Option Investor
Newsletter

Daily Newsletter, Saturday, 12/4/2010

Table of Contents

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

Market Wrap

Bulls Ignore Excuse To Sell

by Jim Brown

Click here to email Jim Brown

The bulls ignored the much weaker than expected payroll report and managed to push the markets back into the green before the close.

Market Statistics

The Non-Farm Payroll report on Friday surprised everyone. Unfortunately it was not an upside surprise as most expected. Jobs grew by only 39,000 in November and down from +172,000 in October. The number for October was revised higher to 172,000 from 151,000. September's job losses of -41,000 were revised upward to a loss of only -24,000. The consensus estimate for November was for a gain of +150,000. Moody's was expecting 160,000 and I was expecting closer to 180,000. Everybody was wrong this time around.

The private sector created 50,000 jobs but the public sector cut 11,000 leaving us with a minimal 39,000 gain. Unemployment rose to 9.8% from 9.6% because of workers who had previously dropped off the rolls coming back into the job market. Officially the BLS claims there are 15.1 million people currently unemployed. Those jobless for 27 weeks or longer stood at 6.3 million and 41.9% of the unemployed total. Those underemployed and working part time stood at slightly more than nine million. There were also 2.5 million "marginally" attached to the work force and 1.3 million "discouraged" workers. Those are not included in the unemployment rolls.

In the Household Employment survey the number of jobs rose by +114,000. This is a different survey conducted by the BLS. The Non-Farm Payroll numbers are produced from a survey of businesses. The household survey is produced by asking individual families about the employment status of their members.

Non-Farm Payroll Chart

Other than the payroll report the better than expected economics continued. The ISM Non-Manufacturing report for November rose to a six month high at 55.0 and slightly better than the 54.5 analysts expected. New orders did not increase significantly, gaining only a point to 57.7 but the uptrend stretched to 15 months.

The employment component rose to 52.7 from 50.9 and that was a significant increase. The sharp rise in the employment components from all the regional reports was the cause for the increased expectations in the nonfarm payroll report.

One really positive component was the new export orders, which rose to 59.5 from 55.5. That was the third consecutive month of gains. A negative component was the decline in the prices received component to 63.2 from 68.3. With raw materials prices rising and prices received declining there could be profit troubles ahead for the service sector.

ISM Non-Manufacturing Chart

October Factory Orders declined by -0.9% but still better than the -1.5% decline analysts expected. Orders fell to $420 billion in October. The decline came after an upwardly revised +3% gain in September. The decline in October was led by a -5.2% drop in transportation equipment. That was not surprising after the +16.5% jump in September. Excluding transportation orders the overall number showed only a -0.2% decline.

The Factory Orders report was lackluster at best but it is a lagging report and few investors paid attention. The real focus was still the payroll report.

Last week was a very busy economic calendar but next week has hardly anything worth noting. I believe the Bernanke interview on Sunday's 60 Minutes program is going to be the most important event for the week. Bernanke will attempt to explain why the Fed plans to spend $600 billion on quantitative easing and why it might be necessary for them to spend up to $2 trillion more. Goldman said a couple weeks ago that as much as $4 trillion might be needed but they have since backed off of that number because of the improving economic reports. Will we see QE3 or even QE4? Tune into 60 Minutes and read between the lines because you know Bernanke will not say it directly.

The next bump in the economic road is the FOMC meeting on the following Tuesday. With Bullard, Hoenig and Lacker making the rounds on the speaking circuit with comments critical of QE2 you can bet the FOMC meeting will be eventful.

Economic Calendar

Spain took steps to head off speculators and prevent a run on its debt like the ones that forced Greece, Ireland and Portugal to take loans from the IMF. The government approved new austerity measures and a limited economic stimulus package to ease investor fears. The equity market responded positively to the tax cuts for small businesses, increase in the tobacco tax and cutbacks to a key jobless benefit. Spain also discussed plans to sell 30% ownership in its national lottery. You know they are hurting if they are going to give up ownership in that cash cow.

Spanish and Portuguese stock markets rose for the third consecutive day and reversed severe losses from the prior week. Borrowing costs for EU countries also declined amid speculation the ECB was quietly buying the bonds for the troubles countries to put an artificial floor under the debt.

The markets shook off the weaker than expected jobs report and the strong potential for profit taking after two days of strong gains. This is extremely bullish and even more bullish because the indexes are breaking out to new highs. It appears the November selling is over and the Santa Claus rally has begun.

After Friday's surprise in the payrolls it appears the bad news bulls came back to the market. You would have thought a decrease in new jobs from 172,000 to 39,000 would have been a reason to take profits and find the nearest open bar. Instead the bad news is good news sentiment returned. If the country is growing slower than previously expected then the Fed will continue its QE2 program and possibly implement a new program.

In one of the teaser sound bites for Ben Bernanke's 60 Minutes interview this weekend has him saying the Fed could implement even more stimulus to make sure the economic recovery gains speed. Since the interest rates have gone up despite the QE2 it appears the market is not listening to his pledge to buy $600 billion in treasuries. In order to get the markets attention he may have to take more drastic action thus the teaser comment.

Bernanke is facing a crisis of confidence. He warned QE2 was coming and then announced it would be $600 billion. A tidy sum to be sure. However, instead of rates going down and the dollar shrinking everything went in the opposite direction. Rates went up along with the dollar because of events overseas that just happened to transpire at the same time as QE2. Now Bernanke has to talk even tougher and potentially announce a new stimulus program to get the market focused back on the Fed. Hence the 60 Minutes interview this weekend. The Fed Chief does not normally do interviews so expectations for this one are all over the place. Will it be a puff piece or a hardball in your face interview? Will Bernanke talk about the improving economy or the need for another jolt of the stimulus drug to shrink unemployment?

Whatever the tone of the interview the analysts will all be watching and you can bet his remarks will be dissected all day on Monday.

The Federal Open Markets Committee (FOMC) has been criticized lately as the Federal Open Mouth Committee because of the apparent chaos inside the group. I can't remember when there has ever been such disagreement and public venting of that disagreement. Analysts believe this is also weakening their QE2 efforts. If the Fed is believed to be going through the motions only half-heartedly then the market will not take them serious. That appears to be what is happening now. The market doubts the Fed will complete the $600 billion program because of the dissension in the ranks. The dollar fell another 1.15% on the weaker than expected jobs and the Spanish austerity program. That was a 1.5% drop for the week. The decline in the dollar pushed commodities higher with gold closing the after hours session at $1413. Crude prices rallied again to the highest level since Oct-2008 to close at $89.44. Silver closed at a new 30-year high at $29.14.

Dollar vs Gold Chart

Crude Oil Chart

Bank of America (BAC) has recovered from the initial beating it took when WikiLeaks founder Julian Assange told Forbes it would release thousands of documents related to a U.S. bank that would bring the bank down for good. Through a little research on his claim analysts immediately pinned the label on BAC as the bank in question. Reportedly WikiLeaks had acquired a hard drive from a BAC executive's computer. Since Assange is not above hyping his big reveals the worry over BAC's fate has already faded. His charges on rape and various other sex crimes have him in hiding but he claims he has given copies of all the data in encrypted form and should anything happen to him the passwords will be released by a third party and all the data will immediately go public. That is obviously a plan to protect himself from an assassination attempt. Various governments and agencies are exploring criminal charges for his various leaks and his servers are under constant denial of service attacks. I would not want to be in his shoes today.

Bank of America Chart

Discount dealer Groupon has apparently turned its back on a $6 billion offer from Google. Reportedly the founders of Groupon were hesitant to become part of the global dominance machine and the Google lifestyle. Really I think they just wanted more money and did not want to have Larry Page and Sergey Brin for bosses. Groupon CEO Andrew Mason had the biggest vote as the largest shareholder and he had concerns about the strategic direction the company would take under Google management. Groupon is contemplating an IPO in 2011.

Reportedly the deal had some additional incentives if performance targets were met. Google wants to get into the local advertising markets and they thought Groupon would be an easy way to accomplish that feat. Google has $33 billion in cash so it is not like they are hurting for money. They announced an acquisition of Widevine on Friday. That is the 42nd acquisition for the year.

Comscore announced the Q3 winners in the U.S. cellular handset market on Friday. Of the 234 million Americans age 13 and up, Samsung was the top device maker with a 24.2% share of all mobile subscribers. That was a +1% increase from Q2. LG was number two with 21%. Motorola fell 2 points to 17.7% and RIMM gained slightly to 9.3%. Nokia brought up the rear with 7.1%.

In the smartphone market the breakdown was significantly different. RIMM fell -3.5% to 35.8%. Apple gained nearly a point to 24.6%. Android jumped +6.5% to 23.5% and Microsoft fell 2% to 9.7%. Palm was the also ran candidate with 3.9%. Android is coming on strong thanks to all the different phones using that operating system.

Goldman was pounding the table on the equity markets and commodities on Friday. Goldman issued its forecast for 2011 and it was pretty bullish. They said the U.S. was on the verge of a "very strong recovery." They believe the S&P will end 2011 at 1,450 for a +23% gain. Gold is expected to hit a high of $1,750 but close the year at $1,690. The U.S. GDP is expected to clock in at +2.7% for the full year.

Last year Goldman predicted the S&P would close 2010 at 1250 and they are going to be very close. It was in the 1100 range when they made the prediction. They guessed gold would rise to $1350. It was also in the $1100 range when they released the 2010 predictions. They guessed the GDP for 2010 to be 2.1%. So far in 2010 it was 1.7% in Q2 and 2.5% in Q3 with a YTD average of +2.6%.

Goldman is bullish on technology, energy and financial stocks for 2011. They expect financial earnings to rise +24% in 2011 compared to +12% for the S&P. Goldman expects oil prices to "average" $110 in 2011, up from a prior forecast of $100. The company said, "the stage is set for a return to a structural bull market in oil." Goldman expects a two million barrel per day increase in demand in both 2011 and 2012 and require OPEC to tap the majority of its "reported" 5.64 mbpd of spare capacity. I wrote last week in OilSlick that the "real" spare capacity is probably more in the 3.5 mbpd range. If Goldman's demand predictions are accurate we are going to be in real trouble in about two years.

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

Jeff Saut, Chief Investment Strategist for Raymond James, said last week's rally will continue through year-end. He believes the pros will continue to buy stocks as they attempt to make up for the "worst year of underperformance by active managers" in his 40 years in the business. "Professional money managers are underinvested and underperforming." They are facing "performance risk, bonus risk and ultimately job risk." He recommended buying momentum stocks that have done well and making new highs. These are the stocks managers will want to own at year-end.

When the clock struck midnight on November 30th the market suddenly awakened from its month long nightmare and charged off to new highs. The motivating factors were the apparent bailouts of Ireland, Portugal and positive austerity moves in Spain. The U.S. economics were improving and the U.S. administration was talking about supporting an even bigger bailout program in Europe through the IMF. China's manufacturing was booming and the dollar finally lost its momentum and headed lower with a -1.5% decline for the week.

All of these factors were positive for stocks and another monster short squeeze began. On Tuesday night with the S&P closing on critical support at 1180 for what looked like the preview to Nightmare on Wall Street, I was ready to throw in the towel on my bullish bias. If that support broke I could easily have rationalized a drop back to 1125. Fortunately for the bulls every short with a dollar left had loaded up on positions in anticipation of that impending drop.

They were really surprised on Wednesday morning. Another perfect setup for the shorts had turned into the perfect short squeeze. This time it was different. In a normal short squeeze the market gaps higher and then flat lines for the rest of the day. On Wednesday the S&P gapped open to 1202 and just a hair over strong resistance and then held there for two hours. A buy program appeared and shorts were greeted with another +5 point gain to 1207. Now it was not just a token breakout but now some real points were starting to pile up on the board.

Thursday opened with another gap higher and real fear was beginning to overcome the shorts. Actually it was not just the shorts but everyone who was waiting for a move over 1200 to confirm a breakout. Now the train was leaving the station and everyone wanted to be on it. The market moved steadily higher all day.

When Friday's payroll report surprised so negatively I "knew" it was all over but the crying. The market gapped lower as it should have after two days of very strong gains. I am sure the shorts thought their prayers had been answered but the bad news bulls stampeded into the gap and the initial market drop began to improve almost immediately. Shorts were dumbfounded again when the market did not dive and began to gain strength towards the close.

The S&P gained +44 points in three days and overcame very troubling news on the way. The S&P is now on the verge of a significant breakout over 1228 and a new high for the year. We could easily see that year-end 1250 prediction by Goldman Sachs as a real possibility. Actually a breakout over 1228 could move a lot higher by year-end. This is the proverbial line in the sand that once crossed there should be no turning back.

The bad news bulls are back. The Payroll news did not faze them. The weaker Factory Orders were ignored. The ISM Manufacturing was being whispered at 60 and only came in at 55. Nothing seemed to matter to the bulls.

This lends credence to the quote above from Jeff Saut. Money managers have been in such denial and under performance they are now forced to chase stocks higher before year-end.

Can this continue through Dec-31st? Definitely! Can this bullishness evaporate we quickly as it appeared? Absolutely! However, assuming Bernanke avoids a bad case of foot-in-mouth on Sunday I believe we are going higher.

It will be Bernanke's job on Sunday to talk the market into a froth. He is going to threaten billions more in QE and talk about the improving economy. This is a perfect opportunity for him to pump up the markets and grow that wealth effect he is trying to create. He will be a cheerleader for the economy with a pep rally on the night before the big game. At the 9:30 kickoff on Monday we will know if he was successful.

For Monday the critical number is 1228 on the S&P. The index touched 1227 twice in early November and then fell off the ladder. The high back in April was 1220. That makes a move to 1228 a new high for the year and the highest level since September 22, 2008. This would be a Kodak moment! If Bernanke does his job right on Sunday night we should be well over that level at Monday's open. Initial support is 1217 but critical support is well below at 1175. Let's hope he does not come down with a severe case of foot in mouth disease.

S&P-500 Chart - Daily

S&P-500 Chart - Weekly

The Dow chart looks like it stepped on a tack. The velocity of the spike after two weeks of painful and very volatile consolidation gives the appearance of a very overbought index. However, the Dow consolidated for the entire month of November so the index had some serious pressure to release.

I am not as bullish on the Dow as the S&P but I believe it will follow the S&P higher. Once over the November high of 11,444 it should accelerate on its own and not require the S&P for a power boost. Support is well below at 11,000. I hope we don't have to test that level again in 2010.

Dow Chart - Daily

Dow Chart - Weekly

The Nasdaq bested its intraday high for the year at 2592 by one point on Friday but slipped at the close to just under that level at 2591. I know that is splitting hairs but the bears were struggling to defend that resistance high and they were marginally successful at least on Friday. Friday's close was the highest close since January 3rd 2008. That is a major victory all by itself.

Considering the Nasdaq was hampered by some major losses in some key stocks any gain should be appreciated. NFLX lost -8. Apple, Amazon, Panera, Broadcom, FirstSolar and Ebay were all negative. Those losses were overcome by strong gains in PCLN, UHAL, NILE, DECK, SOHU, BIDU and FFIV.

Like the other indexes I expect the techs to breakout if Bernanke does not make a major mistake on Sunday. Once over the resistance high we should see some short covering and some funds chasing performance in the big cap techs. It could be explosive.

Support is 2520 and resistance 2592.

Nasdaq Chart - Daily

Nasdaq Chart - Weekly

The Russell was the clear leader last week. Actually it has been the leader since that one-day drop to support at 700. The uptrend confounded the skeptics and even last Tuesday's market negativity barely registered on the chart.

If the Russell is in rally mode the other indexes will follow. That truism is as certain as day following night. However, the Russell has some serious resistance at 760 dating back to 2008. A breakout there would really light those rocket engines. Support is so far back at 720 it is not relative.

Russell Chart - Daily

Russell Chart - Weekly

The Dow Transports chart is the most bullish chart I have. This breakout over 2010 highs is confirming the improving economy and the better outlook for 2011. The next material resistance is the all time highs at 5500-5536.

When the transports are moving this strongly the Dow Industrials almost always follow. This breakout is a strong bull signal.

Dow Transports Chart - Daily

Dow Transports Chart - Weekly

In summary I believe the markets will move higher next week. However, it depends on Bernanke's interview and the continuing problems in Europe. You never know when the debt crisis will come back to bite us in the back. However, I think the U.S. economy has suddenly taken a decisive turn higher despite the payroll report. As this uptick in activity is confirmed with the December economic reports I believe the market will celebrate. If Bernanke is successful with QE2 in crushing the dollar the market has no place to go but higher.

Warren Buffett has been quoted many times about the reasons behind the last bull market.

"The great bull market from 1982 to 2000 was due primarily to four things. Those were low interest rates, low inflation, lower taxes and less government intrusion into business."

We have low rates, low inflation, low taxes and we are moving towards lower government intrusion into business. Add to that recipe an accelerating recovery out of the Great Recession and there is no reason to not expect a new bull market.

It is that time of year again. It is time for the End of Year Renewal Special. How much is Option Investor worth to you? At the $499 End of Year Special price ($1.36 per day) only one profitable trade pays for the entire year's subscription. Just one critical point in a market commentary can make you hundreds or even thousands of dollars. Just one warning comment about an impending event could save you thousands.

If just one comment or profitable play can cover the entire cost of the subscription then the other 364 days of the year are free. Renew your subscription today and then keep track of the money you make or save in 2011. I think you will be surprised!

For one low price you will get the following:

Option Investor
Premier Investor
Option Writer
LEAPS Trader
Couch Potato Trader
Top Ten List of ETFs for 2011
Top Ten List of Stocks Under $10 for 2011
Two Option Expiration Calendar Mouse Pads

You get everything listed above for the low price of $1.36 per day!


Don't fight the Fed!

Jim Brown


New Plays

Banking and Technology

by James Brown

Click here to email James Brown

Editor's Note:

There is no shortage of bullish candidates with the stock market in rally mode. Several stocks caught my eye this weekend but most of these need to see some sort of pull back before I would consider new bullish positions. On my watch list is: A, ALEX, JEF, SNDK, PAAS, WY, XLF, DBRN, JRCC.

- James


NEW BULLISH Plays

City National Corp. - CYN - close: 56.74 change: +0.53

Stop Loss: 52.95
Target(s): 58.00, 60.00+
Current Option Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
I am very encouraged by the rebound in the banking sector. Dow Theory suggests we can't have a sustained market rally without participation in the banks. On a short-term basis the group looks a little bit overbought given this past week's surge higher. That's why we want to look for a dip in CYN. Honestly, I'm tempted to buy the stock or buy call options now but the banking indices are due for a little pull back. Focusing on CYN I'm suggesting we use a trigger to open bullish positions at $55.50. We'll start the play with a stop loss at $52.95. Our first target to take profits is $58.00, just under the July-August highs. Our final target will be somewhere in the $60-62 zone. FYI: The Point & Figure chart is bullish with a $68 target.

Trigger @ $55.50

Suggested Position: buy CYN stock @ $55.50

- or -

Buy the 2011 February $60 calls (cyn1119B60) current ask $1.90*

*Caution: most of the option spreads on CYN seem a little too wide. I consider the options a more aggressive trade. You may want to keep your position size small.

Annotated chart:

Entry on December xx at $xx.xx
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 223 thousand
Listed on December 4th, 2010


Trimble Navigation - TRMB - close: 40.03 change: +1.19

Stop Loss: 36.40
Target(s): 41.00, 43.00
Current Option Gain/Loss: unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
TRMB just hit new two-year highs on strong volume. The stock spent most of October and a good portion of November consolidating sideways so it should be rested and ready for another leg higher. If the market continues to climb the tech sector should continue to outperform. TRMB just broke out past resistance near $38.00 and surged to the $40 level. On a short-term basis shares look a little bit overbought. I am suggesting we wait for a dip to $38.50 and then open positions. If triggered we'll use a stop loss at $36.40. Our first target is $41.00. FYI: The Point & Figure chart is bullish with a $65 target for TRMB.

Trigger @ $38.50

Suggested Position: Buy TRMB stock @ $38.50

- or -

Buy the 2011 February $40.00 calls (TRMB1119B40) current ask $2.35

Annotated chart:

Entry on December xx at $xx.xx
Earnings Date 02/02/11 (unconfirmed)
Average Daily Volume: 435 thousand
Listed on December 4th, 2010


In Play Updates and Reviews

Another Round of New Highs

by James Brown

Click here to email James Brown

Editor's Note:
The market extended its gains on Friday with an impressive show of strength, especially following the jobs number. Stocks obviously want to go up but they're starting to look a little bit overbought. I am suggesting we sell our December Citigroup calls.

-James

Current Portfolio:


BULLISH Play Updates

Alcoa Inc - AA - close: 14.23 change: +0.14

Stop Loss: 12.90
Target(s): 14.95, 15.95
Current Option Gain/Loss: + 7.9%
Time Frame: 8 to 10 weeks
New Positions: Yes, but see below

Comments:
12/04 update: AA extended its gains to three days in a row with the stock up four out of the last five sessions. Friday was a new seven-month closing high and volume has been strong on the rally, which is normally a bullish signal. I would not chase new positions here. Wait for a dip back toward the $13.60-13.50 zone. (If we do see another entry point we might consider buying some call options).

Current Position: Long AA stock @ 13.18

chart:

Entry on November 16 at $13.18
Earnings Date 01/10/11 (unconfirmed)
Average Daily Volume: 26.1 million
Listed on November 6th, 2010


Alaska Air Group - ALK - close: 55.89 change: +0.57

Stop Loss: 51.90
Target(s): 59.75
Current Option Gain/Loss: + 1.7%
Time Frame: 8 to 9 weeks
New Positions: Yes, see below

Comments:
12/04 update: The XAL airline index is still sitting out this market rally but it is worth noting that the XAL has been forming a pennant shaped consolidation pattern. These are thought to be neutral patterns but more often than not the prevailing trend (that's upward in this case) continues. When the XAL breaks out higher ALK should participate. Speaking of ALK the stock is inching closer to a breakout past resistance near $56.00. I would prefer to launch new positions on a move (or a close) over $56.00. Nimble traders could try and buy a dip near $55.00 or $54.50 since ALK might retest the bottom last week's range again. More conservative traders might want to consider a stop closer to $54.

FYI: On Friday ALK reported that their November traffic was up +15.5% compared to last year. Planes were 83.9% full for the month.

Current Position: Long ALK stock @ $54.91

- or -

Long the 2011 January $60 calls (symbol: ALK1122A60) entry @ $1.60

chart:

Entry on November 22 at $54.91
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 331 thousand
Listed on November 20th, 2010


American Express - AXP - close: 44.88 change: -0.10

Stop Loss: 41.49
Target(s): 47.50, 49.85
Current Option Gain/Loss: unopened
Time Frame: 10 to 12 weeks
New Positions: Yes, see trigger

Comments:
12/04 update: AXP is our new candidate from Thursday night and I don't see any changes from my earlier comments. Now only have financials been showing strength but AXP has built an inverse H&S pattern. I'm suggesting we launch bullish positions on a dip at $43.50. If triggered we'll use a stop loss at $41.49, under the 200-dma. We will plan on taking profits at $47.50 and at $49.85. Our time frame is several weeks.

Trigger @ $43.50 Suggested Position: Buy AXP stock at $43.50

- or -

Buy the 2011 April $45 calls (AXP1116D45)

chart:

Entry on December xx at $xx.xx
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume: 9.0 million
Listed on December 2nd, 2010


Citigroup Inc - C - close 4.45 change +0.03

Stop Loss: 4.08
Target(s): 4.60, 4.75, 4.95
Current Option Gain/Loss: + 6.9%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
12/04 update: It has been a good week for Citigroup with a +8.5% rally off its lows near $4.10. Please note that I am suggesting we go ahead and exit our December $4.00 calls. December options only have two weeks left and if Citigroup sees any kind of profit taking this position could turn negative on us. Currently the call is bidding $0.42. Our entry point was $0.30.

If you're looking for a new entry point I would wait for a dip toward the $4.25-4.20 zone. If you like trading options I would look at February calls.

Current Position: Long C stock, entry was at $4.16

Closed Option Position:
Options Traders: Long December $4.00 CALL, entry @ 0.30, exit @ 0.42 (+40%)

12/04 Exit the December $4.00 calls (+40%)

chart:

Entry on October 27, 2010
Earnings Date 01/19/11 (unconfirmed)
Average Daily Volume: 523 million
Listed on October 25, 2010


Companhia Brasileira de Distribuicao - CBD - close: 41.77 change: -0.17

Stop Loss: 36.75
Target(s): 44.95, 49.00
Current Option Gain/Loss: + 3.7%
Time Frame: 10 to 12 weeks
New Positions: Yes, see below

Comments:
12/04 update: Friday was another mild session for CBD. Shares spent most of the day inside a 25-cent range. I don't see any changes from my prior comments. If you're looking for an entry point wait for a dip into the $40.50-40.00 zone. More conservative traders may want to consider a stop loss closer to $38.00. We have a wide stop because CBD can be so volatile. Bear in mind this is a higher-risk trade.

Current Position: Long CBD stock @ $40.25

chart:

Entry on November 23 at $40.25
Earnings Date 03/02/11 (unconfirmed)
Average Daily Volume: 608 thousand
Listed on November 20th, 2010


Genuine Parts Co. - GPC - close: 50.06 change: +0.46

Stop Loss: 46.85
Target(s): 51.50
Current Option Gain/Loss: + 3.7%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/04 update: GPC rallied for a third day and shares managed to close above round-number resistance near $50.00. Volume has been very strong on this move, which is encouraging. I am not suggesting new positions at these levels. GPC has significant resistance in the $51.60-51.75 zone. If we see a dip back toward $48.50 then we can look at new positions. Readers may want to buy the call options to leverage this play. FYI: The point & figure chart is bullish with a $52 target.

Current Position: Long GPC stock @ $48.24
- or -
Long the 2011 January $50.00 calls (GPC1122A50) Entry @ $0.40

chart:

Entry on November 29 at $48.24
Earnings Date 02/16/11 (unconfirmed)
Average Daily Volume: 763 thousand
Listed on November 27th, 2010


Hansen Natural Corp. - HANS - close: 52.75 change: -0.19

Stop Loss: 48.95
Target(s): 54.90, 57.45
Current Option Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/04 update: The action in HANS continues to look suspect. Is this just a normal correction? Why is HANS underperforming the rest of the market while the market rallies? The long-term trend for HANS is still very bullish. Currently I'm suggesting we wait for a dip toward the bottom of its rising channel and use a trigger at $51.00 to open positions.

Trigger @ 51.00

Suggested Position: BUY the stock

- or -

BUY the January $55.00 calls (symbol:HANS1122A55)

chart:

Entry on November xx
Earnings Date 11/04/10 (confirmed)
Average Daily Volume: 750 thousand
Listed on October 16, 2010


Lam Research - LRCX - close: 49.22 change: +0.67

Stop Loss: 44.90
Target(s): 48.50, 52.50
Current Option Gain/Loss: + 8.7%
Time Frame: 8 to 10 weeks
New Positions: Yes, see below

Comments:
12/04 update: The SOX semiconductor index broke out past major resistance last week near the 400 level. Yet now the SOX is looking a little bit overextended with a major move from 375 to 412 in just the last three weeks. Odds favor a pull back soon but broken resistance near 400 should be new support for the group. Meanwhile LRCX managed to hit a new two-year high on Friday at $49.44. If the sector pulls back I would look for LRCX toward the $47.50-47.00 zone. I am raising our stop loss to $44.90.

Current Position: Long LRCX stock @ 45.25
- or -
Current Position: Long the 2011 January $45 calls (LRCX1122A45) Entry @ $2.85

12/04 New stop loss @ $44.90
12/02 Target hit @ $48.50, LRCX +7.2%, option @ $4.55 (+59.5%)

chart:

Entry on November 30 at $45.25
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 4.5 million
Listed on November 18th, 2010


Microsoft Corp. - MSFT - close: 27.02 change: +0.13

Stop Loss: 24.70
Target(s): 27.45, 29.00
Current Option Gain/Loss: + 5.7%
Time Frame: 8 to 10 weeks
New Positions: Yes, see below

Comments:
12/04 update: MSFT has turned in a very strong performance with a +8% rally off its support near $25.00. The $27.00-27.50 zone is overhead resistance for MSFT so I would expect some profit taking soon. We can look for support and a new entry point to buy the dip on a pull back into the $26.00-25.50 area. Cautious traders may want to go ahead and take some money off the table with their January calls (currently bidding $2.26 +62%). Officially, our first target to take profits is at $27.45.
FYI: We may need to adjust our time frame and focus on three or four months for MSFT to pay off. If you're buying calls, keep that in mind.

Current Position: Long MSFT stock @ 25.55

- or -

Buy the 2011 January $25.00 calls (symbol: MSFT1122A25) Entry @ $1.39

11/29/10 New stop @ 24.70

chart:

Entry on November 17 at $25.55
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 68.4 million
Listed on November 15th, 2010


Peir 1 Imports - PIR - close: 10.30 change: +0.30

Stop Loss: 9.15
Target(s): 11.90
Current Option Gain/Loss: + 0.0%
Time Frame: 10 to 12 weeks
New Positions: No

Comments:
12/04 update: What a difference a day can make. On Thursday investors were not quite sure what to make of PIR's guidance. It looks like they decided they liked the news on Friday. PIR surged +3% and Thursday's bearish engulfing candlestick has been overshadowed by Friday's bullish engulfing candlestick. I would consider new positions now in the $10.30-10.00 zone. Let's add some March $10 calls to our play.

Investors should know that PIR is due to report earnings on December 16th. We plan to hold over that event. I consider holding over the earnings announcement a high-risk event. Keep that in mind as you plan your trades.

Current Position: Long PIR stock @ $10.24

- or

Buy the 2011 March $10.00 calls (PIR1119C10) current ask $1.60

chart:

Entry on December 2 at $10.24
Earnings Date 12/16/10 (confirmed)
Average Daily Volume: 2.3 million
Listed on December 1st, 2010


Sony Corp. - SNE - close: 36.32 change: -0.24

Stop Loss: 33.45
Target(s): 36.50, 39.00
Current Option Gain/Loss: unopened
Time Frame: 10 to 12 weeks
New Positions: Yes, see trigger

Comments:
12/04 update: The rally in SNE seems to have stalled. That's okay. We want to see a little correction. There is no change from my earlier comments on this stock. Our trigger to open bullish positions is $34.50.

Trigger @ $34.50

Suggested Position: Buy SNE stock
- or -
Buy the 2011 APRIL $35 calls (SNE1116D35) current ask $2.45

chart:

Entry on December xx at $xx.xx
Earnings Date 02/03/11 (unconfirmed)
Average Daily Volume: 888 thousand
Listed on November 23rd, 2010


Tractor Supply Co. - TSCO - close: 45.98 change: +0.54

Stop Loss: 39.90
Target(s): 47.50
Current Option Gain/Loss: unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see trigger

Comments:
12/04 update: There is no change from my prior comments on TSCO. I regret not buying it near $42.00. Now shares are very short-term overbought. We don't want to chase it. We have moved the trigger to buy a dip at $43.00.

Buy-the-Dip Trigger @ $43.00

Suggested Position: Buy TSCO stock
- or -
Buy the 2011 January $45 calls (symbol:TSCO1122A45)

chart:

Entry on December xx at $xx.xx
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 751 thousand
Listed on November 11th, 2010


Wells Fargo & Co - WFC - close: 29.05 change: +0.27

Stop Loss: 26.40
Target(s): 29.25, 31.90
Current Option Gain/Loss: + 9.7%
Time Frame: 10 to 12 weeks
New Positions: Yes, see below

Comments:
12/04 update: Banking stocks continued to show strength on Friday. WFC extended its gains to five days in a row. Last week's breakout past the 200-dma is encouraging. Our first target to take profits is at $29.25. If you're looking for a new entry point I would wait for a dip toward $27.50.

Current Position: Long WFC stock @ $26.88

- or -

Long the 2011 January $27.50 call (WFC1122A27.5) Entry @ $1.16

chart:

Entry on November 30 at $26.88
Earnings Date 01/19/11 (unconfirmed)
Average Daily Volume: 32.7 million
Listed on November 29th, 2010


World Acceptance Corp. - WRLD - close: 48.70 change: +0.92

Stop Loss: 41.90
Target(s): 47.25, 49.75
Current Option Gain/Loss: +10.0%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
12/04 update: WRLD set new relative highs again on Friday hitting $49.29 intraday. The stock is quickly approaching our final target at $49.75. More aggressive traders may want to aim higher but I'm expecting significant resistance at the 2008 highs in the $50.00-50.50 zone. If you're holding the stock you don't have to exit but the newsletter will close this play at $49.75 and then look for a new entry point. Currently I would look for a new entry point on a dip near $46.00.

Current Position: Long WRLD stock @ 44.25
- or -
Long the 2011 January $45 calls (WRLD1122A45) Entry @ $2.40

12/01 First Target Hit @ $47.25 (+6.7%), Option @ $3.50 (+45.8%)
12/01 New stop @ 41.90

chart:

Entry on November 29 at $44.25
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 122 thousand
Listed on November 27th, 2010


CLOSED BULLISH PLAYS

Onyx Pharmaceuticals - ONXX - close: 29.37 change: -0.64

Stop Loss: 26.45
Target(s): 32.00, 34.50
Current Gain/Loss: unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see trigger

Comments:
12/04 update: I am giving up on ONXX. The stock has been range bound in the $29.00-30.50 zone for weeks. Readers might want to keep it on their watch list for a breakout past $30.50. I am removing it from the play list to make room for something that is moving. Our trigger to open positions was never hit.

chart:

Entry on November xx at $xx.xx
Earnings Date 02/23/11 (unconfirmed)
Average Daily Volume: 1.1 million
Listed on November 13th, 2010