Option Investor
Newsletter

Daily Newsletter, Thursday, 4/28/2011

Table of Contents

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

Market Wrap

Earnings Continue To Impress

by Jim Brown

Click here to email Jim Brown
The earnings cycle continued to provide big gains for those who beat and big losses for those who disappoint. Fortunately the winners outnumbered the sinners once again.

Market Statistics

Thankfully the earnings parade continues to be strong because the economic reports are continuing to worsen. If this divergence continues the end result is not going to be pretty. Eventually economics will trump earnings because a weakening economy will eventually weaken earnings.

The weekly Jobless Claims rose again to 429,000 and the highest level since January 22nd. This was an increase of 25,000 for the week. This is the third consecutive week over 400,000 claims after four weeks below that level. The trend lower appears to have ended and this is troubling news for the future.

The key question is whether this is just a blip or the start of a new trend? This could be just the result of the various shutdowns by automakers due to parts shortages. Automakers had planned on building 3.6 million cars in the second quarter but current estimates are for 500,000 fewer vehicles.

Jobless Claims

The first reading on the GDP for Q1 at +1.75% growth and well below earlier estimates over 3% and the actual Q4 growth of +3.1%. This was below the already lowered estimates at +2.0%. Weaker growth in fixed investment and stronger imports were blamed. Final sales of domestic products rose only +0.8% in Q1 compared to +6.7% in Q4. Personal consumption expenditures rose only +2.7% compared to 4% in Q4. Sales of durable goods did rise strongly by +10.6% but that was only 25% of the Q4 growth rate.

Analysts continue to predict these numbers will improve as the year progresses but their claims are growing weaker as the year progresses. Overall estimates for the full year are now in the 3.1% to 3.5% range but shrinking.

The fear is growing that rising fuel prices will weigh on the economy and eventually create a new recession. This is a very strong possibility with the average U.S. price for gasoline at $3.89 today.

GDP Chart

The headline number on the Kansas Fed Manufacturing Survey declined to 14 for April from 27 in March. This nearly 50% decline is another confirmation of the sudden decrease in manufacturing activity in April. We saw this in the Philly Fed Survey that fell to 18.5 from 43.4 and the Richmond Fed Survey that fell to 10 from 20. It appears the decline was not localized and should it continue at this rate we could be in serious trouble.

New orders dropped from 31 to 11, a 65% drop. Backorders fell to 9 from 25. The employment component fell to 17 from 25 and capital expenditure plans fell to 4 from 14. These are major declines that indicate sentiment is deteriorating rapidly.

Analysts believe it is due to the rising fuel prices and the supply chain problems from Japan. However, we are seeing it in multiple geographic locations and industries so the supply chain argument is questionable. So far analysts have yet to predict the end of the rebound but you have to think those predictions may not be far off.

Economy.com Richmond Fed Survey Chart

On the positive side the Chicago Fed National Activity Index rose slightly from 0.16 to 0.26. However this was a lagging report for March and prior to the sudden decline in activity in April.

The Pending Home Sales Index, also a lagging report for March, rose to 94.1 from 89.5 in February. Contract signings were higher in all markets. Despite the gains in the index the actual sales are still lower than the same period in 2010. The index itself is -11.4% below the same period in 2010. The risk to home sales are weighted to the downside as fuel prices rise and the spring selling season passes.

The economic calendar for Friday has two ISM reports and the final reading on Consumer Sentiment.

Economic Calendar

Thank goodness for continued decent earnings. The winners outweighed the sinners again today and that helped push the indexes higher. So far 44% of the S&P has reported and 76.6% have beaten on earnings and 70.9% have beaten on revenue. Earnings are currently expected to end the cycle showing an average of +16% growth. That is also the full year estimate.

Time Warner Cable (TWC) started the morning off with a +52% increase in profits thanks to a big increase in the number of cable customers adding Internet and phone service as well. TWC added +189,000 high-speed Internet subscribers bringing their total to more than ten million. It also lost 65,000 basic cable viewers as more people switch to Hulu.com, Amazon and NetFlix. TWC posted earnings of $1.01 per share compared to estimates of 98-cents. TWC shares rose on the news.

Starwood Hotels (HOT) said earnings declined due to the problems in the Middle East an the tsunami in Japan. Earnings declined to 14-cents from 16-cents in the comparison quarter. Analysts were expecting 25-cents. Turmoil in Tunisia, Egypt, Libya and Bahrain caused widespread cancellations. There were also multiple blizzards in the Northeast early in the quarter that slowed bookings.

Starwood predicted earnings of 42-46 cents in Q2 and raised estimates for the full year to $1.60 to $1.70. Prior predictions were $1.55-$1.65. After spiking early on the guidance the stock closed on its lows for a minor loss.

Driller Helmerich & Payne missed street estimates and was severely punished. Earnings of 93-cents missed estimates of 97-cents. The decline in profits came from disruptions in activity by events in the Middle East. Nabors (NBR) blamed the same disruptions in Yemen and Oman for its earnings problems on Wednesday.

Relatively speaking the HP earnings were still great compared to the 53-cents earned in the comparison quarter. Revenue of $604.4 million was well above the $592 million expected. HP builds and operates very high specification land rigs specially designed for horizontal drilling. HP has 240 rigs operating in the U.S. and signed deals to build and operate eight more FlexRigs during the quarter. HP shares declined -7% on the news to $65.

HP Chart

Exxon (XOM) posted near record earnings of $10.65 billion for Q1 thanks to the rise in oil prices. That was a +69% increase in profits from Q1-2010. Exxon reported earnings of $2.14 per share compared to estimates of $2.04 on sales of $112.6 billion. Exxon was quick to point out that only 3-cents of every dollar earned came from sales of gasoline and diesel fuel. Most of Exxon's profits come from oil and natural gas sales outside the USA. Oil companies have no control over the price of oil or gasoline. With gasoline prices averaging over $3.89 nationwide and now over $4 in eight states the call to end tax deductions for oil companies is quickly growing. Exxon paid $26 billion in taxes for the quarter including $8 billion in income taxes.

Most people hear $11 billion in profits and $4 billion in tax deductions and think that is an easy answer. Unfortunately that is $4 billion across the entire sector not just on Exxon. That means hundreds of smaller companies that make far less and are struggling to finance ongoing exploration programs would lose deductions for things they depend on to explore and produce oil. Eliminating the tax deductions, commonly referred to as subsidies because it sounds better politically, would probably only cost Exxon a few million but the bulk of that $4 billion would come from hundreds of smaller companies and result in less money available to drill and produce oil in America. This is a bad idea!

Gasoline demand fell for the fourth consecutive week and was down -1.6% last week according to the EIA. The rising prices for fuel are going to be economically crippling. I have been warning about the coming fuel price recession for over a year now since prices were just over $60 a barrel. I keep telling everyone to prepare themselves for even higher prices as we move into 2012. WTI crude traded up to $113.97 intraday and although it weakened into the close it is only temporary.

Crude Oil Chart

After the bell Microsoft (MSFT) reported earnings of 61-cents but that included a 5-cent tax gain putting the earnings only a penny over estimates of 55-cents. Revenue increased +13% to $16.4 billion. Windows revenue fell -4% and slightly more than the drop in PC shipments reported by IDC. The earnings were not impressive even though earnings rose +31%. They are seeing an erosion of PC software sales due to the wave of new tablets displacing new PC sales. Microsoft said there was a -40% decline in the sales of netbooks in the quarter. The two bright spots were sales of its Office software, which rose +21% and a +60% gain in the entertainment division with the Kinect device. MSFT shares fell -2% in afterhours trading.

Microsoft Chart

Akamai (AKAM) posted earnings of 38-cents that beat the estimates by 2-cents but then guided lower on second quarter sales. The company said sales would be in the range of $270-$280 million and analysts had been expecting $280.7 million. The company said it had to offer discounts to induce sales. Shares declined -15% on the news to $35.

AKAM Chart

The biggest gainer for the day came from Carbo Ceramics (CRR). This drilling service company produces proppants to inject into the well when fracturing the shale. These proppants are blown into the cracks created by fracturing and keep the cracks open when the frac fluids are withdrawn. Sales spiked +22% to $150.8 million compared to estimates of $129.5 million. Earnings rose +59% to $1.30 compared to estimates for $1.02. Shares rose +$21 on the news.

Carbo Ceramics Chart

Citrix Systems (CTXS) posted an 18% increase in revenue and earnings of 41-cents. That was well above the analyst estimate of 32-cents. Gross margins were a whopping 88.3%. Product licenses were up +22% and license renewals were up +17%. Technical services revenue rose +44%. It was a good quarter for Citrix and shares rallied +10% on the news.

Citrix Chart

Also after the bell Research in Motion (RIMM) warned that sales and earnings would fall short of prior forecasts. RIMM now sees earnings in the range of $1.30-$1.37 compared to prior forecasts of $1.47-$1.55. This is the second guidance warning in the last month. RIMM said the decline was due to lower shipment volumes of its BlackBerry phones and higher sales of its cheaper devices. The company now believes shipments will be at the low end of the 13.5-14.5 million forecast from March. RIMM shares dropped -$6 in afterhours and would probably have fallen further except that the company left intact its full year earnings forecast of $7.50 per share. Personally I seriously doubt that will happen and they are saving that forecast adjustment for a later date.

RIMM Chart

The dollar continued to fall to another three year low after Wednesday's FOMC statement and press conference pretty much confirmed rates would stay low for the rest of the year. While bad for our buying power it is bullish for stocks and commodities.

Dollar Index Chart

Gold soared to another new high today and now solidly over $1500 and traders starting to talk about $1600 in May.

Gold Chart

Silver Chart

The earnings parade, despite some ugly ducklings trailing behind the star performers, has pushed all the indexes to new highs. It would appear the bull market is starting to build a new leg higher but I would hesitate to rush to that conclusion. This is the last week of the month and buying this week and next is normally stronger because of the influx of retirement funds. Income tax refunds are bring put to work in the market and the cheaper dollar is pushing stocks and metals higher. This can't last forever. We are approaching the sell in May point and several noted analysts have been predicting this could be a stronger than usual cycle.

Citi's Chief Equity Strategist, Tobias Levkovich, said today he believes the chances for the sell in May cycle are particularly strong this year. He said the 100% rebound from the March 2009 lows is a critical sentiment level and once earnings begin to slow the buying should slow also. He said the market really has some overlying negative sentiment from retail traders who have never believed in this rally. He cited the billions that moved into money market and bond funds and only a trickle has come back to equities. He cited the continued low volume and the weakening economics.

Nobody is specifically predicting another recession over the summer but the markets are typically weaker in the May-September timeframe thanks to slower earnings and a slow down in activity as workers take vacations.

If you look at the S&P it is clearly in breakout mode and well over 1340. The next material resistance it 1425 but as I mentioned last week we are starting to hit S&P targets from some of the less optimistic analysts. Those targets start at 1350 and we are only one good day away from that level. As targets are hit the cautious will begin to take profits. The average looks to be in the 1400-1425 but there are estimates up to 1550. I would expect getting over 1400-1425 would take a major change in sentiment and I see no catalyst on the horizon to make that happen before fall.

I received two different newsletters after the Bernanke press conference that were calling a market top for this week. I am not in that camp but I certainly understand their rationale. If internals begin to weaken next week as the earnings cycle slows and end of month contributions dry up it will be very easy to justify a switch to a short-term bearish posture. The problem with that is the number one rule in the market. Don't fight the Fed. Bernanke clearly said there will not be any rise in rates likely this year and there will be a two meeting warning when that bias is likely to change. Rates are going to remain low and the dollar is going to continue falling. Both of those are positive motivators for the equity markets.

S&P Chart

The Dow is clearly in breakout mode. It blew through minimal resistance in the 12,600-12,700 range without even slowing. The next material resistance is 12,950-13,075 with strong round number resistance at 13,000. Caterpillar will report on Friday and they are expected to report a blowout number. However, those expectations may be overdone. I fear the Dow is very overextended and is due for some profit taking.

Dow Chart

Both Nasdaq indexes struggled on Thursday but the troubles were not really tied to a broad weakness in tech stocks. Novellus did miss earnings and the semiconductor index closed lower but the real problem is the Nasdaq-100 rebalance on Friday. This has been lost in the shuffle on the network TV shows but we saw clear evidence of it today.

To refresh, the Nasdaq-100 will be rebalanced at Friday's close with the weighting on the current top 18 stocks reduced and the bottom 82 stocks will be increased. That means stocks representing about 40% of the current weighting in the Nasdaq 100 will sold to reduce their weighting to about 20%. The bottom 60% will see their weighting increase. Since the new weightings won't take affect until Monday's open we will see negative pressure on the index on Friday. On Monday that will turn into a positive pressure as the lagging funds continue to add to positions in those 82 stocks with increased weightings.

This should produce some increased volume on Friday. For those who don't know what is happening they may see a decline in the Nasdaq and interpret that as market weakness rather than rebalance noise.

Nasdaq Chart

Nasdaq-100 Chart

The Russell 2000 rallied to a new historic high at 861 and is also in breakout mode but is due for some profit taking. Prior uptrend support should now be resistance but when charts are in breakout mode that resistance tends to be ignored.

Russell 2000 Chart

The Dow Transports hit a new historic "closing" high at 5510 and just short of the historic intraday high at 5536. It is amazing to me the transports can be making new highs with oil prices closing in on $115 a barrel and airlines losing money by the plane load. This is the power of positive expectations for global growth but I fear those expectations may be developing some cracks soon if oil prices don't decline.

Dow Transports

In summary I expect the Nasdaq to struggle on Friday due to the rebalance at the close. The Dow may struggle if expectations for CAT prove to be overdone. The London metals markets will be closed on Friday and Monday due to the royal wedding so metals trading could be either extremely calm or extremely erratic.

With 500,000 people expected to turn out to watch the wedding and the parade it will be a monster terrorist target. The country is doing everything possible to prevent a tragedy but fears of a potential event could cause traders to want to take profits before Friday's close. Earnings have been very good but next week begins the downhill slide as the frequency and quality of earnings begins to decline. I would be cautious about entering new long positions on Friday.

Definitely, enter passively and exit aggressively.

Jim Brown

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New Option Plays

A Cloud-computing Winner

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Acme Packet Inc. - APKT - close: 82.02 change: -1.71

Stop Loss: 74.45
Target(s): 89.00, 97.50
Current Option Gain/Loss: + 0.0%
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Before I begin this is an aggressive, higher-risk trade. Shares of APKT have been volatile in the last few days. Now that's understandable given the earnings report a couple of days ago. The earnings results were good and the company raised guidance. This news help launch APKT out of its two-month consolidation under the $75.00 level. Now broken resistance at $75.00 should be new support.

There are a lot of bulls applauding APKT and the company seems poised to benefit from the explosion of "cloud" computing. The stock is very expensive on a valuation basis but I suspect that momentum could eventually carry it toward the $100 level.

I am suggesting small bullish positions now. Our upside targets are $89.00 and $97.50. FYI: The Point & Figure chart for APKT is bullish with a $95 target.

- Suggested Positions - (SMALL POSITIONS)

Buy the May $85 call (APKT1121E85) current ask $2.75

- or -

Buy the June $85 call (APKT1118F85) current ask $4.90

Annotated Chart:

Entry on April 29th at $ xx.xx
Earnings Date 04/26/11
Average Daily Volume = 2.5 million
Listed on April 28th, 2011


In Play Updates and Reviews

Rally Pauses

by James Brown

Click here to email James Brown

Editor's Note:

The stock market rally took a rest on Thursday. Gold and silver continued to climb while oil ticked lower. The major indices managed to eke out gains by the closing bell.

ROST was showing relative strength and hit our trigger to buy calls. Meanwhile WFMI hit our stop as investors overreacted to earnings news from Safeway (SWY).

-James

Current Portfolio:


CALL Play Updates

Deere & Co - DE - close: 95.91 change: -0.85

Stop Loss: 92.49
Target(s): 99.70
Current Option Gain/Loss: +10.5%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
04/28 update: It was a quiet day for DE with shares churning sideways. Investors could be waiting for the earnings report from rival Caterpillar (CAT) due out tomorrow morning. CAT's results could have a big influence on shares of DE and I wouldn't be surprised to see DE gap open one way or the other tomorrow. More conservative traders will want to consider a higher stop loss. While more aggressive traders may want to aim higher than our target at $99.70. We will not hold positions over the mid May earnings report.

- 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: 67.10 change: -0.17

Stop Loss: 63.75
Target(s): 69.50, 74.00
Current Option Gain/Loss: +13.6% & +13.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
04/28 update: FAST hit a new two-week high this morning and then faded lower. I don't see any changes from my prior comments. More conservative traders might want to raise their stops. 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

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: 64.90 change: -0.10

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:
04/28 update: We only have one week left for this trade. FO is due to report earnings on May 5th. I would still consider buying dips near the $64.00 level but readers might want to ratchet up their stops a little bit. FYI: The move past $64.00 has created a brand new quadruple top breakout buy signal.

(Small Positions) - Suggested Positions -

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

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: 95.87 change: +0.35

Stop Loss: 91.95
Target(s): 99.75, 104.75
Current Option Gain/Loss: -15.0%, and - 9.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
04/28 update: FOSL pretty much erased yesterday's minor loss. Shares are still moving sideways. I don't see any changes from my prior comments. The close back above the $95.00 level looks like another entry point to begin bullish positions. More conservative traders might want to adjust their stop loss higher.

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: 149.82 change: +0.62

Stop Loss: 141.90
Target(s): ---.--, 154.50
Current Option Gain/Loss: +190.7%, and +163.1%
2nd Option Position Gain/loss: +261.0% and +218.1%
Time Frame: 6 to 12 weeks
New Positions: see below

Comments:
04/28 update: Gold surged to a new record high of $1,539 an ounce intraday. Shares of the GLD gold ETF tagged round-number resistance at the $150.00 mark before settling lower with a +0.4% gain. I am not suggesting new bullish positions with GLD nearing the $150 mark. Our final target remains the $154.50 level.

- 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

04/27 New stop loss @ 141.90
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: 537.97 change: +0.21

Stop Loss: 518.75
Target(s): 558.00
Current Option Gain/Loss: +16.6%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
04/28 update: With the market moving sideways and the NASDAQ flirting with a decline most of the session I'm not surprised to see GOOG moving sideways as well. Shares are hovering under the $540 level. 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


International Business Machines - IBM - close: 170.78 change: +0.41

Stop Loss: 164.75
Target(s): 174.00, 179.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 9 weeks
New Positions: Yes, see Trigger

Comments:
04/28 update: IBM is still floating higher and tagged a new all-time high at $171.38 this morning. There is no change from my prior comments. Aggressive traders may want to buy calls now. I would prefer to wait and buy a dip.

I am suggesting we buy calls on a dip at $167.50. If triggered we'll use a stop loss at $164.75. Our targets are $174.00 and $179.50. FYI: The Point & Figure chart for IBM is bullish with a $208 target.

Buy-the-Dip Trigger @ 167.50

- Suggested Positions -

Buy the June $170 calls (IBM1118F170)

Entry on April xxth at $ xx.xx
Earnings Date 04/19/11
Average Daily Volume = 4.8 million
Listed on April 27th, 2011


4 Intuit - INTU - close: 55.60 change: -0.14

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:
04/28 update: INTU is still consolidating sideways in the $54-56 zone. I am not suggesting new positions at this time.

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: 52.69 change: -0.38

Stop Loss: 49.95
Target(s): 59.50
Current Option Gain/Loss: - 35.7% and -17.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/28 update: JOSB has spent the last two and a half days consolidating sideways in a narrow range. The stock is trading near all-time highs but honestly I was expecting a bit more strength. I would still consider new positions in the $52-53 zone. 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

Entry on April 26th at $52.75
Earnings Date 06/02/11 (unconfirmed)
Average Daily Volume = 510 thousand
Listed on April 25th, 2011


Ross Stores Inc. - ROST - close: 74.02 change: +1.06

Stop Loss: 69.75
Target(s): 77.25, 79.50
Current Option Gain/Loss: + 11.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/28 update: ROST has finally broken out to new highs and the stock hit our trigger to buy calls at $73.55 this morning. If you missed the entry point consider waiting for a dip into the $73.50-73.00 zone. 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.

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.

- Suggested Positions -

Long the May $72.50 calls (ROST1121E72.5) Entry @ $2.25

chart:

Entry on April 28th at $73.55
Earnings Date 05/19/11 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on April 23rd, 2011


United Technologies Corp. - UTX - close: 89.01 change: +1.15

Stop Loss: 83.25
Target(s): 89.50, 94.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see trigger

Comments:
04/28 update: UTX continues to rally and added another +1.3%. The stock is nearing what will likely be round-number, psychological resistance at $90.00. We should expect a pull back soon. Broken resistance near $86.00 should be new support. I am suggesting a trigger to buy at $86.25. If triggered we'll use a stop loss at $83.25. Our targets are $89.50 and $94.00.

Buy-the-dip Trigger @ $86.25

- Suggested Positions -

Buy the June $90 calls (UTX1118F90)

Entry on April xxth at $ xx.xx
Earnings Date 04/20/11
Average Daily Volume = 3.7 million
Listed on April 27th, 2011


Vertex Pharmaceuticals - VRTX - close: 55.54 change: +0.00

Stop Loss: 49.90
Target(s): 51.85, 58.50
Current Option Gain/Loss: +144.0%
Time Frame: about 2, maybe 3 weeks
New Positions: see below

Comments:
04/28 update: Well the action in VRTX today was a bit unexpected and uncommonly quiet. Prior to the opening bell the NASDAQ halted trading in shares of VRTX due to the news out today regarding the FDA panel. The good news for investors is that the FDA advisory panel voted 18-0 in favor of approving VRTX's Telaprevir treatment for hepatitis C. Now the question is, since this approval was expected, is the news already baked into the stock? If so, then VRTX could see a sell-the-news reaction on Friday morning. If not then VRTX could rocket even higher. There was a little bit of after hours trading tonight and VRTX was still trading near $56. Thus if I had to bet on a direction tomorrow I would look for a little profit taking. 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.

- Very Small Bullish Positions -

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

04/27 New stop loss @ 49.90
04/26 1st Target Hit @ 51.85, Option @ $3.40 (+36%)

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


PUT Play Updates

Apollo Group Inc. - APOL - close: 40.28 change: -0.31

Stop Loss: 42.55
Target(s): 38.15, 35.50
Current Option Gain/Loss: -16.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/28 update: APOL is still drifting sideways. The rally this morning failed at the $41 level. There is no change from my prior comments. 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

Whole Foods Market Inc. - WFMI - close: 62.44 change: -2.69

Stop Loss: 61.70
Target(s): 64.75, 69.00
Current Option Gain/Loss: -33.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/28 update: Ouch! The action in WFMI today was VERY disappointing. The stock sold off hard and was down as much as -6% thanks to investor reaction to Safeway's (SWY) earnings results out this morning. While the two companies are in the same business WFMI markets to a different clientele. I'm surprised SWY's news had such an affect on this stock. WFMI broke down under support near $62 and the 50-dma and hit our stop loss at $61.70.

- Suggested Positions -

May $65 calls (WFMI1121E65) Entry @ $2.25, exit near $1.50 (-33.3%)

04/28/11 Stopped out @ 61.70, Option @ $1.50 (-33.3%)
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