Option Investor
Newsletter

Daily Newsletter, Wednesday, 1/12/2011

Table of Contents

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

Market Wrap

Good Old Fashioned Earnings Run

by Keene Little

Click here to email Keene Little
Market Stats

For traders who actively traded the market in the heady days leading up to the top in early 2000 it was a common tactic to buy in front of earnings and anticipated stock splits (which were often announced at the same time as earnings). Without digging through my notes I believe the idea was to buy about 7-8 trading days before the earnings/split announcement and then sell the day before (the idea being profit taking would often start the day before the announcement as more and more traders started gaming the system. At any rate, it was a profitable strategy and it's looking like some of those traders are back.

The big dog for earnings is Intel (INTC) and they will be announcing after the close on Thursday. It will be interesting to see if we see some profit taking start during the day tomorrow. INTC has been credited/blamed for a lot of big moves in the market and as we rally into the announcement I can't help but wonder if we're seeing another setup for a sell-the-news event. Oftentimes we'll see the futures spike higher after INTC announces but then completely reverse and sell off the following day, often with a gap down.

But that's tomorrow/Friday. Today started with another gap up, this one credited to the "good" news about Portugal's success in selling its debt, albeit at a higher rate than previous sales. I wouldn't be a bit surprised to learn that the ECB was in there doing a lot of buying to ensure Portugal did not face a failed auction. All hell would break lose if and when that happens. So there was a lot of relief in the banks, which hold a lot of European sovereign debt. The first failed auction (if it happens) will crush bank stocks.

With the rally in the financials the market started off with a positive attitude and held its early-morning gains throughout the day. That was the good news if you were long coming into this morning. The bad news for traders wanting to get long is that once again the overnight futures action, and the gap up once the cash markets opened, was about all there was to the rally. The rest of the day was spent essentially consolidating sideways. There were no good trading opportunities for either side, except for small scalping plays.

I read an interesting statistic earlier in the week by David Rosenberg, discussing the past year's rally. He stated, "One has to really wonder about a stock market (talking about the S&P 500 here) in which 134 points of the 143 points that were racked up in 2010 occurred in the first trading day of each month (see 'The Trader' on page M3 of Barron's). That is truly remarkable -- 94% of the entire year boiled down to 12 sessions. And what do you know? 2011 started with a 1.1% pop and has sputtered since.

"It is truly the nuttiest thing -- the best days last year were the first day of each month (save for June and July) and then after that there were practically no crumbs to nibble on: These are the point changes for the first trading day of each month in 2010, which totals 134 points (as we mentioned above): December +26 points; November +1 point; October + 5 points; September +31 points; August +24 points; July -3 points; June -19 points; May +16 points; April + 9 points; March +11 points; February +15 points; and January +18 points.

"Now look at 2011 -- +14 points to kick off the month and year, to close at 1,271.87, and here we are today, after a supposedly ripping ISM and ADP set of numbers, and as of January 7, the S&P 500 is sitting at 1,271.50. Hope you didn't decide to get in on the second day."

We had a nice rally today but who knows how the rest of the month will go. In addition to this observation, when you add in the fact that probably 75%-80% of those gains occurred in the overnight futures market before the cash market even opened, you really have an untradeable market. I suspect in a move down we'll see the same thing in reverse.

Once the day started with the gap-up move there was little to spark additional buying interest. The good thing is that sellers didn't immediately pounce on the move up and sell into it, a pattern we've seen recently. There weren't any economic reports to jar the market one way or the other as there were no surprises. The Beige Book report didn't come out until 2:00 PM and it had a slightly negative impact but nothing much. Its information will be used in the next FOMC meeting scheduled for January 25-26 so traders were trying to figure out what the report might mean in the Fed's decisions around QE. The report talked about modest growth with a gradually improving economy with low wage or inflation pressures. Net net it would appear there's little to dissuade the Fed to back off on their QE program, even though there are a couple more hawks on the FOMC board this year.

As I'll get into with the charts, I'm expecting a continuation of the rally tomorrow but it might not be much. I wouldn't be at all surprised to see a quick move up and then consolidate for a good portion of the day as the market goes on hold in front of INTC's report. What happens after the announcement is anyone's guess but the price pattern is suggesting caution after a new high.

While points were added to the board today it continues to be a weaker and weaker rally, which simply means you would be wise to follow it up with trailing stops as a way to protect profits and/or enter a short play. Let the market prove it has finished by breaking some key support levels. One way to gauge the strength of the rally, other than the oscillators (stochastics, RSI, MACD, etc.) showing waning momentum, is to look at how many stocks are participating in the rally of the indexes. A chart I've shown before, comparing the advance-decline line to the NYSE, demonstrates vividly how the market breadth is deteriorating. The NYSE is making new highs on the backs of fewer and fewer stocks. This is how tops are formed (we just don't know exactly where or when).

NYSE vs. Advance-Decline Line chart

The dates are hard to read because I squished the charts but it starts from May 2009 and you can see the long-term slow bleed in the strength of the rally over that time. The April 2010 high, about in the middle of the charts, shows a significant negative divergence on the a-d line. The strong rally from November is showing an even worse negative divergence, something that warns me when price breaks down it could go very quickly. This chart comparison screams at me "caveat emptor".

Many people credit the stock market rally with an improving economy. Keep in mind that an improving economy does not guarantee a continuation of the rally. All market tops are made on great and improving economic reports and all bottoms are made on the worst reports. It's also noteworthy that many measures of the economy are showing a slowing of improvement. The bulls will of course concentrate on the fact that the numbers are still improving. The bears will concentrate on the fact that the numbers are slowing down. The bottom line though is that it's not business that is the problem, it's debt. And the massive debts incurred are still on the books of all the banks. People are still working down their debt loads.

Because we are all globally linked to one another it's important to keep an eye on the global economic health as well. Watching China has become a favorite pastime for many. They do not have enough domestic demand to soak up their capacity and therefore they are very dependent on other countries to support their business model. An eye on the Shanghai Composite index ($SSEC on stockcharts.com) will help us figure out how traders are feeling about China's business, which will be a good indication for global businesses.

One additional measure of the economy can be measured using the Baltic Dry Index (BDI). There's been a bit of a glut in available ships after a building boom the past few years and that has depressed shipping prices but I think it can still be used as a guide. When combined with the SSEC we can see if one's message is supported by the other. Currently I can't say I get a bullish message from them. The below chart compares the BDI and SSEC with the S&P 500 index.

Baltic Dry Index (BDI), Shanghai Composite index (SSEC) and S&P 500 index (SPX), Daily chart

The BDI is the bottom line and importantly, I think, is the recent break of the July low. This index is telling us business is slower than it was last summer. SSEC, the middle line has put in a series of lower highs since August 2009. Following its sharp drop from the November 2010 high it has been consolidating sideways, which fits as a bearish continuation pattern. I expect to see this index break lower. And then there's SPX flying happily higher without a worry in the world. These indexes typically track very well together and SPX stands starkly all alone up there. And I doubt SPX will drag the other two back up so when the correction comes it could be fast. Again, that's not a guarantee but when we trade we like to put the odds in our favor. Right now the odds are increasing (imho) that the traders who are whistling past the graveyard are going to soon be spooked by the goblins.

Todd Harrison on Minyanville, posted an interesting statistic that he got from Jason Goepfert: "...the SPY has gained 0.5% to start the new year when it's near a three month high five times -- '97, '00, '02, '05, and '10 -- and four of those times, or 80%, it's given back the December gains." Hmm...

So now when I look at a chart like the one below, which shows a huge increase in bullish speculation, especially since the July low, I have to wonder how much frothier and overbought the market can get. And it makes statistics like Goepfert's that much more interesting. The chart below shows the measure of total call purchases plus put sales (each bullish) divided by the total put purchases plus call sales (each bearish). The current reading is the most bullish ever recorded, including the high just prior to the May flash crash.

Options Speculation Index, chart courtesy agorafinancial.com and data from SentimentTrader.com

As with all sentiment indicators, it can remain very high for long periods of time so it's not a license to go out and short the market here and now. It's simply another warning that things are getting a bit too frothy to be complacent about the upside. Complacency, more than overbought or overpriced, is what gets the market into trouble and the VIX is telling us complacency is abundant at the moment. All the pieces are in place for a market correction so stay aware of what's happening in the market here.

The charts will hopefully give us the clues we need to make our trading decisions, either to stay long, get out or get short. Starting with the SPX weekly chart tonight, it's looking like SPX could head for the August 2008 highs, which is in the 1298-1300 area. At the same location is the top of a rising wedge pattern for price action since the July low. On a weekly basis the bulls remain in control until price breaks below 1173, the November 29th low (although a break of the uptrend line from August would be a bearish heads up.

S&P 500, SPX, Weekly chart

The top of the rising wedge pattern is shown more clearly on the daily chart below. Slightly lower than the 1298-1300 target is 1292 which is where the 5th wave of the rally from July would equal the 1st wave. And only marginally higher than that, near 1294, is the top of a small parallel up-channel from December 8th (the lines are also parallel to the uptrend line from August). It takes a break below 1261, last Friday's low, to indicate the top is in so it remains bullish until then.

S&P 500, SPX, Daily chart

Key Levels for SPX:
bullish above 1277 to 1292-1300
bearish below 1261

The 60-min chart below zooms into the move up towards the top of the channel and top of the rising wedge pattern. I've drawn out what a typical move from here would look like as a way to complete a 5-wave move up from last Friday and I've projected the move up to about 1293-1294 by tomorrow's close, which just so happens to be in front of the INTC earnings report. The risk for bulls, if it plays out this way, is that a rally into the end of the day Thursday to complete the wave count could set the market up for a disappointing reaction to INTC's earnings.

S&P 500, SPX, 60-min chart

The DOW closed 5 points above its January 2000 high. It tagged the top of its parallel up-channel from December 8th and looked relatively weak this afternoon so it's possible it's putting in a high right here. But like SPX I think it would look best with at least one more new high, even a test of today's high, to finish its rally pattern off last Friday's low. The top of the larger up-channel is close to 11900 and therefore the upside potential for now. But the shorter-term pattern is what has me thinking it could top out sooner than that, maybe 11800.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
bullish above 11,750 to 11800-11900
bearish below 11,570

The techs have been relatively stronger since the first of the year and NDX is pressing up towards the top of its parallel up-channel from November. It's also been riding up underneath a broken uptrend line from August (light gray line on the chart below). Upside potential to the top of its channel is near 2320 and there's a Fib price projection near 2330 where the c-wave of an A-B-C bounce off the March 2009 low would achieve 62% of the a-wave. So I have 2330 as the level where NDX would be even more bullish whereas a drop below 2254, last Friday's low, would be bearish. It's bullish until the bulls can't hold it up any longer or the bears take over and drop the indexes through key levels.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
bullish above 2330
bearish below 2254

The RUT continues to struggle with the 800 area although it was able to close above it today. The short-term pattern suggests today's high might have been its last but if the broader market is able to push higher I suspect the RUT should be able to as well. Upside potential is to the top of its rising wedge pattern from July-August, currently near 810. So it would be more bullish above that level (that holds above) whereas a break below 777, last Friday's low, would be bearish. Keep in mind that if the rising wedge pattern is the correct interpretation, and it fits in the larger wave pattern, we should be looking for a complete retracement of it (so back to the August low) in a faster time than it took for the rally (oftentimes Much faster where a 5-month rally could be retraced in a month or two).

Russell-2000, RUT, Daily chart

Key Levels for RUT:
bullish above 810
bearish below 777

Bonds have been consolidating sideways since mid December. The theory that stocks have been benefitting from a rotation out of bonds doesn't hold any water when you see that bonds haven't moved in the past month. The 10-year yield, TNX, looks like it has formed a bullish descending or sideways triangle following its rally from October, making it more likely a bullish continuation pattern. I have it labeled as a 4th wave correction which calls for another leg up to a target at 3.66% if it breaks above 3.57% and then a pullback to correct the rally from October before proceeding higher again. That's the bullish pattern (for yields, bearish for bond prices).

10-year Yield, TNX, Daily chart

A longer-term rally in yields would of course not help the Fed's cause since they've been trying to support bond prices as a way to keep yields down. It's an effort to help the housing market and it's also a way to keep borrowing costs low for governments (local, state and national). Needless to say, the green path for yields will not help overly indebted governments and would put additional pressure on the housing market (as well as corporate borrowing in general).

But it's not clear yet is whether the bond bulls or bond bears will prevail here. The red wave count calls for a drop back down below the October low as it continues its multi-year decline towards 1%. A break below the mid-December low near 3.25% would be a sell signal (buy signal on bonds) and a failed bullish pattern (the triangle) often fails hard.

The news that Portugal was able to sell its debt (albeit at a higher interest rate) sent waves of relief through the banking community, including U.S. banks. The BIX has now bounced hard to correct the initial decline from last week's high, which was right in the 152.96-153.65 Fibonacci zone that I showed last week (the high on January 6th was 153.56). As of today's high (152.13), BIX has retraced 78.6% (152.10) of the decline. If it can press higher it could retest its high and the broken uptrend line from mid December, which fit as the bottom of a rising wedge. As long as it doesn't make a new high the bounce fits as just a correction but a new high opens up the door to 160-165 to test the April highs.

Banking index, BIX, Daily chart

The price pattern for the TRAN's "rally" from December is very choppy and it supports the idea that it's in an ending pattern for its rising wedge pattern from July. It remains bullish as long as it remains inside its rising wedge but the bearish divergence and choppy price action tells me it's close to finishing. A break below 5100 is needed to confirm we've seen the high and then the risk is for a relatively fast retracement of the wedge-- back down to the August low near 4000 (24% decline). That's not a prediction but it is the risk.

Transportation Index, TRAN, Daily chart

With the "good" (OK, less bad) news about Portugal finding willing buyers for its debt, the euro got a nice bounce and the U.S. dollar tanked. So far the dollar's pullback from Monday's high fits as a correction of the leg up from December 31st and the rally should resume even stronger once the pullback completes. The bullish pattern would be negated with a drop below the December 31st low near 78.77.

U.S. Dollar contract, DX, Daily chart

The dollar's strong pullback has given commodities a boost and the commodities index, CRB, looks like it wants to try for the upside target zone that I've been showing recently--at 337.06-340.84. This is the 50% retracement of the 2008-2009 decline and two equal legs up from February 2009, respectively. The wave count looks best with the new high and the Fibs fit well for a high of importance here.

Commodity index, CRB, Weekly chart

While the broader commodity index is registering a new high, gold is not. The bounce off last Friday's low looks like a correction of the decline from January 3rd. It's currently testing the broken uptrend line from mid November, which I am calling the bottom of its rising wedge pattern that concluded its rally from 2008. A break below 1352 and its uptrend line from October 2008, currently near 1336, should be followed by accelerated selling.

Gold continuous contract, GC, Daily chart

Oil seems to be following the commodities index as it presses back up towards its high at 92.58 on January 3rd (today's high was 92.39). Its price pattern is not at all clear and I could argue equally strongly for a push higher to about 95 as I could for a decline from here that strongly breaks below the key level to the downside at 87. We could see choppy price action in between.

Oil continuous contract, CL, Daily chart

Tomorrow morning's economic reports include PPI numbers and it could move the market if there's a big bump up in inflation. That would spook traders into thinking the Fed might feel they'll have to back off on their QE program. At this point no surprises are expected.

Economic reports, summary and Key Trading Levels

Summarizing tonight's charts, it would look best if the market presses a little higher on Thursday as that would do a good job completing some short-term price patterns to the upside and get the indexes tagging some potentially important target levels/resistance. But don't get complacent about new highs tomorrow in front of the INTC earnings report after the close. Whether we get a sell-the-news reaction or not, that's the way the charts are setting up. And the significance is that the setup is for a possible major high, especially if we see multiple rising wedges start breaking to the downside.

The market has been bullish and remains bullish. So the warning above is simply that. We've seen time and again where the market rallies up to resistance, looks like it could tip over and then instead blasts higher (usually with the help of short covering following an overnight rally in the futures). This formula could work for a lot longer and I know many of you think it's foolish to even think about fighting the Fed. It's not the Fed I'm fighting. It's bullish sentiment among the traders who Think it's the Fed. The Fed can't hold this market up by themselves and while some money trickles into the stock market through the primary dealers, it's the expectations of a Fed-induced rally that keeps people buying and throwing caution to the wind (as represented in the multiple sentiment reports we read and a few that I've shown). It's complacency that kills bull markets and complacency reigns supreme right now.

Therefore stick with the bulls while it's working but stay aware that the risk is increasing (I believe) for a downside disconnect where we open down and sell hard for the rest of the day. If you don't have stops in place, which can be triggered even if the market gaps below your stop, you could find a nasty surprise at the end of the day. Use conditional orders to protect your positions. While this top has been incredibly difficult to find, I've been through enough of them to realize this one in particular could be the most dangerous for bulls. There's just too much bullish sentiment and complacency and trust in the Fed.

I'll throw out one more interesting statistic. A friend of mine, Ed, is writing a book on George Lindsay and had this to share with me:

"As part of my research for my book on George Lindsay, I was reading his newsletter from 5/21/71 last night. It appears (to me) to apply to our current situation.

Quoting Lindsay, "If we count, not just from an ordinary bear market low, but from a really epochal bottom, there has always been a sharp break eight years later -- a break so deep and rapid we can say that both an important high and an important low came within two or three months of each other. The crash of 1929 came eight years after the 1921 low. Eight years after the all-time low of 1932, the market really plummeted in May-June 1940, when Germany invaded France. The low of 1942 marked the end of a five year bear market, and stocks plunged in June-July 1950, when the Korean War broke out. The break of 1957 came eight years after the major low of 1949. When we count eight years from the low of 1962, we come to the spring of 1970, and again the market took a nosedive."

"Note that the break can occur at any stage of the market cycle: in 1929, it came at the top, in 1940 during a bear market, in 1950 during a bull market and in 1970 at the bottom. It makes no difference."

As Ed has stated to me, "Our last epochal bottom was late 2002 or early 2003 which makes the eight year count end....excuse me, I need to call my broker."

I had posted the above on the Market Monitor earlier in the week and Joe sent me an email with a monthly chart of the S&P 500, showing a big H&S topping pattern, starting with the left shoulder at the 2000 high. He was just wondering about the possibility when he read the above from George Lindsay. Look at the monthly chart of the DOW or SPX and you'll see it. I'm not predicting, I'm just sayin'...

So stay sharp and enjoy the ride higher if you're long. Just don't get complacent and be quick to sell and ask questions later. Bears need to wait their turn still but I suspect it won't be long and you'll need to be quick.

Good luck and I'll be back with you next Wednesday.

Key Levels for SPX:
bullish above 1277 to 1292-1300
bearish below 1261

Key Levels for DOW:
bullish above 11,750 to 11800-11900
bearish below 11,570

Key Levels for NDX:
bullish above 2330
bearish below 2254

Key Levels for RUT:
bullish above 810
bearish below 777

Keene H. Little, CMT


New Plays

Gaining Altitude

by James Brown

Click here to email James Brown


NEW BULLISH Plays

JetBlue Airways Corp. - JBLU - close: 6.96 change: +0.11

Stop Loss: 6.58
Target(s): 7.45
Current Gain/Loss: + 0.0%
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Airline stocks have managed to hold up pretty well in the face of rising oil prices. The XAL airline index has reversed higher after a bearish breakdown in December. JBLU looks ready to run higher as it bounces from what looks like a short-term bull-flag pattern. On a short-term basis JBLU could make a run at its 2010 highs. Any strength could spark a short squeeze. The most recent data listed short interest at 21% of the 228 million-share float.

I am suggesting very small bullish positions now. We'll use a stop loss at $6.58. Our target is $7.45. We want to exit in front of the late January earnings report.
FYI: The Point & Figure chart for JBLU is bullish with a $12 target.

Open Small Bullish Positions Now (at current levels)

Suggested Position: JBLU stock @ current levels

- or -

Buy the 2011 February $7.00 call (JBLU1119B7) current ask $0.35

Annotated chart:

Entry on January 13 at $xx.xx
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 3.5 million
Listed on January 12th, 2010


In Play Updates and Reviews

Stocks Surge to New Two-Year Highs

by James Brown

Click here to email James Brown

Editor's Note:
The market is breaking out to new two-year highs thanks to a widespread rally. Our banking candidates look strong. I have updated stop losses on ALK, C, and F.

-James

Current Portfolio:


BULLISH Play Updates

Automatic Data Processing - ADP - close: 48.98 change: +0.63

Stop Loss: 45.45
Target(s): 49.75, 52.50
Current Gain/Loss: + 4.7%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/12 update: ADP continues to extend its rally. Shares surged toward the $49.00 level and held there today. Another strong session and ADP will hit our first target at $49.75. I am not suggesting new positions at this time. Keep your position size small to limit your risk.
FYI: The Point & Figure chart for ADP is forecasting a bullish price target of $66.00.

Current Position: Long ADP stock @ $46.75

- or -

Long the 2011 February $45.00 call (ADP1119B45) Entry @ $2.00

01/03: Entry @ $46.75
01/01: New stop loss @ 45.45
01/01: New entry point @ current levels, new option strike (Feb. $45)

Entry on January 3 at $46.75
Earnings Date 01/26/11 (unconfirmed)
Average Daily Volume: 2.8 million
Listed on December 16th, 2010


Alaska Air Group - ALK - close: 63.11 change: +0.90

Stop Loss: 58.75
Target(s): 59.75, 64.90, (option exit 61.75)
Current Gain/Loss: +14.9%
Time Frame: 8 to 9 weeks
New Positions: see below

Comments:
01/12 update: Airline stocks were strong performers today with the XAL index up +1.6%. Shares of ALK rose +1.4% near its highs early this week. I am not suggesting new positions at this time. Please note our new stop loss at $58.75.

Earlier Comments:
We want to sell half of our stock position at $59.75. Sell all of our January options at $61.75. Sell the rest of our stock position at $64.00 (now 64.90).

Current Position: Long ALK stock @ $54.91

01/12: New stop loss @ 58.75
01/08: New stop loss @ 57.75. New target at $64.90
01/07: Option Target Hit @ 61.75. Option @ $3.00 (+87.5%). 01/05: Target hit at $59.75 (+8.8%)
12/21: First target is 59.75, adding second target at $64 for ALK stock.
12/21: Adjusting our only exit target on the calls to $61.75.

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


BB& T Corp. - BBT - close: 26.85 change: +0.32

Stop Loss: 25.80
Target(s): 29.90
Current Gain/Loss: - 1.7%
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
01/12 update: BBT has bounced back toward its simple 200-dma with today's +1.2% gain. I remain cautious on this stock and would hesitate to launch new positions. Our plan was to keep our position size small to limit your risk. Our first target is $29.90. We will have to decide whether or not we want to hold over BBT's earnings in late January.

(small positions only)

Current Position: BBT stock @ $27.32

- or -

Buy the 2011 February $28.00 calls (BBT1119B28) Entry @ 0.90

Entry on January 6 at $27.32
Earnings Date 01/21/11 (confirmed)
Average Daily Volume: 6.4 million
Listed on January 5th, 2010


BE Aerospace Inc. - BEAV - close: 39.20 change: +0.62

Stop Loss: 36.40
Target(s): 43.40
Current Gain/Loss: + 0.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/12 update: BEAV's strength occurred early this morning. Shares were slowly fading lower throughout the rest of the session. I still think that if we're patient and wait we might get a better entry point in the $38-37 zone. We want to keep our position size small to limit our risk. BEAV has some resistance in the $43.50-44.00 zone so we'll set our target at $43.40.
FYI: The Point & Figure chart for BEAV is bullish with a $44.00 target.

Current Position: BEAV stock @ $38.89

- or -

Long the 2011 February $40.00 calls (BEAV1119B40) Entry @ $1.35

Entry on January 11 at $38.89
Earnings Date 02/01/11 (unconfirmed)
Average Daily Volume: 542 thousand
Listed on January 10th, 2010


Popular Inc. - BPOP - close: 3.26 change: +0.06

Stop Loss: 2.75
Target(s): 3.40, 3.95
Current Gain/Loss: + 8.6%
Time Frame: 12 to 16 weeks
New Positions: see below

Comments:
01/12 update: Strength in the banking stocks lifted BPOP to a +1.8% gain. Shares look poised to breakout past recent resistance. Our first target is $3.40. I am not suggesting new positions at this time. Conservative traders may want to raise their stop closer to the 50-dma.

Current Position: Long BPOP stock @ $3.00

- or -

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

12/22: Close over $3.00 is another bullish entry point.
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: 5.08 change: +0.14

Stop Loss: 4.63
Target(s): 5.00, 5.45
Current Gain/Loss: + 7.4%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/12 update: It was a big day for Citigroup with a +2.8% gain. This is the first close over the $5.00 mark in over a year. This should make this stock a lot more attractive for investors. Many firms won't let you buy stocks on margin unless they are over $5.00 and many mutual funds avoid owning stocks that trade under $5.00. Citigroup could see a new surge of buying pressure soon. I am raising our final exit target from $5.35 to $5.45. We will raise our stop loss to $4.75. This remains an aggressive, higher-risk trade. The plan was to keep our 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

01/12: New stop loss @ 4.75, new target at $5.45
01/05: New stop loss @ 4.63
01/05: Target hit @ 5.00 (+5.7%), option @ $0.30 (+50%)

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: 42.00 change: +0.32

Stop Loss: 39.80
Target(s): 44.95, 49.00
Current Gain/Loss: + 4.3%
Time Frame: 12 to 14 weeks
New Positions: see below

Comments:
01/12 update: CBD continues to bounce after Monday's test of the $40 level. I am not suggesting new bullish positions at this time. CBD can be a volatile stock so readers should consider this a higher-risk trade.

NOTE: We may need to reconsider our time frame on CBD. It could take longer than previously expected for shares to hit our targets.

Current Position: Long CBD stock @ $40.25

01/01 new stop loss @ 39.80
12/29 new stop loss @ 39.25
12/21 New stop loss @ 37.90

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


Walt Disney Co. - DIS - close: 39.17 change: -0.23

Stop Loss: 37.49
Target(s): 39.90, 42.50
Current Gain/Loss: + 2.4%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/12 update: DIS is still consolidating and did not participate in the rally on Wednesday. I'm still expecting DIS to correct lower toward $38. I'd wait for a dip closer to $38.00 before considering new bullish positions.

- Current Positions -

Long DIS stock @ 38.25

- or -

Long the 2011 February $40.00 calls (DIS1119B40) Entry @ $0.45

- or -

Long the 2011 April $40.00 calls (DIS1116D40) Entry @ $1.10

01/05: 1st Target Hit. Stock @ 39.90 (+4.3%)
01/05: 1st Target Hit. Feb. call @ $1.20 (+166%). April call @ 1.80 (+63.6%)
01/05: new stop loss @ 37.49
01/04: Play triggered @ 38.25

Entry on January 4 at $38.25
Earnings Date 02/08/11 (unconfirmed)
Average Daily Volume: 8.6 million
Listed on December 25th, 2010


Ford Motor Co. - F - close: 18.71 change: +0.43

Stop Loss: 17.40
Target(s): 18.40, 19.75
Current Gain/Loss: +10.7%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/12 update: It was a big day for Ford with a +2.3% gain and a breakout past recent resistance near $18.50. The next level of potential resistance is the $19.00 area dating back to November 2001. I am raising our stop loss to $17.40. I'm also adjusting our final target down from $19.95 to $19.75. I am not suggesting new bullish positions at this time.

- Suggested Positions -

Long Ford stock @ $16.90

Long the 2011 March $18.00 calls (F1119C18) Entry @ $0.61

01/12: New stop loss @ 17.40
01/10: FYI: our January $17.50 calls opened at $0.93 (+272%)
01/08: Sell the rest of our January calls now! @ $0.89 (+256%)
01/07: Target hit. F @ 18.42. Jan. call @ $0.90 (+260%). Mar. call @ $1.29 (+111%)
01/07: 1st Target Hit. Ford @ 18.42 (+8.99%)
01/05: New stop loss @ 16.49.

Entry on December 23 at $16.90
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 58.7 million
Listed on December 22nd, 2010


FLIR Systems Inc. - FLIR - close: 29.03 change: +0.16

Stop Loss: 27.90
Target(s): 30.90, 33.00
Current Option Gain/Loss: - 0.2%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/12 update: Gains in FLIR today were mild (+0.5%) versus the S&P 500 (+0.9%). My enthusiasm for this trade is waning. Readers may want to wait for FLIR to show a little more strength before considering new positions. FLIR doesn't move super fast but our targets are $30.90 and $33.00.

Current Position: Long FLIR stock @ $29.10

- or -

Long the 2011 April $30.00 calls (FLIR1116D30) Entry @ $1.60

01/10: FLIR provided another entry point near $28.50
01/08: New stop loss @ 27.90

Entry on December 22 at $29.10
Earnings Date 02/10/11 (unconfirmed)
Average Daily Volume: 1.6 million
Listed on December 18th, 2010


JB Hunt Transport Services - JBHT - close: 41.83 change: +0.03

Stop Loss: 38.75
Target(s): 43.50, 46.75
Current Option Gain/Loss: + 3.7%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/12 update: Wednesday was a very quiet session for JBHT with the stock in a narrow range almost the entire session. There is no change from my prior comments. I'm not suggesting new bullish positions at this time. More conservative traders may want to raise their stops closer to the $40 level. I am growing a little worried that JBHT could be forming a bear wedge pattern.

FYI: The Point & Figure chart for JBHT is bullish with a $54.50 target.

Suggested Position: Long JBHT stock @ $40.33

- or -

Buy the 2011 February $40 calls (JBHT1119B40) Entry @ $1.85

12/22 Entry at $40.33
12/21 New Entry Point - Launch Positions Now (open of 12/22)

Entry on December 22 at $40.33
Earnings Date 01/28/11 (unconfirmed)
Average Daily Volume: 1.2 million
Listed on December 13th, 2010


Kansas City Southern - KSU - close: 51.38 change: -0.05

Stop Loss: 47.90
Target(s): 54.75
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
01/12 update: The railroad index was up again on Wednesday. KSU underperformed its peers. We're still waiting for a pullback. I am suggesting we use a trigger to open bullish positions at $50.50. If triggered our target is $54.75. We will have to decide in a couple of weeks if we want to hold over KSU's earnings report. Normally we would prefer to avoid holding over earnings because announcements can bring unnecessary risk.
FYI: The Point & Figure chart for KSU is bullish with a $78.00 target.

Trigger @ 50.50

Suggested Position: Buy KSU stock @ $50.50

- or -

Buy the 2011 February $50.00 call (KSU1119B50) current ask $2.95

Entry on January xx at $xx.xx
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 815 thousand
Listed on January 8th, 2010


Limelight Networks - LLNW - close: 6.26 change: -0.04

Stop Loss: 5.95
Target(s): 6.90, 7.25
Current Gain/Loss: - 1.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/12 update: The market is in rally mode and yet LLNW, our new bullish play, failed to participate. That's a warning sign for the bulls. Shares opened at $6.33 and then faded lower. I'd probably wait for a move past $6.33 or another bounce near $6.00 before initiating new positions.

We want to keep our position size pretty small to limit your risk. While the options do offer a bit more reward here they also offer a lot more risk! You might be happier just trading the stock.

-Small Positions-

Current Position: LLNW stock @ $6.33

- or -

Long the 2011 February $5.00 call (LLNW1119B5) Entry @ $1.45

Entry on January 12 at $6.33
Earnings Date 02/22/11 (unconfirmed)
Average Daily Volume: 1.3 million
Listed on January 11th, 2010


Morgan Stanley - MS - close: 28.71 change: +0.75

Stop Loss: 25.95
Target(s): 29.85, 31.85
Current Gain/Loss: + 6.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/12 update: A rally in the financials boosted MS to a +2.6% gain. Readers may want to consider an early exit in our January calls (either here or near the $29 level). I am not suggesting new bullish positions at this time.

Over the weekend I suggested selling half of our January calls. These opened at $1.12 on Monday (+93%).

Current Position: Long MS stock @ 26.95

- or -

Long the 2011 January $27.50 calls (MS1122a27.50) Entry @ $0.58

- or -

Long the 2011 April $27 calls (MS1116D27) Entry @ $1.64

01/10: Follow up - January calls opened at $1.12 (+93%)
01/08: Sell half of our January calls @ $1.14 (+96%)
01/03: New stop loss @ 25.95

Entry on December 22 at $26.95
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume: 12.2 million
Listed on December 21st, 2010


Microsoft Corp. - MSFT - close: 28.55 change: +0.44

Stop Loss: 26.95
Target(s): 27.45, 29.75
Current Gain/Loss: +11.7%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/12 update: After hovering near $28 for a couple of days MSFT took off again with a +1.5% gain on Wednesday. I am tempted to raise our stop loss again. More aggressive traders could buy MSFT here and use a stop loss near $27.70. For the rest of us (non aggressive traders) I am not suggesting new positions at this time.

Don't forget that we have less than two weeks left on our January calls.

Current Position: Long MSFT stock @ 25.55

- or -

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

01/06/11 raised final exit target to $29.75
01/06/11 new stop loss @ 26.95
12/25/10 new stop @ 25.95
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


Manitowoc Co. Inc. - MTW - close: 13.83 change: +0.05

Stop Loss: 12.30
Target(s): 14.95, 16.25
Current Gain/Loss: + 2.1%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/12 update: MTW underperformed the wider market but shares did continue to inch higher. I'd probably wait for a dip into the $13.50-13.00 zone before initiating new positions. More conservative traders may want to raise their stop to $12.65, just underneath the Dec. 31 low of $12.70. Our targets are $14.95 and $16.25. FYI: The Point & Figure chart for MTW is bullish with a long-term $21 price target.

Current Position: Long MTW stock @ $13.54

- or

Long the 2011 February $14.00 calls (MTW1119B14) Entry @ $0.70

01/08: New stop loss @ $12.30

Entry on January 4 at $13.54
Earnings Date 02/02/11 (unconfirmed)
Average Daily Volume: 2.0 million
Listed on January 3rd, 2010


Mylan, Inc. - MYL - close: 22.60 change: +0.01

Stop Loss: 20.90
Target(s): 22.90, 23.60.
Current Gain/Loss: +3.6%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
01/12 update: Hmm... my intraday chart is showing MYL traded at $23.00 this morning. Yet if you look at the data for the high of the day it's only $22.79. Our first target to exit is $22.90. I'm going to assume the $23.00 trade on my charts is a bad tick. If you're looking for a new bullish entry point I'd wait for a dip near $22.00-21.75.

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.

Current Position: Long MYL stock @ 21.81

- or -

Long the 2011 April $22.00 calls (MYL1116D22) Entry @ $1.25

Entry on January 6 at $21.81
Earnings Date 02/24/11 (unconfirmed)
Average Daily Volume: 9.0 million
Listed on December 20th, 2010


ResMed Inc. - RMD - close: 33.17 change: +0.51

Stop Loss: 32.40
Target(s): 38.00
Current Gain/Loss: - 2.4%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
01/12 update: RMD delivered an oversold bounce just in the nick of time. Traders could buy this bounce but I consider it an aggressive, higher-risk trade. We want to keep our position size small to limit our risk. Our multi-week target is $38.00.

Play is now open!

Current Position: Long RMD stock @ $34.00

- or -

Long the 2011 April $35.00 calls (RMD1116D35) Entry @ $1.55

01/07: Play opened at $34.00

Entry on January 7 at $34.00
Earnings Date 02/03/11 (unconfirmed)
Average Daily Volume: 752 thousand
Listed on January 1st, 2010


Starbucks Corp. - SBUX - close: 32.20 change: -0.06

Stop Loss: 31.70
Target(s): 35.75
Current Gain/Loss: - 0.1%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
01/12 update: Uh-oh! SBUX failed to participate in the widespread market rally on Wednesday. Even some positive analyst comments couldn't get the stock moving higher. This is a warning signal. I am not suggesting new positions at this time.

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.

Suggested Position: Long SBUX stock @ $31.25

- or -

Long the 2011 January $33.00 call (SBUX1122A33) Entry @ $0.55
Long the 2011 April $34.00 call (SBUX1116D34) Entry @ $1.30

01/03/11 New target at $35.75
12/27/10 Trigger hit @ 32.25
12/25/10 new trigger 32.25, new stop 31.70

Entry on December 27 at $32.25
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume: 7.1 million
Listed on December 8th, 2010


Sony Corp. - SNE - close: 36.40 change: +0.04

Stop Loss: 34.95
Target(s): 37.75, 39.75
Current Gain/Loss: + 2.2%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/12 update: Traders bought the dip near $36.00 this morning. SNE looks poised to breakout past short-term resistance near $36.40 soon. Cautious traders may want to wait for a move over $36.50 before initiating new positions.

Current Position: Long SNE stock @ $35.60
- or -
Long the 2011 APRIL $35 calls (SNE1116D35) Entry @ $2.26

01/08 New stop loss @ 34.95
01/01 New stop loss @ 34.75
12/22 Triggered @ $35.60
12/21 New trigger @ 35.60, New stop @ 34.40

Entry on December 22 at $35.60
Earnings Date 02/03/11 (unconfirmed)
Average Daily Volume: 888 thousand
Listed on November 23rd, 2010


SXC Health Solutions - SXCI - close: 44.31 change: +0.31

Stop Loss: 42.40
Target(s): 49.00
Current Gain/Loss: - 0.0%
Time Frame: 8 to 9 weeks
New Positions: see below

Comments:
01/12 update: It's taken a couple of days but we're right back to where we started with SXCI. Shares are bouncing from short-term support. I would consider new positions here. There is potential resistance at the December highs near $45.75 but we're aiming for $49.00.
FYI: The Point & Figure chart for SXCI is bullish with a $62.00 target.

NOTE: Buying the options is a higher-risk trade. The calls on SXCI have wider than normal spreads put option traders at a disadvantage here.

Suggested Positions: Long SXCI stock @ $44.31

- or -

Long the 2011 February $45.00 calls (SXCI1119B45) Entry @ $1.44

Entry on January 10 at $44.31
Earnings Date 03/03/11 (unconfirmed)
Average Daily Volume: 292 thousand
Listed on January 8th, 2010


WellCare Health Plans, Inc. - WCG - close: 31.01 change: -0.59

Stop Loss: 29.40
Target(s): 33.75, 37.75
Current Gain/Loss: + 0.8%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/12 update: Ouch! I warned readers to expect some profit taking but it still hurts to see it when the rest of the market is in rally mode. Look for WCG to find support near $30.00 where we can look for a new entry point. Keep in mind that investors will have to decide whether or not they are willing to take the risk of holding over WCG's earnings report in late February.
FYI: The Point & Figure chart for WCG is bullish with a $41 target.

Current Position: WCG stock @ $30.75

- or -

Long the 2011 March $35.00 calls (WCG1119C35) Entry @ $0.60

01/06: Play triggered @ 30.75.

Entry on January 6 at $30.75
Earnings Date 02/17/11 (unconfirmed)
Average Daily Volume: 410 thousand
Listed on January 4th, 2010


Wells Fargo & Co - WFC - close: 32.01 change: +0.61

Stop Loss: 30.40
Target(s): 29.25, 32.75
Current Gain/Loss: +19.0%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/12 update: Strength in the banking sector helped WFC to a +1.9% gain. The January high (so far) is near $32.50. I would seriously consider exiting our January calls near this level. Whether or not WFC makes it to $32.50 or our final exit target at $32.75, I am thinking we want to exit our January calls before Friday's close this week (just two more days). Those of you trading the stock could aim for the $34.00 level but I would not hold over the earnings report on January 19th. I am not suggesting new positions at this time.

Current Position: Long WFC stock @ $26.88

- or -

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

01/08: Consider exiting the call position now.
01/05: New stop loss @ 30.40, final target adjusted to 32.75
12/22: New stop loss @ 28.90, New final target @ 32.90
12/21: New stop loss @ 28.49
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