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Daily Newsletter, Wednesday, 12/7/2011

Table of Contents

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

Market Wrap

Markets Anxiously Waiting

by Keene Little

Click here to email Keene Little
Market Stats

The market has gone into a holding pattern since last Friday while it waits for word from the EU leaders as to what the next grand plan will be. The market just wants to know that more money will be created so that the hopium injections will continue. Most reasonable people know this will all end in tears but we also know that the market is short-sighted and at this point most are simply hoping for an end-of-year rally. And they just might get it. But we're at a risky spot and the year-end rally would actually have a better chance, imo, if we first get a pullback, which is not something the market wants to do right now.

The market is showing some bearish non-confirmation at the moment, something often seen at market tops. At the moment we're seeing more money rotate into the safety of the bluest of the blue chips, which is a defensive move (it's easier to sell out of the big caps without moving the price negatively). This of course makes sense when you think about the upcoming announcement from the EU leaders as to what their next can-kicking plan is going to be. So in this case I'm not sure we can place as much emphasis on the DOW's outperformance to the upside.

But with the DOW up for the past three days while NDX and RUT have closed down for the past two days with lower highs, it could be our warning that a bigger selloff is coming. Even the TRAN is not keeping up with the DOW's new highs, which is a Dow Theory non-confirmation at the moment. These are all just warning signs and we need to get past this weekend to see what shakes out of Europe's trees.

One possibility is for a spike to the upside on "good" news that finishes the rally off the November 25th low. The final leg of the rally is often on a news-related spike and in the current price pattern it would actually set up an excellent shorting opportunity. That's one reason why I mentioned above that a year-end rally would have a better chance of success if we first pull back some.

With all the shenanigans between the central banks and one plan after another to solve the debt problem, the bottom line is each plan is designed to make more money available to loan to the debtor nations. We hear of some austerity measures but they're like the ones we get from our Congress -- excitement over a savings of $100B but it's a drop in the bucket compared to the debt we're racking up each month. There are 1000 billion in a trillion and it recently came to light that the Fed has injected $7.7T into the banking system, and it's still not enough. We in the U.S. continue to accumulate debt to the tune of trillions each year. Saving $100B and spending $1000B is not a way to get out of debt. And European countries are in worse shape than the U.S.

Now the central banks are conniving ways to make more money available so that it can be loaned to the nations who can't even pay back the debt they now have. Germany has been fighting the allowance of the ECB to create money to buy sovereign debt. While most economists, and certainly most European economists, are Keynesians (spend more money and create more debt in order to help the economy, you know, spend your way out debt). Germany is more of the Austrian economic theory that states the market forces will fix the problem. If a nation is in too much debt the bond market will force them to pay it off rather than accumulate more. Germany has a relatively recent history with creating too much money as a way to pay off debt and they're not going down that road again. My hat's off to Angela Merkel for standing her ground on this. So what's a central banker to do? I received a note from John Gray with an assessment from a friend. I thought it was worth passing along:

"I don't think direct payment to Greece will happen....however, QE2.5 has been in effect ever since the so-called end of QE2. Now with the currency "swap" between euro-land and the US, we have QE3, actually SUPER QE3. The swap will be with newly created money on BOTH sides and is an attempt to avoid the stigma of direct injection as the dollars are fed into Europe and Euros are fed back to the Fed.

"This is money laundering at the central bank level. The slimy cool thing is it uses the derivatives market to tie all countries using, or pegging, their currencies to the either the dollar or the Euro into co-operative easing, rather than the competitive easing of recent history [the competitive race to the bottom in devaluing currencies]. Since none of the problems are actually addressed, in fact they are made worse with the addition of ever more debt, the cheap money will flow into the usual targets (stock market, commodities, precious metals)....thus we get a useful "Santa Claus' rally in the markets. The key is to enjoy the ride, but not be in the way when the train comes off the tracks. Note that none of the "targets" are actually worth more in absolute terms, but are only worth more in terms of the digital confetti (dollars, euros, puffnicks, funny money) created for the swaps."

It's an interesting perspective and one that easily fits with the central bankers' desire to inflate the market so that everyone feels good. It's also of course a way to get money into the bankers' hands (keep in mind that all the central banks are private banks looking out only for themselves and at taxpayer expense). The banksters will continue to do this and rape the public for as long as the public remains ignorant of what they're doing.

There are high expectations by most traders for a rally into year-end (Santa Claus rally) and as I'll show on the charts there is a price pattern that full supports that idea. Even Tom DeMark was out earlier in the week giving his projection for a rally into year-end (more on his forecast in a bit). The seasonal bias is clearly in favor of the bulls. Of course the bullish bias for the year, this being the 3rd presidential year, hasn't exactly panned out well for the bulls (S&P closed 2010 at 1257.64 and today's close was 1261, up a whopping 3 points) but I guess a flat year is better than a losing year.

The one worrisome thing for me is that this market has not been kind to those who have joined the majority in their expectations. When too many line up on the same side of the boat it invariably tips over and spills the majority into the frigid waters.

Bulls All Lined Up on One Side

However, we can't trade on hunches and right now it's only a hunch that bulls might be in trouble this month. In the meantime I'll stick with the charts and price patterns to help provide the clues needed to discern whether or not a rally or a decline is the higher-probability move. At the moment I think the higher-probability move will be a year-end rally but only if we first get a pullback into next week (presumably on less than good news from the EU leaders). I'm on the same side of the boat as everyone else but I'm wearing my poopy suit (Navy icy-water survival suit) and a big life preserver in case of tipping. The downside risk is too great to get complacent about the long side here.

Fully supporting the bull's belief is Tom DeMark's forecast. For those who don't know him, he's most famous for his DeMark indicators which include Sequential and Countdown indicators (he uses 9 and 13 trading days, using some proprietary rules for how he counts the days to identify potential reversals). In his interview with Bloomberg, which you can watch here: DeMark interview, he talks about SPX making it to 1330-1345 by December 21st. He has made some very good calls this year and therefore his current forecast is not to be ignored.

Before I get into the charts and show what I believe is the bullish setup into the end of the month, including Tom DeMark's input, I want to show a chart I came across today from Tom McClellan that shows the Fed's POMO activities for the rest of the year. There is not a direct one-for-one correlation but typically when POMO operations decline there's been less money for the market to enjoy and the market has declined. The POMO schedule towards the end of the month is for a sharp withdrawal and that could tie in with a high in the stock market that's close to DeMark's December 21st forecast (which is also the winter solstice).

S&P 500 vs. Fed POMO, chart courtesy Tom McClellan

Onto the charts, the SPX weekly chart shows it has rallied up to its 50-week MA (close to the 200-dma) but doesn't have much in the way of resistance between here and the previous high and broken H&S neckline near 1293. If the bulls get real excited this month and Europe saves the world we could see the rally that DeMark is looking for, whether from here or after a pullback first, and hit the downtrend line from 2007. Towards the end of the month the downtrend line will be near 1332.

S&P 500, SPX, Weekly chart

On the daily chart below I'm showing a pullback to 1226 where it would likely find support at its 20 and 50-dma's. From there another rally leg equal to the one up from November 25th would target 1335. This is of course speculation but it would be a very nice way to finish the rally and accomplish DeMark's projection. As for completion dates, I like a turn window that runs from DeMark's December 21st to an important Bradley Model turn date on December 28th. In between is a new moon on December 24th. BTW, the full moon is on December 10th, which is Saturday and that makes it possible we'll see Friday or Monday be a turn date for the current rally.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1270
- bearish below 1192

Not shown on the daily chart is a Fib price projection to 1293 where the 2nd leg of the bounce off the October 4th low would be 62% of the 1st leg up. The fact that this correlates well with the broken H&S neckline makes for a very interesting setup if it rallies from here up to there and rolls back over (excellent shorting opportunity if that sets up), especially if it gets hit on Friday or Monday. I would be looking very hard at that setup to put on a sizeable short position.

The 120-min chart below shows how price has been oscillating around the uptrend line from November 1st, which was the bottom of the previous sideways triangle that everyone was watching after the October 27th high. It closed just above that line today. And note that this morning's low found support at the broken downtrend line from October 27th, the top of the triangle. Only marginally higher, near 1270, is the downtrend line from July. It's going to be tough resistance unless it can gap over it (the favorite tactic in this market). A drop below 1255 should indicate we're going to get at least the pullback.

S&P 500, SPX, 120-min chart

Considering all the overnight activity that's been going on, which has created a very gappy market for the U.S., it's worth looking at the S&P 500 emini futures (ES) for some additional clues. Similar to SPX of course is the fact that ES has been struggling at its 200-dma, near 1260, and its downtrend line from July, which has been tagged the past three days, including last night, and it's where it closed today. The 62% retracement of the May-October decline, near 1257, is another resistance level that's it's been cycling around. Between the 62% retracement, the 200-dma and the downtrend line we've got strong resistance at 1257-1266. Today's RTH (regular trading hours) high was 1267, thanks to a late-afternoon spike up. Notice the "topping tails" on the candles since Friday, which would have been repeated today had it not been for the late-day spike back up. This is a common topping pattern and when seen at resistance it needs to be paid attention to.

S&P 500 emini future contract, ES, Daily chart

On the ES chart above I'm showing the same idea for a pullback in the coming week and then a final rally leg into the end of the month. There is strong Fib correlation at ES 1220 area so I'm showing a pullback to that level. The 50% retracement of the May-October decline is at 1220.75. The 50% retracement of the November decline is at 1218.50. The 38% retracement of the rally off the November 25th low is at 1222. From 1220 we'd have two equal legs up to the 1308 area, which is the 78.6% retracement of the May-October decline and its downtrend line from May. This gives us a different projection than the cash index so I'll continue to watch both (assuming we'll get the rally as depicted). An overnight rally in the next couple of days to 1284.25 that is not matched during the RTH session could signal a top was put in.

The ES 120-min all-hours chart shows a few trend lines/channels that it's been bouncing around. The overall choppy pattern could be creating a rolling top, which is a typical topping pattern. A break below 1240 would indicate at least a larger pullback is underway. In the meantime it's still holding inside both up-channels

S&P 500 emini future contract, ES, 120-min chart

A slightly different idea for a bounce into year-end is shown on the DOW's chart below. A deeper pullback into a low on December 21st (calling for a negative opex week next week) could see the DOW tagging its uptrend line from October 4th, near 11630, before heading back up into early January. There's even a cycle turn date that's looking for a high at the end of January so this pattern has potential. But once again, if the market rallies from here and the DOW tags its Fib projection at 12393 (call it 12400), where the 2nd leg of its bounce off the October low would achieve 62% of the 1st leg up, and its broken H&S neckline and its downtrend line from May, I could be forgiven for jumping all over that one to get big time short.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 12,258
- bearish below 11,500

NDX has been weaker than the blue chips and it's been struggling with the uptrend lines from the low on October 20th. Today's pullback found support at its 50 and 200-dma's, both near 2291, so as long as they hold we could get another leg up for its rally. The risk, shown on the NDX chart, is that the decline could really kick into gear if it starts back down from here (presumably on disappointing news from the EU leaders).

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2343
- bearish below 2211

The RUT's rally carried it above its downtrend line from July and has been holding above the line (only a brief spike below it this morning). As long as the RUT stays above 735 it will remain bullish with an upside target at 767-770 where there are 3 reasons why bears will be waiting to pounce. Its 200-dma, 62% retracement of the May-October decline and the 62% projection for the 2nd leg of the bounce off the October low are all located there. A rally from here to there in the next couple of days would be a sweet setup for the bears. Otherwise a pullback first and then a rally up to that level later this month is another possibility (as well as the more bearish one calling for the next leg down to start from here).

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 753
- bearish below 692

Bonds have not been providing much in the way of direction since November 1st. Prices have chopped sideways and only sold off relatively little while the stock market went nuts last week (reacting more to the dollar). The price pattern for bonds is just a guess at the moment so I'm waiting for more price action to help determine their next move.

The banks have been very strong off the November 25th low (lots of short covering), which in turn greatly aided the stock market rally (follow the money). There's a lot of hope that Europe will solve its debt problems and that will protect the banks. We'll see about that. BIX has bullish broken its downtrend line from February but will soon test the top of a parallel up-channel for its bounce off the August low, currently near 129. Resistance levels from here include its October 27th high at 130.31, its 200-dma at 130.86 and the top of a wider up-channel near 133.60. Following the choppy price action since August, the sharp thrust up from November 25th is an ending leg to the correction, not the start of something bigger to the upside. Use the current rally to get rid of any long exposure to the banks since it will be your last best time to do so.

S&P Banks index, BIX, Daily chart

As mentioned earlier, the Trannies have not kept up with the DOW the past two days, which is a short-term bearish non-confirmation. The TRAN has stalled at its October high but is being supported by both its 200-dma and short-term downtrend line from October 27th. Its broken downtrend line from July is a little lower, near 4885 and then right below that is its 20-dma at 4838. So there are plenty of support levels that the bears need to break and there's an upside Fib target at 5222 that's still beckoning.

Transportation Index, TRAN, Daily chart

The dollar dropped from November 25th to a low on November 30th, which helped spark the equity rally, but since then the dollar has done nothing while equities pushed a little higher. Bonds haven't done much and the dollar hasn't done much since November 30th, which leaves stocks hanging out there buy themselves somewhat. Not a good place to be if you're looking for higher equity prices. You'd really like to see the dollar break support near 78.30 (slightly below last night's low), and especially below its 50-dma at 77.90, to kick off another equity rally. In the meantime the dollar remains inside a parallel up-channel with some significant upside potential. It will react to any news out of Europe on Friday or this weekend.

U.S. Dollar contract, DX, Daily chart

Gold continues to consolidate in a tighter range and some are looking at a sideways triangle pattern since the August/September highs and viewing it as a bullish continuation pattern. I think gold's triangle pattern will have the same bullish success that equities had out of their sideways triangle patterns off the October 27th highs -- zip to none, zilch, nada. First of all, price has gone too deep into the triangle, getting very close to the apex now. These triangle patterns are typically effective if price breaks out between 50% and 75% of the distance from the start of the triangle to the apex. That meant a breakout in November. If anything, a breakout this late in the triangle will usually be a head-fake break so in this case we could see a quick pop out the top, trap some bulls, and then reverse and break down instead. A drop below yesterday's low at 1705.70 would be a bearish heads up and a breakdown would be confirmed with a drop below 1670. The downside target for now is 1421.50 for two equal legs down from August.

Gold continuous contract, GC, Daily chart

We could be very close to a breakdown in gold if the short-term wave count is correct. I'm showing a 5-wave decline from last Friday to yesterday's low, followed by a 3-wave correction. Ideally gold will make it up to 1754.80 overnight to achieve two equal legs up and hit its 78.6% retracement (a very common retracement level lately, for stocks too). From there we should see a strong selloff. But the minimum requirements for the bounce have been met with the c-wave of the a-b-c bounce off yesterday's low achieving 62% of the a-wave and a 62% retracement of the 5-wave move down.

Gold continuous contract, GC, 120-min chart

Silver is in a very similar position as gold except it's weaker. If you prefer trading silver it should move down in concert with gold.

Oil's bounce back up from November 25th has been struggling with its broken uptrend line from February 2009, which it tagged again today at its high of 101.94. The bearish divergence says any further press higher is likely not going to hold. A break below its uptrend line through the November 25th low and its 20-dma, both near 98.85, should be the kickoff to the next leg down for oil.

Oil continuous contract, CL, Daily chart

As a reminder for where I think oil is headed in the coming year, I think we'll get another leg down for its pullback from the 2008 high. Another equal leg down would target 64.25, which would also be a 62% retracement of its 2009-2011 rally. You can see how well oil trades its Fibs. If the 2nd leg achieves 162% of the 1st leg down we get a downside target near 40, which is also the location of its 1998-2008 uptrend line (log price scale). The January 2009 low was 33.20. If you're a longer-term bull don't shoot the messenger -- I'm just telling you what the charts are telling me. Besides, if you like oil at 100 you'll love it at 40. ;-)

Oil continuous contract, CL, Weekly chart

It's been a quiet week for economic reports and that continues tomorrow and Friday. Besides, the last thing this market is paying any attention to is economic and earnings reports. It's all about Europe and the currencies. That will change and the deterioration in earnings will matter when it matters, probably not until after Christmas.

Economic reports, summary and Key Trading Levels

The Fed helped engineer an even bigger bailout by providing some cover for the other central banks to help create money to buy sovereign debt. After all, the Fed has proven they're a master at doing this. It reminds me of the E*Trade baby -- "here watch this...click...there I just created a trillion dollars while throwing up all over myself and then here...click...I just gave it to my banking buddies in Europe and they gave me some crappy sovereign debt in return. Is this cool or what?"

The stock market loves a bank bailout with the hope that and all the newly created money will flow into stocks and other assets. The trouble is, each time the Fed has lowered the swap rate to entice more borrowing, the stock market spiked up and then sold off quickly to below where the Fed tried to juice the market. That means a fast return back to he November 25th lows (and then much lower if that happens). Fixing a nation with a debt problem with more debt is not the solution. It might help with liquidity, which is a problem as more and more people and institutions remove their money from banks, but it will not help the solvency problem. The impact from the central bankers' attempts will be less and less effective until we soon reach the point where they will have no credibility whatsoever. It's all part of the bear market process.

So be careful trusting this rally. As shown on tonight's charts, backed up by people like Tom DeMark, I certainly see the potential for a year-end rally. But that rally has a better chance, I think, if we first get a pullback into next week. If the market rallies from here and hits the target levels shown on the charts, exit longs and get short, with a sizeable position. I think it will be that bearish if it happens. For now Santa is singing ho-ho-ho but I see a bear sneaking up behind him with a big cookie to stuff down Santa's throat and then replace him with a fat lady who's warming up her vocal cords.

Good luck as we head into opex week. Beware the head-fake move tomorrow and/or Friday and I'll be back with you next Wednesday.

Key Levels for SPX:
- bullish above 1270
- bearish below 1192

Key Levels for DOW:
- bullish above 12,258
- bearish below 11,500

Key Levels for NDX:
- bullish above 2343
- bearish below 2211

Key Levels for RUT:
- bullish above 753
- bearish below 692

Keene H. Little, CMT

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New Option Plays

Heating & A/C, Plus a Strangle

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate, consider these stocks as possible trades:

FDX - a breakout past resistance near $85 and its 200-dma could be a bullish entry point.

WRLD - A breakout past major resistance at $70.00 would definitely look like an entry point to buy calls.

KEX - Shares are on the verge of hitting new highs.

TU - this stock is building an inverse head-and-shoulders pattern.

- James


NEW DIRECTIONAL CALL PLAYS

Watsco Inc. - WSO - close: 65.09 change: +0.76

Stop Loss: 63.25
Target(s): 69.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
WSO makes various air conditioning and heating equipment. The stock has been consolidating sideways under resistance at $65.00 for weeks. Now shares look poised to breakout. I am suggesting a trigger to open bullish positions at $65.55. Our target is $69.50. FYI: The Point & Figure chart for WSO is bullish with an $80 target.

Trigger @ 65.55

- Suggested Positions -

buy the Jan $65 call (WSO1221A65) ask $2.85

- or -

buy the Jan $70 call (WSO1221A70) ask $0.95

Annotated Chart:

Entry on December xx at $ xx.xx
Earnings Date 02/14/12 (unconfirmed)
Average Daily Volume = 227 thousand
Listed on December 07, 2011


NEW MARKET NEUTRAL OPTION PLAYS

iShares Russell 2000 ETF - IWM - close: 74.68 change: -0.15

Stop Loss: n/a
Target(s): TBD
Current Option Gain/Loss: Unopened
Time Frame: up to December options expiration
New Positions: Must Be Opened on Thursday 12/08

Company Description

Why We Like It:
The EU meeting this Friday is a major event. The credit rating agency Standard & Poor's has put Europe on notice that if they don't do something soon they will all get downgraded. U.S. Treasury Secretary Tim Geithner is in Europe and talking with leaders prior to the summit to make sure it's a productive meeting.

The U.S. markets are churning sideways as investors wait for headlines from this EU summit. The decisions made on Friday could set the tone for the market's trading in December. Given the recent sideways action and the expiration of December options a week from Friday, this looks like a great opportunity to speculate with a market neutral strategy like a straddle or a strangle. We are suggesting a strangle on the IWM small cap ETF. You could also try this on the S&P 500 (SPY) or the Dow Industrials Diamonds (DIA). I like the IWM because the small caps tend to see bigger moves.

Using a strangle (buying both an out of the money call and put), we don't care what direction the market moves as long as it sees a strong move. Now the EU summit is on Friday. The newsletter will open this trade on Thursday morning. You might want to consider opening your strangle on Thursday at the close but for this trade to work it needs to be opened on Thursday.

Just a reminder, December options expire after December 16th.

- Market Neutral Strangle Trade -

buy the DEC $77 call (IWM1117L77) current bid/ask $0.84/0.88

- Also Buy the -

buy the DEC $73 put (IWM1117X73) current bid/ask $1.16/1.17

Annotated Chart:

Entry on December 08 at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 61 million
Listed on December 07, 2011



In Play Updates and Reviews

Two Plays Triggered Today

by James Brown

Click here to email James Brown

Editor's Note:

Our FDO and WPI trades were triggered today. JBHT hit our stop loss.

-James

Current Portfolio:


CALL Play Updates

Caterpillar - CAT - close: 94.89 change: -1.07

Stop Loss: 95.45
Target(s): 107.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
12/07 update: We are still waiting for CAT to breakout past resistance near $98.00. More aggressive traders may want to consider buying calls on a dip or a bounce near the $92.00 level instead. Or as an alternative you could check out shares of Deere (DE), which look ready to breakout past resistance near $80.00 (although keep an eye on the simple 200-dma).

Our current CAT play is suggesting we buy calls with a trigger to open positions at $98.55. If triggered we'll use a stop loss at $95.45. Our target is $107.00.

Trigger @ 98.55

- Suggested Positions -

buy the 2012Jan $100 call (CAT1221A100)

Entry on December xx at $ xx.xx
Earnings Date 01/26/12 (unconfirmed)
Average Daily Volume = 8.1 million
Listed on December 03, 2011


Cooper Industries - CBE - close: 55.48 change: -1.01

Stop Loss: 54.65
Target(s): 62.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
12/07 update: CBE saw a little pull back today. Shares churned sideways in the $56-55 zone. Nimble traders might want to buy a bounce from here. I am suggesting readers wait and use a trigger at $57.05. If triggered we'll use a stop loss at $54.65. Our target is $62.50.

Trigger @ 57.05

- Suggested Positions -

buy the Jan $60 call (CBE1221A60)

Entry on December xx at $ xx.xx
Earnings Date 01/25/12 (unconfirmed)
Average Daily Volume = 3.7 million
Listed on December 06, 2011


Edwards Lifesciences - EW - close: 64.81 change: -0.37

Stop Loss: 63.25
Target(s): 69.50
Current Option Gain/Loss: Dec$65c: -25.6% & Jan$70c: -29.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/07 update: EW saw another dip toward $64.00 and briefly traded under its simple 10-dma. At this point I'd want to see a rally past $65.65 before considering new positions.

- Suggested Positions -

Long DEC $65 call (EW1117L65) Entry $1.95

- or -

Long 2012Jan $70 call (EW1221A70) Entry $1.70

12/03 new stop loss @ 63.25
11/30 new stop loss @ 61.95
11/28 trade opened. EW gapped higher at $63.97
11/26 trade still not open. Adjusting stop loss to $59.90
11/23 still not open
11/22 not open yet

Entry on November 28 at $63.97
Earnings Date 02/02/12 (unconfirmed)
Average Daily Volume = 1.2 million
Listed on November 21, 2011


Family Dollar Stores - FDO - close: 58.22 change: -0.56

Stop Loss: 56.75
Target(s): 64.00
Current Option Gain/Loss: - 21.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/07 update: Our FDO trade has been triggered. Shares hit our entry point at $58.00 this afternoon. I would still consider new positions now or more conservative traders may want to use a trigger at $57.50 or $57.00 instead.

Earlier Comments:
We want to keep our position size small because the spreads on the options below are getting wide, making this trade more risky.

(small positions) - Suggested Positions -

Long JAN $60 call (FDO1221A60) Entry $1.40

12/07/11 trade opened at $58.00 trigger
12/03/11 Adjust buy-the-dip trigger to $58.00
12/03/11 new stop loss @ 56.75
11/30 New strategy to account for FDO's bullish breakout higher. We want to use a trigger at $58.50 to open bullish positions with a stop at $56.45. New target is $64.00. I've updated our option strikes.
11/26 new strategy. buy a dip at $54.50, stop loss @ 53.75. Keep positions small because option spreads are wide.
11/22 not open yet

Entry on December 07 at $58.00
Earnings Date 01/04/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on November 21, 2011


Hewlett-Packard Co. - HPQ - close: 28.41 change: +0.23

Stop Loss: 26.75
Target(s): 32.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
12/07 update: HPQ rebounded off the bottom of its five-day trading range. Shares closed just on the verge of breaking out. The high today was $28.58. We have a trigger to open positions at $28.65, which could get hit tomorrow morning.

Earlier Comments:
This is an aggressive entry point. The top of the August gap down near $29.50 could be resistance. Plus HPQ could find round-number resistance at $30.00 and technical resistance at the 150-dma, simple 200-dma and exponential 200-dma all above in the $30.00-34.00 zone. Thus we want to keep our position size small to limit our risk. We'll se our stop loss at $26.75 and our exit target at $32.00. FYI: The Point & Figure chart for HPQ is bullish with a $41 target.

Trigger @ $28.65 (small positions)

- Suggested Positions -

buy the 2012Jan $30 call (HPQ1221A30)

Entry on December xx at $ xx.xx
Earnings Date 02/22/12 (unconfirmed)
Average Daily Volume = 22.4 million
Listed on December 05, 2011


NetApp, Inc. - NTAP - close: 37.72 change: +0.44

Stop Loss: 34.95
Target(s): 39.50
Current Option Gain/Loss: +43.4%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
12/07 update: NTAP rebounded off its morning lows but still can't breakout past resistance near $38.00 or its 50-dma. I am not suggesting new positions with NTAP sitting just under resistance.

Earlier Comments:
I do consider a more aggressive trade. We want to keep our position size small to limit risk. FYI: Readers should note that there is a risk that NTAP might make an acquisition soon. There are rumors floating around that NTAP could buy Quantum (QTM) or CommVault (CVLT) in an effort to better compete with rival EMC. If NTAP does make a bid for either company typically shares of the buyer go down while shares of the target go up.

- Suggested Positions - (small positions)

Long JAN $35 call (NTAP1221A35) Entry $2.51

12/03/11 new stop loss @ 34.95

Entry on November 29 at $35.82
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 9.2 million
Listed on November 28, 2011


O'Reilly Automotive - ORLY - close: 79.02 change: -0.52

Stop Loss: 74.90
Target(s): 84.00
Current Option Gain/Loss: Dec$75c: +61.4% & Jan$80c: +23.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/07 update: ORLY experienced a little bit of profit taking today. The $78 and $76 levels should offer some support. More conservative traders may want to raise their stops a bit. I am not suggesting new positions at this time.

- Suggested Positions -

Long JAN $80 call (ORLY1221A80) Entry $1.50*

12/06/11 Planned exit Dec. calls at the open. The Bid on the Dec. $75 call was $4.52 (+61.4%)
12/05/11 Strategy change: Exit the December calls tomorrow at the open. Move the exit target for the January calls from $82.50 to $84.00.
12/03/11 new stop loss @ 74.90
11/28/11 ORLY gapped open higher at $76.96, which was above our trigger to buy calls at $76.15.
*Jan $80 call did not trade today. Entry price is an estimate.

Entry on November 28 at $76.96
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on November 26, 2011


Phillip Morris Intl. - PM - close: 75.58 change: +0.00

Stop Loss: 73.75
Target(s): 78.50
Current Option Gain/Loss: + 76.7%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
12/07 update: PM briefly dipped to $74.75 before bouncing back to close unchanged on the session. I am still concerned that if the market does see any profit taking then PM could easily dip toward the $74-73 zone. I am not suggesting new positions at this time.

Earlier Comments:
Our multi-week target is $78.50. FYI: The Point & Figure chart for PM is bullish with a $95 target.

- Suggested Positions -

Long 2012 Jan $75 call (PM1221A75) Entry $1.12

12/05 Call is up +100%, readers may want to exit now!
12/03 new stop loss @ 73.75
11/30 new stop loss @ 71.40
11/23 adjusted stop loss to $69.49
11/22 trade opened. PM opened at $72.11

Entry on November 22 at $72.11
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 7.3 million
Listed on November 19, 2011


Boston Beer Co. Inc. - SAM - close: 101.31 change: -0.41

Stop Loss: 98.75
Target(s): 109.50
Current Option Gain/Loss: -39.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/07 update: SAM experienced a little bit of volatility today with a dip to $100.50 and a bounce to $103.50 before fading back into the red. I would still consider buying dips (or bounces) in the $100.50-100.00 zone.

Earlier Comments:
Our exit target is $109.50. More aggressive traders may want to aim higher. FYI: The Point & Figure chart for SAM is bullish with a $117 target. NOTE: The most recent data listed short interest at 20% of SAM's extremely small 8.3 million-share float. That's definitely a recipe for a short squeeze.

(small positions) - Suggested Positions -

Long JAN $105 call (SAM1221A105) Entry $2.05

12/03/11 new stop loss @ 98.75
12/02/11 trade triggered at $102.00

Entry on December 02 at $102.00
Earnings Date 03/08/12 (unconfirmed)
Average Daily Volume = 72.3 thousand
Listed on December 01, 2011


PUT Play Updates

SPDR S&P 500 ETF - SPY - close: 126.73 change: +0.47

Stop Loss: 127.55
Target(s): 120.50
Current Option Gain/Loss: - 7.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/07 update: The SPY is still churning sideways in the $125.00-127.00 zone. Shares did see a spike to $127.26 this afternoon. If the market rallies tomorrow morning we could see the SPY hit our stop loss at $127.55. More aggressive traders may want to raise their stop so it's above the $128.00 level instead.

Earlier Comments:
We want to keep our position size small to limit our risk.

- Suggested Positions -

Long 2012Jan $120 PUT (SPY1221M120) Entry $2.67

12/02/11 trade opened at $126.12 (gap higher), trigger was 126.00

Entry on December 02 at $126.12
Earnings Date --/--/--
Average Daily Volume = 224 million
Listed on November 30, 2011


Thermo Fisher Scientific - TMO - close: 46.98 change: -0.20

Stop Loss: 48.25
Target(s): 42.75
Current Option Gain/Loss: Dec$45p: -22.2% & Jan$45P: - 7.1%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
12/07 update: TMO is still churning sideways with a slightly bearish tilt of lower highs and lower lows. I would still consider new positions now.

Our target is $42.75. FYI: The Point & Figure chart for TMO is bearish with a $41 target.

- Suggested Positions -

Long DEC $45 put (TMO1117X45) Entry $0.45
(less than 2 weeks left for Decembers)

- or -

Long JAN $45 put (TMO1221M45) Entry $1.40

12/05/11 TMO gapped open higher at $47.10

Entry on December 05 at $47.10
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 3.5 million
Listed on December 03, 2011


Watson Pharmaceuticals - WPI - close: 61.98 change: -0.41

Stop Loss: 64.25
Target(s): 56.00
Current Option Gain/Loss: Dec$60p: - 0.0% & Jan$60p: - 0.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/07 update: The stock market's morning weakness was enough to push WPI under support at $62.00. Shares hit $61.22 before bouncing. Our trigger to buy puts was hit at $61.75. I would still consider new positions now.

Earlier Comments:
There is potential support at $60.00 but I am aiming for the $56.00 level.

- Suggested Positions -

Long DEC $60 PUT (WPI1117X60) Entry $0.80
(about 2 weeks left for Decembers)

- or -

Long JAN $60 PUT (WPI1221M60) Entry $2.00

Entry on December 07 at $61.75
Earnings Date 02/14/12 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on December 03, 2011


CLOSED BULLISH PLAYS

JB Hunt Transport Services - JBHT - close: 45.22 change: -0.31

Stop Loss: 44.75
Target(s): 48.25
Current Option Gain/Loss: - 9.7%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
12/07 update: JBHT followed the transports lower this morning. The stock gapped open lower at $45.16 and hit our stop loss at $44.75 before recovering off its morning lows. Readers may want to keep an eye on JBHT for another opportunity on a dip or a bounce near $44 or its 50-dma.

- Suggested Positions -

2012JAN $45 call (JBHT1221A45) Entry $2.05 exit $1.85* (-9.7%)

*exit price is an estimate. option did not trade at the time of our exit.
12/07/11 stopped out @ 44.75
12/03/11 new stop loss @ 44.75. More aggressive traders may want to leave their stop under $44.00 instead
11/30/11 new stop loss @ 42.45
11/29/11 triggered at $44.35

chart:

Entry on November 29 at $44.35
Earnings Date 01/30/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on November 22, 2011