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Daily Newsletter, Saturday, 4/23/2011

Table of Contents

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

Market Wrap

Apple Pushes Nasdaq To Two Month High

by Jim Brown

Click here to email Jim Brown

Earnings from companies like Apple, Travelers, Honeywell, Capital One and Schlumberger helped push markets higher despite terrible economics and a mediocre performance from GE.

Market Statistics

The Dow closed over 12,500 for the first time since May 2008 on a late day burst of short covering. The Dow was the only index to breakout to its high for the year but there were broad gains across the board. The dollar fell to a new low after the Philly Fed Survey proved to be a real disappointment.

Were it not for several economic reports with disappointing data the rest of the indexes may have also finished higher. The biggest economic shock came from the Philly Fed Manufacturing report. The headline number dropped from a 27 year high in March at 43.4 to a five month low at 18.5. This was a major change in manufacturing conditions in the Philly Fed district and the largest single month drop since October 2008 as the recession moved into high gear. Some analysts felt the drop was related to supply chain worries out of Japan but I disagree. New orders, a component that would not have been impacted by Japan, dropped to 18.8 from 40.3. The employment component fell from 18.2 to 12.3 indicating layoffs but the average workweek rose from 13.2 to 17.7 and the highest level since 2004. Fewer employees working more hours. Analysts were mixed on whether that indicated a future uptick in hiring or a downtick.

Capital expenditure plans dropped sharply from 34.5 to 20.0 suggesting companies are trimming back on expansion plans in the face of what some see as a slowing economy. We will get Q1 GDP late next week and some estimates are as low as +1.4% growth compared to 3.1% in Q4.

Given the rapid growth in the Philly district since last August we were due for some slowing but not the significant numbers reflected in this report. The headline number had more than doubled since January's 19.3 so that pace of growth could not be expected to continue. However, this decline, if not a result of some anomaly in collecting the April data, is serious and could be a warning of a change in trend. It is not yet corroborated by other regional reports so today it is only noise. If several other reports begin to show similar results it would be a definite cause for worry.

Philly Fed Chart

Second on the list of problem reports was the weekly Jobless Claims. Claims came in at 403,000 and the second week over 400K. That was a decline from the 416,000 the prior week but still considered high. Claims need to decline to the 350,000 level to show any sustained improvement in hiring. The last two weeks have been the highest claims since Feb-12th and a reversal of five weeks of claims under 400,000. Eighteen states reported an increase in initial claims of more than 1,000.

This spike in claims could be just a result of a shutdown in government programs and layoffs because stimulus funding has ended. For instance California saw claims rise by 25,646 because of a change in the five day workweek and layoffs in services due to lack of government funding. There were also some short-term layoffs because of parts shortages from Japan. If those are the reasons for the increase then the jump in claims will only be temporary. The Fed Beige Book report included reports of actual or expected disruptions to production and sales in seven of the twelve Fed districts as a result of Japan.

The spike in claims for the weeks that will be covered by the April Non-Farm Payroll survey suggests hiring may have slowed from the March gain of 230,000 jobs.

Contrary to those comments above we learned last week that hiring for college graduates from the class of 2011 is increasing sharply. The National Association of Colleges and Employers (NACE) survey showed hiring of graduates was 19% higher than in 2010. The University of Chicago said the number of employers recruiting on campus was up +125% compared to last spring and 25% more than last fall. DePaul University said job postings were up +48%. AT&T and JP Morgan have been seen recruiting across all campuses. AT&T plans on filling 20,000 positions this year. The NACE said because of the increased hiring the number of applicants per position had fallen from 40.5 in 2010 to 21.1 this year. NACE said many students were receiving multiple offers.

On the other side of the job market McDonalds tried to hire from 35,000 to 50,000 summer workers on April 19th. Each of its 14,000 U.S. stores will hire 3-5 people into entry-level positions. At one store more than 800 people showed up to apply for those five jobs making minimum wage of roughly $17,000 per year. That is a real sign of how bad the employment market really is for those without a degree or skill.

Existing home prices accelerated to the downside in February with a -1.6% decline. This put prices -5.7% lower than year ago levels. The mountain region was hardest hit with an -11.8% YOY decline and followed by the Pacific region at -8.7%. The South averaged about -3.5%. The high inventory of foreclosed homes and continuing distressed sales remains a hindrance to prices.

Economy.com Home Price Chart

The Semi Book-to-Bill report showed chip equipment makers received only $95 in orders for every $100 in product shipped in March. This was an improvement over February's $87 but was still the sixth month below parity at $100. Equipment orders rose by +1.5% but billings fell by -7.6%. Orders are now -12% below last July's peak. Since Japan has 23% of the world's chip making equipment this index could improve if new equipment is needed to replace equipment damaged in the earthquakes. Japan purchased $7.7 billion in electronic products from U.S. manufacturers in 2010.

Economic reports are going to increase next week with four regional manufacturing reports and two ISM reports. Those will take a backseat to the FOMC meeting on Tuesday and Wednesday. This will be the first FOMC meeting to be followed by a Bernanke press conference. Once each quarter Bernanke will hold these press conferences. On those days, (April 27th, June 22nd, Nov 2nd) the regular FOMC announcement will be at 12:30 rather than 2:15 and the press conference will begin at 2:15.

According to the Fed "The introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve's monetary policy communication." This could end up being the greatest change in Fed policy in decades OR create the worst possible volatility. Nobody knows how these briefings will be held and how much interaction will be allowed from reporters. If reporters are allowed to ask direct questions for Bernanke to answer there could be some serious volatility. Nobody knows how adept Bernanke will be to answering pointed and sometimes multiple meaning questions in an unscripted environment. You can bet he has been receiving some coaching from his staff but nothing substitutes for real time heat of battle experience. More than 50% of analysts questioned expect increased volatility from the events.

However, despite the potential for a slip of the tongue and an unexpected comment we have to understand Bernanke does not want to tank the markets. The Fed has spent a lot of money creating this rally and they don't want to crash it accidentally. Loose lips sink ships so you can bet Bernanke will think twice before deviating from the game plan. Bernanke is also a policy dove not an inflation hawk so the tone of the comments should be different than that of the various Fed governors who have spoken out on ending QE2 recently.

Reporters will likely quiz Bernanke on growth, inflation and monetary policy. There is little room for error because reporters will seize on any point not inline with current policy and U.S. markets could melt down faster than a Japanese reactor. For this reason Bernanke may be rather rigid in his responses in this first ever press conference. There is no margin for error.

He will probably talk about the success of QE2 and confirm it will end on schedule. I am sure he will again claim the spike in oil prices is temporary. He will probably deflect questions on the dollar, the timing for the next rate hike and the debate on the debt ceiling. He will probably address the weak GDP in Q1 in the briefest possible terms and instead focus on expectations for future growth. The Fed will release its quarterly economic forecast next week and that is expected to show a downward revision in growth expectations and upward revisions in inflation rates. This will be the porcupine in the room that Bernanke will want to handle with extreme delicacy.

The calendar for next week may be full of reports but there is only one event that could crater the market and that is Bernanke.

Economic Calendar

The earnings calendar for next week is the busiest yet with more than 175 S&P companies (34%) reporting. However, we are already seeing a drop in the number of blue chips reporting. There are still some big names but I would bet some of those symbols on the table below are unknown to most traders. After this week the number of big names will drop considerably.

Earnings Calendar

The first week of earnings started off with a whimper and it looked like we could be in trouble with warnings about weak revenue and potential problems with Japan. Earnings for last week completely reversed that trend and nearly every company was posting strong earnings and upgrading guidance.

Apple (AAPL) gained +8 on Thursday to $350 after beating estimates after the close on Wednesday. That compares to its recent low of $320 on Monday. The sudden increase in positive earnings reports set the stage for Apple's Thursday move with gains every day from that low. Last week I recommended Apple as a buy under $325. Over $350 I would be raising stops to exit the play on any market weakness.

Apple said it sold 4.7 million iPads and that was below expectations. The iPad 2 launch was two weeks before the end of the quarter so buyers probably held off on acquiring an iPad 1 knowing the second version would be out soon. Apple said it was selling all the iPads they could make and they are expanding sales into 13 more countries next week bringing the total to 39. Apple has sold 19.5 million iPads since the first release through the end of Q1.

Net income was $6.40 per share compared to analyst estimates of $5.37 per share. Revenue rose +83% to $24.7 billion for the quarter. That kind of increase in business is very hard to comprehend. Apple guided slightly lower for Q2 to earnings of $5.03 per share but they have a habit of low balling estimates to insure they beat them.

Apple said problems in Japan would knock $200 million of their revenue for Q2 but there were no problems that could not be solved. The fact they did not identify a bigger supply problem was positive for the stock.

Apple Chart

In a related news story the WSJ said it had discovered a security problem in the iPhone and Android. The WSJ said both phones continually gather GPS data for the phones location, strength and names of WiFi networks in the area and transmit it daily back to Google and Verizon along with a unique phone identifier. Two different programming experts confirmed the details. Some users had discovered some unencrypted files on their phones containing the data and tracked down the source. Apple's iPhones transmits the data to Apple every 12 hours while the Android transmitted its info to Google several times an hour. Democratic representative Edward Markey sent a letter to Apple and asking the company why it collects the data and how it safeguards the information. Markey said he did not want the iPhone to become an iTrack. Researchers found the unencrypted location data on phones stretched back several months. Basically anyone in possession of the phone could use that data to track every movement of the individual for those months.

In earnings on Thursday AMD beat the street with earnings of 8-cents compared to estimates of 5-cents. Despite guiding revenue flat to -5% in the current quarter the earnings report was seen as an improvement. AMD has several new chips coming to market and the new Llano chip will compete with Intel's Sandy Bridge. Both have integrated graphics on the chip and don't require an additional graphics chip. This reduces the power drain and complexity of the chipsets required in the PC.

Honeywell (HON) also beat the street with earnings of 88-cents and estimates of 81-cents. The gains came from all segments. Aerospace sales rose +8%, automation control systems +17%, transportation +19% and specialty materials +19%. Full year guidance was increased from $3.70 per share to $3.87. Short cycle business increased for the eighth consecutive quarter and long cycle business is at record levels. This was a good report and suggests the global economy is growing.

Honeywell Chart

General Electric posted strong profits but shares declined -2%. GE posted an 80% increase in profits thanks to a strong recovery at GE Capital. GE even raised its dividend for the third time since July but investors were not impressed. Revenue across all divisions increased +6% but could have been the result in a change to GE's fiscal calendar that added six days to Q1. Earnings were 33-cents compared to estimates of 28-cents.

CEO Jeffrey Immelt said GE expected very solid earnings growth this year. Since GE sold a majority stake in NBC Universal to Comcast, GE has spent $14 billion on acquisitions over the last year. Immelt said, "Our major transactions are done for 2011." The energy division was the only one to see profits decline and Immelt said it would strongly improve before year-end. He said outstanding price quotations were extremely high at present and quite a few deals are expected to close. Profits at GE Capital more than tripled as the sector rebounded from the recession lows. The CFO said the Japan reactor meltdown would have a very small impact and said it would be outweighed by the opportunity to sell other equipment. GE designed the reactors in Japan nearly 40 years ago.

GE stock rarely reacts to earnings. The actual earnings are far less important than the sector guidance about the various divisions. This was a good report because worldwide all sectors appeared to be improving nicely.

GE Chart

Dupont (DD) reported earnings of $1.52 compared to estimates of $1.37 and revenue increased +18% to $10.0 billion. That makes the ninth consecutive quarter Dupont has beaten estimates. The agriculture division saw profits increase +21% and the chemicals section saw profits more than double. The company raised median guidance from $3.60 per share for the full year to $3.75. They did warn global auto production would be down significantly in Q2 as a result of Japan and coating sales will only post modest gains as a result. Once full production resumes those sales will move up strongly.

Dupont Chart

I could continue listing earnings reports but they are almost all the same. The early trend for misses and lowered guidance from the first week of the cycle has been replaced by strong beats and full year guidance upgrades. It is suddenly turning into a very strong quarter.

Now funds and investors have to decide if they want to "sell in May and go away" or stick with the market in hopes of higher highs.

In the commodity sector those higher highs are coming on a daily basis. The decline in the dollar and the rebound in guidance from companies like GE, HON, CAT, UTX, etc, suggest the worldwide demand is increasing despite the problems in the Middle East and rising oil prices. Add in the rising inflation fears and the falling dollar and commodities are the only sector to seemingly guarantee a continued trend higher.

Gold continued to defy gravity and hit $1509 intraday on Thursday as the dollar was hitting a new low. Gold bugs are becoming increasingly more vocal about $2000 an ounce and traders are starting to load up on call options for $1700-$1800.

Morningstar released a report this weekend saying gold prices could decline to $1200 within three years. They said the gold ETF (GLD) has seen $3 billion in outflows YTD through the end of March. Obviously any trader can understand that since gold over $1400 looked seriously overbought and wise men took profits. The GLD ETF now has a market cap of $59 billion so $3 billion was a hit but only about 5%. They also pointed out that central banks had reversed a multi decade trend of consistently selling gold and began buying gold again as part of their reserve policies. Morningstar said this had been a strong tailwind but they did not think it was wise to bet on the trend continuing. There was no discussion about the long-term impact of the falling dollar.

Gold Chart

Silver has gone ballistic much to the chagrin of everyone who thought $40 was a top back on the 12th of April. Silver is closing in on $50 and what would be a 30:1 ratio to gold. Precious metals investors continue to repeat the common ratio silver used to have to gold was more in the ratio of 20:1 and that would put silver over $75 an ounce. Gold is now too expensive for the working class investor to own but picking up a few one-ounce silver rounds or larger bars is still within reach. Plus the expanding use in electronics manufacturing is also increasing demand. With old silver dollars now trading at more than $40 it makes those antique coin collections worth more for silver content than numismatic interest. Even with the vertical ascent on the chart below I would be a buyer of silver on any decent pullback. The fundamentals are simply too great and the risk of long-term inflation too high.

Silver Chart

Fueling the rise in commodities is the drop in the dollar. Most analysts believe the dollar decline is related to QE2. I believe that was the start of the decline but today there are other factors. Foreign central banks are reducing their dollar holdings for the simple reason the U.S. is monetizing its debt and the U.S. is continuing to go into debt at the rate of $1.6 trillion per year. Foreign banks are not stupid. They see us headed in the direction of Greece and although very few actually expect us to reach that level of disaster it is possible. S&P downgraded the outlook for U.S. debt last week to negative from stable. The risk for the dollar's continued decline is higher than what central banks are comfortable holding.

There are several moves underway today to move away from the dollar as the world's trading and reserve currency. China, Brazil, Russia, India and South Africa signed a pact last week to stop using dollars as the trading currency between themselves. They plan on using their own currencies to make purchases from each other. This is a small step but one that has long-term repercussions. OPEC has discussed several times about pricing oil in some other currency besides the dollar. They want a stable currency or basket of currencies that will keep the price of oil level. The dollar has declined over 16% since June and that means a barrel of oil requires 16% more dollars to buy today than in June. OPEC is catching heat about the current price of oil when quite a bit of that increase is related to the drop in the value of the dollar. Obviously there are other factors like the democracy rallies in the Middle East and Libya but it is still a factor.

Several months ago I believed the approaching end of QE2 and the eventual hike in interest rates would produce a strong rebound in the dollar. We may still see a bounce but I am far less convinced today that we won't see new lows later. I have no confidence lawmakers can make any meaningful changes in spending because it requires angering some portion of the voting public and that is poison to politicians. They will kick the can down the road until the debt is no longer sustainable. Most politicians are not economists and they can't see past the next election and the size of their pensions.

I read a lot including quite a few fiction books. I started one last week about surviving the coming economic collapse. The first ten pages where the author setup the scenario for the collapse was shockingly close to the headlines for the last several years. Lawmakers unable to halt spending, the dollar dropped as the world's reserve currency, oil prices soaring over 100% because of the drop in the dollar, gold hitting $2,000, etc. The book was written in April 2009 but it could have been yesterday. (Patriots: Surviving the Coming Collapse) The way the author setup the scenario was so close to reality it was scary. (I don't recommend the book but you can see the scenario on page four using the Amazon "Look Inside" feature.)

Unfortunately the fictional scenario has a strong basis in fact and this is why I think the dollar is in trouble long-term. We can't continue to just assume everything will continue as before simply because it always has in the past. I had a home mortgage at 21% in 1980 and 14 vacant rental homes so I know how fast economic conditions can change. The younger generation (under 45 years old) has never seen a mortgage rate over 10%.

I am not preaching doom and gloom here but we are entering uncharted territory and foreign central banks are in control of our fate. If they did succeed in dumping the dollar as the world's reserve currency it would be very painful for them but it would be more painful for us. Fortunately there is no replacement currency today. The Euro was once discussed but the recent debt crisis has put that currency under pressure as well. This gives us time to get our house in order but it will also require some major decisions. If central banks see those decisions getting made then the alarm bells will quit ringing. If they see us kicking the can down the road the flight from the dollar will continue.

The European debt crisis is also hurting the dollar. The high yields on Euro denominated debt is pushing up the value of the Euro, which pushes down the dollar. This problem will end soon since their debt problems are coming to a head. There will be debt restructuring. We used to call it a default but the more politically correct term today is restructuring.

Dollar Index Chart

The subject of commodities would not be complete without touching on oil prices. WTI moved over $112 on Thursday most likely because nobody wanted to risk being short over a three-day weekend that contained a Christian holiday. Brent settled at $124 per barrel. Fears of further disruptions in the Middle East were also supporting prices.

Protests in Syria saw more than 100 people killed on Friday with hundreds wounded. Some reports put the dead as high as 120. On Saturday the funeral processions for those people turn into even more protests and another 13 people were killed. Syria only produces about 440,000 bpd and they only export 155,000 bpd but the problem is the contagion of unrest across the rest of the region. If Syrian citizens eventually overthrow the government it will foster a rebirth of similar protests across the region.

In Yemen the president for the last 32 years, Ali Abdullah Saleh, agreed to step down within 30 days in exchange for immunity from prosecution. The deal was brokered by Gulf Arab mediators. Chalk that up as a win for the protest movement.

The long-term fundamentals for oil are positive although demand is declining due to high prices. If the global economy continues to improve we will see higher demand but right now it is a U.S. consumer issue. At a U.S. average of $3.84 per gallon MasterCard said gasoline demand has now declined for seven straight weeks. We may not be at the point where it triggers a second recession but we are getting close.

The president took up the political challenge last week when he announced the formation of the "Oil and Gas Price Fraud Working Group." They will be tasked with ensuring consumers are not victims of price gouging. He said, "This gas price issue is serious, it hurts!" The formation of the committee was good for thousands of headlines within a couple hours and as of late Friday night there were 1,120,000 results on Google for "Oil and Gas Price Fraud Working Group." This was obviously a successful political move already even if the actual committee never holds a meeting. I am sure we are all breathing easier this weekend knowing the government is on the job. It would be even better if the committee recommended approving all of the more than 300 permit applications now on hold for drilling in the Gulf of Mexico. Production is expected to decline by 375,000 bpd by 2012 because of the drilling moratorium. That much oil would produce more than 4.5 billion gallons of gasoline every year plus millions of barrels of diesel, jet fuel and heating oil. If the administration really wanted to reduce our dependence on OPEC oil as it claims and fight high gasoline prices they would approve the permits.

Crude Oil Chart

The S&P was the recipient of a major jam job after the earnings parade turned into a sprint on Tuesday. The Intel earnings and others powered the S&P with a monster short squeeze from 1312 to 1332 at Wednesday's open. The magic 1333 level (100% rebound from March 2009 lows) came back into play and kept the S&P from posting any further gains on Wednesday as shorts reloaded. Apple's earnings finally produced enough traction for the S&P to clear that resistance and move the barrier up a notch to 1337.

If I were shown a chart of the S&P today without a name, date and background I would be a seller on Monday just based on the stop at strong resistance. However, once we look at all the background information and the coming events I would again be a dip buyer. We had some clear inflection points in numerous stocks. The markets ignored really bad economic news on Thursday and posted decent gains. Guidance has been strong and the S&P gained +42 points since Monday's low. Normally that would suggest a short-term decline and given the risk from the FOMC this week we may get it.

I have begun to believe that the FOMC press conference could be a bullish event. I think Bernanke is doing it to counter the hawks and prove that his bully pulpit is much stronger than theirs. This is an opportunity for Bernanke to talk the market up rather than have to rely on some new Fed policy. If he can talk the markets to a new high the "sell in May" crowd may throw in the towel.

Granted this scenario could implode for any one of a dozen reasons but we have to go with the most likely outcome if we are going to place a bet next week. If things go differently we take our losses and get ready for the next trade.

The S&P high back in February was 1344. The S&P closed on Thursday at 1337. If Bernanke and the next round of earnings can power us over 1344, actually over 1350, which happens to be a target high by some analysts, then we could see another push higher and 1400 becomes the new target.

However, once over 1350 the analyst targets become fairly common and as each is achieved there will be less incentive to remain invested as that analyst's followers begin to divest. The major targets are 1375, 1400, 1425, 1450 and culminating at 1500 and the priced to perfection peak as defined by Goldman Sachs partner David Kostin. He based that target on expected S&P earnings of $96 and 14% earnings growth. While those earnings and growth targets remain to be seen they are looking pretty good today. That assumes oil prices don't move higher and we don't fall back into another fuel price recession. Earnings are currently on track for about $99 for the year. His end of March target was 1325 and end of June 1400. This forecast was made on Jan 7th and the S&P closed at 1326 at the end of March. That was a winning bet in my book. Let's hope his other predictions come as close.

S&P Chart

The Dow broke out to a new high over 12,500 but it was the only index to make the break thanks to its narrow 30 stock focus. IBM was the big gainer at +3.53 followed by Travelers at +2 and UTX/CAT up over a dollar each.

The Dow appears bullish but I would have preferred for the Russell to breakout instead or at least along with the Dow to confirm the rally. Unfortunately the Russell is lagging the big caps and that suggests a lack of confidence.

The Dow has eight components reporting next week. MRK, CAT, MSFT, MMM, KO, BA, CVX and XOM. Caterpillar and the oil stocks should do well. 3M also has a good chance to post solid numbers. Microsoft, Merck, Coke and Boeing are a tossup for me. Boeing has missed so many deadlines they may have trouble with estimates. Microsoft has been in a slump for years and even a good report will have trouble moving eight billion shares in a $25 stock.

That means the lifting duty will have to be done by three stocks (CAT, CVX, XOM) and their gains will have to be good enough to offset some post earnings depression from those that reported last week.

I would love to tell you this weekend that the Dow will move higher but I have no confidence it will. It may be time for the Dow to lag and the other indexes to lead. Support is so far back it is not relative and initial resistance is 12,530.

Dow Chart

The Nasdaq formed a classic "dragonfly doji" candle on Thursday. Some chartists also refer to this as a hanging man but a hanging man normally has a slightly longer body similar to the candle from Tuesday. A dragonfly has no upper wick, small body and a lower wick at least twice as long as the body. This is a bearish candle where the open and close are nearly identical, (2820.77, 2820.16), but there was a decent intraday decline. In theory it means the bulls could not gain any ground throughout the day. This is normally seen at tops in the advance.

Chartists will tell you the candles tell you everything you need to know is in the chart. The fundamentals and news events are already priced in and that is what created a particular formation. However, I like to consider the additional data.

The Nasdaq rallied on Apple's $8 gain on Thursday ahead of a three-day weekend with considerable event risk. I am surprised the Nasdaq did not close lower given the "gap only" gains on Wed/Thr. The Nasdaq rebounded +120 points from its Monday low. That is a major gain and there was every reason to take profits but it did not happen. I believe that was bullish. The Nasdaq did close at a two month high so naysayers have little to brag about.

There are no major tech earnings for Monday to provide motive power so we could see some profit taking appear. Support should be 2800 and resistance 2835.

Dragonfly Doji

Nasdaq Chart

Nice move by the Russell from support at 820 but it still has not reached the new high set in early April. The Dow and S&P are being moved by the big cap earnings wins. The majority of the Russell stocks are late reporters and the Russell is so wide an individual stock can't move the index like IBM can move the Dow.

The Russell is still the sentiment indicator for fund managers. If it can maintain forward momentum through this week it would be very bullish. A break to a new high would be strong confirmation for the big cap indexes. The Russell could be more reactive to Bernanke's briefing than the big caps since sudden money flows are much more reactive on small cap stocks.

Keep your eyes on Russell 840. A move below 840 suggests caution and a continued move higher would be bullish.

Russell Chart

In summary I think next week could be an inflection point. If earnings remain good and Bernanke does a good job of pumping up expectations then we have a chance to move higher. I remain wary of the "sell in May and go away" cycle especially at market tops. Investors may decide to capture profits now rather than take the chance the economy slows over the summer and takes the market down with it. There is a lot to be said for being in cash while you are soaking up sun on the beach. It removes those constant worries over what the market is doing to your positions while Mary and Johnny are paddling around on their floaters getting sunburned.

Another challenge for the market is the Nasdaq 100 rebalance on Friday. The change takes effect at the close of business on Friday for trading on Monday May 2nd. That means the top 18 stocks in the Nasdaq will be sold and the bottom 82 will be bought in order to bring the weightings back inline with new Nasdaq guidance. For example Apple is currently more than 20% of the Nasdaq 100 index and it will be reduced to 12%. There is roughly $350 billion indexed to the Nasdaq 100 so plenty of money will be changing hands. This will create negative pressure on the Nasdaq 100 on Friday and probably not just Friday since thousands of traders will try to game the rebalance and jump in ahead of the funds. Be prepared for anything.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

"When written in Chinese, the word crisis is composed of two characters. One represents danger and the other represents opportunity."

- John F. Kennedy


Index Wrap

Fake Out

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

Monday's sharp decline on Standard & Poor's revised outlook on U.S. debt predictably led only to a one-day sell off by nervous investors and traders. It's rare that a single report like this creates a long-lasting diversion of market momentum. As they say in physics, "a trend in motion will tend to stay in motion until reaching a countervailing force". A true countervailing force for an uptrend in stocks has to be something that clearly implies that earnings expectations will need to be substantially reduced.

The S&P report was as 'trustworthy' for stocks, as were the company's triple-A rating on mortgage bond pools that contained 'junk', were for the bond market. We used to call em 'junk bonds' but at least they were high yield and didn't have investment grade ratings!

Technically, not much happened in that the S&P 500 (SPX) once again held support in the 1300 area, although there were lower intraday lows. The (Nasdaq) Composite (COMP) held key support indicated last week at 2700. I'm not minimizing the difficulty of going against the mood of this past Monday, but it was a good buying opportunity for cooler heads. A fundamental analysis of the S&P report would suggest that the impact on stocks was only going to be the head-fake it was. I relied most on the fact that key technical support levels were not pierced on a closing basis. Support at the SPX lows was apparent in the 3 hours of trading after the opening; after that the index rebounded to back above 1300.

My prior analysis (for two weeks) was that "The Dow Average (INDU) most looks like it can break out to decisive new highs, possibly headed for the 13000 area next." A move to slight new highs happened. Only to INDU so far but the Dow leads the market sometimes and can be 'easiest' to forecast on a technical/chart basis. I continue to see a possible move up to the 13000 area.

I also noted last week that: "If the Nasdaq Composite (COMP) gets into gear along with the S&P, it could eventually be headed for the 2950 area or a bit higher (e.g., 3000); at least that would be a 'measured move' objective, provided COMP doesn't fall below 2733-2700." This forecast is still one I hold to.

On a short-term basis, the market is overbought (and hasn't yet reacted to the dismal 'new home' sales report of Friday), so may well sell off some from Friday's closing levels. I remain bullish and, besides the Dow Average, anticipate new highs ahead for the other major stock indices.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

As I wrote last week, it's possible the S&P 500 (SPX) could form another top in the 1340 area, but it's unlikely in my view. We don't typically see repeated attempts to move beyond prior highs in this index only to have momentum fail and the trend reverse.

There were two closes slightly over 1340 made when a top formed in mid-Feb. It will perhaps take a decisive move to new highs above 1340 to get traders really bullish. If so, we should see that bullishness reflected, possibly with some lag time, in my market sentiment indicator with 1-2 or more single-day readings above 2.0.

Beside near resistance at 1340-1344, I've noted resistance coming in around 1360. Major resistance probably begins at the previously broken up trendline, currently intersecting at 1420.

Near support comes in around 1320, extending to 1300-1295.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) dipped briefly below 580 support on Monday this past week but then went on to close above this level. Tuesday's price action then encouraged the bulls some but it was Wednesday's gap higher opening that really swung things their way. This move took OEX to well above resistance implied by the 21 and 50-day moving averages.

Next resistance, once again, lies in the 599 to 602 area. I think the index will clear this zone, perhaps after another minor dip in the early going in the week ahead. Above 599-602, I've projected resistance at the previously broken up trendline, currently intersecting (as of Monday) in the 610 area.

OEX technical support is at 586, then at 580, extending to the prior recent intraday low at 577.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) average, alone among the major indices, has a bullish chart in that INDU has cleared its prior highs, and a significant area of price congestion, at 12425-12440.

I continue to think that INDU can get to the 13000 area again which, as can be seen in my first chart above of the weekly Dow, was an area of weekly highs made in a 'leveling' off period in May 2008 when INDU was on its way to a major decline. In terms of a move to the 13000 area, INDU must first get back above resistance implied by its previously 'broken' up trendline. I've noted next resistance as at the current intersection of this trendline at 12650, per the red (down) arrow on my Dow chart. Key near support now looks like 12200, then next at 12100-12093.

There aren't MANY of the 30 Dow stocks that are clearly in dominant uptrends as the 'leadership' isn't broad and this is of some concern in suggesting a clear cut bullish outlook for INDU; only BA, IBM, KFT, TRV and UTX have broken out to decisive new highs.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) came roaring back from its early week dip to the 2700 support area. The chart is still somewhat mixed. Its bullish that COMP has made a new high for the current move dating from lows in the 2600 area. To technically 'confirm' that the intermediate trend has turned up requires a move to new highs above 2840, which I think is going to happen.

I don't want to chase tech stocks higher. I favored select bellwether tech stocks when COMP got down near 2700 technical support again and I couldn't see any fundamental change in the market outlook based on the S&P report released in time to trash the market this past Monday. I was seeing support at 2730, but 'fairly major' support at 2700. I've bumped up near support to 2750.

Resistance ahead is assumed to lie in the area of prior highs in the 2840 area. Next resistance is projected at COMP's previously broken up trendline, currently intersecting at 2908.

The Relative Strength Index (RSI) is nearing its 'overbought' zone and my CPRATIO sentiment indicator also seen above is neutral or in a midrange reading. Neither indicator is at an 'overbought' extreme, but this pair of indicators should provide a cautionary input when they are. I don't take such 'extremes' as a shorting/buy puts indication in any mechanical way but I lay off adopting NEW bullish strategies.

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) is bullish in the sense of pulling back to a 3rd point that now 'defines' a new up trendline. However, it would take NDX moving to new highs to 'signal' that the intermediate-term uptrend was back on track. Before this happens, the chart remains 'mixed'. The short and long-term trends have turned up, or remain up, respectively. I anticipate that NDX is going to move to new highs above 2400.

Near support is at 2307-2300, extending to 2272 and then to the prior recent 2255 low. Resistance is at 2375, extending to 2403. Above 2400-2403, I've projected next resistance for the 2463 area.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) which had been drifting lower, reversed to the upside with its decisive upside penetration of 57.0 resistances. QQQ went on to rally above its prior recent high. Only the 59 price peak still needs to be cleared to suggest a 'confirming' shift in the intermediate trend to UP. I've noted key near QQQ resistance at 59.0 and then well above 59, at 61.8 and which begins fairly major resistance in my estimation.

Key near support is now highlighted at 56.6, then at 55.8, extending to the prior recent 55.3 low in the Q's.

On Balance Volume (OBV) is the only volume indicator that seems to tell us much in terms of 'confirming' QQQ price action, and it is now pointed up. If OBV continues to track higher on balance, this is what 'should' be happening in a renewed bullish trend.

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) index reversed higher from support in 820 area. the area of its 50-day moving average. The key moving average for RUT that suggests either key support or resistance is often seen with a daily chart moving average length setting of 50; I sometimes use a setting of 55, but there's not a big difference in the two levels.

I'd again note from last week that RUT built a major top at 850-856 back in June-July 2007; RUT then peaked again in October 2007 at 850. I try to keep this in mind as my shorter-term daily chart doesn't provide this comparison. RUT is one of the few major indexes that could make a major new high if it decisively clears its prior recent peak. There's a good possibility that RUT could climb above 853-855 and regain its longer-term up trendline with the next technical challenge then being to clear 859-860. If that happens, a next potential objective is to 880, extending to the 900 area.

Technical support is at 820, extending to 816 at the prior recent intraday low; I anticipate fairly major support/buying interest in the 800 area.



GOOD TRADING SUCCESS!


New Option Plays

Construction Materials, Internet, and Retailers

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Fastenal Co. - FAST - close: 65.54 change: +0.70

Stop Loss: 63.75
Target(s): 69.50, 74.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see Trigger

Company Description

Why We Like It:
The U.S. real estate market is not improving but that isn't stopping the rally in shares of this construction materials supplier. FAST is building on its bullish trend of higher lows and higher highs. Aggressive traders may want to buy calls now. I would prefer to see a rally past short-term resistance at $66.00 so I am suggesting a trigger to buy calls at $66.25. If triggered our targets are $69.50 and $74.00. We should expect the $70.00 area to offer some resistance and FAST will likely pull back on the first test of $70.

FYI: FAST is due to split 2-for-1 on May 23rd. Plus, the Point & Figure chart for FAST is bullish with a $72 target.

Trigger @ $66.25

- Suggested Positions -

Buy the May $65.00 calls (FAST1121E65) current ask $1.90

- or -

Buy the June $70.00 calls (FAST1118F70) current ask $0.70

Annotated Chart:

Entry on April xxth at $ xx.xx
Earnings Date 04/12/11 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on April 23rd, 2011


Google Inc. - GOOG - close: 525.10 change: -0.63

Stop Loss: 518.75
Target(s): 558.00
Current Option Gain/Loss: + 0.0%
Time Frame: 2 to 3 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
There are plenty of doubts and concerns over Google, especially following all of the selling after its earnings report. On a short-term basis the stock is oversold and due for a bounce. You'll notice on the weekly chart below that the selling has paused at its trendline of higher lows. If there was a spot to bet on a bounce this is it. Please note that this is a very aggressive and speculative play. We'll try and limit our risk with very small positions and a tight stop loss under last week's low. Our plan is to ride an oversold bounce back toward resistance near its 200-dma. I'm setting our exit target a $558.00. More aggressive traders could aim for GOOG to fill the gap and rise into the $565-570 area.

I am suggesting call positions now. As an alternative entry you could wait for a rally past $531 again.

FYI: If something happens on Monday morning and GOOG gaps open under $519.00 then we will not open positions.

(Very Small Positions) Suggested Positions:

Buy the May $550 call (GOOG1121E550) current ask $3.10

Weekly Chart of GOOG:

Daily Chart of GOOG:

Entry on April 25th at $ xx.xx
Earnings Date 04/14/11 (confirmed)
Average Daily Volume = 3.3 million
Listed on April 23rd, 2011


Ross Stores Inc. - ROST - close: 72.26 change: -0.20

Stop Loss: 69.75
Target(s): 77.25, 79.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see Trigger

Company Description

Why We Like It:
Retail names have been very resilient in the face of rising gasoline prices. Shares of ROST look poised to breakout from their multi-week consolidation under resistance in the $72.50-73.00 zone. I am suggesting we buy calls on a breakout with a trigger to open positions at $73.55. We do not want to hold over the mid May earnings report so I am suggesting we use the May calls, which expire after the 20th.

If triggered our first target is $77.25. Our secondary target is $79.50. FYI: The Point & Figure chart for ROST is bullish with a $97 target.

Trigger @ $73.55

- Suggested Positions -

Buy the May $72.50 calls (ROST1121E72.5) current ask $1.75

Annotated Chart:

Entry on April xxth at $ xx.xx
Earnings Date 05/19/11 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on April 23rd, 2011


In Play Updates and Reviews

Time is Running Out

by James Brown

Click here to email James Brown

Editor's Note:

We are running low on time for several of our bullish candidates. Earnings are fast approaching. While reaction to earnings this past week has been generally positive we still do not want to hold over an earnings announcement.

-James

Current Portfolio:


CALL Play Updates

Church & Dwight Co. Inc. - CHD - close: 79.76 change: +0.08

Stop Loss: 79.45
Target(s): 84.75, 89.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see Trigger

Comments:
04/23 update: We are still not seeing any action in shares of CHD. The stock is stuck hovering near the $80 level. Currently we are waiting for a breakout through the top of the trading range. I am suggesting a trigger to buy calls at $81.35. If triggered we'll use a stop loss at $79.45.

I do consider an aggressive trade because CHD doesn't have a lot of option volume and the spreads on its options are relatively wide. Keep your position size small to limit your risk.

Trigger @ $81.35 (Small Positions Only!)

- Suggested Positions -

Buy the May $85 call (CHD1121E85)

chart:

Entry on April xxth at $ xx.xx
Earnings Date 05/10/11 (unconfirmed)
Average Daily Volume = 390 thousand
Listed on April 16th, 2011


CH Robinson Worldwide Inc. - CHRW - close: 78.04 change: +0.93

Stop Loss: 74.95
Target(s): 79.50
Current Option Gain/Loss: +68.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/23 update: Our time for this CHRW play is almost up. The company is due to report earnings on Tuesday, April 26th after the closing bell. That gives us two days. I am suggesting we go ahead and take profits now by selling at least part of your position and then we'll exit the rest of the trade on Tuesday at the closing bell. Please note our new stop loss at $74.95. I am not suggesting new positions at this time. Our final target remains $79.50. I would keep your position size small to limit your risk.

- Suggested Positions -

Long the May $75.00 calls (CHRW1121E75) Entry @ $2.25

04/23 New stop loss @ 74.95
04/23 Take Profits Now (sell part) option @ $3.80bid (+68.8%)
04/16 new stop loss @ 73.25
04/09 New stop loss @ 72.75

chart:

Entry on April 7th at $74.50
Earnings Date 04/26/11(confirmed)
Average Daily Volume = 1.2 million
Listed on April 2nd, 2011


Deere & Co - DE - close: 95.25 change: +1.36

Stop Loss: 92.49
Target(s): 99.70
Current Option Gain/Loss: - 2.4%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
04/23 update: Our new play on DE has been triggered. Shares hit our entry point at $95.25. I would still consider new positions now in the $95.00-95.50 zone. Our target is $99.70. We will not hold positions over the mid May earnings report.

NOTE: Traders should be aware that DE's rival Caterpillar (CAT) reports earnings on April 29th. CAT's results could have a big impact on DE.

- Suggested Positions -

Long the May $97.50 call (DE1121E97.5) Entry @ $1.61

chart:

Entry on April 21st at $95.25
Earnings Date 05/18/11 (unconfirmed)
Average Daily Volume = 3.8 million
Listed on April 20th, 2011


Fortune Brands - FO - close: 63.68 change: +0.62

Stop Loss: 61.75
Target(s): 67.50, 69.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Comments:
04/23 update: FO is inching closer and closer to resistance near $64.00. The stock appears to be building up steam for a breakout higher. Let's hope the breakout happens soon. We have less than two weeks before FO reports earnings in early May.

Currently our plan is to buy calls when FO hits $64.00. If triggered at $64.00 our targets are $67.50 and $69.75. I would keep our position size small to limit our risk. We do not want to hold over the earnings report in early May.

FYI: A move past $64.00 would create a brand new quadruple top breakout buy signal.

Trigger @ $64.00 (Small Positions)

- Suggested Positions -

Buy the May $65.00 call (FO1121E65) current ask $1.25

chart:

Entry on April xxth at $ xx.xx
Earnings Date 05/05/11 (confirmed)
Average Daily Volume = 973 thousand
Listed on April 5th, 2011


Fossil Inc. - FOSL - close: 96.71 change: +0.76

Stop Loss: 91.95
Target(s): 99.75, 104.75
Current Option Gain/Loss: - 5.6%, and - 1.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
04/23 update: It was a bullish week for FOSL with a breakout past resistance near $95.00 and new all-time highs. I would prefer to launch positions on a dip or bounce near $95.50-95.00 again. We do not want to hold positions over the earnings report in May.

Keep positions small. Our first target is $99.75. The $100.00 mark is probably round-number, psychological resistance. We'll set a secondary target at $104.75 but that might be wishful thinking.

(small positions only) - Suggested Positions -

Long the May $100 call (FOSL1121E100) Entry @ $2.65

- or -

Long the June $100 call (FOSL1118F100) Entry @ $3.75

chart:

Entry on April 20th at $95.60
Earnings Date 05/10/11 (unconfirmed)
Average Daily Volume = 858 thousand
Listed on April 13th, 2011


SPDR Gold ETF - GLD - close: 146.74 change: +0.24

Stop Loss: 139.90
Target(s): 149.50, 154.50
Current Option Gain/Loss: +76.6%, and +90.2%
2nd Option Position Gain/loss: +119.5% and +130.0%
Time Frame: 6 to 12 weeks
New Positions: see below

Comments:
04/23 update: New multi-year lows for the U.S. dollar has fueled new all-time highs for gold. The price of gold traded over $1,500 an ounce for the first time last week. Gold looks short-term overbought but that doesn't mean it can't grow more overbought. I am not suggesting new positions at this time. We'll wait to evaluate the next dip.

More conservative traders may want a stop closer to the $142 area. Our targets are $149.50 and $154.50 within the next six to twelve weeks. FYI: The Point & Figure chart for GLD is bullish with a $172 target.

- Suggested Positions -

Long the May $145 call (GLD1121E145) Entry @ $1.84

- or -

Long the June $150 call (GLD1118F150) Entry @ $1.33

- Second Entry Point, April 12th, Entry April 13th -

Long the May $145 call (GLD1121E145) Entry @ $1.48

- or -

Long the June $150 call (GLD1118F150) Entry @ $1.10

04/20 New stop loss @ 139.90

chart:

Entry on April 6th at $142.40
Earnings Date --/--/--
Average Daily Volume = 12.5 million
Listed on April 5th, 2011


Intuit - INTU - close: 55.35 change: -0.72

Stop Loss: 53.45
Target(s): 57.50, 59.75
Current Option Gain/Loss: -20.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/23 update: Thursday morning Intuit issued a press release stating that its TurboTax "Federal Units" were up 11% from a year ago while its TurboTax online "units" were up 18% from last year. The initial reaction provoked a spike higher but then INTU sold off. Were investors expected bigger numbers? Overall the dip on Thursday looks like a new entry point but more conservative traders may want to wait for a dip closer to $54.00 before considering new positions.

I would keep our position size small to limit our risk (1/2 or less than your normal trade size). Our first target is $57.50.

- Suggested Positions -

Long the May $55.00 call (INTU1121E55) Entry @ $2.40

chart:

Entry on April 20th at $55.25
Earnings Date 05/19/11 (unconfirmed)
Average Daily Volume = 2.4 million
Listed on April 14th, 2011


Panera Bread Co. - PNRA - close: 122.07 change: -1.31

Stop Loss: 119.00
Target(s): 129.50, 134.50
Current Option Gain/Loss: -46.2%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
04/23 update: Time is almost up. PNRA is due to report earnings on Tuesday, April 26th after the closing bell. We will plan on exiting on Tuesday at the close to avoid holding over earnings. However, more conservative traders may want to exit now! PNRA has been going nowhere the last few days. I'm not really expecting a lot of movement between now and Tuesday night. Again, readers will want to seriously consider an early exit. If by some stroke of luck we see PNRA rally toward $130 soon I am setting our final exit at $129.00.

- Suggested Positions -

Long the May $130 call (PNRA1121E130) Entry @ $3.35

04/23 Prepare to exit on Tuesday at the close
04/16 April calls have expired @ -100%
04/04 1st Target Hit @ 129.50. The April option was at $4.82 (+135.1%) and the May option was at $5.25 (+56.7%)

chart:

Entry on March 29th at $123.55
Earnings Date 04/26/11 (confirmed)
Average Daily Volume = 363 thousand
Listed on March 26th, 2011


Praxair Inc. - PX - close: 106.51 change: +0.28

Stop Loss: 103.45
Target(s): 104.75, 109.00
Current Option Gain/Loss: +74.3%, and +114.2%
2nd Position Gain/Loss: +106.0%
Time Frame: 4 to 5 weeks
New Positions: see below

Comments:
04/23 update: Traders bought the dip on Friday allowing PX to close near its highs for the week. We only have two days left. PX is due to report earnings on Wednesday morning. That means we need to exit positions on Tuesday at the closing bell. Given this time frame I am raising our stop loss to $103.45. Our second and final target is $109.00.

- Suggested Positions -

Long the May $100 call (PX1121E100) entry @ $3.90

- or -

Long the May $105 call (PX1121E105) entry @ $1.40

- Second Entry Point, April 12th, Entry April 13th -
- Keep Positions Small -

Long the May $100 call (PX1121E100) Entry @ $3.30

04/23 new stop loss @ 103.45, prepare to exit on Tuesday
04/20 new stop loss @ 101.25
04/19 1st Target Hit @ $104.75. May $100 call @ $5.90 (+51.2%), May $105 call @ $1.80 (+28.5%), 2nd position on May $100 call @ $5.90 (+78.7%)
04/12 New stop loss at $98.90
04/12 Second position on dip near $100
04/09 new stop loss @ 97.90

chart:

Entry on March 30th at $101.54
Earnings Date 04/27/11 (confirmed)
Average Daily Volume = 1.4 million
Listed on March 29th, 2011


Rockwell Automation - ROK - close: 95.19 change: +0.55

Stop Loss: 90.45
Target(s): 99.50
Current Option Gain/Loss: + 18.3%
Time Frame: six trading days
New Positions: see below

Comments:
04/23 update: The close above $95.00 is a short-term bullish development. However, we're almost out of time. ROK is due to report earnings on Wednesday morning. That means we need to plan on exiting this Tuesday, April 26th at the closing bell. Our exit target is $99.50. More conservative traders could exit around $97.50 instead since the current high is just under $98.00.

(Small Positions) - Suggested Positions -

Long the May $95 calls (ROK1121E95) Entry @ $2.45

04/23 Prepare to exit on Tuesday

chart:

Entry on April 20th at $93.75
Earnings Date 04/27/11 (confirmed)
Average Daily Volume = 1.1 million
Listed on April 16th, 2011


SL Green Realty Corp. - SLG - close: 78.71 change: +1.27

Stop Loss: 73.99
Target(s): 79.95
Current Option Gain/Loss: +22.7%
Time Frame: just a few days
New Positions: see below

Comments:
04/23 update: Traders bought the dip on Thursday morning and SLG rallied to new two-year highs. We are down to our last three days. SLG reports earnings on April 27th after the closing bell. We will plan on exiting on the 27th at the close to avoid holding over earnings. More conservative traders may want to raise their stops closer to the $76 level. Our target is $79.95. FYI: The Point & Figure chart for SLG is bullish with a $94 target.

- Small Bullish Positions -

Long the May 80.00 call (SLG1121E80) Entry @ $1.10

04/23 Prepare to exit on the 27th.

chart:

Entry on April 20th at $77.76
Earnings Date 04/27/11 (confirmed)
Average Daily Volume = 800 thousand
Listed on April 19th, 2011


Stericycle Inc. - SRCL - close: 93.16 change: +0.25

Stop Loss: 88.95
Target(s): 94.50, 98.50
Current Option Gain/Loss: +76.0%
Time Frame: 4 to 5 weeks
New Positions: see below

Comments:
04/23 update: SRCL rallied to new highs on Thursday and almost hit the $94.00 level before paring its gains. More conservative traders may want to exit now to lock in a gain. We only have three days left. SRCL is due to report earnings on April 27th after the closing bell. We plan on exiting ahead of the earnings report. I am raising our stop loss to $89.45.

- Suggested Positions -

Long the May $90 calls (SRCL1121E90) Entry @ $2.50

04/23 New stop loss @ 89.45
04/20 New stop loss @ 88.95, new first target @ 94.50
04/16 new stop loss @ 87.75
04/04 New stop loss @ 86.75
04/02 New stop loss @ 85.75

chart:

Entry on March 30th at $88.93
Earnings Date 04/27/11 (confirmed)
Average Daily Volume = 479 thousand
Listed on March 29th, 2011


Vertex Pharmaceuticals - VRTX - close: 49.37 change: +1.39

Stop Loss: 45.95
Target(s): 51.85, 58.50
Current Option Gain/Loss: +16.0%
Time Frame: about 2, maybe 3 weeks
New Positions: see below

Comments:
04/23 update: VRTX briefly touched a new relative high but Thursday's rally stalled under the $50.00 level. I would expect a short-term dip before seeing further gains. Look for some support near $48.00. More conservative traders may want to up their stops a little higher.

We'll exit ahead of the May 3rd earnings report, unless shares hit our targets first. Our first target is $51.85. Our second, much more aggressive target is $58.50.

- Very Small Bullish Positions -

Long the May $50.00 calls (VRTX1121E50) Entry @ $2.50

chart:

Entry on April 10th at $48.28
Earnings Date 05/03/11 (confirmed)
Average Daily Volume = 2.1 million
Listed on April 9th, 2011


Whole Foods Market Inc. - WFMI - close: 66.30 change: +0.63

Stop Loss: 61.70
Target(s): 64.75, 69.00
Current Option Gain/Loss: +60.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/23 update: Investors bought the dip on Thursday morning and WFMI rallied to a new two-week high. We have less than two weeks to go before the company reports earnings. I am not suggesting new positions at current levels. WFMI could have resistance at its early April highs near $67.00. Our final target is $69.00. More conservative traders may want to adjust their stops higher.

- Suggested Positions -

Long the May $65 calls (WFMI1121E65) Entry @ $2.25

04/16/11 April calls have expired @ -100%
04/13/11 New stop loss @ 61.70
04/02/11 new stop loss @ 59.90
03/30/11 1st Target Hit @ 64.75, April $65 call @ 1.25 (+92.3%)
May $65 call @ 3.50 (+55.5%)
03/29/11 new stop loss @ 59.49
03/26/11 New stop loss @ 58.49

chart:

Entry on March 21 at $61.55
Earnings Date 05/04/11 (confirmed)
Average Daily Volume = 1.9 million
Listed on March 19th, 2010


PUT Play Updates

Apollo Group Inc. - APOL - close: 39.80 change: +1.12

Stop Loss: 42.55
Target(s): 38.15, 35.50
Current Option Gain/Loss: + 9.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/23 update: APOL saw a decent oversold bounce on Thursday (+2.8%) but shares remain under what should be psychological resistance at $40.00. If shares can rally past this level there is additional resistance at several key moving averages. I am not suggesting new positions at this time. Our profit targets are $38.15 and $35.50.
The Point & Figure chart for APOL is bearish with a $31 target.

- Suggested Positions -

Long the May $40.00 puts (APOL1121Q40) Entry @ $1.24

04/19 New stop loss @ 42.55

chart:

Entry on April 13th at $41.21
Earnings Date 06/30/11 (unconfirmed)
Average Daily Volume = 2.3 million
Listed on April 12th, 2011


CLOSED BULLISH PLAYS

Sohu.com - SOHU - close: 95.69 change: +0.78

Stop Loss: 91.49
Target(s): 99.90, 107.50
Current Option Gain/Loss: - 5.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/23 update: Our SOHU trade has run out of time. Our plan was to exit on Thursday at the close to avoid holding over earnings on Monday.

Prior Comments:
I want to reiterate that this is an aggressive, higher-risk trade. I'm suggesting we keep our position size small to limit our risk.

- Suggested Positions -

May $100 call (SOHU1121E100) Entry @ $4.25, exit 4.00 (-5.8%)

04/21 Exit at the close. Option @ $4.00 (-5.8%)
04/20 Plan to exit tomorrow at the close.
04/19 New stop loss @ 91.49
04/19 1st Target Hit @ 99.90, Option @ +44.7%
04/13 New stop loss @ 89.75
04/11 Adjusted first exit target to $99.90

chart:

Entry on April 4th at $92.50
Earnings Date 04/25/11 (confirmed)
Average Daily Volume = 1.1 million
Listed on April 2nd, 2011