Option Investor
Newsletter

Daily Newsletter, Saturday, 11/24/2012

Table of Contents

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

Market Wrap

New Meaning to Black Friday

by Jim Brown

Click here to email Jim Brown

For the first time in four years the Friday after Thanksgiving was positive and solidly in the black. Any bets on next week?

Market Statistics

The Dow rallied +421 points for the week and easily went from heavily oversold to extremely overbought in only four trading days. Friday was the first positive Black Friday since 2008. It was also the first five day gain for the Nasdaq in more than five months. Friday's volume of only 2.8 billion shares was also the lowest for Friday since 2007. So what prompted this rally?

First, the markets were oversold. After two weeks of strong selling that knocked the Nasdaq back into correction territory and -1000 points off the Dow we were simply due for a rebound. Thanksgiving week is normally bullish and the combination of a bullish week and oversold conditions was a match made in heaven.

Also helping was the ceasefire in Gaza, the expectations for a deal to be done in Greece and suddenly improving economics out of China.

I warned last weekend to expect a trading bounce that would likely fade the week after Thanksgiving. We got the bounce now it is time to watch for the fade.

What we did not have last week was a steady lineup of lawmakers stepping in front of a microphone to state their party's position and berate the other party for attempting to bring down the American political system.

The political headlines should return next week. Lawmakers will be back from their holiday break and each party will begin to lay out their talking points in the press with trial balloons to try and gauge public acceptance of their positions.

To use Art Cashin's description of prior week's meeting at the White House, "there were no black eyes at the press conference" so investors took that as a positive sign of imminent cooperation. However, I believe it was simply a scripted appearance in order to pull the markets back from the brink. The fighting is still to come and it will not be pretty.

We may not see the positioning begin on Monday but it will appear in the days ahead. I personally do not believe the cliff will occur. I believe they will apply the appropriate Band Aids and kick various parts of the cliff farther out into 2013 where they can then deal with each piece on its own and without significant market risk. Granted they may not elect to apply the Band Aids until the last minute because that is when most legislation gets done. That means December could still be rocky for the markets.

On the positive side the economics have been improving slightly. New residential construction rose from 872,000 to 894,000 units for October and well over the consensus for 830,000 units. Existing home sales rose from 4.75 million to 4.79 million. The NAHB Housing Market Index spiked from 41.0 to 46.0 and the highest level since May 2006. That is an increase of +27 points in just the last year. Single family homes accounted for 8 of those points this month alone.

Consumer sentiment was revised down slightly from the initial November reading of 84.9 to 82.7 but that is still a multiyear high.

Gasoline prices are declining sharply with a 50 cent decrease from the September levels. They have ticked up slightly over the last two weeks on the violence in the Middle East but that should begin to fade next week.

The U.S. economic picture faces an uphill battle next week. There are five reports on the health of the manufacturing sector and one of those is the Fed Beige Book reporting on all 12 Fed districts. In theory they should show improvement or at the very least no change in the status quo.

The Q3 GDP revision on Thursday is expected to show a drop to +1.8% growth from the initial 2.01% reading. That is not expected to cause any market volatility because they will blame it on Hurricane Sandy.

Economic Calendar

The biggest report for the month will be the Nonfarm Payrolls on December 7th. Hundreds of companies have announced layoffs as the result of the election and the now guaranteed arrival of Obamacare. Companies are cutting staff to either get under the 50 employee minimum or cutting staff to reduce the increase in costs that Obamacare brings. The rash of job cut announcements immediately after the election may not be fully captured in the Dec-7th payroll report and they could also be hidden by the upsurge in holiday hiring. However, that report will still be a key data point for the December market.

The big economic lift for last week was the flash PMI for China. China's manufacturing sector saw growth rise to a 13-month high at 50.4 for November according to HSBC. A sub-index measuring output rose to 51.3 and the highest since October 2011. This is the preliminary reading with the final reading due out on Dec 1st.

A flurry of pro-growth economic policies have been implemented over the last year ahead of the change over in leadership in China. These policies appear to be working and numerous analysts have now dropped the hard landing concerns in favor of slow but steady growth from China in 2013. Momentum is increasing and by January we could see that growth accelerate and that will power market sentiment around the world.

On the negative side of the ledger the new Islamist President of Egypt unilaterally decreed himself greater powers. He declared the presidency and the Islamist led assembly, working on a new constitution, the immunity from court orders. The courts are barred by his new decree from challenging his decisions and those of the assembly.

His decree gave him the power to take "due measures and steps" to deal with any "threat" to the revolution, national unity and safety or anything that obstructs the work of state institutions. He decreed that all decisions he has made since taking office cannot be appealed in court or by any other authority. The courts had been looking into ways to halt the assembly working on the constitution because of radical points they had already slated for inclusion. That assembly is no longer reachable by the courts.

The opposition party leader said "Morsi today usurped all state powers and appointed himself Egypt's new pharaoh. This is a major blow to the revolution that could have dire consequences." The opposition called for mass protests this weekend to force Morsi to rescind his decree and be accountable to the people and the courts. Thousands of demonstrators gathered in Tahrir Square and other locations and the protests quickly turned violent. Hundreds of protestors were injured and the crowds were growing all across Egypt.

The worries about another revolution in Egypt pushed crude prices higher on Friday due to fears of escalating violence over the weekend. Gold prices also rose on worries over the Middle East tensions but also on a sharp drop in the dollar. The expectations for a final deal on Greek aid buoyed the euro.

Gold Chart

Dollar Index Chart

Worries over the European economy also weighed on the markets. The Markit flash PMI for Europe fell to 45.7 and the lowest level since July 2009. Expectations were for a hold at October's reading of 46.0. The European PMI has now been below 50 for ten consecutive months. The German economy appears to be weakening further and a weak Germany means the rest of the EU countries will be even weaker. Strong industrial production data for July and August helped support the summer months but that strength is slowly deteriorating. The manufacturing PMI had edged up to 46.2 from 45.4 but pessimism over Q4 is growing.

Unfortunately the summit of the 27 European leaders last week failed to agree on a long-term spending and broke up on Friday without a budget. There was a strong contingent that wanted to increase spending to provide stimulus but they were offset by several countries that wanted to cut spending to reduce budget costs and improve fiscal policy. EU president Herman Van Rompuy said the discussions were constructive and the countries might reach an agreement early next year. The budget is expected to be around $1.25 trillion for the 27 countries. Under EU laws all 27 countries have to agree. Any one country can veto the entire plan. It should be noted that France saw its AAA credit rating cut by Moody's earlier in the week. As the EU puts more funding demands on the member countries we will see further ratings cuts.

The lack of a budget agreement came just five days after the 17 Finance Ministers for the eurozone failed to reach an agreement on Greece. As in the budget dispute any one country can veto any deal on Greece. A new try on reaching a deal on Greece will be held next week. If they give Greece the last tranche of $41 billion and extend the repayments for another 2 years the market should rally at least temporarily. The eurozone has no other choice other than writing off the 340 billion in debt and allowing Greece to leave the euro. All of these last minute demands are simply political theater designed to pacify the population of the countries funding the Greek debt.

The only stock making news on Friday was Research in Motion (RIMM). National Bank Financial raised their target price from $12 to $15 and reiterated an outperform rating. The company said the release of the BlackBerry 10 OS and two new handsets on Jan 30th should raise RIMM's subscriber count and improve their cash position. The company raised its estimate for devices sold in 2013 from 31.6 million to 35.5 million. NBF expects the subscriber base to decline 4.0 million to 74 million but gave RIMM credit for maintaining the majority of its subscribers. NBF also said the average selling price could rise from $260 to $280 for Q2-2013. That is substantially above the $210 estimate for the current quarter. RIMM shares rallied +14% on the upgrade on what was clearly some massive short covering.

RIMM Chart

Black Friday in the U.S. turned in mixed reviews. American Express predicted shoppers would spend 25% less than in 2011. That was due to an early start to the season with 43% of consumers starting their holiday shopping well in advance of Black Friday.

However, IBM, which manages the cash registers in thousands of stores, said late Friday that consumers were actually spending 18% more than they did in 2011.

The real truth will not be known until the November are reported later in December.

For the next five weeks investors will be betting on Congress instead of stocks. We are going to be reading the daily headlines and discounting the potential for the most pessimistic events to come true.

The potential for the country to go over the fiscal cliff is very low.

The potential for Congress to kick the can down the road is very high.

The potential for market volatility is about 100%.

Unfortunately navigating the headlines is the price we will have to pay for the eventual market rally once a perceived deal is completed.

The odds are about zero that both parties will announce a compromise over the next couple weeks while we all know there will be microphone appearances claiming they have a mandate to uphold and therefore voters should call the leaders on the other side and tell them to compromise. You see, compromise in politics is highly desirable but only when it comes from the other party.

The S&P dipped to 1343 the prior Friday and then rebounded to close at 1408 this Friday. On Friday alone the S&P added +18 points on absolutely no news. This was a short squeeze week and nothing else.

The S&P did rebound over the 200-day average at 1383 and the 100-day at 1406. Those levels will now be support when the fiscal cliff headlines return next week. However, at this point I believe the Q4 lows are behind us unless the headlines become exceptionally ugly. Everyone is starting to believe that Congress and the president will not want to cause another market crash and will take the escapist way out by use of the Band Aid approach and skillfully kicking the problem farther down the road. Without the fear we will actually go over the cliff the next assumption is that the market will rebound on the solution.

If the bottom is behind us and there is a rally in our future then future dips should be minimal and used as buying opportunities. Of course that assumes a rational debate over the cliff solutions and a rational market. I am not sure we can count on either one of those assumptions.

I would look at the 200-day at 1383 as being decent support on any future dips and then we will see how confident traders are that the bottom is actually behind us.

S&P Chart

The Dow tested support at 12,500 on two consecutive days and support held. The resulting rebound of +500 points makes is unlikely we will return to that level and even more unlikely we will break below 12,500 as I had previously expected. Market sentiment has changed from expecting the worse to expecting a resolution.

The Dow has strong resistance at 13,279 and that is the next material pause point if the upward move continues.

Dow Chart

Apple rallied +66 from the Nov 16th low at $505. After five weeks of persistent declines the Apple rebound helped power the Nasdaq to its best gain in five months. Apple earnings should be outstanding for Q4 and that suggests the Apple gains are not over. One sales report I saw on Friday had three iPads being sold in Best Buy for every one Android tablet. That may have been a true trend or it may have been just a one day fluke but either way iPads are being sold in quantity and the delivery time frame continues to shrink as Apple catches up with prior device shortages.

The Nasdaq has significant resistance at 3,000 and could touch that level early next week if traders return in volume. The restart after Black Friday typically takes a couple days so Wednesday will be the key day. Support is now 2900.

Apple Chart

Nasdaq Chart

Nobody knows which way the market is going on any given day. With that being said I think we are moving into buy the dip mode as opposed to sell the rallies. I suggested last week that we would see a rally over the holiday week and that weakness would return next week. I still believe that weakness will appear once the fiscal cliff headlines return. That will probably occur later in the week.

However, volume last week was extremely low with Black Friday volume the lowest in five years. Beware major market moves on low volume. They tend to reverse when volume reappears.

I would look to tighten up stop losses on long positions and be prepared to buy any dips back to the 200-day average (1383) on the S&P-500.

The term Santa Claus rally is already starting to appear in the headlines. There is good reason behind the mention because December is well known for being a bullish month. Since 1999 the S&P has risen an average of 2.26% in the month of December. That breaks down to 1.56% before Christmas and +0.7% after Christmas. Actually that after Christmas gain is condensed into the last three trading days of the year when the S&P averages a +0.96% gain. This year there are only three trading days after Christmas if you don't count Monday, which is New Years Eve. Having New Years Eve fall on a Monday is a perfect recipe for a four day weekend and that means volume on Dec-31st will be even lower than normal for a New Years Eve. They might as well have closed the market but Monday is a full trading day.

The Santa Clause rally phenomenon is thought to be the result of consumers being in a happy mood ahead of the holidays. That has been debunked numerous times but the rumor persists. I believe it is the result of people investing their holiday bonus checks. Most companies give out bonuses between Thanksgiving and Christmas and some of these bonus checks are quite large. After allocating funds for gifts and holiday expenses some of the remaining cash goes into the market. That gives us the pre Christmas gains. After Christmas the bounce comes from mutual funds putting excess cash into winning stocks to dress up their yearend portfolios. That causes the stronger yearend bounce because the winners are already leading the market and that cash infusion drives them higher.

If you want to capture the December gains the S&P is not the place to invest your money. Neither is the QQQ. The biggest winner is normally the Russell 2000. The Russell ETF (IWM) averages a +4.01% gain over the last 13 years. The S&P (SPY) +2.26, Nasdaq 100 (QQQ) +2.21% and Dow (DIA) +2.48%.

I doubt this December will be a typical December and the Santa Rally will most likely be absent because of the fiscal cliff worries. However, the instant it appears the cliff has been flattened or at least kicked into 2013 the resulting rally is likely to be well in excess of the historical December gains. The only question is when the fiscal cliff will be flattened.

This commentary was shorter than normal because absolutely nothing happened that was newsworthy over the last several days other than what I reported above. The news outlets were overflowing with Black Friday news that pushed the cliff headlines off the board just like I warned last weekend. After the Friday spending recap on Monday the news outlets will move back to the fiscal cliff news so be prepared.

Definitely, enter passively and exit aggressively over the next few weeks!

Jim Brown

Send Jim an email

Saying "I will be greedy when others are fearful" is much easier than actually doing it.
Anon


Index Wrap

Further Confirmation of a Bottom

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

Last week I discussed key downside targets that were reached and this past week's price action may have 'confirmed' a bottom. In the S&P, bottoms occurred after a retracement of 62-66% of the prior advance; in the Nasdaq rebounds were from some prior lows and a from a bit less than a 100% 'round-turn' retracement.

One long-term chart aspect was also quite telling in suggesting technical support had been reached. Rebounds occurred from long-term weekly chart up trendlines in the Nasdaq 100 (NDX) AND the Dow 30 (INDU). Last week I featured the weekly NDX chart. It's instructive to see where the trendline rebound occurred in terms of both the NDX and INDU weekly charts as highlighted next. In addition to the trendline aspect, the 8-week Relative Strength Index (RSI) was at an infrequent oversold extreme.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) chart action appears to have re-affirmed a longer-term uptrend in that a strong rebound occurred after a Fibonacci retracement of 62% of the last major SPX advance from June into September. We could also say that there was a triple 'signal' in my key indicators of simultaneous action in price, RSI and (trader) sentiment:

1.) Price action was bullish in the SPX V-bottom pattern (after completing a key retracement).

2.) The 13-day, as well as the 8-week (seen above), Relative Strength Index/RSI had hit oversold 'extremes'.

3.) Trader 'sentiment' (CPRATIO) got to what I consider to be an 'oversold' type bearish extreme on at least 1-2 days.

The aforementioned 'big-3' of my key chart and technical indicators are highlighted below, along with support and resistance levels per my green up (support) and red down (resistance) arrows.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart has realized what looks to be a bullish turnaround after completion of a bit more than a 62% retracement. A 'bit' more than 62% often turns out to be an amount that makes the retracement of the prior move equal to 66% or a 2/3rds retracement. (Once retracements go beyond 66%, there's the possibility that there'll be a round-turn 100% retracement back to the prior low or close to it as seen in the Nasdaq indexes.)

I mentioned last time also that OEX had also reached an oversold 13-day RSI extreme under 30 and that OEX bellwethers IBM and GE got to likely support; to the $20 area in GE and to $185 in IBM. I also noted last week not to bet on much further downside, which suggested taking profits on bullish options positions.

I've highlighted support levels at 630, then at 620 in the S&P 100 and resistance levels at 645, extending to 654-655.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) Average appears to have completed a bullish turnaround and has traced out the most common bottom pattern in the major indexes, a V-bottom. Most 'common' that is, WITHIN an overall long-term uptrend or bull market, which I have continued to define as the primary trend.

Once INDU went beyond a 66% retracement, it's a matter of looking at prior support(s), and what looked most obvious as a next support was to 12500. The intraday low turned out to be 12471. It wasn't surprising to see the Dow retrace somewhat more of the June-September advance than the S&P given that it had tended to outperform in the summer advance. However, as seen in my first chart above (as part of my initial 'bottom line' commentary), INDU rebounded from its weekly long-term internal up trendline; i.e., the trendline connecting the MOST number of lows.

Near support now looks like 12800, with next support at 12600. While not highlighted on my daily Dow chart, very near resistance could come in at 13030-13050. Pivotal resistance is anticipated at 13200-13250, then at 13400.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

I wrote last week that the Nasdaq Composite (COMP), while seeming to be in "free fall" has also reached potential technical support in the low-2800 area. The low for the current move was 2810 and quite close to a late-June intraday low highlighted on the lower left of my COMP chart.

There was the possibility that the Composite would retreat to the early-June lows in the 2750 area but that wasn't much lower than the 2810 low to date.

Suggesting that COMP could have been at or near a bottom was that, as I wrote last week, COMP was quite oversold and that bullish sentiment had also fallen to the kind of high-bearishness/low-bullishness low that so often accompanies bottoms in the major indexes. Check and double check!

Support is apparent at 2900, then at 2860. Potential resistance is seen at 3000, extending to 3030-3040.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) Index has experienced a bullish turnaround from chart support in the 2500 area. NDX bellwethers AAPL and GOOG also rebounded from technical support areas: the low-$500 area in Apple and to around $650 in Google.

My first chart seen above highlights the rebound that occurred in NDX from its weekly long-term up trendline. The longer-term weekly Relative Strength Index (RSI) also seen with this chart indicated how oversold NDX got on an 8-week basis. Not shown is the 13-week RSI which showed/shows a similar oversold condition. As noted already, WITHIN a primary bull market at least, these indicators don't fall much further than to 30 or a bit under ahead of a bottom.

I suggested profit taking last week on "NDX puts and with other bearish positions", noting my trading philosophy "to not 'fight' it out for the last bit of downside as (index) lows often tend to be made all of a sudden; this versus highs (and a top) that tend to build over a longer time span."

Support in NDX is highlighted below at 2600, then in the 2550 area.

Resistance is apparent at 2700, extending to the 50-day moving average just overhead, currently at 2718.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock's (QQQ) chart reversed from the some bearish 'free fall' pattern as NDX and now looks to have completed its major downside correction or retracement of its June to September advance. The pattern of above-average volume days looks now to be a so-called "volume 'climax'". The volume pattern in the Q's almost always is above-average HIGH volume at lows, as traders jump out of fear and not from buying at perceived lows. Very FEW traders are buying when the crowd is selling, except for (mostly) the most gutsy (and often, most successful) group of professionals.

Near support could be found in the 61 area, then at the June lows at 60. Initial resistance is at 64, then at 64.5-65. Fairly major resistance begins in the 66.0 area.

Chart support is suggested at the low end of the last upside chart gap at 64, with next technical support suggested in the 62.5 area.

Resistance looks like 66 even, extending to 66.7, at the current 50-day moving average.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) chart, which had a bearish pattern coming into this past week, nevertheless looked like it "could be at or near at least an interim bottom based on how oversold it is and based on the idea that it may not retreat ALL the way to a retest of its June lows."

My take last week on RUT turned out to be the case or it seems to be so far, as the Index has seen a strong rebound from the minor double bottom low of late-July/early-August in the 764-765 area.

Near support is back up at 800, with next support at 780. Near resistance is at 810, extending to the 825 area.

As with the other major indexes, RUT had fallen to an oversold extreme below 30 in the 13-day RSI. The pattern of the 13-day Relative Strength Index falling to such lows has been a strong indicator of RUT bottoms in the past 3-4 years.



GOOD TRADING SUCCESS!


New Option Plays

Discount Stores & Appliances

by James Brown

Click here to email James Brown

Editor's Note:

There are plenty of bullish-looking trading candidates with the market in a multi-day bounce.

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Many of these need to see a break past key support or resistance:

(bullish ideas) VMC, TMO, SWK, AAP, N, HAIN, BEN, YUM, VTR, INGR, HP, VC, HOG


NEW DIRECTIONAL CALL PLAYS

Family Dollar Stores - FDO - close: 70.10 change: +1.27

Stop Loss: 68.85
Target(s): 74.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Some of the retail names are showing strength and FDO is one of them. Traders have been buying the trend of higher lows for several weeks. Now that trend has changed with the recent surged toward resistance at $70.00. The big spike higher you see in FDO on the 19th of November was the same day the stock market produced a big bounce higher. There was very little profit taking once it hit $70 and now FDO is pushing past this key level.

I want to see a little bit more confirmation so I am suggesting a trigger to buy calls at $70.25. If triggered our target is $74.50. More aggressive traders may want to aim higher. The Point & Figure chart is currently bearish but a move above $71.00 would create a brand new triple-top breakout buy signal.

Trigger @ 70.25

- Suggested Positions -

buy the 2013 Jan $72.50 call (FDO1319a72.5) current ask $1.65

Annotated Chart:

Entry on November xx at $ xx.xx
Average Daily Volume = 1.2 million
Listed on November 24, 2012


Whirlpool Corp. - WHR - close: 102.73 change: +1.70

Stop Loss: 99.40
Target(s): 108.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Positive data on housing could help boost the current rally in WHR. Stronger home sales should mean more sales of appliances. Right now WHR has broken out past resistance near $100 to hit new 52-week highs.

I am suggesting small bullish positions now (Monday morning). More nimble traders may want to wait for a dip into the $101.50-100.00 zone instead. Broken resistance near $100.00 should be new support. Our multi-week target is $108.50.

- Suggested *Small* Positions -

buy the 2013 Jan $105 call (WHR1319a105) current ask $4.10

Annotated Chart:

Entry on November xx at $ xx.xx
Average Daily Volume = 1.3 million
Listed on November 24, 2012



In Play Updates and Reviews

Five Days In A Row

by James Brown

Click here to email James Brown

Editor's Note:

The stock market's oversold bounce has now hit five days in a row on the S&P 500 index. The market ended the holiday week on a strong note with widespread gains.

We saw both our IWM and VNO trades stopped out.

Current Portfolio:


CALL Play Updates

Armstrong World Industries - AWI - close: 50.73 change: +0.51

Stop Loss: 49.25
Target(s): 54.50
Current Option Gain/Loss: + 3.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/24/12: The bounce in AWI continues. The stock added +1.0% on Friday. Shares are up four days in a row so it might be time for a dip.

NOTE: Fortunately, the option spread has narrowed again with the bid/ask at $1.70/2.00.

Earlier Comments:
Shares could see another short squeeze. The most recent data listed short interest at 20% of the small 26.4 million share float.

- Suggested Positions -

Long DEC $50 call (AWI1222L50) entry $1.65

chart:

Entry on November 21 at $50.25
Average Daily Volume = 685 thousand
Listed on November 20, 2012


Dillard's Inc. - DDS - close: 86.44 change: +0.44

Stop Loss: 82.75
Target(s): 89.75
Current Option Gain/Loss: + 4.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/24/12: DDS tagged a new all-time high on an intraday basis. Yet shares spent most of Friday's session between $86 and its old high set in early November. If the stock dips there might be short-term support at $85.00 or the 10-dma.

- Suggested Positions -

Long Dec $90 call (DDS1222L90) entry $1.05

chart:

Entry on November 20 at $85.05
Average Daily Volume = 489 thousand
Listed on November 19, 2012


Dover Corp - DOV - close: 63.88 change: +0.76

Stop Loss: 59.85
Target(s): 67.50
Current Option Gain/Loss: +21.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/24/12: DOV is extending its gains with a +1.2% rally on Friday. Shares are arguably short-term overbought here. I would look for a dip back to what should be support near $62.00 soon. However, DOV might make it to $65.00 (potential resistance) before correcting lower. I am not suggesting new positions at current levels.

- Suggested Positions -

Long 2013 Mar $65 call (DOV1316c65) entry $2.10

11/19/12 triggered @ 62.30

chart:

Entry on November 19 at $62.30
Average Daily Volume = 1.7 million
Listed on November 17, 2012


Netflix, Inc. - NFLX - close: 82.95 change: -0.05

Stop Loss: 79.25
Target(s): 89.75
Current Option Gain/Loss: - 21.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/24/12: NFLX underperformed the market on Friday with a minor loss. Shares spent the day churning inside a $2.00 range. I am not suggesting new positions at this time. The $85.00 level and the 300-dma, also near $85, could prove to be overhead resistance.

Earlier Comments:
NFLX could see a short squeeze. The most recent data listed short interest at 31% of the 54.1 million share float. NFLX can be volatile so I am suggesting small positions to limit our risk.

- Suggested Positions -

Long DEC $85 call (NFLX1222L85) Entry $4.60

11/20/12 new stop loss @ 79.25
11/16/12 triggered @ 82.25

chart:

Entry on November 16 at $82.25
Average Daily Volume = 6.5 million
Listed on November 15, 2012


O'Reilly Automotive - ORLY - close: 92.63 change: +1.08

Stop Loss: 89.95
Target(s): 95.75
Current Option Gain/Loss: + 2.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/24/12: ORLY displayed some relative strength on Friday. Shares gained +1.1% and broke through and closed above resistance at the $92.00 level.

Our target is $95.75 but more aggressive traders may want to aim for the $99-100 zone instead.

- Suggested Positions -

Long DEC $95 call (ORLY1222L95) entry $1.90

chart:

Entry on November 20 at $92.05
Average Daily Volume = 1.8 million
Listed on November 19, 2012


Pharmacyclics Inc. - PCYC - close: 53.79 change: +1.79

Stop Loss: 49.65
Target(s): 56.50
Current Option Gain/Loss: - 30.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/24/12: PCYC surged to new two-week highs with Friday's +3.4% gain. Readers may want to start raising their stops. We are aiming for $56.50. More aggressive traders may want to aim for the $59-60 area instead.

Earlier Comments:
I do consider this a more aggressive, higher-risk trade. Anytime you trade a biotech stock it can be a high-risk trade since you never know when a negative headline could send the stock crashing. Our target is $56.50. More aggressive traders could aim for the $59-60 zone instead.

- Suggested *Small* Positions -

long Dec $55 call (PCYC1222L55) entry $3.60

11/20/12 new stop loss @ 49.65
11/19/12 trade opened with PCYC's gap open higher @ 52.21

chart:

Entry on November 19 at $52.21
Average Daily Volume = 1.0 million
Listed on November 17, 2012


PUT Play Updates

Carpenter Tech. - CRS - close: 46.43 change: +0.36

Stop Loss: 48.05
Target(s): 42.50
Current Option Gain/Loss: -21.7%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/24/12: CRS rebounded off its intraday low on Friday. Yet shares failed to breakout past short-term resistance at the simple 10-dma. The stock is bouncing but the larger trend is still down.

We still have half a position open. I am not suggesting new positions at this time.

Earlier Comments:
Our multi-week target is $42.50. CRS can be somewhat volatile so readers may want to limit their position size to reduce risk.

- Suggested Positions -

Long Dec $45 PUT (CRS1222x45) Entry $1.15

11/19/12 sold half at the open. unfortunately CRS gapped open higher at $45.94
exit half @ 45.95, option @ $1.20 (+4.3%)
11/17/12 new stop loss @ 48.05, sell half of our position on Monday morning
11/14/12 new stop loss @ 49.05

chart:

Entry on November 12 at $48.23
Average Daily Volume = 460 thousand
Listed on November 10, 2012


Equity Residential - EQR - close: 54.46 change: +0.40

Stop Loss: 55.10
Target(s): 50.05
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
11/24/12: Friday was a quiet day for EQR. Shares did bounce off the $54.00 level but the stock is still poised for a breakdown.

I am suggesting small bearish positions if EQR trades at $53.65 or lower. Our short-term target is $50.05. You may want to aim lower but I am expecting $50 to offer some psychological support.

Trigger @ 53.65

- Suggested Positions -

buy the 2013 Jan $55 PUT (EQR1319m55)

chart:

Entry on November xx at $ xx.xx
Average Daily Volume = 1.69 million
Listed on November 21, 2012


InterOil Corp. - IOC - close: 59.82 change: +0.48

Stop Loss: 61.05
Target(s): 50.50
Current Option Gain/Loss: -27.7%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
11/24/12: IOC produced a bounce on Friday but the rebound stalled at round-number resistance near $60.00. The trend is still bearish. Readers could use this bounce as a new entry point to buy puts.

I want to remind readers that this is a more aggressive, higher risk trade. IOC is volatile and has a high amount of short interest.

*Small positions* - Suggested Positions -

Long DEC $55 PUT (IOC1222x55) entry $2.70

chart:

Entry on November 21 at $58.50
Average Daily Volume = 790 thousand
Listed on November 20, 2012


CLOSED BEARISH PLAYS

iShares Russell 2000 ETF - IWM - close: 80.47 change: +0.79

Stop Loss: 80.15
Target(s): 75.50
Current Option Gain/Loss: -45.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
11/24/12: The oversold bounce in the small cap IWM continues. This ETF is now up five days in a row. Shares rallied past potential resistance at $80.00, resistance at the 150-dma, the exponential 200-dma, and tagged the simple 200-dma. Our stop loss was hit at $80.15 in the process.

- Suggested Positions -

2013 Jan $75 PUT (IWM1319m75) entry $1.53 exit $0.84 (-45.0%)

11/23/12 stopped out at $80.15
11/17/12 the IWM looks poised to bounce
11/14/12 new stop loss @ 80.15
11/13/12 new stop loss @ 81.05

chart:

Entry on November 08 at $79.85
Average Daily Volume = 36 million
Listed on November 7, 2012


Vornado Realty - VNO - close: 75.61 change: +0.73

Stop Loss: 75.25
Target(s): 72.50
Current Option Gain/Loss: Dec75p: - 7.1% & 2013Jan$75p: - 7.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/24/12: We have been concerned that the oversold bounce in VNO might hit our stop. Sure enough, on Friday VNO actually gapped open higher at $75.29, which is above our stop loss at $75.25. This closed out the second half of our positions. We were fortunate that the December put didn't see that much of a move Friday morning.

- Suggested Positions -

DEC $75 PUT (VNO1222x75) entry $1.40* exit $1.30 (-7.1%)

- or -

2013 Jan $75 PUT (VNO1319m75) entry $1.90* exit $1.75 (-7.8%)

11/16/12 sold half of our position to lock in gains.
1/2 exit Dec $75 put @ $2.55 (+82.1%)
1/2 exit 2013 Jan $75 put @ $3.10 (+63.1%)
adjust the stop loss down to $75.25
11/15/12 SELL HALF of our positions to lock in gains tomorrow morning,
move the stop loss down to $76.25 for the rest
11/14/12 readers may want to start taking profits now
new stop loss @ 78.05
11/12/12 trade opened on gap down at $76.89
*option entry price is an estimate since the option did not trade at the time our play was opened.

chart:

Entry on November 12 at $76.89
Average Daily Volume = 1.1 million
Listed on November 10, 2012