Option Investor
Newsletter

Daily Newsletter, Tuesday, 12/20/2011

Table of Contents

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

Market Wrap

Thank Shorts for the Rally

by Jim Brown

Click here to email Jim Brown
A sudden turn of events in Spain and strong economics in the U.S. and Germany caused a major short squeeze and pushed the Dow back over 12,000.

Market Statistics

For a change it was Europe that helped propel our markets higher rather than lower. Germany's IFO business sentiment index for December rose unexpectedly to 107.2 from 106.6 in November. Analysts had been expecting a decline to 106.0 or lower. That was the second monthly increase. The IFO chief said Germany appears to be successfully defying the downturn in Western Europe and the worries over the debt crisis. Stabilization tendencies are beginning to emerge. Companies are more positive about their outlook for the next six months and the opportunities for export are also looking better."

In Spain the Treasury reported sales of euro 5.6 billion in 3-month debt. That was well above the expected target of 4.5 billion and the yield fell to 1.74% from 5.1% in the prior auction on Nov 22nd. The yield on the 6-month bills fell to 2.44% from 5.22%. This remarkable change in yields and increase in bids is likely the result of the ECB offering banks 3-year loans at 1% and accepting almost any collateral for those loans. Banks can now borrow money from the ECB and buy this short term sovereign debt. That gives them a fat spread on the yields and the ECB gave them the money to buy the debt.

I discussed this ECB "long term liquidity" option last week as a potential way out of the debt mess at least temporarily. It solves two problems. It lowers the rates countries will have to pay for their debt service and provides revenue for the banks with little or no risk to aid them with their liquidity problems. Banks improve, sovereign debt costs improve and the pressure is off for an immediate solution to the debt crisis.

The debt crisis is actually improving. Portugal's finance minister said the budget deficit would likely fall below 5% in 2011 from 9.8% in 2010. Greece reported it was making good progress on the "bond swap" with private investors and it could be completed next month. That is the 50% haircut for those investors.

Any good news out of Europe is a cause for celebration and the market definitely cheered. At least those long stocks and commodities cheered but the shorts were definitely in pain. The U.S. economics helped to keep the opening rally moving and provided shorts zero relief.

In the U.S. the new residential construction for November exploded higher with starts rising to 685,000 from 628,000 on an annualized basis. That was a +9.3% gain over October. Single family starts increased +2.3% to 447,000. Permits rose +5.7% over the prior month and a year over year gain of +20.7%. Starts in the Northeast rose +53.8% and the West increased +22.6%. Housing completions declined -5.6% to 542,000 due to weather delays. The biggest contributor to the headline number was a +25.3% increase in multi-family starts. So many people can no longer qualify for a mortgage the rental rates are soaring along with the demand for rental units.

Chain store sales also surged higher last week by +3.4% and the largest weekly gain since 2000. Year over year growth rose to +4.6% and the biggest gain since early July. Customer traffic was strong across all segments with apparel and departments stores leading the increase. The ICSC said consumers are behind in their holiday shopping with only 70% completed compared to normal 74% for this time of year. The prior two weeks of sales had been running below normal. Apparently they are now racing to catch up. Gasoline prices fell -6 cents last week and -21 cents over the last five weeks. This is bullish for consumer sentiment. I bought gas in the Denver area for $2.95 a gallon over the weekend. That was encouraging even though I know it won't last.

Despite this being a holiday week the economic calendar remains busy for the rest of the week. The headliners will be the Chicago Fed Activity Index and Consumer Sentiment. The GDP revision is not expected to change much so not likely a market mover unless there is a major surprise.

Economic Calendar

The dollar declined -0.5% because of the stronger economic news from Europe and the rise in the euro. He drop in the dollar plus the optimism in Germany and the U.S. helped push commodities higher.

Dollar Index Chart

Crude rallied more than $3 on the optimism but there was also support from concerns over North Korea and lingering worries over a future disruption over Iran's nuclear ambitions. The OPEC meeting is fading in our rear view mirror and depleted global inventories are coming back into focus.

Crude Oil Chart

Gold rallied on the dollar but there were also anecdotal stories of central banks starting to make purchases after the strong discount of the last two weeks. Commodity fund managers in Europe reported customers placing large orders for long term accounts. The $1600 level is key as a psychological level and $1618 is key as the 200-day average. If we continue over $1618 it could trigger some technical buying. However, analysts believe the next rebound in gold may not be until January. Institutions want to go into year-end with cash after having taken profits in gold. They will begin new positions in January.

Gold Chart

In stock news General Mills (GIS) reported a -28% decline in Q2 earnings to 67-cents compared to 92-cents in the year ago quarter. Excluding acquisition charges for Yoplait and other items earnings were 76-cents per share. In the guidance they see costs rising 10-11% for the year but they have raised prices to offset those additional costs. For the full year GIS expects earnings of $2.59 to $2.61 and analysts were looking for $2.61. Shares declined slightly on the news.

Red Hat (RHT) declined -9% after reporting earnings Monday after the close that beat the street by 2-cents but guidance was only in line with estimates. For the current quarter they expect 26-27 cents per share and analysts were looking for 26-cents. Revenue grew +23% and several analysts said the weakness was a buying opportunity.

Red Hat Chart

Oracle (ORCL) reported earnings after the close and missed on both earnings and revenue. Earnings were 54-cents compared to estimates of 57-cents. Revenue was $8.8 billion compared to estimates of $9.23 billion. Oracle guided for 55-58 cents in the current quarter compared to analyst estimates of 59-cents.

Sales of new software licenses rose only +2% compared to double digit estimates by some analysts. Oracle itself had predicted a 6% to 16% increase. Oracle said orders from Europe were weak. Other companies had put off signing contracts late in the quarter on worries over events in Europe and Asia. Japan was also weak as they continue to recover from the earthquake.

This earnings miss and lowered guidance could be a negative for the markets on Wednesday but that assumes somebody is paying attention. With the weak volume today it may only impact Oracle stock.

Oracle Chart

Nike (NKE) posted earnings of $1.00 compared to estimates of 97-cents. Revenue increased +18% to $5.73 billion. This was a decent earnings report and they were pretty positive on expectations for 2012. They nearly always post decent sales gains in a summer Olympics year. With basketball restarting they should get a boost from that exposure as well. Nike also said it planned to raise prices to offset higher costs and they expect margins to decline slightly until those increases occur. Shares rose +2% after the close.

Jefferies (JEF) rocketed 22.9% higher today after reporting earnings that declined -23%. While that sounds like a confusing pair of statistics it was actually good news. Expectations were for a more significant decline. Jefferies was punished for the MF Global woes. When MF started crashing everyone looked at Jefferies as another potential problem. The company went to extremes to assure the market they did not have similar problems and also deleveraged in a hurry to prove that point. They slashed their balance sheet by about 25% to $35 billion in assets while reducing its leverage at the same time. Current leverage is only 10:1.

Even with all the slashing and trashing the company's investment banking revenue declined only -10% and less than some of their competitors who were not undergoing the same stresses. Goldman's IB revenue fell -33%. When the initial concerns broke Jefferies slashed its exposure to Greek, Irish, Italian, Portuguese and Spanish debt by 50%, twice, in only a few hours of trading. They cut euro zone bond exposure from $2.4 billion on Nov-1st to $375 million by Nov 30th. They went public and did what no other similar firm has ever done and disclosed their positions to show they had no material risk.

Posted earnings were 21-cents compared to JPM estimates of 11-cents and Goldman estimates of 15-cents. Shares of JEF rallied +23% to $14.50 and a two month high.

Jefferies Chart

After the bell the Federal Reserve released a long awaited and much stronger set of banking regulations designed to implement some of the Dodd-Frank rules and prevent another 2008 catastrophe. They released a 173 page document outlining new capital requirements, leverage limitations, annual stress tests and rules to limit credit exposure. Basically banks with more than $50 billion in assets will be required to maintain 5% capital. That increases +1% to +2.5% depending on the size of the bank in order to meet the Basel rules. They must keep 30 days of cash on hand during high stress periods. They cannot have more than 25% of their capital at risk to any one company. If that company has assets over $500 billion that limit declines to a 10% capital restriction. This is meant to limit exposure to a problem like Lehman, Bear Stearns or AIG. S&P futures did not blink after the surprise announcement so apparently the stronger rules were expected.

The rally today was clearly a short squeeze. The S&P gained +30 points at the open and never looked back. The succession of news stories never gave the shorts an opportunity to escape and there was no fade at the close in order to reload.

S&P Chart - 5 min

Volume was low at only 7.03 billion shares and it will decrease every day this week. This was probably the highest volume day of the week since Monday only managed 6.2 billion shares as option expiration settlements were handled calmly.

The news from Europe was positive but it was far from an all clear signal. There is still plenty of pain ahead. We will find out this week how much money European banks are going to request from the ECB in that three year liquidity program. Some analysts believe it could be as much as $500 billion. Who knows how investors will handle that kind of number. They could be relieved the ECB is resolving the liquidity crisis or they could be concerned because the crisis is so big.

The key for the rest of the week will be the lack of interest. Most institutional traders, hedge funds, etc have shutdown for the week if not the year. There will be far few traders at work as each day passes. Very low volume increases volatility but at least we should not see any major buy/sell programs. They don't want to launch programs in a thin market because of the resulting volatility.

The short squeeze saw the S&P rebound from 1205 and danger of falling below the psychological 1200 level, to close at 1240 and well over the resistance at 1225. The futures are showing no signs of a decline late this evening and after a gain of +337 points you would normally expect profit taking. I consider this bullish. However, we need to see how Europe and Asia respond to our rally and there is a lot of darkness before morning.

Support should not be 1225 and resistance 1260-1265. I sure didn't think on Sunday I would be quoting the 1265 number again this week.

S&P Chart

The Dow rebounded back over the 200-day and the resistance at 12,000 to close at 12,100. That is only about 100 points from the December high. One more good day and this market will make a serious change in sentiment. Any push over 12,200-12,230 would bring out the bulls in a race to year end. No self respecting money manager would want to be in cash at year end with the Dow at a five month high.

Dow Chart

The Nasdaq rallied back over the 100-day average at 2562 and even closed slightly over 2600 and prior support. The key here will be whether Oracle will sour sentiment and nip the rally in the bud. The semiconductor index rebounded +4.5% but remains well below any meaningful resistance. It will take more than a one day wonder to turn the semiconductor bears bullish.

Apple rebounded +14 after hovering at support at $380 for four days. The close at $396 was one dollar over resistance and any further move higher should trigger some additional buying.

The next meaningful resistance is the 200-day at 2660.

Nasdaq Chart

Semiconductor Chart

Russell Chart

The short squeeze was good for plenty of press coverage and the majority of investors will have pleasant thoughts when they see the headlines on the 10:00 news. However, it did not change market sentiment materially. It was a short squeeze and they happen routinely in bear markets.

Most rallies begin with a major short squeeze although they don't normally continue higher without a pause. Strong rallies are made over the objections of the bears and normally continue without any material reason for the sudden change in sentiment. Analysts will tell you the points producing the initial squeeze are not sufficient to push the market higher but sometimes the rally continues.

What analysts can't see in their daily dissection of the data is the frustration of investors and the hopes that better times are ahead. Maybe we will see that this week since this is historically a bullish week because of the holidays and year end retirement contributions.

The point here is that nothing changed in Europe other than the lower bond yields for Spain. Depending on the news from the ECB over the next several days we could see some improvement in investor sentiment. However, as we heard from Oracle tonight there are concerns in the business community that Europe could continue to be a problem. If you are long, enjoy the ride. Just don't get married to your positions because divorce is always painful.

If you have to be in the market take small positions and exit early.

 

The Buck is BACK!


The Free Silver Dollar bonus with the End of Year Special went over so well over the Black Friday weekend we are bringing it back. EVERY end of year subscriber will receive a FREE U.S. SILVER DOLLAR!

One free Morgan or Peace dollar with each End-of-Year Special subscription! These U.S. silver dollars were minted between 1878-1935 and consist of 90% silver, roughly eight tenths of an ounce of silver. With the price of silver hovering around $30 these are worth collecting and make great gifts for grandkids!

                                 Peace Dollar Description

    

            FREE SILVER DOLLAR WITH EOY SUBSCRIPTION!

Have You Renewed Yet? Time Is Growing Short!

Every December we offer the best prices of the year on a renewal package of our top newsletters. If you have been a subscriber for several years you know this is the best price and the best deal of the year.

This year we are offering Option Investor, Premier Investor, Leap Trader, Option Writer and our new newsletter starting in January, Ultimate Investor.

Please follow the link below to see for yourself the EOY subscription special for 2011. You will not be disappointed!

Jim Brown

Send Jim an email


New Option Plays

Drugs, Banks, & Medical

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Hi Tech Pharmacal Co. - HITK - close: 40.65 change: +1.76

Stop Loss: 38.49
Target(s): 44.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
HITK is a specialty drug maker and the stock has been able to maintain its bullish trend in spite of the market's choppiness. Shares broke out past resistance at $40.00 today. This could fuel more short covering. The most recent data listed short interest at more than 13% of the very small 10 million share float.

After a +4.5% gain today the options are going to be a little bit inflated. We are going to want to keep our position size small to limit our risk. I am suggesting bullish positions tomorrow morning but only if both HITK and the S&P 500 index open positive. We'll use a stop loss at $38.49, under Monday's low. Our target is $44.50. Readers might want to aim higher. The Point & Figure chart for HITK is bullish with a $58 target.

*see Entry Details Above*

- Suggested Positions -

buy the 2012Jan $40 call (HITK1221A40) ask $2.40

Annotated Chart:

Entry on December xx at $ xx.xx
Earnings Date 03/12/12 (unconfirmed)
Average Daily Volume = 298 thousand
Listed on December 20, 2011


JPMorgan Chase & Co - JPM - close: 32.21 change: +1.51

Stop Loss: 30.35
Target(s): 37.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
JPM is generally considered the best in breed among U.S. banking stocks. Financials were leading the market higher with big gains today. JPM posted a +4.9% rally. The stock stalled near its 40 and 50-dma but if this positive news about falling European bond yields continues then the banking stocks could see a big move higher.

We are suggesting a trigger to open bullish positions at $32.75. We'll place our stop loss under Monday's low. More conservative traders might want to wait for JPM to breakout past technical resistance at its 100-dma instead (currently near $33.22).

Our multi-week target is $37.50.

Trigger @ 32.75

- Suggested Positions -

buy the 2012Jan $33 call (JPM1221A33) ask $0.99

- or -

buy the February $35 call (JPM1218B35) ask $0.83

Annotated Chart:

Entry on December xx at $ xx.xx
Earnings Date 01/13/12 (unconfirmed)
Average Daily Volume = 45.3 million
Listed on December 20, 2011


Waters Corp. - WAT - close: 74.11 change: +2.39

Stop Loss: 70.75
Target(s): 79.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
WAT is a medical equipment maker. The stock has been churning sideways in the $71-82 zone for months. Today's gain is a bounce off the bottom of this trading range and a potential entry point for calls. We want to see a little bit more confirmation. I am suggesting a trigger to buy calls at $74.55 with a stop loss at $70.75. Our target is $79.50.

Trigger @ 74.55

- Suggested Positions -

buy the Jan $75 call (WAT1221A75) ask $2.25

Annotated Chart:

Entry on December xx at $ xx.xx
Earnings Date 01/24/12 (unconfirmed)
Average Daily Volume = 787 thousand
Listed on December 20, 2011



In Play Updates and Reviews

Stocks See Oversold Bounce

by James Brown

Click here to email James Brown

Editor's Note:

After a two-week decline the market has produced a sharp oversold bounce,fueled largely by short covering.

Our OPEN call trade has been triggered. I've updated a couple of stop losses tonight.

-James

Current Portfolio:


CALL Play Updates

Boeing Co. - BA - close: 72.44 change: +2.28

Stop Loss: 69.25
Target(s): 77.00
Current Option Gain/Loss: -17.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/20 update: The market's widespread rally pushed BA from the bottom of its trading range to the top of its range. Traders could use a breakout past $73.00 as a new bullish entry point.

Earlier Comments:
There is potential resistance at $75.00 and more conservative traders may want to exit there. I am aiming for $77.00. FYI: The Point & Figure chart for BA is bullish with a $79 target.

- Suggested Positions -

Long 2012Jan $75 call (BA1221A75) entry $1.08

12/13/11 trade opened
12/12/11 adjusted stop loss to $69.25
12/12/11 trade did not open, try again.

Entry on December 13 at $71.67
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 6.2 million
Listed on December 10, 2011


OpenTable, Inc. - OPEN - close: 44.78 change: +4.85

Stop Loss: 39.45
Target(s): 48.50
Current Option Gain/Loss: + 76.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/20 update: Our OPEN trade has been triggered. Positive analyst comments this morning and the market's big move higher fueled a sharp session of short covering in OPEN. The stock gapped higher at $41.24 and rallied to $44.88 (a +12% gain for the day). Our trigger to buy calls was hit at $41.55.

If you missed our entry point you might get another chance tomorrow. After the closing bell OPEN disclosed in an SEC filing that its executive chairman, Jeffery Jordan, had resigned, effective immediately, on Dec. 14th. Jordan remains on the board. The stock was trading lower after hours on this news. I would be tempted to buy a dip in the $42-41 zone.

We are raising our stop loss to $39.45.

Earlier Comments:
The most recent data listed short interest at 53% of the very small 16.2 million-share float. This can be a volatile stock. Our target is the simple 100-dma but we'll tentatively put our exit target at $48.50. We want to keep our position size small to limit our risk.

(small positions) - Suggested Positions -

Long 2012Jan $45 call (OPEN1221A45) entry $1.50

12/20/11 new stop loss @ 39.40

Entry on December 20 at $41.55
Earnings Date 02/07/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on December 17, 2011


Phillip Morris Intl. - PM - close: 76.70 change: +0.50

Stop Loss: 74.25
Target(s): 79.75
Current Option Gain/Loss: +129.4%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
12/20 update: Defensive stocks were out of favor with the market in a "risk on" mood today. PM still managed to gain another +1.6%. Shares look poised to breakout past resistance at $77.00 soon. More conservative traders may want to take profits now with the call option up +129%.

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

12/17 new stop loss @ 74.25
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: 106.54 change: +2.31

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:
12/20 update: SAM gapped open higher and rallied to a +2.2% gain. The stock has now broken out past resistance near $105.00. We are raising our stop loss to $99.75.

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 22% 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

12/20/11 new stop loss @ 99.75
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


Varian Medical Sys. - VAR - close: 65.02 change: +1.82

Stop Loss: 62.49
Target(s): 69.75
Current Option Gain/Loss: -26.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/20 update: Today's market rally has kicked VAR past resistance near $64.00 but shares are still hovering near the top of its trading range at resistance near $65.00. Today's high was $65.41. I'd prefer to see a move past $65.50 before initiating new positions.

- Suggested Positions -

Long JAN $65 call (VAR1221A65) entry $2.65

12/14/11 adjust stop loss to $62.49

Entry on December 13 at $65.25
Earnings Date 01/25/12 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on December 12, 2011


PUT Play Updates

AGCO Corp. - AGCO - close: 42.01 change: +1.69

Stop Loss: 42.75
Target(s): 35.25
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
12/20 update: AGCO rallied off support near $40 and closed with a +4.2% gain. Today's move does break the short-term two-week trend of lower highs. Currently we're still on the sidelines. The plan is to buy puts if AGCO trades at $39.90 or lower. Readers might want to consider an alternative and wait for AGCO to stall at resistance near its 200-dma and launch bearish positions there with a tight stop loss.

If triggered at $39.90 we want to keep our position size small.

Trigger @ 39.90 (small positions)

- Suggested Positions -

buy the Jan $40 PUT (AGCO1221M40)

Entry on December xx at $ xx.xx
Earnings Date 02/07/12 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on December 15, 2011


BMC Software Inc. - BMC - close: 34.39 change: +1.46

Stop Loss: 35.05
Target(s): 30.05
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
12/20 update: Short covering also produced a sharp rebound in BMC today. The stock surged +4.4% and appears to have broken the two-week trend of lower highs. Fortunately we are still on the sidelines. The plan is to buy puts when BMC trades at $32.75 or lower. I would keep an eye on potential technical resistance at the descending 40-dma (near $35).

Trigger @ 32.75

- Suggested Positions -

buy the 2012Jan $32.50 PUT (BMC1221M32.5)

Entry on December xx at $ xx.xx
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on December 14, 2011


Check Point Software - CHKP - close: 54.61 change: +1.56

Stop Loss: 55.05
Target(s): 48.00
Current Option Gain/Loss: -66.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/20 update: Today's market rebound produced a +2.9% bounce in CHKP. The stock has stalled near technical resistance close to its 30 and 200-dma. If the market rally continues tomorrow then odds are good we'll see CHKP hit our stop loss at $55.05.

Earlier Comments:
There is potential support near $51.00 but we're aiming for the $48.00 level. More aggressive traders could aim lower. FYI: The Point & Figure chart for CHKP is bearish with a $46 target.

(Small Positions) - Suggested Positions -

Long Jan $50 PUT (CHKP1221M50) Entry $1.20

12/13/11 new stop loss @ 55.05

Entry on December 09 at $53.29
Earnings Date 01/30/12 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on December 08, 2011


Coach, Inc. - COH - close: 58.64 change: +1.72

Stop Loss: 60.10
Target(s): 51.00
Current Option Gain/Loss: -34.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/20 update: Today's oversold bounce in COH produced a +3% gain but the rebound stalled near technical resistance at its 100 and 200-dma. If the market's rally continues tomorrow then we can look for COH to bounce toward the next level of resistance near $60.00. A failed rally near $60 can be used as a new bearish entry point.

Earlier Comments:
Our multi-week target is the $51.00 level. FYI: The Point & Figure chart for COH is bearish with a $52 target but this could grow.

- Suggested Positions -

Long 2012Jan $55 PUT (COH1221M55) Entry $1.45

Entry on December 19 at $58.08
Earnings Date 01/25/12 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on December 17, 2011


ITT Educational Services - ESI - close: 51.60 change: +1.23

Stop Loss: 52.60
Target(s): 45.25
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
12/20 update: ESI saw a +2.4% bounce but shares failed to breakout past the top of its recent trading range with resistance at $52.50. Volume was very light today and the intraday low was $50.45. Our plan is unchanged.

Earlier Comments:
I am suggesting small bearish put positions if ESI hits $49.75. Why small positions? Because the most recent data listed short interest at 55% of the very small 17.9 million-share float. If ESI were to suddenly bounce the stock could shoot higher on a short squeeze.

If triggered at $49.75 we'll aim for $45.25. The Point & Figure chart for ESI is bearish with a $44 target.

Trigger @ 49.75 (small positions)

- Suggested Positions -

buy the 2012Jan $47.50 PUT (ESI1221M47.5)

Entry on December xx at $ xx.xx
Earnings Date 01/19/12 (unconfirmed)
Average Daily Volume = 363 thousand
Listed on December 19, 2011


Fluor Corp. - FLR - close: 49.11 change: +2.05

Stop Loss: 50.65
Target(s): 45.15
Current Option Gain/Loss: -45.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/20 update: Ouch! Today's +4.3% oversold bounce in FLR took a big chunk out of its recent losses. The stock is still trading under resistance near $50.00. I'd rather wait for the bounce to stall or reverse before considering new positions. More conservative traders might want to inch their stop loss closer to the $50.00 level.

Earlier Comments:
We want to keep our position size small because FLR is arguably already oversold but that doesn't mean it can't get more oversold. FYI: The Point & Figure chart for FLR is bearish with a $43 target.

- Suggested Positions - (Small Positions)

Long 2012Jan $45 PUT (FLR1221M45) entry $1.20

12/19/11 new stop loss @ 50.65

Entry on December 14 at $49.35
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 2.0 million
Listed on December 13, 2011


Juniper Networks - JNPR - close: 19.74 change: +1.62

Stop Loss: 20.55
Target(s): 16.75
Current Option Gain/Loss: - 47.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/20 update: JNPR shorts were definitely scrambling for cover today. After a very sharp two-week decline the stock sprinted higher this morning but stalled near resistance at $20.00. The high today was $20.13. JNPR ended the session up +8.9%. More conservative traders might want to consider an early exit now or lowering their stop loss near today's high. We are leaving our stop at $20.55.

(small positions) - Suggested Positions -

Long 2012Jan $17.50 PUT (JNPR1221M17.5) entry $0.57

12/17/11 readers may want to take profits now. JNPR looks short-term oversold
12/14/11 new stop loss @ 20.55
12/12/11 JNPR gapped open lower at $19.58, opening our trade. Stop loss at $20.75

Entry on December 12 at $19.58
Earnings Date 01/24/12 (unconfirmed)
Average Daily Volume = 8.8 million
Listed on December 10, 2011


Monsanto Co - MON - close: 70.29 change: +2.84

Stop Loss: 71.05
Target(s): 60.50
Current Option Gain/Loss: -58.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/20 update: Hmm... readers might want to consider hitting the eject button on this trade. MON outperformed the market today with a +4.2% gain. The stock also managed to close over potential resistance at $70.00 and above several key moving averages. I am not suggesting new positions at this time. We have a stop at $71.05.

Earlier Comments:
Our target is $60.50. More conservative traders may want to exit near $63.00 instead. FYI: The Point & Figure chart for MON is bearish with a $60 target.

(small positions) - Suggested Positions -

Long 2012Jan $65 PUT (MON1221M65) entry $2.05

Entry on December 14 at $67.35
Earnings Date 01/05/12 (unconfirmed)
Average Daily Volume = 3.7 million
Listed on December 13, 2011


Thermo Fisher Scientific - TMO - close: 44.93 change: +1.39

Stop Loss: 46.15
Target(s): 42.75
Current Option Gain/Loss: Dec$45p: +111.1% & Jan$45P: - 7.1%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
12/20 update: TMO produced an oversold bounce (+3.1%) right back to round-number resistance at $45.00. More conservative traders might want to consider lowering their stop loss. The high today was $45.11. I am not suggesting new positions at this time.

- Suggested Positions -

(December position closed 12/15/11)
DEC $45 put (TMO1117X45) Entry $0.45 exit $0.95 (+111.1%)

- or -

Long JAN $45 put (TMO1221M45) Entry $1.40

12/15/11 planned exit for Dec. $45 put. bid @ 0.95 (+111.1%)
12/14/11 Prepare to exit Dec. $45 puts at the open tomorrow, current bid on these puts is $1.20 (+166.6%)
12/14/11 new stop loss @ 46.15
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


WellPoint Inc. - WLP - close: 65.47 change: +1.83

Stop Loss: 65.75
Target(s): 58.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
12/20 update: WLP bounced off support near $63.50 to close up +2.8%. If we see shares close over $66.00 then we'll drop it as a bearish candidate. Until then the plan is to buy puts when WLP hits $63.25.

Trigger @ 63.25

- Suggested Positions -

buy the 2012Jan $60 PUT (WLP1221M60)

Entry on December xx at $ xx.xx
Earnings Date 01/25/12 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on December 19, 2011


Watson Pharmaceuticals - WPI - close: 61.19 change: +1.54

Stop Loss: 63.05
Target(s): 56.00
Current Option Gain/Loss: Dec$60p: -12.5% & Jan$60p: -35.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/20 update: WPI bounced off multi-month lows to close up +2.5%. Shares are still trading under resistance near $62.00 but I'm not suggesting new positions at this time.

- Suggested Positions -

(December position closed 12/15/11)
DEC $60 PUT (WPI1117X60) Entry $0.80 exit $0.70 (-12.5%)

- or -

Long JAN $60 PUT (WPI1221M60) Entry $2.00

12/19/11 new stop loss @ 63.05
12/15/11 planned exit for Dec. $60 puts, bid $0.70 (-12.5%)
12/14/11 Prepare to exit Dec. $60 puts at the open tomorrow, current bid on these puts is $0.65

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