Option Investor
Newsletter

Daily Newsletter, Wednesday, 1/19/2011

Table of Contents

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

Market Wrap

Strong Signs of a Market Top

by Keene Little

Click here to email Keene Little
Market Stats

Last night we had both IBM's and AAPL's earnings reports boosting the after-hours futures and it looked like we were going to be off to the races come Wednesday morning. But as often happens during the overnight session, the rally was at least partially given back and then Goldman Sachs and Citigroup poured cold water on the bulls before the open with their earnings reports. The market started off in the hole and other than the DOW flirting with the flat line for much of the day (thanks solely to IBM's strong rally), the rest of the market had a decidedly bearish day.

Both Goldman Sachs (GS) and Citigroup (C) reported disappointing results, especially fromtheir money-generating proprietary trading desks. I guess it gets tiring and boring when you're given free money and you have to keep outperforming your previous results. Some of the proprietary trading operations are being moved out of their companies so that's going to affect their bottom lines as well.

Citi missed on both revenue and net income. An interesting development for the banks is that their debt has to be valued higher and that resulted in a hit to their bottom line. If you'll remember several quarters in the past they were able to claim it as income when the value of their debt declined since it would theoretically cost less to liquidate their debt at the lower cost.

I thought it was all smoke and mirrors back then and this time it caught them the other way since the debt's value has increased as investors have become more confident in the company's ability to pay it off and therefore Citi had to account for that by subtracting about a billion dollars from their bottom line. What a crazy way to do their accounting. All it means is their earnings reports are at best just a bunch of phony numbers. Morgan Stanley (MS) is going to face the same thing so watch for a disappointing earnings report from them tomorrow morning. As I'll review later, the banking index looks particularly weak at the moment.

The housing reports this morning did not help the negative tone of the morning as construction of new homes dropped -4.3% to an annualized rate of 529K in December. Countering this bad news was good news that permits for new construction climbed +16.7% to an annualized rate of 635K, which is the highest level since last March. But I'm not sure if that's good or bad news. We already have too much inventory and we know spring time is a time when many home buyers look forward to putting their houses on the market. Foreclosures will be climbing and the result of all this will be a further depression in home prices, which have already experienced a worse drop than during the Great Depression. I don't see that improving in the coming year and in fact I think many analysts are pointing to another leg down in home prices. So is it good news that permits are up? And will the permits be converted to actual builds?

Home builder sentiment remains depressed and did not change in January from December's reading of 16. It has remained as low as it is since the expiration of the home-buyer credits. This index needs to get over 50 before we'll have more builders feeling positive than negative about the home building business, and it hasn't been above 50 since April 2006. That's what you call a depression. So that also has me wondering if they got building permits just in case but may not be sure they'll actually break ground. Or at least not without a signed purchase agreement with a healthy down payment. Spec building is probably not in the cards this year.

As for today's trading, the low volume number in the chart above looks to be wrong as the number in my charting program shows total volume just as heavy as yesterday's. Looking at SPY, the volume was heavier today than yesterday's, which had made a marginal new highyesterday. Higher sell volume than buy volume is of course bearish. As I'll review in the charts, the heavier selling volume adds to the evidence that we may have seen the top of the rally. We've still got to see some key levels to the downside break before the bears can claim any victory but today was clearly a notch on the bear's gun and not the bull's.

With the banks weak today, and surprising weakness in the SOX, small caps and even Transports, we're getting some sector signals that all may not be well with our rally so let's see what the charts are telling us after today's little selloff.

Last week I showed the SPX weekly chart and price pushing up towards price-level resistance at the August 2008 highs (1298-1300). The high so far, on Tuesday, is 1296.06. Price has stalled there and it's too early to tell if it will reverse back down from here but that's the setup following the 5-wave rally from July up to this line of resistance. As noted on the chart, it's possible the rally from July is completing an A-B-C bounce pattern off the March 2009 low, making it simply a correction to the bear market (cyclical bull within a secular bear market that has a few more years to run). But we'll have plenty of time to figure out the larger pattern. For now, with the expected completion of the 5-wave move up from July we're due at least a correction of that rally (some Fib retracement), possibly only back to the 200-week MA at 1183 or the November 29th low near 1173.

S&P 500, SPX, Weekly chart

The daily chart below shows the other price projection that I've been watching -- 1291.97, where the 5th wave of the rally from July equaled the 1st wave. So for this reason I've been watching the 1292-1300 area to complete the rally. As shown with the dashed line, there is the potential for a push up to the 1304 area where the top of its rising wedge pattern from August is located on Friday. That remains a possibility as long as SPX stays above 1261, a break of which would tell us the high is in place.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1292 to 1304
- bearish below 1261

SPX closed at the bottom of its parallel up-channel from December 8th and there remains the possibility for another rally leg to a final high around 1304. Based on the multiple sell signals I see in other indexes and sectors I do not believe we'll get a new high but until it breaks below the high on December 7th, near 1272, I can't rule a new high out yet. If we get a bounce and then a break of today's low near 1279 I think it would be strong evidence we've seen the high. In the meantime both sides should be looking for short-term trades until we get a clear signal that the rally has reversed. Trading the upside from here is very risky in my opinion.

S&P 500, SPX, 60-min chart

The DOW's August 2008 high was 11867 and the high so far this month was today's at 11861. If you'll remember, August 2008 was the last chance for bulls to get out of the way before the bottom fell out. It's not at all surprising those August highs are acting as resistance for the DOW and SPX. If the DOW can push a little higher from here I see next resistance near 11950, which is the top of a parallel up-channel for price action since the July low. Currently the DOW is pushing against a trend line along the highs since December 7th and it's showing a good wave count for the completion of a 5-wave move up from November 29th, which in turn completes a 5-wave move up from July. So the setup remains very good for a reversal soon, from either here or slightly higher (shy of 12K). A break below 11570, the January 10th low, is needed to confirm we've seen the high. Bulls can't be complacent here -- this is a very good setup for a reversal from right here, right now.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 11,750 to 11850-11950
- bearish below 11,570

NDX made it up to its 2330 target which is the Fib projection for wave C of a large A-B-C bounce off the March 2009 low where it's 62% of wave A (wave A being the March 2009-April 2010 rally and wave C being the rally from July, the same as shown on the SPX weekly chart above). At the same location it reached the top of a parallel up-channel for price action since November 16th. Yesterday is spiked down in the morning but found immediate support at its uptrend line from December 31st but today it broke that uptrend line (which fits as the bottom of a rising wedge from the end of December), bounced back up in the afternoon to test it and then got slapped back down (for a bearish kiss goodbye), breaking yesterday's low in the process. This has all the makings of an important reversal and further evidence of an important top would be a break back below the October 2007 high near 2239. Until that happens you can see that price remains in an up-channel from mid November.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2330
- bearish below 2239

Other than AAPL's blowout earnings last night, mitigated somewhat by the news about Steve Jobs' medical leave, IBM's earnings after yesterday's close also gave the futures a big boost last night and the stock held its gains after the open (unlike the indexes). The weekly chart for IBM is at a point where we should get either a bullish continuation signal or a bearish reversal signal.

Today's rally for IBM pushed price above the trend line along the highs from 2004 and 2008, which I have as the top of a large rising wedge pattern, the bottom of which is the uptrend line from November 2008. There is also a shorter-term rising wedge with its top as the trend line along the highs since January and November 2010. It's very common to get a throw-over above a rising wedge on a news-related event, such as earnings. If the throw-over doesn't hold then it becomes a reversal signal, which is this case would be a drop back below 150.

International Business Machines, IBM, Weekly chart

In the case of IBM the above setup could be a major reversal signal based on the EW count (completion of a 5-wave move up from November 2008 which in turn could be completing a large A-B-C rally off the October 2002 low. I also show the two Fib extensions (127% and 138%) off the 2008 decline -- these are the common reversal levels to keep an eye on. Price had stalled at the lower one (147.64) and is currently pushing marginally above the higher one (154.40). It's a good setup for a reversal but the bears will need to take advantage of it in the next several days. If the rally continues I would look for 160-163 which is the next Fib confluence zone, the upper level being the 127% extension of its 1999-2002 decline.

The RUT got hammered today, relative to the others. While the DOW was only down -0.1% the RUT was down -2.6%. The white candle on Friday followed by the hanging man doji on Tuesday and the big red candle today completes a 3-candlestick reversal pattern so the risk is now to the downside, especially if its uptrend line from August breaks, currently near 785. Confirmation of a high doesn't come until it breaks below its January 7th low near 777 and it remains possible we'll get another new high inside its rising wedge pattern, with a move up to about 820. If the rising wedge pattern is the correct interpretation it signifies a strong decline ahead, one that will retrace the rally from August quickly.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 810 to 820
- bearish below 777

We're still waiting for resolution on TNX, the 10-year Treasury yield. It has been consolidating since mid December and is forming a descending triangle, which is typically a bullish continuation pattern following the rally from October. The bullish wave count (green) calls for only a minor new high (3.64%) and then a correction of the rally from October so that scenario says we'll see rates stabilize for at least a couple of months. The bearish wave count says the triangle pattern is going to break down instead and a bullish pattern that fails tends to fail hard so a break below 3.25% could signify a strong bond market rally. This might happen if the stock market starts to break down and we see a flight to safety (it would probably be reflected in a dollar rally as well).

10-year Treasury Yield, TNX, Daily chart

The banking index, BIX, had such a pretty setup for a reversal two weeks ago when it tagged its price projection at 153.19, for two equal legs up in an A-B-C bounce off the August low, and the trend line across the highs from September (the top of a rising wedge). But if you're looking to play the short side on the banks it's looking like the 2nd mouse got the cheese after it made a marginal new high on Friday (again testing the top of its rising wedge) and has now confirmed the reversal with a drop below the bottom of the wedge, which is the uptrend line from November 29th. RSI shows a clear bearish divergence left behind at Friday's high. Dare I say stick a fork in this one? Better confirmation of a high in place would be a drop below the January 7th low, so below 146.

Banking index, BIX, Daily chart

The Trannies are also giving us a reversal signal by dropping down out of its rising wedge pattern today. The uptrend line from August is near 5200 and supported it yesterday. It remains possible we'll see a bounce back up for a retest of the line but at this point the break looks important. Confirmation of a top will be a break below 5100. As noted on the other wedges, it calls for a relatively quick retracement of it -- so back to the August low, near 4000, in a faster time than it took to build the wedge. I am of the firm opinion that it will be better to short rallies rather than buy dips once we get confirmation that tops are in place. Having said that, we will have plenty of opportunities to play multi-day bounces and we'll try to catch trades in both directions. It's just that I think once we have confirmed tops in place any long plays will be countertrend and therefore riskier.

Transportation Index, TRAN, Daily chart

The U.S. dollar has been surprisingly weak since the January 10th high. But so far the pattern since November 29th fits as an a-b-c correction to the November rally. Once the current decline finishes, and it might have finished today with the 50% retracement level holding, we should see a strong rally leg follow, one that will likely make it up to the $84 area before pulling back again. It takes a decline below 76.70 to seriously question the upside expectation.

U.S. Dollar contract, DX, Daily chart

Gold (and silver) have seen a little bounce in the past few days but considering the large drop in the dollar I think it's telling that the metals did not get a bigger bounce. I think it points to the bearish pressure that we'll see on the metals going forward, which is what the price pattern has been pointing to. I've drawn in a short-term downtrend line on the gold chart, which is currently just above today's high near 1379, as this should act as resistance if we've got more selling directly in front of us. The wave count is building towards a strong decline from here if it's unable to break the downtrend line. A break below 1352 should be followed by a steep decline, one that slices through support at its uptrend line from October 2008, near 1342, and the November 16th low at 1329. Its 200-dma at 1275 should provide a bounce.

Gold continuous contract, GC, Daily chart

If the stock market rolls over from here and the metals head lower we should expect the gold miners to head lower as well. They've been leading gold to the downside and you can see in the weekly chart below how price has broken its uptrend line from October 2009. The blue moving average is the 50-week at 52.45 and that should provide support for a bounce. The below chart is using the log price scale, which is a better one to use when viewing a large price change over a longer period that a weekly chart shows. Compare it to the next chart that follows.

Gold Miners, GDX, Weekly chart, log price scale

Using the arithmetic price scale instead of the log price scale you can see how price is finding support on the trend line. There are clearly traders who use this price scale and it's a good reminder to check both, especially when looking at weekly charts with trend lines. I think there's a good chance it will break from here so any move below Friday's low at 54.61 would be a sell signal. But continue to respect the upside in the meantime, even it will be just a test of the high.

Gold Miners, GDX, Weekly chart, arithmetic price scale

Oil's pattern remains stubborn and difficult to decipher at the moment. I can still make an argument for either a final move up to the $95 area before finishing its rally or a continuation lower from here. Until it's able to break the uptrend line from February 2009, near 87 and the January 7th low, there will remain the potential for another rally leg into February. So I don't see a good trading opportunity in oil yet.

Oil continuous contract, CL, Daily chart

Thursday's economic reports include the usual unemployment claims numbers, which nobody believes anyway. If the market reacts to the numbers it's only because it's feeling twitchy. The reports that come out at 10:00 AM could move the market though so be careful if you're in a trade at that time. The leading economic indicator (LEI) looks to be cooling off and any number even lower than the expected drop could roil the market (or vice versa).

Economic reports, summary and Key Trading Levels

Adding to the bearish picture from the price moves, we've got an additional sell signal from the VIX which had closed below its lower Bollinger Band last Friday and has since rallied back inside the band. This kind of move typically points to a rally in the VIX which of course means a decline in the stock market. This signal did not work in September and October but did occur just prior to the highs in January and April.

As I've mentioned often recently, bullish sentiment has gone through the roof and we've got higher bullish sentiment readings than in 2000 and 2007. TRIN readings are coming in the lowest they've been since just prior to the 1987 stock market crash. Call buying has far exceeded put buying, showing a strong case of complacency where traders do not feel the need for any kind of downside insurance. The following chart shows the 10-dma of the CBOE put/call ratio:

CBOE Total U.S. Equity and Index Put/Call Ratio, chart courtesy Elliot Wave International

You can see in the above chart how low the 10-dma of the put/call ratio is currently -- at the same level as the previous market highs in January and April. Bulls (including analysts) always get the most bullish at market tops and this one is no different. It doesn't mean we're forming a top here and now but when combined with the other signals I'm getting off the price charts I'm certainly very attentive here to the strong possibility.

So, summarizing all these charts, there's a good chance we've seen the market high but it's an early call. Some indexes have given us a clearer sell signal, especially those, like the TRAN, with breaks of their uptrend lines and a drop out of rising wedge patterns. But until we get some confirmation across indexes and breaks of lower key levels we need to continue to respect the upside. This market has had an uncanny ability to turn around sharp 1 or 2-day declines. Call it the Fed or call it Fed believers, it doesn't matter. It only matters that buyers have bravely bought the dips and I doubt they'll stop trying just because we had a 1-day selloff (and not even a selloff in the DOW).

The significance, as I see it, is that the top that we should be forming here or very near here, has the potential to be a very significant one. I know that I'm in the minority on this as most believe we are going to have a bullish year and therefore a good dip will set up a great buying opportunity. I'm from Missouri on this one (the show-me state). Based on the much larger price patterns since 2000 and 2007 I believe the 2009-2011 rally is a cyclical bull within a larger secular bear which should run into about 2016 (most secular cycles run about 16-18 years).

While I don't trade the fundamental picture I do keep track of fundamentals to see how they line up with the technical picture that I see. I think we've got much too large a credit bubble that has yet to be deflated. Housing has not finished correcting. Home foreclosures will increase through 2012 as mortgage resets spike higher this year. Unemployment will remain chronically high. These factors will continue to keep consumers depressed and angry and they simply do not support the notion that we'll have a continuation of the bull market, which should typically last no more than two years and that would have us finishing it in March. I say we're close enough based on the wave pattern.

So, it means when the price pattern turns short-term bearish, which I believe it's getting ready to do, it could be the start of a longer-term bearish move back down. How far down is anyone's guess and I've got a few different ideas about that -- running from a higher low than the March 2009 low to a lower low, depending on the longer-term price pattern that's going to make up this secular bear (such as a big sideways triangle vs. a larger A-B-C move down to a new low). I'm not worried in the least about that right now since the move down should help clarify the larger picture.

In the meantime I think we need to be prepared for the potential for a big move down. That means shorting the rallies will be trading with the trend and buying the dips will be counter-trend trades. There will be lots of money to be made in both directions, and I'll be working hard to set us up for both directions, but clearly in a bear market there's more money to be made in the down moves. So polish off your shorting skills (which may mean buying puts, selling call spreads, buying inverse ETFs or shorting the futures) since we'll be putting them to work "shortly".

Good luck as we finish up opex week (could be a bit of a snoozer the rest of the week) and I'll be back with you next Wednesday.

Key Levels for SPX:
- bullish above 1292 to 1304
- bearish below 1261

Key Levels for DOW:
- bullish above 11,750 to 11850-11950
- bearish below 11,570

Key Levels for NDX:
- bullish above 2330
- bearish below 2239

Key Levels for RUT:
- bullish above 810 to 820
- bearish below 777

Keene H. Little, CMT


New Option Plays

Tech Earnings and ETFs

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Google Inc. - GOOG - close: 631.75 change: -7.88

Stop Loss: n/a
Target(s): n/a
Current Option Gain/Loss: see below
Time Frame: 1 Day or 1 month
New Positions: Yes, see below

Company Description

Why We Like It:
Tonight I have a special one-day trade for you. I'm listing this in the PUTS section of the newsletter because we don't have a "Strangle" section and the other play tonight is a put.

GOOG is due to report earnings tomorrow night (Thurs, Jan. 20th) after the closing bell. Odds are really good that the stock will see a big move on Friday morning. January options expire after the close on Friday. This provides a unique event for us to play a big move in GOOG with very cheap options. Granted there is a high-risk of our options expiring worthless so consider this a very speculative play.

GOOG reports earnings after the closing bell tomorrow (Thursday). We want to open positions at the close on Thursday. Here's our challenge. We don't know where GOOG will close on Thursday. Given the sell-off afterhours tonight (Wednesday) in the tech sector GOOG could be a lot lower tomorrow. I am suggesting that wherever GOOG closes at on Thursday we want to buy our strangle position (long both a call and a put) at strikes $50 out of the money.

Here's an example. If GOOG closes at $630 tomorrow, then we want to buy the January $680 call and the January $580 put (at current values that's about $3.30). With only two days left before January options expire these options should be worth even less near Thursday's closing bell. If GOOG closes at $600 tomorrow then we want the January $650 call and the January $550 put. You can adjust these strikes based on how much you're willing to gamble (and this is a gamble). We're betting GOOG will see a big move on Friday morning.

EXIT PLAN: We want to exit on Friday morning at the open. I'm expecting GOOG to gap open one way or the other. Nimble traders can hang on and choose when to exit based on how GOOG is trading. If GOOG does NOT see a big enough gap on Friday morning our option values are going to vanish and we will probably see a 100% LOSS!

I am suggesting the SAME TRADE with February options for those not willing to place a one-day bet on GOOG's post-earnings move. Pick strikes that are $50 out of the money. See below:

Remember - open these at the close on Thursday. We'll update our entry prices tomorrow.

STRANGLE TRADE: Buy an out of the money CALL and PUT

STRANGLE #1 (January options) - Adjust these strikes so they are $50 OTM

Buy the 2011 January $680 call (GOOG1122A680) current ask $2.10

- AND -

Buy the 2011 January $580 put (GOOG1122M580) current ask $1.25


STRANGLE #2 (February options) - Adjust these strikes so they are $50 OTM

Buy the 2011 February $680 call (GOOG1119B680) current ask $7.00

- AND -

Buy the 2011 February $580 put (GOOG1122N580) current ask $5.90

Annotated Chart:

Entry on January 20th at $ xx.xx
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on January 19th, 2010


iShares Russell 2000 Index - IWM - close: 78.53 change: -2.07

Stop Loss: 80.80
Target(s): 75.00
Current Option Gain/Loss: + 0.0%
Time Frame: 1 to 2 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
We've been expecting a market top in January. Today's decline could be the beginning of the correction. Granted the trend is still up and the IWM has not yet broken its bullish trend of higher lows but that doesn't mean we can't initiate very small bullish positions now as a hedge against our bullish portfolio. I want to reiterate this is an aggressive entry point since the market's trend is still up!

I'm suggesting we buy puts on the IWM now with a stop loss above today's high. Our first target is $75.00.

Open Small Position Now - Suggested Positions -

Buy the 2011 February $77 puts (IWM1119N77) current ask $1.22

Annotated Chart:

Entry on January 20th at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 38 million
Listed on January 19th, 2010


In Play Updates and Reviews

IBM Hits Our Target

by James Brown

Click here to email James Brown

Editor's Note:

It was a rough day for stocks. IBM's strength buoyed the Dow Jones Industrials but overall profit taking was the order of the day. We saw IBM and SPW hit our bullish profit targets but the action in SPW looks bearish. IPI hit our trigger to buy calls. I'm suggesting an early exit in SWK. JNPR hit our stop loss. I have dropped QCOM as a candidate.

We have been expecting a market top. While one day's decline doesn't make a trend this could be the beginning of something bigger. Readers will want to strongly consider taking profits early, raising stop losses, and reducing exposure to bullish candidates.

-James

Current Portfolio:


CALL Play Updates

Amazon.com Inc. - AMZN - close: 186.87 change: -4.38

Stop Loss: 183.40
Target(s): 192.50, 199.75
Current Option Gain/Loss: -74.8%, and -22.0%
Time Frame: 4 to 6 weeks
New Positions: See below

Comments:
01/19 update: Widespread selling swept across the market and AMZN retreated from its highs over $190. Shares lost -2.2% on the session. More conservative traders might want to raise their stops again. The 20-dma has been recent support and it's near the $184.75 mark, you could place your stop near there. Currently the newsletter's stop loss is at $183.40. The bad news today is that AMZN's drop back under $190 could be a fatal blow for our January $190 calls. More conservative traders will want to seriously consider an early exit right here! No new positions at this time.

- Suggested (SMALL) positions -

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

- or -

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

01/18: New stop loss at $183.40
01/15: New stop loss @ 181.80, New targets 192.50, 199.75

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


Caterpillar - CAT - close: 95.54 change: -0.69

Stop Loss: 92.25
Target(s): 99.80
Current Option Gain/Loss: + 2.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/19 update: Shares of CAT held up reasonably well during the market's decline on Wednesday. Yesterday I suggested we look for a dip back toward $95 as a new entry point and we got that pull back today with CAT's low at $95.15. While I see this as a chance to buy calls on CAT I'm suggesting readers keep their positions small. Today's market drop could be the start of something bigger!

Our target to exit is $99.80. More aggressive traders could aim higher. Keep in mind that earnings are on the 27th of January and we don't want to hold over the event.

- Suggested Positions -

Long the 2011 February $100 calls (CAT1119B100) Entry @ $1.45

Entry on January 18th at $ 95.15
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume = 4.2 million
Listed on January 5th, 2010


Cummins Inc. - CMI - close: 111.43 change: -2.42

Stop Loss: 108.75
Target(s): 117.50
Current Option Gain/Loss: -95.5% and -15.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/19 update: With January options expiring at the end of this week, today's market decline and -2.1% drop in CMI is probably the end for our January $115 calls because they just evaporated to almost nothing. That's part of the risk of trading front month options during expiration week.

CMI should find some support in the $110-109 zone but I am not suggesting new bullish positions.

(small positions only to limit our risk)

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

- or -

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

01/04: 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


Cognizant Technology Solutions - CTSH - close: 74.55 change: -0.96

Stop Loss: 73.90
Target(s): 79.90, 83.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Comments:
01/19 update: The market's widespread decline pushed CTSH toward the bottom of its current trading range near $74 today. Shares were already rebounding higher into the closing bell. Aggressive traders could buy calls right here and just use a sop loss under the $73.50 mark (bottom of the range). I am suggesting we wait for a breakout with a trigger to buy calls at $76.65.

Don't forget that this is an aggressive play and likely to be a short-term trade that only last a few days. We do not want to hold over the early February earnings report. If triggered at $76.65 our first target are $79.90. Keep your position very small to limit your risk. The Point & Figure chart for CTSH is bullish with a $105 target.

- Suggested Positions (very small positions only!) -

Trigger to open positions @ 76.65

Buy the 2011 February $75.00 call (CTSH1119B75) current ask $3.00

- or -

Buy the 2011 February $80.00 call (CTSH1119B80) current ask $1.00

Entry on January xxth at $ xx.xx
Earnings Date 02/09/11 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on January 18th, 2010


FedEx Corp. - FDX - close: 94.34 change: -1.46

Stop Loss: 91.75
Target(s): 99.90, 104.75
Current Option Gain/Loss: -97.5% and -23.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/19 update: FDX pulled back toward the $93.50 area and its 30-dma before trying to bounce late this afternoon. I don't see any changes from my prior comments and we are not suggesting new bullish positions. We only have two days left before our January calls expire. I have been suggesting that we sell our January calls at 40 cents if we can.

- 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)

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


International Business Machines - IBM - close: 155.69 change: +5.04

Stop Loss: 147.85
Target(s): 154.50, 159.90
Current Option Gain/Loss: +46.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/19 update: Target achieved. Last night IBM delivered positive earnings news and the stock was trading higher after hours. We revised our exit targets so that our first target to take profits was at $154.50, which was hit this morning. Our April call was trading near $4.20 (+46.4%) at the time. The option hit $5.05 at its high.

IBM's +3.3% gain today helped buoy the Dow Jones Industrials and minimize losses for the index. IBM closed at new all-time highs and hit $156.13 intraday. We are raising our stop loss to $147.85. I am not suggesting new positions. Our final target is $159.90.

- Suggested Positions -

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

01/19: Target Hit @ 154.50. April call @ $4.20 (+46.4%)
01/18: New stop loss @ 146.40. New targets at $154.50 and $159.90
01/18: As planned, exit the January calls (+87.4%)
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: 35.55 change: -3.79

Stop Loss: 34.75
Target(s): 39.90, 42.00
Current Option Gain/Loss: -60.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/19 update: Shares of Mosaic (MOS) plunged more than -10% on news that Cargill would split off its stake in MOS. This huge decline in MOS, combined with the widespread market weakness, fueled big losses across the industry. Investors were in a sell first, ask questions later mood today. IPI, with its big short interest, plunged in step with MOS even though the news had no affect on IPI.

We had a trigger to buy calls on a dip at $37.25. That trigger was obviously hit today. The Feb. $40 call was trading at $1.00. Currently our stop loss is at $34.75. If IPI doesn't bounce tomorrow shares might hit our stop. I'd wait for a bounce before considering new bullish positions. Our first target is $39.90. Our second, more aggressive target is $42.00.

- Suggested Positions -

Long the 2011 February $40 calls (IPI1119B40) Entry @ $1.00

01/19: Play triggered at $37.25

Chart:

Entry on January 19th at $ 37.25
Earnings Date 03/01/11 (unconfirmed)
Average Daily Volume = 717 thousand
Listed on January 12th, 2010


Millicom Intl. Cellular - MICC - close: 95.00 change: -2.12

Stop Loss: 93.75
Target(s): 99.90
Current Option Gain/Loss: -69.5% and + 0.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/19 update: MICC succumbed to profit taking with a -2.1% decline. Shares settled at the $95 level and its 100-dma. Yesterday I had suggested we exit our January calls today at the close to minimize our losses. These calls settled with a bid at $0.70 (-69.5%). I am not suggesting new positions at this time. Our target for the April calls is $99.90.

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 -

2011 January 95.40 calls (MICC1122A95.4) Entry @ $2.30, Exit @ 0.70 (-69.5%)

- or -

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

01/19: As planned, exit the January calls. Exit @ 0.70 (-69%)
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

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: 57.63 change: -1.36

Stop Loss: 54.90
Target(s): 62.25, 64.50
Current Option Gain/Loss: -36.0%
Time Frame: 4 to 5 weeks
New Positions: Yes, see below

Comments:
01/19 update: Buckle your seatbelts! Tomorrow could be really ugly. Wednesday saw NTAP pull back toward the $57.00 level, which is what we were expecting. Unfortunately, investors were unhappy with FFIV's earnings report tonight. The company beat the street by 5 cents but revenues were a miss and FFIV's guidance was lackluster. This news was fueling steep selling across the tech sector. FFIV was down -$30 in afterhours trading near $107. NTAP was down afterhours in the $54.00 area. Currently we have a stop loss at $54.90 for NTAP and if this afterhours weakness shows up tomorrow morning our play could be over! I am not suggesting new positions in NTAP at this time.

- Suggested Positions (small positions only) -

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

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


Research In Motion - RIMM - close: 63.28 change: -1.94

Stop Loss: 59.90
Target(s): 64.75, 67.50
Current Option Gain/Loss: +12.1%, and +12.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/19 update: RIMM underperformed today. The NASDAQ lost -1.4% but RIMM gave up -2.9% with a drop toward its rising 10-dma. I've been warning readers to expect some profit taking. The question now is where will RIMM find support. I'm watching the $62.00 and $60.00 levels as potential support. 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

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: 75.13 change: -0.69

Stop Loss: 71.75
Target(s): 77.40, 79.90
Current Option Gain/Loss: +13.4%
Time Frame: 4 to 6 weeks
New Positions: See below

Comments:
01/19 update: Target achieved! SPW spiked to $77.62 intraday and our first target to take profits was hit at $77.40. The option was trading near $3.35 and hit an intraday high of $3.50.

Fueling this move was SPW's earnings guidance out this morning. SPW expects 2011 earnings slightly under consensus but revenues were expected to be healthy. Trading saw a big spike in volume and SPW gave back all of its gains. While our first target was hit the action today actually looks like a bearish failed rally pattern. More conservative traders may want to exit completely right here! I am not suggesting new bullish positions.

- Suggested Positions -

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

01/19: 1st Target Hit @ 77.40. Option @ $3.35 (+55%)
01/18: New stop loss @ 71.75

chart:

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


Wynn Resorts Ltd. - WYNN - close: 118.18 change: -0.68

Stop Loss: 116.95
Target(s): 124.75, 128.00
Current Option Gain/Loss: - 37.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/19 update: Casino stocks were showing some relative strength this morning but WYNN's rally ran out of steam before lunch time. That's two failed rallies in a row! More conservative traders will want to seriously consider an early exit right now. I am not suggesting new positions at this time.

Our plan was to keep our positions very small because this is an aggressive, higher-risk trade. Our first target is $124.75.

(Very Small Positions) - Suggested Positions -

Long the 2011 February $125.00 calls (WYNN1119B125) Entry @ $3.24

01/19: Cautious traders may want to exit early now.
01/18: Play triggered on gap open higher at $120.50

Entry on January 18th at $120.50
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume = 2.0 million
Listed on January 15th, 2010


CLOSED BULLISH PLAYS

Juniper Networks - JNPR - close: 36.90 change: -1.05

Stop Loss: 36.70
Target(s): 39.90, 41.75
Current Option Gain/Loss: -43.5% and + 4.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/19 update: The sell-off in the NASDAQ was too much for JNPR. Shares of this stock fell to new four-week lows under support near the $36.75 area. Our stop loss was hit at $36.70 today. Our plan was to use small positions to limit our risk.

- Suggested Positions (only small positions so far) -

2011 January $38.00 calls (JNPR1122A38) Entry @ $0.78, Exit @ 0.15 (-80.7%)

- or -

2011 April $40.00 calls (JNPR1116D40) Entry @ $1.50, Exit @ 1.20 (-20.0%)
01/19: Stopped out @ 36.70. Options exit at -80% and -20%
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


QUALCOMM Inc. - QCOM - close: 52.14 change: -0.89

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

Comments:
01/19 update: Given the sharp afterhours weakness in the technology sector tonight I am dropping QCOM as a bullish candidate with the play unopened. We can still keep it on our watch list and wait for a dip or bounce near what should be support near $50.00.

No Chart - Our play never opened.

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


Stanley Black & Decker, Inc. - SWK - close: 65.96 change: -2.14

Stop Loss: 64.75
Target(s): 69.90, 72.45
Current Option Gain/Loss: -100%, and -65.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/19 update: I'm suggesting an early exit from our SWK play. The stock had been stuck near the $68 level and shares really underperformed on Wednesday with a -3.1% decline. There is potential support near $65.00 but I don't want to bet on it. I'm suggesting we exit here. Our plan was to keep our position size small to limit risk.

- Suggested Positions -

2011 January $70 calls (SWK1122A70) Entry @ $0.70, exit 0.00 (-100%)

- or -


01/19: Exit Early.
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