Option Investor
Newsletter

Daily Newsletter, Saturday, 1/1/2011

Table of Contents

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

Market Wrap

Best December Since 1991 for S&P

by Jim Brown

Click here to email Jim Brown

The S&P may have rallied for +6% in December but it managed to post a gain of only .47 for the last week. All the December gains came in the first week.

Market Statistics

In the graphic above note the highlighted changes for the various indexes last week. For most of them it brings an entirely new meaning to "flat." The S&P closed at 1258 once again and a loss of .24 for the day. The fund managers did an excellent job holding the indexes at resistance and near the highs for the year. The Dow gained +11% for the year, S&P +13% and Nasdaq +17%.

The Nasdaq finished its best December since 1999 with weakness as the large caps like Apple, Google, Netflix and F5 Networks accelerated their declines. Friday's market action was not an indicator of market strength because the volume was the lowest day of the year at 3.6 billion shares. However, the weakness in techs is a warning for January.

There was nothing in the limited economics for Friday that would have negatively impacted the market. The ISM for New York rose +10 points to 495.7 to the highest level since the index began in 1994 and grew at the fastest pace in six months. The NY-ISM has been rising steadily since July 2009.

The recovery in New York City is clearly progressing at a faster rate than the rest of the country although the Chicago ISM was also strong this week. NYC has seen 63,000 new jobs created in 2010 and has regained 38% of the private sector jobs it lost in the recession. The six-month outlook component rose from 71.9 to 75.2 and the current conditions component rose from 65.6 to 70.0. The city's housing market is improving rapidly with apartment and condo sales almost doubling since 2009.

Mayor Bloomberg is planning to cut 10,000 public workers in 2011 because of a lack of finances and this should slow private sector growth temporarily due to the loss of jobs.

For the first week of 2011 we have some serious roadblocks in the form of economic events. The first is the national ISM Manufacturing Index on Monday. The regional indexes have been posting some pretty strong gains but the consensus estimates for the national report are for only a minor improvement. If the ISM surprises to the upside it could give a boost to the market during the early January fund flows.

The second event is the FOMC minutes for the December meeting. Considering how divided the FOMC members have been recently it will be interesting to see how the conversations went in that meeting. If the divisions are becoming wider will that impact the fate of the QE2 program? Did the Fed discuss canceling the program? Does the Fed see the economy improving or inflation starting to rise? There are dozens of other questions and most will probably go unanswered but this is still a critical event hurdle we have to get past.

The ISM Services on Wednesday will not be as critical as the ISM manufacturing on Monday but it will be closely watched.

The big event is of course the Non-Farm Payrolls for December on Friday. The consensus estimate is for a gain of 125,000 compared to the disappointing gain of only 39,000 in November. Some analysts are expecting a much higher number. Morgan Stanley is expecting a gain of +160,000. These higher estimates may have prejudiced the market and anything even in the consensus range could be a disappointment. I am afraid we could have another month under 100,000. I believe that would be a real disappointment BUT it would be a bad news, good news event. A bad number means the Fed will continue QE2 and possibly add to it down the road. The market can deal with slow job growth because it keeps the Fed in an accommodating bias for a longer period. That does not mean we won't see some volatility in the market after the announcement.

I see next week's reports as a wall of worry the bulls will be happy to climb as long as there are no seriously negative surprises.

Economic Calendar

Stock news was pretty limited on Friday since there was nobody around to report it or listen to it. Imax shares rallied on a rumor in London's Daily Mail news that Sony (SNE) might be preparing to offer $40 for IMAX. The paper also said Disney (DIS) might be interested in buying the movie chain. IMAX shares spiked from $27 to more than $32 on the rumor but declined to close at $28 after various analysts said the deal was not likely.

Imax Chart

The Daily Mail also started a rumor on Tuesday about a BHP offer for APC. Since the sources are never disclosed I guess they can get free advertising by making up acquisition rumors on slow news days. The APC rumor first surfaced in September. BHP is sitting on a pile of cash and wants to expand its deepwater oil exploration. When the Horizon exploded BHP had two rigs under contract in the Gulf and Anadarko had three. Since the new rumor on Tuesday various analysts have said the deal would make sense for BHP but the rumored $90 price was not even close to what would be required to take out APC. Bank America said the base case value for Anadarko was $110 and that did not factor in the recent gains in oil prices and recent drilling discoveries. APC shares rose again on the continued discussion about an acquisition but gave back most of its gains at the close.

Anadarko Chart

Positive economics and year-end fund flows caused a monster short squeeze in crude on Friday. The current January contract rallied from an overnight low of $89.05 to an intraday high of $92.06. The shorts were setting up for a new years decline and were caught off guard once again. Crude closed at $91.40 and right at resistance that held for more than a week.

Crude Oil Chart

Analysts are starting to upgrade their estimates again for 2011 because of the recent spike in crude prices. The former CEO of Shell is predicting $5 gasoline by 2012 but that is far enough away nobody is paying attention. Closer to home is gasoline expert Fred Rozell who predicts 15 states including Alaska, Hawaii, Connecticut and Rhode Island will see gasoline prices top $4 by Memorial Day. An extra dollar per gallon will cost the average consumer about $750 more per year for gasoline. That is not the end of the world but it is a serious psychological barrier. $3 gasoline causes pain at the pump and drivers begin to consciously add less gas to the tank and start worrying about their excess driving. Over $3.50 and that starts to seriously impact demand but $4 gasoline will probably put the country back into recession.

Fortunately I don't see it by Memorial Day or any day in 2011. Crude inventories are still 9% over the five-year average and the hype about increased demand in the U.S. is just that, hype. It really has not happened yet. I believe we will see prices over $100 in 2011 but not on a permanent basis. That is coming in 2012 but hopefully we will get there slowly so consumers have a long time to grow accustomed to the slowly rising price.

Borders Group Inc (BGP), the second largest U.S. bookstore chain, declined sharply losing -22% after saying it delayed payments to some publishers while trying to avert a liquidity crisis. The company warned earlier this month it was in talks to refinance and might violate its credit agreements in Q1 if negotiations fail. The company said there was no guarantee its efforts would be successful. If the refinancing fails the chain may face a "liquidity crisis" in Q1 and may no longer qualify as a going concern. That means bankruptcy or liquidation.

Since bookstores are normally flush with cash after the holidays the timing of this warning raised some serious alarms. Borders is attempting to raise cash by closing stores and selling off properties and other assets. Borders has posted losses for three consecutive quarters. At the end of October the company had $350 million in debt and $23.1 million in cash. As of Dec-9th the company had -$15.3 million in working capital. Having negative working capital means they don't have enough money to pay their bills. The chain's largest investor, William Ackerman at Pershing Square Capital Management said on Dec 6th they would help Borders fund a bid to acquire Barnes and Noble. It sounds like they need to fund working capital first before taking on another liability.

Borders Group Chart

One of the problems confronting Borders and Barnes & Noble is the massive acceptance of the Kindle. Analysts believe Amazon has now sold more than eight million kindles. Amazon reported last week the kindle has become their best selling product of all time even topping the Harry Potter record holder from 2007 titled "Deathly Hallows." Amazon won't say how many Kindles it has sold but it sold 2.5 million of Deathly Hallows just in the quarter in which it was released. Amazon has repeatedly said it now sells more e-books than all other books combined. Daniel Dilger, from AppleInsider, believes Amazon will sell 4.5 million Kindles in Q1-2011 alone. Barnes & Noble joined the back patting party last week saying their Nook reader was now their best selling product of all time and they were also selling more e-books than paper books. With this kind of e-book acceptance it is going to be tough to continue operating brick and mortar stores. Turn out the lights Borders, your party is over.

For tech investors next week is going to be the perfect storm with a whirlwind of tech news from the Consumer Electronics show in Las Vegas. This is the biggest show of the year and the place where everyone will showcase their new products. At last year's show the iPad was just a rumor and had not been announced. Apple is expected to have sold 14 million in 2010 and could double that in 2011. However, the competition is really heating up.

With sales like that they make a big target for other manufacturers. The major vendors will be displaying tablets with 7, 9, 10 and even 12-inch screens. Some will use the Palm operating system in the case of tablets from Hewlett Packard. Microsoft is rumored to be showing off their new line powered with a new Windows operating system. RIMM is expected to display working copies of its Playbook. Of course the biggest contingent will be the Android powered devices of which there will be dozens in any format imaginable.

Motorola is expected to show off a 4G version for Verizon running the Android OS and probably the biggest competitor to the iPad. Motorola needs a big win so hopefully they will hit a home run here. In a teaser video Motorola put out a week ago they compared the iPad to the Rosetta Stone. A historic breakthrough in technology but still an antique. Video Link

LG is expected to show off the world's largest 3D TV at 72 inches and the smallest 3D in a portable unit. The big chip companies are in an all out battle for the hearts of these new tech devices. Caris and Co., claims Intel is producing chips for 18 tablets, Nvidia 14, Texas Instruments 6 and Qualcomm 5. Reportedly the cost for the core processors has declined to $35-$40 but on the way to $25 each. Intel stand to gain the most since every low powered tablet needs a high-powered bank of servers somewhere to supply all the computing. What Intel loses in PC sales to tablet devices it will gain in those server chips. The other chipmakers only focus on the device chip not the server chips.

If this is January 1st you know there has got to be a historical recap somewhere in the commentary. It is obligatory like mistletoe at a college New Years Eve party. There was a wide range of performance between the winners and sinners on the Dow. With Caterpillar gaining +69% and Hewlett Packard losing -18% it was a stock pickers market. Note that three of the top four losers are big cap tech stocks. Even with those stocks losing ground the Nasdaq managed to post a healthy gain of 17%.

Dow Winners and Sinners

On the index side of the market the Russell 2000 was the big winner and it is even more amazing when you consider it rose +25% in 2009. The Dow Transports are the second best and clearly a play on the recovering economy and the rebound in the airline sector. Drugs and healthcare ended up on the bottom of the pile because of the uncertainty that surrounded the passage of the new healthcare bill.

Index Winners

Most traders have probably already forgotten the rebound from the 2009 lows of 6470 on the Dow to the highs of 11,258 in April of 2010. That was a +74% rebound with two major corrections and four minor bouts of profit taking along the way. 2010 was off to a good start but a +74% gain was too good too last. The April Horizon disaster blunted the Dow's momentum when the energy stocks plummeted. Only a week or so later the momentum really began to slide when the May 6th Flash Crash knocked -1,000 points off the Dow in about 20 minutes.

The Flash Crash and the rising worry at the time about a second recessionary dip and new problems in the financial sector, killed investor sentiment and stock mutual funds saw outflows of billions over the months to follow. The low at 9,614 on July 2nd was a -14% decline from the April highs. After three aborted attempts to rally out of the lows the Fed set fire to the market on August 27th when they alluded to a new quantitative easing program after the elections. The low on the 27th was 9936. The high last week was 11,625 for a +17% rally since the end of October.

Dow Chart

When you look back at the Dow moves over the last two years it is hard to imagine we have had 20 consecutive days without a triple digit range on the Dow. That record goes back to 1996. Fund managers were able to hold the Dow over 11,500 for the last eight days without even a weak attempt at a sell off. All of that is about to change.

In my humble opinion there is no way we are going to get through next week without a triple digit move even if it is only intraday. There will be an abundance of year-end retirement contributions hitting the tape early in the week but there is also some big economic events and a lot of after tax profit taking waiting to occur. The timing of the profit taking is going to be the key. In some years the fund managers wait for the year end fund flows to dry up before they pull the exit trigger. Sometimes they wait for the first couple weeks of the earnings cycle in hopes of getting one more bounce before they exit. In years with big Q4 moves they tend to exit earlier in order to protect those gains.

The real key to the puzzle is not when the decline comes. The key is to be ready for a decline when it comes. That means keeping your stops tight and enjoying the view as long as it lasts.

I know most of the bears will be looking at a decline as vindication of their long term views and a return to "normal" given the state of the economy, the Fed's money policy and the high unemployment. I disagree with that view and I believe any January dip will be a buying opportunity.

The economic recovery is accelerating as we have seen in nearly every economic report over the last couple months. The October pause is behind us and all the regional Fed reports are rebounding strongly. Yes, "strongly" is relative but compared to the last three years these reports are strong. It may take a couple more years to completely recover and maybe three years to return to full employment but this is a journey. It is not something that happens overnight or over a couple quarters. We are recovering from the Great Recession. It is going to take a while. Recovering from the Great Depression took more than a decade.

Nearly all analysts expect the profits on the S&P to be a record in 2011. With any kind of PE expansion for a recovering economy the S&P could be 1450 or higher by year-end. The Morgan Stanley target is 1425 with highs above that but a cooling by year-end.

The financial sector is recovering. Bank lending has suddenly taken a sharp turn higher and analysts expect strong M&A activity in 2011 because of the new financial regulations. This will be positive for the market.

Home sales, to the surprise of many, are actually holding up in the late fourth quarter. Buying activity is increasing despite a rise in mortgage rates. The foreclosure cloud will remain over the market in 2011 but a very low inventory of new homes will help push prices higher. There is a lot of pent up buying power and I believe it will begin to be released in the spring. We won't see a return to a normal market until 2012 as employment increases but the trajectory for housing is up. The bottom is behind us and now there is the pressure to buy something before rates move much higher. The Fed QE2 program will slow their rise but buyers will want to jump back into the market before they go much over 5%.

The energy market will continue to strengthen. Crude prices will rise and fall but energy stocks should continue higher. There will be a flurry of M&A as smaller companies are gobbled up. It is getting easier to buy reserves than find them. As the global economic recovery accelerates the demand for oil will rise along with prices. By the summer of 2012 triple digit oil will be here to stay and under $4 gasoline a rare find. These trends will push energy stocks higher but weigh on the economic recovery. I only hope the rise in crude prices remains subdued throughout 2011 so the recovery has a change to solidify before the pressure of high oil prices returns.

Everything I have mentioned is a long-term outlook. The short-term outlook is a January dip as a buying opportunity. I have posted the historic January declines for the last ten years more than once but I am repeating it here once again. Despite bullish outlooks the market always seems to find an excuse to decline early in the year. It is not the end of the world. It is normal. As long as you plan for it you can profit from it.

S&P January Dips

The S&P closed at 1258 again and just under initial resistance at 1260. Congratulations to the fund managers for a successful pin job. Despite the morning dip the range was an unbelievable four points. The lack of volume made their job easier and there was a weak attempt to sell the close but it was quickly stopped. I still see resistance in the 1280 range and real support at 1228. The S&P has interim support at 1240 but I believe that will not hold. I think it will be a speed bump but I expect to see 1228 again. That is the Fib retracement of the 2009 lows.

The RSI (Relative Strength) has been declining while the index moved sideways. This suggests a potential breakdown in the S&P. The Stochastics also predict weakness.

S&P-500 Chart - 90 Min

S&P Chart - Weekly

S&P Chart 60 Min

The Dow has two levels of decent support at 11,445 and 11,335. The initial sell cycle should find those levels as speed bumps that could contain the decline. However, if a real bout of profit taking appears I would expect much stronger support at 11,000 to be tested. I would seriously doubt that level to be broken. That would be a -5% decline and would not be damaging to market sentiment. It would be enough of a decline to attract new money from the sidelines and set us up for a new move higher.

Dow Chart - Daily

The Dow has literally flat lined and needs some electric shock therapy to wake it back up. The 20-day streak of low range days has not happened in over a decade. The PPO (Percentage Price Oscillator) is a slower moving indicator and a cousin to the MACD. I find the PPO signals to be cleaner than the MACD and the PPO has given us a lower high and the signal lines are on the verge of crossing to the downside.

The Money Flow Index is clearly showing a downward trend while the Dow is flat lining. This indicator compares the positive money flow to the negative money flow over a 14-day period. Clearly the flows are indicating a growing weakness.

Dow Chart - Daily

The Nasdaq has decent initial support at 2600 but odds are good we will see a retest of 2500. The Nasdaq big caps are showing far more weakness than the index and this is with some decent window dressing. Now that the window dressing is over we could easily see some substantial declines in those high dollar momentum stocks like Apple, Google and others.

A drop to 2500 would only be -5% and well within the historical norms for profit taking after a +26% gain in the last four months.

Nasdaq Chart - Daily

Nasdaq Chart - Daily

As you can see from the charts below the two biggest Nasdaq stocks already began to decline before December ended. Apple is the most vulnerable because of the hundreds of new product announcements at CES and Apple is not a presenter. They have elected not to participate in CES. Apple is the largest market cap stock on the Nasdaq at $296 billion so any serious decline in Apple will crush the Nasdaq.

Google has declined for the last six days and could continue that trend but there will be hundreds of new product announcements at CES and many of them will feature Google technology. Google could get a bounce from the news. Since most of those products are competitors to Apple the two stocks could go in opposite directions. Google's good news is Apple's bad news.

Apple Chart - Daily

Google Chart - Daily

The Russell was the big winner in 2010 with a +26% gain. This was on top of a +25% gain in 2009. This makes the Russell more susceptible to a larger decline on profit taking than the other indexes. The first target for support will be in the 760 range and prior resistance on the cup and handle breakout in early December. The secondary support target would be 700 and a -10% correction. A dip to that level would be strongly buyable and I can't see that level failing without some unexpected and disastrous news event.

Once the profit taking begins we need to watch the Russell closely for signs of a bottom. Fund managers will want to buy the weakness and the key is watching for a bottom. Once managers believe it is safe they will pile back into the Russell in hopes of another +25% year.

Russell Chart - 90 min

Russell Chart - Weekly

Russell Chart - Daily

The Dow transports have shown slightly more relative strength than the other indexes. Near term support at 5000 could be tested with only one seriously negative day. If any selling on the other indexes approaches those 5% levels I described above we could see the transports test 4800. A worry for the transports is the potential for the airlines to start issuing earnings warnings resulting from the holiday shutdown of thousands of flights. IYT puts might be a good move.

Dow Transports Chart - 90 min

In summary I expect a 5% to 7% decline in January. Year-end fund contributions could postpone it for several days but the anemic moves over the last three weeks are suggesting the decline will come earlier rather than later in the month.

This will be a buying opportunity. This will NOT be the beginning of a larger decline. (Famous last words, I hope I don't have to eat them.) The economy is recovering. The Fed is pouring cash into the market at the rate of $150 billion a month. Some of that will continue to slosh over into equities.

The ISM report should be positive. The FOMC minutes should put some Fed worries to rest rather than kindle new ones. The Non-Farm Payrolls should show a job gain. A big gain and the market will celebrate. A small gain and the market may not celebrate but I doubt it will decline because it means the Fed will be active that much longer.

However, whenever the market wants to go down it will find a reason. It may not be any I stated above but it will find an excuse. Regardless of the excuse given on CNBC or Bloomberg it will be a simple bout of profit taking hiding behind a news event. Don't be fooled.

2011 should be a banner year for traders and investors. The general consensus is for something over 1400 on the S&P after a dip to 1200-1220 in January. That is a +17% gain from 1200 to 1400 and quite a few estimates are higher.

Last year was a tough year to trade because of the flash crash and the worry over a potential second recessionary dip. Both of those problems are behind us and the worst thing we have to worry about in the U.S. is job growth. That appears to be moving in the right direction although very slowly. European debt will again be in the news with Ireland elections in January, Spain and Portugal refinancing in Feb/Mar. The worst of that story should be behind us as well.

Focus on the positive, don't fight the Fed and buy the dips!

!! END OF YEAR RENEWAL SPECIAL COMING TO A CLOSE !!

2010 is now over and the End of Year Special is almost over as well. We do leave it open for a few days in the New Year for people who had already exceeded their tax deductions in the prior year. 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. If you want to fully participate in the new bull market you need to take advantage of the special now before it is too late.

I received some emails this week I want to share. Apparently the economic worries did not keep subscribers from profiting from Option Investor.

Jim, I just subscribed again and wanted to let you know that last year was my first time back after a 10-year hiatus. It's been a profitable return to the newsletter and I really appreciate the insight. Thanks, JR.

Jim, you did a great job in 2010 picking winners. My only regret is not taking bigger positions. May your wisdom continue in 2011. PWR

Jim…One thing you have taught me over the many years is to listen to the market and charts --- and not all the gurus out there. Since I have accepted that, life in the market has been great. Wishing the market UP or DOWN is simply a costly adventure. It has been a great ride since the start of your service way back when. TC (Subscriber since 1999)

How much is Option Investor worth to you? At the End of Year Special price ($1.36 per day) it is cheaper than a cup of coffee and only one profitable trade pays for the entire year's subscription. Just one critical point in a market commentary can make you hundreds or even thousands of dollars. Just one warning comment about an impending event could save you thousands.

If just one comment or profitable play can cover the entire cost of the subscription then the other 364 days of the year are free. Renew your subscription today and then keep track of the money you make or save in 2011. I think you will be surprised!

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Jim Brown


Index Wrap

The Canary in the Coal Mine

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

HAPPY NEW YEAR! 2010 saw some solid index gains. The S&P 500 (SPX) was up 12.7% for 2010 and the Nasdaq Composite, up 16.8%.

The Nasdaq 100 (NDX) (and the Russell 2000) have been leading the market but a recently faltering NDX has pierced its 5-month up trendline and its declining upside momentum may be the 'canary in the coal mine' that's an early warning of an overall market correction.

Although price action on the low volume seen during the recent holiday period, is not always a means to judge the market, the charts are starting to look toppy. We could well get a rally in coming days as the recent sideways trend has 'thrown off' a short-term overbought condition, but January should see some profit taking selling. Profits on stocks that are taken in January won't of course be taxed for 15+ months (until tax time in April 2012). It doesn't make sense to sell stocks in strong uptrends just because you won't get taxed on any gains for more than a year, but when you are looking at some sales as part of rebalancing a portfolio it's tempting to do it in January.

There are some ways now to measure potential resistance in terms of some major retracements of the last big decline (November 2007-March 2009). NDX has retraced 100% of that decline and therefore shows a potential double top. (If/when NDX breaks out above 2239, there's no longer a bearish double top possibility.) The Dow 30 (INDU) has reached potential resistance represented by a 66% percent retracement of its prior major decline. Weekly overbought/oversold indicators like the Relative Strength Index or RSI are showing overbought extremes (not shown) for the major indexes, as is the weekly MACD indicator.

It is true that investors (hello!) are finally putting more money into equity funds than they're taking out, but there may still be a wait and see attitude by fund managers as to the market's ability to tack on a further up leg just yet.

All in all, this looks like the place to finally exit bullish options strategies. Or, put another way, I suggest its now become risky to bank on more upside. Putting on bearish positions is another story. We can't say that the dominate trend has reversed, but there's probably at least a limited pullback ahead; e.g., if SPX came back to trendline support currently, the index would test 1222, OEX would do the same at 546, ditto the Dow in the 11300 area, COMP to 2630 and NDX (its already pierced its up trendline) has next technical support beginning at 2150 and extending to 2085.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) index remains within its longer-term bullish uptrend channel but upside momentum has waned recently. A key question is whether a more prolonged bout of selling comes in January. The 1250-1243 area is a key near support zone. If SPX closes below its 21-day average, it may then go on to test trendline support in the 1222-1225 area. Conversely, a decisive upside penetration of 1263 could suggest a run to the 1300-1310 area.

High bullish sentiment readings started falling from a 12/10 peak. Still, bullishness measured by daily equity call to put volumes has been fairly high until this past Friday. The RSI has been hung up at a bullish extreme for awhile now but is starting to drop, reflecting a lessening of upside momentum. These are not trend 'timing' indicators per se but do reflect the pattern seen ahead of many corrections. Can the market buck the odds and keep climbing? Sure. But many professional investors/fund managers assess stocks as fairly priced currently and some overpriced relative to earnings potential.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) index's chart remains bullish although the index started drifting sideways during the pre-holiday low volume period. The 560 area is a key near support. A couple of closes below this level would suggest potential for OEX to go on to test trendline support, currently at 546. Repeating from last week, the intermediate trend wouldn't shift to down unless the prior (down) swing low at 527 was pierced.

Conversely, a decisive upside penetration of 568-570 would point to still further bullish potential but I'd be wary of chasing rallies in the current market. Major resistance probably begins around 585, extending to 600.

DOW 30 (INDU) AVERAGE; DAILY CHART:

Upside progress in the Dow 30 (INDU) average has stalled around 11600. The chart remains bullish in its pattern, but there should be concern by the bulls as to how much longer this rally will continue without a deeper correction setting in. A decisive upside breakout above 11600 would suggest renewed upside momentum and a potential next advance to the 11700-11720 area.

Near support is at 11475, then at 11375, extending to the up trendline currently intersecting around 11300.

Stand out Dow performers continue to be AA, CAT, CVX, (DD has flatlined at 50) GE, HD, (maybe IBM, if it breaks out above 147) KO, VZ and XOM. 8 stocks in solid uptrends don't look like they can/will pull up the other 15-20 that are correcting.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) Index chart remains within its broad uptrend channel but appears to be falling toward a test of trendline support around 2630. 2600-2593 is an area that needs to be held to maintain a bullish chart. Fairly major support is anticipated in the 2510-2500 area.

On the bullish side, an upside breakout above near resistance at 2675 that went on to piece 2700, would turn the trend solidly back up within its uptrend channel. Major resistance looks like it begins around 2800, extending to the 2007 highs in the 2860 area.

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) chart is the one that should cause those in bullish trading positions some concern as it has recently fallen to below support at the low end of its broad uptrend channel. NDX lead this market higher and it may now lead it lower. Stay tuned for the early going this coming week. NDX did hold at its 21-day moving average on Friday. I've noted 2200 as support, then around 2150. Only if the prior 2110-2085 lows were pierced on a closing basis, would the intermediate trend shift to down.

Key near resistance is at 2237-2239. 2239 was the intraday high reached at the top in November 2007 and the major peak hit by NDX in the past 8 years. I estimate a next resistance level to come in at 2300 but there's no prior high to go off from, unlike the case with the 2239 prior major top.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQQ) chart has the same near-term mixed chart as the NDX of course.

Daily trading volume continued to be quite low and On Balance Volume has been falling. This week I'd anticipate a sizable jump in daily trading volume if the Q's started falling below 54. Next support then is expected around 53. Fairly major support should be found at 51-50.8. Only a close below 51.45, that lasted more than a day, would turn the intermediate trend lower.

Near support: 54.0

Next support: 53.0, then around 52

Near resistance: 54.9

Next estimated resistance: 56.5

Major resistance: 58.5

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT), our stand out index performer, has finally slipped on some year end profit taking after its upside momentum stalled in late-December. Key near support is at 780, then at the current intersection of the up trendline at 765. This will be a key chart test if reached.

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

I've noted near resistance at 793 currently, then up around 820, at the upper end of RUT's uptrend channel.



GOOD TRADING SUCCESS IN 2011!


New Option Plays

Oil Service & Machinery

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Schlumberger Limited - SLB - close: 83.50 change: +0.14

Stop Loss: 81.65
Target(s): 89.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
SLB is a large oil services company. The stock has been able to maintain its bullish trend. Shares look ready to breakout higher past resistance at $84.00. I am suggesting a trigger to buy calls at $84.25. If triggered our target is $89.00. Keep in mind that SLB is due to report earnings on January 21st. January calls expire on the 21st. I will list both January and February calls but normally we want to avoid holding over an earnings report.
FYI: The Point & Figure chart for SLB is very bullish with a $123 target.

Trigger @ $84.25

- Suggested Positions -

Buy the 2011 January $85 calls (SLB1122A85) current ask $1.69

- or -

Buy the 2011 February $90 calls (SLB1119B90) current ask $1.18

Annotated Chart:

Entry on January xxth at $ xx.xx
Earnings Date 01/21/11 (confirmed)
Average Daily Volume = 5.6 million
Listed on January 1st, 2010


SPX Corp. - SPW - close: 71.49 change: +0.67

Stop Loss: 69.95
Target(s): 76.50, 79.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
The $70.00 and $72.50 levels have been key resistance for this diversified machinery company. SPW has spent almost all of December consolidating sideways between the two levels. If shares can breakout higher it could pave the way for a run towards $80. I am suggesting a trigger to buy calls at $72.60. If triggered our first target is $76.50. Our longer-term target is $79.75.
FYI: The Point & Figure chart for SPW is very bullish with an $89 target.

NOTE: Just because the January calls are cheap, don't go overboard. We only have three weeks left before January options expire.

Trigger @ $72.60

- Suggested Positions -

Buy the 2011 January $75 calls (SPW1122A75) current ask $0.60

- or -

Buy the 2011 February $75 calls (SPW1119B75) current ask $1.45

Annotated Chart:

Entry on January xxth at $ xx.xx
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 346 thousand
Listed on January 1st, 2010


In Play Updates and Reviews

Good Bye 2010, Hello 2011.

by James Brown

Click here to email James Brown

Editor's Note:

The stock market meandered sideways the last couple of weeks of 2010 holding on to healthy gains for the year. Unfortunately, it's been a rather boring and uneventful second half of December, which is not necessarily a good thing if you're long options. Hopefully now that we're in a new year investors will return from their holidays ready and we will see this market start moving again.

-James

Current Portfolio:


CALL Play Updates

Amazon.com Inc. - AMZN - close: 180.00 change: -2.75

Stop Loss: 176.45
Target(s): 189.50, 199.00
Current Option Gain/Loss: -41.7%, and -20.7%
Time Frame: 4 to 6 weeks
New Positions: See below

Comments:
01/01 update: Friday was a rough day for AMZN but not totally unexpected. I cautioned readers that we might see another entry point near $180 and we got it on Friday. Shares lost -1.5% with some year-end profit taking. I would use this dip as a new entry point to buy calls.

We want to keep our position size small. AMZN can be a volatile stock. Our upside targets are $189.50 and $199.00.

- Suggested (SMALL) positions -

Long the 2011 January $190 calls (AMZN1122A190) Entry @ $2.35

- or -

Long the 2011 February $200 calls (AMZN1119B200) Entry @ $3.85

Chart:

Entry on December 28th at $182.10
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 5.0 million
Listed on December 27th, 2010


Boeing Co. - BA - close: 65.26 change: +0.25

Stop Loss: 62.75
Target(s): 69.00, 72.25
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see trigger

Comments:
01/01 update: BA is still drifting higher with a bullish trend of higher lows but the stock has yet to breakthrough the $65.50 level. The 200-dma is slowly rolling over, which is a longer-term bearish problem. There is still opportunity to catch a short-term move higher if BA can breakout. Keep your position size small to limit your risk!

I'm suggesting a trigger to buy calls at $65.50. We'll use a stop loss under the recent 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. Our first target is $69.00. Our second target is $72.25.

Trigger @ 65.50

- Suggested Positions - (small positions only!)

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

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: 50.62 change: -0.10

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

Comments:
01/01 update: On a very short-term basis the action in BAX is starting to look a little bearish. If the stock closes under $50.00 we will drop it as a bullish candidate. Currently we're still waiting for a breakout higher.

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 - (small positions only!)

Buy the 2011 February $55 calls (BAX1119B55)

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


Cummins Inc. - CMI - close: 110.01 change: -0.15

Stop Loss: 108.75
Target(s): 114.50 117.50
Current Option Gain/Loss: -15.1% and - 9.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/01 update: CMI saw some volatility around 10:00 a.m. this morning. Shares spiked from their lows of the day toward its 2010 highs set a week ago near $111.80. Unfortunately the gains faded just as fast as they appeared. Readers could still buy options here but you may want to wait for a close over $111.00 or even a new high over $112.00. I am adjusting our targets to $114.50 and $117.50. This remains an aggressive entry point and I'm only suggesting small positions.

(small positions only to limit our risk)

- Suggested Positions -
Buy the 2011 January $115 calls (CMI1122A115) Entry @ $1.12

- or -

Buy the 2011 March $115 calls (CMI1119C115) Entry @ $4.73

01/01: Adjusted targets to $114.50, 117.50
12/27: CMI opens at $110.18
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 $110.18
Earnings Date 02/02/11 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on December 11th, 2010


CSX Corp. - CSX - close: 64.61 change: +0.15

Stop Loss: 61.75
Target(s): 67.00, 69.50
Current Option Gain/Loss: -20.5% and - 7.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/01 update: CSX is still melting higher but shares were unable to breakout past their early December highs on Friday. I remain bullish on CSX and would be tempted to buy calls here. Or you could wait for a close over $64.80. More conservative traders might want to raise their stops closer to the mid December lows near $62.90. If you do open new positions I would buy the February (or longer) 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

12/25: 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: 46.17 change: -0.19

Stop Loss: 43.75
Target(s): 44.90, 48.00
Current Option Gain/Loss: +600.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/01 update: Shares of CTL spent the entire week between $46.00 and $46.70. While the larger trend is up shares could correct toward $45 or $44 at any time. Readers may want to consider locking in gains soon. Our final exit is currently $48.00. More aggressive traders may want to aim near the $50.00 level. Just remember we only have three weeks left. 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: 73.29 change: -0.55

Stop Loss: 71.75
Target(s): 74.70, 79.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
01/01 update: As expected CTSH is pulling back from the $75 level. The stock should find some support near $72.00. I am moving our trigger up to $72.25 but we're also moving our stop loss to $71.75. I want to really limit our risk. If this stock decides to correct it could fall toward its 50-dma. I'm adjusting our first target to $74.70. Keep your position size pretty small to limit your risk.

Trigger to buy calls on the dip @ $72.25 <-- new trigger

- Suggested Positions - (small positions only)

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


Deere & Co - DE - close: 83.05 change: -0.25

Stop Loss: 78.95
Target(s): 84.50, 89.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
01/01 update: DE flirted with a breakdown under short-term support at $83 on Friday. We want to see a correction back toward $80 and the bottom of its rising bullish channel. I'm suggesting a trigger to buy calls at $80.50. If triggered we'll use a stop loss at $78.95, just under the 50-dma.
FYI: The Point & Figure chart for DE is pretty bullish with a $100 target.

Buy-the-Dip Trigger @ 80.50

- Suggested Positions -

Buy the 2011 February $80 calls (DE1119B80)

- or -

Buy the 2011 February $85 calls (DE1119B85)

Chart:

Entry on December xxth at $ xx.xx
Earnings Date 02/16/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on December 30th, 2010


Express Scripts - ESRX - close: 54.05 change: -0.03

Stop Loss: 51.49
Target(s): 53.95, 58.50
Current Option Gain/Loss: + 2.8% and -33.3%
Time Frame: 5 to 6 weeks
New Positions: see below

Comments:
01/01 update: The recent action in ESRX is bearish with a trend of lower highs and lower lows. Traders did buy the dip on Friday near its rising 40-dma but I would not launch new positions here. If ESRX doesn't show some relative strength soon I'm inclined to close this play early. More conservative traders might want to raise their stop loss. 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: 59.91 change: -0.20

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:
01/01 update: FAST is still hovering near the $60.00 level. I would much rather wait for a correction lower but it may not happen. Aggressive traders might want to consider buying calls on a move over the $60.50 level (with a much higher stop loss). I'm not quite ready to chase it but the stock has spent a couple of weeks digesting its gains with a sideways move under the $60 level. I'm leaving our buy-the-dip trigger at $56.75 for now.

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: +0.05

Stop Loss: 90.90
Target(s): 96.75, 99.75
Current Option Gain/Loss: -76.2% and -21.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/01 update: All right, FDX should be rested and ready to run. The stock has spent almost the entire month of December consolidating sideways. The high on Friday was $93.41. I have been suggesting readers wait for a move over $93.50 or even $94.00 before launching new bullish positions. When that does happen I would buy the February or April calls (I'm looking at the February $95 calls, currently trading at $2.42).

- 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: 168.16 change: +0.52

Stop Loss: 162.95
Target(s): 171.00, 179.50
Current Option Gain/Loss: +18.1% and +20.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/01 update: There has not been much follow through on the failed rally in GS a few days ago. That's a good sign. I would still expect a pull back toward the rising 50-dma currently near $164. Wait for that dip before you consider new positions. GS has already hit our first target at $171.00. Right now our final target is $179.50.
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

12/28: 1st Target Hit @ 171.00, Jan. call @ $4.75 (+72.7%), April call @ $7.35 (+39.4%)
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: 146.76 change: +0.09

Stop Loss: 142.99
Target(s): 149.90, 157.50
Current Option Gain/Loss: - 1.5%, and + 0.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/01 update: IBM provided us another entry point with the intraday dip to $146.00 on Friday. I would still consider new positions now at current levels. Alternatively you could wait for a move past short-term resistance at $147.50. Our first target to take profits is at $149.90. FYI: The Point & Figure chart on IBM is forecasting a long-term target of $196.

- Suggested Positions -

Long the 2011 January $150 calls (IBM1122A150) Entry @ $1.35

- or -

Long the 2011 April $155 calls (IBM1116D155) Entry @ $2.25

Chart:

Entry on December 29th at $146.75
Earnings Date 01/18/11 (unconfirmed)
Average Daily Volume = 4.7 million
Listed on December 14th, 2010


Juniper Networks - JNPR - close: 36.92 change: -0.25

Stop Loss: 34.90
Target(s): 39.75
Current Option Gain/Loss: -33.3% and - 8.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/01 update: I think we were two weeks too early to launch positions in JNPR. Shares have continued to consolidate sideways. I've been expecting a dip into the $36-35 zone. Readers could also watch for a dip toward technical support at the rising 30-dma. Wait for the dip before considering new positions. 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: 69.91 change: +1.22

Stop Loss: 67.95
Target(s): 73.25, 74.90(or 200-dma)
Current Option Gain/Loss: -42.8% and -45.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/01 update: There was no news to explain the sudden relative strength in shares of LMT. I'm not complaining but the stock really outperformed the rest of the market with a +1.7% gain and above average volume. I'm still cautious on this stock. Wait for a move over $70.50 before considering new bullish positions. I'm adding a secondary target of $74.90 (or the 200-dma).

- 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: 95.60 change: +0.34

Stop Loss: 89.75
Target(s): 99.50
Current Option Gain/Loss: + 6.5% and +21.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/01 update: MICC continues to rally and closed near six-week highs on Friday. I would still consider new positions here. I am tempted to raise our stop loss toward the $91 or $92 levels. 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


Netflix Inc. - NFLX - close: 175.70 change: -4.10

Stop Loss: 174.90
Target(s): 199.50, 219.50
Current Option Gain/Loss: -73.1% and -53.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/01 update: Uh-oh! I have to issue a warning here. The action in NFLX on Friday was pretty bearish. The stock broke down under its trend of higher lows and it broke down under technical support near its 50-dma. This is also a bearish breakdown under the bottom of its rising bullish channel. The low on Friday was $175.53 and our stop is at $174.90. Readers will want to seriously consider an early exit right now. We knew this was a high-risk, aggressive trade so I'm going to let it ride and see if NFLX recovers from the $175 level on Monday. Volume remains very low due to the holidays and the big move lower might have been exaggerated by the lack of volume. Really aggressive traders might want to start looking at put options to capture the breakdown.

One possible reason for the relative weakness on Friday was news that a California Judge has granted class-action status to a lawsuit against Wal-Mart (WMT) and NetFlix for an "alleged conspiracy to monopolize the market for online DVD rentals" (source: Bloomberg). I am not suggesting new bullish positions at this time. If there is any follow through on Monday we'll get stopped out.

Previous Comments:
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: 73.63 change: -0.14

Stop Loss: 69.95
Target(s): 78.00, 79.95
Current Option Gain/Loss: -36.8%, -52.9%, and -19.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/01 update: The OSX oil service index managed a gain but OII did not. Shares of this stock have been consolidating sideways for most of December. At this point I would rather see a move or a close over $75.00 before we consider new bullish positions. 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


Transocean Ltd. - RIG - close: 69.51 change: +0.38

Stop Loss: 66.25
Target(s): 72.50, 78.25
Current Option Gain/Loss: -47.4% and -33.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/01 update: RIG is still trying to bounce after testing its 50-dma on the 29th. Readers could buy calls on this bounce but I remain somewhat cautious. You might want to wait for a move over $70.00 or over $71.00 before considering new positions again. 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


Stericycle Inc. - SRCL - close: 80.92 chane: -0.50

Stop Loss: 79.40
Target(s): 84.75, 89.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
01/01 update: SRCL is almost there! We want to see a dip toward $80.00 and it's getting closer. The low on Friday was $80.77. Our entry point to buy calls is at $80.75. Readers might want to wait and see if we get a better entry point closer to $80.00 before launching positions. If triggered we'll use a stop loss at $79.40. Our targets are $84.75 and $89.00.

Trigger @ 80.75

- Suggested Position -

Buy the 2011 February $85 calls (SRCL1119B85) current ask $1.25

Chart:

Entry on December xxth at $ xx.xx
Earnings Date 02/03/11 (unconfirmed)
Average Daily Volume = 543 thousand
Listed on December 29th, 2010


Union Pacific - UNP - close: 92.66 change: +0.60

Stop Loss: 89.75
Target(s): 96.25, 99.75
Current Option Gain/Loss: -35.5% and - 6.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/01 update: UNP is still slowly drifting higher. This move over $92.50 looks like a new entry point to buy calls. I would buy the February $95 calls here currently trading at $2.23 (ask).

- 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

01/01/11: UNP is giving us another entry point.
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: 72.58 change: -0.10

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:
01/01 update: Surprise, surprise, there was no real change in shares of UPS on Friday. The stock has been consolidating sideways for a few weeks. Odds favor a pull back toward support at $70.00 but it may not happen. I'm suggesting a trigger to buy calls at $70.25. More aggressive traders could consider a move over $74.00 as a potential entry point. I'm considering 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: 78.72 change: -0.13

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:
01/01 update: UTX recovered from its intraday weakness on Friday. We're still waiting for a dip near $77.00. Keep an eye on its rising 50-dma for support. Our plan is to launch bullish positions on a dip 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: 44.36 change: -0.47

Stop Loss: 43.75
Target(s): 47.50, 49.75
Current Option Gain/Loss: -23.0%, and -11.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/01 update: Well if you missed our entry point the first time VMC is offering us another one with a pull back toward support near $44.00 and its simple 200-dma. More conservative traders could wait for a move over the simple 10-dma before initiating positions. Our first target to take profits is at $47.50. Our second target is $49.75.

(small positions only!)- Suggested Positions -

Buy the 2011 January $45 calls (VMC1122A45) Entry @ $1.30

- or -

Buy the 2011 February $45 calls (VMC1119B45) Entry @ $2.20

Chart:

Entry on December 30th at $45.02
Earnings Date 02/07/11 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on December 13th, 2010


Cimarex Energy Co. - XEC - close: 88.53 change: -1.02

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:
01/01 update: Are you ready? It looks like XEC is about to move on us. Shares produced a little failed rally on Thursday and now Friday's session saw a follow through decline. This would suggest the stock is ready for a little correction toward the bottom of its bullish channel. I am suggesting we open bullish positions on a dip at $86.50. More conservative traders could wait for a dip closer to $85.00. 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: 25.09 change: -0.19

Stop Loss: 26.51
Target(s): 25.10, 23.25
Current Option Gain/Loss: +25.0%
Time Frame: 2 to 3 weeks
New Positions: No

Comments:
01/01 update: EXPE sank again on Friday but shares found support at the exponential 200-dma again. I am not suggesting new bearish positions at this time. Our first target has been hit. We're currently aiming for $23.25.

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

12/30/10 Target hit @ 25.10, option @ 0.80 (+25%)
12/30/10 new stop loss at $26.51

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


CLOSED BULLISH PLAYS

Panera Break Co. - PNRA - close: 101.21 change: -1.08

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:
01/01 update: PNRA has continued to correct lower. The stock might see some support near the $100 mark or the 50-dma. We might want to keep it on our watch list. Our trigger to buy calls at $107.15 was never hit. I'm dropping it as a bullish candidate.

Chart:

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