Option Investor
Newsletter

Daily Newsletter, Monday, 12/20/2010

Table of Contents

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

Market Wrap

SPX Rings the Bell

by Keene Little

Click here to email Keene Little
Market Stats

Considering the SPX hit a low of 1010.91 on July 1st, tagging 1250 today (the high was 1250.20) is quite an accomplishment (+23.7% low to high). During "normal" times, such as when major fund managers shoot for +8% annually (they've had a tough time accomplishing that in the past decade), they just got three year's worth of gains in 5-1/2 months. My hat's off to the bulls for this accomplishment. Would it be too much to ask for more? I'm sure there are more than a few bulls asking that very same question tonight.

It was a relatively quiet day in the market with no major economic reports and no earth-shattering news. Equity futures were driven higher during the overnight session because, well, because they can. We've seen this pattern before--drive the futures higher during the overnight session, create some liquidity in the early-morning pop higher as the cash indexes catch up and use that liquidity to sell into. It's a common topping pattern and there's little doubt in my mind that that's what's happening. Big money is letting their inventory go to the people who are feeling the most bullish they've been for years. They'll be buying the top, again.

It's really irritating to know how big money, with the help of CNBC and other media outlets, swindles the public but it's always been thus. Hopefully you're doing what big money is doing and reducing your long exposure as well (and/or hedging your long positions). Even during the day today we saw spikes to the upside immediately get sold into. While this pattern is obvious it's not clear yet how much longer it will continue but the risk for those left holding the bag (long positions) is that once inventory has been handed off to the masses they'll want to see a market decline so that they can pick up inventory at cheaper prices. By the way, the "masses" includes clueless mutual fund managers so you're not safe if you think you're in good hands with a mutual fund manager for your retirement account or otherwise.

I know that my bearish opinion of the stock market goes counter to the majority at the moment. That's OK and in fact may be better than OK. Betting with the majority in the stock market can sometimes result in a painful experience. Bullish sentiment is running at extremes that we haven't seen even at previous market highs in 2000 and 2007. The 10-dma of the TRIN hasn't been this low since just before the 1987 crash. We're talking uber bullish sentiment and when the bulls line up this much on one side of the ship it can result in the following:

Too Many Traders On One Side

What should be disconcerting for those who remain bullish the stock market is that this over-the-top bullish sentiment is occurring at a time when market breadth and momentum are waning and showing some strong negative divergences. While the NYSE pressed higher this month it's doing it on the backs of fewer stocks, as can be seen by the advance-decline line (the same is true for new 52-week highs vs. lows):

NYSE vs. Advance-Decline Line

Another interesting development is the price pattern itself, other than the wave count that looks close to completion if it didn't complete today. Tops in the market have been forming similarly since the 2000 high. The high in March 2000 (for SPX) was followed by a test in September, which retraced 88.6% of the March-April decline. The 88.6% retracement will oftentimes mark the top of a double-top pattern. The other Fib often associated with a double-top pattern is a 113% extension of the previous decline (so 88.6%, 100% and 113% are the typical double-top levels to watch).

The October 2007 high came within a couple of points of the 113% extension of the July-August decline and was a Fibonacci 13 weeks later. The high this week (today) tagged the 113% extension (at 1246.96) of the April-July decline and this week is a Fibonacci 34 weeks from the April high. So the setup is for a market high as price and time have come together nicely for it.

The high here (or wherever it ends) could be potentially important since it's possible to count it as the completion of an A-B-C bounce off the March 2009 low (albeit with a very short c-wave). On a weekly basis the November and December highs are showing negative divergences against the April high, which fits with the ending count. The c-wave must be a 5-wave move and as labeled on the weekly chart below, the move up from July can now be counted as a 5-wave move which should complete soon if not today. The 113% extension is shown on the chart and last week's candle finished as a small doji at resistance and today's close is also right at this 1247 level. But the bulls remain in control, on a weekly basis, until 1173 is broken. We'll have a bearish heads up before that but that's the important level for the bulls to defend once it gets back down there. Upside potential is to the 1300 area.

S&P 500, SPX, Weekly chart

Another reason 1247 is acting as resistance is because it's where the 5th wave of the rally from July is equal to 62% of the 1st wave, a common relationship between these two waves. If the bulls can keep the rally going there is upside potential to 1292, where the 5th wave would equal the 1st wave. If it hits that level in the first week of January it would also tag the top of a rising wedge pattern as shown on the chart. Today's star doji at Fib resistance is a potential reversal pattern if followed by a red candle on Tuesday. A break below 1220 would be more significant. Note the negative divergence on the weekly chart against the April high and on the daily chart against the November high. The rally is simply running out of steam and while the upside potential is for another 45 points I don't think I'd want to bet on that happening.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- cautiously bullish above 1250
- bearish below 1220 and longer-term bearish below 1173

The 5th wave of the rally from July, which is the move up from November 29th, is shown in more detail in the 60-min chart below. It needs to be a 5-wave move and as of today's high counts complete and tagged the price projection at 1249.55 where the 5th wave equals the 1st wave. It can certainly extend higher but as I mentioned today on the Market Monitor, it was a very nice setup to short the rally, which is exactly what big money is doing. A break of the uptrend line from November 30th would indicate we've probably seen the high so any break lower tomorrow morning could set the direction for the rest of the day. A break below 1232 would confirm the high is in place. In the meantime, respect the upside potential but be careful looking for higher.

S&P 500, SPX, 60-min chart

Since the high on December 7th the DOW has been slowly chopping its way higher and has formed a small rising wedge in the process, and the negative divergence against the November high suggests caution if you're thinking long the market. But the bears need to break the DOW below 11330 to confirm they're in control of the ball. And as long as the bulls keep defending the November high at 11451 they keep possession of the ball.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- cautiously bullish above 11,450
- bearish below 11,330 and longer-term bearish below 10,930 (price low as well as the 200-week MA)

Similar to the DOW the NDX has been chopping its way marginally higher since the high on December 7th. A choppy pattern for a rally is usually a very good indication of an ending pattern and it's happening right below resistance near its October 2007 high near 2239. At this point it's doubtful that resistance will be broken (except for maybe a head-fake break but even that's questionable at this point). I'll continue to show the potential for a larger choppy rally into January (dotted line), which will become a lower probability if price breaks below the 50-dma, near 2146, and negated if price drops below 2085.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- cautiously bullish above 2240
- bearish below 2085

For SPX I had mentioned the 113% extension of the previous decline as a potentially important Fib level to watch if you're looking for a reversal (same thing for a reversal off a low that extends 113% beyond the previous bounce). Another Fib level is the 127% extension, often associated with a H&S topping pattern (161.8% is the next one). For the RUT the 127% extension of the April-July decline is at 789.00. So watch that level closely if tagged this week.

Dialing in closer to the 5-wave move up from July, the daily chart shows the 5th wave would equal the 1st wave at 785.92. Today's high was 6 cents shy at 785.86. Moving in even closer and looking at the 5th wave (the move up from November 16th), its 5th wave would equal 62% of the 1st at 789.60 (the same as the 127% extension mentioned above). So from several degrees of the pattern we've got good Fib correlation around the 786-789 area. If it can press above 790 the next upside target is 803 but for now keep an eye on 786-789 for a possible completion of its rally. We'll know better if tomorrow sees a decline, especially if the RUT drops below 767. So again, respect the upside but watch for a reversal now as I think it's either here or only marginally higher.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- cautiously bullish to 786-803
- bearish below 767 and longer-term bearish below 701

For those who like to play the 20+ year Treasury ETF, TLT, it looks like it completed a 5-wave move down from August, which sets it up for at least a correction of that decline. A 50% retracement would take it back up to just shy of 100 and if the bounce takes 62% of the time for the decline (typical) it would finish around mid February. Another common retracement is to the previous 4th wave which is the high at 99.27 on November 30th. If Treasury prices rally and yields pull back we'll hear many Fed supporters talking about how the market is finally recognizing how much support the Fed is providing to the bond market. I have my doubts but we'll let price show us the way. I placed a note on the chart to show where the Fed announced their QE2 program and how the bounce might not make it back to even the pre-QE2 level. In the meantime, whether bond prices will be more bullish or not this year, TLT traders should look for a bounce into at least February.

20+ Year Treasury ETF, TLT, Weekly chart

On Friday, December 10th and then again on Monday the 13th I pointed out on the Market Monitor what I felt was an outstanding setup for a reversal on the banking index, BKX (and also BIX and the broker index, XBD). It had rallied up to the top of a parallel up-channel from August and its downtrend line from September 2008 (log scale), just shy of 51. The 50-51 level is also resistance from previous highs and lows going back to 2008. On Monday it left a bearish hanging man candlestick at this resistance level and then dropped sharply back down to a low on Thursday. It has since bounced back up into the 50-51 resistance zone and is presenting another nice setup for a shorting opportunity in the financials.

KBW Bank index, BKX, Daily chart

XLF is the financial sector ETF and also presented the bears with a shorting opportunity after the December 13th high. It rallied up to the top of a rising wedge pattern for price action since the July low (as with all triangle patterns it completed the requisite a-b-c-d-e wave count). This completes a larger-degree b-wave which points to a large decline in wave-C, one which will take XLF below the July low. Two equal legs down from April provides an initial downside target of 12.89.

Financial sector ETF, XLF, Daily chart

There are of course a few different ways to play the short side of financials. Two leveraged inverse ETFs are SKF and FAZ (be careful with leveraged ETFs and use them only for relatively short-term trades, not investments).

The Transportation index is one of the few that's pointing higher still. It has been stalled near the price projection at 5065 for the past two weeks but has consolidated over to its uptrend line from August. These typically resolve to the upside so that would be the expectation here. But any drop lower on Tuesday would be a break of its uptrend line and indicate the bulls could be in trouble (a failed bullish pattern tends to fail hard). So look for a move up to the 5200 area unless Tuesday drops lower instead. Bearish confirmation would be a drop below 4917.

Transportation Index, TRAN, Daily chart

The U.S. dollar's short-term pattern leaves a lot to be desired as far as giving me the ability to determine its next move. I could argue equally strongly for another pullback to the 78 area or for a continuation higher right from here. A drop back below Friday's low at 79.55 would suggest a little deeper pullback before heading higher again (dashed line on the chart). Otherwise it looks like the dollar should continue its rally from here and press up to the 84 area before possibly pulling back again in what could be a choppy pattern for a bounce up to the 88 area by February. More bullishly the rally could start to pick up steam and blow right through resistance levels and get above 89, breaking out of a bearish sideways triangle that could be playing out since the March 2008 low (which I showed in my last newsletter on December 8th).

U.S. Dollar contract, DX, Daily chart

Based on what I'm seeing in commodities and the metals I could be convinced that the dollar is going to drop before rallying again. Gold still continues to hold potential for one more leg up inside a final rising wedge pattern, with an upside target near 1450. It held its 50-dma, currently at 1370.50, last week so as long as that holds I'm giving the bulls the nod here. A break below last week's 1361.60 low would be bearish and below 1329 would confirm the high for gold is already in place. If the dollar does indeed rally from here it's going to hard for gold to make a new high.

Gold continuous contract, GC, Daily chart

A rising wedge pattern for oil also shows a little more upside potential, perhaps to about 91, before topping out. As with just about all charts, the new highs for oil are showing negative divergence against the October and November highs. One could say the entire market is running out of steam, which fits the "all-the-same" market theme.

Oil continuous contract, CL, Daily chart

Tuesday will be another quiet day as far as economic reports goes. Wednesday and Thursday will be the busy days and based on the chart patterns I'm seeing I'm wondering if they'll cause a selloff reaction. Stay aware of that possibility. Santa may have come and gone and the buying power may have already been spent.

Economic reports, summary and Key Trading Levels

I had mentioned earlier that there is a high bullish sentiment in the market right now; it's higher than we've seen at previous market highs and that should be worrisome to bulls. If you're still thinking bullish (Santa Claus rally, the Fed's help, seasonality, new year money coming, etc.) you might want to at least think about portfolio protection. Spend a little money on insurance, just as you do for your home, car and life. With a very low VIX, as shown below, it's a good time to buy some put protection (note the lineup of the VIX in the lower chart, at current levels, with previous highs in SPX in the top chart).

Volatility index, VIX, Daily chart

Insurance for your portfolio, if you'd rather not sell your stock, is very cheap right now. I'm guessing there are more than a few of you who wished you had bought some protection back in 2007 or 2008. Insurance was just as cheap then as it is now. It's always cheap when bullish sentiment is running at their highs. Most become convinced that the market is going to keep rallying. Certainly the market pundits and media tells us that. Friday's USA Today had a story titled "Experts Agree: Get Over Your Fear and Get Back Into Stocks."

Many people follow what they call the "magazine title" indicator. When a general media publication gives financial advice you should head the other way. By the time a general interest newspaper or magazine identifies the trend and reports on it you can be well assured the trend is ending. It's the equivalent of the shoeshine boy's stock market tip--when even the shoeshine boy has become bullish you know everyone is in and it's your cue to exit.

Last week we had a Hindenburg Omen signal and then it was confirmed on Wednesday. As a reminder, the HO signal occurs when:

1. The lesser of weekly new highs or new lows are more than 2.4% (2.2%) of total issues.
2. There is a rising 10-week MA on the NYSE Composite Index.
3. The McClellan Oscillator is negative.
4. New 52 week highs cannot be more than twice the number of new 52 week lows; it is acceptable if new 52 week lows are more than twice the number of 52 week highs.
5. In order for the first Hindenburg Omen to be confirmed, we must see an additional signal within the next month.

Thanks to Steve for providing some interesting statistics related to the Hindenburg Omen:

1. There is a 28% probability that a stock market crash will occur over the next 3-4 months.
2. There is a 39.2% probability that at least a panic sell-off will occur (meaning a plunge of over 10% could occur).
3. There is a 53.5% probability that a very sharp decline greater than 8.0% will manifest itself.
4. There is a 74.9% probability that a stock market decline of at least 5.0% will occur.

Steve further noted, "Worth noting, one out of 14.5 times this signal is a dud, however that ratio expands to one out of 37 times when a prior signal failed, which is our current situation." Those are some pretty significant odds for a major market correction at least. Many love to follow the Stock Almanac and are even bullish now because of the seasonality factor. The Hindenburg Omen is showing us an even higher-odds setup for a bearish move. But many traders will ignore this signal because it doesn't fit their bias.

What's interesting about this HO signal is that no one is reporting it. When it occurred in August it was being reported my all the media. CNBC even had the signal's creator on the show. As is typical, when mainstream media and CNBC reports a technical indication you can bet on it failing, and it did. This time no one is reporting on it and I find that more than intriguing. It's like the boy who cried wolf and this time the boy could be attacked and no one will come to his rescue.

One last chart for tonight, to show why the current rally should be viewed as bearish and not bullish, I'm comparing volume to the highs in SPY. Each high this year has been accompanied by lower volume, including the highs in the rally since June, and the current rally to a new high is showing the same pattern. Will it be different this time? It's not the way I'm betting with my money.

SPDR S&P 500 Trust, SPY, Daily chart with Volume

One final note, which might deliver a message from the heavens, Tuesday, December 21st is the winter solstice. On the same day we will have a lunar eclipse of a full moon. The last time this occurred was 456 years ago. Counting 456 trading days from the March 6, 2009 low gives us December 24th.

Good luck this week and be careful. I'll be back with you on Wednesday and we'll see how the market is setting up for next week. And remember, we're traders. We don't care which way the market goes since we have the tools to trade it either way. Whether you lean one way or the other or have more fun trading one direction or the other, trading the short side has its rewards--you're usually in the trade for a shorter period of time and can make more money. Embrace the coming bear market and turn some lemons into lemonade. That's why we're here--to help you through it with some trading suggestions and setups to help you get positioned. So be sure to take advantage of Jim's end-of-year special. I think 2011 is going to be very exciting year for traders and opportunities to make some serious money. Join me and a few other writers on the Market Monitor for live intraday commentary to help you nail down your entries.

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Key Levels for SPX:
- cautiously bullish above 1250
- bearish below 1220 and longer-term bearish below 1173

Key Levels for DOW:
- cautiously bullish above 11,450
- bearish below 11,330 and longer-term bearish below 10,930 (price low as well as the 200-week MA)

Key Levels for NDX:
- cautiously bullish above 2240
- bearish below 2085

Key Levels for RUT:
- cautiously bullish to 786-803
- bearish below 767 and longer-term bearish below 701

Keene H. Little, CMT


New Plays

Generic Drugs

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Mylan, Inc. - MYL - close: 21.20 change: -0.20

Stop Loss: 19.70
Target(s): 21.90, 22.90
Current Option Gain/Loss: unopened
Time Frame: 12 to 14 weeks
New Positions: Yes, see trigger

Company Description:
Mylan Inc. ranks among the leading generic and specialty pharmaceutical companies in the world and provides products to customers in more than 140 countries and territories. The company maintains one of the industry's broadest and highest quality product portfolios supported by a robust product pipeline; operates one of the world's largest active pharmaceutical ingredient manufacturers; and runs a specialty business focused on respiratory, allergy and psychiatric therapies. (source: company press release or website)

Why We Like It:
Shares of this generic drug maker are trending higher. In the past two weeks MYL has broken out from a six-week consolidation pattern, that already had a bullish trend of higher lows. MYL could end up retesting its 2010 highs in the first quarter.

I am suggesting we launch bullish positions on a dip at $20.65. The December 13th low was $19.79. I'm suggesting a stop loss at $19.70. The most recent data listed short interest at 12% of the 287 million-share float. Any significant rallies could fuel some short covering.
FYI: The Point & Figure chart for MYL is bullish with a $33 target.

Trigger to buy-the-dip @ $20.65

Suggested Position: Buy MYL stock @ $20.65

- or -

Buy the 2011 April $20.00 calls (MYL1116D20)

Annotated chart:

Entry on December xx at $xx.xx
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume: 9.0 million
Listed on December 20th, 2010


In Play Updates and Reviews

AXP Underperforms!

by James Brown

Click here to email James Brown

Editor's Note:
A downgrade and worries that Congress might decide to cap credit-card fees sent AXP sharply lower. Our AXP play has been stopped out. We're also exiting the SKS play early.

-James

Current Portfolio:


BULLISH Play Updates

Alcoa Inc - AA - close: 14.77 change: +0.21

Stop Loss: 13.45
Target(s): 14.95, 15.95
Current Option Gain/Loss: +12.6%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
12/20 update: The rally in AA continues in spite of some dollar strength today. Shares are hitting new multi-month highs and another strong day could push AA to our first target at $14.95. I am raising our stop loss to $13.45.

Current Position: Long AA stock @ 13.18

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


Automatic Data Processing - ADP - close: 46.77 change: -0.09

Stop Loss: 45.95
Target(s): 49.75, 52.50
Current Option Gain/Loss: unopened
Time Frame: 10 to 12 weeks
New Positions: Yes, see trigger

Comments:
12/20 update: ADP is still consolidating sideways. We are waiting for a breakout past resistance near $47.00. I am suggesting a trigger to open bullish positions at $47.25. If triggered we'll use a stop loss at $45.95. Our first target is $49.75. While the trend is up ADP doesn't move super fast so this could take several weeks.
FYI: The Point & Figure chart for ADP is forecasting a bullish price target of $66.00.

Buy-the-breakout Trigger @ $47.25

Suggested Position: Buy ADP stock @ $47.25

- or -

Buy the 2011 February $50.00 call (ADP1119B50)

*Note: just because the Feb. $50 calls are cheap don't go overboard and buy too many. They're cheap for a reason. ADP may not hit $50 by Feb. expiration.

Entry on December xx at $xx.xx
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume: 2.8 million
Listed on December 16th, 2010


Alaska Air Group - ALK - close: 57.67 change: +0.18

Stop Loss: 54.90
Target(s): 59.75
Current Option Gain/Loss: + 5.03
Time Frame: 8 to 9 weeks
New Positions: see below

Comments:
12/20 update: ALK managed to extend its gains and hit new ten-year highs near $58. On a very short-term basis, broken resistance near $57.00 could be support. The $56 and $55 levels should offer stronger support. I am not suggesting new bullish positions at this time.

Current Position: Long ALK stock @ $54.91

- or -

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

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


Popular Inc. - BPOP - close: 2.89 change: +0.03

Stop Loss: 2.69
Target(s): 3.40, 3.95
Current Option Gain/Loss: - 4.6%
Time Frame: 12 to 16 weeks
New Positions: see below

Comments:
12/20 update: The banking indices managed another bounce. BPOP's rebound amounted to a +1.1% gain. I remain cautious here given the stock's recent weakness. I'm not suggesting new positions at this time.

Current Position: Long BPOP stock @ $3.00

- or -

Long the 2011 April $3.00 calls (BPOP1116D3) Entry @ $0.34

12/18: New stop loss @ 2.75

Entry on December 14 at $ 3.00
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume: 11.7 million
Listed on December 11th, 2010


Citigroup Inc. - C - close: 4.71 change: +0.01

Stop Loss: 4.49
Target(s): 5.00, 5.35
Current Option Gain/Loss: - 0.4%
Time Frame: 10 to 12 weeks
New Positions: Yes, see below

Comments:
12/20 update: Citigroup only gained a penny on Monday but shares gapped open at $4.73 before consolidating sideways the rest of the session. The banking indices are still rebounding. I am suggesting bullish positions in the $4.75-4.55 zone. I do consider this an aggressive, higher-risk entry point and trade. Our first target is $5.00. Our second, longer-term target is $5.35. I am suggesting that readers keep their position size small to limit their risk.

Current Position: Long Citigroup stock @ $4.73

- or -

Long the 2011 March $5.00 calls (C1119C5) Entry @ $0.20

Entry on December 20 at $ 4.73
Earnings Date 01/18/11 (confirmed)
Average Daily Volume: 688 million
Listed on December 18th, 2010


Companhia Brasileira de Distribuicao - CBD - close: 40.92 change: +0.32

Stop Loss: 36.75
Target(s): 44.95, 49.00
Current Option Gain/Loss: + 1.6%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
12/20 update: Traders bought the morning dip toward $40.00 and its 40-dma. Volume continues to get lighter. Readers could still use dips into the $40.00-38.00 zone as a bullish entry point but you might be better off waiting for the dip and then initiating new positions on the bounce.

FYI: 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

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


Check Point Software Technologies - CHKP - close: 45.64 change: -0.03

Stop Loss: 43.95
Target(s): 47.25, 49.75
Current Option Gain/Loss: + 1.2%
Time Frame: 8 to 10 weeks
New Positions: Yes, see below

Comments:
12/20 update: Our play is now open. Some early morning weakness pushed CHKP to a low of $44.69. Our trigger to buy the stock or call options was hit at $45.10. If you missed our buy-the-dip entry you could still buy the bounce now. Our first target is $47.25. Our second, longer-term target is $49.75. This could take several weeks. Investors will have to decide whether or not they are willing to hold over CHKP's earnings in late January.

Current Position: Long CHKP stock @ $45.10

- or -

Long the 2011 April $45.00 calls (CHKP1116D45) Entry @ $2.55

Entry on December 20 at $45.10
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume: 1.4 million
Listed on December 18th, 2010


City National Corp. - CYN - close: 60.80 change: -0.34

Stop Loss: 54.75
Target(s): 60.00, 64.00
Current Option Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
12/20 update: There is no change from my weekend comments on CYN. Short-term CYN is overbought and due for a correction. We want to wait for a dip to $57.00 before initiating positions. However, should CYN find support near $58.00 we could re-evaluate our entry point strategy. If CYN doesn't begin to correct lower soon I'll drop it as a candidate. FYI: The Point & Figure chart is bullish with a $83 target.

Trigger @ $57.00

Suggested Position: buy CYN stock @ $57.00

- or -

Buy the 2011 February $60 calls (cyn1119B60)*

*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.

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


FLIR Systems Inc. - FLIR - close: 28.82 change: +0.37

Stop Loss: 27.40
Target(s): 30.90, 33.00
Current Option Gain/Loss: unopened
Time Frame: 10 to 12 weeks
New Positions: Yes, see trigger

Comments:
12/20 update: FLIR continues to show relative strength. The stock added +1.3% and closed above short-term resistance at $28.50. Aggressive traders may want to open positions now. I'm suggesting we use a trigger at $29.10 to open bullish positions. FLIR doesn't move super fast but our targets are $30.90 and $33.00.

Breakout Trigger @ $29.10

Suggested Position: Buy FLIR stock @ $29.10

- or -

Buy the 2011 April $30.00 calls (FLIR1116D30) current ask $1.35

Entry on December xx at $xx.xx
Earnings Date 02/10/11 (unconfirmed)
Average Daily Volume: 1.6 million
Listed on December 18th, 2010


JB Hunt Transport Services - JBHT - close: 39.44 change: -0.16

Stop Loss: 36.75
Target(s): 40.70, 43.75
Current Option Gain/Loss: unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see trigger

Comments:
12/20 update: Transport stocks hit some profit taking today. JBHT lost -0.4%. Big picture the trend is up and we are waiting to buy JBHT on a dip at the $38.00 mark.

FYI: A week ago the NASDAQ announced they were removing JBHT from the NASDAQ-100 index and this removal takes place on Dec. 20th. Firms should start selling shares of JBHT to make room for those stocks being added to the index.

Trigger to buy the dip at $38.00

Suggested Position: Buy JBHT stock @ 38.00

- or -

Buy the 2011 February $40 calls (JBHT1119B40)

Entry on December xx at $xx.xx
Earnings Date 01/28/11 (unconfirmed)
Average Daily Volume: 1.2 million
Listed on December 13th, 2010


Microsoft Corp. - MSFT - close: 27.81 change: -0.09

Stop Loss: 25.70
Target(s): 27.45, 29.00
Current Gain/Loss: + 8.8%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
12/20 update: MSFT is stalling near resistance. I'm expecting a healthy correction back toward the $27.00-26.50 zone. No new positions at this time.

Current Position: Long MSFT stock @ 25.55

- or -

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

12/18/10 new stop @ 25.70
12/14/10 Target hit @ 27.45 (+7.4%), option @ $2.55 (+83.4%)
12/11/10 New stop @ 25.45
11/29/10 New stop @ 24.70

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


Starbucks Corp. - SBUX - close: 32.93 change: +0.15

Stop Loss: 30.75
Target(s): 34.75
Current Option Gain/Loss: unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see trigger

Comments:
12/20 update: SBUX is flirting with a breakout over resistance near $33.00. Aggressive traders might want to consider positions on a close over $33. I would much rather wait for a dip. Currently our trigger to initiate bullish positions is at $31.75.

FYI: SBUX is currently in a legal battle with Kraft Foods (KFT) over distribution of SBUX's ground coffee brand but investors seem to be ignoring it.

Trigger @ $31.75

Suggested Position: Buy SBUX stock @ $31.25

- or -

Buy the 2011 January $32.00 call (SBUX1122A32)
Buy the 2011 April $33.00 call (SBUX1116D33)

Entry on December xx at $xx.xx
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume: 7.1 million
Listed on December 8th, 2010


Sara Lee Corp - SLE - close: 17.69 change: +0.43

Stop Loss: 15.45
Target(s): 17.00, 17.90
Current Option Gain/Loss: +12.8%
Time Frame: 10 to 12 weeks
New Positions: no

Comments:
12/20 update: SLE was trading lower this morning, before the market was open, on rumors that the potential deal with JBS might fall through. Shares dipped to $16.82 this morning but quickly recovered and closed with a +2.49% gain and another new relative high. There is no change from my weekend comments. I am not suggesting new positions at this time.

Current Position: Long SLE stock @ $15.68

- or -

Long the 2011 April $15.00 calls (SLE1116D15) Entry @ $1.35

12/18/10 New stop @ 15.45, New final target @ 19.75
12/17/10 Target Hit @ 17.00 (+8.4%), option @ $2.00 (+48.1%)

Entry on December 8 at $15.68
Earnings Date 02/03/11 (unconfirmed)
Average Daily Volume: 7.6 million
Listed on December 7th, 2010


Sony Corp. - SNE - close: 35.19 change: -0.20

Stop Loss: 33.75
Target(s): 36.50, 39.00
Current Option Gain/Loss: unopened
Time Frame: 10 to 12 weeks
New Positions: Yes, see trigger

Comments:
12/20 update: The correction in SNE continues. Shares are nearing the $35.00 level and just hit their 30-dma. We're waiting for a dip into the $34.50-34.00 zone. Officially our entry point to launch bullish positions is at $34.50. I am raising our stop loss to $33.75.

Trigger @ $34.50

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

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


Trimble Navigation - TRMB - close: 39.97 change: -0.11

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

Comments:
12/20 update: TRMB spent the day hugging the $40.00 level. There is no change from my weekend comment. The stock remains somewhat overbought. Broken resistance near $38.00 should offer some support. I'm suggesting a trigger to launch bullish positions at $38.50.

Trigger @ $38.50

Suggested Position: Buy TRMB stock @ $38.50

- or -

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

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


Ternium S.A. - TX - close: 41.11 change: -0.13

Stop Loss: 35.85
Target(s): 43.00, 45.00
Current Option Gain/Loss: unopened
Time Frame: 12 to 14 weeks
New Positions: Yes, see trigger

Comments:
12/20 update: TX spiked toward $42.00 and failed. Currently we're still waiting for a significant correction to launch bullish positions. Our suggested entry point is $38.25 but we will re-evaluate possible changes if we see a correction toward the $40-39 zone.
FYI: The Point & Figure chart for TX is forecasting a bullish target of $48.

Buy-the-Dip Trigger @ $38.25

Suggested Position: Buy TX stock

Note: TX does have options but the spreads are horrendously wide so I'm not suggesting any calls on this trade.

Entry on December xx at $xx.xx
Earnings Date 02/23/11 (unconfirmed)
Average Daily Volume: 295 thousand
Listed on December 14th, 2010


Wells Fargo & Co - WFC - close: 30.10 change: +0.14

Stop Loss: 27.90
Target(s): 29.25, 31.90
Current Option Gain/Loss: +11.9%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
12/20 update: The banking indices have continued to bounce but WFC is consolidating sideways near the $30.00 level. I am not suggesting new positions at this time. Currently our final exit target is $31.90 but aggressive traders could aim high (given enough time).

Current Position: Long WFC stock @ $26.88

- or -

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

12/09: New stop loss @ $27.90
12/08: Target Hit $29.25 (+8.8%), Option @ $2.30 (+98.2%)

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 Wrestling Entertainment - WWE - close: 14.30 change: +0.02

Stop Loss: 13.75
Target(s): 14.95, 16.40
Current Option Gain/Loss: + 1.4%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
12/20 update: Outside of the opening move higher, shares of WWE traded sideways in a very narrow range on Monday. I would still consider new bullish positions in the $14.30-14.00 area.

Suggested Position: Long WWE stock @ $14.10

- or -

Buy the 2011 April $15.00 calls (WWE1116D15), entry @ $0.45

*Note: The call options on WWE have very large spreads, making them a higher-risk trade.

Entry on December 13 at $14.10
Earnings Date 02/10/11 (unconfirmed)
Average Daily Volume: 242 thousand
Listed on December 9th, 2010


CLOSED BULLISH PLAYS

American Express - AXP - close: 42.50 change: -1.51

Stop Loss: 41.95
Target(s): 47.50, 49.85
Current Option Gain/Loss: - 5.7%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
12/20 update: Ouch! Shares of AXP were big underperformers on Monday. The stock opened lower and spiked down to its exponential 200-dma near $41.25 before paring its losses. Our stop loss was hit at $41.95. Fueling the move was an analyst downgrade. The firm is worried that the U.S. congress will turn their focus from putting a cap on debit-card fees to credit-card fees as well. While AXP doesn't deal in debit cards, a cap on credit-card fees would be terrible for their business. Our play was closed at $41.95.

Stopped out @ 41.95

Closed Position: Long AXP stock @ $44.49, stopped @ 41.95 (-5.7%)

- or -

Long the 2011 April $45 calls (AXP1116D45) Entry @ $2.72, exit @ $1.55 (-43.0%)

chart:

Entry on December 17 at $44.49
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume: 9.0 million
Listed on December 2nd, 2010


SAKS Inc. - SKS - close: 11.38 change: -0.22

Stop Loss: 10.90
Target(s): 13.95, 14.95
Current Option Gain/Loss: - 5.0%
Time Frame: 10 to 12 weeks
New Positions: No

Comments:
12/20 update: I am growing more and more worried about the action in SKS. Shares under performed today with a -1.8% loss. The close under the 40-dma is bearish as is the close under the $11.40 level. I am suggesting an early exit now! (We'll have to update these exit numbers for tomorrow morning).

Early Exit Now!

Closed Position: Long SKS stock @ $11.98, exit @ $11.38 (-5.0%)

- or -

Buy the 2011 February $12.50 calls (SKS1119B12.5) Entry @ $0.65, exit @ 0.35 (-46%)

chart:

Entry on December 13 at $11.98
Earnings Date 02/22/11 (unconfirmed)
Average Daily Volume: 3.1 million
Listed on December 11th, 2010