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Newsletter

Daily Newsletter, Monday, 11/18/2013

Table of Contents

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

Market Wrap

Bells Were Ringing

by Linda Piazza

Click here to email Linda Piazza
Market Internals

Introduction

Within the first few minutes of trading this morning, a couple of indices scaled the ramparts to new round-number levels and rang the round-number bells. The Dow hit 16,000, and the SPX hit 1,800. Friday, the OEX had already closed above 800. Only the OEX remained at or above those nice round numbers by the close. The Nasdaq failed to ever touch its round-number target, 3,500, hitting an early intraday high of 3,994.97 before dropping back.

Even as the indices were dealing with round-number resistance, economists Larry Summers and Paul Krugman were arguing that the U.S. economy has entered a permanent slump or stagnation. The stagnation is the result of "inadequate demand," the two said, caused by a declining population and lower levels of consumer spending and borrowing. We might think we're seeing recoveries along the way, they say, but those are bubble-like periods punctuating the other periods of high unemployment and slow growth. Later in the day, when speaking at the Reuters Global Investment Outlook Summit, Carl Icahn warned that equities could drop hard.

What did others have to say today? In the wee hours of the morning, Federal Reserve Bank of Boston President Eric Rosengren spoke in Abu Dhabi at the Financial Stability Institute of the Bank for International Settlements. Those worried about taper talk didn't get it from him, at least as reported here in the U.S., but neither did he sound as if he might agree with Summers and Krugman. He discussed capital regulation. Rosengren is a current voting FOMC member but will not be a voting member next year.

Rosengren asserted that bank lending has strengthened and is now robust, with bank loans going to commercial and industrial sectors as well as to the consumer sector. He believes that the monetary policy has worked but declined to comment further on monetary policy or economic conditions.

Other Fed speakers were to appear on the agenda later in the day, too. By the end of the trading day, most indices ended the day with losses with a few exceptions. The SPX declined 0.37 percent; the NDX, 0.98 percent; and the RUT, 0.80 percent. The Dow, however, gained 0.09 percent. The SOX dropped 0.93 percent. Financials, as represented by the KBW Bank Index (KBW), dropped 0.08 percent. Homebuilders, as represented by the Dow Jones U.S. Home Construction Index, rose 0.06 percent.

Most dollar-denominated commodities moved lower as the dollar steadied today. China also said that it was going to let market forces settle on appropriate commodity prices, some commodity experts noted. Gold futures (/GC) for December delivery settled at 1272.3, down 15.1. Silver futures (/SI) for December delivery settled at 30.357, down 0.370. Copper futures (/HG) for December delivery settled at 3.1495, down 0.0215. Light sweet crude futures (/CL) for December delivery settled at 93.03, down 0.81. U.S. Commodity Futures Trading Commission data pointed to a 12 percent drop in net-long positions on 18 U.S.-traded commodities and a climb in short positions.

Monday's Developments

Buoyed by plans for economic reform in China, most Asian bourses turned in gains. The Nikkei 225 was flat, down 0.01 percent, however, hit with profit-taking on recent high-flyers ahead of a Bank of Japan meeting later in the week. The Hang Seng gained 2.73 percent, and the Straits Times, 0.05 percent. China's Shanghai Composite rose 2.87 percent.

In the U.K., the Bank of England's Systemic Risk Survey found that the perceived probabilities of a catastrophic event in the U.K.'s financial system have dropped to their lowest levels since 2008 while confidence in the system rose. European bourses appeared undecided about direction before U.S. bourses opened, but then continued rising when the U.S. bourses first headed upward. The FTSE 100 rose 0.45 percent; the DAX, 0.62 percent; and the CAC 40, 0.66 percent. Germany's DAX hit a new all-time high today. Spain's IBEX 35 gain 0.90 percent, and Italy's FTSE MIB, 2.24 percent. Italy's gain was outsized due to several influences. Italy's banks and big industrials gained. Berlusconi's party is reportedly split and therefore less likely to cause an upset in Italian politics.

In the U.S., various reports started with the TIC Long-Term Purchases. Experts had predicted that TIC Long-Term Purchases would jump to +21.3B, up from last month's -8.9B, but the number jumped to +25.5B. This number measures the net foreign purchases of long-term securities, or the difference in value between the purchases foreigners make of U.S. long-term securities and the purchases U.S. citizens make of foreign long-term securities. All net foreign acquisitions, which included long-term securities, short-term U.S. securities and banking flows resulted in a net outflow, -$106.8B. After the report, long-term bonds such as the 30-year saw some buying.

When reporting that the weekly Business Confidence Indicator moved up to 26.8 from its prior 26.4, Moody's reported that this indicator has stabilized at a level indicating that the economy is expanding near its potential. The firm no longer includes the "at the high end of its potential" terminology that it employed last summer. Still, the firm again points out how well that business confidence weathered the debt and budget crisis when compared to the results experienced during a similar crisis in 2011.

Experts thought the November NAHB Housing Market Index would inch up to 56 from the prior 55, but this measure of builder confidence instead slipped to 54. October's 55 was also revised lower to 54. Although disappointing, the numbers remain above the benchmark 50. The NAHB's chief economist, David Crowe, was encouraged, given the likely impact sustained by the budget and debt crisis and recent volatility of mortgage rates that the number stayed as high as it did. Components that measured builder's beliefs about sales of single-family homes in the next six months and prospective-buyer traffic moved lower, but each lost only one point. Builder confidence dropped in the West and Midwest regions, but climbed in the South and jumped 14 points in the Northeast.

At 12:15 pm ET, Federal Reserve Bank of New York President William Dudley spoke in Flushing, New York at Queen's College. This FOMC member is a voting member both this year and next year. When speaking with students, he focused on what was going on in the grassroots of the economy. He discussed the impact of Superstorm Sandy and encouraging signs of a rebound he terms "significant." He acknowledged that the hardest-hit communities still struggle. He then broadened the topic to the national economy. After an overview pointing out the encouraging signs (17 consecutive quarters of real GDP growth) and concerns (low inflation, lower labor market participation, etc.) he spoke of those more encouraging grassroots signs (third-quarter GDP above recent trend, recent payroll data, etc.). He called fiscal policy "unusually contradictory" this year, but believes that the private sector "has largely completed its healing process." He believes the housing market may have worked through the excess supply of housing. He believes our major trading partners are doing better, especially the Eurozone countries.

Dudley summarized by saying that he believes the pace of growth will pick up in 2014 and 2015. He termed this belief a "forecast" rather than a reality at this point.

A few minutes later, Philadelphia Federal Reserve Bank President Charles Plosser spoke in Philadelphia. Plosser will be a voting member of the FOMC in 2014. Although Plosser was a supporter of QE3, he has spoken out recently against the use of monetary policy to target the job market, also reportedly saying that he doesn't believe mild deflation is necessarily a bad thing. His topic today was the economic outlook.

That might have been his topic, but the headline-grabber was his assertion that it was time for the Fed to determine how many more assets it is going to buy and then stop buying when that amount has been bought. He agrees with Dudley that the economy will see greater growth in 2014, with Plosser saying that growth is likely to be 3 percent for next year. He also believes 2014 will see unemployment reach 6.25 percent and inflation nearer the Fed's 2 percent target.

Story stocks included American International Group Inc. (AIG). The company is reportedly in discussions with Taiwanese tycoon Richard Tsai and Chinese financier Xiao Jianhua concerning the purchase International Lease Finance Group (ILFC). ILFC is AIG's aircraft-leasing unit. Reports speculated this morning that these financiers may help fund a consortium seeking $4.2 billion for the purchase. Tsai's family would perhaps take a stake in the company, it is rumored. The purchase has been delayed because the group led by Hong Kong's P3 Investments Ltd. had a funding gap. The ultimate stake of each member of the consortium remains in flux at this point, especially since the U.S. Committee on Foreign Investment is unlikely to approve the sale if a dominant shareholder emerges.

The Financial Times speculated that Goldman Sachs (GS, 165.68, up 1.28 or 0.78 percent) may be moving closer to selling its metals warehousing business, Metro International Trade Services. The company declined to comment on the report.

After the close, The Wall Street Journal reported that J.P. Morgan Chase and Co. (JPM, 55.74, up 0.87 or 1.59 percent) would pay $4 billion to a consumer-relief package. This package would pay to lower monthly payments for homeowners, mortgage write-downs, and demolish blighted areas.

During the first day of an air show in Dubai, Boeing (BA, 138.36, up 2.28 or 1.68 percent) announced $100 billion in 777X orders from four carriers in Qatar and the United Arab Emirates. The number of orders easily eclipsed those of Europe's Airbus.

General Electric (GE, 27.22, up 0.02 or 0.07 percent) was reportedly also benefitting from sales made at the Dubai air show, as well as last week's announcement that it would spin off its North American lending unit. GE hit a multi-year high this morning before pulling back the rest of the day. It narrowly missed ending in the red.

Canadian Solar (CSIQ, 31.00, down 0.91 or 2.85 percent) announced a deal between its subsidiary, Canadian Solar Solutions, and a fund managed by DIF. Canadian Solar will provide to DIF four utility-scale solar power plants in Ontario, Canada. Construction will begin in 2013 and 2014.

Tyson Foods (TSN, 29.42, up 0.65 or 2.26 percent) reported earnings. The company reported better-than-expected earnings of $0.70/share, in-line revenues of $8.89 billion, and above-consensus guidance.

Sony (SNE, 18.72, up 0.22 or 1.19 percent) saw U.S. and Canadian sales of PS4 (Play Station 4) above 1 million units in the first twenty-four hours. The PS4 were first available in the U.S. and Canada on Friday.

Bank of America downgraded Microsoft (MSFT, 37.20, down 0.64 or 1.69 percent). The company has a shareholders meeting tomorrow, the last one to be headed by retiring CEO Steve Ballmer.

The Senate homeland security committee today considered the risks and threats of Bitcoin's virtual currency, and tomorrow, the Senate banking committee will ponder the financial impact. Bitcoin was quoted as high as $675 on Tokyo's Mt. Gox exchange, Yahoo! reported.

Urban Outfitters (URBN, 39.64, down 0.53 or 1.32 percent) was climbing slightly in after-hours trading after the company reported earnings $0.47 cents a share on revenue of $774 million. Analysts expected $0.45 cents a share on revenue of $769.9 million. The company, owner of Free People and Anthopologie stores, reported that comparable-store sales, catalogue and online sales rose seven percent from the year-ago levels.

Salesforce.com (CRM, 55.51, down 1.80 or 3.14 percent) was up and down in after-hours trading. The provider of cloud computing services reported a loss of $0.21 per share on revenue of $788.4 million. The adjusted profit was a positive $0.09 a share. Expectations were $0.09 a share on revenue of $1.06 billion. The company set expectations for the current quarter at $1.12-1.13 billion, with current expectations at $1.12 billion. For the full year, the company guided expectations to $4.05-4.06 billion, up from the $4.03 billion analysts expected.

The Commodity Futures Trade Commission ordered MF Global Inc. to pay $1.2 billion in restitution. The CFTC also imposed a $100 million civil penalty, to be paid after the firm has met other obligations under bankruptcy law. This order relates to the use of customer funds in MF Global's last days. The CFTC has an ongoing litigation against former CEO Jon Corzine and the firm's former assistant treasurer.

Let's look at daily charts.

Charts

Those new to my Monday Wraps might find the following paragraphs useful when interpreting my charts. Those who have read the Wraps can skip straight to the charts. I set up nested Keltner channels on my charts. It's a run-of-the-mill channeling system like the more familiar Bollinger Bands. As with those more familiar BB's, channel boundaries are often targets for upside or downside moves. They also mark levels where prices might find support or resistance on closes. When several channel lines converge, that potential resistance or support might appear stronger, just as it would if 20-, 50- and 100-sma's all converge in one spot.

For the benefit of subscribers, I mark potential upside and downside target/support/resistance levels with rectangles, usually green for upside and red for downside. Orange rectangles are sometimes used when the darker-colored ones would not allow for a clear examination of the next target. From now on, I will mention the nearest potential support or resistance level in the discussion on the chart, but not the further-out ones. They can be located on the charts if price breaks through the nearest levels on consistent daily closes. If an interpretation such as "support levels appear stronger than resistance, so up looks more likely than down" is possible, I'll tell you. Often we traders must be able to defend our trade against a move in either direction.

As with any type of potential support or resistance, those with profits should be protective of those profits as support or resistance is tested. If prices find support and climb, look to the next higher rectangle, even one just broken through, as potential resistance. Do the reverse when resistance is breached. Hopefully, this format provides you with the information you need without requiring all night to read as happens when I list each potential support or resistance level individually.

Annotated Daily Chart of the SPX:

When the SPX hit 1800 this morning, it was also hitting and testing a Keltner target. The SPX was also hitting presumed strong Keltner and round-number resistance. If the SPX pushes up through this resistance to run higher in a momentum run, we can't even look to the weekly chart for a next target. The SPX hit that one, too. Any move higher will constitute a pure momentum run in Keltner terms without a clear next target.

One of the reasons that I like these nested Keltner channels is that it does give us targets. They're dynamic and so not always exact. For example, when the SPX first began setting an upside target at the top of its widest Keltner channel, that channel line was located near 1780, not 1800. Movement in the direction of the channel line moves the channel line. That's why I use those rectangles rather than a defined line, a single number, as a target. Therefore, if the SPX sustains daily closes above about 1808, it's breaking out to the upside. Otherwise, I would consider that 1800-ish resistance to be holding on daily closes.

Sustained daily closes below about 1790-1791 suggest that the SPX may be headed down to retest the support of its rising red 9-ema or maybe even the bottom of its smallest (grey) Keltner channel. Today's close was ambiguous, so it's necessary to think about some what-if scenarios. What if the SPX does tumble to its next target instead of continuing to test resistance?

That next support zone spans from about 1760-1781, an unfortunately broad range. Bulls would prefer that support is found at the top of that zone, but a test of the bottom of that zone is still in keeping with a bullish performance as long as the SPX finds support by about 1760 and then soon pushes back above the red 9-ema and continues to hold that support.

Sustained closes beneath about 1760 target the next support zone ranging from about 1726-1744. That would also constitutes a retest of the midline support on the rising regression channel. A bounce from such a test would keep the SPX inside the upper or bullish half of the rising regression channel. However, a drop through that midline support, validated by sustained daily closes beneath about 1726, set a next downside target at the bottom of that rising regression channel, at about 1680-1694.

That 1680-1694 zone is the "must hold" zone for any bullish scenario. A break of the support there on sustained daily closes suggests that the SPX is breaking below its rising regression channel, a change in a long-term pattern for the SPX. Such a break would set up the potential for the SPX to tumble down to the lowest marked rectangle, although I would certainly advise bears to be wary of support potential at the August and October swing lows.

It should soon be time for a routine red 9-ema test, at the least, but big money has not yet consulted me about what to do with their money.

Annotated Daily Chart of the Dow:

When the Dow was reaching for highs above 16000 today, it was also reaching toward a retest of its former rising regression channel. The Dow fell out of this channel in August, retested it in September, and fell away again. Will it fall away again after this test? It certainly pulled away in a small way today, leaving behind a long upper candle wick.

If the Dow does roll over, bulls want to see it maintain daily closes above about 15766-15899, and would prefer that closes are near the top and not the bottom of that zone. Closes above that zone would preserve the new and still-current 16141-16274 target. Closes within the 15766-15899 zone would maintain the upside target as long as the Dow soon bounces back above the 15899.

Sustained closes below about 15766 set a new downside target at about 15600-15698. The Dow hasn't retested the bottom of its smallest (grey) Keltner channel since early October, when it began this last swoop higher, and it's unknown how it will respond to such a test. That could be light support. Furthermore, the setup of the Keltner channels suggests that even if the Dow finds support at 15600-15698 and bounces, bulls would do well to be protective of gains when 15766-15899 is retested. It's likely that 15766-15899 zone will have solidified into strong potential Keltner resistance at that time.

Sustained closes beneath about 15600 set a new target at 15437-15542. Sustained daily closes beneath 15437 set a new presumed target at 15085-15236. The Keltner setup there suggests that this is an important support zone and that a failure to hold support above about 15085 would set up the possibility of a much deeper downside target at the lowest red rectangle. However, bears should probably prepare for potentially strong support near August and October swing lows if the Dow should head lower. I never discount the possibility that Keltner targets can be met once the conditions (daily closes above or below key levels) set up those targets, but neither do I ignore historical support or resistance.

Annotated Daily Chart of the NDX:

The NDX again drove up above its widest (pink) Keltner channel last week, pulling its smallest (grey) Keltner channel outside with it. The NDX was again in a momentum run, but there wasn't much running to that momentum run. The NDX never could pull away from the gravitational pull of that potential resistance or from that offered at the top of its rising regression channel. It's not until the NDX can sustain daily closes above about 3451 that I would consider it breaking out again. Until that happens, a drop to test potential support on daily closes near 3370-3402 seemed about as likely an event as breaking out to the upside, and that test began before the close.

If the NDX finds support at or above 3370 and bounces again, it's time to watch the top of that rising regression channel again for presumed resistance. If the NDX sustains daily closes below about 3370, then it sets a potential downside target from about 3298-3337. As long as support on daily closes is found there and the NDX bounces again, it's staying within the upper or bullish half of its rising regression channel. The test might be painful, but not necessarily too damaging to long-term bullish hopes.

However, sustained daily closes beneath about 3298 suggest the NDX is breaking into the bottom or less-bullish half of its rising regression channel. That sets a potential Keltner target that coincides with the bottom of that rising regression channel, at about 3166-3202. As it is for so many of the indices, that Keltner pattern is an important one for the NDX. A failure to hold support on daily closes at or above about 3166, at what is usually strong support, would also indicate that the NDX was breaking down out of its rising regression channel. That's a long-term change in pattern that would set a potential downside target at the lowest marked red rectangle. Interim support might also be found at the August lows, of course.

Annotated Daily Chart of the RUT:

The RUT's performance today never impressed, and it produced a bearish engulfing candle on the daily chart. The RUT didn't come close to retesting October highs or its newly set next potential upside target from about 1125-1137. However, as long as the RUT maintains daily closes at or above its red 9-ema, it maintains that potential upside target. However, sustained daily closes below about 1103 suggest a new potential downside target at about 1082-1094. Today's RUT close just barely missed setting that new downside target. With the shape of the daily candle, use some caution in relying too much on a single "below 1103" statement, as it's as possible that the RUT could head sharply lower from here as that it might steady and bounce.

If the RUT should drop to 1082-1094, bulls would want to see it soon climb right back above that red 9-ema, at its then-current location, to preserve the most bullish aspect to the chart. Otherwise, there's danger that this moving average could roll lower and provide resistance when eventually retested.

Sustained daily closes beneath about 1082 set a potential downside target near 1042-1055, according to Keltner evidence. While the potential for a drop that deep should not be discounted, historical and regression-channel support also converge a bit higher, near 1063-1065. Bears should be protective of their profits as that 1063-1065 level is approached.

The deeper 1042-1055 support zone is a must-hold level for the RUT on sustained daily closes or else the RUT confirms a breakdown out of its rising regression channel. Such a breakdown sets a new potential downside target at the lowest red rectangle. However, interim support might be found near the early September low.

Annotated Daily Chart of the VIX:

While the Monday Wrap usually features the Dow Jones Transports in this space, the VIX bears watching. By last Monday, it had tumbled into a support zone from which it often reverses. While the VIX can and has dipped lower than that support and even sustained long periods when it stayed at or below that support, it has been time for traders to begin watching for a potential reversal. While such a reversal in the VIX does not prove to be a stellar market-timing tool warning of a rollover in equities, it does alert traders to prepare what-if plans. Today, the VIX bounced. Is this a first step in a reversal higher in the VIX (and a possible reversal lower in equities) or is it just movement within a falling pattern? It's time to begin watching for a stronger bounce and to do some what-if planning for your equity trades, if you didn't make them last week.

Tomorrow's Economic and Earnings Releases

This week's important economic events are carried forward from Jim Brown's weekend Wrap.

In addition to these events, tonight Minneapolis Federal Reserve Bank President Narayana Kocherlakota will speak in Minneapolis. That will be at 8:00 pm, after this article has already been submitted for publication.

In addition to the events found in this chart, Federal Reserve Bank of New York President William Dudley will hold a press conference tomorrow morning at 10:00 am ET. As noted earlier, President Dudley is a voting member of the FOMC and will be next year, too. His press conference address "The Role of For-Profit Institutions in Higher Education."

At 2:15 pm ET tomorrow afternoon, Federal Reserve Bank of Chicago President Charles Evans addresses the Illinois Bankers Association Midwest Bank Leaders Conference. A current voting FOMC member but not one next year, President Dudley's topic will be the economy and monetary policy.

The lineup of Fed speakers continues tomorrow with current FOMC Chairman Ben Bernanke speaking at 7:00 pm ET in Washington, D.C. Chairman Bernanke will be speaking at the National Economists Club Annual Herbert Stein Memorial Lecture.

Also notable is tomorrow morning's 5:00 am ET release of Germany's and the Eurozone's ZEW Economic Indicator. These can sometimes move those markets.

What about Tomorrow?

Annotated 60-Minute Chart of the SPX:

Beginning Tuesday of last week, the SPX had reasserted its strongest short-term rally pattern: climbing the back of a rising red 9-ema. Sixty-minute closes were all at or above that sharply rising red 9-ema. By today, the SPX was long overdue for a retest of the support at the bottom of its smallest (grey) Keltner channel. The SPX dutifully performed that test this afternoon, pushing the boundary of that Keltner channel lower.

On a Keltner basis, the chart setup suggests that, unless the SPX drops hard tomorrow morning, it may spend some time tomorrow retesting the resistance near the red 9-ema (1795.46). However, resistance in that green zone could now be strong. Until the SPX can maintain 60-minute closes above about 1801, it risks dropping to its next Keltner target at about 1780-1785, and that could happen after more resistance testing or right away tomorrow.

If the SPX should drop toward that 1780-1785 support zone and bounce, watch for resistance to reassert itself beginning at about 1793. If the SPX should drop through 1780 on sustained 60-minute closes, a drop toward 1767-1772 is suggested. A failure to hold support above about 1767 sets a next target on this chart at the bottom red rectangle, in a zone surrounding 1736.

Annotated 60-Minute Chart of the Dow:

The Dow had also been scaling the back of a climbing red 9-ema since Tuesday of last week. It was also overdue for a test of the lower boundary of its smallest (grey) Keltner channel. It obligingly tested that boundary this afternoon, bouncing from that support by the close. If the Dow can bounce and again maintain 60-minute closes above about 15990, it is again in breakout mode on this chart. However, if it can't sustain 60-minute closes that high and instead sustains 60-minute closes beneath about 15928, it sets a new potential short-term downside target near 15836-15867.

If the Dow should approach that 15836-15867 support zone and then bounce strongly, it's possible that potential resistance on daily closes from about 15928-15990 will be unusually strong when retested. Watch for rollover potential.

If the Dow drops through 15836 on sustained 60-minute closes, a next potential downside target is set at about 15699-15752. This is an important potential support zone, as the next lower one suggested by the Keltner channels is from about 15400-15450, with light interim support perhaps near 15600.

Annotated 60-Minute Chart of the NDX:

The NDX flattened its rising red 9-ema then broke down through it today. The last 60-minute close set a new potential downside target from about 3361-3375, but an early rally tomorrow morning could question that target. In the case of a rally, potential resistance on 60-minute closes can now be presumed to be strong from about 3393-3405. Look for rollover potential in that zone or at 3420-3428 if the NDX can get past that nearest resistance zone. A further potential upside target is marked in case the NDX could sustain 60-minute closes above 3428.

However, the chart setup currently favors a more bearish outcome, a drop toward 3361-3375, either immediately tomorrow morning or after a retest of resistance near 3393-3405. If the NDX drops through 3361 on sustained 60-minute closes, a next potential downside target is set, at about 3285-3297, with interim light support near 3320.

Annotated 60-Minute Chart of the Russell 2000:

The RUT contributed to the ominous picture today, dropping through its red 9-ema and then to the next potential support zone, too. Sustained 60-minute closes beneath 1107-1109 set a potential downside target near 1100-1103. The RUT barely escaped setting this next downside target this afternoon, and some skepticism should be applied to that late-afternoon bounce or too strong a reliance on a "below 1103" number. It's possible that the RUT could head straight down to that next lower target.

Sustained 60-minute closes above 1109 set up a potential retest of presumed resistance on 60-minute closes near 1112-1116. If the RUT should zoom up toward that 1112-1116 level tomorrow, watch for rollover potential. It's not until the RUT sustains 60-minute close near about 1116 that it sets the next potential upside target, at about 1126-1130.

If the RUT drops tomorrow morning into a test of support near 1100-1103 and can't maintain 60-minute closes above 1100, it sets a next potential downside target from about 1077-1081.

The NDX and RUT both pulled back to their 9-ema's by the close today, and both might be used to help guide your thinking about the overall markets tomorrow. Both barely escaped daily closes beneath those averages. On shorter-term charts such as the 60-minute charts, they left long tails on the last candle of the day, showing some buying of composite stocks at the close. Such buying suggests that we could see an attempt to rise first thing tomorrow morning, but I would not feel too confident that such a rise will either occur or that prices can successfully scale the nearest resistance, if that test does occur. Candles such as the RUT's today should be respected as possible harbingers of more declines to come sometime this week.

I think in terms of what-if scenarios, so I feel it incumbent to explain that I'm suggesting you make what-if plans rather than sounding a dire warning bell just yet. Those what-if plans should include a scenario that goes something like "what if the RUT holds the support of its 9-ema now and heads up again?" as well as "what if the RUT's 9-ema support is failing and it heads straight down toward 1080-1090?"

Linda Piazza


New Option Plays

Financials

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)
LLL, PKG, INFY, CYT, GD, FLT, ITW, DHR, IPGP, OTEX

(bearish ideas)
XEC, WLL,



NEW DIRECTIONAL CALL PLAYS

The Chubb Corp. - CB - close: 94.72 change: -0.10

Stop Loss: 93.75
Target(s): 99.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
CB is in the financial sector. The company provides property and casualty insurance. The company's latest earnings report in late October was bullish. CB beat analyst estimates on both the bottom and top line. If that wasn't good enough management then raised their guidance. The stock tagged new all-time highs today but struggled with resistance near the $95.00 level. More importantly CB managed to withstand the market's widespread sell off this afternoon.

Today's high was $95.15. I am suggesting a trigger to buy calls at $95.25. If triggered our target is $99.75. FYI: The Point & Figure chart for CB is bullish with a $104 target.

Trigger @ 95.25

- Suggested Positions -

buy the 2014 Jan $95 call (CB1418a95) current ask $1.73

Annotated Chart:

Entry on November -- at $---.--
Average Daily Volume = 967 thousand
Listed on November 18, 2013



In Play Updates and Reviews

Thanks, Carl!

by James Brown

Click here to email James Brown

Editor's Note:

It was rumored today that the market's afternoon sell off was fueled by cautious comments from activist billionaire investor Carl Icahn.

Today's session with its early highs and then afternoon sell off has created a large number of bearish engulfing candlestick reversal patterns. These patterns need to see confirmation.

RRGB and WLP hit our entry triggers.
ANDE and KORS hit our stops.


Current Portfolio:


CALL Play Updates

Aon Plc. - AON - close: 81.17 change: -0.41

Stop Loss: 79.45
Target(s): 85.00
Current Option Gain/Loss: - 5.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
11/18/13: AON flirted with its highs from last week before paring its gains. I am raising our stop loss to $79.45.

- Suggested Positions -

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

11/18/13 new stop loss @ 79.45
11/13/13 new stop loss @ 78.75

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


Alliant Techsystems Inc. - ATK - close: 117.07 change: +0.66

Stop Loss: 113.90
Target(s): 120.00
Current Option Gain/Loss: - 5.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/18/13: ATK tagged new all-time highs this morning. Shares did pare their gains but ATK managed to erased Friday's dip. 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

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


Cardinal Health, Inc. - CAH - close: 64.73 change: -0.11

Stop Loss: 61.80
Target(s): 67.50
Current Option Gain/Loss: +78.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/18/13: CAH stalled at resistance near the $65.00 level. We cautioned that shares might pause here. I would not be surprised to see a dip back toward its 10-dma near $63.00.

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

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


Costco Wholesale - COST - close: 123.31 change: -0.98

Stop Loss: 121.40
Target(s): 129.00
Current Option Gain/Loss: + 68.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
11/18/13: Uh-oh! Not only did COST's rally fail near resistance at $125 and its recent highs but today's session has also created a bearish engulfing candlestick reversal pattern. Readers may want to take profits now.

- Suggested Positions -

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

11/18/13 today's session has created a bearish reversal candlestick pattern. Traders may want to take profits now
11/16/13 new stop loss @ $121.40
11/09/13 new stop loss @ $119.40

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


Cognizant Technology - CTSH - close: 93.54 change: -0.83

Stop Loss: 91.45
Target(s): 99.00
Current Option Gain/Loss: +27.9%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/18/13: CTSH tagged new highs this morning but it turned out to be a bearish day. The stock's rally was immediately sold and CTSH closed near its lows for the session with a -0.8% decline. Today's performance has created a bearish engulfing candlestick reversal pattern. I am raising our stop loss up to $91.45.

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

11/18/13 new stop loss @ 91.45
11/16/13 new stop loss @ 89.85

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


The Walt Disney Co. - DIS - close: 69.50 change: -0.50

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:
11/18/13: DIS tried to rally this morning but the stock didn't get very far. Shares eventually closed near their lows for the day and created a bearish engulfing candlestick reversal pattern. The high today was only $70.09. 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) 5

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


GNC Holdings - GNC - close: 59.76 change: +0.13

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:
11/18/13: Bullish analyst comments and a new $70 price target this morning helped launch GNC over resistance near $60.00. Unfortunately the rally quickly ran out of steam. The high today was only $60.39. We are still on the sidelines.

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)

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


Lockheed Martin - LMT - close: 137.85 change: +0.40

Stop Loss: 134.90
Target(s): 148.50
Current Option Gain/Loss: -13.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
11/18/13: LMT tagged a new intraday high before trimming its gains. Readers might want to inch their stops closer to the $136 level. 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

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


National Oilwell Varco, Inc. - NOV - close: 83.45 change: -0.85

Stop Loss: 81.25
Target(s): 88.50
Current Option Gain/Loss: -13.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/18/13: I cautioned readers that we could see NOV fill the gap and shares accomplished that today. I would be tempted to buy calls now but traders may want to wait and watch for both NOV and the S&P 500 index to open positive before considering new 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

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


Pall Corp. - PLL - close: 82.79 change: +0.43

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:
11/18/13: PLL advanced to a new high before succumbing to the market's widespread sell off this afternoon. I don't see any changes from my prior comments. Do not be surprised to see a dip toward $82.00 or the $81.50 level.

Keep in mind that we plan to exit prior to the earnings report on November 26th.

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

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


Red Robin Gourmet Burgers Inc. - RRGB - close: 79.98 change: -1.17

Stop Loss: 78.70
Target(s): 88.00
Current Option Gain/Loss: -46.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/18/13: RRGB was showing some relative strength this morning. Unfortunately it didn't last. Shares gapped open higher at $81.62, traded to $82.26 and then plunged. RRGB ended the day with a drop back toward $80.00 and a -1.4% decline, which significantly underperformed the major indices.

Our plan was to buy calls at $81.55 so the gap higher this morning immediately triggered our play. RRGB has been finding consistent support in the $78.80 level the last several days. I am adjusting our stop loss down to $78.70. That way we'll only be stopped out on a breakdown below this support.

- Suggested Positions -

Long Dec $85 call (RRGB1322L85) entry $1.30*

11/18/13 new stop loss @ 78.70
11/18/13 trade opened on gap higher at $81.62, trigger was 81.55
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on November 18 at $81.62
Average Daily Volume = 157 thousand
Listed on November 16, 2013


SPX Corp. - SPW - close: 93.93 change: -2.34

Stop Loss: 93.45
Target(s): 99.00
Current Option Gain/Loss: -32.6%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/18/13: Ouch! It was a painful day for SPW. The stock underperformed the market with a -2.4% decline that finally paused near short-term technical support at its 10-dma. I didn't see any news to account for this relative weakness.

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

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


United Parcel Service - UPS - close: 101.28 change: +0.34

Stop Loss: 98.45
Target(s): 108.00
Current Option Gain/Loss: -17.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
11/18/13: UPS managed to hit a new high but the stock was struggling with the $101.75 level and failed there twice today. If the market continues to slip lower I would expect UPS to dip toward the $100 level.

- Suggested Positions -

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

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


WellPoint Inc. - WLP - close: 90.40 change: +0.30

Stop Loss: 88.25
Target(s): 99.00
Current Option Gain/Loss: -4.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/18/13: Our brand new play on WLP has been triggered. The stock broke out past resistance near $90.00 and hit our suggested entry point at $90.50. I would consider new positions now but investors may want to wait and see if both WLP and the S&P 500 index both open positive tomorrow before initiating new positions.

FYI: The Point & Figure chart for WLP is bullish with a $103 target.

- Suggested Positions -

Long 2014 Jan $95 call (WLP1418a95) entry $1.15

Entry on November 18 at $90.50
Average Daily Volume = 2.6 million
Listed on November 16, 2013


PUT Play Updates

SPDR Gold ETF - GLD - close: 122.90 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:
11/18/13: The U.S. dollar continued to slip but that failed to lift gold prices. The GLD erased the last two days of gains with today's -1.14% decline. 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)

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: 56.78 change: +0.08

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:
11/18/13: The VGK gapped open higher on Monday morning. Sadly shares spent the rest of the day fading lower. This ETF still has overhead resistance near the $57.50 level.

Earlier Comments:
Don't forget that we have two exit targets for this trade!

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.

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


CLOSED BULLISH PLAYS

The Andersons, Inc. - ANDE - close: 79.46 change: -1.45

Stop Loss: 79.40
Target(s): 88.00
Current Option Gain/Loss: -33.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/18/13: Two bid down days in a row were enough to pull ANDE below what should have been support in the $80-81 zone and its 10-dma. The stock hit our stop loss at $79.40.

Earlier Comments:
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* exit $2.55 (-33.7%)
11/18/13 stopped out
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


Michael Kors - KORS - close: 80.95 change: -1.78

Stop Loss: 80.75
Target(s): 89.50
Current Option Gain/Loss: - 28.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/18/13: KORS was just a little too volatile for us today. The stock spiked higher at the open, hit our suggested entry trigger at $83.00, and then reversed. The stock market's widespread sell-off this afternoon pushed KORS lower and shares fell to their 10-dma. Our stop loss was hit at $80.75.

We are still bullish on KORS but investors may want to wait for a bounce near the $80.00 level before considering new positions.

- Suggested Positions -

Long 2014 Jan $85 call (KORS1418a85) entry $2.80 exit $2.00 (-28.5%)

11/18/13 stopped out at $80.75
11/18/13 trade opened at $83.00

chart:

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