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Daily Newsletter, Saturday, 12/09/2006

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Table of Contents

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

Market Wrap

Confused?

Confusion appears to be the condition of the market since the Thanksgiving holiday. Friday was also the lowest volume day since Thanksgiving. We saw a week of very strong volatility and a sharp drop followed by a sharp rebound (11/27-12/1) and then a week of very low volatility. Investors bought the dip but then did not know what to do next. Each day brings another view of the economy and many times the opposite view from the day before. To say the market and traders in general were confused would be an understatement.

Dow Chart - Daily

Nasdaq Chart - Daily

Friday started off with the Non-farm Payrolls and economists were greeted with a decent surprise. According to the report 132,000 jobs were created in November. That is +40,000 over the October gain of +92,000. The consensus estimates for +110,000 had been raised by some analysts after the strong comments from ADP earlier in the week. ADP, a large payroll processor, said on Wednesday as many as 158,000 new private sector jobs were created in November. The non-farm payroll report failed to reflect as many as the ADP survey but much better than consensus. The report also showed revisions to both the September and October numbers. October job gains were revised down by -13,000 from 92,000 to 79,000. The September gains were revised higher from 148,000 to 203,000 or +55,000. The net gain including the revisions was +174,000 jobs. Despite the job gains the unemployment rate rose to 4.5% from last months cycle low of 4.4%.

Jobs Table

The manufacturing sector lost -15,000 jobs and construction lost -15,000. The service sector showed a monster gain of +172,000 jobs, led by +43,000 professional jobs, +41,000 in education/healthcare and +31,000 in the hospitality sector. Retail additions were minimal, only +20,000, suggesting retailers were trying to get by with fewer to compensate for door buster specials. Since the US economy has morphed to a 70% service, 20% manufacturing, 10% other split the spike in service jobs is right inline. The better than expected jobs number failed to impress many analysts who point to the earlier than normal survey week as potentially skewing the numbers. The survey was done earlier in November to avoid the Thanksgiving holiday. Some analysts point to weakening indicators as November drew to a close and suggest the December report could be a shocker.

The report was strong enough to take the Fed rate cut expectations for March off the table once again. The markets reacted sharply to the announcement and saw their lows of the day by 10:AM. Bonds hit the skids with the yield on the ten-year note rocketing higher to close at a fresh two week high of 4.55%. Remember, it was just last week we were talking about the potential for a yield under 4% by January. That seems like a slim chance now with the Fed back in the picture. You see the jobs gains were right inline with the last six-month average of +138,000 and showed no further weakening that would have hastened a Fed change soon.

Ten-Year Note Yield Chart - 30 min

The December Fed meeting is next Tuesday and after this week's data we can expect them to maintain a tightening bias and that will help dampen the markets. Also putting a negative spin on next week's Fed meeting was comments from Treasury Secretary Paulson on CNBC. He was very upbeat about the economy saying he was confident it was on track for a sustainable rate of growth. He also reiterated his stance for a strong dollar and his thoughts about next week's China trip. He said everything you would expect from a Treasury Secretary but he brings a lot of credibility to the position from his prior life. His views are bullish for the market long term but negative for the Fed in the short term. With the Fed meeting next week the markets turned sour on the job news and failed to post any material gains.

The only other report on Friday was Consumer Sentiment, which fell to 90.2 from 92.1 and well below the consensus estimate of 92.5. The present conditions component rose to 108.2 from 106.0 but the expectations component fell sharply to 78.6 from 83.2. Evidently the constant talk about weakening economy and possible recession in 2007 is having a negative impact on consumers. Climbing gasoline prices from the fall lows and the weak housing market were given as factors.

Next week the two most important economic events are the FOMC meeting on Tuesday and the Consumer Price Index on Friday. There are a lot of other reports but they are mostly just filler and not normally market movers. The FOMC will be the focal point and it has the potential to be a negative turning point. Hopefully they will stick to the script and not deviate only two weeks before Christmas. Just repeating their prior statement would be best for the markets. Any further elaboration about risks weighted toward inflation would not be viewed positively. The markets need to remain focused on the potential for a rate cut regardless of how far in the future it might be. Should the focus revert back to worrying about a rate hike it could be detrimental to the markets. Personally I would rather have a booming economy and slightly higher rates but the housing market is showing signs of a rebound and rates need to remain low to feed that bounce.

Economic Calendar

Rumors were running rampant on Friday with Citicorp at the top of the list. There were rumors Citigroup might be announcing a breakup to release value by spinning off one of its units. There was also a rumor that the departing CFO from Bank of America, Al De Molina would be replacing Chuck Prince as CEO of Citigroup. It was also rumored that Citigroup CFO Sally Krawcheck was leaving. While Citigroup said they do not comment on rumors a spokesman did say Sally was not leaving. When asked if she would remain in her present position they declined comment. Citigroup traded 54 million shares and was the second highest volume on the NYSE. They normally trade 16 million shares. The rumors did push the stock to a new two-year high at $52.70 and I am sure many long time holders were happy to exit. Citigroup stock has provided lackluster performance for years.

Another rumor making the rounds was that Bank of America (BAC) was going to make an offer for Barclays (BCS). This sent the stock of Barclays to a new historic high over $61 before falling back to close at $58.25 (+2.46) as analysts scoffed at the rumors. BCS began to rise on Wednesday as the rumors began to slip out but Friday's intraday gain came after several noted analysts said the deal would be a good fit. A Merrill Lynch analyst, Edward Najarian, wrote to clients on Friday that Merrill believes BAC is very interested in acquiring Barclays. Both BAC and BCS declined to comment on the rumors. One analyst pointed out that the rumors are not likely to be true because the Chairman of Barclays, Matthew Barrett, had sold almost his entire stake of 2.3 million shares over the last several weeks and he would not have done that if BAC was talking to the board about an offer. However, even if BAC was not looking at BCS before last week all the good press about the synergies of a wedding might cause BAC to pop the question anyway. Time will tell.

Rating agency Fitch placed Ameriquest Mortgage on "rating watch evolving" due to the deteriorating condition of its subprime mortgage portfolio. Ameriquest's portfolio has shrink by -15% in loan volume and now has risen +9.4% in unpaid principal balances since their prior review. They currently have 437,000 loans for more than $71.2 billion. UBS recently said 8% of all subprime mortgages are in default nationwide, up from 4.5% last November. Fitch has also noted that numerous consumers have filed class action lawsuits against Ameriquest claiming improper loan procedures. I can see it now, "You loaned me more money than I could repay so I am suing you." Other public lenders under the subprime gun today include Accredited (LEND), Countrywide (CFC) and New Century (NEW). On Wednesday Ownit Mortgage closed their doors, an $8 billion casualty of the subprime collapse. Sebring Capital also closed its doors on Dec-1st but said it would honor any existing loan commitments if those loans could be closed by Dec-15th. Sebring had 325 employees and averaged about $250 million in loans per quarter, down from $450 million in 2003. Atlanta based NetBank closed its subprime operation in November. H&R Block is trying to find a takeout buyer for its Option One Mortgage Corp subprime business to stop the bleeding. Key Corp is also dumping its subprime Champion Mortgage business.

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Expedia (EXPE) surprised the markets with an announcement they would be buying back 30 million shares or roughly 10% of their outstanding shares. This sent the price of Expedia shares spiking to $21 from yesterday's close of $18.59. Expedia will make a tender offer between $18.50 and $22 between Dec-11th and Jan-10th. Moody's Investor Services immediately lowered its outlook on the company to negative saying this reduced Expedia's financial flexibility. Investors should wonder why Expedia can't find some place better to spend the money to increase earnings.

Ford was the largest volume mover on the NYSE with 195 million shares traded. Ford just announced $4.5 billion of 4.25% convertible bonds due in 2036 and investors are dumping the common stock in favor of the bonds. If Ford does manage a turnaround then the bonds can be converted. If they don't manage a recovery the bonds offer some level of security since they have priority over common stock. Those currently holding the stock will see their interests diluted at some point in the future by the debt conversion. The bonds can be converted at $9.20 per share. I guess those still holding the stock would be glad to have their stock diluted if it rises from the current $7.20 to more than $9.25 per share. The offering was so successful Ford doubled the initial amount. Ford already has 1.9 billion shares outstanding.

Two IPOs soared on their debut on Friday. Allegiant (ALGT) spiked +$7.10 or +39% to $25.10. Allegiant, based in Las Vegas, operates a low cost airline offering non-stop flights from smaller markets to popular vacation destinations. It also offers hotel rooms, rental cars and other travel services. Heelys (HLYS) jumped +11.60 or 55% to close at $32.60. Heelys makes a popular brand of shoes for kids with wheels in the heels allowing them to double as roller skates.

Chesapeake Energy surprised investors with a 30 million share offering which was snapped up by Deutsche Bank at $31.85 per share. DB said they would sell it at the public offering price of $32.15. That is a pretty small profit margin for DB but you can bet they placed most of it before it was announced. You can probably guess what price CHK fell to during the day, yes, $32.15. More than 31 million shares traded compared to the average of 7.5 million. I would be a buyer of CHK at this level not only because that 30 million share block at $32 should provide solid support but CHK is also moving to convert most of its 16.4 TCF of undeveloped and unproven reserves to proven and developed. When added to their 8.4 TCF of already proven reserves this will provide them nearly 25 TCFe to produce worth about $200 billion. This is a monster amount of gas and CHK already has 33,700 producing wells making them the 3rd largest independent US producer. They are currently valued ($14B) for something less than their 8.4 TCF of proved reserves because CHK has quietly grown from only 1.2 TCF in late 1999. They currently have more than a 10-year backlog of drilling prospects on the board. This is not a fast moving stock but one you could buy and forget. As gas prices continue to rise between now and 2010 you can bet CHK will rise as well. CHK has no foreign exposure and therefore is a safe play with little geopolitical risk. Gas prices will rise with mid double digit prices the norm by 2010. North America gas production has already peaked and begun its permanent decline.

CHK Chart - Weekly

The SOX continued to weaken as the list of chip problems grows. Over the last week National Semi (NSM), Altera (ALTR) and Xilinx (XLNX) led a list of companies posting weaker guidance for the current quarter. It appears the PC slump while waiting on Vista and a slowing in wireless sales has led to an inventory surplus. The SOX has stubbornly clung to its recent range at the top of a six-month high but that grip may be slipping. Next week Texas Instruments (TXN) will give us its mid quarter update and analysts have their fingers crossed. With comments from Motorola and Nokia making them nervous about wireless sales they fear TXN could disappoint. Others claim TXN is very diversified but has little exposure to the current PC sales slowdown. Either way the Texas Instruments update will be critical for any continued chip rally.

Oil prices imploded at the close to hit $62 after trading as high as $63.65 intraday. I know I use the term imploded more than I should but today's drop in oil definitely fit the term. After holding most of the day over $63.25 it took only about 45 min to make the plunge. With an OPEC meeting next Thursday and almost a guarantee of another production cut many traders were scratching their heads in disbelief. Personally I think it is simply profit taking with a little more than a week left on the January contract. After spiking from a low of $57.80 in late November the price had rebounded to $63 and has held in the $61.50-$63.50 range for more than a week. With no further gains Friday turned into a ka-ching for those who had been long. Comments out of Saudi on Thursday also removed confidence from traders. The Saudi ambassador to the US, Prince Turki al-Faisal, said current prices were "acceptable and imminently fair." This is an offset to the comments from the OPEC president that prices were not yet back in an acceptable range. Phil Flynn from Alaron Trading said the conflicting remarks were just to keep the market off balance and give Saudi the appearance of being friendly to the US concerns over prices. For whatever reason the price fell back to support with only 6 trading days left on the January contract. I suspect we will see another sell the news dip after the OPEC meeting just before the contract expires. That would be another buying opportunity for me. OPEC keeps saying there is a surplus of 100 million bbls in the market. While that sounds like a lot it is only a little more than the 85 million bbls we consume every day. Having an extra day's supply lying around does not sound like a bunch to me.

January Crude Oil Chart - 2 min

January Crude Oil Chart - Daily

Dow Transports Chart - Daily

The transports also took a header on the morning spike in oil prices and slipping consumer sentiment. We have a troubling pattern appearing on the TRAN chart that looks a lot like a head and shoulders. If the transports move below 4700 again it could be trouble for the broader market because of the economic doubt falling transports imply.

The Dow rocketed back to its resistance highs on Monday and then failed hold any new gains for the rest of the week. We saw opening spike to 12360 on Thursday to equal the all time high set back on Oct-22nd. Both highs were very short lived opening spikes and neither held for more than a few minutes. Both were followed by declines to a multi-day low in the following session. It appears there is a considerable amount of supply waiting at that 12350 level and conditions are worsening as December passes.

The Nasdaq has been weaker than the Dow and put in a lower high last week. With weakness in the chip sector we could see a further move down if Texas Instruments disappoints. Support remains 2400 with 14 trading days left in 2006.

The S&P-500 showed the least volatility of the three major indexes. After a major spike from 1390 to 1415 early this week it fought very hard to hold the high ground. 1410 appeared as initial support and that is where we closed on Friday. No harm, no foul but we are on the cliff edge once again.

S&P-500 Chart - Daily

Next week is expiration week and Thursday's decline could have been expiration related. However, with the FOMC meeting on Tuesday we could see quite a few positions being held on the hopes that the meeting produces a result favorable to those positions. After Friday's jobs report the odds of a favorable statement have slipped. That means anyone holding now is probably hoping for a more hawkish statement to push the markets lower. All of this is simply speculation but we need to be aware of potential potholes. My recommendations for last week were to remain long over 1405 and reverse to a short under 1400. I am going to change that to reverse to a short under 1405. That level was dip support on Friday morning so a break there next week could signal a sharper plunge. The biggest event for the week will be the FOMC meeting on Tuesday followed by the OPEC meeting on the 14th (Wednesday night for us) and the CPI on Friday. We are still a week or so away from the warning cycle for Q4 but that does not prevent anyone from confessing early to avoid the holidays. We are in the period of December where funds sometimes shuffle portfolios to offset losers by selling some winners. That could continue to dilute any positive news. Bottom line; don't just expect the market to continue blindly higher. Be prepared for range bound volatility over the next week.
 

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
None NEW
  NTLI
  TCHC

New Long Plays

None today.

New Short Plays

New Century - NEW - close: 34.47 change: -1.24 stop: 36.55

Company Description:
Founded in 1995 and headquartered in Irvine, California, New Century Financial Corporation is a real estate investment trust (REIT) and one of the nation's premier mortgage finance companies, providing mortgage products to borrowers nationwide through its operating subsidiaries, New Century Mortgage Corporation and Home123 Corporation. (source: company press release or website)

Why We Like It:
Shares of NEW broke down on Friday after reporting that loan production was down significantly. The news pushed NEW through support near $35.50 and on big volume. Almost anyone with a significant non-prime lending department has been getting beat up as investors worry about foreclosures. We see the breakdown under $35.50 as a new entry point for shorts. Traders can choose to open positions now or wait for a potential bounce back toward $35.00 or $35.50 as an entry point. Our target is the $31.00-30.00 range. FYI: The most recent (November) data put short interest at 22% of the company's 50 million-share float. That is a very high degree of short interest and it does raise the risk of a short squeeze if NEW reverses sharply higher.

Picked on December 10 at $34.47
Change since picked: + 0.00
Earnings Date 02/01/07 (unconfirmed)
Average Daily Volume: 1.4 million

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NTL Inc. - NTLI - close: 24.44 change: -0.68 stop: 26.01

Company Description:
We are a leading provider of broadband, digital television, telephony, content and communications services, reaching over 50% of UK homes and 85% of UK businesses. (source: company press release or website)

Why We Like It:
Shares of NTLI broke down under support in mid November and have since seen two oversold bounces both fail at the $26.00 level. The recent weakness looks like a prelude to a new leg lower. We are suggesting shorts in NTLI with the stock under $25.00. There does seem to be some support near the $23.50 region but the Point & Figure chart points to a $9.00 target. We will target a decline into the $21.00-20.00 range. FYI: The most recent (November) data put short interest at 3.5% of the company's 324 million-share float.

Picked on December 10 at $24.44
Change since picked: + 0.00
Earnings Date 11/07/06 (confirmed)
Average Daily Volume: 3.1 million

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21st Century - TCHC - close: 24.84 change: -1.16 stop: 26.75

Company Description:
The Company, through its subsidiaries, underwrites general liability insurance homeowners' property and casualty insurance, flood insurance and personal automobile insurance in the State of Florida. The Company underwrites general liability coverage as an admitted carrier in the States of Louisiana, Texas and Alabama for more than 300 classes of business, including special events. The Company also operates as an approved (non-admitted) carrier in the States of Georgia, Kentucky, Virginia, South Carolina, Missouri and Arkansas offering the same general liability products. (source: company press release or website)

Why We Like It:
We did not see any specific news to account for TCHC's relative weakness on Friday. The stock was already in a consolidation pattern with a bearish trend of lower highs. It looks like investors decided it was time to do some profit taking and TCHC lost 4.4% on strong volume. The decline produced a bearish breakdown under support at $25.50, 25.00 and its 50-dma. The P&F chart is still bullish for now but a drop under $24 should produce a new sell signal. We are suggesting shorts with TCHC under $25.00. Our target is the $21.50-20.00 range. The most recent (November) data puts short interest at over 6% of TCHC's 6.4% float. That's a very small float so 6% might be enough short interest to really increase the risk of a short squeeze should TCHC reverse higher. Bear that in mind when considering plays as you may want a tighter stop loss.

Picked on December 10 at $24.84
Change since picked: + 0.00
Earnings Date 11/01/06 (confirmed)
Average Daily Volume: 115 thousand
 

Play Updates

Updates On Latest Picks

Long Play Updates

Amer. Electric - AEP - close: 41.89 change: +0.20 stop: 40.89

After the Wednesday-Thursday reversal in AEP the stock managed a bounce on Friday. Yet the stock remains inside its previous trading range of $41.00-42.00. Considering the stock's bearish turnaround midweek and the potential weakness in the major averages conservative traders may still want to exit early and cut their losses now. However, if AEP can rally past the $42.00 level again readers can use it as a new bullish entry point. As an alternative to exiting early consider tightening your stop loss toward $41.50. We are suggesting that readers wait for a rise past $42.25 before opening new bullish positions. Our short-term target is the $44.90-45.00 range. The P&F chart points to a $50 target. FYI: We do not expect shares of AEP to move very fast so it could take a few weeks to reach our target.

Picked on December 03 at $42.03
Change since picked: - 0.34
Earnings Date 01/30/07 (unconfirmed)
Average Daily Volume: 2.0 million

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ALON USA Ener. - ALJ - close: 30.55 chg: -0.25 stop: 28.85

We remain bullish on crude oil and oil stocks but this next week might see more profit taking or a sideways consolidation. We would wait and watch for a dip in ALJ towards the $30.00 level or its rising 200-dma near $29.75 as a new entry point to go long. More conservative traders can wait for signs of a bounce from either level (30.00 or 29.75). Conservative traders may also want to raise their stops. Keep in mind that the $29 level was support a couple of weeks ago and will soon be bolstered by its 50-dma, which is why we're keeping our stop at $28.85 for now. Our target is the $33.50-34.00 range.

Picked on November 21 at $30.15
Change since picked: + 0.40
Earnings Date 11/07/06 (confirmed)
Average Daily Volume: 504 thousand

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Beazer Homes - BZH - close: 46.14 change: -0.95 stop: 44.25

The sell-off in the homebuilders continued on Friday. Earlier this past week the group broke out higher on positive comments from an executive in the business and again from the homebuilders convention in New York. Yet on Thursday most of those gains evaporated after an analyst firm downgraded the entire sector. The profit taking continued on Friday. The challenge now is do we buy this dip or do we wait and see if BZH will dip toward $45? At the moment we would suggest waiting since a bounce near $45.00 would be a better entry point. Currently our target is the $49.50-50.00 range.

Picked on December 03 at $45.84
Change since picked: + 0.30
Earnings Date 02/06/07 (unconfirmed)
Average Daily Volume: 1.2 million

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Chesapeake Energy - CHK - cls: 33.60 chg: -0.13 stop: 31.49*new*

As expected shares of CHK gapped open lower this morning. We warned readers last night that this might happen. The drop was fueled by news that the company announced an unexpected plan to issue another 30 million shares of stock to be sold at $32.15. Shares dipped to $32.00 before bouncing, which was almost enough to stop us out. If you have already read the market wrap for this weekend then you know that Jim gave a bullish case for CHK. We were already bullish but we're going to make an adjustment to our stop loss. Conservative traders may want to leave their stop where it is under $32.00. We're going to lower our stop to give CHK some room to maneuver. A 10% stop would be at $30.24. We're going to adjust our stop loss to $31.49, which is under the rising 50-dma. Readers can choose to buy this dip or wait for a rally past Friday's high (32.40). Our target is the $38.00-40.00 range. FYI: Technically speaking the big decline is very bearish on multiple time frames and the technical oscillators are obviously turning lower. We're keeping the stock due to our bullish bias on the company and natural gas and oil.

Picked on November 29 at $33.98
Change since picked: - 0.38
Earnings Date 01/25/07 (unconfirmed)
Average Daily Volume: 7.5 million

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Carrizo Oil & Gas - CRZO - cls: 32.01 chg: -0.74 stop: 29.75

Warning! CRZO's nine-week bullish trend is in jeopardy. Friday's 2.2% decline has broken its multi-week trendline of support. The three-day pull back has turned the short-term technical indicators negative. Conservative traders may want to cut their losses now. We are keeping CRZO on the play list because we're bullish on oil and the oil stocks. However, CRZO could easily correct back toward the $30.00 level, which would be close to a 38.2% Fibonacci retracement. We are not suggesting new positions at this time. Our target is the $35.50-36.00 range. FYI: The P&F chart's bullish target is $52.

Picked on November 29 at $32.15
Change since picked: - 0.14
Earnings Date 11/09/06 (confirmed)
Average Daily Volume: 345 thousand

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D.R.Horton - DHI - close: 26.67 change: -0.54 stop: 24.95*new*

We discussed this past week's movement in the homebuilders in our BZH update (above). Shares of DHI experienced another day of profit taking with Friday's 1.98% decline. We warned readers to look for a dip towards $26.00 but DHI found late day support at the $26.50 level. Readers can choose to buy the dip here or wait and see if the pull back continues next week. The $26.00 mark should be support and is underpinned by DHI's 200-dma. Our short-term target is the $29.90-30.00 range. The P&F chart points to a $36 target. FYI: We're going to inch up our stop loss to $24.95.

Picked on December 03 at $26.59
Change since picked: + 0.08
Earnings Date 01/18/07 (unconfirmed)
Average Daily Volume: 3.7 million

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Florida East Coast - FLA - close: 61.53 change: +0.53 stop: 58.99

Railroad stock FLA out performed its peers on Friday with a 0.8% bounce. Shares erased Thursday's decline and the intraday chart suggests that FLA is poised to move higher. We would consider new long positions here but more conservative traders may want to wait for a new rally past $62.00. The P&F chart is bullish with a triple-top breakout buy signal (formed this week) with a $94 target. Our target is the $67.00-70.00 range.

Picked on December 05 at $62.14
Change since picked: - 0.61
Earnings Date 02/01/07 (unconfirmed)
Average Daily Volume: 120 thousand

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GulfMark - GMRK - close: 38.45 change: +0.15 stop: 36.99

GMRK is another oil-related stock that gapped down earlier this week after announcing a secondary offering of stock. Shares have been range bound since Tuesday's decline and the lack of upward momentum is producing a bearish technical picture. More conservative traders may just want to exit now and cut their losses. We remain bullish on oil and the energy sector so we're keeping GMRK on the newsletter but we do expect more flat to down over the next week. We'd wait for a new rally past $39.00 before considering new bullish positions. We're aiming for the $42.50-43.00 range.

Picked on November 28 at $38.70
Change since picked: - 0.25
Earnings Date 01/31/07 (unconfirmed)
Average Daily Volume: 108 thousand

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Guitar Center - GTRC - close: 46.22 change: -0.09 stop: 43.99

GTRC is still consolidating its gains from earlier in the week. On Tuesday and Wednesday the stock broke out higher on talk that the company made a good target for a leveraged buyout. The bullish breakout pushed through multiple levels of resistance including the $45.00 level, its simple and exponential 200-dma(s) and its multi-month trendline of resistance (see weekly chart). We would wait and watch for a dip to or a bounce form the $45.00 region as a new bullish entry point to buy the stock. Our short-term target is the $49.75-50.00 range but more aggressive traders may want to aim higher.

Picked on December 05 at $46.40
Change since picked: - 0.18
Earnings Date 01/31/07 (unconfirmed)
Average Daily Volume: 600 thousand

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Noble Energy - NBL - close: 52.02 change: -0.86 stop: 49.75 *new*

It looks like shares of NBL are trying to catch up to some of its peers who have been hit with profit taking this past week. The stock lost 1.6% on Friday and the decline produced a bearish engulfing candlestick pattern. Lack of upward momentum over the past week has turned the short-term technical oscillators bearish. We remain bullish on oil and energy stocks but would wait for a dip near $51.00 or maybe the $50.00 level before considering new positions in NBL. We're going to reduce our risk by raising the stop loss to $49.75. The P&F chart looks very bullish with a $76 target. Our target is the $57.50-60.00 range.

Picked on November 29 at $53.11
Change since picked: - 1.09
Earnings Date 01/31/07 (unconfirmed)
Average Daily Volume: 1.3 million

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ONEOK Inc. - OKE - close: 43.64 change: +0.09 stop: 41.35

The consolidation in OKE over the past four days has turned many of the technical indicators bearish. Yet in spite of the pull back the stock just recently hit its 10-dma on Friday morning. The trend remains bullish but the profit taking may not be over yet. Readers can watch for a dip near $42.50-42.00 as a potential entry point to begin new long positions. Our target is the $45.00-46.00 range.

Picked on November 28 at $42.25
Change since picked: + 1.39
Earnings Date 07/26/06 (unconfirmed)
Average Daily Volume: 547 thousand

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Rowan Cos. - RDC - close: 35.45 change: +0.40 stop: 34.45

RDC has been struggling to breakout past resistance at the 200-dma and the $37.00 level. We are bullish on oil and energy stocks and suspect that RDC will eventually push higher from here. However, it may take a few more days to garner up enough steam to do so. In the meantime we don't mind waiting. Currently we're suggesting a trigger to buy the stock at $37.05. If we are triggered at $37.05 our target will be the $41.00-42.00 range. More conservative traders may want to exit early near $40.00, which might be round-number resistance.

Picked on December xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/30/07 (unconfirmed)
Average Daily Volume: 3.4 million

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Raytheon - RTN - close: 52.17 change: -0.18 stop: 49.85

Shares of RTN suffered a second day of profit taking. The stock was setting new all-time highs earlier in the week so a little consolidation is not a big surprise. We would watch for a dip near its 10-dma (around $51.55) or for a dip near $51.00 as a new entry point to go long the stock. The defense sector still looks poised to move higher and RTN has been a leader in the group. Our target is the $54.50-55.00 range.

Picked on November 29 at $51.05
Change since picked: + 1.12
Earnings Date 01/25/07 (unconfirmed)
Average Daily Volume: 1.5 million

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Worthington Ind. - WOR - close: 18.74 chg: +0.04 stop: 17.99

WOR is still consolidating sideways. Shares tested support at $18.50 and its 10-dma and 100-dma on Friday morning. A bounce from here can be used as a new entry point. However, the intraday chart suggests that WOR might be poised to test the $18.50 level again soon. The trend in WOR is still bullish but lack of upward momentum this past week has turned the short-term technicals bearish. We would hesitate to open new bullish plays if the major averages are weak. Our target is the 19.85-20.00 range.

Picked on November 19 at $17.96
Change since picked: + 0.73
Earnings Date 12/19/06 (unconfirmed)
Average Daily Volume: 868 thousand
 

Short Play Updates

Cheesecake Factory - CAKE - cls: 26.70 chg: +0.12 stop: 27.01

There is still no change from our previous updates on CAKE. The stock looks poised to move lower with the December 1st breakdown. Unfortunately, there has been no follow through. The stock has churned sideways all week long. We are waiting for a breakdown under support near $26 and its 100-dma. Currently we're suggesting a trigger to short the stock at $25.65. If triggered at $25.65 our target is the $22.25-22.00 range. We do expect some support near $24.00 but given the bearish technicals on the weekly chart we think any bounce at $24 would be temporary. The P&F chart currently points to a $4.00 target. FYI: The most recent (November) data puts short interest at 11.8% of CAKE's 73.7 million-share float. That is relatively high short interest and could raise the risk of a short-squeeze if CAKE manages to rally.

Picked on December xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/30/06 (confirmed)
Average Daily Volume: 1.3 million

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Imperial Sugar - IPSU - close: 22.90 change: +0.01 stop: 23.55

Shares of IPSU have spent the last three and a half days trading sideways. The range has been growing more and more narrow, which would suggest that a breakout is coming quickly. Currently IPSU has a bearish trend of lower highs and that suggests the breakdown will be lower but nothing is guaranteed. Traders can choose to open new short positions here or wait for a new decline under $22.60. More conservative traders might want to consider a tighter stop loss near $23.26. Our target is the $20.05-20.00 range.

Picked on December 03 at $22.00
Change since picked: + 0.90
Earnings Date 01/27/07 (unconfirmed)
Average Daily Volume: 248 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.

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

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Copyright Option Investor Inc, 2005
All rights reserved

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

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

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