Option Investor
Newsletter

Daily Newsletter, Wednesday, 11/9/2011

Table of Contents

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

Market Wrap

Bull Trap Sprung

by Keene Little

Click here to email Keene Little
Market Stats

The stock market seems to be fond of trapping traders. The big gap moves in the mornings are making it very difficult for traders to get in on the beginning of a move and this morning was no different. I liked the setup going into the close yesterday to take a few puts home with me but I recognize that's a risky move in this market. After tempting bulls to take home long positions Tuesday night, with the S&P 500 closing back above its 200-dma, they were mistreated by the market for doing so, leaving them trapped with the head-fake break. Once again it shows the higher-than-normal risk of carrying trades overnight in this market. Guess right and you're a hero (and richer); guess wrong and you're a goat (and poorer).

But there was a significant warning yesterday to the bulls and the reason I was recommending a short position. I'm sure the Boyz were well aware of the setup. They rallied the market Tuesday afternoon (again, which was the same pattern we saw on Friday and Monday) and were very likely selling into the rally as most traders were by now believers in the afternoon rallies (which lacked market breadth and volume, another warning). So what was the big warning?

I thought yesterday that the afternoon rally in the stock market made no sense in light of what was happening in Italy. The bond market is "smarter" than the stock market -- bond traders tend to be more aware of geopolitical events that have an impact on bond prices whereas stock traders, especially with the HFT and algo traders, get more involved with what the stock market is doing at the moment. The bond market is the adult and the stock market is the child with ADD (Attention Deficit Disorder). Each afternoon the Boyz started a rally on light volume and the HFT and algo traders took it from there.

When Italian bond yields spiked higher yesterday into their close, followed by our stock market rallying in the afternoon, I thought it was a recipe for a bull trap. I decided yesterday that it will matter when it matters, and apparently it mattered this morning. Yesterday the Italian bond market was waving a red flag in front of the bull who charged, only to be met with a sword piercing its heart. Yesterday's chart below shows the spike up to 6.77% and today it closed at 7.25%.

Italian Government 10-year Bond Yield, November 8, chart courtesy Joe Wiesenthal

Italian bonds with maturities of two years and greater saw their yields spike above 7% today, a sign of danger, and it alerted people to the problem. The bond market is declaring Italy has a problem and the risk of default is climbing fast, a replay of what occurred with Greece but on a much larger scale and one that is more dangerous to Europe. Even the ECB can't reverse the climb in yields with their efforts to buy Italian bonds. They are rapidly running out of fingers to plug the leaking dike.

Last week I showed a chart of the Italian-German bond spread and pointed out the break above 4 points signaled trouble. Today it closed at 5.53, up +.56 (+11.2%) from yesterday. On the chart I placed the cursor over the same date one year ago and you can see on the right side the blue arrow showing 1.66 points. The two charts of the Italian bonds should quiet the critics who keep saying the problem in Europe is only Greece and that by solving that problem it solves the European debt crisis. Nothing could be further from the truth and stock holders who ignore the message of the bond market do so at great risk to their accounts. The spread between the French and German bonds suddenly widened today as well (from 1.3 to almost 1.5 points (+14%) so it won't be long before we're hearing more about France's debt burden as well (starting with a downgrade of its AAA credit rating).

Italian-German Bond Spread, chart courtesy bloomberg.com

A few stocks got punished today for scaring investors. ADBE dropped as low as 26.13 (-4.29) at this morning's open but finished off its low and down "only" -2.34 (-7.7%) at 28.08 after announcing some restructuring plans and layoffs.

GM reported earnings that fell in the 3rd quarter compared to last year (but came in above analyst estimates, as if their estimates matter). GM expects similar results in the 4th quarter compared to last year. It closed down -2.73 at 22.31 (-10.9%). So how's that hopey thing working for GM investors? Oh, that's right, that includes us tax payers who invested in the company at $35 thanks to a government bailout of the union, um, I mean company. I believe GM will be below $15 next year.

General Motors, GM, Daily chart

There was no economic news of importance this morning, not that it would have mattered much since the worry is over Europe anyway. So we'll just jump into tonight's charts, working our way down from the SPX weekly chart to the 15-min chart in an attempt to show what I'm looking for over the next couple of days and weeks.

SPX's weekly chart shows today's drop has it back down to the 62% retracement of the 2007-2009 decline, at 1228.74. Only slightly lower is the 20-week MA just below 1226. The 1220-1230 is price-level support from the August 31st and September highs. This area supported the first pullback into the November 1st low and a break below 1220 could spook more than a few traders out of their long positions (and entice bears to get short). The two red candles following the test of the broken H&S neckline, just as it did in May 2008 (which led to the strong decline into November 2008), is bearish. Notice also the MACD -- if it rolls back over from the zero line it would create a strong weekly sell signal, especially with RSI not being able to get above 60 (usually the limit for a bounce in a bear market).

S&P 500, SPX, Weekly chart

The daily chart below shows the bearish kiss goodbye at the broken H&S neckline at the end of October, followed now by another bearish kiss goodbye at the test of the 200-dma yesterday. It's hard to look at today's big red candle following that failed test as anything other than bearish. But there could be another magical rescue plan announced for Europe overnight and until SPX breaks below its November 1st low near 1215 (getting it firmly below the 1220-1230 support area), we have to respect the possibility for another rally attempt back up to at least the broken H&S neckline again (if not up to 1307 for a 78.6% retracement of the May-October decline).

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1278
- bearish below 1215

Moving in closer with the 60-min chart below, if the market has reversed back down it would be cleaner if we get another new low tomorrow morning before getting a bigger bounce. The downside target is near the November 1st low (1215.57) or possibly down to 1201 where the decline from October 27th would have two equal legs down. As depicted, the bearish wave count (red) calls for a bounce tomorrow, perhaps up to the 1240-1250 area, before tipping back over for a stronger selloff into early next week. It now takes a rally back above 1273 (downtrend line from October 27th and the 200-dma) to negate the bearish wave count although I suspect we'd have earlier clues (such as a strong impulsive rally back up). The overlapping highs and lows in the bounce off the November 1st low confirmed that the bounce was a correction and looking for a lower high was the setup. This morning's decline confirmed it.

S&P 500, SPX, 60-min chart

The 15-min chart below shows what I'll be watching tomorrow. Assuming we'll get another new low early in the morning, we should then get a bounce into the afternoon before starting back down. A downside projection for the decline is to 1213.85, which as noted on the chart, is where the 3rd through 5th waves would equal the extended 1st wave. If we get a quick pop up in the morning and then a selloff we could see a low slightly above the November 1st low followed by the bigger bounce. A break above 1240 tomorrow morning (without a new low) would increase the possibility that we're only going to have a 3-wave pullback, opening the door to run to new highs into opex week. So bears should be mindful of 1240 first thing tomorrow morning and then watch to see if we get just a corrective bounce or something more impulsive to the upside. If we first get a new low and then a bounce above 1240 it would not negate the bearish pattern. With the higher bounce I will be watching for a bounce failure to get short for the next leg down. And lastly, if the market tanks hard tomorrow, starting with a big gap down, it would be uber bearish since the pattern would look like a 1-2, 1-2 wave count to the downside from Tuesday's high. That would call for a strong decline tomorrow morning followed by stair-stepping lower. I don't expect to see that but heads up (down) if it happens.

S&P 500, SPX, 15-min chart

After bouncing off its 20-dma at the November 1st low, the DOW then held its new uptrend line from October 4th, dipping down to it on Monday before starting one of those magical afternoon rallies. Today's decline is a firm break of both its uptrend line and 20-dma (11819), both obviously bearish. The bears need to see the November 1st low near 11630 broken and from there watch for potential support levels

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 12,190
- bearish below 11,630

On Tuesday NDX made it back above its broken uptrend line from March 2009 and for the 5th time since September's attempt, it has failed to hold. I suppose one could consider it bullish that resistance keeps getting tested and I might "buy" into that theory if we weren't seeing bearish divergence since mid October. The break of its uptrend line from October 4th, and well below its 20-dma, is bearish. Now we wait to see if the 200-dma near 2298 will provide support again. A break below 2298 would target the 50-dma near 2273 but it might not be much more than a speed bump.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2410
- bearish below 2298

The RUT paints a similar picture as the others. Its bounce into yesterday's high failed short of its downtrend line from July and the break below its 20-dma this time is a bearish signal. An immediate push back above 733 would neutralize the price pattern (and would improve the chances for a bullish sideways triangle pattern (not shown on the chart). Watch for support at the November 1st low near 712 and then a bounce for a shorting opportunity.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 757
- bearish below 712

As the euro drops from worry about the EU and European bonds become less desirable, U.S. Treasuries become the safe haven (lesser of the evils) and bonds rallied some more today. This pushes yields down (something the Fed wants to see as well) and today's decline in TNX, the 10-year yield, was a convincing break of the uptrend line from October 4th, like the stock market. The short-term pattern leaves open the possibility for another bounce up to the 2.22% area before heading lower but at the moment that looks like a lower probability move than simply lower from here.

10-year Yield, TNX, Daily chart

The banks rallied strongly on Tuesday afternoon and it was the one index that had me scratching my head in amazement. As mentioned earlier, the bond market was telling us the risks in Europe are rising fast and yet the banks rallied. Not only that, the BIX rallied up to its downtrend line from February when it shouldn't have been rallying to begin with. It was a short play from heaven handed to traders who were paying attention. Today's decline is a strong bearish engulfing candle, retracing price action since last Thursday, a break of its 20-dma and its uptrend line from October 4th.

S&P Banks index, BKX, Daily chart

Not only did BIX run back up to resistance at its downtrend line from February but it did so with a 3-wave bounce off its November 1st low, achieving two equal legs up into the close on Tuesday and the c-wave finished its 5-wave count, as shown on the 60-min chart below. It even finished with a shooting star for the final 60-min candle at the downtrend line. The setup was almost too pretty to be trusted. This was a gift to short traders, especially considering the message from the bond market. Of all the indexes I regularly follow, this one has me feeling the most bearish -- as you can see on the daily chart above, the mess of a consolidation since August will be completely retraced and then some. Wait for some Fib portion of today's decline to get corrected and then look to short it.

S&P Banks index, BKX, Daily chart

The TRAN has the same pattern and like the main indexes, it closed below its 20-dma today after staying above this important intermediate-trend MA since the November 1st pullback. It should continue down to just below 4500 before consolidation and then pressing lower again. That's assuming we're going to get a 5-wave decline this month as projected on its chart, finishing near the October low before bouncing into December.

Transportation Index, TRAN, Daily chart

With renewed worries over European debt the euro spiked down last night and the U.S. dollar rallied. The rally spiked the dollar out of its bull flag pattern that it's been in since its November 1st high (coinciding with the stock market's low on that day). The bullish breakout should be the start of a much stronger rally in the dollar and after a pullback that could test the top of the flag, near 77.40, assuming we'll get a pullback from here, would be an excellent opportunity to go long the dollar (UUP for example).

U.S. Dollar contract, DX, 120-min chart

The daily chart of the dollar shows it should be at the start of a very strong rally in the next couple of month, one that will take it well above 80 before pulling back in December and then launching much higher next year. The euro would see just the opposite.

U.S. Dollar contract, DX, Daily chart

Gold poked above the top of a bear flag pattern (I'm calling it a bear flag because of the corrective price structure inside it) on Monday and Tuesday, didn't like what it saw there and tucked tail today and dropped back down, creating a little throw-over finish (and another bull trap). The pattern fits well as a completed bounce correction to the decline from August and should be followed by another leg down. Two equal legs down from August would target 1416.

Gold continuous contract, GC, Daily chart

Silver has also been in a corrective bounce since September and has been relatively weak. It did not make a new high this week and a drop below 33 would signal a breakdown. Silver should drop to about 25 and then towards 20 and potentially much lower than that.

Oil's final (?) rally leg from November 1st was unable to get above the mid line of its parallel up-channel from October 4th, one sign of weakening in the rally. But it's still within its up-channel and there is still an upside target zone at 98.91-99.60 to hit two Fibs there. The lower one is the 162% projection for the 2nd leg of the bounce off the August low and the higher one is the 62% retracement of the May-October decline. But if oil breaks below 94 it will confirm the top of its bounce is in place, especially if the stock market is also dropping lower.

Oil continuous contract, CL, Daily chart

Other than the unemployment claims tomorrow we'll some export and import prices, the trade balance numbers and the Treasury budget. Nothing that will be market moving.

Economic reports, summary and Key Trading Levels

Other than the problems with European debt issues, the other shoe that could drop on this market is the fallout from MF Global, which has had very little press coverage due to Europe. But there's a problem with getting traders' accounts reconciled and funds/positions transferred to other brokerage houses. A story in Reuters yesterday, MF Global clients face shortfall despite protections, suggests there could be a big problem brewing with the segregated futures accounts, or at least they're supposed to be segregated and protected. Now there is concern by many that funds were commingled and futures account holders, who should be protected by the CFTC (Commodity Futures Trading Commission), may not be made whole.

The commodity futures industry has always talked about the safety of their account and how client money was protected by the independent clearing corporations. While the collapse of Refco in 2005 hurt general creditors, the segregated account holders were made whole. It would appear this might not be true with MF Global and if clients' accounts have been lost it will be a test of the system to see if those clients' accounts are made whole. It would be as though depositors at a regular bank are not made whole after the bank declares bankruptcy. The government has had no problem bailing out the banksters and if individuals are not made whole then the entire futures market could be in jeopardy. The current administration would be declaring war on individual speculators (those damned shorts!) while rewarding institutional speculators. You want to see the OWS movement expand exponentially?

Our financial system is based on trust and the credit market is based on faith that money owed will be money paid. If a MF Global fiasco results in loss of faith in the financial institutions, causing a drastic reduction in trading liquidity, the credit system will lock up tighter than a drum. This is a very serious situation that's not getting much attention at the moment. Keep your ears to the ground and listen and watch carefully. The collapse in the stock market in 2008 was largely due to a credit market that froze up.

Lastly, the current news from Europe, as reported in Reuters, is that "German and French officials have discussed plans for a radical overhaul of the European Union that would involve establishing a more integrated and potentially smaller euro zone, EU sources say." Hmm, I guess the ESFS idea might not work, especially since some of the countries the plan needs to leverage up the fund are the same ones who need the fund. And smaller euro zone? That doesn't sound promising.

As mentioned last week, I think the market is perched on the edge of the cliff and nothing in the past week has changed my opinion of that. But as depicted in tonight's charts, the fall off the cliff could see the market bouncing down to lower levels before getting a dead cat bounce in December before rolling off the steepest part of the mountain. Having said that, the risks just mentioned above put this market at great potential risk. I see little upside potential and a lot of downside potential so you know which way I'm looking to trade.

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

Key Levels for SPX:
- bullish above 1278
- bearish below 1215

Key Levels for DOW:
- bullish above 12,190
- bearish below 11,630

Key Levels for NDX:
- bullish above 2410
- bearish below 2298

Key Levels for RUT:
- bullish above 757
- bearish below 712

Keene H. Little, CMT


New Plays

Focus on the Major Indices

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market was roiled by worries over Italy thanks to rising Italian bond yields. Currently everyone believes that Italy is too big to bailout. Yet Europe cannot afford to let Italy crumble as its third largest economy. The situation in Europe is definitely growing more tense. Naturally traders are inclined to hit the sell button first to protect themselves.

We suspect that the S&P 500 index could still find support near 1220 or the 1200 level. Earlier this month the S&P 500 found support near 1215 on November 1st. Readers may want to consider launching bullish positions on a bounce from the 1215-1220 zone. Currently almost 85% of stocks are moving with the major indices so instead of picking individual names you could buy the SPY (S&P500 ETF). If you want to try and get more bang for your buck then look at the small cap Russell 2000 index. The $RUT looks like it should have some support near 712-710. Wait for a bounce from this area (or a bounce from the 700 level if the selling continues) as your entry point on the IWM (Russell 2000 ETF).

-James


In Play Updates and Reviews

Italy Worries Crush Stocks

by James Brown

Click here to email James Brown

Editor's Note:
Worries over a meltdown in Italy, thanks to spiking bond yields, sent the market sharply lower. The S&P 500 index gave up -3.6% while the NASDAQ composite fell -3.8%. Financials were very weak with -5% declines (or more).

Readers will want to double check their stop loss placement so you're ready just in case the sell-off continues tomorrow.

We are not convinced yet that the market is actually reversing and this could just be a knee jerk reaction to rising troubles in Italy.

-James

Current Portfolio:


BULLISH Play Updates

Beazer Homes - BZH - close: 2.20 change: -0.16

Stop Loss: 1.75
Target(s): 3.25
Current Gain/Loss: +0.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/09 update: After yesterday's huge +16% move in BZH I am not surprised to see the stock hit some profit taking today (-6.7%). The intraday bounce this afternoon looks like a new bullish entry point. I would consider new positions if both BZH and the S&P 500 open positive tomorrow.

Earlier Comments:
We have listed a very high target at $3.25 but I anticipate scaling that down. This is sort of a just-in-case BZH delivers better than expected earnings and the stock explodes kind of target. This industry is very heavily shorted so a short squeeze is a definite possibility.

Please note we are going to take the unusual step and hold over BZH's earnings in November. Normally we try to always exit ahead of earnings to avoid holding over the announcement.

FYI: You could buy calls but the spreads are so wide they could actually increase your risk (but they'll definitely leverage any move higher).

current Position: Long BZH stock @ $2.19

- or -

Long 2012 Jan $3.00 call (BZH1221A3) Entry $0.15

Entry on October 31 at $2.19
Earnings Date 11/15/11 (confirmed)
Average Daily Volume = 2.4 million
Listed on October 29, 2011


Casey's General Stores - CASY - close: 50.93 change: -0.80

Stop Loss: 47.95
Target(s): 54.50
Current Gain/Loss: - 0.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/09 update: CASY actually held up pretty well today. The S&P 500 is down -3.6% but CASY only lost -1.5%. Of course the failed rally intraday under $52 doesn't look so hot. Odds are CASY is poised to retest the $50.00 level soon. Wait for the dip or a bounce near $50 as a new bullish entry point.

Earlier Comments:
FYI: The Point & Figure chart for CASY is bullish with a $70.00 target.

Current Position: Long CASY stock @ $51.19

- or -

Long DEC $50 call (CASY1117L50) Entry $2.90

11/08 new stop loss @ 47.95
11/08 trade opened.

Entry on November 08 at $51.19
Earnings Date 12/06/11 (unconfirmed)
Average Daily Volume = 250 thousand
Listed on November 5, 2011


CEMEX - CX - close: 4.34 change: -0.50

Stop Loss: 4.24
Target(s): 4.95
Current Gain/Loss: - 3.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/09 update: Ouch! CX has been so close to our final exit price the last couple of days. Then the market tanks on us and shares get hammered with a -10% loss. The breakdown under its simple 10-dma is definitely bearish since that has been consistent support the last few weeks. I am not suggesting new positions at this time.

current Position: Long CX stock @ $4.48

- or -

Long Jan $5 call (CX1221A5) Entry $0.45

11/07 new stop loss @ 4.24
11/05 new stop loss @ 3.97
11/03 CX gapped open to $4.48 (+6.3%)

Entry on November 3 at $ 4.48
Earnings Date 10/26/11
Average Daily Volume = 20.3 million
Listed on November 2, 2011


Dycom Industries - DY - close: 18.56 change: -0.93

Stop Loss: 18.40
Target(s): 22.25
Current Gain/Loss: - 6.1%
Time Frame: 6 to 8 weeks or until earnings.
New Positions: see below

Comments:
11/09 update: The action in DY today is definitely a turn for the worse. The -4.7% drop is a bearish breakdown from the recent sideways consolidation. The MACD on the daily chart has turned bearish. I would not be surprised to see DY dip toward the 50-dma or the $18.00 level but it would stop us out in the process.

I am not suggesting new positions at this time.

Earlier Comments:
FYI: The Point & Figure chart for DY is bullish with a $32.50 target.
NOTE: We will probably choose to exit ahead of the earnings report to avoid holding over the announcement in late November.

current Position: Long DY stock @ $19.78

- or -

Long DEC $20 call (DY1117L20) Entry $1.30

11/08 trade opened on DY's gap higher at $19.78.

Entry on November 08 at $19.78
Earnings Date 11/22/11 (unconfirmed)
Average Daily Volume = 379 thousand
Listed on November 5, 2011


Honeywell Intl. - HON - close: 52.83 change: -1.82

Stop Loss: 52.40
Target(s): 58.50
Current Gain/Loss: unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
11/09 update: Hmm... there has been no follow through on yesterday's bullish breakout higher in HON. As a matter of fact today's close under the 200-dma and its 10-dma looks short-term bearish. Our trade was not open because HON gapped open lower.

The $52.00 level might offer some short-term support but I am not suggesting new positions at current levels. We will use a trigger at $54.25 to open bullish positions. More conservative traders can wait for a rally past $55.00 as their alternative entry point. I am adjusting our stop loss to $52.40.

Trigger @ 54.25

Suggested Position: buy the stock @ $54.25

- or -

buy the DEC $55 call (HON1117L55)

11/09 adjusted entry point strategy to Trigger @ 54.25, moved stop loss to $52.40

Entry on November xx at $ xx.xx
Earnings Date 01/30/12 (unconfirmed)
Average Daily Volume = 5.3 million
Listed on November 8, 2011


Healthstream Inc. - HSTM - close: 15.67 change: -0.78

Stop Loss: 14.80
Target(s): 18.00
Current Gain/Loss: - 0.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/09 update: HSTM just erased our unrealized gains with a drop back toward its simple 10-dma. If this stock and the S&P 500 can open positive tomorrow I would use it as a new bullish entry point. Please note that I am raising our stop loss up to $14.80.

Earlier Comments:
Our plan was to keep position sizes small to limit risk. Our target is $18.00. FYI: The Point & Figure chart for HSTM is bullish with a $17.50 target. NOTE: HSTM does have options but the spreads are too wide to trade.

(small positions)

current Position: Long HSTM @ $15.79

11/09 new stop loss @ 14.80
11/08 new stop loss @ 14.65
11/07 new stop loss @ 14.40
11/03 HSTM gapped open higher at $15.79

Entry on November 3 at $15.79
Earnings Date 10/24/11
Average Daily Volume = 134 thousand
Listed on November 2, 2011


IMAX Corp. - IMAX - close: 18.62 change: -1.04

Stop Loss: 17.70
Target(s): 24.50
Current Gain/Loss: - 3.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/09 update: The decline in IMAX today is starting to make the recent action look like a failed rally under resistance at $20.00 and its 100-dma. If stocks continue to sink tomorrow we could see IMAX test prior resistance and what should be new support near $18.00. If you're nimble enough a dip or a bounce from $18.00 could be used as a new bullish entry point.

Earlier Comments:
Our multi-week target is $24.50. Keep in mind that the exponential 200-dma could be resistance near $22.25ish. FYI: The Point & Figure chart for IMAX is bullish with a $28.00 target.

Current Position: Long IMAX @ $19.38

- or -

Long DEC $20 call (IMAX1117L20) Entry $1.27

Entry on November 3 at $19.38
Earnings Date 10/27/11
Average Daily Volume = 1.2 million
Listed on November 2, 2011


Juniper Networks - JNPR - close: 23.31 change: -1.32

Stop Loss: 21.90
Target(s): 29.00
Current Gain/Loss: - 1.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/09 update: JNPR pulled back toward the bottom of its recent trading range with a -5.3% drop today. The close under its 10 and 100-dma is short-term bearish. Yet we could see a bullish reversal higher tomorrow thanks to better than expected earnings results from rival CSCO released tonight. Both CSCO and JNPR are trading higher after hours.

I would use a rally past $24.00 as a new bullish entry point in JNPR.

The plan was to keep positions small to limit our risk.

(small positions)

current Position: Long JNPR stock @ $23.72

- or -

Long JAN $25 call (JNPR1221A25) Entry $1.50

11/02 trade is open. JNPR opened at $23.72
11/01 Try again. New strategy. Buy JNPR if stock and S&P500 opens positive tomorrow, stop loss @ 21.90.
11/01 trade opened at $23.46, stopped out @ 22.75 (-3.0% loss)
option opened @ $1.80, exit $1.36 (-24.4%)
10/29 alternative entry point: dip at $23.00

Entry on November 2 at $23.72
Earnings Date 10/18/11
Average Daily Volume = 13 million
Listed on October 29, 2011


Kodiak Oil & Gas - KOG - close: 7.18 change: -0.41

Stop Loss: 6.75
Target(s): 9.75
Current Gain/Loss: - 4.3%
Time Frame: two to three months
New Positions: see below

Comments:
11/09 update: After breaking out to new highs yesterday KOG was definitely a big target for profit taking today. The stock lost -5.4% and closed on its lows. Yet it settled on its rising 10-dma, the first line of technical support. Broken resistance near $7.00 should also offer some support and I would use a dip or a bounce near $7.00 as a new bullish entry point.

Earlier Comments:
Our multi-month target is $9.75. FYI: The Point & Figure chart for KOG is bullish with a $13.75 target.

current Position: Long the stock @ 7.51

- or -

Long 2012 MAR $7.50 call (KOG1217C7.5) Entry $1.25

11/08 trade opened at $7.51.

Entry on November 08 at $ 7.51
Earnings Date 03/05/12 (unconfirmed)
Average Daily Volume = 6.6 million
Listed on November 5, 2011


Red Hat, Inc. - RHT - close: 48.67 change: -1.86

Stop Loss: 48.45
Target(s): 54.90
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
11/09 update: Our new trade on RHT is not open yet thanks to the stock's gap down this morning. RHT's -3.6% decline is in-line with the S&P's drop for the day. I am adjusting our entry point strategy on RHT. The high today was $50.02. I am suggesting we open small bullish positions of RHT can trade at $50.25. If triggered we'll use a stop loss at $48.45. We do want to keep our position size small to limit our risk. More conservative traders may want to wait for a breakout past the $51.00 level before initiating positions.

Trigger @ 50.25 (small positions)

Suggested Position: buy the stock @ $50.25

- or -

buy the DEC $52.50 call (RHT1117L52.5)

11/09 adjusted entry point strategy: Trigger @ 50.25, stop loss 48.45

Entry on November xx at $ xx.xx
Earnings Date 12/21/11 (unconfirmed)
Average Daily Volume = 2.1 million
Listed on November 8, 2011


Financial SPDR ETF - XLF - close: 12.87 change: -0.74

Stop Loss: 12.59
Target(s): simple 200-dma
Current Gain/Loss: - 5.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
11/09 update: The spike in Italian bond yields raises the specter of widespread (bad) debt contagion in Europe. Greece, Ireland and Portugal all caved in and asked for a bailout when their bond yields hit 7%. Today Italy's 10-year bond yield surged past this key level. The bad news is that Italy is too big to bailout. At least that's the current thinking. The ECB could suddenly decide they're going to engineer a two trillion euro bailout but that seems unlikely. Therefore it is understandable that the financials were weak today but a Eurozone meltdown is not guaranteed just yet.

There are plenty of analysts suggesting investors avoid the financials due to potential risk of sovereign debt default. A few pundits are suggesting traders short the financials. I will admit that today's -5.4% drop in the XLF appears to have broken the trend of higher lows and it did breakdown under what could have been support near $13.00. I would point out that the XLF could find some support at its 30 or 50-dma (12.77 and 12.64, respectively). We will take a more aggressive approach here and adjust our stop loss to $12.59 so it's under the 50-dma. More conservative traders will want to consider an early exit now. I am not suggesting new positions at this time.

Earlier Comments:
Our multi-week target is the simple 200-dma (near $14.50ish) but there is potential resistance at the exponential 200-dma (closer to $14.00), not to mention possible resistance at the October highs. We want to keep our position size small!

(small positions)

current Position: Long the XLF @ $13.55

- or -

Long 2012 Jan $14 call (XLF1221A14) Entry $0.59

11/09 new stop loss @ 12.59
11/08 trade opened at $13.55
11/07 new strategy: Instead of buying a dip, I am suggesting we buy a rally with a trigger at $13.55. New stop loss $12.74. Target simple 200-dma.

Entry on November 08 at $13.55
Earnings Date --/--/--
Average Daily Volume = 137 million
Listed on November 3, 2011


Xilinx Inc. - XLNX - close: 31.95 change: -1.36

Stop Loss: 31.40
Target(s): 35.75
Current Gain/Loss: - 1.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/09 update: Semiconductor stocks were underperformers today. The SOX index lost -4.6%. Shares of XLNX fell -4.0%. Suddenly XLNX is facing what might be a bearish double top. I'm not ready to give up just yet but I am not suggesting new bullish positions at this time.

Earlier Comments:
The plan was to keep our position size small to limit risk. Our multi-week target is $35.75. FYI: The Point & Figure chart for XLNX is bullish with a $46 target.

(small positions)

Current Position: Long XLNX stock @ 32.50

- or -

Long Jan $35 call (XLNX1221A35) Entry $0.95

Entry on November 1 at $32.50
Earnings Date 10/19/11
Average Daily Volume = 5.0 million
Listed on October 29, 2011


BEARISH Play Updates

None. We do not have any active bearish trades.