Option Investor
Newsletter

Daily Newsletter, Wednesday, 2/1/2012

Table of Contents

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

Market Wrap

Hope for A Greece Settlement Sparks Another Rally

by Keene Little

Click here to email Keene Little
Market Stats

One would think another promise from Greece for a new and improved debt restructuring agreement would not have much of an impact on the markets. But hope springs eternal and the European market rallied on the news. The banks saw a bigger relief rally and that all spilled over into the U.S. market, which started with another gap up following the higher futures. Pundits were out saying the rally was because of improving economic numbers out of China but I looked at their numbers and it all falls in the noise category. It's just more hope that this time, for sure, the rally is based on something more than hype.

The bottom line is this market can continue to rally on nothing more than money streaming in from the efforts by the world's central banks to keep the financial system propped up. We saw the same thing happen from about September 2010 into February 2011 when the market seemed to slowly melt up higher each day with nary a pullback and plenty of reasons to believe the market would roll over at any moment. With the stealth QE effort we could be seeing the same thing and in fact there is ample evidence of a liquidity push by the central banks. That money typically makes it into stocks and commodities, which is what the Fed wants (they're hoping to create a "wealth effect" that inspires people to spend more money).

Today's economic reports were uninspiring. The ADP employment report was a disappointment. December's number was revised lower from +325K down to +292K. January came in at +170K which was less than the 200K that had been expected. The market didn't care.

The ISM index was also revised lower from 53.9 down to 53.1 and while January's number was a little higher at 54.1 it was less than expected. The market didn't care.

At least construction spending was up -- it was revised higher from +0.4% in November to +1.2% and ticked slightly higher to +1.5% in December vs. expectations for +0.4%. This report was at 10:00 AM and the market had already gapped up long before then. Economic reports or lousy earnings reports, such as AMZN's, just don't matter right now. The only thing that seems to matter is whether or not Greece is going to make it, which has a significant impact on the banks (decent relief rally in them today).

Very little has changed from last week as the market remains propped up but hasn't made much headway (it has gone mostly sideways since January 19th. So I'll update a few charts to show what I'm watching.

This being the first of a new month there is the possibility that new-month money was simply being put to work today but the fact that the rally wasn't able to add anything to the gap up (the day finished with a doji), even that reason would be a stretch. Today's trading volume was again low, as it was for all of January. As can be seen on the SPY daily chart below, the pattern of declining volume has continued. The 10-dma of volume shows a lower average for January than the first part of December (the first half of December was the period of selling). Since the market started rallying from the December 19th low the volume dropped off significantly. This can certainly continue but it's not a healthy way to build a rally. It makes it look too much like it's propped up on fluff. Today's bounce took SPY back up to its broken downtrend line from 2007-2011 and its broken uptrend line from December 19th. A pullback from both leaves a little bearish kiss goodbye. Now we'll see if the bears can do anything with that. They've been a wimpy group since mid December.

SPDR S&P 500, SPY, Daily chart

As for the wave count for the bounce, there are a few possibilities noted on the chart above and I'm looking at two different major counts. One considers the August-January rally a large B-wave correction that will be followed with a C-wave down (below the October low). The other considers the October-January (February?) rally to be a 2nd wave correction that will be followed by a 3rd wave down (to well below the October low). Both point lower once this bounce has finished and I'm simply trying to figure out where and when it will finish. If we're to get just an a-b-c move up from November to complete the bounce pattern, last week's high should be the finish (possibly one more minor new high this week). If the rally from November will be a 5-wave move then we'll get a pullback into early-mid February and then a final rally into the latter part of February to complete the correction to last year's decline. A break below the uptrend line from October, confirmed with a break below the December 7th high at 127.26 (SPX equivalent level is 1267), would tell us the high is in place and the bears are in control.

Last week the DOW had made it up to its broken uptrend line from July 2009 through the July 2010 low, at 12842, which was 34 points shy of its May 2011 high. Depending on the wave count used I see potential to 12912 by the end of the week or early next week. But it too tested its broken uptrend line from November-December and pulled back slightly. Perhaps it will walk up underneath this trend line before finally topping out. A break below its 20-dma, at 12550, and Monday's low, at 12529, would be a bearish heads up for a drop down to at least its uptrend line from October, currently near 12320. It takes a drop below the December 7th low near 12257 to confirm a high is in place. In the meantime continue to give the bulls the benefit of the doubt for as long as the bears remain AWOL.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish to 12912
- bearish below 12,257

NDX left a little spinning top doji at the top of a parallel up-channel for the move up from November and is sitting marginally above its trend line along the highs from February and July 2011, which could be the top of a very large rising wedge pattern from 2009 and today's small throw-over could be the finishing touch. A drop below Monday's low near 2423 would be the first indication of trouble for the rally. Based off the wave structure I've got two projections that land right on top of each other near 2320 and therefore that remains an upside target for now.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish to 2520
- bearish below 2423

The RUT has rallied up to the top of a parallel up-channel for the leg up from December 19th. As with the other indexes, if the pattern calls for a 3-wave move up from November to complete the correction to last year's decline then there is the potential we'll see a very important high either here or only marginally higher. If the pattern calls for a 5-wave up then we'll get a choppy pullback and then another leg up later this month to finish it off. For now, the bulls are not in trouble until the RUT breaks below 787.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish to 834
- bearish below 787

Last week I showed the possibility that the TRAN would continue higher to a price projection at 5394 where a complex corrective pattern would have two equal legs up from its August low. At the same level this week is a trend line along the highs since early December. Today's high at 5374 fell short by 20 points. We'll know in hindsight whether that was close enough or if it will push marginally higher to tag that level (or higher).

Transportation Index, TRAN, Daily chart

The banks got a good boost out of the gate this morning as hope for a Greek debt settlement solves all the financial woes in the world. BKX found support this week at the cross of its 20 and 200-dma's, near 42.50 on Monday. If Monday's low completed a 4th wave correction within the rally from November then a new high should be next. I'm showing a projection to 45 where it would hit a Fib projection and its 2009-2010 broken H&S neckline. But a drop back below Monday's low near 42 would be more immediately bearish.

KBW Bank index, BKX, Daily chart

The dollar has remained inside a narrow down-channel since its January 13th high and almost broken out of it during overnight trading. But it dropped sharply back down into an early-morning low and that was also likely in reaction to what's going on in Europe. I see a little more downside potential to a projection at 78.21 where an a-b-c pullback from January 13th would have two equal legs down. A 50% retracement of the October-January rally at 78.45 could also offer support. Once the current pullback finishes I'm expecting the dollar to resume its rally and it could be very strong, which won't be kind to stock and commodity bulls.

U.S. Dollar contract, DX, Daily chart

As the dollar has pulled back in a steep and narrow down-channel, gold has rallied in a relatively narrow up-channel since its December 28th low. It's pushing up along the top of its channel, currently near 1762 (near its early-December highs) but gold is now back up to its broken uptrend line from October 2008 (tested yesterday and today). It has also retraced 78.6% of the November-December decline so if the bearish count is correct we should see gold reverse here and start down in a stronger decline. Being overbought up against resistance it would be a tough argument to say it's going higher from here. The bearish setup calls for the start of a strong decline into February/March.

Gold continuous contract, GC, Daily chart

Like gold, silver is in a narrow up-channel since its December 29th low and tested the bottom of it at the overnight low. It too has retraced 78.6% of its October-December decline and has run into resistance at its broken up-trend line from October. There is a Fib price projection at 34.39 where the 2nd leg of the bounce off the December low would be 162% of the 1st leg up so another push up to a minor new high could finish off its bounce correction. The bearish setup is the same as gold -- looking for a strong decline as the next big move.

Silver continuous contract, SI, Daily chart

Oil has a bit of a sloppy pattern and I had been thinking it would push up to a minor new high above November's and January's, perhaps up to about 105 for another test of its broken uptrend line from February 2009, shown below on its weekly chart. Now I'm not so sure. Oil broke its uptrend line from October on January 20th, bounced back up to test it last week and today it dropped below the January lows. The choppy pullback from early January supports the idea that another leg up is coming but so far it's acting weak and another break below its 50-week MA at 96.48, shown below, as well as its 200-dma at 95, could spell trouble for oil bulls (and stock market bulls since a decline in oil is generally regarded as a bearish sign about the economy).

Oil continuous contract, CL, Weekly chart

The market should not be affected by tomorrow's economic reports and could go on hold as it waits for Friday's Payrolls reports.

Economic reports, summary and Key Trading Levels

While there is the possibility we'll see the stock market float higher for weeks to come, similar to what it did in the fall of 2010, as QE money makes it into the markets, it can only be guessed what impact that will have. Right now the charts continue to flash warning signs. Overbought can stay overbought and light volume can continue to push the market higher as long as the sellers stay away. My concern is that this market is one "boo!" away from tanking and the exit door will not be wide enough to prevent bulls from being trampled to death. Both sides need to stay cautious and longs should simply follow this higher with stops. The risk is that your stop could be left high and dry if we get a big gap down.

Jeff Cooper loves to play with Gann price and time cycles as well as other number relationships. He's looking for a turn in the market to match up with 10 and 50-year cycles in February and I remember him discussing this back in December, thinking there's no way the market can hold up that long. Silly me.

Cooper often cites reversal levels based on previous lows or highs. For example, was it merely coincidence that last week's high at 1333.47 was only off by 11 cents from being exactly double the number at the March 2009 low (666.79)?

Now Cooper notes the October 9, 2007 high was at SPX 1576 and 1576 days from that high falls on February 3rd (Friday). Will it be just coincidence if we put in a major bounce high this week, especially with the 10 and 50-year cycles hitting? Food for thought while we watch and wait to see what happens.

This market is consuming a lot of buying power just to maintain even. The multiple gaps to the upside actually leaves the market more vulnerable to the downside since they leave air pockets. One piece of bad news from overseas (such as Greece not getting an agreement with the bond holders after all, which will trigger a chain reaction in defaults and CDS claims on banks) could leave a very nasty surprise for the open in the U.S. So be careful out there. I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

Industrial Goods Stock

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 and watch list candidates:

(potential bullish candidates)

LNN, LMT, CELG, FDX, UTX, CBE, HCN


NEW DIRECTIONAL CALL PLAYS

Pall Corp. - PLL - close: 60.47 change: +0.79

Stop Loss: 58.25
Target(s): 64.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
PLL is an industrial goods company. Shares have been stair-stepping higher for months. The stock looks poised to take the next step up. PLL is consolidating under resistance near $60.75. I am suggesting readers buy calls when PLL hits $61.00. Our target is $64.75.

NOTE: PLL is due to trade ex-dividend on Feb. 3rd this week. Look for shares to gap open lower by about 21 cents on Friday.

FYI: The Point & Figure chart for PLL is bullish with an $83 target.

Trigger @ 61.00

- Suggested Positions -

buy the FEB $60 call (PLL1218B60)

- or -

buy the MAR $60 call (PLL1217C60)

Annotated Chart:

Entry on January xx at $ xx.xx
Earnings Date 03/12/12 (unconfirmed)
Average Daily Volume = 769 thousand
Listed on January 31, 2012



In Play Updates and Reviews

TJX Hits Our Target

by James Brown

Click here to email James Brown

Editor's Note:

TJX hits our exit target prior to its 2-for-1 split tomorrow. We also closed our HOT trade as a winner prior to earnings tomorrow. Meanwhile MCP and DECK were stopped out.

Current Portfolio:


CALL Play Updates

Berkshire Hathaway Inc. - BRK.B - close: 78.66 change: +0.29

Stop Loss: 77.75
Target(s): 84.00
Current Option Gain/Loss: -54.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/01 update: Berkshire did not make a lot of progress today. Shares failed to keep pace with the market and only gained +0.3%. This makes me cautious. I am not suggesting new positions at current levels.

We do not want to hold over the late February earnings report.

- Suggested Positions -

Long Feb $80 call (BRKB1218B80) entry $0.90

01/28/12 new stop loss @ 77.75, adjusted exit to $84.00
01/25/12 new stop loss @ 77.45
01/18/12 triggered at $78.75
01/14/12 adjusted entry point strategy to use a trigger @ 78.75
01/13/12 BRK.B gapped lower, negating our entry point. Trade did not open.

Entry on January 18 at $78.75
Earnings Date 02/27/12 (unconfirmed)
Average Daily Volume = 4.4 million
Listed on January 12, 2012


Cognizant Technology - CTSH - close: 72.98 change: +1.23

Stop Loss: 69.75
Target(s): 76.50
Current Option Gain/Loss: +17.6%
Time Frame: exit prior to the Feb. 8th earnings
New Positions: see below

Comments:
02/01 update: CTSH continues to show relative strength. The stock outperformed with a +1.7% gain and a breakout to new relative highs. I am raising our stop loss up to $69.75. It's also worth noting that volume improved on today's rally.

Our target is $76.50. We do not want to hold over the Feb. 8th earnings report. FYI: The Point & Figure chart for CTSH is bullish with an $85 target.

- Suggested Positions -

Long Feb $75 call (CTSH1218B75) Entry $0.85

02/01/12 new stop loss @ 69.75
01/24/12 trade opened at $71.05

Entry on January 24 at $71.05
Earnings Date 02/08/12 (confirmed)
Average Daily Volume = 2.3 million
Listed on January 21, 2012


Express Scripts, Inc. - ESRX - close: 51.92 change: +0.76

Stop Loss: 49.95
Target(s): 57.00
Current Option Gain/Loss: -41.0%
Time Frame: exit prior to February earnings
New Positions: see below

Comments:
02/01 update: Shares of ESRX rallied +1.4% but our call option didn't move very much. This stock remains under last week's highs near $52.75. I am not suggesting new positions at this time.

Earlier Comments:
This stock could see more short covering. The most recent data listed short interest at almost 17% of the 482 million-share float. FYI: The Point & Figure chart for ESRX is bullish with a $75 target.

- Suggested Positions -

Long Feb $52.50 call (ESRX1218B52.5) Entry $2.00

Entry on January 26 at $52.67
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 6.6 million
Listed on January 25, 2012


Flowserve Corp. - FLS - close: 112.52 change: +2.35

Stop Loss: 106.95
Target(s): 114.50 for Feb call & 118.00 for April call
Current Option Gain/Loss: Feb $110c: +54.4% & Apr$115c: +27.5%.
Time Frame: 3 to 4 weeks
New Positions: , see below

Comments:
02/01 update: FLS delivered a strong session. The stock surged to $113.95 intraday and settled with a +2.1% gain. This breakout to new relative highs is bullish. I am raising our stop loss up to $106.95. More conservative traders may want to take profits now, especially if you're holding the February calls.

Please note I am adjusting our exit targets. We'll aim for $114.50 with our February calls and aim for $118.00 with our April calls. FYI: The Point & Figure chart for FLS is bullish with a $139 target.

- Suggested Positions -

Long FEB $110 call (FLS1218B110) Entry $2.59
exit target: $114.50

- or -

Long APR $115 call (FLS1221D115) Entry $4.00
exit target: $118.00

02/01/12 new stop loss @ 106.95
02/01/12 adjusted exit targets: $114.50 for Feb call, $118.00 for Apr call
01/30/12 new stop loss at $105.75
01/26/12 trade opened on FLS' gap open higher at $109.21.
01/25/12 adjusted entry point strategy to buy calls when FLS hits $109.05, and use a stop loss at $105.45

Entry on January 26 at $109.21
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 400 thousand
Listed on January 21, 2012


iShares Russell 2000 ETF - IWM - close: 80.72 change: +1.70

Stop Loss: 77.95
Target(s): 82.50
Current Option Gain/Loss: +62.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/01 update: After four days of consolidating sideways the IWM has finally broken out past resistance near $80.00. We are moving our stop loss up to $77.95. I am not suggesting new positions at this time.

Earlier Comments:
You may want to consider a stop closer to the 10-dma instead (currently 75.95). Our multi-week target is $82.50. Keep in mind the $80.00 level might offer some overhead resistance. FYI: The Point & Figure chart for IWM is bullish with a $90 target.

- Suggested Positions -

Long Feb $80 call (IWM1218B80) Entry $1.14

02/01/12 new stop loss @ 77.95
01/31/12 new stop loss @ 77.45
01/19/12 IWM gapped open higher at $78.13

Entry on January 19 at $78.13
Earnings Date --/--/--
Average Daily Volume = 40 million
Listed on January 18, 2012


iShares Transportation - IYT - close: 95.38 change: +0.54

Stop Loss: 92.45
Target(s): 98.50
Current Option Gain/Loss:(Jan$95c: -100%) Feb$95c: +13.7%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
02/01 update: The IYT tagged new relative highs intraday but couldn't get past the $96.00 mark. The sector ETF underperformed the major indices. I am not suggesting new positions at this time.

- Suggested Positions -

Long Feb $95 call (IYT1218B95) entry $1.45
target 98.50

01/31/12 new stop loss @ 92.45
01/28/12 new stop loss @ 91.75
01/21/12 new stop loss @ 91.40
01/21/12 January $95 calls have expired.
01/12/12 new stop loss @ 89.45
01/07/12 new stop loss @ 88.75
01/03/12 IYT gapped open higher at $91.20, above our trigger at $90.75

Entry on January 03 at $91.20
Earnings Date --/--/--
Average Daily Volume = 582 thousand
Listed on December 22, 2011


Laboratory Corp. - LH - close: 92.50 change: +1.11

Stop Loss: 89.65
Target(s): 94.75
Current Option Gain/Loss: +126.6%
Time Frame: up to the Feb. 10th earnings report.
New Positions: see below

Comments:
02/01 update: LH rallied to a +1.2% gain and broke through resistance near $92.00. I am raising our stop loss up to $89.65.

If you have not done so yet readers may want to take profits now with the big on our call at $3.40 (+126%).

We do not want to hold positions over the Feb. 10th earnings report. Our target is the $94.75 mark. FYI: The Point & Figure chart for LH is bullish with a $105 target.

- Suggested Positions -

Long Feb $90 call (LH1218B90) Entry $1.50

02/01/12 new stop loss @ 89.65
01/31/12 If you haven't done so yet readers may want to take profits now (+80%)
01/28/12 new stop loss @ 88.40
01/26/12 sold half @ the open, bid @ $2.65 (+76.6%)
01/25/12 sell half at the open tomorrow. Bid on the Feb. $90 call is at $3.10 (+106%).
01/25/12 new stop loss @ 87.90
01/24/12 rival DGX delivers a strong earnings report
01/23/12 trade triggered at $89.00
01/21/12 new stop loss at $86.90. Still waiting for LH to hit our entry point at $89.00.

Entry on January 23 at $89.00
Earnings Date 02/10/12 (confirmed)
Average Daily Volume = 564 thousand
Listed on January 10, 2012


Lufkin Industries - LUFK - close: 75.74 change: +0.52

Stop Loss: 73.40
Target(s): 82.00
Current Option Gain/Loss: - 44.0%
Time Frame: up to the Feb. 9th earnings report.
New Positions: see below

Comments:
02/01 update: LUFK drifted higher and closed up +0.69% but shares have still not broken out to new relative highs. I am not suggesting new positions at this time.

Our target is $82.00 but we want to exit prior to the Feb. 9th earnings report. FYI: The Point & Figure chart for LUFK is bullish with an $85 target.

- Suggested Positions -

Long Feb $80 call (LUFK1218B80) Entry $2.95

01/25/12 triggered @ 76.60

Entry on January 25 at $76.60
Earnings Date 02/09/12 (confirmed)
Average Daily Volume = 300 thousand
Listed on January 24, 2012


Monsanto - MON - close: 83.41 change: +1.36

Stop Loss: 78.99
Target(s): 86.90
Current Option Gain/Loss: Feb85c: -20.0% & Mar$85c: -10.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/01 update: MON rallied to new 52-week highs with today's +1.6% gain. More conservative traders might want to raise their stops closer to the $80 level.

Earlier Comments:
MON can be somewhat volatile so we want to keep our position size small. If triggered our target is $86.90. FYI: The Point & Figure chart for MON is bullish with a long-term $113 target.

(small positions) - Suggested Positions -

Long FEB $85 call (MON1218B85) Entry $0.80

- or -

Long MAR $85 call (MON1217C85) Entry $1.80

Entry on January 31 at $82.75
Earnings Date 01/05/12
Average Daily Volume = 4.8 million
Listed on January 30, 2012


PVH Corp. - PVH - close: 76.47 change: -0.72

Stop Loss: 74.75
Target(s): 83.50
Current Option Gain/Loss: Feb77.50c: -58.3% & Mar$80c: -45.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
02/01 update: The action in PVH on Wednesday was disappointing. The stock's morning rally attempt failed and shares underperformed the market with a -0.9% decline. Technically today's move has created a bearish engulfing candlestick pattern, which is a potential bearish reversal signal. I am not suggesting new positions at this time.

Earlier Comments:
The plan was to keep our position size small to limit risk. FYI: The Point & Figure chart for PVH is bullish with a $92 target.

- Suggested Positions - (small positions)

Long Feb $77.50 call (PVH1218B77.5) Entry $2.40

- or -

Long Mar $80 call (PVH1217C80) Entry $2.55

01/24/12 trade triggered at $77.60
01/23/12 trade still not open
new entry point strategy to use a trigger at $77.60, stop loss at $74.75
01/21/12 trade not open yet. try again.

Entry on January 24 at $77.60
Earnings Date 03/28/12 (unconfirmed)
Average Daily Volume = 867 million
Listed on January 19, 2012


SPX Corp. - SPW - close: 70.75 change: +1.12

Stop Loss: 67.90
Target(s): 74.75
Current Option Gain/Loss: + 4.4%
Time Frame: up to the Feb. 16 earnings report
New Positions: see below

Comments:
02/01 update: Hmm... I could not find any news to explain the volatility in SPW this morning. Shares spiked from $68.35 to 71.69 in minutes. The stock eventually settled with a +1.6% gain. If you were waiting for a new relative high as your entry point this should qualify.

Earlier Comments:
Our target is the $74.75 mark but more aggressive traders could aim higher. We do not want to hold over the Feb. 16th earnings report. FYI: The Point & Figure chart for SPW is bullish with an $82 target.

- Suggested Positions -

Long Feb $70 call (SPW1218B70) Entry $2.25

Entry on January 31 at $70.50
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 711 thousand
Listed on January 26, 2012


Wellcare Health Plans - WCG - close: 61.96 change: +2.20

Stop Loss: 57.75
Target(s): 64.50
Current Option Gain/Loss: + 7.5%
Time Frame: exit prior to earnings on Feb. 15th
New Positions: see below

Comments:
02/01 update: Our new WCG trade is off to a strong start. We had a trigger to buy calls at $60.25 but the stock gapped open higher at $60.28. Shares surged to $62.80 before settling with a +3.6% gain. The breakout past $60.00 is very bullish and WCG has closed at new four-year highs. My only concern right now is the sudden expansion in WCG's option spreads.

Earlier Comments:
Our target is $64.50. We do not want to hold over the Feb. 15th earnings report. FYI: The Point & Figure chart for WCG is bullish with a long-term $74 target.

- Suggested Positions -

Long Feb $60 call (WCG1218B60) Entry $2.79

02/01/12 trade opened on gap higher at $60.28, above our trigger of $60.25

Entry on February 01 at $60.28
Earnings Date 02/15/12 (confirmed)
Average Daily Volume = 485 thousand
Listed on January 31, 2012


PUT Play Updates

Cimarex Energy Co - XEC - close: 58.50 change: +0.12

Stop Loss: 60.25
Target(s): 51.00
Current Option Gain/Loss: -48.6%
Time Frame: exit prior to earnings on Feb. 15th
New Positions: see below

Comments:
02/01 update: XEC underperformed the market with a +0.2% gain versus +0.9% for the S&P 500 and 1.3% in the oil services sector index. I am not suggesting new bearish positions. If the market continues to rally XEC could easily see the bounce continue.

Our target is $51.00. We do not want to hold over the Feb 15th earnings report.

- Suggested Positions -

Long FEB $55 PUT (XEC1218N55) Entry $1.85

01/30/12 Trade opened on XEC gap down at $56.57

Entry on January 30 at $56.57
Earnings Date 02/15/12 (confirmed)
Average Daily Volume = 1.0 million
Listed on January 28, 2012


CLOSED BULLISH PLAYS

Starwood Hotel & Resorts - HOT - close: 55.05 change: +0.81

Stop Loss: 53.15
Target(s): 57.50
Current Option Gain/Loss: +82.6%
Time Frame: exit prior to Feb. 2nd earnings.
New Positions: see below

Comments:
02/01 update: It was our plan to close our HOT positions today at the closing bell to avoid holding over earnings out tomorrow morning.

- Suggested Positions -

Long Feb $52.50 call (HOT1218B52.5) entry: 1.67, exit $3.05 (+82.6%)

02/01/12 planned exit at the close
01/31/12 new stop loss @ 53.15
01/30/12 new stop loss @ 52.95
01/28/12 prepare to exit on Feb. 1st at the close
01/28/12 new stop loss @ 52.65
01/26/12 sold half @ the open. Bid was $2.95 (+76.6%)
01/25/12 prepare to sell half at the open tomorrow morning. bid on our call is currently at $3.20 (+91.6%). We will adjust the exit target on the remainder of our position to $57.50
01/25/12 new stop loss @ 52.40
01/24/12 new stop loss @ 51.45
01/18/12 new stop loss @ $49.75
01/13/12 Triggered on a dip at $51.00
01/10/12 initial entry point did not work. New strategy: buy a dip at $51.00.

chart:

Entry on January 13 at $51.00
Earnings Date 02/02/12 (confirmed)
Average Daily Volume = 2.4 million
Listed on January 09, 2012


Molycorp, Inc. - MCP - close: 29.69 change: -1.29

Stop Loss: 29.75
Target(s): 38.50
Current Option Gain/Loss: Feb$31c: -57.0% & Mar$35c: -44.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
02/01 update: It was a disappointing session for MCP. Prior to the opening bell news broke that MCP was receiving a $390 million investment from Molymet, a Chilean company. According to news sources Morgan Stanley thought the deal was beneficial and allowed for new investment by MCP. Yet J.P.Morgan's analyst felt that the investment raised doubts about MCP's cash flow. Even though the market was in a bullish mood it seems that bears won the day with MCP.

The stock quickly sank off its morning highs and broke down under what should have been support near $30.00. Our stop was hit at $29.75.

I would keep MCP on your watch list. This stock could see a short squeeze with the most recent data listing short interest at 38.6% of the 51.8 million-share float.

- Suggested Positions -

Feb $31 call (MCP1218B31) Entry $2.14, exit $0.92 (-57.0%)

- or -

Mar $35 call (MCP1217C35) Entry $1.54, exit $0.85 (-44.8%)

02/01/12 stopped out at $29.75
01/31/12 trade opened. MCP gapped higher at $32.53
01/30/12 not open yet. try again.

chart:

Entry on January 31 at $32.53
Earnings Date 03/08/12 (unconfirmed)
Average Daily Volume = 4.0 million
Listed on January 28, 2012


TJX Companies - TJX - close: 68.29 change: +0.15

Stop Loss: 66.75
Target(s): 68.50
Current Option Gain/Loss:(Jan$65c: +85.0%) & Feb$65c: +108.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
02/01 update: Target achieved.

We were planning to exit at the closing bell tonight but TJX hit our exit target at $68.50 instead. The bid on our Feb. $65 call was at $3.65 (+108.5%).

Shares begin trading at their new 2-for-1 split values tomorrow morning.

- Suggested Positions -

Feb $65 call (TJX1218B65) Entry $1.75, exit $3.65 (+108.5%)

02/01/12 target hit at $68.50
01/31/12 new stop loss @ 66.75, exit tomorrow at the close (see details above)
01/30/12 prepare to exit soon!
01/26/12 new stop loss @ 66.49, Consider taking profits now!
01/18/12 adjusted exit target to $68.50
01/18/12 closed Jan $65 calls @ $1.85 (+85.0%)
01/17/12 prepare to exit January calls at close tomorrow
01/17/12 new stop loss @ 64.75
01/12/12 new stop loss @ 63.75
01/07/12 readers may want to take profits now (Jan$65call +90%, Feb$65call +57%)
01/05/12 new stop loss @ 63.25, TJX announced strong same-store sales and a 2:1 split.
12/31/11 new stop loss @ 62.75

chart:

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


CLOSED BEARISH PLAYS

Deckers Outdoor Corp. - DECK - close: 83.65 change: +2.80

Stop Loss: 84.25
Target(s): 77.00
Current Option Gain/Loss: -53.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/01 update: The stock market is surging to new multi-month highs and that makes it tough to trade bearish positions. DECK rallied to $85.39 intraday before settling with a +3.4% gain. The move today looks like a breakout past one of its bearish trend lines of lower highs.

Our stop loss was hit at $84.25.

Earlier Comments:
Our target is $77.00. We want to keep our position size small because any unexpected rally might spark some short covering. The most recent data listed short interest at 14% of the relatively small 37.1 million-share float.

(Small Positions) - Suggested Positions -

FEB $80 PUT (DECK1218N80) Entry $3.10 exit $1.45 (-53.2%)

02/01/12 stopped out at $84.25
01/30/12 new stop loss @ 84.25
01/25/12 DECK is not cooperating. Readers may want to exit immediately.

chart:

Entry on January 23 at $82.75
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 2.0 million
Listed on January 21, 2012