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Daily Newsletter, Saturday, 01/20/2007

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Table of Contents

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

Market Wrap

Initial Earnings Increase Confusion

Despite mostly positive earnings reports the market have failed to respond positively. Individual stocks have been hammered after posting better than expected earnings and some with earnings misses actually rose on the news. For instance GE more than doubled their profits for the quarter and gave positive guidance but lost -$1.05 on the day. This is not unusual in earnings cycles but the severity of some of the post earnings losses has emphasized the uneasiness in the market.

Dow Chart - 30 min

Nasdaq Chart - Daily

Falling gas prices, warm weather and a bounce in housing expectations combined to send Consumer Sentiment for January soaring to 98 compared to the 91.7 reading last month. The consensus estimate was for only a small gain to 92.8. Friday's headline reading was the highest in three years and the second highest since 2000. The expectations component jumped from 81.2 to 88.7 and the present conditions component rose from 108.1 to 112.5. Clearly consumers are expecting better times ahead. Analysts said the highly publicized drop in oil prices and the new market highs were instrumental in pushing sentiment higher. Consumers equate $50 oil with gas under $2 and relief from monster gas bills. Year-end bonuses were also reported to be the largest in years as corporations flush with cash rewarded employees. Year-end retirement statements also reflected the Q4 rise in the markets, which produced many smiles I am sure. Next week is a light week for economic reports but there will be plenty of earnings to review.

Economic Calendar

It is too bad that strong bounce in sentiment did not carry over into the markets. With even good earnings being punished I am sure company executives will be putting on body armor before stepping in front of the camera next week. IBM was the most recent casualty losing -3.28 after reporting very strong earnings that beat estimates. They showed the best revenue growth in five years with bookings of $17 billion in their service business. The problem was a forecast of 10% to 12% growth that fell short of some optimistic expectations by analysts. IBM was the biggest drag on Friday's Dow accounting for more than -25 Dow points.

Citigroup posted earnings that beat estimates but fell -26% and the stock ended up for the day. Citigroup promised to bring down costs and evidently investors bought the story. GE posted profits of $6.8 billion that more than doubled the $3.2 billion in the comparison quarter. GE lost -$1.05 after their positive guidance disappointed investors. GE also said it was going to restate financials from 2001-2005 to adjust accounting on some debt. The restatement will erase -$343 million in earnings for that period.

Motorola rallied on Friday after disappointing investors earlier with a -48% drop in profits due to shrinking margins on cell phones. Everyone felt the stock was already beaten with its drop to an 18 month low in early January. Nokia, Qualcomm and Texas Instruments all report next week and they will have to overcome the negative impact of Motorola's claim of weakness in the handset market.

Earnings have been mostly positive despite the tepid market reaction. According to Thomson Financial 15% of the S&P has reported and 57% beat estimates, 20% were inline and 23% missed expectations. Of those that reported, earnings have risen +14.5% and that is about +6% over estimates for those companies. However, Thomson is still projecting Q4 earnings for the entire S&P to only hit +9.3% and break the 13-quarter string of double-digit earnings growth. Thomson also revised their estimates for Q1 earnings. On Jan-1st the Q1 earnings estimate for the S&P was +8.7%. That number has now fallen to only +7.3% based on the guidance received. 51 S&P companies have issued guidance for Q1 and 12 were positive, 7 inline and 32 guided lower. This is not a positive sign for the markets long term.

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According to one analyst we were seeing a perfect setup with decent earnings, weak inflation, a growing economy and oil prices at 18 month lows. Even Bernanke's positive testimony on Thursday failed to impress anyone. According to him if that is not enough to push stocks higher then there is nothing on the horizon to improve the picture.

In early January investors sold oil and commodities and bought tech. This week that role reversal changed again with the energy sector the winner for the week. The Energy Select SPDR (XLE) gained +4.6% this week with Exxon holding up the Dow with a +3.7% gain. The perception that $50 was the bottom for oil and strong earnings and guidance from Schlumberger (SLB) helped put a floor under energy stocks. SLB said its Q4 profits jumped +71% due to significant price increases, heavy exploration activity worldwide and business bookings for years in advance. SLB beat estimates by +7 cents with profits of $1.13 billion. SLB did not just predict strong growth for 2007 but said they continue to see "high growth" through the end of this decade and into the next. SLB also squashed rumors that lower prices would depress earnings.

"While we remain of the opinion that there is no overall shortage of oil and gas reserves, the world is realizing that the period of cheap hydrocarbon energy has ended and new and higher sustained levels of investment are necessary to meet demand and guarantee future supplies," according to Chairman Andrew Gould.

SLB has repeatedly guided analysts higher but many fail to understand the reality of current exploration efforts. Current discoveries cost more to find and produce and these costs will continue to rise. SLB jumped +$3.10 on the news.

February Crude Oil Chart - 30 min

Cold weather blanketing the US and snow in the northeast helped to propel oil and gas prices higher. Oil closed right at $52 and natural gas rose +9% to close at $6.88. The weather service modified their forecast for February saying a weakening El Nino would produce colder weather than previously predicted. The American Petroleum Institute (API) said the warmer weather had cut oil demand by -3% in the US.

All the posturing by the weatherman, API and even a lowered OPEC forecast for 2007 had little real impact on oil prices. The real reason for the bounce was simply short covering ahead of futures expiration on Monday. With $50 seen by some as a potential bottom there was little to gain by holding shorts over the weekend and risk some geopolitical event producing a spike in Monday's thin market. Next week will be the key with the March contract closing at $53.39 on Friday. March will become the current month on Tuesday. It remains to be seen if its lows of $51 will be tested or if traders decided that last week's low was a buying opportunity. Most oil stocks quit declining in the prior week and began trading higher as this week progressed.

On the downside the semiconductor sector was the biggest loser with a loss of -5.3% for the week. This came after earnings from Intel and Motorola and warnings from several small chipmakers. The SOX broke several levels of support and fell -37 points from last Friday's high of 488 to this Friday's low of 451. This problem is not likely to be resolved in the near future. Multiple chip companies report next week and warnings last week suggest there is trouble ahead. One company said large orders were either being cancelled or pushed well into the future due to lack of demand. This is not a good sign for chip stocks or techs in general.

SOX Chart - Daily

Last week we had a flurry of analysts tell us to prepare for a tech high in late January. According to them techs typically peak between Jan-15th and Jan-31st and decline into summer. These were probably the same guys that were telling everyone to buy tech back in December. Unfortunately history does prove this trend but there is nothing to prevent that trend from being broken.

Despite the lackluster performance of the indexes on Friday the market internals were very positive. Advancers beat decliners by nearly 2:1 and volume was also positive at better than 2:1 on 5.3 billion shares. This was a significant reversal from Thursday when volume was nearly 3:1 negative. Has the tide turned in favor of the bulls after a weeklong tech wreck? I would strongly doubt it because the +8 gain on the Nasdaq was not even a decent dead cat bounce given the huge bout of selling that left the Nasdaq down -2.6% for the week.

Next week we will be faced with earnings from tech giants like YHOO, EBAY, MSFT, QCOM, TXN, AMD, SYMC, NVLS and dozens of others. Over 250 companies report earnings and the outcome will be very important. If the quality begins to decline then we could see some rough sledding ahead. As always the guidance will be key and 63% of guidance received for Q1 over the last two weeks has been negative. If that trend continues we could see a serious bout of profit taking. EBAY appears to be setting up for a break of $29.50 ahead of earnings and a significant drop if they disappoint. I warned everyone in December that EBAY was famous for a Q1 swoon and the chart is setting up perfectly.

EBAY Chart - Daily

Another problem ahead is going to be the Fed. Since the last rate hike in June 2006 investors have been expecting the next move to be a rate cut. Due to the stronger than expected economic results we have seen in January there is almost zero chance of a rate cut through September as evidenced by the Fed funds futures. In reality, if the economy continues to strengthen the next move could be another rate hike and that could come as soon as May. That would of course mean the economy had shaken off the weakness we saw in late 2006 and was heading back into strong growth mode with inflation rising. The problem is not the hike or the economy since strong growth can occur during a hike cycle. It is the perception that no rate cut will be forthcoming. That could change the momentum in the bond market pushing yields back over 5% and produce an overhang in the equity market. Yields over 5% put a strain on equities. All of this will transpire over time, months instead of weeks, and is not something we need to worry about today. It is just something to keep on the radar if the economy continues to strengthen. As long as equities are rising investors will ignore the hike prospects until the Fed begins to warn in their speeches.

Guidance will be the short-term key and plenty of companies will give guidance next week. The Dow is continuing to hold near its highs and blue chips should do better than small caps in this environment. 12525 is the key support on the Dow that needs to hold if the current rally is to continue. However, we could even stand a drop to 12350 and still maintain the bullish bias on the Dow. Next week 9 Dow components report and there will be plenty of chances for a smack down if somebody else disappoints.

The Nasdaq lost -2.5% but came to rest just above decent support at 2420-2440. I believe the majority of the selling was a major fund asset allocation program on Thursday with the Apple earnings as a trigger. Maybe quite a few funds were planning to exit on the typical January peak in techs. While there was no material bounce on Friday there was also no follow through on the selling. I am not saying the tech selling is over but I believe much of it was program trades. The Nasdaq like the Dow is still very near its highs with strong support from 2400-2420. We could easily see both indexes pull back a little further without any damage to the overall market.

Russell-2000 Chart - Daily

SPX Chart - Daily

Should the Dow break 12350 and the Nasdaq 2400 the entire picture would change. Until then it is just profit taking and digestion of recent gains. The S&P-500 has been attracted to 1430 like a moth to a flame. We have spent time on both sides but never more than 5 points either way. This remains the purest indicator of broad market health. On Friday the rebound in the oil patch rescued the S&P from a small Thursday decline but it could not push the index back over 1430 despite a 2:1 advance decline ratio in Friday's trading. The S&P seems to be clinging to 1430 as we await earnings in hopes of a sudden burst of earnings enthusiasm that will launch it higher. Conversely a few more earnings disappointments and lowered guidance announcements and that hold could easily slip. Remember last week I showed that this market was on 4th longest streak without a correction since 1928. We are due and corrections typically occur unexpectedly. They are blamed on some external event but normally the orders are already in place and funds are just waiting for somebody to knock out the props. With limited economics next week the focus on earnings will be the key. Given the damage to Apple, IBM, GE, etc, on strong results what will happen if a couple reporters suddenly miss sharply? While that is not expected it is always a possibility. I would rather believe that the bulls are alive and well and waiting for a real buying opportunity. If you believe the various talking heads on CNBC everybody is expecting a decline and waiting to buy the dip. This sets up another possibility. If something did spark a sudden burst of buying it could send those same funds racing into the market to buy stocks rather than miss out on a continued rally. It is one thing to sit on investor's money while waiting for a buying opportunity but another problem entirely if the market starts to run away from you. Obviously nobody knows which event will come to pass but we only need to watch S&P 1430 to make the right decision. I am amazed by the lack of volatility in the market and that suggests a complete lack of fear in traders. Despite the Nasdaq sell off complacency is rampant. The VIX has barely budged in a week and remains stubbornly low at 10.50. It has been six months since there was some decent volatility in the high teens and mid June since it was over 20. This is not a normal event and one that should end badly for the bulls.

I received several emails asking what to do since the SPX continues to trade several points on both sides of 1430. How should I trade that? In circumstances like this I suggest moving your entries five points on either side of what has become a critical pivot point. Go long on a break over 1435 and short on a break under 1425. That allows the index to continue moving sideways without triggering any trades. This will allow you to sleep at night and not be worried about being short or long with the S&P resting on 1430. I will continue to use that level as my line in the sand but readers should decide for themselves when they enter any trades based on a movement away from that level. Either way I do expect a major move relatively soon.
 

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
ACI None
CTV  
RTN  
TJX  
TOL  

New Long Plays

Arch Coal - ACI - close: 29.08 change: +1.66 stop: 27.39

Company Description:
St. Louis-based Arch Coal is the nation's second largest coal producer. The company's core business is providing U.S. power generators with clean- burning, low-sulfur coal for electric generation. Through its national network of mines, Arch supplies the fuel for approximately 6 percent of the electricity generated in the United States. (source: company press release or website)

Why We Like It:
Coal stocks have been beaten up since the first of the year. Yet it looks like the selling has run out of steam and shares of ACI may have produced a bottom over the last week. Shares of ACI built a base with several days in the $27.00-28.50 range. Now the stock is breaking out on above average volume from its trading range and it has a bullish technical picture to boot. The catalyst for the move appears to be the new cold front hitting much of the country. We are suggesting long positions with ACI above $28.50. Our target is the $32.50 level. We do not want to hold over the early February earnings report so we only have a couple of weeks. FYI: The P&F chart is still bearish from the January sell-off.

Picked on January 21 at $29.08
Change since picked: + 0.00
Earnings Date 02/02/07 (confirmed)
Average Daily Volume: 3.1 thousand

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Commscope - CTV - close: 31.62 change: +0.71 stop: 29.99

Company Description:
CommScope is a world leader in the design and manufacture of "last mile" cable and connectivity solutions for communication networks. Through its SYSTIMAX Solutions(TM) and Uniprise Solutions brands CommScope is the global leader in structured cabling systems for business enterprise applications. It is also the world's largest manufacturer of coaxial cable for Hybrid Fiber Coaxial applications. (source: company press release or website)

Why We Like It:
We are adding CTV as bullish candidate just as shares look poised to breakout over resistance at the $32.00 level. Most of the technical indicators on the weekly and daily charts suggest the consolidation is almost over. We are suggesting a trigger to go long the stock at $32.05. If triggered our stop loss will be $29.99 and our target is the $34.85-36.00 range. We do not want to hold over the late February earnings report. FYI: The P&F chart is bearish. Plus, more conservative traders may want to put their stop at $30.49 under the most recent low.

Picked on January xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/22/07 (unconfirmed)
Average Daily Volume: thousand

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Granite Constr. - GVA - close: 52.41 change: +1.20 stop: 50.79

Company Description:
Granite is one of the nation's largest diversified heavy civil contractors and construction materials producers. Granite Construction serves public and private sector clients through its offices nationwide. (source: company press release or website)

Why We Like It:
A stronger read on the economy has produced another rebound in GVA. Shares were already on the road to recovery after strong bounce from December's lows. Traders bought the dip on Friday near $51.00 and its simple 50-dma. We're going to suggest long positions with the stock above $51.50. More conservative traders may want to wait for a rise past $53.00 or its 100-dma near $53.15. We'll use a tight stop at $50.79, which is under Friday's low and the 50-dma. Our target is the $57.50 mark. We do not want to hold over the mid February earnings report. FYI: Volume was a bit light on Friday's rally, which tends to undermine the strength of any signal.

Picked on January 21 at $52.41
Change since picked: + 0.00
Earnings Date 02/12/07 (unconfirmed)
Average Daily Volume: 509 thousand

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Raytheon - RTN - close: 52.30 change: +0.74 stop: 50.95

Company Description:
Raytheon Company, with 2005 sales of $21.9 billion, is an industry leader in defense and government electronics, space, information technology, technical services, and business and special mission aircraft. With headquarters in Waltham, Mass., Raytheon employs 80,000 people worldwide. (source: company press release or website)

Why We Like It:
The strategy with RTN is pretty simple. The trend is up and the stock has been trading inside a bullish, rising channel since the June 2006 lows. Shares have been consolidating the last two weeks along the bottom edge of its rising channel and we're just now seeing signs of a rebound. We're suggesting readers buy this bounce from support with a relatively tight stop loss. Our target is the $55.00-56.00 range. The old highs near $54 might offer some resistance. Our stop is at $50.95. More aggressive traders may want to put their stop under the $50.00 mark. We do not want to hold over the February 1st earnings report so we have less than two whole weeks.

Picked on January 21 at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/01/07 (confirmed)
Average Daily Volume: 1.6 million

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TJX Cos. - TJX - close: 30.03 change: +0.53 stop: 28.95

Company Description:
The TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. The Company operates 826 T.J. Maxx, 751 Marshalls, 271 HomeGoods, and 162 A.J. Wright stores, as well as 36 Bob's Stores, in the United States. In Canada, the Company operates 184 Winners and 68 HomeSense stores, and in Europe, 212 T.K. Maxx stores. (source: company press release or website)

Why We Like It:
The sharp decline in the price of oil has re-energized the retail stocks. Investors believe that if consumers are paying less for gas they'll spend more on other items. This has pushed the RLX retail index to a new all-time high. Shares of TJX have followed suit and are also trading near all-time highs. Aggressive traders may want to open positions now with Friday's relative strength. We want to see just a little more confirmation so we're suggesting a trigger to buy the stock at $30.21. If triggered our target is the $32.50-33.00 range. We do not want to hold over the mid February earnings report.

Picked on January xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/13/07 (unconfirmed)
Average Daily Volume: 3.2 million

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Toll Bros. - TOL - close: 32.42 change: +0.75 stop: 30.89

Company Description:
Toll Brothers, Inc. is the nation's leading builder of luxury homes. The Company began business in 1967 and became a public company in 1986. The Company serves move-up, empty-nester, active-adult and second-home home buyers and operates in 21 states. (source: company press release or website)

Why We Like It:
The homebuilders turned in a decent week fueled by renewed conviction that the worst is behind for the real estate slow down. Positive economic news showing a growing economy didn't hurt either. We like TOL as a bullish candidate because the stock has broken out from resistance and through the top of what appears to be a big bull flag pattern. Technicals are improving and the MACD is nearing a new buy signal on the daily chart. We are suggesting long positions with TOL above $32.00. Our target is the $34.75-35.00 range. More aggressive traders may want to use a wider stop loss. FYI: Be aware that rival homebuilder DHI is expected to report earnings on January 23rd and their results and guidance could have a big impact on the sector.

Picked on January 21 at $32.42
Change since picked: + 0.00
Earnings Date 03/06/07 (unconfirmed)
Average Daily Volume: 3.3 million
 

New Short Plays

None today.
 

Play Updates

Updates On Latest Picks

Long Play Updates

Cascade - CAE - close: 54.20 chg: +1.22 stop: 52.45

CAE is trying to rally again. The stock posted a 2.3% gain on Friday with volume about three times the norm. A strong rise on big volume is usually a bullish sign. We were close to abandoning CAE as a bullish candidate but we're willing to wait. Currently our plan is to go long on a breakout above resistance at $55.50. Our suggested trigger to buy the stock is at $55.75. If triggered our target is the $59.76-60.00 range. FYI: We do not want to hold over the early March earnings report.

Picked on January xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 03/08/07 (unconfirmed)
Average Daily Volume: 71 thousand

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China Mobile - CHL - cls: 45.37 chg: +0.93 stop: 41.85 *new*

The rally in the Chinese markets was not lost on CHL. Shares of CHL rose another 2% and posted its sixth gain in a row. CHL is quickly approaching our target in the $46.50-47.00 range so we're not suggesting new positions at this time. We will adjust our stop loss to $41.85. FYI: More aggressive traders may want to aim higher (maybe the $50 region).

Picked on January 14 at $42.60
Change since picked: + 2.77
Earnings Date 03/07/07 (unconfirmed)
Average Daily Volume: 1.2 million

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Comcast Corp. - CMCSK - cls: 43.88 chg: -0.47 stop: 41.45

CMCSK suffered some profit taking on Friday after a week of gains. Volume came in pretty low, which is what we would want to see on a consolidation lower. If you're looking for a new entry point watch for a dip to or a bounce near the $43.00 level, which should be short-term support, bolstered by its rising 10-dma. Our target is the 2000-2001 highs. We'll plan an exit in the $46.00-46.50 range. We do not want to hold over the early February earnings report.

Picked on January 14 at $43.32
Change since picked: + 0.56
Earnings Date 02/01/07 (unconfirmed)
Average Daily Volume: 4.9 million

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Hewlett Packard - HPQ - close: 42.00 chg: -0.34 stop: 40.44

News that HPQ continues to take marketshare from rival Dell was not enough to stop the profit taking HPQ. On Friday HPQ lost another 0.8% and posted its fourth decline in a row. The short-term technicals are turning bearish. However, traders bought the dip on Friday at the stock's six-month trendline of rising resistance. Aggressive traders may want to open long positions now. We suggest that most traders wait for a rebound past $42.25 or $42.50 before opening new plays. A new rally would make the recent consolidation look like a bull flag pattern. We do not want to hold over the February 20th earnings report. Our target is the $46.00 level.

Picked on January 07 at $42.20
Change since picked: - 0.20
Earnings Date 02/20/07 (unconfirmed)
Average Daily Volume: 13.1 million

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MedImmune - MEDI - close: 34.66 change: -0.15 stop: 32.95

Unfortunately, there are no surprises with MEDI's performance. We have been warning readers that MEDI is likely to dip back toward the $34.00 level. Broken resistance in the $33.75 region should act as new support. If you're looking for a new entry point consider buying a dip to or a bounce near the $34.00 level. We do not want to hold over the early February earnings report. Our target is the $36.50-37.00 range. FYI: Keep an eye on the BTK biotech index, which may be producing a bearish double-top pattern. We'd also watch the DRG Drug index, which is nearing resistance around its October highs. More conservative traders may want to put their stop loss at breakeven to reduce their risk and worry factor.

Picked on January 05 at $33.98 *gap open entry*
Change since picked: + 0.68
Earnings Date 02/07/07 (confirmed)
Average Daily Volume: 2.3 million

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Piper Jaffray - PJC - close: 70.74 chg: +1.66 stop: 68.75*new*

We are not suggesting new positions on PJC even though shares rebounded on Friday with a 2.4% gain. Bulls can be encouraged that there was no follow through on Thursday's bearish engulfing candlestick pattern. Our challenge now is time. PJC is due to report earnings on Wednesday morning, January 24th. We do not want to hold over the report so we plan to exit on Tuesday afternoon at the closing bell. Please note that we're adjusting our stop loss to $68.75, which is just under Thursday's low. Our target is the $74.75-75.00 range.

Picked on January 10 at $69.45
Change since picked: + 1.29
Earnings Date 01/24/07 (confirmed)
Average Daily Volume: 197 thousand

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Bankrate Inc. - RATE - close: 36.97 chg: -0.40 stop: 34.90

News that Bear Stearns had started coverage on RATE with "peer perform" rating failed to do anything for the stock price. Shares of RATE spent most of the day oscillating back and forth across the $37.00 level near its rising 50-dma. At the moment it looks like what had begun as a potential short squeeze has faltered. RATE spent several days struggling in the $38.75-39.00 region and now we're seeing some profit taking. Readers have a choice. You can look for a dip and bounce somewhere above the simple 200-dma (near $35.70) or wait for a new relative high (above $39.00) as new entry points. Don't forget that this is an aggressive, higher-risk play and we have a wide stop. More conservative traders may want to tighten their stops. Our target is the $41.90-42.00 range. More aggressive traders may want to aim higher. FYI: The most recent (December) data put short interest at more than 35% of RATE's 11.2 million-share float.

Picked on January 11 at $38.25
Change since picked: - 1.28
Earnings Date 02/06/07 (confirmed)
Average Daily Volume: 334 thousand
 

Short Play Updates

The Andersons Inc. - ANDE - cls: 39.05 chg: -0.05 stop: 40.25

Shares of ANDE have been resilient. Friday morning the stock was downgraded from a "hold" to a "sell" yet traders bought the dip on Friday near $38.00 and its 100-dma and ANDE closed almost unchanged. We considered dropping ANDE as a bearish candidate since there has been a distinct lack of follow through on the early January breakdown. Plus, the stock's P&F chart looks relatively bullish. However, we are not willing to give up just yet since the consolidation over the last several days is beginning to look more and more like a bear flag pattern. We will continue to suggest a trigger to short the stock at $36.99. If triggered at $36.99 our target is the $33.00-30.00 range. More conservative traders may want to widen their trigger to something like $36.95, 36.90, 36.85 just to raise the odds that we are catching a real breakdown. FYI: Traders should note that ANDE can be a volatile stock at times and the latest (December) data put short interest at 7.2% of ANDE's 14.7 million-share float. That's not a very big float and the relatively high short interest raises the risk of a short squeeze. We do not want to hold over the early February earnings report.

Picked on January xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/08/07 (unconfirmed)
Average Daily Volume: 333 thousand

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Comverse Tech. - CMVT - cls: 20.00 change: -0.20 stop: 20.75

Look out below! CMVT continued to sink on Friday and shares look poised to breakdown. We do not see any changes from our new play description from Thursday night so we're reposting it here:

Technology stocks are getting hit the hardest as investors lock in profits on the group's recent run up. One tech stock that was already under performing was CMVT. The stock has a bearish pattern of lower highs under its descending 200-dma. Furthermore the company seems to be hemorrhaging management as it deals with an investigation into its practice of back-dating options for executives. Shares of CMVT look poised to breakdown from its recent consolidation and fall under support at the $20.00 level. We're suggesting a trigger for shorts at $19.85. If triggered our target is the $17.75-17.50 range. Please note that this play might have an extra risk concerning the company's earnings report. The problem is we can't find one and we can't find when it is due to report next. History would suggest CMVT tends to report in March but we can't support that for 2007. Earnings reports are always a risk because there are too many variables and the stock could move sharply either direction on the news. We did find one source that said CMVT's subsidiaries VRNT and ULCM are due to report in March.

Picked on January xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 03/14/07 (unconfirmed)
Average Daily Volume: 4.4 million

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Safety Ins. Group - SAFT - cls: 48.96 chg: +1.18 stop: 50.55

Whoa! We were not expecting such a sharp rebound in SAFT. Friday saw shares close up almost 2.5%. We could not find any news that might account for SAFT's strength, especially following Thursday's bearish technical breakdown. The overall trend remains bearish so readers can watch for a failed rally near $50.00 as a new entry point for shorts. We have two targets. Our conservative target is $45.10. Our aggressive target is the $42.50 level. FYI: The latest (December) data put short interest at 7% of SAFT's 13.1 million-share float. That does raise the risk of a short squeeze.

Picked on January 08 at $ 48.49
Change since picked: + 0.47
Earnings Date 04/30/07 (unconfirmed)
Average Daily Volume = 83 thousand
 

Closed Long Plays

None
 

Closed Short Plays

None
 

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

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Littleton, CO 80163
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.

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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