Option Investor
Newsletter

Daily Newsletter, Tuesday, 1/4/2011

Table of Contents

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

Market Wrap

Cracks In the Foundation

by Jim Brown

Click here to email Jim Brown
The bullish short squeeze from Monday evaporated despite better than expected economic numbers and a sharp decline in small caps is a warning of potential weakness ahead.

Market Statistics

The morning started off well despite the early morning decline in the markets. The big economic news for the morning was the Factory Orders for November. The headline number rose by +0.7% and more than twice the +0.3% analysts expected. It was considerably stronger than the -0.9% decline in October. This improvement is consistent with the rebound shown in other reports over Q4 and represents an accelerating economy. Core capital goods orders rose a whopping +2.6% after a -3.2% decline in October. The accelerated depreciation portion of the recent tax cut extension program could ramp up orders of computer equipment to a fever pitch and that should start in the first quarter.

Vehicle Sales for December continued to improve at an annualized rate of 12.5 million units compared to 12.3 million in November. This is the highest level since September 2008. The rise in sales has been due to new models, decent discounts and a release of pent up demand. Analysts believe this will continue throughout 2011. The current rate of sales is far better than the 9.4 million pace in September 2009.

Sales for all manufacturers rose except for Toyota, whose sales fell -6% in December and sales for the year were flat. This is due to the falling sales of the expensive Prius and the switch back to SUVs by the consuming public. Gasoline prices had spent the year in a moderate range and now those SUV buyers are going to start paying the piper in 2011. That two percent hike in net pay by reducing the social security tax is going to be spent at the gasoline pump.

The Fed released the minutes of the Federal Open Market Committee (FOMC) meeting in December. For the time being there appears to be no likelihood of change in the QE2 program. Members were slightly more upbeat about the improving economy due in part to the tax extension bill.

The FOMC debated what it would take to change the QE2 program. They agreed that improvement of economic data alone was insufficient to alter QE2. More time and data is needed before considering a QE2 adjustment. Some thought the threshold was very high to make changes to the program. Small incremental changes in the economics and employment would not be enough to justify changing the strategy.

Some Fed members are also seeing the possibility of a more rapid recovery. The members did see the tax cut extension package as helping growth in 2011. Members believed housing, weak job growth and continued consumer deleveraging was restraining growth. The Fed said a cutback in government spending resulting in more job cuts was an additional risk to the economy and another reason to continue QE2. Europe was also seen as an economic risk.

The Fed staff saw a lowered risk of deflation and increasing risk the expansion of the Fed's balance sheet could trigger inflation but expectations were still low.

Why are rates higher when the Fed is buying up every treasury in sight? Reasons given in the minutes were market anticipation of a halt to QE2 due to better economic data, higher deficit projections, year-end positioning of portfolios and the accelerating recovery was boosting expectations for the future.

The Fed staff revised up the economic outlook and revised down the inflation expectations for 2011 and 2012. They are pretty confident they are going to avoid waking the inflation monster despite the additional risk caused by QE2. The Fed based this lower inflation outlook on the inability of businesses to pass along higher costs in consumer prices. There is still too much slack in the manufacturing sector and too little demand by the consumer for price inflation in the near future. Many of the members still felt there was still downside risk from unemployment and the weakness in housing.

The Fed members continued to see progress toward their dual mandate of stable prices and high employment as "disappointingly slow."

The FOMC is going to shift in tone as more hawkish members rotate into voting position. To avoid having a stagnant board the Fed members rotate in and out of voting positions. When this happens in January the number of dissenters will increase to three. They will be Richard Fisher, Charles Plosser and Narayana Kocherlakota. They could decide to cast one dissenting vote per meeting to show their individual dissent or all three vote at once to express a high degree of frustration. Having all three dissent at one would not be market friendly. It would damage the Fed's credibility and the market would immediately assume the worst. Members Hoenig and Lacker and to some extent Warsh are also strongly opposed to QE2 but are not voting members in 2011.

Wednesday's economic reports are not going to cause many ripples unless the ADP report suggests a much better or worse Non-Farm Payroll number for Friday. This will be the key report for the day with the ISM services more of a filler report since ISM manufacturing was a seven-month high.

Economic Calendar

In stock news Atheros Communications (ATHR) spiked +19% on news Qualcomm may be interested in buying the company to bolster its share for chips for smartphones and tablets. The sales price could be in the $3.5 billion range or roughly $45 per share. Qualcomm has about $10 billion in cash thanks in part to its popular Snapdragon processor. Atheros makes chips for Bluetooth, GPS and wireless networks and many mobile devices.

Hello Moto! Chip company Motorola (MOT) split into two companies today. Motorola Solutions (MSI) and Motorola Mobility (MMI). The solutions company (MSI) saw its stock spike +7% to $39.77 while the Mobility company rose +6% to $33.11. Apparently two companies are better than one given the strong gains after the split. MMI is the unit that makes cellphones and video equipment. Owners of MOT received eight shares of MMI for each share of MOT they owned. Then the original MOT shares underwent a 1:7 reverse split and began trading under the symbol MSI. That was to prevent the MOT shares from collapsing to one-eighth of their value. As a result the value of both shares today is actually more than the value before the split. Apparently investors liked the split, which had been in the works for nearly two years.

Motorola (MSI) Chart

After the bell Mosaic (MOS) posted earnings of $1.01 that easily beat analyst estimates of 91-cents. That compares with 24-cents in the year ago period. Mosaic earned $1.03 billion for the quarter on a strong increase in sales. Mosaic said plantings of corn, wheat and soybeans are expected to rise sharply with prices for those crops sitting at near record highs. The company said, "Everything we see on the horizon is in support of higher fertilizer prices. We are feeling very confident about the business. Demand is booming and our outlook looks good from any angle." Sales of potash rose +69% in the quarter. Mosaic is in the middle of a $5 billion campaign to boost potash capacity by more than five million tones over the next ten years. Shares of Mosaic rose +2.24 to $77.24 in after hours trading.

Mosaic Chart

We are approaching the beginning of the Q4 earnings cycle and results like we saw from Mosaic could keep investors in stocks for another couple weeks. Alcoa will be the first Dow component to report on Monday. Over 150 stocks report next week but the real deluge of earnings does not begin until the week of January 17th. The companies reporting next week will be just an appetizer ahead of the main course.

The big movers in the market on Tuesday were commodities. The dollar rebounded from a six-week low and investors took profits on metals and energy. Crude prices dropped nearly -$3.00 intraday to $88.36 before rebounding at the close to end down -$2.24 at $89.31. The decline from two-year highs was dramatic and there was no specific reason. I mentioned the rising dollar as a factor but the 50 basis point rise in the dollar index was not responsible for the decline in crude. It may have accelerated the decline but it did not cause it. Crude as well as the other commodities were simply overbought and needed an excuse to rest.

Crude Oil Chart

Silver declined about $1.50 to $29.32 intraday or about -5% before rebounding slightly. Silver has been on a rocket ride since September and the onset of QE2 buying. The Fed alluded to a new QE program on August 27th and commodities have gone vertical since the announcement. Does anyone actually believe silver is worth 65% more today than it was worth on August 27th?

Chart of Comex Silver - Daily

Copper declined -$9 on Tuesday after a $5 drop on Monday. Copper has been on a winning streak since its low in June and was impacted by the QE2 expectations but not as much as silver and gold. Copper appears to be in the correction process with strong declines on both days this week. This is clearly profit taking now that the tax year has changed. I would look to buy a dip in copper but only a big dip. Another $2-$3 is not material. A continued decline of $30 would be buyable for me. I know that is a big hit with global supplies declining and one entity holding 90% of LME inventories but should that individual decide to take profits we could see a serious decline.

Copper Chart

Gold prices have lost more than $40 so far in January. Gold is really in correction mode and is trading at $1380 overnight after hitting a high of $1424.40 on Monday. The chart on gold began to show a topping pattern in December but the gold bugs were successful in pushing it back to resistance to end the year. Now that the window dressing and tax accounting is over the selling has begun. A break below $1380 could test $1325 very quickly.

Gold Chart

The S&P-500 gave back less than two points of Monday's big gain. That left it well above that price magnet at 1258 and well above initial support at 1254. The odds are good we will test those levels before too long. If the commodities continue to sell off the profit taking disease will eventually be contagious to the broader equity market.

Everything we saw in the FOMC minutes was conducive to the market continuing higher BUT that is long-term support not short term. We are still way overbought and I suspect traders are looking for that excuse to sell. It may not appear until next week despite the Non-Farm Payrolls on Friday. That report could keep investors interested with expectations for a better than expected job gain.

The S&P has not returned to uptrend support since August. It is way over due and we know from past experience nothing goes straight up. All the positive news, except for Q4 earnings, has already been priced into the market. How much longer the market can survive on stale news is a mystery and one I am sure we will see answered in the next couple weeks.

S&P-500 Chart

The Dow managed to claw back from a decent intraday decline to post a decent gain thanks to Dow components Disney, Hewlett Packard and Verizon. Unfortunately that gain only brought the index back to uptrend resistance and very close to strong resistance at 11700 from August 2008. This was where the Dow finally failed before plunging to the March 2009 lows. This should be a difficult area to cross.

Initial support should be in the 11,550 range and well below today's close. This means the spike from Monday is very unprotected but that did not seem to matter today.

Dow Chart - Daily

Dow Chart - Weekly

The Nasdaq struggled to return to positive territory after a steep morning decline but the index could not make the trip. Large losses in stocks like PCLN -6.61, LULU -4.38, SHLD -3.61, DECK -2.53, FFIV -2.26 and GOOG -2.02 were too much for the composite index to overcome. Decliners on the Nasdaq outweighed advancers 1,691 to 779.

Fortunately the Nasdaq only gave back roughly a quarter of its gains from Monday. I am sure we would all take a four steps forward, one step back move every week for the rest of the year.

Support is 2660 and resistance a very firm 2700. That 2700 level as round number resistance could be tough to cross without a little more profit taking to build a base.

Nasdaq Chart

The Russell is the fly in the ointment for the bulls. The Russell came to a dead stop at 800 on both days and then dropped more than 2% intraday to initial support at 780. The rebound from 780 was lacking conviction and suggests the Russell bulls are losing interest. If 780 breaks the long term support at 764 would immediately become the next target.

The Russell is the canary in the coal mine and today's lack of bullishness is troubling. If the Russell declines below 780 I would be exiting any long positions. Support at 764 may only be a speed bump if wholesale profit taking begins.

Russell Chart

In summary I think we have more risk to the downside but it may not develop over the next couple days. I believe this is more of a developing weakness than something that will knock the markets down hard on Wednesday. The bulls are still alive and buying the shallow dips. Until that shallow dip money dries up we are in a mode where time will pass slowly with fits and starts that lead nowhere. I am cautious and I have exited quite a few long positions in expectation of a deeper decline before we can move higher.

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Jim Brown


New Option Plays

Department Stores

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Kohl's Corp. - KSS - close: 54.34 change: +0.07

Stop Loss: 53.75
Target(s): 57.90, 59.95
Current Option Gain/Loss: Unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
The RLX retail index has been consolidating sideways for almost all of December. The action today in the RLX actually looks bearish but it needs to see some follow through lower before I would really worry. Meanwhile shares of KSS did not see the same selling pressure today. This stock has still been consolidating sideways the last few weeks and if KSS can breakout over resistance at $55 it could herald a new leg higher. I am suggesting a trigger to buy calls at $55.05. If triggered we'll start the play with a stop loss at $53.75. Our targets are $57.90 and $59.95.
FYI: The Point & Figure chart for KSS is bullish with a $73 target.

Trigger @ 55.05

- Suggested Positions -

Buy the 2011 February $55.00 calls (KSS1119B55)

- or -

Buy the 2011 April $57.50 calls (KSS1116D57.5)

Annotated Chart:

Entry on January xxth at $ xx.xx
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 4.1 million
Listed on January 4th, 2010


In Play Updates and Reviews

Rougher Than It Looked

by James Brown

Click here to email James Brown

Editor's Note:

Tuesday's session was a lot rougher than it looked. There were several downgrades this morning that exacerbated the volatility. We had a couple of stocks get stopped out due to analyst downgrades. Relative weakness in the oil service sector also stopped out a couple of trades. I removed BAX as a candidate. SPW hit our trigger this morning.

-James

Current Portfolio:


CALL Play Updates

Amazon.com Inc. - AMZN - close: 185.01 change: +0.79

Stop Loss: 176.45
Target(s): 189.50, 199.00
Current Option Gain/Loss: + 2.1%, and + 3.8%
Time Frame: 4 to 6 weeks
New Positions: See below

Comments:
01/04 update: AMZN rallied to new highs this morning, hitting $187.70, thanks to an analyst upgrade to a "buy" before the bell. Shares pared their gains and fell back into the $185-180 zone where AMZN has been trading for over a week. I would prefer to launch new bullish positions on a dip into the $182.50-180.00 zone.

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

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: 66.94 change: +0.54

Stop Loss: 62.75
Target(s): 69.00, 72.25
Current Option Gain/Loss: +60.3%, and +38.3%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
01/04 update: BA rallied on news that CIT group had placed an order for 38 of BA's next generation 737 planes. Shares of BA briefly traded above resistance at its 200-dma. Volume was healthy. I would still expect a dip toward the $65.50 area and would look wait for new entry points there. We wanted to keep our position size small to limit our risk. We should consider this a higher-risk aggressive trade. Our first target is $69.00. Our second target is $72.25.

- Suggested Positions - (small positions only!)

Long the 2011 January 67.50 calls (BA1122a67.5) Entry @ $0.58

Long the 2011 February $70.00 calls (BA1119B70) Entry @ $0.73

Entry on January 3rd at $66.15
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 5.3 million
Listed on December 25th, 2010


Cummins Inc. - CMI - close: 111.60 change: -0.15

Stop Loss: 108.75
Target(s): 114.50 117.50
Current Option Gain/Loss: +20.5% and + 5.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: It was a volatile day for CMI. Shares fell to the $109.00 level. Traders bought the dip at $109.00 for over half an hour before CMI began to rebound. This afternoon bounce looks like a new entry point to buy calls. This remains an aggressive entry point and I'm only suggesting small positions.

FYI: I'm surprised the option prices have not seen more movement!

(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

01/04: New entry point on afternoon bounce.
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.

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: 65.41 change: -0.23

Stop Loss: 61.75
Target(s): 67.00, 69.50
Current Option Gain/Loss: -17.7% and + 4.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: Today's intraday dip and afternoon bounce from prior resistance near $65 looks like a new bullish entry point to buy calls. I will go ahead and raise our stop loss to $62.75.

- 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

01/04: New stop loss @ 62.75
01/04: New entry point on afternoon bounce near $65
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.

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: 46.73 change: +0.15

Stop Loss: 43.75
Target(s): 44.90, 48.00
Current Option Gain/Loss: +725.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: It was a relatively quiet day for CTL but shares still managed to deliver a gain. There is no change from my prior comments. Our final target is $48.00. More aggressive traders may want to aim near the $50.00 level. Just remember we have less than 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

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: 74.16 change: -1.20

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:
01/04 update: CTSH hit some profit taking today with a -1.5% loss. We want to buy calls on a dip at $72.60. We've got a tight stop loss at $71.75. Keep your position size pretty small to limit your risk.

Trigger to buy calls on the dip @ $72.60

- Suggested Positions - (small positions only)

Buy the 2011 January $75.00 calls (CTSH1122A75)

- or -

Buy the 2011 April $75.00 calls (CTSH1116D75)

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: 83.02 change: -0.57

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:
01/04 update: DE dipped under $82 before paring its losses. Aggressive traders could buy calls on this afternoon bounce. I'd rather wait for a pull back closer to $80. 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)

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: 56.12 change: -0.18

Stop Loss: 51.49
Target(s): 53.95, 58.50
Current Option Gain/Loss: +85.7% and +18.9%
Time Frame: 5 to 6 weeks
New Positions: see below

Comments:
01/04 update: After yesterday's big gain I'm not surprised to see a little profit taking in ESRX. Broken resistance near $55 should offer some support. Our final exit target is $58.50 but if you're holding the February calls you might want to consider aiming for $60.

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%)

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


FedEx Corp. - FDX - close: 93.12 change: +0.07

Stop Loss: 90.90
Target(s): 96.75, 99.75
Current Option Gain/Loss: -83.7% and -23.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/04 update: FDX slipped to new two-week lows before paring its losses this afternoon. I'm growing more cautious on this play and we're running out of time with less than three weeks left for our January calls. I am not suggesting new bullish positions at this time. I am almost tempted to raise our stop loss closer to $92.00.

- Suggested Positions (only small positions so far) -

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

- or

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

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

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


Goldman Sachs - GS - close: 173.08 change: +0.03

Stop Loss: 165.75
Target(s): 171.00, 179.50
Current Option Gain/Loss: +110.9% and +59.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: GS rallied to $174 this morning before paring its gains. The $171-170 zone should offer some short-term support. I am not suggesting new bullish positions at this time but nimble traders could look to buy an intraday bounce near the $170 level.

- 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

01/03: New stop loss @ 165.75
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)

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: 147.64 change: +0.16

Stop Loss: 142.99
Target(s): 152.50, 159.50
Current Option Gain/Loss: + 4.4%, and + 4.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: IBM inched higher on Tuesday and managed to close over resistance near the $147.50 mark. Readers can still buy positions here but keep your position size small. 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

01/03: New targets @ $152.50, and $159.50

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: 37.16 change: +0.08

Stop Loss: 34.90
Target(s): 39.75
Current Option Gain/Loss: -32.0% and - 5.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: JNPR is still churning sideways and the lack of movement is not good for our options. I am not suggesting new bullish positions at this time. There is still a decent chance JNPR will retest the $36-35 zone. Our first target is $39.75.

- Suggested Positions (only small positions so far) -

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

- or -

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

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


Lockheed Martin Corp. - LMT - close: 70.31 change: +0.44

Stop Loss: 67.95
Target(s): 73.25, 74.90(or 200-dma)
Current Option Gain/Loss: -34.2% and -40.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: LMT displayed a little bit of relative strength today. Shares briefly traded above technical resistance at its 100-dma. I remain cautious on this stock and would wait for a close over $70.50 before considering new positions.

- Suggested Positions -

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

- or -

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

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


Millicom Intl. Cellular - MICC - close: 96.10 change: -0.62

Stop Loss: 91.75
Target(s): 99.90
Current Option Gain/Loss: +30.4% and +33.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/04 update: After MICC's recent strength I'm not surprised to see some profit taking today. Broken resistance near $94 should offer stronger support. No new positions at this time. 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

01/03: New stop loss @ 91.75, New target at $99.90

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


Transocean Ltd. - RIG - close: 69.65 change: +0.21

Stop Loss: 66.25
Target(s): 72.50, 78.25
Current Option Gain/Loss: -44.7% and -28.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/04 update: RIG did not see the same intraday swoon the rest of the market did. I remain cautious on this play and hesitate to open new bullish positions. Our final target is $78.25.

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

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

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

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


SPX Corp. - SPW - close: 70.57 change: -1.16

Stop Loss: 69.95
Target(s): 76.50, 79.75
Current Option Gain/Loss: -60.0%, and -44.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: Warning! The action today looks bearish. SPW spiked higher this morning, broke out above resistance and hit $73.11. The stock promptly reversed lower and looks headed for $70.00. Our breakout trigger to buy calls was hit at $72.60. I am not suggesting new positions at this time. 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.

- Suggested Positions -

Long the 2011 January $75 calls (SPW1122A75) Entry @ $0.50

- or -

Long the 2011 February $75 calls (SPW1119B75) Entry @ $1.80
01/04 Triggered @ 72.60

Chart:

Entry on January 4th at $72.60
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 346 thousand
Listed on January 1st, 2010


Stanley Black & Decker, Inc. - SWK - close: 67.81 change: -0.26

Stop Loss: 65.75
Target(s): 69.90, 72.45
Current Option Gain/Loss: -35.7%, and - 6.8%
Time Frame: 4 to 6 weeks
New Positions: Yes

Comments:
01/04 update: Tuesday was a relatively quiet day for SWK. The stock did not see the same volatility that most of the market experienced. Shares opened at $68.15 and bounced from its rising 10-dma. I don't see any changes from my prior comments. Keep your position size small to limit your risk. Just because these call options look cheap do not go overboard. Repeat - small positions only. FYI: The Point & Figure chart for SWK is bullish with a $77 target.

- Suggested Positions -

Long the 2011 January $70 calls (SWK1122A70) Entry @ $0.70

- or -


Entry on January 4th at $68.15
Earnings Date 01/27/11 (confirmed)
Average Daily Volume = 1.6 million
Listed on January xxth, 2010


Union Pacific - UNP - close: 93.08 change: -0.61

Stop Loss: 89.75
Target(s): 96.25, 99.75
Current Option Gain/Loss: -35.5% and - 6.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/04 update: This looks like another entry point to buy calls on UNP. The stock dipped right back to support and bounced. I would buy the February calls.

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

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

01/04/11: New entry point on afternoon bounce.
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

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: 72.79 change: -0.16

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:
01/04 update: UPS is still trading sideways. Please note that I am replacing the January calls with February calls. 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 February$70.00 call (UPS1119B70)

- or -

Buy the 2011 April $75.00 call (UPS1116D75)

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


United Technology Corp. - UTX - close: 79.12 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:
01/04 update: UTX is still going nowhere. I'm about ready to drop it and replace it with something else. Currently we're looking for a dip toward $77.00 but we may want to consider adjusting our strategy and buying a breakout over $80.00.
FYI: The Point & Figure chart is bullish with a $91 target for UTX.

Trigger to buy calls @ $77.10

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

- or -

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

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


Cimarex Energy Co. - XEC - close: 88.85 change: -1.15

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:
01/04 update: XEC displayed a little bit of volatility but recovered from its intraday low of $87.60. Currently we're waiting for a dip to buy calls 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)

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: 24.42 change: -0.37

Stop Loss: 26.05
Target(s): 25.10, 23.25
Current Option Gain/Loss: +66.6%
Time Frame: 2 to 3 weeks
New Positions: No

Comments:
01/04 update: EXPE rolled over near the $25.00 level and closed on its simple 200-dma. There is no change from my prior comments. No new positions at this time. Our first target has already been hit. We're currently aiming for $23.25.

FYI: Our put option hit a high of $1.55 this morning.

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

01/03/11 New stop loss @ $26.05
12/30/10 Target hit @ 25.10, option @ 0.80 (+25%)
12/30/10 new stop loss at $26.51

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

Baxter Intl. Inc. - BAX - close: 50.09 change: -0.07

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:
01/04 update: BAX continues to underperform. The stock slipped back toward the $50 level. While $50 does look like short-term support I'm concerned about the recent weakness. We will drop BAX as a bullish candidate. Shares never hit our trigger to buy calls at $52.55.

(no chart needed)

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


Fastenal Co. - FAST - close: 59.82 change: -1.03

Stop Loss: 59.40
Target(s): 64.00, 68.50
Current Option Gain/Loss: + 0.0%, and -26.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: Our aggressive entry point in FAST did not pay off. After Monday's breakout over $60.00 I suggested readers buy calls this morning. FAST opened at $60.75. Unfortunately, FAST spiked lower this morning and quickly hit our stop loss at $59.40. Our trade has been closed. I would keep FAST on your watch list for a dip or bounce in the $57-56 area.

FYI: The January $64.58 call opened at $0.20 and closed higher. The February $64.58 call opened at $0.75 and was trading near $0.55 when we were stopped out.

stopped out.

- Suggested Positions- (SMALL POSITIONS ONLY!)

Buy the 2011 January $64.58 calls (FAST1122A64.58) Entry @ $0.20

- or -

Buy the 2011 February $64.58 calls (FAST1119B64.58) Entry @ 0.75

01/04: Stopped out. January call @ $0.20 (+0.0%), Feb. call @ $0.55 (-26.6%)
01/03: New targets @ 64.00 and 68.50
01/03: New stop loss @ 59.40
01/03: New Entry Point at current levels (closed @ 60.85)
12/21: Adjusted entry point trigger from 56.00 to 56.75

Chart:

Entry on January 4th at $60.75
Earnings Date 01/19/11 (unconfirmed)
Average Daily Volume = 880 thousand
Listed on December 8th, 2010


Oceaneering International - OII - close: 72.23 change: -2.01

Stop Loss: 69.95
Target(s): 78.00, 79.95
Current Option Gain/Loss: -62.0%, -82.3%, and -35.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: Ouch! It was an ugly day for OII. The stock underperformed the market and underperformed its peers. The OSX oil services index lost -1.6%. OII fell -2.7% on no specific news. There is potential support near $70 and its 50-dma but I wouldn't count on it. Thus I'm suggesting an early exit now to salvage some of our capital.

- Closed Positions -

Buy the 2011 January $75 calls (OII1122A75) Entry @ $2.77, exit @ 1.05 (-62%)

- or -

Buy the 2011 January $80 calls (OII1122A80) Entry @ 0.85, exit @ 0.15 (-82%)

- or -

Buy the 2011 April $80 calls (OII1116D80) Entry @ 3.86, exit @ 2.50 (-35%)

01/04: Exit Early.

Chart:

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


Schlumberger Limited - SLB - close: 81.63 change: -2.02

Stop Loss: 81.65
Target(s): 89.00
Current Option Gain/Loss: -52.6%, and -44.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: Our brand new play on SLB has been stopped out. Oil service stocks underperformed the rest of the market with the OSX index sliding -1.6%. Shares of SLB underperformed its peers with a -2.4% drop. Shares fell to $80.65 intraday. Our stop loss was hit at $81.65. The breakout to new highs (where we entered) followed by the breakdown under its trend of higher lows (where we were stopped out) is very short-term bearish.

- Closed Positions -

Long the 2011 January $85 calls (SLB1122A85) Entry @ $1.90, Exit @ 0.90 (-52.6%)

- or -

Long the 2011 February $90 calls (SLB1119B90) Entry @ $1.25, Exit @ 0.70 (-44%)

01/04: Stopped out. Jan. call @ 0.90 (-52.6%), Feb. call @ 0.70 (-44%)

Chart:

Entry on January 3rd at $84.25
Earnings Date 01/21/11 (confirmed)
Average Daily Volume = 5.6 million
Listed on January 1st, 2010


Stericycle Inc. - SRCL - close: 79.26 chane: -2.39

Stop Loss: 79.40
Target(s): 84.75, 89.00
Current Option Gain/Loss: +0.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/04 update: It was an ugly day for SRCL. The stock was downgraded before the opening bell. Shares gapped open lower at $79.85. We had a trigger to buy calls at $80.75 so the play was immediately opened. A few minutes later we were stopped out at $79.40 as SRCL plunged to an intraday low of $77.29. This play has been opened and closed on the same day due to volatility.

The option opened at $0.35. Currently with SRCL at $79.26 the bid is $0.45 so it would have been higher at $79.40 but I'm not going to post a gain on this trade. We'll mark it closed at our entry point.

- Closed Position -

Buy the 2011 February $85 calls (SRCL1119B85) Entry @ 0.35, Exit @

01/04 Opened @ 79.85, Closed @ 79.40, Option @ 0.35 +0.0%

Chart:

Entry on January 4th at $79.85
Earnings Date 02/03/11 (unconfirmed)
Average Daily Volume = 543 thousand
Listed on December 29th, 2010


Vulcan Materials Co. - VMC - close: 44.46 change: +0.10

Stop Loss: 43.75
Target(s): 47.50, 49.75
Current Option Gain/Loss: -76.9%, and -34.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/04 update: Ouch! VMC was downgraded this morning. The stock reacted by gapping open lower at $43.41. Our stop loss was at $43.75 so the play should have been closed immediately. The January calls were hammered on the gap down!

(small positions only!)- Suggested Positions -

Buy the 2011 January $45 calls (VMC1122A45) Entry @ $1.30, exit @ 0.30 (-76.9%)

- or -

Buy the 2011 February $45 calls (VMC1119B45) Entry @ $2.20, exit @ 1.45 (-34.0%)

01/04: Stopped out/gap down @ 43.41.

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