Option Investor
Newsletter

Daily Newsletter, Tuesday, 2/28/2012

Table of Contents

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

Market Wrap

You Have Got to Be Kidding

by Jim Brown

Click here to email Jim Brown
This Dow 13,000 story is getting ridiculous. After six days of fighting that resistance a +5 point close is hardly convincing.

Market Statistics

Economics were very strong at the open and that overcame news from Ireland and pushed the Dow to 13,018 but the sellers appeared immediately and the rally came to a screeching halt. Opposing sides battled in a narrow range from 13,000 to 13,015 for several hours until a sell program hit at 1:30. That program knocked the Dow back to 12,975 but the dip buyers came right back to push the Dow back to 13,021 just before the close but sellers again tried to knock it back. This time they were unsuccessful.

I can't remember a period of trading where everyone stressed over a meager 40 point range in the Dow. The VIX has flat-lined at 18 and volume remains light. There is a definite lack of conviction by BOTH buyers and sellers but the buyers appear to be gaining an edge.

Ireland roiled the markets at the open by deciding to hold a referendum on the new fiscal treaty for the European Union. Support for the EU has cooled in Ireland because of the rising expenses related to the financial crisis. The last two referendums on the EU both failed to pass but after the EU offered some concessions they were approved by a narrow margin. The EU must have an approval by at least 12 countries or the new fiscal pact cannot become law. Ireland was forced to accept a bailout from the EU in 2010. A no vote would prevent Ireland from using the European Stability Mechanism (ESM), the rescue fund being built by the EU for future problems. Since Ireland will most likely need to access that fund in 2013-2014 they must approve the new fiscal pact. A poll last month showed 40% of respondents would vote for it and 36% would vote against it.

In the U.S. consumer confidence was far stronger than expected. The February confidence number spiked to 70.8 and only 1.2 points from a post recession high at 72.0. This was nearly a +10 point spike from the 61.1 reading in January and the highest reading since Feb 2011. Consensus expectations were for a +2 point rise to 63.0. The index has risen +73% since the October low of 40.9.

The present conditions component rose from 38.8 to 45.0 and the expectations component rose +11.3 points from 76.7 to 88.0. These are monumental gains in one month. The "jobs hard to get" component also improved noticeably with a decline from 43.3 to 38.7. That is also a major move suggesting the job market is opening up. Those expecting higher incomes in six months rose from 13.8% to 15.4% while those expecting a decrease in income fell to 12.8% and the lowest level since November 2008.

I cannot stress enough how significant this confidence report was. There were strong improvements in almost every area except for buying plans. Those planning on buying autos increased but home and appliance buyers decreased slightly.

In theory this report should suggest a stronger consumer because higher confidence normally suggests more robust spending. The flat buying trends in this report were probably tempered by the expected rise in gasoline prices. That removes discretionary income and budgets tighten. Still, this was a very positive report for the economy.

Consumer Confidence Chart

Another strong report was the Richmond Fed Manufacturing Survey. The headline number for February rose to 20.0 from 12.0 and well above the cycle low at -10.0 last August. The pace of growth was the fastest since Feb 2011. The headline number has rocketed higher since the 3.0 reading in December. 2012 appears to be off to a roaring start.

New orders rose from 14 to 21. Back orders rose from -4.0 to +4.0. Even more important the average workweek rose from 4.0 to 10.0 and the employment component rose from 4.0 to 13.0. These are very strong gains suggesting the nonfarm payroll numbers next week could be very good.

If the sharply rising consumer confidence translates into stronger spending in the months ahead the manufacturing sector could be poised to move sharply higher.

Richmond Fed Chart

Just to keep investors cautious the Durable Goods report for January showed a very sharp decline of -4%. This came after a very strong +4.2% gain in November and +3.2% gain in December so traders ignored the report. It was assumed there were some irregularity in the order flows and the trend is still positive. One serious decline was a -19% decline in aircraft orders. Those have been very strong in recent months so volatility was to be expected. January is normally a weak month for durable goods orders.

Tomorrow has a very busy economic calendar with the GDP, ISM and Fed Beige Book. However, the most important news could be the results of the ECB Long Term Refinancing Operation (LTRO). The ECB is offering an unlimited amount of money to European banks on a three year loan at 1% interest. This is the second offering. The first one put nearly 500 billion euros into the hands of banks looking to raise cash to offset deposit outflows and have money to lend. This was credited with lowering the interest rates on sovereign debt all over Europe as banks borrowed money at 1% and then bought short term sovereign debt yielding 2% to 5%. It was the ECB answer to quantitative easing (QE) in the USA. Basically they created digital money and spread it around to nearly 1,000 banks.

The results of LTRO-2 will be announced early Wednesday morning and it is possible the banks could borrow up to one trillion euros. However, estimates have come down sharply over the last week to a range between 300-600 euros. In theory a small number means the banks are well capitalized and don't need another big flood of money. That would be market positive. If the number was very large it could be market negative because it would mean the banks are desperate to get their hands on additional cash and the system could be under stress.

Like the U.S. where banks can put unused cash on deposit at the Fed overnight the ECB has seen very large amounts of cash deposited overnight ever since LTRO-1. This suggests banks borrowed the money to have a fallback position in case things got worse. That would be a kind of banking safety net. By depositing it back with the ECB and earning a minor amount of interest it decreased their expense while they waited for Greece to either get the bailout or default. Since Greece appears to be progressing towards the successful conclusion of the current round of funding the banking system in Europe is no longer showing the strain of just three months ago. This suggests the total for LTRO-2 could be low rather than high. A low number would be a vote of confidence in the European banking system.

Regardless of how much is requested in this tranche it is still another round of money printing by a central bank. That makes commodities a good bet.

Another hurdle to cross will be the Bernanke testimony in the House at 10:AM. With operation TWIST ending in June he will probably be peppered with questions about future plans for buying treasuries. Operation TWIST is the name given to the selling of short term treasuries and buying of longer term treasuries to force the interest rates lower on the longer end of the maturity curve. This forced mortgage rates to record lows. If the Fed halts it's buying in June we could see rates rise dramatically thanks to the improving economy. Fixed income holders beware because there could be a tsunami of selling in our future.

Investors don't seem to be very concerned that rates are going higher soon. So far in February bond funds have seen inflows of $30.4 billion compared to only $4.1 billion for equity funds. That is better than a seven to one ratio of money going into bonds. The returns for bonds over the last month has been 2.8% compared to 10.5% for equities.

Economic Calendar

The commodities market has been improving over the last few days in anticipation of the LTRO and because of the falling dollar. Gold rallied +12 to $1786 and is very close to strong resistance at 1800-1808. Cheap money is a very strong motivator to buy gold. Multiple brokers are calling for gold prices to move well over $2000 by year end.

Gold Chart

Silver was the outperformer today with a +1.41 (+4%) gain to $37. Silver has underperformed gold since the September drop but it is catching up quickly with a +27% gain so far this year. The breakout over $35 last week was a major milestone and suggests the silver bulls are rapidly returning. The next major resistance is in the $40-$44 range and that could easily be breached if the dollar continues to fall and the euro return to strength. Got silver?

Silver Chart

Crude prices declined again with a -$2 drop as traders take profit from the +14% run since the January lows. After trading near $110 on Friday WTI crude declined to $106.50 at the close. After declining nearly $4 in two days I don't expect it to decline much further. Iran has not yet decided to play nice with others so the direction for oil prices is still higher as the oil embargo comes closer to its July start date.

Iran warned it was training its elite troops for kamikaze attacks from boats and aircraft against the U.S. forces in case fighting broke out. At the same time the Supreme Leader reiterated his comments from last week that "production, possession, use or threat of use of nuclear weapons, are illegitimate, futile, harmful, dangerous and prohibited as a great sin." Nobody seems to be taking that as applying to Iran. His proclamations can change on a moment's notice.

WTI Chart

Brent Crude Chart

On Monday after the close PriceLine.com (PCLN) reported earnings of $5.37 compared to estimates of $5.05 on a +52% surge in bookings. Guidance was good and shares rocketed higher today with a +$41 gain to maintain its stock price lead over Apple. What happened to stock splits?

Priceline Chart

Sina (SINA) reported earnings that were in-line with estimates at 21-cents and a minor beat on revenue but guided substantially lower. SINA projects Q1 revenue in the range of $101-$104 million and analysts were expecting nearly $114 million. Shares shook off the early market weakness and rallied +11%.

SINA Chart

Autozone (AZO) reported earnings of $4.15 compared to estimates of $4.04 with a minor beat on revenues. Profits rose +13% on a +9% rise I revenues. Gross margin increased to 51.3%. They opened 35 new stores to bring their total to 4,867 stores. Average inventory on hand at each store rose to $530,000 from $517,000. Consumers keeping older cars running longer is a major plus for AZO. Shares were sharply higher to $376 for a gain of $10. This is another serious candidate for a stock split.

Autozone Chart

JP Morgan (JPM) held its annual investor meeting today and all the news was good and very positive. CEO Jamie Dimon was the last presenter of the day and attendees said it was by far the best speech. Dimon took on the new regulations saying JPM will meet all those troublsome regulatory requirements. He praised the banks past performance and said the trend will continue. "I will be damned if we don't have record profits in the next year or two." He explained why the bank needed to have exposure to Europe and said JPM currently had $15 billion in net risk primarily to Italy and Spain. He said he was not worried about the low stock price because strong profits would push it higher. After the stress test results are released on March 15th Dimon expects the Fed to give permission for stock buybacks.

JPM Chart

Yahoo went fishing for dollars ahead of the Facebook IPO. Yahoo claims Facebook is violating as many as 20 of its patents and wants to be compensated for those patents. Yahoo did the same thing when Google announced its IPO and ended up cashing a sizeable check for its efforts. By waiting until the IPO announcement it now forces Facebook to settle the claims to avoid clouding the demand for the IPO. Representatives met on Monday to discuss the patents in question.

Yahoo Chart

Apple (AAPL) joined the $500 billion market cap level with today's close at $535.41 producing a market cap of $504 billion. That is $90 billion more than Exxon. There are 56 analysts that rate the stock and 51 recommend a buy, four a hold and one with a sell rating. Apple is holding a new product announcement on March 7th and everyone is expecting the iPad 3 to be the product. The new iPad is expected to have a quad core processor, better camera, higher definition graphics and more new apps. Even at Apple's $500 billion market cap it still trades at a forward PE of 11. If only they would announce a stock split so normal people could own it. One hundred shares costs $53,500 and that is not in the budget for many investors.

Apple's Announcement Teaser

Apple Chart

It just keeps going and going and going. Investors wonder if the battery powering this market is going to run done soon. Based on the low volume of 6.2 billion shares yesterday and today there is still a serious lack of conviction. The advance-decline line was dead even today with only 64 stocks difference out of a universe of 6,787. There were 3296 advancing and 3232 declining. 259 were unchanged.

Wednesday is going to be a critical day for market direction given the multiple high profile news events and economic reports. Of course everyone has been saying tomorrow will be a critical day for several weeks now. This time it is different.

The Dow closed over 13K and the S&P closed over 1370. Both of those are the highest closes since 2008. The charts on the S&P and the Dow are actually starting to show a little upside bias and dips are being bought with more aggression. It appears we may actually be ready to start a new leg higher.

The next target on the S&P could be 1400 and that could be a larger struggle than Dow 13,000. Support on the S&P is well below at 1340.

S&P Chart - 60 Min

S&P Chart - Daily

The Dow finally closed over 13,000 by a whole five points. I wish that was as conclusive as the football breaking the plane of the goal line in a championship game. Touchdown, points on the board, etc. Unfortunately crossing 13,000 is only a psychological event and one that can be repeated for days or weeks into our future. However, given all the events on Wednesday we could be well away from 13K by tomorrow's close. Personally I would love to see a 100 point move in either direction at the close. If it was up the curse would be broken and market commentators could start worrying about something else. If the move was down then we could start looking for a REAL dip to buy and we could see some new money come into the market.

Support is well back at 12,750 and upside resistance is around 13,500.

Dow Chart

The Nasdaq trend remains intact and the indexes got a substantial boost from the multiple big caps posting major gains. PCLN, AAPL, GOOG, AMZN and NFLX to name a few. With Apple's big announcement next week there is a pretty good chance the index will continue higher although Apple is extremely over extended.

First Solar missed estimates after the close and dropped -10% but that is only $3 at the current FSLR stock price. It should not be a major problem for the index.

Support on the Nasdaq is 2970 and resistance 3000, another large round number.

Nasdaq Composite Chart - 90 Min

Nasdaq Composite Chart - Daily

Nasdaq 100 Chart - Daily

Wednesday is a headline day. The market will be driven by headlines more than fundamentals and it could be a roller coaster. I would love to see a dramatic increase in volume on good news but I fear it will take more than one day of good news to see volume return.

We need to see bonds sell off. Once the bond rush begins the equity market is going to explode. That may be closer to June and the end of Operation TWIST but you never know. Once it starts it could be dramatic.

Keep buying the dips until the strategy fails because the trend is still higher unless the news turns seriously negative.

Jim Brown

Send Jim an email


New Option Plays

Bullish Channel Higher

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:

bullish candidates: CSTR, UHS, FISV, GD, NKE, ORLY, and PCAR


NEW DIRECTIONAL CALL PLAYS

Alexion Pharma. - ALXN - close: 84.85 change: +1.09

Stop Loss: 81.75
Target(s): 89.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
This biotech stock continues to channel higher. Shares just bounced near the bottom of its rising channel and short-term support near $82.00. We want to buy calls if both ALXN and the S&P 500 index open positive tomorrow morning. We'll use a stop loss at $81.75. Our target is $89.50. FYI: The Point & Figure chart for ALXN is bullish with a $91 target.

We want to keep our position size small to limit our risk.

Do not enter position unless ALXN and the S&P 500 are both positive at the open

- Suggested (SMALL) Positions -

buy the Apr $85 call (ALXN1221D85) current ask $4.10

- or -

buy the Apr $90 call (AXLN1221D90) current ask $2.05

Annotated Chart:

Entry on February xx at $ xx.xx
Earnings Date 04/23/12 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on February 28, 2012



In Play Updates and Reviews

Financials Display Leadership

by James Brown

Click here to email James Brown

Editor's Note:

Financial stocks were leading the way higher and the XLF has risen to the top of its three-week trading range. A breakout in the XLF would be another bullish market signal.

We did see three trades opened today (ARG, COF, and GS). I am suggesting caution on WTW, which is showing relative weakness.

Current Portfolio:


CALL Play Updates

Airgas Inc. - ARG - close: 82.49 change: +0.24

Stop Loss: 78.90
Target(s): 87.00
Current Option Gain/Loss: + 5.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/28 update: ARG opened at $82.21 and bounced quickly off its morning lows of $81.81. Shares spent most of the day consolidating sideways before closing up +0.2% at another new record (closing) high.

FYI: The Point & Figure chart for ARG is bullish with a $92 target.

- Suggested Positions -

Long Mar $82.50 call (ARG1217C82.5) Entry $1.00

02/28/12 trade opened @ 82.21
02/27/12 not open yet, buy calls at the open tomorrow
02/24/12 not open yet, try again.

Entry on February 28 at $82.21
Earnings Date 05/07/12 (unconfirmed)
Average Daily Volume = 528 thousand
Listed on February 23, 2012


American Express Co - AXP - close: 53.76 change: -0.42

Stop Loss: 51.25
Target(s): 57.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Comments:
02/28 update: Our AXP trade is still not open yet. Both AXP and the S&P 500 opened slightly lower. I am adjusting our entry point strategy. We want to go ahead and buy AXP calls at the opening bell tomorrow. More conservative traders might want to consider a stop loss closer to the $52.00 level.

Keep our position size small.

Our multi-week target is $56.50. Keep in mind that AXP doesn't move super fast. FYI: The Point & Figure chart for AXP is bullish with a $75 target.

Buy calls at the open tomorrow.

- Suggested Positions - (Small Positions)

buy the Apr 52.50 call (AXP1221D52.5) current ask $2.46

02/28/12 not open yet. buy calls at the open tomorrow.
02/27/12 not open yet, try again.

Entry on February xx at $ xx.xx
Earnings Date 04/19/12 (unconfirmed)
Average Daily Volume = 5.7 million
Listed on February 25, 2012


BorgWarner Inc. - BWA - close: 83.26 change: +0.62

Stop Loss: 79.25
Target(s): 89.00
Current Option Gain/Loss: -35.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
02/28 update: BWA continues to drift higher. Shares are trading just under their all-time high set a couple of days ago. A rally past $83.50 could be used as a new entry point.

Earlier Comments:
A breakout would mean new record highs and could produce a some short covering in BWA. The most recent data listed short interest at 14% of the 108 million share float. FYI: The Point & Figure chart for BWA is bullish with a $108 target.

- Suggested Positions -

Long Mar $85 call (BWA1217C85) Entry $1.55

02/25/12 new stop loss @ 79.25
02/17/12 trade opened on BWA's gap open higher at $82.49

Entry on February 17 at $82.49
Earnings Date 04/30/12 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on February 16, 2012


Caterpillar, Inc. - CAT - close: 115.76 change: +0.13

Stop Loss: 112.75
Target(s): 122.50
Current Option Gain/Loss: -38.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/28 update: Today was a non-event for CAT. Shares drifted sideways and underperformed the major indices. The stock remains under resistance at its highs near $116.50. Readers may want to wait for a rally past $117.00 before initiating new bullish positions.

The Point & Figure chart for CAT is bullish with a $165 target.

- Suggested Positions -

Long Mar $120 call (CAT1217C120) Entry $1.15

02/25/12 adjusted exit target to $122.50
02/23/12 new stop loss @ 112.75

Entry on February 21 at $115.25
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 7.5 million
Listed on February 14, 2012


Capital One Financial - COF - close: 50.37 change: +0.63

Stop Loss: 47.75
Target(s): 54.75
Current Option Gain/Loss: Mar$50c: +00.0% & Apr$50c: +00.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/28 update: Financials were showing strength again. COF outperformed most of its peers with a +1.2% gain. The stock also broke out past key resistance near $50.00. Our trigger to buy calls was hit at $50.25. I would still consider new positions now at current levels.

Earlier Comments:
We want to keep our position size small to limit our risk. Our multi-week exit target is $54.75.

(small positions)

- Suggested Positions -

Long Mar $50 call (COF1217C50) entry $1.30

- or -

Long Apr $50 call (COF1221D50) entry $2.30

02/28/12 triggered at $50.25

Entry on February 28 at $50.25
Earnings Date 04/23/12 (unconfirmed)
Average Daily Volume = 6.4 million
Listed on February 15, 2012


Coach, Inc. - COH - close: $75.25 change: -0.80

Stop Loss: 73.75
Target(s): 82.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
02/28 update: Hmm... COH's performance today was surprising. Shares underperformed both the major indices and the RLX retail index. The stock gapped open lower and churned sideways near the $75.00 level all day. My prior comments have not changed.

I am suggesting we launch new bullish positions when COH trades at $76.75 or higher. We'll use a stop loss at $73.75. Our target is $82.50 although don't be surprised if shares pause and pull back a bit when they initially test $80.00. You'll notice the chart below has a bull-flag consolidation pattern that COH is just now starting to breakout from. FYI: The Point & Figure chart for COH is bullish with a long-term $109 target.

Trigger @ $76.75

- Suggested Positions -

buy the Mar $75 call (COH1217c75)

- or -

buy the Apr $77.50 call (COH1221D77.5)

Entry on February xx at $ xx.xx
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 2.7 million
Listed on February 27, 2012


Eastman Chemical Co. - EMN - close: 54.96 change: +0.83

Stop Loss: 53.25
Target(s): 59.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
02/28 update: We have been patiently waiting for EMN to breakout higher and shares were making progress today. The stock added +1.5% and closed just under resistance at the $55.00 level. We have a trigger to open bullish positions at $55.05. More conservative traders may want to wait for EMN to trade past its all-time high of $55.36 (set in 2011) before initiating positions. FYI: The Point & Figure chart for EMN is bullish with a long-term $91 target.

Trigger @ $55.05 (small positions)

- Suggested Positions -

buy the Apr $55 call (EMN1221D55) current ask $2.00

02/27/12 adjusted suggested call from March to April.

Entry on February xx at $ xx.xx
Earnings Date 04/30/12 (unconfirmed)
Average Daily Volume = 2.6 million
Listed on February 18, 2012


Goldman Sachs - GS - close: 117.11 change: +1.23

Stop Loss: 114.75
Target(s): 125.00
Current Option Gain/Loss: -20.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/28 update: Murphy's Law is a terrible trading partner. We could see it's effects tomorrow. The financial sector was showing strength today and GS broke out past resistance near $118.00 midday. Shares hit $118.66 before paring its gains to +1.0%, which outperformed many of its peers. Our trigger to buy calls was hit at $118.25.

Unfortunately after the closing bell it was disclosed that GS had received a "Wells Notice" from the SEC. The Securities and Exchange Commission said they might choose to file a civil lawsuit against GS relating to $1.3 billion in subprime mortgage securities written in 2006. Wells Fargo (WFC) has also received a "Wells Notice" at the same time. It is possible that shares of GS could spike lower tomorrow morning as traders react to this news, which would make the timing of our entry point very unfortunate. Although at the moment GS isn't showing that much after hours weakness.

I am not suggesting new bullish positions at this time. We will leave our stop loss at $114.75 for now.

Earlier Comments:
GS can be a volatile stock at times so we want to keep our position size small.

(small positions) - Suggested Positions -

Long Mar $120 call (GS1217C120) Entry $2.10

02/28/12 GS disclosed it has received a Wells Notice from the SEC
02/28/12 triggered at $118.25

Entry on February 28 at $118.25
Earnings Date 04/19/12 (unconfirmed)
Average Daily Volume = 6.2 million
Listed on February 21, 2012


3M Co. - MMM - close: 88.07 change: -0.13

Stop Loss: 86.75
Target(s): 94.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
02/28 update: I am about ready to give up on MMM. The Dow Jones Industrial Average, which MMM is a component, just broke out past the 13,000 level. The S&P 500 is hitting new relative highs too. Yet MMM refuses to breakout from this trading range. I don't know what investors are waiting for. We'll give MMM a couple of more days or we'll drop it. If our trade does open we want to keep our position size small! I am suggesting a trigger to buy calls at $88.75.

Earlier Comments:
The $90 level could be round-number resistance but we're setting our exit target at $94.00. FYI: The Point & Figure chart for MMM is bullish with a $109 target.

Breakout Trigger (buy calls) @ $88.75 (small positions)

- Suggested Positions -

buy the MAR $90 call (MMM1217C90)

- or -

buy the Apr $90 call (MMM1221D90)

02/25/12 adjusted trigger to $88.75 and stop to $86.75
Added the April $90 call
02/09/12 removed the February call.

Entry on February xx at $ xx.xx
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on February 07, 2012


Parker-Hannifin - PH - close: 90.24 change: +0.00

Stop Loss: 88.45
Target(s): 96.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
02/28 update: PH failed to follow the major indices higher. The stock closed unchanged on the session. I don't see any changes from my prior comments. We want to buy calls if PH hits $91.25 or higher. If triggered our target is $96.50. FYI: The Point & Figure chart for PH is bullish with a $111 target.

Trigger @ 91.25

- Suggested Positions -

buy the Mar $90 call (PH1217C90)

02/25/12 adjusted trigger to buy calls to $91.25

Entry on February xx at $ xx.xx
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on February 22, 2012


Rockwell Automation - ROK - close: 80.86 change: -0.44

Stop Loss: 79.90
Target(s): 89.50
Current Option Gain/Loss: -77.4%
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
02/28 update: Today looked a lot like yesterday for ROK with the late morning bounce failing and shares fading lower. The stock underperformed again today. Readers may want to consider an early exit. I'm still betting that the $80.00 level will hold as support with our stop loss at $79.90. I am not suggesting new positions at this time.

- Suggested Positions -

Long Mar $85 call (ROK1217C85) Entry $1.55

Entry on February 21 at $82.75
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 1.2 million
Listed on February 18, 2012


Sherwin-Williams - SHW - close: 102.37 change: -0.96

Stop Loss: 99.40
Target(s): 104.75
Current Option Gain/Loss: +42.8%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
02/28 update: After surging to new record highs yesterday, SHW hit some profit taking today (-0.9%). I am raising our stop loss to $99.40. More conservative traders may want to go ahead and take profits now. Our exit target is $104.75.

- Suggested Positions -

Long Mar $100 call (SHW1217C100) Entry $2.10

02/28/12 new stop loss @ 99.40
02/27/12 readers may want to take profits now (@ +80.9%)
02/25/12 new stop loss @ 98.90
02/22/12 new stop loss @ 98.25

Entry on February 17 at $100.25
Earnings Date 04/23/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on February 14, 2012


VMware, Inc. - VMW - close: 100.19 change: -0.27

Stop Loss: 97.25
Target(s): 108.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
02/28 update: Our VMW trade is not open yet. Both the stock and the S&P 500 opened lower. I am suggesting we try again. Buy calls if both VMW and the S&P 500 index open higher tomorrow morning. More aggressive traders may want to disregard these conditions and just buy calls at the open.

We'll use a stop loss at $97.25, which is just under Thursday's low. Our target is $108.50. FYI: The Point & Figure chart for VMW is bullish with a $117 target.

Do not enter position unless VMW and the S&P 500 are both positive at the open

- Suggested Positions - (Small Positions)

buy the Mar $105 call (VMW1217C105)

- or -

buy the Apr $105 call (VMW1221D105)

02/28/12 not open yet. try again.
02/27/12 not open yet. try again.

Entry on February xx at $ xx.xx
Earnings Date 04/19/12 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on February 25, 2012


Weight Waters Intl. - WTW - close: 77.88 change: -1.60

Stop Loss: 77.45
Target(s): 86.50
Current Option Gain/Loss: -85.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/28 update: I could not find any news to account for the relative weakness in WTW today. Shares opened higher this morning but reversed at $80.36 and then plunged to a -2.0% decline. The close under $78.00 is bearish and WTW could easily hit our stop loss at $77.45 tomorrow. I am not suggesting new positions at this time.

Earlier Comments:
WTW could see a potential short squeeze. The most recent data listed short interest at 24.6% of the relatively small 35.1 million-share float. The stock has rallied to significant resistance near $80.00. A breakout could spark some short covering. FYI: The Point & Figure chart for WTW is bullish with a $106 target.

- Suggested Positions -

Long Mar $80 call (WTW1217C80) Entry $1.40

02/24/12 WTW gapped open higher at $80.26, which was above our trigger at $80.25.

Entry on February 24 at $80.26
Earnings Date 05/07/12 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on February 23, 2012


S&P Oil ETF - XES - close: 39.25 change: -0.24

Stop Loss: 36.90
Target(s): 43.00
Current Option Gain/Loss:(Feb37c: -48.1%) & Mar36c: +20.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: Crude oil continued to see profit taking today and that fueled some weakness in the energy sector. The XES lost -0.6% but bounced at the $39.00 level intraday. I am not suggesting new positions at this time.

Earlier Comments:
The option spreads on the XES a bit wide, which makes this a higher-risk trade. I am suggesting we keep our position size small to limit our risk. Our multi-week exit target is $43.00.

(small positions) - Suggested Positions -

Long Mar $36 call (XES1217C36) Entry $2.45

02/18/12 new stop loss @ $36.90
02/14/12 exited Feb. calls at the close: bid @ $0.70 (-48.1%)
02/13/12 prepare to exit our Feb. $37 calls at the closing bell tomorrow.

Entry on February 06 at $37.75
Earnings Date --/--/--
Average Daily Volume = 177 thousand
Listed on February 04, 2012


Oil & Gas Exploration ETF - XOP - close: 60.45 change: -0.72

Stop Loss: 57.85
Target(s): 63.00
Current Option Gain/Loss: Mar$60c: + 4.1% & Jun$60c: + 6.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
02/28 update: The weakness in oil also fueled profit taking in the XOP. We previously cautioned readers to expect a dip toward $60 and its 10-dma, which happened today. I am not suggesting new positions at this time. FYI: The Point & Figure chart for XOP is bullish with a $74 target.

- Suggested Positions -

Long Mar $60 call (XOP1217C60) Entry $1.70

- or -

Long Jun $60 call (XOP1216F60) Entry $4.10

02/23/12 new stop loss @ 57.85

Entry on February 14 at $58.75
Earnings Date --/--/--
Average Daily Volume = 3.8 million
Listed on February 13, 2012


PUT Play Updates

Currently we do not have any active put trades.