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Daily Newsletter, Saturday, 2/26/2011

Table of Contents

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

Market Wrap

Bulls Breathing Easier

by Jim Brown

Click here to email Jim Brown
The Friday rebound was uplifting for the bulls but volume was light and there was no conviction. This was expected for a Friday with weekend geopolitical events a worry for buyers.

Market Statistics

Actually, Friday's rebound was better than I expected. I thought buyers would hold off until Monday because of geopolitical concerns in Libya, Algeria and Bahrain. Holding longs over the weekend would have seemed risky. However, the bears were probably thinking the same thing. Holding shorts over the weekend could have ended painfully if Gaddafi suddenly stepped down or was eliminated. I expected the markets to close relatively flat on Friday and probably rally on Monday if there was any good news.

Helping to entice buyers back into the market was a spike in the final Consumer sentiment reading for February to 77.5. That is the highest reading since January 2008. This survey was completed before the market drop and the spike in gasoline prices. This is the first time the index has risen in February since 1999. The current conditions component rose +5.1 points to 86.9. One analyst said sentiment late in the month took a sharp spike higher with the equivalent headline number for the last two weeks in the range of 81.1. With the market breaking out to new highs and winter blizzards fading I can see why. Unfortunately the next reading for March is likely to take a serious hit from the market drop, Middle East problems and the rising gasoline prices.

Consumer Sentiment Chart

The Q4 GDP was revised lower to +2.8% growth from +3.2%. Unfortunately most analysts expected it to rise slightly. The drop was caused by an upward revision to imports and a drop in government spending. However, sales of domestic products were very strong at +6.7%. That is the strongest increase since 1998. The weakness will probably be one more point to keep the Fed in play. Had it been an upward revision to 3.5% the Fed may have been more worried the recovery was accelerating too fast. The PCE price index showed inflation still tame at 0.5%.

The rapid increase in spending is depleting inventories and that suggests the manufacturing cycle will gain speed in the months ahead. The decline in inventory levels took 3.7% off the GDP number in this revision.

The economic calendar for next week is packed full of critical reports. There are three ISM reports with the national ISM on Tuesday. The ADP Employment on Wednesday will be a preview of what to expect in the Non-Farm Payrolls on Friday. Also on Wednesday is the Fed Beige Book. This is the Fed's guidance on the economic activity in each of the Fed regions. It is expected to show accelerating growth.

The ISM Services is Thursday followed by the Non-Farm Payrolls on Friday. The payroll report is expected to show a gain of +250,000 jobs compared to only 36,000 in January. Analysts expect a snap back of +125,000 jobs that were pushed into February by the blizzards and then another 125,000 new jobs created in February.

A CEO for a company that does background checks for corporate hiring was interviewed on Friday and he said the volume of checks had increased over 20% in February. Obviously that suggests hiring has accelerated. Nearly all of the regional manufacturing surveys have shown a strong bounce in the employment components and hours worked. Apparently the extension of the tax cuts and the incentives for investing and hiring are working.

Economic Calendar

In stock news Intel rallied nearly +3% after Apple said it will use Intel technology in the MacBook Pro. Intel also rallied on a report from Citigroup saying PC sales would rise in March and April. AMD rallied more than 6% because Apple will use AMD graphics in that same MacBook. AMD is trying to improve its image and capitalize on the recent error by Intel in shipping chips with a flaw. Neither company has a chart I would buy.

Wells Fargo (WFC) caught an upgrade by Goldman Sachs on Friday to buy from neutral and a price target of $38. The stock rallied +3% on the news. However, late in the afternoon WFC filed a new 10-K and warned the SEC and other agencies could be preparing charges and penalties related to its mortgage business. Wells does not disclose litigation reserves but a worst-case scenario here would be in the range of $1.2 billion. The Wells CFO resigned unexpectedly on Feb-8th and there were worries at the time there could be some accounting problems. The new CFO signed off on the new 10-K and indicated the problem was not related to disagreements over accounting matters. The 10-K announcement was released at 3:PM so there was little time for investors to learn about the event and then understand the impact. Basically $1.2 billion is painful but not a killer for a bank the size of Wells Fargo. Later on Friday Bank of America and Citigroup also filed 10Ks with the same notification of pending SEC problems over foreclosures.

Wells Fargo Chart

I am sure everyone heard about the big Boeing win of the $30 billion Air Force tanker contract. Boeing has spiked for the last two days although they won't make a lot of money on the initial contract. The real money comes on future orders from the U.S. and other countries as well as the maintenance and support contracts for decades into the future. If you are a long-term investor you might want to look at the suppliers to Boeing because they will have a faster ramp and higher profit potentials.

United Technologies (UTX) will produce the engines for the first 179 planes with four engines per plane plus spares. RTI International Metals (RTI) will produce various metal and titanium parts for the planes and that is a guaranteed profit stream for years to come. Spirit Aerosystems (SPR) will manufacture the forward fuselage. Rockwell Automation (ROK) and Honeywell (HON) will also benefit strongly from the deal. Boeing estimates the contract will create 50,000 U.S. jobs at more than 800 suppliers. An added benefit for Boeing will be new life for the 767 production line. Since the tanker uses a 767 frame this will allow Boeing to keep the line open and continue selling regular 767s for buyers who don't want the 787. Outstanding 767 backorders have declined to around 50 but some 787 buyers are considering switching back to the 767 because of the 787 delays.

Remember, this is a long-term contract for about 14 planes a year so don't expect an immediate jump in those stocks. You also need to factor in Boeing's terrible record for producing planes on time. The 787 is three years behind. The 747-8 passenger plane is already a year late and the freighter version is two years late. The new tankers will replace the KC-135 tankers that entered service in the 1950s. The U.S. definitely got its money's worth on the KC-135 purchases.

Holding the market back was the continued crisis in Libya and a return to demonstrations in Tunisia. In that country, the first one to force a government turnover, more than 100,000 demonstrators gathered to protest the new government. Their complaint was the lack of progress in scheduling elections and making government reforms. You have to admit a new government seeing 100,000 angry demonstrators only a month after a change should build a fire under those responsible for getting those changes accomplished. What it also shows is a movement towards mob rule in the Middle East.

Reportedly the entire Egyptian revolution that finally forced Mubarak out of office was started by 10 people living in a small apartment and spending 24-hour days on social networks trying to build up support for change. They formulated an idea on how to make it happen and then devoted 100% of their energy and the idea turned into a movement and then a revolution.

Gaddafi (There are 112 different spellings of the English translation of his name) is clinging to power but real estate under his control is still shrinking. The US, UN and the EU countries are all enacting sanctions against Libya over the next several days. Reports are coming out of Libya claiming thousands have been killed but they are unsubstantiated. There have been cell phone pictures of military trucks picking up truckloads of bodies and taking them to undisclosed locations. We may never know how many were actually killed. Regardless the developed nations are taking steps to make it more painful for the Libyan government to continue. Rebels are closing in on Tripoli where Gaddafi is hiding and the outcome is pretty certain.

He tried to move $4.6 billion into a personal wealth management account in London last week through an intermediary. When the brokerage found out the ultimate identity of the money's owner they cancelled the account. Now Britain is only one of a dozen countries trying to seize his assets and the assets of 28 other relatives and regime officials.

In the days to come that crisis will be resolved and then move into a new phase of rebuilding. Without Gaddafi in power the world will be much more agreeable about supplying aid and helping to get medical aid flowing and oil production restarted. The markets understand this and when the transition comes the market reaction should be quick.

The impact of the Libyan problem is of course the halt in oil production. There are differing estimates from 400K to 1.2 million barrels per day offline. Some say Libya's total production of 1.6 mbpd is offline. Nobody really knows but perception is reality. If the market thinks production has halted then prices will react to that idea.

We saw Brent crude rally to $119 on Thursday because most Libyan production goes to European refineries. Saudi Arabia stepped in and said they would produce any quality and quantity of oil that Europe needed to replace Libyan supply. Unfortunately that was another skillfully crafted lie because Saudi has no light sweet crude in the same quality that Libya produces. I wrote a complete article on this in the OilSlick newsletter on Thursday night. You can read it here: Quality or Quantity?

Regardless of when the Libyan problem is resolved we should get used to paying higher prices for gasoline for the foreseeable future. Unfortunately higher oil prices help put the "stag" in stagflation. A spike in oil prices has preceded every recession since World War II. Expensive energy will be a drag on the recovering economy. Economists claim every $10 rise in oil prices subtracts -1% from U.S. GDP. The rise from $85 to $95 will subtract 1% from Q2 GDP. Every $1 rise in crude prices costs the U.S. consumer $7.665 billion per year in added fuel expenses. That $10 rise to $95 will subtract $76.65 billion from consumer wallets and produce some serious drag on the economy.

Despite that drag economists still believe the recovery is strong enough to continue and that will offset that energy drain. However, another $10 rise to $105 will cost another $76.65 billion. A billion here, billion there and pretty soon we are back into recession again. This is not rocket science. There is not enough light sweet crude to cover the shortfall from Libya and cover increased demand from the recovery.

I am not claiming the economy is about to fall off a cliff but the seeds of destruction are being sown. How long it will take for those seeds to germinate and grow to maturity is unknown but probably before the end of 2012. Economists claim for every 25-cent increase in gasoline prices over $3 it will cost 600,000 jobs over the next two years.

The impact of the recent price hikes is easily seen in the airline sector. Jet fuel prices have risen +20% so far in 2011. They rose +11% just since Feb 15th. Jet fuel is the number one expense for airlines and it just rose 20% and that is not even factoring in the oil prices from last week. Airlines just announced the fifth fare increase for 2011. On January 1st analysts expected profits from U.S. carriers to reach $6.5 billion in 2011. Since then fuel prices have risen to $3.12 per gallon and if they reach and hold $3.15 for the rest of the year that entire $6.5 billion in profit would be wiped out and turned into a loss. For that to happen oil prices would only have to remain near Friday's close at $98.

Now translate that shift in profitability across the entire nation or even the world and you see what kind of drag oil prices will eventually be on the recovery.

I believe that once the crisis in Libya is concluded we will see prices decline but not by much. I think $88-$90 is the current floor for WTI but that is not the real price of oil. Brent is the new standard because of the technical problems at Cushing OK and the WTI delivery point. Refineries on the east coast buy Brent or oil grades indexed to Brent for their feedstocks. Refiners in the Gulf are indexed to Louisiana Light Sweet or similar and that is also tracking Brent prices. The only refiners able to capitalize on the "cheap" WTI are those mid continent refiners like TSO, HOC and CVI. Everyone else is indexed to the higher priced oil so consumers in the rest of the country will be paying Brent prices for gasoline.

The oil commentary above is for future reference. The market is ignoring the risk today. Months from now we may not be so lucky. I was actually encouraged on Friday because the market was listening to stock news not Libya news. For instance Intel rose on Citi's forecast and Apple's announcement. Stocks were reacting to stock news and not geopolitical events. The exception was of course oil stocks breaking out to new highs on contagion worries.

The contagion factor is our worst worry for next week. The new demonstration in Tunisia shows that unrest can reappear just as quickly as it faded. There were also new demonstrations in Egypt and Bahrain over the weekend. Saudi seems to have dodged a bullet so far with the $35 billion giveaway to the people but nobody knows how long it will last.

The contagion factor will be the cloud over the U.S. markets but not an active storm. Just an ominous cloud on the horizon that traders will be watching.

The U.S. economic reports should be a positive influence to offset that cloud. The Fed Beige Book should show an accelerating economy and the payroll report should show the biggest job gains since November 2005 if you don't count the three months of temporary census jobs. I think the market will react strongly to a number like that.

The current economics are accelerating as evidenced again by the highest reading in consumer sentiment in three years. There is no reason for the market not to be bullish about the current situation. We probably have another three weeks before the worry over the Fed ending QE2 starts to impact the institutional sentiment. The March 15th FOMC meeting could be the turning point. If Bernanke keeps talking about the possibility of QE3 we could see that bearish decline postponed. The offset to the end of QE2 is of course a much stronger economy. I just don't think we are there yet.

With all the Fed presidents and former Fed governors all coming out on the hawkish side of the debate last week I think Bernanke does not have a snowballs chance of getting a QE3 approved. We heard from Plosser, Yellen, Fisher, Hoenig, Kohn, Lacker and Bullard and even the dovish ones were carefully phrasing their comments to stress their concern over keeping QE2 too long. However, even inflation hawk St Louis Fed President James Bullard said the Fed "can never say never" to QE3. They are all toeing the party line despite their known views.

Lacker had an interesting comment. He said nobody believes there is an inflation problem but $4 gasoline and $4 lettuce should convince consumers that inflation is here regardless of the economic models. I have a friend who runs a restaurant. He told me on Saturday that tomatoes had gone from $16 per case several months ago to over $60 today. Cucumbers had risen to $90 per case. Some of this is related to the harsh winter weather and a freeze in the south but he said even before that cold weather the price of tomatoes had risen to $45 per case, a +300% increase. Sure glad there is no inflation yet. (grin)

Bernanke and the gang are actually benefiting from the Middle East crisis. The eventual impact to our economy plus the higher oil prices means the Fed should stay in its "extended period" mode even longer. Same with Europe's lingering sovereign debt crisis. All these events suggest Bernanke and team will not change their posture any time soon.

It was an interesting week in the markets. The S&P declined about -4% from its highs before closing at exactly the 50% retracement level for the dip. A perfect 50% rebound and pause is less common than you would think. The halt at that exact 50% level left the index poised to either fail at the perfect resistance level or use that level as support for next week.

S&P Chart - 45 min

The dip on the S&P was a textbook drop to support and immediate rebound to midline resistance. In theory the most likely direction would be down from here if you are only looking at the charts. When you take into account the rising economic fundamentals the most likely outcome would be a continued rebound.

S&P Chart - Daily

The Dow declined -408 points from a high of 12,391 the prior Friday to 11,983 on Thursday. It spent a total of 15 minutes under 12,000 before the rebound began. This was a textbook example of a short-term bull market correction to critical support and the resulting bounce.

Unfortunately that was only a -3.2% decline and that might not be enough for those who are expecting a bigger sell off as a buying opportunity. The rebound to 12,140 fell short of the 50% retracement level at 12,187, which just happens to be decent resistance.

That rebound also stalled at the first Fib retracement level and the ideal point for a failure ahead of a further decline. This is another one of those pivotal moments in the market.

While the declines to support and resulting rebound on the S&P and Dow were textbook from a bullish perspective they are also textbook examples of where a bear market rebound should fail. Volume was very light at 6.9 billion shares although advancing volume was 6:1 over declining and advancers 5:1 over decliners. There was still no conviction on the part of the buyers although given the weekend event risk I completely understand why.

Dow Chart - 45 Min

Dow Chart - Daily

The Nasdaq had the largest rebound of the big cap indexes and came to rest above the 50% retracement level but exactly at the resistance from early January. The Nasdaq benefited from the bullish call on PC sales from Citigroup and from the rebound in some of the tech names that were trashed earlier in the week. Tech bulls were eager to jump back in on beaten down techs like FFIV. Apple saw a decent bounce ahead of the March 2nd iPad 2 announcement. However, it was not because of gains in a few big techs but a broad based rebound. There were 2001 advancing stocks in the Nasdaq and 461 decliners.

The rebound to resistance could be a problem if there is not a decent rise in Asian shares on Sunday night. If the futures power the Nasdaq over that level at the open then tensions will ease. If the Asian markets are weak and the U.S. markets open lower then that resistance could strengthen ahead of the next test.

Nasdaq Chart - 60 Min

Nasdaq Chart - Daily

The most bullish index is the one we want to do well. The Russell rallied for a +2.2% gain on Friday and blew past every level of retracement resistance. Fund managers were not holding back. There were 1669 advancers and 200 decliners with 101 new 52-week highs. There was nothing bearish about the rebound in the Russell and this "should" translate into a continued market rebound next week, assuming there are no further news events to distract from the market.

Russell 2000 Chart - 60 Min

Was Friday's rally a bear market bounce or the start of a lasting rebound? If I knew the answer for sure I could sell the knowledge and retire with my own island. Unfortunately there are no sure things in the market and the Dow, S&P and Nasdaq all closed right at textbook reversal points for a bear market rebound. However, given the event risk over the weekend I would have been surprised if they had not halted there.

The key will be the weekend news events and whether they sour sentiment ahead of the open. As of late Saturday afternoon the flare up of demonstrations in Tunisia, Egypt and Bahrain could cause more contagion concerns. Those countries were throught to have been behind us but a resurgence could lead to further problems elsewhere.

Helping to produce positive sentiment on Monday is the Warren Buffett letter to Berkshire shareholders on Saturday. Buffett was bullish and said he was itching to buy with $38 billion cash in the bank. He said America's best days lie ahead. He believes a housing recovery will begin soon, He said "the prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted and the American system for unleashing that potential, a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War, remains alive and effective." Berkshire had a net income of $13 billion in 2010. His letter is widely read and has been known to give the market a boost.

Based on the positive economic fundamentals and the very positive internals on the Russell on Friday I think our chances for a continued rebound are good. Not assured but good. If we do roll over, a second test of support could produce a double bottom and provide for a stronger rebound. Obviously a failure of that prior support would be very bearish and suggest a much lower low. The key numbers to watch are Russell 800, Dow 12,000 and S&P 1,300.

Jim Brown

Send Jim an email

"A fanatic is one who can't change his mind and won't change the subject." - Sir Winston Chrchill


Index Wrap

Market Stumbles But Trend Stays Intact

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

I indicated last week that I'd buy calls on a good-sized dip, such as (at least) 30 points in the S&P 500 and 15 points in OEX. The dip was around 40 points peak to trough in SPX and 18 points in OEX, and the pullback was worth buying as prices rebounded from technical support.

I wrote on my 'technical' take on the major indexes after Thursday's close in a special Trader's Corner and pointed out that SPX retreated right to its up trendline I had in place last week. Pretty amazing to see prices go right to a support trendline and then to see the selling dry up and buying come in. After decades of trading it still amazes me when chart patterns come in like that. The Composite (COMP) and the Nas 100 (NDX) lows on Wednesday and Thursday resulted in redrawn up trendlines that look like they could be the next new (and better) 'line' of support.

I went over my rationale for a likely bottom in my Thursday e-mail (and online HERE) for the idea of the recent sell off likely being a correction rather than any significant trend reversal. I trend reversal would need to see penetration of the prior swing lows, which are noted on all my charts. Trendline and moving average considerations are another factor, with a third being the occasional insight provided by a non-price indicator, the spike in the VIX in this instance. I particularly recommend checking out the VIX chart and it's notations in the aforementioned article by using this online LINK.

The big upward spike in VIX into Wednesday carried the S&P Volatility Index well over my 5 percent upper 'threshold' or envelope line relative to VIX's 10-day moving average. As you'll see on that chart, such spikes have been significant in coming just before further upside progress in the current bull market.

That's about it for the summary stuff. You'll see a redrawn uptrend channel in the COMP chart, that explains the rationale for redrawing the up trendline. Once an up trendline is established, a parallel line intersecting the highest high(s) for the period shown forms the simple basis for constructing an upper channel line.

I'd lastly just note that this market is still showing an extreme overbought reading on momentum indicators applied to the weekly charts; not shown here, but the weekly MACD indicator appears with the COMP chart in my companion 'Trader's Corner' article of a couple of days ago. I don't want to minimize the danger of corrections in such an overbought situation. The recent sell off is a good example. No doubt the oil price spike was a key 'trigger' for the sell off, but the same events in a more neutral or oversold market might not be more than a ripple. The trend remains up and we have to go with the trend and not related technical or fundamental worries. An old Wall Street saying is about bull markets that climb "a Wall of Worry".

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) index chart remains bullish as prices on the recent corrective pullback stayed within the uptrend channel highlighted last week. The Thursday-Friday rebound started almost exactly from SPX's up trendline. While the Index closed below its 21-day moving average for two days running, often indicative of some further weakness to come, trendline support 'trumps' moving average considerations. Moreover the next lower support of interest below the 21-day trading average, the 50-day moving average, was not tested in the case of the S&P and Dow and 'held' in the case of Nasdaq. One scenario here is an extension of the current rally (e.g., back up to the 1340 area, followed by another sell off toward 1300. This would 'complete' a common down-up-down corrective pattern.

Near support comes in around 1300 at the current intersection of SPX's up trendline, with lower and very key support around 1275, at the prior (down) swing low. A substantial break below 1275 would suggest further weakness to come, as this is the 'classic' indication of an intermediate-term trend reversal. Near resistance is suggested at prior highs around 1344, with fairly major resistance suggested at the upper end of the bullish trend channel which currently intersects in the 1387 area.

RSI and SENTIMENT INDICATORS ( see above)

SPX is no longer at an overbought extreme in terms of the Relative Strength Index (RSI) on a daily chart basis. The indicator didn't fall into 'oversold' territory but it RARELY does in a bull market. In a strong uptrend, a 'neutral' RSI reading around 45-50 seems to be enough of a drop to set the stage for a next rally.

I noted last week that: "Helping keep this rally going is still-moderate bullish sentiment, especially compared to the recent accelerating price trend ..." Friday saw a spike in the CBOE daily equities call volume that brought up the reading on my 'CPRATIO' (bottommost, above) indicator some. Sharp selloffs, as the herd stampedes for the exit at the same time, tend to inject more fear into the greed versus fear dichotomy. This market is more likely to top out with more associated greed than fear.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) index chart remains bullish. As with the larger '500' index, this past week's sell off took OEX under its 21-day moving average, but the Friday close was back at the Average. The dip was on the order of magnitude that I suggested last week as a buying opportunity for (at or slightly out of the money) calls.

Near support is suggested now at or near the recent 582 low, next at the intersection of the up trendline around 578; and last but not least very key support is in the area of the prior downswing low at 575.

Resistance comes in at the recent top at 602, and then is suggested up in the 620 area, at the top end of OEX's uptrend channel.

I wrote last week that I would be "...cautious if there's a breakdown below the 21-day average; e.g., a close below this key average that is followed by further weakness the next day." This statement was somewhat balanced by also noting that even more pivotal technical support would come in at OEX's up trendline and especially at the prior 575 downswing low. I wouldn't be surprised to see a rebound back up toward 600, followed by another selloff toward 580.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) average was in a strong uptrend due to 16 of the 30 INDU stocks that were in strong uptrends coming into this past week; i.e., "AA, BA (breaking out above a multimonth trading range), CAT (construction), CVX (oil/energy), DD, DIS, GE (a prime Dow bellwether), HD, IBM, INTC, JPM (banking), MMM, PFE, TRV (financial), UTX and XOM (oil)." Still holding up pretty well are CAT, CVX, DD, GE, HPQ, JPM, TRV, UTX and XOM.

The rebound from Thursday's low may have tough going on a further rally, as resistance could be found next around 12200. Above 12200, fairly tough resistance should come in again in the 12400 area. Wherever a further rally takes INDU, there may be another subsequent pullback into the 11900-11800 price zone. I'll be looking to buy a second dip if it occurs.

It's likely that there's some support/buying interest back at recent lows around 12000, then at the up trendline, currently intersecting around 11892; even more pivotal support is in the 11800 area or back to the late-January prior intraday low.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) chart remains bullish. The recent pullback has so far reversed at a level above COMP's prior downswing low, which keeps the uptrend intact. Unlike the S&P 500, the recent rebound didn't start at COMP's up trendline. Rather, the lower up trendline you see on my daily chart is one redrawn per the notations for the old (gray) set of channel lines, versus a new bullish price channel in blue.

As a reminder and an aside, an upper channel line is simply a line intersecting the highest high(s) that is parallel to the (lower) UP trendline. The up trendline is the one connecting the lowest lows in an advance. The upper parallel line does give some idea of possible resistance but isn't of the same key importance as the lower line of support.

While I anticipate a resumption of the uptrend ahead, a related key question is whether COMP has another dip to the 2700 area soon or after a test of resistance around 2810, the lower end of the downside chart gap; OR from resistance at the 2840 high. A second dip to support, followed by a rebound would give more assurance that this recent correction had run its course. Major resistance comes in around 3000 and that's where I see COMP headed at some point ahead.

Near support is noted at 2710, the current trendline intersection, then at the prior lows around 2677-2688. I'm not anticipating lower lows below these but if it happens, next support is 2682-2676, extending to the 2650-2648 area.

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) chart remains bullish, as long as the pattern stays intact of a corrective low that's above the previous bottom; OR, even on a further dip if NDX forms a double bottom around 2258. The rebound from the area of the 50-day moving average (and my redrawn up trendline) suggests a still viable uptrend in NDX. My revised lower trendline is now assumed to 'define' support going forward and time will tell on this. I've noted near support at 2292 relative to this trendline.

Resistance is anticipated at the low end of the recent downside price gap (not noted on the chart) at 2366. Next resistance is assumed for the prior highs in the 2400-2403 area. Major resistance may be found at the high end of the NDX's uptrend channel assuming NDX has another strong up leg above the 2400 area; the upper channel line currently intersects at 2533.

What I suspect is that this initial rally won't take us straight to new highs for NDX's advance so far without (first) another decline that retests support around 2300. I'd like to buy THAT dip if it occurs; not however if part of a high volume panic type decline that could fall like a stone through 2300-2292.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQQ) rallied from the area of its 50-day average, thereby forming a higher relative low above the previous 55.4 bottom. The definition of an uptrend is higher relative highs and higher relative lows on pullbacks. There will be pullbacks in even the strongest advance of course; waiting for those dips is challenging as they don't always come along very often in a strong trend. This recent sell off looks like it was a decent buying opportunity. I'm not convinced however that there won't be another dip into the area of recent lows that would 'complete' a correction.

Heavy volume 'came out' on the sell off which washes some of the players out whether its profit taking or panic; e.g., by those who bought into this rally when big gains had already been made. Taking out the weak hands is favorable in poker and for further gains in stocks!

Near resistance is assumed to lie in the area of the prior recent high around 59.0. I anticipate fairly major resistance around 62 if there is a move to the upper end of the Q's uptrend channel.

A first area of support is highlighted at the up trendline, currently intersecting at 56.3. Next support is assumed to lie in the area of the prior 55.4 intraday low.

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) rebounded from support in the 800 area and its 50-day moving average and well above its prior 772 downswing low. I've redrawn RUT's up trendline similarly as I have with the Nasdaq indexes. Redrawing trendlines is just something that's ongoing from time to time.

Resistance is anticipated on a move back up to the 830 area initially and certainly at the 838 prior intraday high. There could well be an initial rally failure at/above 830 and another decline back toward 800 which would then possibly or probably 'complete' a correction and set up a next leg higher. Of course, if RUT just went on to new high for this move, significant resistance may then come at the intersection of the upper channel line, currently at 867 but of course rising over time.

Support is expected on pullbacks to the 795-800 area, at the up trendline and 50-day moving average; even more key support is at 770-775. A decisive downside penetration of the prior swing low at 772 would suggest an intermediate trend reversal.

I noted last week that: "Key technical support is seen in the 800 area." This turned out to be at least a short-term buying opportunity in calls. I don't anticipate closes back below 800, but time will tell. With RUT no longer 'overbought' according to the RSI, that's a help in keeping prices from sinking further. The spike in oil prices could be cresting also.



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

An Over Abundance

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 is bouncing from round-number, psychological support at the 1300 level as traders step in and buy the dip. We're seeing a similar pattern across the market. There were too many candidates to choose from. In addition to tonight's new plays I'm providing a list of stocks that caught my eye. This list of stocks could offer additional bullish opportunities but you do need to do your homework. A few like BIO have wide option spreads. A couple of them might have earnings in March.

On my radar screen: ROST, CHRW, CTXS, BIIB, AMGN, ESS, BIO, RE, AAPL, OII, PRGO, SLG, RBC, CME, HES, SYK, AMT, WYNN, AMG, and CMP.

- James


NEW DIRECTIONAL CALL PLAYS

Baker Hughes Inc. - BHI - close: 71.50 change: +2.56

Stop Loss: 67.90
Target(s): 74.75, 79.00
Current Option Gain/Loss: + 0.0% and + 0.0%
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
BHI is an oil service stock. As you know oil has seen a lot of strength and volatility due to the unrest and violence in the Mideast. While crude oil might see some profit taking as tensions ease (or not) the trend in oil and oil service names is still up. BHI did not see a lot of profit taking during the market's recent sell-off. The $68.00 level is short-term support. I am suggesting bullish positions now. More conservative traders may want to wait for a breakout past $72.00. Our targets are $74.75 and $79.00.

- Suggested Positions -

Buy the March $75 calls (BHI1119C75) current ask $1.03

- or -

Buy the April $75 calls (BHI1116D75) current ask $2.08

Annotated Chart:

Entry on February 28th at $ xx.xx
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume = 5.3 million
Listed on February 26th, 2010


Check Point Software - CHKP - close: 50.29 change: +0.81

Stop Loss: 47.90
Target(s): 54.50
Current Option Gain/Loss: +0.0%
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Prior resistance near $48.00 is now new support. Traders are buying the dip and CHKP is poised to continue its trend higher. I am suggesting bullish positions now with a stop loss at $47.90. Our target is $54.50. We only have three weeks left on March calls so you may want to play Aprils.

- Suggested Positions -

Buy the March $50 calls (CHKP1119C50) current ask $1.50

- or -

Buy the April $52.50 calls (CHKP1116D52.5) current ask $1.10

Annotated Chart:

Entry on February 28th at $ xx.xx
Earnings Date 04/26/11 (unconfirmed)
Average Daily Volume = 3.0 million
Listed on February 26th, 2010


FactSet Research Systems - FDS - close: 105.00 change: +3.65

Stop Loss: 99.95
Target(s): 109.50
Current Option Gain/Loss: Unopened
Time Frame: 2 to 3 weeks
New Positions: Yes, see Trigger

Company Description

Why We Like It:
FDS has produced a near perfect bounce from round-number, psychological support at the $100.00 mark. Plus, the stock has produced a three-candlestick bullish reversal pattern on the daily chart. Furthermore FDS has yet to violate its long-term up trend. I am very tempted to buy calls right here at $105.00 but Friday's gain (+3.6%) was a bit much. I would rather wait for a dip so I'm suggesting we use a trigger at $104.00 to open bullish positions. More conservative traders could hope for a dip to $103.00 or $102.50 instead. We'll use a stop loss at $99.95. If we are triggered at $104.00 our target is $109.50. I would be tempted to aim higher but we only have two or three weeks. FDS is due to report earnings in mid March but we don't have a confirmed date yet.

Trigger @ $104.00

- Suggested Positions -

Buy the March $105 calls (FDS1119C105) current ask $2.60

Annotated Chart:

Entry on February xxth at $ xx.xx
Earnings Date 03/15/11 (unconfirmed)
Average Daily Volume = 213 thousand
Listed on February 26th, 2010


Fossil, Inc. - FOSL - close: 77.87 change: +3.06

Stop Loss: 72.49
Target(s): 82.00, 88.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see Trigger

Company Description

Why We Like It:
FOSL sells watches, sunglasses and other accessories through a wide variety of brand names. Big picture there is concern that rising oil and thus fuel prices will reduce consumers' spending money for discretionary purchases yet the overall trend for FOSL is still very bullish. Traders were quick to buy the bounce near support. Once again I am tempted to buy calls right here but Friday's gain (+4%) was a lot.

I am suggesting a trigger to buy calls on a dip at $76.75. If triggered we will use a stop loss at 72.49. Our exit targets are $82.00 and $88.00.

Trigger @ 76.75

- Suggested Positions -

Buy the March $80 calls (FOSL1119C80) current ask $2.15

- or -

Buy the April $80 calls (FOSL1116D80) current ask $3.50

Annotated Chart:

Entry on February xxth at $ xx.xx
Earnings Date 05/11/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on February 26th, 2010


IntercontinentalExchange, Inc. - ICE - cls: 126.91 chg: +3.27

Stop Loss: 119.90
Target(s): 138.00, 148.00
Current Option Gain/Loss: + 0.0%
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
There has been a lot of talk and focus on the various stock, option, and derivatives exchanges ever since the German Deutsche Börse proposed a merger to buy the NYSE Euronext exchange a couple of weeks ago. Many believe there will be a lot more consolidation in the business as exchanges seek to partner up or get left out.

Traders quickly bought the dip in ICE near prior resistance around the $120-121 area. The bounce from this support looks like a new bullish entry point. My biggest concern is that ICE could announce their own merger news and if investors don't like the deal or think ICE is paying too much then shares of ICE will gap open lower. Even now there is speculation that ICE might team up with the NASDAQ to counter the bid by the Germans to buy the NYSE. Therefore I am suggesting we keep our positions pretty small to limit our risk. I am suggesting bullish positions now. More conservative traders may want to wait for a dip back into the $124-122 zone. We'll use a stop loss at $119.90. Our targets are $138.00 and $148.00.

I want to warn you that the March options will probably be extremely volatile.

- Suggested Positions - (Small Positions Only)

Buy the March $130 calls (ICE1119C130) current ask $2.50

- or -

Buy the April $135 calls (ICE1116D135) current ask $2.70

Annotated Chart:

Entry on February 28th at $ xx.xx
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume = 938 thousand
Listed on February 26th, 2010


Jones Lang Lasalle Inc. - JLL - close: 97.50 change: +2.90

Stop Loss: 93.30
Target(s): 102.50, 109.00
Current Option Gain/Loss: +0.0%
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
A very strong earnings report in early February was enough to power JLL past major resistance at $90.00. While the recent profit taking looks ugly traders were buying the dip at technical support. The recent low was $93.40. I am suggesting bullish positions now with a stop loss at $93.30. More aggressive traders could put their stops under $90.00, which should be much, much stronger support. JLL has see a lot more volatility in the last month so let's keep our position size small to reduce our risk. Our targets are $102.50 and $109.00.

FYI: March options are likely to be very volatile.

- Suggested Positions - (Small Positions)

Buy the March $100 calls (JLL1119C100) current ask $1.60

- or -

Buy the April $100 calls (JLL1116D100) current ask $3.20

Annotated Chart:

Entry on February 28th at $ xx.xx
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 386 thousand
Listed on February 26th, 2010


Transocean Ltd. - RIG - close: 82.80 change: +2.18

Stop Loss: 79.75
Target(s): 89.50, 94.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see Trigger

Company Description

Why We Like It:
RIG is another oil service stock. Shares saw a little volatility last week as investors reacted to the earnings report but traders did buy the dip at technical support. Aggressive traders could open positions now. I see short-term resistance at $84.00 so I am suggesting we wait for a breakout. I am suggesting a trigger to buy calls at $84.25. If triggered we'll use a stop loss at $79.90. Our profit targets are $89.50 and $94.00.

Please note that the March calls will likely be very volatile.

Trigger @ 84.25

- Suggested Positions -

Buy the March $85 calls (RIG1119C85) current ask $1.40

- or -

Buy the April $85 calls (RIG1116D85) current ask $2.90

Annotated Chart:

Entry on February xxth at $ xx.xx
Earnings Date 05/05/11 (unconfirmed)
Average Daily Volume = 5.3 million
Listed on February 26th, 2010


Waters Corp. - WAT - close: 82.44 change: +0.84

Stop Loss: 79.80
Target(s): 86.00, 89.90
Current Option Gain/Loss: +0.0%
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
WAT offers a wide variety of scientific testing tools and equipment. You'll notice that in the past two weeks the stock has broken out past major resistance near $80 and during the market's sell-off WAT found support at this prior resistance. I am suggesting we buy calls now on this bounce with a stop loss at $79.80. Our targets are $86.00 and $89.90.

FYI: The March calls will likely be very volatile.

- Suggested Positions -

Buy the March $85 calls (WAT1119C85) current ask $0.85

- or -

Buy the April $85 calls (WAT1116D85) current ask $1.70

Annotated Chart:

Entry on February 28th at $ xx.xx
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 876 thousand
Listed on February 26th, 2010


In Play Updates and Reviews

Rebound Into the Weekend

by James Brown

Click here to email James Brown

Editor's Note:

Traders were getting over their geopolitical fears and bought the dip heading into the weekend. Small caps were strong performers as well as bank stocks. I have updated new stops on NKE, TD, UWM, and IWM. I've reactivated our FCX put play with a trigger at $54.00.

-James

Current Portfolio:


CALL Play Updates

Peabody Energy Corp. - BTU - close: 65.30 change: +2.16

Stop Loss: 61.75
Target(s): 69.75, 74.00
Current Option Gain/Loss: -51.4%, and -13.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/26 update: BTU is bouncing on cue. Shares added +3.4% on Friday. The close over $65.00 is encouraging. More conservative traders might want to inch up their stop loss. Depending on your risk tolerance you can buy calls on this bounce or wait for a dip near $64. 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

Chart:

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


BorgWarner - BWA - close: 76.95 change: +1.59

Stop Loss: 73.75
Target(s): 79.75, 84.50
Current Option Gain/Loss: +18.1%, and - 4.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/26 update: BWA gapped open higher on Friday morning near $76 but then pulled back toward the $75.50 level to almost fill the gap before rebounding again. I would still consider new positions here or you could wait for another dip near $76-75. Our targets are $79.75 and $84.50. Our plan was to use small positions to limit our risk.

SMALL bullish positions

- Suggested Positions -

Long the March $80 calls (BWA1119C80) Entry @ $1.10

- or -

Long the April $80 calls (BWA1116D80) Entry @ $2.47

Chart:

Entry on February 25th at $76.06
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 2.3 million
Listed on February 24th, 2010


Caterpillar Inc. - CAT - close: 102.00 change: +1.43

Stop Loss: 97.90
Target(s): 104.75, 107.50
Current Option Gain/Loss: + 0.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/26 update: The bounce in CAT continues. Shares added +1.4% but stalled at their 10-dma overhead. I would still consider new bullish positions here or on a dip near $100 again.

- Suggested Positions -

Long the March $105 calls (CAT1119C105) Entry @ $1.35

02/23 Triggered @ $101.00. Option @ $1.35
02/22 Still waiting for a dip to $101.00
02/12 Adjusted our trigger, targets, stop loss and strike price.

Chart:

Entry on February 23 at $101.00
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 6.2 million
Listed on February 5th, 2010


Fastenal Co. - FAST - close: 61.51 change: +0.66

Stop Loss: 59.90
Target(s): 67.25
Current Option Gain/Loss: -76.4%, and -42.2%
2nd Position Option Gain/Loss: + 0.0%, and - 4.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/26 update: So far so good. FAST is bouncing from a test of support near $60 and its 50-dma. I would still consider new positions now at current levels.

Readers may want to keep in mind that the most recent data listed short interest at 11.4% of the 132 million-share float.

- Suggested Positions -

Long the March $65 calls (FAST1119C65) Entry @ $0.85

- or -

Long the May $65 calls (FAST1121E65) Entry @ $2.25

-2nd Entry as of 2/24 (will fill in prices for 2/25's open)-

Long the March $65 calls (FAST1119C65) Entry @ $0.20

- or -

Long the APRIL $65 calls (FAST1121D65) Entry @ $0.99

02/24 Buy the dip. New Entry (2nd position).
02/23 New entry point @ 60.96. March $65 call @ 0.25, May $65 call @ $1.45
02/22 Entry @ 62.99, NEW STOP @ $59.90
02/19 Adjusted entry point. Buy calls now. Very small positions
02/12 New trigger @ 61.55, new stop loss @ 59.40

Chart:

Entry on February 22nd at $62.99
Earnings Date 04/12/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on February 8th, 2010


F5 Networks Inc. - FFIV - close: 120.18 change: +3.12

Stop Loss: 109.90
Target(s): 129.00
Current Option Gain/Loss: -11.1%, and -17.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/26 update: Shares of FFIV were upgraded before the opening bell on Friday. This prompted the stock to gap open higher at $121.00, which did NOT help our entry point. Shares spent the day consolidating sideways near $120. I would prefer to open new positions on a dip in the $117.50-115.00 zone. The plan was to use small positions to limit our risk. Our target is $129.00.

SMALL bullish positions

- Suggested Positions -

Long the March $120 calls (FFIV1119C120) Entry @ $5.40

- or -

Long the April $125 calls (FFIV1116D125) Entry @ $6.80

02/25 FFIV gapped open higher on an upgrade.

Chart:

Entry on February 25th at $121.00
Earnings Date 04/20/11 (unconfirmed)
Average Daily Volume = 3.7 million
Listed on February 24th, 2010


3M Co. - MMM - close: 90.25 change: +0.22

Stop Loss: 88.75
Target(s): 94.50, 99.00
Current Option Gain/Loss: + 0.0%, and - 6.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/26 update: The bounce in MMM was pretty minor on Friday. That is a little bit worrisome but overall this dip near $90 still looks like a bullish entry point. I would still consider new positions now although readers may want to keep their position size smaller to limit their risk.

- Suggested Positions -

Long the March $90 calls (MMM1119C90) Entry @ $1.75

- or -

Long the April $95 calls (MMM1116D95) Entry @ $0.78

Chart:

Entry on February 25th at $89.75
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 3.5 million
Listed on February 24th, 2010


Nike Inc. - NKE - close: 87.98 change: +1.46

Stop Loss: 84.80
Target(s): 88.00, 91.50
Current Option Gain/Loss: + 79.4%, and + 97.8%
2nd Position Gain/Loss: + 17.1%, and - 0.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/26 update: NKE continues to bounce after testing its 50-dma on Thursday. If you don't feel like chasing it here you could wait for a dip near the $87.00 area. I am raising our stop loss to $84.80.

Our final exit target is $91.50.

- Suggested Positions - (Small Positions Only!)

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

- or -

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

2nd position, buy the bounce from $85.50

Long the March $85 calls (NKE1119C85) Entry @ $3.20

- or -

Long the April $90 calls (NKE1116D90) Entry @ $1.86

02/25 New stop loss @ 84.80
02/24 New entry point, buy the bounce from $85.50, Add 2nd position
02/19 Adjusted final target to $91.50
02/18 1st Target Hit @ 88.00. March $85 call @ 3.75 (+79.4%)
02/18 1st Target Hit @ 88.00. April $90 call @ 1.80 (+91.4%)

Chart:

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


Occidental Petrol. - OXY - close: 103.10 change: +1.34

Stop Loss: 96.75
Target(s): 106.75, 109.75
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see Trigger

Comments:
02/26 update: Oil stocks rallied again as violence continues in Libya and protests flare up again in Tunisia and Egypt. Yet the action in OXY still looks like indecision as the stock produced an inside day on Friday. I am suggesting we wait for a dip near $100 but it may not happen. Nimble traders may want to consider buying calls on a breakout at $104.00. The newsletter will keep our trigger at $100.25 for now.

Investors will want to take note that this is not without risk. OXY does a lot of oil and gas exploration across the U.S. and internationally. The company does do business in Bahrain and Yemen, which have been two hotspots for protests and violence in the last couple of weeks. You can see from the chart that headlines from these two countries really did not have an effect on OXY on the stock. Today's move lower appears to be a reaction to the market-wide event.

Trigger @ $100.25

- Suggested Positions -

Buy the March $105 calls (OXY1119C105) current ask $1.70

- or -

Buy the April $105 calls (OXY1116D105) current ask $3.20

Chart:

Entry on February xxth at $ xx.xx
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 4.9 million
Listed on February 22nd, 2010


The Toronoto-Dominion Bank - TD - close: 82.65 change: +2.13

Stop Loss: 76.90
Target(s): 84.00, 89.00
Current Option Gain/Loss: +151.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/26 update: TD was showing relative strength on Friday. The stock opened higher and then rallied to a new all-time high to close with a +2.6% gain. At this point we may want to consider buying calls on dips near $81.00. I am raising our stop loss to $77.90.

Our targets are $84 and $89. We will plan to exit ahead of the March 11th earnings report (unconfirmed date).

- Suggested Positions -

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

02/26 New stop loss @ 77.90
02/16 New stop loss @ 76.90

Chart:

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


Proshares Ultra(long) Russell 2000 - UWM - close: 46.86 change: +2.06

Stop Loss: 43.49
Target(s): 49.75, 54.00
Current Option Gain/Loss: -21.8%, and + 8.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Small Positions - UWM Position -

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

-2nd position (entry 2/25)-

Long the April $47 calls (UWM1116D46) Entry @ $2.50

02/26 New stop loss @ 43.49
02/25 April $47 call opened at $2.50
02/24 Add another position, April $47 calls
02/14 UWM opened at $46.90. Option opened @ $2.75

Chart:

iShares Russell 2000 - IWM - close: 82.18 change: +1.86

Stop Loss: 79.20
Target(s): 84.95, 87.25
Current Option Gain/Loss: -16.1%, and +12.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/26 update: The small caps were some of the best performers on Friday with the Russell 2000 index outperforming the S&P 500. Traders are buying the dip and bounce near the rising 50-dma. If you missed buying the dip then you might want to wait for the next one. I am also raising our stop loss on both the UWM and IWM.

Small Positions - IWM Position -

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

-2nd position (entry 2/25)-

Long the April $82 calls (IWM1116D82) current ask @ $2.35

02/26 New stop loss @ 79.20
02/25 April $82 call opened at $2.35
02/24 Add another position (April $82 calls)
02/14 IWM opened @ 82.11. Option opened @ 1.92

Chart:

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: 19.22 change: -2.10

Stop Loss: N/A
Target(s): 22.50, 28.00
Current Option Gain/Loss: -37.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/26 update: Just as expected, the VIX is plunging as investors buy the dip in stocks. More conservative trades may want to exit completely right here. I am not suggesting new positions at this time. Our final (and very speculative) exit target is 28.00.

- Suggested Positions -

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

02/23 1st Target Hit @ 22.50, Option @ 2.35 (+46.8%)

Chart:

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


PUT Play Updates

Freeport-McMoran - FCX - close: 52.45 change: +0.59

Stop Loss: 55.15
Target(s): 50.25, 47.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see trigger

Comments:
02/26 update: The oversold bounce in FCX has made it back toward prior support and what should be resistance near $53. Aggressive traders may want to buy puts right here. I am suggesting we use a trigger to buy puts at $54.00 and we'll use a stop loss at $55.15. If triggered our first target is $50.25. Our second target is $47.00.

Trigger @ 54.00

- Suggested Positions -

Buy the March $52.50 PUTS (FCX1119O52.5) current ask $2.03

- or -

Buy the April $50.00 PUTS (FCX1116P50) current ask $2.13

02/26 Update our trigger to buy puts at $54.00, stop 55.15

Chart:

Entry on February xxth at $ xx.xx
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 14.4 million
Listed on February 19th, 2010