Option Investor
Newsletter

Daily Newsletter, Thursday, 3/10/2011

Table of Contents

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

Market Wrap

A Revolting Development

by Jim Brown

Click here to email Jim Brown
A potential revolt in Saudi Arabia and a shocking economic report out of China produced a buyer revolt in the U.S. equity markets.

Market Statistics

I don't even know where to start tonight. There are so many news events causing the market drop today I could write for hours and not get done. The big news before the open was a surprise announcement from China that they had a $7.3 billion trade deficit in February. That was the first monthly deficit since March 2010 and only the second in nearly seven years. This compares to a surplus in January of $6.45 billion and a surplus in Feb-2010 of +$7.61 billion.

This trade deficit was a major economic shock for traders already worried over a slowdown in China's economy. China has been hiking interest and reserve rates for months in an effort to control inflation and that has caused some worries over a renewed global slowdown.

China's custom officials said the timing of the lunar New Year, which fell in early February could have been the reason for the unexpected decline. A UBS analyst claimed this should not have been unexpected since producers ramp up to get products shipped before the New Year and then slump in the months that follow.

A Morgan Stanley economist claimed the trade data better reflected current conditions with exports rising +21.3% and imports up +36%. Almost everyone said despite the shock this would pass and China will still be the hottest economy on the planet.

The second major news event was the one notch downgrade of Spain's debt to Aa2 by Moody's. It was not the depth of the downgrade but the commentary that went along with it. Moody's cited worries over the cost of restructuring the banking sector, the government's ability to achieve borrowing reduction targets and grim economic growth prospects. Moody's warned it could cut the rating again is fiscal targets are missed and public debt continues to expand. Spain said its banking sector needs $21 billion in new capital. Twelve banks are considered under capitalized. FYI, Bill Gross is buying Spain's debt because they actually have a better balance sheet than the USA.

Earlier this week Moody's cut it's rating on Greece. These downgrades are a sign the debt crisis is heating up again. There is a crucial meeting on March 25th by EU leaders to discuss how to deal with Portugal and Ireland and the progress on the master EU bailout program. Portugal has spurned a potential bailout but the country had to pay 50% more (5.99% on 2-yr bonds) to sell debt on Wednesday than it did six months ago. Ten-year bonds have risen to 7%.

The sudden appearance of the EU debt crisis in the global news was another blow to an already weak U.S. equity market.

The market had started to rebound from the opening drop but at 12:30 news broke that Saudi Arabia had fired on a crowd of protestors in the city of Qatif and used stun grenades in an effort to breakup the protest. This would not have been that big of a deal in any other Arab country but Saudi has been relatively free of protests so far. However, protests are strictly forbidden and the government has taken extraordinary measures to prevent and control the planned Day of Rage protest on Friday. This protest could draw tens of thousands and news they fired on a couple hundred demonstrators on Thursday was not well received. Saudi Arabia produces 10% of the world's oil and Qatif is a major pipeline transit point to the world's largest oil terminal. If Saudi begins to experience civil unrest the oil infrastructure would be an easy target. There is no way the rest of the world can recover from a drop in Saudi production.

The government has mobilized 15,000 National Guard troops and 10,000 police to deal with the expected protest on Friday. They obviously plan on squashing it immediately despite calls from other nations to allow peaceful protests. King Abdullah tried to bribe citizens two weeks ago when he announced a stimulus package of $35 billion including raises for government employees and free tuition to school. The euphoria lasted about a week. Now the support for the protest is rising again. When the Saudi news broke at 12:30 the rebounding market was knocked to the lows of the day with the Dow hitting 11,974 and a loss of -238. This drop was quickly bought but was immediately sold again as additional news about the Saudi altercation filtered out.

Oil prices had plunged on the China and Spain news with WTI hitting $100.62 intraday. The Saudi news caused a rebound to more than $104 but the broader market decline took hold and crude closed at $102.73. Brent is $115. With the potential for additional production cuts as protests spread, the price of crude is not likely to decline much in the days ahead until the fighting in Libya ends. In Libya the government is pressing the fight to the opposition and striking farther away from Tripoli and hitting positions harder using planes and artillery. Gaddafi appears to have ratcheted up the cost of opposition and he does not appear concerned about damage to oil installations.

Crude Oil Chart

Another minor factor in the early morning decline was the +26,000 spike in jobless claims to 397,000 for the week. Since claims had fallen significantly in the prior two weeks to a low of 371,000 (revised) it was not a real shock that we would have an eventual spike. Jobless claims are volatile with things like weather always a factor, as is a large layoff from several companies in the same week.

The Quarterly Services Survey showed year over year growth of +5.5% and higher than the 5.1% in Q3. That was as low as 2.6% back in 2010Q1. Professional, scientific and technical services increased at a 6.6% rate. Health care rose by +4.4%.

The economic reports due out on Friday are Consumer Sentiment, Business Inventories, Retail Sales and Job Openings.

In stock news NetFlix soared +$7 to close over $200 after the NetFlix Chief Content Officer downplayed the impact of Facebook and Time Warner on their business. When Facebook said earlier this week they were going to partner with Time Warner to stream videos on Facebook the shares of NetFlix declined sharply. Goldman said this was a credible threat and that weighed on NFLX shares. However, when the CCO called the threat no worse than any other competitor because nobody is going to routinely go to Facebook to watch a video. The stock gained strongly on the news despite the negative market. This was probably due to the heavy short interest reacting to the news.

NetFlix Chart

An even bigger gain was seen in shares of Green Market Coffee Roasters (GMCR) of +18. That is a +41% gain in one day. The power behind this move was a deal announced by GMCR and Starbucks to market Starbucks coffee and Tazo tea in the Keurig K-Cup portion packs. This deal had been speculated for sometime but over the last couple of weeks there were signs Starbucks might have been proceeding towards marketing its own single cup brewing machine to compete with GMCR. Actually Thursday's deal does not prevent Starbucks from marketing its own machine in the future. This may have been self-defense by Starbucks because Dunkin Donuts announced last month it was also joining the K-Cup line. Beginning this fall, the Starbucks K-Cup portion packs will be sold at supermarkets, wholesale clubs, drug stores, and department stores throughout the U.S. and Canada. This deal could also boost sales of the GMCR Keurig brewer. Starbucks said research showed more than 80% of current Starbucks customers do not yet own a single cup brewer. GMCR K-Cup sales rose +103% in 2010. Starbucks recently announced a deal with Courtesy that gave them a single serve solution in more than 500,000 hotels.

GMCR Chart

Starbucks Chart

The morning drop in crude prices made the energy sector the biggest loser for the day. With crude holding at $105 for the last week it was due for a pause. However, the amount of decline was significant. For instance Exxon Mobil (XOM) declined -$3 and that knocked $15 billion off its market cap. It is highly unusual for a highly liquid big cap stock with five billion shares outstanding to take this kind of hit. This kind of decline was sector wide so it was obviously the wholesale dumping of energy ETFs that caused the damage. With funds and hedge funds increasingly turning to ETFs for sector exposure the volatility can be huge. Instead of buying a million shares each in 15 stocks they can buy 15 million shares of an ETF. Unfortunately when they decide to liquidate that position it forces selling in the entire sector. They can't sell just Exxon or Conoco; they have to sell the entire ETF. The dollar rallied to a two week high on the problems in the EU and the rising unrest in the Middle East. This would normally push commodities higher but the selling fever was broad based with metals and commodities of all flavors taking a dive. Copper is off about 8% from its highs and Gold was down about $35 from its highs at today's low of $1403.

Bonds had a great day. The auction for 30-year bonds today was given an A+ rating with a bid to cover ratio of 3.02 and a yield of 4.569%. The BTC average of the ten prior 30-year auctions was only 2.66. Rick Santelli said this was the strongest 30-year auction since August 2000. Fear about the return of the EU credit crisis and worry over China and the unrest in the Middle East had buyers in full flight to the safety of bonds.

Wednesday was the lowest volume since Feb 25th at 6.97 billion shares but Thursday added over two billion shares to 8.99 billion. Sharp declines always have more volume because of triggered stop losses and forced margin selling. Decliners were 7:1 over advancers and new 52-week highs at 77 were the lowest since November 17th. Despite the negative internals this was not yet at levels that would classify as a capitulation event.

The S&P retreated to critical support at 1295 at the open and again after the Saudi news. That is exactly where it closed and in theory it should be a critical inflection point for Friday. The Libyan low was 1294 back on Feb 24th. The Egyptian low was 1275. We could conceivably retest the Egyptian low and recover but I believe a break of 1295 could be very detrimental and lead to a much larger decline.

However, despite the commentators blaming China, Spain and Saudi Arabia today I think the real culprit is still the FOMC meeting coming up on Tuesday. The market has been listless all week as hedge funds rotated out of positions ahead of what they believe will be a change in the Fed's position. It was on the backdrop of these liquidations that the bad news today caused the market reaction.

I think it could have been worse and the halt at 1295 is a key point. The 8.9 billion shares is higher than we have seen in recent weeks but it is far below a real capitulation type of day with 10-12 billion shares. Buyers are still showing up at critical support levels and that is a key point.

Unfortunately the leftover sentiment from today will sour the Asian markets overnight and could carry over into our market on Friday. Fortunately Saudi Arabia is half a world away so we will have any news about their Day of Rage protest before our markets open on Friday. The protests are expected to start around 4:PM Saudi time, 8:AM ET. Facebook pages claim Saudi police are going to refuse to open fire on the protestors because supposedly the police are supportive of the movement. That may be why Saudi has activated the 15,000 National Guard troops. Saudi has a high personal ownership of firearms. More than 80% of families own weapons and some believe as many as 50% are AK-47s.

Either way we should have a clue as to the direction of the protest and the direction of our markets before the open. If the S&P opens below 1295 and stays there for more than a few minutes I would expect the selling to increase. We still have fear of the Fed until Tuesday afternoon and we definitely will have fear of darkness towards the close. Unless there is a giant rebound in progress late in the afternoon I would expect weekend event risk to keep buyers from bargain hunting. This is going to be a heavily event laden weekend overseas.

S&P-500 Chart

The Dow declined -228 points to close at 11,984 and just barely above the low from Feb-24th at 11,983. I know, talking about a one-point difference on a 12,000-point index is ridiculous but history is important in technical analysis. I would be very surprised if the Dow held its ground given the weekend event risk so that makes the next critical support level 11,800 and the lows from the Egyptian market drop. That would be a slid break of the 50-day average and a new four-week low. That is bearish in any context and the FOMC meeting is still two days away.

Dow Chart

The Nasdaq closed at a six week low and clearly below initial support. This is a major failure for the Nasdaq and suggests we will see a retest of critical support at 2675. Big cap techs are being sold hard and stocks like Google (GOOG -11.47) have broken below support. Google has declined -$50 in the last three weeks.

I see the Nasdaq as the leading indicator tonight. The Dow, S&P and Russell all closed at support but the Nasdaq failed. This could be an ugly omen ahead of the weekend's event risk.

Nasdaq Chart

The Russell managed to close about its late February support lows at 795 but it was the biggest loser of the day with a -2.6% drop. The Russell is not being sold alone as evidenced by the big cap news I reported earlier. Therefore I don't see it as a major indicator for Friday. Certainly a drop below 795 would be bearish but the other indexes are likely to crack first.

Russell Chart

I have no bullish thoughts for tonight. The markets closed bearish and barely on support. Our fate depends on the FOMC, Libya and the morning's events in Saudi Arabia. If Saudi switches posture and allows peaceful protests then it is possible we could see a rally. If they come down hard on the protestors it could spark even bigger and more violent protests later or civil disobedience and a production halt on oil. Higher oil prices would weigh on the market and the Fed. This weekend has significant event risk and I would be surprised if we finish higher on Friday. There is the potential for another monster short squeeze but that would require a major piece of bullish news. I would be careful taking a long position ahead of the FOMC announcement but I plan on buying energy stocks on the dip.

I would continue to be cautious until after the FOMC meeting next Tuesday. Tighten up your stops and exit aggressively to maintain any profits.

Jim Brown

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New Option Plays

Broken Trends

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Joy Global Inc. - JOYG - close: 88.40 change: -3.84

Stop Loss: 94.25
Target(s): 85.25
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
Weakness in copper is signaling a potential top for some of the metal commodities and the mining-related stocks. Investors are worried the global economy might be slowing down with disappointing economic data out of China (possibly due to the Golden Week holiday) and elevated gasoline prices weighing on the consumer globally. Copper prices have actually created a bearish head-and-shoulders pattern. Meanwhile shares of JOYG have broken their long-term up trend at the 50-dma.

Aggressive traders could buy puts on JOYG now. Odds are the stock could see a little oversold bounce. I am suggesting a trigger to buy puts at $90.00. Nimble traders could try and time an entry point closer to the $92 level instead. Our target is $85.25. Aggressive traders could aim for the $84 lows or a drop closer to $80.

Trigger @ 90.00

- Suggested Positions -

Buy the April $85 puts (JOYG1116P85) current ask $3.15

Annotated Chart:

Entry on March xxth at $ xx.xx
Earnings Date 06/02/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on March 10th, 2010


In Play Updates and Reviews

Energy Stocks Get Smoked

by James Brown

Click here to email James Brown

Editor's Note:

Stocks sold off across the market but energy stocks were some of the hardest hit. We had several trades get stopped out. Tomorrow could be another brutal day if the protests in Saudi turn violent. News that Saudi riot police fired on protestors with non-lethal bullets was enough to accelerate the declines late this afternoon. At the same time, the market has been holding its breath over this "day of rage" for a while now and stocks could rebound with a big sigh of relief tomorrow if headlines are quiet.

In other news I'm curious to see if Apple Inc. (AAPL) will rally from technical support near its 50-dma or will it see a sell-the-news reaction as the company launches its iPad 2 sales tomorrow.

-James

Current Portfolio:


CALL Play Updates

Cerner Corp. - CERN - close: 102.23 change: -1.57

Stop Loss: 97.75
Target(s): 104.85, 109.00
Current Option Gain/Loss: -20.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: CERN is still holding up reasonably well. Traders bought the dip again near the $101 area and CERN rallied off its intraday lows. I would stay cautious here. We might get a better entry point to buy a dip near $100 soon. Let's wait and see how the market reacts to the "day of rage" tomorrow. 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


Cognizant Technology Solutions - CTSH - close: 76.11 change: -2.30

Stop Loss: 74.75
Target(s): 82.25, 84.75
Current Option Gain/Loss: -36.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/10 update: Profit taking in CTSH produced a -2.9% decline. Shares might see a dip near $75 and its 50-dma. I would wait for that dip or a bounce from $75 before initiating new positions. More conservative traders just want to step back and see how the market closes on Friday before considering new bullish positions. 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

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: 70.40 change: -2.40

Stop Loss: 67.40
Target(s): 77.00, 79.90
Current Option Gain/Loss: -34.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/10 update: Heavy selling in tech stocks produced a -3.2% decline in CTXS. Shares are now testing support near $70.00 and its six-week trend of higher lows. This dip can be used as a new bullish entry point but readers may want to step back and wait to see how the market trades following the "day of rage" in Saudi tomorrow.

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


Fastenal Co. - FAST - close: 61.59 change: -1.18

Stop Loss: 59.90
Target(s): 67.25
Current Option Gain/Loss: -88.2%, and -31.1%
2nd Position Option Gain/Loss: -50.0%, and - 9.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/10 update: FAST is holding up reasonably well. If the weakness continues tomorrow we can expect FAST to retest support near $60.00. The problem is that further weakness in the major indices will only confirm the market breakdown and FAST may not hold the $60 level. I would be very cautious tomorrow before considering new bullish positions.

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: 102.03 change: -1.97

Stop Loss: 99.95
Target(s): 109.50
Current Option Gain/Loss: -60.4%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
03/10 update: Warning! The action today in FDS is a short-term bearish breakdown from its two-week consolidation pattern. The stock settled on technical support at its 40-dma and should still have some psychological, round-number support at $100 (and its 50-dma). However, we only have two days left for this play to work. More conservative traders will want to strongly consider an early exit right now. I am not suggesting new positions at this time.

The plan was to use small positions to limit our risk. 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: 83.28 change: -1.55

Stop Loss: 79.40
Target(s): 82.00, 88.00
Current Option Gain/Loss: +185.7%, and +123.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: Today proves that FOSL is invulnerable to the recent market weakness. Shares actually saw some profit taking and almost erased yesterday's gains. I would expect a dip back toward the $80 area if the major indices continue to sink. I am not suggesting new positions at this time. More conservative traders may want to exit early now. 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


IntercontinentalExchange, Inc. - ICE - cls: 127.59 chg: -3.34

Stop Loss: 125.75
Target(s): 138.00, 148.00
Current Option Gain/Loss: -57.8%, and -38.2%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: ICE's breakdown under $130 does not bode well for the bulls. The low today was $126.72. If the market continues lower on Friday we will probably get stopped out at $125.75. I am not suggesting new positions at this time.

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: 95.91 change: -3.04

Stop Loss: 93.85
Target(s): 102.50, 109.00
Current Option Gain/Loss: -74.2%, and -35.2%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: JLL completely erased yesterday's big gain. The stock tested the $95 level and its 40-dma this morning before paring its losses. More conservative traders may want to raise their stops near the $95 mark. I am raising our stop to $93.85 because I suspect JLL will pull back toward the $94.00 level again before bouncing. I am not suggesting new positions at this time.

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

03/10 New stop loss @ 93.85

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: 90.01 change: -3.16

Stop Loss: 88.75
Target(s): 94.50, 99.00
Current Option Gain/Loss: - 24.5%, and - 8.9%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: Ouch! MMM just erased two week's worth of gains in today's decline. The stock fell toward round-number support at $90.00. A bounce from here could be used as an entry point. More conservative traders might want to raise their stops.

- 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: 88.18 change: -0.77

Stop Loss: 84.80
Target(s): 88.00, 91.50
Current Option Gain/Loss: + 86.6%, and +114.8%
2nd Position Gain/Loss: + 21.8%, and + 8.6%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: NKE is really holding up pretty well considering the market's weakness. Conservative traders may want to consider an early exit anyway since further weakness in the major averages would confirm the breakdown and that could spark some real profit taking in NKE. I am not suggesting new positions at this time.

- 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


Quality Systems Inc. - QSII - close: 81.96 change: -0.77

Stop Loss: 77.90
Target(s): 87.25, 94.50
Current Option Gain/Loss: + 0.0%, and + 0.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: QSII is holding up pretty well. Traders bought the dip near $80.50 and the stock erased most of its intraday lows. As long as the major market indices don't see further weakness I would buy calls on QSII at these levels. (FYI: options values are back to breakeven +0.0%)

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


Ross Stores Inc. - ROST - close: 70.56 change: -0.73

Stop Loss: 69.75
Target(s): 74.90, 77.75
Current Option Gain/Loss: -50.0%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
03/10 update: ROST pulled back toward support near $70.00. If the protests in Saudi turn violent and oil rises tomorrow I would expect ROST to breakdown and hit our stop loss at $69.75.

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


Stericycle Inc. - SRCL - close: 86.35 change: -1.34

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

Comments:
03/10 update: SRCL only suffered a mild pull back from its highs. We are waiting for a breakout past resistance at $88.00. 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

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


The Toronoto-Dominion Bank - TD - close: 85.20 change: -0.87

Stop Loss: 80.90
Target(s): 84.00, 89.00
Current Option Gain/Loss: +285.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/10 update: TD is also holding up reasonably well, especially considering the weakness in financials today. I am still suggesting that we exit our March calls (currently our only position) in TD on Friday (tomorrow) at the closing bell.

- Suggested Positions -

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

03/10 Prepare to exit tomorrow
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: 44.37 change: -2.31

Stop Loss: 43.49
Target(s): 49.75, 54.00
Current Option Gain/Loss: -50.9%, and -32.0%
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: 79.97 change: -2.11

Stop Loss: 79.20
Target(s): 84.95, 87.25
Current Option Gain/Loss: -53.6%, and -32.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/10 update: There was clearly a "risk off" trade today as investors sought safe havens for their money. Small caps are just the opposite so the Russell 2000 underperformed on Thursday. Both the UWM and IWM broke down under technical support levels and their rising 50-dma. Yet neither hit our stop loss - at least not yet. If the day of rage protests in Saudi turn violent tomorrow then stocks around the global could see further weakness and I would expect these trades to get stopped out. There is a chance the UWM and IWM could actually gap open lower on us. I am not suggesting new bullish positions at this time. We wanted 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: 85.01 change: -1.96

Stop Loss: 82.80
Target(s): 86.00, 89.90
Current Option Gain/Loss: + 27.7%, and + 40.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: WAT naturally saw some profit taking on Thursday. Shares look headed for what should be short-term support in the $84.00-83.75 zone. I am raising our stop loss to $82.80. More conservative traders may want to inch theirs even higher if you haven't exited already. 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

03/10 New stop loss @ 82.80
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

Peabody Energy Corp. - BTU - close: 61.59 change: -3.78

Stop Loss: 64.75
Target(s): 69.75, 74.00
Current Option Gain/Loss: -87.8%, and -24.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/10 update: Widespread market declines pushed stocks lower but energy names were especially hard hit. BTU plunged -5.7% and broke through several layers of short-term support. The stock gapped open at $63.86, which was below our stop loss at $64.75 so the play was closed immediately this morning.

- Suggested Positions -

March $70 calls (BTU1119C70) Entry @ $1.07, Exit @ $0.13 (-87.8%)

- or -

June $70 calls (BTU1118F70) Entry @ $3.60, Exit @ $2.73 (-24.1%)

03/10 BTU gaps down under stop loss. Options @ -87.8% and -24.1%
03/04 1st Target Hit @ 69.75. Options @ +49.5% and +41.6%
03/03 New stop loss @ 64.75

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: 76.46 change: -0.86

Stop Loss: 74.85
Target(s): 79.75, 84.50
Current Option Gain/Loss: -86.3%, and -49.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: BWA was not immune to the market's weakness this morning. The stock gapped open lower at $75.93 and quickly fell to an intraday low of $74.85. That just happens to be our stop loss so the play is now closed even though BWA rebounded off its intraday lows. I'd keep BWA on your watch list for a test of the $70.00 level or a breakout past $78.00 as possible entry points. Our plan was to use small positions to limit our risk.

SMALL bullish positions

March $80 calls (BWA1119C80) Entry @ $1.10, Exit @ $0.15 (-86.3%)

- or -

April $80 calls (BWA1116D80) Entry @ $2.47, Exit @ $1.25 (-49.3%)

03/10 BWA hit our stop @ 74.85. Options @ -86.3% & -49.3%
03/09 New stop loss @ 74.85

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: 98.39 change: -3.97

Stop Loss: 99.25
Target(s): 104.75, 107.50
Current Option Gain/Loss: -71.8%
2nd Option Gain/Loss: -35.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/10 update: A combination of headlines teamed up to send CAT lower. Negative economic news from Asian, Europe, and the U.S. all raised fears that the global economy might see a slow down. Shares of CAT saw a very negative reaction and broke support near $100 and broke down through the bottom of its rising bullish channel. Our stop loss was hit at $99.25.

- Suggested Positions -

March $105 calls (CAT1119C105) Entry @ $1.35, Exit @ $0.38 (-71.8%)

- or -

April $105 calls (CAT1116D105) Entry @ $2.78, Exit @ $1.80 (-35.2%)

03/10 Stopped out. Options @ -71.8% & -35.2%
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.

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


Check Point Software - CHKP - close: 48.14 change: -0.91

Stop Loss: 47.90
Target(s): 54.50
Current Option Gain/Loss: -84.6%, and -58.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/10 update: The market-wide sell-off produced an intraday breakdown in CHKP. Shares slipped through support near $48.00 and its 50-dma on an intraday basis. Our stop loss was hit at $47.90.

- Suggested Positions -

March $50 calls (CHKP1119C50) Entry @ $1.30, Exit @ $0.20 (-84.6%)

- or -

April $52.50 calls (CHKP1116D52.5) Entry @ $0.85, Exit @ $0.35 (-58.8%)

03/10 Stopped out. Options @ -84.6% & -58.8%

chart:

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


Devon Energy - DVN - close: 86.08 change: -3.63

Stop Loss: 87.75
Target(s): 94.85, 99.00
Current Option Gain/Loss: -58.1%, and -34.8%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: Ouch! Some of the energy stocks were just crushed on Thursday. DVN gapped open lower at $88.65 and quickly hit our stop loss at $87.75. Shares eventually settled with a -4.0% decline. It was our plan to keep our position size small to limit our risk.

- Small Bullish Positions -

April $95 calls (DVN1116D95) Entry @ $1.60, Exit @ $0.67 (-58.1%)

- or -

July $95 calls (DVN1116G95) Entry @ $4.30, Exit @ $2.80 (-34.8%)

03/10 Stopped out. Options @ -58.1% & -34.8%

chart:

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


Hess Corp - HES - close: 78.74 change: -4.26

Stop Loss: 81.60
Target(s): 92.25, 98.50
Current Option Gain/Loss: -73.0%, and -55.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: HES is another energy stock that was hammered lower on Thursday. Shares gapped open under recent support and quickly broke down under its 50-dma and hit our stop loss at $81.60. The sell-off continued and HES broke through the $80 mark to close with a -5.1% loss on the session.

- Suggested Positions -

April $90 calls (HES1116D90) Entry @ $2.60, Exit @ $0.70 (-73%)

- or -

May $90 calls (HES1121E90) Entry @ $4.15, Exit @ $1.85 (-55.4%)

03/10 Stopped out. Options @ -73% & -55.4%
03/02 Adjusted stop loss to $81.60

chart:

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


Occidental Petrol. - OXY - close: 97.43 change: -3.44

Stop Loss: 97.90
Target(s): 106.75, 109.75
Current Option Gain/Loss: -85.5%, and -47.8%
2nd Positions Gain/Loss: -73.5%, and -42.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/10 update: If you were an energy stock you had a bad day today. OXY was no exception. Shares gapped open lower at $99.93, under round-number support at the $100.00 mark and shares plunged through the 50-dma. Our stop loss was hit at $97.90. Our plan was to use small positions to limit our risk.

Small Bullish Positions - Suggested Positions -

March $105 calls (OXY1119C105) Entry @ $1.87, Exit @ $0.27 (-85.5%)

- or -

April $105 calls (OXY1116D105) Entry @ $2.78, Exit @ $1.45 (-47.8%)

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

March $105 calls (OXY1119C105) Entry @ $1.02, Exit @ $0.27 (-73.5%)

- or -

April $105 calls (OXY1116D105) Entry @ $2.54, Exit @ $1.45 (-42.9%)

03/10 Stopped out. Options @ -85.5%, -47.8%, -73.5%, and -42.9%
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!

chart:

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


Transocean Ltd. - RIG - close: 78.97 change: -3.53

Stop Loss: 79.75
Target(s): 89.50, 94.00
Current Option Gain/Loss: -83.9%, and -54.1%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/10 update: Yup, you guessed it. RIG, another oil service stock, was swept up in the energy stock sell-off. Shares fell -4.2% and broke support near $80 and traded under the 50-dma. Our stop loss was hit at $79.75.

- Suggested Positions -

March $85 calls (RIG1119C85) Entry @ $2.05, Exit @ $0.33 (-83.9%)

- or -

April $85 calls (RIG1116D85) Entry @ $3.60, Exit @ $1.65 (-54.1%)

03/10 Stopped out. Options @ -83.9% and -54.1%
02/28 RIG hit our trigger @ 84.25

chart:

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