Option Investor
Newsletter

Daily Newsletter, Saturday, 1/16/2010

Table of Contents

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

Market Wrap

Bump In The Road

by Jim Brown

Click here to email Jim Brown

A classic sell the news event knocked all the indexes into the loss column for the week. Intel may have knocked the cover off the ball but the chip sector was penalized for running up ahead of the report.

Market Statistics

It was not a fun day for the bulls as fund managers took advantage of the Intel earnings and option expiration volume to unload some of their positions that had rallied since year-end. This was not a statement about the condition of the market but simply profit taking on good news. Having the JP Morgan loan loss news and weak guidance was an accelerant to the selling but not the cause. The futures were already down well before JPM reported.

The leading tech stock reported blowout earnings by any metric you care to use but ends up losing 3% on the news. Intel posted earnings of 55-cents per share compared to already bullish analyst estimates of 30-cents. Intel posted record gross margins of 64.7% and provided strong guidance for 2010. Conventional wisdom suggests we should have been up triple digits rather down triple digits.

Actually if you watched the futures late Thursday the selling started almost immediately after the Intel spike faded in the after hours session. It was clearly a sell the news event and probably increased by the option expiration. Traders who were long options going into the Intel earnings only had one day to take profits and square up positions.

There were also some cautious comments about Intel. Some analysts believe that the 64.7% gross margins represents a peak in earnings potential because Intel said those margins would decline through Q4-2010. Those analysts are seeing the glass half empty. Intel is firing on all cylinders, has product shortages in many areas and is facing the biggest PC upgrade cycle since Y2K. So what if the margins decline a point or two? Revenue is likely to expand so rapidly that net profits are still going to explode.

A Deutsche Bank analyst laughed at the peaking talk saying Intel's Q1 guidance was conservative, chip inventories were lean and demand was improving. Alex Gauna of JMP Securities said the guidance was "nonsensically conservative", which should mean Intel will be able to continue pushing estimates higher throughout the year. Several analysts pointed out that Q1 is normally a period where reality returns from the rapid pace of holiday sales.

I don't buy the "Intel is peaking" concept making the rounds on Friday and I don't believe it had any significant impact on the Friday selling. Intel peaking does not cause 4% losses in the materials sector. A peaking Intel does not cause the Dow transports to lose 50 points when oil and gasoline prices are crashing. This was purely a sell the news event that was long overdue.

Intel Chart

The JP Morgan earnings were more problematic given the concern over potential bank losses on weak consumer and commercial loans. The banking sector had been trending down for about two months since the October highs due to loan concerns and dilution issues. On January 4th the sector exploded as new money came into the market and the Banking Index added about 15% in a little over a week. With JPM the first big bank to report the pressure was on to post strong earnings and good guidance.

JP Morgan is seen as a very well managed company and a strong bank. They said all along they did not need the TARP money and lobbied to give it back at the earliest possible moment. JPM posted earnings of $3.3 billion in Q4 and $11.7 billion for the full year. When you think back at what has happened to the banking sector in the last 15 months I think this is amazing and shows what a strong bank it is. However, even strong banks making good loans are at the mercy of the economy.

Chase Card Services lost $2.33 billion for all of 2009 and is unlikely to turn a profit this year. Chase retail services made only $97 million for 2009 after posting a $399 million loss in Q4. Chase agreed to temporarily modify about 600,000 mortgages and 89,000 have been made permanent. Still, the bank made $3.3 billion for the quarter.

What roiled the markets was a warning from CEO Jamie Diamon that he remained cautious about 2010 considering the job and housing markets continued to be weak. "We don't have much visibility beyond the middle of this year and much will depend on how the economy behaves." He also said the economy was still too fragile to declare the worst was over, though he hoped conditions would stabilize by midyear.

JPM set aside another $1.9 billion for consumer loan loss reserves but that was less than in prior quarters. JPM now has more than $32.5 billion in loan loss reserves and more than adequate for anything short of a global meltdown.

JPM Chart

The JP Morgan news riled the markets because they wanted to hear that the worst was over and crown Jamie Diamon as king of the recovery. To find out that the king of banking has no clue to the economy and the fate of the financial sector was an unthinkable course of events. If our hero Jamie doesn't know then lesser banks could still be in trouble. It was a depressing letdown for those in the financial sector. On a side note the FDIC closed three more banks on Friday.

Jamie Diamon was the only major bank CEO to speak out against President Obama's new $120 billion tax on banks. He was openly hostile that the successful banks that weathered the storm be taxed to pay back sums for other companies like AIG and GM that remain on government support. JPM would end up paying about $2 billion a year in TARP taxes as would Bank America and Citigroup. Goldman Sachs would get off light at $1.18 billion a year and Morgan Stanley $1 billion.

Bank analyst Richard Bove wrote in a note to investors on Friday "In the tradition of Hugo Chavez, the Obama administration wants to tax the rich and dishonest bankers to pay for the problems throughout the American economy, notably the losses in the automobile industry. Even though the auto companies might have been accused of being greater offenders in creating the financial crisis than the banks, the banks are labeled the villains and must be taxed to pay the funds used to bail out their competitors. This is pure Chavez reasoning."

Since GM, FNM and FRE are exempt from the tax the administration is basically rewarding the losers and penalizing the winners. The timing of the bank tax announcement was perfect. It was announced only a couple days before the big banks announced their bonus payments. Perfect timing to garner support from Main Street America and people who don't understand why the average JPM manager makes $378,599 a year. This was an excellent political move ahead of the 2010 elections. It may also explain the very cautious comments by Jamie Diamon about his outlook. Not a good week to be pounding your chest and shouting about how much money your bank made last quarter. Maybe Jamie was smart like a fox to downplay his results and caution that the worst may not be over.

The JPM results on Friday sent up warning flags for next week because next week is bank week in the earnings parade. We get earnings from Citi, MS, WFC, BAC, GS, FITB, BBT and KEY. If JPM is taking such big hits from loan losses then what about the other banks next week. This worry sent the financial sector into a dive and it will probably take some good news from more than one bank to revive interest. That 15% rally in financials since Jan 4th is going to be weighing heavily on the market next week.

On the economic front the Consumer Price Index for December rose +0.1% and less than analysts expected. Inflation is not only low but it is falling and definitely not a risk for the Fed. The core-CPI was also +0.1% for the month and only +1.8% for the entire year. The CPI numbers were distorted by the low prices for gasoline in December. That was before crude rallied from $68 to nearly $84 last week. Energy prices at the retail level fell -4.8% in December.

If there is a risk at present it is the possibility of a deflationary trend with the monthly inflation numbers hovering around zero. The high unemployment and the lack of cash available from home equities is preventing resumption of any demand for products. This was a positive report because it did not give the Fed any reason to consider raising rates.

Consumer Sentiment for January rose slightly to 72.8 from 72.5 in December. Yawn. That is the highest level since September and only a fraction below that 73.5 rebound high. The gains came from the current conditions component (81 from 78) rather than the expectations component as we have seen in the past. Analysts claim sentiment is still being constrained by the lack of jobs and weak housing market. Check back next month and this spike in gasoline prices today will be a factor. I believe we are going to be stuck in this range for several months unless the equity market suddenly breaks out and starts making new highs for several weeks.

Consumer Sentiment Chart

The NY Empire State Manufacturing Index spiked +11 points from to 15.9 in January. The headline number was only one of the major gains. The New Orders component exploded to 20.5 from 2.8 in December. Also note the continued drop in the inventory component. We are still burning though the existing inventory leftover from 2007-2008 and at the rate it is declining there should be a monster rebuild cycle once the economy finds some traction.

Empire Table

Industrial production rose +0.6% in December but it was heavily influenced by a +5.9% rise in utility output due to the cold weather. I think that negates the value of this report for December.

The economic calendar for next week is very slim with only the Producer Price Index and the Philly Fed Survey of real interest to the markets. The housing index on Tuesday may also get some airtime.

Economic Calendar

The key to next week is obviously the bank earnings but there are also a handful of tech stocks to keep traders interested. IBM on Tuesday is expected to produce strong earnings and could revive faith in tech stocks. Ebay and Google report on Wed/Thr and will be heavily watched.

As for banks the Citigroup earnings on Tuesday will probably be ignored. They are expected to do badly so any positive surprise could help. The two most watched will be the BAC earnings on Wednesday and GS on Thursday. BAC is expected to earn $3 in 2011 and a PE of only 10 equates to a $30 stock price. I would be a buyer of BAC on a dip to $15. Goldman is expected to beat the street and nobody is worried about them missing or guiding lower. The guesswork on Goldman is how much better will their earnings be?

The earnings calendar is also skinny with the tidal wave of reports coming the following with companies like Apple and Microsoft.

Earnings Calendar

Despite the credit card losses at JP Morgan, four out of six companies reporting card activity for December said charge-offs declined. JP Morgan, the largest issuer of Visa branded cards, said charge-offs fell to 7.11% from 8.81% in November. Citi, the largest Mastercard issuer, said charge-offs dropped to 9.56% from 10.29%. American Express, the largest card issuer by purchase volume, said charge-offs fell for the seventh straight month to 7.1% from 7.6%. Discover fell to 8.68% from 8.98% while Capital One saw charge-offs that rose to 10.14% from 9.6%.

Bank America was the black sheep posting rising charge-off rates of 13.53%, up from 13.0% in November. Bank America inherited quite a few of its bad loan problems from the flurry of acquisitions of failing subprime lenders over the last two years. However, they are on the right track because delinquency rates fell to 7.44% from 7.69%. Capital One delinquency rates fell to 7.44% from 7.69% but American Express was the clear winner with only 3.7% delinquencies, down from 3.9%. Obviously being more selective about how you issue cards and keeping those cardholders on a short 30-day leash has its benefits.

In the fertilizer sector CF Industries (CF) pulled its offer off the table for Terra Industries (TRA). CF said the deal no longer made sense due to the rise in valuations in the sector. Now CF is in the hot seat because Agrium (AGU) has a long standing hostile offer outstanding for CF at roughly $110 per share. CF closed at $95.43 on Friday. CF made the bid for TRA in defense of the bid on CF by AGU. Now that CF no longer has an outstanding offer confusing their value it is Agrium's turn to make a play. Do they raise the offer on CF in hopes of getting frustrated shareholders to dump the CF shares? Do they go after TRA themselves as a consolation prize? It should be interesting to see who blinks first. Agrium shares fell on the news because investors are worried they will do something stupid to force the hostile CF bid.

Barclays upgraded the sector on Thursday and RBC raised POT to a buy on Friday.

The chip stocks looked more like crumbs at the bottom of a party bowl on Friday than a robust sector leading techs out of the winter darkness. Declines of -4% or more were common as funds took profits from the +26% rally since November 1st. For example AMAT -4.3%, KLAC -4.7%, SNDK -5.4%. The SOX has support at 335 so there could still be some downside on Tuesday. A break of support at 335 targets next support at 305. That would be a buying opportunity for me. The chip sector is on a roll and a real correction in prices to anything under 320 would be a bullish opportunity.

Semiconductor Index Chart

The next biggest earnings report could be Microsoft due to the successful ramp of the Windows 7 operating system. Netbooks and cheap laptops are flying off dealer shelves and the corporate upgrade cycle has finally kicked into gear. I could see Microsoft posting some really good numbers and raising guidance. They will try to downplay guidance simply because that is what companies do when they try to under promise and over deliver.

Microsoft is struggling with resistance at $31 but was only down a dime on Friday. That suggests there are quite a few people who expect Microsoft to do well. I just hope the bank earnings next week are good enough to keep traders bullish about the market in general so that Microsoft is not fighting a negative tape when they report on Thursday the 28th. Their earnings will signal the end of the major reports and could be the next turning point in the market.

Microsoft Chart

Oil prices fell to close at $78 after trading at $83.95 earlier in the week. We closed the first trade in the OilSlick.com newsletter for a $1,250 profit when oil hit that $78 level. Subscribers already covered their subscription price for the entire year and made nearly $1,000 to boot.

Crude prices were driven lower by the warmer weather, falling demand, rising dollar and rising inventory levels ahead of futures expiration next Wednesday. If the historical cycles persist we could see oil lower next week and make a great entry point for our next plays.

Crude Oil Chart

Friday was option expiration and a major once a year event. This was LEAP expiration Friday. Options that have been in force for up to two years needed to be squared away. This causes a strong bout of extra volatility. This is especially true then there has been a major move in the markets. Every call leap written since March was probably deeply in the money and this caused a bigger than usual bout of volatility that will likely carry over into Tuesday as stock from those in the money calls moves into investor accounts.

If you bought a $60 leap call on Goldman Sachs back during the crash then you had to decide last week if you wanted to sell the leap or exercise it and own GS ($165) for $60 plus your $5 leap cost. If you think Goldman is going higher then you exercised the leap. Otherwise you sold the leap and pocketed your profits.

If you wrote the leap as a covered call a year ago then you had to decide to either let your GS stock be called away or buy back the leap for $100 and keep the stock. Either way the uncertainty going into Friday was strong and there was lots of activity.

Over 9 billion shares traded on Friday with 7.3 million in down volume. It was the heaviest volume day since December 18th.

The Dow dropped nearly 150 points at the open and exactly to support. After holding there for several hours we saw a rebound at the close to end down -101 points. The intraday high on Thursday was 10,723 and the close at 10,710. This is exactly the resistance from June/July 2006. I know that is a long time ago but old support/resistance levels never die. They fade out of recent memory but they are still there. I rarely remove support/resistance lines from my personal charts and I am always amazed when a stock or index returns to honor those levels sometimes years later.

The Dow has two patterns today. One is a megaphone pattern and the other a telescope pattern. I did not make these up, they are real patterns or basically different types of bearish wedges. In the first chart the time frame is weekly and shows the ascending wedge dating back to the March lows. The range is becoming progressively smaller and the Dow developed a new complication when it hit the 2006 resistance this week. The path of least resistance is sideways with a break out of the pattern.

We have see breaks of the bottom line more than once on the S&P on the way to where it is today. The Dow has remained in the wedge. In the second chart is the megaphone pattern, which according to Colin Twiggs, is more reliable than the telescoping wedge.

If we believe that then a break to the downside in the first chart (dash line in second chart) is not a cause for alarm. That would setup a potential bullish retest of 10,250. A failure there would take the Dow below the bottom support line on the second chart. That would be exceedingly bearish and according to Colin would target Dow 9,000.

This is where Colin and I part ways. I could easily see the Dow move sideways to down from here but support at 10,250 should hold UNLESS we are heading into a real correction. A dip to 10,250 is just profit taking and portfolio reshuffling. A dip below 10,250 is something entirely different and would be a major change in market sentiment.

Dow Ascending Wedge (Telescope)

Dow Ascending Wedge (Megaphone)

I was looking for a short-term correction a week ago that never appeared. I think Friday's dip was a combination of profit taking, portfolio reshuffling and option expiration. Is it the start of a correction? You can't really determine much from a one-day move that stops on support. If you look at all the red candles on the chart above you see that 100-point dips are pretty common and since November 1st they have been mostly one-day events. Eventually that will change but we still have two weeks of important earnings to keep some excitement in the market. After the Fed meeting on the 26/27th and Microsoft earnings on the 28th then all bets are off.

The S&P is also respecting the uptrend support but is over extended even after the Friday selling. The 6-week sideways consolidation provided a good base for the new-year rally but the index funds are no longer buying because the year-end retirement cash has dried up.

If we have another day or two of selling we could retest 1115 and that is strong support, which should hold unless we are entering a real correction. Support at 1085 would be the fallback position and the bottom of the rising megaphone wedge. A break under 1085 would likely mean we are going significantly lower. I am not expecting this kind of selling pressure until after the 28th. It can still appear but the 28th is the logical date for the earnings excitement to begin fading.

SPX Chart

The Nasdaq broke out of a bearish ascending wedge in late December and ran for +120 points in about eight days. It is very over extended but is consolidating at the highs and showing no indications of weakness despite the -28 point decline on Friday. Resistance appears to be 2320 and initial support 2280. With most of the major tech stocks, including IBM, reporting over the next two weeks I would be very surprised to see a continued decline.

The Nasdaq can remain in a sideways consolidation for several more days before breaking the pattern and 2250 should be interim support. I do believe the pattern will be broken on the Nasdaq but I also believe we are not facing a period of continued selling just yet. I think the consolidation will continue as we await the earnings from the major techs. However, if Friday was the beginning of a new correction then no pattern will be relative here.

Nasdaq Chart

Nasdaq 100 Chart

The Russell fell out of its initial uptrend wedge back in October and reformed once support appeared. After consolidating higher in November a new rally began in late December. That rally initially failed at the downtrend resistance from 2008 then once through that resistance it has been using it as support. The downtrend support, uptrend support and horizontal support from October is converging at 623-625 and should provide a strong rebound point from limited selling over the next couple days. If 623 breaks I believe we could test 570 although 600 is also a decent resting place. A break below 570 would be a change in trend but a hold over 600 would retain the bullish bias.

Russell chart

Morgan Stanley Commodity Index

I am pretty sure you understand my outlook by now. I believe Friday's dip was profit taking accelerated by option expiration and the negative comments from Jamie Diamon. I don't think it will last BUT we are overdue for a decent correction. Logically that selling should wait until after the major earnings reports between now and January 28th. After the 28th the path of least resistance may be down. I believe that will be temporary but it depends on the news between now and then.

If the earnings continue to exceed estimates and the Fed does nothing on the 27th then the rally could continue but probably not in a straight line. I think we are entering a period where the bulls will need to be cautious and where we should begin expecting more than a 3-5% dip. This is normal and not a statement on the economy. If the economic news turns bad then it may hasten the decline. If the economic news begins to improve then the decline should be limited to basic profit taking. This is more random musings than a hard prediction but even in a raging bull market we always need to be aware that a correction could appear at any moment. I just believe we are moving closer to that moment every day. I will welcome it as a buying opportunity.

Jim Brown


New Plays

Small Caps Surging

by Jim Brown

Click here to email Jim Brown


NEW BULLISH Plays

North American Palladium - PAL - close: 4.47 change: -0.13 stop: 3.85

Why We Like It:
Palladium and platinum are part of a group of metals called Platinum Group Metals or PGMs. Collectively they are six times more scarce than gold. There are fewer miners and production peaked several years ago. However, the demand for PGMs continues to rise with palladium and platinum demand exploding because of use in electronics and catalytic converters. The net annual surplus of these metals is around 60,000 ounces.

In the U.S. a new ETF begin trading on Jan-8th on platinum (PPLT) and on palladium (PALL). Following the success of the silver and gold ETFs analysts believe the new PPLT/PALL ETFs could end up holding 500,000 ounces each by year-end or shortly thereafter. In only the first week of trading both have acquired nearly 100,000 ounces each. (PPLT 89,948 oz, PALL 99,077 oz) If demand continues to increase for the ETFs the demand for the actual metal may exceed existing surplus supply and create a short squeeze.

The impact to the stock price for the miners has already been huge based on the pre-release hype but now there is actual demand rather than expected demand. North American Palladium is in the sweet spot and the stock is relatively cheap, much cheaper than the ETFs. If demand for the PGMs continues the price of the actual metal will climb as well as the miners.

Our first target is $7.00.

Annotated chart:

Entry on   January 19 at $4.47 
Change since picked:     + 0.00   			
Earnings Date          Mid February (no date available)   
Average Daily Volume:      1.4 million 
Listed on   January 17, 2009    


CVR Energy - CVI - close: 8.03 change: +0.23 stop: 7.50

Why We Like It:
CVR Energy is battling back from a severe case of depression after being knocked back from $13.85 in October to $6.50 in December. The company owns a 115,000 bpd refinery in Coffeyville Kansas, operates a crude oil gathering system in five states, an asphalt business and an ammonium nitrate fertilizer business in Coffeyville. This is a small cap stock that was crushed after an unexpected outage at the refinery in October.

While they were down for the extended outage they also added some significant improvements. There was also a $3.9 million charge in Q3 for a termination of a swap agreement.

All those problems are in the past and hopefully CVR is poised to breakout over resistance at $8 next week. CVR was up the last three days while oil prices were crashing.

Our first target is $12.50.

Annotated chart:

Entry on:  Not yet entered - entry trigger $8.20 
Change since picked:     + 0.00   			
Earnings Date          February (no date available)   
Average Daily Volume:      411,000 
Listed on   January 17, 2009    


In Play Updates and Reviews

Stocks Retreat Into the Weekend

by James Brown

Click here to email James Brown

The markets suffered some profit taking on Friday but losses were generally mild.


BULLISH Play Updates

Cisco Systems Inc. - CSCO - close: 24.40 change: -0.55 stop: 23.95

Uh-oh! CSCO broke out to new highs on Thursday only to reverse on us Friday with a 2.2% decline. Technically the move on Friday is a bearish engulfing candlestick (reversal) pattern. Now normally these reversals need to see confirmation first but it's still a warning sign for us! CSCO should have support near bottom of its short-term trading range at $24.00. Aggressive and nimble traders could try and jump in on a dip or a bounce near $24.00. At this point I'd rather wait for a new relative high over $25.10.

Our first target to take profits is at $27.40. The goal is a little optimistic since we plan to exit ahead of the early February earnings report. We want to keep our positions small to reduce risk.

Annotated chart:

Entry on   January 14 at $25.05 
Change since picked:     - 0.65 (small positions)   
Earnings Date          02/03/10 (confirmed)         
Average Daily Volume:        34 million      
Listed on   January 09, 2009    


CSX Corp. - CSX - close: 50.04 change: -0.51 stop: 49.45 *new*

CSX broke down under round-number support a $50.00 on an intraday basis but managed to recover before the closing bell. The stock found some temporary support at the rising 30-dma. The week-long correction in the railroad stocks is frustrating but it's probably healthy for the longer-run and eliminates any overbought conditions. While I see this dip near $50.00 as a new entry point to buy the stock we are out of time. The markets are closed on Monday and CSX reports earnings on January 19th after the closing bell. We will plan to exit on the 19th at the close to avoid holding over the earnings report. I'm raising our stop loss to $49.45, just under Friday's low.

Annotated chart:

Entry on   January 12 at $50.71 
Change since picked:     - 0.67   			
Earnings Date          01/19/10 (confirmed)    
Average Daily Volume:       2.6 million 
Listed on   January 12, 2009    


Diana Shipping Inc. - DSX - close: 16.09 change: +0.04 stop: 14.95

DSX continues to churn sideways in the $15.75-16.50 zone. Short-term technicals are mixed due to lack of movement. I am still suggesting that readers wait for a dip or a bounce near $15.50 before initiating new positions. This sector and this stock can be volatile. I do consider this an aggressive, higher-risk trade. We want to keep positions small. Our first target is $17.90.

Annotated chart:

Entry on   January 09 at $16.44 /gap higher entry
Change since picked:     - 0.35 (small positions)
Earnings Date          02/18/10 (unconfirmed)    
Average Daily Volume:       1.5 million       
Listed on   January 09, 2009    


Fifth Third Bancorp - FITB - close: 11.36 change: -0.41 stop: 10.49

It was a painful session for the banks. Investors were disappointed with JPM's earnings report. The company beat earnings but revenues missed and JPM had significantly raised their loan loss reserves. That's generally bad news for the rest of the industry. Shares of FITB spiked lower Friday morning but managed to pare its losses by the closing bell. I would look for a dip or a bounce closer to $11.00 as a new bullish entry point. More conservative traders may want to tighten their stops toward $11.00.

Our plan was to use small positions on FITB. This is going to be a very short-term trade. We'll plan to exit ahead of the January 21st earnings report just to be safe. Our first target is $13.00.

Annotated chart:

Entry on   January 13 at $11.43 (small positions)/gap down entry
Change since picked:     - 0.07   			
Earnings Date          01/21/10 (confirmed)    
Average Daily Volume:      12.7 million 
Listed on   January 09, 2009    


Home Depot - HD - close: 28.57 change: +0.27 stop: 27.80

Dow-component HD displayed some relative strength. Traders bought the dip at $28.00 and its 50-dma on Friday morning and they jumped in again to buy the dip Friday afternoon. Volume was above average, which is encouraging but I remain very cautious here. HD still has a two-week trend of lower highs to worry about. I'm not suggesting new positions at this time.

Our first target is $30.60. Our second target is $32.45. We'll plan to exit ahead of the February earnings report. FYI: The P&F chart is very bullish with a $44 target.

Annotated chart:

Entry on  December 14 at $28.82 *gap higher entry 
Change since picked:     - 0.25   			 
Earnings Date          02/23/10 (unconfirmed)     
Average Daily Volume:      15.7 million      
Listed on  December 12, 2009    


Hologic Inc. - HOLX - close: 15.37 change: +0.06 stop: 14.40

HOLX also displayed some relative strength and added 0.4%. The stock's rally stalled near its 100-dma. Volume was close to double the norm, which is a positive sign considering the gain. I would still consider new bullish positions on dips near $15.10-15.00. More conservative traders may want to consider a slightly tighter stop near $14.75ish. I'm leaving our stop at $14.40. Our first target is $16.45. Watch the 100-dma as potential resistance. I would keep positions small.

Annotated chart:

Entry on   January 13 at $15.15   (small positions)
Change since picked:     + 0.22   			  
Earnings Date          02/01/10 (unconfirmed)      
Average Daily Volume:       2.7 million      
Listed on   January 04, 2009    


Potlatch Corp. - PCH - close: 32.10 change: -0.17 stop: 31.49

There is little change in shares of PCH. The stock remains in its $31.75-33.00 trading range. If you were looking for an entry point this dip toward support at the bottom of the range could work for you but I would use a very tight stop loss. Our first target to take profits is at $33.60. Our second target is $35.75.

Annotated chart:

Entry on  November 16 at $30.30 
Change since picked:     + 1.80 
Earnings Date          02/11/10 (unconfirmed) 
Average Daily Volume:       503 thousand     
Listed on  November 11, 2009    


Renolds American - RAI - close: 53.81 change: -0.21 stop: 52.45

RAI briefly tagged a new 52-week high before paring its gains and closing in the red. Shares remain in their sideways trading range. I'll repeat my comments from Thursday. If shares can truly breakout past $54.00 it could herald a new leg higher. We're planning to exit at $55.90 but more aggressive traders could aim higher.

Annotated chart:

Entry on  November 14 at $50.32  
Change since picked:     + 3.49  
                       /sell half @ 53.15 (+5.6%) 
Earnings Date          02/11/10 (unconfirmed)     
Average Daily Volume:       1.6 million      
Listed on  November 14, 2009    


Starbucks Corp. - SBUX - close: 23.27 change: -0.28 stop: 22.25 *new*

Shares of SBUX didn't make much progress on Friday. The stock opened higher but spent the rest of the day consolidating lower. SBUX reports earnings on January 20th so that doesn't give us much time. I am raising our stop loss to breakeven at $22.25. I'm not suggesting new positions. We plan to exit ahead of the earnings report. Our target to exit is $24.90.

Annotated chart:

Entry on  December 10 at $22.25   
Change since picked:     + 1.02   
Earnings Date          01/20/10 (confirmed) 
Average Daily Volume:      10.9 million    
Listed on  November 30, 2009    


Sigma Designs - SIGM - close: 11.35 change: -0.21 stop: 10.95

Our play on SIGM has been triggered. As expected the stock continued to correct lower and shares hit $11.25 dipping near its 40 and 50-dma. Our trigger to buy shares of SIGM was hit at $11.30 so the play is now open. Cautious traders will want to wait for a bounce first. Look for a move back above $11.50 before initiating new trades. The plan was to use small positions to keep our risk down. Our first target to take profits is at $12.95.

Annotated chart:

Entry on   January 15 at $11.30 
Change since picked:     + 0.05   			  
Earnings Date          03/04/10 (unconfirmed)      
Average Daily Volume:       392 thousand  
Listed on   January 09, 2009    


Seagate Technology - STX - close: 17.77 change: -0.57 stop: 17.45

Shares of STX hit support near $17.50 for the fourth time in three weeks. This time support was underpinned by the rising 30-dma. On a short-term basis the rally in STX looks like it's in trouble. More conservative traders may want to exit early. I am not suggesting new positions at this time. STX is due to report earnings on January 20th after the closing bell. We plan to exit ahead of the earnings report. Our target to exit is $19.75. The plan was to keep positions small to limit our risk.

Annotated chart:

Entry on  December 19 at $17.83 /gap open higher (small positions)
Change since picked:     - 0.06  			     
Earnings Date          01/20/10 (confirmed)        
Average Daily Volume:       8.2 million     
Listed on  December 19, 2009    


Vishay Intertechnology - VSH - close: 8.77 change: -0.32 stop: 8.20

It was a painful session for VSH. Traders were taking profits ahead of the long weekend and VSH gave up 3.5% erasing the two-day bounce. The overall bullish trend remains unchanged. Readers could use this dip as a new entry point but if you're patient we might get a better entry point on a dip near $8.60-8.50 before the stock rebounds. More conservative traders may want to up their stops toward $8.50ish. Our target is $9.95. The plan was to keep positions small to limit our risk.

Annotated chart:

Entry on   January 08 at $ 8.85 (small positions)
Change since picked:     - 0.08   			
Earnings Date          02/09/10 (unconfirmed)    
Average Daily Volume:       1.1 million 
Listed on   January 05, 2009    


Wright Express Corp. - WXS - close: 32.82 change: -0.18 stop: 30.95

WXS held up reasonably well. Shares only lost 0.5% on Friday. The trend is still bullish. Traders can choose to wait for another dip near $32.00 or wait for a new relative high over $33.40 for their next entry point.

Our first target is $35.90. I'm setting a longer-term target at $39.50 but we want to sell the majority of our position at $35.90. We will plan to exit ahead of the February earnings report.

Annotated chart:

Entry on  December 21 at $32.30   
Change since picked:     + 0.52   
Earnings Date          02/10/10 (unconfirmed)
Average Daily Volume:       209 thousand   
Listed on  December 19, 2009    


BEARISH Play Updates

Best Buy - BBY - close: 38.93 change: -0.42 stop: 41.26

Shares of BBY continue to underperform. The stock lost another 1% and closed near multi-week lows. However, the stock is also very close to technical support at the rising 200-dma. I've been warning readers to expect a bounce at the 200-dma. Just wait for the bounce to roll over in the $40-41 zone and then we can reconsider new bearish positions. Alternatively you can wait for a breakdown under the 200-dma near $38.45 as our next entry point. Our first target is $35.25.

Annotated chart:

Entry on   January 12 at $38.95 (small positions)
Change since picked:     - 0.02   			
Earnings Date          03/25/10 (unconfirmed)    
Average Daily Volume:       8.0 million      
Listed on   January 02, 2009    


CLOSED BULLISH PLAYS

Sonoco Products - SON - close: 29.72 change: -0.36 stop: 29.20

I am giving up on SON. Shares broke some short-term support levels. Longer-term the trend is still up and I would keep it on your watch list but I'm suggesting we exit early and close our current trade.

chart:

Entry on  December 26 at $30.31    
Change since picked:     - 0.59 (small positions) closed early (-1.9%)
Earnings Date          02/04/10 (unconfirmed)     
Average Daily Volume:       343 thousand    
Listed on  December 26, 2009