Option Investor
Newsletter

Daily Newsletter, Thursday, 2/17/2011

Table of Contents

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

Market Wrap

Frustration Mounts for Bears

by Jim Brown

Click here to email Jim Brown
Every day that passes with the market at new highs the frustration for the bears continues to mount. Another dip was bought and another level of resistance slipped quietly behind us.

Market Statistics

You know there are a lot of bears thinking every day "why didn't I go long" at some point in this three-month rally. We have to be kind to them because their short covering is providing momentum for the current move. Let them know you feel their pain but enjoying every minute of it.

Obviously I am poking fun at those on stock TV who have been predicting a top in the market for months now. Eventually they will be right but right now the bad news bulls just keep devouring every bit of bad data and using it to build new steps over their wall of worry.

Lately the number of commentators has been weighted towards the bullish side with S&P 1550 as the most common target in 2011. However, the bears are starting to change their tune with comments like "I think we are going higher in the short term BUT it is only going to make the crash more severe." Once the majority of the bears turn bullish and decide to join the party it will be time to start worrying about market direction.

The rally today continued to lack conviction but traders still bought the dip after the weekly Jobless Claims spiked unexpectedly by +25,000. Claims rose to 410,000 from the revised level of 385,000 in the prior week. Analysts are now claiming the dip in the prior week was probably weather related. Layoffs in the private sector are continuing to slow but the government sector has slipped into reduction mode and that is supporting a steady stream of jobless claims.

Also causing some morning angst was the strong spike in the Consumer Price Index. The index rose +0.4% in January following a +0.5% spike in December. Core CPI rose +0.2% and the fastest rate since June. The core CPI had been stuck at 0% back in Sept/Oct and .1% in Nov/Dec. The rise in the core rate is the first sign for the Fed the inflation monster is awakening. We are still a long way from any meaningful inflation and still under 1% for the last year but you can bet the Fed is watching carefully. The energy component of the CPI rose by 2.1% in January and food +0.5%.

Consumer Price Index

The blowout report for the day was the Philly Fed Manufacturing Survey. The headline number for February surged to 35.9 from 19.2 in January. This was significantly higher than the 21.0 consensus estimate. That is the highest level since January 2004.

The internal components were also bullish and suggest we will continue to see an increase in business conditions. Backorders rose to 14.9 from 8.7 and the employment component rose to 23.7 from 17.6. The average workweek jumped to 12.8 from 10.6 meaning workers are getting more hours and companies will have to hire additional workers to increase production. Inventories fell to 2.1 from 6.8 and suggesting consumption is rising faster than products can be produced.

This was a VERY strong report but it does not mean the rest of the country suddenly spiked as well. If the national ISM shows this kind of gain in early March the Fed will be backing off the QE2 program before June.

Philly Fed Survey

The Mortgage Bankers Association (MBA) reported the overall mortgage delinquency rate fell to 8.22% in Q4 from 9.1% in Q3. This is a major decline although the rate is still high. The problem is the lingering foreclosure problem and higher credit standards that prevent them from selling their homes and the high unemployment that prevents them from making payments on time. It is encouraging the delinquency rates are declining so sharply. Once employment begins to rise the delinquencies should decline even further. Some of this decline is also related to the servicers working through their backlog of foreclosures.

Reports due out tomorrow are the Risk of Recession for January, ECRI Weekly Leading Index and the Household Credit Report. None are really watched by the street.

The Business Council released the results of a survey conducted along with the Confidence Board. More than 70.4% of 124 CEOs surveyed expect business conditions in their industry to rise over the next six months. That was a major change from the prior survey in October when that number was 34.2%. A total of 98% expressed some level of confidence that growth will continue throughout 2011. Responders believed sales, prices, profits and investment expectations would all improve. However, 35% expect prices to rise but they believe the better economy will support these price hikes. More than 40% also expected higher wages for workers. This entire report was very bullish and shows how much sentiment has improved in the last three months.

It was a pretty tame day in the equity markets with minimal stock news. Starbucks created a negative event for Green Mountain Coffee Roasters (GMCR) when Howard Schultz sent a memo to employees that suggested SBUX would NOT be partnering with GMCR in the single serve coffee sector. There had been rumors Starbucks would partner with GMCR and the stock of Green Mountain had been moving up over the last two weeks. In the memo today Schultz commented on GMCR's expiring patents in 18 months and that successful businesses build on the goodwill of their faithful customers. He then said Starbucks would move into the single serve market in a "sea-change of innovation." That sounds like they are going head to head with GMCR and produce their own single serve product to debut once the GMCR patent expires in 18 months. Shares of GMCR dropped sharply losing -8%.

GMCR Chart

Apple was in the news again after the National Enquirer posted a picture of a frail Steve Jobs heading into a cancer treatment center. This is the same center that treated Patrick Swayze before his death. Obviously the source of the article is highly questionable but the picture appeared to be accurate. However, the Enquirer went one step further and asked two doctors to make comments on the pictures. Based on their analysis the doctors said the loss of muscle mass and posture suggested the cancer had returned and he only had a few weeks to live. The Enquirer went too far (if that is possible for them) to post a diagnosis of death from doctors looking at a picture of a man they have never met. Apple shares declined $5 on the news.

Rebutting this story could be an appearance by Steve at a tech event with President Obama on Thursday night. He is expected to attend along with John Chambers, CEO of Cisco, Eric Schmidt CEO of Google, Larry Ellison or Oracle and Facebook founder Mark Zuckerberg. If Jobs shows up looking hearty and healthy all those rumors will be put to rest. After all if he had only weeks to live and in such poor health why would he show up in front of his peers and advertise that fact? It will be interesting to see if he makes an appearance.

Apple Chart

The big news weighing on the markets today was the rising tensions in the Middle East. Protests escalated in Libya and 16 demonstrators were killed by police attempting to breakup the protests. Yemen also saw and increased level of protests demanding the president step down now instead of 2013 when his term expires. There were also protests in Iran but details were sketchy because of a press blackout.

The biggest event geopolitically was in Bahrain where the military was called in to remove demonstrators. Six demonstrators died. Bahrain is a postage stamp sized country consisting of 33 islands. The entire country is less than four times the size of Washington DC and has a population of only 738,000. The fate of Bahrain is of extreme importance to the U.S. because this is the home of the U.S. Navy's Fifth Fleet. Protection of the Straits of Hormuz is somewhat dependent on that base staying open. Bahrain has a Sunni ruler and Sunnis represent 20% of the population. The rest of the population is Shiite. It is the Shiite population that it protesting and that is the key. Saudi Arabia has the same split in population and a successful revolution in Bahrain could translate into problems in Saudi Arabia.

The uncertainty in the Middle East is weighing on markets but keeping crude prices high. The actual countries affected, Egypt, Tunisia, Yemen and Bahrain have very little oil production compared to countries like Saudi, Kuwait, Iran and Iraq. Oil prices are higher because of worries that this contagion could spread to those countries and eventually impact oil supplies.

U.S. WTI crude prices rebounded +1.50 to $86.50 on the geopolitical problems. The Brent contract declined slightly to $102.58 from yesterday's pause over $104. Next time you pull up to the gas pump be sure to thank the Middle East for your $3.15 gasoline.

U.S. WTI Crude Chart

Brent Crude Chart

The early morning economics and the news from overseas prompted another opening drop but the trend remains in place and investors bought the dip. It was the same story we have seen for weeks where bad news is ignored and the indexes push higher by days end.

The S&P closed at 1340 and well over the 100% rebound point from the March 2009 lows at 1333.59. That was supposed to be serious resistance but it came and went with little fanfare. The S&P has broken out to another new high and over long-term resistance. There is no magic pivot point for quite a ways until we reach 1375. Support is now that 100% rebound point at 1333. Amazing how these numbers are critical one day and insignificant a few hours later. That is the power of a bull market.

However, the gains still lack conviction. Volume was only 6.7 billion shares and every new high seems to be made on even lower volume. Declining volume was only 2.2 billion shares. Despite that low volume the number of new 52-week highs in equities continues to grow and came in at 864 today. The bullish sentiment may be getting stronger but the conviction by traders is still weak. This reluctant meltup is teasing the bears on a daily basis and teasing the bulls as well. The bears hope that every dip is the start of a big decline. Ironically the bulls are wishing the same thing but only so they can get a better entry point for longs. Both are being frustrated as each minor intraday dip is bought and neither can do anything about it but chase prices higher.

S&P Chart

The Dow easily moves over 12300 and broke out to another new high. There appears to be nothing to stop the big caps from continuing to forge new highs as long as there are no sudden news events that change the economic or geopolitical outlook.

Dow Chart

The Nasdaq is only 27 points away from closing at a ten year high. The next higher close was Jan 24th 2001 at 2859. This is a major accomplishment for the Nasdaq and also decent resistance. It is not that there is a significant technical challenge to 2859 but there a psychological one with that "ten year" label.

Current support is 2815 and I think back to last week when we could not bust through 2800. This is not the beginning of a bear market. If Apple had not been down $5 today the damage to the upside would have been stronger.

Nasdaq Chart

The Russell 2000 is only 21 points away from a new HISTORIC high. Not a two-year or a ten-year but a new historic high with a close over 855. If you need any confirmation we are in a bull market you need to look no further than the Russell.

However, that 855 level should be decent resistance. A break over that level could start a mad dash as reluctant bulls and bears throw caution to the wind and throw money at stocks.

Russell Chart - Monthly (825 close shown is monthly)

In summary the game plan should remain the same. Continue to buy the dips until something changes. Economics are starting to accelerate and with the crackdown on demonstrations in the Middle East there is not likely to be any additional regime changes.

Don't fight the Fed; buy the dips instead for a few more weeks. Once the market begins to worry about the disappearance of QE2 we will be selling the spikes but until then don't miss out on the party.

Jim Brown

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New Option Plays

Basic Materials

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Schnitzer Steel Industries - SCHN - close: 64.88 change: +1.85

Stop Loss: 61.45
Target(s): 68.75
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see Trigger

Company Description

Why We Like It:
Basic material stocks continue to show relative strength. Shares of SCHN were performing very well on Thursday with a breakout past technical resistance at its 50-dma. Two weeks ago the stock was testing and holding near support at the $60 level. I don't want to chase today's big gain but we can be ready to buy a dip since the $65-66 level might offer some short-term resistance.

I am suggesting we buy calls on a dip at $63.75. We'll start with a stop at $61.45. Our first target is $68.75, just under the January highs. We will consider adding a secondary target down the road.

FYI: Readers will be interested to note that SCHN most recent data listed short interest at 5% of the very small 18.3 million-share float. Now I don't think this data is up to date but the stock's very small float might contribute to any potential short squeeze.

Trigger @ 63.75

- Suggested Positions -

Buy the March $65 calls (SCHN1119C65) current ask $2.25

- or -

Buy the May $65 calls (SCHN1121E65) current ask $4.50

Daily Chart:

Weekly Chart:

Entry on February xxth at $ xx.xx
Earnings Date 04/07/11 (unconfirmed)
Average Daily Volume = 250 thousand
Listed on February 17th, 2010


In Play Updates and Reviews

Added to the S&P 500

by James Brown

Click here to email James Brown

Editor's Note:

It's usually bullish news when a stock is added to the S&P 500 index. Last night Standard & Poor's announced that JOYG would be added to the index but no date was set. The news pushed JOYG to gap open higher above our first profit target. I am removing FLR from the newsletter. Our trade on FLR never opened and we're running out of time. Meanwhile our EMN call play has been triggered. CLH has a new stop loss.

-James

Current Portfolio:


CALL Play Updates

Ashland Inc. - ASH - close: 61.08 change: +0.45

Stop Loss: 56.75
Target(s): 63.00, 67.00
Current Option Gain/Loss: +85.7%, and +37.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/17 update: The rally in ASH continues following yesterday's bullish breakout above the $60.00 level. I would look for dips near the rising 10-dma or a dip near $60.00-59.00 as our next entry point. Our first profit target is $63.00. Our final exit target is $67.00.

The Point & Figure chart for ASH is bullish with a $83 target.

- Suggested Positions -

Long the March $60 calls (ASH1119C60) Entry @ $1.40

- or -

Long the April $60 calls (ASH1116D60) Entry @ $2.55

02/16 New stop loss @ 56.75, New 2nd target at $67.00

Entry on February 14th at $58.30
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on February 12th, 2010


Peabody Energy Corp. - BTU - close: 66.04 change: -0.19

Stop Loss: 61.75
Target(s): 69.75, 74.00
Current Option Gain/Loss: - 9.3%, and - 5.5%
Time Frame: 6 to 8 weeks
New Positions: Yes

Comments:
02/17 update: BTU opened higher at $66.30 but then promptly plunged toward $64.00 before 10:00 a.m. Traders bought the dip at BTU's rising 10-dma and shares pared their losses by the close. I don't see any specific news to account for the sudden weakness. I would still consider new positions here at current levels. Our first exit target is $69.75.

The Point & Figure chart for BTU is bullish with an $80 target.

- Suggested Positions -

Long the March $70 calls (BTU1119C70) Entry @ $1.07

- or -

Long the June $70 calls (BTU1118F70) Entry @ $3.60

Entry on February 17th at $66.30
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 4.6 million
Listed on February 16th, 2010


Caterpillar Inc. - CAT - close: 103.36 change: -0.19

Stop Loss: 97.90
Target(s): 104.75, 107.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see trigger

Comments:
02/17 update: CAT continues to consolidate sideways. There is no change from my prior comments. I am suggesting we buy calls at $101.00. Nimble or more cautious traders could wait for a dip closer to the $100.00 mark.

Trigger @ 101.00

- Suggested Positions -

Buy the March $105 calls (CAT1119C105) current ask $2.92

02/12 Adjusted our trigger, targets, stop loss and strike price.

Entry on February xxth at $ xx.xx
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 6.2 million
Listed on February 5th, 2010


Clean Harbors, Inc. - CLH - close: 93.40 change: -0.03

Stop Loss: 91.45
Target(s): 94.95, 99.00
Current Option Gain/Loss: +19.4%
Time Frame: 12 days
New Positions: see below

Comments:
02/17 update: CLH is also seeing a sideways consolidation with the stock churning in a narrow range this week. We only have two days left. The newsletter will plan to exit this position on next Tuesday at the closing bell to avoid holding over earnings on Wednesday morning. The stock market is closed on Monday. More conservative traders may want to exit early tomorrow (Friday) at the closing bell. Given our time frame I am raising our stop loss to $91.45.

Investors should note that the most recent data lists short interest at 11.3% of the very small 23.1 million-share float. That is a good recipe for a short squeeze higher. Please note that we'll plan on exiting ahead of the earnings on Feb. 23rd (still an unconfirmed date).

- Suggested Positions -

Long the March $95.00 call (CLH1119C95) Entry @ $1.80

02/17 New stop loss @ 91.45
02/16 New stop loss @ 88.45

Entry on February 11th at $92.25
Earnings Date 02/23/11 (unconfirmed)
Average Daily Volume = 181 thousand
Listed on February 10th, 2010


Coach Inc. - COH - close: 56.65 change: -0.68

Stop Loss: 54.40
Target(s): 58.25, 62.00
Current Option Gain/Loss: +16.6%, and + 35.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/17 update: Readers should not be surprised here. COH has been struggling with resistance near $58.00 and I have been warning that the stock looked ready for a pull back. COH should find some support in the $56-55 zone. Readers can wait for a dip or a bounce in this area as a new entry point to launch bullish positions.

- Suggested Positions -

Long the 2011 March $55.00 calls (COH1119C55) Entry @ $2.10

- or -

Long the 2011 March $57.50 calls (COH1119C57.5) Entry @ $0.85

02/12: Adjusted 1st target to $58.25
02/12: New stop loss @ 54.40
02/08: New stop loss @ 53.49

Entry on February 7th at $55.35
Earnings Date 04/20/11 (unconfirmed)
Average Daily Volume = 4.1 million
Listed on January 31st, 2011


Costco Wholesale Corp. - COST - close: 74.84 change: -0.12

Stop Loss: 72.95
Target(s): 79.75
Current Option Gain/Loss: Unopened
Time Frame: 3+ weeks
New Positions: Yes, see Trigger

Comments:
02/17 update: Investors continue to buy the dips in COST near the $74.00 level. It happened again this morning. Shares quickly bounced back toward resistance near $75.00. Our official trigger to launch positions remains at $75.50. If triggered our target is $79.75. We will plan to exit ahead of COST's early March earnings report. That gives us three or four weeks.

The Point & Figure chart for COST is bullish with an $88 target.

Trigger @ 75.50

- Suggested Positions -

Buy the March $75 calls (COST1119C75) current ask $1.71

Entry on February xxth at $ xx.xx
Earnings Date 03/02/11 (confirmed)
Average Daily Volume = 5.8 million
Listed on February 7th, 2010


Cognizant Technology - CTSH - close: 76.88 change: +0.24

Stop Loss: 74.45
Target(s): 84.50, 89.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see Trigger

Comments:
02/17 update: CTSH gapped open lower but traders bought the dip at $76.00. The intraday rebound lifted CTSH to $77.26. I don't see any changes from my prior comments. We want to buy calls at $77.55. If triggered our targets are $84.50 and $89.00. The Point & Figure chart for CTSH is bullish with a $105 target.

Trigger to buy calls @ 77.55

- Suggested Positions -

Buy the March $80 call (CTSH1119C80) current ask $0.85

- or -

Buy the April $80 call (CTSH1116D80) current ask $1.60

Entry on February xxth at $ xx.xx
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume = 2.4 million
Listed on February 15th, 2010


Eastman Chemical Co. - EMN - close: 96.27 change: +2.46

Stop Loss: 90.75
Target(s): 99.75, 104.00
Current Option Gain/Loss: +20.7%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/17 update: Good news! EMN has finally broken out from its trading range. This morning some positive analyst comments from Morgan Stanley helped fuel the move higher. Then late this afternoon EMN announced that its Board of Directors had approved the next quarterly cash dividend ($0.47) and a $300 million stock buyback program.

Shares of EMN outperformed the market with a +2.6% gain and a new all-time high. Our trigger to buy calls was hit at $94.60. If you missed the entry point I would consider new positions on a dip near the $95 area. Our targets are $99.75 and $104.00. Expect the $100.00 level to initially act as overhead resistance. The Point & Figure chart for EMN is bullish with a $133 target.

- Suggested Positions -

Long the March $95 calls (EMN1119C95) Entry @ $2.65

02/17 EMN breaks out. Hits trigger to buy calls @ 94.60

chart:

Entry on February 17th at $94.60
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 946 thousand
Listed on February 14th, 2010


Fastenal Co. - FAST - close: 63.09 change: -0.07

Stop Loss: 59.40
Target(s): 64.75, 67.25
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see Trigger

Comments:
02/17 update: FAST is going nowhere. I don't expect shares to see much movement tomorrow (option expiration Friday) either. We are waiting for a dip. We have a trigger to buy calls on the dip at $61.65, with a stop loss at $59.40. Our targets are $64.75 and $67.25. FYI: The Point & Figure chart for FAST is bullish with a $73 target. Readers may want to keep in mind that the most recent data listed short interest at 11.4% of the 132 million-share float.

Trigger @ 61.55

- Suggested Positions -

Buy the March $60 calls (FAST1119C60) current ask $3.30

- or -

Buy the March $65 calls (FAST1119C65) current ask $0.75

02/12 New trigger @ 61.55, new stop loss @ 59.40

Entry on February xxth at $ xx.xx
Earnings Date 04/12/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on February 8th, 2010


Joy Global Inc. - JOYG - close: 98.07 change: +1.19

Stop Loss: 91.75
Target(s): 97.25, 104.50
Current Option Gain/Loss: +50.6%, and +32.9%
Time Frame: 3 weeks
New Positions: see below

Comments:
02/17 update: Target exceeded! Good news, last night Standard & Poor's announced they would replace Allegheny Energy in the S&P 500 with JOYG. You know what that means. All of the funds that try and mimic the iconic index will have to buy shares of JOYG. Now that buying doesn't have to happen immediately but it's a bullish development. No date yet for the changeover has been announced.

Shares of JOYG gapped open higher at $98.65 this morning. That was above our first exit target at $97.25. The options opened at $5.80 (+50.6%) and $4.90 (+41.6%). JOYG does look a little bit overbought here so I wouldn't be surprised to see a dip.

Normally, I would expect the $100.00 mark to act as round-number, psychological resistance on the way up. Given last night's news I wonder if $100 will still slow down the rally in JOYG. I am going to adjust our final exit target from $99.85 to $104.50. Hopefully this decision doesn't backfire. We will raise the stop loss on JOYG to $91.75.

- Suggested Positions -

Long the March $95 calls (JOYG1119C95) Entry @ $3.85

- or -

Long the April $100 calls (JOYG1116D100) Entry @ $3.46

02/17 New stop loss @ 91.75
02/17 1st Target Exceeded on Gap Higher. Options @ +50.6% and +41.6%
02/16 New stop loss @ 89.45

chart:

Entry on February 14th at $94.44
Earnings Date 03/02/11 (unconfirmed)
Average Daily Volume = 1.4 million
Listed on February 12th, 2010


Nike Inc. - NKE - close: 86.04 change: +0.29

Stop Loss: 83.85
Target(s): 88.00, 89.90
Current Option Gain/Loss: +24.4%, and +24.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/17 update: The market's early morning weakness was strong enough to push NKE to a new low for the week but shares rally off its 30 and 100-dma. The big bounce has created a bullish engulfing candlestick pattern (bullish reversal). I would use this move as a new bullish entry point to buy calls on NKE. Our targets are $88.00 and $89.90. More aggressive traders may want to aim for the highs near $92.00 instead.

- Suggested Positions - (Small Positions Only!)

Long the March $85 calls (NKE1119C85) Entry @ $2.09

- or -

Long the April $90 calls (NKE1116D90) Entry @ $0.94

Entry on February 15th at $85.25
Earnings Date 03/17/11 (unconfirmed)
Average Daily Volume = 2.2 million
Listed on February 9th, 2010


PACCAR Inc. - PCAR - close: 52.41 change: -0.57

Stop Loss: 49.95
Target(s): 53.45
Current Option Gain/Loss: + 73.3%, and +28.5%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
02/17 update: Our rebound play in PCAR seems to be suffering a setback. Shares are failing near their 20-dma. More conservative traders might want to take profits early given today's relative weakness. I am not suggesting new bullish positions at this time. Currently our final exit target is $53.45 but more aggressive traders could aim higher.

UPDATE: Yesterday I suggested that we exit our February options on Thursday at the close.

Prior Comments:
This should be a short-term trade. Aggressive traders could use February calls. I'm listing both February and March. Just remember that Februarys expire soon. Note: A lot of the option strikes are odd. PCAR must have had some sort of dividend.

Open Small Positions Now

February $49.70 call (PCAR1119B49.7) Entry @ $1.50, Exit @ $2.60 (+73.3%)

- or -

Long the March $55 call (PCAR 1119C55) Entry @ $0.35

02/17 Planned Exit for February calls @ close: $2.60 (+73.3%)
02/16 New stop loss @ 49.95
02/12 Adjusted our final exit target to $53.45

Entry on February 7th at $50.60
Earnings Date 04/20/11 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on February 5th, 2010


Quality Systems Inc. - QSII - close: 79.21 change: -0.29

Stop Loss: 77.95
Target(s): 84.90, 89.00
Current Option Gain/Loss: -58.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/17 update: QSII is still showing some relative weakness, which is sending off warning signals for me. I will repeat my prior comments that more conservative traders will want to consider an early exit. Yet in spite of the decline QSII has not yet broken the bottom of its three-week trading range with support near the $78.50-78.00 zone. We have a stop loss at $77.95. I'd like to hold this stock a couple of more days assuming we don't get stopped out and see what happens on Monday after option expiration. I am not suggesting new bullish positions at this time.

The Point & Figure chart for QSII is bullish with a $119 target.

- Suggested Positions -

Long the March $85 calls (QSII1119C85) Entry @ $0.85

Entry on February 14th at $80.75
Earnings Date 05/31/11 (unconfirmed)
Average Daily Volume = 202 thousand
Listed on February 12th, 2010


The Toronoto-Dominion Bank - TD - close: 81.92 change: +0.22

Stop Loss: 76.90
Target(s): 84.00, 89.00
Current Option Gain/Loss: +107.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/17 update: TD managed to just barely tag another new high (82.54 today) before paring its gains. There is no change from my prior comments. Shares look short-term overbought and due for a little profit taking. No new positions at this time. Our targets are $84 and $89. We will plan to exit ahead of the early March earnings report (unconfirmed date).

FYI: The Point & Figure chart for TD is bullish with a $98 target.

- Suggested Positions -

Long the March $80.00 call (TD1119C80) Entry @ $1.35

02/16 New stop loss @ 76.90

Entry on February 11th at $78.89
Earnings Date 03/03/11 (unconfirmed)
Average Daily Volume = 583 thousand
Listed on February 10th, 2010


Proshares Ultra(long) Russell 2000 - UWM - close: 48.22 change: +0.70

Stop Loss: 42.99
Target(s): 49.75, 54.00
Current Option Gain/Loss: + 1.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Small Positions - UWM Position -

Long the April $48 calls (UWM1116D48) Entry @ $2.75

02/14 UWM opened at $46.90. Option opened @ $2.75

iShares Russell 2000 - IWM - close: 83.26 change: +0.58

Stop Loss: 78.65
Target(s): 84.95, 87.25
Current Option Gain/Loss: +14.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/17 update: The rally continues in the small caps with another two-year high today. The Russell 2000 index is looking a little bit short-term overbought so I would not be surprised to see a dip in the next few days. We can take advantage of that dip and use it to buy calls.

Small Positions - IWM Position -

Long the April $84 calls (IWM1116D84) Entry @ $1.92

02/14 IWM opened @ 82.11. Option opened @ 1.92

UWM Entry on February 14th at $46.90
IWM Entry on February 14th at $82.11
Listed on February 12th, 2010


CBOE Market Volatility Index - VIX - close: 16.59 change: +0.02

Stop Loss: N/A
Target(s): 24.00, 28.00
Current Option Gain/Loss: -53.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/17 update: The VIX is still hovering near its multi-year lows. However, on a very short-term basis we're starting to see a nascent trend of higher highs and higher lows but it's so small I would probably consider it just noise. I don't see any changes from my prior comments.

Last weekend I suggested (again) that more conservative traders consider an early exit. Or you could keep this trade as some sort of hedge against a sudden market decline but bear in mind that this option expires on March 16th. I am not suggesting new positions at this time.

Earlier Comments:
Just because the VIX bounced near the 15.00-15.50 level in the past doesn't mean it can go crashing through it but this would be a good area to speculate on a rebound. I will point out that between 2005 and 2006 the VIX was pretty much dead, limping along the 10.00 area for two years.

- Suggested Positions -

Long the 2011 March $22.50 calls (VIX1116C22.5) Entry @ $1.60

Entry on January 26th at $17.00
Earnings Date --/--/--
Average Daily Volume =
Listed on January 25th, 2010


CLOSED BULLISH PLAYS

Fluor Corp. - FLR - close: 75.63 change: +0.56

Stop Loss: 69.25
Target(s): 77.25, 79.75
Current Option Gain/Loss: Unopened
Time Frame: 7 trading days
New Positions: Yes, see trigger

Comments:
02/17 update: I believe we have missed the entry point on FLR. The stock never provided a big enough dip to buy. The trend is still bullish but we're out of time. FLR is due to report earnings on Feb. 23rd next week. I would put this stock back on your radar screen to see what happens after the post-earnings dust settles. Maybe FLR will see some profit taking and we can re-evaluate buying calls on a dip.

Our trade never opened! (no chart today)

Entry on February xxth at $ xx.xx
Earnings Date 02/23/11 (unconfirmed)
Average Daily Volume = 2.0 million
Listed on February 12th, 2010