Option Investor
Newsletter

Daily Newsletter, Tuesday, 4/26/2011

Table of Contents

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

Market Wrap

Thank You CAT, MMM, UTX

by Jim Brown

Click here to email Jim Brown
Blue chip earnings and guidance upgrades helped power the major indexes to new highs on the day before the all important FOMC announcement and Bernanke press conference.

Market Statistics

Based on the market action today you would think Bernanke was going to float down from the heavens on a shimmering cloud to bless the markets and economy on Wednesday. Unfortunately, Bernanke is not a deity and regardless of what he says now we have to wonder if all the good news is already priced into the market.

Leading the Dow higher today was Caterpillar (CAT) with a gain of more than $3. CAT was reacting to a very strong earnings report from Cummins (CMI) where it posted earnings of $1.75 compared to estimates of $1.44 per share. Sales for Cummins were up +56% for the quarter overall and +66% in China. This is very bullish for CAT, which reports earnings on Friday, because dealers claim CAT is selling every piece of equipment it can make and the volume of backorders is exploding.

The only problem for CAT is the cost of steel and the lead-time to actually build the equipment. In the last economic cycle CAT did not staff up fast enough and found itself paying a lot of overtime for high dollar skilled workers. Expenses rose as fast as sales. This time CAT is expected to have staffed up but the soaring cost of steel could impact profits if they have been unable to pass that cost along to the buyers. Also, CAT and Deere have manufacturing plants in Japan so that could be another challenge.

3M (MMM) also beat analyst estimates and raised guidance due to stronger international sales. In China sales rose +27%, Brazil +25% and India +30%. 3M only saw a 3-cent hit to earnings due to Japan. Illinois Tool Works (ITW), Timken (TKR), farm equipment maker AGCO (AGCO) and Pentair (PNR) also reported better than expected earnings and helped push the sector higher.

United Technology (UTX) did not report earnings but benefited from the good will produced from those earnings I listed above. Dow component UTX gained +1.32 to help push the Dow to a new high.

The positive earnings helped overcome negative sentiment from a strong decline in the Richmond Fed Manufacturing Survey. The headline number for April fell to 10 from 20 in March. New orders also fell from 20 to 10 and backorders went negative at -1.0 from +8.0. Capital expenditure plans were flat and the average4 workweek fell from 10 to 7.

A headline number of ten still indicates expansion but at a much slower rate than the prior months. This was the slowest rate since November at 9.0 and the second consecutive monthly decline. This is disturbing after the Philly Fed Survey last Thursday also showed a sharp decline from 43.4 to 18.5. It appears the robust manufacturing rebound in Q1 is fading to a much slower rate of expansion.

Richmond Fed Chart

Consumer Confidence for April rebounded slightly to 65.4 from 63.4 but that is only a fraction of the -8.2 point decline last month. The gains came from a +2.1 point rise in the present conditions component to 39.6. The employment components also improved slightly.

The biggest gains came in buying plans by consumers. They increased significantly with those planning on buying autos rising to 12.4% from 11.3%, homes +5.5% from 4.1% and appliances 49.1% from 43.8%. In economic terms those were very large moves. It appears consumers are becoming numb to the problems in the Middle East but it is too soon to tell if they will be able to shake off the higher fuel prices.

Consumer Confidence Chart

The economic calendar for the rest of the week has plenty of events but the key one is still the Bernanke press conference on Wednesday afternoon.

Economic Calendar

Amazon (AMZN) reported earnings after the bell and it was not pretty. Earnings declined to 44-cents per share compared to 66-cents a year ago. That was well short of the 61-cents analysts expected. Amazon said the disaster in Japan cost them dearly. Amazon gets up to 15% of its revenue from Japan. Also, Amazon said business is growing so fast they have been adding capacity at a record rate and that spiked costs for the quarter. Amazon is opening several new distribution centers and expanding others.

For Q1 revenue rose +38% to $9.86 billion and more than the $9.5 analysts expected. For Q2 Amazon is now projecting revenue of $8.85 to $9.65 billion and analysts were expecting $8.75 billion. Amazon also predicted operating income for Q2 would decline to between $95 million and $245 million due to the expenses for new distribution centers and aggressive advertising and discounting of Kindles. Analysts were expecting operating revenue of $368.5 million. Bloomberg said a new law forcing it to collect sales tax nationwide could cost it $7 billion in annual sales. That law has not been passed but California, New York, North Carolina and Colorado have passed state laws forcing tax collection. The company more than doubled capital expenditures last year to $979 million and will spend another $900 million in 2011 for the warehouse expansion. Amazon shares imploded on the news and fell from the $182 close to just under $168 before rebounding to only a -$4 loss at $178.

Amazon Chart

Broadcom (BRCM) also reported after the close and beat the street with earnings of 40-cents compared to estimates of 35-cents but disappointed on guidance. Broadcom predicted revenues of $1.8 billion compared to estimates for $1.9 billion. Broadcom shares declined sharply after the release.

Broadcom Chart

Another loser was NetFlix (NFLX) after they reported earnings of $1.11 per share compared to estimates of $1.07 per share. The hit to the stock came from worries over future growth. This seems to come up every quarter but then NetFlix blows away the next quarter with new subscribers. An analyst at Janney Montgomery Scott cut his rating on the shares to sell from neutral with a target price of $170, which is 26% below today's close. Analysts continue to worry that costs of content will rise and the cost of customer acquisition will rise as more competitors enter the market. Meanwhile NetFlix is guiding higher for earnings of $1.15 per share in Q2 on revenues of $798 million. The revenue is higher than analyst estimates at $767 million but earnings are lower than the $1.18 analysts expected. This is due to the rising costs.

In Q1 NetFlix signed up 3.59 million new subscribers to a total of 23.6 million and at the top of its predicted range. Morgan Stanley expects them to top 30 million by year-end. Meanwhile Hulu.com is expected to top one million subscribers and $500 million in revenue for all of 2011. Amazon is also increasing its exposure to the market. I would not count NetFlix out yet and these dire warnings from analysts come around every quarter. There was another company like this that suffered for years from the quarterly warnings the business model was going to fail. The stock was extremely volatile but now it does nearly $50 billion a year in business and saw sales grow +38% in Q1. That stock is of course Amazon. NetFlix shares fell -$22 today or -9% but any return to the 100-day average ($209 today) is another buying opportunity.

NetFlix Chart

Dow component Coca Cola (KO) was the biggest Dow loser for the day at -1.2% after the company said Q1 profits missed estimates because of problems in Japan. Earnings of 86-cents missed estimates by a penny and that penny was what Coke said they lost in Japan. Sales of $10.5 billion were slightly below estimates. However, analysts said sales were below expectations in ALL regions but Latin America and much of the revenue miss actually came from sales in the USA.

For many companies reporting this cycle it is hard to know what earnings are real and Q1 is turning into a "kitchen sink" quarter for those with exposure to Japan. They can throw any lingering performance issues into the Q1 earnings and blame it on Japan in hopes investors don't understand their reports well enough to figure out they are just hiding under the Japan excuse.

At least Under Armour (UA) did not blame Japan for their spike in inventory. Their inventory levels rose +68% to $248.6 million in Q1. They were still able to beat estimates of 19-cents with profits of 23-cents but the shares were pummeled on the inventory. Shares declined -9 or -11% on the news.

However, UA explained they elected to stockpile cold-weather products early this year in order to avoid rising costs later in the year. While this may have been a shrewd move by UA most investors can't seen past the headlines and rising inventory is always a sign of shrinking sales to the uneducated. Analysts worry companies will have to discount the inventory at a later date if sales trends don't go as planned.

Under Armour Chart

TravelZoo (TZOO) shares rallied +7% on Monday on an upgrade and then fell -15% today. TZOO shares have been nothing but volatile recently with a +20 point gain on Thursday on better than expected earnings. On Monday a Benchmark analyst raised the stock to a buy from hold for the additional +7% gain. That spike was the last straw it appears and the stock came crashing back to earth today. It was the proverbial kiss of death when the CEO rang the opening Nasdaq bell on Tuesday morning after a $30 gain in two days. Too much attention in too short of time and the blow off top was complete.

TravelZoo Chart

Refiner Holly Corp dropped -$4 or -6% on a particularly run of bad luck over the last couple days. On Monday it was forced to shutdown one half of its 125,000 bpd refinery in Tulsa due to mechanical problems and it is expected to take "several days" to restart. This came after but was not related to a fire caused by a lightning strike at the same plant on Sunday night. If that was not enough a 25,000-acre wildfire burned up to the fence at its New Mexico refinery and there were fears at one point it would sweep over the refinery. However, firefighters were able to extinguish the blaze at the fence line. This triplicate of bad news chased investors out of Holly stock.

Holly Chart

Another refiner, Valero Energy (VLO), reported earnings of 17-cents compared to estimates of 29-cents. That was a substantial miss but there was a 20-cent cut due to a one-time maintenance delay costing them $116 million. Without that item they would have beaten the street by a mile. Valero said demand was strong and increasing from its customers and they expected refineries to run at more than 90% utilization throughout the summer as long as prices don’t weigh on the consumer in the weeks ahead.

Valero said margins at its plants in the Midwest averaged $4.59 per barrel higher than plants around the Gulf Coast where the price of oil was much higher. Valero said Midwest plants were seeing margins up to four times higher than Gulf Coast refiners. Refiners in the Midwest can receive oil from Canada and the Bakken at a discount to WTI prices where refiners on the coasts have to pay prices indexed to the higher Brent prices. WTI at $112 is 12% lower than Brent, 13% lower than African Bonny Light and 5% lower than Dubai Fateh crude.

Unfortunately even with the higher demand Valero is anticipating they warned the price at the pump is not keeping up with the rising price of oil. We saw this in 2008 when prices spiked. The consumer resistance at the retail level depresses demand and refiners end up selling gasoline at lower margins. Everyone in the food chain suffers because oil bought today does not end up as gasoline at the station for up to 60 days. As oil prices spike higher everyone in the chain tries to anticipate and they raise the current price of gasoline but this price volatility tends not to account for 100% of the crude increases. Refiners found themselves selling gasoline for less than it cost them in 2008 and losses mounted despite the high prices. We are approaching those levels again in 2011 where consumer resistance proves to be the immovable object and suppliers take the hit.

Valero Chart

Despite what Valero said about overall fuel demand, which included gasoline, diesel and jet fuel the MasterCard Spending Pulse report today showed that four-week average for gasoline demand at the pump fell -2% and the fifth consecutive weekly decline. The average price for gasoline in the U.S. rose to $3.87.

Of all the companies in the S&P that have reported more than 80% have beat on earnings. The average beat has been 10.8%. There are more than 175 S&P companies reporting this week. The calendar for the rest of the week has Ebay, Microsoft and Caterpillar for highlights.

Earnings Calendar

Silver finally cracked with a -10% decline off its $49.82 high on Monday. It would be bard to call the 10% decline a material correction given the rally just since January but it was the first bout of real selling since mid March. There are a lot of traders who have been waiting for a decent decline in silver as an entry point. Is this it? The current silver futures contract expires on Wednesday and I suspect there was some expiration pressure in the drop. A $1 move in the SI contract is worth $5,000. There is a lot of profit still unclaimed in that move up from January.

Silver Chart

An analyst from Morgan Stanley, Hussein Allidina, made some bearish comments about some commodities on Bloomberg today. However, he was very bullish about corn. He pointed out that current inventory to expected demand was the lowest since 1995 and wet weather was preventing planting in some states while unseasonably warm weather in others was also causing problems.

The U.S. produces 13 billion bushels per year. Five billion are used in ethanol production and two billion are exported. He believes there are not enough acres being planted in 2011/2012 to meet demand. In a note titled, "Ration to Conserve What Remains" he said, "We (Morgan Stanley) continue to believe that corn and soybean prices need to move higher, as prices are not sufficiently rationing demand, nor is there sufficient acreage to satisfy all crop demands." In other words he believes there will be a large shortage of corn and it will require a strong increase in prices to create enough demand destruction to balance supply/demand. He believes corn prices will exceed $10 per bushel. Corn is currently $7.66 and a move to $10 would be an extremely profitable move for futures traders. Allidina Interview

Corn Chart

Traders came back from the holiday ready to trade if today's markets are any indication. Volume on Monday was only 5.3 billion shares and the lowest in months. Volume today spiked to 7.1 billion as the morning short squeeze crushed everyone who thought Monday's minor decline was a setup for a bigger drop and went short. Unfortunately as in other recent short squeezes the gains all came in the first few minutes and the indexes went sideways the rest of the day. Pure squeeze, no conviction.

I don't know how much conviction traders could be expected to have given the super critical Fed events on Wednesday. The FOMC announcement and Bernanke blessing appear to have already been priced into the market but then we really don't know what he is going to say. Anything is possible and I am sure puts will be popular purchases early Wednesday morning.

Because of the gains over the last week you would think today's minor new high would be a perfect opportunity for a sell the news event after the Bernanke conference. That would be the conventional wisdom. Of course we know how badly conventional wisdom normally works when it comes to trading.

This is really a coin toss for Wednesday's close and it will be entirely based on the FOMC announcement and his conference. Technicals will not matter for Wednesday other than the fact we closed right at new high resistance.

The S&P closed at a new two year high at 1347 and that is a +53 point rebound from last week's lows. That is over extended in anybody's book. However, breakouts to new highs tend to continue as traders chase prices in disbelief. The wildcard is of course the Fed events.

S&P Chart

The Dow has taken flight and is well past the breakout point but over 12,600 it will begin encountering prior support levels, which should now be resistance. If earnings continue to be great and Bernanke speaks golden words then we could be headed much higher. That is a big challenge for him to keep this rally going. Let's hope he is up to the task. At this point I would be hard pressed to even come up with a script that could push the indexes higher but since they are already in flight mode maybe a gentle push is all he needs.

Dow Chart

The Nasdaq also broke out to a new high but unlike the Dow/S&P it does have decent resistance at 2861 and the 100% rebound point from the March 2009 lows. This same point on the S&P was 1333 and it took us four weeks to finally break through that level. With Amazon and Broadcom stinking up the place after the close tonight I am very surprised the Nasdaq futures are positive at +9 points at 8:PM but it is a bull market. The bad news bulls are definitely in control.

Nasdaq Chart

Russell Chart

In summary Wednesday is a popcorn day. The FOMC announcement will be at 12:30 as a warm up for the main show when Bernanke appears at 2:15 to do battle with eager economic reporters. This is best viewed with a big bowl of popcorn from your easy chair and well away from your computer and brokerage screen. The potential for major volatility is extreme and that could go in both directions. I would bet there will be more money LOST by traders trying to capture the move than will be gained. In events like these the initial move is normally a head fake and sometimes there are more than one move. The best way to play the Bernanke speech is from spreads or from cash. You go back into the market on Thursday after the smoke clears and the army of reporters have sliced and diced his comments in every way possible.

Definitely, enter passively on Wednesday.

Jim Brown

Send Jim an email

Register for my OilSlick.com newsletter and receive free daily updates and commentary on the energy sector. Register here


New Option Plays

All Eyes on the Fed

by James Brown

Click here to email James Brown

Editor's Note:

Tuesday was a bullish day on Wall Street. Outside of the gold miners and some retail stocks, most of the market was trending higher. The S&P 500 finally broke out to new multi-year highs, which should alleviate concerns about a possible bearish double top pattern. All in all it was a nice day for the bulls. Yet I couldn't find anything worth adding to the newsletter tonight. All of the stocks that did look tempting had earnings coming up in just a couple of days and we don't like to hold over an earnings report.

Strong corporate earnings have been fueling the market's gains. Yet the story tomorrow may not be earnings. Instead the market will be focused on the Federal Reserve and its FOMC meeting. Actually the focus will probably be on the first-ever post-FOMC meeting press conference with Fed chairman Ben Bernanke and a room full of eager reporters. The opportunity for Ben to say the wrong thing and tank the markets is pretty big. Thus I am a little reluctant to add new candidates to the newsletter tonight. Although readers might want to consider some short-term puts on the major indices if you think stocks might see a sell-off after the press conference with Bernanke.

- James


In Play Updates and Reviews

Market's New High Hits Targets

by James Brown

Click here to email James Brown

Editor's Note:

The market's surge to a new relative high hit both some triggers to launch positions and some targets to take profits. CHRW and VRTX hit targets. We are taking an early exit in PX and ROK. FAST, FO and JOSB all hit our triggers to buy calls. PNRA was stopped out.

-James

Current Portfolio:


CALL Play Updates

Deere & Co - DE - close: 97.00 change: +2.28

Stop Loss: 92.49
Target(s): 99.70
Current Option Gain/Loss: +45.3%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
04/26 update: Industrial stocks were a bright spot in the market today. DE gapped open higher above $96 and rallied to $97.78 intraday. I would still consider new positions on dips near the $95 area. 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

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


Fastenal Co. - FAST - close: 66.11 change: +0.81

Stop Loss: 63.75
Target(s): 69.50, 74.00
Current Option Gain/Loss: -11.3% & -20.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
04/26 update: Our new play on FAST has been opened. Shares rallied to new two-week highs and closed above resistance at the $66.00 level. Our trigger to buy calls was hit at $66.25. I would still consider new positions now at current levels. 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.

- Suggested Positions -

Long the May $65.00 calls (FAST1121E65) Entry @ $2.20

- or -

Long the June $70.00 calls (FAST1118F70) Entry @ $0.75

chart:

Entry on April 26th at $66.25
Earnings Date 04/12/11 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on April 23rd, 2011


Fortune Brands - FO - close: 64.16 change: +0.72

Stop Loss: 61.75
Target(s): 67.50, 69.75
Current Option Gain/Loss: - 15.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/26 update: Finally, after three weeks of consolidating sideways shares of FO finally broke out past the $64.00 level. Our trigger to buy calls was hit at $64.00. Helping drive the stock higher was news from the company's annual shareholder meeting. FO said they were making progress in splitting up the company's three businesses. While the split up still needs to be approved they did announce the new names of the three businesses. Its liquor business will be called Beam Inc. after its Jim Beam brand. The home products business will be called Fortune Brands Home & Security. The golf business will be called Acushnet Company. No date yet has been set for the split up. We plan to exit ahead of the May 5th earnings date anyway.

Now that the trade is open our first target is $67.50.

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

(Small Positions) - Suggested Positions -

Long the May $65.00 call (FO1121E65) Entry @ $1.00

chart:

Entry on April 26th at $64.00
Earnings Date 05/05/11 (confirmed)
Average Daily Volume = 973 thousand
Listed on April 5th, 2011


Fossil Inc. - FOSL - close: 95.89 change: -0.74

Stop Loss: 91.95
Target(s): 99.75, 104.75
Current Option Gain/Loss: -11.3%, and - 4.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
04/26 update: It was disappointing to watch FOSL. Shares failed to participate in the market's rally on Tuesday but the stock is holding support near $95.00. I remain bullish on FOSL but 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

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: 146.38 change: -0.49

Stop Loss: 139.90
Target(s): ---.--, 154.50
Current Option Gain/Loss: +63.0%, and + 84.9%
2nd Option Position Gain/loss: +102.7% and +126.3%
Time Frame: 6 to 12 weeks
New Positions: see below

Comments:
04/26 update: The dollar dropped to another new relative low today but that didn't help the commodities. As expected gold hit some profit taking. The GLD opened at $146.47. Shares did pare their losses to close down -0.33%. I am not suggesting new positions at this time. We can re-evaluate new entry points on dips near $144 or $142.

More conservative traders may want a stop closer to the $142 area. 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

04/26 UPDATE: The gap down on Tuesday morning affected our exit prices. May $145 call @ +58.6% and +97.2%. June $150 calls @ +68.4% and +103.6%
04/25 Take Profits Now. Sell all or part of our position. Options are at: May $145 calls $3.50 (+90.2% & +136.4%), June $150 calls $2.76 (+107.5% & +150.9%)
04/20 New stop loss @ 139.90

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


Google Inc. - GOOG - close: 532.82 change: +7.77

Stop Loss: 518.75
Target(s): 558.00
Current Option Gain/Loss: +26.6%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
04/26 update: Strength in tech stocks helped lift GOOG to $537.44 intraday. The stock eventually settled with a +1.4% gain. If you were waiting for a close over $531 then you got it today. Otherwise I am not suggesting new positions at these levels. 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.

Prior Comments:
This is a very aggressive, higher-risk trade. Keep positions small.

(Very Small Positions) Suggested Positions:

Long the May $550 call (GOOG1121E550) Entry @ $3.00

Entry on April 25th at $525.25
Earnings Date 04/14/11 (confirmed)
Average Daily Volume = 3.3 million
Listed on April 23rd, 2011


Intuit - INTU - close: 54.99 change: -0.04

Stop Loss: 53.45
Target(s): 57.50, 59.75
Current Option Gain/Loss: -31.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/26 update: It was another quiet day for INTU. I have been warning readers to expect a dip toward $54.00. Readers may want to wait for a bounce from $54.00 instead of buying the initial dip.

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

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


Jos. A Bank Clothiers - JOSB - close: 52.78 change: +1.21

Stop Loss: 49.95
Target(s): 59.50
Current Option Gain/Loss: - 14.2% and - 8.5%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/26 update: Thankfully we did not have to wait very long for JOSB to hit our trigger. Shares rallied to a new relative high with a move to $53.19 intraday. Our trigger to buy calls was hit at $52.75. I would still consider new positions now at current levels. Our target is $59.50.

FYI: The most recent data listed short interest in JOSB at more than 21% of the small 27.3 million-share float. Together the increase the risk of a short squeeze.

- Suggested Positions -

Long the May $55 calls (JOSB1121E55) entry @ $0.70

- or -

Long the June $55 calls (JOSB1118F55) entry @ $1.75

Chart:

Entry on April xxth at $ xx.xx
Earnings Date 06/02/11 (unconfirmed)
Average Daily Volume = 510 thousand
Listed on April 25th, 2011


Ross Stores Inc. - ROST - close: 72.50 change: +0.04

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

Comments:
04/26 update: The retail sector underperformed today and ROST was no exception. Shares are trading under resistance near $73.00. 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

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


Stericycle Inc. - SRCL - close: 93.43 change: -0.81

Stop Loss: 91.45
Target(s): 94.50, 98.50
Current Option Gain/Loss: + 80.0%
Time Frame: 4 to 5 weeks
New Positions: see below

Comments:
04/26 update: Warning! The action in SRCL today looks like a possible short-term top. The stock opened higher at $94.42. That means our exit on the May $90 calls (suggested last night) was at a bid of $5.80 (+132%). Unfortunately the rally failed at $95.71 and SRCL looks headed for the $92 level or lower. Right now our plan is to exit tomorrow at the closing bell to avoid holding over earnings. More conservative traders may want to exit first thing in the morning. I am raising our stop loss to $91.45.

- Suggested Positions -

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

04/26 Prepare to exit tomorrow. New stop loss @ 91.45
04/26 gap higher this morning adjusts our exit from last night to $5.80 (+132%)
04/25 Take Profits Now. Option @ $5.20 bid (+108%)
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

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: 52.92 change: +4.88

Stop Loss: 45.95
Target(s): 51.85, 58.50
Current Option Gain/Loss: +68.0%
Time Frame: about 2, maybe 3 weeks
New Positions: see below

Comments:
04/26 update: Whoa! I thought last Thursday and Monday were volatile. Today shares of VRTX dipped to technical support near the 30 and 40-dma before surging to new 52-week highs. The stock hit $54.99 intraday before settling with a +10.1% gain. The gains today were fueled by positive comments on VRTX's Telaprevir treatment for hepatitis C. An FDA advisory panel is still scheduled to review the drug on Thursday but positive press from the FDA today about Telaprevir helping more patients than current therapies helped send shares of VRTX soaring. The FDA is still set to review Merk's rival drug tomorrow. We should expect more volatility tomorrow.

On a positive note today's rally in VRTX did hit our first target at $51.85. Our second and final target is $58.50. I am not suggesting new positions at this time. If VRTX fails to hit our stop or target then we'll plan on exiting ahead of the May 3rd earnings report.

FYI: The option hit $6.30 intraday. The May $50 call had a bid near $3.40 when VRTX hit our first target.

- Very Small Bullish Positions -

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

04/26 1st Target Hit @ 51.85, Option @ $3.40 (+36%)

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: 65.60 change: -0.28

Stop Loss: 61.70
Target(s): 64.75, 69.00
Current Option Gain/Loss: +40.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/26 update: Tuesday proved to be a quiet day for WFMI. Shares are hovering sideways. With the market breaking out there is a good chance WFMI can breakout too. If not we're probably looking at another dip toward $64.00. I am not suggesting new positions at current levels. 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

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: 40.28 change: +0.34

Stop Loss: 42.55
Target(s): 38.15, 35.50
Current Option Gain/Loss: - 0.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/26 update: Bearish plays are going to get tougher to trade with the market's major indices breaking out to new highs. More conservative traders may want to exit this trade immediately. 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

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

CH Robinson Worldwide Inc. - CHRW - close: 79.24 change: +0.73

Stop Loss: 75.95
Target(s): 79.50
Current Option Gain/Loss: +106.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/26 update: Target achieved. Transports were showing relative strength on Tuesday. Shares of CHRW rallied to $79.71 intraday. Our final target was hit at $79.50. The May $75 call had a bid of $4.65.

- Suggested Positions -

May $75.00 calls (CHRW1121E75) Entry @ $2.25, Exit $4.65 (+106.6%)

04/26 Target hit @ 79.50, Option @ +106.6%
04/25 New stop loss @ 75.95, exit tomorrow at the close
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


Panera Bread Co. - PNRA - close: 124.32 change: -2.56

Stop Loss: 123.75
Target(s): ---.--, ---.--
Current Option Gain/Loss: -31.3%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
04/26 update: PNRA produced an intraday rally to $128.25 but it wasn't enough to hit our adjusted exit target at $129.00. Earnings are tonight and it was our plan to exit today at the closing bell. Except that shares hit our new stop loss at $123.75 shortly after the spike higher failed this morning.

- Suggested Positions -

May $130 call (PNRA1121E130) Entry @ $3.35, exit near $2.30 (-31.3%)

04/26 stopped out @ 123.75, option @ -31.3%
04/25 New stop loss at $123.75
04/25 Exit tomorrow at the close (or at $129.00)
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: 108.12 change: +1.31

Stop Loss: 103.45
Target(s): 104.75, 109.00
Current Option Gain/Loss: +115.3%, and +200.0%
2nd Position Gain/Loss: +154.5%
Time Frame: 4 to 5 weeks
New Positions: see below

Comments:
04/26 update: PX continues to show impressive relative strength. Shares hit another new high and closed up +1.2%. It was our plan to exit today a the closing bell to avoid holding over earnings.

- Suggested Positions -

May $100 call (PX1121E100) entry @ $3.90, exit $8.40 (+115.3%)

- or -

May $105 call (PX1121E105) entry @ $1.40, exit $4.20 (+200%)

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

May $100 call (PX1121E100) Entry @ $3.30, exit $8.40 (+154.5%)

04/26 Early Exit. May $100 calls @ +115.3% and +154.5%. May $105 call @ +200%
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: 97.84 change: +3.31

Stop Loss: 90.45
Target(s): 99.50
Current Option Gain/Loss: + 79.5%
Time Frame: six trading days
New Positions: see below

Comments:
04/26 update: Industrial names were a bright spot today and ROK surged +3.5% to close near its April highs just under the $98 level. Our plan was to exit today at the closing bell to avoid holding over earnings.

(Small Positions) - Suggested Positions -

May $95 calls (ROK1121E95) Entry @ $2.45, exit $4.40 (+79.5%)

04/26 Exit early. Option @ +79.5%
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