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Newsletter

Daily Newsletter, Saturday, 11/2/2013

Table of Contents

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

Market Wrap

Week Finishes Flat As Fed Holds Steady

by Keene Little

Click here to email Keene Little
The market had rallied on hopes there would be more money coming from the Fed (now that the taper talk has been put aside) but following the post-FOMC disappointment the week finished flat. Now waiting for the next catalyst.

Market Stats

The numbers in the table below show the mixed and flat results for the past week. The RUT finished weak, as did the home construction index, down -2% and -3.3%, respectively. The metals, oil and commodities index also finished weak, down about -3%. The month of October though was much stronger than had been expected. While the gains were not that great, up about +0.25%, it was at least green for most indexes (not the RUT, SOX or home builders). YTD performance has been nothing less than stellar. Can the bulls hold these gains, and maybe even add to them, in the final two months of the year. It's very rare for the market not to at least test its January 1st level at least once during the year, something this market has not done. That would essentially mean a collapse in the market in the next two months and while that seems very unlikely it's a risk.

Week ending November 1

The RUT and commodities were weak on Friday, capping off their weakness for the week and month. The techs were lifted back up into Friday's close otherwise they would have closed lower for the day as well. It was looking like money was leaving the riskier stocks and heading into the bluest of the blue chips -- the DOW was the stronger index on Friday.

Friday, November 1

The past week finished with a doji candlestick for many indexes, which reflects indecision. The week started off strong as the market anticipated additional evidence from the Fed's FOMC scheduled announcement Wednesday afternoon. There had been a very steady lift higher from the October 23rd low, peaking Wednesday morning. There was some nervousness into the FOMC announcement and then selling following it.

Price action was quite a bit more volatile after Wednesday's high than what we saw for the five days preceding the high and it was only a Friday afternoon rally that saved us from a worse week. The resulting doji for the week marks either consolidation before pressing higher or it's the middle candle of a 3-candle reversal pattern, which needs a red candle for the coming week to give us a sell signal. As I'll review in this weekend's charts, there's reason to believe we're at a turning point but it's too early to tell.

Last week was a busy one for economic reports and they were mixed, which adds to the multitude of opinions about what the Fed will do next. Where bad is good, economic slowing is somehow good for the stock market because it means the Fed will keep its foot on the gas pedal. Never mind nothing the Fed has done has helped the economy, the only thing the stock market cares about is how much money will be printed and given to the banksters to then stuff into the stock market and other assets.

Lending and borrowing is still way down and the velocity of money shows the Fed continues to lose the battle with the money supply equation. They're shoveling money into the wind and it's not getting to where they want it to go. The banks are benefitting and the stock market is benefitting but it has unfortunately built another asset bubble that has no fundamental underpinnings. The dot.com bubble was built on hype and no earnings and it collapsed. The housing bubble was built on the idea that housing prices will always go higher. The collapse, even after a bounce, has left millions of home owners upside down with their mortgages.

Now we have a stock market where everyone believes it can only go higher as long as the Fed keeps pumping money into it. There seems to be little realization, again, that it's not the money doing to the trick; it's sentiment and it's bullish thinking the Fed is this all powerful entity. When that faith is lost, and it will be, the Fed will try printing more money to correct the problem (just more of the same that's not working now and will only exacerbate the problem later). When it doesn't help and the stock market realizes it was just another bubble there won't be enough Fed money to stop the damn from breaking.

The next "too big to fail" bank will be the Fed itself. The central bank has been in an all-out effort to bail out the government's profligate spending and it won't be long before they're going to be demanding the tax payer bail out the private consortium of bankers known as the Federal Reserve System. We'll hear all about financial Armageddon and how we have to bail out the banks again (this time much louder demands and threats of contagion) and it will be interesting to see what the people have to say about it and how much they'll revolt if Congress again fails to listen.

Bullish sentiment is very high again, along with measures like NYSE margin debt, as the market hits many overbought indictors. Now that we've made it through what is typically a rough period for the market -- September-October -- there is general agreement now that the market will simply melt higher into the end of the year. That's clearly a possibility and while there is the potential for last Wednesday's highs to be THE highs, we have no confirmation yet. In some years we've seen major highs in October and we have the same potential this year.

October has the reputation for being the bear killer -- many bear markets have completed in October, followed by v-bottom reversals and the start of the next bull market run. October 2002 and October 2011 were v-bottom reversal. The November 2008 low was followed by a big flush in October. But one of the most important highs in the last decade was the October 2007 high. In fact following the October 11, 2007 high for SPX the NDX hit its high on October 31st. Going way back, the final high in 1929 was in October. It was not a good time to be in the market for the rest of the year from that high. Not quite as far away, the 1987 crash followed a high in October. One could easily say October is as much a bull killer as it is a bear killer. Projecting highs into the end of the year, just because September-October was bullish, is not necessarily a safe thing to do.

There are other time relationships in play between previous major market turns and the current one. SPX made a high on July 16, 2007 and then 62 trading days later it topped out on October 11th. This year SPX made a high on August 2nd and then 62 trading days later made a high on October 30th. There were 60 months between the October 2002 low and October 2007 high and now we're another 60 months to October 2013. From the March 2003 low it was a Fibonacci 55 months to the October 2007 high. The same 55 months from March 2009 is October 2013.

So we've got time pointing to the potential for a major market high and now we need to see if price agrees. In last Wednesday's wrap I showed the DOW's weekly chart with a wave count that supports the idea for a further rally into the end of November and an upside target near 16200, if not higher to price projections near 16700 where the top of its parallel up-channel from October 2011 intersects the projections at the end of the year. So that bullish potential needs to be kept in mind and so far we don't have any kind of confirmation that last week's high was the final high. It was a good setup for a high on Wednesday for multiple indexes but price action since Wednesday's high leaves the potential for higher prices yet.

The use of up-channels for the various indexes shows us it's the DOW that stands alone in showing more upside potential. While the other indexes could see minor new highs we don't have the same bullish potential shown on the DOW's chart. Perhaps we should use the granddaddy of the indexes, the Wilshire 5000, to see where the "market" might be headed next.

The weekly chart of the W5000 shows a parallel up-channel from March 2009 and then shorter-term up-channels from October 2011. There's also a price projection at 18831 for two equal legs up from 2009, for a large A-B-C rally. The tops of the channels and the price projection all intersect near the current price at the current time. At the same time price is up against resistance we're seeing bearish divergence at each of the two highs since May 2013. A 5-wave move for the c-wave up from October 2011 also looks complete. While this is no guarantee that the market will top out here and now, it's not a good setup to be betting on the long side.

Wilshire 5000 index, Weekly chart

Getting in closer with the daily chart, the tops of the up-channels, as well as a trend line across the highs from May-August-September, it's easier to see how price has been reacting to the trend lines. Price rallied above the top of the up-channel from 2009 (the blue line) this week and made it up to the top of the up-channel from October 2011 (green line). It then pulled back to the trend line along the highs from May (gray line) and bounced Friday afternoon to close at the top of the up-channel from 2009. If the bears are grabbing hold of this market we should see a drop below Friday's low at 18653 and continue lower. We've got the setup for it but not the confirmation of a top yet, which needs an impulsive (5-wave) move down from last week's high. The next couple of days will help us identify whether or not the bulls are too tired to drive it back up.

Wilshire 5000 index, Daily chart

For the Wilshire 5000 index I mentioned the price projection to 18831 for two equal legs up from 2009. The rally to Wednesday morning's high was to 18928 and from there it immediately sold off and closed at 18782. It closed below the 18831 projection on Thursday and Friday as well. For SPX the same projection for two equal legs up points to 1778 and Wednesday morning's high stopped 3 points shy of it at 1775. But the 1775 high was good enough for a tag of the top of its parallel up-channel from March 2009, as can be seen on its daily chart below. The trend line along the highs from August-September should not be an important trend line (from an EW perspective) but many traders are watching it and thinking we've got a bullish breakout. That trend line is currently near 1750 and therefore a drop below that level would leave a failed "breakout" and therefore likely be followed by more selling.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- Stay bullish above 1750
- bearish below 1740

One of the reasons why I say we don't have confirmation of a top in place yet is because we don't have an impulsive (5-wave) decline from the high. So far it's only a 3-wave pullback, which could be just an a-b-c correction before heading higher on Monday. The bearish interpretation of the pattern is that we have a 1-2, 1-2 wave count to the downside and Monday will see a stronger decline as the pattern develops into a 5-wave move down, as labeled on the chart. Friday afternoon's rally into the close managed to tag its new downtrend line from Wednesday and therefore it's a good setup for the bears to pounce on Monday. I show a potential bullish descending wedge pattern from last Wednesday's high but as noted for MACD, there's no bullish divergence supporting this pattern. A rally above Thursday afternoon's bounce high near 1769 would leave a confirmed 3-wave pullback and point higher whereas a drop below 1740 would confirm the 5th wave in the move up from October 9th did in fact finish on Wednesday.

S&P 500, SPX, 60-min chart

Stepping back a lot further, the monthly chart of SPX below shows a Bollinger Band and a line chart (reflecting monthly closing prices) and the times price has pushed above the BB. As with many technical indicators, this does not tell us price will turn down from here, especially as we see price has pushed the BB higher many times before, but with it poking above the top of its BB we know price is stretched and it's happened as RSI has pushed up to the downtrend from 1996. So on a monthly basis it's overbought against BB resistance (as well as the tops of its up-channels mentioned earlier) and making new price highs with bearish divergence. This setup tells me we're in for more than just a pullback correction before heading higher again; when it breaks it's likely to break hard to the downside. This market is stretched too much to the upside with weaker market breadth and momentum than previous highs. It's another bubble looking for a pin.

S&P 500, SPX, Monthly chart

The DOW's test of its September high has so far left a bearish divergence and a potential triple top as the oscillators threaten to roll back over from overbought (especially on a weekly basis). It's too hard to show it on the daily chart below but an uptrend line from October 9th through Thursday morning's low was broken Thursday afternoon and Friday's bounce only managed to come back up to the line, which it tagged heading into Friday's close before dropping back down a little. A selloff on Monday would leave a bearish back test and kiss goodbye, which would help confirm the bearish setup on the daily chart. But if the bulls step back in and push the market higher next week we'll be able to see how the DOW handles the trend line across the highs from August-September, near 15765.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 15,800
- bearish below 15,360

NDX has been trying hard to get through the tops of its up-channels from December 2012 and a shorter-term one from June, both intersecting near 3410 in the coming week. It has formed a small rounding top over the past nine trading days, shown more clearly on its 60-min chart after the daily chart below. With the oscillators rolling over from overbought it's looking like the back and forth price action is being won by the bears, also evident in the string of red candles as it attempts to hold up.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 3410
- bearish below 3300

The rounding top for NDX can be more clearly seen on its 60-min chart below. This is how tops typically form, vs. the typical v-bottom reversal, as the bulls and bears duke it out for control. Commodities often make v-tops and rounded bottoms since the fear of missing the move higher generally see a capitulation of buyers in the commodities, marking a top with a sudden reversal. Look at gold's daily chart back in August and September 2011 and you'll see what I mean. Bottoms in the commodities tend to be messy affairs like tops in stocks. If NDX can break out above the top of this rounding pattern and above the tops of its up-channels, near 3410, it would be a bullish statement. But if it breaks the short-term shelf of support near 3367 I think it's going to be lights out for the bulls.

Nasdaq-100, NDX, 60-min chart

A weekly review of the RUT below shows the drop from resistance at the trend line along its highs from September 2012 and the price projection at 1119.49 where its A-B-C rally from March 2009 has two equal legs up. It tried 6 times to get above that 1119.49 projection and each day it closed below it. Once the buyers gave up it was the sellers who took control and the distribution pattern over the previous 6 days leading up to Wednesday's high was followed by stronger selling and the RUT finished weak. Weekly and daily oscillators have rolled over from overbought and it's looking like a top. Better confirmation of that will come with a break below its uptrend line from November 2012, currently near 1075, and its 50-dma near 1071.

Russell-2000, RUT, Weekly chart

Key Levels for RUT:
- bullish above 1124
- bearish below 1070

Bonds sold off following the FOMC announcement on Wednesday as the bond market realized the Fed might not add to its bond purchases, as had been speculated (once the taper talk was off the table). Now there's worry that the Fed might be reconsidering tapering as early as next April, which spooked the bond market a little. The Fed will likely try to talk bonds back up in an effort to keep yields low. TNX (10-year) spiked up as I had thought it might and Friday banged its head on its broken H&S neckline at 2.62, where it closed. Now we'll find out if the bond bears will continue to show strength vs. the bond bulls. I show the back test followed by a kiss goodbye in the coming week as the bond bulls show back up and drive price up, yields down. There's room for a little higher for TNX, up to about 2.656 where it will hit its downtrend line from September 5th and it would be more bullish for yields above 2.66 (bearish for bond prices).

10-year Yield, TNX, Daily chart

The dollar had a strong bounce on Thursday and Friday and it broke out of its bullish descending wedge that it's been in since the July high. The small break below its H&S neckline at the end of October ended up being a head-fake break and it caught more than a few dollar bears leaning a little too heavily into it. A bullish back test of its broken downtrend line from July, currently near 80.28, would be better confirmation of a breakout.

U.S. Dollar contract, DX, Daily chart

The strong bounce in the dollar was hard on the metals and other commodities and gold has now dropped back down after hitting resistance at its downtrend line from February-August. If gold is now able to rally back above its October 28th high at 1361.80 it would be a bullish move, in which case I'd expect it to drive up to the 1500 area into the end of the year. Otherwise the bearish pattern calls for a resumption of gold's decline and a drop down to at least the 1150 area, if not lower.

Gold continuous contract, GC, Daily chart

Silver's weekly chart below shows it too bumped into resistance last week at its downtrend line from February-August and dropped hard on Thursday. The bearish pattern calls for a drop down to the bottom of its down-channel from 2011 by the end of the year, with a downside target near 15.50 where it would hit intersecting trend lines, including its uptrend line from 2003-2008. I'd be a buyer down there. There are several resistance levels between 23 and 28 but the first thing the bulls need to do is take out last week's high at 23.09.

Silver continuous contract, SI, Weekly chart

A weekly perspective for oil is shown on its chart below and it's now not far from its next level of support, now that it broke and back tested its 200-dma at 98.70, near 91.60. Its uptrend line from June 2012 - April 2013 and its 200-week MA are both near that level and should provide support if reached. It could then head higher but I think even for the longer-term bullish pattern for oil calls for a larger 3-wave decline to the uptrend line from October 2011, which will be near 82.80 in March 2014. From there the bullish pattern calls for the start of a significant bull run for oil. But at the moment I'm leaning toward the more bearish wave count that calls for an eventual break below its October 2011 low at 74.95 and then potentially down to its 2009 low at 33.20 before the next bear market is finished, which is the one that will hurt all asset values.

Oil continuous contract, CL, Daily chart

The coming week will not be quite as busy for economic reports as was last week's, especially in the beginning of the week. Monday we'll get the Factory Orders, which are expected to improve (hopefully not just in inventory build-up), and Tuesday we'll get the ISM Services. The rest of the week will be relatively quiet except for a possible market reaction to Q3 GDP number on Thursday. The big report will be the nonfarm Payrolls number on Friday. Friday will be busy with personal income and expenses, PCE prices and the Michigan Sentiment. In the Bizzarro World in which we live now, where bad is good, how the market reacts to the numbers is far more important than the number itself.

Economic reports and Summary

There are plenty of reasons to believe last Wednesday's marked an important high for the stock market. With the dollar looking bullish, assuming it will stay bullish, it will add to the selling pressure for stocks and other assets. We say the metals, oil and commodities take a hit last week and that could continue as well. Time and price have come together for a reason to be looking for a market high rather than a continuation higher. There are too many bulls now expecting the market to continue rallying into the end of the year, especially with the belief that the Fed has our back.

The bullish sentiment could certainly keep the market heading higher and a continuation of the rally in the coming week would leave yet another failed bearish setup. Wednesday's highs made a good setup for the bears and so far they've at least stepped back in gingerly, but there's no evidence yet of a market turn. Some indexes look more bearish than others, such as the RUT, while the DOW maintains the potential for bullishness to continue into November, if not into the end of the year.

There was a short-term setup on Friday afternoon for an immediate reversal back down on Monday and that would increase the probability that the high is now in place. Otherwise a really back above Thursday afternoon's highs would strongly suggest we've got new highs coming. Let price lead the way and trade accordingly but keep trades short term now -- upside potential remains dwarfed by downside risk and it's better to hit and run right now. Once a downturn is confirmed it will then be a good time to start thinking about longer-term short positions. Trade carefully in the meantime.

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


Index Wrap

Market Looking Toppy

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

It appears that the tech-heavy Nasdaq Composite (COMP) may finally be hitting technical resistance near recent highs (3966) on up to around 4000. If tech stocks dip further, the overall Market will be pressured.

I'll start my parade of charts with the weekly COMP index, which is now bumping up against resistance implied by the upper end of its broad and well-defined uptrend channel. Moreover, COMP has gotten what I consider to be 'fully' overbought, according to the 13-week Relative Strength Index (RSI). An overbought extreme in the RSI indicator isn't definitive for a top, but does suggest that the Index is at high risk for a pullback this month. Such a pullback may have started with this past week's Market 'pout' on the Fed not doing ever more to push stocks even higher. There was more going on than fear and loathing of the Fed, but it makes for a simple story!

Of course, just as I emphasize possible tough resistance in COMP in the 4000 area, a decisive UPSIDE penetration of that level sets up a possible next up leg. A 'true' breakout move in COMP would then suggest support would be found on pullbacks back to the 'breakout' point in the 4000 area.

Another way for an Index or stock to 'throw off' an overbought extreme is by going SIDEWAYS. A broad sideways trading range trend dates from mid-May in the Dow 30 (INDU), which has kept the INDU (Market) bellwether from getting to either a longer-term overbought or longer-term oversold 'extreme', unlike COMP. The daily INDU chart has on 4 occasions 'signaled' a trend reversal when INDU's 13-day RSI has gotten into the 70 area (3 times) or to around 30 (once) in the period dating back to the mid-May peak in the Dow.

Bullish sentiment remains fairly high, suggesting to me some complacency among traders that the market is going to keep working higher. Just buy every minor dip! Sure, until that (strategy) doesn't work and we get a bigger break!

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) chart remains bullish but there are some signs showing of a possible pullback beginning. A new daily high was followed by a down Close in a classic reversal type pattern. Not what I call a 'key' downside reversal which has the more stringent definition of a new High, followed by a Close below the prior 1-2 day's Lows.

Not to overweight a somewhat 'speculative' bearish chart interpretation here, SPX's uptrend remains well intact by the Index holding at or above 1740 support. Support then extends to 1720. A Close below 1700, without a next-day rebound, would 'confirm' an not currently expected loss of upside momentum.

SPX resistance comes in around 1772, extending to 1780, then to the 1800 area.

An RSI upper extreme (an 'overbought' 70) seen above has been touched twice recently. Not long before an RSI peak was hit, my (CPRATIO) 'sentiment' indicator reached a different type of overbought situation; i.e., where traders register what I define as an 'extreme' in bullishness as highlighted below; e.g., total daily equity call volume is double that of daily put volume an my CPRATIO line gets to 1.9-2.0 or above on either a daily and/or on a 5-day moving average basis.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart

also remains bullish along with the larger SPX. The short-term up trend shifts initially on a Close below 780 in the Index. Technical support is suggested at 775, extending to 770. Fairly major support begins around 755.

A move above near resistance in the 790 area is needed to get upside momentum humming again. A couple of back to back closes above 790 would suggest potential for OEX to reach the 800-803 area; the 803 is potential resistance, at least initially, implied by the upper end of OEX's broad uptrend channel.

OEX might dip to 770 and trade sideways to up from there but not above 790. 770 is pivotal chart support and 790 key near resistance.

The S&P 100 Index recently hit an overbought RSI extreme per my red down arrow highlight above. Such (high) extremes have often been a concomitant (technical) indicator for OEX that, along with price action, suggested that the Index was at or near an interim top.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) is hanging in near its prior top. I figure a less than 40% chance of a breakout above 15700 currently. More likely is the Dow getting pulled back to support, especially 15500, extending to 15400. The Dow could dip to the 15200 area in November.

I didn't do a chart highlight of resistances above the 15700 area. Assuming a breakout move higher, a potential next intermediate objective (and possible resistance), is to around 16000, ultimately to the 17000 area, just not this year.

The Dow is in a fairly prolonged sideways trend, at least since mid-May which is a long time in this market. This kind of sideways trend traces out what (Charles) Dow called a rectangle pattern. Unfortunately, its 'chance' to predict whether a breakout of such a chart formation will be above or below the trading range. Most would give some benefit of the doubt to a breakout in the DIRECTION that prices were moving in prior to the sideways trend.

The upside breakout point for the rectangle is at 15700 and the downside breakout line is at 14700. The distance between the line of highs and the line of lows tacked on to the breakout level becomes a 'minimum' next objective, suggesting upside potential to 16700. Conversely a decisive downside penetration of 14700 suggests downside potential to around 13700.

Strong longer-term upside momentum continues or is not hindered in AXP, BA, DIS, bellwether GE, MMM, NKE and V. These stocks alone aren't currently enough to create a breakout above 15700 but they ARE keeping the Dow afloat. Stay tuned.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) Index has sideways momentum near-term and the short-term trend goes lower below 3900. I sense a pullback/correction at hand but price action isn't completely conclusive on this but this past week brought a key downside reversal midweek which is still exerting a downward pull on the Composite from a technical perspective.

A modest pullback would be to the 21-day moving average, currently intersecting at 3850; a still moderate dip would be to the 50-day average, suggesting support currently around 3800. Major chart support begins at 3600. Major resistance comes in above 4000.

The recent 'overbought' extreme in COMP is seen both by the weekly chart above in my initial 'bottom line' comment and on the daily chart below. The 13-day RSI has been bouncing up to the overbought line.

High RSI daily chart readings coupled with a predominance of bullish trader sentiment makes for 2 of 3 elements I consider important to suggest an interim top within a strong bull move. The 'first among equals', number 3 element in trading decisions is PRICE action and that is mildly, not wildly, suggesting a top.

The bull market move in tech is now quite 'extended' at 54 weeks or 4.5 years. About in fact, the average length of a bull market. Bear markets are typically shorter AND they can do more damage to stock portfolios in a shorter time.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) chart

is bullish, but the sideways line of resistance seen in the 3400 area could be the start of a more significant pullback then seen in several weeks. Clearly the (upside) breakout 'point' is 3400, and maybe not so 'clear' is my projected next resistance at 3457-3460.

Significant near-term support is implied by the lower end of NDX's last upside price gap, an overnight phenomena of course. For various reasons buying interest comes in at prices not obtainable AFTER the upside price gap until prices are again seen in the 'gap' area. A 'filled in' gap suggests an area o buying interest, for a period. Support then extends to 3250.

I'm thinking pullback here, maybe NDX gets back to the 3200 area at a 'minimum'. Corrections of that degree, such as back to the 3200 area or in a dip below it, should find support/buyers coming in. Big cap Nasdaq is still a sexy area of the Market and there's plenty of liquidity out there to buy more in this area.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 (QQQ) tracking stock is in the same question mark position as the underlying NDX index. Namely, does this recent short-term slowing of upside momentum 'signal' the early stage of a deeper correction. A modest correction here is back to the 21-day moving average, a 'deeper' correction is back to the 50-day.

I look for near support in the Q's at 80.9, extending to 80; next pivotal technical support comes in around 78. I've noted support at 78.3 to be persnickety about it.

Daily trading volume has been on the low side. Expect a big spike in daily trading on a decisive downside penetration of 82 that was heading to 81-80.9. Lots of selling will come out on such a technical break. Meanwhile, the On Balance Volume line has turned mixed.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) chart has turned short-term bearish and this may be a harbinger of the fate of RUT's intermediate uptrend as well. Stay tuned on that. I see a better than chance for the Russell to fall back to its 1080-1065 support zone. I'm assuming here that RUT continues it tendency to work up and down between the lower and upper ends of its well-defined uptrend channel .

On its last advance, RUT didn't reach resistance implied at the upper channel line which currently intersects around 1145. It's only sometimes the case that rallies fail at an upper channel resistance area, especially AFTER prior repeated rallies that 'defined' the same (upper channel) line. Every so often depending on the cycle, it's 'time' to test the low end of expected support.

Near support is highlighted at 1080, and extends to RUT's uptrend line in the 1065 area. A daily Close below 1043 turns RUT's intermediate trend lower.

A Close above 1122 resistance that is part of a sustained multi-day move, suggests potential to 1145-1150. I anticipate selling pressures going on a while longer.



GOOD TRADING SUCCESS!




New Option Plays

Aerospace & Wholesale

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. Some of these stocks may need to see a break past key support or resistance:

(bullish ideas)
MAN, ALK, RS, CNI, SBUX, JOY, CBS, AMGN, HOT, DHR, OII, TUP, AMP



NEW DIRECTIONAL CALL PLAYS

B/E Aerospace Inc. - BEAV - close: 82.04 change: +0.88

Stop Loss: 79.60
Target(s): 89.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 5 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
BEAV is in the industrial goods sector. The company manufactures interior products for commercial aircraft. The company reported earnings on October 23rd and not only beat Wall Street's profit estimate but the revenue estimate as well. BEAV's guidance was mixed but investors bought the news. Now after a week of consolidating sideways in the $80-82 zone BEAV looks poised to race higher.

Friday's high was $82.68. I am suggesting a trigger to buy calls at $82.75. If triggered our target is $89.50. FYI: The Point & Figure chart for BEAV is bullish with a $90 target.

Trigger @ 82.75

- Suggested Positions -

Buy the DEC $85 call (BEAV1322L85) current ask $1.40

Annotated Chart:

Entry on November -- at $---.--
Average Daily Volume = 894 thousand
Listed on November 02, 2013


Costco Wholesale - COST - close: 119.62 change: +1.62

Stop Loss: 118.40
Target(s): 129.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
COST is in the services sector. They operate over 640 discount warehouses. The company reported earnings on October 9th. COST missed both the top and bottom line estimates. Their September same store sales came in at +3.0%, which was below expectations. The stock initially sold off on its earnings news but traders bought the dip near $110. Since then COST has rallied back toward its highs. A breakout past $120 could herald the next leg higher.

The August 5th intraday high was $120.20. I am suggesting a trigger to buy calls at $120.50. If triggered our target is $129.00.

Trigger @ 120.50

- Suggested Positions -

Buy the 2014 Jan $125 call (COST1418a125) current ask $1.10

Annotated Chart:

Entry on November -- at $---.--
Average Daily Volume = 1.9 million
Listed on November 02, 2013



In Play Updates and Reviews

A Green November?

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market started November in the green with all the major indices posting gains with the exception of small cap Russell 2000 index.


Current Portfolio:


CALL Play Updates

The Walt Disney Company - DIS - close: 69.01 change: +0.42

Stop Loss: 67.45
Target(s): 74.00
Current Option Gain/Loss: + 30.3%
Time Frame: exit PRIOR to earnings on November 7th.
New Positions: see below

Comments:
11/02/13: DIS outperformed the major indices on Friday with a +0.6% gain. The stock looks poised to rally after its recent sideways consolidation in the $68-70 zone. Unfortunately we are quickly running out of time. DIS is scheduled to report earnings on November 7th, after the closing bell. I am suggesting we exit positions on Wednesday, November 6th at the closing bell to avoid holding over the announcement.

Please note our new stop loss at $67.45.

- Suggested Positions -

Long NOV $70 call (DIS1316K70) entry $0.66

11/02/13 time is almost up. Prepare to exit on Nov. 6th at the close
new stop loss @ 67.45

chart:

Entry on October 22 at $68.10
Average Daily Volume = 7.1 million
Listed on October 21, 2013


Dover Corp. - DOV - close: 91.26 change: -0.53

Stop Loss: 89.95
Target(s): 99.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Comments:
11/02/13: DOV pulled back on Friday but shares closed above their 10-dma with a small bounce off its intraday lows. We are still on the sidelines. The stock seems to have resistance near its mid-September highs. I am suggesting a trigger to buy calls at $93.00. If triggered our target is $99.50. The Point & Figure chart for DOV is bullish with a $105 target.

Trigger @ 93.00

- Suggested Positions -

Buy the DEC $95 call (DOV1322L95)

chart:

Entry on October -- at $---.--
Average Daily Volume = 1.0 million
Listed on October 29, 2013


Honeywell Intl. - HON - close: 86.91 change: +0.18

Stop Loss: 85.75
Target(s): 98.50
Current Option Gain/Loss: -24.1%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
11/02/13: Hmm... HON has spent the last few days consolidating sideways in the $86.50-88.00 zone. I am raising our stop loss to $85.75. Traders may want to wait for a rally above $88.00 before considering new positions.

- Suggested Positions -

Long 2014 Jan $90 call (HON1418a90) entry $1.45

11/02/13 new stop loss @ 85.75
10/30/13 Caution. HON hit our trigger but the stock produced a potential bearish reversal pattern today.

chart:

Entry on October 30 at $87.65
Average Daily Volume = 2.9 million
Listed on October 23, 2013


Helmerich & Payne, Inc. - HP - close: 77.43 change: -0.12

Stop Loss: 75.75
Target(s): 79.50
Current Option Gain/Loss: +21.2%
Time Frame: 4 to 5 weeks
New Positions: see below

Comments:
11/02/13: Traders bought the dip midday on Friday near HP's rising 10-dma. More conservative traders might want to inch up their stop loss higher. The trend is still bullish but I am not suggesting new positions.

We do not want to hold over the mid-November earnings report. FYI: The Point & Figure chart for HP is bullish with an $82 target.

- Suggested Positions -

Long NOV $75 call (HP1316K75) entry $2.31

10/29/13 new stop loss @ 75.75
10/24/13 new stop loss @ 74.25
10/22/13 new stop loss @ 73.75

chart:

Entry on October 14 at $74.50
Average Daily Volume = 1.1 million
Listed on October 12, 2013


iShares Russell 2000 ETF - IWM - close: 108.72 change: -0.48

Stop Loss: 107.75
Target(s): 114.00
Current Option Gain/Loss: -14.2%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
11/02/13: I cautioned readers to expect a pullback toward support near $108.00. IWM did just that on Friday with shares bouncing after tagging an intraday low of $107.92. This could prove to be a new entry point but traders may want to wait and see if both the IWM and the S&P 500 index both open positive on Monday before initiating positions.

- Suggested Positions -

Long 2014 Jan $110 call (IWM1418a110) entry 2.80

10/29/13 new stop loss @ 107.75
10/23/13 new stop loss @ 105.95

chart:

Entry on October 16 at $108.55
Average Daily Volume = 41 million
Listed on October 14, 2013


J2 Global, Inc. - JCOM - close: 54.99 change: +0.01

Stop Loss: 53.75
Target(s): 59.75
Current Option Gain/Loss: -27.9%
Time Frame: exit PRIOR to earnings on November 5th
New Positions: see below

Comments:
11/02/13: JCOM rebounded off its Friday lows to end the day and the week virtually unchanged. Monday is our last day for this trade. We are planning to exit positions on November 4th to avoid holding over JCOM's earnings report on November 5th.

- Suggested Positions -

Long NOV $55 call (JCOM1316K55) entry $2.15

11/02/13 Exit on Monday, Nov. 4th at the close
10/31/13 prepare to exit on Nov. 4th
10/29/13 new stop loss @ 53.75

chart:

Entry on October 21 at $55.05
Average Daily Volume = 329 thousand
Listed on October 19, 2013


Medtronic, Inc. - MDT - close: 57.26 change: -0.14

Stop Loss: 56.45
Target(s): 59.75
Current Option Gain/Loss: +14.9%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/02/13: MDT is now down three days in a row. Friday's decline is a break below its 10-dma. Yet shares seemed to find short-term support near $57.00. More conservative traders could inch up their stop toward Friday's low (56.96). I'm not suggesting new positions at this time.

- Suggested Positions -

Long NOV $55 call (MDT1316K55) entry $2.07

10/29/13 new stop loss @ 56.45

chart:

Entry on October 22 at $56.75
Average Daily Volume = 3.4 million
Listed on October 21, 2013


Packaging Corp. of America - PKG - close: 62.61 change: +0.33

Stop Loss: 59.75
Target(s): 67.50
Current Option Gain/Loss: - 16.6%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
11/02/13: PKG has outperformed the market two days in a row. The stock looks poised to breakout past short-term resistance near the $63.00 area soon. If you were looking for a new entry point then a rally past $63.00 could work.

- Suggested Positions -

Long 2014 Jan $65 call (PKG1418a65) entry $1.50

chart:

Entry on October 28 at $62.50
Average Daily Volume = 1.0 million
Listed on October 23, 2013


Pall Corp. - PLL - close: 81.47 change: +0.95

Stop Loss: 77.90
Target(s): 86.00
Current Option Gain/Loss: - 4.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/02/13: PLL also displayed relative strength on Friday. Shares added +1.1% and closed at a new record high. More conservative traders may want to start raising their stop loss. I am not suggesting new positions at this time.

Earlier Comments:
Our target is $86.00. However, we will plan to exit prior to PLL's earnings report in late November (not date set yet). FYI: The Point & Figure chart for PLL is bullish with a long-term $113 target.

- Suggested Positions -

Long DEC $85 call (PLL1321L85) entry $1.10

chart:

Entry on October 28 at $80.50
Average Daily Volume = 551 thousand
Listed on October 23, 2013


SanDisk Corp. - SNDK - close: 68.97 change: -0.53

Stop Loss: 67.90
Target(s): 74.75
Current Option Gain/Loss: -28.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
11/02/13: The profit taking in SNDK continued on Friday. Shares had closed at a new record high on Tuesday and now the stock is down three days in a row. If the weakness continues we could see SNDK hit our stop loss at $67.90 soon. I am not suggesting new positions at this time.

Earlier Comments:
Our target is $74.75 but we may want to aim higher. The Point & Figure chart for SNDK is bullish with an $82 target.

- Suggested Positions -

Long 2014 Jan $72.50 call (SNDK1418a72.5) entry $2.75

chart:

Entry on October 29 at $70.60
Average Daily Volume = 5.0 million
Listed on October 28, 2013


Constellation Brands - STZ - close: 65.60 change: +0.30

Stop Loss: 63.40
Target(s): 68.50
Current Option Gain/Loss: +117.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
11/02/13: Friday was a relatively quiet day for STZ but shares did close near their highs for the session. The stock also outperformed the major indices. More conservative traders may want to raise their stop loss again.

- Suggested Positions -

Long NOV $62.50 call (STZ1316k62.5) entry $1.38

10/30/13 new stop loss @ 63.40
10/29/13 new stop loss @ 63.25
10/28/13 adjust exit target to $68.50
10/22/13 new stop loss @ 61.90, readers may want to take profits now. Our option is up +84%.
10/16/13 new stop loss @ 59.75
10/11/13 trade opened on gap higher at $61.25,
trigger was $61.10

chart:

Entry on October 11 at $61.25
Average Daily Volume = 1.9 million
Listed on October 10, 2013


PUT Play Updates

F5 Networks - FFIV - close: 79.43 change: -2.11

Stop Loss: 85.01
Target(s): 76.00
Current Option Gain/Loss: +31.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/02/13: FFIV continues to slice through support levels. Shares underperformed the market's major indices with a -2.58% decline on Friday and a breakdown below the $80.00 level.

- Suggested Positions -

Long DEC $80 PUT (FFIV1322X80) entry $3.15

chart:

Entry on October 31 at $82.00
Average Daily Volume = 2.2 million
Listed on October 30, 2013


Garmin Ltd. - GRMN - close: 46.61 chane: -0.14

Stop Loss: 49.25
Target(s): 43.50
Current Option Gain/Loss: - 2.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/02/13: GRMN bounced around on Friday between its 30-dma overhead and its 40-dma below. The bounce off its lunchtime low on Friday may not be over yet. Traders may want to wait and see if GRMN produces a failed rally in the $47.50-48.00 zone before initiating new put positions.

Earlier Comments:
I do consider this an aggressive trade. GRMN has obviously been volatile the last couple of days. Plus the most recent data listed short interest at 13% of the 121 million share float.

Our target is $43.50. At this point GRMN should be nearing significant support in the $43.00 area and we might switch directions and buy calls.

*Small Positions!* - Suggested Positions -

Long DEC $45 PUT (GRMN1322X45) entry $1.08

chart:

Entry on November 01 at $46.82
Average Daily Volume = 1.2 million
Listed on October 31, 2013


Union Pacific Corp. - UNP - close: 152.77 change: +1.37

Stop Loss: 151.55
Target(s): 141.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 5 weeks
New Positions: Yes, see below

Comments:
11/02/13: UNP continues to bounce from significant support near the $150 area and its 200-dma. That's not surprising but if shares don't roll over soon then we'll drop UNP as a candidate. For now our strategy is unchanged.

Last Wednesday's low was $149.23. The June low was $148.45. I am suggesting a trigger to buy puts at $148.00. If triggered our target is $141.00.

Trigger @ 148.00

- Suggested Positions -

Buy the DEC $145 PUT (UNP1322X145)

chart:

Entry on October -- at $---.--
Average Daily Volume = 2.7 million
Listed on October 30, 2013



Longer-Term Play Updates



Vanguard FTSE Europe ETF - VGK - close: 56.42 change: -0.36

Stop Loss: 53.90
Target(s): Sell half @ $58.00, sell the rest at $63.00
Current Option Gain/Loss: +44.4%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

Comments:
11/02/13: As expected the VGK continued to pullback toward support near $56.00 and investors bought the dip at $56.08. If you were looking for an entry point this might work if you're using our longer-term target ($63).

Earlier Comments:
Don't forget that we have two exit targets for this trade! More conservative traders could lock in gains now with our option up +94%.

We are taking a multi-month time frame with this trade. FYI: The Point & Figure chart for VGK is bullish with a $63 target.

- Suggested Positions -

Long 2014 Mar $55 call (VGK1422L55) entry $1.80*

10/22/13 Strategy Update: Plan to exit half @ $58.00 and exit the rest at $63.00. New stop loss @ 53.90
10/19/13 new stop loss @ 52.75
09/11/13 trade opens. VGK @ 53.60
*option entry @ 1.80 is an estimate. Ask closed at $1.75 yesterday
09/10/13 entry trigger met. open positions tomorrow.
09/10/13 new stop loss @ 50.95
08/24/13 adjust the option strike from 2013 Dec $55 to $2014 Mar $55.

chart:

Entry on September 11 at $---.--
Average Daily Volume = 3.0 million
Listed on August 10, 2013