Option Investor
Newsletter

Daily Newsletter, Saturday, 4/2/2011

Table of Contents

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

Market Wrap

Market High On Jobs

by Jim Brown

Click here to email Jim Brown

Fear of the weekend may have knocked a few points off the indexes ahead of the close but Dow Industrials, Dow Transports and the Russell 2000 hit new highs intraday.

Market Statistics

There were three things moving the market on Friday. Jobs, oil prices and Federal Reserve speakers. Oil closed at a new 2.5 year high and jobs came in slightly higher than expected. Fed speakers continued their war of words as hawks and doves sparred in the press with competing views for the end of Fed stimulus. The Dow and Russell hit new highs on the first day of the quarter and fund managers should be very pleased. Now the hard work begins. Can they keep the markets moving higher or will the "sell in May and go away" crowd decide to take profits early and exit in April?

The NonFarm Payrolls showed a gain of +216,000 jobs in March. That was slightly more than the 185K to 200K estimates and the unemployment rate declined to 8.8% and the lowest since early 2008. The private sector added +230,000 jobs but the government sector lost -14,000. This is the first time we have seen back-to-back private sector job gains over 200,000 in more than five years. The manufacturing sector saw its fifth consecutive month of increases with +17,000 new jobs in March.

This was a good report although not quite as strong as most traders would have liked. It takes job gains of 150,000 per month to absorb new workers graduating into the work force plus newly immigrated workers. Just holding over 200,000 is not that positive long term but it is one more step in the right direction. We need to see job gains in the +350,000 range to really see an improvement in unemployment.

Payroll Chart

After the payroll report we saw speeches from two Federal Reserve presidents on opposite sides of the policy spectrum. New York Fed president William Dudley said the upturn in the economy as shown in the jobs data was a clear reason to continue the Fed's loose monetary policy rather than end it. Dudley said the +216,000 jobs number was a "notable" improvement and evidence the $600 billion QE2 program was successful. "We provided additional monetary policy stimulus via the asset purchase program to help ensure that the recovery regained momentum," Dudley said. "A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking. This is welcome and not a reason to reverse course."

He said the problems in Japan, the Middle East and Northern Africa and the severe austerity measures in the Eurozone would continue to weigh on the U.S. and there is "no reason to be overly optimistic about the outlook for economic growth." He said rising commodity prices would only raise inflation on a temporary basis and should be transitory. Merrill Lynch said they would favor Dudley's outlook as evidence of continued policy stimulation and ignore that of Lacker and others. As president of the NY Fed, Dudley has the clout and respect for his views. He is a permanent voting member of the FOMC.

BAC said the hawks on the Fed have sent a long string of false signals to the markets over the last couple of years. Second, chairman Bernanke has made it clear the Fed will move in measured steps as it heads for the exit. Bernanke wants to see how the markets react to one action before piling one move on top of another. The bank also sees this slow exit strategy as very bullish for the economy.

Meanwhile Philly Fed President Plosser was cautioning on leaving rates low too long and suggested the FOMC could hike rates in 2011. Most analysts believe it will be 2012 before they take any action. Plosser said the Fed should not be too sanguine in believing the time to reverse easy monetary policy is a long way off and it will be gradual.

Richmond Fed president Jeffrey Lacker also said he would not be surprised if the Fed hiked rates before year-end. He also said the QE2 program should be reviewed with an idea on how to end it early. He said at some point the Fed will need to pull back from asset purchases and begin asset sales and that could happen this year.

Minneapolis Fed President Narayana Kocherlakota told the Wall Street Journal on Thursday the Fed could raise rates by 75-basis points by year-end. He is a voting member of the FOMC and he has recommended letting QE2 end on schedule.

I can't remember when we have had so many high profile Fed speakers with such divergent views. There were 14 speeches by Fed presidents last week and eight next week. Any one of them could move the market significantly. You can bet that each one has dissected the speeches made by their peers last week and will be including points in their coming speeches to counter points made by those with differing views.

The next Fed meeting is not until April 27th but it promises to be a fireworks show. I can't even imagine how much pre-meeting market volatility we are going to see as the competing Fed speakers try to make their points in the press ahead of the FOMC meeting. This is even more critical because Bernanke will be holding his first ever post FOMC press conference after the announcement and it promises to be must see TV. When the market reacts negatively to a minute change in phraseology in the FOMC statements, what is it going to do when the Fed head takes 30 minutes to respond to pointed questions and has to answer without a prepared statement? I would not want to be long for that event.

The other report out on Friday morning was the ISM Manufacturing Index. The index slipped two tenths of a point to 61.2 from 61.4 but remained solidly in expansion territory. Orders decreased slightly to 63.3 from 68.8 but production increased from 66.3 to 69. The backlog fell from 59.0 to 52.5 mostly due to the acceleration in production and the ability to get the orders out the door quicker. This was a positive report and it suggests the manufacturing sector is still growing. Remember, the February print at 61.4 was the highest level since 2004. Only giving up two-tenths of a point is bullish.

ISM Chart

Late Friday afternoon manufacturers reported auto sales for March. Ford beat GM in percentage sales gains for only the second time since 1998. Overall auto sales rose +13% in March despite rising fuel prices. Ford saw a +19% rise in sales to 212,777 vehicles. GM saw a +9.6% gain to 206,621 vehicles. For the entire first quarter GM sold 592,545 vehicles to Ford's 496,720. Chrysler beat them both with a percentage gain of +31% but with only 92,623 vehicles. It was the company's best sales month since May 2008. Honda posted a gain of 18.9% to 133,650.

Manufacturers said sales of small economical cars had spiked and inventories were low thanks to the sudden rise in fuel prices. However, they said overall sales slowed later in the month as those fuel prices took off. Sales of light trucks and SUVs slowed dramatically towards month end.

Next week's economic calendar is very light with more Fed speeches than economic reports. The only major economic report is the ISM Services on Tuesday. With earnings not starting until the following week there will be little to energize traders other than Fed speculation.

Economic Calendar

The jobs report and the comments from Fed presidents caused a monster spike in the dollar at the open with the dollar index gaining nearly a full point before further Fed speak knocked the props out and the crash began. All the gains were lost and the dollar closed with a loss for the day.

Dollar Chart

The rise in jobs, drop in the dollar and rebel losses in Libya powered oil prices to new 30-month highs. U.S. WTI closed over $108 and Brent is nearly $119. However, of the top 50 or so energy stocks I monitor daily, only five were up more than $1. This has been a good week for energy stocks so profit taking ahead of the weekend was not unexpected.

The price of oil was being supported by a request for a ceasefire by the Libyan rebels. Apparently the three-day advance by Libyan tanks and troops has recaptured several important cities freed by the rebels early last week. Coalition forces have been unable to fly for the last three days because of bad weather. This has allowed the Libyan military to charge forward with their armor and massive firepower advantage. In fear of being overrun the rebels requested a ceasefire in order to hold the ground they have while a formal agreement is being worked out. Gaddafi immediately refused the ceasefire offer and continued to push forward with tanks and artillery.

To further complicate conditions on the ground the U.S. is going to pull all its forces out of Libya including the fighter planes that had been so effective on Gaddafi's armor prior to the bad weather. According to Defense Secretary Robert Gates and Joint Chiefs of Staff Admiral Mike Mullen, the American combat mission would end on Saturday. Nato partners and other coalition nations are expected to pick up the slack and continue to fly missions over Libya.

To the uneducated observer it would appear the best days for the rebels and their revolution could be over. If Gaddafi is allowed to continue shelling towns and reducing them to rubble the rebel's desire to fight is going to evaporate. Unless something changes drastically next week it appears Gaddafi will remain in power or the revolution will morph into a long drawn out civil war. Either way oil production may not be back this year.

U.S. gasoline prices rose to a national average of $3.61 on Friday and there is a very good chance they will be going higher.

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

WTI Crude Oil Chart

Brent Crude Prices

There was very little stock news on Friday. This is the quiet period before earnings so news is very light. The big deal monopolizing the headlines was the Nasdaq/ICE offer for the NYSE Euronext. The pair announced an unsolicited $11.3 billion cash and stock bid for the NYSE in an effort to derail plans to merge with Deutsche Borse.

Nasdaq and ICE expect to save about $740 million over three years plus improve operations through significant consolidation of effort. Under the terms of the deal the Nasdaq would acquire the NYSE and other stock related businesses while ICE would acquire the NYSE derivatives unit, known as Liffe. The combined Nasdaq NYSE would be called Nasdaq NYSE Euronext. The firm would retain the NYSE floor operation and the Nasdaq electronic trading platform.

The $42.50 per share cash/stock offer trumps the $35.29 all stock offer from Deutsche Borse. Both companies have previously failed in takeover attempts. The Nasdaq tried to buy the London Stock Exchange and failed. ICE tried to buy the Chicago Board of Trade that went to the CME instead. If they are successful this time they will have to pay a $355 million breakup fee to Deutsche Borse. Moody's downgraded Nasdaq debt to negative from stable because of the amount of debt required for the transaction. The Nasdaq already has $2.2 billion in debt.

NYSE Chart

Apple shares declined -$4 after a web security company said it found the LizaMoon virus on the iTunes.Apple.com website. The LizaMoon virus has infected as many as four million websites in the last couple days. Apple claims it has software specifically designed to kill these types of viruses but the carrier content was found on the iTunes site. The virus inside that content may have been neutralized but the script still exists.

The LizaMoon virus is a SQL injection attack where a web application vulnerability is exploited to inject malicious code into affected websites. If you visit that website it will redirect your browser to a rogue website that in the case of LizaMoon tries to install a "scareware" file. The file generates a message warning the user that their computer is infected by a virus and directs them to another website that sells a program to "clean" your computer of viruses. It is actually relatively harmless as viruses go but any virus on iTunes provokes a knee jerk reaction.

While I am sure the virus news had some impact on the stock thanks to the news feeds trying to find something to report on Friday, I thought the intraday selling in Apple was related to a big sell program that hit the market at 2:30. The sell program appeared to target big cap stocks and I suspect it was a fund unwinding its quarter end window dressing. When you consider the event risk over the weekend I am surprised there was only one sell program. You would have thought there would have been a dozen taking profits from the window dressing.

Apple Chart

OEX Chart

Logitech (LOGI) was downgraded to hold by Oppenheimer after the company warned of lower sales and earnings. Logitech now expects revenue to be around $2.36 billion and their prior forecast was $2.41 billion. Profits are expected to drop to $145 million from the prior median estimate of $175 million. The company said weak sales in the Middle East, Africa and Europe were to blame. Shares fell -19%.

Logitech Chart

F5 Networks saw its estimates lowered by Oppenheimer based on expectations of lower sales after the broker conducted channel checks. Oppenheimer rates them a market perform. William Blair also warned that F5 was seeing slowing demand based on channel checks. Blair said Japan is 8% to 10% of F5 sales and budget cuts by U.S. state and federal governments seems to be impacting the company significantly. They believe the company will warn for the June quarter. FFIV shares fell -9%.

FFIV Chart

The stock stories for Logitech and F5 Networks could be a leading indicator for the month ahead. Japan is a big consumer nation. With 450,000 people currently homeless and living in shelters and panic over the spread of radiation we could see a significant drop in sales of business and consumer products. Eventually there will be a rebuilding period but sales in March-June could be a challenge.

The Middle East and Northern Africa may not be large consuming nations individually but when lumped together they do represent a significant amount of sales volume. We saw Egypt shutdown for nearly a month. Disruptions in countries like Yemen, Tunisia, Bahrain, Jordan, etc have not been as drastic as Egypt or Libya but there have been disruptions in normal product flow.

There is also the problem of parts supply from Japan. Even though most manufacturers are back up and running there was a 2-3 week blip in the supply chain. Auto manufacturers in the U.S. are still closing plants for a week at a time to "conserve parts" or wait on supplies.

We really don't know how the civil unrest in the MENA nations and the earthquake in Japan are going to impact product manufacture or sales for Q1. We may see many more warnings in the weeks ahead.

With the Q1 earnings cycle kicking off on the 11th when Alcoa reports we could see some impact to results. When Intel reports on the 19th the earnings for tech stocks will be moving into high gear. You have to wonder if companies will warn on short notice or simply miss estimates because of one-time charges for "earthquake impairment" or some similar excuse.

After Friday's hit to FFIV and LOGI you have to wonder what money managers are thinking. Do they hold through earnings in hopes of a strong cycle and companies beating the +14% earnings growth S&P is projecting? Or do they bail on fears of a flurry of quake warnings? The Nasdaq indexes are weaker than the rest of the market and could be the leading indicator for quake concerns.

Don't forget the "Sell in May and go away" crowd. With the FOMC meeting and Bernanke press conference on the 27th, do they wait for May?

I don't want to try and predict a market top because there are other writers with much more experience in that than me. However, there are some things to worry about. The first is the potential double top now occurring in the S&P around 1340. If we see any material window undressing next week we may not see that 1340 level again soon. Double tops are easy to see and almost every trader with access to charts can see the potential.

A double top is technical. Add in the fundamental problems with a possible hit to earnings from overseas factors and the impending FOMC meeting and possible change in statement and there are reasons to be cautious.

If I were going to pick a top the two days I would name as possible targets would be April 1st and April 19th. The 1st because we got the short squeeze spike on jobs numbers to a new high on the Dow and there will be no upside news next week. The risk is for more warnings not upside surprises.

The 19th is the day Intel and IBM report. If we make it through next week without a material decline then the next hurdle will be the earnings from those tech giants. If there is any weakness at all in either report I believe investors will run to the exits ahead of the FOMC meeting.

Obviously those are only two scenarios out of dozens but that is the way I see it today. I don't really see the markets continuing to move higher just because the bulls want to rally. Granted they have been buying all the bad news fit to print for two weeks now but there is still a lack of conviction. Volume is terrible. The two lowest volume days of the year were last week. Friday was only 7.1 billion shares and that was the high for the week.

I know a lot of people who are not invested in this market because they are still scared. They believe the deficit matters and the markets are being manipulated. They have missed out on a 26% rally over the last nine months from much lower levels. Odds are good they are not going to jump in today with the Dow up +2700 points from the July lows.

Don't get me wrong. I am still bullish long term. I am just cautious about the next 90 days until we see the reaction to the end of QE2. There are going to be some potholes in the road we are traveling.

April has been up 64% of the time since 1930 and it averages a +1.48% gain. If you were a money manager would you risk your double-digit returns since last August on the chance of capturing another 1.48% gain? I doubt it.

Some analysts believe the end of QE2 could cause a correction of 10-15%. Stocks are up +25% since the Jackson Hole start of the QE2 rally. Unless the economy is literally exploding very soon they believe the odds are good we are going to see a decline before the end of QE2. Money managers will not wait until the end of June to sell just like they did not wait until it started in November to buy. They began in August, two months before the official announcement. Buy the rumor, sell the news. The news will likely be disseminated on April 27th.

On the flip side we have that underinvestment scenario where everyone is waiting for a mythical dip of epic proportions. (If we did get one those same reluctant buyers would run for the hills screaming the sky is falling rather than buy stocks but that is another story.)

For the past 12 months only 50 stocks in the S&P-500 are down more than 5%. This has been a very broad market rally and on low volume. Volume is actually shrinking and it is not even summer yet. This continues to suggest a lack of conviction on the part of buyers and that means a lack of investment. The small dips should continue to be bought but once the fund managers unleash the sell programs the bears will come out of their cages.

I hate to be so cautious the day after the Dow set a new intraday high but we have to look at all the facts not just a single candle on a chart. I hope I am wrong and none of those possible scenarios come true. The major brokers are still predicting 1350 to 1530 on the S&P before the year is out. All of those expectations require the U.S. economy to move from simmer to boil relatively quickly or those estimates will be coming down.

We have had a great seven month rebound and on the surface it would appear the March decline was a exactly what we needed to build a base for the next leg higher just like we saw in October. There are positive signs suggesting the rally could continue so we can still look at the glass half full as well.

The Dow Transports ($TRAN) broke out to a new two-year high at 5400 on Friday at the same time the Dow was making a new two-year high. If the Dow had held above 12,391 that would have been a confirmation of a new bull move according to Dow theory. The Dow missed that close by -15 points but I suspect nobody cares.

The Russell 2000 broke out to a new four-year high at 850 intraday and closed at 846. This is VERY bullish. The Russell has gained nearly +10% since March 16th. Can you say, "overextended?" However, nothing is more indicative of bullish sentiment than a new four-year high on the Russell. The all time high is 855.77 on July 13th 2007.

To summarize we have a mostly bullish market, techs excepted, moving into a fundamental minefield of earnings and Fed action, with volume at the lows for the year. What could possibly go wrong?

The S&P moved over 1331 and the resistance from late February but it could not hold its gain. The S&P nearly touched 1338 but declined to close on 1332. Is that enough to claim a breakout over 1331? I doubt it although I am glad it closed over that level rather than under it. If something happens over the weekend to push us back below 1331 I think the outlook turns cloudy. Similarly if we gap higher on Monday because Gaddafi falls off his balcony then 1331 becomes real support. I think more than any other week our futures are going to be tied to the news headlines. S&P 1343 was the February high close. Market trivia: Did you know that 1333.58 was exactly a +100% rebound from the March 2009 low at 666.79?

S&P Chart

The Dow moved to a new two year high intraday over 12,391 but pulled back at the close when a sell program knocked -40 points off the index. A close over 12,391 would have triggered a bullish Dow Theory event since the Transports were also breaking out to a new high.

I don't believe the decline was meaningful. However, look at the green candles since mid March in the chart below. That is classic overextension and the potential for a double top. If the Dow did find traction and move back over 12,400 I would expect it to keep going since the short covering would be strong. When you weigh the pros and cons the odds of it moving higher and holding the gains for the rest of the year are pretty close to zero. Initial support should be 12,250.

Dow Chart

The Nasdaq is the bearish index this weekend. The Nasdaq failed to break through 2800 and came to rest about 11 points under that level. Initial support is well back at 2765. Much of the weakness was due to FFIV -9, APKT -3, and Apple -4.

The dead stop at 2800 was bearish. The Nasdaq gapped up to 2797 at the open and could not capitalize on the event to move higher. I believe the Nasdaq is the leading indicator of overseas related earnings problems yet to be disclosed.

Nasdaq Chart

The Russell 2000 came very close to a new historic high at 855.77 missing it by only five points. The close at 847 was still a new four-year high. Since the March lows the Russell has been on a mission and gained +2.78% last week and is now up over 8% for the year. If fund managers are hesitant about putting money to work in small caps you could not tell it from the Russell last week. Support should be 830.

Russell Chart

The Dow transports broke out to a new two-year high but they ran head-on into uptrend resistance and resistance highs at 5410 from 2008. The Transports are in rally mode because of expectations the U.S. economy is accelerating. A new high on the transports while the Dow Industrials is making a new high is considered rally confirmation under Dow Theory.

Dow Transports Chart

The NYSE Composite, an index of more than 2000 NYSE stocks, came to a dead stop at resistance at 8470. Is it poised for a break out or a break down? I would not say this was specifically bullish but a break over 8470 would be a buyable event.

NYSE Composite Chart

There are two questions for next week. Will money managers close their window dressing positions that pushed the market higher last week? Second, will the bad news bulls trample any bad earnings news as already priced into the market? I think those will be the two issues powering the market next week.

I don't see any specific direction but I am concerned until we get past the current resistance levels. If we do move lower next week I would be cautious about buying the dips. Friday was April Fools Day but if traders are not careful the entire month could turn into a bad April Fools joke.

Jim Brown

Send Jim an email

"Opportunity is missed by most people because it is dressed in overalls and looks like work." - Thomas Edison


New Plays

Insurance and Conglomerates

by James Brown

Click here to email James Brown

Editor's Note:

The first quarter has come to a close and stocks delivered a pretty good performance with the S&P 500 up +5%. I suspect the first few days of April could see inflows as fund managers put new money to work. However, we're quickly approaching the onset of Q1 earnings season in mid April. Odds are really good that this earnings season could be pivotal in fueling the next leg higher or acting as a catalyst for investors to take some money off the table, especially if corporate guidance doesn't back up the bullish outlook for the economic recovery. There has been a lot of talk about how healthy corporations are right now. They need to prove it.

This newsletter normally wants to avoid holding a position over an earnings report. There are too many variables that could send the stock plunging lower. Thus most of our current positions will be closed in the next two to four weeks. Any new positions are likely to be relatively short-term (less than three weeks).

- James


NEW BULLISH Plays

Aon Corp. - AON - close: 53.76 change: +0.80

Stop Loss: 50.90
Target(s): 59.00
Current Gain/Loss: +0.0%
Time Frame: 4 to 5 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The insurance sector is a mixed bag since it could take months before adjusters finish their estimates on the devastation in Japan. However, the insurance broker stocks seem to be doing quite well. Shares of AON have been showing strength the last couple of days and just broke out from a five-week consolidation pattern under resistance at $53.00. This happens to be a new historic high for the stock.

I am suggesting new bullish positions now. Nimble traders may want to wait for a dip closer to the $53 level instead since $53.00 should be new support. Our time frame is the end of April since earnings are due out in early May. FYI: The Point & Figure chart for AON is bullish with a $90 target.

- open bullish positions now -

Suggested Position: buy AON stock @ current levels

- or -

Buy the May $55.00 call (AON1121E55) current ask $0.95

Annotated chart:

Entry on April 4 at $xx.xx
Earnings Date 05/02/11 (unconfirmed)
Average Daily Volume: 2.2 million
Listed on April 2nd, 2011


Danaher Corp. - DHR - close: 52.57 change: +0.67

Stop Loss: 49.95
Target(s): 55.90
Current Gain/Loss: + 0.0%
Time Frame: about 3 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
This conglomerate keeps getting bigger. Investors applauded the recent deal back in February when DHR announced plans to buy Beckman Coulter Inc. (BEC) for $83.50 a share. Normally when a company announces a big acquisition the stock tends to fall but shares of DHR rallied on the news.

Speaking of DHR's stock, shares have been consolidating sideways in the $49-52 range for several weeks. That consolidation narrowed in the last several days and DHR finally broke out on Friday. This appears to be a new all-time, record high for DHR. I am suggesting bullish positions now with DHR above $52.00. Our first target is $55.90. However, we will plan to exit ahead of the April 21st earnings report. I'm listing a stop loss at $49.95 but more conservative traders might want to use a stop closer to the $51.00 level (the $50.80 mark would work).

- open bullish positions now -

Suggested Position: buy DHR stock @ current levels

- or -

Buy the May $55 call (DHR1121E55) current ask $0.70

Annotated chart:

Entry on April 4 at $xx.xx
Earnings Date 04/21/11 (confirmed)
Average Daily Volume: 2.9 million
Listed on April 2nd, 2011


In Play Updates and Reviews

Semiconductors Underperform

by James Brown

Click here to email James Brown

Editor's Note:
The market pared its gains on Friday but the chip stocks have been underperforming since Wednesday's failed rally. Now our trades in KLAC and NVDA might be in jeopardy.

-James

Current Portfolio:


BULLISH Play Updates

ACI Worldwide Inc. - ACIW - close: 32.80 change: -0.10

Stop Loss: 30.90
Target(s): --.--, 34.75
Current Gain/Loss: +11.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
04/02 update: It has been three days in a row now that ACIW has been stuck in a tight range consolidating under resistance at the $33.00 level. With the stock marketing making gains I'm not sure what ACIW is waiting for to finally breakout higher. Once again I am suggesting that more conservative traders will want to consider locking in a profit now with an early exit. Please note our new stop loss at $30.90.

Officially we're aiming for the $34.75 level but plan to exit ahead of the late April earnings report. I am not suggesting new positions at this time.

FYI: ACIW does have options but the spreads are very wide, which puts us at a significant disadvantage.

SMALL bullish positions

Current Position: Long ACIW stock @ $29.63

04/02 New stop loss @ 30.90
03/24 first exit was at $32.25 (+8.8%)
03/23 Sell half now! exit price at the open on 3/24
03/22 New stop loss @ 29.75, 1st Target adjusted to $32.85
03/19 New stop loss @ 29.35

chart:

Entry on February 25 at $29.63
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume: 122 thousand
Listed on February 24th, 2010


AutoNation, Inc. - AN - close: 35.62 change: +0.25

Stop Loss: 33.49
Target(s): 38.00, 39.75
Current Gain/Loss: + 1.0%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
04/02 update: AN rallied this morning but for the second time this week the rally stalled near resistance at $36.00. Odds are good AN will provide us another entry point on a dip near $35.00 or $34.00 soon. Wait for the dip.

Our upside targets are $38.00 and $39.75 although that might be a little optimistic. We do not want to hold over the late April earnings report.

Current Position: Long AN stock @ $35.25

- or -

Long the May $36 calls (AN1121E36) Entry @ $1.15

chart:

Entry on March 30 at $35.25
Earnings Date 04/26/11 (unconfirmed)
Average Daily Volume: 972 thousand
Listed on March 29th, 2011


Dick's Sporting Goods Inc. - DKS - close: 40.47 change: +0.49

Stop Loss: 37.45
Target(s): 42.25, 44.50
Current Gain/Loss: +2.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
04/02 update: DKS is slowly inching higher. The threat of higher oil prices is not impeding the retail bulls. DKS continues to build on a bullish trend of higher lows. I would consider new positions here but the early March highs remain potential resistance. Please note our new stop loss at $37.45. Our targets are $42.25 and $44.50.

FYI: The Point & Figure chart for DKS is bullish with a $65 target.

- Small Positions -

Current Position: Long DKS stock @ $39.39

- or -

Long the June $40 calls (DKS1118F40) Entry @ $2.35

04/02 New stop loss @ 37.45

chart:

Entry on March 21 at $39.39
Earnings Date 05/18/11 (unconfirmed)
Average Daily Volume: 1.6 million
Listed on March 19th, 2010


eBay Inc. - EBAY - close: 31.36 change: +0.32

Stop Loss: 29.49
Target(s): 34.90, 39.00
Current Gain/Loss: + 0.3%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/02 update: Shares of EBAY are setting up for a breakout one way or the other soon. The action over the last two weeks is producing a neutral pattern of lower highs and higher lows. This pennant shape is narrowing and EBAY should breakout soon. The prevailing trend was down given the sell-off from the February highs. Yet the bigger picture for EBAY is up with a long-term trend of higher lows. So which way will the stock breakout?

I'm betting on a breakout higher but readers may want to wait. Instead of waiting for a dip we can wait for a break higher. I'd wait for a move past $32.00 and its 50-dma. Or you could wait for a rise past the March 25th high near $32.40 as your new entry point.

Our first target is $34.90. We do not want to hold over EBAY's late April earnings report.

Current Position: Long EBAY stock @ $31.25

- or -

Long the May $33.00 calls (EBAY1121E33) Entry @ $0.75

chart:

Entry on March 28 at $31.25
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume: 10 million
Listed on March 24th, 2011


Ford Motor Co. - F - close: 15.16 change: +0.25

Stop Loss: 14.19
Target(s): 16.45, 17.45
Current Gain/Loss: + 0.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
04/02 update: Ford was showing some strength on Friday but the rally stalled at technical resistance near the simple 50-dma. Driving the move higher was very good news that Ford's March sales grew +19% and the company even managed to out sell its main rival GM last month.

Bigger picture, it does look like Ford has put in a bottom back in March. I would consider new positions now or you can choose to wait and buy dips in the $15.00-14.80 region. Our targets are $16.45 and $17.45.

Current Position: Long F stock @ $15.05

- or -

Long the April $15 calls (F1116D15) Entry @ $0.33

chart:

Entry on March 24 at $15.05
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume: 82 million
Listed on March 15th, 2010


Gildan Activewear - GIL - close: 33.29 change: +0.52

Stop Loss: 29.70
Target(s): 34.85, 38.00
Current Gain/Loss: + 9.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
04/02 update: GIL ended a strong week with a +1.5% rally to new two-year highs. After months and months of consolidating sideways this might finally be the beginning of a significant move higher. However, short-term I'd prefer to wait for dips near the $32.50-32.00 zone as a bullish entry point.

Current Position: long GIL stock @ 30.35

- or -

Long the April $30 call (GIL1116D30) Entry @ $1.60

03/19 New stop loss @ 29.70
03/08 Triggered $ 30.35
03/01 Adjusted buy-the-dip trigger to $30.35
03/01 Adjusted stop loss to $28.99

chart:

Entry on March 8 at $30.35
Earnings Date 05/12/11 (unconfirmed)
Average Daily Volume: 634 thousand
Listed on February 28th, 2010


Harley Davidson - HOG - close: 42.15 change: -0.34

Stop Loss: 39.75
Target(s): 47.00, 49.75
Current Gain/Loss: + 0.0%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
04/02 update: The early morning rally in shares of HOG failed at the February resistance near $43.00. This is not unexpected. I would still consider new positions now near $42.00 or readers can look for a dip closer to $41.00 and launch positions there. Readers will want to keep their position size small to limit our risk. We only have a few weeks since we will plan to exit ahead of the late April earnings report.

Current Position: long HOG stock @ $42.13

- or -

Long the May $45 calls (HOG1121E45) entry @ $0.95

chart:

Entry on March 31 at $42.13
Earnings Date 04/19/11 (unconfirmed)
Average Daily Volume: 2.0 million
Listed on March 30th, 2011


KLA-Tencor - KLAC - close: 46.80 change: -0.52

Stop Loss: 44.95
Target(s): 49.90
Current Gain/Loss: + 0.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
04/02 update: I am a little bit concerned about the tone of trading in the semiconductor space. The SOX index produced a failed rally/bearish reversal pattern at the 50-dma midweek. The SOX also underperformed on Friday. Shares of KLAC produced a failed rally near $48 midweek and dropped toward support on Friday. While KLAC should have some support near $46.00 if the SOX starts to accelerate lower then KLAC may end dropping toward the $45 or $44 levels instead. I am not suggesting new positions at this time. More conservative traders may want to up their stops closer to $46.

Current Position: Long KLAC stock @ $46.65

- or -

Long the April $45 calls (KLAC1116D45) Entry @ $2.85

chart:

Entry on March 24 at $46.65
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume: 2.5 million
Listed on March 23rd, 2011


NVIDIA Corp. - NVDA - close: 18.20 change: -0.26

Stop Loss: 16.85
Target(s): 19.95, 21.75
Current Gain/Loss: + 0.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
04/02 update: NVDA is another chip stock that was underperforming the market the last few days. Shares slipped -1.4% on Friday with a dip toward support near $18.00. Personally, I would be tempted to buy NVDA here but you could wait for a dip into the $17.50-17.00 zone since that is where NVDA seems to be headed. Our first target to take profits is at $19.95. Our second target is $21.75.

Prior Comments:
This is a very speculative, higher-risk trade. Remember to keep your positions small to limit your risk.

- small bullish positions -

Current Position: long NVDA stock @ $18.19

- or -

Long the April $20 calls (NVDA1116D20) Entry @ $0.72

chart:

Entry on March 14 at $18.19
Earnings Date 05/12/11 (unconfirmed)
Average Daily Volume: 35 million
Listed on March 12th, 2010


Polycom Inc. - PLCM - close: 49.61 change: -2.24

Stop Loss: 47.40
Target(s): 54.85,
Current Gain/Loss: - 1.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
04/02 update: Ouch! What happened to PLCM? The stock underperformed on Friday with a -4.3% decline. There was no news to explain the sell-off. The stock has yet to break the bullish trend of higher lows so the trend is still up. I would buy dips in the $49.00-48.50 zone or wait for a new bounce over $50.50 as our next entry point. The simple 50-dma has risen to $47.57. I am raising our stop loss to $47.40. Our upside target is $54.85.

- Small Bullish Positions -

Current Position: Long PLCM stock @ $50.18

- or -

Long the May $52.50 calls (PLCM1121E52.5) Entry @ $2.00

04/02 New stop loss @ 47.40
03/23 Entry price on the May $52.50 call is an estimate.

chart:

Entry on March 23 at $50.18
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume: 967 thousand
Listed on March 22nd, 2011


Patterson-UTI Energy Inc. - PTEN - close: 28.95 change: -0.44

Stop Loss: 25.95
Target(s): 31.50, 34.00
Current Gain/Loss: + 2.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/02 update: I warned readers that the $30.00 level might be resistance for PTEN. The stock rallied to a new 52-week high at $29.98 and reversed. We should expect a dip back toward short-term support near $28.00. Use a dip near $28.50-28.00 as a new entry point. More conservative traders might want to inch up their stop loss.

Prior Comments:
The $30.00 mark might offer some resistance but I'm targeting a climb to $31.50 and the $34.00 levels.

Current Position: Long PTEN stock @ 28.25

- or -

Long the May $30 calls (PTEN1121E30) Entry @ $0.95

chart:

Entry on March 25 at $28.25
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume: 2.8 million
Listed on March 17th, 2010


Ryder Systems Inc. - R - close: 50.66 change: +0.06

Stop Loss: 47.40
Target(s): 53.00
Current Gain/Loss: + 0.8%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
04/02 update: Ryder rallied to a new seven week high only to give back most of its intraday gains on Friday. The stock looks poised for a little pull back. I would wait for dips near $50.00 or the 10-dma as our next entry point for bullish positions. Our target is the $53.00 level. We do not want to hold over the late April earnings report.

Current Position: Long R stock @ $50.25

- or -

Long the May $50 call (R1121E50) Entry @ $2.55

chart:

Entry on March 30 at $50.25
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume: 388 thousand
Listed on March 26th, 2011


Tesoro Corp - TSO - close: 27.04 change: +0.21

Stop Loss: 23.95
Target(s): 29.90
Current Gain/Loss: + 3.4%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/02 update: The action on Thursday looked like a bearish reversal for TSO. Yet there wasn't any follow through lower on Friday. Still, the stock is not out of jeopardy. I suspect TSO will retest the $26.00 level. Readers can wait for a dip near $26 or wait for a bounce from this area. Our target to exit is $29.90. Readers may want to adjust their stop loss higher.

Prior Comments:
Given the stock's recent volatility over the last month or so I would consider this a higher-risk trade. Keep your position size small. FYI: The most recent data listed short interest in TSO at more than 13% of the stock's 141 million-share float. A breakout past resistance could spark another short squeeze.

Current Position: Long TSO stock @ 26.15

- or -

Long the May $27.00 calls (TSO1121E27) Entry @ $1.60

chart:

Entry on March 24 at $26.15
Earnings Date 04/25/11 (unconfirmed)
Average Daily Volume: 8.2 million
Listed on March 21st, 2010


Williams Companies, Inc. - WMB - close: 31.28 change: +0.10

Stop Loss: 29.45
Target(s): 34.50
Current Gain/Loss: + 0.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
04/02 update: WMB hit a new two-year high Friday morning but gave back most of its gains. I have been cautioning readers that WMB is likely to retest the $31.00-30.00 zone. Wait for a dip into this area as our next entry point.

Current Position: long WMB stock @ $31.26

- or -

Long the May $30 calls (WMB1121E30) Entry @ $2.10

chart:

Entry on March 28 at $31.26
Earnings Date 05/05/11 (unconfirmed)
Average Daily Volume: 7.0 million
Listed on March 26th, 2011


Weyerhaeuser Co. - WY - close: 25.14 change: +0.54

Stop Loss: 23.40
Target(s): 27.25, 29.25
Current Gain/Loss: + 1.8%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
04/02 update: It is encouraging to see WY participating in the market's rally again. The stock has reaffirmed the bullish trend of higher lows. Now it just needs to breakout past resistance in the $25.25-25.30 zone. Readers may want to wait for a move past $25.30 before initiating new positions.

Prior Comments:
Keep your positions small to limit your risk.

Suggested Position: long WY stock @ $24.68

- or -

Long the July $25 calls (WY1116G25) Entry @ $1.64

03/24 New stop @ 23.40

chart:

Entry on March 16 at $24.68
Earnings Date 04/29/11 (unconfirmed)
Average Daily Volume: 6.4 million
Listed on March 15th, 2010


BEARISH Play Updates

Overseas Shipholding Group - OSG - close: 31.77 change: -0.37

Stop Loss: 33.55
Target(s): 27.75, 25.25
Current Gain/Loss: + 1.3%
Time Frame: 8 to 9 weeks
New Positions: see below

Comments:
04/02 update: OSG underperformed the market on Friday following Thursday's failed rally at resistance. This looks like a new entry point for bearish positions. More conservative traders may want to adjust their stop loss closer to the $33.00 level.

Our plan was to use small positions to limit our risk. The P&F chart is forecasting a $25 target.

- Small Bearish Positions -

Current Position: Short OSG stock @ $32.20

- or -

Long the April $30 PUTS (OSG1116P30) Entry @ $0.75

03/16 New stop loss @ 33.55

chart:

Entry on March 11 at $32.20
Earnings Date 05/04/11 (unconfirmed)
Average Daily Volume: 705 thousand
Listed on March 10th, 2010


CLOSED BULLISH PLAYS

Southwestern Energy Co. - SWN - close: 42.87 change: -0.10

Stop Loss: 38.49
Target(s): 44.85
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions:

Comments:
04/02 update: I am temporarily giving up on SWN as a bullish candidate. Big picture I remain bullish on the stock but short-term SWN remains overbought. Yet it won't correct lower. I am dropping it as a candidate to make room for new trades. Readers can keep it on their watch list. I would wait for a dip or bounce near what should be support at $40.00.

Our trade never opened.

chart:

Entry on March x at $xx.xx
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume: 6.9 million
Listed on March 19th, 2010