Option Investor
Newsletter

Daily Newsletter, Saturday, 10/23/2010

Table of Contents

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

Market Wrap

Holding Pattern

by Jim Brown

Click here to email Jim Brown

One third of the earnings cycle is behind us and the markets are dropping into a holding pattern with only a week to go before the FOMC meeting and the elections.

Market Statistics

Maybe I should have titled this commentary "The day volatility died" because the VIX closed at the low for the week. There has only been one day with a lower print since early May. The reason was simple. With the elections, the FOMC meeting and the year-end for mutual funds only a week away most traders have already placed their bets and they are going to watch the fireworks safely from the sidelines for the next week. The G20 meeting this weekend was also a damper on the market with currency discussions on the schedule. The dollar was flat and everyone was holding their breath over the potential for some big currency move. This convergence of events caused the Dow to trade in its narrowest range of the last six months with only a 50 point spread.

The economic calendar was light for Friday with Regional Employment and Mass Layoffs the only reports. The regional payroll report showed that 34 states lost jobs in September. On the positive side 23 states reported a lower unemployment rate. The rate can go down even when the state lost jobs if enough people ran out of employment benefits and fell off the rolls.

This is a lagging report but still notable because of the sharp decline in government employment due to the end of stimulus funding. Even with the declines the report showed a slight improvement in the overall labor picture.

The Mass Layoff report showed the number of layoff events declined for the third consecutive month. They fell from 1,546 in August to 1,486 in September. The number of workers affected fell from 150,192 in August to 133,379 in September. Manufacturing still accounted for more than 25% of the layoffs. The slowing of layoffs suggests the economy is growing but still at a very slow pace. Consumers are still using their income to pay down debt rather than pay for consumer goods. Until that changes the manufacturing sector will continue to lag.

Next week's economic calendar is active with multiple housing reports, Fed surveys and the GDP on Friday. The GDP will be the most important report for the week and our first look at Q3. Estimates have risen slightly over the last month but the whisper numbers are still in the 1.6% range. Grass grows faster than that but at least it remains positive growth.

Economic Calendar

The real news moving the market next week will still be the earnings. So far over one third of the S&P has reported and 79% beat the street estimates. Those that beat on revenue slipped to only 65%. On the surface this would appear to be a strong cycle but as we have seen from the many disasters the trading community is destroying any stock that did not have a blowout quarter. Just beating the street by a couple cents with revenue inline is good for a $3-$4 beating in your stock price.

S&P is showing reported earnings for the quarter with an increase of 26.21% over 2009Q3. Of the 158 S&P companies reported 79.1% beat, 7% reported inline and 13.9% missed estimates. Those that beat estimates posted average gains in earnings of 47.4%. Earnings misses averaged a -33.1% miss.

Earnings Calendar

The elephant hidden in that calendar is Microsoft on Thursday after the close. They are the biggest tech stock to report next week. Also important will be 3M, Texas Instruments, Merck and a ton of chip stocks. Networkers HLIT and FFIV will try to uphold the high bar set by Juniper.

We saw some good results last week that lifted individual stocks but there was also a lot of rough guidance. Very few companies were bragging about how good business would be this quarter. Most said as little as possible in hopes nobody noticed.

Winners included Amazon, Schlumberger, NetFlix, McDonalds, Ebay, T. Rowe Price and Citrix Systems. Chipotle (CMG) was the big winner for the week with a +15% ($26) rally on Friday after posting better than expected earnings. Shorts loaded up on Thursday with a $5 intraday drop and they were crushed on Friday. Earnings jumped +40% to $1.52 per share compared to analyst estimates of $1.31. Same store sales rose 11.4%.

CMG also said they had opened 67 new stores this year and were planning another 140+ stores in 2011. I have eaten at CMG several times this year and I don't see it as anything special but in the Denver area there is a Mexican restaurant on every corner. I am worried they are going to follow Boston Chicken and Krispy Kreme into disaster. Those chains thrived until they could not afford to open any additional new stores and the novelty wore off their brand. Boston Chicken disappeared as a public company in a bankruptcy and closed most of its stores and was renamed Boston Market. Krispy Kreme was a rocket ride to fame at $50 and then a roller coaster back down to trade at $1.01 last year. The company quit opening new stores and was forced to buy back those that were unprofitable once the novelty wore off.

The difference is CMG has a boatload of cash and almost no debt. If burrito sales slow down their earnings will drop but they will remain a going concern. I would not buy the stock over $200 but let them do a 4:1 split and I might dip a chip in their guacamole.

Chipotle Chart

Schlumberger (SLB) proved why it is a better investment than Halliburton when they reported earnings on Friday. Income more than doubled on an increase in drilling activity in North America. Earnings only beat by a penny but revenue was up strongly, nearly a billion dollars over Q2. They said oil and gas drilling onshore in the U.S. was growing rapidly but permits in the Gulf were still a problem. SLB said the seismic business was booming as those in the Gulf were using the down time to get a better picture of their prospects. They said business outside the U.S. was mixed with Asia, Russia, the North Sea, West Africa and South Africa was improving but North Africa and the Gulf of Guinea were soft.

Schlumberger Chart

Halliburton said the demand in North America had given them the ability to adjust pricing higher across all their product lines. There appears to be a serious shortage of hydraulic fracturing equipment and drillers are waiting in line for an appointment to fracture their wells. Comstock Resources has 26 wells in the Haynesville Shale that can't be completed because of the limited availability of pressure pumping services. Halliburton estimates that by the end of 2010 there will be as many as 3,000 wells in North America that have been drilled but not completed. There has been a feeding frenzy by drillers to produce wells to anchor leases. Most leases require drilling within a certain period or the driller forfeits the lease. These wells have been drilled but there are only a limited number of fracking crews to complete the wells.

This will continue to pressure the natural gas drilling community. If they can't complete the wells they can't start the cash flow from the gas. They have spent the money to drill the wells but are getting nothing back from their investment. They are continuing to spend money to drill more wells but the purse strings are tightening. As these wells are completed it will add to overall gas production and push prices even lower.

We will see earnings from Conoco Phillips, Chevron and Exxon Mobil next week.

Register for the OilSlick.com newsletter and receive free daily updates and commentary on the energy sector. Register here

On the negative surprise side, furniture maker Leggett & Platt (LEG) posted earnings of 31 cents that missed estimates of 37-cents. The Leggett CEO said "Certain of our key markets, primarily related to residential furnishings, weakened noticeably in the third quarter. As a result sales in Q3 were lower than Q2 and that rarely occurs." They also lowered full year guidance to the lower end of the prior range. LEG shares lost -9% on the news.

The decline in the furniture business in Q3 was directly related to the end of the homebuyer tax credit and the end of the moving cycle for those who took advantage of the credit.

Now that summer is over and the buying season for homes has passed we are seeing some alarming news on pricing. The Clear Capital Home Data Index showed that home prices declined -5.9% over the last two months. The index has a high correlation to the Case-Shiller indexes so the same declines should be shown in Case Shiller over the next two months.

The senior statistician for Clear Capital said home prices are clearly experiencing a dramatic drop from the tax credit induced highs. This decline has wiped out the gains in prices seen from that uptick in sales. This is the same magnitude of drop we saw in March 2009. If this aggressive drop continues through the other indexes we could have a major hit to consumer sentiment over the next month. Hopefully it won't be enough to knock us back into a recession but it won't be pretty.

Bank of America and GMAC plan on restarting foreclosures on Monday. This will dump even more houses into the secondary market during the slow winter sales months. This will guarantee further price declines. There were 102,000 homes foreclosed in September and that was a new record.

Hewlett Packard (HPQ) released its Slate 500 tablet that has an 8.9-inch screen and runs the Windows 7 operating system. HP said the device was targeted at business customers. It can be purchased on the website today and shipments will begin in early November. On the HP website it calls the Slate 500 the "ideal PC for professionals who don't usually work at a traditional desk, yet need to stay productive in a secure, familiar Windows environment." That is obviously a jab at the iPad, which is more like an iPhone on steroids. The tablet comes with Wi-Fi but no cellular capability. It does have a camera front and back to enable video conferencing. The tablet is $799 and will have up to 64GB of storage space. You can expect announcements like this almost weekly for the rest of the year. The tablet war has officially begun.

The FDIC closed seven banks on Friday bringing the total for the year to 139. The largest was $1.6 billion Hillcrest Bank in Overland Park Kansas. The list of all the banks:

Hillcrest Bank, Overland KS
First Bank of Jackonsville FL
Progress Bank of Florida, Tampa
First National Bank of Barnesville GA
Gordon Bank of Gordon GA
First Suburban National, Maywood IL
First Arizona Savings, Scottsdale AZ

The FDIC could not find a buyer for First Arizona and they will shutter the bank and mail checks for the insured deposits on Monday. Florida, Georgia and Illinois have been particularly hard hit by closures this year. Florida has seen 27 banks closed with 16 each for Georgia and Illinois making 42% of all closures in just those three states. Only three banks were closed in 2007, 25 in 2008, 140 in 2009 and 2010 is expected to top 150 with 829 banks currently on the problem bank list.

The G20 meeting is this weekend and that prompted some profit taking in currencies and commodities over the last couple days. China hiked interest rates to avoid having to take the heat about a cheap yuan.

Timothy Geithner became the center of attention based on his comments on Thursday. Geithner said on Thursday that all the major currencies were roughly equal. That brought a storm of criticism but he was just getting started. He circulated a letter to the other finance ministers on Friday telling them to hike the value of their currencies in order to increase the value of their exports on the U.S. market.

The letter was seen as a direct attack on China and warned bluntly of the dangers of seeking "competitive advantage by either weakening their currency or preventing appreciation of undervalued currency." Let's see, just to make sure I understand. The U.S. is on a major quantitative easing program where they create artificial money with the stroke of a pen in order to lower interest rates and devalue the currency. Yet Geithner has the gall to warn other countries about doing the same thing? No wonder his letter created a firestorm of controversy at the meeting.

The Japanese Finance Minister called Geithner "unrealistic" and "difficult." He also warned "strong volatility in currency markets would be harmful to the stability of the global economy and financial system." The BRIC countries were united in their derision of the Geithner letter and said bluntly that the U.S. would not succeed in pressuring other countries to do what the U.S. was not doing itself.

Nothing was expected to result from the G20 meeting but the recent moves in currencies prompted traders to exercise caution and go flat over the weekend. When the meeting closed on Saturday there was "agreement" not to have a currency war. What did you think they would say? They have to be positive and show progress even if it is just a front. The also agreed to accept the Basel III accords when the full G20 meets in November. These rules will force banks to raise their common equity from 2% to 4.5% by 2015 and to 7% by 2019.

One of the closing statements had an interesting tone to it:

South Korean Finance Minister Yoon Jeung-Hyun said the two-day G20 meeting had laid to rest fears of a currency war between "struggling debtors such as the United States" and "exporting powers such as China." Is it my imagination or has the U.S. declined significantly in stature because of our rising debt?

Volatility died on Friday with the VIX closing a two-week low and very close to a five month low. Volume was very low at 5.8 billion shares. The Dow traded in a 50-point range and the S&P a five-point range. That was the smallest range in six months.

The problem is that everything moving the market is already priced into the market. The Fed's potential QE2 program has been telegraphed for the last four weeks with almost daily speeches by some Fed head that referenced the topic. The S&P has gained 50 points since the September 21st FOMC statement and every point over the backs of frustrated bears. As one analyst put it, "We are left begrudging the longs."

The market is convinced the Fed will act at ANY cost to insure economic growth. Analysts believe that $500 billion to $1 trillion of quantitative easing is now priced into the market. Apparently the Fed's goal is to create a wealth effect through higher stock prices. As the dollar devalues stocks go higher and investors will eventually start feeling prosperous again and begin to spend money. It may take many more months but the Fed appears committed to that goal. This is referred to as the Federal Reserve Put. If we know the Fed is not going to let the market go down it is the same as having a put protecting our longs.

I am becoming increasingly worried that the Fed may not be enough in agreement among themselves to follow through on the QE2 program. Several recent Fed speeches have warned that we should not take the Sept-21st statement literally. On the other hand Bernanke has reiterated the concept of further QE in every speech. If by chance the Fed does not follow through in their Nov-3rd statement or offers only a token amount of QE the market may react badly.

Secondly, the market has priced in a Republican sweep on November 2nd. The closer we get to the election the tighter the races are becoming. The election day is now close enough that voters are actually paying attention to the campaign ads and the democrats have a far larger budget than the republicans. By some estimates the DNC and its offshoots have some $250 million to spread around in the last week of the campaign while the republicans are closer to $100 million. With some of the hotly contested races attracting a blizzard of ads for the incumbents the odds of republicans winning some of those seats are shrinking.

How this factors into the market on November 3rd is unknown. The groundswell of republican support is shrinking but they are still expected to control the House. Will that be enough for businesses to breath easier on hopes further government taxes and regulation will be postponed for at least two years? We simply won't know until after the smoke clears but a republican sweep is currently priced into the market.

We know from the Job Openings Labor Turnover Survey (JOLTS) that the number of available jobs is growing. Employers are just not hiring yet. They have created the positions and accepted resumes but are holding off on the hiring decision. Some analysts have said they believe employers are waiting on the outcome of the election. If the outcome appears to be more taxes and regulation employers will retreat back into their protective shell. If the opposite result is seen employers could begin hiring immediately.

Did you know that the public employees union, the American Federation of State, County and Municipal Employees (AFSCME), a 1.6 million member public sector union, has become the biggest spender in the election? AFSCME has contributed $87.5 million to support democratic candidates in the upcoming election.

The market next week could be boring. It will be the last chance for funds to dress up portfolios before their Friday year-end. This is their last chance to take profits or sell losers. In theory they should have already made their year-end moves but you never know.

This entire rally has occurred while money was flowing out of stock mutual funds. That continued last week with money still moving from stocks into bonds and into emerging market funds. Retail investors have zero confidence in the rally and the market. If this trend ever changes and retail investors begin to come back to stocks it could be explosive. This would probably require an uptick in nonfarm payrolls to trigger the reversal of money flow.

Keene has been pulling his hair out trying to understand why the technicals no longer matter. He is only one of millions. Almost the entire analyst community is still in denial over the continued rally. It all boils down to the Fed wanting to create inflation and flooding the economy with cash. That overcomes technical patterns as wave after wave of cash finds a home in stocks. Bernanke wants to make it so painful to be in money markets and bond funds that people will eventually put the money to work. Don't fight the Fed.

This will also be the busiest week for Q3 earnings with Tuesday and Thursday the heaviest days. This should provide plenty of activity for the talking heads on stock TV to discuss. In reality we already know how the cycle will end but we still need to go through the motions.

The S&P climbed a whopping +7 points for the week. That is not exactly a scorching performance but it was another week of gains and another new high over that resistance at 1175. There is resistance at 1195 and again at 1210 and 1228.

I am worried that we will push through to something in the 1225 range over the next two weeks and then hit a sell the news event after the FOMC meeting on Nov-3rd. That would produce a very convincing double top anchored well back in the March 2009 lows. It may take a very strong QE program announcement to keep this from happening because all the news is already old news.

S&P-500 Chart - Daily

S&P-500 Chart - Weekly

The Dow has the same double top potential but in the case of the Dow the strong resistance at 11,200 has already been met. If we move higher to touch that again next week and can't break through then I would be even more worried of a sell the news event the following week that could begin a double top.

If we were to break through 11,200 and hold the gains it would be very bullish. Before I forget it, "don't fight the Fed" definitely applies here. The Fed's goal is to push the markets out to new highs so writing about the technicals and potentially bearish setups is probably a waste of keystrokes.

Dow Chart - Weekly

The Nasdaq chart is extremely ominous with the eight-week vertical spike approaching the Fib resistance at 2520. Like the other indexes this could easily result in a major double top. Even more so on the Nasdaq because many high profile tech stocks have made moves reminiscent of the tech bubble moves in 2000.

For instance Amazon has rallied $65 since July. That is a 50% move. NetFlix is up +$70 for a 70% move. There are others but you get the idea. There are enormous amounts of profit to be captured and you have to sell them to actually bank the profit. We could easily see a sell the news event after the mutual fund year-end on Oct-29th.

That does not mean we won't finish the year higher. If the Fed follows through on its hints we could see the markets a lot higher over the next few months but nothing goes up in a straight line even in raging bull markets.

Obviously a move over 2520 could negate my worries temporarily and would produce some serious short covering.

Nasdaq chart - weekly

The Russell posted no gain last week. There was a complete lack of direction although there were two decent rebounds from support at 690. I believe the Russell has emerged once again as a clear indicator of fund manager sentiment. On the Russell the rally stalled ten days ago at 710 and that has remained solid resistance. If we see a move over that level it would be a bullish signal and it could be explosive. The next major resistance is 740. Likewise a breakdown under 690 would be strongly negative.

Russell Chart -30 Min

Russell Chart - Weekly

The NYSE Composite Index covers more than 2000 NYSE stocks from the giants like XOM to the very small stocks just off the pink sheets. This is a broad market index and it is just a good day away from strong resistance at 7700. To complicate matters the 200-week moving average is converging with that 7700 level. This suggests moving over that resistance could be difficult. The probable scenario is a stall under 7700 until the market picks a direction after Nov-3rd.

NYSE Chart - Weekly

The Dow Transports have been remarkably strong with the price of oil over $80. However, the transports are also showing a possible double top formation if resistance at 4800 remains firm. Transports normally move ahead of the broader markets when investors believe there is a stronger economy ahead.

Dow Transports Chart - Daily

In summary I think the market will be in a holding pattern until November third. All the potentially good news is already priced in. We had the buy the rumor rally and now we are waiting on the sell the news event. I don't see how any news we might get from the elections or the Fed will be so much better that the markets explode higher. The Fed put allows money managers to buy stocks in confidence the market will not go lower but that put will eventually expire.

The Fed has been spiking the punch for two years and now they are telling us they are going to skip the punch and start passing out shots of vodka instead. Like teenagers at a keg party we don't know when to stop drinking and walk away. Why do you think casinos offer free drinks to gamblers? So the alcohol will cloud gamblers judgment and keep them investing in the tables until they are broke.

Eventually we are going to have a terrible hangover when the Fed runs out of booze and the party breaks up but a QE2 announcement on Nov-3rd will insure another year in party mode. If the announcement on the third delays QE2 for any reason, November could be ugly. I believe the Fed understands this and they will do whatever is necessary to create investor wealth and improve consumer sentiment. They have to do this or the U.S. could fall into a long-term depression like Japan's lost decade. For that reason I am still in buy the dip mode until proven wrong. Don't fight the Fed.

Jim Brown

Work spares us from three evils: boredom, vice, and need. - Voltaire


New Plays

Downward Momentum

by Scott Hawes

Click here to email Scott Hawes
Editor's Note:
Good evening. I've got one bearish set-up for you tonight along with two trading ideas below. Continue to stay nimble this week as the volatility is likely to continue. A healthy broader market correction is imminent and when it comes I would use the opportunity to consider launching new bullish positions with tighter stops. SPX 1,150 seems like the most logical target but 1,160 will have to be dealt with first by the bears. If 1,150 is broken then 1,130 should be very solid support. I would view breakouts higher as suspect. Please email me with any questions.

Long WEN (Wendy's/Arby's Group): This is a more speculative play trading just under $5 that has some potential. The company is a takeover candidate and Trian Partners (the top institutional holder at 17.86%) is usually the name mentioned as a potential buyer. Aside from a takeover target, WEN has broken out of resistance on heavy volume. Target a move to the $5.50 to $6.25 area.

Long SFD (Smithfield Foods) - Listed again from last week. The stock is on the verge of breaking higher and looks bullish. A stronger dollar should lead to lower commodity prices and will help stocks like SFD. Technically, the stock is consolidating above its 20-day and 50-day SMA in a bull flag. If the stock breaks out target a move up towards the $17.50 to $18.25 area, which is +6% to +10% higher than current levels.


NEW BEARISH Plays

Leggett & Platt, Inc. - LEG - close 21.01 change -1.98 stop 22.05

Target(s): 19.70, 19.10
Key Support/Resistance Areas: 22.00, 21.70, 21.50, 21.30, 20.55, 19.70, 19.00
Current Gain/Loss: Unopened
Time Frame: 1 to 3 weeks
New Positions: Yes, see trigger

Company Description:
Leggett & Platt, Incorporated is an international manufacturer, which conceives designs and produces a range of engineered components and products found in many homes, offices, retail stores and automobiles. The Company's operations are organized into 19 business units, which are divided into 10 groups under four segments: Residential Furnishings; Commercial Fixtures & Components; Industrial Materials; and Specialized Products. (source: company press release or website)

Why We Like It:
Shareholders of LEG have been taken on a wild ride as of late. After plummeting -24% from its May highs to August lows, the stock went up in a straight line until 10/13, gaining +26% along the way. On Thursday after the bell the stock reported earnings and they were terrible. The company missed earnings, missed revenues, and lowered guidance. The company said that "certain markets primarily related to residential furnishings, weakened noticeably in the third quarter and as a result, third quarter sales were lower than those in the second quarter, which rarely occurs." The stock lost -8% on Friday and I do not believe the selling is done. I suggest we capitalize on the momentum and initiate short positions if LEG trades to $21.46 (above Friday's high and near the 200-day SMA) or breaks below $20.49 (below Friday's low). Conservative traders may want to wait for the break down. All of the moving averages are overhead and I suspect there are still many unhappy investors looking to dump the stock. We'll place a tight initial stop overhead at $22.05.

Trigger: $21.46 or $20.49

Suggested Position: Short LEG stock
Options Traders: BUY the December $20.00 PUT, current ask $0.75

Annotated weekly chart:

Entry on October XX
Earnings Date: More than two months (unconfirmed)
Average Daily Volume: 1.5 million
Listed on October 23, 2010


In Play Updates and Reviews

Churning In a Tight Range

by Scott Hawes

Click here to email Scott Hawes
Current Portfolio:


BULLISH Play Updates

Boyd Gaming - BYD - close 7.99 change +0.30 stop 7.42 *NEW*

Target(s): 8.65, 8.95, 9.20
Key Support/Resistance Areas: 9.60, 9.25, 8.75, 8.00, 7.40
Current Gain/Loss: -2.56%
Time Frame: 1 to 2 weeks
New Positions: Yes

Comments:
10/23: BYD has continued to bounce after finding support at its 20-day SMA and key long term support/resistance level in the $7.40 to $7.60 area. BYD gained almost +4% on Friday. Resistance is at $8.00 and also keep an eye on the 100-day SMA near $8.30. Let's raise the stop to $7.42.

10/20 & 10/21: BYD is finding support at its 20-day SMA and key long support/resistance level in the $7.40 to $7.60 area. This is a logical place to for the stock to make a higher low and head back to at least retest its recent highs. If it does this we can book a decent in the +5% range. I've added a lower target to reflect this strategy. Launching new bullish positions at these levels with a tight stop below makes sense a lot of sense to me.

10/19: BYD looked promising this morning but completely lost it in the afternoon. I suggest we keep our stop in place for now and not panic out of the position. BYD is still above the 20-day and 50-day SMA's and has support near current levels.

Current Position: Long BYD stock, entry was at $8.20

Annotated weekly chart:

Entry on October 14, 2010
Earnings 10/27/10 (unconfirmed)
Average Daily Volume: 1.8 million
Listed on October 9, 2010


Companhia Brasileira de Distribuicao - CBD - cls: 36.31 chg: -0.85 stop: 34.75

Target(s): 39.00
Key Support/Resistance Areas: 35.00, 36.50, 39.00
Current Gain/Loss: -1.20%
Time Frame: 4 to 6 weeks
New Positions: Yes

Comments:
10/23: CBD has been drifting lower since the stock split on Monday. The stock has support near current levels and down to the $35.00 level. I would view dips as buying opportunities.

10/16: (James) Shares of Brazilian grocery food chain CBD appear to be in breakout mode. The Brazilian economy continues to grow and the surging middle class likes to spend. This has pushed CBD toward all-time highs. Now normally I wouldn't list a stock in the $70s as a Premier Investor play. However, CBD will see a 2-for-1 split on Monday morning (Oct. 18th). The stock should open around $38.20. I am suggesting we look to buy CBD on a pull back. Broken resistance near $73.50 (post-split will be $36.75) should be new support. Thus, use a trigger at $36.75 to open bullish positions. We'll use a stop loss at $34.75 since the $70 level (post-split: $35) should be additional support.

If triggered our first target is $39.00 (pre-split $78.00). Our second, longer-term target is $42.00. The inverse (bullish version) head-and-shoulders pattern would suggest a bullish target of $88 (post-split would be $44). The Point & Figure chart is very bullish with a price target of $101.00 (post-split $50.50).

Current Position: Long CBD stock, entry was at $36.75

Annotated weekly chart:

Entry on October 19, 2010
Earnings Date 11/10/10 (unconfirmed)
Average Daily Volume: 545,000
Listed on October 16th, 2010


Hansen Natural Corp. - HANS - close: 51.68 change: +1.39 stop: 44.95

Target(s): 50.00, 52.50,
Key Support/Resistance Areas: 45.00, 47.50, 50.00, etc.
Current Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below for details

Comments:
10/21 & 10/23: We are waiting for our trigger at $48.25. I like the set-up and suggest we remain patient. We could get a pullback in the coming days and using the dips as buying opportunities is the right strategy. I would not chase the stock at current levels. Let's be patient.

10/16: (James) HANS is probably best known for their Monster brand energy drinks. The stock has been a monster in its own right and shares have been a popular momentum trade over the years. Well once again shares of HANS are surging higher. We'd like to hop on board but we don't want to chase it at these levels. I'm suggesting a trigger to buy the stock (or call options) at $48.25 since broken resistance at $48.00 should be new support. I'm suggesting a stop loss at $44.95 but we may want to raise the stop closer to the rising 50-dma (technical support) currently near 46.20.

If triggered at $48.25 our first target is $51.00. Our second target is $52.50. FYI: The point & figure chart is very bullish and is forecasting a long-term target of $78.

Suggested Position: BUY the stock at $48.25

- or -

BUY the November $50.00 calls (on a dip at $48.25).

Annotated weekly chart:

Entry on October xx
Earnings Date 11/04/10 (unconfirmed)
Average Daily Volume: 4.5 million
Listed on October 16, 2010


Itron, Inc - ITRI - close 60.69 change +0.32 stop 58.45

Target(s): 63.00, 64.00, 65.00, 66.00
Key Support/Resistance Areas: 66.00, 64.00, 60.50, 59.00, 57.00
Current Gain/Loss: -0.18%
Time Frame: 1 to 3 weeks
New Positions: Yes

Comments:
10/23: ITRI is struggling at its 20-day and 100-day SMA's. A dip towards the 50-day SMA ($59.00 area) is not out of the question. I continue to view dips as buying opportunities. We are targeting a move back up to its recent highs at $63.00 with incremental $1 moves higher from there, possibly all the way up to $66.00.

10/21: The dip to $59.50 in ITRI was bought today but it still looks like it may be headed for its 50-day SMA near $59.00, which is also a key long term support level. This is a good place to launch new bullish positions.

10/20: I don't see many changes to my comments below. Look for a move back up to $63.00 which is when we will begin to tighten stops and look for a possible break out higher. ITRI may want to test its 50-day SMA which is near $59.00 so we may need to exhibit some patience.

Current Position: Long ITRI stock, entry was at $60.25

Annotated weekly chart:

Entry on October 19, 2010
Earnings 10/27/2010 (unconfirmed)
Average Daily Volume: 412,000
Listed on October 4, 2010


Jeffries Group, Inc - JEF - close 23.83 change -0.32 stop 22.75

Target(s): 25.10, 25.75
Key Support/Resistance Areas: 25.85, 25.25, 24.25, 23.50, 23.00
Current Gain/Loss: -0.58%
Time Frame: 3 to 4 weeks
New Positions: Yes

Comments:
10/23: JEF printed a bearish engulfing candlestick on Friday and I doubt the stock will be able to swim against the current of a broader market correction, should a correction happen. The stock gapped higher on Thursday and then Friday it retraced the gain and closed the gap. The 50-day SMA and prior resistance is just below near $23.50. The stock and price action look good to me but we are likely going to need the market to continue its march higher. For now, I continue to view dips as buying opportunities.

10/19: Investment Banks are beginning to trade well, especially those that have little risk exposure to mortgage backed securities like many of the money center banks. JEF should do well in this era of corporate advisory services and M&A activity. JEF could even be a takeover candidate themselves. I like JEF to trade higher as long as the stock breaks out above today's highs. Technically, The volume patterns look good and JEF has closed above short term resistance from the past couple of weeks at $23.50 for two consecutive days. I suggest we enter long positions if the stock trades to $23.91 which is above today's highs. Our stop will be $22.75 and our targets are near the September and August highs, which are +5% and +7.5% from our trigger.

Suggested Position: Long JEF stock if it trades to $23.91
Options Traders: Buy December $24.00 CALL, current ask $1.10

Annotated weekly chart:

Entry on October 21, 2010
Earnings Date 1/20/11 (unconfirmed)
Average Daily Volume: 1.1 million
Listed on October 19, 2010


Mylan Inc. - MYL - close: 19.38 change: +0.21 stop: 18.45

Target(s): 19.80, 20.45, 21.00, 22.00
Key Support/Resistance Areas: 18.50, 19.00, 20.00, 20.50
Current Gain/Loss: +0.21%
Time Frame: 4 to 6 weeks
New Positions: Yes, on pullbacks

Comments:
10/23: MYL closed above its 200-day SMA and at a new high not seen since 5/28. Everything looks good here but we need to see follow through. We several targets and will begin to tighten stops as they approach.

10/20 & 10/21: MYL is playing moving average ping pong, bouncing back and forth between the 200-day (above) and rising 20-day (below). The stock is hanging tough and looks bullish. Now we need follow through.

10/18: MYL got hit hard today on news that a preliminary injunction against GlaxoSmithKline and Apotex pertaining to the generic drug Paxil CR was denied in US District Court of New Jersey. After the initial reaction the selling subsided and MYL bounced after the company said they are appealing the decision. Regardless of the outcome, this is a new development and readers should use caution, especially considering the overbought broader market conditions. Our stop is in the right place if MYL breaks lower as this will signal a break in trend.

Note: I do consider this an aggressive trade so keep your positions somewhat smaller. Buy the stock now (or the calls) and target a move to $20.00, $21 and beyond. FYI: The P&F chart is forecasting at $33 target.

Current Position: Long MYL stock, entry was at $19.25
Options Traders: Long November $20.00 calls

Annotated weekly chart:

Entry on October 18, 2010
Earnings Date 10/28/10 (unconfirmed)
Average Daily Volume: 4.5 million
Listed on October 16, 2010


PerkinElmer, Inc - PKI - close 23.43 change +0.18 stop 22.32 *NEW*

Target(s): 23.60, 23.90, 24.40
Key Support/Resistance Areas: 25.40, 24.40, 23.30, 22.50, 22.15
Current Gain/Loss: +1.43%
Time Frame: 1 to 2 weeks
New Positions: Yes

Comments:
10/23: PKI has bounced back nicely after the sell-off early last week. The stock close above a long term support/resistance level of $23.30 and is now dealing with a two month long congestion area (b/w $23.30 and $24.45) from March/April. I've adjusted the targets and suggest readers use strength as an opportunity to exit positions or tighten stops to protect profits. We've moved the stop up to $22.32.

10/21: PKI came within 6 cents of our first target. If the broader market holds up we should have no issues reaching our targets. Our stop is below the 200-day SMA and two support levels.

10/20: We are right back to where we started with PKI and are breakeven on the trade as the stock rebounded nicely today. My comments below remain valid.

Current Position: Long PKI stock, entry was at $23.10

Annotated weekly chart:

Entry on October 12, 2010
Earnings 11/4/10 (unconfirmed)
Average Daily Volume: 1.4 million
Listed on October 11, 2010


TJX Companies - TJX - close 44.86 change +0.00 stop 43.35

Target(s): 46.95, 48.20
Key Support/Resistance Areas: 48.50, 47.00, 45.40, 43.50
Current Gain/Loss: Unopened
Time Frame: 2 to 4 weeks
New Positions: Yes, see entry point below

Comments :
10/21 & 10/23: $45.40 has acted like a brick wall in TJX since late September. If the stock breaks above the high and tight bullish ascending triangle it should move higher quickly. We are playing the breakout with a trigger of $45.52.

10/19: I suggest we play this conservative and keep the set-up in place with a breakout trigger of $45.52. A dip towards $43.75 would catch my eye as another possible bullish entry point.

10/18: TJX has been consolidating above its rising 20-day SMA for the past couple of weeks and is forming an ascending triangle along the way. Resistance is $45.40 and I suggest readers use a breakout to enter long positions. Let's use a trigger of $45.52 and target a move back towards the stock's 52-week highs. Our targets are $46.95 and $48.20 and our stop is $43.35. More nimble traders may want to try to time an entry on a pullback in the $44.50 area.

Suggested Position: Long TJX stock if it trades to $45.52

Annotated weekly chart:

Entry on October xx
Earnings Date 11/16/10 (unconfirmed)
Average Daily Volume: 3 million
Listed on October 18, 2010


BEARISH Play Updates

Pulte Group, Inc - PHM - close 8.23 change +0.15 stop 8.66 *NEW*

Target(s): 7.20, 6.75
Key Support/Resistance Areas: 9.00, 8.00, 7.00, 6.50
Current Gain/Loss: -1.10%
Time Frame: 1 to 3 weeks
New Positions: Yes

Comments:
10/23: PHM is consolidating below all of its moving averages and feel like it is ready to take a nose dive. On the intraday charts the stock is forming symmetrical triangle in that prices are coiling for a break out, which in reality could be higher or lower. I expect it to be lower as we are due for healthy broader market correction. However, I've lowered the stop to $8.66 in case we are wrong. $7.70 is an area readers may want to consider exiting positions or tightening stops if PHM gets there.

10/21: We are short PHM at $8.15. There was a surge at the open but the bounces keep getting smacked down. A break below $7.92 should send this lower in a hurry. My comments below remain the same.

10/20: We are adding a short candidate to the model portfolio to balance our positions a bit. I consider this a more aggressive play so please use small position size. PHM saw some unusual option activity on the put side across various strikes in the November, December and January months. In total, 24,000 contracts traded and 75% of them were bought on the ask. PHM is having problems with their debt and their costs to borrow are rising as their credit spreads widen. I suggest we initiate a small short position now and target a move towards the 2008 lows which are about -10% and -13% lower than current levels. Our initial stop will be above the recent highs. I have provided a weekly chart below.

Note: We will most likely experience some volatility in this trade so please use appropriate position size to manage risk. I also like an option play here so that your risk is better defined.

Suggested Position: Short PHM stock, entry was at $8.15 at current levels Option Traders: Long December $8.00 PUT

Annotated weekly chart:

Entry on October 21, 2010
Earnings Date 10/28/10 (unconfirmed)
Average Daily Volume: 4.5 million
Listed on October 16th, 2010