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Newsletter

Daily Newsletter, Sunday, 12/25/2005

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Table of Contents

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

Market Wrap

Ho, Ho, Ho!

Santa Claus appears to be playing a trick on traders by teasing us with dreams of new highs but delivering bouts of profit taking as we near those highs. After a week of volatility produced by fund sales and tax selling the indexes returned to close very near to where they started the week. Given the sharp periods of selling early in the week a return to the last weeks levels is a positive event. Many commentators referred to the weakness last week as the absence of a Santa Claus rally. This is incorrect. The Santa Claus rally refers to the last five days of the year and the first two days of the next. The week before Christmas typically has a bullish bias but has been plagued with tax selling in recent years as funds clean up lose ends before they leave for the year. Last week saw some broad based selling events but no real damage was done to the indexes. The return to the high end of the range by Friday may have erased the index losses but investor sentiment was still badly bruised.

Dow Chart - Daily

Dow Chart - 60 min

Nasdaq Chart - Weekly

The markets started off in the dumps Friday morning after a sharp drop in New Home Sales. Sales in November fell to 1.245 million units on an annualized basis. This was a drop of -159,000 from the October rate of 1.404 million units. It was the biggest drop since 1994. While this looks negative on the surface we need to remember that October was a record high and the current pace is still very strong and just slightly under the 1.29M average rate for the six months prior to October. The inventory of new homes rose to 503,000 units and a 4.9-month supply. This was the highest level since 1996. However with sales much stronger than prior levels this rising inventory is not necessarily as bad as it looks on the surface. November and December are not strong months for home sales with the pace accelerating once the holiday lights come down in January. Talk of a bursting bubble continues and the internals of this report suggest the West Coast is in full decline. Sales of new homes in the west declined by -22% with the Midwest dropping -18%, the South -5% and Northeast rising +13%. Remember this is a survey of contracts signed not houses closed and is less reliable than the regular Home Sales survey. The markets reacted negatively to these numbers and erased their early gains. It took several hours before the indexes fought their way back to positive territory.

This housing news came on the heels of a prediction by Fannie Mae that the housing market has peaked and will continue to decline in 2006. Fannie said housing starts in 2006 could drop from -5% to -10%. They predicted existing home sales would decline by -4% and new home sales by -5%. 30 year fixed rate mortgages are expected to rise to 6.6%. The New Home Sales for November as reported above fell -11% from October to November and that seemed to provide validity to Fannie's claims.

Offsetting the drop in New Home Sales was a stronger than expected Consumer Sentiment at 91.5 for December. This was +10 points over the November level at 81.6 and significantly over the cycle low at 74.2 set in October. Expectations provided the biggest jump adding +10.6 points to 80.2 with the present conditions component rising +8.9 to 109.1. The headline number rose +2.8 points from the initial December reading suggesting the holiday sentiment accelerated as December progressed. As heating bills for those December cold fronts and holiday credit card bills begin hitting mailboxes in January this positive sentiment could fade.

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Durable Goods Orders surged in November for the second consecutive month. November posted a +4.4% jump compared to +3.0% jump in October. Both months were pushed higher by aircraft orders. Looking under the hood the orders ex-aircraft actually fell -2.0%. Inventories also rose sharply in all categories. Spending has been steady but the rise in inventories could be a warning that this buying trend is slowing. While the sharp jump in aircraft orders is good for the economy it is far less a driver than home sales. It may be good news for Boeing but not especially a positive economic indicator for the U.S. economy. Some estimates suggest that the home building sector has produced up to 50% of the GDP growth in 2005.

After Friday's economic reports the talking heads were consumed with the potential for an inverting yield curve as an indicator of a coming recession. The yield on the 10-year sank to 4.38% only one point away from merging with the yield on the two year note. An inverted yield curve is said to be one of the best indicators of an approaching recession 6-9 months in the future. Unfortunately for the doomsayers none of the other indicators are cooperating. Other indicators needed for confirmation are falling commodity prices and a declining stock market. While oil is off its highs it has not turned into a nosedive yet. Copper, an excellent indicator of economic activity hit a new high on Friday at $2.04. While the equity markets have been volatile of late the S&P is only six points from a four-year high. Transports, another indicator of economic activity hit a new all time high at 4282 on Friday. The CRB Index (CR00Y) is only ten points off its all time high set last week at 336. Without confirmation an inverted yield curve is an indicator without a home. Once confirmation from the other indexes begins to form you can bet there will be a rush to the exits but that is a problem we are not likely to see until January or later.

Oil prices slipped to close just over $58 despite comments from OPEC that they would have to trim production after January if prices continued to fall. How quickly they became comfortable with the new price range after saying they wanted a $30 range just over a year ago. Boone Pickens was on TV this week saying he could see prices fall to $53 in early 2006 as winter demand declines but will reach $100 before the decade is over. More detrimental to the price of oil this week was a sharp drop in gas prices after a smaller than expected drop in gas storage levels of -162 bcf. Many had expected the drop to be over -200bcf given the very cold weather the prior week. Natural Gas closed Friday at $12.28 after trading up to $14.42 before the inventory report on Thursday. With no cold front on the horizon and warmer weather forecasted for the holiday week traders were quick to take profits. That urge to sell was hastened when Pickens said gas prices could fall to $9 as winter demand declined.

Crude Oil Chart - Daily

Natural Gas Chart - Daily

This drop in oil and gas prices helped to push the transports to another new high. Stellar performers have been the airlines, AMR, CAL and JBLU. Railroads have been making the grade with NSC, UNP, BNI, CSX and CNI the leaders there. FDX spiked to a new all time high on Thursday after better than expected earnings but UPS failed to break resistance after the FDX earnings news. I am mentioning all these outperformers because January has not been kind to the transports for the last five years. In 2005 the first three weeks of January saw a drop of nearly -400 points in the transportation average. In 2004 the decline did not begin until the 3rd week of January but continued for nearly -400 points. The decline in 2003 begin with the opening of trading for 2003 and continued for nearly -500 points to bottom on the week of March 9th. 2002 losses were somewhat moderate compared to 2003-2005 with only a decline of around -250 points but it did start with the opening of trading for 2002. 2001 was ugly with more than -575 points lost from the end of December high at 3157 to the March low at 2578. In 2000 the index fell from 3017 to 2260 for a whopping -757 point drop. I listed this history for those looking for a post holiday trade. The transports can be traded using the $DXT.x options or the transportation iShare (IYT). Past performance is no guarantee of future results but given a five year trend and transports at an all time high it seems to me to be an opportunity ahead. You could also use options on some of the stocks that make up the index and I would pick on those who have the weakest recent performance and the largest index components. The top ten components are FDX 11.5%, UPS 10.4%, UNP 8.1%, EXPD 7.0%, R 6.4%, CHRW 6.3%, YELL 6.2%, CNF 5.9%, JBHT 5.3% and BNI 5.1%.

Transport Chart - Weekly

The Chairman for Norfolk Southern was on CNBC on Friday on the eve of their 175th birthday. David Goode said business was as good as he had seen it in his forty years in the business. Railroads have better than a 4:1 advantage over trucks in energy consumption and the performance of the rails is showing it. He said there is currently a shortage of rail cars and trucks due to the demand and a lack of CapEx spending by truckers over the last five years. NSC has been expanding since the acquisition of Conrail and appears to be in a good position to profit from the current cycle. NSC is a big coal shipper and the price of natural gas has increased demand for coal to the point where there are not enough cars to carry it. I would probably not pick NSC as a short candidate for January. They are tied with BNI at 5.1% as a component in the transportation index.

Unless Santa's face shows up on a milk carton over the weekend we should see another attempt at the highs next week. The game plan for last week was to buy any Monday dip and hold on the rest of the week. Well, as they say the best laid plans of mice and men sometimes go astray. The Monday dip continued into Tuesday and accelerated into the close. That may have scared many traders out of the plan and back to the sidelines. The indexes did return by Friday's close to near their recent resistance levels but there was far less bullish excitement than we had hoped.

This lack of excitement could have been the result of several weeks of selling the rallies by funds. This has given investors numerous cases of indigestion and a reluctance to hold stocks as we close in on resistance. While I was expecting a bullish year end once we consolidated the November gains I am quickly losing that bullish sentiment. As I indicated last week January has seen some substantial losses in recent years and the Transportation Index losses I highlighted above suggest it is about time for that transportation rally to correct. Falling transports typically drag the Dow down with them. In straight English I am beginning to fear there is a serious dip in our immediate future. Because funds have a strong interest in keeping the indexes supported at these levels I do expect some tape painting into year end but they have been less than successful over the last week. Hopefully they will apply a little more effort once the weekend has passed.

Because the holidays are being recognized on Monday the back-to-back three day weekends will produce even lower trading volume next week. That is actually a plus for the tape painters. The lower the volume the easier for funds to move the prices higher. Unfortunately it is also easier for sell programs to push them lower and sharply lower if the fund is really dumping positions. For those still bullish the odds of strong sell programs are less in the coming week than they were in the week just over. Funds want to sell into volume so that prices remain firmer and not fluctuate wildly. They will get an overall better price with higher volume. Volume levels last week started out at 4.3B on Monday and declined to 3.6B on Thursday and 2.5B on Friday. We will be lucky next week to break 3B shares on any day. This is not the kind of volume funds want to sell into. We can't ever guarantee any outcome but hopefully the Santa rally will arrive as expected and produce the +1.5% average S&P gain. That is a little less than +20 points and with the 4.5 yr resistance high at 1275 it would give us a new breakout attempt. Notice I said attempt.

Chart of VXO - Weekly

Chart of VIX - Weekly

Despite the bullish sentiment normally prevalent this time of year the VIX/VXO are both flashing warning signs. The VIX closed at 10.27 on Friday when the indexes were barely able to rebound back into the green before the close. The VXO or the old VIX closed at 9.87 and only .75 above its low for the year. While the volatility last week was extreme the volatility indexes failed to confirm with a move higher. Far too many traders are expecting the post Santa bounce and nobody is protecting against a fall. When the VIX/VXO is low it is time to go because nobody is buying puts. Traders are too confident that the market will move higher and just like curiosity killed the cat, overconfidence kills traders. The VXO 9.87 reading ahead of the expected Santa rally suggests any market rise next week could produce a new low for the year below 9.12. I have set my chart alarm at 9.12 and I will be exiting any longs on that signal and loading up on puts on the first signs of weakness. That weakness could come very quickly given the resistance on the current charts.

The SPX has solid resistance between 1275-1280. The Nasdaq has correspondingly hard resistance from 2270-2280. Combine that with the Dow resistance from 10900-10950 and traders will have a hard time making any rally stick. It is entirely possible to see a breakout into year-end, it has happened before, but you can bet there are still some sell orders waiting at those highs. The bullish sentiment has faded and worries about January are appearing on all sides. January begins a new earnings cycle and with Q4 performance seen as mediocre the January numbers could be weak. For 2006 S&P earnings are expected to fall into the single digits and that is not going to be market friendly. I am not going to launch into a 2006 outlook this week and will save it for next Sunday. But, I still believe that long term investor sentiment is fading fast as the year closes. If Santa suffers a reindeer transit strike and fails to show next week we all know what will happen. Remember the adage, "If Santa fails to call, the bears may come to Broad and Wall." Typically weakness between Christmas and New Years is a leading indicator of selling to come in January. Keep your fingers crossed that Santa produces a breakout next week but keep those stops tight just in case he fails. Until next week Merry Christmas and Happy Chanukah to all and to all a good night!
 

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
BMC None
LIFC  

New Long Plays

BMC Software - BMC - close: 20.95 change: +0.05 stop: 20.74

Company Description:
BMC Software, Inc., is a leading provider of enterprise management solutions that empower companies to manage their IT infrastructure from a business perspective. Delivering Business Service Management, BMC Software solutions span enterprise systems, applications, databases and service management. Founded in 1980, BMC Software has offices worldwide and fiscal 2005 revenues of more than $1.46 billion. (source: company press release or website)

Why We Like It:
BMC software has been consolidating sideways between $20.00 and $21.00 for the last six weeks. The technical picture has improved recently and it looks like the stock is poised to breakout and make another run at the $22.00 level, maybe even higher. The P&F chart points to a $24 target. We want to suggest a trigger to go long at $21.11. If triggered we'll plan an exit in the $21.85-22.00 range.

Picked on December xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/01/06 (unconfirmed)
Average Daily Volume: 1.5 million

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LifeCell Corp. - LIFC - close: 19.77 change: -0.42 stop: 19.24

Company Description:
LifeCell develops and markets products made from human tissue for use in reconstructive, orthopedic and urogynecologic surgical procedures. (source: company press release or website)

Why We Like It:
LIFC has been consolidating sideways under resistance at the $20.50 level for weeks. Now that the BTK biotech index is breaking out higher we suspect that LIFC may be close to following suit. The Point & Figure chart is bullish and points to a $29.00 target. We are going to suggest a trigger to go long at $20.65. If triggered we'll target a rally into the $24-25 range.

Picked on December xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/25/06 (unconfirmed)
Average Daily Volume: 598 thousand
 

New Short Plays

Body

In Play Updates and Reviews

Long Play Updates

ANSYS Inc. - ANSS - close: 45.09 change: +0.76 stop: 40.89

ANSS' rallied continued into Friday with shares adding 1.7% on above average volume. The stock had spent the last seven weeks consolidating sideways between $40 and $44 so shares are ready and rested for a new leg higher. The strong volume on the rally this past week is bullish and its MACD indicator has produced a new buy signal. The Point & Figure chart points to a $60 target. Readers can choose to go long here or wait for a possible dip back into the $44.50-44.00 range. Broken resistance at $44.00 should now act as new support. Our target is the $49.00-50.00 range by the end of January. We do not want to hold over the early February earnings report.

Picked on December 22 at $44.05
Change since picked: + 1.04
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume: 153 thousand

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Anglogold - AU - close: 48.01 change: -0.44 stop: 44.95

Gold managed to retain its position above $500 an ounce but the rally in AU stalled. The stock looks poised to retreat back toward the $46.50 level. We are not suggesting new longs at this time and more conservative traders may want to exit early right here for a gain. Our target is the $49.50-50.00 range.

Picked on December 06 at $44.81
Change since picked: + 3.20
Earnings Date 01/27/06 (unconfirmed)
Average Daily Volume: 904 thousand

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CenturyTel Inc. - CTL - close: 33.45 change: +0.07 stop: 32.39

It has been a relatively quiet week for CTL. The stock did fall through technical support at the 200-dma earlier this past week but since then the stock has been very slowly inching higher in a mostly sideways consolidation. We hesitate to suggest new bullish positions here. However, if the major averages do produce a Santa Claus rally next week then watch for a move over $33.75 as a new bullish entry point. Our target is the $36.00 level by CTL's January earnings report, which we do not want to hold over.

Picked on December 12 at $33.55
Change since picked: - 0.12
Earnings Date 01/26/06 (unconfirmed)
Average Daily Volume: 855 thousand

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D.R.Horton - DHI - close: 36.21 chg: -0.64 stop: 34.75

Bullish traders need to turn more cautious here! Homebuilders were hit with more selling on Friday after the new home sales report for November came in negative. The DJUSHB home construction index lost 1.19% and DHI lost 1.7%. The decline in new home sales really shouldn't be a surprise since November and December are pretty slow months for the industry anyway. The DJUSHB index still has support at its 200-dma near 926 and additional support at the 920 level. The fact that DHI managed to hold support at the $36.00 level is positive. However, Friday's decline did put DHI's closing price under its eight-week trend of higher lows (a.k.a. support, see chart). After the December 15th failed rally near $38.50 we would be very careful here. We are not suggesting new positions. Our target for DHI is the $39.75-40.00 range.

Picked on November 21 at $35.85
Change since picked: + 0.36
Earnings Date 11/16/05 (confirmed)
Average Daily Volume: 3.2 million

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Duke Energy - DUK - close: 27.83 change: +0.14 stop: 26.89 *new*

Utility stocks out performed their energy brethren on Friday but not by much. Shares of DUK managed to out perform most of its peers with a 0.5% gain and a new three-month high. The stock is very close to our $27.95-28.00 target. We are not suggesting new positions here. We are raising the stop to breakeven at $26.89.

Picked on December 13 at $26.89
Change since picked: + 0.94
Earnings Date 02/01/06 (unconfirmed)
Average Daily Volume: 3.9 million


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Forest Oil - FST - close: 46.24 change: -0.05 stop: 44.89

FST may have posted another loss on Friday but the session was more bullish than bearish with the second bounce in a week from the $45.40 region. If FST can trade over $47.30 again we might be tempted to suggest new bullish positions. Unfortunately it looks like FST's inverted/bullish head-and-shoulders pattern has been thwarted by the overhead trendline of resistance. Currently we are not suggesting new plays.

Picked on December 02 at $47.01
Change since picked: - 0.77
Earnings Date 02/09/06 (unconfirmed)
Average Daily Volume: 1.1 million

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JDS Uniphase - JDSU - close: 2.51 change: -0.02 stop 2.39

JDSU is a new play from the Thursday night newsletter. We do not see any changes from our play description so we're reposting it here:

It feels like a long time ago when the stock symbol JDSU used to stand for "Just Don't Sell Us". Shares of JDSU may never again achieve the heights it scaled back in 1999 and 2000 but that doesn't mean nimble traders can make a buck or two on it now. Over the spring and summer JDSU produced a solid base (or bottom) in the $1.40-1.80 range. This past September the stock broke out and has been climbing in a wide, rising channel ever since. Tuesday's low and Wednesday's bounce looks like a rebound from the bottom of JDSU's rising channel. We see this as a technical entry point to buy a rebound from support. Unfortunately, volume has been pretty low lately and today's early strength faded. We are going to suggest a trigger at $2.65 to go long. If triggered we'll exit at $2.98. There is resistance at $2.80 but we expect JDSU to push past it. Currently the Point & Figure chart for JDSU points to a $5.00 target. We would qualify this as an aggressive play.

Picked on December xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/25/06 (unconfirmed)
Average Daily Volume: 50.0 million

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Levitt - LEV - close: 22.54 chg: -0.05 stop: 21.95 *new*

LEV is still consolidating sideways. The upward momentum has stalled after the stock failed to breakout over its descending 100-dma. We've been expecting a dip toward the $22.00 level and it occurred this past Wednesday. If the stock can rally back above the 22.70 or 22.75 levels we'd consider initiating new long positions. Our target is the $24.90-25.00 range. We are going to raise our stop loss to $21.95.

Picked on December 01 at $22.27
Change since picked: + 0.27
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume: 161 thousand

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Nautilus - NLS - close: 19.22 change: +0.05 stop: 18.75 *new*

The pull back to the $19.00 level looks like a new bullish entry point in NLS. The stock is still deeply oversold from its July-November sell-off. More conservative traders may want to wait for a move over $19.30-19.35 before starting new positions. NLS appears to be building a new rising channel and shares are currently near support. We are raising the stop loss to $18.75. Our target is the $21.50 level.

Picked on December 11 at $18.81
Change since picked: + 0.41
Earnings Date 02/01/06 (unconfirmed)
Average Daily Volume: 598 thousand

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Norfolk So. Corp. - NSC - close: 45.20 chg: +0.85 stop: 42.34

NSC is a new bullish candidate from the Thursday night newsletter. Friday's action saw the stock soared 1.9% to a new all-time closing high over last month's resistance. The move also produced a new MACD buy signal. If you read this weekend's market wrap then you know that Jim does not have a bullish forecast for the transportation sector. While NSC may endure any first quarter sell-off better than its peers we may still want to exit early. Keep this in mind if you're considering new long plays here. We will play this stock cautiously and plan to exit earlier than normal but hopefully next week will give NSC a chance to rally toward the top of its channel, especially if the fund managers decide to do any end-of-quarter window dressing. Our end of January target is the $48.50-49.00 range. The Point & Figure chart for NSC currently points to a $64 target. We do not want to hold over the late January earnings report. FYI: the stock is now up four days in a row and it might be time for a dip. Watch the $44 level to act as short-term support.

Picked on December 22 at $44.35
Change since picked: + 0.85
Earnings Date 01/25/06 (unconfirmed)
Average Daily Volume: 2.2 million

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Outback Steakhouse - OSI - close: 41.28 chg: +0.14 stop: 40.49

We didn't have to wait very long for OSI to hit our trigger. The stock climbed to $41.71 on Friday and our trigger to go long the stock was at $41.55, above technical resistance at its exponential 200-dma and price resistance at $41.50. Technical indicators inched closer to more bullish signals. Friday's inability to hold its gains may be an issue. More conservative traders might want to wait for a close over $41.50 or $41.73 before going long. Now that we're triggered our target is the $44.00-44.50 range. OSI appears to have long-term resistance near $45.00. FYI: we wouldn't be surprised to see a dip to $41.20 to fill the gap from Friday morning.

Picked on December 23 at $41.55
Change since picked: - 0.27
Earnings Date 02/09/06 (unconfirmed)
Average Daily Volume: 789 thousand

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VCA Antech - WOOF - close: 27.98 chg: +0.32 stop: 26.74

The technical picture on WOOF is improving but the stock is still stuck in a sideways trading range between $27.50 and $28.50. Friday's gain is encouraging but we are not suggesting new bullish positions here. We will plan to exit ahead of the late January earnings report. Our target is the $29.90-30.00 range.

Picked on November 09 at $26.74
Change since picked: + 1.24
Earnings Date 01/24/06 (unconfirmed)
Average Daily Volume: 436 thousand
 

Short Play Updates

Danaher - DHR - close: 55.71 change: +0.29 stop: 57.35

DHR is starting to produce a short-term oversold bounce. We would not suggest new positions here. The stock will probably rally toward short-term resistance in the $56.50 near the 10-dma or reach up to the $57 level. A failed rally at either region could be used as a new bearish entry point. Traders should weigh their need to be in the market (and short) against the possibility of a Santa Claus rally showing up. Our target for DHR is the $51.25-51.00 range.

Picked on December 18 at $55.79
Change since picked: - 0.08
Earnings Date 02/16/05 (unconfirmed)
Average Daily Volume: 1.5 million

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NeuroMetrix - NURO - close: 27.08 chg: -0.75 stop: 31.05 *new*

NURO continues to show relative weakness. The stock lost another 2.69% on Friday and set a new three-month closing low. We are not suggesting new bearish positions here. We are also adjusting our stop loss and target. The new target will be $25.25. NURO may eventually dip to its simple 200-dma (currently near $23) but there is a good chance the stock may produce a stronger oversold bounce from round-number support near $25.00. We are lowering our stop loss to $31.05.

Picked on December 06 at $29.59
Change since picked: - 2.51
Earnings Date 01/27/06 (unconfirmed)
Average Daily Volume: 210 thousand

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Waters Corp. - WAT - close: 38.08 chg: +0.05 stop: 39.25*new*

It looks like traders in WAT have taken a little holiday break. The stock hasn't moved much in the last four sessions. Shares remain in their bearish trend of lower highs but we hesitate to suggest new shorts here. The next seven sessions tend to be the most bullish time of the year. We're going to try and protect ourselves by lowering the stop loss to $39.25. Our target is the $35.25-35.00 range. We do not want to hold over the late January earnings report.

Picked on December 18 at $38.60
Change since picked: - 0.52
Earnings Date 01/24/06 (unconfirmed)
Average Daily Volume: 901 thousand
 

Closed Long Plays

None
 

Closed Short Plays

None
 


Play Updates

In Play Updates and Reviews

Long Play Updates

ANSYS Inc. - ANSS - close: 45.09 change: +0.76 stop: 40.89

ANSS' rallied continued into Friday with shares adding 1.7% on above average volume. The stock had spent the last seven weeks consolidating sideways between $40 and $44 so shares are ready and rested for a new leg higher. The strong volume on the rally this past week is bullish and its MACD indicator has produced a new buy signal. The Point & Figure chart points to a $60 target. Readers can choose to go long here or wait for a possible dip back into the $44.50-44.00 range. Broken resistance at $44.00 should now act as new support. Our target is the $49.00-50.00 range by the end of January. We do not want to hold over the early February earnings report.

Picked on December 22 at $44.05
Change since picked: + 1.04
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume: 153 thousand

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Anglogold - AU - close: 48.01 change: -0.44 stop: 44.95

Gold managed to retain its position above $500 an ounce but the rally in AU stalled. The stock looks poised to retreat back toward the $46.50 level. We are not suggesting new longs at this time and more conservative traders may want to exit early right here for a gain. Our target is the $49.50-50.00 range.

Picked on December 06 at $44.81
Change since picked: + 3.20
Earnings Date 01/27/06 (unconfirmed)
Average Daily Volume: 904 thousand

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CenturyTel Inc. - CTL - close: 33.45 change: +0.07 stop: 32.39

It has been a relatively quiet week for CTL. The stock did fall through technical support at the 200-dma earlier this past week but since then the stock has been very slowly inching higher in a mostly sideways consolidation. We hesitate to suggest new bullish positions here. However, if the major averages do produce a Santa Claus rally next week then watch for a move over $33.75 as a new bullish entry point. Our target is the $36.00 level by CTL's January earnings report, which we do not want to hold over.

Picked on December 12 at $33.55
Change since picked: - 0.12
Earnings Date 01/26/06 (unconfirmed)
Average Daily Volume: 855 thousand

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D.R.Horton - DHI - close: 36.21 chg: -0.64 stop: 34.75

Bullish traders need to turn more cautious here! Homebuilders were hit with more selling on Friday after the new home sales report for November came in negative. The DJUSHB home construction index lost 1.19% and DHI lost 1.7%. The decline in new home sales really shouldn't be a surprise since November and December are pretty slow months for the industry anyway. The DJUSHB index still has support at its 200-dma near 926 and additional support at the 920 level. The fact that DHI managed to hold support at the $36.00 level is positive. However, Friday's decline did put DHI's closing price under its eight-week trend of higher lows (a.k.a. support, see chart). After the December 15th failed rally near $38.50 we would be very careful here. We are not suggesting new positions. Our target for DHI is the $39.75-40.00 range.

Picked on November 21 at $35.85
Change since picked: + 0.36
Earnings Date 11/16/05 (confirmed)
Average Daily Volume: 3.2 million

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Duke Energy - DUK - close: 27.83 change: +0.14 stop: 26.89 *new*

Utility stocks out performed their energy brethren on Friday but not by much. Shares of DUK managed to out perform most of its peers with a 0.5% gain and a new three-month high. The stock is very close to our $27.95-28.00 target. We are not suggesting new positions here. We are raising the stop to breakeven at $26.89.

Picked on December 13 at $26.89
Change since picked: + 0.94
Earnings Date 02/01/06 (unconfirmed)
Average Daily Volume: 3.9 million


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Forest Oil - FST - close: 46.24 change: -0.05 stop: 44.89

FST may have posted another loss on Friday but the session was more bullish than bearish with the second bounce in a week from the $45.40 region. If FST can trade over $47.30 again we might be tempted to suggest new bullish positions. Unfortunately it looks like FST's inverted/bullish head-and-shoulders pattern has been thwarted by the overhead trendline of resistance. Currently we are not suggesting new plays.

Picked on December 02 at $47.01
Change since picked: - 0.77
Earnings Date 02/09/06 (unconfirmed)
Average Daily Volume: 1.1 million

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JDS Uniphase - JDSU - close: 2.51 change: -0.02 stop 2.39

JDSU is a new play from the Thursday night newsletter. We do not see any changes from our play description so we're reposting it here:

It feels like a long time ago when the stock symbol JDSU used to stand for "Just Don't Sell Us". Shares of JDSU may never again achieve the heights it scaled back in 1999 and 2000 but that doesn't mean nimble traders can make a buck or two on it now. Over the spring and summer JDSU produced a solid base (or bottom) in the $1.40-1.80 range. This past September the stock broke out and has been climbing in a wide, rising channel ever since. Tuesday's low and Wednesday's bounce looks like a rebound from the bottom of JDSU's rising channel. We see this as a technical entry point to buy a rebound from support. Unfortunately, volume has been pretty low lately and today's early strength faded. We are going to suggest a trigger at $2.65 to go long. If triggered we'll exit at $2.98. There is resistance at $2.80 but we expect JDSU to push past it. Currently the Point & Figure chart for JDSU points to a $5.00 target. We would qualify this as an aggressive play.

Picked on December xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/25/06 (unconfirmed)
Average Daily Volume: 50.0 million

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Levitt - LEV - close: 22.54 chg: -0.05 stop: 21.95 *new*

LEV is still consolidating sideways. The upward momentum has stalled after the stock failed to breakout over its descending 100-dma. We've been expecting a dip toward the $22.00 level and it occurred this past Wednesday. If the stock can rally back above the 22.70 or 22.75 levels we'd consider initiating new long positions. Our target is the $24.90-25.00 range. We are going to raise our stop loss to $21.95.

Picked on December 01 at $22.27
Change since picked: + 0.27
Earnings Date 02/02/06 (unconfirmed)
Average Daily Volume: 161 thousand

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Nautilus - NLS - close: 19.22 change: +0.05 stop: 18.75 *new*

The pull back to the $19.00 level looks like a new bullish entry point in NLS. The stock is still deeply oversold from its July-November sell-off. More conservative traders may want to wait for a move over $19.30-19.35 before starting new positions. NLS appears to be building a new rising channel and shares are currently near support. We are raising the stop loss to $18.75. Our target is the $21.50 level.

Picked on December 11 at $18.81
Change since picked: + 0.41
Earnings Date 02/01/06 (unconfirmed)
Average Daily Volume: 598 thousand

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Norfolk So. Corp. - NSC - close: 45.20 chg: +0.85 stop: 42.34

NSC is a new bullish candidate from the Thursday night newsletter. Friday's action saw the stock soared 1.9% to a new all-time closing high over last month's resistance. The move also produced a new MACD buy signal. If you read this weekend's market wrap then you know that Jim does not have a bullish forecast for the transportation sector. While NSC may endure any first quarter sell-off better than its peers we may still want to exit early. Keep this in mind if you're considering new long plays here. We will play this stock cautiously and plan to exit earlier than normal but hopefully next week will give NSC a chance to rally toward the top of its channel, especially if the fund managers decide to do any end-of-quarter window dressing. Our end of January target is the $48.50-49.00 range. The Point & Figure chart for NSC currently points to a $64 target. We do not want to hold over the late January earnings report. FYI: the stock is now up four days in a row and it might be time for a dip. Watch the $44 level to act as short-term support.

Picked on December 22 at $44.35
Change since picked: + 0.85
Earnings Date 01/25/06 (unconfirmed)
Average Daily Volume: 2.2 million

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Outback Steakhouse - OSI - close: 41.28 chg: +0.14 stop: 40.49

We didn't have to wait very long for OSI to hit our trigger. The stock climbed to $41.71 on Friday and our trigger to go long the stock was at $41.55, above technical resistance at its exponential 200-dma and price resistance at $41.50. Technical indicators inched closer to more bullish signals. Friday's inability to hold its gains may be an issue. More conservative traders might want to wait for a close over $41.50 or $41.73 before going long. Now that we're triggered our target is the $44.00-44.50 range. OSI appears to have long-term resistance near $45.00. FYI: we wouldn't be surprised to see a dip to $41.20 to fill the gap from Friday morning.

Picked on December 23 at $41.55
Change since picked: - 0.27
Earnings Date 02/09/06 (unconfirmed)
Average Daily Volume: 789 thousand

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VCA Antech - WOOF - close: 27.98 chg: +0.32 stop: 26.74

The technical picture on WOOF is improving but the stock is still stuck in a sideways trading range between $27.50 and $28.50. Friday's gain is encouraging but we are not suggesting new bullish positions here. We will plan to exit ahead of the late January earnings report. Our target is the $29.90-30.00 range.

Picked on November 09 at $26.74
Change since picked: + 1.24
Earnings Date 01/24/06 (unconfirmed)
Average Daily Volume: 436 thousand
 

Short Play Updates

Danaher - DHR - close: 55.71 change: +0.29 stop: 57.35

DHR is starting to produce a short-term oversold bounce. We would not suggest new positions here. The stock will probably rally toward short-term resistance in the $56.50 near the 10-dma or reach up to the $57 level. A failed rally at either region could be used as a new bearish entry point. Traders should weigh their need to be in the market (and short) against the possibility of a Santa Claus rally showing up. Our target for DHR is the $51.25-51.00 range.

Picked on December 18 at $55.79
Change since picked: - 0.08
Earnings Date 02/16/05 (unconfirmed)
Average Daily Volume: 1.5 million

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NeuroMetrix - NURO - close: 27.08 chg: -0.75 stop: 31.05 *new*

NURO continues to show relative weakness. The stock lost another 2.69% on Friday and set a new three-month closing low. We are not suggesting new bearish positions here. We are also adjusting our stop loss and target. The new target will be $25.25. NURO may eventually dip to its simple 200-dma (currently near $23) but there is a good chance the stock may produce a stronger oversold bounce from round-number support near $25.00. We are lowering our stop loss to $31.05.

Picked on December 06 at $29.59
Change since picked: - 2.51
Earnings Date 01/27/06 (unconfirmed)
Average Daily Volume: 210 thousand

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Waters Corp. - WAT - close: 38.08 chg: +0.05 stop: 39.25*new*

It looks like traders in WAT have taken a little holiday break. The stock hasn't moved much in the last four sessions. Shares remain in their bearish trend of lower highs but we hesitate to suggest new shorts here. The next seven sessions tend to be the most bullish time of the year. We're going to try and protect ourselves by lowering the stop loss to $39.25. Our target is the $35.25-35.00 range. We do not want to hold over the late January earnings report.

Picked on December 18 at $38.60
Change since picked: - 0.52
Earnings Date 01/24/06 (unconfirmed)
Average Daily Volume: 901 thousand
 

Closed Long Plays

None
 

Closed Short Plays

None
 

Today's Newsletter Notes: Market Wrap by Jim Brown and all other plays and content by the Option Investor staff.

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