Option Investor

Daily Newsletter, Monday, 11/26/2007

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Table of Contents

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

Market Wrap

Credit Concerns Trump Mixed Black Friday's Trend

After posting gains early in the session on mixed Black Friday sales reports, stocks finished at their lows of the session as credit concerns weighed heavily on this year's holiday sales trends and U.S. economic outlook.

The S&P 500 Index (SPX.X) 1,407.22 -2.32% threatened to post its first back-to-back session gain for the month as stocks opened mixed-to-higher at the open on some conflicting retail sales trends and industry analysts comments.

The National Retail Federation trade group said on Sunday that there were 4.8% more shoppers out over the four-day holiday weekend (Thursday-Sunday), but the average customer spent 3.5% less than last year's four-day comparison.

A more optimistic report had research firm ShopperTrak RCT saying that retail jumped 8.3% on Friday versus last year, and 7.2% for Friday and Saturday combined. ShopperTrak said the two day sales trends were "absolutely stronger" than anticipated. In addition, ShopperTrack said it had forecast total sales for the holiday season as rising 3.6% versus last year.

"I had one store manager tell me: "If it had a plug on it, it did well" said Jefferies & Co analyst Daniel Binder, who commented that early trends at some of the nation's large discounters had electronics as big sellers over the weekend.

Mr. Binder thought Wal-Mart (NYSE:WMT) $45.11 -1.35%, Target (NYSE:TGT) $55.22 -3.41%, Costco (NASDAQ:COST) $65.38 -2.37% and BJ's Wholesale (NYSE:BJ) $33.96 -1.27% were "in the sweet spot" as high-definition televisions become cheaper and accessible to the mass market.

Needham & Co analyst Christine Chen said "I think this holiday is going to be very promotional," pointing to chains like Talbots (NYSE:TLB) $13.18 -4.90%, AnnTaylor (NYSE:ANN) $30.53 -5.18%, Chico's FAS (NYSE:CHS) $10.21 -1.82% and Coldwater Creek (NASDAQ:CWTR) $8.04 -4.51%, which cater to mature women.

Ms. Chen said Talbots (TLB) and AnnTaylor (ANN) did not have what she would consider to be huge crowds of shoppers this weekend.

What Talbots and AnnTaylor may have lacked this weekend, Yahoo! Inc. (NASDAQ:YHOO) $25.22 -3.48% may have gotten too much of.

Yahoo! said its e-commerce system buckled under strain of a surge in online shopping, and left some merchants disappointed over lost orders. According to DowJones, Yahoo's network became overloaded at 05:30 AM EST.


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Hmmmm... go to the mall this weekend, check out some prices, then go to the 9-5 job, get a cup of coffee, turn on the computer, and check out on-line prices?

Having traded as high as $39.39 on 10/31/07, Overstock.com (NASDAQ:OSTK) $23.38 -2.70% might be worth a look as it closes just under its trending higher 150-day SMA at $23.45.

As the holiday shopping season begins, tomorrow morning's November consumer confidence reading at 10:00 AM EST will draw trader's scrutiny. Current forecast is for 91.5.

But just after 10:00 AM EST, buyers looked to have vanished faster than you can say "attention shoppers" as economic data had buyers clutching their wallets and purses.

The Chicago Fed said its National Activity Index dropped to -0.73 in October from September's -0.30. October's reading was the lowest since January. Production-related indicators came in at -0.39 in October, while employment-related indicators were also negative at -0.20.

Today's economic news had to have had some negative impact, as we'll get November's Chicago PMI on Friday. Economists are currently forecasting an expansionary reading of 50.5 after October's contraction measure of 49.7.

Financials gave back all of Friday's bounce after UBS downgraded mortgage-lenders Freddie Mac (NYSE:FRE) $24.50 -7.44% and Fannie Mae (NYSE:FNM) $28.92 -10.18% to "neutral" from "buy."

Senator Charles Schumer reportedly urged regulators to examine the risks involved with the increased lending by the Federal Home Loan Bank of Atlanta to Countrywide (NYSE:CFC) $8.64 -10.46%, where that report seemed to accelerate today's weakness in the financials.

Citigroup (NYSE:C) $30.70 -3.15% did see trade under the $30.00 after CNBC reported the banking giant is on the verge of announcing a large layoff that could have 45,000 positions eliminated.

Despite a weaker dollar trade again today, NYMEX January Crude Oil futures (cl08f) settled down 48-cents, or -0.49% after CNBC said Saudi Arabia had boosted output ahead of OPEC's December 5 meeting.

I could not find any reports as to what amount, but last week the Oil Movements consulting firm said that OPEC is expected to boost crude oil output by 720,000 barrels a day in the four weeks to December 8.

Just after todays close, the Energy Information Agency (EIA) said the average retail price for gasoline in the U.S. fell by $0.20/gallon last week to $3.097/gallon.

NYSE and NASDAQ Internals -

It is generally thought that the bulk of institutional traders take the day off on Friday and while Wednesday's final hour of trade saw a significant decline and lack of buying, Friday's session was up, up, and away with few sellers to be found.

Today's internals were negative at the a/d line and there was some "ooomph" behind it with the NYSE Short Term Trade (TRIN) never falling below 1.00 today, and rising to its close.

NASDAQ's Short Term Trade (TRINQ) wasn't overly bullish, but it at least wavered either side of 1.00. Buyers stepped aside in the final hour with TRINQ higher to the close.

Shorts do look as if they're doing some covering the last few days ad the number of new lows at both the NYSE and NASDAQ hover just above recent inflection points.

NASDAQ's number of new lows suggests greater stability to me.

While the 11/20/07 number of new lows (414) were just shy of the 445 new lows from 11/08/07, this subtle observation does suggest to me that institutional shorts are locking in some gains when they have an opportunity during weakness among four and five-lettered stock symbols.

Global Equity Benchmarks/ Dollar Index/ Oil/ Gold

You can probably do the math and see that today's trade for the major U.S. equity benchmarks (-2.32% for S&P 500) would have had the SPX pretty much "in line" with European bourses at their Monday closes.

If U.S. bulls are going to ramp things higher this week, we might just get a read from Britain's FTSE-100, Germany's DAX and France's CAC-40 when they finish up Tuesday's trade. If they're higher at tomorrow's close, then a stronger-than forecast consumer sentiment reading at 10:00 AM EST could really bring in some short covering for the major U.S. benchmarks tomorrow.

I've noted over the years that STOCK PRICES are one MAJOR influencing factor on consumer sentiment, and let's face it, the above table doesn't suggest an UPSIDE surprise regarding consumer sentiments.

Therefore, be ready for it!

World Bullish % Bell Curve - As of Friday's Close

If we think consumer sentiment may be damaged due to stock prices here in the U.S. (U.S. All Stocks), which includes stocks listed on the NYSE, NASDAQ and AMEX, where roughly 35% of the point and figure charts would show a point and figure chart "buy signal" associated with the chart, then Tokyo and European (Europe, London, XETRA/Frankfurt) would also suggest a negative tone toward equities.

I don't look at Dorsey/Wright and Assoc. World Bullish % Bell Curve each day, and once a week, if not once a month is sufficient. They tend to move slowly and methodically, but the above bell curve is telling as to the general weakness currently observed for many stocks around the globe.

S&P 500 Index (SPX) - 10-point box

At last Monday's close, the SPX was threatening a spread triple bottom sell signal at 1,430, and on Tuesday, that level was traded.

I must confess that I was a bit surprised that the SPX didn't just "cave in" with supply (O) quickly outstripping demand (X) to the 1,380 level and a next support level.

Here's a quick look at StockCharts.com's S&P 500 Bullish % ($BPSPX) and traders and investors can easily make the tie with the above chart and the 1,380 level as the $BPSPX also nears it mid-August relative low chart measure of 34%.

S&P 500 Bullish % ($BPSPX) - 2% box chart

According to StockCharts.com, roughly 37%, or 185 of the 500 stocks that comprise the broad S&P 500 Index currently show a "buy signal" still intact on their point and figure chart.

I wanted to update this widely followed bullish % (Dorsey/Wright's symbol is BPSPX).

Should we see a 32% measure, it would be deemed VERY BEARISH longer-term, and would have this market once again in "bear confirmed" status.

On 10/19/07, I do know for fact that Dorsey/Wright's BPSPX reversed back lower to "bull correction" status at 64.00%, and more than likely, StockCharts.com's $BPSPX reversed back lower around that time.

It takes some MEANINGFUL amounts of BUYING (X) and SELLING (O) to move these internal indicators of demand (X) and supply (O).

You can view other major market bullish % for FREE and StockCharts.com.

The VERY BROAD NYSE Bullish % ($BPNYA), the VERY BROAD NASDAQ Composite Bullish % ($BPCOMPQ), the narrower S&P 100 Bullish % ($BPOEX), the narrower NASDAQ-100 Bullish % ($BPNDX) are those most institutional traders and investors will follow.

New Plays

Most Recent Plays

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New Plays
Long Plays
Short Plays
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New Long Plays

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New Short Plays

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Play Updates

Updates On Latest Picks

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Long Play Updates

CVS Caremark - CVS - cls: 41.04 change: -0.90 stop: 39.85

Warning! Lack of follow through on Friday's bounce is negative. CVS erased Friday's gains and the two-day move is a clear bearish reversal. We would strongly consider an early exit right here to cut your losses. Please note that we fully expect CVS to trade lower toward support near $40.00 and its rising 50-dma. If you do not want to endure that pull back then exit now. Short-term technicals have turned bearish. If you're looking for bullish positions then sit back and wait for a bounce near $40.00. We are going to repost the comments from this weekend about CVS' short interest... On November 21st Reuters published an article showing the five stocks on the NYSE with the biggest increase in short interest. CVS topped the list. Short interest as of October 31st was 37.8 million shares. Short interest as of November 15th was 67.6 million shares. That is almost six days worth of short interest. There are a lot of people betting that CVS has topped out and any further strength, especially a new high, could produce a nice short squeeze!

Picked on November 07 at $42.15
Change since picked: - 1.11
Earnings Date 11/01/07 (confirmed)
Average Daily Volume: 10.5 million


Coca-Cola - KO - close: 61.73 change: -0.57 stop: 59.59

KO is starting to cave in to some profit taking. The stock closed under short-term support near $62.00. At this time we would expect a decline toward $61.00. The stock should also have additional support near $60.00. We are not suggesting new positions at this time. Wait for a bounce. Our end of year target is the $66.00-67.00 range. The bullish P&F chart suggests a $69 target.

Picked on November 15 at $61.95
Change since picked: - 0.22
Earnings Date 01/15/08 (unconfirmed)
Average Daily Volume: 8.3 million


UST Inc. - UST - close: 54.68 change: -0.47 stop: 51.99

UST managed to hit another new relative high but quickly gave back all of its gains by the closing bell. Short-term we would expect a dip toward the 10-dma or support near $54.00. Wait for a bounce there before considering new positions. The P&F chart's buy signal has seen the target grow from $67 to $70 this past week. Our target is the $58.00-60.00 range. We would expect some short-term resistance near $56.00.

Picked on November 14 at $54.41
Change since picked: + 0.27
Earnings Date 01/24/08 (unconfirmed)
Average Daily Volume: 1.0 million

Short Play Updates

Amgen - AMGN - close: 52.68 change: -1.08 stop: 56.26

AMGN rolled over again. Today's move looks like a failed rally under $54.00 and its 10-dma, which is a good sign for the bears. More aggressive traders may want to keep their stop above the 200-dma (around $57.02). Our target is the $50.15-50.00 mark. More aggressive traders could aim for the August lows. The Point & Figure chart is bearish with a $39 target. Any time you play a biotech company there is a higher level of risk. You never know when there will be a positive or negative press release about some drug, some clinical trial or some news from the FDA or a rival that could send shares of a biotech stock gapping either direction.

Picked on November 11 at $54.28
Change since picked: - 1.60
Earnings Date 01/24/08 (unconfirmed)
Average Daily Volume: 10.4 million


W.R. Berkley - BER - close: 28.47 chg: -0.56 stop: 30.55

The oversold bounce in BER is finally starting to fade. This looks like a new bearish entry point. More conservative traders could wait for a decline under $28.00 to initiate positions but if you do wait then tighten your stop loss toward $29.26. Our target is the $26.00-25.50 zone. The P&F chart points to a $14 target.

Picked on November 19 at $28.40
Change since picked: + 0.07
Earnings Date 02/07/08 (unconfirmed)
Average Daily Volume: 1.0 million


Cousins Properties - CUZ - close: 22.20 change: -1.38 stop: 25.05*new*

REIT stocks were hit hard today and CUZ lost 5.8% on above average volume. The stock closed at new relative lows, which is good news for the bears. We're adjusting our stop loss to $25.05. Our target is the $20.25-20.00 range. The latest data puts short interest at over 10% of the 36.8 million-share float, which raises the risk of a short squeeze, especially with the stock near support.

Picked on November 19 at $23.65
Change since picked: - 1.45
Earnings Date 02/05/08 (unconfirmed)
Average Daily Volume: 506 thousand


Monster Worldwide - MNST - cls: 31.60 change: -1.46 stop: 35.05

Our new bearish play in MNST is now open. The market's sell-off helped push MNST through significant support at the $32.50 level. Our trigger to short the stock was at $32.35. MNST closed at new two-year lows. We have two targets. Our first target is the $30.15-30.00 range. Our second target is the $28.50-27.50 zone. The bearish P&F chart points to a $26 target.

Picked on November 26 at $32.35 *triggered
Change since picked: - 0.75
Earnings Date 01/31/08 (unconfirmed)
Average Daily Volume: 2.3 million


Medicis Pharma - MRX - close: 25.56 change: -0.24 stop: 28.05

MRX did not move much today but the trend continues to look bearish. We would still consider new shorts here. More conservative traders may want to tighten their stops toward $27.00. Our target is the $23.00-22.50 zone. The P&F chart is bearish with a $19 target. FYI: Any time we play a biotech stock we're dealing with a high-risk situation. MRX seems to be more of a drug company but we're still at risk that some FDA decision or some clinical trial news could send the stock gapping one direction or the other. Furthermore the most recent data puts short interest at more than 23% of MRX's 49.2 million-share float. That is a high-degree of short interest and raises the risk for a short squeeze.

Picked on November 18 at $26.08
Change since picked: - 0.52
Earnings Date 02/05/08 (unconfirmed)
Average Daily Volume: 1.2 million


NVIDIA - NVDA - cls: 29.52 change: -0.70 stop: 33.05 *new*

NVDA has produced a failed rally under its 10-dma. The stock looks set to make a run towards support at its 200-dma, which happens to be our target. We're going to adjust our exit zone to $27.90-27.70. We are also adjusting our stop loss to $33.05. More conservative traders may want to do a little profit taking here.

Picked on November 12 at $32.45
Change since picked: - 2.93
Earnings Date 11/08/07 (confirmed)
Average Daily Volume: 12.6 million


Patterson-UTI Energy - PTEN - cls: 18.81 chg: -0.55 stop: 20.05

Oil stocks witnesses some heavy selling today. The OIX index lost 2.7% and the OSX index lost 1.1%. Shares of PTEN slipped 2.8% and broke down under support to multi-year lows. Our suggested trigger for shorts was at $18.95 so the play is now open. Our target is the $17.50-17.00 zone. FYI: The most recent data puts short interest at 10% of the stock's 152 million-share float. That is a relatively high amount of short interest and raises the risk of a short squeeze.

Picked on November 26 at $18.95 *triggered
Change since picked: - 0.14
Earnings Date 02/14/08 (unconfirmed)
Average Daily Volume: 3.8 million


Trimble Navigation - TRMB - cls: 35.29 chg: -0.20 stop: 38.26

The market's heavy selling today may have cut TRMB's oversold bounce short. The stock looks poised to move lower again. We're not suggesting new positions at this time but this could be a new entry point if you wanted to use a much tighter stop loss (maybe $36.26). Our target is the 200-dma and we're suggesting an exit in the $33.00-32.90 zone for now. The P&F chart is bearish with a $30.00 target. FYI: Short interest looks pretty low, which is surprising and may be out of date.

Picked on November 19 at $37.25
Change since picked: - 1.96
Earnings Date 01/24/08 (unconfirmed)
Average Daily Volume: 970 thousand


Virgin Media - VMED - cls: 17.71 change: -0.86 stop: 19.31

VMED's sell-off continued on Monday. The stock lost 4.6% and broke down under the $18.00 level. Our suggested trigger to short the stock was at $17.99 so the play is now open. Our target is the $15.25-15.00 range. FYI: Don't be surprised if the stock sees some sort of oversold bounce near $17.45, which is the November low.

Picked on November 26 at $17.99 *triggered
Change since picked: - 0.28
Earnings Date 11/07/07 (confirmed)
Average Daily Volume: 2.7 million

Closed Long Plays

Cicso Systems - CSCO - cls: 27.49 chg: -1.19 stop: 27.89

CSCO's bounce attempt has been killed by analyst comments. A Morgan Stanley analyst issued some concerns over CSCO's emerging market business in spite of their firm's "buy" rating on CSCO. The stock broke down under support at $28.00 and closed with a 4.1% loss on heavy volume. Our stop loss was at $27.89.

Picked on November 18 at $29.94
Change since picked: - 1.25
Earnings Date 02/06/08 (unconfirmed)
Average Daily Volume: 50.7 million

Closed Short Plays


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


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.

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