Option Investor
Newsletter

Daily Newsletter, Wednesday, 1/19/2011

Table of Contents

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

Market Wrap

Strong Signs of a Market Top

by Keene Little

Click here to email Keene Little
Market Stats

Last night we had both IBM's and AAPL's earnings reports boosting the after-hours futures and it looked like we were going to be off to the races come Wednesday morning. But as often happens during the overnight session, the rally was at least partially given back and then Goldman Sachs and Citigroup poured cold water on the bulls before the open with their earnings reports. The market started off in the hole and other than the DOW flirting with the flat line for much of the day (thanks solely to IBM's strong rally), the rest of the market had a decidedly bearish day.

Both Goldman Sachs (GS) and Citigroup (C) reported disappointing results, especially fromtheir money-generating proprietary trading desks. I guess it gets tiring and boring when you're given free money and you have to keep outperforming your previous results. Some of the proprietary trading operations are being moved out of their companies so that's going to affect their bottom lines as well.

Citi missed on both revenue and net income. An interesting development for the banks is that their debt has to be valued higher and that resulted in a hit to their bottom line. If you'll remember several quarters in the past they were able to claim it as income when the value of their debt declined since it would theoretically cost less to liquidate their debt at the lower cost.

I thought it was all smoke and mirrors back then and this time it caught them the other way since the debt's value has increased as investors have become more confident in the company's ability to pay it off and therefore Citi had to account for that by subtracting about a billion dollars from their bottom line. What a crazy way to do their accounting. All it means is their earnings reports are at best just a bunch of phony numbers. Morgan Stanley (MS) is going to face the same thing so watch for a disappointing earnings report from them tomorrow morning. As I'll review later, the banking index looks particularly weak at the moment.

The housing reports this morning did not help the negative tone of the morning as construction of new homes dropped -4.3% to an annualized rate of 529K in December. Countering this bad news was good news that permits for new construction climbed +16.7% to an annualized rate of 635K, which is the highest level since last March. But I'm not sure if that's good or bad news. We already have too much inventory and we know spring time is a time when many home buyers look forward to putting their houses on the market. Foreclosures will be climbing and the result of all this will be a further depression in home prices, which have already experienced a worse drop than during the Great Depression. I don't see that improving in the coming year and in fact I think many analysts are pointing to another leg down in home prices. So is it good news that permits are up? And will the permits be converted to actual builds?

Home builder sentiment remains depressed and did not change in January from December's reading of 16. It has remained as low as it is since the expiration of the home-buyer credits. This index needs to get over 50 before we'll have more builders feeling positive than negative about the home building business, and it hasn't been above 50 since April 2006. That's what you call a depression. So that also has me wondering if they got building permits just in case but may not be sure they'll actually break ground. Or at least not without a signed purchase agreement with a healthy down payment. Spec building is probably not in the cards this year.

As for today's trading, the low volume number in the chart above looks to be wrong as the number in my charting program shows total volume just as heavy as yesterday's. Looking at SPY, the volume was heavier today than yesterday's, which had made a marginal new highyesterday. Higher sell volume than buy volume is of course bearish. As I'll review in the charts, the heavier selling volume adds to the evidence that we may have seen the top of the rally. We've still got to see some key levels to the downside break before the bears can claim any victory but today was clearly a notch on the bear's gun and not the bull's.

With the banks weak today, and surprising weakness in the SOX, small caps and even Transports, we're getting some sector signals that all may not be well with our rally so let's see what the charts are telling us after today's little selloff.

Last week I showed the SPX weekly chart and price pushing up towards price-level resistance at the August 2008 highs (1298-1300). The high so far, on Tuesday, is 1296.06. Price has stalled there and it's too early to tell if it will reverse back down from here but that's the setup following the 5-wave rally from July up to this line of resistance. As noted on the chart, it's possible the rally from July is completing an A-B-C bounce pattern off the March 2009 low, making it simply a correction to the bear market (cyclical bull within a secular bear market that has a few more years to run). But we'll have plenty of time to figure out the larger pattern. For now, with the expected completion of the 5-wave move up from July we're due at least a correction of that rally (some Fib retracement), possibly only back to the 200-week MA at 1183 or the November 29th low near 1173.

S&P 500, SPX, Weekly chart

The daily chart below shows the other price projection that I've been watching -- 1291.97, where the 5th wave of the rally from July equaled the 1st wave. So for this reason I've been watching the 1292-1300 area to complete the rally. As shown with the dashed line, there is the potential for a push up to the 1304 area where the top of its rising wedge pattern from August is located on Friday. That remains a possibility as long as SPX stays above 1261, a break of which would tell us the high is in place.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1292 to 1304
- bearish below 1261

SPX closed at the bottom of its parallel up-channel from December 8th and there remains the possibility for another rally leg to a final high around 1304. Based on the multiple sell signals I see in other indexes and sectors I do not believe we'll get a new high but until it breaks below the high on December 7th, near 1272, I can't rule a new high out yet. If we get a bounce and then a break of today's low near 1279 I think it would be strong evidence we've seen the high. In the meantime both sides should be looking for short-term trades until we get a clear signal that the rally has reversed. Trading the upside from here is very risky in my opinion.

S&P 500, SPX, 60-min chart

The DOW's August 2008 high was 11867 and the high so far this month was today's at 11861. If you'll remember, August 2008 was the last chance for bulls to get out of the way before the bottom fell out. It's not at all surprising those August highs are acting as resistance for the DOW and SPX. If the DOW can push a little higher from here I see next resistance near 11950, which is the top of a parallel up-channel for price action since the July low. Currently the DOW is pushing against a trend line along the highs since December 7th and it's showing a good wave count for the completion of a 5-wave move up from November 29th, which in turn completes a 5-wave move up from July. So the setup remains very good for a reversal soon, from either here or slightly higher (shy of 12K). A break below 11570, the January 10th low, is needed to confirm we've seen the high. Bulls can't be complacent here -- this is a very good setup for a reversal from right here, right now.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 11,750 to 11850-11950
- bearish below 11,570

NDX made it up to its 2330 target which is the Fib projection for wave C of a large A-B-C bounce off the March 2009 low where it's 62% of wave A (wave A being the March 2009-April 2010 rally and wave C being the rally from July, the same as shown on the SPX weekly chart above). At the same location it reached the top of a parallel up-channel for price action since November 16th. Yesterday is spiked down in the morning but found immediate support at its uptrend line from December 31st but today it broke that uptrend line (which fits as the bottom of a rising wedge from the end of December), bounced back up in the afternoon to test it and then got slapped back down (for a bearish kiss goodbye), breaking yesterday's low in the process. This has all the makings of an important reversal and further evidence of an important top would be a break back below the October 2007 high near 2239. Until that happens you can see that price remains in an up-channel from mid November.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2330
- bearish below 2239

Other than AAPL's blowout earnings last night, mitigated somewhat by the news about Steve Jobs' medical leave, IBM's earnings after yesterday's close also gave the futures a big boost last night and the stock held its gains after the open (unlike the indexes). The weekly chart for IBM is at a point where we should get either a bullish continuation signal or a bearish reversal signal.

Today's rally for IBM pushed price above the trend line along the highs from 2004 and 2008, which I have as the top of a large rising wedge pattern, the bottom of which is the uptrend line from November 2008. There is also a shorter-term rising wedge with its top as the trend line along the highs since January and November 2010. It's very common to get a throw-over above a rising wedge on a news-related event, such as earnings. If the throw-over doesn't hold then it becomes a reversal signal, which is this case would be a drop back below 150.

International Business Machines, IBM, Weekly chart

In the case of IBM the above setup could be a major reversal signal based on the EW count (completion of a 5-wave move up from November 2008 which in turn could be completing a large A-B-C rally off the October 2002 low. I also show the two Fib extensions (127% and 138%) off the 2008 decline -- these are the common reversal levels to keep an eye on. Price had stalled at the lower one (147.64) and is currently pushing marginally above the higher one (154.40). It's a good setup for a reversal but the bears will need to take advantage of it in the next several days. If the rally continues I would look for 160-163 which is the next Fib confluence zone, the upper level being the 127% extension of its 1999-2002 decline.

The RUT got hammered today, relative to the others. While the DOW was only down -0.1% the RUT was down -2.6%. The white candle on Friday followed by the hanging man doji on Tuesday and the big red candle today completes a 3-candlestick reversal pattern so the risk is now to the downside, especially if its uptrend line from August breaks, currently near 785. Confirmation of a high doesn't come until it breaks below its January 7th low near 777 and it remains possible we'll get another new high inside its rising wedge pattern, with a move up to about 820. If the rising wedge pattern is the correct interpretation it signifies a strong decline ahead, one that will retrace the rally from August quickly.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 810 to 820
- bearish below 777

We're still waiting for resolution on TNX, the 10-year Treasury yield. It has been consolidating since mid December and is forming a descending triangle, which is typically a bullish continuation pattern following the rally from October. The bullish wave count (green) calls for only a minor new high (3.64%) and then a correction of the rally from October so that scenario says we'll see rates stabilize for at least a couple of months. The bearish wave count says the triangle pattern is going to break down instead and a bullish pattern that fails tends to fail hard so a break below 3.25% could signify a strong bond market rally. This might happen if the stock market starts to break down and we see a flight to safety (it would probably be reflected in a dollar rally as well).

10-year Treasury Yield, TNX, Daily chart

The banking index, BIX, had such a pretty setup for a reversal two weeks ago when it tagged its price projection at 153.19, for two equal legs up in an A-B-C bounce off the August low, and the trend line across the highs from September (the top of a rising wedge). But if you're looking to play the short side on the banks it's looking like the 2nd mouse got the cheese after it made a marginal new high on Friday (again testing the top of its rising wedge) and has now confirmed the reversal with a drop below the bottom of the wedge, which is the uptrend line from November 29th. RSI shows a clear bearish divergence left behind at Friday's high. Dare I say stick a fork in this one? Better confirmation of a high in place would be a drop below the January 7th low, so below 146.

Banking index, BIX, Daily chart

The Trannies are also giving us a reversal signal by dropping down out of its rising wedge pattern today. The uptrend line from August is near 5200 and supported it yesterday. It remains possible we'll see a bounce back up for a retest of the line but at this point the break looks important. Confirmation of a top will be a break below 5100. As noted on the other wedges, it calls for a relatively quick retracement of it -- so back to the August low, near 4000, in a faster time than it took to build the wedge. I am of the firm opinion that it will be better to short rallies rather than buy dips once we get confirmation that tops are in place. Having said that, we will have plenty of opportunities to play multi-day bounces and we'll try to catch trades in both directions. It's just that I think once we have confirmed tops in place any long plays will be countertrend and therefore riskier.

Transportation Index, TRAN, Daily chart

The U.S. dollar has been surprisingly weak since the January 10th high. But so far the pattern since November 29th fits as an a-b-c correction to the November rally. Once the current decline finishes, and it might have finished today with the 50% retracement level holding, we should see a strong rally leg follow, one that will likely make it up to the $84 area before pulling back again. It takes a decline below 76.70 to seriously question the upside expectation.

U.S. Dollar contract, DX, Daily chart

Gold (and silver) have seen a little bounce in the past few days but considering the large drop in the dollar I think it's telling that the metals did not get a bigger bounce. I think it points to the bearish pressure that we'll see on the metals going forward, which is what the price pattern has been pointing to. I've drawn in a short-term downtrend line on the gold chart, which is currently just above today's high near 1379, as this should act as resistance if we've got more selling directly in front of us. The wave count is building towards a strong decline from here if it's unable to break the downtrend line. A break below 1352 should be followed by a steep decline, one that slices through support at its uptrend line from October 2008, near 1342, and the November 16th low at 1329. Its 200-dma at 1275 should provide a bounce.

Gold continuous contract, GC, Daily chart

If the stock market rolls over from here and the metals head lower we should expect the gold miners to head lower as well. They've been leading gold to the downside and you can see in the weekly chart below how price has broken its uptrend line from October 2009. The blue moving average is the 50-week at 52.45 and that should provide support for a bounce. The below chart is using the log price scale, which is a better one to use when viewing a large price change over a longer period that a weekly chart shows. Compare it to the next chart that follows.

Gold Miners, GDX, Weekly chart, log price scale

Using the arithmetic price scale instead of the log price scale you can see how price is finding support on the trend line. There are clearly traders who use this price scale and it's a good reminder to check both, especially when looking at weekly charts with trend lines. I think there's a good chance it will break from here so any move below Friday's low at 54.61 would be a sell signal. But continue to respect the upside in the meantime, even it will be just a test of the high.

Gold Miners, GDX, Weekly chart, arithmetic price scale

Oil's pattern remains stubborn and difficult to decipher at the moment. I can still make an argument for either a final move up to the $95 area before finishing its rally or a continuation lower from here. Until it's able to break the uptrend line from February 2009, near 87 and the January 7th low, there will remain the potential for another rally leg into February. So I don't see a good trading opportunity in oil yet.

Oil continuous contract, CL, Daily chart

Thursday's economic reports include the usual unemployment claims numbers, which nobody believes anyway. If the market reacts to the numbers it's only because it's feeling twitchy. The reports that come out at 10:00 AM could move the market though so be careful if you're in a trade at that time. The leading economic indicator (LEI) looks to be cooling off and any number even lower than the expected drop could roil the market (or vice versa).

Economic reports, summary and Key Trading Levels

Adding to the bearish picture from the price moves, we've got an additional sell signal from the VIX which had closed below its lower Bollinger Band last Friday and has since rallied back inside the band. This kind of move typically points to a rally in the VIX which of course means a decline in the stock market. This signal did not work in September and October but did occur just prior to the highs in January and April.

As I've mentioned often recently, bullish sentiment has gone through the roof and we've got higher bullish sentiment readings than in 2000 and 2007. TRIN readings are coming in the lowest they've been since just prior to the 1987 stock market crash. Call buying has far exceeded put buying, showing a strong case of complacency where traders do not feel the need for any kind of downside insurance. The following chart shows the 10-dma of the CBOE put/call ratio:

CBOE Total U.S. Equity and Index Put/Call Ratio, chart courtesy Elliot Wave International

You can see in the above chart how low the 10-dma of the put/call ratio is currently -- at the same level as the previous market highs in January and April. Bulls (including analysts) always get the most bullish at market tops and this one is no different. It doesn't mean we're forming a top here and now but when combined with the other signals I'm getting off the price charts I'm certainly very attentive here to the strong possibility.

So, summarizing all these charts, there's a good chance we've seen the market high but it's an early call. Some indexes have given us a clearer sell signal, especially those, like the TRAN, with breaks of their uptrend lines and a drop out of rising wedge patterns. But until we get some confirmation across indexes and breaks of lower key levels we need to continue to respect the upside. This market has had an uncanny ability to turn around sharp 1 or 2-day declines. Call it the Fed or call it Fed believers, it doesn't matter. It only matters that buyers have bravely bought the dips and I doubt they'll stop trying just because we had a 1-day selloff (and not even a selloff in the DOW).

The significance, as I see it, is that the top that we should be forming here or very near here, has the potential to be a very significant one. I know that I'm in the minority on this as most believe we are going to have a bullish year and therefore a good dip will set up a great buying opportunity. I'm from Missouri on this one (the show-me state). Based on the much larger price patterns since 2000 and 2007 I believe the 2009-2011 rally is a cyclical bull within a larger secular bear which should run into about 2016 (most secular cycles run about 16-18 years).

While I don't trade the fundamental picture I do keep track of fundamentals to see how they line up with the technical picture that I see. I think we've got much too large a credit bubble that has yet to be deflated. Housing has not finished correcting. Home foreclosures will increase through 2012 as mortgage resets spike higher this year. Unemployment will remain chronically high. These factors will continue to keep consumers depressed and angry and they simply do not support the notion that we'll have a continuation of the bull market, which should typically last no more than two years and that would have us finishing it in March. I say we're close enough based on the wave pattern.

So, it means when the price pattern turns short-term bearish, which I believe it's getting ready to do, it could be the start of a longer-term bearish move back down. How far down is anyone's guess and I've got a few different ideas about that -- running from a higher low than the March 2009 low to a lower low, depending on the longer-term price pattern that's going to make up this secular bear (such as a big sideways triangle vs. a larger A-B-C move down to a new low). I'm not worried in the least about that right now since the move down should help clarify the larger picture.

In the meantime I think we need to be prepared for the potential for a big move down. That means shorting the rallies will be trading with the trend and buying the dips will be counter-trend trades. There will be lots of money to be made in both directions, and I'll be working hard to set us up for both directions, but clearly in a bear market there's more money to be made in the down moves. So polish off your shorting skills (which may mean buying puts, selling call spreads, buying inverse ETFs or shorting the futures) since we'll be putting them to work "shortly".

Good luck as we finish up opex week (could be a bit of a snoozer the rest of the week) and I'll be back with you next Wednesday.

Key Levels for SPX:
- bullish above 1292 to 1304
- bearish below 1261

Key Levels for DOW:
- bullish above 11,750 to 11850-11950
- bearish below 11,570

Key Levels for NDX:
- bullish above 2330
- bearish below 2239

Key Levels for RUT:
- bullish above 810 to 820
- bearish below 777

Keene H. Little, CMT


New Plays

Could Be A Top

by James Brown

Click here to email James Brown

Editor's Note:

We've been expecting the market to find a top in the second half of January. Today's action in the major indices certainly seems like it could be the beginning of the correction. However, the trend is still up so it's a bit early to start launching a bunch of bearish trades.

I'm not adding any new positions tonight. Nimble traders may want to hedge their bullish portfolio with some bearish positions on the major indices through ETFs (like the SPY, MDY, and IWM). A more aggressive trade on a market correction would be bullish positions on the volatility index (VIX). Or you could just wait and see but I would reconsider your stop loss placement on any bullish positions and consider taking some money off the table.

- James


In Play Updates and Reviews

Planned Exit

by James Brown

Click here to email James Brown

Editor's Note:
It was a rough day for stocks with big declines in financials and technology. We had a planned exits for a few candidates today. I'm also suggesting we sell our calls on ADP. Meanwhile NDAQ hit our trigger to open positions. There are new stop losses for JBHT, MSFT, and SXCI.

-James

Current Portfolio:


BULLISH Play Updates

Automatic Data Processing - ADP - close: 48.71 change: -0.25

Stop Loss: 46.75
Target(s): 49.75, 52.50
Current Gain/Loss: + 4.1%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/19 update: ADP held up pretty well considering the market's widespread decline on Wednesday. I am concerned that if the market corrects we could see ADP pull back toward the $47.00 level. I am suggesting we go ahead and take profits (exit completely) on our February $45.00 calls right now (current bid is $3.80 (+90%)).

I am not suggesting new bullish positions at this time. Our plan was to keep your position size small to limit your risk.

Current Position: Long ADP stock @ $46.75

- or -

2011 February $45.00 call (ADP1119B45) Entry @ $2.00. Exit.

01/19: Take profits on call options @ $3.80 (+90%).
01/15: New stop loss @ 46.75
01/03: Entry @ $46.75
01/01: New stop loss @ 45.45
01/01: New entry point @ current levels, new option strike (Feb. $45)

chart:

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


Alaska Air Group - ALK - close: 62.68 change: -0.29

Stop Loss: 59.95
Target(s): 59.75, 64.75, (option exit 61.75)
Current Gain/Loss: +14.5%
Time Frame: 8 to 9 weeks
New Positions: see below

Comments:
01/19 update: ALK is also holding up pretty well. The stock failed near $64.25 again today and shares look poised to dip toward $60.00. More conservative traders may want to exit now. We only have a few days left as we plan to exit ahead of the late January earnings report. I am not suggesting new positions at this time. Our final target is $64.75.

Current Position: Long ALK stock @ $54.91

01/19: More conservative traders may want to exit now @ 62.68
01/15: New stop loss @ 59.95, Final Target adjusted to $64.75
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 01/25/11 (confirmed)
Average Daily Volume: 331 thousand
Listed on November 20th, 2010


BE Aerospace Inc. - BEAV - close: 39.45 change: -1.16

Stop Loss: 37.75
Target(s): 43.40
Current Gain/Loss: + 1.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/19 update: Uh-oh! It was a nasty day for BEAV with a -2.8% decline. Shares have reversed yesterday's bullish breakout over $40.00. More conservative traders may want to exit right now. I am not suggesting new bullish positions. Look for short-term support near $38.00. Our stop loss is at $37.75. We wanted to keep our position size small to limit our risk.

Current Position: BEAV stock @ $38.89

- or -

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

01/15: new stop loss @ 37.75

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


CA Technologies - CA - close: 25.50 change: +0.05

Stop Loss: 24.19
Target(s): 26.65, 27.90
Current Gain/Loss: + 1.1%
Time Frame: 6 to 7 DAYS
New Positions: Yes, see below

Comments:
01/19 update: CA was showing some relative strength with a new 52-week high. I'm concerned that this stock could see some volatility tomorrow. The reaction to FFIV's earnings report tonight is sparking some huge profit taking across the technology sector. Right now I'm not seeing any reaction in CA's stock afterhours but that doesn't mean shares will be safe tomorrow. Readers may want to wait for a dip or a bounce near $25.00 before considering new positions. Just keep in mind that we plan to exit on January 25th at the closing bell to avoid holding over CA's earnings report that evening.

Current Position: Long CA stock @ $25.21

- or -

Long the 2011 February $25 calls (CA1119B25) Entry @ $1.00

Entry on January 18 at $25.21
Earnings Date 01/25/11 (confirmed)
Average Daily Volume: 2.4 million
Listed on January 15th, 2010


Walt Disney Co. - DIS - close: 39.09 change: -0.30

Stop Loss: 37.85
Target(s): 39.90, 42.50
Current Gain/Loss: + 2.2%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/19 update: The bounce from $39.00 has failed and DIS looks poised to breakdown under short-term support at this level. If $39 breaks then it will probably be a fast decline to the next level of support near $38.00. Cautious traders may want to exit their call option positions early right now while these positions are still in positive territory. I'm not suggesting new positions at this time.

Our first target has already been hit. We're currently aiming for $42.50.

- 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

01/19: Consider an early exit from the option positions.
01/15: New stop loss @ 37.85
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


FLIR Systems Inc. - FLIR - close: 29.36 change: -0.36

Stop Loss: 28.49
Target(s): 30.90, 33.00
Current Option Gain/Loss: + 0.8%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/19 update: FLIR spiked lower at the open but didn't see a lot of follow through. Overall the trend is still up in spite of today's decline. Yet I would seriously consider an early exit from our April call position now (current bid $1.30) to minimize losses. I am not suggesting new positions at this time.

Current Position: Long FLIR stock @ $29.10

- or -

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

01/19: Consider an early exit from the option position (bid $1.30)
01/15: New stop loss @ 28.49
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: 41.55 change: -0.97

Stop Loss: 40.95
Target(s): 43.50, 46.75
Current Option Gain/Loss: + 3.0%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/19 update: JBHT just erased over three days of gains with today's drop. More conservative traders may want to exit early right here. I am not suggesting new positions at this time. The low today was $41.23. I am raising our stop loss to $40.95.

Current Position: Long JBHT stock @ $40.33

- or -

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

01/19: New stop loss @ 40.95
01/15 New stop loss @ 40.75
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


Microsoft Corp. - MSFT - close: 28.47 change: -0.19

Stop Loss: 27.85
Target(s): 27.45, 29.75
Current Gain/Loss: +11.4%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/19 update: MSFT held up pretty well considering the negative analyst comments out today. Shares were actually bouncing from its lows late in the session. I'm not suggesting new bullish positions at this time. Reaction to FFIV's earnings report tonight has sparked some heavy selling across the technology sector. I wouldn't expect MSFT to be affected but you never know.

The low on January 14th was $27.91. I am raising our stop loss to $27.85. More conservative traders may just want to take profits now and exit.

Current Position: Long MSFT stock @ 25.55

01/19/11 New stop loss @ 27.85
01/15/11 New stop loss @ 27.49
01/14/11 Follow up. Exit Jan $25 calls @ 3.25 (+133.9%)
01/13/11 Plan to exit our January calls tomorrow at the close.
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: 13.36 change: -0.50

Stop Loss: 12.90
Target(s): 14.95, 16.25
Current Gain/Loss: - 1.3%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/19 update: Be careful here. MTW has broken down under what should have been short-term support near $13.50. I'm not expecting a decline toward the $13.00 level. More conservative traders may want to exit early right now to minimize/avoid any losses. I am not suggesting new positions at this time.

Current Position: Long MTW stock @ $13.54

- or

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

01/15: New stop loss @ 12.90
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


NASDAQ OMX Group - NDAQ - close: 23.78 change: -0.62

Stop Loss: 23.24
Target(s): 26.50
Current Gain/Loss: unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see trigger

Comments:
01/19 update: Our new play on the NDAQ has been triggered. Shares went beyond a dip to $24.00 with a -2.5% decline and a drop past its rising 10-dma. Shares are still inside their rising bullish channel but readers may want to wait for a dip or a bounce near $23.50 before considering new bullish positions. It was our plan to keep positions very small to limit our risk.

Current Position: Long NDAQ stock @ $24.00

chart:

Entry on January 19 at $24.00
Earnings Date 02/02/11 (unconfirmed)
Average Daily Volume: 1.5 million
Listed on January 18th, 2010


SXC Health Solutions - SXCI - close: 44.33 change: +0.17

Stop Loss: 42.65
Target(s): 49.00
Current Gain/Loss: + 0.0%
Time Frame: 8 to 9 weeks
New Positions: see below

Comments:
01/19 update: SXCI showed some relative strength today. Traders bought the dip at $43.27 and the stock closed near its highs for the day. The low on January 14th was $42.72. I am raising our stop loss to $42.65. Even though SXCI is showing strength I would not open new bullish positions at this time.

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

01/19: New stop loss @ 42.65

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: 32.24 change: -0.49

Stop Loss: 29.85
Target(s): 33.75, 37.75
Current Gain/Loss: + 4.8%
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
01/19 update: WCG encountered a little profit taking after yesterday's bullish breakout. I don't see any changes from my prior comments. The trend is up but I am not suggesting new positions at these levels.

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.

Current Position: WCG stock @ $30.75

- or -

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

01/15: new stop loss @ 29.85
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


CLOSED BULLISH PLAYS

BB & T Corp. - BBT - close: 27.29 change: -0.20

Stop Loss: 26.75
Target(s): 29.90
Current Gain/Loss: - 0.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/19 update: Our plan was to exit our BBT positions today at the closing bell to avoid holding over the company's earnings report later this week. Our plan was to keep our position size small to limit your risk.

(small positions only)

Closed Position: BBT stock @ $27.32, exit @ 27.29 (-0.1%)

- or -

2011 February $28.00 calls (BBT1119B28) Entry @ 0.90, exit @ 0.68 (-24.4%)

01/19: Planned exit on Wednesday.
01/18: Tomorrow is our last day. Prepare to exit.
01/15: New stop loss @ 26.75

chart:

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


Popular Inc. - BPOP - close: 3.17 change: -0.05

Stop Loss: 3.04
Target(s): 3.40, 3.95
Current Gain/Loss: + 5.6%
Time Frame: 12 to 16 weeks
New Positions: see below

Comments:
01/19 update: Financial stocks continue to retreat and BPOP gave up -1.5%. It was our plan to exit our BPOP position today, Wednesday, because we couldn't find the company's earnings report date and there was a chance BPOP might report tomorrow. We did not want to hold over the announcement.

FYI: The April $3.00 calls are bidding $0.34 (+0.0%).

Closed Position: Long BPOP stock @ $3.00, exit @ 3.17 (+5.6%)

- or -

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

01/19: Early Exit. BPOP +5.6%. Option @ $0.34 (+0.0%)
01/18: Prepare to exit at the close tomorrow
01/15: New stop loss @ 3.04
12/22: Close over $3.00 is another bullish entry point.
12/18: New stop loss @ 2.75

chart:

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


Morgan Stanley - MS - close: 27.75 change: -1.00

Stop Loss: 27.49
Target(s): 29.85, 31.85
Current Gain/Loss: + 2.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/19 update: Investors were unhappy with the earnings news from Goldman Sachs (GS) and the financial sector struggled for it. Shares of MS plunged -3.4% in reaction to the GS news. It was our plan to exit our bullish positions in MS tonight at the close to avoid holding over MS' earnings report.

Closed Position: Long MS stock @ 26.95, Exit $27.75 (+2.9%)

- or -

2011 April $27 calls (MS1116D27) Entry @ $1.64, Exit $1.98 (+20.7%)

01/19: Planned exit on Wednesday.
01/15: Take Profits. Exit Jan. calls @ 1.63, half April calls @ 2.82
01/15: Sell half of our stock position @ 28.98 (+7.5%)
01/15: New stop loss @ 27.49
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

chart:

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