Option Investor
Newsletter

Daily Newsletter, Wednesday, 3/28/2012

Table of Contents

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

Market Wrap

The Bernanke Bounce Given Back

by Keene Little

Click here to email Keene Little
The post-Bernanke bounce, on Monday, was given back with today's low but the bulls defended support and the ball remains in their court.

Market Stats

The stock market picked up where it left off yesterday afternoon and continued its decline. The indexes dropped down near last Friday's close, erasing the Bernanke Bounce, before getting a bounce off support into the close.

There was clearly interest in buying the dip as I watched the VIX crash back down from its afternoon high. There's been a lot of call buying going on in the past few days as it appears most believe we'll have at least a bullish week for the final week of the month/quarter. So when support held the buyers showed up quickly and the collapsing VIX shows there was a lot of interest in the buying opportunity. That could be a little worrisome since it's better if we see disbelief in the rally. From a contrarian perspective the buying was a little too eager. But as always we'll let price lead the way.

It was a relatively quiet day, starting off with a Durable Goods report that didn't surprise either way. It was less than expected but much better than January's number. The number for February was +2.2%, which was a big improvement over January's -3.6% but a little less than the expected +2.8%. Removing transportation goods the number was a little softer at +1.6% vs. January's -3.0% and better than the expected +1.0%. The futures had actually reacted a little negatively to the pre-market report.

Last week I started off with the tech indexes and showed monthly charts of NDX and COMPQ to show their a-b-c bounces off the 2002 lows. I'll update the Nasdaq's monthly chart later to show it might have achieved its target for the 10-year bounce. I'll start tonight's review with a look at the different time frames of the NYSE Composite since it shows a different picture than the techs but in synch for the next big move.

The NYA monthly chart below shows an idea for its wave count from the 2007 high, which unlike the tech indexes was considerably higher than the 2000 high. But now they both look in synch for the next leg down. Following the 2007-2009 decline there was an a-b-c bounce into the May 2011 high. I've got the 2007-2009 decline labeled as wave A and the a-b-c bounce to the May 2011 high as wave B. That means we're looking for a 5-wave move down from the May 2011 high and the decline into October fits as the 1st wave. The bounce into the current high is the 2nd wave correction (and note that it stopped at the downtrend line from 2007-2011). That sets it up for a strong decline in a 3rd wave, which I'm projecting down into 2013 and not quite reaching the 2009 low. That would then be followed by the 4th and 5th waves and I'm showing a bottom being made in 2017. This is clearly speculation but it's based on a typical wave count and wave relationships.

NYSE Composite, NYA, Monthly chart

The 5-wave decline from May 2011 followed by the a-b-c bounce into the current high is shown in more detail on the weekly chart below. The 5-down, 3-up pattern should be followed by at least one more 5-down, which should drop the NYA below the October low. Last week's high near 8328 stopped short of the projection near 8348 for two equal legs up from October as it struggled with its 2007-2011 downtrend line. That could be it for the rally but I'm showing the market hold up into next week for at least a minor new high. The uptrend line from October held today's decline but another break below 8160 could signal more trouble and could mean no more new highs.

NYSE Composite, NYA, Weekly chart

The wave pattern at the current high leaves some question as to whether a top is in place or if instead we'll see the market push higher at least into next week, if not into the 3rd week of April (opex week). I'm showing the potential for a choppy climb higher in a rising wedge pattern on the daily chart below, but that would be considerably weakened if NYA breaks below 8100. A drop below the March 6th low (near 7900) would confirm a high is in place. The first bearish signal would be a break of today's low at 8138 since it would be a confirmed break of its uptrend line from October and its 20-dma (8163), which would likely get the bulls on the run (but watch for support at the 50-dma near 8063).

NYSE Composite, NYA, Daily chart

One reason why I'm thinking the market could hold up for another week or two (or three) has to do with the time relationship between the 2002-2007 rally and the rally from 2009. Especially for the techs with their a-b-c bounce off the 2002 low, there is often a time relationship between the a-wave and c-wave. The c-wave for them is the rally from 2009 and it would be 62% of the a-wave (the 2002-2007 rally) on April 19th. Because the techs made a high in 2007 later than the other indexes the timing is different for the other indexes. The same Fib timing relationship between the rally legs for the others points to April 5th as a turn date (+/- a week on this time scale so we're within the turn window). I'm showing a high for NYA in between the two dates.

Since we're looking at monthly charts tonight I'll show one more, this one of SPX since it's a different pattern than the techs and NYA and yet still in synch with both for a significant decline as the next leg of the pattern. The 2000 high for SPX fits as THE high, which was followed by wave A down to the 2002/2003 low, wave B up to the 2007 high and then the 1st wave of wave C down into the 2009 low. The rally from 2009 fits as a correction and is the 2nd wave of wave C. That sets it up for the 3rd wave of C down and that's a setup similar to a 3rd of a 3rd wave, the strongest move of any that we'll see. It could result in a drop at least down to the 600 area some time in 2013. Note the significant bearish divergence on the rate-of-change indicator, especially with no bounce in the indicator from the 2009 low. It's not a timing tool (look at the divergence that ran from the 2004 high into the 2007 high) but it's clearly a warning sign -- this is Not a new bull market leg up.

S&P 500, SPX, Monthly chart

The monthly chart above looks like a long-term triple top and with price pushing up to the broken uptrend line from 1994 (the start of the parabolic run up into the 2000 high), which stopped the rally in May 2011, could be important. It also reached the top of a parallel down-channel for the correction from 2000 and is near price-level resistance at 1440. The pieces are in place for a reversal but the bulls are still holding on.

With the big triple top and a market that has gone nowhere for the past 12 years I guess we could look at it as a good thing -- considering the number of near disasters this market has had to absorb over the years it's quite an accomplishment to be near the highs rather than the lows. But at what cost? I came across this chart that I think was posted at zerohedge.com and comes from Strategas Research Partners. They made the chart when SPX was trading at 1409 and compared that to the 2007 high, along with the budget deficit, Fed balance sheet and government debt. As the numbers show, it's been one helluva price we've paid to keep the stock market up. I suspect we'll look back years from now and realize the Fed made a colossal and very expensive mistake with their monetary policies.

Cost of Avoiding Financial Armageddon, chart courtesy Strategas Research Partners

Zooming in on SPX's monthly chart, the daily chart below shows SPX held its uptrend line from March 6th, near 1399. Firmer support is its uptrend line from October, as well as its 20-dma, near 1388, and a break below that level would put the bulls back on their heels. A drop below the March 6th low, near 1383, would add more evidence to the idea that the top is in place. But there is still the potential for at least a choppy climb higher (if not something more bullish) into the first week of April. As mentioned above and noted on the chart, there is the Fib time relationship that would be satisfied on April 5th when the rally from 2009 would be 62% of the time for the 2002-2007 rally.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1420
- bearish below 1383

It's essentially the same picture for the DOW. Today's decline found support, again, at its uptrend line form October-November and its 20-dma. Friday's decline found support at the same line and MA. Multiple tests are going to weaken it and a break of today's low (13069) would be a bearish heads up. A break of Friday's low near 13K would be a stronger signal that THE high could be in place. It would be a time to play defense until we can see what kind of impulsive pattern (or not) develops to the downside.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 13,400
- bearish below 13,000

Last week I showed two monthly charts of the tech indexes to show they were closing in on potential upside targets. The Nasdaq had just achieved two equal legs up for its a-b-c bounce off the 2002 low (at 3018) but had a little further upside potential to 3120 to achieve a 50% retracement of its 2000-2002 decline. That was achieved on Monday and then pushed a little higher to 3134 yesterday. It has now tagged the top of its parallel up-channel for the a-b-c bounce off the 2002 low. If this high is indeed finishing an a-b-c bounce correction to the 2000-2002 decline then we're about to start a significant decline over the next couple of years.

Nasdaq Composite, COMPQ, Monthly chart

The 50% retracement for NDX is at 2805 and today's minor new high at 2794 is obviously close. If we see the market chop its way higher over the next week or two then we'll see NDX head higher as well. But at the moment the two tech indexes have a bearish setup on their monthly charts.

Looking at the daily chart of NDX below, it ran into some stiff resistance this week when it popped up on Monday to the broken uptrend line from 1990-2002. This is the trend line I've been referring to for many weeks and it was finally reached, near 2780 this week. In the same location are two other trend lines: one is the top of a parallel up-channel for the A-B-C bounce off the October low; and another is the trend line along the highs from February 15th. These three trend lines cross in the area of 2780-2800 and make for a very tough zone of resistance, especially being overbought and on such light volume. Today's selloff from this resistance area looks bearish but it takes a break below last Friday's low (March 23rd) near 2714 to indicate the rally has probably finished.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2800
- bearish below 2714

It's no different for the RUT -- it could chop its way higher into a high on or around April 5th to meet the Fib time relationship between the 2002-2007 rally and the rally from 2009. If the bulls come alive and drive the RUT above 860 and then 872 it would be a very bullish move, one worth climbing aboard and riding it to wherever it's going to go. I don't see it happening but never say never. The more likely path, if it's to proceed higher, is in an ending diagonal (rising wedge) for the final 5th wave. A drop below last Friday's low near 816 would suggest the rally has completed.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 839
- bearish below 816

I've shown lots of chart reasons for why I'm bearish for the next few years and I've backed up my charts with previous discussions of some fundamental reasons why the market has rallied on hope but no substance. We see it every day now -- the market rallies on hope that what Bernanke meant to say is that he will pump us full of drug money and float the stock market higher. First of all, why? Why would he do that here, at the top of a rally? He does that kind of thing when the market has sold off precipitously. He's not going to waste his ammo. But the market rallies on hope anyway.

Part of the fundamental problem with the economy is housing. It's a long way from being fixed and we're going to see many more foreclosed properties hit the market this year. For the next several years, whenever the banks think the market is improving they're going to try to offload more of their dead inventory that they've been carrying at full value when in fact everyone knows it's not even close. They can't afford to write it down so they carry it at full value with the full blessings of the Fed and FASB (Financial Accounting Standards Board). It's a house of cards and everyone wants to make believe it's not there.

The housing market will also be under the strain of homeowners who can't afford their mortgages and homes that are already in the process of being foreclosed or have been foreclosed. Many will decide they simply have to sell and take their lumps now rather than later. I've had many discussions with homeowners who are reaching this point. That will be more inventory on the market.

This week we received the January home price numbers (the Case-Shiller home index) and it's not pretty. Here's a chart of the 20 cities and the composite index that they track:

Case-Shiller Home index

The real pain in housing occurred from the peak in 2006 to the spike down in 2007-2008. The financial crash was largely due to what was happening in the housing market, which is important in light of what's happening in Europe, which I'll come back to. In the middle of the pack is the Composite index (black) and I've pulled out that index and placed it in the next chart below, with the SPX monthly prices along with it. As noted on the chart, the composite index has now dropped to the level last seen in 2003. Of significance is the disconnect between the stock market and housing problems since the lows in 2009.

Case-Shiller Composite index vs. SPX

Since 2009 we see the stock market head back up toward the highs of 2000 and 2007 while the housing composite index has now dropped BELOW the 2009 low. This is clearly a case of the stock market whistling past the graveyard, hoping upon hope that Bernanke is a true ghost buster and not just wearing a Halloween costume. What's he hiding behind that beard of his?

On top of the problems the U.S. is having with housing, it may be small potatoes compared to how it might affect Europe. We are all well aware of how the debt issues in Europe can roil the global markets and right after Greece's debt problem was "solved" we started hearing about Spain. Spain is a Much bigger problem to solve. The ECB, ESFS, IMF and a lot of other ABC bailout tools don't have enough money to bail out Spain. The ECB has been buying Spanish debt but they will soon be applying the same pressures to Spain as they did to Greece. Citi's top economist, Willem Buiter, issued another warning today in which he stated his belief that the risk of a Spanish debt restructuring is higher than it's ever been and that Spain will likely be forced to restructure this year. The rising rates on Spanish debt is forecasting trouble directly ahead.

And now Spain has a serious housing problem that will only worsen their debt situation. The public is in debt up to their eyeballs and cannot afford to be saddled with more government debt. Their home prices have dropped to "only" the 2004 levels with a drop of about -27% but the rate of decline is now accelerating. Many expect that to double (Ireland has lost 50%), which would clearly stress the banks further. As Mr. Buiter stated:

The decline in Spanish land and property prices appears far from complete (probably less than half complete). The General IMIE Index, an indicator created by Tinsa, increased its year-on-year decline in February, and fell by 9.5% – returning to the levels of 2004. The cumulative decline in the General IMIE Index from the top of the market in December 2007 was 27.1%. In addition to the hidden legacy losses carried by the Spanish banks, new property and real estate-related losses are likely to come their way as a result of further property price declines. The Spanish banks are unlikely to be able to absorb these losses. If these institutions are deemed too important to fail, these losses could migrate to the public sector, which could have severe problems carrying them."

In a footnote of the report Mr. Buiter says he expects a 60% decline in Spanish housing prices. The report included a chart of the rise and fall of home prices in Spain, which mimics what we've seen in the U.S. -- peaking in 2007 and dropping since then. All I can say is here we go again.

As expected last week, we've seen a bounce in bonds (TLT is up) and a drop in yields. TLT got back above its 200-dma and stopped at its 20-dma today, at 113.82. A climb back above its February 9th low at 114.62 would leave a confirmed 3-wave pullback from December and point the way higher. Long plays on TLT (recommended last week) should have their stops just below the March 19th low at 109.69, which can be raised once there's a pullback correction (38%-62% kind of correction) and then press higher -- use the pullback low for your stop on a long play from there. 20+ Year Treasury ETF, TLT, Weekly chart

After making a double top on March 19th with the February 3rd high the TRAN pulled back to its uptrend line from October through the March 6th low, leaving a bearish divergence with the double top. While the DOW has pushed to new highs since February the TRAN has not and that's of course bearish non-confirmation of the DOW's rally. It will matter when it matters. A break below Friday's low would be a confirmed bread of its 20 and 50-dma's and its uptrend line. That could be the fat lady singing if it happens.

Transportation Index, TRAN, Daily chart

Yesterday the dollar dropped down to its uptrend line from October-February and bounced. It remains stock below its 50-dma at 79.46 and then has its 20-dma at 79.76 to get through. If it drops a little lower it could find support at its August-October uptrend line, near 78.22 and then its 200-dma at 77.71. The pullback pattern continues to support the idea that once the pullback has completed, if it did not complete yesterday, we should get new highs into April.

U.S. Dollar contract, DX, Daily chart

If the dollar rallies we should see a decline in equities and commodities. That doesn't hold true all the time but they're still mostly inversely related that way. The dollar should rally and the metals should decline. So far gold has been held down by its grouping of moving averages in the 1677-1707 area. It's been using its broken downtrend line from August-November for support (mid March and on the 22nd) and could do so again. It takes a break below the line to tell us the sellers are overpowering the buyers.

Gold continuous contract, GC, Daily chart

Silver has the same kind of choppy pullback pattern from its February 29th high as gold, which makes it look corrective and something that should lead to another rally leg. But the patterns of the metals tend to be sloppy choppy and therefore I'm sticking with the larger pattern that calls for a continuation lower from here.

Silver continuous contract, SI, Daily chart

Oil's sideways consolidation since early March looks like a bullish continuation pattern and I could easily argue for a rally up to the 115 area to test the May 2011 high. But if it (WTI) breaks below 103 I'd have a hard time arguing the bull's case. I'd be looking instead for a drop lower, thinking we've seen the top for oil.

Oil continuous contract, CL, Daily chart

Since there could be an opportunity to try the long side on natural gas I'll keep its chart updated as we wait to see if it bottoms near the 2.13 level that I've been projecting. As you can see in this week's chart, price is now within pennies of hitting the bottom of its parallel down-channel from January 2010 and its price projection for two equal legs down from that January high, both at 2.13 and the low so far is 2.16. Bearish sentiment on natural gas is thick enough to cut with a knife, which makes a long play here a contrarian play (plus the fact that it's an attempt to pick a bottom) so caution is clearly warranted. A rally above the March 19th high at 2.39 would say the short-term pattern to the downside has completed and therefore the larger pattern as well. After the regular trading session closed I noticed a gap up in the price of NG, probably as a result of rolling out to the next month's contract. So the bottom may already be in place.

Natural Gas continuous contract, NG, Daily chart

Other than the usual unemployment numbers tomorrow the only thing that might move the market are the GDP numbers, which are not expected to move from the last estimate. We'll probably have to wait until Friday's reports to see if the personal income and spending, PCE prices, Chicago PMI and Michigan Sentiment numbers can get this market unstuck from where it's been for over a week.

Economic reports, summary and Key Trading Levels

As shown on the charts we could see price and time come together for a high of importance next week, possibly hanging on into the 3rd week of April (at least for the techs). But important levels have been reached and price patterns can be considered complete at any time. I continue to see limited upside vs. significant downside risk. If the market holds up through the end of the week/month/quarter it could be a rough week next week. But with a possible turn date of April 5th the bears need to respect the potential for the market to simply hang ten for a little longer before the next bear wave knocks the bull off its board.

If the choppy rising wedge patterns play out as depicted on the chart it's going to be a rough time for traders on both sides. Those patterns are good for your broker while they make you go broker. Don't trade the slop -- flat is a position until a strong direction gets establish from here. We have some upside and downside levels to watch for clues when to get long or short this market.

Good luck and 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

Trucking & Oil

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

J.B.Hunt Transport - JBHT - close: 54.87 change: +0.01

Stop Loss: 53.75
Target(s): 59.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
JBHT is a trucking company. Shares have been able to maintain its upward trend in spite of rising fuel prices. Traders bought the dip again this morning and JBHT looks poised to breakout past resistance near $55.00.

I am suggesting a trigger to buy calls at $55.25 with a stop at $53.75. Our multi-week target is $59.50. FYI: The Point & Figure chart for JBHT is bullish with a $69 target.

Trigger @ $55.25

- Suggested Positions -

buy the Apr $55 call (JBHT1221D55) current ask $1.30

- or -

buy the May $55 call (JBHT1219E55) current ask $1.85

Annotated Chart:

Entry on March xx at $ xx.xx
Earnings Date 04/12/12 (unconfirmed)
Average Daily Volume = 729 thousand
Listed on March 28, 2012


NEW DIRECTIONAL PUT PLAYS

Apache Corp. - APA - close: 98.98 change: -2.40

Stop Loss: 102.25
Target(s): 95.25 or 92.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Oil and energy stocks have continue to underperform the market in recent days. APA tried to hold support near the $100 level but that support broke today. APA also broke down through technical support at its 100-dma.

I am suggesting bearish put positions at the open tomorrow. We'll use a stop loss at $102.25. I am setting two different targets. You can choose to aim for $95.25 or $92.00.

- Suggested Positions -

buy the Apr $97.50 PUT (APA1221P97.5) current ask $2.11

- or -

buy the May $95 PUT (APA1219Q95) current ask $2.65

Annotated Chart:

Entry on March xx at $ xx.xx
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 2.7 million
Listed on March 28, 2012



In Play Updates and Reviews

JOY Hits Our Bearish Target

by James Brown

Click here to email James Brown

Editor's Note:

Shares of JOY have continue to sink and shares hit our exit target today. Meanwhile ALXN spiked lower on no news and hit our stop loss.

Current Portfolio:


CALL Play Updates

Allergan Inc. - AGN - close: 94.05 change: -0.26

Stop Loss: see below
Target(s): 99.50
Current Option Gain/Loss: Apr92.5c: -25.3% & Apr95c: -35.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/28 update: AGN spent the session drifting lower but shares have now filled the gap from Monday morning. We can use a bounce off the $94.00 level as a new bullish entry point. Our exit target is $99.50.

FYI: The Point & Figure chart for AGN is bullish with a $110 target.

- Suggested Positions -

Long Apr $92.50 call (AGN1221D92.5) Entry $3.55

- or -

Long Apr $95 call (AGN1221D95) Entry $1.85

03/27/12 AGN hit our breakout trigger at $95.25
03/22/12 adjusted entry point strategy to include a buy-the-dip trigger at $90.50 and a breakout trigger at $95.25.
03/15/12 not open yet. New buy-the-dip trigger @ 92.25
03/14/12 not open yet. try again.

Entry on March 27 at $95.25
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 1.5 million
Listed on March 13, 2012


Check Point Software - CHKP - close: 63.26 change: -0.21

Stop Loss: 59.75
Target(s): 68.50
Current Option Gain/Loss: Apr62.5c: +25.8% & May65c: +20.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/28 update: CHKP saw a morning spike to a new high but shares quickly reversed. The stock ended the session off -0.3%. I warned readers to look for a dip toward $63 or $62. I'm not convinced the pullback is over yet. I am not suggesting new positions at this time.

More conservative traders may want to use a stop under last Thursday's low at $60.77 instead. FYI: The Point & Figure chart for CHKP is bullish with an $88 target.

- Suggested Positions -

Long Apr $62.50 call (CHKP1221D62.5) Entry $1.55

- or -

Long May $65 call (CHKP1219E65) Entry $1.20

03/23/12 CHKP hit our entry trigger @ 62.25

Entry on March 23 at $62.25
Earnings Date 04/17/12 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on March 22, 2012


Costco Wholesale - COST - close: 90.62 change: -0.66

Stop Loss: 89.75
Target(s): 97.50
Current Option Gain/Loss: Apr90c: -31.1% & May$95c: -42.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/28 update: The stock market's widespread dip on Wednesday pulled COST toward round-number support at $90.00. Traders can use this dip as a new entry point. More conservative traders may want to wait for a rise past $92.00 instead. FYI: The Point & Figure chart for COST is bullish with a $116 target.

- Suggested Positions -

Long Apr $90 call (COST1221D90) Entry $2.28

- or -

Long May $95 call (COST1221E95) Entry $0.71

03/27/12 triggered at $91.75

Entry on March 27 at $91.75
Earnings Date 05/24/12 (unconfirmed)
Average Daily Volume = 2.2 million
Listed on March 26, 2012


Cognizant Technology - CTSH - close: 76.40 change: -1.01

Stop Loss: 74.75
Target(s): 82.00
Current Option Gain/Loss: Apr77.5c: -40.0% & May$80c: -28.2%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/28 update: CTSH underperformed the NASDAQ with a -1.3% decline today. Trades were starting to buy the dip near $76.00 this afternoon. More conservative traders may want to raise their stop loss closer to the $76.00 level. I am not suggesting new positions at this time. The close under its simple 10-dma is short-term bearish.

FYI: The Point & Figure chart for CTSH is bullish with a $97 target.

- Suggested Positions -

Long Apr $77.50 call (CTSH1221D77.5) Entry $1.75

- or -

Long May $80 call (CTSH1219E80) Entry $1.95

03/26/12 CTSH hit our entry trigger at $77.55

Entry on March 26 at $77.55
Earnings Date 05/04/12 (unconfirmed)
Average Daily Volume = 1.8 million
Listed on March 21, 2012


Dollar Tree, Inc. - DLTR - close: 94.60 change: -1.05

Stop Loss: 92.25
Target(s): 98.50
Current Option Gain/Loss: Apr$95c: -21.2% & May95C: - 5.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/28 update: A better than expected earnings report from rival Family Dollar Store (FDO) failed to have much influence on shares of DLTR. DLTR dipped toward support near $94.00 and bounced. Previously I suggested that nimble traders may want to buy calls on a dip near $94.00 so here's your chance. More conservative traders may want to raise their stop loss closer to today's low (93.92). Our exit target is $98.50 but more aggressive traders may want to aim higher. The Point & Figure chart for DLTR is bullish with a $122 target.

- Suggested Positions -

Long Apr $95 call (DLTR1221D95) Entry $1.65

- or -

Long May $95 call (DLTR1219E95) Entry $3.00

03/21/12 DLTR hit our entry trigger at $94.55

Entry on March 21 at $94.55
Earnings Date 05/17/12 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on March 20, 2012


Chart Industries - GTLS - close: 73.58 change: -1.05

Stop Loss: 70.90
Target(s): 79.75
Current Option Gain/Loss: -40.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/28 update: GTLS dipped toward $72.00 and its 20-dma before bouncing back and trimming its losses to -1.4%. Shares seemed to struggle with the $74.00 level late this afternoon. Currently we have a stop loss at $70.90. More aggressive traders may want to place their stop under $70.00, which should be round-number, psychological support. However, if GTLS trades under $71.00 it will look like a bearish H&S pattern has formed over the last three weeks. I am not suggesting new positions at this time.

Earlier Comments:
Our exit target is $79.75. More aggressive traders could aim higher. The Point & Figure chart for GTLS is bullish with an $82 target.

- Suggested Positions -

Long Apr $75 call (GTLS1221D75) Entry $3.50

03/26/12 new stop loss @ 70.90
03/16/12 triggered at $74.25

Entry on March 16 at $74.25
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 712 thousand
Listed on March 15, 2012


Herbalife Ltd. - HLF - close: 70.17 change: -1.23

Stop Loss: 69.40
Target(s): 74.75
Current Option Gain/Loss: -35.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/28 update: Trading in HLF today looked a little ugly with a breakdown under $70.00 intraday. While shares should have support near $68.00 we are raising our stop loss to $69.40. The stock bounced twice near $69.60 midday.

Earlier Comments:
Our quick target is $74.75. More aggressive traders may want to aim higher. FYI: The Point & Figure chart for HLF is bullish with a long-term $103 target.

- Suggested Positions -

Long Apr $70 call (HLF1221D70) Entry $3.10

03/28/12 new stop loss @ 69.40

Entry on March 15 at $70.50
Earnings Date 05/02/12 (unconfirmed)
Average Daily Volume = 1.6 million
Listed on March 14, 2012


NetEase.com - NTES - close: 59.39 change: -0.03

Stop Loss: 54.45
Target(s): 64.00
Current Option Gain/Loss: Apr55c: +71.4% & Apr60c: + 95.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/28 update: NTES was relatively resistant to profit taking today and shares almost closed unchanged on the session. This may be due to fund managers window dressing their portfolio with NTES ahead of the quarter end on Friday. More conservative traders may want to exit immediately. If NTES corrects it could easily drop toward the $56-55 area. I am not suggesting new positions at this time.

Earlier Comments:
Our multi-week target is $64.00. FYI: The Point & Figure chart for NTES is bullish with a $68 target.

- Suggested (Small) Positions -

Long Apr $55 call (NTES1221D55) Entry $2.80

- or -

Long Apr $60 call (NTES1221D60) Entry $0.70

03/26/12 sold half at the open.
exit bid on Apr. $55 call @ $0.00 (+67.8%)
exit bid on Apr. $60 call @ $1.95 (+178.5%)
03/24/12 new stop loss @ 54.45.
03/24/12 Prepare to sell half of our positions on Monday to lock in a gain.
Apr $55 call bid currently @ $5.20 (+85.7%)
Apr $60 call bid currently @ $1.95 (+178.5%)
03/22/12 readers may want to go ahead and take profits now
Apr $55 call (+50%), Apr $60 call (+100%)

Entry on March 20 at $56.11
Earnings Date 05/16/12 (unconfirmed)
Average Daily Volume = 584 thousand
Listed on March 19, 2012


Nu Skin Enterprises - NUS - close: 59.46 change: -1.30

Stop Loss: 58.45
Target(s): 64.50
Current Option Gain/Loss: Apr60c: -52.1% & May65: -48.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/28 update: Warning! The action in NUS the last two days is bearish. Yesterday the stock failed at resistance near $62.00 and produced a bearish reversal candlestick pattern. Today's drop not only confirms the breakdown but NUS broke below the $60.00 level, which should have been short-term support.

Readers may want to exit immediately. I am raising our stop loss to $58.65 and we will plan to exit this trade tomorrow at the closing bell (assuming NUS hasn't hit our stop).

- Suggested Positions -

Long Apr $60 call (NUS1221D60) Entry $2.30

- or -

Long May $65 call (NUS1219E65) Entry $1.25

03/28/12 new stop loss @ 58.65, prepare to exit tomorrow at the closing bell.
03/27/12 NUS created a bearish reversal candlestick. Let's see if there is any confirmation.

Entry on March 26 at $60.94
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 601 thousand
Listed on March 24, 2012


O'Reilly Automotive - ORLY - close: 90.69 change: -0.58

Stop Loss: 88.45
Target(s): 98.50
Current Option Gain/Loss: Apr90c: -26.0% & May$90c: -13.9%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/28 update: ORLY dipped toward support near $90.00 and started to rebound this afternoon. I see this late day bounce as a new bullish entry point. More conservative traders might want to consider raising their stop loss closer to the $90 level. FYI: The Point & Figure chart for ORLY is bullish with a $103 target.

- Suggested Positions -

Long Apr $90 call (ORLY1221D90) Entry $2.50

- or -

Long May $90 call (ORLY1219E95) Entry $3.95

03/26/12 triggered at $91.25

Entry on March 26 at $91.25
Earnings Date 04/25/12 (unconfirmed)
Average Daily Volume = 887 thousand
Listed on March 24, 2012


Trimble Navigation - TRMB - close: 55.43 change: +0.57

Stop Loss: 53.40
Target(s): 59.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
03/28 update: Our new TRMB trade is not open yet. It was a close call though since TRMB opened positive but the S&P 500 opened flat. I am adjusting our entry point strategy on TRMB. We will use a trigger to buy calls at $55.15 and we'll move our stop loss higher to $53.40. FYI: The Point & Figure chart for TRMB is bullish with a $63 target.

New Trigger to buy calls @ 55.15, stop @ 53.40

- Suggested Positions -

buy the Apr $55 call (TRMB1221D55)

- or -

buy the May $60 call (TRMB1219E60)

03/28/12 adjust entry strategy to use a trigger at $55.15 with a stop loss at $53.40
03/28/12 trade did not open.

Entry on March xx at $ xx.xx
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 522 thousand
Listed on March 27, 2012

Under Armour, Inc. - UA - close: 95.88 change: -1.72

Stop Loss: 94.90
Target(s): 104.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
03/28 update: UA suffered a second day of profit taking. Aggressive traders could buy the late day bounce and use a stop loss under $94.00 as an alternative entry strategy. I am sticking to our original plan and we'll wait for UA to hit our trigger at $100.25 for now. We are starting this trade with a wide stop loss so readers may want to keep their position size small.

Trigger @ $100.25

- Suggested Positions -

buy the Apr $100 call (UA1221D100)

- or -

buy the May $105 call (UA1219E105)

Entry on March xx at $ xx.xx
Earnings Date 04/24/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on March 26, 2012


Ulta Salon, Cosmetics - ULTA - close: 93.59 change: -0.38

Stop Loss: 89.95
Target(s): 97.50
Current Option Gain/Loss: -21.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/28 update: The intraday bounce in ULTA looks like a new bullish entry point. Shares dipped toward short-term support near $92.00 and its 10-dma before bouncing back and trimming its losses to -0.4%. Cautious traders may want to move their stop loss closer to $92.00. I am upping our stop to $89.95.

Earlier Comments:
More aggressive traders could aim for the $99-100 zone. FYI: The Point & Figure chart for ULTA is bullish with a $110 target.

- Suggested Positions -

Long Apr $95 call (ULTA1221D95) Entry $1.65

03/28/12 new stop loss @ 89.95
03/26/12 new stop loss @ 89.45
03/24/12 adjusted exit target to $97.50
03/21/12 ULTA hit our trigger at $91.25

Entry on March 21 at $91.25
Earnings Date 06/07/12 (unconfirmed)
Average Daily Volume = 759 thousand
Listed on March 20, 2012


Whole Foods Market - WFM - close: 85.59 change: +1.45

Stop Loss: 82.40
Target(s): 87.50
Current Option Gain/Loss: + 0.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/28 update: WFM soared higher this morning and traders bought the dip midday. The stock outperformed with a +1.7% gain and a new breakout above the $85.00 level. The March 23rd low was $82.48. I am moving our stop loss higher to $82.40.

Currently our exit target is $87.50. More aggressive traders may want to aim for the $89.50-90.00 zone instead.

- Suggested Positions -

Long Apr $85 call (WFM1221D85) Entry $1.88

03/28/12 new stop loss @ 82.40
03/13/12 new stop loss @ 81.75

Entry on March 02 at $82.55
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 1.9 million
Listed on March 01, 2012


PUT Play Updates

iShares Russell 2000 ETF - IWM - close: 83.32 change: -0.49

Stop Loss: 87.51
Target(s): 78.50
Current Option Gain/Loss: - 0.0%
Time Frame: several weeks
New Positions: see below

Comments:
03/28 update: Our new IWM put play has been triggered at $83.45. The ETF did find support near $82.60 this afternoon. I would not be surprised to see a little bounce tomorrow morning.

Our exit target is $78.50 near the early March lows.

- Suggested Positions -

Long Jun $82 PUT (IWM1216R82) Entry $3.12

03/28/12 triggered at $83.45

Entry on March 28 at $83.45
Earnings Date --/--/--
Average Daily Volume = 54.8 million
Listed on March 27, 2012


OpenTable, Inc. - OPEN - close: 41.78 change: -0.31

Stop Loss: 42.55
Target(s): 33.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
03/28 update: There is no change from my prior comments on OPEN. Currently we're waiting for a breakdown.

Remember, this is a higher-risk trade. Short interest on OPEN is already at 51% of the small 18.3 million share float. The stock could be prone to short squeezes. Plus, there was some speculation last week that OPEN could be a buy-out target for someone looking for exposure to the online restaurant reservation market. Rumors that OPEN could be a takeover target could always spark a short squeeze.

I am suggesting we open small bearish put positions if OPEN trades at $39.65, which would be a new relative low. Our target is $33.00 although readers may want to exit near possible support at the $35.00 level instead. FYI: The Point & Figure chart for OPEN is bearish with a $35 target.

Trigger @ $39.65 (small positions)

- Suggested Positions -

buy the Apr $40 put (OPEN1221P40)

- or -

buy the May $35 PUT (OPEN1219Q35)

Entry on March xx at $ xx.xx
Earnings Date 05/01/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on March 24, 2012


Polypore Intl. Inc. - PPO - close: 35.91 change: -0.94

Stop Loss: 38.05
Target(s): 31.00
Current Option Gain/Loss: -28.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/28 update: Shares of PPO continue to rollover. I am adjusting our stop loss down to $38.05. I am not suggesting new positions at this time.

Earlier Comments:
We want to use small positions on PPO. Why small positions? We want to limit our risk because being bearish on PPO is a popular trade. The most recent data listed short interest at 34% of the 46.3 million-share float. It is this short interest that produces these brief little short squeezes higher that keep failing (at least they are failing so far). Our target is $31.00 or the dotted trend line of lower lows. FYI: The Point & Figure chart for PPO is bearish with a $16 target.

- Suggested (Small) Positions -

Long Apr $35 PUT (PPO1221P35) Entry $1.75

03/28/12 new stop loss @ 38.05

Entry on March 19 at $36.21
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 2.4 million
Listed on March 17, 2012


Schnitzer Steel Industries - SCHN - close: 40.20 change: -0.38

Stop Loss: 42.75
Target(s): 35.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
03/28 update: SCHN is flirting with a breakdown under significant support near $40.00. Shares hit $39.88 intraday. Our trigger to open positions is at $39.75. Our exit target is $35.50. More aggressive traders could aim lower but we do not want to hold over the earnings report on April 5th.

Traders should note that we do want to keep our position size small. The most recent data already list short interest at 8.1% of the very small 24.8 million-share float. Any unexpected bounces in SCHN could spark a short squeeze so we want to limit our exposure.

FYI: The Point & Figure chart for SCHN is still bullish but a breakdown under $40.00 would create a new quadruple bottom breakdown sell signal.

Trigger @ $39.75 (small positions)

- Suggested Positions -

buy the Apr $40 PUT (SCHN1221P40)

Entry on March xx at $ xx.xx
Earnings Date 04/05/12 (confirmed)
Average Daily Volume = 326 thousand
Listed on March 22, 2012


CLOSED BULLISH PLAYS

Alexion Pharma - ALXN - close: 90.22 change: -3.06

Stop Loss: 89.40
Target(s): 98.00
Current Option Gain/Loss: Apr$90c: -12.5% & May$95c: -61.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/28 update: Ouch! That's pretty frustrating when our play, which had options up +50%, suddenly plunges on no news. I could not find any headline or rumor to account for a minus five point loss (about -5.2%) in three minutes (just before 11:00 a.m.).

ALXN broke down under round-number support near $90 and hit $87.03 near its 30-dma before paring its losses. Our stop loss was hit at $89.40.

- Suggested Positions -

Apr $90 call (ALXN1221D90) Entry $3.20 exit $2.80 (-12.5%)

- or -

May $95 call (ALXN1219E95) Entry $2.35 exit $0.90 (-61.7%)

03/28/12 stopped out. ALXN plunges on no news. hit stop @ 89.40
03/26/12 sold half to lock in a gain.
bid on Apr $90 call @ $4.40 (+37.5%)
bid on May $95 call @ $3.50 (+48.9%)
03/24/12 new stop loss @ 89.40, prepare to sell at least half of our call positions at the open on Monday to lock in a gain.
Apr $90 bid is currently $5.40 (+68.7%)
May $95 bid is currently $4.00 (+70.2%)
03/22/12 new stop loss @ 88.75
03/20/12 triggered at $90.25

chart:

Entry on March 20 at $90.25
Earnings Date 04/19/12 (unconfirmed)
Average Daily Volume = 1.25 million
Listed on March 19, 2012


CLOSED BEARISH PLAYS

Joy Global, Inc. - JOY - close: 71.43 change: -2.44

Stop Loss: 77.55
Target(s): 73.00
Current Option Gain/Loss: +54.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/28 update: Last night I suggested that more aggressive traders may want to aim for an exit in the $70.50-70.00 zone. Shares of JOY gapped open lower at $73.30 and then plunged to $70.14 before paring its losses. Our trade was closed at $73.00.

- Suggested Positions -

Long Apr $75 PUT (JOY1221P75) Entry $2.52 exit $3.90 (+54.7%)

03/28/12 exit target hit at $73.00
03/27/12 new stop loss @ 77.55
03/26/12 market continues to climb. readers may want to exit JOY early
03/22/12 new stop loss @ 78.55, adjust exit to $73.00
03/20/12 new stop loss @ 81.15
03/15/12 trade opened on JOY's gap down at $77.38, which is under our trigger to buy puts at $77.75.

chart:

Entry on March 15 at $77.38
Earnings Date 06/04/12 (unconfirmed)
Average Daily Volume = 2.8 million
Listed on March 12, 2012