Option Investor
Newsletter

Daily Newsletter, Wednesday, 12/5/2012

Table of Contents

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

Market Wrap

Another Bite Out of AAPL

by Keene Little

Click here to email Keene Little
With no news AAPL got hit with a lot of selling today and that dragged the indexes lower. The blue chips recovered but the tech indexes stayed in the red.

Market Stats

The only thing that surprises me about the numbers in the table above is that the stock indexes are not all red. Other than AAPL's weighting in the indexes, especially the techs, which obviously pulled the indexes lower, the market largely ignored what was happening to AAPL. "Oh look, that poor child is being mauled by vicious dogs. So, where shall we go eat?"

There was nothing newsworthy about AAPL to help explain the selling and that may have been a big reason why it was largely ignored as any kind of sentiment indicator. It's weighting in the indexes, especially the techs, obviously pulls the indexes down but the rest of the stocks did fine and held the blue chips up. Even most of the other tech stocks held up. The RUT barely closed in the red. So all in all, considering the debacle in AAPL, it wasn't a bad day (unless you hold AAPL stock).

Futures had rallied during the overnight session (for no particular reason other than to get the market to gap up) but the morning gap was immediately sold into (again). This is a disturbing pattern that should be spooking the bulls. But the strong selling into the early-morning low was bought and we got a little v-bottom reversal.

Actually the overnight rally in the futures was credited to some good news out of China. The government approved the ability for insurance companies to invest in commercial real estate. This of course helps with the liquidity problem by making more money available for lending. The oversold Shanghai Composite index (SSEC) rallied strong, up +2.9%. Unfortunately for the index it's a mere blip in its downtrend. But today's candle is a bullish engulfing candlestick for a possible key reversal. Bullish follow through would confirm it and a rally in SSEC could help the global markets believe things are getting better.

This morning's economic reports were mixed but didn't really seem to move the market in a direction that it wasn't already going. The ADP employment report showed 118K new jobs, which came is a little less than the expected 125K and less than October's 158K. As to why it dropped? You guessed it -- Sandy ate our jobs. Companies on the east coast were unable to hire as many people as they might have since they were dealing with the damage from Hurricane Sandy. ADP estimated Sandy consumed about 86K jobs so we'll see if she regurgitates them next month.

The other big number was the ISM Services, which came in at 54.7, essentially flat from October's 54.2. But it was a little better than the expected 53.7. Factory orders were up slightly in October, +0.8%, but significantly less than September's +4.8%. All in all, mixed reports this morning and that's added to mixed signals from the market.

There are more than a few of us trying to read the tea leaves and figure out how December might go. So far the start of the month hasn't been great but we're not seeing strong selling either. A finger to the wind tells me the winds are calm at the moment but I sense a stronger wind coming.

I read an interesting interview this morning by Todd Harrison at Minyanville with Jeff Saut, the Chief Investment Strategist at Raymond James Financial. Harrison asked Saut for his take on how December might go, to which Saut responded that he thought we'd get the Santa Claus rally after the political theatrics over the fiscal cliff come to some kind of compromise on taxes and push the rest of the decisions into next year. Honestly, it's anyone's guess how all that's going to play out.

I was more interested in Saut's comments about what he sees happening with mutual and hedge fund managers, most of whom are apparently hoping for a market decline in December. That would mean they're currently reluctant to buy any dips, hoping the dip will turn into a selloff. If the market is down from here and they've moved more into cash then the manager's performance will improve relative to the indexes. This goes for European as well as U.S. fund managers who are having a largely disappointing year. The key here, according to Saut's analysis, is that if the market does not decline then we could see a long squeeze into the end of the year as these underperforming managers are forced to chase the market higher.

The key takeaway here is that a rally into the end of the year would likely have nothing to do with underlying fundamentals, political shenanigans, moon phases or anything other than everyone chasing everyone else higher. So prepare for that possibility even if you see absolutely no reason for this market to rally. It would likely set up a bearish January but we'll have time to figure that out if December is bullish.

As I think about the possibility for a market melt-up into the end of the month, I can see that potential in the price pattern. But the pattern that is making the most sense to me at the moment is suggesting we will not see a rally. A strong selloff in the coming weeks is a strong possibility. It's one day at a time until the larger picture clears up. I'm leaning bearish (after a rally into the end of the week, hopefully) but I'll be ready to jump in long if the "long squeeze" materializes.

The weekly chart of SPX is a little spinning top so far as the bulls and bears battle for control with neither side willing to push very far. Monday's high was just shy of 1425, which is price-level resistance from previous highs and lows since April. At the moment I see higher potential to about 1440 to back test (again) its broken uptrend line from October 2011. My preferred wave count calls for just a correction to the October-November decline that will then be followed by a stronger decline into next year. But the alternate wave count calls for one more leg up to the 1500 area (dashed line) before the bears will have their turn. On a weekly basis the bears will not be confirmed the winner until they break prices back below the November 16th lows.

S&P 500, SPX, Weekly chart

The weekly chart above is using the log price scale, which is my preference for the longer-term views, especially when using trend lines. But as I've mentioned before, I constantly switch back and forth to see where those trend lines are located because more often than not I'll see price reacting to the trend line. As an example, the daily chart below is using the arithmetic price scale. On the weekly chart you can see the broken uptrend line from October 2011 above the current price (near 1440 mentioned above). On the daily chart the same trend line is currently near 1413, which held as resistance today. The good news for bulls is that the broken H&S neckline, near 1407, held into the close. These trend lines are shown with a closer view on the 120-min chart following the daily chart below.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1435
- bearish below 1385

Looking at the bounce pattern off the November 16th low, the 120-min chart below shows what I think is the best wave count for it. I don't believe it's an impulsive wave count, although I've seen some try to make it one and while it violates no EW rules I think the better count is a corrective one. I'm showing two a-b-c's to complete a double zigzag correction to the October-November decline. It needs one more leg up to complete the 2nd a-b-c and two equal legs up for it (which starts from the November 28th low near 1385) gives us an upside projection to 1432.50 (1436.53 if I use a slightly different way of counting the a-b-c waves). This places the price-level resistance near 1434 at the same spot and therefore makes for a very good setup to watch for a very good shorting opportunity. That's the setup and now we wait to see if it completes.

S&P 500, SPX, 120-min chart

As can be seen on the above chart, SPX has been oscillating around its broken uptrend line from October 2011 (green), near 1413, as well as its broken/recovered H&S neckline, near 1407, which held this afternoon's pullback. Based on the pullback pattern from today's midday high I'm looking for the rally off this morning's low to continue on Thursday and hopefully into Friday. While the key level to the downside is last week's low near 1385, a drop below today's low near 1398 would have me worried that there will be no further bounce. Otherwise I hope to get to the setup near 1434 since it could be a beauty of a trade for the bears (using a stop just above 1440).

The H&S neckline for OEX is part of a 643-647 price-level resistance band that I've shown before and is on its daily chart below. Price made it up to just above the band and almost tagged the 50-dma on Monday, at 651, but has since dropped back down through that band. The rejection at its broken uptrend line from October 2011 adds to the bearish picture. If I were not looking at the intraday pattern, which keeps me bullish into tomorrow/Friday, I'd be strongly recommending that short is the place to be right now, with a stop above Monday's high. Sometimes I get too cute in trying to figure out a better price to get into a position and end up missing it. For the want of pennies I miss the dollar move. Is that going to be true here? It could be but I'm still trying to pick up some pennies with a higher entry to get short (wink).

S&P 100, OEX, Daily chart

Whereas SPX was able to hold above its H&S neckline, the DOW is finding it to be resistance and this one has me worried about the short-term bullish potential for the rest of the week. In addition to the 50% retracement of its October-November decline, at 13067, its H&S neckline at 13087 has been tough resistance for the bulls to crack. Each rally attempt is sold into and that will need to change tomorrow if the bulls hope to achieve a move up to at least the 13300 area to test its broken uptrend line from October 2011 (arithmetic scale).

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 13,100
- bearish below 12,765

The DOW's 120-min chart below shows the leg up from November 16th in a parallel up-channel (with only a brief break of the bottom yesterday and this morning) and a closer view of its battle with the H&S neckline (blue line that was tapped yesterday morning and twice today). If we a rally tomorrow I'll be watching for a move up to the first price projection near 13220 (two equal legs up from November 28th) and then potentially up to 13304 to achieve two equal a-b-c's up from November 16th and a back test of its broken uptrend line from October 2011. If we have a clean 5-wave move up from this morning's low to either of those two upside targets it will be an outstanding setup for the bears. It's just a setup at this point and I'll be watching to see if it completes.

Dow Industrials, INDU, 120-min chart

The name of the chart below is OUCH. As the title of tonight's wrap said, someone took a big bite out of AAPL and the selling was relentless, right into the close. By the time the carnage was over AAPL lost -37 (-6.4%). There was no real news driving the move but it's what happens when so many are convinced it's the stock to own. Those owners become sellers-in-waiting and when the selling is triggered there are simply not enough buyers to hold prices up. Dumping into year-end, to take advantage of the lower capital gains rate this year vs. next, is the only thing I can think that's driving this. That and the fact that so many fund managers own this stock and the last thing they need is for it to be pulling down their performance.

I see bounce potential at least back up to its downtrend line from September, currently near 561, before heading lower. Back above price-level S/R at 570 would at least neutralize this somewhat. But what's clearly bearish here is the strong rejection following the back test of the broken trend line along the highs from 2000-2007, which was last tested on Monday (3 drives to a high on the trend line). While there's always bounce potential, and maybe it will look better in January, but right now there's no way I could recommend this stock to anyone. I simply do not care about funnymentals; this chart is bear-butt ugly.

Apple Inc, AAPL, Daily chart

On Monday I had shown on NDX's chart how it was rejected at its 50-dma following the gap up to it. The daily candlestick was a bearish engulfing one, which left an outside down key reversal day. But it held its 200-dma at the close and left the possibility for recovery. Unfortunately it sold off on Tuesday and wasn't able to close back on its 200-dma by the close, although the afternoon rally was a gallant effort. Today's gap down and selloff was brought to us courtesy of AAPL and quite frankly the only surprising thing is that NDX did not finish down stronger. AAPL could have spooked the entire market but it seemed to be largely ignored. But AAPL's weighting in NDX makes it hard to ignore. Tech bulls can at least be thankful for the other tech stocks that held up.

The next support level for NDX, if it sells off some more on Thursday, is its 20-dma at 2611, which supported the pullback on November 28th. If the selling in AAPL is finished for at least a day or two and it gets a bounce I can the potential for NDX to make a higher bounce with the broader market so I show that possibility (green dashed line). But first the bulls need to prove they can get through both the 50-dma, now near 2688, and the 50% retracement of the September-November decline, at 2686. Then it will have to deal with its downtrend line from September, near 2711. I don't like the chances for a rally in the NDX as much as I do for the blue chips and this one makes me nervous when looking for a rally into Friday.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2700
- bearish below 2613

I was surprised the small caps didn't sell off harder with AAPL today. Perhaps that's a bullish sign. After being dragged lower off this morning's gap up, and testing yesterday's low, the RUT ran back to the upside and almost made it back up to the morning high. It was a good recovery and even though it gave back some of that bounce in the afternoon it looks like a correction to the rally and therefore I had suggested near today's close that we had a setup for a rally out of the gate on Thursday. The daily chart doesn't help us any at the moment as price struggles between support at its 50-dma, near 818, and resistance at its broken uptrend line from October 2011, near 828. That's a 10-point spread at the moment that could be filled with a lot of chop. But as long as that broken uptrend line remains resistance, setting up a potential kiss goodbye, it's not a good time to be long.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 828
- bearish below 798

In Monday's update of the banking index, BKX, I pointed out resistance at 49 and 49.50 and suggested it's not bullish until it can rally above 49.50. To the downside it has trend line, 200-dma and gap support above 47 so it's not bearish until it declines below 47. To put its price pattern into perspective, the weekly chart below shows what a bullish month could do for this index. The top of a rising wedge pattern for the bounce off the October 2011 low will be up near 53 by the end of the month. I show some price relationships between the up legs for the bounce and why 53.35 makes a good upside target if the bulls get some help this month (such as the long squeeze I mentioned earlier in the wrap. The 2nd leg up for the bounce off the October 2011 low is 62% of the 1st leg at 52.06 and the September highs were 52.11 and 52.04. The 3rd leg up would be 62% of the 2nd leg at 53.35 and a little throw-over finish to the rising wedge at the end of the month would tag that level. This one has some potential and is a reason that I will be cautious in shorting attempts in the other indexes. The upside potential for BKX would be negated with a drop below 47.

KBW Bank index, BKX, Weekly chart

The U.S. dollar made it down to its uptrend line from October 2011, near 79.55, so any lower would show that the bears are control. But as long as 79.50 holds I'm expecting a rally to resume. It's at least a low-risk entry for a long play in the dollar -- place your stop just below today's low.

U.S. Dollar contract, DX, Daily chart

Gold got a little more follow through to the downside and broke below 1704 support, putting it on a confirmed bearish path at the moment. It now needs to get back above 1735 to negate the bearish wave count. If it drops further from here we'll probably see some consolidation for a few days near 1670 where it would test its November low at 1672.50 and its 200-dma near 1665. After a new low from there I would expect a bounce back up into January to retrace a portion of the decline from November 23rd before starting a stronger decline.

Gold continuous contract, GC, Daily chart

Oil continues to hide its intentions well but the overall structure of the bounce off the November 7th low remains choppy and corrective. That calls for a complete retracement and new lows. Whether it will be from here or after another bounce into the end of the year is what I'm having a hard time figuring out. It takes a break below 85 to confirm the next leg down is already in progress.

Oil continuous contract, CL, Daily chart

Thursday will be a quiet day for economic reports but Friday will be a big day as we get the payrolls numbers, Michigan Sentiment and Consumer Credit (since wages are not rising we'll see if shoppers are loading up their credit cards for the holiday season again, which would depress spending and savings in the early months of next year).

Economic reports and Summary

As can be seen on the SPX daily and weekly charts at the beginning of tonight's review, we've got spinning tops for the candlesticks, which represents indecision as the bulls and the bears battle it out for control. The consolidation is beneath resistance for some indexes and above support for others and that's not helping us figure out the next move. It's a time for caution by both sides and a reason to not get caught in the crossfire as both sides shoot at each other.

My best guess for the rest of this week, based on the intraday patterns, is for a rally into Friday to set up a good shorting opportunity into next week. Hopefully a rally into Friday (assuming we'll get one) will be a nice 5-wave move up from today's low so that it will set up at least a pullback if not the start of a much stronger decline, one that will give us a good trade (I only care that it makes a tradable move, not about the direction).

But I need to emphasize strongly that shorting the market this month is a risky venture. But hey, no risk, no reward (wink). December is typically bullish and on top of that we've got many fund managers who are behind the eight-ball and might be forced to do lots of buying if the market even hints of a rally. It would be a long squeeze as discussed at the beginning of tonight's report. A rally doesn't have to make any sense and if there's market breadth behind the move just join in and trail your stops along the way. Bears have to be very careful not to fight a rally just because it makes no sense.

The flip side of that coin is that bulls need to be especially careful here. I would say the majority of people are expecting a rally this month, even if they're not feeling particularly bullish (as measured by the bullish vs. bearish sentiment indicators). The price pattern supports the idea that December is going to instead sell off and it could do so in a very hard way. Don't be looking to buy the dips if the key levels to the downside start breaking (primarily the November 28th lows).

Next Wednesday we'll have the FOMC rate decision and while no one cares about the rate decision they do care about more drug money. The Fed has hinted about more QE money (to replace the Operation Twist money, which is about $45B/month, that expires at the end of this month). If there's no hint of a fiscal resolution it could prompt the Fed to make a preemptive strike and boost their Treasury-buying capability (foreigners could back away from buying Treasuries if they feel we can't get our fiscal house in order, which would force the Fed into buying more).

As for the stock market, QE hasn't been working and it won't work any better in the future but it could be good enough for a short-term squirt to the upside. Throw in the behind-the-curve equity managers and you have the makings for a rally into year-end. But if the politicians coordinate a delay on fiscal decisions into the new year and the Fed decides to hold off on any new QE money, we could find a lot of disappointed traders. The uncertainty could be too much for the bulls to hold back the bears.

This is of course all speculation about what could happen and I have no clue. Nor do I have a clue how the market will react to any of these possibilities. It's best to stick with the charts and at the moment they suggest caution. Hopefully by Friday we'll have a better setup for next week so that's what I'm waiting for.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

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


New Option Plays

Industrial Goods

by James Brown

Click here to email James Brown

Editor's Note:

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, ASH, CIB, EOG, MSI, APC, WST, RY, NDSN, ATHN, VMI, CRR


NEW DIRECTIONAL CALL PLAYS

Rockwell Automation - ROK - close: 80.39 change: +1.44

Stop Loss: 78.90
Target(s): 84.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 5 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
ROK has spent over a month consolidating sideways under resistance at the $80.00 level. Now shares are finally breaking out and hitting new eight-month highs. This should herald the next leg higher and ROK is likely to challenge the next level of resistance near $85.00.

I want to see a little bit of confirmation. I am suggesting a trigger to buy calls at $80.60 with a stop loss at $78.90. Our target is $84.75.

Trigger @ 80.60

- Suggested Positions -

buy the 2013 Jan $85 call (ROK1319a85) current ask $1.00

Annotated Chart:

Entry on December xx at $ xx.xx
Average Daily Volume = 1.0 million
Listed on December 05, 2012



In Play Updates and Reviews

Another Mixed Session

by James Brown

Click here to email James Brown

Editor's Note:

Stocks bounced off their late morning lows but gains were fading lower into the afternoon.

FLS has been triggered. WHR is stopped out. I have removed SBUX.

Current Portfolio:


CALL Play Updates

Dover Corp - DOV - close: 63.50 change: +0.11

Stop Loss: 61.75
Target(s): 67.50
Current Option Gain/Loss: + 7.1%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/05/12: DOV managed a minor gain after traders bought the dip this morning. The value of the option did not change. Technical traders will note that the MACD on the daily chart has turned bearish suggesting momentum is waning. The stock seems stuck in the $62-64 zone. I am not suggesting new positions at this time.

- Suggested Positions -

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

11/28/12 new stop loss @ 61.75
11/19/12 triggered @ 62.30

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


Flowserve Corp. - FLS - close: 141.21 change: +0.31

Stop Loss: 138.90
Target(s): 148.50
Current Option Gain/Loss: -11.1%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/05/12: FLS continued to rally and hit new multi-week highs. Our trigger to buy calls was hit at $141.50. I would still consider new positions now at current levels. FYI: The Point & Figure chart for FLS is bullish with a $153 target.

- Suggested Positions -

Long 2013 Jan $145 call (FLS1319a145) Entry $2.70

Entry on December 05 at $141.50
Average Daily Volume = 518 thousand
Listed on December 04, 2012


Home Depot - HD - close: 64.02 change: -0.22

Stop Loss: 62.90
Target(s): 69.50
Current Option Gain/Loss: -34.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/05/12: My concern with HD is growing. Shares spiked down this morning but traders bought the dip near last week's lows. The breakout above resistance near $65.00 is starting to look like a bull trap pattern. There is no change from my prior comments. Odds are good we could see HD pull back toward support near $62.00 and its 40 or 50-dma.

More conservative traders may want to raise their stops to limit their risk further. More aggressive traders might want to adjust their stops so it's under $62.00. I am not suggesting new positions at this time.

- Suggested Positions -

Long 2013 Jan $65 call (HD1319a65) entry $1.95

Entry on December 03 at $65.35
Average Daily Volume = 8.5 million
Listed on December 01, 2012


Ingredion Inc. - INGR - close: 65.94 change: +0.51

Stop Loss: 63.25
Target(s): 69.00
Current Option Gain/Loss: + 7.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/05/12: INGR continues to show relative strength and hit new highs today above $66. Readers may want to wait for a dip or a bounce near $65.00 as our next entry point.

- Suggested Positions -

Long 2013 Jan $65 call (INGR1319a65) entry $2.00

Entry on December 04 at $65.25
Average Daily Volume = 504 thousand
Listed on December 03, 2012


O'Reilly Automotive - ORLY - close: 91.38 change: -1.52

Stop Loss: 89.95
Target(s): 95.75
Current Option Gain/Loss: -60.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/05/12: The pullback in ORLY continues. The stock dipped to $90.74 intraday before paring its losses. We're three days into the week and right now the weekly chart is showing a bearish engulfing candlestick reversal pattern forming for this week. I am not suggesting new positions at this time.

- Suggested Positions -

Long DEC $95 call (ORLY1222L95) entry $1.90

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


Precision Castparts - PCP - close: 184.09 change: +2.37

Stop Loss: 179.75
Target(s): 188.00
Current Option Gain/Loss: +21.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/05/12: There was no follow through on the recent pullback in PCP. Instead shares reversed higher with a +1.3% gain as traders bought the dip near its 10-dma. The stock is once again challenging resistance near $185.00. Please note our new stop loss at $179.75.

I have listed the December calls but you might want to use the January calls instead.

- Suggested *Small* Positions -

Long DEC $185 call (PCP1222L185) Entry $1.85

12/05/12 new stop loss @ 179.75

Entry on November 29 at $182.04
Average Daily Volume = 762 thousand
Listed on November 28, 2012


Pharmacyclics Inc. - PCYC - close: 53.59 change: -0.96

Stop Loss: 51.45
Target(s): 56.50
Current Option Gain/Loss: - 40.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/05/12: Yesterday's pullback continued today and PCYC gave up -1.75%. More conservative traders may want to inch their stop losses higher. I am not suggesting new positions at this time.

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.

- Suggested *Small* Positions -

long Dec $55 call (PCYC1222L55) entry $3.60

12/03/12 new stop loss @ 51.45
11/20/12 new stop loss @ 49.65
11/19/12 trade opened with PCYC's gap open higher @ 52.21

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


Trimble Navigation - TRMB - close: 56.07 change: +1.15

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

Comments:
12/05/12: TRMB displayed relative strength today with a +2.0% gain but the rally stalled at resistance near $56.00 again. We are waiting for a bullish breakout higher.

I am suggesting small bullish positions if TRMB can trade at $56.15 or higher. If triggered our short-term target is $59.75.

Trigger @ 56.15

- Suggested Positions -

buy the 2013 Jan $57.50 call (TRMB1319a57.5)

Entry on November xx at $ xx.xx
Average Daily Volume = 708 thousand
Listed on November 28, 2012


PUT Play Updates

Humana Inc. - HUM - close: 65.06 change: -0.08

Stop Loss: 66.51
Target(s): 60.25
Current Option Gain/Loss: -36.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/05/12: HUM hit a new low for the week near $64.50 before recovering. The 10-dma remains overhead resistance.

- Suggested Positions -

Long DEC $65 PUT (HUM1222x65) entry $1.98

Entry on November 28 at $64.20
Average Daily Volume = 3.0 million
Listed on November 27, 2012


InterOil Corp. - IOC - close: 54.35 change: +1.85

Stop Loss: 57.55
Target(s): 50.50
Current Option Gain/Loss: + 5.5%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
12/05/12: After a big decline yesterday IOC managed to recoup most of its losses with a +3.5% bounce today. The bounce did stall at what should be round-number resistance near $55.00 this afternoon. That doesn't mean the bounce is over. The next resistance is probably the 10-dma near $56.40. I am not suggesting new positions at this time.

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

12/04/12 new stop loss @ 57.55
11/28/12 new stop loss @ 60.15

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


Range Resources - RRC - close: 64.61 change: +1.40

Stop Loss: 66.05
Target(s): 56.50
Current Option Gain/Loss: -16.6%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/05/12: RRC started the day with a spike higher. Shares opened at $63.72 and surged to $65.00 before pausing. I suspect this sudden strength is a reaction to the M&A news that Freeport was buying PXP and MMR. Suddenly investors were wondering who else might be a takeover target. I would wait for a new drop in RRC under $65.00 before considering new bearish positions.

Earlier Comments:
I do consider this an aggressive, higher-risk trade. RRC can be volatile and there has been takeover chatter in the past. We want to keep our position size small to limit our risk.

- Suggested *Small* Positions -

buy the 2013 Jan $60 PUT (RRC1319m60) entry $1.20*

*option entry price is an estimate since the option did not trade at the time our play was closed. The first trade on Dec. 5th was at $1.00.

Entry on December 05 at $63.72
Average Daily Volume = 1.5 million
Listed on December 04, 2012


Sears Holding - SHLD - close: 41.21 change: -1.67

Stop Loss: 44.05
Target(s): 40.25
Current Option Gain/Loss: -12.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/05/12: The trading gods are smiling on us with SHLD's relative weakness. There was no follow through on the recent bounce. The stock has reversed into a new relative low. The intraday low was $40.70. We are aiming to exit at $40.25 but readers may want to exit early now.

Unfortunately the option spreads have not improved and remain ridiculously too wide. I am not suggesting new positions.

- Suggested Positions -

Long 2013 Jan $45 PUT (SHLD1319m45) entry $2.15

12/03/12 new stop loss @ 44.05
12/01/12 new stop loss @ 45.25
11/28/12 triggered

Entry on November 28 at $45.75
Average Daily Volume = 1.2 million
Listed on November 26, 2012


Teradata Corp. - TDC - close: 57.94 change: -0.16

Stop Loss: 62.10
Target(s): 55.15
Current Option Gain/Loss: +58.1%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/05/12: TDC spiked down to $56.10 this morning before bouncing back and recovering most of its losses. Today's move almost looks like a one-day bullish reversal pattern so be careful here. I would expect a bounce back toward the $59-60 area. Readers may want to take profits now. I am not suggesting new positions at this time.

Our target is $55.15. More aggressive traders could aim a lot lower. The Point & Figure chart for TDC is bearish with a $44 target.

- Suggested Positions -

Long 2013 Jan $55 PUT (TDC1319m55) entry $0.86

Entry on December 03 at $60.00
Average Daily Volume = 2.2 million
Listed on December 01, 2012


CLOSED BULLISH PLAYS

Starbucks Corp. - SBUX - close: 50.79 change: -0.33

Stop Loss: 49.95
Target(s): 55.85
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
12/05/12: It was investor day for SBUX and the stock displayed some volatility. Initially SBUX gapped higher but was immediately sold and shares dipped under $50.00 before recovering. The action is short-term bearish. Our trade has not opened yet and I am removing SBUX as a candidate. We'll look at it again if shares challenge resistance near $52.00 in the future.

FYI: At its conference today SBUX said they plan to open 1,500 new stores in the U.S. over the next five years, which would put their total at 12,600. SBUX is planning to open +2,000 new stores worldwide over the next two years, which would put the grand total at close to 20,000 stores.

trade did not open.

12/05/12 trade did not open. removed SBUX from the newsletter

chart:

Entry on November xx at $ xx.xx
Average Daily Volume = 8.1 million
Listed on November 29, 2012


Whirlpool Corp. - WHR - close: 98.62 change: -1.80

Stop Loss: 99.40
Target(s): 108.50
Current Option Gain/Loss: -41.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/05/12: It was a bearish day for WHR. The stock started the session weak with a breakdown under $100 and quickly hit our stop at $99.40. A midday bounce higher failed at $100 and WHR rolled over. The next test of support is the bottom of its bullish channel near $97.50.

- Suggested *Small* Positions -

Long 2013 Jan $105 call (WHR1319a105) entry $3.75 exit $2.20*(-41.3%)

12/05/12 stopped out at $99.40
*option exit price is an estimate since the option did not trade at the time our play was closed.

chart:

Entry on November 26 at $101.89
Average Daily Volume = 1.3 million
Listed on November 24, 2012