Option Investor
Newsletter

Daily Newsletter, Thursday, 12/29/2011

Table of Contents

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

Market Wrap

More Market Noise

by Jim Brown

Click here to email Jim Brown
Today's rally began with a short squeeze and the velocity faded as the day progressed. Reporters blamed economics and Europe but in the end it was just noise in a thin market.

Market Statistics

Reporters credited the rally on relief that Italy was able to sell more debt without yields surging to higher levels. They also credited U.S. economics with the opening spike. Both of those reasons were probably valid to some extent in creating a minor short squeeze but in the end the rally was only noise. Volume was very low and there was no conviction. This is a holiday week and these low volume moves are to be expected.

Italy was able to sell additional debt with mediocre success. They sold 10-year bonds with a yield of 6.98% where any yield over 7% is considered unsustainable. Italy has to rollover nearly 500 billion euros in debt in 2012 and 7% interest on 10-year paper is going to be a tough pill to swallow. Investors had to have a lot of faith in Italy and the EU bailout process to buy that same 10-year paper when the potential for default or restructuring over the next decade is so strong.

They also sold three billion of three-year paper at a yield of 5.62%. The total of all maturities sold today was seven billion euros and the target was 8.5 billion so the bidding was light for obvious reasons.

Immediately after the auction Italian Prime Minister Mario Monti called for an increase in the size of the EU EFSF bailout fund. He said the fund needed "significantly greater" resources to handle future problems. Obviously he is looking ahead at the strong odds Italy will need a bailout in the months and years ahead. With 1.2 trillion in debt they are far bigger than what the EFSF could handle.

This is going to be a recurring theme in the months ahead. Europe is not going to recede from the headlines for more than a few weeks at a time because the individual countries like Italy, Spain, Greece, etc are still very much deep in debt and they are sinking deeper into a recession.

There was nothing in the Italian debt sale news worthy of a market rally other than the fact they actually sold some longer dated debt. Some analysts had expressed serious doubts they were going to be able to sell it at any yield.

On the U.S. economic front the economics were mixed with disappointments on several fronts but traders apparently focused on the strong improvement in home sales and ignored everything else.

Pending home sales for November +7.3% to 100.1 on the Home Sales Index. That was an improvement over the 93.3 in October and 84.5 in September. That is the highest headline number since the expiration of the homebuyer tax credit in April 2010. Considering November is not really a strong month for sales the nearly +18% rebound in the last two months is a dramatic increase. Sales are running at nearly +6% over the same period in 2010.

The post summer slump has been erased and consumers are apparently taking advantage of the record low interest rates. Tight credit will continue to be a drag but sales are improving. According to the Federal Reserve's Q4 loan officer opinion survey an equal number of lenders are loosening credit standards as are tightening. That means if you shop the loan you can probably find someone that will take a less than perfect credit or lower down payment.

On the flip side of the economic ledger the jobless claims rose by +15,000 to 381,000 for the week ending dec-24th. The prior week was revised up slightly by +2,000 to 366,000. Some analysts were relieved the increase was not larger. Everyone expects these numbers to increase dramatically once the holidays are over and recent layoffs begin looking for work in January. I expect the numbers to rebound over 400,000 over the next two weeks. Late December is normally weak for new claims since workers want to enjoy the holidays before starting to look for work. We will see how much investors ignore the data once we return to the higher levels.

Jobless Claims Chart

The ISM Chicago declined slightly instead of the larger decrease most analysts expected. The headline number for December declined to 62.5 from 62.6. I know it was minimal but some estimates were for a reading over 63. However, the consensus estimate was for a decline to 59.0 so this was actually a "less bad" report. Analysts were expecting the parts shortages from the Thailand floods to restrain auto manufacturing in the Chicago areas.

New orders declined to 68.0 from 70.2 but backorders rose to 57.9 from 55.1. Employment also rose to 58.6 from 56.9. This is consistent with other reports and suggests the employment for December will be better than expected. That could be a stretch since tens of thousands of seasonal workers will be terminated in December.

ISM Chicago Chart

The December Kansas Fed Manufacturing Survey posted a decline to -4 from +4 in November. That is the first time the index has dipped into negative territory since May of 2009. New orders declined to -6 and the second month in contraction territory. Backorders plunged to -14 from -9 and this is the six month in contraction territory. Capital expenditure plans declined to 17 from 23 and employment fell to -6 from +2.

This was not a good report and it was the worst report of any of the Fed regions. However, the Texas survey also reported some weakening for December. The Richmond area is heavily influenced by food manufacturers, particularly dairy products. Higher prices for raw food stocks impacts the Richmond area more than anywhere else.

Kansas Fed Chart

The calendar for Friday is limited and there will be nobody around to care about the reports. The ISM-NY is the only one of limited interest and it will be very limited this Friday.

Economic Calendar

In stock news there was none. Actually there was a little, very little. Amazon (AMZN) was downgraded by Goldman on worries new retail data could be negative for Amazon. Over the last five years Amazon's Q4 sales growth has beaten the overall average +23%. Based on data from Comscore that would suggest +38% sales growth by Amazon this quarter or $17.87 billion. Analysts are currently expecting $18.62 billion so the Comscore numbers are predicting a revenue miss.

Despite the morning caution, JP Morgan reiterated its overweight rating in response to Goldman's report. JPM expects Amazon revenue growth of a whopping +47% for the quarter.

Amazon said it sold more than one million Kindles per week in December. In a separate comment Bezos said they sold "millions and millions" of Kindles. The Kindle in all versions were the top selling products on Amazon.com.

Did you know that two of the top selling Kindle books on Amazon were self published by authors on Amazon? That is rapidly turning into a very big market. Secondly, did you know you can "gift" eBooks? If someone on your holiday list has a Kindle you can give them an eBook as a gift. No shipping delays and no shipping cost. Retailers of all flavors should beware of Amazon. They are the stealth story of the retail sector. Despite their advertising and the analyst comments they continue to find new ways to generate income. If only they would find a way to split their stock!

Amazon shares fell -$7 on the Goldman report then rebounded to close flat for the day. Amazon shares have been declining all quarter on worries their margins would take a significant hit from the $199 Kindle Fire. They are selling the device at a loss in order to put an online shopping terminal in everyone's hands. Considering the strong rebound today is all the bad news already priced in?

Amazon Chart

The semiconductor sector rebounded nearly 1% today after a Piper Jaffray analyst said chip demand was likely to rise in Q1. They said there was a strong sell through of electronic devices in December and that would drive a replenishment cycle. Also, they expect an increase in infrastructure spending in Q1. Some of Pipers favorites include QCOM, ALTR, VLTR, XLNX and FSL.

Shares of Yahoo (YHOO) rallied again after Alibaba Group hired Washington lobbying company Duberstein Group. This suggests Alibaba may be getting ready to launch a bid for all of Yahoo instead of just buying back Yahoo's ownership stake in Alibaba. Yahoo owns 40% of Alibaba and 35% in Yahoo Japan. Japan's Softbank has a 30% stake in Alibaba and jointly owns Yahoo Japan. These intertwined assets are making it difficult for anyone to make an offer for the entire company because they know there will be objections by those two Asian companies over having their stakes change hands. The Yahoo stake in Alibaba is worth between $13 to $18 billion. They paid $1 billion for the stake several years ago. Alibaba has a first right of refusal on any outright acquisition of Yahoo by anyone else.

By hiring the lobbying firm they hope to head off any political opposition to a Chinese firm buying an American Internet giant. The situation is definitely heating up but YHOO shares can't seem to break out of the downtrend resistance at $16.50. I believe investors are tiring of the constant news headlines but no real acquisition offers.

Yahoo chart

Gold prices declined again even though the dollar weakened against the euro. Gold closed at $1,546 and just above the September five month low at $1,535. This is considered a critical support level followed by stronger support at $1,485. Gold is nearing support that is considered crucial for the multiyear gold rally. This is the level where investors should be thrilled to see as the calendar turns over and a new investment year begins. Gold declined -$18 in regular trading and has rebounded +10 in after hours.

Silver hit the same support equivalent support level today and then rebounded to close positive for the day. I believe this should be a strong support level for silver and I bought some more physical silver today. Coin shops in my area were selling 90% U.S. silver coins for 20 times face value and one ounce Silver Eagles for $30 each.

Gold Chart

Silver Chart

The S&P rebounded back over the 200-day average at 1258 but just barely. Old resistance at 1265 came back to haunt us and the index came to an abrupt halt. With extremely light volume expected on Friday I would seriously doubt if we will see that resistance broken. The most likely result will be a flat market as the market makers and fund managers try to close the S&P over 1257 so the S&P will close positive for the year. It may be a fight without a positive headline from Europe to get the ball rolling early.

Quite a few analysts are looking for a dip in January. I am in that group. It may not be the first couple days because of the retirement funds hitting the market but I think we will see a dip sooner rather than later. Of course that is just my opinion. If we see the S&P close below the 200-day again on Friday it would be a bad omen. Current support (light) would be yesterday's low at 1250.

S&P Chart

The Dow chart is similar to the S&P with dead stop resistance at 12,285. That level has held the Dow in check for the last four days. Note on the chart how flat the 200-day line has been. The only real trend for the Dow is sideways. Like the S&P a decline below Thursday's low around 12,150 would be traumatic and suggest January will get off to a bad start. Conversely a rally over 12,300 could trigger buy stops and possibly carry over into next week.

Dow Chart

Google and Apple posted modest gains and that helped push the Nasdaq higher. Biotechs and semiconductors were the major contributors as each sector posted decent gains. ISRG added +8.

The Nasdaq edged back over the critical 2600 level to close at 2613 but I suspect we will see numbers starting with 25 again soon. Initial support for the Nasdaq is 2550. Unfortunately the Nasdaq has downtrend resistance at 2630 and serious resistance at 2650-2660. It could be a tough road higher for the tech sector. The Piper Jaffray note on chip stocks today did help but will it last?

Nasdaq Chart

I would be careful entering positions on Friday. The very low volume ahead of the three day weekend could mask underlying trends when coupled with fund managers trying to close the S&P in positive territory for the year. I do expect a decent dip in early January so I am looking to buy puts on any bounce that does not breakout to new relative highs.

 

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Jim Brown

Send Jim an email


New Option Plays

Software Firm

by James Brown

Click here to email James Brown

Editor's Note:

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

Bullish candidate ideas:
IBB, PSMT, SWK, ALXN, DLTR, and NKE

- James


NEW DIRECTIONAL PUT PLAYS

Autodesk, Inc. - ADSK - close: 30.40 change: +0.49

Stop Loss: 31.25
Target(s): 25.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
ADSK is an software company (architectural designs) and shares have been underperforming recently. The looks like it's on the verge of breaking down under support near $30.00. The late November low was $29.76. I am suggesting a trigger to buy puts at $29.65 with a stop loss at $31.25, which is just above this week's high.

Our exit target is $25.50. FYI: The Point & Figure chart for ADSK is bearish with a $23 target.

Trigger @ 29.65

- Suggested Positions -

buy the 2012Jan $30 PUT (ADSK1221M30) ask $1.13

- or -

buy the Feb $28 PUT (ADSK1218N28) ask $1.07

Annotated Chart:

Entry on December xx at $ xx.xx
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on December 29, 2011



In Play Updates and Reviews

Stocks Rally In Spite of Rising Italian Bond Yields

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. markets saw widespread gains, led by financials, even though Italian bond yields continue to rise.

-James

Current Portfolio:


CALL Play Updates

The Andersons, Inc. - ANDE - close: 44.39 change: +0.67

Stop Loss: 43.40
Target(s): 49.75
Current Option Gain/Loss: -46.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/29 update: ANDE managed to hold support near $44.00. Shares managed to close up +1.5% on the session. This bounce could be used as an entry point but we are raising our stop loss to $43.40.

(small positions) - Suggested Positions -

Long Jan $45 call (ANDE1221A45) entry $1.60
(readers might want to consider buying February calls instead)

12/29/11 new stop loss @ 43.40
12/28/11 new stop loss @ 42.75
12/23/11 triggered at $45.25

Entry on December 23 at $45.25
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 211 thousand
Listed on December 21, 2011


Boeing Co. - BA - close: 74.11 change: +0.85

Stop Loss: 71.40
Target(s): 77.00
Current Option Gain/Loss: +13.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/29 update: BA made headlines today when the U.S. and Saudi Arabia signed a deal to sell Boeing's F-15 fighters. Shares of BA didn't move that much but did see a morning rally. The stock closed up +1.1% but remains under resistance near $75.00.

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

12/28/11 new stop loss @ 71.40
12/22/11 new stop loss @ 69.85
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


Dover Corp. - DOV - close: 57.61 change: -1.31

Stop Loss: 56.75
Target(s): 64.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
12/29 update: DOV recovered a good chunk of yesterday's losses with a +1.4% bounce today. Yet the stock struggled with the $58.50 level most of the session and DOV is still underneath its 200-dma. I am suggesting readers wait for a breakout higher with a trigger to buy calls at $59.55.

Earlier Comments:
More conservative traders may want to wait for DOV to rally past the $60.00 level instead since $60.00 might be considered round-number resistance. If we are triggered at $59.55 our target is $64.50. FYI: The Point & Figure chart for DOV is bullish with a $75 target.

Trigger @ 59.55

- Suggested Positions -

buy the Jan $60 call (DOV1221A60)

Entry on December xx at $ xx.xx
Earnings Date 01/27/12 (unconfirmed)
Average Daily Volume = 1.9 million
Listed on December 27, 2011


Hi Tech Pharmacal Co. - HITK - close: 38.96 change: +0.75

Stop Loss: 36.70
Target(s): 44.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/29 update: HITK also recovered a good portion of yesterday's losses with a strong +1.9% bounce today. Traders bought the dip near short-term support at $38.00. Yet HITK is still under round-number resistance near $40.00. The current plan is to buy calls (small positions) at $40.15 with a stop at $38.85. We want to keep our position size small to limit our risk.

Earlier Comments:
The most recent data listed short interest at more than 13% of the very small 10 million share float. Our target is $44.50. Readers might want to aim higher. The Point & Figure chart for HITK is bullish with a $58 target.

New Trigger, buy calls @ 40.15, stop loss @ 38.85 (small positions)

- Suggested Positions -

buy the 2012Jan $40 call (HITK1221A40)

12/27/11 new trigger @ 40.15, stop loss 38.85
12/22/11 not open yet. New Trigger @ 37.25, stop 36.70
12/21/11 trade not open yet. (SP500 opened lower) Try again. New stop loss @ 37.90

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


iShares Transportation - IYT - close: 89.86 change: +1.14

Stop Loss: 87.45
Target(s): 94.75 or 98.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
12/29 update: The transportation indices were showing relative strength today. The IYT rebounded +1.2% but remains under resistance near $90.00 and its 200-dma. There is no change from my prior comments. Our plan is to use a trigger at $90.75 to open bullish positions. I have listed individual targets depending on which month you choose to play.

Trigger @ 90.75

- Suggested Positions -

buy the Jan $95 call (IYT1221A95)
target 94.75

- or -

buy the Feb $95 call (IYT1218B95)
target 98.50

Entry on December xx at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 582 thousand
Listed on December 22, 2011


JPMorgan Chase & Co - JPM - close: 33.42 change: +0.77

Stop Loss: 30.35
Target(s): 37.50
Current Option Gain/Loss: Jan$33c: +23.8% & Feb$35c: +14.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/29 update: JPM completely erased yesterday's losses with a strong +2.3% gain today. Financials as a sector were showing leadership today in spite of rising yields on Italian bonds. JPM does have some short-term resistance near $33.75 and $34.00. I would hesitate to open new bullish positions here.

Our multi-week target is $37.50.

- Suggested Positions -

Long 2012Jan $33 call (JPM1221A33) entry $1.05

- or -

Long February $35 call (JPM1218B35) entry $0.90

Entry on December 22 at $32.75
Earnings Date 01/13/12 (unconfirmed)
Average Daily Volume = 45.3 million
Listed on December 20, 2011


O'Reilly Automotive - ORLY - close: 80.99 change: +0.02

Stop Loss: 79.75
Target(s): 87.00
Current Option Gain/Loss: Jan$85c: -60.0% & Feb$85c: -25.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/29 update: Hmm... the action in ORLY today is worrisome. The stock tried to rally this morning but spent the day drifting sideways to close virtually unchanged. The lack of participation in the market's rally is not a good sign. I am not suggesting new positions at this time.

Earlier Comments:
Our multi-week target is $87.00 but the $85.00 level might be round-number resistance so we'll need to stay flexible. FYI: The Point & Figure chart for ORLY is bullish with a $103 target.

- Suggested Positions -

Long Jan $85 call (ORLY1221A85) entry $0.50

- or -

Long Feb $85 call (ORLY1218B85) entry $1.60

Entry on December 27 at $82.05
Earnings Date 02/15/12 (unconfirmed)
Average Daily Volume = 941 thousand
Listed on December 24, 2011


Phillip Morris Intl. - PM - close: 79.10 change: +0.59

Stop Loss: 76.75
Target(s): 79.50
Current Option Gain/Loss: +283.9%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
12/29 update: PM opened higher and closed up +0.75% on the session. The stock looks poised to hit our exit target at $79.50 tomorrow. More aggressive traders may want to aim higher but I'm a little concerned the $80.00 level might be round-number, psychological resistance. We are raising our stop loss up to $76.75.

Earlier Comments:
FYI: The Point & Figure chart for PM is bullish with a $95 target.

- Suggested Positions -

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

12/29 new stop loss @ 76.75
12/24 new stop loss @ 75.75, adjusted target to $79.50
12/21 new stop loss @ 74.90, readers may want to take profits now (+225%)
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


TJX Companies - TJX - close: 65.38 change: +0.54

Stop Loss: 61.90
Target(s): 68.00
Current Option Gain/Loss: Jan$65c: +40.0% & Feb$65c: +25.7%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/29 update: TJX completely erased yesterday's losses. The stock is hovering under short-term resistance at $65.50. You could buy a breakout past this level but if you do I'd use a much tighter stop loss.

Earlier Comments:
TJX doesn't move super fast so we'll need some patience. Our target is $68.00. FYI: The Point & Figure chart for TJX is bullish with a $78 target.

- Suggested Positions -

Long 2012Jan $65 call (TJX1221A65) Entry $1.00

- or -

Long Feb $65 call (TJX1218B65) Entry $1.75

Entry on December 22 at $64.10
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 2.7 million
Listed on December 21, 2011


Trimble Navigation Ltd. - TRMB - close: 43.72 change: +0.51

Stop Loss: 42.70
Target(s): 49.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
12/29 update: TRMB produced a decent bounce (+1.1%) off the $43.00 level but we're still waiting for a breakout past resistance near $45.00. I am suggesting a trigger to buy calls at $45.25 with a stop loss at $42.70. Our target is $49.50. FYI: The Point & Figure chart for TRMB is bullish with a $63 target.

Trigger @ 45.25

- Suggested Positions -

buy the Jan $45 call (TRMB1221A45)

Entry on December xx at $ xx.xx
Earnings Date 02/02/12 (unconfirmed)
Average Daily Volume = 544 thousand
Listed on December 22, 2011


Varian Medical Sys. - VAR - close: 66.83 change: +1.06

Stop Loss: 64.40
Target(s): 69.25
Current Option Gain/Loss: + 3.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/29 update: VAR has made it back to its recent highs with a +1.6% gain today. We are raising our stop loss to $64.40. I am not suggesting new positions at this time.

- Suggested Positions -

Long JAN $65 call (VAR1221A65) entry $2.65

12/29/11 new stop loss @ 64.40
12/27/11 adjust exit target to $69.25
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


Waters Corp. - WAT - close: 74.14 change: +0.88

Stop Loss: 70.75
Target(s): 79.50
Current Option Gain/Loss: -31.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/29 update: There was no follow through on WAT's bearish decline yesterday but I remain cautious here. No new positions at this time. Readers may want to raise their stop loss.

- Suggested Positions -

Long Jan $75 call (WAT1221A75) entry $2.25

12/28/11 Traders may want to exit early now.

Entry on December 22 at $74.55
Earnings Date 01/24/12 (unconfirmed)
Average Daily Volume = 787 thousand
Listed on December 20, 2011


Whole Foods Market, Inc. - WFM - close: 69.94 change: +0.45

Stop Loss: 67.75
Target(s): 74.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
12/29 update: WFM spent the day consolidating sideways in the $69.50-70.00 zone. There was a brief spike to $70.14. I don't see any changes from my Wednesday night comments. We are waiting for a stronger breakout. I am suggesting a trigger to open bullish positions at $70.25. If triggered we'll use a stop loss at $67.75. Our target is $74.00. More aggressive traders may want to aim higher. FYI: The Point & Figure chart for WFM is bullish with an $85 target.

Trigger @ 70.25

- Suggested Positions -

buy the 2012Jan $70 call (WFM1221A70)

Entry on December xx at $ xx.xx
Earnings Date 02/08/12 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on December 28, 2011


PUT Play Updates

BMC Software Inc. - BMC - close: 32.61 change: +0.31

Stop Loss: 34.55
Target(s): 30.05
Current Option Gain/Loss: -19.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/29 update: BMC's oversold bounce today produced a +0.9% gain. Broken support near $33.00 should be new short-term resistance. I am not suggesting new positions at this time.

- Suggested Positions -

Long 2012Jan $32.50 PUT (BMC1221M32.5) entry $1.05

12/28/11 new stop loss @ 34.55
12/21/11 trigger hit at $32.75

Entry on December 21 at $32.75
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on December 14, 2011


Watson Pharmaceuticals - WPI - close: 60.61 change: +0.35

Stop Loss: 62.55
Target(s): 56.00
Current Option Gain/Loss: Dec$60p: -12.5% & Jan$60p: -32.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/29 update: The market's widespread gains today helped WPI hold support near the $60.00 level. I'm still expecting a breakdown but we do not want to open new positions here.

- 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

12/28/11 new stop loss @ 62.55
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