Option Investor
Newsletter

Daily Newsletter, Tuesday, 12/21/2010

Table of Contents

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

Market Wrap

Ho, Ho, Ho!

by Jim Brown

Click here to email Jim Brown
Santa came early to the equity markets and he brought a stocking full of coal for the bears.

Market Statistics

The bears are having a hard time digesting the bullish trend in the markets. The rally began to break out of its nearly two weeks of consolidation where every minor uptick to resistance was seen as a bearish entry point for the shorts. Every downtick was seen as confirmation of their expectations. Those expectations were dealt another blow on Tuesday as the indexes eased over recent resistance to new multiyear highs.

The S&P stretched out its gains to close at 1254.64 and over the 1251.78 close on the day before Lehman failed. That is seen as a milestone for the market and one that has been watched closely. Some analysts believed a return to that level would give investors trapped in pre Lehman positions an opportunity to finally exit.

Just because the indexes moved slightly over recent resistance it is not time for the bulls to celebrate just yet. The gains were small and on very low volume. It is confirmation of the trend but without any serious conviction. With the indexes up around 20% since August there are plenty of reasons for a potential temporary decline in January. Until then the bulls will continue to celebrate their good fortune even if the celebrations are low key.

There was only one economic report today and it was strongly positive. The weekly Chain Store sales spiked +1.7% to push year over year growth to +4.2%. This was the strongest weekly gain sin five months. The ICSC said consumer spending appears to be accelerating. The ICSC survey showed 73.9% of holiday shopping had been completed compared to 70.9% in the prior week. However, it was below the 80.1% for this week in the year before the recession.

Despite the strong sales the ICSC is projecting December sales growth between 3.0% and 3.5%. They warn comparisons are turning more difficult and supporting factors like the change in the weather will be gone. Higher gasoline prices are also going to be a drag.

The ICSC is predicting the holiday shopping season overall will exceed expectations. They expressed surprise in the strength of spending given the weakness in the fundamentals like employment and shrinking real estate wealth.

Gasoline prices are hovering at $3.00 per gallon, a level we have not seen since October 2008. Prices are up 40-cents from year ago levels. That is roughly $8 more per 20 gallon fill-up. That $3 price is commonly seen as the tipping point for consumers. Under $3 and they will bite the bullet and continue to drive even though they may complain louder. Over $3 produces sticker shock with that 3 as the first number and consumers begin curtailing driving and cutting back on spending. Quite a few analysts believe the oil shock of 2008 was instrumental in creating the subprime crisis. Financially strapped consumers paying sometimes more than $4 per gallon started falling behind on their mortgage payments and the subprime crisis accelerated.

For the rest of the holiday shortened week there are still a lot of economic reports. The GDP on Wednesday is the most important although there are three housing reports as well. Consumer sentiment on Thursday could generate some market buzz if we see a sharp gain from the prior reading.

Economic Calendar

Making the news on Tuesday was the results of the 2010 census. Our population grew +9.7% since 2000 to 308.7 million. This was the slowest growth for any decade since the 1930s. The largest population growth was in the South followed by the West. Only Michigan and Puerto Rico saw a drop in population. Ten states saw growth of more than 15%. Nevada was the biggest gainer at +35%.

Population rate changes

In stock news Microsoft is rumored to be working on a Windows version to run on ARM chips. The ARM chips are made by Qualcomm, Texas Instruments and Samsung. Most tablets and smartphones run on ARM chips. It is not good news for Intel to have Windows available on other platforms. A Windows version for the ARM chip will allow Windows to run on competing tablets to the iPad and allow consumers to use a familiar interface. Tablet sales in 2011 are expected to be as many as 50 million and a Windows version could capture up to 20% of those sales. Windows tablets are expected to be cheaper than the iPad.

ARMH Chart

On the earnings front Nike reported earnings that rose +22% to 94-cents per share. That easily beat estimates of 88-cents. Revenue rose +10% to $4.8 billion. Unfortunately the company warned they would face some significant challenges to sales and margin. Nike shares were crushed for a $6 loss in after hours trading. Nike Chart

Red Hat shares also took a tumble after they reported earnings that were inline with estimates. Revenue was up +20% but shares were declining sharply in after hours.

Red Hat Chart

Chipmaker Xilinx (XLNX) warned tonight that revenue for the current quarter would fall 7-9% below the prior quarter. Prior forecasts were for a flat quarter to down -4%. Xilinx said sales to large wireless customers were weaker than expected. For the March quarter the company expects to return to sales growth. Shares sold off after the warning.

Xilinx Chart

Adobe was a big winner today with a +6% gain after posting better than expected earnings on Monday night. Adobe posted its first $1 billion quarter. The company said Apple's ban of flash on the iPad was having no impact on Adobe sales. The CEO said the explosion of devices competing with the iPad would push Adobe sales even higher in 2011.

Carnival Corp (CCL) hit a new 52-week high after raising 2011 guidance to between $2.90-$3.10 up from $2.47 in 2010. Analysts were expecting $2.94. The company said booking trends were improving and costs were stable. They are expecting fuel costs to increase but a strong booking season was expected to overcome that increase.

Meredith Whitney was on CNBC this afternoon defending her call on expected municipal bond defaults. Whitney said we could see $100-$150 billion in municipal bond defaults as a result of the decline in federal assistance to the states. State governments are already deep in debt and experiencing some major deficits. When the federal government stimulus handouts end next year Whitney believes the states will have to cut the umbilical cord to cities dependent on them for survival. It is simply not enough money flowing to cover everyone's debts.

Whitney's controversial call has drawn fire from at least a dozen high profile analysts and she is under pressure to support her claims. What I heard was a convincing argument but no real facts. I have had several readers email me over the last week asking what I thought about the potential for defaults. That is not really my market but I understand the points she is making. Unfortunately I think Whitney is trying to make a name for herself now that she has started her own company. It was just a couple months ago she was warning of the next big wave of bank losses and that did not come to pass. I believe she is trying to find a molehill she can turn into a mountain and restore her credibility. Time will tell.

Everywhere I look this week there are positive signs of an accelerating economy. For instance Chrysler announced tonight they were going to keep the Jeep Grand Cherokee manufacturing lines running full speed through year-end because of a backlog in orders. Normally the company shuts down vehicle production between Christmas and New Years. Current sales are so strong they can't afford to fall any further behind in manufacturing. That is a very positive in my view.

A check by one analyst found Wal-Mart to be out of stock online for 76% of the items checked and Amazon was out of stock on 40%. Monday was the last day for online shopping for Christmas delivery. The next round of emails you will get will be plugging the after Christmas sales. I reported earlier chain store sales increased the most in five months last week. You can't get in a mall parking lot and stores have to stay open well after their regular closing hours just to handle the traffic. The pent up demand from the last two years is exploding despite what Best Buy may be saying.

Amazon is on track to sell its eight millionth Kindle this week and Apple will sell its one millionth Apple TV. Tablet PCs are sold out everywhere and that is a high dollar item that did not even exist a year ago. Suddenly everyone has to own one at an average price of $700. That $700 price tag is more than the average family spends on all its holiday giving. It appears to me the consumers have declared an end to the recession despite the high unemployment.

Most consumers don't have the cushy job previously held by Annette Bongiorno. She was Bernie Madoff's secretary and it appears she skimmed off millions of dollars while helping Madoff conceal his ponzi scheme. She was arrested for her part in the scheme but released on $5 million bail. That bail was revoked on Friday after the court found out she had access to millions of dollars in secret accounts and she was deemed a flight risk. She also has multimillion dollar homes in New York and Florida. She worked as Madoff's secretary for 40-years. Her case is a prime example of pressing her gains long after she should have bailed from the company and retired. What secretary can own multiple luxury homes and have a reported $20 million in her private accounts? If she had quit five years ago she could probably have gotten a nice severance package for her silence and moved to Brazil or Monaco and lived very comfortably for the rest of her life. Sounds like she will be retiring to a federal country club but I doubt she will get a mint on her pillow every night.

The markets are their best to irritate the bears. After nearly three weeks of consolidation this slow melt-up is torture for those trying to short the market. Every small tick higher looks like an invitation for a new short entry. For the bulls the slow pace of increases is like a painfully slow striptease. They want to speed up the act but are unable to do so. This leaves both the bulls and the bears frustrated at the lack of conviction.

Everybody better get used to the melt-up because odds are good it will continue. You may not have noticed but the gains today came despite continued bad news from Europe. There were more warnings of debt downgrades on Portugal and Spain and now there are news stories about the problems spreading to even stronger members of the EU community. The market completely ignored the news other than an increase in the value of the dollar. When stocks and commodities both rally over bad news and a strong dollar it is a good sign.

What we are seeing is a good old-fashioned asset allocation move. Money managers are rotating money out of bonds and back into stocks. They have become convinced the bond gains are over and more importantly there is no longer any reason to remain in the safety of bonds. Equities are expected to outperform in 2011 with a 20% to 25% rally if you believe Goldman Sachs and others. Nobody wants to be stuck in a 3% bond if equities are going to gain 20%. Of course those actual gains are a long way from guaranteed but getting better than 3% appears to be a done deal.

The S&P inched slowly higher but the keyword there is "higher." The S&P closed at a new two year high and higher than the close the day before Lehman collapsed. While that is not specifically a technical level it is definitely a psychological level. If we can add to gains from here it should increase conviction by the bulls.

The S&P is pressing uptrend resistance at 1255 but appears close to a breakout leading to a test of stronger resistance at 1270. Any gains from here just add gravy to the analyst predictions back in January of 1250 by year-end. Every point we move higher also drags a few more investors off the sidelines and into the market.

Initial support is now 1250 and target resistance 1270.

S&P Chart

After consolidating at 11,500 for more than a week the Dow managed to move slightly higher to close at levels not seen since September 2008. The intraday range on the Dow has been less than 100 points for the last 13 days. You have to go back to 1996 to see volatility that low. What we are seeing is a compression of the market spring and eventually this compressed volatility is going to explode. The only question will be in which direction?

Support on the Dow is 11,445 and target resistance is around 11,800.

Dow Chart

The Nasdaq chart is an ideal picture of the compressed volatility. On this 60 min chart note how each candle became increasingly shorter as the day progressed to the point where they were just ticks on the chart and no longer candles. This is evidence of two things. The first is a major battle between the bulls and bears but a battle that is being waged on very low volume. Bulls are steadily inching up the bids and the bearish resistance is slowly eroding.

We are seeing something that rarely occurs to this extent. Normally there are big swings as the opposing forces trigger their orders but this time the bears appear unable to pressure prices.

This volatility compression is going to eventually result in a major move. Resistance is 2675 and initial support at 2660.

Nasdaq Chart

The Russell is the strongest indicator we have of the bullish market conditions. Unlike the other indexes the Russell is clearly in breakout mode and this is clear evidence money managers are not afraid of an impending dip. They are no longer waiting for a dip as an entry point. They are buying small caps at new highs. This is very bullish.

Russell Chart

Despite a contingent of bears trying to pick a daily entry point at least one index has closed in positive territory 10 of the last 11 days. The markets are moving up on bad news and in the face of a potential bout of profit taking in early January. While there is no rampaging rally there is solid buying despite a daily dose of bad news from Europe.

I believe we are building up for a major market event in early January. For the rest of this week the trend should continue to be "slow melt-up" rather than a Santa rally. This is a bull market in search for conviction and so far has been unable to find it. There is just the right amount of bearish conversation to keep the pressure on but not enough to do any damage. The bulls, lacking a dip to buy, have to chase prices higher but they are not rushing the process. For those traders not fighting the tape it is has been a happy holiday season so far.

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Jim Brown


New Option Plays

Net Neutrality Wins

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Netflix Inc. - NFLX - close: 186.24 change: +8.19

Stop Loss: 174.90
Target(s): 199.50, 219.50
Current Option Gain/Loss: + 0.0%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
2010 was the year of NFLX. The stock has rallied from $42.50 on January 1st, 2010 to over $200 just a few weeks ago. The correction in NFLX has stalled with shares near their bullish trendline of higher lows (and its 40 and 50-dma). Traders have bought the dip twice in the $176-177 area. The stock saw a strong bounce today thanks to the FCC commission voting 3-2 in favor or net neutrality rules, which should help NFLX growing download/streaming movie service.

Normally I would want to avoid following a big move like today's gain in NFLX but when this stock decides to move it can be volatile. I suspect this could be the beginning of its next leg higher. Make no mistake, this is a very aggressive, higher-risk trade. I suggest readers keep their positions pretty small to limit your risk. We'll be using out of the money calls to try and make this trade somewhat affordable. Our first target is $199.50. Our second target is $219.50.

Open positions now at current levels (small positions!)

- Suggested Positions -

Buy the 2011 January $200 calls (NFLX1122A200) current ask $4.40

- or -

Buy the 2011 February $220 calls (NFLX1119b220) current ask $5.45

Annotated Chart:

Entry on December 22nd at $ xx.xx
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 7.5 million
Listed on December 21st, 2010


In Play Updates and Reviews

Nike (NKE) Surges to a New High

by James Brown

Click here to email James Brown

Editor's Note:

NKE rallies to a new all-time high ahead of its earnings report tonight. Our plan was to exit and take profits at the closing bell. Things could change by tomorrow morning but not holding over earnings seems to have been the smart move as NKE is down -4% after hours.

-James

Current Portfolio:


CALL Play Updates

Cummins Inc. - CMI - close: 111.19 change: +2.07

Stop Loss: 108.75
Target(s): 112.75 114.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/21 update: The stock market melt up continues. Odds of us seeing CMI hit $102.50 any time soon are probably not that great. Shares just rallied another +1.8% to close above potential resistance at $110. I am adjusting our entry point strategy. Instead of waiting for a dip to $102.50 we'll move our buy-the-dip entry point to $110.25. We'll also move the stop loss to $108.75. CMI remains overbought and due for some profit taking thus buying calls near $110 is a high-risk trade in my book. I am suggesting small positions to limit our risk! Our new targets are $112.75 and $114.75.

Trigger @ $110.25 (SMALL POSITIONS ONLY)

- Suggested Position -
Buy the 2011 January $115 calls (CMI1122A115)

- or -

Buy the 2011 March $115 calls (CMI1119C115)

12/21: New entry point @ $110.25, New stop @ 108.75, New option strikes.

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


CSX Corp. - CSX - close: 63.99 change: +0.71

Stop Loss: 59.75
Target(s): 67.00, 69.50
Current Option Gain/Loss: -28.5% and -17.6%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/21 update: CSX is still consolidating sideways but shares act like they are ready to breakout higher soon. More conservative traders might want to raise their stop loss closer to the $62 area. I don't see any other changes from my prior comments. If you do open new positions I would buy the February calls.

- Current Positions - (We only have a small position open)

Buy the 2011 January $65 calls (CSX1122A65) Entry @ $1.75

- or -

Buy the 2011 February $65 calls (CSX1119B65) Entry @ $2.49

12/13: CSX opened at $64.39
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.

Entry on December 13th at $64.39
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 5.9 million
Listed on November 23rd, 2010


CenturyLink, Inc. - CTL - close: 46.80 change: +0.84

Stop Loss: 43.75
Target(s): 44.90, 48.00
Current Option Gain/Loss: +875.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/21 update: CTL surged another +1.8% to new two-year highs. We have been aiming for a final exit at $47.25 but I'm inching our exit up to $48.00 given CTL's relative strength. Hopefully this act of greediness doesn't come back to bite us in the behind. The option is currently up +875%. I am not suggesting new positions at this time.

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

12/21: Adjusted final target to $48.00
12/14: New stop loss @ 43.75
12/13: First Target Hit @ $44.90, option @ $0.85 (+325%)
12/01: Adjusted secondary target to $49.00

Entry on November 29th at $42.55
Earnings Date 02/22/11
Average Daily Volume = 3.0 million
Listed on November 27th, 2010


Cognizant Technology Solutions - CTSH - close: 72.85 change: +0.55

Stop Loss: 68.49
Target(s): 74.50, 79.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/21 update: CTSH hovered sideways on Tuesday. We're still looking for a dip back toward our trigger at $71.50. Our first target is $74.50. Our longer-term target is $79.00.
FYI: The Point & Figure chart for CTSH is forecasting a $93 price target.

Trigger to buy calls on the dip @ $71.50

- Suggested Positions -

Buy the 2011 January $75.00 calls (CTSH1122A75) current ask $1.10

- or -

Buy the 2011 April $75.00 calls (CTSH1116D75) current ask $3.70

Entry on December xxth at $ xx.xx
Earnings Date 02/09/11 (unconfirmed)
Average Daily Volume = 2.3 million
Listed on December 18th, 2010


Express Scripts - ESRX - close: 54.72 change: -0.52

Stop Loss: 51.25
Target(s): 53.95, 58.50
Current Option Gain/Loss: +32.3% and -16.2%
Time Frame: 5 to 6 weeks
New Positions: see below

Comments:
12/21 update: After hitting new highs on Monday ESRX saw some relative weakness today. Traders did buy the dip near the short-term trend of higher lows but the stock posted a -0.9% decline. Our final exit target is $58.50.

FYI: The point & figure chart for ESRX is forecasting a very bullish, long-term target of $80.

We currently only have half a position open.

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

- or -

Second Position (small position):

Long the 2011 February $55.00 calls (ESRX1119B55) current ask $2.22

12/20: Suggested new positions with Feb. 55 calls.
12/18: Adjusted final exit target to $58.50
12/16: New stop loss @ 51.25
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%)

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: 59.87 change: +0.28

Stop Loss: 53.75
Target(s): 59.95, 62.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/21 update: FAST is still consolidating under resistance near $60.00. The narrowing consolidation would suggest the stock is ready to breakout soon. Even if FAST did breakout past $60.00 I wouldn't buy it. The stock is too overbought. I will adjust our entry point. We'll use a dip at $56.75 as our entry point to buy calls.

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 @ 56.75

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

- or -

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

12/21: Adjusted entry point trigger from 56.00 to 56.75

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: 93.69 change: +0.13

Stop Loss: 90.90
Target(s): 96.75, 99.75
Current Option Gain/Loss: -47.5% and -10.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/21 update: Our options in FDX are going to die of boredom! Shares have not moved following its earnings report. Readers may want to wait for a new relative high (maybe over 94.50 or over 95.00) before initiating new positions. Our first target to take profits is $96.75. Our second target is $99.75.

- Suggested Positions (only small positions so far) -

Buy the 2011 January $100 call (FDX1122A100) Entry @ $0.80

- or

Buy the 2011 April $100 call (FDX1116D100) Entry @ $2.96

12/17: FDX opens at $94.23 - our entry point.
12/16: Adjusted Entry - initiate small positions now (@ Friday's open)

Entry on December 17th at $94.23
Earnings Date 12/16/10 (confirmed)
Average Daily Volume = 2.1 million
Listed on November 29th, 2010


Goldman Sachs - GS - close: 168.23 change: +2.18

Stop Loss: 159.75
Target(s): 171.00, 179.50
Current Option Gain/Loss: +32.7% and +19.5%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/21 update: Financial stocks were some of the best performers today. On a percentage basis GS actually underperformed the banks but the stock is looking stronger. Shares are nearing recent resistance in the $170-171 area. Our first target to take some money off the table is at $171.00. I am not suggesting new positions at current levels.
FYI: The Point & Figure chart for GS is forecasting a very bullish $224 long-term target.

- Suggested Positions (only small positions so far) -

Buy the 2011 January $170 calls (GS1122A170) Entry @ $2.75

- or -

Buy the 2011 April $175 calls (GS1116D175) Entry @ $5.27

12/17: GS opened at $163.92
12/16: Adjusted Entry - initiate small positions now (@ Friday's open)

Entry on December 17th at $163.92
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 7.2 million
Listed on December 2nd, 2010


International Business Machines - IBM - close: 145.74 change: +1.23

Stop Loss: 142.99
Target(s): 149.90, 157.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/21 update: IBM is bouncing back toward the top of its range. The stock looks poised to breakout soon. I'm suggesting a trigger to buy calls at $146.75. FYI: The Point & Figure chart on IBM is forecasting a long-term target of $196.

Breakout Trigger @ $146.75

- Suggested Positions -

Buy the 2011 January $150 calls (IBM1122A150)

- or -

Buy the 2011 April $155 calls (IBM1116D155)

Entry on December xxth at $ xx.xx
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 4.7 million
Listed on December 14th, 2010


Juniper Networks - JNPR - close: 37.61 change: +0.62

Stop Loss: 34.90
Target(s): 39.75
Current Option Gain/Loss: +19.2% and + 6.6%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/21 update: The strength in technology today allowed JNPR to rally +1.6% and close at new multi-year highs. If you're looking for a new entry point I'd probably wait for a dip near $36.00. Our first target is $39.75.

- Suggested Positions (only small positions so far) -

Buy the 2011 January $38.00 calls (JNPR1122A38) Entry @ $0.78

- or -

Buy the 2011 April $40.00 calls (JNPR1116D40) Entry @ $1.50
12/17: JNPR opens at $36.91
12/16: Adjusted Entry - initiate small positions now (@ Friday's open)

Entry on December 17th at $36.91
Earnings Date 01/25/11 (unconfirmed)
Average Daily Volume = 5.5 million
Listed on December 11th, 2010


Lockheed Martin Corp. - LMT - close: 69.80 change: +0.15

Stop Loss: 67.95
Target(s): 73.25
Current Option Gain/Loss: -37.1% and -40.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/21 update: The rally in defense stocks underperformed that of the major market indices. Shares of LMT are still churning sideways in the $69.50-70.30 zone. We can still launch new positions here but I would rather wait for a new relative high over $70.35 or $70.50.

More conservative traders might be able to get away with a stop closer to $69.00. Our exit target is $73.25. Readers may want to keep their position size small to limit their risk.

- Suggested Positions -

Buy the 2011 January $70.00 calls (LMT1122A70) Entry @ $1.75

- or -

Buy the 2011 March $75.00 calls (LMT1119C75) Entry @ $1.00

Entry on December 17th at $70.28
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on December 16th, 2010


Monsanto Co. - MON - close: 66.30 change: +1.12

Stop Loss: 59.89
Target(s): 67.25, 69.85
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Comments:
12/21 update: The rally in MON continues. The stock is now up four days in a row. We don't want to chase it but I will adjust our trigger to buy the dip from $63.25 to $64.25. If triggered our first target is $67.25. Our second target is $69.85.
FYI: The Point & Figure chart for MON just broke out past descending resistance and is forecasting a $74 price target.

NOTE - Readers need to know that MON is due to report earnings on January 6th. Holding over the report would be a high-risk event.

Buy-the-dip Trigger @ 64.25 <-- new trigger

- Suggested Positions -

Buy the 2011 January $65.00 calls (MON1122A65) current ask $2.22

- or -

Buy the 2011 April $65.00 calls (MON1116D65) current ask $4.65

Entry on December xxth at $ xx.xx
Earnings Date 01/06/11 (confirmed)
Average Daily Volume = 4.9 million
Listed on December 18th, 2010


Oceaneering International - OII - close: 74.16 change: +0.07

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:
12/21 update: OII isn't moving much. Shares are just drifting sideways. There is no change from my prior comments. I remain somewhat cautious. We will keep our trigger at $70.25 to buy the dip. However, I am leaning more towards a breakout entry point higher. If OII can close over $75.00 we will reconsider our entry point strategy.

Trigger to buy @ $70.25

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

- or -

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

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


Panera Break Co. - PNRA - close: 105.04 change: -0.38

Stop Loss: 103.90
Target(s): 109.95, 114.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/21 update: Oh wow! I am very surprised by the action in PNRA today. The market surges to new two-year highs and PNRA actually posted a loss. This stock traded sideways in a very narrow range. Is the rally actually over? I still think a breakout over $107 works as an aggressive entry point.

I am suggesting we use a trigger to launch bullish positions at $107.15. If triggered our first, short-term target is $109.90. Our second, longer-term target is $114.00. This is an aggressive trade so we want to keep our position size small. FYI: The Point & Figure chart is very bullish with a $131 target.

Breakout Trigger @ $107.15

- Suggested Positions - (small positions) -

Buy the 2011 January $110 (PNRA1122A110)

- or -

Buy the 2011 February $115 (PNRA1119B115)

Entry on December xxth at $ xx.xx
Earnings Date 02/10/11 (unconfirmed)
Average Daily Volume = 389 thousand
Listed on December 20th, 2010


Transocean Ltd. - RIG - close: 69.58 change: -0.39

Stop Loss: 66.25
Target(s): 72.50, 78.25
Current Option Gain/Loss: -33.5% and -25.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/21 update: Oil service stocks did not see much participation in the stock market rally on Tuesday. Shares of RIG certainly underperformed. The stock is hugging technical support at its rising 30-dma. Volume remains light. I would still consider new bullish positions at current levels but keep your position size small to limit your risk. Readers may want to tighten their stop loss toward the 50-dma or the $68 area. Our final target is $78.25.

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

- Second Position -
Long the 2011 February $75.00 calls (RIG1119B75) Entry @ $1.80

12/17/10 Entry on Feb. calls @ $1.80
12/16/10 New Entry Point (buy February calls) - buy the dip.
12/11/10 New target 78.25, new stop loss $66.25
12/03/10 Target hit @ $72.50, option @ $4.95 (+67.7%)

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


Union Pacific - UNP - close: 92.06 change: +1.16

Stop Loss: 89.75
Target(s): 96.25, 99.75
Current Option Gain/Loss: -35.5% and -13.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/21 update: Railroad stocks were rebounding higher today and UNP delivered a +1.2% gain. This move does break the short-term trend of lower highs. Readers can use this bounce to launch new bullish positions (I would pick the Feb. $95 calls).

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

Second Position
Buy the 2011 February $95 calls (UNP1119B95) Entry @ $2.33

12/21/10: UNP provides another entry point.
12/17/10: Entry on Feb. calls @ $2.33
12/16/10: New Entry point: buy February calls
12/16/10: New stop loss @ 89.75

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: 72.88 change: +0.14

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:
12/21 update: It was a quiet day for UPS. There is no change from my prior comments. We are waiting for a pull back toward support near $70.00. Our trigger to buy calls is at $70.25 but I'm looking at raising our buy-the-dip trigger toward $72.25.

Trigger @ 70.25

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

- or -

Buy the 2011 April $75.00 call (UPS1116D75)

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: 79.35 change: +0.45

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:
12/21 update: UTX is still trying to breakout higher but resistance at $79.50 is holding it back. I have been talking about changing our entry point to buy a breakout. My biggest concern is that UTX has resistance in the $81-82 zone from its 2007 highs. We might reconsider if UTX can close over $79.50. If that does happen we'll probably use a tighter stop loss near $78.00. At the moment our entry point is at $77.10.
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)

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


Vulcan Materials Co. - VMC - close: 45.51 change: +0.01

Stop Loss: 39.95
Target(s): 47.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/21 update: VMC spent the day trading sideways. Right now our trigger is to buy a dip at $43.75 but readers may want to bump that to above the $44.00 level and its simple 200-dma.

Trigger @ $43.75

Suggested Position: Buy the 2011 January $45 calls (VMC1122A45)

- or -

Buy the 2011 February $45 calls (VMC1119B45)

Entry on December xxth at $ xx.xx
Earnings Date 02/07/11 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on December 13th, 2010


Cimarex Energy Co. - XEC - close: 89.51 change: +0.94

Stop Loss: 84.75
Target(s): 89.90, 94.25
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/21 update: XEC is inching closer and closer to resistance at $90.00. I would rather not chase it here. We will raise our buy-the-dip entry point to $86.50 and raise our stop loss to $84.75 since shares do have support near $85.00. We want to keep our position size pretty small to limit our risk.

Trigger @ 86.50 <-- new trigger

Suggested Position:
Buy the 2011 January $90 calls (XEC1122A90)

- or - Buy the 2011 February $90 calls (XEC1119B90)

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: 27.19 change: +0.29

Stop Loss: 27.75
Target(s): 25.10, 24.25
Current Option Gain/Loss: -58.3%
Time Frame: 2 to 3 weeks
New Positions: No

Comments:
12/21 update: EXPE has rallied all the way back to resistance near $27.50-27.60. This level of resistance held again and the pull back from its intraday highs looks like another failed rally. However, I would not consider new bearish positions at this time. If EXPE breaks above this level these puts are going to implode in value (not that there is much value left).

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

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


CLOSED BULLISH PLAYS

Nike Inc. - NKE - close: 92.30 change: +2.03

Stop Loss: 87.40
Target(s): 89.50, 92.50
Current Option Gain/Loss: +115.8%
Time Frame: 4 to 6 weeks
New Positions: no

Comments:
12/21 update: NKE surged higher on big volume ahead of its earnings report. The stock almost hit our final target at $92.50. The high today was $92.49. It was our plan to exit at $92.50 or at the close today to avoid holding over the earnings announcement. The January $85 calls closed with a bid of $7.85 (+182.3%).

A lot of people think NKE could rally toward the $100 level. Yet it looks like shares are trading down -4% after hours as investors react to the earnings news. NKE delivered a profit of 94 cents a share, which was six cents better than expected.

(Second position) Closed Position:
Long the January $85.00 CALLS (symbol:NKE1122A85) Entry @ $2.78, exit @ $7.85 (+182.3%)

12/21/10 Exit at the close. option @ $7.85 (+182.3%)
12/18/10 New stop loss @ $87.40, New exit target @ 92.50
12/16/10 New stop loss $85.75
12/13/10 Target Hit @ $89.64 (gap higher), option @ $5.51 (+98.2%)
12/13/10 New stop loss $83.90
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