Option Investor
Newsletter

Daily Newsletter, Saturday, 11/5/2011

Table of Contents

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

Market Wrap

What Have You Done For Us Today

by Jim Brown

Click here to email Jim Brown

Investors seemed to be frustrated that nothing material came out of Europe and the G20 meeting on Friday. Without a market moving headline the markets fell into a funk while they waited the fall of the Greek government.

Market Statistics

Without a European headline to rock the markets it was a relatively calm day. The indexes started off in the hole after a mediocre jobs report and no help out of the G20 for Europe, but they slowly improved their position as the day progressed. It was not enough to finish in the green but the looming Greek confidence vote was weighing heavy at the close.

The Nonfarm Payroll report for October was a little lighter than expected but it was still decent. The headline number showed a gain of +80,000 jobs compared to estimates of 95,000. However, the prior two months were revised higher by +102,000 jobs. August was revised up from 57,000 to 104,000 and September rose from 103,000 to 158,000. Private sector jobs rose by +104,000 but that was down from an upwardly revised 191,000 in September.

The unemployment rate declined by -0.1% to an even 9.0% rate. This was due to a gain of 277,000 jobs in the separate Household Employment Survey.

The positive employment components in several of the regional economic reports suggests the economy will continue to add jobs but at a very slow pace. Moody's is expecting an average of +100,000 jobs per month for the next four quarters. That is on the bearish side of most forecasts. Most believe jobs will improve in early 2012 after some seasonal weakness in the next four months. You need +200,000 jobs per month to reduce unemployment because 150,000 new workers enter the job market each month. The Fed said they expect the unemployment rate to decline to 8.5% to 8.7% by Q4-2012. That is not a very big decline and that suggests the economy and unemployment is going to be THE big battleground for the 2012 elections.

Payroll Chart

There were no other material economic reports on Friday. Next week will also be an economic wasteland with a lack of material reports all week. Stocks will be on their own and at the mercy of a trickle of earnings and European headlines. The EU Finance Ministers will have a two day meeting on Mon/Tue on implementing changes to the EFSF. On Thursday the EU releases its semi-annual economic forecast and that is likely to be negative given the recent events.

Economic Calendar

After the close on Friday the Greek prime minister, George Papandreou, survived his vote of confidence and the Greek government is still intact. The vote was 153 to 145. He calmed a revolt in his socialist party by pledging to step aside if need be and seek a cross-party government lasting for four months to safeguard the new debt agreement. The finance minister said the new provisional government would last until the end of February. The opposition party leader, Antonis Samaras rejected the plan and called for snap elections. However, that call is not likely to proceed now that a compromise has been reached that assures a majority vote on maters in parliament. Expect several more days of political maneuvering.

By surviving the confidence vote and remaining in office Papandreou appears to have escaped the chaos he created last week with the call for a general election to vote on austerity and staying in the euro zone. When the EU said they were going to withhold euro 8 billion in bailout funds until after the election in December that killed the process since Greece cannot exist without the funds. For the next few days Greece should be off the table as a market mover and the successful confidence vote should allow the markets to rise on Monday, assuming some new government crisis does not appear.

Unfortunately there is a new development in Italy. Prime minister Berlusconi agreed to allow the IMF to oversee its books and financial dealings in insure the country is fulfilling its promises under the bailout agreements. Throughout this process Berlusconi has seen his support weaken and as of Friday it appears he has lost a majority. If a confidence vote were held today he would likely lose. Opposition leaders are rumored to be planning a move to launch a vote next week. The Greek PM is out of the fire but the Italian PM is about to be roasted over his own problems. He has multiple charges and suits pending against him for everything under the sun including prostitution. His days appear to be numbered.

The problem for our markets is that Italy is the third largest economy in Europe. If the Greek contagion successfully migrates to Italy it would be a disaster. Italy has 1.9 trillion euros in debt compared to 369 billion euros for Greece. The interest rate on the benchmark 10-year Italian bond rose to 6.39% on Friday and a new record high. A year ago it was only 4% and that was after a year of headlines about Greece. It is also after the ECB has been buying Italian bonds and unsuccessfully trying to force the rates lower. Italy cannot pay 6.4% on its debt and should Berlusconi be removed from office the rates could go a lot higher. The bond vigilantes are smelling blood and the situation in Italy is growing worse. Basically Italy is becoming the new Greece. Welcome to 2012.

The G20 meeting ended with a thud. While Germany, France and the U.S. tried to elicit additional support for the EFSF it was not forthcoming. Merkel confirmed that late Friday when she said "very few G20 nations are interested in lending to the EFSF." I would say that was an understatement. Would you want to loan money to a fund that plans to leverage itself up 4-5 times and lend to countries already in financial trouble with no hope of escape? Even the IMF went on record at the meeting saying it would not loan to the EFSF. That removed any implied security blanket that might have made it easier for some countries to participate. Basically the G20 was a bust. After the Papandreou referendum fiasco last week nobody trusts Greece to continue in a trustworthy fashion and the clouds building over Italy are producing additional worries of a bigger problem down the road.

In stock news Groupon closed right at the low of the Day at $26 after pricing at $20 and trading as high as $31 at the open. The IPO was only 35 million shares but more than 50 million traded. Groupon only sold about 5% of the company in the IPO in order to artificially produce an opening day spike on short supply. That happened at the open but the afternoon was ugly. What happens next week when the spotlight moves on to other things is likely to be a disappointment to anyone holding shares. Employees have a six month lockup period so they will get to watch their dollars bleed away if the Groupon undercurrent does not fade. I can't remember an IPO where the company had so much negative press before the sale. If Groupon disappoints on their next earnings report it could be a disaster.

Groupon Chart

Berkshire Hathaway (BRK-A) posted earnings for Q3 of $3.8 billion or $2,309 per class A share. That was a +37% improvement over the same quarter in 2010. Berkshire also said its derivative losses spiked to $1.6 billion from $95 million in the year ago period. Buffett sold billions in index puts several years ago and Berkshire has to mark those to market every quarter. I believe they had a 20-year expiration date and will probably not expire until after the 81 year old Buffett has ceased to be Chairman. In the past Buffet has called derivatives "weapons of mass destruction." The paper loss was due to the markets declining to lows for the year at the end of September.

The Berkshire insurance businesses reported $1.1 billion in income compared to $199 million a year ago. The non insurance businesses reported operating earnings of $2 billion, up from $1.7 billion. Berkshire bought back $18 million in stock in the quarter using both the A and B shares. That is a rare occurrence but Buffett said he likes to buy things cheap and his stock was cheap. It was a token buyback. $18 million is pocket change for Berkshire. Cash on hand at the end of the quarter was $34.78 billion, down from $47.89 billion at the end of Q2. During the quarter Berkshire funded the purchase of Lubrizol and bought $5 billion in Bank of America shares.

Berkshire B Shares Chart

Jefferies Group (JEF) has been under pressure of late on worries they have similar exposure to Europe as MF Global. The shares declined from more than $15 last week to trade briefly under $10 on Thursday despite the firm repeatedly claiming it had no material exposure to Europe. Finally on Friday the company undertook an unprecedented action and actually disclosed all its positions. The revelation revealed a net $9 million short position on $2.4 billion in bonds from five countries. The company had $97 million in cash on hand and billions more in other positions. The president said "These are fragile times in the financial market and we decided the only way to conclusively dispel rumors, misinformation and misplaced concerns is with unprecedented transparency about internal information that is rarely, if ever, publicly disclosed." Also, "As is clear from this information, Jefferies has no meaningful credit risk in respect of the sovereign debt of these nations, and an insignificant risk related to interest rate movements."

Despite the revelations Sean Egan, managing director of Egan Jones, cut its ratings on Jefferies saying the company did not identify the counterparties on the short positions therefore the quality of the positions could not be determined. On Thursday Jefferies biggest shareholder bought another one million shares of Jefferies stock. Leucadia (LUK), a conglomerate that many compare to Berkshire only smaller, said the sell off was ridiculous and represented a significant buying opportunity. In response to the purchase Leucadia shares were knocked for more than a 10% loss but then recovered.

The financial moth, Meredith Whitney, always one to inject herself wherever a financial event can get her some press, said Jefferies management was conservative, the company takes few risks and it was being unfairly tarred with the MF Global brush. It was enough to get her some air time on CNBC.

Jefferies Chart

Of course the event causing all of this volatility was the MF Global crash. On Friday CEO Jon Corzine, former governor of New Jersey and executive at Goldman Sachs, resigned from the company. He said he would not seek any of the $12 million in severance pay he would have been due. I seriously doubt the bankruptcy court would give it to him but at least it was a good sound bite.

The headline all week was the supposed disappearance of $659 million in customer funds from custodian accounts. The CME released a statement on Friday saying a compliance audit completed just a week earlier showed that MF was in compliance with obligations to safely segregate customer funds. "It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection." Oops! Late Friday there was a rumor the funds had been found in an account at JP Morgan. The account reportedly held $658.8 million. There was no confirmation from JPM.

The alphabet cops, SEC, CFTC, SIPC and FBI along with the Federal Government have all launched investigations into the missing funds and practices at MF Global. Corzine better plan a couple of vacations quick because he could eventually end up a cell mate with Madoff if he authorized the money shuffle.

Managers at MF are trying to claim the money was inadvertently comingled as the company raced to close more than $27 billion in outstanding positions as margin calls overwhelmed the operations. The CME said it would complete the transfer of about 50,000 accounts worth $1.45 billion by the end of day on Friday although only 5,300 had been transferred by midday. The CME also temporarily lowered initial margin requirements on futures to ease the transition of accounts to new brokers.

Yahoo (YHOO) shares declined last week after news broke that Yahoo's founder Jerry Yang was trying to work a recapitalization deal with multiple private equity firms rather than orchestrate a sale. Shares declined -$2 to $14.70 before finding support. On Friday a major shareholder, Daniel Loeb, who owns a 5.2% stake in Yahoo through a fund called Third Point, sent a letter to the Yahoo board demanding seats on the board and the removal of Jerry Yang from the board. Loeb thinks Yang is more interested in keeping Yahoo in friendly hands and him in control rather than selling to the highest bidder in what would be more beneficial to shareholders. The letter list five private equity firms currently in discussions with Yang.

Yang only owns 3.6% of Yahoo and less than Loeb but Yang has a far bigger influence as a director and prior CEO. Loeb said he would finance a shareholder rebellion similar to the one Icahn accomplished two years ago if Yang did not step down. Loeb believes Yang is trying to sell a minority stake in Yahoo to a PE firm that would include Yang as a potential investor. Then that firm would try to force Yahoo to leverage up and buy back all its shares thereby turning their minority stake into a majority stake.

Yahoo Chart

Crude prices continued to buck the trend with oil closing at $94.42 after trading within 7-cents of $95. The volatility has been strong but it refuses to roll over despite the economic worries in Europe. The declining distillate inventories and the failure of Libya to restart any materials quantities of crude appears to be providing support. Also helping is the sudden increase in news headlines about the IAEA and revelations about nuclear weapon efforts in Iran. Repotedly eleven nations, including Britain, Israel, France and the USA are considering preemptive military action. I don't believe that because they would not telegraph their actions in advance. Why warn Iran they are coming unless they are trying to push Iran back to the negotiating table with the rumors.

Oil is just under the 200-day average and a break over $95 could easily run to $100. Crude has been consolidating in the $92-$94 range for two weeks and a breakout could be imminent.

Crude Oil Chart

The S&P ended with a losing week but that would have been a sure bet if you had asked any ten traders last week. The +19% rebound in October was sure to see some serious profit taking once fund managers moved into their new fiscal year on November 1st. Even without the Oct-31st fiscal year end scenario any 19% gain over four weeks would have been due for a rest.

The S&P did decline -5% to the lows on Tuesday and then recovered to neutral territory at 1250 at the close on Friday. That was well off support at 1225 and well below resistance at 1285. This was neutral ground to wait for the results of the Greek confidence vote. I am positive for the markets for next week. As long as Italy's PM is not evicted over the next couple days we should have a week of relative calm.

Many analysts are calling the October gains a bear market rally and we will retest the lows. I don't see that at all. I believe the macroeconomic picture is too strong for another serious decline. Earnings have been good despite a few high profile disappointments. Those will happen in any earnings cycle.

The proof as they say will be in the pudding. As long as the S&P does not close below 1225 the bullish case has validity. A move over 1300 will find some short covering but 1350 remains strong resistance and it may take more than wishful thinking to actually move to new highs. Personally I would be thrilled to just move up to 1350 and hold there until year end. That would get us past the super committee mess and hopefully to a new stage in Europe.

This is one of those market setups that does not require any in-depth analysis. A move below 1225 is bearish and a continued more over 1250 is bullish. Even the E*Trade baby could trade this.

S&P Chart

The Dow gave us a solid bounce off the 100-day average for the second time in the last two weeks. Friday's close was technically over the 200-day average at 11,974 but only by nine points so we really can't count it. The closing high last week was 12,231 so we are only one good day away from retesting that level. If the Greek confidence vote is perceived as positive and the conditions leading up to it as a step in the right direction then we could test that high on Monday. The banks should rally on any chance of a resolution and that will lift the indexes.

Dow 11,650 appears to be support with 12,230 as resistance.

Dow Chart

The Nasdaq was pressing upside resistance at 2700 on both Thursday and Friday despite the events in Europe. If the clouds clear and blue sky appears on Monday we could easily move over that resistance and test the recent highs at 2750.

I think Friday's minimal 12 point decline was a draw. It was a fitting end to a week of profit taking and appears to be perfectly positioned for a breakout on good news. Now all we need is good news.

Nasdaq Chart - 60 min

Nasdaq Chart - Daily

Still no signs or clues from the Russell. Until the Russell 2000 becomes the index leader we are just passing time.

Russell 2000 Chart

I am cautiously bullish for next week but we are still facing headline risk from Europe. If those headlines slow then we can expect the super committee headlines to appear so either way there is headline risk. However, assuming there is no disaster I think the markets will want to move higher. Watch for a continued move over S&P 1250 or a break below 1225 for directional signals.

If your reading this on Saturday night don't forget to set your clocks back an hour.

Jim Brown

Send Jim an email

"I try to take one day at a time, but sometimes several days attack me at once."
Ashleigh Brilliant


Index Wrap

Consolidating Before a Push Higher

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The S&P 500 and the Nasdaq Composite traded about as I expected, this past week. The Market was too overbought to suggest another up leg without some consolidation of recent gains. As long as that consolidation remains ABOVE the top end of the August to mid-October trading range the charts suggest at least a retest of the July top. Traders are not terribly bullish and this cautious psychology and chart action point to higher levels. Sentiment) numbers, as in my CPRATIO indicator is seen only on my S&P 500 chart, but its level represents all the indices.

If they get Europe sorted out and they will, the market might have to (GASP!) trade on earnings and their projections ahead. And on that basis, the major indexes should work modestly higher.

The Dow will hit major resistance in the 12900-13000 area. The S&P 500 (SPX) should get back above its 200-day moving average again, currently at 1273. The Nasdaq Composite (COMP) looks to do the same; COMP's Friday Close was just a hair's breath under this key average. The Nasdaq-100 big cap tech stock Index (NDX) has been comfortably trading above ITS 200-day moving average (currently at 2300). Where the leaders go, expect the troops to follow.

Must hold levels for charts to maintain current bullish patterns:

1225 in SPX; 550 in OEX; 11600 in the Dow 30 (INDU)

2600 in COMP; 2300 in NDX

If there was more of a sideways drift it will continue to bring down the Relative Strength Index (RSI) and in that sense 'throw off' any overbought extreme. If not in the next few days, then later in the month I anticipate a continuation of the October rally although not necessarily as strong as the October advance; e.g., the Dow went from the 10400 area at its low up to 12200 for an 1800 point move.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

I suggested last week regarding the S&P 500 (SPX) that if there was: "early weakness on profit taking; or, analysis of possible European snafus relating to the grand consensus announced in the midnight hour last week, the downside risk looks to be a dip to the 1250 area, possibly back to 1225 extending to 1200, which is key support..." As it happened this is the way the thing unfolded with Greece seeming to upset the prior week's Euro zone deal setting off a sharp retreat to the 1215 area (briefly) before buyers push prices up again.

As long as the 1225 area continues to hold up as support, the SPX looks quite capable of continuing its advance and retesting prior (July) highs in the 1350 area. This is a 'minimum' projected upside where SPX's upside 'breakout' move at 1225 would lead to a further advance that tacked on a next gain at least equaling the repeated rallies from the low-1100 area to 1225.

On the bearish side, any sustained dip below 1200 would turn the chart mixed again.

OVERBOUGHT/OVERSOLD AND 'SENTIMENT' CONSIDERATIONS

RSI values seen above have come down from their recent peak and a further sideways move even would continue to pull the 13-day RSI lower, at least to the 'neutral' mid-range area.

Sentiment numbers have dipped this past week, which I 'read' as bullish in a contrary opinion sense.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart continues bullish even with the pullback of this past week. So far, OEX has had a 'consolidation' of recent gains above the 550 breakout point, and this kind of pullback is within expectations for a renewed bullish trend.

I wrote last week that traders were almost 'too' bullish as they had pushed OEX to resistance implied by an upper 6% envelope line. I anticipated the 6% upper trading 'band' (up from a 'normal' 4%) 'acting as' resistance or an upper limit for rallies, simply because the last low had reached the same extreme in percentage terms (-6% relative to the 21-day moving average). I've seen this pattern before after a period of major volatility where the next 'extreme' in the index is equal to the last extreme in terms of these percentage envelopes, of course relative to a 21 period moving average. This concept tends to 'work' on hourly charts as well.

I was also anticipating a possible pullback to 560-550 and the 550 area was tested as support at the Tuesday (after a blue Monday) and Wednesday lows.

I anticipate OEX working higher and retesting resistance in the 580 area. A sustained dip below 550 would say that bet is OFF. Support highlighted in the coming week is 555 or in the area of the 21-day moving average; with next key support coming in around 540.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) chart is bullish as long as price dips and consolidation is above the recent 11600 'breakout' point; i.e., the level that was the top end of the trading range that occurred over many weeks from August into mid-October.

The INDU pullback of this past week was to the area of the 21-day moving average, which maintains a bullish pattern. I anticipate support in the near term developing in the 11700 area; if however, there was a decisive downside penetration of the 21-day moving average, a next pivotal support comes in around 11400.

Key resistance is at the prior recent intraday highs in the 12250 area. More major resistance begins around 12500 and extends to 12750.

I rate only about 3 of the 30 Dow stocks as 'on fire' bullish (e.g., IBM, MCD & WMT); many of the others could correct or sell off a bit more or simply trend sideways to a bit lower a while longer. I see less likelihood of a sustained decline than of a sideways to higher trend in the near-term.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) chart is bullish and prices are to date consolidating not only above its recent breakout point at 2600-2628 but above its 21-day moving average. Subsequent intraday lows after this bullish breakout at 2600 suggest that prior resistance (once overcome) had 'become' support and is what we expect technically on a renewed uptrend. Conversely, a sustained dip below 2600 would turn the chart mixed again.

COMP could bounce between the 2600 support and 2700-2750 resistance awhile longer but I would see this as a necessary consolidation prior to another good-size advance which leads to at least a retest of prior highs in the 2850 area.

I highlight support (green up arrows) initially in the area of the 21-day moving average, currently at 2640; with next support in the 2565 area and with further significant support at 2500.

Immediate resistance looks to be in the area of the 200-day moving average at 2700. Pivotal resistance next comes at the recent intraday high at 2750; more major resistance comes in at 2850.

NASDAQ 100 (NDX); DAILY CHART:

In terms of its ease with breaking out and then staying above its 200-day moving average, the Nasdaq 100 (NDX) continues to be the leader of the pack for the major indices. NDX found resistance again in the area of the 5% upper (resistance) envelope line and pulled back to its 21-day average and has been mostly consolidating above the average. This is bullish index action. Less bullish would be a sustained dip below the average; at that point I assume the LOWER envelope line is a target even if only a potential 'maximum' objective.

I'm anticipating a next push can carry NDX into the 2412-2438 area which would offer the key technical test of whether the index can exceed its prior 12-month highs. Next pivotal resistance is in the 2460 area, extending to 2500.

Near support has been developing on dips below the 21-day average, currently at 2333. The key support zone is at 2280-2300. A break below 2300 would be bearish. Next lower support then would be suggested in the 2225 area, at the low end of NDX's broad uptrend channel.

If NDX dropped back to the 2300 area it would be an initial buy, with the chance of a further slip to 2250-2230 as a better buy, risking to just under 2200.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) remains in a bullish pattern of course as it mirrors the Nas 100 index. I anticipate another test of the prior recent high in the 59 area; resistance then extends to 60-60.5. Whether there's a correction, such as back to the 200-day moving average, before the stock is in a position to rally to that point is too speculative for me to want to call it.

Near support is at 57, then 56, and further support at 55.

QQQ mirrors the strongest bullish pattern when it consolidates in the area of its 21-day moving average which in turn suggests good potential for another rally toward prior highs and beyond, such as to my upper trading 'band'. Conversely, a bearish fall down and away from the 21-day suggests potential for a move to the lower envelope line; intersecting around 54 currently.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) chart remains bullish. RUT hasn't been able to regain its prior uptrend line, but that was a very steep slope reflecting a barn-burner rebound.

I've highlighted resistance on my RUT daily chart at the aforementioned up trendline, currently intersecting at 760, with next resistance at RUT's 200-day moving average in the 780 area. Substantial resistance then starts at 800; and on up in 20 point increments to 860. Support is seen in the 720 area, then at 700, extending to 680.

RUT's chart as I said looks bullish in its pattern and suggests to me that it can mount an eventual retest at least (if not a spurt above this area) of the prior 12-month highs in the 845 to 860 price zone. I should suggest to look at longer-term charts for the reminder that RUT topped out in the summer months of '07 at 850-855. The 850-860 area is clearly a key area of potential supply (stock for sale) for the Russell 2000.



GOOD TRADING SUCCESS!


New Option Plays

Oil, Fast Food, and Apparel

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidates I would keep my eye on this list below for potential trades this week.

EVEP, CMI, FLS, ROST, DECK, DRQ, KSU, STRA, NKE, EOG, CLH, and ESL.

EVEP - A rally past $78.00 could be used as an entry point.

DRQ - A breakout past $70.00 would also be a bullish breakout past its multi-month trendline of lower highs.

STRA - It looks like STRA could be forming a bottom. The stock has above average short interest and a small float, which is a great recipe for a short squeeze. A breakout past $93.00 could spark some serious short covering. I was very tempted to buy calls on STRA but the option spreads are wide.

- James


NEW DIRECTIONAL CALL PLAYS

Cabot Oil & Gas - COG - close: 83.64 change: +1.55

Stop Loss: 79.65
Target(s): 89.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
This is a momentum trade. COG reported earnings back in late October that missed estimates and the revenue number. Yet the stock rallied anyway on expectations for strong growth next year. The breakout past resistance at $80.00 is bullish. Shares have already tested this level as new short-term support.

I consider bullish positions on COG now an aggressive, higher-risk trade but if the market can stay positive then COG looks poised to outperform. I am suggesting we launch small bullish positions on Monday if both COG and the S&P 500 index can open positive. We want to keep positions small to limit our risk. If triggered we'll use a stop loss at $79.65, that's a little wide. Our target is $89.75. I am listing both November and December calls but bear in mind that Novembers will expire in about two weeks. FYI: The Point & Figure chart for COG is bullish with a $116 target.

*See Entry Details Above* (small positions)

- Suggested Positions -

buy the NOV $85 call (COG1119K85) current ask $3.10

- or -

buy the DEC $90 call (COG1117L90) current ask $3.70

Annotated Chart:

Entry on November xx at $ xx.xx
Earnings Date 02/22/12 (unconfirmed)
Average Daily Volume = 2.6 million
Listed on November 5, 2011


McDonald's Corp. - MCD - close: 93.81 change: +0.81

Stop Loss: 91.60
Target(s): 99.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
With almost 33,000 restaurants worldwide, MCD is sitting at the top of the food chain. The stock is also performing well. This Dow-component is sitting at all-time highs. Shares look poised to breakout past short-term resistance at $94.00.

I am suggesting we open small bullish positions when MCD hits $94.05. If triggered we'll use a stop loss at $91.60 and aim for a rally toward $99.75. I am suggesting small positions to limit our risk. We will list both November calls and Decembers, but keep in mind that Novembers will expire in about two weeks. FYI: The Point & Figure chart for MCD is bullish with a $112 target.

Trigger @ 94.05 (small positions)

- Suggested Positions -

buy the NOV $95 call (MCD1119K95) current ask $0.36

- or -

buy the DEC $95 call (MCD1117L95) current ask $1.43

Annotated Chart:

Entry on November xx at $ xx.xx
Earnings Date 01/24/12 (unconfirmed)
Average Daily Volume = 6.0 million
Listed on November 5, 2011


Under Armour, Inc. - UA - close: 84.30 change: -1.46

Stop Loss: 81.90
Target(s): 92.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
UA looks very bullish with its breakout past major resistance near $80. The stock has spent the last several days digesting gains and consolidating sideways. Traders have been buying the dips near the rising 10-dma.

Nimble traders could try buying another dip near the 10-dma. If the stock market happens to correct then I would look for UA to retest the $80 zone. However, we are cautiously bullish on the market. I am suggesting a trigger to open small bullish positions at $86.25. If triggered we'll use a stop loss at $81.90 and aim for $92.50. We do want to keep our position size small to limit risk since UA can be a volatile stock. FYI: The Point & Figure chart for UA is bullish with a $106 target.

Trigger @ 86.25 (small positions)

- Suggested Positions -

buy the NOV $87.50 call (UA1119K87.5)

- or -

buy the DEC $90 call (UA1117L90)

Annotated Chart:

Entry on November xx at $ xx.xx
Earnings Date 01/26/12 (unconfirmed)
Average Daily Volume = 1.4 million
Listed on November 5, 2011



In Play Updates and Reviews

Stocks Falter Into The Weekend

by James Brown

Click here to email James Brown

Editor's Note:

After a very volatile week the market slipped lower into the weekend.

We closed our BBBY trade as planned. I have removed the SPY trade, unopened.

-James

Current Portfolio:


CALL Play Updates

Costco Wholesale - COST - close: 83.81 change: -0.89

Stop Loss: 81.80
Target(s): 97.50
Current Option Gain/Loss: Nov$85 call: -46.7% & Jan $90 call: + 3.9%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
11/05 update: There was no follow through on Thursday's intraday bounce. COST is essentially churning sideways but I'm worried about the short-term trend of lower highs, which is bearish. If stocks continue to pull back then we could see COST retest support near $82 again.

I am not suggesting new positions at this time.

Earlier Comments:
Our multi-week exit target is $97.50. Cautious traders will want to consider an exit near $90 or $94 instead. Keep positions small.

(small positions)- Suggested Positions -

Long NOV $85 call (COST1119K85) Entry $1.52

- or -

Long 2012 Jan $90 call (COST1221A90) Entry $1.01

11/01 COST bounced at short-term support near $82 but readers may want to exit positions early right now
10/27 trade opened on gap higher at $85.00
10/26 Adjusted entry point strategy. Buy calls tomorrow if COST and S&P 500 index open positive. New stop loss at $81.80.

chart:

Entry on October 27 at $85.00
Earnings Date 12/07/11 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on October 22, 2011


SPDR Gold Shares - GLD - close: 170.85 change: -0.87

Stop Loss: 163.40
Target(s): 182.50
Current Option Gain/Loss: + 6.6%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
11/05 update: Gold experienced a little bit of profit taking on Friday probably due to a small bounce in the U.S. dollar. The overall trend for the GLD remains bullish although if you're looking for a new entry point I'd probably wait for a dip or a bounce in the $168-165 area. More conservative traders might want to consider inching up their stop loss.

Our multi-week target is $182.50.

- Suggested Positions - (Small Positions)

Long 2012 Jan $175 call (GLD1221A175) Entry $6.00

chart:

Entry on November 2 at $168.59
Earnings Date --/--/--
Average Daily Volume = 15.3 million
Listed on November 1, 2011


Goldman Sachs - GS - close: 105.04 change: -2.64

Stop Loss: 97.45
Target(s): 113.75
Current Option Gain/Loss: +13.2%
Time Frame: 2 to 3 weeks
New Positions: see below

Comments:
11/05 update: Financials hit some profit taking on Friday and GS, being one of the more volatile issues in this group, fell -2.4%. This stock has essentially been chopping sideways in the $102.00-108.00 range for the last four days. Nimble traders may want to consider buying a dip near $102.00.

We have a stop loss at $97.45 but more conservative traders may want to consider using a stop loss closer to $100.00 or near $102.00 instead.

Earlier Comments:
We do want to keep our position small because GS can be a volatile stock.

- Suggested Positions - (small positions)

Long NOV $105 call (GS1119K105) Entry $3.40

11/02 corrected our entry price for the correct November call
11/01 new stop loss @ 97.45
11/01 GS gapped open lower at $103.49, under our trigger. Play opened.

chart:

Entry on November 1 at $103.49
Earnings Date 01/19/12 (unconfirmed)
Average Daily Volume = 8.5 million
Listed on October 31, 2011


Schnitzer Steel Industries - SCHN - close: 49.07 change: +0.24

Stop Loss: 44.49
Target(s): 51.90
Current Option Gain/Loss: +12.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/05 update: SCHN managed to buck the trend on Friday with a gain. Shares did dip toward their rising 10-dma before rebounding to close up +0.5%. It is worth noting that the rally on Friday failed to get past the exponential 200-dma. If you're looking for a new entry point consider waiting for a dip into the $46-45 zone.

Please note that I am changing our exit target to $51.90. FYI: The Point & Figure chart for SCHN is bullish with a $61 target.

- Suggested Positions -

Long DEC $50 call (SCHN1117L50) Entry $2.50

11/05 adjusted exit target to $51.90
11/03 SCHN gapped open at $48.38

chart:

Entry on November 3 at $48.38
Earnings Date 01/05/12 (unconfirmed)
Average Daily Volume = 311 thousand
Listed on November 2, 2011


Tech Data Corp - TECD - close: 50.45 change: +0.05

Stop Loss: 47.49
Target(s): 53.75
Current Option Gain/Loss: -12.2%
Time Frame: up to November earnings
New Positions: see below

Comments:
11/05 update: TECD managed to eke out a gain after traders bought the dip near TECD's rising 10-dma on Friday morning. The short-term trend is still higher. I would be tempted to buy calls on Monday if both TECD and the S&P 500 index both open positive. More conservative traders may want to raise their stop loss.

Earlier Comments:
We'll set our stop loss at 47.49. Our target is $53.75. Don't be surprised if the $52.00 level acts as short-term resistance. FYI: The Point & Figure chart for TECD is bullish with a $67 target.

- Suggested Positions -

Long DEC $50 call (TECD1117L50) Entry $2.85

11/03 TECD gapped open at $50.03

chart:

Entry on November 3 at $50.03
Earnings Date 11/21/11 (confirmed)
Average Daily Volume = 650 thousand
Listed on November 2, 2011


Visa, Inc. - V - close: 92.64 change: -0.54

Stop Loss: 88.75
Target(s): 99.75
Current Option Gain/Loss: Nov$95c: + 3.6% & Dec$95c: + 0.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/05 update: Shares of Visa are right in the middle of their $92.00-94.50 trading range. I would not launch positions here. Wait for a dip into the $90.50-90.00 zone or wait for a breakout past $94.50 as alternative entry points.

- Suggested Positions -

Long Nov. $95 call (V1119K95) Entry $1.10

- or -

Long Dec. $95 call (V1117L95) Entry $2.75

11/01 new stop loss @ 88.75
11/01 Visa gapped lower at $91.16
10/31 adjusted trigger to $92.25

chart:

Entry on November 1 at $91.16
Earnings Date 10/26/11
Average Daily Volume = 5.0 million
Listed on October 29, 2011


VMware, Inc. - VMW - close: 100.32 change: +0.31

Stop Loss: 93.95
Target(s): 104.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
11/05 update: Hmm... VMW didn't see much of a dip on Friday. Shares slipped to $98.55 before bouncing and actually closing higher on the session. Shares look poised to break away from magnetic pull of the $100 level. More aggressive traders may want to buy calls on a breakout at $101.00. I am keeping our trigger at $97.00 for the moment. You never know what headlines might emerge from the weekend.

Earlier Comments:
I am suggesting we open small bullish positions in VMW on a dip at $97.00 with a stop loss at $93.95. Recent support has been the $94.00-95.00 area. If triggered at $97.00 we'll aim for the $104.75 mark.

buy-the-dip Trigger @ $97.00

- Suggested Positions -

buy the NOV $100 call (VMW1119K100)

- or -

buy the DEC $100 call (VMW1117L100)

chart:

Entry on November xx at $ xx.xx
Earnings Date 01/24/11 (unconfirmed)
Average Daily Volume = 2.2 million
Listed on November 3, 2011


PUT Play Updates

Shutterfly, Inc. - SFLY - close: 41.79 change: -0.10

Stop Loss: 44.15
Target(s): 35.25
Current Option Gain/Loss: -21.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/05 update: SFLY has spent the last four days (almost five) trading sideways in the $40.50-42.50 zone. There have been a couple of brief spikes outside of this range. Is SFLY building a base to rally from? Or is this just a speed bump on the way down? The larger trend for SFLY is definitely bearish and shares have been underperforming the broader market.

We will keep this trade open but we're not suggesting new positions at this time.

Earlier Comments:
FYI: The spread on our put is a bit wide, which makes an impact on our gain/loss for this trade.

The $40 level could offer potential support but we're aiming for $35.25 as our exit target.

- Suggested Positions -

Long NOV $40 PUT (SFLY1119W40) Entry $0.95

11/01 new stop loss @ 44.15

chart:

Entry on October 28 at $42.88
Earnings Date 10/26/11 (confirmed)
Average Daily Volume = 1.1 million
Listed on October 27, 2011


CLOSED BULLISH PLAYS

Bed Bath & Beyond Inc. - BBBY - close: 62.03 change: +0.04

Stop Loss: 59.95
Target(s): 64.75
Current Option Gain/Loss: -22.0%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
11/05 update: BBBY has not been moving. It was our plan to exit this position on Friday at the closing bell. Readers may want to keep BBBY on their watch list for a dip toward the long-term trendline of support near its 200-dma as a possible entry point.

*Small Positions*- Suggested Positions -

NOV $62.50 call (BBBY1119K62.5) Entry $1.50, exit $1.17 (-22.0%)

11/04 planned exit on Friday at the close
11/03 new stop loss @ 59.95
11/03 prepare to exit tomorrow at the closing bell
10/27 new stop loss @ 59.75

chart:

Entry on October 14 at $61.00
Earnings Date 12/21/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on October 12, 2011


SPDR S&P 500 ETF - SPY - close: 125.48 change: -0.77

Stop Loss: 118.40
Target(s): 124.90
Current Option Gain/Loss: Unopened
Time Frame: up to November expiration
New Positions: Yes, see below

Comments:
11/05 update: Our buy-the-dip trade on the SPY was never opened. The S&P 500 is still trending higher but it's been a very volatile week. We are dropping this play with it unopened.

buy-the-dip Trigger @ $120.50

Trade never Opened.

chart:

Entry on November xx at $---.--
Earnings Date --/--/--
Average Daily Volume = 267 million
Listed on November 1, 2011