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Newsletter

Daily Newsletter, Saturday, 11/16/2013

Table of Contents

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

Market Wrap

Round Number Watch

by Jim Brown

Click here to email Jim Brown

The Dow, S&P and Nasdaq are all moving steadily towards round number resistance that could be hit on Monday.

Market Statistics

The three major indexes are slowing approaching a series of what some would call critical milestones in their path higher. The Dow is 39 points below 16,000. The S&P is 2 points below 1,800 and the Nasdaq 14 points below 4,000. The potential for all three to hit their respective round number resistance on the same day is very high and that means the potential for a sell the news event is also high.

There is nothing magic about those numbers with the exception of the S&P. Many analysts have S&P targets in the range of 1,775-1,800 for year end and that means they either have to raise their targets or suggest taking some chips off the table. A JP Morgan analyst upgraded his S&P target on Friday from 1,750 to 1,800. Think about that. The S&P was 5 points below 1,800 at the time with 45 days left in the year. The odds of his target being hit are about 100% but then what will he do? With the current bullishness in the market it might have made sense to go to 1,825 or even 1,850 as some analysts have already done. Instead he picked a safe 1,800. When questioned he was neutral saying stocks are up strong for the year and there could be some volatility in December. He did not go out on a limb and he played it safe. That may be a lesson for equity investors in the weeks ahead.

The bulls are starting to pull in their horns and cautioning investors to be selective. That is a clue they are starting to worry. Need confirmation? The three major indexes made new highs again on Friday but the AAII Investor Sentiment survey saw bullish respondents fall -6.3 points to 39.2% and bearish respondents rise +5.7 points to 27.5%. The bullish high was 49.2% on Oct 24th and the bearish low was 17.57% on the same day. That means bullish sentiment has declined by -10 points (-20%) in the last three weeks even though the market is making new highs. That would seem to be a clue for astute investors.

We could continue to see a meltup in the weeks ahead but as I have reported several times in the last several weeks the market breadth is narrowing and funds appear to be going defensive by rotating out of small caps and into big caps. That may have started to reverse because the Russell 2000 showed new life last week.

The news was everywhere about Warren Buffett buying 40.1 million shares of Exxon Mobil. That is roughly $3.5 billion in stock. With 4.4 billion shares outstanding Buffet is not going to make a play for ownership of Exxon. He is not an activist investor like Carl Icahn so he is not going to demand a big dividend or try to force a spinoff of assets. Is Exxon a good company? Absolutely and they pay a nice dividend. I believe this was a defensive play for Buffett. Oil is at a five-month low so the odds of Exxon shares falling materially are near zero. Oil normally rises in the winter months. I believe Buffet was parking money in a dividend paying stock to wait out the next market dip. I could be wrong because he could have kept the money in cash but cash does not pay a dividend.

These events simply suggest that bullishness is no longer rampant and smart investors may be setting up for the next round of pin the blame on congress when the budget deadline of December 13th rolls around soon.

In theory investors should be even more bullish because the Janet Yellen confirmation hearing turned into a coronation event instead. Senators were overly nice and the confirmation is not in doubt. At the coronation Yellen blessed QE and said multiple times it would be dangerous to remove it too quickly. With the fiscal follies currently scheduled for Dec/Jan again the odds of a QE announcement at the January meeting are slipping again. March appears to be the month and that could slip even further into 2014 if there are any hiccups in the economic numbers over the next several months.

Investors should be bullish. Earnings were better than expected. Estimates for Q4 are rising. The S&P is still undervalued at 15 times 2014 estimates. Economics, although volatile, appear to be improving. Home prices are up and gasoline prices are down. Inflation is nonexistent with a continued miniscule threat of deflation so QE is here to stay. However, we know from history that all the market fundamentals can be in alignment and the market still sink. The market has a tidal cycle. It ebbs and flows and will find an excuse for any direction it chooses. The weakening market internals are like storm clouds gathering. Those clouds could coalesce into a thunderstorm or a tornado or they can blow quietly over and leave us with a sunny December. We never know what the next week will bring but the trend is our friend, until it ends.

The economics on Friday did not give investors any reason to increase their bullishness other than the Fed should be in no rush to taper QE as long as the numbers continue to be uncertain. The NY Empire State Manufacturing Survey fell from +1.5 to -2.2 compared to Moody's estimate for a rise to +4.5 and consensus estimates for +3.8. This was the lowest level since January and the fourth consecutive decline and expectations miss. All the major components declined sharply.

Note the trend on the chart since the initial 2010 recovery. New York manufacturing has been on a rocky path. I don't think this is translatable to the rest of the country. New York has its own set of manufacturing problems with wages, taxes and regulations that make it less desirable as a location and more likely for manufacturers to move elsewhere.



The drop in the Empire report pushed the dollar lower and gold and silver slightly higher. Any whiff of economic weakness suggests additional months of QE and a weaker dollar. The bounce in precious metals was minimal. We are likely to see another bounce as the fiscal follies in Washington begin in early December but that bounce will eventually be sold when a taper is finally announced. Tapering will push the dollar higher and commodities lower. Since QE is not permanent there will eventually be a taper.


U.S. Industrial Production for October declined -0.1% from a +0.7% gain in September. Expectations were for a slight gain of +0.2%. This is not a material event since the drag came from utilities and mining production. Those accounted for a -0.3% drag on the headline number. Auto production fell for the first time since July. Manufacturing ex-autos rose +0.4% so the overall report was neutral.

After barely rising over the prior three months import prices fell -0.7% for October. That wiped out the prior three month gain total of +0.4%. However, the majority of the decline was in petroleum prices with a -3.6% drop. Nobody should be complaining about that type of price drop. With plenty of excess manufacturing capacity overseas producers are cutting prices to try and gain market share in the USA. That excess global capacity is also impacting the prices U.S. manufacturers are getting on exports. Export prices declined -0.5% for the seventh monthly drop this year. Export prices are down -2.1% over the trailing 12 months.

The calendar for next week is headlined by the Philly Fed Manufacturing Survey and the FOMC minutes. Unlike the Empire State report the manufacturing conditions in Philadelphia are much closer to the rest of the nation. The Philly Fed Survey on Thursday is more closely watched as a proxy for the nation.

The FOMC minutes come up again on Wednesday and of course the conversations about QE will be of the most interest. However, since Yellen's coronation testimony stressing the need to avoid ending stimulus too early I doubt there could be anything in the minutes that would upset the market.

The CPI and PPI are this week but there is no inflation to report and expectations are for flat to declining prices. That is another reason for the Fed to continue QE until they can stoke the inflation fires.

The Housing Market Index and Existing Home Sales are probably going to tell us that sales declined in October but that is no surprise since it is a seasonal event rather than rapidly rising interest rates.

There is really nothing on the calendar that could rock the market but you never know when investors are going to seize on something as important just to have an excuse to sell.


The Fed speaker calendar is busy again with Bernanke leading the list on Tuesday. Monday is the heaviest day and we will get sound bites from four Fed heads.


Next week is retail sales week. The report for October comes out on Wednesday but there are numerous updates from individual retailers all week. Expectations will be the key. The National Retail Foundation (NRF) is expecting +3.9% sales growth over the holidays. That equates to $600 billion in spending despite there being six fewer days between Thanksgiving and Christmas this year because of the calendar shift. There are only 26 shopping days between Thanksgiving and Christmas. NRF member retailers are expected to hire 800,000 holiday workers. That means those same 800,000 will move back to unemployed in January.

After the bell on Friday JP Morgan (JPM) announced a deal to settle claims on mortgage backed securities for $4.5 billion. The settlement covers 21 institutional investors in 330 residential mortgage backed securities (MBS) issued by JPM and Bear Stearns. JPM took over Bear Stearns during the financial crisis. The two companies issued a combined $95 billion in MBS. This is separate from the $13 billion settlement with the government over mortgage issues. However, this does not cover claims from mortgages packaged by Washington Mutual, also acquired under duress by JPM during the crisis. JPM claims their acquisition documents leave the FDIC liable for any undisclosed liabilities when JPM agreed to assume the failing bank. CEO Jamie Dimon has vowed to quickly settle all outstanding issue that have been dragging on JPM shares. Shares of JPM were up fractionally in afterhours trading.


In stock news Zulily (ZU) began its first day of trading with a +71% gain of $15.70 over the IPO price to close at $37.70. The maker of kids clothes is only four years old and has never turned an annual profit. However, it has made money in the first nine months if 2013. The web retailer has 4,500 items and advertises them for flash-sale or limited-time events that advertise prices at least half off the regular retail price. They have carried more than 12,000 brands over their brief history. They tend to cater to small, emerging and boutique brands. Active customers jumped from 157,000 in 2010 to 1.58 million in 2012. Sales rose from $18 million to $331 million over the same period.

In the IPO documents the company noted many risks to its business model . It said the flash sales model was "dynamic and new" but that "growth may not be sustainable" if customers lose interest. Just ask Groupon how that sustainability factor played out. More than 300 Groupon like sites sprung up and then quickly withered away. Flash sale site Fab.com already moved away from the format calling it a "flawed" business model. Apparently investors did not care about the risks and powered shares to a monster gain on the first day.

The big IPO from the prior week, Twitter (TWTR), has had a rocky start. After soaring to $50 on the first day the stock declined to $39.40 on the third day. It has since stabilized at $44 although it has been hit with several less than optimistic analyst reports. UBS initiated coverage at neutral and S&P Capital IQ initiated coverage with a sell rating and price target of $30. Nearly everyone with a rating has a lower price target than the current price. Options began trading on TWTR on Friday and puts outnumbered calls by more than 2:1. Volatility was not extreme with at the money calls for December at $2.80 and puts for $2.50 on a $44 stock. Given the highly speculative nature of the stock I was expecting slightly higher prices.


The recent gains in IPO stocks had Art Cashin cautioning the markets are approaching conditions similar to the dot.com era. He said, "I just worry a little bit that we are edging back to the 'eyeball-and-click' thing we had in the year 2000. It is not quite frothy yet, but it won't take that much stirring to get there." He was referring to the websites that went public based on the number of clicks they were getting rather than profits. Some would say Amazon was still in that category but they are at least building a lot of hard assets from which to profit later.

The Fed has created an equity bubble by keeping interest rates so low the only way investors can beat inflation is with equities. Yellen said she is not seeing any bubbles but then Bernanke testified several times that the housing bubble was containable and would not get out of hand. Famous last words. As long as the Fed continues to support the market the bubble can continue to grow. Once taper begins many analysts believe we can see a 15% drop in the market even if the economy is accelerating. That is because cautious money will flee equities for the safety of higher yields in treasuries. One high profile analyst said something to the effect of "A bubble is not dangerous as long as you know it is not going away." Translated that means the rising equity bubble is not dangerous as long as the Fed does not cut QE.

Besides the 40.1 million share position Buffet accumulated in Exxon there were some other notable positions by funds in the Q3 SEC filings. Leon Cooperman of Omega Advisors put together a 2.8 million share position in Freeport McMoran (FCX). Joining him was David Tepper of Appaloosa Management with 737,800 shares. Gold miners seemed to be hot at the end of Q3 with numerous listings of large positions by funds. John Paulson still held 10.23 million shares of GLD at the end of Q3. That was down from 21.8 million at the end of Q1. George Soros accumulated another 1.1 million share stake in the Market Vectors Gold Miners ETF (GDX) after selling his entire 2.67 million shares in Q2.

Other positions disclosed in the Q3 filings was a 489,000 share stake in JCP by Jana Partners. Tepper's Appaloosa also added 737,000 JCP shares. Dan Loeb of Third Point has accumulated a 2.0 million share stake in FedEx but Perry Capital has him beat with a 4.2 million share purchase.

Obviously Buffet is the biggest whale of the bunch with that $3.5 billion stake in Exxon. In a business where size matters Buffet is the all around winner.

Crude oil prices began to fade after news broke that Iran and the six UN countries would meet again on November 20th and a "first step" agreement is likely to be reached. Details of the last meeting are starting to appear and the reasons why it failed. Apparently Iran and the six nations have tentatively approved a draft agreement but at the last minute U.S. negotiators changed the language in the document to appease the French objections. The disposition of the enriched 20% uranium and the status of the Arak reactor were the last minute changes. The original required Iran to not "activate" the Arak plutonium reactor. The text changed from "activate" to "suspend all work" on restarting the reactor and Iran objected. Lastly, the revised agreement required Iran to "render unusable most of its existing stockpile" of 20% enriched uranium by converting it into fuel rods for the Tehran Research Reactor. Iran immediately objected to that and President Hassan Rouhani tweeted "Iran's right to enrich was a red line that could not be crossed." John Kerry later alluded to the tweet in a speech in Abu Dhabi saying no nation has an "existing right to enrich."

Fast forward to Friday afternoon and the Nov 20th meeting is on and rumors claim a new draft agreement has been approved by all parties. That must be the case because there was a flurry of comments out of Israel on Saturday pleading with France not to weaken in its stance in the upcoming talks. President Obama and John Kerry were both pressing Congress not to pass any additional sanctions until after the Nov 20th meeting. Obama claims the draft agreement only slightly weakens the existing sanctions and they can be reinforced in a few months if Iran fails to follow through on its promises.

If the U.S. emerges from the Nov-20th meeting with an agreement that weakens sanctions regardless of how small, I would expect oil prices to decline further. Reportedly the oil sanctions are not involved in this first step deal. They are going to return some previously frozen funds and allow them to trade precious metals. It may not be much but it is the equivalent of the camel's nose under the tent. Just another small step could bring a much larger change in the existing sanctions. Iran has more than two million barrels per day of production offline because of the sanctions.


Refiners rallied intraday after the EPA proposed the first cut in the ethanol blending requirements since they were mandated in 2007. The original law required 18.15 billion gallons of ethanol to be blended with gasoline to cut our dependence on foreign oil and to stimulate the shift to "green" fuels in the USA. The refiners claim the amount of ethanol required to be used, which rises every year, was too much and required the amount of ethanol in fuel to rise past the point of safety in existing engines. Ethanol is corrosive and can damage engine parts in too high a concentration. With gasoline demand slowing and the requirement to add more ethanol each year the mix was reaching the point where ethanol would be too rich.

The EPA proposal is for a reduction in the ethanol requirement to 15.25 billion gallons in 2014. Producers complained it would set back investments in their plants, slow research into bio diesel and cellulosic products and put some producers out of business. The mandate to produce growing volumes of ethanol each year was forcing farmers to attempt to cultivate non-fertile soil and spend more on fertilizer to produce as much corn as possible. Some critics claim it was taking corn out of the food supply and running up prices on food and feed for livestock.

The proposal caused a -3.5% decline in Archer Daniels Midland (ADM) and -3% decline in Andersons (ANDE), both leading producers of ethanol.

Western Union (WU) fell -4.3% after the Wall Street Journal reported the CIA was monitoring money transfers into and out of the U.S. and building a database using powers granted under the Patriot Act. The CIA is barred from targeting Americans in its intelligence collection. You believe that, right? However, it can conduct domestic operations for foreign intelligence purposes. The CIA is trying to track terrorist financing both in the U.S. and abroad as well as transfers of drug money.

Since WU domestic transfers are limited to $2,999 with fees up to $191 per transfer I seriously doubt they are going to nab a major drug ring or terrorist cell locally. With appropriate ID and background check you can send up to $10,000 to "some" countries. Most are limited to much less than that. WU's website says the $10K limit can be raised under certain conditions but it must be an established account to a financial institution and be pre approved to prevent money laundering. That means give us all your contact info on both ends of the transfer and we will check you against all the databases to see if you are a criminal.

I am sure the news of the CIA overview is going to crimp WU transfers to some extent but I hardly see WU as the money pipeline of choice for terrorists. People with an ethnic background picking up $2,999 routinely at a WU office are probably already under suspicion. I am not profiling here but you can bet it is being done.

WU shares fell -25% on Oct 30th after they warned their compliance costs would rise from 2.5% of revenue to as much as 4.5% in 2014 as a result of increasing regulations on money transfers. That alone tells you the funds are already being tracked severely. I would avoid this stock. Nothing is going to improve in the near future.


The S&P has been up for six weeks in a row. The odds of adding a seventh week of gains are less than 5% according to Tom Bulkowski, author of Encyclopedia of Chart Patterns. It has happened only twice in the last ten years and once was Jan 2013. Can it happen twice in the same year? Sure it can but that does not mean it will. Markets, like dice, have no memory. It if the memory of the investors playing in the markets that provide the cycles. Investors understanding the rarity of the seven week string will probably take some cash off the table and the failure after six weeks becomes a self fulfilling event.

The S&P closed at 1,798 and only 2 points below 1,800. Large round numbers on the S&P tend to produce a backlash when they are hit. They are not an electric fence where the touch of the number creates an instant 5% drop but the rally that took us there tends to weaken over the next few days. The target is reached, time to take profits and pick new positions for the next leg higher.

Dow 16,000, S&P 1,800 and Nasdaq 4,000. What are the chances of a material pause when all three are hit on the same day? I would think there is a better than even chance of a temporary pause. It could be another rolling consolidation like we saw over the prior three weeks or a short dip to reload. Remember, the market breadth has been narrowing over the last month so investors are preparing for an eventual pause.

The S&P has gained roughly 40 points over the last three days since the dip to 1760 at the open on Wednesday. After a three week consolidation that is not unreasonable but it does put us right back into slightly overbought conditions. With strong support at that 1760 level that means a bout of profit taking could erase those 40 points and still retain the uptrend.


I don't really have to say much about the Dow. It has gone from very overbought to extremely overbought in the space of a week. Big caps are where it's at and the Dow is only 39 points from round number resistance at 16,000. Given the rebound off the October lows the Dow is due for another of those recent pauses. I would expect it in December when the fiscal follies begin again. We could see a temporary dip next week as the tension eases when the 16,000 target is hit.


The Nasdaq is only a handful of points away from round number resistance at 4,000 and Nasdaq sentiment is at a post recession high. As you can see from the sentiment chart there are broad swings in sentiment over the last three years with each top in sentiment reaching a higher point. To say the Nasdaq sentiment was at an extreme would be an understatement. To compound the problem there are troubles with tech earnings. Cisco was a huge disappointment. IBM has still not recovered from their earnings miss. While IBM is not on the Nasdaq it does impact tech sentiment. Just imagine where we would be now if Cisco had knocked the ball out of the park.

The Nasdaq sentiment is the biggest indicator of what I would call an imminent pause. There have been 201 IPOs year to date and the vast majority have been tech stocks or at least Nasdaq stocks. Twitter would be the exception of a tech stock on the NYSE but the response to the Twitter IPO was definitely a tech event.

Something has to dent the Nasdaq sentiment. It could be an event or simply the deflation of the current sentiment bubble. While nobody can predict when it will happen we do know it will happen and probably soon.

Support is 3,900 and resistance 4,000.



I was pleasantly surprised by the rebound in the Russell 2000 small caps. The Yellen testimony stressing QE was here to stay for several more months was the right prescription for a resumption of small cap buying. The index bounced off support at 1095 on Tuesday and closed at 1115 on Friday. That is only -6 points below a new high. While the market is short term overbought a breakout by the Russell could push all the indexes into overdrive and result in a strong close for November.


The Association of American Railroads (AAR) reported rail traffic for the week ended November 9th totaled 297,581 carloads. That is an increase of +4.9% over the same week in 2012. Intermodal volume was an additional 265,259 units, up +6.3% and the 19th consecutive week of increases. Petroleum and petroleum products totaled 14,400 carloads up a whopping +25% year over year. Grain accounted for 23,744 carloads, up +21.3% and motor vehicles and parts totaled 19,341, up +20.5%. Coal accounted for 114,084 carloads, down -0.6%. Total carloads year to date were 23,812,352 up +1.6% year over year.

Intermodal is the semi trailers and containers stacked on trains compared to typical boxcars and flat cars. Intermodal is how the majority of consumer goods travels across the country. To see that growth up +6.3% over 2012 and up 19 consecutive weeks suggests there is a recovery in progress. This is the early stages but it is comforting to know there are positive fundamentals underway in the economy. Maybe Yellen has the right idea. Keep pouring gasoline on the fire until it becomes so hot you have to back away.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"In this age of instant information, investors can experience both fear and greed at the exact same moment."
Sam Stovall - S&P

 


Index Wrap

Surging Dow, Surging Market

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

In a renewed surge higher the S&P 500, Dow 30 and Nasdaq Composite have nearly reached my anticipated targets of 1800, 16000 and 4000, respectively. These areas may offer some resistance but there's very strong upside momentum here and traders are not yet entirely throwing caution to the wind and buying calls with both hands and feet!

I wrote last week of a 'rotational' type correction; the Nasdaq had faltered some but the Dow and S&P were resurgent. At some point the pattern here looks like there could be an across the board pullback but when is a big unknown. This brings to mind a column I saw by Steven Rattner, an old Wall Street guy who's worked in finance and led the task force on the Auto Industry bailout and reform. Rattner wrote a piece on whether the market was so efficient in pricing all factors into stocks that you couldn't 'beat' the indices. Rattner mentioned a number of fund managers who substantially outperform the averages. Warren Buffet famously said that "I'd be a bum on the street with a tin cup if the markets were always efficient." Rattner went on to say that even when market participants are "convinced that the overall market is expensive or cheap, markets can indeed be irrational and predicting the timing of the inevitable correction can be challenging." I'll say! (And, the preceding italics are mine.)

And, as the economist John Maynard Keynes (who apparently outperformed the market averages in his own investing in his day) said: "Markets can remain irrational longer than an investor can remain solvent." Especially true among options traders who have a certain time frame to be 'right' in!

Anyway, I'm not going to suggest going against the trend, but also don't recommend chasing this thing higher. In a bullish aside, my call to put ratios, measuring trader sentiment, have been on the high side this past week but are not EXTREME. 'Extreme', as in extreme bullishness would be daily equity call volume that was well over double that of daily total equity put volume on the CBOE; e.g., a ratio of 2.2 to 2.5 total call volume to put volume. The highest such ratio this past week was 1.9 and that was on Monday. No, as Yellen said in testimony recently, stock valuations were not 'bubble' like. Not yet anyway. In fact as Nasdaq got pretty frothy and valuations quite high, investors and traders started moving back into the 'mainstream' S&P type stocks.

The Dow 30 (INDU) as I noted last week had bullishly "broken out above a sideways rectangle seen previously on a weekly chart basis (not shown here), or above a broad 14685-15650 trading range pattern dating back to mid-May." This recent decisive upside penetration of this range, easily suggested a move to 16000 in INDU as a next target but then an eventual move to the 17000 area as implied by the 'typical' upside projected by such a breakout move. Unlike what we've seen since mid-May, the Dow is back to 'leading' the overall market or at least being a overall market bellwether again. Whereas, the Nasdaq's upside rate of change has slowed from what it was and the 4000 area is a very key potential resistance in the Composite. A strong move above 4000 propels COMP above its long-standing uptrend channel as seen on both daily and weekly charts. I could then only guess at upside potential above 4000; ah ha, you think, I'm always 'guessing' anyway!

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) chart has this past week accelerated above a zone of prior congestion or a line of prior highs in the 1775 area. My target for SPX has been to the 1800 area for awhile now. I've noted potential technical resistance at the upper end of the S&P's broad uptrend price channel, currently intersecting in the 1815 area, with resistance possibly extending to around 1830 in terms of weekly chart uptrend channel line (not shown here).

Near support is seen in the 1764 area, at the 21-day moving average, with chart support next coming in at 1750 and the area of prior recent intraday lows.

If SPX had a second leg higher equal to the prior upswing the Index could over time advance to 1870; this would be a measured move objective. For now I'm focused on what happens at the upper channel line. As often as we see a reversal at the upper end of these price channels, we'll just witness a slowing of upside momentum for a time as prices creep higher 'hugging' this line.

SPX is in overbought territory again as seen above, in terms of the 13-day RSI and somewhat so in terms of extremes in (high) bullish 'sentiment', but in a runaway move and strong bull market, such potential influences don't mean as much in terms of a possible downside reversal of any size. Bull markets get overbought and then often stay overbought for lengthily periods. Such readings remind us that risk of a correction risk has increased, more than such indicator readings necessarily 'signaling' a top.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart has the same accelerating upside momentum as seen with the S&P 500. I've highlighted (with my usual red down arrow) possible next resistance coming in around 810-811, but don't have a higher resistance estimate in OEX based on trendlines or prior highs, etc. As with SPX, a 'measured move' objective in OEX is to around 830 but this isn't noted on the chart as 'resistance'. Such a price objective is where a next up 'leg' would be approximately equal to the last and gives some idea of a next target, assuming OEX breaks out above the uptrend channel highlighted below.

Near support comes in around 790-787 area, extending to 780. Fairly major support comes in at 760-762 currently, at the lower end of OEX's broad uptrend channel. You may wonder how I have the Index's up trendline drawn such that the last dip fell below this line. The idea of an internal up trendline is to draw it intersecting the MOST number of lows over the period of an advancing trends. This basically ignores one odd man out low. Bottoms often overshoot trendline support in that occasional sell offs are driven by more panicky selling than usual and prices may dip below technical support but quickly rebound.

I see no technical reason, other than a overbought condition common in strong bull trends, for OEX to not work still higher such as to the 810 area, but 830 would be my current 'maximum' upside objective before some corrective action sets in. Corrections can be sideways consolidations also such as seen with the sideways trend in OEX from late-October into the 11/13 upside breakout; corresponding to the Fed's perceived magic wand.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) has accelerated above a long standing overall sideways trading range. As I noted above in my initial 'bottom line' commentary, prior to this past week INDU had bullishly broken out above a sideways rectangle seen on a weekly chart basis as reflected in INDU's broad 14685-15650 trading range dated back to mid-May.

The recent decisive upside penetration of the Dow's 14685-15650 trading range, easily suggested a move to 16000 in INDU as a next target but could also imply an eventual move to the 17000 area. This target is suggested by a 'typical' upside projection based on the length of time that the Average was in the aforementioned range and the distance between the range bound line of lows and highs. Unlike what we've seen since mid-May, the Dow seems to be again be 'leading' the overall market and acting again as an overall market bellwether.

Potential near resistance is suggested ahead at 16000, extending to 16200. Support is seen at 15800, then at 15600.

Besides continued longer-term bullish upside momentum in INDU stocks AXP, BA, DD, DIS, GE, HD, JNJ, MMM, MSFT, NKE, PFE, PG, TRV and V (14 stocks, nearly half of the Dow 30), we've seen advances recently in GS, JPM, KO, MRK, UNH, UTX, WMT and XOM (8 stocks). 2/3rds of the 30 Dow stocks advancing strongly to moderately, versus mostly CAT, CSCO, IBM, T and VZ (5) struggling in sideways to lower trends, makes for an overall bullish INDU chart.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) Index is bullish but its upside momentum has slowed some. I see pivotal resistance not far overhead above the key 4000 level. Specifically, I've highlighted resistance at 4011, extending to around 4050 if COMP breaks out above the upper end of its broad uptrend channel.

Near support is noted at 3900, extending to around 3865 currently.

I anticipate COMP working higher but not having a major further up leg above the low-4000 area. If I'm wrong in this assessment, a measured move objective is suggested to 4200. I won't rule it out but am not expecting it. Stay tuned!

COMP is again approaching an overbought condition in terms of the Relative Strength Index but this isn't necessarily or commonly a show stopper in a strong bull move either.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) chart has achieved a bullish breakout above 3400 and could work higher to 3470 to perhaps 3500 which I've previously seen as a longer-range target and possible resistance. The last dip in NDX found support in the prior upside gap area so the chart has remained bullish in that NDX 'held' near-term technical support, which in turn suggested that the recent line of resistance in the 3400 area could be pierced. If they can't take em down, they'll take em up!

Support is now bumped up to 3350, with next lower support suggested in the 3300 area.

Last week I was a cautious on NDX but gave "the benefit of doubt to a next leg higher. Expect a move in the direction of the dominant trend until proven otherwise!"

NDX is not yet back at even an 'overbought' extreme as suggested by the 13-day RSI. The big-cap Nas 100 has gotten overbought repeatedly, dipped a short-lived bit, throwing off the overbought extreme and then has surged higher. It's a bull market. That's what they do.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 (QQQ) tracking stock is near apparent resistance in the 84 area, at least in the way that I've constructed QQQ's uptrend price channel as seen below. Such construction is more art than science. I could also take an interpretation that the upper channel line on the daily chart intersects in the 86 area currently. If there's a decisive upside move above 84, look for a further advance to the 85 area and possibly to 86 over time. The weekly chart channel (not shown) suggests potential next resistance coming in at 85, which might only be temporary also. Stay tuned.

As usual, substantial pick ups in volume don't come in on the direction of upside moves above prior resistance but rather expect nervous bulls to dump stock on a break below 82 support. Next lower support looks like 80.8, extending to 80 even. The 80 area, if seen, might be a next buy point even as others dump the stock.

The On Balance Volume (OBV) line, the only volume measure usually worth looking at with QQQ, continues to trend higher. Since we have volume figures with any Exchange Traded Fund (EFT) that we can also assess along with price action, the OBV indicator is consistent with the bullish price chart.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) chart is still mixed. A decisive upside penetration of 1120-1122 is needed to suggest that RUT can follow the rest of the market higher. RUT tends to do more if Nasdaq is humming along and tech stocks are taking a bit of a rest it seems. We've seen RUT be a market bellwether at times but given very bullish S&P and Dow charts and an initial move in COMP and NDX above their lines of prior resistance, I'm not sure RUT lagging here means anything more then the seasonal tendency for RUT to do better and sometimes outperform the overall market in the first Quarter.

Near resistance is at 1122, then well above, judging by the upper channel line intersecting around 1155 currently. The weekly RUT chart (not shown here) suggests potential technical resistance coming in around 1150 also.

I've highlighted near support in the 1095 area, extending to the RUT's up trendline intersecting in the 1080 area currently.



GOOD TRADING SUCCESS!




New Option Plays

Accessories, Burgers, & Healthcare

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)
CLX, ZMH, MAN, FLR, WDC, FLS, DHR, HBI, ROC, BA, KSU, PH, BDX, ECL, HON, SBUX, HAR, BUD, CYT, BEAV, ITW, HP, CR, FMC, HOT, CRS, CB, UTHR, TYL, WCC, IBB, MCK.



NEW DIRECTIONAL CALL PLAYS

Michael Kors - KORS - close: 82.73 change: +0.87

Stop Loss: 80.75
Target(s): 89.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
KORS is in the services sector. The company is a specialty retailer for apparel and accessories. The company's latest earnings report on November 5th was better than expected. Following its results the stock has garnered a number of upgraded price targets in the $90s. The recent breakout past resistance at $80.00 is bullish and could fuel more short covering. The most recent data listed short interest at 28% of the 42 million share float.

Friday's high was $82.75. I am suggesting a trigger to buy calls at $83.00. If triggered our target is $89.50. FYI: The Point & Figure chart for KORS is bullish with a $91 target.

Trigger @ 83.00

- Suggested Positions -

Buy the 2014 Jan $85 call (KORS1418a85) current ask $2.80

Annotated Chart:

Entry on November -- at $---.--
Average Daily Volume = 7.3 million
Listed on November 16, 2013


Red Robin Gourmet Burgers Inc. - RRGB - close: 81.15 change: +1.67

Stop Loss: 78.80
Target(s): 88.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
RRGB is in the services sector. The company runs a chain of casual-dining burger restaurants. RRGB reported earnings in early November that beat expectations. The stock spiked higher on the results. Since then shares have seen some post-earnings report profit taking but traders started buying the dip in the $79-80 zone. Now it looks like the consolidation is over and RRGB is poised to resume its up trend.

Friday's high was $81.44. I am suggesting at trigger at $81.55. If triggered our target is $88.00.

Trigger @ 81.55

- Suggested Positions -

buy the Dec $85 call (RRGB1322L85) current ask $1.20

Annotated Chart:

Entry on November -- at $---.--
Average Daily Volume = 157 thousand
Listed on November 16, 2013


WellPoint Inc. - WLP - close: 90.10 change: +0.61

Stop Loss: 88.25
Target(s): 99.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
WLP is in the healthcare sector. The company is a health care plans. Their latest earnings report was a winner. WLP beat bottom line estimates by a wide margin. Management then raised their guidance. Shares have spent the last four months consolidating under resistance at the $90.00 level. A breakout here would be a new all-time high.

Friday's high was $90.25. I am suggesting a trigger to buy calls at $90.50. If triggered our multi-week target is $99.00. FYI: The Point & Figure chart for WLP is bullish with a $103 target.

Trigger @ 90.50

- Suggested Positions -

Buy the 2014 Jan $95 call (WLP1418a95) current ask $1.13

Annotated Chart:

Entry on November -- at $---.--
Average Daily Volume = 2.6 million
Listed on November 16, 2013



In Play Updates and Reviews

Market Rally Continues

by James Brown

Click here to email James Brown

Editor's Note:

Big cap stock indices continue to lead the market higher. Fortunately gains were relatively widespread on Friday.

NOV has been triggered. GRMN was stopped out.


Current Portfolio:


CALL Play Updates

The Andersons, Inc. - ANDE - close: 80.91 change: -2.50

Stop Loss: 79.40
Target(s): 88.00
Current Option Gain/Loss: -16.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/16/13: Ouch! Shares of ANDE plunged -3.0% on Friday. Shares of ADM and BG also fell on news that the Environmental Protection Agency has proposed a reduction in the annual ethanol requirement to be used in gasoline. According to the Wall Street Journal the EPA is asking refiners to blend about 16% less than the standard set back in 2007.

ANDE should find support near $80.00 or its simple 10-dma. Readers may want to wait for a bounce before considering new bullish positions.

Earlier Comments:
FYI: The Point & Figure chart for ANDE is bullish with an $89 target. NOTE: I am suggesting we keep our position size small. ANDE does not see a lot of volume in its stock or its options. The option spreads are a little wide.

*small positions* - Suggested Positions -

Long 2014 Mar $85 call (ANDE1421C85) entry $3.85*
11/14/13 new stop loss @ 79.40
*option entry price is an estimate since the option did not trade at the time our play was opened.

chart:

Entry on November 13 at $81.10
Average Daily Volume = 117 thousand
Listed on November 12, 2013


Aon Plc. - AON - close: 81.58 change: +0.77

Stop Loss: 78.75
Target(s): 85.00
Current Option Gain/Loss: + 8.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
11/16/13: The rebound in AON continued on Friday. The stock outperformed the market with a +0.95% gain. Shares are on the verge of hitting new record highs. Traders could use a new high as a new entry point.

- Suggested Positions -

Long 2014 Jan $82.50 call (AON1418a82.5) entry $1.70

11/13/13 new stop loss @ 78.75

chart:

Entry on November 08 at $80.50
Average Daily Volume = 2.3 million
Listed on November 06, 2013


Alliant Techsystems Inc. - ATK - close: 116.67 change: -0.54

Stop Loss: 113.90
Target(s): 120.00
Current Option Gain/Loss: -11.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/16/13: ATK encountered a little profit taking on Friday morning but traders were buying the dip by 10:00 a.m. Shares pared their losses to -0.4%. More conservative investors may want to adjust their stop closer to the $115 level.

Earlier Comments:
You could certainly argue that ATK is overbought with a multi-week rally but thus far the momentum does not seem to be slowing down. The stock does have potential resistance at its 2007 highs in the $120.50-121.00 zone. I am setting our target at $120.00. More aggressive traders could aim higher.

FYI: ATK will begin trading ex-dividend on November 18th, 2013. The quarterly cash dividend should be 26 cents.

- Suggested Positions -

Long DEC $120 call (ATK1322L120) entry $1.80

11/14/13 trade opened on gap higher at $116.80. trigger was 116.55

chart:

Entry on November 14 at $116.80
Average Daily Volume = 321 thousand
Listed on November 13, 2013


Cardinal Health, Inc. - CAH - close: 64.84 change: +0.33

Stop Loss: 61.80
Target(s): 67.50
Current Option Gain/Loss: +84.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/16/13: CAH kept the rally going on Friday. Shares are up six days in a row and up six out of the last seven weeks. Tonight we are adjusting our stop loss to $61.80.

I would not be surprised to see a little profit taking after tagging $65. More conservative traders may want to just take profits early or investors could sell half their position to lock in some gains. Look for support near $62.00.

- Suggested Positions -

Long 2014 Jan $65 call (CAH1418a65) entry $0.84

11/16/13 new stop loss @ 61.80
11/13/13 new stop loss @ 61.40

chart:

Entry on November 11 at $62.50
Average Daily Volume = 3.8 million
Listed on November 09, 2013


Costco Wholesale - COST - close: 124.29 change: +0.55

Stop Loss: 121.40
Target(s): 129.00
Current Option Gain/Loss: +110.0%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
11/16/13: It has taken over a week of trading but COST is finally retesting round-number resistance at the $125.00 level. I am not suggesting new positions at this time. We will adjust our stop loss to $121.40.

Our option has doubled in value. Traders may want to take some money off the table.

- Suggested Positions -

Long 2014 Jan $125 call (COST1418a125) entry $1.30

11/16/13 new stop loss @ $121.40
11/09/13 new stop loss @ $119.40

chart:

Entry on November 06 at $120.50
Average Daily Volume = 1.9 million
Listed on November 02, 2013


Cognizant Technology - CTSH - close: 94.37 change: +0.93

Stop Loss: 89.85
Target(s): 99.00
Current Option Gain/Loss: +48.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/16/13: CTSH also kept the rally going on Friday with its sixth daily gain in a row. The stock is also up ten out of the last eleven weeks. Shares might see potential round-number resistance at the $95.00 mark. I would not be surprised to see a brief pullback here. We are adjusting our stop loss up to $89.85.

Our target is $99.00. More aggressive traders may want to aim higher. The Point & Figure chart for CTSH is bullish with a $107 target.

- Suggested Positions -

Long 2014 Jan $95 call (CTSH1418a95) entry $2.15

11/16/13 new stop loss @ 89.85

chart:

Entry on November 12 at $91.25
Average Daily Volume = 2.1 million
Listed on November 11, 2013


The Walt Disney Co. - DIS - close: 70.00 change: -0.02

Stop Loss: 67.00
Target(s): 77.50
Current Option Gain/Loss: Unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
11/16/13: DIS delivered a quiet session on Friday. Shares drifted sideways along round-number resistance at the $70.00 level. There is no change from my Thursday night new play comments.

I am suggesting a trigger to buy calls at $70.25. If triggered our multi-week target is $77.50. More aggressive investors could aim higher. The Point & Figure chart for DIS is bullish with an $83 target.

Trigger @ 70.25

- Suggested Positions -

buy the 2014 Jan $70 call (DIS1418a70) current ask $1.75

chart:

Entry on November -- at $---.--
Average Daily Volume = 6.6 million
Listed on November 14, 2013


GNC Holdings - GNC - close: 59.63 change: +0.78

Stop Loss: 57.95
Target(s): 64.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
11/16/13: We have been patiently waiting for shares of GNC to breakout past resistance near the $60.00 level. The stock has spent almost three weeks consolidating below this level. The good news is that the consolidation is narrowing, which would suggest a breakout, one way or the other, should be imminent.

Currently our plan is unchanged with a suggested trigger to buy calls at $60.50.

Trigger @ 60.50

- Suggested Positions -

Buy the DEC $60 call (GNC1322L60)

chart:

Entry on November -- at $---.--
Average Daily Volume = 1.5 million
Listed on November 05, 2013


Lockheed Martin - LMT - close: 137.45 change: -0.84

Stop Loss: 134.90
Target(s): 148.50
Current Option Gain/Loss: -15.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
11/16/13: Just like shares of ATK, we saw a similar Friday morning drop in LMT. Traders bought the dip near its rising 10-dma and LMT pared its losses to -0.6%. I am not suggesting new positions at this time.

Earlier Comments:
I would not be surprised to see LMT paused at the $140 level, which might be temporary round-number resistance.

- Suggested Positions -

Long 2014 Jan $140 call (LMT1418a140) entry $2.20

11/13/13 new stop loss @ 134.90

chart:

Entry on November 07 at $137.25
Average Daily Volume = 1.5 million
Listed on November 06, 2013


National Oilwell Varco, Inc. - NOV - close: 84.30 change: +0.74

Stop Loss: 81.25
Target(s): 88.50
Current Option Gain/Loss: + 3.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/16/13: We were expecting NOV to climb on Friday but we were not expecting shares to gap higher. The plan was to buy calls at $83.75 but NOV opened at $83.98. Shares outperformed the major indices with a +0.88% gain for the session. Our trade opened on the gap higher. More nimble traders might want to wait for NOV to fill the gap (dip to $83.60ish) and then launch positions.

- Suggested Positions -

Long 2014 Jan $85 call (NOV1418a85) entry $2.25

11/16/13 trade opened on gap higher at $83.98. suggested trigger was $83.75

chart:

Entry on November 15 at $83.98
Average Daily Volume = 3.0 million
Listed on November 14, 2013


Pall Corp. - PLL - close: 82.56 change: -0.40

Stop Loss: 79.75
Target(s): 86.00
Current Option Gain/Loss: - 4.5%
Time Frame: Exit PRIOR to earnings on Nov. 26th
New Positions: see below

Comments:
11/16/13: Hmm... that's two days in a row now that PLL has struggled with the $83.15 area. The rally might be a little tired. I would not be surprised to see another dip toward the $81.50 area.

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

11/06/13 new stop loss @ 79.75

chart:

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


SPX Corp. - SPW - close: 96.27 change: +0.84

Stop Loss: 93.45
Target(s): 99.00
Current Option Gain/Loss: +19.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/16/13: The surge in SPW continued on Friday with a +0.88% gain. This is another new multi-year high for the stock. The simple 10-dma has risen to $94.00. I am adjusting our stop loss to $93.45.

FYI: The Point & Figure chart for SPW is bullish with a $113 target.

- Suggested Positions -

Long DEC $95 call (SPW1322L95) entry $2.30

11/16/13 new stop loss @ 93.45

chart:

Entry on November 11 at $94.25
Average Daily Volume = 304 thousand
Listed on November 09, 2013


United Parcel Service - UPS - close: 100.94 change: -0.03

Stop Loss: 98.45
Target(s): 108.00
Current Option Gain/Loss: -20.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
11/16/13: UPS really has not seen much follow through on Wednesday's breakout to new highs. Shares have spent the last couple of days churning sideways. Nimble traders could try and buy calls on a dip near the $100 level or its 10-dma (also near $100). Given the afternoon rebound on Friday I would still consider new positions now at current levels.

- Suggested Positions -

Long 2014 Jan $105 call (UPS1418a105) entry $0.98

chart:

Entry on November 14 at $101.25
Average Daily Volume = 3.8 million
Listed on November 13, 2013


PUT Play Updates

SPDR Gold ETF - GLD - close: 124.27 change: +1.42

Stop Loss: 124.25
Target(s): 115.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
11/16/13: Janet Yellen's dovish tone during her Federal Reserve Chairman confirmation hearings helped precious metals bounce. There was not any follow through on Friday. The overall trend for the GLD is still down. There is no change from my prior comments.

Traders may want to limit their position size to limit risk.

I am suggesting a trigger to buy puts at $121.00. If triggered our target is $115.50. More aggressive traders may want to aim lower since the Point & Figure chart for GLD is bearish with a $110 target.

Trigger @ 121.00

- Suggested Positions -

Buy the 2014 Jan $115 PUT (GLD1418m115)

chart:

Entry on November -- at $---.--
Average Daily Volume = 7.0 million
Listed on November 12, 2013



Longer-Term Play Updates



Vanguard FTSE Europe ETF - VGK - close: 56.71 change: +0.30

Stop Loss: 53.90
Target(s): Sell half @ $58.00, sell the rest at $63.00
Current Option Gain/Loss: +52.7%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

Comments:
11/16/13: The major European stock markets were up across the board on Friday. That helped the VGK rally and shares are now up three days in a row.

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 (VGK1422C55) 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


CLOSED BEARISH PLAYS

Garmin Ltd. - GRMN - close: 47.77 change: +1.44

Stop Loss: 47.25
Target(s): 43.50
Current Option Gain/Loss: -46.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/16/13: GRMN shot higher on Friday morning and continued to rally all day long. I couldn't find any news to account for GRMN's sudden display of relative strength. The stock is nearing what could be resistance near $48.00 but our play has been stopped out. We recently lowered our stop loss to $47.25.

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.

*Small Positions!* - Suggested Positions -

DEC $45 PUT (GRMN1322X45) entry $1.08 exit $0.58 (-46.2%)

11/15/13 stopped out
11/14/13 new stop loss @ 47.25
11/13/13 new stop loss @ 48.05
11/06/13 new stop loss @ 48.55

chart:

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