Option Investor
Newsletter

Daily Newsletter, Monday, 12/30/2013

Table of Contents

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

Market Wrap

Equities Hold Their Own While Long-Term Yields Pull Back

by Linda Piazza

Click here to email Linda Piazza
Market Internals

Introduction

Declining yields on the 10- and 30-year treasuries provided relief to worried traders today. Equities held their own. The game plan appeared to be to hold equities--and perhaps treasuries--steady in low holiday trading volumes.

U.S. equities were mixed, but mostly produced small percentage gains or losses. The SPX dropped 0.02 percent; the Dow gained 0.16 percent; and the NDX lost 0.11 percent. The Dow was reaching for and achieved its 51st record high close of the year (Marketwatch). The RUT eased 0.05 percent, but the SOX gained 0.30 percent. The Dow Jones Transportation Index eased 0.01 percent. Homebuilders, as represented by the ^DJUSHB, climbed 0.39 percent. Retailers, as represented by the ^RLX, eased 0.01 percent. Financials (^BKX) dropped 0.16 percent.

Yields on 10-year treasuries closed at 2.98 percent, down 0.03 or a 1.00-percent change from the close Friday. This is not a move down to 2.98 percent from a prior 3.98 percent, for example. When we're talking about a number expressed in percentages, the percentage change can get confusing. Yields on the thirty-year treasuries closed at 3.9070 percent, down 0.0360 or 0.91 percent.

Gold futures (/GC) for February delivery settled at 1,203.80 on Comex, down 10.2 points. Silver futures (/SI)) for March delivery settled at 19.615, down 0.434 pts. Copper futures (/HG) for March delivery settled at 3.3825, down 0.0025 points.

Bloomberg noted, however, that aluminum had hit an eight-week high in trading in London, settling at 1,822 a metric ton in London, up 0.7 percent.

Some investors are interested in industrial metals such as aluminum and copper because they believe the U.S. economy is strengthening. Certainly copper has been breaking higher in recent trading sessions, although today's session was more about holding relatively steady at a higher level than breaking to new highs. Jim Brown has been pointing out that copper should be watched because of its importance in manufacturing.

On Nymex, light sweet crude futures for February delivery settled at 99.29, down 1.03. Volume was well below Friday's volume.

Monday's Developments

Performances on Asian bourses were mixed last night. A lower yen helped Japanese equities. The Nikkei 225 rose 0.69 percent, ending the last trading day of this year on a six-year closing high. The Nikkei 225 will be closed the rest of the week. Business concerns in Japan have also agreed to a raise in workers' base pay. This action, in addition to the yen manipulations that have been part of Japan's Abenomics this last year, raises hopes in Japan that deflation could be dealt a blow.

The Hang Seng gained only 0.01 percent, and the Straits Times, 0.11 percent. China's Shanghai Composite dropped 0.18 percent. China and South Korea have both complained about Japan's policies to lower the yen.

For the first time since 2010, China released data today on the debt carried by local Chinese governments. Through the end of June, that debt measured almost $3 trillion, China's state auditor said. Investors believe much of this debt cannot be repaid since it was used to pay for public infrastructure that does not produce gains. Outside entities have estimated the debt to be less, including Fitch Ratings' estimate of $2.1 trillion, made in April. Reuters concludes that, together with national debt, total government debt in China makes up 58 percent of the country's economy.

In Europe, Wolfgang Schaeuble, Germany's finance minister, warned that the policies that many of the globe's central banks have employed to keep interest rates low can't continue forever. European bourses turned in mixed performances, with most bouncing off their lows after U.S. markets opened. The FTSE 100 lost 0.29 percent; the DAX, 0.39 percent in a shortened trading day; and the CAC 40, 0.05 percent. Despite the pullback in the DAX, that index ended the year with a 26-percent gain. Spain's IBEX 35 gained 0.02 percent, and Italy's FTSE MIB, 0.06 percent.

After the European close, Greece's prime minister Antonis Samaras said that the past four years of austerity measures had worked and that Greece would exit the bailout scheme without needing a third bailout package. Speaking on television to citizens in his country, he said that the exit would occur in 2014. Not everyone believes the Greek prime minister's claim that further bailouts will not be needed.

Today's U.S. economic releases began with Moody's weekly Business Confidence. Nearly half the respondents reported that they're now hiring. Moody's said when issuing its analysis that the economy seemed to be "kicking into a higher gear." The 38.4 headline number was another gain from last week's record 37.7.

November's Pending Home Sales was reported by the National Association of Realtors. Experts expected a rise of 1.1 percent after October's decline of 0.6 percent, but today's report disappointed, gaining only 0.2 percent. Moreover, that's a 0.2 percent gain from a revised-lower October number.

November 2013's pending home sales were 1.6 percent below November 2012's. Most of that decrease was due to pending home sales in the West, down 8.7 percent below the year-ago levels. Pending home sales in the Northeast, Midwest, and South were all above year-ago levels, although those in the South were barely above those levels. Most experts conclude that higher borrowing costs were impacting the pending sales numbers. Some welcome a "return to normal" as the housing market has in recent years been making up for previous years of decline.

The NAHB says the number of pending home sales is "stabilizing" while their chief economist says the market is "flattening." He wants to make clear, however, that 2013's sales as a whole were better than any seen in the past seven years. The NAHB expects total existing home sales of 5.1 million this year, representing a 10-percent gain over 2012. The organization expects about the same number of sales in 2014, with gains in housing prices also moderating next year.

Housing prices were at all-time highs in ten out of the top 50 metro areas, according to a Wall Street Journal analysis of data compiled from Zillow's online real-estate service. The metro areas now seeing all-time highs in prices tended to be those that had avoided the bubble in prices leading up to 2007. Nationally, prices have not yet eclipsed the last decade's high prices.

The Federal Reserve Bank of Dallas reported December's Texas Manufacturing Outlook today. Although the headline number tumbled from 16.9 to 7.1, the Dallas Fed said that Texas factory activity gained for the eighth month in a row, albeit at a slower rate than it had gained in November. Anything above zero represents expansion.

When broken down into the various components, some indices such as new orders and shipments fell to levels close to zero, indicating little or no growth. However, the Dallas Fed thought that perceptions related to broad business conditions displayed more optimism. General business activity and company outlook indices both rose for the seventh straight month. Hiring rose again, but hours worked dipped into negative territory, to -2. Businesses reported increased pressures on prices and wages. However, finished goods rose in prices, too, so manufacturers were able to pass along some of the increases. The Dallas Fed said 46 percent of respondents believe raw materials will continue to increase in price, and an almost matching 44 percent expect higher prices for finished goods. Indices relating to future business conditions showed marked gains.

Story stocks included Crocs (CROX, 16.14, up 2.81 or 21.08 percent). Blackstone Group LP (BX, 31.29, down 0.06 or 0.19 percent) has agreed to a $200 million investment in CROX in return for a 13-percent position in the company. BX will receive two board seats as well as preferred stock with a 6-percent cash dividend, with that stock convertible into common stock at $14.50 a share. The investment CROX receives will be utilized in CROX's planned $350 million stock repurchase program.

CROX also announced that its CEO will retire in April from both his CEO position and his position on CROX's board. The company also lowered guidance for the fourth quarter. CROX now expects a loss of $0.23 per share, with analysts previously expecting a loss of $0.20 per share. Revenue is now expected to be at the low end of its previous $220 million to $225 million range, with analysts' expectations previously averaging about $223.30 million.

Trina Solar (TSL, 14.01, up 0.86 or 6.54 percent) plans to build solar power plants producing 1GW in power, the company said when announcing the signing of an investment framework agreement. The plants will be constructed over a four-year period in China's Xinjiang region. The first phase of the project is expected to begin in early 2014.

Cooper Tire (CTB, 24.20, up 1.24 or 5.40 percent) gave up on India's Apollo Tyres and terminated its merger agreement with the other company. Financing was not available for the deal, so Cooper wants to move forward with its business. Investors weren't happy at first, sending the stock lower, but by the end of the day, prices had recovered.

The SEC has been talking to life insurers such as MetLife Inc. (MET, 53.50, down 0.46 or 0.85 percent), Genworth Financial Inc. (GNW, 15.43, down 0.08 or 0.52 percent), Hartford Financial Services Group Inc. (HIG, 36.25, down 0.08 or 0.22 percent), Protective Life Corp. (PL, 50.66, down 0.15 or 0.30 percent) and Reinsurance Group of America (RGA, 76.78, down 0.26 or 0.34). The SEC wants to know about in-house insurance units sometimes called "captives." Captives might have fewer assets to back up policies than the insurer typically sets aside or require fewer disclosures, for example, because they're smaller than the parent company. Captives might be formed when one of these insurers is unable to find an outside firm willing to insure them against a particular risk. Now the SEC wants the life insurers to tell them the potential costs of forcibly unwinding those captives. Reportedly, life insurers are telling the SEC that being forced to close those units would hurt the companies' financial positions. The companies would then be forced to raise prices on some products.

Other insurers got news when December's ACA enrollment numbers were released. Enrollments surged in December, pushing enrollment through the national website past one million and bringing enrollment to about two million when enrollees through the state websites are included. Enrollment may be even more since the December numbers for many state websites were not yet available. Not all would-be enrollees at the national website were able to complete their applications, either.

Even without those December numbers for the state websites, the approximately two million known enrollees brings enrollment through the end of the year to about two-thirds of the original projections for that period. With enrollments infamously slowed throughout the early rollout period due to the national site's inability to handle the traffic it received, the surge was welcome news to those who hope for the success of the program and not so welcome, perhaps, to those who are hoping for its failure. Questions of course remain about what will happen when enrollees try to use their new insurance and whether the surge in enrollees will catch up to original projections for March, 2014. Some insurers are complaining about inaccurate data on enrollees, and the Kaiser Family Foundation points out that many consumers have not yet paid their first month's premium. Enrollees currently have until January 10 to make that first payment for coverage that takes effect on January 1.

Apple (AAPL, 554.52, down 5.57 or 0.99 percent) said that its board and management do not want to go forward with a share buyback plan. The company is rumored to be working on car entertainment systems, as is Google (GOOG, 1,109.46, down 8.94 or 0.80 percent).

J.C. Penney (JCP, 9.00, down 0.01 or 0.11 percent) says that it will end its licensing deal to sell a label originally founded by Justin Timberlake. The William Rast label is now owned by Sequential Brands Group. The licensing agreement will end June 30, 2014, a year and a half earlier than the original agreement.

Twitter (TWTR, 60.51, down 3.24 or 5.08 percent) continued Friday's pullback after a downgrade.

Kandi Technologies (KNDI, 11.95, up 1.61 or 15.57 percent), Chinese developer and manufacturer of electrical vehicles, ATVs, go-karts and other vehicles, continued Friday's gains. The company had boosted its estimates of electric vehicles to be delivered this quarter.

In late-breaking news, Berkshire Hathaway (BRK.A and BRK.B) announced that it would acquire Phillips 66's (PSX) flow-improver unit (PSPI). Berkshire Hathaway will pay for a stake in that subsidiary with common stock of PSX that it already owns. James L. Hambrick, CEO of The Lubrizol Corporation, will oversee the strategic direction of PSPI, the PSX subsidiary.

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:

The SPX broke out again last week, outrunning all potential upside Keltner targets on its daily and weekly charts. The index remains on a momentum run according to Keltner standards as long as it maintains consistent daily closes above about 1,828. Pullbacks to the 1,816-1,828 zone should be forthcoming, however. Such pullbacks would allow former resistance to be retested, to determine if it now holds up as support. As long as the SPX bounces from such tests and is soon back above about 1,828, any such support test should be considered successful.

A drop beneath about 1,816 on daily closes would likely target 1,797-1,810 or perhaps even 1,779-1,788 support, according to Keltner evidence. We can all see the historical support from about 1,767-1,775, but the Keltner channeling system I watch suggests that if the SPX declines below about 1,779 on daily closes, it's vulnerable to a drop to 1,730-1,752. While I wouldn't ignore the potential historical support near 1,767-1,775, I also wouldn't ignore the possibility that the sharper drop could occur, too, if 1,767 support is lost on daily closes.

For now, the SPX stalls in holiday trading. I wouldn't rule out either a fast gain or a quick drop toward the red 9-ema.

Annotated Daily Chart of the Dow:

By late last week, the Dow had risen to its last Keltner target, even pushing that target a little higher as the Dow made rapid gains. These targets are based on moving averages and so are dynamic, moving in the direction of the price movement if that movement is rapid enough. Did the Dow break out, pulling free of that last target and potential resistance?

While the Dow did break out of the channeling system, the breakout was not big, price percentage wise, and the Dow hasn't been able to build significantly upon those gains, at least not yet. The jury is still out, in my opinion. Consistent daily closes above about 16,490 would indicate that the Dow is, indeed, in a momentum run.

However, consistent daily closes beneath about 16,360 would suggest otherwise, that resistance did hold. In low-volume holiday trading, when end-of-year buying could still impact trading, surprised shorts could fuel another sharp gain. Barring that kind of action, it should be about time for the Dow to pull back to test support nearer 16,360 or perhaps even all the way down to the support from about 16,200-16,306. Such a pullback would not damage the bullish tenor as long as the Dow maintained daily closes above about 16,200 and then soon bounced back above 16,300.

However, sustained daily closes below about 16,200 set a potential downside target of about 16,028-16,140 or perhaps even 15,800-15,920. Of course, we all understand the potential psychological support of 16,000. While I wouldn't discount that psychological level as support if the Dow should dip that far, I also would not discount the possibility that the Dow could barrel through it to its next potential Keltner downside target at 15,800-15,915.

Annotated Daily Chart of the NDX:

The NDX broke out above its widest Keltner channel and highest marked target, dragging about half its smallest Keltner channel outside the boundaries with it. For the last couple of trading days, the NDX has been dipping toward its gap level from December 23, so far holding above both that gap and the rising 9-ema. As long as the NDX is maintaining daily closes above about 3,500-3,551, it's just testing former resistance to determine if that now holds as support. However, daily closes below about 3,500 set up a potential downside target near 3,407-3,447. Other potential downside targets are also marked in case that support doesn't hold if tested.

Annotated Daily Chart of the RUT:

I have tried to correct that 12/23 candle on the RUT's daily chart, but the charting system hasn't been cooperative so far. Futures action did not support that high opening price. Looking beyond that outsized candle, we see that the RUT minimally broke out above its Keltner channel system last week, but it hasn't been able to pull free of the gravitational pull of that resistance. Until it can produce consistent daily closes above about 1,164, I wouldn't consider it breaking out. Dips down to about 1,145 should be considered retests of former resistance, to determine whether that former resistance now holds as support.

Sustained daily closes below about 1,145, however, set up a new potential downside target near 1,115-1,125. Other potential downside targets are also marked, but the RUT is currently testing its last potential upside target on the daily chart. It might be possible that the RUT would head up to the top of the automatically drawn rising regression channel if it can consistently break out above 1,164 on daily closes, but the RUT hasn't been hitting the top of that channel in previous swing highs. That may be just a phantom possible target.

Annotated Daily Chart of the VIX:

It's time to begin watching the volatility indices again for clues. Late last week, the VIX again dropped into that 12-ish zone that sometimes marks a turnaround spot for the VIX. The VIX can and has dropped well below 12 and stayed there through long periods, but we should always be watchful when it approaches that level. Thursday's trade left a long candle wick below 12, and both Friday and today, the VIX built on the bounce off Thursday's sub-12 low. Those hoping for equity gains would like to see the VIX turn lower again.

Tomorrow's Economic and Earnings Releases

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

Tonight, Japan's Nikkei 225 will be closed for a bank holiday, as will Germany's DAX tomorrow. Japan's Nikkei 225 appears to be closed all week.

What about Tomorrow?

Annotated 30-Minute Chart of the SPX:

The SPX has trailed sideways to sideways-down since its Friday morning high. The decline can be a sign that the advances are stalling or they can be a short-term bull flag pullback destined to break higher. On a Keltner basis, the SPX probably needs sustained 30-minute closes above about 1,843 before we can assume that prices are breaking higher out of a bull flag pullback.

If the SPX declines instead of breaks higher, its 30-minute chart shows that potential support levels are layered in short intervals below the current prices. Unless a decline begins with a large gap lower beneath some of those potential support levels, and isn't quickly reversed, or else features a sharp downturn that pierces through several such potential supports levels, any declines might be small. It certainly looks possible that the SPX could bump lower--perhaps at least to 1,835-1,838 or perhaps 1,830-1,834--and then ping pong back and forth between support and resistance over the next few days. It looks just as possible that it could break through the upside of the possible bull flag and retest Friday's high. The chart provides no guidance as to whether it would be likely to exceed Friday's high on 30-minute closes if it breaks higher.

Sustained 30-minute closes beneath about 1,830 would begin to look different than a mere ping ponging about with little direction. When I glance back at the daily chart, I see that would also constitute a more significant retesting of potential support on the daily chart, too.

Other potential short-term targets are marked on the 30-minute chart, too, in case the SPX falls sharply over the next few trading days. Strong price movements will move these dynamic channel lines in the direction of the price movement.

Annotated 30-Minute Chart of the Dow:

The Dow's prices began moving sideways after dropping off Friday morning's early high. Thirty-minute closes anywhere from about 16,460-16,510 represent chop within the narrow zone that has been established since then. Such closes within that band don't give any hint of next direction, just telling us that the chop continues. Sustained 30-minute closes above 16,510 constitute new breakouts, perhaps only up to retest Friday's high. Sustained 30-minute closes beneath 16,460 suggest that the sideways support is breaking, but new potential support resides close by, at about 16,422-16,442 and then again at about 16,360-16,400. A glance back at the daily chart shows me that a break of about 16,360 on sustained 30-minute closes could mean that nearest support is breaking on the daily chart, too, setting a new lower target on the daily chart as well as on the 30-minute one. Other potential short-term targets are marked on the 30-minute chart. Remember that strong price movement will move the channel lines in the direction of that price movement.

For now, the setup could as easily suggest that prices will break out to the upside again as they do a retreat to test next support. The 30-minute chart's ladder-like potential support levels at regular intervals suggest that there would have to be a big gap not quickly reversed or else a sharp downward move to break through those layers of support. That can happen and does happen, but this 30-minute chart is so far set up for choppy trading conditions in the near term.

Annotated 30-Minute Chart of the NDX:

The NDX's pattern has been a little different than the SPX's and Dow's. The NDX declined off Friday's high rather than ran sideways, at least on the perspective of this shorter-term 30-minute chart. Today, it fell all the way through one layer of potential support and down to the next one, at about 3,552-3,560 on 30-minute closes. The NDX then bounced all the way up to the next layer of potential resistance, where it stalled beginning about midmorning. The NDX needs sustained 30-minute closes above about 3,575 before it could be considered pulling free of tested resistance, but then new potential resistance on 30-minute closes is layered closely overhead, from about 3,580-3,590. This is the kind of setup seen on other 30-minute charts once prices break through a first level of potential support. Many charts suggest sets for prices that bump higher or lower only to be stopped again shortly after they do so.

Sustained 30-minute closes beneath about 3,564 suggest a retest of today's low. Sustained 30-minute closes beneath about 3,552 suggest that the NDX could drop down to 3,536-3,545. A lower potential target is also marked on the chart, if needed.

Annotated 30-Minute Chart of the Russell 2000:

Thirty-minute closes between about 1,158-1,163 mean that the RUT is still chopping around inside a chop zone. That doesn't give us any insight into next direction. Sustained 30-minute closes above 1,163 suggest a retest of 1,165 and maybe even Friday's 1167.96 intraday high but don't tell us the probable outcome of that test. Sustained 30-minute closes beneath about 1,158 suggest a drop to the next potential support level, but that level currently spans about 1,153-1,156. It's not far beneath the breakdown level.

Other potential support levels on 30-minute closes are also marked at 1,146-1,149 and 1,133-1,136. The 1,146 level looks significant on the daily chart, too.

What do I think? Today's action didn't tell us much about next direction when viewing either daily charts or 30-minute ones. We shouldn't have expected today's action to show us anything, barring some event that would break through the tedium of holiday trading. Tomorrow's CB Consumer Confidence could perhaps break that tendency to hold equities steady, but with many of the globe's indices shuttered tonight and tomorrow (Japan, Germany, Australia, etc.), it will be hard to trust what we're seeing.

The setup on the short-term 30-minute charts suggest choppy trading that bumps a few points one direction or another, but that bumpy, choppy outlook can be undone with a gap either direction that isn't quickly reversed or with a sharp move that breaks through one or two of those potential support or resistance levels.

Watch the NDX and RUT. Watch the TNX (ten-year yields) and TYX (thirty-year yields) as well as the VIX. Those who want equities to rally further or at least sustain gains would not like to see sharp rises in the TNX, TYX or VIX.

Linda Piazza

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New Option Plays

Media & Beverages

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Discovery Communications, Inc. - DISCA - close: 90.46

Stop Loss: 87.90
Target(s): 97.50
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings in mid February
New Positions: Yes, see below

Company Description

Why We Like It:
DISCA is in the services sector. This is a media company that owns a number of well known channels including the Discovery Channel, Animal Planet, Military Channel, TLC, Discovery Fit & Health, and more. There has been recent speculation that DISCA could be looking at Scripps Network Interactive (SNI) as an acquisition target. SNI owns several channels including the Food Network, HGTV, the Travel Channel, and more. Thus far any rumors do not seem to be negatively impacting shares of DISCA. The stock has been showing relative strength the last three weeks. More importantly DISCA just broke out significant resistance at the $90.00 level today.

I am suggesting a trigger to buy calls at $90.75. If triggered our target is $97.50 but we will plan to exit prior to DISCA's earnings report in mid February. FYI: The Point & Figure chart for DISCA is bullish with a $107 target.

Trigger @ 90.75

- Suggested Positions -

Buy Feb $90 call (DISCA1422B90) current ask $3.40

Annotated Chart:

Weekly Chart:

Entry on December -- at $---.--
Average Daily Volume = 1.1 million
Listed on December 30, 2013


NEW DIRECTIONAL PUT PLAYS

SodaStream Intl. - SODA - close: 49.15 change: -1.06

Stop Loss: 51.25
Target(s): 41.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
SODA is in the consumer goods sector. The company sells at home carbonated beverage systems. The stock has been underperforming the broader market since SODA peaked back in summer. Shares accelerated lower following its late October earnings report. Since then traders have been selling the rallies. The path of least resistance is down. However, I am suggesting we use small positions to limit our risk. There are a lot of bears already in this trade. The most recent data listed short interest at more than 50% of the very small 17.5 million share float.

The December intraday low was $48.80. SODA bounced at $48.85 today. I am suggesting a trigger to buy puts (remember, small positions) at $48.70. If triggered our target is $41.50. However, I want to warn you that the $45.00 level could be potential support.

Trigger @ 48.70 *small positions*

- Suggested Positions -

Buy Feb $45 PUT (SODA1422N45) current ask $2.50

Annotated Chart:

Entry on December -- at $---.--
Average Daily Volume = 980 thousand
Listed on December 30, 2013



In Play Updates and Reviews

Stocks Coast Toward Yearend

by James Brown

Click here to email James Brown

Editor's Note:

The market didn't see a lot of action on Monday. Stocks mainly just coasted sideways toward the end of 2013.

EGN hit our entry trigger. RGR and SHLD were both stopped out.


Current Portfolio:


CALL Play Updates

Advance Auto Parts - AAP - close: 109.63 change: -0.29

Stop Loss: 107.95
Target(s): 117.50
Current Option Gain/Loss: -23.0%
Time Frame: exit PRIOR to earnings in February
New Positions: see below

Comments:
12/30/13: AAP displayed some relative weakness this morning but shares pared their losses by the closing bell. The stock did breach its simple 10-dma. Upward momentum seems to be stalling and more conservative traders may want to exit early now. I am not suggesting new positions at this time.

Earlier Comments:
Our short-term target is $117.50. Longer-term traders may want to aim higher since the Point & Figure chart for AAP is bullish with a $140 target.

- Suggested Positions -

Long Mar $115 call (AAP1422c110) entry $3.90*

12/24/13 triggered @ 110.65
*option entry price is an estimate since the option did not trade at the time our play was opened.
12/21/13 adjust the option strike from the January $110 to the March $115 call

Entry on December 24 at $110.65
Average Daily Volume = 923 thousand
Listed on December 14, 2013


Aon Plc. - AON - close: 83.25 change: -0.16

Stop Loss: 81.90
Target(s): 84.85
Current Option Gain/Loss: + 8.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/30/13: AON is little changed from Friday. Shares are still consolidating sideways inside the $83-84 zone. I am not suggesting new positions.

- Suggested Positions -

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

12/28/13 new stop loss @ 81.90
12/18/13 new stop loss @ 81.30, adjust exit target to $84.85
12/17/13 new stop loss @ 80.90
12/07/13 new stop loss @ 80.75
11/23/13 new stop loss @ 79.85
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


Chicago Bridge & Iron - CBI - close: 81.80 change: -0.20

Stop Loss: 79.65
Target(s): 89.50
Current Option Gain/Loss: + 6.4%
Time Frame: Exit PRIOR to CBI's earnings report in February
New Positions: see below

Comments:
12/30/13: CBI delivered a quiet session with shares churning sideways below the $82.00 level. Momentum traders may want to wait for a breakout higher before initiating positions.

Earlier Comments:
Our target is $89.50. We want to exit prior to CBI's earnings report in February.

- Suggested Positions -

Long April $85 call (CBI1419D85) entry $3.10

12/28/13 new stop loss @ 79.65

Entry on December 19 at $80.35
Average Daily Volume = 1.5 million
Listed on December 18, 2013


Energen Corp. - EGN - close: 70.05 change: -0.69

Stop Loss: 67.95
Target(s): 75.75
Current Option Gain/Loss: -14.7%
Time Frame: exit PRIOR to earnings in late January
New Positions: see below

Comments:
12/30/13: Our new trade on EGN has been triggered. Shares shot higher this morning but the rally peaked at $71.44. Our trigger to launch positions was hit at $71.05. Unfortunately gains faded and shares reversed into a -0.97% decline, which underperformed the broader market indices. I would wait for a new rally above $71.00 before considering new bullish positions.

Earlier Comments:
Our plan was to keep our position size small to limit our risk. Our target is $75.75 since the $76.00-76.50 area looks like resistance.

*small positions* - Suggested Positions -

Long Feb $75 call (EGN1422B75) entry $2.17

12/30/13 triggered at $71.05

Entry on December 30 at $71.05
Average Daily Volume = 727 thousand
Listed on December 28, 2013


General Dynamics - GD - close: 95.10 change: +0.10

Stop Loss: 93.85
Target(s): 99.50
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings in late January
New Positions: Yes, see below

Comments:
12/30/13: GD spent most of the day drifting sideways near round-number resistance at the $95.00 level. The stock did close on its high for the day, which should be a bullish signal for tomorrow morning. I don't see any changes from last night's new play description.

I am suggesting small bullish positions if GD can trade at $95.25. If triggered our target is $99.50. More aggressive traders may want to aim higher since the Point & Figure chart for GD is bullish with a $105 target. I am suggesting small positions because GD is arguably overbought with an almost non-stop rally from its December lows near $89.

Trigger @ 95.25 *small positions*

- Suggested Positions -

Buy the Feb $95 call (GD1422B95) current ask $2.20

Entry on December -- at $---.--
Average Daily Volume = 1.1 million
Listed on December 28, 2013


Honeywell Intl. - HON - close: 91.00 change: -0.14

Stop Loss: 88.40
Target(s): 94.75
Current Option Gain/Loss: +17.1%
Time Frame: exit PRIOR to earnings in late January
New Positions: see below

Comments:
12/30/13: After a multi-day rally shares of HON finally saw a little profit taking. Traders may want to wait for a new dip near $90.00 if you're looking for a new entry point.

Earlier Comments:
Our short-term target is $94.75. More aggressive traders may want to aim for the $97-100 zone instead.

- Suggested Positions -

Long Mar $92.50 call (HON1422c92.5) entry $1.75*

12/28/13 new stop loss @ 88.40
12/24/13 triggered @ 90.30
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on December 24 at $90.30
Average Daily Volume = 2.4 million
Listed on December 23, 2013


Helmerich & Payne - HP - close: 84.03 change: +0.07

Stop Loss: 79.90
Target(s): 87.00
Current Option Gain/Loss: +44.4%
Time Frame: exit PRIOR to January option expiration
New Positions: see below

Comments:
12/30/13: A late day surge higher pushed HP's gains to four up days in a row. The relative strength is encouraging but I am not suggesting new positions at this time.

Our short-term target is $87.00 but we will plan to exit prior to January option expiration.

- Suggested Positions -

Long Jan $82.50 call (HP1418a82.5) entry $1.80
12/24/13 new stop loss @ 79.90

Entry on December 19 at $81.75
Average Daily Volume = 1.0 million
Listed on December 18, 2013



LyondellBasell Industries - LYB - close: 79.45 change: +0.02

Stop Loss: 77.75
Target(s): 85.00
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Comments:
12/30/13: LYB is still drifting sideways below resistance at the $80.00 level. We're waiting for a bullish breakout higher.

I am suggesting a trigger to buy calls at $80.25. If triggered our short-term target is $85.00.

Trigger @ 80.25

- Suggested Positions -

Buy the Feb $80 call (LYB1422B80) current ask $2.40

Entry on December -- at $---.--
Average Daily Volume = 3.1 million
Listed on December 24, 2013


Open Text Corp. - OTEX - close: 92.65 change: +1.45

Stop Loss: 89.65
Target(s): 98.50
Current Option Gain/Loss: +10.3%
Time Frame: exit PRIOR to February expiration
New Positions: see below

Comments:
12/30/13: After testing short-term technical support at its 10-dma yesterday, traders bought the dip today. OTEX actually tagged a new high on an intraday basis. The stock outperformed the major indices with a +1.5% gain. I am raising our stop loss up to $89.65.

Our target is $98.50. FYI: The Point & Figure chart for OTEX is bullish with a $107 target.

- Suggested Positions -

Long FEB $95 call (OTEX1422b95) entry $2.90*
12/30/13 new stop loss @ 89.65
12/23/13 new stop loss @ 88.90
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on December 20 at $91.05
Average Daily Volume = 325 thousand
Listed on December 19, 2013


Polaris Industries, Inc. - PII - close: 145.78 change: +2.45

Stop Loss: 139.75
Target(s): 149.00
Current Option Gain/Loss: + 16.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/30/13: PII was also showing some relative strength today. The stock added +1.7% and closed at a new high. I am raising our stop loss to $139.75.

Earlier Comments:
Our multi-week target is $149.00. More aggressive traders could aim higher since the Point & Figure chart for PII is bullish with a $158 target.

- Suggested Positions -

Long Mar $150 call (PII1422c150) entry $4.48
12/30/13 new stop loss @ 139.75
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on December 23 at $142.25
Average Daily Volume = 457 thousand
Listed on December 21, 2013


Tiffany & Co - TIF - close: 92.09 change: +1.22

Stop Loss: 88.45
Target(s): 98.50
Current Option Gain/Loss: - 9.3%
Time Frame: exit PRIOR to February option expiration
New Positions: see below

Comments:
12/30/13: TIF continues to climb. Investors could be betting on a strong holiday shopping season for TIF. Christmas and New Years are two of the most popular days of the year for new engagements and that usually means a ring. The stock was showing relative strength today with a +1.3% gain and a new all-time record high. Suddenly I am tempted to launch new positions on this bullish breakout higher.

- Suggested Positions -

Long FEB $95 call (TIF1422b95) entry $2.15

12/26/13 TIF stock seems unaffected by the negative legal news from Monday
12/23/13 TIF reacts to news that a Dutch court orders it to pay Swatch $449 million in damages.

Entry on December 18 at $91.25
Average Daily Volume = 1.25 million
Listed on December 16, 2013


Tractor Supply Co. - TSCO - close: 76.23 change: +0.69

Stop Loss: 74.50
Target(s): 79.75
Current Option Gain/Loss: + 0.0%
Time Frame: EXIT PRIOR to January expiration
New Positions: see below

Comments:
12/30/13: TSCO bounced from support near $75.00 for the second day in a row. I would use this bounce as another bullish entry point to buy calls. If you do buy calls, be sure to buy Februarys or Aprils. We only have three weeks left on our Januarys.

Earlier Comments:
Our short-term target is $79.75. More aggressive traders may want to aim higher since the Point & Figure chart just produced a new quadruple top breakout buy signal and is forecasting an $87 target.

I am listing the January calls. I'd rather play February options but (at the time) TSCO doesn't have any Februarys or Marchs available yet and the bid/ask spread on the April options is getting a bit wide. That means we only have four weeks on these January calls.

- Suggested Positions -

Long Jan $75 call (TSCO1418a75) entry $2.15

12/28/13 new stop loss @ 74.50
12/23/13 triggered on gap higher at $77.00. Suggested trigger was $75.60

Entry on December 23 at $77.00
Average Daily Volume = 875 thousand
Listed on December 21, 2013


UnitedHealth Group - UNH - close: 74.78 change: +0.09

Stop Loss: 73.95
Target(s): 82.50
Current Option Gain/Loss: Unopened
Time Frame: Exit PRIOR to earnings on January 16th.
New Positions: Yes, see below

Comments:
12/30/13: UNH bounced from its morning lows but we're still waiting on a bullish breakout to new highs. I don't see any changes from last Thursday night's new play description.

Earlier Comments:
UNH has been volatile the last few months and the stock has created what appears to be a potential inverse head-and-shoulders pattern, which is bullish. The neckline (in this case resistance) of the pattern is in the $75.00-76.00 zone. A breakout would suggest a rally into the $83-84 area.

Tonight we're suggesting a trigger to buy calls at $76.05, which would be a new all-time high for UNH. If triggered at $76.05 our short-term target is $82.50 but we will plan to exit prior to UNH's earnings report on January 16th. Our target is optimistic and we'll make adjustments as needed. We may end up exiting closer to $80.00 instead.

Trigger @ 76.05

- Suggested Positions -

Buy the Feb $75 call (UNH1422B75)

Entry on December -- at $---.--
Average Daily Volume = 4.4 million
Listed on December 26, 2013


United Parcel Service - UPS - close: 104.92 change: +0.20

Stop Loss: 102.75
Target(s): 108.00
Current Option Gain/Loss: +17.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
12/30/13: UPS looks like it is coiling for a bullish breakout past resistance at the $105.00 level soon. I am raising our stop loss to $102.75. Keep in mind that we only have three weeks left on our January options. Any significant dip in the stock is going to crush these options.

- Suggested Positions -

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

12/30/13 new stop loss @ 102.75
12/24/13 new stop loss @ 101.90
12/21/13 new stop loss @ 100.90
12/12/13 new stop loss @ 100.45
11/23/13 new stop loss @ 99.75
11/20/13 new stop loss @ 98.95

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


United Technologies - UTX - close: 112.73 change: -0.07

Stop Loss: 110.40
Target(s): 118.50
Current Option Gain/Loss: Unopened
Time Frame: exit PRIOR to earnings in late January
New Positions: Yes, see below

Comments:
12/30/13: UTX dipped this morning but traders bought the dip near $112.00. I don't see any changes from my prior comments. The stock's recent intraday high was $113.04. Our suggested entry point is $113.05.

If triggered our target is $118.50 but we'll plan on exiting prior to UTX's earnings report in late January. More aggressive investors might want to consider aiming higher. The Point & Figure chart for UTX is bullish with a $139 target.

Trigger @ 113.05

- Suggested Positions -

buy the Feb $115 call (UTX1422B115)

Entry on December -- at $---.--
Average Daily Volume = 2.8 million
Listed on December 26, 2013


Wyndham Worldwide - WYN - close: 73.32 change: +0.31

Stop Loss: 71.75
Target(s): 78.50
Current Option Gain/Loss: -17.9%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/30/13: WYN displayed some relative strength today with a +0.4% gain. Unfortunately WYN seems a little bit stuck under the $73.50 level.

FYI: The Point & Figure chart for WYN is bullish with a $102 target.

- Suggested Positions -

Long Feb $75 call (WYN1422B75) entry $1.95*

12/23/13 triggered on gap open at $73.27. Suggested entry point was $73.25
*option entry price is an estimate since the option did not trade at the time our play was opened.

Entry on December 23 at $73.27
Average Daily Volume = 1.1 million
Listed on December 21, 2013




PUT Play Updates


Currently we do not have any active put trades.



CLOSED BULLISH PLAYS

Sturm, Ruger & Co. Inc. - RGR - close: 72.78 change: -0.83

Stop Loss: 71.75
Target(s): 79.50
Current Option Gain/Loss: -37.5%
Time Frame: 6 weeks
New Positions: see below

Comments:
12/30/13: RGR saw a little volatility on Monday. Shares sank with a slow and steady decline all day until they neared round-number support at $70.00. Then traders bought the dip and RGR bounced back and pared its losses to -0.78%. Our stop loss was hit this morning at $71.75.

- Suggested Positions -

Apr $75 call (RGR1419D75) entry $4.00 exit $2.50* (-37.5%)

12/30/13 stopped out at $71.75
12/24/13 triggered @ 74.25

chart:

Entry on December 24 at $74.25
Average Daily Volume = 294 thousand
Listed on December 23, 2013


CLOSED BEARISH PLAYS

Sears Holdings - SHLD - close: 47.70 change: +1.54

Stop Loss: 47.60
Target(s): 40.15
Current Option Gain/Loss: -74.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/30/13: There doesn't seem to be any reason behind today's +3.3% bounce in shares of SHLD today. Maybe it was someone covering their shorts by yearend. Whatever the cause SHLD hit our stop loss at $47.60. The next levels of overhead resistance look like $48.50 and then the $50.00 mark.

- Suggested Positions - *small positions*

2014 Jan $39 PUT (SHLD1418m39) entry $1.66 exit $0.42 (-74.6%)

12/30/13 stopped out
12/24/13 new stop loss @ 47.60, more conservative traders may want to just exit early.
12/16/13 new stop loss @ 48.60

chart:

Entry on December 12 at $46.18
Average Daily Volume = 1.5 million
Listed on December 11, 2013