Option Investor
Newsletter

Daily Newsletter, Saturday, 1/15/2011

Table of Contents

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

Market Wrap

Banks and Chips Push Market Higher

by Jim Brown

Click here to email Jim Brown

Intel did not get any love from investors on Friday but the rest of the chip sector rallied sharply. JPM blew past earnings to power the banking sector higher.

Market Statistics

The bad news bulls are definitely in control. The negative economic news at the open was barely able to dent the indexes before the dip buyers jumped in once again. The early economics stirring the market soup was the huge jump on the Consumer Price Index. The headline number jumped +0.5% and well over the +0.1% rise in prices for the prior month. This was the biggest jump since early 2009. The core rate minus food and energy rose only +0.1% and inline with estimates.

The core rate has now risen +0.1% for two months after being flat at zero for three months. There is no inflation at the core level as long as you don't eat or use energy. For the rest of us the headline number is rising pretty rapidly thanks to those categories. Energy prices rose +4.6% in December and is now up +7.9% over the same period in 2010. Food has not really spiked yet in the U.S. but given the rise in grain prices and the impact of grain not only on bread, flour and cereal but also on beef, chicken and other livestock we are going to see prices rise.

Because the core rate remains tame for the time being there is no worry the Fed will change its strategy any time soon.

Also roiling the market was a lower than expected Retail Sales number for December. The headline number came in at +0.6% compared to estimates for +0.8%. That was still the biggest rise since July. Sales closed the year at +7.9% over their year-ago level. Unfortunately most of that growth came in sales at service stations where fuel prices were steadily rising.

Categories actually seeing a decline in sales included electronics and appliances, food and beverage, clothing and accessories and general merchandisers. The big winners were gasoline stations +1.7%, cars and parts +1.1%, furniture and home furnishings +1.0%, building materials +2.0% and nonstore retailers +2.6%. The sales at electronics stores were actually brisk but the lower per item selling prices shrank the total dollars sold although units were up. Consumers are benefiting from the flood of new products and rampant competition.

With consumers taking home a few more dollars per week this year the increase in sales should continue.

The rise in consumer spending suggests consumers are more optimistic about the current conditions and the outlook for the future but that is not what we are seeing in the sentiment reports. The Consumer Sentiment Survey for January showed a drop in the headline number from 74.5 to 72.7. That was a shock to analysts who were expecting a rise to 77.0.

The nearly -2 point drop was in the present conditions component. That component dropped sharply from 85.2 to 79.8 while the expectations component rose from 67.5 to 68.2. Given the tax bill, the cut in FICA taxes and a rising stock market you would have thought consumers would have been in a better mood. However, as I warned last month, there is a tendency for post holiday depression. Now consumers are faced with the added debt they created by using their credit cards and the joy of the season has faded. I would not put too much stock in this report. Consider it a seasonal factor.

Consumer Sentiment Chart

A positive report was the strong uptick in Industrial Production. The report showed a strong +0.8% gain in December and the biggest gain since July. If you only looked at the headline number you would be bullish. However, half of those gains came from a sizeable boost in utility company billings thanks to the cold weather. Actual manufacturing output only rose +0.4% but still a decent gain.

Business equipment, a key indicator for the economy, rose +0.6% and computers rose +1.1%. Auto sales rose steadily in Q4 and the companies have raised guidance for Q1. For 2011 analysts are now expecting a strong +5.0% growth for the year.

Next week is housing week with three different housing reports. The most important is the NAHB on Tuesday. The most important report for the week is the Philly Fed Manufacturing Survey. This is a preview of what we should expect from the January ISM two weeks later.

Economic Calendar

The big story next week will of course be earnings. This is a big week for the Q4 earnings cycle with the several of the tech blue chip companies reporting. The market is closed on Monday so there are no major reports. Apple and IBM are the big dogs on Tuesday followed by Ebay and Goldman on Wednesday and Google on Thursday. Bank America and General Electric close out the week on Friday.

The banks will produce some interest from traders but in general we already know they will beat estimates. After the JPM earnings on Friday those expectations are pretty strong. The earnings from Apple and Google will be highlights because of their exploding businesses and the competition between them. Expectations for Apple are off the charts but Google expectations are more subdued. IBM will be a key for the business sector because they are a corporate supplier rather than a consumer company. It should be an interesting week.

Earnings Calendar

Earnings for Q4 for the S&P-500 are now expected to show +32% growth led by triple digit gains in the financial sector. Quite a few of the earnings reports next week are banks. There were a couple dozen banks I did not put on the list. This should produce positive market sentiment with bank after bank beating estimates.

JP Morgan reported earnings on Friday of $1.12 that beat the street estimates for one dollar a share. That compares to 74-cents in the year ago quarter. The +47% rise in earnings came on a revival in consumer banking and lower reserves for loan losses. JPM said it could raise its annual dividend from 20-cents to as much as $1 if the Fed approves its plans later this year. Since the financial crisis the Fed requires the top ten banks to submit detailed financials for their review. If the Fed likes what it sees it could approve the dividend increase. JPM CEO Jamie Dimon said the bank would raise another $30 billion in working capital from operations in 2011 and the bank's capitalization would be well in excess of that required by the Basel accords. Shares of JPM rose sharply on the news but faded to a 46-cent gain by the close.

JPM Chart

JPM was the only major company to report on Friday. Intel reported great earnings on Thursday and opened higher Friday morning but quickly fell to a loss. Post earnings depression is a common scenario and why Option Investor almost never recommends holding an option position over the actual announcement.

Intel did set fire to the chip equipment sector. All the big names in the sector posted large gains on expectations of large capex spending in 2011. The 100% depreciation bonus in the tax bill is a huge incentive to buy equipment in 2011. KLA-Tencor (KLAC) rose +6%, Altera (ALTR) gained +6.4%, Novellus (NVLS) rallied +12% and Applied Materials (AMAT) jumped +7%. I believe there was a serious dose of short covering in some of those gains.

Novellus Chart

Hasbro (HAS) warned on Friday that 2010 sales would actually be lower than 2009 due to a slowdown in consumer demand. That caught everyone off guard since the retail sales for December just concluded three months of strong sales increases. Hasbro gave no details on why the manufacturer of action figures and Nerf toys say sales sag. Hasbro's shares fell more than -5% in early trading but recovered to close flat for the day.

Gold prices collapsed despite a continued decline in the dollar. The recovery in the euro has taken away the flight to safety trade to gold. The improving economics in the U.S. suggests the Fed will not announce QE3 and the dollar will not decline much longer. In a nutshell the QE2 trade in commodities is slowly fading. Six weeks ago could you have imagined a -2.4% decline in the dollar in four days and no rally in gold?

You may remember the metals and commodities rallied for two months ahead of the actual announcement of the QE2 plan. Now traders are getting ready for the end of QE2 in June and possibly as early as March. They may not be rushing out of their commodity positions just yet but the rush to pay ever-higher prices has ended.

Comex Gold Chart

Part of the problem in gold was the Chinese reserve hike. China raised its bank reserve requirement by 50 basis points on Friday. That was the fourth hike in the last two months and the seventh since 2009. China is trying to slow consumer prices, which have risen more than 5% over the last 12 months led by food and real estate. By raising the reserve requirement it takes more money out of the banks and makes it harder to do real estate loans. Investors are afraid China is going to tighten the screws too far and put the country back into low single digit growth. Numerous analysts believe China's inflation rate is much higher than government figures show. Some believe it could be as high as 20%. China has raised the minimum wage twice in the last six month by 20% each time. That means the inflation is rampant and the large labor pool is shrinking. China is racing towards a business cycle top but it could still be a couple years away. The decline from that top is going to be very painful for the world economy.

American International Group (AIG) is in all the headlines after it paid the New York branch of the Federal Reserve its outstanding balance of $21 billion on Friday. That cleared the way for AIG to convert the preferred stock owned by the Treasury in to common stock that can be sold in the open market. The conversion gives the Treasury 1.6 billion shares of common stock or 92% ownership in AIG.

Converting the government's $47.5 billion loan into 1.6 billion shares means the government's cost basis is around $30. With AIG at $54 that is a win for the government BUT how do you sell 1.6 billion shares? AIG and the Treasury met with bankers last week to devise a plan for a massive share offering that would take a lot of those shares off Treasury's hands. Estimates are for an offering of $15 to $20 billion. The rest of the shares would be sold into the market or in private placements over the next two years.

Just getting out of AIG does not solve the governments AIG problem. As a condition on the sale of some AIG assets the government ended up with a position in those businesses as well. The government owns $20 billion in shares of MetLife and AIA. Met bought American Life Insurance from AIG for $16 billion. AIG sold 98% of Asia's AIA in a public offering and raised $20 billion with the government retaining a stake.

There is a rush to exit AIG for one good reason. The bailouts were not popular with voters and especially the AIG bailout. The public sees AIG as a bailout of the big banks rather than AIG. The class warfare over the last two years painted the big banks as evil and only good for paying big bonuses to executives. The administration really does not want to go into the election cycle with the AIG bailout still drawing attention. Same with GM. They would rather dump the shares of both for a minor profit and be able to say, "See what a good deal this was for the American taxpayer."

The remains of the MetLife and AIA transactions will be swept under the rug and forgotten because voters don't really know about those deals and how the government is involved. We should be thankful the government bailed out AIG. The $2 trillion dollars in complex assets and derivatives on their balance sheet in 2008 would have sunk the global financial system if the government had not backstopped them and guaranteed the debt. John Q Citizen does not understand this so the administration needs to close these deals before they get too far into the next election cycle.

AIG Chart

After the close on Friday BP held a press conference to announce a joint "share swap" with Rosneft, the largest oil company in Russia. BP will give 5% of its shares valued at $7.8 billion to Rosneft and Rosneft will give BP 9.5% ownership in Rosneft. BP has a market cap of $150 billion and Rosneft $83 billion. The two companies will then jointly explore for oil in 50,000 square miles of the South Kara Sea in the Artic. Rosneft won three blocks last year in an auction where it was the only bidder.

It is obvious why Rosneft wanted to joint venture with BP. They have oil in places where they can't drill for lack of technology and BP has the technology or at least is closer to having it than Rosneft. The Russian company will get access to technology to drill in deepwater in the South Kara Sea and they can then use that technology in other fields not related to the BP deal.

BP has interest in the deal because it wants oil assets that are not controlled by the U.S. government. BP is claiming the oil spill could eventually cost them $40 billion and subject them to intense scrutiny and regulation on any operations in U.S. waters. By partnering with Russia they have a partner that is immune to U.S. asset grabs. BP has probably resolved not to add to Gulf of Mexico assets and could be looking for a way to get out of the ones it owns. If it can replace those assets with Russian oil then it may be appealing to BP.

Personally I would caution BP against dancing with the devil. The only major oil company not to be burned by Russia lately is Conoco. Shell, Exxon, Total, etc have all been the focus of heavy handed Russian tactics to confiscate their leases including their assets on the ground once the heavy work was done and production started. BP's CEO is familiar with Russian politics because he was kicked out of Russia three years ago when the partners in the TNK-BP partnership turned against him. Suddenly all is forgiven. Does that seem strange to anyone but me? Obviously there is more to this share swap than meets the eye.

BP Chart

Bookseller Borders Group (BGP) spiked +31% on Friday on rumors the company has been meeting with GE to obtain a new credit facility of $500 million to take the place of existing debt. Neither GE or Borders would comment on the rumor. In a New York Times article the chain would also ask publishers to cough up some cash to aid the ailing bookseller. Borders has not posted an annual profit since 2006. When it missed estimates in Q3 lenders cut its borrowing capacity. After Borders warned of a liquidity crisis two weeks ago several publishers cut them off and refused to ship them more books. Trouble always seems to come in waves.

DigiTimes reported on Friday that contract assembler Quanta computer is in volume production of Research in Motion's Playbook tablet. Shipments in Q1 are expected to be in excess of one million units. Motorola's new Xoom tablet will see an initial production run of 700,000 to 800,000 units this quarter as well. Tablets are about to get a lot cheaper once the dozen or so variations hit the market.

Motorola's new smartphone Atrix is rumored to have a docking station where users can attach a full keyboard. Secondly the Atrix can run a Citrix remote desktop client that lets the user use programs like Word, Excel, Power Point, etc. If the Atrix can use the XenDesktop can the other Android based Motorola products like the Xoom also feature this capability? If so this would be a big entry into moving tablets into the enterprise computing space. RBC Capital sees the tablet market at 90 million units per year by 2013.

The S&P-500 closed with a +1.71% gain for the week and stretching its streak of positive weeks to seven. That is the longest winning streak since May 2007. S&P analyst Sam Stoval warned "from a price-momentum standpoint the S&P is now overbought on both a daily and weekly basis for the first time since April." Obviously that does not prevent it from becoming even more overbought in the days ahead. Jeff Kleintop, chief market strategist af LPL Financial said "overbought market conditions and the upcoming earnings season could again contribute to a flat-to-down market."

The quote I liked the best came from an analyst whose name I did not catch. "Every technical analyst is now extremely bearish given the overbought conditions. When everyone is bearish it is time to go long." When traders are bearish they are either flat or short. If flat and the market moves higher they will have to chase stocks higher. If short you get squeezed and you chase stocks higher. Either way the odds for a continuation of the bull market are good.

As I said before I was expecting a January high around the 13th of the month. So far I am wrong. I also said last week that a break over 1280 would be a bullish signal. Thursday's close over that level was just enough to leave a doubt but Friday's close at 1292 was solid confirmation the bull is still alive. S&P 1300 is now the resistance target and baring any unexpected news from overseas we could hit that next week. Uptrend support has risen to 1275.

I have to admit I am worried about the continuation of the gains in the days ahead because the good news is already priced into stocks like Apple and IBM. For instance IBM closed at a new high at $150 on Friday. That is a $28 gain since Sept 1st. Apple closed at another new high at $348. That is a $113 gain since Sept 1st. I know there are more adjectives to describe Apple's prospects than Bayer has aspirin but eventually this stock has to rest. I mentioned last week the rumor Apple will announce a 3:1 split with earnings. That rumor is helping to power it higher. We all know what will happen if that announcement fails to appear.

With the S&P over 1280 and the Dow over 11750 you have to be bullish but that does not mean you close your eyes and accelerate into freeway traffic. Please be alert to the market, use stop losses and actually honor your stop when it is hit. It does no good to have stops if you move them down a dollar every time the price gets close. There is always another trading day if you have cash in your account.

The S&P has not tested uptrend resistance since November 5th. That is now 1300 and it could be the speed bump that jolts the bulls out of cruise control.

S&P Chart - 90 Min

S&P Chart - Daily

The Dow is confirming the S&P breakout over the latest resistance levels. Like the S&P the Dow has a ways to go before the next resistance test. The converging resistance lines at 11,900 should make that a tough level to cross on the first test. The shorter-term uptrend resistance (red) has been very consistent for the last two months in rebuking any attempts to cross. The longer term resistance in blue has not been tested since November. The combination of the two around the peak of the most earnings excitement in Apple and IBM could be a challenge.

Support is now 11,700 and prior resistance. The decline on Friday came to a dead stop at that level and was followed by a sharp rebound. That gives us a clean indicator for trading next week. As long as 11,700 holds we remain bullish. A dip below 11,700 will find secondary support at 11,600 and I would buy that level as well on the first test.

Dow Chart - 120 Min

Dow Chart - 90 Min

The Nasdaq posted a solid breakout on the strength in the chip sector after Intel's earnings. How long it can hold that strength with Apple and IBM on Tuesday is another question. Nothing suggests either company will disappoint and the excitement level is pretty high. The problem is now "Who is left to buy those stocks?" Shorts have got to be scarce ahead of Apple's earnings given their positive outlook. IBM may have a bigger short interest but I still think it is suicide to hold over their earnings. When bad news (Hasbro) knocks a stock to a 5% loss and it recovers before the day is out you have to believe the bad news bulls are just waiting for any dip. After all Hasbro is not even a high profile stock. However, Constar did not rebound so there is some selectivity.

Nasdaq 2775 appears to be initial resistance for next week and good support at 2675. That gives the Nasdaq plenty of room to run. Thursday-Friday would be the high-risk period with Google reporting on Thursday. Their earnings always seem to promote a major bout of volatility. In October they spiked $59 the day after earnings. In July they dropped -$25 at the open. In April they dropped -$32 the next day. About the only guarantee is a double-digit move. It is like playing Russian roulette with your trading account. With options expiring on Friday you might be able to get a cheap straddle just before the close on Thursday. Another double-digit move could be profitable.

Nasdaq Chart - 120 Min

Nasdaq Chart - Daily

The Russell broke over round number resistance at 800 and posted a strong 2.5% gain for the week. That came after three weeks of consolidation and suggests fund managers were waiting for the dip and it never came so they went back to buying small caps. As long as the Russell is making new highs you have to be long the market.

Russell Chart

Dow Total Market Index Chart - Daily

In summary the market continued its bullish ways ahead of potentially volatile earnings events. Like the market action or hate it you can't afford to not be long something as long as the small caps and the Total Market Index are setting new highs. There may be a resistance shadow around every corner but none seem to last more than a day or so before giving way to the bulls. I would remain cautiously long with stops in place and let the bulls do the driving.

John Mauldin had a particularly good article this weekend on the long-term problem with the Fed, QE2, Chinese inflation and the European debt crisis. He suggests Europe is going to successfully delay dealing with the debt problem temporarily but in the end it will come back to haunt everyone. Basically there is not enough money in Europe to pay off the current debt and with rates rising the debt service for those countries will become so onerous they will have no choice but to default. That default could involve $1 trillion or more in sovereign debt and will take down quite a few of the European banks. This article should be required reading for anyone planning their investments for the next 3-5 years. Article Link

Jim Brown

Send Jim an email

Mama always said life was like a box a chocolates, never know what you're gonna get. - Forrest Gump


Index Wrap

High Bullish Trader Sentiment; Investors, Not So Much

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

Options traders overall have been bullish on balance for some time (extreme trader bullishness is often a bearish indication in a 'contrary opinion' sense), but such high bullishness hasn't quite spilled over to investor types, where there's been a net outflow out of equities funds for months. That outflow is slowly reversing and is a good omen for a further run up. I wouldn't expect any major top until the 'public' is again VERY enthusiastic about the Market and its prospects.

Short-term, the major indexes are again nearing an overbought status as seen in the hourly S&P 500 (SPX) line (close-only) chart below as the 21-period RSI nears a 'typical' overbought reading at/above 70. In the past few weeks such extremes have only brought on relatively minor and short-lived selling. There may be a bout of selling/weakness coming up but I don't currently envision any major disruption to this strong bull move.

In terms of the daily and weekly charts, the major indices are all at or near overbought extremes; especially so in the Nasdaq 100 (NDX) index. However, until we see a trendline break longer than a single day and a drop below the 21-day moving average, I assume that the market is going higher, consistent with bullish chart patterns for the major indexes. Sometimes an overbought situation will be 'relieved' by a sideways move for awhile.

A note on this coming week's options expiration. The last 4 options expiration weeks have seen a continuation of prior weeks' gains. I anticipate this pattern to repeat in the coming 4-day trading week (Monday's closure is for MLK day).

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) index chart is bullish. So what else is new? Well, SPX is getting more and more 'overbought' of course, according to conventional technical indicators. However, price action is 'king' so to speak and as long as SPX's up trendline is not pierced, or there's a close below the 21-day moving average, SPX appears headed still higher.

Bullish sentiment among traders is also very high but can get more 'extreme' if there's another period ahead without any significant correction as has been the case for many weeks. Greed has overtaken fear in this market. Many options traders tend to be momentum players and as long as the market is going up faster than the erosion of the time value in call premiums, then it's a no-brainer to keep buying dips. While it's risky to keep price averaging UP in long calls in an overbought market like some trader friends are doing, the continued rewards keep some traders coming back for more. Based on what I see, we're not seeing much covered call writing in this market either.

The 1250 area still looks like a key near-term support, which then extends down to around 1238. I didn't note it as 'support' but keep an eye on the 21-day average. A close below this key trading average (currently at 1265), that didn't see a bounce back above the average the next day would put me on alert to a possible further dip such as to test trendline support.

Near resistance comes in around 1300 now, with next resistance now pegged at 1326 as implied by the current intersection of SPX's uptrend channel.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) index's chart remains bullish and we saw two days in the past week with above average gains in OEX. As upside price momentum increases momentum type indicators like the Relative Strength Index (RSI) also move still higher. Since the market trends this strongly only around 30-33% historically, it’s a time when many switch to a 'trend following' mindset; e.g., as long as prices keep moving higher, stick with the trend rather than being scared off by an overbought extreme.

The Index could reach the 600 area before coming down much. As with the S&P 500, I'm cautious in terms of adding bullish positions due to overbought extremes but the trend is UP, until its NOT; which would be signaled by such events as a 'key' downside reversal (a new high on heavy volume followed by a close below the prior 1-2 days' lows), a close below the 21-day average, or decisive downside penetration of the up trendline.

Near support remains at 570, then at current trendline support around 554. I've pegged resistance at between 585 and 593 in the near-term. More major resistance is expected in the 600 area.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) average continues to roll upwards. The latest sign of 'technical' strength was that prior resistance at 11600, once penetrated, 'become' a new support as highlighted on my daily Dow chart. I wrote last week that 11600 was of some long-term chart significance in that it represents a 2/3rds or 66% retracement of the major decline from late-2007 to March 2009. Going beyond a 2/3rds retracement has often been a good indication for a further move in the same direction and a possible retest the prior top in the case of an uptrend.

I've projected next resistance at 11800, then at 12000. Near support is 11600, then at the trendline, currently intersecting at 11450.

There are more Dow stocks performing bullishly. Stand out to good Dow performers are AA, BA, BAC (resurgent), CVX, DIS, GE, HD, HPQ, IBM, JPM, PFE, and XOM. These 12 alone, assuming there's not huge new weakness in the laggards, should propel INDU still higher.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) Index chart continues to trend higher within its uptrend price channel. Prices have pulled up and away from the lower trendline, showing increased upside momentum in the past week. COMP looks poised to go still higher.

Support is expected if there's a pullback to the 2700 area and resistance is next anticipated at 2800, with further resistance at the top end of the channel, currently intersecting at 2900.

This index is of course also at what is typically an 'overbought' extreme in terms of the RSI (above or well above 70 on a 13-day basis), but this doesn't mean that prices won't go still higher. Markets get overbought in strong trends. Eventually there occurs at least a sideways if not lower correction that will serve to 'throw off' the overbought condition. The timing of the start of a pullback is hard to project until COMP has some reversal type action; e.g., a move to a new high on heavy volume followed by a sharply lower close.

As I discussed with the S&P 500, bullish sentiment is very high but that doesn't have its usual bearish significance in a market that is being driven by investment money just starting to really pour into the market in a bigger way. It takes a LONG time for the average 'public' investor to believe that stocks can go up in a still struggling economy; whereas the early phases of a bull market usually produce big gains. When everyone jumps in (as investors in stocks) is when to look out!

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) still is showing strong upside momentum and there's no sign of 'resistance' or selling pressures showing up. If the well-defined up trendline is decisively penetrated, as well as the 21-day moving average, that action would suggest at least a short-term pullback or some sideways action for a while as the RSI 'throws off' its overbought extreme. I've noted support at 2290, then in the 2235 area, extending to 2200.

Resistance may next come in around 2355, with fairly major resistance projected at the top end of NDX's uptrend channel currently intersecting around 2455.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQQ) chart is bullish. It will be instructive to see if the accelerating trend continues after Friday's strong rally. An trend that gains added upside momentum, after a lengthily prior run up, suggests that sellers are throwing in the towel.

Friday's CBOE equities call volume was a whopping 2.7 times that of total equities daily put volume as you can see from the CPRATIO spike seen on the COMP chart above. That's a lot of call volume but I doubt that we'll continue to see such lopsided figures. Still, traders are forgetting fear and going with greed as they say, which is usually at least the start of a higher-risk market in terms of potential for a sell off. The first big sell off will likely bring a big jump in daily trading volume for the Q's as now bullish traders dump stock in a concentrated way.

Near support: 56.0

Next support: 54.0

Nearby estimated resistance: 58.3

Next projected resistance: 60.0, then 60.4

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) bounced from where its recent minor slide took it, which was support implied by its up trendline. The subsequent rally is showing renewed upside momentum and the chart is back on a fully bullish track.

I've highlighted (topmost green up arrow) near technical support at 783, at RUT's up trendline, with next support in the 760 area. Next resistance is projected for the 820 area, than around 840.

I've often written about the way that only a few days of sideways to lower price action, will 'throw off' a good bit of an overbought condition. This is seen in the RSI portion of the chart. It didn't take more than a 20 point pullback to pull the RSI down to a more 'neutral', less extreme, reading. Normally I would also say that the latest high is 'unconfirmed' by a similar new high in the Relative Strength Index (RSI) and constitutes a bearish divergence. However, this rally will be 'over when it's over' and this divergence won't necessarily 'signal' a downside reversal, at least not in the short-term.



GOOD TRADING SUCCESS!



NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS

CHART MARKINGS:

1. Technical support or areas of likely buying interest and highlighted with green up arrows.

2. Resistance or areas of likely selling interest and notated by the use of red down arrows.

I WRITE ABOUT:

3. Index price areas where I have a bullish bias or interest in buying index calls, selling puts or other bullish strategies.

4. Price levels where I suggest buying index puts or adopting other bearish option strategies.

5. Bullish or Bearish trader sentiment and display the graph of a CBOE daily call to put volume ratio for equities only (CPRATIO) with the S&P 100 (OEX) chart. However, this indicator pertains to the market as a whole, not just OEX. I divide calls BY puts rather than the reverse (i.e., the put/call ratio). In my indicator a LOW reading is bullish and a HIGH reading bearish, consistent with other overbought/oversold indicators.

Trading suggestions are based on Index levels, not a specific option (month and strike price) and entry price for that option. My outlook often focuses on the intermediate-term trend (next few weeks) rather than the next several days of the short-term trend.

Having at least 3-4 weeks to expiration tends to be my guideline for trade entry choice. I attempt to pick only what I consider to be 'high-potential' trades; e.g., a defined risk point would equal in points only 1/3 or less of the index price target.

I tend to favor At The Money (ATM), In The Money (ITM) or only slightly Out of The Money (OTM) strike prices so that premium levels are not as cheap as would otherwise be the case, which helps in not overtrading an account. Exit or stop points, as well as projected profitable index price targets, are based on my technical analysis of the underlying indexes.


New Option Plays

Gambling on a Breakout

by James Brown

Click here to email James Brown

Editor's Note:

The market trend is up but I'm concerned the rally could run out of gas in the next week or two. We need to find short-term bullish plays until the market actually turns.

A few stocks currently on my watch list are: CVX, HSIC, SNDK, NFLX, ISRG.

- James


NEW DIRECTIONAL CALL PLAYS

Wynn Resorts Ltd. - WYNN - close: 118.82 change: +2.10

Stop Loss: 116.95
Target(s): 124.75, 128.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
The market could be nearing a top soon and yet the trend remains higher. It's probably too early to look for put plays (generally speaking) and yet I hesitate to add new bullish plays that will take two or more weeks to be worthwhile. We need a bullish candidate that when it moves it can really move and we don't have to be "in" the play very long.

WYNN should fit the bill. The stock exploded higher in early January. Shares have since been consolidating sideways under resistance near $120. If WYNN can breakout past $120.00 the stock could easily shoot toward $125 or $130. I am suggesting we use a trigger to buy small bullish positions at $120.25. If triggered we'll use a stop loss at $116.95. Our first target is $124.75.

Trigger @ $120.25 (Very Small Positions)

- Suggested Positions -

Buy the 2011 February $125.00 calls (WYNN1119B125) current ask $2.56

Annotated Chart:

Entry on January xxth at $ xx.xx
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 2.0 million
Listed on January 15th, 2010


In Play Updates and Reviews

Earnings News Fuel New 2-Year Highs

by James Brown

Click here to email James Brown

Editor's Note:

Investors responded positively to bullish earnings reports from INTC and JPM. Stocks rallied to new two-year highs. The U.S. markets are closed on Monday. That leaves us with four trading days left before January options expire. There is still a good chance that the market produces a short-term top this coming week as investors react to the next wave of earnings news.

There are new stop losses tonight in AMZN, ESRX, JNPR, and MICC.

-James

Current Portfolio:


CALL Play Updates

Amazon.com Inc. - AMZN - close: 188.75 change: +3.22

Stop Loss: 181.80
Target(s): 192.50, 199.75
Current Option Gain/Loss: -19.5%, and - 5.1%
Time Frame: 4 to 6 weeks
New Positions: See below

Comments:
01/15 update: For the second time this week AMZN had an analyst firm raise their price target on the stock. The widespread rally and strength in the tech sector pushed AMZN to a +1.7% gain and a new all-time closing high. The high today was $188.94. I am adjusting our first target to take profits from $189.90 to $192.50 since we need to see AMZN above $190 if our January call is going to make any money. We'll adjust our secondary target from $199.00 to $199.75.

If you are looking for a new entry point I would wait for a dip into the $187-186 zone. Please note our new stop loss at $181.80.

- Suggested (SMALL) positions -

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

- or -

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

01/15: New stop loss @ 181.80, New targets 192.50, 199.75

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: 70.07 change: +0.24

Stop Loss: 65.90
Target(s): 69.00, 71.85
Current Option Gain/Loss: +167.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/15 update: BA underperformed its peers in the defense sector and shares underperformed the broader market. The stock has been consolidating sideways near resistance at $70.00. I'm still expecting a pull back toward the $66.00 level or the 200-dma. Please note that I have adjusted our final target to $71.85. I'm not suggesting new bullish positions at this time. More conservative traders may want to raise their stops higher. Our final target to exit is $72.25.

- Suggested Positions - (small positions only!)

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

01/15: final target adjusted to $71.85
01/12 New stop loss @ 65.90
01/08: Exit the rest of our January calls @ $2.35 (+305%)
01/06: 1st Target Hit @ 69.00. Jan call @ $2.15 (+270%). Feb. call @ $1.80 (+146%)
01/06: New stop loss @ 64.90

Chart:

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


Caterpillar - CAT - close: 94.01 change: +0.13

Stop Loss: 92.25
Target(s): 99.80
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Comments:
01/15 update: Hmmm.... we need to start asking ourselves, "what's wrong with CAT?" The stock isn't moving. Shares have been stuck in the $92-95 trading range for over four weeks now. The rest of the market is breaking out higher, why isn't CAT moving? I don't have an answer. Today's lack of movement is another form of relative weakness. We definitely want to keep our positions small. Keep in mind that CAT is due to report earnings in less than two weeks and we do not want to hold over the announcement.

Currently our plan is to buy calls on a breakout with a trigger at $95.15.
The Point & Figure chart for CAT is bullish with a $118 target.

Trigger @ 95.15

- Suggested Positions -

Buy the 2011 February $100 calls (CAT1119B100) current ask $1.31

Chart:

Entry on January xxth at $ xx.xx
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 4.2 million
Listed on January 5th, 2010


Cummins Inc. - CMI - close: 112.56 change: -0.35

Stop Loss: 108.75
Target(s): 117.50
Current Option Gain/Loss: -59.8% and + 0.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/15 update: Uh-oh! CMI did not participate in the market's rally on Friday. I couldn't find any news to explain the relative weakness. The lack of movement makes me cautious. I am not suggesting new bullish positions at this time. Currently our stop loss is at $108.75 but more conservative traders may want to use a stop closer to $110.

We have four trading days left on our January calls. Readers may want to consider an early exit on our January calls to salvage any capital left. There's always a chance CMI will rally before expiration but if CMI didn't rally today when will it move? There is short-term resistance at $114.00 and CMI needs to get past $115 if our January calls are going to see any gains.

(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.

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


CenturyLink, Inc. - CTL - close: 44.27 change: -0.59

Stop Loss: 43.75
Target(s): 44.90, 48.00
Current Option Gain/Loss: - 75.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/15 update: Warning! The action in CTL on Friday was bearish. Instead of rising with the rest of the market CTL turned lower and dipped toward technical support at its 50-dma. Shares actually tagged new relative lows at $44.22. If there was any value left in our January calls I'd exit early now but the January $45 calls are only bidding 5 cents. I'd rather hold on to it and see what happens between now and next Friday's expiration. I am not suggesting new bullish positions.

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


Express Scripts - ESRX - close: 57.59 change: -0.04

Stop Loss: 54.75
Target(s): 53.95, 58.50
Current Option Gain/Loss: +140.4% and +53.1%
Time Frame: 5 to 6 weeks
New Positions: see below

Comments:
01/15 update: ESRX rallied to new highs this past week. Shares are hovering between the $57 and $58 levels. The stock should see some support near $55.00 so I am raising our stop loss to $54.75. I'm not suggesting new bullish positions at this time. Our final target is $58.50. More aggressive traders may want to aim for $60.00.

Our plan was to exit the January calls on Friday at the closing bell (see Thursday's update). The January $52.50 calls closed with a bid at $5.05 (+140%).

We currently only have half a position open.

Current Position:
2011 January $52.50 calls (ESRX1122A52.5) Entry @ $2.10, exit @ 5.05 (+140%)

- or -

Second Position (small position):

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

01/15: New stop loss @ 54.75
01/14: Exit the January calls at the close. Exit @ $5.05 (+140%)
01/13: Plan on exiting the January calls tomorrow before the close.
01/06: New stop loss @ 53.75
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


FedEx Corp. - FDX - close: 95.83 change: +0.20

Stop Loss: 91.75
Target(s): 99.90, 104.75
Current Option Gain/Loss: -85.0% and - 0.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/15 update: FDX didn't make much progress on Friday. The Dow Jones Transportation index did not participate in the rest of the market's rally higher. FDX rallied to new multi-month highs but reversed at the $97.00 level. This does not bode well for our January calls. I have been suggesting that we sell our January calls at 40 cents but the high today was only 23 cents. We are down to four trading days left before January's expiration.

I remain cautious on FDX and would hesitate to open new bullish positions.

- 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

01/13: New targets for the April calls (99.90 and 104.75)
01/12: New stop loss @ 91.75
01/08: New exit strategy for January calls. Try to exit at 40 cents or more.
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: 175.00 change: +3.43

Stop Loss: 167.75
Target(s): 171.00, 179.50
Current Option Gain/Loss: +114.5% and +54.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/15 update: Better than expected earnings results from J.P.Morgan (JPM) sent the financial stocks surging higher. Shares of GS delivered a +2% gain on Friday closing at $175.00. On Thursday I suggested conservative readers exit their January calls on Friday. Right now our plan is to exit all of our positions on Tuesday at the closing bell to avoid holding over GS' earnings report on Wednesday morning. I am not suggesting new bullish positions at this time. Our final target is $179.50 should GS spike higher prior to Tuesday's closing bell.

- 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

01/13: New stop loss @ 167.75, plan on exiting Jan. 18th
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)

Chart:

Entry on December 17th at $163.92
Earnings Date 01/19/11 (confirmed)
Average Daily Volume = 7.2 million
Listed on December 2nd, 2010


International Business Machines - IBM - close: 150.00 change: +1.18

Stop Loss: 144.75
Target(s): 152.50, 159.50
Current Option Gain/Loss: +51.8%, and + 7.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/15 update: IBM has rallied to what could be significant round-number, psychological resistance at the $150.00 mark. This is also a new all-time high for Big Blue. Right now our plan is to exit our January calls on Tuesday at the closing bell to avoid holding over the earnings report (We'll risk it with the April calls). More conservative traders may want to exit the January positions now since there is a good chance that IBM will just drift sideways on Tuesday as investors wait for the earnings release. I am not suggesting new trades at this time.

- Suggested Positions -

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

- or -

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

01/13: Exit the January calls on Tuesday before the close (& earnings)
01/06: New stop loss @ 144.75
01/03: New targets @ $152.50, and $159.50

Chart:

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


Intrepid Potash, Inc. - IPI - close: 38.58 change: +0.81

Stop Loss: 34.75
Target(s): 39.90, 42.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Comments:
01/15 update: IPI rallied to new relative highs on Friday. We're still waiting for a dip. Our plan is to buy calls at $37.25 with a stop loss at $34.75. More conservative traders may want to use a tighter stop loss. The 20-dma could be technical support. Our first target is $39.90. Our second, more aggressive target is $42.00.

FYI: The Point & Figure chart for IPI is bullish with a $62 target.

Trigger @ 37.25

- Suggested Positions -

Buy the 2011 February $40 calls (IPI1119B40) current ask $1.25

Chart:

Entry on January xxth at $ xx.xx
Earnings Date 03/01/11 (unconfirmed)
Average Daily Volume = 717 thousand
Listed on January 12th, 2010


Juniper Networks - JNPR - close: 38.73 change: +0.51

Stop Loss: 36.70
Target(s): 39.90, 41.75
Current Option Gain/Loss: +23.0% and +28.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/15 update: JNPR rallied to new multi-year highs this past week, clearing the peak set back in 2007. The recent bounce from $38 is a positive sign and suggests JNPR is poised to make a run at $40.00 soon. Please note our new stop loss at $36.70. Friday's bounce actually looks like a new bullish entry point but given my bias for the rest of January that would be an aggressive move (to buy calls now). We have four trading days left for January options. More conservative traders may want to take profits now.

We want to sell all of our January calls and half of our April calls at $39.90.

- 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
01/15: New stop loss @ 36.70
01/06: New stop loss @ 35.75, new 1st target @ 39.90.
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


Millicom Intl. Cellular - MICC - close: 97.10 change: -0.34

Stop Loss: 93.75
Target(s): 99.90
Current Option Gain/Loss: - 4.3% and +27.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/15 update: Uh-oh! MICC underperformed the rest of the market on Friday. It looks like a number of stocks in the telecom industry were underperforming. MICC still has a bullish trend of higher lows but we're down to our last four trading days before January options expire. Cautious traders will want to seriously consider an early exit now if you're holding January calls. I am not suggesting new positions at this time. Our target to exit is $99.90.

Please note our new stop loss at $93.75.

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

01/13: New stop loss @ 93.75
01/06: New stop loss @ 92.49
01/03: New stop loss @ 91.75, New target at $99.90

Chart:

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


NetApp, Inc. - NTAP - close: 59.48 change: +0.86

Stop Loss: 54.90
Target(s): 62.25, 64.50
Current Option Gain/Loss: - 0.0%
Time Frame: 4 to 5 weeks
New Positions: Yes, see below

Comments:
01/15 update: NTAP bounced back toward its recent highs on Friday and looks poised to breakout over $60.00 soon. Readers may want to wait for a move past $60.00 before initiating new positions. Cautious traders might want to consider a stop loss closer to $56 instead. Our exit targets are $62.25 and $64.50.
The Point & Figure chart for NTAP is bullish with a $66 target.

- Suggested Positions (small positions only) -

Long the 2011 February $60 calls (NTAP1119B60) Entry @ $2.50

Chart:

Entry on January 12th at $59.04
Earnings Date 02/16/11 (unconfirmed)
Average Daily Volume = 3.8 million
Listed on January 11th, 2010


QUALCOMM Inc. - QCOM - close: 52.04 change: +0.17

Stop Loss: 48.75
Target(s): 54.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Comments:
01/15 update: I am surprised that QCOM did not show more strength on Friday. Shares merely churned sideways inside its current consolidation. I am moving our trigger to buy calls from $50.75 to $50.25 and moving our stop loss to $48.95. Wait for the dip toward support near $50.00. I would keep your position size small. Earnings are less than three weeks away and we normally want to avoid holding over an earnings report.
FYI: The Point & Figure chart for QCOM is bullish with an $84 target.

Trigger @ 50.25

- Suggested Positions -

Buy the 2011 February $52.50 calls (QCOM1119B52.5) current ask $1.65

Chart:

Entry on January xxth at $ xx.xx
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume = 12.1 million
Listed on January 8th, 2010


Research In Motion - RIMM - close: 64.77 change: +0.76

Stop Loss: 59.90
Target(s): 64.75, 67.50
Current Option Gain/Loss: +55.8%, and +48.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/15 update: Good news! RIMM posted another gain on Friday, which should negate the bearish reversal type pattern formed on Thursday. RIMM still looks a little bit overbought here and I wouldn't be surprised to see a dip back toward the $62 area. I am not suggesting new positions at this time. Our final target remains $67.50.

- Suggested Positions -

Long the 2011 February $62.50 calls (RIMM1119B62.5) Entry @ $2.47

- or -

Long the 2011 March $65.00 calls (RIMM1119C65) Entry @ $2.35

01/13: New stop @ 59.90
01/13: 1st Target Hit @ 64.75. Feb. call @ $4.00 (+61.9%) Mar. call @ $3.75 (+59.5%)
01/12: New stop loss @ 58.45

Chart:

Entry on January 6th at $61.00
Earnings Date 03/31/11 (unconfirmed)
Average Daily Volume = 9.9 million
Listed on January 5th, 2010


SPX Corp. - SPW - close: 74.17 change: +0.33

Stop Loss: 69.90
Target(s): 77.40, 79.90
Current Option Gain/Loss: - 9.7%
Time Frame: 4 to 6 weeks
New Positions: See below

Comments:
01/15 update: Traders bought the dip at $73.41 on Friday. I would stay cautious on SPW and wait for a dip closer to $72.50 before considering new bullish positions. More conservative traders may want to use a stop closer to $71.00 instead. Our upside targets are $77.40 and $79.90.
The Point & Figure chart for SPW is bullish with a $92 target.

- Suggested Positions -

Long the 2011 February 75.00 calls (SPW1119B75) Entry @ $2.16

Chart:

Entry on January 11th at $73.49
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 396 thousand
Listed on January 10th, 2010


Stanley Black & Decker, Inc. - SWK - close: 68.15 change: +0.22

Stop Loss: 64.75
Target(s): 69.90, 72.45
Current Option Gain/Loss: -85.7%, and -17.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/15 update: SWK rallied from its Friday morning lows to close back above $68.00 but the "breakout" over resistance near $68 is not very convincing. I would stay cautious on this stock. I'm not suggesting new bullish positions. We only have four trading days left on our January calls and odds are against us. We may want to plan on selling our January calls early if they trade over 35 cents just to recoup some of our capital. Keep your position size small to limit your risk.

- Suggested Positions -

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

- or -


01/15: Consider selling the January calls early @ 35 cents or more
01/06: New stop loss @ 64.75

Chart:

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


Cimarex Energy Co. - XEC - close: 97.28 change: +1.32

Stop Loss: 91.80
Target(s): 94.25, 99.50
Current Option Gain/Loss: +174.2%, and +87.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/15 update: XEC extended its rally on Friday to six days in a row. Shares added another +1.3% to close at new highs. I am raising our stop loss to $91.80 since the $92.00 level should offer some support. XEC looks very short-term overbought here and due for some profit taking. I am not suggesting new bullish positions at this time.

I would seriously consider an early exit right now just to lock in a gain. Our plan was to keep our position size small to limit our risk.

- Current Positions -

Long the 2011 February $95 calls (XEC1119B95) Entry @ $1.75

- or -

Long the 2011 March $95 calls (XEC1119C95) Entry @ $3.10

01/15: New stop loss @ 91.80
01/13: New stop loss @ 89.90
01/12: 1st Target Hit @ 94.25. Feb call @ $3.18 (+81.7%) Mar. call @ $4.20 (+35.4%)

Chart:

Entry on January 10th at $90.49
Earnings Date 02/17/11 (unconfirmed)
Average Daily Volume = 907 thousand
Listed on December 1st, 2010