Option Investor
Newsletter

Daily Newsletter, Saturday, 3/31/2012

Table of Contents

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

Market Wrap

Voluntary Taxation

by Jim Brown

Click here to email Jim Brown

The Mega Millions Lottery is a voluntary form of taxation for those bad at math.

Market Statistics

The big news on Friday was the $640 million Mega Millions Lottery jackpot. People lined up by the thousands all over the country to spend their hard earned money on the chance to be a millionaire.

When the numbers start to rise on the prize the lotto players come out of the woodwork. Apparently $30 million or even $50 million is not enough to bring out the millions of buyers but once it moves over $100 million the frantic activity begins. A California official said on Friday more than 283 million tickets had been sold in the state already. That is just in California.

Just to be clear with one ticket you have a 1 in 175,711,536 chance of winning. To put this in perspective you have a better chance of being struck by lightning 11 times and living. You have a better chance of flipping a coin 25 times and having it come up heads all 25 times. You are 20,000 times more likely to die in a car wreck and 8,000 times more likely to be murdered.

If you were to buy 50,000 tickets every week your odds would improve. Statistically you would win the jackpot ONCE every 68,000 years according to California statistician Mike Orkin.

People buy tickets despite the odds because eventually somebody will win and you can't win if you don't have a ticket. The average American adult spent $251 on lottery tickets in 2011. This is a voluntary tax on people who don't understand the odds.

In the Mega Millions lottery 35% of the ticket sales support government services in the state where the tickets were sold. Forty two states, Washington DC and the U.S. Virgin islands participate in the lottery. 15% of the proceeds go to the retailers selling the tickets and to the operating expenses. 50% of the proceeds goes back into the prize fund. Lottery officials expected total sales for this drawing to be near $1.46 billion. Officials claim 95% of the number combinations were chosen.

Compared to the lottery the stock market is a sure thing but millions of those buying lottery tickets would not put money in the stock market because it is too risky. Obviously nobody actually expects to win the Mega Millions but it gives players a spark of hope. What if I won? I could quit my job and retire, buy a nice house for cash, travel and support my kids. For more than 100 million people the dream is alive for about 72 hours. After the drawing the vast majority will go back to work a few dollars poorer with their dreams dashed. A few will match some of the numbers and win a smaller amount. Last week alone Arizona said it had 56,000 winners in the Mega Millions drawing. Winning $2 or more will be a small consolation to the headline number of $640 million. The jackpot grew to the $640 million after 18 draws (9 weeks) without a winner. Lottery officials said tickets were selling at the rate of 14 million an hour on Friday.

You probably know by now there were three winners. One each in Illinois, Kansas and Maryland. They will each get about $213 million. Other big winners included 161 at $250,000 each and 897 at $10,000 each. In all there were more than 16 million winners plus the 44 states that will benefit from the revenue.

Mega Millions Payout

Investors won on Friday. Actually they won for the entire quarter. The gains have been outstanding even though there was a lack of conviction all the way up. The Dow gained +8%, Nasdaq +18.7%, S&P-500 +12%, Russell 2000 +12%, Semiconductor Index +20%, Banks +26%, Brokers +26%, Biotech +29% and Housing +23%. In most cases that would be a great gains for an entire year.

The strong first quarter suggests investors should be wary of Q2. The fund managers were forced to buy stocks because the market kept going up and they could not afford to be heavily invested in cash or fixed income securities at the end of the quarter. This was defensive buying on very low volume.

Funds were successful in pinning the indexes just below the recent highs to insure the quarter ended strongly. It will be VERY interesting to see what happens over the next month as earnings decline.

Economics on Friday were mixed but they were mostly ignored thanks to the Mega Millions headlines. The ISM Chicago for March declined to 62.2 from 64.0. The internal components weakened and that suggests the Q1 bounce may be fading. New orders declined to 63.3 from 69.2 for the third decline in the last four months. Employment declined to 56.3 from 64.2. Inventories increased to 57.4 from 49.6 indicating sales may be slowing. However, order backlogs actually increased slightly to 54.3 from 53.6.

The Chicago ISM is strongly influenced by auto manufacturing and lately auto sales estimates have been declining. For instance March vehicle sales, which will be reported on Tuesday, are expected to decline from a 15.1 million rate to 14.5 million. The Chicago ISM is reflecting this decline in sales.

Chicago ISM Chart

The final reading for the March Consumer Sentiment rebounded +2 points from the initial reading to 76.2 and the highest level since last February. It was the seventh consecutive month of gains since the 55.7 reading in August.

The expectations component declined fractionally from 70.3 to 69.8 but the present conditions component rose from 83.0 to 86.0 to produce the headline gains. Inflation expectations for 12 months out rose from 3.3% to 3.9% and the highest level since last May. Clearly consumers are factoring in the rise in food and fuel prices even though the government ignores those in its calculations.

Consumer Sentiment Chart

In a daily consumer index by Rasmussen their sentiment level hit 97.1 on Tuesday and the highest level since the recovery began. However, the index has fallen nearly ten points since Tuesday to 88.7 on the dip in the stock market and rising gas prices. That survey also reported that 60% of consumers believe the U.S. is currently in a recession. I see that as a mystery. Why would sentiment be reaching four year highs if consumers thought we were in a recession?

The calendar for next week is dominated by the payroll reports. The estimates for job gains have actually been declining because the weekly Jobless Claims have been rising. We went for over a month with initially reported numbers in the low to mid 350,000 range but the revisions the next week always moved the numbers higher. The average revision over the prior six weeks put the claims closer to 365,000 each week.

Jobless Claims Chart

The ADP Employment due out on Wednesday is expecting a gain of +220,000 jobs and only slightly above the prior month at +216,000. The Nonfarm Payrolls on Friday are expected to show a gain of +201,000 jobs, down from +227,000 last month.

If the Nonfarm Payrolls come in much below 200,000 it would be a serious negative for the market. Current gains in equities are being justified because of rising employment and expectations for the recovery to accelerate. We saw last week the GDP for Q4 was +2.95% and strongly influenced by inventories. We don't have that in Q1 and we will be lucky to see a GDP over 2.0%. The first report on Q1 GDP is April 27th. If jobs were to slide and then GDP decline as expected right at the end of the earnings cycle I don't believe investors would be pleased. That could accelerate the "sell in May" cycle.

The FOMC minutes will be released on Tuesday and analysts will be looking for clues about a potential QE3 to be announced at the April 23rd meeting. Analysts anticipating further Fed policy stimulation expect the first announcement at that April FOMC meeting.

The market is closed on Friday for Good Friday.

Economic Calendar

There was a little bit of stock news that slipped in between lottery headlines. Global Payment Systems (GPN) saw their stock drop -9% at the open before it was halted for news pending. Global said its credit card processing systems had been compromised. They reported to law enforcement in early March they had found "unauthorized access" and the Secret Service immediately took over the investigation. Besides protect the president the Secret Service is also responsible for protecting the money and banking system.

Global said it would disclose the details on Monday. Website Krebs on Security first broke the story saying the attack was major and could involve more than 10 million cards. Reportedly the payment processor was breached between Jan 12th and Feb 25th. MasterCard and Visa had already begun contacting banks and card holders warning them their cards had been compromised and to expect new cards in the mail. Bogus charges were already appearing on the compromised accounts. PSCU, a provider of online financial services to credit unions, said 56,455 member Visa and MasterCard accounts were compromised and fraudulent activity had already been detected on 876 accounts in diverse geographic areas.

Visa and MasterCard were quick to say their systems had not been compromised and the breach was at a third party, which was quickly determined to be Global Payment. Analysts expect the stock to decline further on Monday when it reopens for trading. It never reopened on Friday. Firms losing money on the breach would have to sue GPN because most card service agreements put the loss back on the retailer for not qualifying the transaction and checking the card for validity.

GPN Chart

Groupon (GRPN) waited until after the close on Friday, a sure warning sign, to report it was revising down its previously reported earnings after finding some accounting problems. Groupon's auditor, Ernst & Young, called the error a "material weakness in its internal controls" for 2011. Groupon said it was revising their loss to $22.6 million, an increase of $14.3 million or 4-cents per share. Reportedly the loss came from an increased number of refunds on deals.

The stock was not specifically declining on the revision but more on the news that refunds were so high. Groupon has struggled with convincing investors the business model will be profitable and finding out there were $14.3 million in refunds MORE than expected is a lot to accept. Groupon also said the pace of refunds had continued through the first quarter ending on March 31st. In its filing Groupon said the inability to obtain reimbursements from merchant partners to cover customer claims "could have an adverse effect on our liquidity and profitability." That is not what investors want to hear.

The admissions of significant refunds and the claim by E&Y of "material weakness" could seriously hinder GRPN shares for weeks to come. Groupon has already suffered from multiple accounting irregularities in the past, some of which delayed the IPO. Recovering investor confidence after yet another problem could be difficult. At some point the SEC may investigate to see it this is just a pattern of accounting errors or were they trying to appear more profitable than they were for the IPO?

Groupon Chart

Liz Claiborne (LIZ) spiked +13% on news the company had been contemplating going private. The company sold its Liz Claiborne brand in November. They are planning a name change to Fifth & Pacific. The potential deal was discussed with several private equity firms and reportedly the LIZ board was looking for a takeout at $20. After Friday's spike the stock was trading at $13.36. The news broke in a Wall Street Journal article. Late in the day LIZ issued a statement saying "There is currently no contemplation of any strategy for the company other than executing against the operating plan we have already discussed."

LIZ Chart

Research in Motion (RIMM) rallied +7% to $14.70 despite posting disappointing earnings on Thursday night. The BlackBerry maker said its phones proved to be less popular with consumers than the iPhone and Android. The company said it was doing a strategic review of its options. That is normally code for "we are looking for a buyer." Revenue was $4.2 billion and -$300 million below estimates. Adjusted earnings were 80-cents and only a penny shy of estimates. That was actually a surprise since almost everyone expected a big miss. RIMM said it was giving up trying to compete with the smartphone giants and was going back to focus on its business customers.

RIMM Chart

Apple shares declined for the second day with a loss of -$10 on no specific news. However, Apple's factories in China were cited for more than 50 grievances over labor conditions but CEO Tim Cook was treated like a visiting head of state when he visited there last week. Foxconn and Apple agreed to answer the "recommendations." If implemented they would improve the lives of the 1.2 million Foxconn employees and set a new standard for Chinese factories according to the Fair Labor Association. Apple pays about $13 to Foxconn for every iPad assembled.

I suspect Apple shares were weakening at quarter end as a result of traders getting out ahead of April rather than worried over Apple's manufacturing problems in China.

Apple Chart

Yahoo (YHOO) announced on Friday it would begin layoffs in a new restructuring program designed to make Yahoo leaner and more competitive. They claimed the layoffs would be deep and mostly aimed at the product, research and marketing units. The goal will be to cut "many" thousands from the staff that currently numbers close to 14,000. There was no word on any plans to sell off assets.

Yahoo Chart

Ohio Art Co (OART) is capitalizing on the Rick Santorum use of one of its products in a campaign speech. Santorum said, "I have not written my public policy pronouncements on an Etch A Sketch, they are written on my heart." He was referring to Mitt Romney as a flip flopper saying he would erase his past campaign promises and start over if he is elected.

The 104 year old toy company debuted the Etch A Sketch in 1960. They immediately jumped on the sudden revival of interest and have commissioned a "Shake it Up America" ad campaign that will appear in places like Facebook and Twitter. One ad shown below has a great tagline but I can't believe it was actually done on the toy. I am betting that slogan was photoshopped into the image. Another advertisement says "We have a left knob and a right knob for each political party. But remember when both work together, we can do loop de loops." Toys R Us asked them to make blue versions to go along with the traditional red versions. They are due out in June along with a red and blue collector's edition with etchings of an elephant and a donkey.

There is even an Etch A Sketch app for iPhones. After trading at $4 forever the stock spiked to more than $12 on the 22nd when the comments were made. Shares closed at $5.95 on Friday on volume of 200 shares. Yes, 200 shares. Volume is normally in the low hundreds but spiked to 6,500 shares on the comment by Santorum.

Etch A Sketch

Ohio Art Chart

Oil prices rebounded to close slightly positive on Friday after the President gave approval for the tougher sanctions on Iran. The president had until the end of March to decide if there was enough oil in the market to enact the tougher sanctions announced several months ago. The sanctions had a clause requiring the president to certify there was enough oil in the market to prevent a serious price spike if the sanctions were enacted. On Friday the president gave the go ahead for the tougher sanctions saying the move would not harm consumers.

I find this almost amusing. For several weeks the White House, the U.K., France and the IEA have been dropping hints there would be a coordinated release of oil from the Strategic Petroleum Reserve in order to lower fuel prices. They succeeded in keeping oil prices from advancing for three weeks with this tactic. Now the president announces there is plenty of oil to allow stronger sanctions on Iran to go into effect on June 28th. The IEA said the sanctions could cut about 800,000 bpd from Iranian exports by July.

In reality this move may explain why Saudi Arabia has been going out of its way to claim there is an extra 1.0 mbpd already in the market and they can produce another 2.5 mbpd if they have to. It was not because they were trying to drive down prices but they were trying to convince the U.S. and U.K. to go ahead with the Iranian sanctions by stressing the shortage was not going to be a problem. If Saudi could convince the U.S. and E.U. leaders there was enough oil then sanctions would increase and Iran would see its box shrink a little tighter. Saudi and Iran are enemies. Saudi does not want to see Iran obtain a nuclear weapon. Now the previously unexplained gyrations by the Saudi Oil Minister make a lot more sense.

WTI Crude Oil Chart

Brent Crude Chart

Maybe somebody needs to put sanctions on natural gas producers. Nat gas futures closed at a 10-year low of $2.12 on Friday after dropping to $2.10 intraday. Gas supplies are 58.6% above their five year average and at record levels for this time of year. The EIA inventory report on Thursday showed an injection of 57 Bcf compared to a decline of -7 Bcf in each of the last two years at this time. WTRG Economics pointed out that with only two exceptions, every week since the beginning of September the withdrawals from storage were either less than expected or the injections more than expected when compared to the 5-year average.

Storage levels are on track to exceed the prior record of 3,852 Bcf in storage by November 1st. Maximum storage capacity is 4,577 Bcf and analysts expect that to be reached well before Nov 1st. At that point production will have to stop in some locations because of maximum pipeline pressures. Spot prices at the Henry Hub futures delivery point are -52% lower than this time last year. It may be only a matter of days before nat gas prices break below $2. This is below the actual cost to produce it for many companies. If they are not hedged they will be forced to curtail production or lose money.

Natural Gas Chart

Volatility returned over the last two weeks with two attempts to move higher and two attempts to sell off. In the end the fund managers closed the indexes exactly where they wanted them in true window dressing fashion. The S&P over 1400, Dow over 13,200 and the Nasdaq 100 at 2750. It was a picture perfect storybook ending for Q1. There have been major gains in all the indexes and no material profit taking for more than three months.

Unfortunately every soaring eagle, aircraft or rocket will eventually have to land. The eagle and airplane will glide slowly to earth in a controlled landing and the rocket will crash back at a time of its own choosing and sometimes in many pieces.

Many analysts have been predicting the end of the rally for several months now. Every new uptick attracted more converts to that crowd. Fund managers may have been of that mindset but they could not afford to take appropriate measures to defend portfolios against a correction. They were forced to throw more and more money into the market to avoid losing. Fund managers are paid based on profits and relative performance. If hundreds of your competitor funds are invested in a market moving higher then you also have to be invested. You don't want to be listed at the bottom of the performance charts at year end.

It does not make any difference why the market is moving higher or how irrational the move. It is a trend and managers have to follow the trends.

April is where the trend may change. The quarter is over and the next three months are typically less bullish. April has been up an average of +4.5% over the last five years but as we all know past performance is no guarantee of future results. Earnings are going to be bad as in +1% profit growth or possibly even negative growth.

Typically April starts off strong as retirement funds flow into the market and everyone eagerly awaits the earnings reports. As the earnings cycle progresses the indexes begin to roll over and the "sell in May and go away" crowd does its thing.

Since the markets are already up strongly for the year there will be a strong desire to preserve those gains with tight stops. When the market does finally lose momentum the down slope could be dramatic. Picture that first big hill on a roller coaster. Everyone is enjoying the scenery from the high vantage point until the very last minute. Suddenly everyone's muscles tighten and your grip on the restraining bar goes white knuckle. The next 30 seconds are punctuated with terror and excitement as the twists, turns and dips keep your attention focused on the track ahead rather than the scenery around the park. Eventually the cars pull into the station and there is a period of transition before the ride begins again.

I believe we are nearing the top of that first big hill. We could already be there but we could also see a couple more weeks of performance chasing heading into earnings. Once earnings begin to flow the market direction will be data driven. Crummy earnings will probably produce a crummy market and the coaster ride will accelerate with the associated rise in volatility as we blast through the various peaks and valleys of the decline.

This is my short term view. Long term I believe the markets will move higher later in the year if Iran does not evolve into a war, oil prices remain reasonable, fuel prices don't exceed $4.25 per gallon and the economy continues to muddle through with growth at a better than +2.0% GDP rate. Europe is not over. Spain is the next main event with Portugal a sideshow. The new trillion dollar firewall being discussed is not big enough for Spain but should handle the coming problems with Portugal and the return of Greece. Yes, Greece.

However, I think the U.S. markets are now immune to European debt problems. Investors will be focused more on European growth or lack of it and the impact to the large multinational corporations that get more than 50% of their earnings from Europe.

China will be the new worry until the government decides to go nuclear on stimulus and to heck with inflation. Currently they are right on the edge of trouble. Inflation is manageable but growth is slowing. They need the growth more than they need to manage inflation. Eventually they will figure this out and they will take the brakes off the economy.

While all these problems are sorting themselves out the U.S. markets will be digesting the roughly 30% gains since October. There is always a digestion period and this summer should be that period. It is only a question of when investors decide they have had enough and push away from the table to start the digestion process. I suspect that will begin over the next four weeks with the most likely date the week after April option expiration.

The S&P had its best first quarter since 1998. The October low was 1074 so there is a lot of profit accrued to this rally. Historically when the S&P is up over 10% in Q1 the second quarter was decent. In 19 of the last 20 times the S&P gained more than 10% in Q1 the second quarter was either flat or higher. Only once did it decline sharply. I know, past performance is no guarantee of future results.

Initial support for next week is 1390 followed by 1375. Initial resistance is 1415 followed by 1426.

S&P Chart - 120 Min

S&P-500 Chart - Daily

The Dow posted the smallest gain of the major indexes at +8.1%. The Dow Transports only gained +4.6%. I guess you could say they both confirmed each other's underperformance. The transports were weak because of the rising oil prices. The Dow was weak because of the relative weakness in the materials and industrials like Alcoa and Caterpillar. Boeing was flat for the quarter and so was 3M. Hewlett Packard was a big drag with a -20% decline in March. IBM, DIS, HD, JPM, BAC, AXP, PFE, KO, CSCO, INTC and MSFT were the standouts that keep the Dow in the positive column.

The Dow tested support at 13,000 twice in late March and both times it held. However, each rebound produced a lower high and that suggests future weakness. The Dow needs to quickly move over the March highs at 13,265 or the next support to be tested is likely to be 12,750.

Dow Chart - 120 Min

Dow Chart - Daily

The Nasdaq had its best first quarter since 1991. The Nasdaq Composite has seven consecutive weeks of gains and the Nasdaq 100 has 13 weeks. You have heard the story before. The gains are the result of the big caps being used as safe deposit boxes for large sums of money. Apple gained +48%, Priceline +54% and so on.

Clearly when any stock gains 50% in a quarter the first reaction is to expect some profit taking. Would you buy a $600 stock after a 50% gain without first seeing some decent profit taking? Yes, I know Apple only has a PE of 12 and is still a relative bargain but I am pretty sure you would rather buy a decent dip. Most analysts have been expecting that dip for several weeks but they forgot about the safe deposit aspect of buying Apple as the quarter closed. Apple traded 26 million shares for more than $600 each on Friday and that was the second day it lost ground. The Nasdaq will follow Apple's lead next week.

The Nasdaq Composite has strong support at 3050 and we could easily pull back to that level to wait for earnings. The same level on the Nasdaq 100 is 2715. Resistance is 3135 on the Comp and 2800 on the NDX.

Nasdaq Composite Chart - 120 Min

Nasdaq Composite Chart - Daily

Nasdaq 100 Chart - Daily

Nasdaq 100 Chart - 120 Min

The Russell 2000 has been moving sideways for two months. We saw a little volatility in March for temporary breaks out of the trading range but Friday's close under 832 put it right back in that range. If the Russell could move higher from here it would be very positive for the market because it would suggest a move out of the large caps and into smaller, less liquid stocks. That normally signals a longer term market rally ahead.

Watch for the Russell to outperform or underperform the big cap indexes. Whichever trend appears it will point to the next broader market direction.

Russell 2000 Chart - Daily

Clearly the market is over extended heading into the new quarter. Obviously there is nothing preventing it from becoming even more overextended so we need to let the market tell us which way it is headed. Remember, when the market wants to go down it will find an excuse. It may be earnings, economics, geopolitical events, China, Spain, etc. We won't know it until it appears but we do know there is a profit taking cycle in our future. I am not going to say sell everything at the open on Monday because nobody can accurately pick market tops and bottoms. We can do the analysis and we can interpret the signs but there are millions of moving parts and until the majority of those parts suddenly change direction based on a specific excuse the momentum can continue. We saw that momentum slow over the last couple weeks so I would be overly cautious about entering new long positions until a new direction appears or the old one is confirmed.

Jim Brown

Send Jim an email

"Keep on going and the chances are you will stumble on something, perhaps when you are least expecting it. I have never heard of anyone stumbling on something while sitting down."
Charles Kettering


Index Wrap

Slowing Gains

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The S&P has basically traded sideways in the past two weeks, the Dow for three weeks while Nasdaq slowed its rate of gain, mirroring Apple. More of a downside correction could be next. A sideways move or simply slowing upside momentum is a common phenomena in such an overbought market. I'm not suggesting that this market won't see another up leg develop as I expect it will. A next advance just looks more likely after a sideways to lower correction.

There are some ways to gauge technical resistance coming in around current levels as is highlighted on my first two charts, one of the big cap S&P 100 (OEX) and the other of the large cap Nasdaq 100 (NDX). There is usually 1-2 of the major stock indexes where chart resistance can be pointed to on the charts. It's rare to have ALL the indexes mirroring each other and tracing out identical technical pattern.

Just as a return to a prior high will often act as resistance, a prior up trendline, once penetrated, often acts as resistance once prices return to it; or, more accurately, to an extension of that line out into the future. OEX provides an example of this type pattern.

The weekly OEX chart is shown again this week in my initial comments by way of seeing that recent slowing upside momentum occurs where someone using technical analysis could anticipate it developing. What was support, in this case a support up trendline, once penetrated, 'became' subsequent resistance. The index could 1.) slowly trend upward hugging this resistance trendline, 2.) break out above this line and resume its long-term upward momentum or 3.) fall back from resistance implied by the below trendline.

Given the overbought condition suggested by the 8-week RSI, the less likely outcome currently is for a near-term breakout move above the resistance trendline. The prospect of slowing upside momentum OR a pullback will be of concern to holders of index call options.

The weekly chart for the big cap Nasdaq 100 (NDX) is shown next and the highlighted resistance or potential resistance is provided by another type of trendline, that of the upper line of NDX's uptrend (price) channel. Resistance around the recent weekly high is highlighted by my red down arrow.

The 2800 level is also significant as it represents a 50% Fibonacci retracement of the March 2000 to October 2002 bear market decline when NDX retreated from an all-time high of 4816 to a low of 795. Retracements of one-half of the prior decline are potent areas for an index or a stock to pause or experience a pullback.

Needless to say NDX is also quite 'overbought' as evident from the 13-week Relative Strength Index or RSI. There's a common pattern of a small retreat and then another rally that again takes the RSI to an overbought extreme before there's a bigger correction.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 Index (SPX) remains bullish in its pattern as long as it continues to travel upward within its uptrend price channel. Key support is at SPX's up trendline, currently intersecting at 1385. Next chart support is implied by the prior 1340 low.

Near resistance is suggested by recent highs in the 1420 area, with next resistance suggested by the current intersection of the upper trend channel boundary.

The RSI has trended sideways for some time now in the area of what is typically an 'overbought' reading. However, the weekly chart is more relevant here and SPX reflects the same overbought extreme as seen with the OEX weekly chart in my initial ('bottom line') comments above.

All in all the odds of a deeper correction is on the high side but no key support has been pierced and SPX has been in very strong uptrend, especially so as the bank stocks continue to make some upside progress. The S&P Bank stock index (BIX) has recently touched a key resistance at 162; an index to also keep an eye on. The most bearish SPX development would be a close below its prior downswing lows (at 1340). Bullish sentiment has moderated significantly as prices have moved sideways in the past two weeks, which has pulled my indicator back into a neutral range.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart remains bullish. As with big brother SPX, OEX maintains a bullish pattern as long as the index keeps tracking higher within its broad uptrend channel. I was looking for a 'drift' lower and we have seen that after the strong showing at the beginning of this past week. Still, there's no technical 'damage' in that.

If there was a decisive downside penetration of the OEX's up trendline, currently intersecting in the 632 area, along with the 21-day moving average, it would be an alert for possible further selling pressures to come. Next lower OEX support is at 620, with even more key support in the 610 area at the prior downswing low.

Near resistance is in the 645 area, with next technical resistance suggested at the upper trend channel boundary just over 660.

I wrote last week that I didn't see "OEX taking off again in another up leg above 640..." and that was the case although the index got briefly above 640. Overbought extremes registering in indicators like the Relative Strength Index tend to work against big new advances at some point, but this has been a strong market nevertheless as seen by the lack of any steep pullbacks in many weeks; not since the early-Dec low in fact.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) looks to be struggling to hold its up trendline but it has so far, so I have to rate this pattern as still bullish.

I indicated last week that strong uptrends in the Dow were seen with AXP, BAC, DIS, HD, IBM, INTC, KFT, KO, MSFT, and PFE. However of those 10, Disney (DIS) could be topping out again in the 44.3 area and KFT is pulling back. But I'd also note BAC as improving nicely, JPM as being quite strong (but also nearing prior tops in the 46.7-47.5 area), and KO as on fire. Bottom line, we still have 10 or so very strong movers in INDU.

There are 14 Dow stocks that are trading at or under prior highs or are just chopping around and not doing much; only HPQ continues to be very weak. This line up explains the fact that INDU is only just managing to hold to its prior rate of upside momentum; i.e., it's up trendline.

Stay tuned on the Dow having another up leg or not as would be seen if the Average makes another run to the middle to upper reaches of its broad uptrend channel. Near resistance comes in around 13266; I've noted 13520, at the upper (3%) envelope line as potential resistance which is more like an 'extreme' in terms of the percentage distance above the 21-day average.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) chart remains bullish although COMP has been experiencing resistance/increased selling pressure above 3100-3110; although the index got to 3134 at its recent intraday peak. COMP remains within the middle of its broad uptrend channel. Near resistance is at 3130-3134 currently, and then comes in around 32-3218.

Near support is suggested at the current intersection of COMP's uptrend channel at 3010, extending to 3000. Just as the 3000 level was an important milestone high, once it was decisively pierced; it should now be viewed as a key support. 2900 should offer fairly major support if 3000 gives way substantially.

COMP continues to hold up in the upper reaches of the RSI on a 13-day basis, not uncommon in a very strong uptrend such as we've had. On a long-term chart basis, it's not so common that we see a similar very prolonged period where the Relative Strength Index hangs up at the upper end of its scale on a 13-week basis.

Bullish/bearish sentiment is 'neutral' at this point. I don't think we've seen the end of the recent choppy period and anticipate a possible test of support around the 21-day moving average, perhaps to include COMP's up trendline.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) Index continues to be in a dominant and steep uptrend. Its recent choppier trend owes much to the fact that Apple Computer (AAPL) has reached what I've projected for awhile as a key resistance in the 600 to 650 price zone.

NDX/tech bellwether AAPL experienced a downside reversal this past week as it ran up to a decisive new high for the current advance but ended the week barely over its prior weekly close. I noted last week that at this juncture I'd rather be holding the NDX tracking stock (QQQ) than NDX calls as a more conservative unleveraged play; assuming you want to be participating for remaining upside potential.

The risk of a correction grows but I can't say that there's a bearish chart pattern that's developed although Apple looks to maybe finally have hit at least an interim top. It's more the overbought nature of the tech-heavy Nas 100, which is even more evident if you go back to NDX weekly chart in my initial comments above. The Index is also at potential tough resistance implied by NDX (at 2800) having retraced a Fibonacci 50% of the major NDX decline of March 2000 to October 2002.

I've highlighted support at NDX's up trendline, currently intersecting around 2700, with support extending to 2650. Near resistance is at 2800, then in the 2850 area, at the upper end of NDX's uptrend channel.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) chart remains bullish with the caveat that the stock is nearing potential resistance at the upper end of its well-defined uptrend channel. Stay tuned on that! Near resistance is suggested at recent highs in the 68.5 area, with resistance extending to 69.2 at the upper trend channel boundary.

Support is suggested in the 66.3 area, at the lower trend channel boundary, with fairly major support seen in the 64 area, extending to the prior low at 63.2.

Daily trading volume as been tapering off and the On Balance Volume (OBV) line is pointed lower. Nothing another rally wouldn't correct but I'm cautious about the potential for a correction in the near-term. As a longer-term hold, my target based on a weekly chart (not shown) analysis isn't currently higher than to 69.5-70.0

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) remains within its broad uptrend channel which maintains a bullish chart. Prior to this past week RUT was stuck in 'rut' and struggled to pierce its 833 line of resistance. The Index managed to run to 850 but closed back under 833 again. At least resistance expanded upward, so we're now looking at an 833-850 resistance zone; 850 is the key near resistance, with longer range resistance suggested at 890-900.

Near support is at RUT's up trendline, currently intersecting at 817. Key support is suggested in the 785 area, at RUT's prior (down) swing low.

I don't have an opinion on RUT per se; it won't likely do as well as the Nasdaq key indices on another rally and could perform worst on another decline. The small to mid-cap index isn't in as much favor as the bigger tech and mainstream S&P stocks. It would likely take more buying by individual investors to propel RUT much higher. Big fund managers are sticking more to S&P and Nasdaq stocks. Moreover, RUT is near its major prior double top (June '07 & May of 2011) in the 855 area.



GOOD TRADING SUCCESS!


New Option Plays

Financials & Cloud Computing

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidates, consider these stocks as possible trading ideas and watch list candidates:

(bullish ideas) WCG, CPT, CBE, BG, DHR, DVA, TROW, BJRI, PSMT, IBB, PX, PRGO, COV, FISV, PAY, RE, APD, SYK, and ATR


NEW DIRECTIONAL CALL PLAYS

PNC Financial Services - PNC - close: 64.49 change: +0.54

Stop Loss: 62.75
Target(s): 69.50
Current Option Gain/Loss: Unopened
Time Frame: up to its April 18th earnings report
New Positions: Yes, see below

Company Description

Why We Like It:
PNC is a financial stock that has slowly been consolidating higher with a bullish trend of higher lows. Now PNC is testing major resistance near $65.00. I am suggesting a trigger to buy calls at $65.25 with a stop loss at $62.75. Our target is $69.50. However, we will plan to exit prior to the April 18th earnings report. FYI: The Point & Figure chart for PNC is bullish with a $79 target.

Trigger @ 65.25

- Suggested Positions -

buy the May $65 call (PNC1219E65) current ask $1.69

Annotated Chart:

Entry on April xx at $ xx.xx
Earnings Date 04/18/12 (confirmed)
Average Daily Volume = 3.7 million
Listed on March 31, 2012


VMware, Inc. - VMW - close: 112.37 change: -0.09

Stop Loss: 109.75
Target(s): 117.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Cloud-computing stock VMW closed the quarter at multi-year highs. The recent breakout past resistance near $110 is bullish. Shares could try and make a run at the all-time high near $125 if this rally continues.

I am suggesting small bullish positions at the open on Monday but only if both VMW and the S&P 500 index open positive. We'll try and limit our risk with a relatively tight stop loss at $109.75. Our exit target is $117.50. More aggressive traders could aim higher but we do not want to hold over the mid-April earnings report.

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

- Suggested Positions -

buy the Apr $115 call (VMW1221D115) current ask $3.30

Annotated Chart:

Entry on March xx at $ xx.xx
Earnings Date 04/17/12 (unconfirmed)
Average Daily Volume = 1.2 million
Listed on March 31, 2012



In Play Updates and Reviews

Two Trades Triggered

by James Brown

Click here to email James Brown

Editor's Note:

Friday was a relatively quiet end to the week and the quarter but we still had two trades get triggered.

Current Portfolio:


CALL Play Updates

Allergan Inc. - AGN - close: 95.43 change: +0.52

Stop Loss: 92.25
Target(s): 99.50
Current Option Gain/Loss: Apr92.5c: - 4.2% & Apr95c: -13.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/31 update: AGN ended the quarter on a high note. Actually an all-time high. Shares spiked to $96.39 Friday morning before seeing its gains fade to +0.5% on the session. I am not suggesting new positions at this time. We have a stop loss at $92.25. More conservative traders may want to up their stop closer to the $93.00 level.

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.

chart:

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: 63.84 change: -0.06

Stop Loss: 61.40
Target(s): 68.50
Current Option Gain/Loss: Apr62.5c: +48.3% & May65c: +41.6%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/31 update: CHKP just spent the last week churning sideways at 10-year highs. I am turning more cautious here and we'll raise our stop loss up to $61.40. More aggressive traders may want to leave their stop under $60.00, which should be significant support. I am not suggesting new positions at this time. More conservative trades may want to take profits now. 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

03/31/12 new stop loss @ 61.40
03/23/12 CHKP hit our entry trigger @ 62.25

chart:

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


Cognizant Technology - CTSH - close: 76.95 change: +0.65

Stop Loss: 74.75
Target(s): 82.00
Current Option Gain/Loss: Apr77.5c: -28.5% & May$80c: -20.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/31 update: The intraday bounce that started on Thursday carried over into Friday but CTSH is still trading under recent resistance. Readers may want to wait for a rally past $78.00 before considering new bullish positions.

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

chart:

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


Quest Diagnostics Inc. - DGX - close: 61.32 change: +0.87

Stop Loss: 59.45
Target(s): 66.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
03/31 update: Friday's midday rally attempt in DGX stalled at $61.50. Shares still look poised to breakout higher if the major indices will cooperate. I don't see any changes from my Thursday night comments.

I am suggesting a trigger to buy calls at $61.55. If triggered we'll use a tight stop under today's low at $59.45. I do want to point out that the 2006 high near $64.70 could be overhead resistance but we are aiming for $66.50. FYI: The Point & Figure chart for DGX is bullish with an $85 target.

Trigger @ 61.55

- Suggested Positions -

buy the Apr $60 call (DGX1221D60)

- or -

buy the May $65 call (DGX1219E65)

chart:

Entry on March xx at $ xx.xx
Earnings Date 04/18/12 (unconfirmed)
Average Daily Volume = 821 thousand
Listed on March 29, 2012


Dollar Tree, Inc. - DLTR - close: 94.49 change: +0.04

Stop Loss: 92.25
Target(s): 98.50
Current Option Gain/Loss: Apr$95c: -27.2% & May95C: - 8.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/31 update: Friday proved to be a quiet day for DLTR. The stock opened higher and then drifted sideways the rest of the session. The larger trend is up but short-term you could argue DLTR looks poised for a dip back toward the $92.00-90.00 zone. We have a stop at $92.25. I am not suggesting new positions at this time. FYI: 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

chart:

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: 73.33 change: -0.14

Stop Loss: 70.90
Target(s): 79.75
Current Option Gain/Loss: -50.0%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/31 update: GTLS has spent the last couple of weeks consolidating sideways in a pennant shaped formation. The stock should breakout into the same direction as its preceding trend, which was up. I am a little cautious here. Readers may want to wait for a rally past $75.25 before considering new positions.

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

chart:

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


J.B.Hunt Transport - JBHT - close: 54.37 change: -0.55

Stop Loss: 53.75
Target(s): 59.50
Current Option Gain/Loss: Apr55c: -37.0% & May$55c: -27.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/31 update: Our JBHT trade was triggered on Friday but I have to caution you, the action on Friday looks bearish. Shares gapped open higher at $55.26 but quickly reversed lower after hitting $55.30. Shares closed down -1.0%, underperforming the major indices. Furthermore, Friday's performance has created a bearish engulfing candlestick reversal pattern.

We had a trigger to buy calls at $55.25 so the gap open at $55.26 opened our play. I would not be surprised to see JBHT retest short-term support near $54.00 and nimble traders could buy a dip near this level. We have a stop at $53.75. I suggest the rest of us wait for a new relative high over $55.30.

FYI: The Point & Figure chart for JBHT is bullish with a $69 target.

- Suggested Positions -

Long Apr $55 call (JBHT1221D55) Entry $1.35

- or -

Long May $55 call (JBHT1219E55) Entry $2.00

chart:

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


NetEase.com - NTES - close: 58.10 change: -0.24

Stop Loss: 54.45
Target(s): 64.00
Current Option Gain/Loss: Apr55c: +35.7% & Apr60c: + 42.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/31 update: NTES saw another spike toward $60 on Friday morning but traders sold the rally and NTES spent the day drifting sideways near $58.00. I don't see any changes from my prior comments. 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%)

chart:

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


O'Reilly Automotive - ORLY - close: 91.35 change: +0.79

Stop Loss: 88.45
Target(s): 98.50
Current Option Gain/Loss: Apr90c: -12.0% & May$90c: - 3.7%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/31 update: ORLY ended the week on an up note and only inches away from a new record high. We are targeting a move to $98.50 but more conservative traders may want to take profits near $95.00 instead. 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

chart:

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: 54.42 change: -0.03

Stop Loss: 53.40
Target(s): 59.75
Current Option Gain/Loss: Apr55c: -25.7% & May60c: -18.1%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/31 update: Friday was another quiet session for TRMB. After chopping around in the morning the stock eventually closed nearly unchanged for the session. The stock did trade high enough to hit our entry trigger at $55.15 so the play is open with a stop loss at $53.40. That's a relatively tight stop. More aggressive traders may want to put their stop loss under the $52.00 level, which should be support.

FYI: The Point & Figure chart for TRMB is bullish with a $63 target.

- Suggested Positions -

Long Apr $55 call (TRMB1221D55) Entry $1.28

- or -

Long May $60 call (TRMB1219E60) Entry $0.55

03/30/12 triggered at $55.15
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.

chart:

Entry on March 30 at $55.15
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 522 thousand
Listed on March 27, 2012


Ulta Salon, Cosmetics - ULTA - close: 92.89 change: +0.06

Stop Loss: 89.95
Target(s): 97.50
Current Option Gain/Loss: -39.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/31 update: ULTA ended the quarter on a quiet note with a mild drift sideways on Friday. Shares remain inside their narrow, rising channel. I am not suggesting new positions at this time but nimble traders could buy calls on a dip or a bounce near the 20-dma.

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

chart:

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


PUT Play Updates

Apache Corp. - APA - close: 100.44 change: +1.63

Stop Loss: 102.25
Target(s): 95.25 or 92.00
Current Option Gain/Loss: Apr95.5p: -42.0% & May95p: -42.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/31 update: On Thursday I cautioned readers that APA looked ready to bounce toward $100 again. Shares actually outperformed the market with a +1.6% gain and a close above potential resistance at its 100-dma and the $100.00 mark. This is troubling for us since we're long puts. APA should still have resistance near $102 and its simple 200-dma but I am not suggesting new positions at this time.

Earlier Comments:
I am setting two different targets. You can choose to aim for $95.25 or $92.00.

- Suggested Positions -

Long Apr $97.50 PUT (APA1221P97.5) Entry $2.40

- or -

Long May $95 PUT (APA1219Q95) Entry $2.90

chart:

Entry on March 29 at $98.32
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 2.7 million
Listed on March 28, 2012


iShares Russell 2000 ETF - IWM - close: 82.81 change: -0.27

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

Comments:
03/31 update: The IWM gapped open higher on Friday morning but the strength faded. Shares eventually closed down. Lack of follow through on Thursday's intraday bounce is good news if you're bearish. I am not suggesting new positions at this time.

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

chart:

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


OpenTable, Inc. - OPEN - close: 40.47 change: +0.04

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:
03/31 update: OPEN saw a temporary dip under support at $40.00 but shares only fell as low as $39.80. The stock definitely looks poised 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)

chart:

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: 35.16 change: +0.05

Stop Loss: 38.05
Target(s): 31.00
Current Option Gain/Loss: -14.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/31 update: PPO tried to rally twice, midday on Friday, and both times it failed near the 20-dma. This new lower high is good news if you're bearish like we are. 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

chart:

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: 39.90 change: -0.11

Stop Loss: 42.25
Target(s): 35.50
Current Option Gain/Loss: - 8.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/31 update: Friday was a relatively calm session for SCHN. The stock spent most of the day drifting sideways in a 40-cent range. I would still consider new positions now or you could wait for a new drop under $39.50 as your entry point.

Remember, we don't have a lot of time. SCHN is due to report earnings on April 5th and we do not want to hold over the announcement. We will plan to exit on April 4th at the closing bell if SCHN has not hit our target (or stop) by then.

FYI: The P&F chart has turned bearish with a brand new quadruple bottom breakdown sell signal (and a $32 price target).

Earlier Comments:
Traders should note that we want to use small positions. 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.

(small positions) - Suggested Positions -

Long Apr $40 PUT (SCHN1221P40) Entry $1.58

03/29/12 new stop loss @ 42.25
03/29/12 triggered at $39.75

chart:

Entry on March 29 at $39.75
Earnings Date 04/05/12 (confirmed)
Average Daily Volume = 326 thousand
Listed on March 22, 2012