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Daily Newsletter, Saturday, 12/25/2010

Table of Contents

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

Market Wrap

Year-End Rally Loses Momentum

by Jim Brown

Click here to email Jim Brown
Traders appeared to be fatigued as the market slumped into the pre-Christmas close. Holiday parties, trays of food and probably an occasional alcoholic beverage took precedence over trading stocks.

Market Statistics

For a quiet day in the markets there was a very busy economic calendar. Jobless claims came in at 420,000. That was lower than the prior week by 3,000 claims BUT last week was revised up by 3,000 claims from 420,000 to 423,000 so in reality there was no change. However, more than 20 states reported a decrease in claims of more than 1,000. It was still a good report as we wait for that first dip under 400,000. Unfortunately beginning in January we should see an increase in claims as holiday workers head back to the unemployment lines.

The Consumer Sentiment survey posted another small gain to 74.5 from 74.2 in the prior reading. This was slightly below the 74.8 to 75.0 analysts were expecting but still a gain. The final reading for December was a +2.9 point gain over November.

Consumer Sentiment Chart

Personal income surprised analysts with a spike to +0.3% when estimates were for a gain of +0.1%. Spending rose +0.4%. This was down from +0.7% in October but still above the trend. Service sector spending was the highest since May. The savings rate declined to 5.3% as spending forced consumers to dip into their savings. This is bullish because it means consumers are feeling better about the future if they are willing to dip into their cash hoard. This was the fifth consecutive month that spending was a draw on savings. The savings rate has not been below 5.3% since August 2009.

The PCE deflator, the indicator of real inflation at the consumer level, saw prices rise by only +0.1% after being unchanged for four months. Inflation is nonexistent and the lowest on record back to 1960. Income will rise again in 2011 thanks to the social security tax cut. This will flow billions of dollars into the economy because this will immediately increase the net pay on everyone's paychecks.

New home sales surprised everyone with a +5.5% gain in November to 290,000 annualized units. This is not really a home buying month so the news was positive for the markets. Months of supply declined from 8.8 to 8.2 months but homebuilder inventories are still at a 40-year low. Once regular buying returns to the prior rate of 1.3 million per year the price of home is going to rocket higher due to lack of supply. The median home price declined -2.8% to $212,700.

New home sales are still going to have an uphill battle in 2011. Realtytrac reported on Friday home foreclosure filings fell -21% in November. That is the lowest level in two years and is somewhat seasonal but it was also impacted by the slowdown by lenders while the robo-signing mess was being discussed. A total of 262,339 properties received a foreclosure filing in November.

Realtytrac said more than three million homes received a filing in 2010 and more than one million were repossessed by the bank. Today there are more than five million loans seriously delinquent but not yet in foreclosure suggesting 2011 could actually have more events than 2010. However, banks believe conditions will improve so they are working harder to avoid taking that next step from simply delinquent into foreclosure action.

The economic calendar for the last week of the year does not have any stand out reports. The big economic news is the following week with the national ISM and the NonFarm Payrolls. For this week the Richmond Fed Manufacturing Survey and Chicago ISM are the only reports likely to generate market interest.

Economic Calendar

After the market closed the Fed announced its balance sheet had grown for the eighth consecutive week to $2.41 trillion because of its purchases of treasuries in the QE2 program. This is a new record for the Fed but it is expected to grow to nearly $3 trillion before the program ends in June. Of the $2.41 trillion the Fed is holding a total of $1.007 trillion is U.S. government securities. The Fed also owns $1.008 trillion of mortgage bonds on Fannie, Freddie and Ginnie Mae.

Federal Reserve Balance Sheet

Retail sales were up +5.5% for last weekend compared to the same period in 2009. Consumers spent an estimated $18.8 billion. Foot traffic was up +3%. For those consumers running around trying to find that last minute Christmas gift it was stripped shelves and frazzled nerves. This turned out to be a good shopping season and stores sold down to the bare shelves in many cases. They did not load up on back stock in fear of having a lot left over. This is just about the right ratio of sales to inventory.

PC sales were slow but tablet sales were booming. New tech was hot but old tech, you know the stuff that was new six months ago, was left on the shelves. Technology is moving so fast the leading edge products have a very short shelf life before competitors have produced a new and improved generation of products. Apple's iPad may be the exception to the rule but only because the new Android tablets have not started delivering in quantity yet. I know of a major financial firm that gave everyone iPads for Christmas. Did you get electronics for Christmas?

In stock news Crocs (CROX) lost 5% after their second C-suite office defection exit in less than a year. Crocs CFO Russell Hammer announced he was resigning on December 31st to join another company. Crocs CEO John McCarvel said they were searching for a replacement. McCarvel became CEO back in February when John Duerden resigned after one year. Having a revolving door of officers is not confidence building for investors. They always wonder what the outgoing officers knew that the public does not know.

Bed Bath and Beyond (BBBY) rallied +5% after blowing past estimates with earnings of 74-cents. Analysts had expected 66-cents. Revenue was also higher than expected and the company won several upgrades from analysts.

Chart of BBBY

Retailer Jo-Ann Stores (JAS) spiked +32% to $60 after investment firm Leonard Green & Partners LP said it was taking them private for about $1.6 billion. That is $61 per share. This is another in a recent string of deals. J Crew agreed to be purchased by the same firm and TPG Capital for $3 billion. Gymboree Corp agreed to be acquired by Bain Capital for $1.8 billion. Leonard Geen also purchased a 9.5% stake in BJ's Wholesale Club and is considering taking that company private. They also have investments in Neiman Marcus, The Container Store, David's Bridal, Whole Foods Market and Sports Authority. Looks like they are building quite a retail conglomerate.

Jo-Ann Stores Chart

Crude oil prices rallied +$1 to $91.50 on colder weather, declining inventory levels, a decline in the dollar and comments from Libya and the CEO of Gulf Oil. The closing price was a new 26-month high and appears to be setting up for a run to $100. Colder weather for the last week prompted expectations of increased demand for heating oil this winter. Stronger economics suggest business and consumer demand for crude products should increase in Q1 and all next year. The normal end of year inventory reductions for tax reasons are being interpreted by the investing public as increased demand rather than an accounting maneuver. The Libya National Oil Corp chairman told Reuters in Cairo "I think current oil prices are reflecting the situation in the market, which is a well balanced market. It is fair to say the price is about right, but I still think it needs to improve a bit more. About $100 would be a fair price for the time being." He is one of OPEC's most hawkish members.

Speaking at the same meeting the Kuwaiti oil minister said on Saturday, "the global economy can withstand $100 oil." He said the market was well supplied and the fundamentals were balanced. The oil minister from Iraq also told Reuters $100 was a fair price. The Qatar oil minister said OPEC will not raise production before June because the market is well supplied. It seems OPEC is intent on talking up the price.

OPEC does not appear to be concerned the high prices could crimp demand and push the global economy back into recession. They don't have any plans to officially discuss a production change until they meet again in June. Saudi Arabia is trying to gently talk down the price by repeating the $70-$80 is a fair price mantra but so far it is having no impact. That comment was repeated by Saudi's oil minister again this weekend. Some analysts expect Saudi to quietly begin pumping more oil to oversupply the market and lower prices. That would take 30-60 days to have any impact.

The CEO of Gulf Oil was asked on Thursday his expectations for prices. He expects oil over $100 in January and said there was a 25% chance of a new high over $147 by Memorial Day. His company operates oil terminals and distributes about 250,000 barrels of oil per day to 3,500 gas stations. He said high prices were a problem because at any time there was more than two million barrels in transit through their pipelines to those 3,500 stations. High prices cause demand destruction and the flow of products backs up into the distribution system.

I personally believe we will see $100 early in 2011 and possibly $125 by year-end but I don't see $147 again until mid 2012. The impact of prices on the global economy is so great OPEC will eventually raise production. This is not 2008 when they were pumping at 100% capacity. They have excess capacity today. How much capacity is under continuous debate but they do have some excess capacity. They need to dip into it soon or we will be looking at another global recession about two years before it is due.

Register for the FREE OilSlick.com newsletter and receive daily updates and commentary on the energy sector. Register here

Remember Elaine Garzarelli? She was the analyst that correctly predicted the 1987 market crash. Elaine has thirteen indicators she follows and she claims they are at the most bullish level in a decade at 71% positive. Above 65% is a buy signal, below 30% is a sell signal. Before the 1987 crash they declined to 9% prompting her to make her famous market crash prediction.

She said we should take a lesson from Japan and their QE program. When they implemented the program aggressively to lift themselves out of their recession the Nikkei rallied 50%. The second time they did it aggressively the market rallied 80%. When they stopped QE the market declined 50%. She claims QE does not specifically help the economy but it always spikes the stock market. With the Fed facing another six months of QE2 Elaine says this is the best time to buy stocks in the last decade. Let's hope she is right.

TrimTabs CEO Charles Biderman does not agree with Elaine but he does agree as long as QE2 is underway the markets will go higher. Biderman claims the money flows do not support a retail investor rally. He said the current fund flows are institutional investors reallocating funds in defensive mode. Bonds are going down in price and the current worry over potential municipal bond defaults is driving bond investors back to equities.

Month to date in December bond funds have seen outflows of -$15.5 billion. This compares to inflows of $273 billion year to date. The tide is turning but it has a long way to go. U.S. equity funds have seen inflows of +$16.7 billion in December compared to outflows of -$41.2 billion year to date. International equity funds saw inflows in December of -$8.5 billion compared to +$84.3 billion for the year.

Biderman said QE2 has not yet convinced retail investors to buy stocks. The Fed is removing an asset class from the market and that forces institutional investors to buy stocks. As long as QE2 is in operation the market should continue to rally.

He said TrimTabs.com had done the same municipal bond analysis as Meredith Whitney but did not draw the same conclusions. He is not calling for a big default cycle but warned there are problems. States and municipalities have a $200 billion annualized shortfall on bond debt payments and without a Federal bailout they will be unable to make their debt payments. You can't fire that many people or cut services and budgets that far that quickly. Maybe QE3 should be muni bonds.

Biderman explained why he is bearish on the market once QE2 ends. In 2008 consumer take home pay plus money taken out of real estate totaled $7.0 trillion. Since most consumers spend what they have the majority of this money went out for living expenses and investments. In 2010 the decline in income received has ended and stabilized at $5.9 trillion per year. That is an annual shortfall of $1.1 trillion dollars consumers no longer have to spend on living expenses and investments. Obviously the category coming up short is the investment side since utility bills and car insurance payments tend to be higher up the priority list. Consumers are still taking money out of investments to pay for bills because 18% of the U.S. is unemployed or under employed. Until take home pay begins to rise he does not believe the market will see a retail investor rally. He pointed out between 2003-2008 40% of the jobs created came from real estate. What sector is going to supply 40% of any new jobs in 2011-2012? That economic boost is gone at least for the time being so he believes the market will struggle once QE2 is over.

The one thing feeding the market is the decline in bonds. The bond bubble of 2010 is evaporating and that money is flowing into equities. The decline in the dollar is making equities more attractive and the rise in interest rates is making bonds less attractive. We are facing a classic asset allocation rally as long as the Fed is in control.

Chris Johnson of Johnson Research said the QE2 environment in the U.S. was pulling money back from international funds. Money in international ETFs was starting to come back to the U.S. to capture the gains from the QE2 rally. When the dollar is depreciating you want to be in dollar denominated assets that are going up in value like U.S. stocks. Being invested overseas in that environment exposes you to currency risk as well as stock risk.

While almost every analyst is expecting a strong market in 2011 most believe the market is due for a pullback in January. Katie Stockton, Chief Market Technician at MKM Partners, said although stocks are overdue for some short-term weakness there is a silver lining. She wrote in a research note, while the S&P and most of its components are technically overbought, the index's ability to forge higher is a "phenomenon that is characteristic of strong and sustainable uptrends."

The S&P has risen +6% in December and +24% since the July lows. There were 3,400 new highs on the NYSE so far in December. Bullish investor sentiment is nearly 60% and clearly bearish by contrarian standards. The VIX hit a new nine month low on Thursday. By any measure we are watching what some would call irrational exuberance but there is still a lack of real conviction by the bulls.

The bears are pulling their hair out over the slow melt-up and even the bulls are starting to express cautionary fears. You have to wonder if everyone believes something is true does that make it true? Unfortunately no. We all know the quote, "the market can remain irrational far longer than investors can remain liquid." In the bears case today that is quite true but the bulls will soon get their turn in the woodshed.

The general consensus is for a 5% to 7% correction in January. Most analysts recommend taking profits early and then looking for an opportunity to get back in on the dip. The long-term view has not changed so any January dip should be considered a buying opportunity.

Insider selling is normally seen as a good indicator of market direction. In October/November the ratio of insider selling to buying was strongly bearish at better than 30:1. Insiders sold nearly $6.5 billion in stock. That ratio has fallen to 15:1 in December and under 15:1 is considered bullish. There is always an imbalance to the sell side because of company grants of stock and options. However, the lower the ratio the more bullish the outlook for the markets. One analyst believes the selling tapered off in December because of tax considerations. Employees are waiting until January and the beginning of a new tax year to ratchet up selling again. Since this stock/option grants are a good way for workers to make up for that $1.1 trillion shortfall in payments I described earlier I would expect that selling ratio to return to those high levels. However, the Fed's QE2 program has a stronger impact on the market than insider selling so this is just a data point not a signpost of a change in market trend.

Santa Claus Rally? While the inexperienced reporters on the web have been calling the gains of the last week a Santa Clause rally the actual definition of that rally is the last five days of the year and the first two days of the next year. It has nothing to do with the week we just had except traders tend to anticipate the official Santa rally and buy in advance.

Another market saying goes like this, "When Santa fails to call, bears will roam on Broad and Wall." On average since 1969 the S&P has gained +1.6% during the Santa rally. On years when the S&P loses ground during that period it tends to continue lower in January. Nothing is ever a guarantee of market direction but it does not hurt to be watching out for trends to repeat.

The S&P 500 moved over 1250 on Tuesday but failed to extend its gains. We can put all the qualifications on the market you want like low volume, over extended, etc. The key point is a slowing of the advance. It "feels" heavy. Obviously the growing number of analysts calling for a January correction are generating a serious headwind and rightfully so. It would be silly to expect the market to simply continue higher even with the Fed greasing the wheels.

Since December first the S&P has only had two decent decline days. There needs to be a decent bout of profit taking before investors will put more money to work. It is simple market mechanics and it does not take a trader with 20 years of experience to figure it out. That is why the gains last week were muted and why they will probably be muted next week "IF" there are any gains at all. There is still the potential for some window dressing but I think they will be trying to maintain 1250 rather than push the index higher.

Initial support is 1240 and barring a serious news event that should hold until year-end. Resistance is any level over Thursday's close at 1256. We are at resistance and any gains will be solely news driven.

S&P-500 Chart - Daily

If technicals mattered in this market the S&P completed a reverse head and shoulders move last week with an upside target of 1248. Thursday's close at 1254 was slightly over that target level and exactly where you would expect a failure. However, after the three weeks of consolidation in November we may be immune to a failure at the H&S target. These patterns don't normally fail at the target but experience a bout of volatility before continuing.

The S&P also has strong resistance at 1300-1310 from August 2008 and from the Fib retracement of the 2008 market drop. If the index does continue higher into year-end I cannot conceive of a move over 1300. I think the odds are better we will see a range bound market over the next week that sets up for a temporary decline in January.

S&P Chart - Weekly

The Dow has been hampered by low volume and extremely low volatility. The Dow has now stretched its string of low range days to 15 where the range was less than 100 points. You have to go back to 1996 for a streak this long. The trend is bullish but despite the new highs there is a tremendous lack of conviction. Far too many investors are afraid we have come too far, too fast and they are right. Those that are buying are doing so reluctantly. This lack of conviction is slowly being overcome by a desire to not miss out on the continued gains.

Dow Chart - Daily

Dow Chart - 90 Min

The weekly Dow chart shows a textbook respect for the 200-week average with a nice retest of the 200W as support after the breakout in November. This continuation pattern would be a clear long-term breakout signal were it not for the strong resistance at 11700. In our current low conviction environment I seriously doubt we can move through that level without another dip to allow those buyers still waiting on the sidelines to join the party. An eventual break over 11750 would be a very strong bullish confirmation and we could hit 13000 very quickly from there as money managers race to dump bonds and move into stocks.

Dow Chart - Weekly

The Nasdaq is a tough chart this weekend. The short-term move has extended well over recent support and the extension is very overdone. The potential for a January dip on the Nasdaq is very strong. That dip, when it comes, should build a base for the eventual retest of strong resistance from 2007. Those 2007 resistance levels at 2710 and 2825 should be difficult to break but once cracked they should provide a springboard for a very strong rally. A move over those levels would provide all the conviction needed for reluctant traders to jump back into the market.

Nasdaq Chart - Daily

Nasdaq Chart - Weekly

Moving over the 2825 level would put the Nasdaq at new TEN-YEAR highs. Those headlines could rekindle investor interest in the market and convince reluctant investors to move money from bonds, money markets and mattresses and back into stocks. This is not going to be an easy hurdle to cross even with the Fed pouring money into the market. Once crossed it could become a self-sustained feeding frenzy. I am sure you can imagine the daily headlines in the media proclaiming the new ten-year high.

Nasdaq Chart - Monthly

The Russell has been the most bullish index but it is also the most overextended. Money managers have expressed their confidence in the market for 2011 by shifting funds from large caps into the higher risk, higher return small caps.

The Russell has already surpassed its 2000 highs at 614 and is rapidly approaching the 2007 historic highs at 856. The tough resistance from 2008 at 760 should now be support for any January decline.

The Russell move is confirmation of fund manager sentiment. They do not appear to be worried about an impending correction and will see any dip as a buying opportunity.

Russell Chart - Weekly

Russell Chart - Monthly

The Dow Transports are seen as a leading edge indicator for the health of the economy. The transports exploded higher after the Fed leaked news of QE2 in August but then stalled in early December. They have been range bound in a very narrow 80 point range for the entire month while traders waited to see if holiday shoppers showed up at the malls. The transports are also fueled by the Nonfarm Payroll reports and the last report was not stimulative.

When the transports finally move over 5100 it should be a very positive signal investors are confident the economy is still improving.

I could see the transports dipping back to support at 4800 on any weakness in January simply because of the large gains that need to be turned into cash. I would be a buyer of the IYT ETF on a dip to that level.

Dow Transports Chart - 90 Min

Dow Transports - Monthly

For the coming week I am neutral. We could go sideways or begin heading lower in anticipation of a January decline. While nobody knows for sure what will happen in January the odds are good there will be some portfolio reshuffling once into a new tax year.

I believe any decline will be a buying opportunity. The bears will be telling us "the" big decline has begun but I think they will be wrong once again. Technicals don't matter to the market today. The Fed is pouring financial gasoline on the market and it will push the market higher. Don't fight the Fed.

On Saturday China raised interest rates a quarter of a point to 5.81% for the second rate hike in three months as it combats inflation. The deposit rate also rose to 2.75%. China's inflation rate rose to 5.1% in November and well over their target of 3%. China has been expected to raise rates for the last three weeks so this should already be priced into the market. The keyword there is "should."

When the market decides it wants to go down it will always find an excuse. It could be China's rate hike, hostilities in Korea or Moody's downgrade of Portugal's debt. It does not make any difference what reason is blamed for the decline. Just be prepared for it and plan to buy the dip. I would not buy the first down day because January dips tend to last a couple weeks or more. I printed this table of January declines last week and I am reposting it here for reference. By averaging the January high dates over the last nine years you get January 12th. This is the seventh trading day of the year in 2011 but there is obviously no guarantee the market will wait that long or even decline at all. Based on the trend over the last decade I would not bet against a decline.

New Year Declines for S&P

I hope everyone had a very merry Christmas and I hope you are looking forward to 2011 as much as I am. I expect a new bull market in 2011 thanks to the Fed and the recovering economy. I hope you choose to participate in that market and profit handsomely from it.

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Don't fight the Fed!

Jim Brown


Index Wrap

Still Marking Time

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

There is little change in the charts for the holiday shortened week just ended. It does mark the third week of only modest gains but gains nevertheless. One major index, the Nasdaq 100 (NDX), touched its prior major high (late-2007) as seen in my first chart. I'll continue to point out the overbought extreme suggested by the long-term weekly chart RSI and MACD indicators. However, this market doesn't seem destined to come down much, at least not yet. Overbought extremes do point to the risk of an overreaction on bearish news. However, in a major bull market, it's often not until the second/third time of overbought extremes that a substantial correction follows.

The Nasdaq Composite would have to climb to 2860 (from 2665) before the index would equal its 2007 top. Demonstrating how far ahead Nasdaq is however, the S&P 500 (SPX) is only just approaching (at 1272) a two thirds/66% retracement of the decline from SPX's October 2007 top to its March '09 low. Ditto the Dow 30 (INDU) as it also closes in on a 66% retracement (at 11600) of its prior bear market decline.

Hitting the prior top in the case of NDX and the fast approaching 66% retracement levels might suggests potential technical resistance is at hand, or near. Still, no one ought to guess at a top until we see a day or more of major selling. For example, where the 'TRIN' or Arms Index where this indicator climbs above 2.0. Daily TRIN levels over 1.0 suggest selling pressure, something I just wrote about in my latest Trader's Corner of 12/23. And even the last bouts of heavy selling (and three daily TRIN levels at or above 2.0) ended up just part of a sideways move before our latest rally. This market doesn't appear to want to come down. Earnings are good even in our lackluster economy. Other major investment classes are low yielding bonds and devastated real estate.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) index is bullish in its pattern, same as last week. Upside momentum has slowed but low volume levels are generally a two-week phenomena this time of year.

1227, at the 21-day moving average, is an expected support. Next support, at the trendline, is at 1212 currently. Support should extend down the prior lows in the 1180 area.

I haven't highlighted this on my daily chart below, but 1280 looks like next resistance (by Tuesday, 12/28), with 1300 then a more major resistance.

RSI AND SENTIMENT INDICATORS:

As discussed ad nauseam by me, I always look at the above indicators and they continue to suggest an overbought market, meaning up the scale of 'vulnerable to a correction'. I also tend to discount the immediate 'timing' usefulness of high RSI levels in what is still a powerful bullish trend in stocks. (A closer in time to a top signal is 3 such successive RSI extremes.)

What should be least encouraging to the bears is the drop in trader bullish sentiment in the week just ended. Of course, this is squaring up ahead of a long holiday period also.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) index's chart is bullish also and OEX took out my 560, my indicated near resistance from last week. Based on hourly chart (not shown) projections, 570 is noted as next resistance on the daily chart below.

Major resistance doesn't seem likely until the 580 area; and if at 580, it's not a big stretch for the bulls to bid OEX up to 600 over time.

Very near support begins now at 560, extending to the low 550 area and the 21-day moving average. Next support, and more key in my opinion, is seen at the intersection of the lower trendline around 540. The intermediate trend wouldn't shift to down unless the prior 527 low was pierced.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The bullish Dow 30 (INDU) Average continues to move higher as it keeps churning out new highs. The slowed price momentum isn't a factor in this bullish chart assessment. Guesses at resistance technically are mostly that, but 11600 is one of mine for nearby resistance.

Near support is at 11450-11400, and I'll continue to watch the 21-day average as a pivotal support; the average is currently at 11367.

I've bumped up my estimated next resistance slightly, to 11600. More major resistance is projected in the 11770-11800 area.

Stand out Dow performers continue to be 'usual' suspects mostly with exception of our two on-fire INDU energy stocks (CVX & XOM): AA (beware! its gone 'ballistic'), CAT, CVX, DD, HD, KO, UTX, VZ, XOM.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) Index chart remains bullish even with the slowing momentum of recent days. While slowing upside momentum often is the first sign of a top, we're also headed into a week when the market doesn't typically have full investor/trader interest and the price swings tend smaller.

COMP can be considered to be at just under the midpoint of an uptrend price channel that suggests key technical support at 2600 and key technical resistance up around 2800. It would take a break below 2600 to turn the chart picture the first notch bearish. I've also noted support at 2550.

As far as projected resistance, I've noted what may be a next resistance at 2700. Major resistance looks like it could began at 2800, extending to the 2007 highs in the 2860 area.

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) chart is bullish as with the Composite but upside momentum has slowed too. NDX appears like it might be drifting down to trendline support in the 2195-2200 area. The bulls will want to see a rebound if prices get into this area as it would look technically strongest that way.

Below the key 2200 level, I've highlighted next support as 2130. Really it's a ZONE of intermediate support that extends from 2130 to the cluster of prior lows around 2100.

I've noted resistance at the prior recent intraday high which is equal to the peak level reached in the week ending November 2007, prior to a 15-month bear market. Assuming the rally resumes the way it has been, 2239 will just be a milestone reached before prices continue higher in a new up leg. The upper end of my projected broad price channel suggests technical resistance around 2400.

The 13-day RSI seen above with NDX is no longer in the overbought zone it was in before the last pullback. You could say there's a bearish divergence here or a 'failure of relative strength'. However and again, in a strong bull market, these indicators are less reliable as trading inputs. If you got out (and didn't get back in) every time this market was registering high RSI readings, you would have lost big parts of the move.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQQ) chart remains bullish above 54.2 currently. If trade starts to go below the 21-day moving average chart and below the up trendline, the chart pattern would turn mixed near-term. On an intermediate-term basis, a close in QQQQ below 52 would look like galloping weakness, but no reversal in the Intermediate trend absent a close below 51.45.

Daily trading volume continues to be low and I don't see much change absent a break below 52.0 which would probably come with a high volume selling stampede.

Near support: 54.2

Next support: 52.0, then 50.8

Near resistance: 54.9-55.0

Next estimated resistance: 56.0

Major resistance: 58.5

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) has continued on its roll and this past week the index nearly reached the top end of the projected uptrend channel. All the way to that line is at 806 by Monday and could be key resistance.

Given how far RUT has come without any significant pullback, a correction could come anytime. The RSI is certainly at a level consider to be extreme and index quite vulnerable to a correction. But even more of a sideways move will 'throw off' an overbought RSI extreme.

A pullback to near the low end of the uptrend channel, followed by another strong up leg would also be a characteristic move given the strong bullish pattern RUT has been in. The seasonal bullish tendency does wane some after the end of the year.

Immediate support is at 780, then at 767-763, with a pivotal technical support at the up trendline, currently intersecting at 754.



GOOD TRADING SUCCESS!


New Option Plays

Aerospace & Medical Equipment

by James Brown

Click here to email James Brown


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Company Description

Why We Like It:
BA has been constantly plagued with delays to their new Dreamliner planes they're trying to bring to market. Yet in spite of all the negative headlines the company is still doing a brisk business. While the stock has underperformed the broad market averages BA still has a pattern of higher lows. Aggressive traders could buy calls now. I want to see a little bit more confirmation since there is short-term resistance near $65.00. I'm suggesting a trigger to buy calls at $65.50. We'll use a stop loss under this past week's low at $62.75. There is additional resistance at the 200-dma near the $67 level. We should consider this a higher-risk aggressive trade. Keep your position size small. Our first target is $69.00. Our second target is $72.25.

Trigger @ 65.50

- Suggested Positions -

Buy the 2011 January 67.50 calls (BA1122a67.5) current ask $0.64

Buy the 2011 February $70.00 calls (BA1119B70) current ask $0.77

Annotated Chart:

Entry on December xxth at $ xx.xx
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 5.3 million
Listed on December 25th, 2010


Baxter Intl. Inc. - BAX - close: 51.09 change: +0.45

Stop Loss: 49.90
Target(s): 55.50, 57.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
Look at a daily chart of BAX and one of the first things you notice is the huge gap down back in April of this year. The company issued an earnings warning and investors punished the stock painfully. As is typically the case the bottom and top of a big gap move like that tends to be resistance. BAX has been testing resistance at the bottom of the gap near $52.00. The stock looks ready to breakout into this gap area and could see a strong move higher toward the top of the gap.

I am suggesting a trigger to buy calls at $52.55. If triggered our first target is $55.75. Our second target is $57.50. I would consider this a higher-risk trade. If you look at the weekly chart of BAX you can draw a trendline across the long-term highs and the trend is lower. BAX could see additional resistance near $55.00. Keep your position size small.

Trigger @ 52.55

- Suggested Positions -

Buy the 2011 February $55 calls (BAX1119B55)

Annotated Chart:

Entry on December xxth at $ xx.xx
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 3.3 million
Listed on December 25th, 2010


In Play Updates and Reviews

A Quiet Holiday Session

by James Brown

Click here to email James Brown

Editor's Note:

No one was motivated to chase stocks or take profits the last trading day ahead of Christmas. Overall stocks continued to drift sideways. There is very little change in our play updates below. The only real changes are new stop losses for CSX and ESRX. Plus, we've modified our entry point on CMI to launch very small bullish positions now.

-James

Current Portfolio:


CALL Play Updates

Cummins Inc. - CMI - close: 110.91 change: -0.34

Stop Loss: 108.75
Target(s): 112.75 114.75
Current Option Gain/Loss: + 0.0%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/25 update: CMI pulled back toward the $110.50 level again. I'm going to suggest an aggressive entry point now to go ahead and buy very small call positions. This is a higher-risk entry point because CMI and the major indices still look short-term overbought. If you're patient we might see a better entry point on a dip near $110.00 or the rising 10-dma. We will leave our stop loss at $108.75.

Buy calls now (small positions only to limit our risk)

- Suggested Position -
Buy the 2011 January $115 calls (CMI1122A115) current ask $1.40

- or -

Buy the 2011 March $115 calls (CMI1119C115) current ask $4.90

12/25: Buy calls now at current levels (small positions)
12/21: New entry point @ $110.25, New stop @ 108.75, New option strikes.

Chart:

Entry on December 27th at $ xx.xx
Earnings Date 02/02/11 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on December 11th, 2010


CSX Corp. - CSX - close: 63.68 change: -0.30

Stop Loss: 61.75
Target(s): 67.00, 69.50
Current Option Gain/Loss: -35.4% and -23.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/25 update: The railroad stocks are just not moving on Wall Street. The group and shares of CSX have been consolidating sideways for three weeks now. This is terrible for our call options. Readers may want to wait for CSX to see a new relative high before considering new bullish positions. If you do open new positions I would buy the February calls.

Please note our new stop loss at $61.75, just under the 50-dma.

- 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

12/25: new stop loss @ 61.75
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.

Chart:

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: 46.28 change: -0.18

Stop Loss: 43.75
Target(s): 44.90, 48.00
Current Option Gain/Loss: +625.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/25 update: CTL tested short-term support near $46.00 again. The stock appears to have short-term support about every $1.00 ($46, 45, 44, etc). 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

Chart:

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: 72.83 change: +0.01

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:
12/25 update: CTSH is going nowhere fast. The stock is still consolidating sideways in a very narrow range. We want to wait to buy calls on a dip 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)

- or -

Buy the 2011 April $75.00 calls (CTSH1116D75)

Chart:

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: 54.26 change: -0.49

Stop Loss: 51.49
Target(s): 53.95, 58.50
Current Option Gain/Loss: +16.9% and -25.2%
Time Frame: 5 to 6 weeks
New Positions: see below

Comments:
12/25 update: ESRX is showing some relative weakness the past few days. It's starting to make the new high on December 20th look like a little bull trap pattern. The stock is testing short-term support near $54.00, which also coincides with a four-month trendline of support. A bounce from here could be a new entry point. The late November lows were $51.66 so I'm raising our stop loss to $51.49. If you do open new positions here you may want to consider a tighter stop loss (maybe closer to $53 or $54). 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

12/25: new stop loss @ 51.49
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%)

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: 59.47 change: -0.13

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:
12/25 update: We have been expecting FAST to roll over under resistance at $60.00. It looks like the correction might be starting. We want to buy calls on a dip at $56.75.

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 @ 56.75

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

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: 93.01 change: -0.36

Stop Loss: 90.90
Target(s): 96.75, 99.75
Current Option Gain/Loss: -62.5% and -19.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/25 update: FDX has been a disappointment. Shares have gone nowhere since their earnings report a week ago. There is no change from my prior comments. 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)

Chart:

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: 167.60 change: -2.00

Stop Loss: 162.95
Target(s): 171.00, 179.50
Current Option Gain/Loss: +25.4% and +18.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/25 update: After a strong three-day bounce shares of GS hit some profit taking on Thursday. If you're looking for a new entry point I'd wait for a dip or a bounce near the $165-164 area. Our first target to take profits is at $171.00.
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

12/22: New stop loss @ 162.95
12/17: GS opened at $163.92
12/16: Adjusted Entry - initiate small positions now (@ Friday's open)

Chart:

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: 145.89 change: -0.06

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:
12/25 update: IBM is still consolidating sideways but shares look poised to breakout higher. 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)

Chart:

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: 37.01 change: -0.89

Stop Loss: 34.90
Target(s): 39.75
Current Option Gain/Loss: -15.3% and - 6.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/25 update: I warned readers that $38.00 was probably resistance for JNPR. Shares erased two days of gains with some profit taking on Thursday. The stock gave up -2.3% and is nearing its 10-dma. I would consider new bullish positions on a dip near the $36-35 area. 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)

Chart:

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: 69.25 change: -0.10

Stop Loss: 67.95
Target(s): 73.25
Current Option Gain/Loss: -51.4% and -55.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/25 update: There is nothing new to report on for LMT. Shares are still underperforming and I remain very cautious on LMT here. I am not suggesting new bullish positions at this time. More conservative traders may want to exit early or raise their stop loss (maybe raise it toward $69.00).

- 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

Chart:

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


Millicom Intl. Cellular - MICC - close: 93.43 change: +0.73

Stop Loss: 89.75
Target(s): 99.50
Current Option Gain/Loss: - 8.6% and + 6.0%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/25 update: Our new play in MICC continued to show some strength on Thursday. Shares actually gapped open on Thursday at $94.23 (our entry point) but failed to see much follow through on the opening move. The stock closed near potential resistance at its 100-dma. Nothing has changed from my Wednesday comments. We can buy calls now or if you're patient we might see a better entry point in the $91 area. Our exit target is $99.50. Aggressive traders could aim for the 2010 highs near $102.50.

FYI: It looks like MICC must have had a special dividend because several of the options have odd strike prices ending in .40.

- Suggested Positions -

Long the 2011 January 95.40 calls (MICC1122A95.4) Entry @ $2.30

- or -

Long the 2011 April $100.00 calls (MICC1116D100) Entry @ $3.30

Chart:

Entry on December 23rd at $94.23
Earnings Date 02/09/11 (unconfirmed)
Average Daily Volume = 518 thousand
Listed on December 22nd, 2010


Monsanto Co. - MON - close: 66.60 change: +0.15

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:
12/25 update: MON continues to hover just above the $66 level. Shares look overbought with the bit bounce from $60. We have a trigger to buy calls on a dip at $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

- 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

Chart:

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


Netflix Inc. - NFLX - close: 184.58 change: -0.77

Stop Loss: 174.90
Target(s): 199.50, 219.50
Current Option Gain/Loss: -28.7% and -20.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/25 update: NFLX was kind enough to offer us a better entry point on Thursday with a dip toward $181.50. I would still consider new bullish positions at current levels (just remember that is a very small bullish position).

Make no mistake, this is a very aggressive, higher-risk trade. I suggest readers keep their positions pretty small to limit your risk. Our first target is $199.50. Our second target is $219.50.

- Suggested Positions (small positions only) -

Long the 2011 January $200 calls (NFLX1122A200) Entry @ $4.35

- or -

Long the 2011 February $220 calls (NFLX1119b220) Entry @ $5.75

Chart:

Entry on December 22nd at $187.12
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 7.5 million
Listed on December 21st, 2010


Oceaneering International - OII - close: 74.63 change: -0.64

Stop Loss: 69.95
Target(s): 78.00, 79.95
Current Option Gain/Loss: -11.5%, -11.7%, and - 9.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/25 update: Hmm.... oil futures rallied to new relative highs and yet the oil service stocks ticked lower. OII opened at $75.28 (our new entry point) and closed lower on the session. Overall I remain bullish on OII and would still consider new positions here but readers may want to start small. Our first target is $78.00.

- Suggested Positions -

Buy the 2011 January $75 calls (OII1122A75) Entry @ $2.77

- or -

Buy the 2011 January $80 calls (OII1122A80) Entry @ 0.85

- or -

Buy the 2011 April $80 calls (OII1116D80) Entry @ 3.86

Chart:

Entry on December 23rd at $75.28
Earnings Date 02/17/11 (unconfirmed)
Average Daily Volume = 584 thousand
Listed on December 4th, 2010


Panera Break Co. - PNRA - close: 104.10 change: +0.30

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:
12/25 update: I'm not ready to give up on PNRA quiet yet. Shares were underperforming the last few days. If you look at an intraday chart PNRA looks poised to move lower. For the moment we will keep our breakout trigger to buy calls at $107.15. If shares don't recover soon we'll drop it as a bullish candidate.

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)

Chart:

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: 69.32 change: +0.04

Stop Loss: 66.25
Target(s): 72.50, 78.25
Current Option Gain/Loss: -37.6% and -30.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/25 update: RIG bounced from $68.50 for the second time in two weeks on Thursday. Shares are also nearing technical support at the 40-dma. This looks like a new entry point to buy calls but readers may want to wait for a little bit more strength first (like a move over $71). 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%)

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


Union Pacific - UNP - close: 91.71 change: -0.38

Stop Loss: 89.75
Target(s): 96.25, 99.75
Current Option Gain/Loss: -36.8% and -14.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/25 update: Railroad stocks were pretty sleepy on Thursday. UNP drifted sideways. I would be tempted to buy calls here but readers might want to wait for a move over $92.50 first.

- 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

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: 72.73 change: -0.13

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:
12/25 update: There is no change from my previous comments on UPS. 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)

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: 79.50 change: -0.02

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:
12/25 update: UTX is still hovering near resistance at the $79.50 level. The trend of higher lows does suggest UTX wants to breakout higher. Aggressive traders could buy calls now. I'm still a little bit hesitant to launch positions here but UTX is moving the right direction, albeit very slowly. At the moment our suggested 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)

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


Vulcan Materials Co. - VMC - close: 44.82 change: -0.40

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:
12/25 update: VMC is still correcting lower, which is what we want to see. The stock should have some support in the $44-43 zone. 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 Positions -

Buy the 2011 January $45 calls (VMC1122A45)

- or -

Buy the 2011 February $45 calls (VMC1119B45)

Chart:

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: 89.39 change: -0.46

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:
12/25 update: XEC is another energy stock that saw some profit taking on Thursday in spite of the strength in oil prices. We are waiting for a dip back toward support. Currently our plan is to buy calls on a dip at $86.50. We want to keep our position size pretty small to limit our risk.

Trigger @ 86.50

- Suggested Positions -
Buy the 2011 January $90 calls (XEC1122A90)

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

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: 26.33 change: -0.29

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:
12/25 update: Shares of EXPE are still reversing but I remain hesitant to launch new put positions. Meanwhile there were lots of headlines about EXPE and American Airlines on Thursday. Evidently the two are in a legal dispute after American pulled its data from EXPE's Orbitz travel website. In response EXPE just made flights for American Airlines a lot harder to find on their website.

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