happen instead of what is actually happening.

Another reader also a 10-year subscriber said this: Hi Jim, I have been a subscriber for a long time, and made good money. I get up every morning, look in the mirror, and say to myself, "You are one of the dumbest people in the market, and you have to work harder than anyone else today." It takes away the idea, that you are smart. Then just follow the damn trend, until, of course, its wrong.

Sometimes we try to over think what we are seeing. Some people apply conspiracy theories about market manipulation and some go to great lengths to make some technical chart pattern fit what they want to see. I guarantee you if you want to see a bearish pattern you can find one to fit. Likewise if you are bullish then all the patterns you apply are likely to be bullish.

If you want to know which way the market is going ask a 5-year old like my grandson. "Preston, is that chart line moving up or down?" They will look at you like your trying to trick them and then tell you what they see without their interpretation being colored by any knowledge of chart patterns. He will say, "grandpa that line is going up." Sometimes it is just that simple.

Lastly our bias is colored by what we hear in the news. For instance, U.S. equity fund flows have been negative 13 of the last 16 months. People have been scared out of the market. Repeating that in the news keeps people out of the market.

One more email: Jim, I wasn't playing the market for the first 5 months of this year... left a lot of money on the table... felt the same way RP did... didn't understand why the market was going up! If it wasn't for you and the staff at Option Investor/OilSlick.com I would still be setting on the sidelines. Thanks for your insightful, enlightening commentary.

Are you sitting on the sidelines paralyzed by fear the market could drop? What will it take to get you back in the game? I believe we have the greatest setup of this decade in front of us for the next 12 months. The global economy is recovering. The political picture has changed. Earnings are going to improve significantly. And, drum roll please, the Fed is going to guarantee a higher market six months from now. You have to decide if you are going to look back from S&P 1450 at the end of 2011 and be thankful you were a player or be frustrated because you waited on the sidelines for the crash that never came.

Don't get me wrong. The market is going to go up and it will go down. I just believe it will go up more than down and we could end up 20% higher or more a year from now.

I believe we are going to see some window dressing over the next three weeks as fund managers chase performance into year-end. There is always the possibility of a pullback once December 31st is behind us. That January/February portfolio shuffle is common but it is not to be feared but to be celebrated as a buying opportunity.

The S&P consolidated all week after the big gains from the prior week. Fortunately as the week progressed there were higher lows and higher highs until the shorts threw in the towel on Friday. Being a short has been a frustrating pastime recently. There were declines at the open both Wednesday and Thursday that were the perfect trap for a waiting bear. Neither had any follow through and the S&P closed at the high of the week.

Support is now 1225-1228, the level that produced resistance fear in the bulls last week. Now it is support with 1250 the next resistance target followed by 1270.

A reader asked me Friday if the market was showing a "cup and handle" formation and how reliable those formations are. They are actually one of the most reliable patterns and they are bullish.


S&P-500 Chart - Weekly

The S&P has broken over resistance at the top of the handle and has plenty of room to move before testing material resistance around 1270. There could be a psychological bump at 1250 since so many brokers have targeted that all year as the expected level at year-end. There could be some sell programs waiting there for an opportunity to take profits. Strong support is now 1200 and rising.

S&P-500 Chart - Daily

The Dow is showing the same handle but has not yet broken out. Money is still flowing out of the big cap techs/industrials and moving into small caps in anticipation of a continued rally in 2011. The Dow was only up .25% for the week but the Russell was up +2.7%. Any questions?

The Dow respected new support at 11,335 all week. Friday's 40-point gain was five times the total gain for the prior five days. I would like to think this was money moving into big caps but I believe it was the rally in financials and some late day short covering that finally pushed it higher.

The Dow needs a big news event to attract new money. The dividend news from GE was enough to give GE a +3.4% gain but not enough to energize traders to buy large caps.

With the FOMC on Tuesday I am not expecting any major Dow move until that is behind us.

Dow Chart - Daily

The Nasdaq finally broke through overhead resistance at 2625 and ran for a decent gain. For four days that resistance had held but the Nasdaq was still able to stretch its consecutive winning streak to eight days. For me this is almost a perfect chart. The Nasdaq gained +100 points in eight days. Slow, steady, low volatility, a perfect investors market.

Support should be 2620 and after eight days of gains there should be a buying opportunity in our immediate future as some event provides an excuse for profit taking.

Nasdaq Chart - 30 Min

Nasdaq Chart - Daily

On Thursday night I profiled the Russell's late day shortened range after 1:PM as an impending breakout. That breakout came right on schedule on Friday and exploded higher. The long string of green candles is as beautiful as a Picasso if you were long at the open in anticipation of that breakout.

The weekly chart on the bottom shows a nearly perfect C&H and the breakout. The next real resistance is not until 845-850 but I harbor no illusions that it will run that far without several pauses for profit taking. Personally I am just happy to see it over 760 and in uncharted territory for the last three years. There is a bull market in Russell stocks and three weeks left for money managers to window dress for year-end.

Russell Chart - 10 Min

Russell Chart - 30 min

Russell Chart - Weekly

In case there is any doubt, I am still bullish and in buy the dip mode until proven wrong. If China and the FOMC cooperate we may have to switch to buy the breakout mode but only as a last resort. The Nasdaq's eight-day streak has to end soon. Traders will find an excuse to take profits and that will be our opportunity to add to longs. Streaks tend to be self-defeating. Once they are identified everyone starts betting against them.

Even if China raises rates sharply I think the impact to our markets will be minimal. The expectations from the FOMC meeting are also already priced in after a week of consolidation. In either case it will probably take a highly unexpected action to produce a meaningful dip. Those of us hoping for a new dip are wishing for some news to give us a new entry point. The market is setting up for an extended run so be prepared in advance for any buying opportunity.

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Don't fight the Fed!

Jim Brown


Index Wrap

Upside breakouts in the major indexes, except the Dow

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

All major indexes achieved 'technical' upside breakouts above prior highs; exception, the stogy Dow. The market continues to advance, although at a slower pace than the prior week's barn burner.

The Dow Jones Industrial Average (INDU) ('Dow 30' as I tend to call it) continues to lag in line with my comments last week about the limited number of those 30 stocks with unmistakably bullish charts.

On a personal note, I'm back in the Big Apple this week for a reunion with friends, including a visit to the site of the new trade tower. The Wall Street area is still the cold and windy place in winter it was for the years I worked there. New York City is changing for the better. A city that never stands still!

CHARTS OF THE WEEK:

A couple for your consideration; one showing the overbought extremes this Market is getting too and another chart picking up on a VIX 'trading model' I've been working with. As with some other indicators it works differently depending on whether we're in a bull OR bear market.

Since the Nasdaq 100 (NDX) continues to lead this market, the overall market is unlikely to sell off in any big way. Focus on the NDX suggests a way to plot potential resistance: 1.) is the prior intraday high at 2239 hit by NDX back in November 2007. This is the most 'substantial' way of plotting possible resistance as suggested by a prior major high. 2.) a more qualified 'resistance' is suggested in the 2330 area by this level representing a Fibonacci 38% retracement of the huge market decline between March 2000 and October 2002. There is with NDX at least a target zone (2240-2330) we can work with as an area where the market could peak and take a breather.

The kind of extreme levels seen above in the WEEKLY Relative Strength Index (RSI) and (now) the weekly MACD indicator also suggest this is a high risk market in continuing to initiate bullish strategies. Overbought markets can and do keep advancing, but also share the characteristic that perceived bearish news tends to cause a MAGNIFIED reaction. Just so you're forewarned.

Certain trading type 'models' that can be set up with the CBOE Volatility Index (VIX) of the S&P 500 (SPX) index give an interesting take on things. I've been writing some lately about the tendency for rallies when the daily VIX is more than 5% above its 10-day moving average. This 'works' fairly well to suggest strong rally potential; not so much in reverse with a dip below the LOWER 5% envelope in suggesting vulnerability for a decline.

In my chart above I've circled some instances where the aforementioned high and low extremes occurred. On the bearish side, a very LOW daily VIX relative to the 5 percent moving average envelopes highlighted below, has sometimes suggested an impending top IF the overbought/oversold indicators like RSI and MACD (Moving Average Convergence/Divergence or 'mackdee') were also at the kind of extremes seen at prior tops as is the case now.

I would also note that the Nasdaq Composite (COMP) is not yet at the same kind of weekly overbought MACD extreme as the big cap Nas 100. A correction is always a concern when a rally goes on 'too long' and stocks get 'rich' relative to earnings. We know a correction is coming but don't know when and can only guess at price objectives for a next peak.

The major indexes are now (also) overbought on a short-term basis so a near-term and more minor correction wouldn't be a surprise. A high RSI or MACD offer one barometer of risk in bullish options strategies. On an intermediate-term chart basis, the picture is bullish. Clearing the prior line of tops says we're in a new up leg and don't bet against it. Not for awhile. Bullish spirits tend to be good ahead of the holidays; not for nothing came the concept of the 'santa claus' rally.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) index did get 'fully' back on a bullish track by the move above its prior 1227 high. The Index is back squarely in the middle of the uptrend channel currently highlighted on my SPX daily chart. As long as support continues to develop around 1230-1227, look for higher levels on rallies ahead. 1250 may offer some resistance, but 1280 would offer more.

Bullish sentiment is quite high but this can go on for a while. It's not a precise market timing tool. Extreme levels of bullishness along WITH other chart related patterns (e.g., a double top) are quite predictive of an impending sell off. Not 'buying into' very high levels of trader bullishness has kept me out of trouble before. I have revised my 'overbought'/'oversold' sentiment zones (my lowermost indicator below) to ones more appropriate for the bull market phase we're in.

Very near support should be found around 1227. It tends to be integral to a bullish pattern to see support develop at prior resistance. Normally a breakout above a prior important high is a signal for a further up leg; a 'leg' implying a substantial move higher, such as 70-100 points in SPX. Support is next seen in the 1205-1200 area, extending to 1190. The prior low at 1173 is a key technical support for the bulls to hold.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) index did a nice bullish pop above its prior high with a strong close on Friday. 553 now becomes a key near-term support; a couple of days closing below this level would suggest waning upside momentum. The other technical supports I find important at on the chart.

As with big brother S&P 500 this index looks headed higher. I've noted potential near resistance at 560. I can see OEX making a run at higher levels within its uptrend channel. This is why I note resistance at 574, more of an 'ultimate' upside target AT the trendline. Prices sometimes just get close to the upper part of a price channel before coming down.

Very near support should now be found on pullbacks to the area of the prior 553 high. We might see a day under on not much more than a fluke, but not usually two days back to back, which breaks bearish. The next technical support comes in around 540, then at the up trendline at 534, extending to the prior 527 (down) swing low.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) Average is the most watched index by the 'public' is also the major index holding back from making a new high; i.e., to above INDU's early-Nov intraday INDU peak at 11451. I consider intraday highs and lows as more than the 'shadow' importance given to these points in Japanese candle charts.

Not surprising to me based on last week's 'bottoms up' analysis of the 30 stocks comprising INDU. Flipping through saved charts of the 30 big cap stocks is feasible; drilling down more than this, such as looking individually at even 60 of the S&P 100 stocks takes more time than I have for it. I keep 5 chart groupings of 6 INDU stocks each in alphabetical order by ticker symbol. From a quick survey of these 5 'workspaces' I got last week that: "About a third of the Dow 30 looks fully in gear to take INDU higher. I'd be surer (of strong upside potential) if it was 15. Strength or potential further strength in AA, CAT, DD, DIS (possibly), HD, INTC, KO, MCD (possibly), UTX and XOM look like they could pull INDU at least through its prior highs." NOT!

I have to shuffle around some of my bullish list from last week by taking out DD, DIS, and MCD (for now) and adding GE (a key bellwether), AXP and VZ. Still, my strong-bullish list is stuck at around 10. As already said, I'd have more confidence in the Dow busting out to new highs if HALF (15) of the Dow 30 stocks were in strong bullish patterns. INDU is either a harbinger of a rally failure here or just lagging, as the capitalization weighted indices eventually pull INDU above its prior highs also.

Key near support remains 11200, with trendline support seen at 11075 currently. Major support begins at 11000. Near pivotal resistance as mentioned is in the area of the prior 11451 high. After that, projecting by INDU's possible trend channel, I've noted resistance at around 11850.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) Index renewed its bullish pattern so to speak with its decisive upside penetration of its prior high at 2593. There was a stronger move in the Composite this past week than in the previously red-hot Nasdaq 100. This is typical of a rally that 'broadens' out, as investors try to find more underplayed 'second tier' stocks and pivot away somewhat from the highest price multiples of the big cap favorites.

I look for higher prices and a possible move up toward the upper end of the highlighted uptrend channel seen below. Potential resistance is noted around 2680, then around 2742-2745.

Key near support is now at 2590-2600, with next lower support suggested by the lower trendline at 2540. Further support is at 2500, extending to the prior (down) swing low at 2460.

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) chart is bullish and continues a bullish pattern with its move above the prior 2200 high. This level becomes a pivotal support in that a 'typical' bullish pattern sees prices hold above prior highs once they're pierced. Also consistent with a bullish chart is that support develops on pullbacks to the index's up trendline; a line currently intersecting around 2156-2160. Support at the prior (down) swing low is at 2085. A break of this level would point to an intermediate (downside) reversal.

Potential technical resistance is suggested at 2240, then up around 2336, at the current intersection of the upper channel line. 2239 is a pivotal resistance as a prior major top; the long term weekly chart is seen in my initial 'bottom line' comments above.

Near technical support is at 2153, at the 21-day moving average, with pivotal support around 2100.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

QQQQ (Nasdaq 100 tracking stock) is bullish in its pattern; a good bullish omen for a next up leg was suggested with the move above prior highs at 54. The recent move above resistance is not what I would call a 'decisive' upside penetration as there wasn't major follow through. Nevertheless the Q's advanced above the prior high, then traded down to that area on the final days of this past week; making for the bullish pattern where prior resistance, once exceeded, 'becomes' subsequent support. A slip back below 54 for more than a day becomes a possible sign of at least a short-term (downside) reversal.

Daily trading volume hasn't leaped but On Balance Volume (OBV) has moved steadily upward. On the contrary, we most often see noticeable daily (trading) volume surges in QQQQ before and during a significant sell off.

Near support: 54.0

Next support: 53.0

Near resistance: 55.0

Next estimated resistance: 57-57.1

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) index has an accelerating advance, consistent with its seasonal tendency to move higher toward the end of the year. This is especially true when the big cap stocks have racked up strong yearly gains, and investors and fund managers look to the smaller cap stocks for some further diversification in terms of company size.

My next target in RUT has been the 780 area and the index is almost there. A further technical resistance could come in at the upper (uptrend) channel line, currently intersecting around 790. 800 looks like an achievable target. RUT is also at an oversold extreme where shakeouts can be bumpy.

Near support is up to the 740 area, with next support at 720, extending to the low-700's.



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

Industrial Goods & Networking

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Cummins Inc. - CMI - close: 105.03 change: +0.78

Stop Loss: 94.45
Target(s): 107.00, 114.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
CMI is one of the best performing stocks in the S&P 500 this year. Shares have more than doubled for the year. There doesn't appear to be any slow down as investors bet on an improving global economy next year. CMI's earnings back in October were a miss but the stock recovered thanks to bullish guidance. Wall Street firms have been raising their price target on this stock. On a short-term basis CMI look a little bit overextended. I am suggesting we use a dip to $100.50 as our entry point to buy calls. We want to start with small positions! Considering only buying half your normal position size. Just in case the correction pulls CMI toward the 50-dma near $95.00 we want to have some cash on the sidelines to double down near the 50-dma. FYI: Currently the Point & Figure chart is forecasting a $115 target.

Trigger @ $100.50

- Suggested Position -
Buy the 2011 January $105 calls (CMI1122A105)

- or -

Buy the 2011 March $110 calls (CMI1119C110)

Annotated Chart:

Entry on December xxth at $ xx.xx
Earnings Date 02/02/11 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on December 11th, 2010


Juniper Networks - JNPR - close: 35.88 change: +0.13

Stop Loss: 33.75
Target(s): 37.40, 39.85
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
JNPR continues to be a strong momentum candidate. Shares just broke out to new two-week highs. Traders have been consistently buying the dips. The rally has currently stalled near the 2010 highs near $36.00. Odds are good that JNPR will retest $35.00 before breaking out higher. I am suggesting a trigger to buy calls on JNPR when the stock dips to $35.20. We'll use a stop loss at $33.75. Our first target is $37.40. Our second, longer-term target is $39.85. FYI: The Point & Figure chart is bullish and is forecasting a long-term $59 target.

Trigger to buy the dip @ $35.20

- Suggested Position -
Buy the 2011 January $35.00 calls (JNPR1122A35)

- or -

Buy the 2011 April $37.00 calls (JNPR1116D37)

Annotated Chart:

Entry on December xxth at $ xx.xx
Earnings Date 01/25/11 (unconfirmed)
Average Daily Volume = 5.5 million
Listed on December 11th, 2010


In Play Updates and Reviews

Financials Finish the Week Strong

by James Brown

Click here to email James Brown

Editor's Note:

It was a banner week for the financials. Plus the small caps have been showing relative strength. I would love to see a market dip so we could open new positions.

I have adjusted our entry point strategy on CSX. We moved the trigger on GS and updated a couple of stop losses.

-James

Current Portfolio:


CALL Play Updates

CH Robinson Worldwide Inc. - CHRW - close: 78.12 change: +0.36

Stop Loss: 72.90
Target(s): 74.90, 79.00
Current Option Gain/Loss: +221.7%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/11 update: CHRW recovered from some early morning profit taking to rally back above $78.00 but upward momentum fizzled and shares drifted sideways the rest of the day. Shares of CHRW remain overbought. I want to remind readers that when the pull back occurs, and it will happen eventually, our option values are going to implode. We will endure the decline because I expect CHRW to hit our target before January expiration. Of course readers could take profits early (like right now). Please note our new stop loss at $72.90. I am not suggesting new positions at this time. Our final target is $79.00.

Current Position:
Long the January $75.00 calls (CHRW1122A75) Entry @ $1.15

12/11: New stop loss @ 72.90
12/01: New Stop loss @ 71.90
12/01: First target hit @ $74.90 Exit all December calls: $0.95 (+111.1%)
12/01: First target hit, take profits on January calls: $ $2.00 (+73.9%)
11/27: New stop @ 70.75, new first target at $74.90

Chart:

Entry on November 22nd at $72.44
Earnings Date 02/03/11
Average Daily Volume = 1.1 million
Listed on November 18th, 2010


CSX Corp. - CSX - close: 64.10 change: +0.19

Stop Loss: 59.75
Target(s): 67.00, 69.50
Current Option Gain/Loss: + 0.0%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/11 update: Railroad stocks continue to look strong. I am concerned that the sector (and the market) might not see a deep enough pull back and instead leave us waiting for the decline that never comes. Thus I'm adjusting our entry point strategy. Let's buy half of our position in CSX now at current levels. Then, if CSX sees a dip to $62.00 we'll buy our second half. Naturally you can adjust the size of your position depending on your own risk tolerance. Maybe for you buying 1/4 of your desire position is more appropriate. We'll keep our stop loss at $59.75 for now. The 40-dma and 50-dma have been technical support in the past so cautious traders could try a higher stop loss instead and place their stop under these moving averages. I am adjusting our targets to $67.00 and $69.50.

NOTE: I have adjusted our strike prices.

Buy Half Now and Half on a dip near $62.00.

Suggested Position: Buy the 2011 January $65 calls (CSX1122A65) current ask $1.73

- or -

Suggested Position: Buy the 2011 February $65 calls (CSX1119B65) current ask $2.51

12/11: New Entry Point Strategy. Buy half now.
12/11: New targets: 67.00, 69.50
12/02: New trigger @ 62.50.
12/01: New trigger @ 62.25, New stop @ 59.90, New targets.

Chart:

Entry on December 13th at $ xx.xx
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 5.9 million
Listed on November 23rd, 2010


CenturyLink, Inc. - CTL - close: 44.63 change: +0.48

Stop Loss: 41.95
Target(s): 44.90, 47.25
Current Option Gain/Loss: +200.0%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/11 update: CTL has been a strong performer for us. The stock posted another gain and another new two-year high on Friday. The $45.00 level looks like potential resistance so we want to be ready to take some money off the table. The plan is to sell half of our position at $44.90. Cautious traders could exit now. If you're looking for a new entry point I'd wait for a dip or bounce near $43.50. I am adjusting our stop loss to $41.95.

FYI: Investors should know that CTL is currently involved with a $10.6 billion stock-swap merger with Qwest Communications (Q). The merger isn't supposed to be completed until the first half of 2011. The trend for both stocks is up and naturally looks very similar following the M&A announcement.

Current Position:
Long the 2011 January $45.00 calls (CTL1122A45) Entry @ 0.20

12/01: Adjusted secondary target to $49.00

Chart:

Entry on November 29th at $42x55
Earnings Date 02/22/11
Average Daily Volume = 3.0 million
Listed on November 27th, 2010


Express Scripts - ESRX - close: 54.76 change: +0.59

Stop Loss: 49.65
Target(s): 53.95, 57.25
Current Option Gain/Loss: +54.7%
Time Frame: 5 to 6 weeks
New Positions: Yes, see below

Comments:
12/11 update: ESRX posted another gains but shares are still bouncing around in the same $54-55 zone. While the trend of higher lows is bullish I'm still warning readers to be ready for a correction back towards $52.00. If you're looking for a new entry point I would prefer to initiate positions on a dip or a bounce near $53-52.

We currently only have half a position open.

Current Position:
Long the 2011 January $52.50 calls (ESRX1122A52.5) Entry @ $2.10

12/07: Exit the December calls. option @ $2.01 (+64.7%)
12/01: First Target Hit @ $53.95. Dec's @ $2.20 (+80.3%). Jan's @ $3.10 (+47.6%)

Chart:

Entry on November 18th at $51.81
Earnings Date 02/24/11
Average Daily Volume = 4.3 million
Listed on November 17th, 2010


Fastenal Co. - FAST - close: 59.17 change: +0.90

Stop Loss: 53.75
Target(s): 59.75, 62.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/11 update: FAST is still showing relative strength. The stock posted a +1.5% gain on Friday. Yet after a two-day consolidation near $58 shares still look overbought here. Don't chase it! We want to launch bullish positions on a dip at $56.00. Conservative traders could wait for a dip closer to $55 or $54 before launching positions. If triggered our first target is $59.75.

FYI: FAST announced a special, one-time cash dividend of 42-cents on November 18th and all of the option strikes have been adjusted for this 42-cent dividend.

Trigger @ 56.00

Suggested Positions:
Buy the 2011 January $54.58 calls (FAST1122A54.58)

- or -

Buy the 2011 February $59.58 calls (FAST1119B59.58)

Chart:

Entry on December xxth at $ xx.xx
Earnings Date 01/19/11 (unconfirmed)
Average Daily Volume = 880 thousand
Listed on December 8th, 2010


FedEx Corp. - FDX - close: 93.98 change: -0.11

Stop Loss: 87.75
Target(s): 94.75, 99.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/11 update: Once again traders bought the dip near FDX's rising 10-dma. FDX looks poised to rally higher but I am reluctant to chase it here because the company is due to report earnings on December 16th (next Thursday). Holding over an earnings report is a high-risk event. We will keep our trigger at $91.00 (or lower) until after we see the market's reaction to FDX's earnings. I did move the stop to $87.75 should we get triggered.

Suggested Position: TRIGGER @ $91.00

Buy the 2011 January $90.00 call (FDX1122A90) current ask $4.85

- or

Buy the 2011 April $95 call (FDX1116D95) current ask $5.00

Chart:

Entry on December xxth at $ xx.xx
Earnings Date 12/16/10 (confirmed)
Average Daily Volume = 2.1 million
Listed on November 29th, 2010


Goldman Sachs - GS - close: 168.47 change: +2.02

Stop Loss: 157.45
Target(s): 169.75, 177.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/11 update: Ever since GS' spike higher on Dec. 2nd there has been almost zero profit taking. Shares saw a brief reversal on the seventh but the stock has been surging higher thanks in part to widespread strength in the financials. The $170 level has been resistance in the past so we certainly do not want to open positions now. I will raise our trigger to buy the dip to $163.00 and we'll raise our stop loss to $157.45. I have updated our option strikes.

Trigger @ 163.00 <- new trigger

Suggested Positions:
Buy the 2011 January $170 calls (GS1122A170)

- or -

Buy the 2011 April $175 calls (GS1116D175)

Chart:

Entry on December xxth at $ xx.xx
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 7.2 million
Listed on December 2nd, 2010


W.W. Grainger Inc. - GWW - close: 133.67 change: +1.32

Stop Loss: 124.75
Target(s): 129.90, 138.50
Current Option Gain/Loss: +120.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/11 update: GWW has spent the last few days bouncing around the $131-134 zone. I am reluctant to chase it here since shares look overbought. If the market sees any sort of pull back then GWW should correct toward the $130-128 zone. I'd prefer to launch new positions on a dip near $128. Our final target remains $138.50.

FYI: The stock could see a little short squeeze since the most recent data listed short interest at more than 5% of the 58.5 million share float (which isn't very big as far as floats go). FYI: The Point & Figure chart is bullish with a $140 target.

Current Position:
Long the 2011 January $130 calls (GWW1122A130) Entry @ $2.50

12/02: First target hit @ 129.90, option @ $4.10 (+64%)
12/02: New stop loss @ 124.75, New final target at $138.50

Chart:

Entry on November 24th at $126.75
Earnings Date 01/25/11 (unconfirmed)
Average Daily Volume = 567 thousand
Listed on November 22nd, 2010


Humana Inc. - HUM - close: 56.51 change: +0.43

Stop Loss: 54.40
Target(s): 59.75, 64.00
Current Option Gain/Loss: -26.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/11 update: HUM briefly broke through the bearish trend of lower highs but the rally faded by the closing bell. I remain cautious on launching new positions. A close over Friday's high (57.11) could change my mind on buying calls again. A close under $56.00 would be bearish even though $55.00 should also offer some support. More conservative traders may want to consider a tighter stop loss.

Current Position:
Long the 2011 January $55 calls (HUM1122A55) Entry @ $3.80

12/08/10 New stop @ 54.40
11/22/10 New stop @ 53.75
11/22/10 New (2nd) target at $64.00

Chart:

Entry on November 18th at $55.05
Earnings Date 11/01/10 (confirmed)
Average Daily Volume = 2.1 million
Listed on October 16th, 2010


Nike Inc. - NKE - close: 87.80 change: +0.33

Stop Loss: 83.49
Target(s): 89.50, 94.50
Current Option Gain/Loss: +56.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/11 update: Friday was uneventful for NKE. Shares continue to chop sideways. Keep in mind that we have just seven trading days before NKE is due to report earnings. Conservative traders do not want to hold over this event! Tonight we are raising our stop loss to $83.49 since the $84.00 level should be support. I would be tempted to initiate new call positions on a dip into the $85-84 area but cautious traders may want to wait and buy the bounce.

We want to sell half our of January position at $89.50.

(Second position) Current Position:
Long the January $85.00 CALLS (symbol:NKE1122A85) Entry @ $2.78

12/11/10 New stop loss $83.49
12/07/10 Exit the December calls, option @ $2.25 (+95.6%)
12/01/10 New stop loss @ 82.45
11/30/10 Readers may want to exit December options early for a gain
11/30/10 Entry on January calls @ $2.78
11/29/10 Buy the bounce from $84.00
11/24/10 Target hit @ 86.75, Dec. option @ $2.60 (+126%)

Chart:

Entry on November 11th at $83.00
Earnings Date 12/21/10
Average Daily Volume = 2.3 million
Listed on November 6th, 2010


Oceaneering International - OII - close: 71.71 change: -1.19

Stop Loss: 67.75
Target(s): 74.80, 79.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/11 update: OII underperformed on Friday thanks to a downgrade from Wells Fargo. Keep in mind that Credit Suisse just upgraded OII a couple of days ago. If you look at the weekly chart on OII the action this past week looks like a potential top. If shares hit our trigger to buy calls at $70.25 readers may want to start with small positions and then slowly build up to a normal position size. Currently our plan is unchanged. Use a trigger at $70.25.

Trigger to buy @ $70.25

Suggested Position: Buy the 2011 January $75 calls (OII1122A75)

- or -

Suggested Position: Buy the 2011 April $75 calls (OII1116D75)

Chart:

Entry on December xxth at $ xx.xx
Earnings Date 02/17/11 (unconfirmed)
Average Daily Volume = 584 thousand
Listed on December 4th, 2010


Transocean Ltd. - RIG - close: 72.23 change: +0.94

Stop Loss: 66.25
Target(s): 72.50, 78.25
Current Option Gain/Loss: +44.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/11 update: RIG set a new six-month closing high with Friday's +1.3% gain. Shares look poised to rally from here. The $75.00 level is the next level of resistance but I'm going to optimistically raise our final exit target from $74.90 to $78.25. The gap down from last April started at $78.50. We'll raise our stop loss to $66.25, keeping it under the 50-dma. If you're looking for a new entry point I would prefer to buy a dip near $68.50.

- Current Position -
Long the 2011 January $70.00 calls (RIG1122A70) Entry @ $2.95

12/11/10 New target 78.25, new stop loss $66.25
12/03/10 Target hit @ $72.50, option @ $4.95 (+67.7%)

Chart:

Entry on November 30th at $68.18
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 6.3 million
Listed on November 29th, 2010


Sherwin-Williams Co. - SHW - close: 77.76 change: +0.26

Stop Loss: 73.75
Target(s): 79.90
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/11 update: SHW tagged a new five-month high on Friday. I don't see any changes from my Thursday night comments so I'm reposting them here:

SHW's breakout past $74 back in November was significant. The stock has since broken the bearish trend of lower highs. As investors anticipate greater economic improvement in 2011 they could push SHW back toward its all-time highs near $80. I am suggesting we wait for a dip to $76.10 and buy calls on the pull back. If triggered we'll use a stop loss at $73.75. Our first target is $79.90.
FYI: The Point & Figure chart is bullish and currently forecasts a $92 target.

Trigger @ $76.10

Suggested Positions:

Buy the 2011 January $75.00 calls (SHW1122A75)

- or -

Buy the 2011 March $80.00 calls (SHW1119C80)

Chart:

Entry on December xxth at $ xx.xx
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 675 thousand
Listed on December 9th, 2010


Union Pacific - UNP - close: 92.64 change: -0.16

Stop Loss: 87.90
Target(s): 96.25, 99.75
Current Option Gain/Loss: + 19.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/11 update: UNP dipped toward its 20-dma near $91.50 before traders bought the pull back. I have been suggesting readers use a decline into the $92-90 zone as an entry point. I would still consider new positions in that range although traders may want to buy February calls. More conservative traders might want to consider a tighter stop loss.

- Current position -
Suggested Position:
Buy the 2011 January $95 calls (UNP1122A95) Entry @ $1.52

Chart:

Entry on November 30th at $89.83
Earnings Date 01/20/11
Average Daily Volume = 2.9 million
Listed on November 20th, 2010


United Parcel Service - UPS - close: 72.89 change: -0.15

Stop Loss: 66.85
Target(s): 74.75, 78.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/11 update: UPS saw a minor pullback after Thursday's show of strength. There is no change from my prior comments. Transports have been strong but they're arguably a little bit overbought. UPS should have support near broken resistance at $70.00. Currently our plan is to buy calls on a dip at $70.25 but I might reconsider if UPS bounces near $71.00 again.

Trigger @ 70.25

Suggested Position:
Buy the 2011 January $70.00 call (UPS1122A70)

- or -

Buy the 2011 April $75.00 call (UPS1116D75)

Chart:

Entry on December xxth at $ xx.xx
Earnings Date 02/01/10 (unconfirmed)
Average Daily Volume = 3.9 million
Listed on December 6th, 2010


United Technology Corp. - UTX - close: 78.40 change: +0.77

Stop Loss: 73.90
Target(s): 81.50, 84.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/11 update: Before the opening bell on Friday UTX was trading near $76.70 but the stock opened around $78.50. Thus we are still sitting on the sidelines waiting for an entry point. Currently our plan is to buy calls on a dip at $77.10. Cautious traders could wait for a pull back closer to $76.00 or even $75.00.
FYI: The Point & Figure chart is bullish with a $91 target for UTX.

Trigger to buy calls @ $77.10

Suggested Position: Buy the 2011 January $80 calls (UTX1122A80)

- or -

Suggested Position: Buy the 2011 February $80 calls (UTX1119B80)

Chart:

Entry on December xxth at $ xx.xx
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 3.2 million
Listed on December 4th, 2010


Cimarex Energy Co. - XEC - close: 85.74 change: -0.54

Stop Loss: 79.85
Target(s): 87.40, 89.90
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/11 update: XEC is slowly correcting after hitting new highs earlier in the week. Shares have found some short-term support near $85.00 but we want to see a dip to $84.00. Aggressive traders could launch positions now. I'm suggesting we stick to the plan and wait for the dip to $84.00. Cautious traders could wait for a dip closer to $82 instead.

Trigger @ 84.00

Suggested Position:
Buy the 2011 January $85 calls (XEC1122A85)

- or - Buy the 2011

Chart:

Entry on December xxth at $ xx.xx
Earnings Date 02/17/11 (unconfirmed)
Average Daily Volume = 907 thousand
Listed on December 1st, 2010


PUT Play Updates

Expedia Inc. - EXPE - close: 27.44 change: +0.27

Stop Loss: 27.75
Target(s): 25.10, 24.25
Current Option Gain/Loss: -33.3%
Time Frame: 2 to 3 weeks
New Positions: No

Comments:
12/11 update: I am about ready to give up on EXPE as a put play. There has been no follow through on the bearish reversal from Dec. 7th. Now shares are challenging technical resistance at the 50-dma. A breakout above this moving average would probably send it past resistance near $27.60 and hit our stop loss at $27.75. I am not suggesting new positions at this time. Cautious traders will want to consider an early exit now!

Current Position: Buy the 2011 January $25 Put (EXPE1122M25) Entry @ $0.60

Chart:

Entry on December 8th at $26.88
Earnings Date 02/10/11 (unconfirmed)
Average Daily Volume = 2.5 million
Listed on December 7th, 2010