Option Investor
Newsletter

Daily Newsletter, Saturday, 4/16/2011

Table of Contents

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

Market Wrap

Economics Overcomes Earnings

by Jim Brown

Click here to email Jim Brown

Better than expected economics overcame an earnings miss by Google and Bank America and potential weekend event risk to post a minor gain ahead of next week's earnings parade.

Market Statistics

Starting the morning off was the Consumer Price Index for March. The headline number came in at +0.5% with energy prices the main driver. The more important core CPI rate showed a gain of +0.1%. The core rate for the trailing 12 months rose to +1.2%. That is well below the Fed's desired range so the Fed is under no pressure to change its current policy.

The core rate has finally started to rise after several months at zero. The fear of deflation has eased and the Fed will be breathing easier in the months to come since it appears the trend is finally headed in the right direction. Energy prices rose +3.5% for the month and food prices +0.8%. On a year ago basis energy is up +15% and food +2.9%. Gasoline was up 5.6% in March after a +4.7% gain in February.

This was a positive report because it shows growth in pricing but that growth was minimal and means the Fed can remain safely on the sidelines for several more months.

CPI Chart

The New York Empire Manufacturing Survey spiked +4.2 points to 21.7 for the April reading. This was much stronger than analysts had expected and a 12-month high. New orders exploded higher to 22.3 from 5.8. Inventories turned negative at -1.3 from an already low 3.9. This pushed the activity index to 23.6. That is the difference between new orders and inventory. If inventories were 22 and new orders 23 there would be no need to increase manufacturing because orders could be filled from inventory. The spike to 23.6 suggests a sharp increase in activity is needed.

Even more impressive was the spike in the employment component from 9.1 to 23.1. That is the highest level since May 2004. The prices paid index fell from 71.4 to 56.4 suggesting the spike due to high commodity prices is fading.

This is the first manufacturing report for April and this report suggests we could see a sharp increase in activity when the Philly Fed and other regional reports are released. This is what traders want to see, a sharp increase in activity after several years of minimal growth.

Industrial production for March rose by +0.8% and the biggest gain so far this year. Factory output grew by an annualized +6% for the first quarter. Capacity utilization rose to 77.4% and a new high for this economic cycle. The early quarter lull in activity appears to have ended in March with a sudden spurt of activity. If that carries over into April we could see a strong month. The earthquake in Japan does not appear to have caused a major disruption in U.S. activity but we may not see that until April.

Industrial Production Chart

Consumer sentiment rose two points to 69.6 but remains lackluster after the big drop in March. High gasoline prices, low home prices and high unemployment are still the primary reasons given. Two weeks of government shutdown threats in the news could also have been a drag. The present conditions component only rose by 0.2 to 82.7 but the expectations component rose from 57.9 to 61.2. The index hit a three-year high at 77.5 in February before declining to 67.5 in March.

The higher gasoline prices deeper into April are probably going to pressure the second reading on sentiment in two weeks. Three fifths of the survey is done in the first half of the month and the other two fifths in the last half. Gasoline averaged $3.82 nationwide this weekend.

Given the earthquake in Japan and the headlines about radiation reaching the U.S., the country entering a new war in Libya and gasoline over $3.50 the sentiment numbers were definitely higher than I was expecting. As these problems get resolved or at least drop off the headlines I think we will see substantial improvement. However, the political theater that will be hogging the headlines after the Easter recess will bring the budget battle back to the forefront. Everyone will be warning of impending doom if nothing is done about cutting the budget and handling the debt. This is likely to depress sentiment again for the first May reading.

Consumer Sentiment Chart

The calendar for next week is relatively light with the Philly Fed Manufacturing Survey the most important report for the week. Other reports of interest are the three housing reports but everybody already knows the news is bad. The hope is for a "less bad" report on home sales. Two million foreclosures still in the pipeline will continue to depress prices.

Economic Calendar

The real news for next week will be the earnings calendar. More than 20% of the S&P-500 will report and expectations are slipping. Companies already disappointing include Bank America, JP Morgan, Google, Infosys and Alcoa and this was just the first week with a very light calendar. Next week is heavy in tech and financial earnings and those are the two biggest market sectors.

Intel and IBM report on Tuesday and that could be a serious inflection point for the market. There are some credible worries over Intel's earnings but so far IBM has remained above the fray. IBM is not really impacted by the retail consumer but Intel is tied to that fickle clientele.

On the financial front the major reports will come from C, USB, WFC, GS, MS, AXP and COF but there are dozens of smaller banks reporting as well. Bank earnings have not been well received so far this cycle.

The largest oil service companies Halliburton and Schlumberger report this week and they should say positive things about activity in the sector although both have already warned that unrest in the Middle East has impacted their earnings.

I highlighted GE on Thursday but nobody really cares about their earnings. It is their guidance that keeps everyone tuned into the call. GE is seen as a proxy for the economy since they have businesses in nearly every sector. Their earnings should be viewed as an economic report.

By far the biggest hurdle will be the IBM/INTC reports on Tuesday night. Once past those reports and the Wednesday morning reaction the trading volume will quickly shrink even more. With Friday a market holiday the majority of traders will be packing up and heading for the door by noon on Wednesday.

Earnings Calendar

The big loser on Friday was Infosys. (INFY) The stock lost -13% after posting a weak outlook that produced a cloud over the sector. Earnings were inline with estimates but sales were weaker than expected and the company's 63-cent profit forecast for Q2 was well below the analyst estimates of 69-cents. For the full year INFY predicted a profit around $2.85 compared to analyst estimates of $3.09. Needless to say INFY did not have a good day.

Infosys Chart

Bank of America (BAC) reported earnings of $2.05 billion on Friday that were sharply lower than the $3.18 billion it earned in the comparison quarter. BAC said it had to set aside another $1 billion for repurchasing mortgages from investors who bought mortgage-backed securities. The bank also said it had agreed to pay Assured Guaranty $1.6 billion in a different dispute over mortgage repurchases. The total charge related to mortgages was more than $3.8 billion. BAC shares fell to a three-month low at $12.82 on the news.

BAC Chart

You may remember JP Morgan (JPM) took a billion dollar charge with earnings earlier in the week due to mortgage servicing problems and another $650 million in increased foreclosure costs. CEO Jamie Dimon said it will continue to cost more money to service mortgages because of new regulations and litigation. JPM said its mortgage portfolio declined by -12% for the quarter.

This is going to be a challenge for Wells Fargo (WFC) when they report next week. They don't have near as many mortgages as BAC but they also don't have the giant asset base to offset the losses. Dick Bove warned the earnings could be ugly because they don't have the same trading divisions to offset losses elsewhere in the bank. JPM only posted decent earnings because of big profits in their trading. WFC declined -5% for the week after the JPM earnings.

Wells Fargo Chart

On the positive side of earnings Charles Schwab (SCHW) posted earnings of 20-cents compared to zero in the same quarter last year. Revenue rose to $1.21 billion from $979 million. Analysts had predicted earnings of 19-cents. Schwab said rising markets had attracted more customers leading to new accounts and existing accounts had placed more trades. Competition from other brokers forced Schwab to lower fees for trades but they made up for it through fees earned from their Schwab mutual funds. Retail investors that had grown tired of the volatility moved cash into the Schwab funds. Average revenue per trade fell to $12.12 from $12.60 a year ago. Daily trades averaged 472,500 a +14% increase over Q4.

The CFO said investor sentiment had definitely improved. In fact cash balances in retail accounts were at their lowest since before the 2008 crisis because everyone was invested in the market in some way. Client assets rose +10% to $688.6 billion. Shares of Schwab posted a gain after the report making them one of a very few post earnings gainers for the week.

Schwab Chart

Cisco closed at a two year low after Auriga downgraded the company from buy to hold. It has not been a good two weeks for Cisco with badly worded emails from John Chambers suggesting things inside the networker were not going well. Cisco also said it was going to shutdown Flip Video, a company it paid $500 million for just two years ago. Multiple articles critical of management, margins and sales made headlines. When your hot, your hot and when your not, you not. Cisco is not hot today and odds are good we will see the shares at a lower level soon. The company said it completed the acquisition of cloud computing company newScale this week. No terms were disclosed.

Cisco Chart

Google ended the day with a $48 loss after earnings disappointed. Other big caps like Apple also declined on fears they may suffer the same fate when they report next week. It is not enough to hit the analyst estimates. You also have to please the street with your forecast.

Google Chart

Apple Chart

Apple has a monster cloud over its earnings report next Wednesday. There are constant rumors about supply chain issues as a result of the earthquake in Japan. Steve Jobs has asked customers to be patient saying, "We are making the iPad 2 as fast as we can" but has not said there were any supply chain issues. Apple likes to keep any bad news to themselves as long as possible but they may be obligated to report any material manufacturing disruptions with their earnings. Fears of these revelations plus a general worry that sales may not be as robust as expected have put pressure on the stock price. JP Morgan analyst, Mark Moskowitz, probably did not help Apple when he cut his estimate for Q1 iPad sales to 5.4 million from 6.6 million citing the constantly out of stock product. He did raise his estimates on iPhones and Macs but the focus today is on the iPad 2.

Apple has the added problem of the Nasdaq-100 ($NDX, QQQ) rebalance at month end. Apple's weighting is going to shrink from more than 20% to 12% and require funds to sell a lot of shares. However, most professional traders believe this is already priced into the stock and the decline last week was on earnings fears. Traders are not worried that Apple's earnings will be weak. That is not the problem. The problem is the potential supply chain announcement that is scaring retail traders and creating worries over future earnings. However, at this level ($300-$325) I think any further declines would be a buying opportunity. Apple rules the smartphone and tablet market despite the gains by Android and BlackBerry. They are going to be printing money for the next several years.

One earnings report that bodes well for the future was office furniture maker Knoll Inc. (KNL) The company said net income jumped more than 400% as the "improving economy boosted demand for office furniture." Order backlogs are up more than 24%. Knoll produces modular office furniture, power and data systems and office lighting. Knoll sells to large companies, government agencies, schools, hospitals and hotels.

This could be a leading edge indicator of the new economy. You can't hire employees until you have somewhere for them to sit. If the office furniture business is exploding then additional hiring should not be that far behind. When Knoll and its competitors Steelcase (SCS) and Herman Miller (MLHR) reported Q4 earnings in mid February they predicted then that business would grow sharply based on conditions they were seeing then.

Knoll Chart

We are very early in the earnings cycle for Q1 with only 30 of the S&P 500 companies reported. Of those 30 companies 26 beat the street and the average increase in earnings was +23%. That is well over the estimates of 15% growth but the early reporters normally post the best earnings.

You would think traders were expecting the other 470 companies to do even better based on the complete lack of volatility in the market. Despite the market dip earlier in the week the volatility index ($VIX) closed at 15.32 and a closing level not seen since July 2007. You can't tell it by looking at the indexes but the bullishness is at extremes today. Or to put it a different way, investors are so confident the market is not going down they are not buying puts for insurance. When complacency reaches extremes we should pay attention.

The VIX is based on the near the money option premiums on the S&P-500. However, some question if buying puts on the SPX as portfolio insurance is valid in today's market. There are so many other ways to hedge your positions today the VIX may be losing its value. While that may be true I still believe in using all the indicators possible to anticipate the next market event. The VIX is just one weapon in the trader's arsenal. While the VIX may not be as relative as in prior years and can remain at extreme levels for days or even weeks before a market reversal, it still "bears" watching.

VIX Chart

Two weeks ago I said if I were forced to pick a date in April for a market top I would pick either April 1st or April 19th. I suspected April 1st could have been a top because we saw the short squeeze from the payroll numbers push the Dow to 12,419. April 19th because Intel and IBM both report that evening and could be trouble. Also, the 19th is only five trading days ahead of the April 27th FOMC meeting and Bernanke press conference. The combination of those events could be a perfect storm for the markets.

Friday was option expiration and volume was a mediocre 6.8 billion shares. That is a level it held for the last three days. There was still a lack of conviction by both buyers and sellers and we are approaching the height of the earnings cycle. We need to see more volume to be able to trust the trend.

More and more analysts are beginning to say there will be no impact to the end of QE2. (Wishful thinking?) Everyone has known about the end date for six months and had plenty of time to prepare for it. More analysts are starting to talk about the pay-off purchases as a separate QE program. The Fed announced in November it was going to buy roughly $75 billion in treasuries every month until the end of June. This is commonly referred to as QE2. They also previously announced they were going to use the proceeds from payoffs received on their previous purchases (QE1) of mortgage back securities and agency debt to also buy treasuries. As these loans terminate the Fed has been taking the money and reinvesting it in treasuries. This is somewhere between $30-$40 billion a month and is separate from QE2. This supplemental program was announced in August. Some analysts at the time called it QE1.5 since it was additional purchases to keep the QE1 assets from shrinking and it came before QE2. QE2 will end in June but the continued buying of treasuries with the pay-off proceeds will likely continue through year-end. This could simulate the addition of a new program and soften the blow of a sudden halt in all treasury buying by the Fed.

Eventually the Fed is going to need to actually confirm this in a statement. Since they want to avoid sudden shocks to the market they need to confirm it soon and not wait until the last minute. Should the Fed announce they are also halting those purchases on June 30th we could have a problem in the market. So many analysts are talking about it that the continuation is already deemed to be true. Perception is often seen as reality if it is repeated often enough.

Today we are faced with the perception the Fed will end QE2 on schedule and continue QE1.5 until year-end as insurance against a rapid rise in interest rates. Anything that damages that perception could also damage the market.

The S&P rallied over 1320 intraday on Friday but pulled back to just under that level at the close for a five-point gain. Given the declines in Google and Apple I am surprised it managed any gain at all. Apple is the second largest weighting in the S&P and Google is in the top 20. I am not sure of its exact weighting today. Combined they lost -53 points so it is a miracle the S&P closed positive.

The minor rebound on the S&P from Thursday's lows was stretched to about +17 points but as long as it remains under 1325 I will be suspicious. Support remains 1300-1305. We could be setting up for a another test of that much stronger resistance at 1333 again next week but I am increasingly doubtful it will be successful. Anything is always possible but that does not mean it is probable.

Many technicians are looking at 1333, the 100% rebound from the March 2009 lows, as terminal resistance for this rally. They claim it is too big of a technical hurdle to cross without a longer period of consolidation or correction ahead of the attempt. After watching the S&P fight that level for nine days before failing I have to admit it is pretty formidable. That makes any move higher next week ahead of the critical earnings and even more critical FOMC meeting, a high-risk venture.

S&P-500 Chart

The Dow posted a decent gain on Friday thanks to Chevron, Exxon, IBM and PG. The Dow finished about 28 points off its highs but still a decent performance. It closed about 50 points from that very strong resistance from February and early April and I suspect it would take a major news event to push through that 12,391 level with conviction. With several Dow components reporting earnings next week I would expect traders in Dow stocks to be cautious rather than wildly enthusiastic. I would expect 12,391-12,400 resistance to hold at least until after Intel reports on Tuesday. A large upside surprise there could be a catalyst but other Dow reporters this week like MMM, UTX, MCD and HON could dampen the mood. Support is well below at 12,200.

Dow Chart

The Nasdaq was struggling and like the S&P I am very surprised it maintained positive territory with Google and Apple in the tank for a lot of points. In normal times that kind of relative strength would be bullish. However, there is decent resistance at 2765 and a lot more techs reporting next week that could stink up the place. I would be very surprised to see the Nasdaq make any kind of serious move higher without some very strong earnings by several big names. Support is 2740, resistance 2765. Intel and IBM report on Tuesday.

Nasdaq Chart

The Russell is the most bullish chart with a clear break over resistance at 830 but I doubt the Russell can lift the entire market by itself. I view this breakout as bullish but the S&P is still stuck below 1325. However, the rally in small caps suggests fund managers are not as afraid of earnings and the Fed as you would think. It is a strange world when big caps are the recipients of all the market worry and small caps are flying free.

With the Russell making strong gains we have to wonder if the lackluster performance by the S&P and Nasdaq really was solely because of Apple and Google and without them those indexes would have been a lot higher even in the case of the weekend event risk.

I reserve judgment and suggest we err on the side of caution. I would be cautiously bullish on Monday if the Russell continued higher but I would bail at the first signs of trouble.

Russell Chart

To put this in perspective I am bullish on the fundamentals of the market. I think earnings will be decent despite a drag from Japan and higher gasoline prices pressuring the consumer. I am bullish on the economic fundamentals and I expect them to improve significantly over the coming weeks as evidenced by the last round of reports. I am cautious on the market short term because of the earnings uneasiness and the FOMC meeting and Bernanke press conference on the 27th. The dip over the last week could have been the market pricing in that uncertainty and we move higher from here. Unfortunately it could have also been just the first step in a deeper decline ahead of those events.

It was option expiration week and the normal period of volatility ahead of expiration is either the Friday of the preceding week or the Mon/Tue of expiration week. That just happens to be exactly when the market was weak. Also, there is a historical trend for the market to be weak on the week before tax day. Too many traders having to lighten up on positions in order to pay the tax bill.

If you really sit back with the TV off and ponder all the reasons why the market behaved a certain way it will eventually give you a headache. The factors involved are only limited by the number of news events times the number of traders in the market. That is far too many zeros for anyone to ever be 100% sure of the reason for a market move.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

"Embrace Change, even when the change slaps you in the face. Change is good!"

"Eat two meals a day, that is all you need."

"Work as long as you can. The money is going to come in handy."

"Help others. The more you do for others, the better shape you will be in."

"Everybody says your mind is the most important thing about your body. Keep both your mind and your body busy and you will be around a very long time."

- Walter Breuning

World's oldest man, died last week at 114 in Montana.


New Plays

Defense, Refiners, & Waste

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new play these stocks caught my eye and might offer an opportunity. Check them out:

INFA, CPO, ATR, BID, RAX, MATW, OMI, FL, SCI

Note: You will want to double check the earnings dates before considering new positions.

Readers will also want to look at the REIT industry. Almost every REIT stock I saw this weekend was moving higher and showing relative strength on Friday.

- James


NEW BULLISH Plays

FLIR Systems - FLIR - close: 33.52 change: +0.39

Stop Loss: 32.40
Target(s): 37.25
Current Gain/Loss: + 0.0%
Time Frame: less than two weeks.
New Positions: Yes, see below

Company Description

Why We Like It:
FLIR is an aerospace and defense contractor. The stock tagged a new two-year high in March and spent the first half of April correcting. Now the stock has been finding support near $33 and looks poised to bounce from its simple 50-dma.

I am suggesting small bullish positions now (one half or less than your normal trade size) with a stop loss at $32.40. More conservative traders could wait for FLIR to trade over $34.00 before initiating positions. This is a short-term trade. We plan to exit ahead of its earnings report on April 29th. Our first target is $37.25.

- Small Bullish Positions -

Suggested Position: buy FLIR stock @ current levels

- or -

Buy the May $34 calls (FLIR1121E34) current ask $0.95

Annotated chart:

Entry on April 18 at $xx.xx
Earnings Date 04/29/11 (confirmed)
Average Daily Volume: 926 thousand
Listed on April 16th, 2011


Sunoco, Inc. - SUN - close: 42.90 change: +0.07

Stop Loss: 41.40
Target(s): 46.50
Current Gain/Loss: + 0.0%
Time Frame: about 3 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
SUN is an oil refining company. The stock has seen a correction from its April highs. Now SUN is testing its long-term trendline of higher lows. This should be strong support. If there was a spot to buy the dip then this is it.

I am suggesting bullish positions now. The low this past week was $42.07. I am suggesting a stop loss at $41.40. More aggressive traders could use a wider stop loss. Our first target is $46.50.

Suggested Position: Buy SUN stock @ current levels

- or -

Buy the May $45 calls (SUN1121E45) current ask $0.77

Annotated chart:

Entry on April 18 at $xx.xx
Earnings Date 05/05/11 (confirmed)
Average Daily Volume: 2.0 million
Listed on April 16th, 2011


Waste Connections Inc. - WCN - close: 29.81 change: +0.40

Stop Loss: 28.80
Target(s): 32.00
Current Gain/Loss: + 0.0%
Time Frame: five trading days
New Positions: Yes, see below

Company Description

Why We Like It:
WCN surged to new all-time highs in early April. The stock has since seen a correction back toward its simple 50-dma. The long-term trend is still up and traders have begun to buy the dip. This looks like an entry point to hop on board a stock that has been stair-stepping higher for months. My only concern is the time frame. WCN is due to report earnings on April 25th. We do not want to hold over the report. That doesn't give us much time. Keep our position size small to limit our risk.

I'm suggesting we launch positions now with a stop loss at $28.80. Our target is $32.00 but that might be a little too optimistic. We'll plan to exit on April 25th at the closing bell to avoid earnings.

I will be quick to hit the eject button if we don't see WCN produce some follow through on Friday's bounce.

NOTE: WCN does not have a lot of option volume and the option spreads are very wide. Only aggressive traders willing to take the extra risk should consider these.

- Small Positions -

Suggested Position: Buy WCN stock @ current levels

- or -

buy the May $30 calls (WCN1121E30) current ask $0.75

Annotated chart:

Entry on April 18 at $xx.xx
Earnings Date 04/25/11 (confirmed)
Average Daily Volume: 687 thousand
Listed on April 16th, 2011


In Play Updates and Reviews

KEYN hits our target

by James Brown

Click here to email James Brown

Editor's Note:
Keynote Systems rallied to a new ten-year high on Friday. Shares hit one of our profit targets.

-James

Current Portfolio:


BULLISH Play Updates

ACI Worldwide Inc. - ACIW - close: 31.97 change: +0.00

Stop Loss: 30.90
Target(s): --.--, 34.75
Current Gain/Loss: + 7.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
04/16 update: ACIW was unchanged on Friday as the stock hovered near the $32.00 level for the third day in a row. The correction may not be over yet but if ACIW can close back above its 10-dma then this past week may prove to be nothing more than a higher low.

There is no change from my prior comments. I am still suggesting more conservative traders to take profits early. I am not suggesting new positions.

Officially we're aiming for the $34.75 level but plan to exit ahead of the late April earnings report.

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


Aon Corp. - AON - close: 52.47 change: +0.23

Stop Loss: 51.70
Target(s): 59.00
Current Gain/Loss: -2.4%
Time Frame: 4 to 5 weeks
New Positions: see below

Comments:
04/16 update: If you're feeling optimistic then AON appears to have produced a mini-double bottom near its rising 50-dma in the last couple of sessions. Readers could use Friday's bounce as a new entry point. I would prefer to see a new rally past $53.00 before considering new positions.

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.

Current Position: Long AON stock @ $53.76

- or -

Long the May $55.00 call (AON1121E55) Entry @ $0.95

04/12 New stop loss @ 51.70

chart:

Entry on April 4 at $53.76
Earnings Date 05/02/11 (unconfirmed)
Average Daily Volume: 2.2 million
Listed on April 2nd, 2011


Discover Financial Services - DFS - close: 23.95 change: -0.28

Stop Loss: 20.95
Target(s): 24.90
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

Comments:
04/16 update: The financial sector has not had a good week. Traders have been selling the news with JPM and BAC both falling on their earnings report. Plus, GS has been falling on news it is in trouble with the government again. The BKX banking index is nearing potential support at its March lows. The BIX banking index has fallen below its March lows. The trend for banks is down. However, DFS isn't really a bank. Weakness in the financial sector is a problem but thus far seems to be holding up. Shares actually look poised to breakout higher from their current consolidation.

Aggressive traders may want to consider bullish positions on a move past $24.50 with a tight stop under this week's low. I am still concerned that DFS looks a little overbought here. A dip toward $22 or its 50-dma would be a much more attractive entry point. I am adjusting our buy-the-dip entry point to $22.55 (from $22.25) and we'll raise our stop loss to $21.75 since $22.00 should be support.

Buy-the-Dip Trigger @ $22.55 <-- new trigger

Suggested Position: buy DFS stock @ $22.55

- or -

Buy the May $24 calls (DFS1121E24) <-- new strike

chart:

Entry on April x at $xx.xx
Earnings Date 06/23/11 (unconfirmed)
Average Daily Volume: 5.9 million
Listed on April 12th, 2011


Danaher Corp. - DHR - close: 52.71 change: +0.79

Stop Loss: 50.75
Target(s): 55.90
Current Gain/Loss: + 0.2%
Time Frame: about 3 weeks
New Positions: see below

Comments:
04/16 update: The action in DHR is improving. The rally past $52.50 could be used as a bullish entry point or you could wait for a new relative high over $53.01. Bear in mind that we have less than one week. DHR is due to report earnings on April 21st and we do not want to hold over the announcement. The 50-dma and the bottom of the bullish channel have risen to $51.00. I am adjusting our stop loss to $50.75.

Current Position: long DHR stock @ $52.57

- or -

Long the May $55 call (DHR1121E55) entry @ $0.70

04/16 New stop loss @ 50.75

chart:

Entry on April 4 at $52.57
Earnings Date 04/21/11 (confirmed)
Average Daily Volume: 2.9 million
Listed on April 2nd, 2011


Dick's Sporting Goods Inc. - DKS - close: 41.20 change: +0.58

Stop Loss: 38.95
Target(s): 42.75, 44.75
Current Gain/Loss: +4.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
04/16 update: After more than a week of consolidating sideways DKS is finally showing a little strength. Yet shares remain under resistance in the $41.80-42.00 zone. I would use Friday's bounce as a new bullish entry point to launch positions. We will raise our stop loss to $38.95, near the 50-dma. More conservative traders may want to use a stop loss closer to the $40.00 level instead. Our first target is $42.75.

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

04/16 New stop loss @ 38.95
04/09 New stop loss @ 38.45, New targets @ 42.75 and $44.75
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


Ford Motor Co. - F - close: 14.71 change: -0.10

Stop Loss: 14.45
Target(s): 16.45, 17.45
Current Gain/Loss: - 2.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
04/16 update: Investors remain nervous about the auto makers and any potential supply disruptions from the disaster in Japan. The recent news about Ford recalling more than one million vehicles due to a potential fault in the airbag system doesn't help matters. If you look at the weekly chart the action over the past couple of weeks, with the failed rally at $16.00, definitely looks like a bearish reversal pattern. Yet on a more short-term basis Ford is trying to hold support at its rising 200-dma.

Ford's inability to break the short-term trend of lower highs makes me wary. I would prefer to see a rally past $15.15 before considering new bullish positions.

Our targets are $16.45 and $17.45.

Our April $15.00 calls have expired worthless (-100%).

Current Position: Long F stock @ $15.05

- or -

April $15 calls (F1116D15) Entry @ $0.33, Expired -100%

04/16 April $15 calls have expired (-100%)

chart:

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


iShares Gold Trust - IAU - close: 14.53 change: +0.12

Stop Loss: 13.75
Target(s): 15.75
Current Gain/Loss: + 1.1%
Time Frame: 9 to 12 weeks
New Positions: see below

Comments:
04/16 update: The rally in precious metals continued on Friday with both gold and silver hitting new all-time highs. The IAU added +0.8%. There is no change from my prior comments. I would prefer to launch new positions on dips near $14.20.

We do want to keep our position size small. Going long anything gold these days is a very crowded trade. If and when it reverses gold could drop quickly. Until then the trend is up. Our first upside target is $15.75.

FYI: If the IAU moves too slowly for you then check out the double-long (2x) gold ETF (symbol: DGP).

- Small Positions Only -

Current Position: Long the IAU @ $14.36

- or -

Long the July $14.00 call (IAU1116G14) Entry @ $0.60

chart:

Entry on April 11 at $14.36
Earnings Date --/--/--
Average Daily Volume: 3.8 million
Listed on April 9th, 2011


Keynote Systems Inc. - KEYN - close: 21.84 change: +0.36

Stop Loss: 19.45
Target(s): 22.25, 24.75
Current Gain/Loss: +7.8%
Time Frame: less than two weeks
New Positions: see below

Comments:
04/16 update: Target achieved. KEYN saw an afternoon rally past $22.00 and shares hit $22.30 intraday. Our first target to take profits was hit at $22.25. The May $20 calls traded at $2.50 (bid was near $1.95, so +18.1%).

If you're looking for a new bullish entry point I'd wait for a dip in the $21.00-20.50 zone. Please note our new stop loss at $19.45.

This remains an aggressive, higher-risk trade. Our upside targets are $22.25 and $24.75 but this is a very speculative play and we will not hold over the earnings announcement on April 26th.

FYI: The Point & Figure chart for KEYN is bullish with a $41 target.

- Small Bullish Positions -

Current Position: Long KEYN stock @ $20.25

- or -

Long the May $20 calls (KEYN1121E20) entry @ $1.65

04/16 New stop loss @ 19.45
04/15 1st Target Hit @ 22.25 (+9.8%), Option @ +18.1%

chart:

Entry on April 14 at $20.25
Earnings Date 04/26/11 (confirmed)
Average Daily Volume: 193 thousand
Listed on April 13th, 2011


PACCAR Inc. - PCAR - close: 51.43 change: +1.43

Stop Loss: 48.95
Target(s): 54.75, 57.00
Current Gain/Loss: + 0.8%
Time Frame: two or three weeks
New Positions: see below

Comments:
04/16 update: PCAR is finally seeing some buy-the-dip action after its week and a half correction lower. The stock was outperforming the markets on Friday with a +2.8% gain on above average volume. On Thursday I suggesting buying PCAR on a move past $51.00.

NOTE: We still don't have a confirmed earnings date yet but it looks like PCAR is due to report on April 19th. That's Tuesday. Unfortunately, PCAR has a habit of reporting before the opening bell. Believe it or not, just as PCAR starts to look interesting again, we need to plan an exit. The newsletter will exit this trade on Monday, April 18th at the closing bell to avoid the risk of holding over the earnings report.

Current Position: Long PCAR stock @ 51.00

- or -

Long the May $49.70 call (PCAR1121E49.70) Entry @ $3.00

04/16 Plan to exit on Monday, April 18th, at the close.

chart:

Entry on April 11 at $51.00
Earnings Date 04/19/11 (unconfirmed)
Average Daily Volume: 2.8 million
Listed on April 6th, 2011


Ryder Systems Inc. - R - close: 50.96 change: +0.82

Stop Loss: 48.75
Target(s): 53.00
Current Gain/Loss: + 1.4%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
04/16 update: I am a little surprised that Ryder didn't spend Friday's session hovering near the $50.00 strike price. The stock was showing relative strength with a +1.6% gain instead. We only have a few days left. Earnings are April 26th and we will plan to exit before the report. Due to our time frame, I am raising our stop loss to $48.75, which is just under the 50 and 100-dma. Our target is the $53.00 level.

Current Position: Long R stock @ $50.25

- or -

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

04/16 New stop loss @ 48.75
04/09 New stop loss @ 47.95

chart:

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


SAIC, Inc. - SAI - close: 17.00 change: +0.08

Stop Loss: 16.75
Target(s): 18.40
Current Gain/Loss: - 1.9%
Time Frame: 8 to 9 weeks
New Positions: see below

Comments:
04/16 update: SAI bounced back toward $17.00, which has been both support and resistance over the past couple of months. I remain cautious and don't see any changes from my prior comments. Look for a close over $17.00 or an intraday rally past $17.20 before considering new bullish positions in SAI. I would keep your position size small. The daily chart is starting to form what looks like a bear wedge pattern.

Our first bullish target is $18.40. Keep in mind that SAI does not move very fast. While the stock does have options I prefer the stock to avoid the time decay on the options. I will list the August $18 calls for more aggressive traders.

Current Position: long SAI stock @ $17.33

- or -

Long the August $18.00 call (SAI1120H18) entry @ $0.55

chart:

Entry on April 6 at $17.33
Earnings Date 06/02/11 (unconfirmed)
Average Daily Volume: 2.4 million
Listed on April 5th, 2011


BEARISH Play Updates

Overseas Shipholding Group - OSG - close: 28.04 change: -0.24

Stop Loss: 32.25
Target(s): 27.75, 26.25
Current Gain/Loss: +12.9%
Time Frame: 8 to 9 weeks
New Positions: see below

Comments:
04/16 update: OSG spent Friday's session hovering near the $28.00 level. I don't see any changes from my prior comments. The stock is short-term oversold and probably due for a bounce. Broken support at $30.00 overhead should be new resistance. More conservative traders may want to tighten their stops. I am not suggesting new positions at current levels. Our second and final target is the $26.25 level.

Our plan was to use small positions to limit our risk.

- Small Bearish Positions -

Current Position: Short OSG stock @ $32.20

04/12 Exit April Puts now ($1.45bid, +93.3%)
04/12 Take Profits (sell half) of our OSG position (+11.5%)
04/11 New stop loss @ 32.25
04/05 New stop loss @ 33.10
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