Option Investor
Newsletter

Daily Newsletter, Wednesday, 3/9/2011

Table of Contents

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

Market Wrap

Stuck Here in the Middle with You

by Keene Little

Click here to email Keene Little
Market Stats

There were no significant economic reports for the market to fuss over and no major headlines about what's happening in MENA (Mid East, North Africa) to disturb the market. The DOW closed down -1 point. Any questions?

As has been true for much of this week, the techs were relatively weak. The SOX spent the entire day in the red and finished down -3%. That put pressure on the tech indexes which closed down about -0.5%. The RUT was also a little weaker than the blue chips, closing down -0.4%. The blue chips held up better and that's always a little worrisome since it has me thinking defensive -- money rotates into the relative safety of the big caps if there's worry about a coming decline. With the market consolidating sideways for the past 1-1/2 weeks it would be more bullish to see money rotating into the techs and small caps. So that might be a hint for how things will resolve here.

If you tried trading today there's a good chance you fed your broker but not yourself. If you are a fast day trader (get in and get out quick with some profits) you had another good trading day as even this afternoon provided some nice trading opportunities between the trend lines of a down-channel (bull flag?). Otherwise if you were trying to get positioned for the next move, and keeping a relatively tight stop on your plays you probably got whacked around a bit.

The market is clearly consolidating for what will likely be a big move, or at least that's the potential. There's no shortage of pundits telling us the consolidation following the low in February is bullish and others telling us the volatility that we're currently seeing is evidence of topping price behavior. The daily and intraday price swings certainly tells us there's a big argument going on at the moment and who will win should be known shortly. I've got some important price levels to watch to help get us in on the next good trade.

One thing I'm wondering about is whether March will mark a turning point for the market. March 6th is the anniversary date of the 2009 low, which was on Sunday this year, and the closing low was on March 9th, today. The market seems to love anniversary months if not the specific dates. For example, the October 11, 2007 high followed the October 10, 2002 low.

The month of March has been an important turn month in the past. The March 24, 2000 high was followed by a spike low on March 22, 2001 followed by a rally before plunging to a low in September 2001. There was a high on March 8, 2002 that was retested on March 19th before plunging to the July 2002 low and then October 2002 low. The March 2003 low was on March 12th. In 2005 the March 7 high was not exceeded until July. In 2007 the market dropped to a low on March 5 and retested it on March 14 which then led to a strong rally into July 2007. The low on March 17, 2008 led to the rally into May 2008.

So the natural question is whether or not this March will be an important turn month and since we've rallied into it a turn would mean to the downside. Even if it does turn into a turn month the more immediate question is whether or not we'll first get a new high above February's.

On the SPX weekly chart I've added Fib time projections from the July 1st low that are based on the March 2009 - April 2010 rally. In other words I want to see how the 2nd leg of the A-B-C rally from March 2009 is relating to the 1st leg since the two legs of an A-B-C move are often related in both price and time. The price relationship is shown with the price projection at 1352.67, which is where the 2nd leg of the rally (wave C) is 62% of the 1st leg of the rally (wave A). The time projections from July 1st, the end of the wave-B pullback, are the vertical lines.

S&P 500, SPX, Weekly chart

Interestingly the 38% time projection marked the low in November and the 50% projection marked the low in January, lending credence to the time relationships. Now the question is whether the 62% projection, which falls on March 14th (so next week on the weekly chart), will mark the pullback low for March. That's certainly the bullish way to view this and I can't argue with that. But if we see a rally into next week then I think it will instead be a price/time setup for a reversal back down. The more immediate question is whether or not we'll see another leg up for the rally out of the current consolidation since the February 24th low.

The daily chart below is messy because of the multiple trend lines trying to identify support/resistance and what kind of pattern might be playing out. The uptrend lines from August-November (the lower one) and November-January (the upper one) have been containing price action since the February 24th low. I've drawn a sideways triangle for the consolidation since that low. I'm projecting a move down out of this consolidation (bold red path) with the alternate wave count calling for another leg up to achieve the 1352.67 price projection on March 14th (light dashed line). At the moment I'd say it's a coin toss as to which will play out. And certainly price could rally higher than 1353 (the top of the larger rising wedge pattern is near 1370).

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1332 to 1353 - ?
- bearish below 1304

Based on my reading I think most traders are looking for an upside resolution out of the current price consolidation since the February 24th low. Many are comparing it to the consolidation following the November pullback. But I see enough differences between the two consolidation patterns that keeps me somewhat neutral to perhaps leaning bearish. The emini ES chart below shows the volume associated with the pattern and as noted on the chart, the volume tended to spike at the conclusion of the selling during the November consolidation. The current consolidation is seeing the volume spike at the start of the selling. The November selling was punctuated with brief bouts of capitulation whereas the March selling shows signs of institutional sell orders (liquidation), followed by recoveries and then more selling. In other words, distribution of inventory rather than accumulation.

S&P 500 e-mini contract, ES, 120-min all-hours chart

The other difference between the two consolidations is the higher volume during the current one, which again could be a sign of distribution rather than accumulation. And of course if too many traders are leaning to the upside out of this typically bullish pattern, a break to the downside would likely be followed by strong selling. So follow the break but be careful if you're only thinking long out of this.

Another messy chart with multiple trend lines is the 60-min chart below. While I'm showing the downtrend line from February 18th, which could be the top of a bullish sideways triangle pattern, the bold blue lines show an ascending triangle instead. This is following the spike down from February 18th and as such would be a bearish continuation pattern. In other words, depending on the color of your glasses you'll see what you want to see. Remain open to all possibilities here since it's a coin toss. Even for a bearish resolution I'm showing the possibility for one last stab higher to 1334 where the move up from Monday would have two equal legs up and finish the larger corrective pattern from the February 24th low. A small break above the triangle would leave a head-fake breakout followed by a reversal. Above 1334 would be bullish and a break below the triangle, so below 1304, would be bearish.

S&P 500, SPX, 60-min chart

As noted on the daily SPX chart above, there is a Gann level at 1354 that could come into play if we get another leg up. The fact that the Fibs point to 1353 and Gann points to 1354 could be very significant, especially in a potentially important turn window (March). Again, this is not a prediction but simply a short-term possibility for the bears to consider in their risk analysis, especially if you're in March long puts or short calls. In the meantime there is downside risk and back below 1304 would mean get short and hang on for the ride.

To show where the 1354 comes from, the Square of Nine chart points to 1347 and 1354, highlighted at the bottom of the chart below, as two potentially important levels. The February high came within 3 points of the lower target and the 62% projection for the rally from July at 1352.67 would essentially be within a point of the upper number. So we either topped or we could see a minor new high according to the Fib time/price projection and Gann chart. The following Square of Nine chart shows the important levels identified on the red radials (the spiral at the center is there simply to show this chart is based on the Fibonacci spiral).

Gann Square of Nine

You can see that 1347 is on the same radial but opposite 768 and 1576, the October 2002 low and October 2007 high, respectively. The other radial shows 666, the March 2009 low, and then 1354 at the opposite end. I can't explain why (can anyone explain why Fibonacci defines so much in our universe on down to cell structure?) but it's uncanny how well it works. Or at least it shows us levels to watch for potential reversals. So we've either already had the reversal off 1344 or else we have the potential to get a retest or minor new high to 1353-1354 and if it were to happen by March 14th it would be an even more powerful setup.

Deja vu with 1987?

Now to a discussion why our current location may be very important. I presented a short-term bullish idea for SPX to rally to at least a minor new high so now here's a bearish projection and it's a scary one.

Jeff Cooper often writes about Gann cycles and other cyclical studies and has pointed out recently many similarities between the lead-up to the 1987 crash and where we are today. That's not a prediction for a 1987-style crash but it is something to be aware of. As he often says, patterns may not repeat but they often rhyme. When I look at the price pattern between then and now I can certainly see a fractal pattern playing out as we get what looks like a corrective bounce off the February 24th low.

Following the August 1987 high there was a sharp drop to the uptrend line from January 1987 and then a 3-wave corrective bounce off it. The break of that uptrend line, followed by the break of the low at the trend line, is what led to the crash. Anyone paying attention to that trend line could have saved themselves a lot of trouble.

SPX 1987 and 2011

Compare that to where we are today -- the rally pattern from last August has followed a very similar pattern (the fractal) and the sharp decline from the February high found support at the uptrend line from August and has so far led to a corrective bounce above the uptrend line, just as it did in 1987. If SPX drops below its uptrend line and breaks below the February 24th low near 1294 I don't think I'd want to hang around on the long side, daring the market to repeat what it did in 1987. Again, that's not a prediction but it's something I see as a high-risk potential for the market right now. We never know where or when a Black Swan event will occur.

For the DOW's consolidation pattern since February 24th I've drawn a bear flag rather than a sideways triangle as shown on the SPX daily chart. Either is just a guess at the moment but what's bearish is the choppy price pattern on top of its uptrend line from August-November. Typically this leads to a break of support. The top of the flag is currently near 12320 and therefore a rally above that level, that holds above that level, would be a bullish breakout and could target 12600 into opex week, a typically bullish week. Otherwise a drop below 12040 would be a confirmed breakdown from the bear flag and the uptrend line. Let price lead the way and avoid whipsaws in the middle.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 12,320 to 12,600
- bearish below 12,040

OK, here's a question -- how many times can an index bang on support before it breaks? NDX has now used its 50-dma seven times since February 23rd and is still holding. That might not be a record but it's certainly getting old. The longer support (or resistance) is tested the weaker it becomes. As traders keep buying support it's chewing up that buying power and making those buyers more and more nervous each time it's tested. We end up with a lot of longs that are nervous sellers-in-waiting. At this point I'd be surprised if the 50-dma holds. The SOX firmly broke its 50-dma today after using it as support since February 23rd.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2420
- bearish below 2307

On the RUT's daily chart below I'm showing yet a different pattern for the price action since its February 23rd low. It could be forming a rising wedge pattern which would fit as an ending diagonal 5th wave, which calls for at least a test of the February high and probably a minor new high. It's currently stuck between its broken uptrend line from August-January as resistance and its 50-dma as support. I think it's going to break down but any strong rally out of this, as in above 840 with no sign of slowing, could be very bullish so bears don't want to hold onto a short position hoping it will come back down. Stop yourself out and then wait for it to prove it's going to come back down. If you're long I would use a close below the 50-dma as an important exit signal.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 829 to 840-850
- bearish below 805

Bonds have pulled back some since their highs on February 28th but the pattern still looks good for a further rally. TLT has dropped back down to its broken downtrend line from late December and could drop a little lower yet (retest the February 9th low?) but after a 5-wave move down from August 2010 it's due at least a correction of that decline. If bonds do get a bigger bounce that's going to put some pressure on stocks (rotation out of stocks and into bonds).

20+ Year Treasury ETF, TLT, Daily chart

Unless the banks are going to head for new highs following the bounce off the February low, the BIX looks like it could be building a H&S topping pattern since January's left shoulder. The neckline is near 148.30 and a downside projection for the pattern is near 136, only slightly below the 200-dma at 137.53.

Banking index, BIX, Daily chart

Bank of America (BAC) got a lot of the credit for yesterday's rally, thanks to their projections into 2013-2014 (no mention of 2011 or 2012). Excuse me while I sneeze. And they say they need permission from the Fed to pay a dividend, buy back stock and probably to go to the bathroom. And the market rallied on this non-news? What's truly amazing is the fact that the market paid any attention at all to it. At any rate what's interesting is that the rally took BAC right up to its downtrend line from January's high (February's lower high was a bearish non-confirmation of the broader market's new high). It almost closed its February 22nd gap at 14.75 but missed it by a few pennies (yesterday's high was 14.70). It would be bullish above 14.75 but makes for a great short play right here, with a stop at 15.

Bank of America Corp, BAC, Daily chart

The TRAN has been struggling the past two days at its 62% retracement of the February decline. The choppy bounce pattern suggests it's in a correction of the decline and therefore should be looking for the resumption of the selling once the bounce completes.

Transportation Index, TRAN, Daily chart

The U.S. dollar might not be finished pulling back but with the continuing bullish divergence at the lows, along with a very bearish sentiment (Daily Sentiment Index is showing only 7% bulls, a reading that has led to dollar bottoms in the past), tells me we should be looking for a rally soon. The bottom might be in, which would be better confirmed with a rally above 77.30, and once the dollar starts to rally I suspect it will be strong. There will be a lot unwinding to be done as the short-the-dollar-long-everything-else trade gets reversed.

U.S. Dollar contract, DX, Daily chart

The DSI reading of 7% bulls for the dollar is reflected in the actions taken by the hedge funds and forex dealers who are currently betting record amounts against the dollar. CME data shows that dollar short positions increased dramatically in the last week of February from about 200K contracts to 281K contracts. The dollar amount of shorts zoomed higher by $11.5B to $39B, which is $3B more than the previous record high in 2007. Most are convinced the U.S. dollar will continue to lose its appeal as the world's reserve currency and are heavily shorting the dollar on this expectation. We know what happens when too many bet in the same direction.

While I agree with them that the policy actions by the Fed and the profligate spending by the U.S. government is reason to believe the dollar is circling the drain and that high inflation is on its way, I continue to believe most are early on this call. I think we have a bigger problem with another round of debt destruction (paying it down and defaulting), which is deflationary, and this will cause another swoon in the stock market. People will likely rush back into the U.S. dollar for its relative safety (relative being the operative word).

If the dollar does begin to rally, and especially if it rallies strong, commodities, including gold, will take a hit. I'm seeing topping patterns in many commodities, including copper. But so far gold looks strong and it's been in a steep up-channel since the end of January and remains bullish as long as it stays in the channel, the bottom of which is currently near 1422. A break below 1410 would be a confirmed breakdown. In the meantime the pattern would look best with a new high and I've depicted a move up to 1466 and to the mid line of the up-channel by the end of next week.

Gold continuous contract, GC, Daily chart

The reason I'm using 1466 for the price projection is because that's the 127% extension of the December-January decline, a very common reversal level. The two other common upside targets are at 113% (1448 and almost reached) and 161.8% (1508), which would also be up to the top of a longer-term up-channel from 2005 (not shown on the daily chart above). So stay long gold until it proves the leg up from January has completed. Once this rally leg is finished it will be due a very large, multi-month pullback so keep your stops tight if you don't want to ride out a deep correction.

Oil may be topping here, or at least that's the setup. It did a small throw-over above the top of a potential rising wedge pattern and closed slightly back inside, so far leaving a doji star at resistance. It has also achieved a 62% retracement of its 2008-2009 decline. If oil keeps rallying I'll redraw the lines to identify a parallel up-channel, the top of which is near 118 (where the dashed line points to).

Oil continuous contract, CL, Weekly chart

If you trade USO as your oil substitute the first thing you'll notice in the chart below is how weak it's been compared to oil itself. While oil has retraced a little more than 62% of its 2008-2009 decline USO hasn't even retraced 21.4% yet. We've heard many times that you should not use an ETF for a longer-term buy-and-hold strategy and this is a vivid example why that's true. At any rate, USO also is set up for a reversal from here. It has reached the top of its rising wedge pattern, which is obviously a lot flatter than oil's, and achieved the price projection at 42.78 where the c-wave of its A-B-C bounce off the February 2009 low is 62% of the a-wave. Monday's high was 42.83. Weekly RSI is overbought so a long trade from here would be riskier than a short trade.

U.S. Oil fund, USO, Weekly chart

The quiet week for economic reports continues Thursday with no big changes expected from the prior reports. The market will once again be left to fend for itself and react to any overseas news.

Economic reports, summary and Key Trading Levels

Oil continues to get the blame/credit for market declines/rallies, with the explanation changing on a daily basis depending on what each is doing. It's comical to listen to the pundits use oil to explain the reason for the stock market's move. The bottom line is that oil and the stock market are more often in synch than not. What's interesting though is what happens after a strong rally in oil.

I've consumed enough electronic ink tonight, not to mention your valuable time, so I won't get into the details tonight about what's happening with oil and why it's a harbinger of bad things to come for the stock market but I'll try to get to it next week. While oil and the stock market mirror each other, strong spikes in the price of oil have consistently led to tops for both oil and the stock market. The current spike fits the historical pattern so that's another strike against a continuation of the current rally. For this reason I'm watching oil very closely for hints of a top.

The stock market looks vulnerable. The indexes have either broken uptrend lines, which they're trying to retest, or they're holding above their trend lines (or 50-dma's) but not making a strong effort to get some distance away from support. This has it looking like the indexes are consolidating in front of a selloff. This market has had an uncanny ability to shrug off bearish patterns and start another rally so that remains possible. But I could only guess about that happening again and in the meantime the chart patterns are more bearish than bullish and therefore I have to lean that way. Keep your stops up close if you're long the market and continue to ride it higher if that's the way it goes.

If you're short, or looking to get short, a breakdown could happen fast and therefore have a trading plan ready to go and then execute without having to react to the moment. Know how, when and where you'll enter and know before you pull the trigger where your stop will be. This is a whippy market and it's making it difficult for both sides to enter a trade with a reasonably close stop without getting whipped out of your trade. One method is to trade smaller with a much wider stop and then add to winning trades.

Let the market prove itself -- let price lead the way. Follow the key levels above and hopefully a break either to the upside or downside will then see follow through. If not, stop yourself out and husband your cash carefully so that you have enough fare (capital) to ride the next bus.

Good luck and I'll be back with you next Wednesday.

Key Levels for SPX:
- bullish above 1332 to 1353 - ?
- bearish below 1304

Key Levels for DOW:
- bullish above 12,320 to 12,600
- bearish below 12,040

Key Levels for NDX:
- bullish above 2420
- bearish below 2307

Key Levels for RUT:
- bullish above 829 to 840-850
- bearish below 805

Keene H. Little, CMT


New Option Plays

Waste Disposal

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate, check out these stocks that caught my eye.

EW is in the healthcare sector and shares are showing strength. My biggest concern is that option spreads are pretty wide.

PVH broke through short-term resistance at $62.00 and its 100-dma today. The stock appears to have formed a bottom. This might be a new entry point for calls although the $64 level has been resistance in the past.

TUP is showing relative strength and hit new all-time highs today.

- James


NEW DIRECTIONAL CALL PLAYS

Stericycle Inc. - SRCL - close: 87.69 change: +0.14

Stop Loss: 84.95
Target(s): 94.00, 99.00
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
SRCL is a waste management company. The stock popped higher back in early February following its better than expected earnings report. Shares have spent the last four weeks digesting those gains in an $83-88 trading range. Now SRCL is flirting with a breakout above resistance.

I am suggesting a trigger to buy calls at $88.25. If triggered our targets are $94.00 and $99.00. The $90 level could be round-number resistance but after four weeks of consolidating sideways I'm not expecting $90 to be an issue. Let's keep our position size small to limit our risk.

Trigger @ 88.25

- Suggested Positions -

Buy the April $90 calls (SRCL1116D90) current ask $1.60

- or -

Buy the May $95 calls (SRCL1121E95) current ask $1.10

Annotated Chart:

Entry on March xxth at $ xx.xx
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 481 thousand
Listed on March 9th, 2010


In Play Updates and Reviews

Lack of Leadership

by James Brown

Click here to email James Brown

Editor's Note:

There was a clear lack of leadership for the bulls on Wednesday. Meanwhile tech stocks suffered renewed weakness thanks to the semiconductor stocks. The breakdown in the chips could spark a wider sell-off in the NASDAQ. Traders need to stay on the defensive. I have adjusted stop losses for BWA, CAT, and FOSL. Our new play in CTSH has been triggered. BHI has been stopped out.

-James

Current Portfolio:


CALL Play Updates

Peabody Energy Corp. - BTU - close: 65.37 change: -2.38

Stop Loss: 64.75
Target(s): 69.75, 74.00
Current Option Gain/Loss: -80.3%, and -12.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/09 update: Coal stocks as a group trended lower but BTU really underperformed with a -3.5% loss. There was no specific news behind the stock's relative weakness. Shares are now testing the $65 level but the close under $66 is short-term bearish. Thus far the action this week is definitely painting a big bearish reversal pattern on BTU's weekly chart. More conservative traders may want to exit early. If this action continues tomorrow we will likely be stopped out at $64.75. I am not suggesting new positions at this time. <--

Our second target is $74.00. 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

03/04 1st Target Hit @ 69.75. Options @ +49.5% and +41.6%
03/03 New stop loss @ 64.75

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: 77.32 change: +0.49

Stop Loss: 74.85
Target(s): 79.75, 84.50
Current Option Gain/Loss: -54.5%, and -29.1%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: BWA rebounded off its morning lows but remains under resistance near the $78.00 level. I am not suggesting new positions at this time. BWA has bounced above the $75.00 level twice in the past two weeks. I am moving our stop loss to $74.85.

Our targets are $79.75 and $84.50. Our plan was to use small positions to limit our risk.

SMALL bullish positions

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

- or -

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

03/09 New stop loss @ 74.85

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: 102.36 change: -1.77

Stop Loss: 99.25
Target(s): 104.75, 107.50
Current Option Gain/Loss: -39.2%
2nd Option Gain/Loss: - 7.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/09 update: CAT, much like the major market indices, is still churning sideways. The big picture trend is still up but I'm growing more cautious. Nimble traders might want to consider buying dips near the $100 area. Please note that I am raising our stop loss to $99.25.

- Suggested Positions -

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

- or -

Long the April $105 calls (CAT1116D105) Entry @ $2.78

03/09 New stop loss @ 99.25
03/03 2nd position (April $105 calls) opened at $2.78
03/02 Buy calls on the bounce.
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.

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


Cerner Corp. - CERN - close: 103.80 change: +0.74

Stop Loss: 97.75
Target(s): 104.85, 109.00
Current Option Gain/Loss: + 3.7%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: CERN continues to rally from dips into the $101-102 zone and shares displayed relative strength with a +0.7% gain. The trend is still up but if the major indices breakdown odds are CERN will follow them lower. Trade cautiously. Readers may want to raise their stop loss closer to the $100 level. Our second and final target is $109.00.

FYI: I want to point out that the most recent data (as of Feb. 15th) listed short interest at 13.9% of CERN's 70-million share float. That definitely seems like a high amount of shorts and fuel for a short squeeze. Plus, the Point & Figure chart for CERN is bullish with a $115 target and what appears to be a relatively fresh quadruple top breakout buy signal.

- Suggested Positions -

Long the April $105 calls (CERN1116D105) Entry @ $2.70

03/04 1st Target Hit @ $104.85, Option @ $3.15 (+16.6%)

Entry on March 3rd at $102.62
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 600 thousand
Listed on March 2nd, 2010


Check Point Software - CHKP - close: 49.05 change: -0.07

Stop Loss: 47.90
Target(s): 54.50
Current Option Gain/Loss: -69.2%, and -41.1%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/09 update: CHKP spent the day churning sideways. Nimble traders could try buying dips (or bounces) from the $48.00 level again but honestly, I am growing cautious on this stock. The tech-heavy NASDAQ could lead technology stocks lower.

Our target is $54.50.

- Suggested Positions -

Long the March $50 calls (CHKP1119C50) Entry @ $1.30

- or -

Long the April $52.50 calls (CHKP1116D52.5) Entry @ $0.85

Entry on February 28th at $50.28
Earnings Date 04/26/11 (unconfirmed)
Average Daily Volume = 3.0 million
Listed on February 26th, 2010


Cognizant Technology Solutions - CTSH - close: 78.41 change: +0.63

Stop Loss: 74.75
Target(s): 82.25, 84.75
Current Option Gain/Loss: - 5.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/09 update: Good news! We did not have to wait very long for CTSH to breakout and hit our trigger. Shares were showing relative strength today and rallied through resistance at $78.00. Our trigger to buy calls was hit afternoon at $78.25. Given CTSH's strength into the close I would still consider new positions now. We have a stop at $74.75. Our targets are $82.25 and $84.75.

FYI: The Point & Figure chart for CTSH is bullish with a $105 target. Plus, a breakout past $78 would produce a new quadruple top breakout buy signal.

- Suggested Positions -

Long the April $80 calls (CTSH1116D80) Entry @ $1.80

Annotated Chart:

Entry on March 9th at $78.25
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume = 2.2 million
Listed on March 8th, 2010


Citrix Systems Inc. - CTXS - close: 72.80 change: +0.31

Stop Loss: 67.40
Target(s): 77.00, 79.90
Current Option Gain/Loss: + 2.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/09 update: CTXS is still drifting higher but the stock has yet to really breakout past its February highs. There is no change from my prior comments. I would use a dip near $70 as a new entry point.

I do consider this a slightly more aggressive trade. We'll put our stop loss under last week's low and under its 50-dma. Our targets are $77.00 and $79.90. The Point & Figure chart for CTXS is bullish with a $94 target.

- Small Bullish Positions -

Long the April $75 calls (CTXS1116D75) Entry @ $2.20

Entry on March 7th at $71.89
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 2.3 million
Listed on March 5th, 2010


Devon Energy - DVN - close: 89.71 change: -0.25

Stop Loss: 87.75
Target(s): 94.85, 99.00
Current Option Gain/Loss: -33.7%, and -19.7%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: It was a quiet day for DVN. Energy stocks struggled as crude oil faded from its morning rally. DVN still has a bullish trend of higher lows and readers could open positions here but remember to keep positions small. Alternatively you could wait for a breakout past $92. Our exit targets are $94.85 and $99.00. Let's keep our position size small since the market has been a little bit volatile lately.

- Small Bullish Positions -

Long the April $95 calls (DVN1116D95) Entry @ $1.60

- or -

Long the July $95 calls (DVN1116G95) Entry @ $4.30

Entry on March 7th at $91.35
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume = 3.3 million
Listed on March 5th, 2010


Fastenal Co. - FAST - close: 62.77 change: +0.33

Stop Loss: 59.90
Target(s): 67.25
Current Option Gain/Loss: -87.5%, and -15.5%
2nd Position Option Gain/Loss: -25.0%, and +16.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/09 update: FAST displayed a little strength today and posted a +0.5% gain. The stock looks poised to move higher but the $63.50 zone remains overhead resistance. I would not open new positions at this time.

Readers may want to keep in mind that the most recent data listed short interest at 13.6% 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 listed 2/24, Entered 2/25-

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

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


FactSet Research Systems - FDS - close: 104.00 change: -0.25

Stop Loss: 99.95
Target(s): 109.50
Current Option Gain/Loss: -30.2%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
03/09 update: FDS has spent the last two weeks in a neutral consolidation pattern of lower highs and higher lows. This consolidation has narrowed to the point where a breakout should be imminent. While this is supposed to be a neutral pattern the prevailing trend (in this case - up) usually continues. Readers could use a new rally past $105 as their entry point for bullish positions.

I would keep our positions size small. This is a volatile stock and we're playing March options so expect a lot of volatility in the option price. We'll plan on exiting March 14th at the close to avoid holding over the report.

small positions - Suggested Positions -

Long the March $105 calls (FDS1119C105) Entry @ $2.15

Entry on March 1st at $105.01
Earnings Date 03/15/11 (confirmed)
Average Daily Volume = 213 thousand
Listed on February 26th, 2010


Fossil, Inc. - FOSL - close: 84.83 change: +1.62

Stop Loss: 79.40
Target(s): 82.00, 88.00
Current Option Gain/Loss: +271.4%, and +161.1%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: Wow! I am impressed by the relative strength in shares of FOSL. The stock continues to rally and shares just broke out past its February high with today's +1.9% gain. FOSL is now short-term overbought. I would not launch new positions here. Please note our new stop loss at $79.40. Our final target is $88.00.

- Suggested Positions -

Long the March $80 calls (FOSL1119C80) Entry @ $1.40

- or -

Long the April $80 calls (FOSL1116D80) Entry @ $2.60

03/09 New stop loss @ 79.40
03/05 New stop loss @ 76.75
03/05 1st Target Hit @ $82.00, Options @ +142% and +92.3%
03/03 new stop loss @ 74.75

Entry on February 28th at $76.75
Earnings Date 05/11/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on February 26th, 2010


Hess Corp - HES - close: 83.10 change: -0.71

Stop Loss: 81.60
Target(s): 92.25, 98.50
Current Option Gain/Loss: -57.6%, and -45.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: HES is slipping closer and closer to technical support at its rising 40-dma (and its trendline of higher lows). This dip "should" be a new bullish entry point but readers may want to wait for a new bounce over $84.25 or $85.00 before initiating new positions. More conservative traders might want to inch up their stops closer to the $82.00 mark.

<-- The Point & Figure chart for HES is bullish with a $107 target. -->

- Suggested Positions -

Long the April $90 calls (HES1116D90) Entry @ $2.60

- or -

Long the May $90 calls (HES1121E90) Entry @ $4.15

03/02 Adjusted stop loss to $81.60

Entry on March 1st at $87.17
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on February 28th, 2010


IntercontinentalExchange, Inc. - ICE - cls: 130.93 chg: -1.01

Stop Loss: 125.75
Target(s): 138.00, 148.00
Current Option Gain/Loss: -10.9%, and - 5.8%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: ICE shaved off another dollar as it drifted back toward the $130 level. This should be new short-term support but readers may want to wait for a bounce. If you're launching positions here you might want a tighter stop loss. Our first target to take profits is at $138.00.

Prior comments:
This is an aggressive trade. The stock is volatile and there is a chance that ICE makes an acquisition bid for another exchange. If Wall Street thinks ICE is paying too much the stock will decline on the news. 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)

Long the March $130 calls (ICE1119C130) Entry @ $3.20

- or -

Long the April $135 calls (ICE1116D135) Entry @ $3.40

03/07 New stop loss @ 125.75

Entry on February 28th at $127.46
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume = 938 thousand
Listed on February 26th, 2010


Jones Lang Lasalle Inc. - JLL - close: 98.95 change: +2.25

Stop Loss: 93.30
Target(s): 102.50, 109.00
Current Option Gain/Loss: -25.7%, and - 5.8%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: There was a Bloomberg article out this morning quoting a JLL executive who suggested hotel acquisitions and mergers will rise this year thanks to strong occupancy and room rates. Investors might have been listening as JLL outperformed the market with a +2.3% gain. Shares have rallied right back to short-term resistance in the $99.50-100.00 zone. I'd like to see shares breakout over this level before initiating new positions.

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)

Long the March $100 calls (JLL1119C100) Entry @ $1.75

- or -

Long the April $100 calls (JLL1116D100) Entry @ $3.40

Entry on February 28th at $97.96
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 386 thousand
Listed on February 26th, 2010


3M Co. - MMM - close: 93.17 change: -0.58

Stop Loss: 88.75
Target(s): 94.50, 99.00
Current Option Gain/Loss: + 97.1%, and + 93.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: After climbing to a new multi-year high yesterday shares of MMM hit some profit taking today. The trend is higher. I would still consider April calls (with a $99 target). MMM is close to our $94.50 target. Our second and final target is $99.00.

- Suggested Positions -

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

- or -

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

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: 88.95 change: -0.24

Stop Loss: 84.80
Target(s): 88.00, 91.50
Current Option Gain/Loss: +115.3%, and +142.5%
2nd Position Gain/Loss: + 40.6%, and + 22.5%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: NKE spent the session consolidating sideways. There is no change from my prior comments. Currently our final target is $91.50. More aggressive traders may want to aim higher. However, the newsletter does not want to hold over NKE's earnings report, which is coming up soon on March 17th.

- 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%)

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


Occidental Petrol. - OXY - close: 100.87 change: -0.05

Stop Loss: 97.90
Target(s): 106.75, 109.75
Current Option Gain/Loss: -73.2%, and -24.4%
2nd Positions Gain/Loss: -50.9%, and -17.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/09 update: There is no change from my prior comments on OXY. Shares look headed for round-number support near $100.00. More conservative traders may want to raise their stop loss closer to the 50-dma near $99.15. I would wait for OXY to test $100 before initiating new positions.

Our plan was to use small positions to limit our risk. Don't forget that March calls expire in a couple of week.

Small Bullish Positions - Suggested Positions -

Long the March $105 calls (OXY1119C105) Entry @ $1.87

- or -

Long the April $105 calls (OXY1116D105) Entry @ $2.78

-2nd Position on bounce at $100 - Entry March 3rd -

Long the March $105 calls (OXY1119C105) Entry @ $1.02

- or -

Long the April $105 calls (OXY1116D105) Entry @ $2.54

03/03 OXY gapped open higher at $101.71, affecting our new entry
03/02 Buy calls on this bounce near $100 (2nd positions listed)
03/02 New stop loss at $97.90
02/28 Adjusted entry strategy. Buy calls now!

Entry on March 1st at $104.12
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 4.9 million
Listed on February 22nd, 2010


Quality Systems Inc. - QSII - close: 82.73 change: +1.51

Stop Loss: 77.90
Target(s): 87.25, 94.50
Current Option Gain/Loss: +14.8%, and + 8.8%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: The action in QSII looks bullish. The stock rallied +1.8% to a new high and on above average volume. The breakout looks like a new entry point for calls. Just bear in mind that if the major averages breakdown I would expect QSII to reverse on us.

Prior Comments:
FYI: Readers will be interested to note that the most recent data listed short interest in QSII at almost 28% of the very small 17.5 million-share float. That's definitely a recipe for a short squeeze. Plus, the Point & Figure chart for QSII is bullish with a $119 target.

- Suggested Positions -

Long the April $85 calls (QSII1116D85) Entry @ $1.35

- or -

Long the June $85 calls (QSII1118F85) Entry @ $3.40

Entry on March 4th at $81.44
Earnings Date 05/31/11 (unconfirmed)
Average Daily Volume = 154 thousand
Listed on March 3rd, 2010


Transocean Ltd. - RIG - close: 82.50 change: -1.39

Stop Loss: 79.75
Target(s): 89.50, 94.00
Current Option Gain/Loss: -68.2%, and -30.8%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: There should be no surprises here. I have been suggesting that readers wait for a dip into the $82-80 zone as our next entry point to buy April calls. That decline could happen tomorrow. Our profit targets are $89.50 and $94.00.

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

- Suggested Positions -

Long the March $85 calls (RIG1119C85) Entry @ $2.05

- or -

Long the April $85 calls (RIG1116D85) Entry @ $3.60

02/28 RIG hit our trigger @ 84.25

Entry on February 28th at $84.25
Earnings Date 05/05/11 (unconfirmed)
Average Daily Volume = 5.3 million
Listed on February 26th, 2010


Ross Stores Inc. - ROST - close: 71.29 change: -0.04

Stop Loss: 69.75
Target(s): 74.90, 77.75
Current Option Gain/Loss: -37.5%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
03/09 update: There is no change from my prior comments on ROST. The stock is still consolidating sideways in the $70-73 zone. If investors start to believe that higher oil prices will impact consumer spending then ROST and the retailers are likely headed lower. For the moment traders seem to be in a wait-and-see mode.

Don't forget that we will plan to exit ahead of the mid March earnings report. The Point & Figure chart for ROST is bullish with a $97 target.

- Suggested Positions -

Long the April $75 calls (ROST1116D75) Entry @ $1.60

03/03 New stop loss @ 69.75

Entry on March 1st at $72.55
Earnings Date 03/17/11 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on February 28th, 2010


The Toronoto-Dominion Bank - TD - close: 86.07 change: +0.00

Stop Loss: 80.90
Target(s): 84.00, 89.00
Current Option Gain/Loss: +344.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/09 update: March options expire in seven trading days. We probably want to exit this position this week. If TD doesn't hit our final target at $89.00 by Friday then the newsletter will exit completely at Friday's closing bell. More aggressive traders could hold on but you'd only have five days left. I am not suggesting new bullish positions at this time.

More conservative traders may want to exit anyway just to lock in a gain!

- Suggested Positions -

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

03/03 new stop loss @ 80.90
03/03 Target exceeded. Gap higher at $84.73 vs. target $84.00
03/03 March $80 call opened @ $6.00 (+344.4%)
02/28 New stop loss @ 78.40
02/26 New stop loss @ 77.90
02/16 New stop loss @ 76.90

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


Proshares Ultra(long) Russell 2000 - UWM - close: 46.68 change: -0.44

Stop Loss: 43.49
Target(s): 49.75, 54.00
Current Option Gain/Loss: -20.0%, and + 6.0%
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

iShares Russell 2000 - IWM - close: 82.08 change: -0.33

Stop Loss: 79.20
Target(s): 84.95, 87.25
Current Option Gain/Loss: -24.4%, and + 2.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/09 update: Wednesday proved to be a very quiet day for the small caps. The Russell 2000 index traded in a very narrow range. Investors are waiting for something and that something is probably Friday's day of rage in Saudi Arabia. Technically we can still buy dips near the rising 50-dma. We want to keep our position size small to limit our risk.

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

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


Waters Corp. - WAT - close: 86.97 change: -0.15

Stop Loss: 81.80
Target(s): 86.00, 89.90
Current Option Gain/Loss: +150.0%, and +100.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: WAT is holding up pretty well but shares remain short-term overbought. More conservative traders may just want to lock in a profit now. I am not suggesting new bullish positions at this time. Our final target is $89.90.

FYI: The March calls will likely be very volatile.

- Suggested Positions -

Long the March $85 calls (WAT1119C85) Entry @ $0.90

- or -

Long the April $85 calls (WAT1116D85) Entry @ $1.75

03/05 New stop loss @ 81.80
03/04 1st Target Hit @ $86.00. Options @ +100%, and +57.1%
The March $85 was bid near $1.80, the April $85s near $2.75.

Entry on February 28th at $82.61
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 876 thousand
Listed on February 26th, 2010


CLOSED BULLISH PLAYS

Baker Hughes Inc. - BHI - close: 68.33 change: -0.63

Stop Loss: 67.90
Target(s): 74.75, 79.00
Current Option Gain/Loss: -85.2% and -60.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/09 update: Strength in crude oil this morning quickly faded and energy stocks faded lower with the commodity. BHI dipped under support at $68.00 late in the day and hit our stop loss at $67.90.

- Suggested Positions -

March $75 calls (BHI1119C75) Entry @ $1.02, exit @ 0.15 (-85.2%)

- or -

April $75 calls (BHI1116D75) Entry @ $2.13, exit @ 0.85 (-60%)

03/09 Stopped out @ 67.90, Options @ -85.2% and -60%

chart:

Entry on February 28th at $71.74
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume = 5.3 million
Listed on February 26th, 2010