Option Investor
Newsletter

Daily Newsletter, Tuesday, 11/15/2011

Table of Contents

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

Market Wrap

Melt Up Fizzles

by Jim Brown

Click here to email Jim Brown
A +120 point Dow intraday gain fizzled at the close to only +17 but it was still a gain and the Nasdaq closed at a five day high.

Market Statistics

The markets opened lower this morning in a continuation of the sell the news event on Monday. New governments are forming in Greece and Italy but now there is a concern about whether these new temporary coalitions will have the strength to enact the needed reforms since they will have no popular support from the public.

You have probably heard the term "technocratic government" being used for both Greece and Italy and the new leaders. I am sure quite a few people don't know what that means. Webster defines technocracy as a form of government in which scientists and technical experts are in control as opposed to politicians. For instance in Italy, Mario Monti, is a renowned economist and not really a politician with broad party support.

In theory these professional economists will take power, appoint a cabinet and apply their technical knowledge about economics and make changes to the government and the economy in order to reverse their current downward spiral. The problem with technocratic government by committee is that the committee has no support base in the population. The committees may be composed of members from the various different parties but there is normally a coalition rather than a majority of a single party.

The problem with the technocracy is actually getting the laws passed once they move into the broader Senate/Parliament and are impacted by the normal political partisanship. The technical experts can determine what they think needs to be done but actually getting the lawmakers to go along with the changes could be a challenge.

This is what is impacting the markets this week. The normal political wrangling is taking place as the cabinets are being formed in Greece and Italy and already some party leaders in Greece have promised to oppose any changes suggested by the appointed members. In Italy Monti has already held numerous meetings and he said late Tuesday he is confident the opposition concerns will be overcome soon and the cabinet will be formed without delay.

Traders are not as convinced as Monti. After many months of arguments instead of action by Greece they are watching the process in Italy with a skeptical bias. Once the temporary coalition governments are formed the worries should cool somewhat as it will take some time before those governments can come up with changes.

Until then we are likely to continue to be pushed around by European headlines. France has moved to the top of the concern list after numerous articles suggesting their banks were in serious trouble as a result of owning Italian debt. France is the biggest holder of Italian debt and any haircut, like the one proposed for Greek debt, would be severely negative for France. So far the prospect of an Italian debt haircut has not really taken shape. The bond vigilantes have started to target France just in case and yields are starting to rise on French debt.

It may be a long time before the European problem goes away completely, as in years from now. We need to expect these random headlines to continue to weight on the markets. However, continued positive economic news from the U.S. and China would go a long way towards distracting investors from the problems in Europe.

In the U.S. the Retail Sales for October rose +0.5% and the second largest increase since March. September posted a rise of +1.1%. Analysts were pleased to see there was not a dip back into negative territory that would have suggested September's gains were an accounting abnormality. Instead we have seen a steady increase in consumer spending despite the decline in consumer sentiment. Core sales ex-autos and gasoline rose +0.7%. Year over year growth is now +7.2%. Electronics rose +3.7%, building materials +1.5%, food and beverages +1.1% and nonstore retailers +1.5%. Not all sectors were positive with home furnishings declining -0.7% and apparel -0.7%. The continued increase in consumer spending suggests there is no worry over a return to a recession.

The NY Empire State Manufacturing Survey rose to +0.6 and a significant improvement over the -8.5 reading in October. Analysts were expecting only a minor increase to -7.0. This was the first return to positive territory since May. However, the internal components were not that positive. New orders slipped slightly to -2.1 from +0.2 and backorders also declined to -7.3 from -4.5. The average workweek rose for the first time in six months from -4.5 to +2.4. That suggests activity is picking up but it will take a lot more orders to stimulate new hiring. The most positive components were a jump in capital spending plans to 25.6 from 7.9 and a spike in the six month outlook to 39.02 from 6.74.

The jump in the forward looking indicators was a strong injection of positive sentiment for investors.

NY Empire Chart

Inflation is nowhere to be found at the producer level. The Producer Price Index (PPI) for October fell -0.3% from a +0.8 in September. The core rate, excluding food and energy, prices were unchanged, down from +0.2% in September. Declining prices confirms for the Fed that inflation is nonexistent and they have no reason to change their current monetary policy. In fact should prices continue to fall they may actually increase stimulus to prevent a return of recessionary conditions.

Prices for autos declined -1.6% as more inventory becomes available. Energy also declined going into October and those declining prices were seen in products in October. There is a large amount of spare manufacturing capacity and that leads to lower prices as firms compete to gain market share. A pending recession in Europe will also push prices lower. If Europe appears to be dropping into an austerity led recession the Fed will be forced to increase monetary stimulus.

The calendar for the rest of the week is full of reports but the only really important one is the Philly Fed Survey on Thursday.

Economic Calendar

Not on the calendar for next week but definitely on the mind of investors is the Super-committee deadline on the following Wednesday. Recent comments from committee members suggest they are no closer to a joint solution than they were three months ago. However, we all know that nothing ever gets done in Washington without a deadline. That means they are likely to use every minute until that deadline beating each other up in the press and trying to perfect their brinksmanship ahead of next Wednesday.

Apple (AAPL) shares finally rallied for a change with a gain of more than $9. There were multiple catalysts for the rally. Apple announced it had named long time board member Art Levinson as non-executive chairman of the board. They also named Walt Disney CEO Bob Iger to the board. Levinson replaces Steve Jobs and Iger replaces Levinson on the board. Steve Jobs and Iger had become close during the acquisition of Pixar by Disney. Levinson is the CEO of Genentech and has been on the board since 2000.

Apple shares also rose on news several high profile hedge funds had begun accumulating new positions.

Apple Chart

Dell reported earnings after the bell that beat the street on earnings per share but missed on revenue. Dell lowered guidance for the current quarter as a result of the flooding in Thailand. Excluding items Dell earned 54-cents compared to analyst estimates of 47-cents. Revenue of $15.36 billion was below the consensus estimate of $15.65 billion.

Dell Chart

Dell warned that the floods in Thailand had disrupted supplies of hard drives and other components. This is not new news. The floods have inundated several plants that either make hard drives or supply parts for drives and for other equipment as well. Drive prices in the retail market today have risen 300% to 500% depending on the type of drive. On top of the price increase there is a limit per customer. NewEgg.com, one of the biggest online retailers of computer parts, has limited purchasers to one drive on most items with a five drive limit on some of the lesser quality brands/models still in inventory.

For instance a Seagate 2TB SATA drive that cost $79 at Microcenter two months ago is now quoted at $289 to $389 if you can find one and then you only get to buy one drive. That may not be a big deal for a home user that only needs one drive but for businesses it is a disaster. Most high capacity storage servers in use today require from 12 to 48 drives per server. This is severely restricting server sales to businesses because they are no good without drives and the cost of the drives today can be 3-4 times the cost of the server. For instance the 24 drive Supermicro (SMCI) storage server below sells for under $5,000 fully configured but the drives are now more than $14,000 today (if you could find them) compared to $3,000 two months ago.

Supermicro 24 Drive Storage Server

Other companies being hit by the Thailand floods include:

Seagate (STX) warned its factories were safe but parts suppliers had been hit.

Western Digital (WDC) warned that flooding damage will have a significant impact on operations for the rest of the year.

Apple (AAPL) warned that the overall industry shortage of drives would slow sales of the Apple Mac.

Emulex (ELX) warned that a subcontractor in Thailand had suspended operations for an indefinite duration.

Fabrinet, which supplies parts for optical and electronic manufacturing would remain closed for the rest of the year.

Emcore, maker of fiber optic components for broadband devices said flooding had submerged equipment at a subcontractor and will be unable to make deliveries until other facilities can be improved to handle demand.

Digi International, a maker of computer networking equipment, said flooding had inundated a contractor and they had no target date for restarting production.

LSI Corp (LSI) warned that supply chain problems related to the flooding would reduce Q4 earnings.

JDS Uniphase (JDSU) warned revenue would decline sharply in Q4 due to component shortages.

Lenovo Group, a leading PC maker, said the flooding had severely reduced the supply of hard drives necessary to sell their computers and forecast lower revenue.

Cisco (CSCO) said the sudden shortage of optical components for its networking equipment and "expect conditions will not return to normal for several quarters."

Research group IDC said the real damage to the computer sector won't be felt until early 2012 since the majority of Q4 sales will be done out of existing inventory. However, in a worst case scenario PC sales could decline more than 20% in Q1-2012.

Hewlett Packard (HPQ) reports earnings on Nov 21st and you can bet they will also warn of challenges from the lack of components.

Agilent (A) reported earnings of 84-cents compared to estimates of 80-cents. They guided exactly in line with estimates and did not give investors any reason to be excited. Shares declined more than $1 in afterhours trading.

Autodesk (ADSK) reported earnings of 44-cents after the bell compared to estimates of 41-cents. They guided roughly in line with estimates but shares rallied +75-cents after the report.

Commodities were mixed thanks to the volatility in the euro and the dollar with gold, silver and copper trading relatively flat. Oil was the exception to the rule and it rallied to close at $99.50 on declining supplies and rising demand. That is the highest close since July 26th. I wrote a big article on OilSlick.com last night about the rising demand and why oil prices are rising and I won't go into all the details today. Read: Growth Continues, Production Does Not

Today we learned that tankers loading oil in the Persian Gulf rose to 53 last week compared to the average of 35-38. Japan and China are buying every spare barrel in sight. Japan's demand in October was +200,000 bpd higher than the same period in 2010. China is scrambling to overcome a severe diesel shortage that plagued them last year and is ongoing. They told refiners to boost to maximum production to try and increase inventories ahead of their high demand season.

Russia is talking about adding a 3.5% export duty on their oil and last week was talking about matching deliveries to meet OPEC quotas. Russia is not a member of OPEC and that has been a problem for OPEC since Russia produces between 8-9 million barrels a day. If Russia has seen the light and understands they can get more money for their oil by keeping their production in line with OPEC quotas then prices are going a lot higher.

In the WTI futures we learned in the CFTC Commitment of Traders report this week that hedge funds had increased their exposure by +7.2% over the last two weeks. We are heading into the high demand winter season and this is typically where prices increase until spring. With the economics in the U.S. improving it suggests oil demand will also increase. Add in the worry over Iran and the problems in Syria and there is plenty of support for higher prices. Buy the dip in energy equities.

Crude Oil Chart

Despite the +120 point intraday gain by the Dow the markets really ended in neutral territory. The Nasdaq was a minor winner with a five day high close. However, the S&P is stuck in neutral territory and I fear it may continue to be lackluster until after the Super Committee releases a debt plan. Volume was minimal for the third consecutive day with only 6.2 billion shares trading and that was the highest of the last three days.

Italy and Greece have moved to a point where there should not be any really serious headlines for the next week or two but France and Spain now appear to be targets of the bond vigilantes. While I believe those are just targets of opportunity and the ECB will be able to quell those attacks with a little bond buying, there is always risk.

The growing realization that the Thailand floods could really hurt tech earnings for the next several quarters is going to eventually depress shares of computer related stocks. Will that impact the Nasdaq in Q4, nobody knows. I don't think the seriousness of the Thailand floods has really impacted market sentiment yet. It will hit when additional companies begin posting warnings.

For now the S&P is struggling with initial overhead resistance at 1265 with stronger resistance at 1275 and 1285. Actually the next 45 points are going to be a battle in five point increments and we may not succeed in that battle until after the Super Committee plan is announced. We have a nice series of higher lows but that strong overhead resistance is showing no signs of cracking.

S&P Chart - 90 Min

S&P Chart - Daily

The Dow has the same pattern as the S&P only the Dow is pressing the downtrend resistance with a little more upside bias. The S&P is stuck in the middle of the pattern but the Dow is holding at the highs. I was disappointed at the end of day swoon but with Dell, Agilent and Autodesk reporting after the bell that could have had an impact.

However, Chevron was the biggest drag. Chevron fell -$4 intraday starting at 1:30 after some news in the blogosphere suggested Chevron was responsible for a big oil spill off the coast of Brazil. That was not the case and Chevron and Transocean both rebutted the rumors. There was a minor spill in the hundreds of barrels from an appraisal well being drilled from Chevron. Hundreds of barrels, 400-650 was the estimate, not thousands. The "leak" was coming from cracks or seeps in the ocean floor not from the actual well. The news caused Chevron to lose -$3 for the day and knock -25 points off the Dow.

What it caused was some ETF selling as the Dow dropped on the Chevron news. Trailing stops were hit and it knocked the Dow back to barely positive.

Initial support for the Dow is now 12,000 and strong resistance at 12,175.

Dow Chart

The Nasdaq managed to make a decent 28 point gain thanks to Apple's return to favor but the index remains trapped below the 200-day average at 2687. The earnings warning by Dell and the revelation by several other tech companies of their exposure to Thailand should make further gains by the Nasdaq tough to come by until after the Super Committee.

Support 2600, resistance 2687.

Nasdaq Chart

Continued underperformance by the Russell-2000 suggests the recent rally has no legs. Until the Russell begins to outperform there is no confidence in the market.

Russell Chart

I have worries the market could take a step back ahead of next Wednesday's committee deadline. The odds of a breakout ahead of that even are slim. The growing tech warnings over the flood could weigh on the markets.

I have been in buy the dip mode with expectations of a continued move higher through Thanksgiving but the news leaks starting to appear from the committee regarding their disagreements suggests we could see some volatility ahead of the event. I would probably look for a stronger pullback to buy and that suggests something in the S&P 1220 range.

S&P futures are down -8 after Dell's earnings and guidance warning. The dollar is also spiking significantly so Dell is not the only news weighing on the market. Unless something changes before Wednesday we are looking at a negative open. In theory I would still buy the dip but not the first dip. Let's give the market some breathing room and see what develops.

Jim Brown

Send Jim an email


New Plays

Rental & Leasing

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Ryder System, Inc. - R - close: 54.54 change: +0.55

Stop Loss: 49.90
Target(s): 59.50
Current Gain/Loss: unopened
Time Frame: 6 to 9 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Last Friday shares of R managed to breakout from its two-week consolidation and rally to new three-month highs. The stock was showing relative strength again today. While there is potential resistance near $55.00 we could see R make a run at its 2011 highs near $60.

I am suggesting we open small bullish positions tomorrow morning but only if both shares of R and the S&P 500 index open positive. We'll use a stop loss at $49.90 but more conservative traders might want to consider a stop closer to $51.00 instead. Our multi-week exit target is $59.50. FYI: The Point & Figure chart for R is bullish with an $87 target.

NOTE: Thursday morning we will likely see R with a small gap down thanks to a 29-cent dividend. The dividend isn't payable until mid December but shares will begin trading ex-dividend on Thursday.

*see Entry Details Above*

Suggested Position: buy R stock @ the open

- or -

buy the 2012 Feb. $57.50 call (R1202B57.5) current ask $2.55

Annotated chart:

Entry on November xx at $ xx.xx
Earnings Date 02/02/12 (unconfirmed)
Average Daily Volume = 727 thousand
Listed on November 15, 2011



In Play Updates and Reviews

Stocks Recover Off Midday Lows

by James Brown

Click here to email James Brown

Editor's Note:
Small caps were showing relative strength with the Russell 2000 up +1.4% versus +0.48% in the S&P 500.

Our HSTM trade has been stopped out, as expected, thanks to the company's announcement last night to sell more stock.

-James

Current Portfolio:


BULLISH Play Updates

Allegheny Technologies Inc. - ATI - close: 50.00 change: +0.32

Stop Loss: 47.45
Target(s): 56.75
Current Gain/Loss: -1.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/15 update: The late morning swoon took ATI down to short-term support near $48.00 before the stock bounced back into positive territory. I would look for a new rally past $50.50 as an entry point to open bullish positions. I would keep a wary eye on the exponential 200-dma near $51.85 as possible resistance.

current Position: Long ATI stock @ 50.60

- or -

Long DEC $52.50 call (ATI1117L52.5) Entry $2.75

11/14 trade triggered at $50.60

Entry on November 14 at $50.60
Earnings Date 01/26/12 (unconfirmed)
Average Daily Volume = 2.5 million
Listed on November 12, 2011


Beazer Homes - BZH - close: 2.22 change: +0.00

Stop Loss: 1.90
Target(s): 3.25
Current Gain/Loss: +1.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/15 update: BZH missed Wall Street's earnings estimates by 21 cents. The company reported a loss of 57 cents a share with revenues up almost +25% to $334.9 million. The stock traded down to $2.06 before bouncing back and closing unchanged on the session.

The fact that BZH did not see a huge drop in its stock price is bullish in my book. If a big earnings miss isn't going to take the stock down, then the worst may be behind it for this stock.

current Position: Long BZH stock @ $2.19

- or -

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

11/12 new stop loss @ 1.90. More conservative traders may want to exit prior to the earnings report to lock in a gain.

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: 52.66 change: +1.07

Stop Loss: 48.75
Target(s): 54.50
Current Gain/Loss: + 2.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/15 update: CASY displayed some relative strength with a breakout past resistance at $52.00 and a +2.0% gain. I would not chase it here. We are raising our stop loss to $49.40.

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

11/15 new stop loss @ 49.40
11/12 new stop loss @ 48.75
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


Carlisle Companies - CSL - close: 44.67 change: +0.66

Stop Loss: 41.90
Target(s): 49.50
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
11/15 update: Our new trade on CSL is not open yet. Neither CSL or the S&P 500 index opened positive this morning. CSL did manage to reverse higher midday and stocks posted a +1.4% gain. The breakout past $44.00 is bullish.

We will try again. I am suggesting we buy CSL if both the stock and the S&P 500 index can open positive tomorrow morning. We'll use a stop loss at $41.90 if triggered. Our multi-week target is $49.50. FYI: The Point & Figure chart for CSL is bullish with a $73.00 target.

NOTE: Options are available but the spreads are too wide to trade.

*See Entry Details Above*

Suggested Position: buy CSL stock @ the open

Entry on November xx at $ xx.xx
Earnings Date 02/07/12 (unconfirmed)
Average Daily Volume = 327 thousand
Listed on November 14, 2011


CEMEX - CX - close: 4.64 change: +0.11

Stop Loss: 4.29
Target(s): 5.10
Current Gain/Loss: + 3.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/15 update: CX completely reversed yesterday's loss with a +2.4% gain today. The stock looks poised to run higher. More conservative traders may want to tighten their stop loss.

current Position: Long CX stock @ $4.48

- or -

Long Jan $5 call (CX1221A5) Entry $0.45

11/12 new stop loss @ 4.29, new exit target @ 5.10
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


Honeywell Intl. - HON - close: 54.78 change: +0.07

Stop Loss: 52.40
Target(s): 58.50
Current Gain/Loss: + 0.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
11/15 update: HON filled the gap and tested support at its 10-dma and 200-dma with today's dip and bounce near $54.00. I would open new positions here if both HON and the S&P 500 index open positive tomorrow morning.

Current Position: Long HON stock @ $54.40

- or -

Long DEC $55 call (HON1117L55) Entry $1.78

11/11 trade opened on HON's gap higher at $54.40
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


IMAX Corp. - IMAX - close: 19.24 change: +0.50

Stop Loss: 17.70
Target(s): 24.50
Current Gain/Loss: - 0.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/15 update: IMAX was showing some relative strength on Tuesday with a +2.6% gain. The move today also looks like a breakout over its short-term trendline of lower highs. However, I wouldn't get too excited yet. IMAX still has potential resistance at its 100-dma directly overhead.

More conservative traders might want to consider a stop loss closer to $18.25 to limit risk.

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: 24.59 change: -0.17

Stop Loss: 22.70
Target(s): 29.00
Current Gain/Loss: + 3.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/15 update: JNPR underperformed the market on Tuesday with a -0.6% decline. Shares are trading in the $24.00-25.00 zone. Nimble traders could use dips near $24.00 as a new bullish entry point.

Currently our exit target is $29.00 but readers may want to exit at potential technical resistance near the exponential 200-dma.

Earlier Comments:
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

11/12 new stop loss @ 22.70
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


KB Home - KBH - close: 7.53 change: +0.23

Stop Loss: 6.70
Target(s): 9.50
Current Gain/Loss: -0.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/15 update: KBH recovered most of yesterday's losses with a +3.1% gain today. Readers may want to wait for a move past $7.60 or $7.65 as a new bullish entry point.

Earlier Comments:
The most recent data listed short interest at more than 50% of the relatively small 65.4 million-share float. That's definitely enough fuel for a significant short squeeze.

KBH can be a volatile stock so we need to use a wide stop loss. This raises the risk profile on this trade. We will aim for $9.50 but the exponential 200-dma might be overhead resistance (currently at 9.10).

current Position: Long KBH stock @ 7.55

- or -

Long Jan $7.50 call (KBH1221A7.5) Entry $0.91

11/11 trade opened at $7.55

Entry on November 11 at $ 7.55
Earnings Date 01/09/12 (unconfirmed)
Average Daily Volume = 5.8 million
Listed on November 10, 2011


Kodiak Oil & Gas - KOG - close: 7.84 change: +0.15

Stop Loss: 7.20
Target(s): 9.75
Current Gain/Loss: + 4.3%
Time Frame: two to three months
New Positions: see below

Comments:
11/15 update: Wow! I will confess that I am surprised with KOG's performance today. Not only did shares not hit our stop loss at $7.20 but KOG managed to reverse higher and close up +1.9%. Yesterday the company announced plans to sell an additional 37.5 million shares of stock, diluting current shareholders. This news was among several announcements last night.

The relative strength is very encouraging but I would not chase it here. No new positions.

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

current Position: Long the stock @ 7.51

- or -

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

11/15 gap down at 7.41 and hit 7.21 before bouncing.
11/14 new stop loss @ 7.20
11/14 KOG announces plans to sell an additional 37.5 million shares of new stock
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


Newfield Exploration Co. - NFX - close: 42.93 change: -0.21

Stop Loss: 41.75
Target(s): 49.75
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
11/15 update: Our play on NFX is still not open. Shares gapped down and dipped toward their converging 10 and 50-dma before bouncing. Unfortunately, NFX failed to close in positive territory.

I remain bullish on NFX and suggest we try again. The plan is to open bullish positions if both NFX and the S&P 500 index can open positive tomorrow morning.

Earlier Comments:
I am suggesting we keep our position size small to limit our risk. More conservative traders might want to wait for a rally past possible resistance near $45.00 as an alternative entry point. FYI: The Point & Figure chart for NFX is bullish with a $57.00 target.

*See Entry Details Above*

Suggested Position: buy NFX stock @ the open

- or -

buy the DEC $45 call (NFX1117L45)

Entry on November xx at $ xx.xx
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 4.1 million
Listed on November 12, 2011


Red Hat, Inc. - RHT - close: 52.72 change: +2.52

Stop Loss: 48.45
Target(s): 54.90
Current Gain/Loss: + 4.9%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
11/15 update: The RHT bulls were in charge today. The stock was in rally mode almost all day long and broke out to new all-time highs with today's +5.0% gain. I had been suggesting readers buy RHT on a rally past $51.00. Now this short-term resistance should be new support.

Earlier Comments:
Our plan was to keep positions small to limit our risk.

(small positions)

current Position: Long RHT stock @ $50.25

- or -

Long DEC $52.50 call (RHT1117L52.5) Entry $1.50

11/11 trade opened at $50.25
11/09 adjusted entry point strategy: Trigger @ 50.25, stop loss 48.45

Entry on November 11 at $50.25
Earnings Date 12/21/11 (unconfirmed)
Average Daily Volume = 2.1 million
Listed on November 8, 2011


Financial SPDR ETF - XLF - close: 13.03 change: +0.06

Stop Loss: 12.75
Target(s): simple 200-dma
Current Gain/Loss: - 3.8%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
11/15 update: I am concerned with our XLF trade. Shares did post a gain today but the XLF appears to be building a bearish trend of lower highs, which could be forecasting a breakdown under support near $12.80 soon.

If you're looking for a bullish entry I'd wait for a rally past $13.25. Please note our new stop loss at $12.75.

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

11/15 new stop loss @ 12.75
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: 32.97 change: +0.46

Stop Loss: 31.40
Target(s): 35.75
Current Gain/Loss: + 1.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/15 update: The semiconductor sector showed some strength today. XLNX produced a +1.4% gain. If both the XLNX and the S&P 500 index open positive tomorrow we can use it as a new entry point.

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.


CLOSED BULLISH PLAYS

Healthstream Inc. - HSTM - close: 15.08 change: -0.97

Stop Loss: 14.95
Target(s): 18.00
Current Gain/Loss: - 5.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
11/15 update: I am very surprised that HSTM did not see bigger losses today after last night's announcement to sell 3.25 million shares of stock. HSTM gapped open lower as we expected but shares opened at $15.39 and then fell to $14.59 before paring its losses. At the end of the day HSTM lost -6.0%. It could have been a lot worse.

We were stopped out at $14.95.

Earlier Comments:
Our plan was to keep position sizes small to limit risk.

(small positions)

current Position: Long HSTM @ $15.79, exit $14.95 (-5.3%)

11/15 stopped out at $14.95
11/14 new stop loss @ 14.95
11/14 After the closing bell HSTM announces plans to sell 3.25 million shares of new stock.
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

chart:

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