Option Investor
Newsletter

Daily Newsletter, Saturday, 12/16/2006

HAVING TROUBLE PRINTING?
Printer friendly version

Table of Contents

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

Market Wrap

Goldilocks Slays Three Bears

There could be a new ending to the fairy tale if the current trend of economic numbers continues. According to the media the market is celebrating the positive data after weeks of questionable reports that seemed to be predicting a recession rather than a soft landing. The bearish outlook for the economy, the markets and for bonds continues to improve and there is no sign of a rally stealing Christmas Grinch.

Dow Chart - Daily

Nasdaq Chart - Daily

The Consumer Price Index (CPI) for November was released on Friday and surprised almost everyone with an unchanged reading after dropping -0.5% in October. The expectations were for a gain of +0.2%. The declines came from apparel -0.3%, new vehicles -0.7%, gasoline -1.6% and airline fares -4.8%. The drop in airline fares came mainly from a reduction in fuel surcharges. The core CPI, minus the volatile food and energy components, dropped to 2.6%. This is the number the Fed watches for evidence of inflation in the CPI. The high was seen in September at +2.9%. The year over year drop to 2.6% follows a drop to 2.8% in October and is strong evidence that the Fed's slowing inflation story is tracking as they expected. Lower energy prices are a strong factor in the continued drop but the OPEC decision this week could reverse those declines.

The core inflation evidenced in the CPI shows a peak in September and a steady decline that should give the Fed a sign of relief. Relief that the inflation scenario is proceeding as they expected and relief for the markets that the Fed has less reason to raise rates. The drop is still not strong enough to expect a rate cut in the near future. At this rate it could be summer before the Fed feels comfortable in easing the rate. The Fed funds futures for April dropped -8% on the news to indicate only a 12% chance of a rate cut before April. Without another sharp drop in housing or a couple months of job losses the Fed could remain on hold for a long time. This is positive for the markets because there is less apprehension about the Fed's direction now that inflation has slowed for two months. It also means the economy is recovering slowly and not at a pace that could fuel further inflation gains. For the time being the Goldilocks economy should provide traders with no reason to fear stocks. The risk for traders now will be a return to higher prices for oil. As higher prices filter through the supply chain the rate of inflationary decline could slow or even reverse.

Industrial production for November rose +0.2% after being flat in October and down -0.4% in September. This could be the first sign of a bottom forming in manufacturing. Capacity utilization was flat at 80.3 and the low for this cycle. The Fed would like to see utilization slip further indicating rising excess capacity. As excess capacity increases prices for manufactured products tend to fall as competition for market share increases. If utilization rises product prices tend to rise as producers compete for existing capacity. Rising utilization means retail consumption is rising and rising consumption pushes prices higher. It is a complicated cycle but the key for the Fed is a desire for lower utilization to keep prices down. The major driver in the November production gain came from a surprise increase in motor vehicle production.

The Economy.com Risk of Recession report for November came in at 21.0% up from 16.8% in October. This is the highest level since September 2005 and well above the cycle lows at 15.4% set last June. The current reading of 21% is still very tame and at the low end of the historical range. The only really weak component is housing and that appears to be improving. The inverted yield curve continues to be a problem but with rates rising in anticipation of the Fed remaining on hold for many months ahead that curve discrepancy is shrinking.

For next week the economic calendar is filed with data but only a handful will be material to any traders not already on vacation. We will get another look at the housing data on Mon/Tue and expectations are for another small improvement. The Producer Price index on Tuesday will give us a look at the inflation picture at the manufacturer level. The GDP on Thursday should not be a market mover since this is the third revision for Q3. There is not expected to be any material change but should one appear it could suddenly become very important. The Philly Fed survey also on Thursday has been very volatile of late with August spiking to 18.5 but Sep/Oct both showing contractions in activity in the -0.5 range. November rebounded to a more normal range at +5.1 meaning next week's number could be anywhere on the scale. A positive reading slightly over 5.0 would be the best for the market. A decline could bring back worries of recession and another spike could bring back worries about a possible continuation of Fed hikes. There is never a dull moment since no two reports or two economists ever agree. They say if you lined up all the economists in the world they still could not reach a conclusion.

Weekly Economic Calendar

It was a busy day on Friday with the markets getting off to a good start on the tame inflation. Leading the charge was GE, the second largest market cap company in the US. GE continued the gains, which began on Wednesday with a +1.15 jump on Friday. The better than $2 gain from Tuesday's close produced the biggest two-day gain for GE since Nov-2003. The sparks were seen as affirmed guidance early in the week, an increased dividend payable to holders of record as of next week and a rumor they were going to announce a sale of their plastics business. They also announced a record order of gas turbines from Saudi Arabia. GE has been in a trading range for years under $36.50 and this could have been fueled by short covering as well. GE closed at a new two-year high.

GE Chart - Monthly

Harrah's (HET) announced it had received another offer somewhere around $88.50 per share or $16.5 billion in cash and stock from Penn National Gaming. The board said it was considering the various offers including a recapitalization of its own shares, which would include a one-time cash dividend. Harrah's closed at $79.55 and well under the PENN offer at $88.50. There is too much confusion surrounding the various offers and the threat of a large cash dividend for investors to push the stock higher. Confusion is never conducive to higher prices.

Captain Kirk announced back in late November he was offering $55 for up to 15 million shares of MGM. The casino company said on Friday a special committee decided not to make a recommendation to shareholders whether they should accept Kerkorian's offer. MGM closed at $55.31 on Friday, down -89 cents. The last trading day before captain Kirk made the offer MGM closed at $49. Kerkorian already owns 56% of MGM and the additional 15 million shares would boost his ownership to 61.3%. MGM would still remain a public company if shareholders accepted his offer. With the rising bids on Harrah's Kerkorian is probably wanting to add to his holdings on MGM thinking the gaming sector is due for a continued rise.

Apple Computer said it would delay filing its annual report as more time was needed to calculate restatements to prior years. Apple has been under the gun for their stock options handling and CEO Steve Jobs has admitted he was aware of the problem. Jobs does not appear to be at risk as are some other CEOs, some who have had charges filed. Apple claims there was no wrongdoing. They will however have to restate as much as ten years of earnings to correct the problems. That is a tough dance to say we did nothing wrong but we will have to restate nearly ten years of financials. Dell also announced they would delay filing their Q3 reports due to their continued investigation into accounting irregularities.

Weyerhaeuser (WY) jumped +2.44 after an activist fund, Franklin Mutual Shares, a large shareholder in WY went public with concerns over the pace of corporate restructuring. This prompted Deutsche Bank to upgrade WY to buy from hold and raise their price target to $80 from $65. Franklin Mutual is also pushing WY to convert from a C-corp to a more tax advantaged REIT structure.

E*Trade Financial (ET) is moving back to the Nasdaq on Dec-26th after several years as a resident on the NYSE. Their new symbol will be ETFC and not to be confused with their old Nasdaq symbol EGRP. "We are pleased to join Nasdaq, a true innovator whose value proposition parallels our own, leveraging technology to provide customers with low fees, superior service and fair, efficient and transparent market access and execution," says E*Trade's CEO, Mitch Caplan. E*Trade initially listed on the Nasdaq with their IPO in 1996 but switched to the NYSE in 2001 when tech stocks and the Nasdaq were out of favor. Rumor has it they wanted to move to the big board to be more respected like Merrill Lynch and Charles Schwab. E*Trade is not the only one to move to the Nasdaq. Charles Schwab (SCHW) formerly (SCH) also made the switch to the Nasdaq to become a big fish in a small pond. Maybe ET became jealous that Schwab was rubbing shoulders with all E*Trade's old Nasdaq buddies.

Advertisement

QQQQ
The Most Profitable 4 Letters in Trading

Master them with Hotstix QQQ Trader. We'll show you exactly when to buy and sell the QQQQ and turn you into a master trader who knows how to cut your losses, nail short term gains and rack up some incredible profits.

30-Day FREE Trial:

http://www.hotstix.com/public/defaultqqq.asp?aid=755

Adobe (ADBE) reported earnings inline with estimates Thursday night but released strong guidance and the stock spiked +$2 on Friday to a new six year high. Adobe bought Macromedia and has been working hard to produce a new version of Creative Suite 3 which bundles Flash and Dreamweaver to be released in the second quarter of 2007. Investors evidently liked the news. They overlooked the warnings from several companies that Q1 is likely to be a tough quarter for software companies but focused on what should be a good second half of 2007.

Google (GOOG) lost -$2 to $480 after announcing they were finally entering the domain name registration business. They became a reseller two years ago but never acted upon their license. Now they are going to partner with GoDaddy and eNom to sell registrations at $10 a year. Google hopes to sell more of its services to people that register domain names through Google. Google also announced they were creating a private market for employee stock options. Employees could sell their vested options to qualified financial institutions through private auctions. Institutions could buy the options as an investment.

Not all news was positive on the stock front. Black & Decker (BDK) cut its full year guidance for the third time this year and investors promptly cut -10% or -$8 off its stock price. BDK said the slowdown in the housing sector was causing a drop in orders for things like Kwikset locks, Price Pfister faucets and DeWalt tools. BDK expects weak conditions to continue in 2007 until the housing market finally finds legs for a strong rebound jump. BDK went so far as to say it appears ALL manufacturers are seeing the same order drop. Thank you BDK for dragging everyone else into your pity party. Stanley Works (SWK) dropped -$2 due to this guilt by association. I can't blame it all on BDK because Illinois Tool Works (ITW) also warned that North American sales were weak. ITW is in a slightly different sub sector but gave back a week of gains just the same. Terex, also in a different tool sector was knocked for a loss but recovered after the bell on some unexpected news.

Navistar (NAV) is being delisted by the NYSE for non-compliance due to delayed financials. On a conference call with investors about the delayed financials Navistar CEO Dan Ustian said, "If you have a lot of money, come over and see us" alluding to their willingness to being bought by somebody with deep pockets. CNBC repeated this comment all day on TV, sometimes in a degrading manner. Late in the afternoon the CEO said he was making the comment in jest after he apparently caught heat from investors. Sure, just a joke, ha ha. Investors did not appreciate the -12% drop in stock price from a combination of the joke and the delisting worry. The stock of NAV did recover late in the day to lose only -1.14 or -3%. Hey, the board just decided to cut your pay by 50%. They will tell you if it is a joke sometime next week. (I am just kidding)

After the bell S&P announced they were replacing Navistar in the S&P-500 with Terex. TEX bounced +$3 in after hours. Of course that was after I was stopped out of some short-term calls this morning on the BDK, ITW fiasco. TEX closed after hours trading at $61.35, a new all time high. S&P also said it was replacing American Italian Pasta (PLB) in the S&P-600 with Mannatech (MTEX).

Dow Transports Chart - Daily

Shipping company YRC Worldwide (YRCW) fell to a two month low after warning that Q4 earnings would fall short of estimates due to the slowing US economy. YRCW said pricing was weak and tonnage shipped would be down by around -5%. YRCW had been downgraded by a handful of analysts just a couple weeks earlier on worries that shipping was slowing. UPS and FDX failed to weaken but their time is coming. The holiday season is nearly over and Q1 package shipments should slow drastically. You could not tell it from the UPS truck in my neighborhood today. I think he stopped at 8 of the 11 houses on my cul-de-sac including dropping off 4 packages at my house. The postman also cussed me when she dropped off six priority mail and parcel post packages Friday morning.

I expect Ebay to post some monster numbers for Q4 based on the amount of trouble I have seen on their website the last three weeks. I am a PowerSeller on Ebay and would be a PowerBuyer if they had a similar designation for buyers. I have never seen Ebay have such slow response time as the two weeks prior to Dec-12th. Dec-12th was the last day you could depend on buying something with regular shipping and actually have it arrive before Christmas. I was literally uploading items to sell on three different computers at the same time because the wait time was so bad. I have probably gotten over 100 web page errors in the last week just checking on things I bought or things I was searching for. I am hoping this means Ebay is snowed under with volume rather than their IT dept has gone to the dogs. Under normal circumstances above normal volume would result in a buy recommendation for a company but even though Ebay may post decent profits they historically fall off a cliff about mid January. (3 of the last 5 years) If you are looking for a recommendation it would be a sell/put about Jan-3rd.

Ebay Chart - Weekly

January Crude Oil Chart - Daily

It would not be a market commentary without discussing oil. You probably already heard that OPEC agreed to cut another 500,000 bpd starting Feb-1st if the basket of OPEC crude is trading below $60. The OPEC basket of crude typically sells for about -$5 less than the light sweet crude, which ended at $63.50 on Friday. That implies they are targeting $65 for sweet crude. That cut also assumes they can find enough OPEC members willing to actually make the cuts at that time. The allocation among members has not been made yet. Want more evidence this is talk and not action? Petro-logistics, a very well connected research firm dealing in the shadowy business of tracking "actual" oil shipments, said OPEC November shipments were only -100,000 bpd lower than October. The -1.2 mbpd cut was supposed to have begun on November 1st. All that OPEC talk and almost no real cut. With oil at $60 it does not surprise me. The two most vocal proponents of the November cut, Venezuela and Nigeria, did not cut any production. For January several OPEC members have warned customers they will be shipping less oil. They also warned some of them in December but we have to wait a couple more weeks to see if they followed through with their plan. Several oil refiners have said they were told on the side they could have anything they wanted. Regardless of what is really going to happen with the November cut or even the announced February cut the price of oil rose on Friday to close at 63.48. That is exactly on resistance, which has held for two months. With only one day left to trade the January contract it appears there were more shorts than longs as the contract comes to a close. The end of day buying was very sharp lifting the price from its morning low of $62.28. Next week the February contract become front month and it only closed about +75 cents higher than the January on Friday.

Multiple analysts came out recommending oil late this week including Dennis Gartman of the Gartman Letter and Birinyi and Associates to name just a couple. Gartman said he expects oil to rise to $75-$85 in 2007 and $55 is probably ancient history. With demand continuing to grow, the world absorbing the unofficial post cut OPEC production and OPEC apparently committed to keep oil above $60 the odds of higher prices are nearing 100%. The only thing that would prevent it would be a cooling of the global economy. From all estimates that is not going to happen. There was also more violence in Nigeria with rebels seizing a production facility and forcing them to shutdown. There are sporadic outages all over the northern hemisphere for weather and equipment problems. The Houston ship channel was nearly closed for two days due to dense fog and 77 ships were queued up waiting for the fog to clear. The US administration said they would open the strategic petroleum reserve if the fog did not clear soon. FedEx CEO Fred Smith said this week the world is racing to a disaster if something is not done about the coming oil shortage very soon. Fred is very credible but unfortunately he and I are preaching to deaf ears. I will explain why in my Peak Oil Update I am producing for year-end subscribers.

Birinyi and Associates said they surveyed 30 commodity analysts regarding price expectations for 2007. For metals traders the picture is grim assuming their predictions are correct. Of the 12 commodities surveyed only three were expected to rise. Gold was expected to rise +7.19%, Oil +2.84% and Natural gas +1.96%. Those metals that led the charge in 2006 were expected to plunge in 2007 led by nickel -38%, lead -39%, zinc -30% and tin -30%. Considering these metals had rocketed higher on strong demand in 2006 you would expect some profit taking eventually. Analysts blame the expected drops on new supply coming online. Record high prices caused miners to rush to bring on new supply to capture the boom. Analysts don't expect demand to slow just more metal to fill that demand. I seriously object to the expected decline in uranium of -6% for fundamental reasons. Uranium demand is expanding much faster than supply. Supply is actually falling due to problems at some mines. Whoever came up with the uranium number failed to do their homework and to me that calls into question their estimates for the other metals.

Birinyi Commodity Chart

The media blamed last week's gains on favorable economic reports and merger mania. There were some positive earnings stories but I believe there was more negative guidance than positive. As far as economics go it just depends on what week you are in with alternating weeks bringing a completely different economic view. Remember just the week before Bill Gross was on CNBC saying bond yields were going under 3%. There are always many reasons for any rally or crash. This was also a quadruple witching Friday, which only occurs once every quarter. Given the market and commodity moves over the quarter it was not surprising we saw some volatility ahead of expiration. Still I don't think those are the real reasons. They may be contributors but I think there is a broader move afoot.

We saw yields on the ten-year note reach 5.5% back in late June. Everyone was expecting the Fed to keep raising rates because inflation was soaring. The housing sector was imploding and the potential for an economic crash landing loomed large. Conservative institutions and funds began pouring money into bonds for a safe 5% yield to wait out the storm. A funny thing happened on the way to the recession. A bottom began to form in housing and inflation stalled putting the Fed on hold at 5.25% since June. Once the Fed paused the bond groupies began setting up for a future rate cut. When the Fed is cutting rates you want to be in equities not bonds. The top in the bond yields was put in place at exactly the bottom in equities. Once the trend reversed those same institutions began bottom fishing in equities. Just a little here and there all the while keeping a solid bond ratio as a fall back position. As the rally continued fund managers began to increase stock positions but also kept their hand on the trigger just in case the economy got worse.

Dow/Ten-year Note Yield Comparison Chart - Daily

As the indexes began to hit new highs back in late Oct and early Nov the economic data took a sudden turn for the worse. Short interest grew and in early December reached levels not seen since the mid 1990s. Everyone "knew" the markets were going to roll over. Much to their surprise the economics suddenly reversed and fund managers were caught betting against the market and still heavy into bonds. Suddenly it became a race and bonds began to be sold in early December. The indexes struggled to move over that new high resistance but refused to die. All sorts of bad news had no impact and good news was a strong shot in the arm. Now that it appears inflation is actually falling and the 2006 time clock is expiring it is a new race by managers to position themselves in equities so they appear smart when their year-end portfolios are released. I am sure the quadruple expirations had a substantial impact in accelerating short covering this week but the fire was already lit. The expiration simply fanned the flames.

With nine trading days left in 2006 we should see another move higher as managers chase performance. Retail investors are probably being sucked off the sidelines and into equities in droves. I have had more email this week asking about specific stocks and targets than I have had all quarter. Nothing drags money off the sidelines better than new highs in the markets. Worst case we should see fund managers trying to run out the clock at this level to protect year-end bonuses.

Now for the bad news. All is not well behind the scenes and the small caps are weakening. The small caps as evidenced by the Russell-2000 have not made a new high since Dec-5th. Were it not for a burst of short covering on Thursday at the open we could be -20 points off the highs this weekend. The rally has been exclusively in the large caps, the bluest of the blue chips. While the blue chips have been rising the small caps are turning blue from lack of cash inflows. On the broader market the internals are slipping with individual new highs at 598 on Friday well off the 956 high for the year set on Dec-5th. Actually, on the S&P-500 there has not been a single stock with a new 52-week low since Dec-6th. Friday's new highs of 67 were the highest since Oct-18th when the S&P first hit 1375. At the same time the new lows on the Russell have been increasing since Dec-5th. No new lows on the S&P but increasing new lows on the Russell. That should be a convincing piece of market trivia suggesting there is trouble ahead. Not necessarily next week or even the week after but definitely early next year.

Russell-2000 Chart - 30 min

The media claims the big caps are in favor because they have international exposure. That may be true in some cases but I believe the big caps are in favor because they are highly liquid. GE traded nearly 90 million shares on Friday when their average is only 26 million. I know an extra 3 cents on the dividend did not produce that monster surge. GE is so liquid you can dump a million shares over the space of a few minutes and not impact the price. ExxonMobil traded nearly 40 million shares when their average is only 20 million. Granted some of this volume was due to the S&P quarterly rebalance after the close on Friday and I am sure some index funds were getting in early to avoid the rush. However, the point I want to make is that the big caps are seeing by far the biggest inflows of cash while the small caps are just limping along. The small caps are the best indicator of the fund manager mindset. If they think there is a bull market ahead they will flee the safety of big caps and take the more risky positions. Instead it appears they are fleeing to the safety of the big caps this week and that bothers me longer term. On Friday the Dow, Nasdaq and S&P closed at or near their recent highs with gains for the day. The Russell-2000, NYSE Composite, Dow Transports, Drug index, HMO Index, Homebuilders Index and all the oil indexes closed with losses for the day. It was not as positive as the media would have you believe. CNBC kept running a header above all their content all day bragging about new highs on the Dow and S&P.

For the rest of December we should remain in the clutches of Goldilocks mania. As long as the PPI, GDP and Philly Fed next week are market friendly the love fest for big caps should continue. Remember, worst case the fund managers will be trying to run out the clock at this level. Conversely should support suddenly fade they can just as easily turn tail and bail. It may be the investor's money but for the next two weeks it is all about the manager bonuses.

We are still at risk for tax selling in individual issues. Those that have been big winners or big losers are the biggest risk. I believe we saw some of that on Friday in the energy sector. Oil closed at its high for the week but the major energy stocks were all weak.

The Dow closed at a new historic high at 12445 and only a decent day's gain below 12500. I am not sure it matters at this point since the headlines this weekend will be bragging about the new highs. Support is well below at 12250 so we are way out on a limb if market sentiment suddenly turns negative.

The S&P-500 is still well below its historic high at 1552 and high close at 1527 on Feb-24th 2000 but nobody is complaining about a new six year high at 1431 on Friday. If it was due to the quarterly rebalancing then Monday could see some weakness. If it is an influx of cash chasing performance or simply portfolio positioning for year-end then our hang time should be about three weeks, more or less. If a true Santa Claus rally is going to appear it should begin next week. Unfortunately Santa has been very unreliable recently.

S&P-500 Chart - Daily

The Nasdaq managed to post a new multiyear high by only 1.6 points at 2470. The old high was 2468.42 set back on Nov-24th. Considering most analysts are promoting techs as the best performers for 2007 you would think investors would be showing more interest. Instead we have weakness in the chips and that is a cancer that eats away at tech support levels. Current support is well below at 2420 so a lot of ugly can appear before any material damage is done.

VIX Chart - Monthly - Ten Years

The Volatility Index (VIX) hit better than a ten year low on Friday at 9.39. This is a screaming sell signal but nobody is listening. With the holidays ahead any further rally could push it even lower. Under 9.0 I am backing up the truck.

For next week I would continue to remain cautiously long. The last two weeks of December typically have a bullish bias but a quick check of the charts shows only about a 50:50 performance over the last six years. Nothing is ever carved in stone but long term the historical averages favor a continued bullish bias. Remember, we could also remain range bound as managers try to run out the clock. That said I would remain cautiously long. If we dip back below 1420 I would probably consider taking some profits on any weaker positions. If by some remote chance the managers can't keep it pinned to the highs I would definitely bail under 1405. I realize that is a broad range but that could easily be the range we trade in for the rest of December. I would love to tell you 1450 is just a day away but I would be just playing to your bullish desires. The only sure thing I can recommend is to buy energy stocks on the dips. With plenty of profits waiting to be taken we could see another energy dip before year end.
 

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
STA CLP
  WRLD

New Long Plays

St.Paul Travelers - STA - cls: 53.56 change: +0.71 stop: 51.95

Company Description:
St. Paul Travelers is a leading provider of commercial property casualty insurance. (source: company press release or website)

Why We Like It:
This is a relative strength and momentum play. The IUX insurance index is hitting new four-year highs. Leading the way is STA, which just broke out to new record highs above resistance near $53.00. The recent rebound has turned the technical picture bullish with a fresh MACD buy signal this past week. We are suggesting readers buy the breakout over $53.00. However, we're somewhat cautious and will use a relatively tight stop at $51.95, which doesn't give STA that much room to maneuver. Thus if the stock fails to see any follow through higher we'll probably be stopped out quickly. Our target is the $57.50 level. The P&F chart is bullish with a $76 target.

Picked on December 17 at $53.56
Change since picked: + 0.00
Earnings Date 02/01/07 (unconfirmed)
Average Daily Volume: 2.5 million
 

New Short Plays

Colonial Prop. - CLP - close: 46.71 change: -0.58 stop: 48.26

Company Description:
Colonial Properties Trust, through its subsidiaries, owns a portfolio of multifamily, office and retail properties throughout the Sunbelt. Colonial Properties Trust performs development, acquisition, management, leasing and brokerage services for its portfolio and properties owned by third parties. The company has a total market capitalization of approximately $5.6 billion. As of September 30, the company owns or manages 46,125 apartment units, 17.7 million square feet of office space and 12.1 million square feet of retail shopping space. (source: company press release or website)

Why We Like It:
It wasn't that long ago that REITs were the hot sector to be in. Plenty of stocks in the group are still trading near their 2006 highs. Unfortunately for shareholders CLP is not one of them. On the weekly chart you can see a wide (long-term?) bearish double-top pattern under $52. Studying the daily chart you can see a bearish head-and-shoulders pattern over the last few months. Plus, CLP has fallen under multiple levels of potential support. Now after a week of consolidating sideways above support at the $47.00 level CLP is breaking down. We are suggesting shorts with the stock under $47.00. We'll try and limit our risk with a relatively tight stop loss at $48.26. Our target is the May 2006 lows but we will plan to exit at $42.75. We do not want to hold over the late January earnings. FYI: Traders should know that in the past few months CLP has been noted as a potential takeover/acquisition target in the real estate sector. If a deal is announced it could be very painful for shorts but we haven't heard anything further on the subject. Meanwhile short interest is about 3% of the 43.4 million-share float.

Picked on December 17 at $46.71
Change since picked: + 0.00
Earnings Date 01/30/07 (confirmed)
Average Daily Volume: 217 thousand

---

World Accpt. - WRLD - close: 45.81 change: -0.30 stop: 47.75

Company Description:
World Acceptance Corporation is one of the largest small-loan consumer finance companies, operating 678 offices in eleven states and Mexico. It is also the parent company of ParaData Financial Systems, a provider of computer software solutions for the consumer finance industry. (source: company press release or website)

Why We Like It:
The oversold bounce in WRLD has failed twice under its simple 50-dma. The technical on both the daily and weekly charts are turning bearish. Plus the P&F chart is bearish and points to a $37 target. We suspect that WRLD is poised to begin a new leg lower. However, this is a relatively aggressive entry point since WRLD might have support at its rising 100-dma nearing $45. We're suggesting short positions now with the stock under $46.00. More conservative traders may want to wait for a decline under 44.40. Our target is the $40.50-40.00 range. We're going to set a relatively tight stop just above the December high. FYI: It is important for investors to note that the latest (November) data puts short interest at almost 15% of WRLD's 17.1 million-share float. That is a high degree of short interest and definitely raises the risk of a short squeeze if the stock suddenly turns higher.

Picked on December xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/23/07 (unconfirmed)
Average Daily Volume: thousand
 

In Play Updates and Reviews

Long Play Updates

Amer. Electric - AEP - close: 42.53 chg: +0.10 stop: 41.89*new*

The UTY utility index, which hit new all-time highs this past week, may have encountered some round-number resistance at the 500 level. Overall the trend in utilities is bullish so this may just be a temporary pause to rest. Shares of AEP has also seen a drop in upward momentum and shares are struggling to rally past the $42.70-42.75 region. We would watch for a dip back toward the $42.00 level as a new bullish entry point to go long the stock. Please note that we're adjusting our stop loss again to $41.89 in an effort to reduce our risk. Our 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: + 0.50
Earnings Date 01/30/07 (unconfirmed)
Average Daily Volume: 2.0 million

---

AllState - ALL - close: 65.21 change: +0.33 stop: 63.49

Our new play in ALL is now open. The stock broke out over resistance at $65.00 and hit our suggested trigger to go long the stock at $65.25. We do not see any changes from our Thursday night new play description so we're reposting it here:

The IUX Insurance index is hitting new multi-year highs. Contributing to the sector's strength is ALL, which is flirting with its own record highs. The stock has a bullish trend of higher lows and the technicals have turned bullish or they are very close to producing a new bullish buy signal. Currently shares of ALL are trading under resistance at the $65.00 level. We are suggesting a trigger to buy the stock at $65.25. If triggered then our target is the $69.00-70.00 range. The P&F chart is bullish and points to a $69 target.

Picked on December 15 at $65.25
Change since picked: - 0.04
Earnings Date 01/31/07 (unconfirmed)
Average Daily Volume: 2.4 million

---

Beazer Homes - BZH - close: 46.00 change: +0.11 stop: 44.75*new*

We do not see any significant changes from our previous updates on BZH. The homebuilders are still struggling and the group, including BZH, has seen a weeklong consolidation lower. Yet in spite of the pull back BZH has not broken what should be support at the $45.00 level. It is noteworthy that the lack of upward momentum has turned the short-term technicals bearish. We are very cautious and hesitate to suggest new long positions here. More conservative traders may want to exit early to avoid future losses. BZH does have potential resistance at its 200-dma near $48.00. We are adjusting our stop loss to $44.75. Currently our target is the $49.50-50.00 range.

Picked on December 03 at $45.84
Change since picked: + 0.16
Earnings Date 02/06/07 (unconfirmed)
Average Daily Volume: 1.2 million

---

Complete Prod. - CPX - close: 22.00 chg: -0.26 stop: 21.49

Warning! Lack of upward follow through on Thursday's breakout from CPX's pennant pattern is not a good sign for the bulls. The oil sector experienced some profit taking on Friday in spite of a strong rise in crude oil. We remain bullish on the energy sector but we're concerned with CPX, especially after Friday's bearish engulfing candlestick pattern. Traders can choose to buy the dip to $22.00 or wait for a rise past $22.40 before initiating new long positions. We do expect some resistance near $23.15 but our target is the $24.50-24.75 range.

Picked on December 14 at $22.26
Change since picked: - 0.26
Earnings Date 11/01/06 (confirmed)
Average Daily Volume: 373 thousand

---

D.R.Horton - DHI - close: 27.12 change: +0.48 stop: 25.95*new*

DHI out performed most of its peers in the homebuilders on Friday with a 1.8% gain and on above average volume, which is normally a bullish sign. Yet the stock is still trading sideways like most of the sector. Traders might be tempted to buy this bounce but bear in mind the lack of upward momentum has turned the short-term technicals bearish. We're adjusting our stop loss to $25.95, since the $26.00 level looks like short-term support. Our short-term target is the $29.90-30.00 range. The P&F chart points to a $36 target.

Picked on December 03 at $26.59
Change since picked: + 0.53
Earnings Date 01/18/07 (unconfirmed)
Average Daily Volume: 3.7 million

---

Florida East Coast - FLA - cls: 61.90 chg: -1.24 stop: 59.89*new*

Reversal alert! Bullish traders should turn defensive on FLA. Shares of FLA produced a sharp bearish reversal on Friday, which was backed by strong volume. We could not find any stock-specific news to account for the weakness but the transportation sector and the railroad sector indices were both down on Friday. We are adjusting our stop loss to $59.89. We're not suggesting new plays at this time and more conservative traders may want to exit early to avoid further losses.

Picked on December 05 at $62.14
Change since picked: - 0.24
Earnings Date 02/01/07 (unconfirmed)
Average Daily Volume: 120 thousand

---

Grant Prideco - GRP - close: 43.94 chg: -0.57 stop: 42.69

As you probably already know oil stocks suffered some profit taking on Friday in spite of a strong day for crude oil. The sector weakness impacted GRP and the stock lost 1.2%. We have a relatively tight stop and more aggressive traders may want to widen their stop just a bit. The 200-dma near 42.57 should be short-term support. We would wait for a bounce back over $44.60 before considering new longs or more conservative traders may want to wait for a rally past $45.32 (the December highs) before buying the stock. Our target is the $47.50-48.00 range.

Picked on December 14 at $44.51
Change since picked: - 0.57
Earnings Date 02/05/07 (unconfirmed)
Average Daily Volume: 2.2 million

---

Guitar Center - GTRC - close: 45.68 change: -1.16 stop: 44.89*new*

It looks like investors were unhappy with the news that GTRC lost the bid to buy Dennis Bamber, Inc. who owns The Woodwind & The Brasswind company. The news came out on Friday morning and shares of GTRC had dropped 2.4% by the closing bell. We had warned readers that GTRC might dip toward $45.00 and technical support at its 200-dma. The stock did bounce near $45.00 and traders can use the move as a new bullish entry point but we would rather wait and see a stronger rebound before launching new positions. Please note that we're raising our stop loss to $44.89. 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: - 0.72
Earnings Date 01/31/07 (unconfirmed)
Average Daily Volume: 600 thousand

---

Noble Energy - NBL - close: 52.79 change: -1.24 stop: 49.75

Reversal alert! The trading in NBL has been somewhat volatile. The stock had spent the last two weeks consolidating sideways in a trading range. On Thursday, with the strength in oil stocks, NBL broke out higher from its trading range and hit a new record high. Shares gave back all of their gains on Friday with a bearish engulfing candlestick (reversal) pattern. More conservative traders may want to exit early right here to limit any losses. We're still bullish on oil but we would look for NBL to dip toward $52.00-51.00 before finding any support.

Picked on November 29 at $53.11
Change since picked: - 0.32
Earnings Date 01/31/07 (unconfirmed)
Average Daily Volume: 1.3 million

---

NATCO - NTG - close: 35.94 change: +0.01 stop: 34.65

NTG held up relatively well considering the sector weakness in oil on Friday. We do not see any changes from our new play description on Thursday night so we're reposting it here:

NTG is another oil service play. The OPEC production-cut news and rally in crude oil helped NTG rise 2.4% today. Short-term technicals are starting to turn bullish again as NTG flirts with a breakout from its six-week consolidation pattern. Aggressive traders might want to open positions now. We're a little worried about the lack of volume behind Thursday's move. We are suggesting a trigger to buy the stock at $36.51. If triggered our target is the $39.85-40.00 range.

Picked on December xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/01/06 (confirmed)
Average Daily Volume: 228 thousand

---

ONEOK Inc. - OKE - close: 43.50 change: +0.05 stop: 41.95 *new*

We are cautiously optimistic on OKE. Unfortunately, Thursday's bounce failed to see any follow through on Friday. Overall the trend is bullish but lack of upward momentum has turned the short-term technicals bearish. We hesitate to suggest new bullish positions right here. Please note that we are adjusting our stop loss to $41.95. Our target is the $45.00-46.00 range.

Picked on November 28 at $42.25
Change since picked: + 1.18
Earnings Date 07/26/06 (unconfirmed)
Average Daily Volume: 547 thousand

---

Rowan Cos. - RDC - close: 37.27 change: -0.01 stop: 34.75*new*

RDC struggled to produce any sort of bullish follow through following Thursday's big breakout move. Profit taking across the energy sector inhibited any gains. At this time we would look for a dip back toward the 200-dma near $36.50 or a dip back toward $36.00 as a new bullish entry point. Please note that our stop loss has been raised to $34.75. Our target is 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 14 at $37.05
Change since picked: + 0.22
Earnings Date 01/30/07 (unconfirmed)
Average Daily Volume: 3.4 million

---

Raytheon - RTN - close: 52.66 change: +0.26 stop: 49.85

Defense stocks trekked higher again for the second day in a row. This sector support lifted RTN in addition to news that the company had won another military contract from the U.S. government. Shares of RTN soared higher on Friday morning and hit a new all-time high of $53.20 before paring its gains. At this time we're expecting a dip back toward $52.00. Short-term technicals have turned bearish so we would be cautious about new and existing plays. More conservative traders may want to tighten their stops. Our target is the $54.50-55.00 range.

Picked on November 29 at $51.05
Change since picked: + 1.72
Earnings Date 01/25/07 (unconfirmed)
Average Daily Volume: 1.5 million
 

Short Play Updates

Cheesecake Factory - CAKE - cls: 25.86 chg: -0.40 stop: 27.01

Shares of CAKE continue to show relative weakness. The stock lost 1.5% on Friday and closed under support at $26.00 and its 100-dma. More aggressive traders may want to open new short positions right now. However, keep in mind that CAKE bounced at $25.79 on November 3rd and bounced at $25.75 on December 1st this year. We want to see a new relative low before readers open positions so we're suggesting a trigger 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

---

New Century - NEW - close: 34.18 change: -0.00 stop: 36.55

There was no change in shares of NEW on Friday and we don't see any changes from our previous updates. The stock has been trading sideways in a narrow range for a week. We should see a move soon - either a bounce back toward what should be resistance near $35.50-36.00 or a breakdown to a new relative low. Traders can choose to open positions here or wait for a bounce and failed rally near $35.00-35.50 as a potential 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: - 0.29
Earnings Date 02/01/07 (unconfirmed)
Average Daily Volume: 1.4 million

---

NTL Inc. - NTLI - close: 25.10 change: +0.19 stop: 26.01

The oversold bounce in NTLI just posted its second gain in a row. Volume came in a little above average but the rally stalled under its 100-dma (and its 50-dma). Shares appear to be testing the stock's bearish trendline of lower highs. Look for a decline under Friday's low (24.93) as a new entry point for shorts. More conservative traders may want to tighten their stops toward the 50-dma. 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: + 0.66
Earnings Date 11/07/06 (confirmed)
Average Daily Volume: 3.1 million

---

21st Century - TCHC - close: 25.10 change: -0.16 stop: 26.01*new*

We do not see any significant changes from our previous updates on TCHC. The stock's oversold bounce has stalled under the multi-week trendline of lower highs (resistance). Aggressive trades may want to start new positions now. We would wait for a drop under $25.00 or $24.84 before initiating new plays. We are going to adjust our stop loss to $26.01. More conservative traders may want to put their stop closer to the 10-dma (25.58) or the 50-dma (25.83). 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 positions as you may want a tighter stop loss.

Picked on December 10 at $24.84
Change since picked: + 0.26
Earnings Date 11/01/06 (confirmed)
Average Daily Volume: 115 thousand
 

Closed Long Plays

Carrizo Oil & Gas - CRZO - cls: 31.37 chg: -0.60 stop: 30.90

We remain bullish on the energy sector and oil stocks but CRZO is showing too much relative weakness so we're choosing to exit early. We would keep an eye on the stock for a rally past $32.40-32.50 as a potential bullish entry point.

Picked on November 29 at $32.15
Change since picked: - 0.78
Earnings Date 11/09/06 (confirmed)
Average Daily Volume: 345 thousand
 

Closed Short Plays

None
 


Play Updates

In Play Updates and Reviews

Long Play Updates

Amer. Electric - AEP - close: 42.53 chg: +0.10 stop: 41.89*new*

The UTY utility index, which hit new all-time highs this past week, may have encountered some round-number resistance at the 500 level. Overall the trend in utilities is bullish so this may just be a temporary pause to rest. Shares of AEP has also seen a drop in upward momentum and shares are struggling to rally past the $42.70-42.75 region. We would watch for a dip back toward the $42.00 level as a new bullish entry point to go long the stock. Please note that we're adjusting our stop loss again to $41.89 in an effort to reduce our risk. Our 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: + 0.50
Earnings Date 01/30/07 (unconfirmed)
Average Daily Volume: 2.0 million

---

AllState - ALL - close: 65.21 change: +0.33 stop: 63.49

Our new play in ALL is now open. The stock broke out over resistance at $65.00 and hit our suggested trigger to go long the stock at $65.25. We do not see any changes from our Thursday night new play description so we're reposting it here:

The IUX Insurance index is hitting new multi-year highs. Contributing to the sector's strength is ALL, which is flirting with its own record highs. The stock has a bullish trend of higher lows and the technicals have turned bullish or they are very close to producing a new bullish buy signal. Currently shares of ALL are trading under resistance at the $65.00 level. We are suggesting a trigger to buy the stock at $65.25. If triggered then our target is the $69.00-70.00 range. The P&F chart is bullish and points to a $69 target.

Picked on December 15 at $65.25
Change since picked: - 0.04
Earnings Date 01/31/07 (unconfirmed)
Average Daily Volume: 2.4 million

---

Beazer Homes - BZH - close: 46.00 change: +0.11 stop: 44.75*new*

We do not see any significant changes from our previous updates on BZH. The homebuilders are still struggling and the group, including BZH, has seen a weeklong consolidation lower. Yet in spite of the pull back BZH has not broken what should be support at the $45.00 level. It is noteworthy that the lack of upward momentum has turned the short-term technicals bearish. We are very cautious and hesitate to suggest new long positions here. More conservative traders may want to exit early to avoid future losses. BZH does have potential resistance at its 200-dma near $48.00. We are adjusting our stop loss to $44.75. Currently our target is the $49.50-50.00 range.

Picked on December 03 at $45.84
Change since picked: + 0.16
Earnings Date 02/06/07 (unconfirmed)
Average Daily Volume: 1.2 million

---

Complete Prod. - CPX - close: 22.00 chg: -0.26 stop: 21.49

Warning! Lack of upward follow through on Thursday's breakout from CPX's pennant pattern is not a good sign for the bulls. The oil sector experienced some profit taking on Friday in spite of a strong rise in crude oil. We remain bullish on the energy sector but we're concerned with CPX, especially after Friday's bearish engulfing candlestick pattern. Traders can choose to buy the dip to $22.00 or wait for a rise past $22.40 before initiating new long positions. We do expect some resistance near $23.15 but our target is the $24.50-24.75 range.

Picked on December 14 at $22.26
Change since picked: - 0.26
Earnings Date 11/01/06 (confirmed)
Average Daily Volume: 373 thousand

---

D.R.Horton - DHI - close: 27.12 change: +0.48 stop: 25.95*new*

DHI out performed most of its peers in the homebuilders on Friday with a 1.8% gain and on above average volume, which is normally a bullish sign. Yet the stock is still trading sideways like most of the sector. Traders might be tempted to buy this bounce but bear in mind the lack of upward momentum has turned the short-term technicals bearish. We're adjusting our stop loss to $25.95, since the $26.00 level looks like short-term support. Our short-term target is the $29.90-30.00 range. The P&F chart points to a $36 target.

Picked on December 03 at $26.59
Change since picked: + 0.53
Earnings Date 01/18/07 (unconfirmed)
Average Daily Volume: 3.7 million

---

Florida East Coast - FLA - cls: 61.90 chg: -1.24 stop: 59.89*new*

Reversal alert! Bullish traders should turn defensive on FLA. Shares of FLA produced a sharp bearish reversal on Friday, which was backed by strong volume. We could not find any stock-specific news to account for the weakness but the transportation sector and the railroad sector indices were both down on Friday. We are adjusting our stop loss to $59.89. We're not suggesting new plays at this time and more conservative traders may want to exit early to avoid further losses.

Picked on December 05 at $62.14
Change since picked: - 0.24
Earnings Date 02/01/07 (unconfirmed)
Average Daily Volume: 120 thousand

---

Grant Prideco - GRP - close: 43.94 chg: -0.57 stop: 42.69

As you probably already know oil stocks suffered some profit taking on Friday in spite of a strong day for crude oil. The sector weakness impacted GRP and the stock lost 1.2%. We have a relatively tight stop and more aggressive traders may want to widen their stop just a bit. The 200-dma near 42.57 should be short-term support. We would wait for a bounce back over $44.60 before considering new longs or more conservative traders may want to wait for a rally past $45.32 (the December highs) before buying the stock. Our target is the $47.50-48.00 range.

Picked on December 14 at $44.51
Change since picked: - 0.57
Earnings Date 02/05/07 (unconfirmed)
Average Daily Volume: 2.2 million

---

Guitar Center - GTRC - close: 45.68 change: -1.16 stop: 44.89*new*

It looks like investors were unhappy with the news that GTRC lost the bid to buy Dennis Bamber, Inc. who owns The Woodwind & The Brasswind company. The news came out on Friday morning and shares of GTRC had dropped 2.4% by the closing bell. We had warned readers that GTRC might dip toward $45.00 and technical support at its 200-dma. The stock did bounce near $45.00 and traders can use the move as a new bullish entry point but we would rather wait and see a stronger rebound before launching new positions. Please note that we're raising our stop loss to $44.89. 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: - 0.72
Earnings Date 01/31/07 (unconfirmed)
Average Daily Volume: 600 thousand

---

Noble Energy - NBL - close: 52.79 change: -1.24 stop: 49.75

Reversal alert! The trading in NBL has been somewhat volatile. The stock had spent the last two weeks consolidating sideways in a trading range. On Thursday, with the strength in oil stocks, NBL broke out higher from its trading range and hit a new record high. Shares gave back all of their gains on Friday with a bearish engulfing candlestick (reversal) pattern. More conservative traders may want to exit early right here to limit any losses. We're still bullish on oil but we would look for NBL to dip toward $52.00-51.00 before finding any support.

Picked on November 29 at $53.11
Change since picked: - 0.32
Earnings Date 01/31/07 (unconfirmed)
Average Daily Volume: 1.3 million

---

NATCO - NTG - close: 35.94 change: +0.01 stop: 34.65

NTG held up relatively well considering the sector weakness in oil on Friday. We do not see any changes from our new play description on Thursday night so we're reposting it here:

NTG is another oil service play. The OPEC production-cut news and rally in crude oil helped NTG rise 2.4% today. Short-term technicals are starting to turn bullish again as NTG flirts with a breakout from its six-week consolidation pattern. Aggressive traders might want to open positions now. We're a little worried about the lack of volume behind Thursday's move. We are suggesting a trigger to buy the stock at $36.51. If triggered our target is the $39.85-40.00 range.

Picked on December xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 11/01/06 (confirmed)
Average Daily Volume: 228 thousand

---

ONEOK Inc. - OKE - close: 43.50 change: +0.05 stop: 41.95 *new*

We are cautiously optimistic on OKE. Unfortunately, Thursday's bounce failed to see any follow through on Friday. Overall the trend is bullish but lack of upward momentum has turned the short-term technicals bearish. We hesitate to suggest new bullish positions right here. Please note that we are adjusting our stop loss to $41.95. Our target is the $45.00-46.00 range.

Picked on November 28 at $42.25
Change since picked: + 1.18
Earnings Date 07/26/06 (unconfirmed)
Average Daily Volume: 547 thousand

---

Rowan Cos. - RDC - close: 37.27 change: -0.01 stop: 34.75*new*

RDC struggled to produce any sort of bullish follow through following Thursday's big breakout move. Profit taking across the energy sector inhibited any gains. At this time we would look for a dip back toward the 200-dma near $36.50 or a dip back toward $36.00 as a new bullish entry point. Please note that our stop loss has been raised to $34.75. Our target is 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 14 at $37.05
Change since picked: + 0.22
Earnings Date 01/30/07 (unconfirmed)
Average Daily Volume: 3.4 million

---

Raytheon - RTN - close: 52.66 change: +0.26 stop: 49.85

Defense stocks trekked higher again for the second day in a row. This sector support lifted RTN in addition to news that the company had won another military contract from the U.S. government. Shares of RTN soared higher on Friday morning and hit a new all-time high of $53.20 before paring its gains. At this time we're expecting a dip back toward $52.00. Short-term technicals have turned bearish so we would be cautious about new and existing plays. More conservative traders may want to tighten their stops. Our target is the $54.50-55.00 range.

Picked on November 29 at $51.05
Change since picked: + 1.72
Earnings Date 01/25/07 (unconfirmed)
Average Daily Volume: 1.5 million
 

Short Play Updates

Cheesecake Factory - CAKE - cls: 25.86 chg: -0.40 stop: 27.01

Shares of CAKE continue to show relative weakness. The stock lost 1.5% on Friday and closed under support at $26.00 and its 100-dma. More aggressive traders may want to open new short positions right now. However, keep in mind that CAKE bounced at $25.79 on November 3rd and bounced at $25.75 on December 1st this year. We want to see a new relative low before readers open positions so we're suggesting a trigger 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

---

New Century - NEW - close: 34.18 change: -0.00 stop: 36.55

There was no change in shares of NEW on Friday and we don't see any changes from our previous updates. The stock has been trading sideways in a narrow range for a week. We should see a move soon - either a bounce back toward what should be resistance near $35.50-36.00 or a breakdown to a new relative low. Traders can choose to open positions here or wait for a bounce and failed rally near $35.00-35.50 as a potential 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: - 0.29
Earnings Date 02/01/07 (unconfirmed)
Average Daily Volume: 1.4 million

---

NTL Inc. - NTLI - close: 25.10 change: +0.19 stop: 26.01

The oversold bounce in NTLI just posted its second gain in a row. Volume came in a little above average but the rally stalled under its 100-dma (and its 50-dma). Shares appear to be testing the stock's bearish trendline of lower highs. Look for a decline under Friday's low (24.93) as a new entry point for shorts. More conservative traders may want to tighten their stops toward the 50-dma. 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: + 0.66
Earnings Date 11/07/06 (confirmed)
Average Daily Volume: 3.1 million

---

21st Century - TCHC - close: 25.10 change: -0.16 stop: 26.01*new*

We do not see any significant changes from our previous updates on TCHC. The stock's oversold bounce has stalled under the multi-week trendline of lower highs (resistance). Aggressive trades may want to start new positions now. We would wait for a drop under $25.00 or $24.84 before initiating new plays. We are going to adjust our stop loss to $26.01. More conservative traders may want to put their stop closer to the 10-dma (25.58) or the 50-dma (25.83). 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 positions as you may want a tighter stop loss.

Picked on December 10 at $24.84
Change since picked: + 0.26
Earnings Date 11/01/06 (confirmed)
Average Daily Volume: 115 thousand
 

Closed Long Plays

Carrizo Oil & Gas - CRZO - cls: 31.37 chg: -0.60 stop: 30.90

We remain bullish on the energy sector and oil stocks but CRZO is showing too much relative weakness so we're choosing to exit early. We would keep an eye on the stock for a rally past $32.40-32.50 as a potential bullish entry point.

Picked on November 29 at $32.15
Change since picked: - 0.78
Earnings Date 11/09/06 (confirmed)
Average Daily Volume: 345 thousand
 

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"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives