Option Investor
Newsletter

Daily Newsletter, Saturday, 12/10/2011

Table of Contents

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

Market Wrap

Another Plan to Make a Plan

by Jim Brown

Click here to email Jim Brown

There was no grand plan as a result of the EU summit but in true European fashion they were all smiles about their new plan to make another plan.

Market Statistics

I am not surprised the EU leaders came up with another plan suggestion. It was better than throwing up their hands and achieving nothing like our super committee did last month. What I am surprised about is the market reaction. Obviously maximum pessimism was priced into the market and Friday was a relief rally the euro zone did not self destruct.

Did everyone forget about S&P and their threat to downgrade everything in Europe including countries, banks and bailout vehicles if a grand plan was not achieved? Friday's rally on the hope for future improvement in Europe almost makes you wonder if the Fed was in the market buying futures at the open.

What really happened in Brussels on Friday? Basically the leaders cobbled together a "potential" fiscal stability pact for "up to" 26 of the 27 nations. The UK said absolutely not and will not take part in future discussions. Late Thursday night it was like a play by play announcement of progress in the meeting. There are 23 of the 27 nations agreeing to the pact. An hour later there were 24 of 27. A couple hours later 25 of 27, etc. The official tally at the end of the meeting was 26 of 27 with the UK the sole objector. However, just because a country's representative loosely agreed to go along with the plan to make a plan it does not mean they will actually vote for it later.

The EU leaders now have three months to actually put a plan together to be signed in March. Depending on what gets added to the rough draft there may be far less than 26 countries agreeing to put it to a vote. That also does not guarantee that the individual governments of each country will actually approve it once a final plan is presented. Ireland, Hungary and the Czech Republic are already voicing concern over potential provisions. Surprisingly nine of the non euro zone countries agreed to go along with the plan to force fiscal responsibility.

Under the proposed plan each country would agree to pursue a tougher budget discipline with automatic sanctions for those with deficits over the allowed 3% of GDP. Nobody knows what those sanctions will be or how they will be enforced. The original Maastricht treaty 20 years ago to the day had rules for fiscal responsibility but everyone ignored them when budgets grew tight and politicians needed votes. Under the proposed plan each country would have to present their budgets to the European Commission for approval.

Obviously if the 26 countries can actually institute a budget with only 3% deficit spending across the entire European Union it would create tremendous financial stability. However, as we all know just having a rule does not make everyone follow it. I still can't conceive of countries like Greece, Italy, Spain, Portugal, etc actually living in a 3% world. I think we will see some really novel ways develop for getting around the rules. The plan would require individual countries to make constitutional changes to implement an "automatic correction mechanism" that forces spending cuts when budgets exceeded the deficit targets. Good luck with that! The blueprint would require "more intrusive control" of taxing and spending by the European Commission on governments that exceed the 3% limits. I can't even imagine that actually working at any point in the future. FYI, Germany was the first country to violate the spending limits in the first treaty but since Germany was the strongest in the euro zone the debt limit sanctions were never applied. When Germany got away with it everyone else followed suit.

They are going to do this with an intergovernmental treaty in hopes of speeding up the approval process rather than modifying the original treaty, which would be blocked by the UK. The EU leaders could meet again in January to go over the first draft and then meet again in March to approve the final draft.

As part of the deal the European Stability Mechanism (ESM) will be capped at 500 billion euros and launched in July. However, Finland and Slovakia are already talking about pulling out of the agreement if the requirement for unanimous approval on all actions is removed. The originators want to lower the approval process to a qualified majority of 85% to avoid problems like they had earlier this year. Finland would not approve the bailout of Greece unless the country put up collateral for the bailout loan. That was eventually resolved but they don't want to fight that battle again in the future.

The EU countries in total also agreed to provide up to 200 billion euros in bilateral loans to the IMF with 150 billion coming from euro zone countries.

The EU leaders also affirmed there will not be any further haircuts for private sector involvement in the debt markets. They agreed the 50% haircut required of private investors in Greek debt was handled badly and adversely impacted the market for debt from all European countries. In the future they will follow the IMF guidelines for debt restructuring. This was a positive for European debt. Investors had been fleeing the debt on worries a further decline in economic conditions could see their investments be restructured as part of some new bailout. EU President Herman Van Rompuy said, "To put it more bluntly: our first approach to private sector involvement, which had a very negative effect on the debt markets, is now over."

ECB president Mario Draghi said the overall agreement was a "very good outcome" and that is a dramatic change from his very pessimistic expectations for a deal only the day before.

The EU leaders need to accelerate these plans as quickly as possible. Euro-area countries have to repay more than 1.1 trillion euros of debt in 2012 and about 519 billion consists of Italian, French and German debt in the first six months alone. European banks have 600 billion euros of debt coming due over the next six months. If leaders can't get the treaty signed quickly all of those debtors will be paying much higher interest rates to renew that debt.

Official press release of the European Council

There is still the threat of the S&P downgrade. The company said it would study the summit implications and "impact on the growing systemic stresses we identified." While a "unified stance" could prompt a delay in our decision, rating cuts remain possible.

To bottom line the summit results the countries KNEW there were downgrades coming soon if they didn't enact something. This plan to make a plan sounds good in theory but I foresee major problems in getting it enacted. What this did was buy another three months of time if they are lucky. They succeeded in kicking the can a little further down the road but the loose agreement is a very long way from a done deal. This is a broad agreement in principal only and negotiating the actual details will be a really contentious task.

I think the market rebounded in relief the meeting did not deteriorate into a breakup of the euro zone. The zone gained another three months of life and that was good enough for traders to abandon short positions. I believe most traders believed as I did that it would be increasingly harder to get 17 countries to agree to anything, much less all 27. The potential for failure was huge.

The market wants to rally and any excuse to kick Europe out of the headlines was all that was needed. Frankly I would be thrilled at any plan that kept Europe out of our headlines and I would not have to write about it again until March.

In the U.S. soaring Consumer Sentiment boosted the market at the open and helped to overcome the earnings warnings by DuPont and Texas Instruments.

Consumer sentiment for December rose +3.6 points to 67.7 and the highest level since June. That is also well off the 55.7 low in August. The present conditions component was basically flat at 77.9 vs 77.6 in November. The expectations component rose nearly +6 points to 61.1 from 55.4.

Jobs are starting to increase as we saw in the nonfarm payroll report last week. Gasoline prices are still relatively low compared to the highs back in May. During this survey period there were many headlines suggesting Europe was going to find a solution. Holidays also tend to improve sentiment but that tends to decline in Jan/Feb when the credit card bills come due.

Consumer Sentiment Chart

The economic calendar for next week is headlined by the FOMC meeting on Tuesday and the Philly Fed Manufacturing Survey on Thursday. The Fed is expected to remain on hold and not change their current monetary policy. The improving U.S. economy gives them that option. The lack of a disaster in Europe will also allow them to wait until January and see how the new fiscal compact formation is progressing.

The Philly Fed Survey is seen as a proxy for the national ISM released at the beginning of every month. The headline number ticked down slightly last month from 8.7 to 3.6 and analysts are mixed on the outlook this month. The Philly headline dipped to -30.7 in August, -17.5 in Sept and +8.7 in October. It was due for a rest after that strong rebound.

OPEC meets on Wednesday and no change in production is expected. The last meeting ended in a brawl with no official quota change announced. Iran and Venezuela wanted a cut in production and Saudi Arabia, Kuwait and the UAE wanted to expand quotas to offset the decline in production by Libya. They could not agree and with Iran holding the rotating OPEC presidency at the last meeting it became a battle of wills. Iran and Saudi Arabia are enemies. Iran took the opportunity to enforce its will at the meeting but could not arrive at a consensus. After the meeting Saudi, Kuwait and the UAE raised production on their own to compensate for the lack of Libyan supply. There is no change expected at this meeting. Countries are able to sell all the oil they can produce at high prices and Saudi is actually getting record prices for some of its lower grades due to high demand. Some analysts will claim there is an excess of production but producers could not sell their oil at record prices if there was a surplus. The facts speak for themselves.

Economic Calendar

Du Pont (DD) joined the list of disappointments when they warned on Friday of lower earnings because of slower than anticipated sales growth in Q4. They reduced their profit guidance to $3.87 to $3.95 from $3.90 to $4.05. The company said they were seeing slower growth in certain segments during the fourth quarter, driven by global uncertainty. The uncertainty is contributing to conservative cash management in some supply chains.

A Jefferies analyst lowered his 2011 guidance and his 2012 guidance saying DuPont will probably warn as did 3M (MMM) for the first half of 2012. 3M cautioned on the outlook for consumer electronics in early 2012. Companies are starting to react to the outlook for slower growth in Europe as a result of forced austerity and cash hoarding by European consumers afraid of future bank disasters. DuPont will hold an investor conference next Monday and Tuesday. DuPont shares fell -3% on the news.

DuPont Chart

Morgan Stanley (MS) downgraded expectations for Potash (POT) and Mosaic (MOS) saying farmers are apparently becoming more conservative in their fertilizer buying patterns. The analyst said conversations with farmers did not indicate there was a sudden drop in buying but they were just unsure when those buys would take place and in what amount. The analyst said farmers were hoarding cash and holding off on purchases until they could see the outlook for the 2012 growing season. However, some farmers would prepay in 2011 in order to reduce taxes from record 2011 profits. The analyst cut the price target on POT to $66 and MOS to $85.

Stocks of both companies have been depressed due to sporadic sales influenced by bad weather over the 2011 growing season.

Potash Chart

Mosaic Chart

Altera (ALTR) cut its earnings guidance again and said revenue would decline by -13% to -16% in Q4. In October they said to expect declines of -7% to -11%. Altera shares dropped sharply at the open to $33.84 but rebounded to close positive at $35.89.

Lattice Semiconductor (LSCC) warned they saw "further softening of demand primarily in the communications business" in December. They now see revenue down -14% to -17% sequentially compared to a -4% to -9% decline. Lattice shares declined -4%.

Earnings warnings are helping to push estimates for Q4 earnings even lower. The current outlook for S&P earnings for Q4 is 10.1% growth and very close to falling into single digits. On July 1st the estimate was for +17.6% growth and on Oct-1st that had declined to +15% growth. Earnings in Q3 were up +17.9%. Estimates are plunging thanks to some of the big names with big profit declines. Expected revenue growth has declined to +6.6% from +11.1% in Q3.

The materials sector is taking the biggest hit. Earnings for materials are now expected to decline by -1.4% compared to early October estimates for a gain of +25.6%. Financials are now expected to see earnings growth of 18.3% compared to October estimates of 26.6%. Sears Holdings (SHLD) was cut to a sell at Imperial Capital. The company put a $6 price target on Sears with the current price at $56. That is a seriously negative outlook. The analyst said the pension plan was significantly underfunded and operating performance was deteriorating. Sears posted a larger Q3 loss than anticipated on sharply higher raw material costs and rising economic fears. Personally I don't see $6 in my lifetime simply because their real estate is worth several times that amount. Sears is taking steps to rejuvenate operations. One of those steps is the spinoff of the Orchard Supply Hardware Stores chain. The 89 store chain will trade under the symbol OSH on the Nasdaq. The distribution will occur on Dec 30th and every 22.14 shares of sears stock will receive one Class A share and one preferred share of the new company.

Sears Holdings Chart

GE rallied +3% on Friday after raising their dividend by +2 cents to 17-cents for the quarter. That is the fourth increase in two years. That is still lower than the 31-cents paid in April 2009 before they had to slash the dividend to conserve $9 billion in cash. That was the first dividend cut since 1938. The dividend is payable on Jan 25th to holders on Dec 27th.

GE Chart

Financial stocks rallied on Friday as worries eased about a breakup of the euro zone and a European banking disaster. Since you can't short European bank stocks the U.S stocks were shorted instead to hedge risk in Europe. When Europe didn't self destruct those shorts were closed. Also, the increased liquidity through the coordinated central bank currency swaps and the new ECB rules and three year loans means there is far less counterparty risk from overseas banks. Large U.S. banks rallied about 3% each but that was still less than they declined on Thursday.

U.S. banks should benefit from the banking distress in Europe. The 115 billion euro recapitalization means less lending and the sale of assets and loan portfolios by European banks. U.S. banks are very well capitalized today and well positioned to benefit from those distressed sales and create new customer relationships as a result.

Warren Buffett named his successor during a 60-minutes interview this week. Warren said he wants his son, Howard Buffett, to succeed him as nonexecutive chairman of Berkshire Hathaway. Howard, a farmer with no college degree, would be a good successor according to Warren, because he understands the values of the company. Howard said he was open to the idea as long as he does not have to quit farming corn and soybeans. It will be interesting to see what shareholders think of that succession plan when Berkshire opens for trading on Monday. I know they love Warren but turning over the chairmanship of a $200 billion company to an uneducated bean farmer may not be the plan they had in mind. Obviously the chairman is not responsible for running the day to day company and making decisions on spending tens of billions of dollars on the next acquisition but he does have clout on the board. It should be interesting.

Berkshire A Chart

The IPO market could be hot next week if those scheduled come off as planned. There are 13 IPOs scheduled and the most since November 2007. JIVE Software will launch on Tuesday with an estimated share price of $8-$10. Michael Kors will open on Wednesday with an expected price of $17-$19. Zynga will trade on Friday with a price of $8-$10.

If the markets exist to confound the wise they are fulfilling their purpose. The S&P rebounded on Friday from what seemed on Thursday night to be the brink of disaster. However, despite the rebound the S&P failed to recover all the losses from Thursday. The close at 1255 was well below solid resistance at 1265 and the market was losing momentum at the close.

Europe did not actually change anything. They simply kicked the can farther down the road using an elaborate scheme long on principle and short on details. Why the U.S. markets rebounded on this charade is a mystery. Obviously the hopium supply is overflowing. Were traders so sick of worrying about Europe they were willing to accept any news on face value and immediately dump their shorts?

Whatever the reason for the rally, Monday starts a new week. I continue to hear 1,300-1,350 as yearend targets for the S&P. I think the market reporters have mentioned those numbers so much they are becoming a sell fulfilling prophecy. Unfortunately, before traders can go skipping merrily down the yellow brick road to 1350 they have to get past the toll booth at 1265 first.

What is going to be the major headline that pushes us over that level next week? The Fed should not produce any surprises. They rarely make any moves in December and this meeting has even more reasons why they will likely stand pat. The opening paragraph of the 2:15 announcement will probably say the economy has improved somewhat but I expect the "significant risks remain" statement to also be repeated.

I suppose if the markets can rally +200 points on the bogus EU deal they could rally another 200 points if the Fed removed the significant risk statement. The bulls will read the announcement with rose colored glasses and only see bullish comments.

When the market wants to run you either get out of the way or go along for the ride. I would buy a breakout over 1265 but I will always be looking out for that headline out of Europe that shatters the illusion of an iron clad agreement.

Support on the S&P is 1,235 and resistance 1,265. That gives us a broad 30-point range to wander while we wait for that next headline.

S&P Chart

The Dow closed less than 50 points from a five month closing high at 12,231. Considering all the negative news from Europe and earnings warnings this is a minor miracle. If anything it is an illustration of how strongly the markets want to rally into yearend. Bad news is being ignored and every dip quickly bought. A move over 12,231 should trigger short covering and price chasing by funds anxious to own winners at month end.

Support at 12,000 held and the next move could easily be a test of overhead resistance to see if a breakout can succeed.

Dow Chart

The Nasdaq rebounded off critical support at 2600 to post a +50 point gain past resistance at 2625. The 200-day at 2670 is the next resistance battle. That 200-day resistance has held for two months.

There were only two Nasdaq stocks that lost more than $2. Those were PCYC and OYOG. On the plus side there were more than 100 gaining more than $2 with DMND, GOOG and ISRG gaining more than $10 each.

With three warnings in the chip sector you would have expected the Nasdaq to be negative or at least lackluster. If you want logic don't look in the stock market because the semiconductor index also closed higher for the day. This is another example of traders buying bad news. What will happen if we actually get a day without bad news?

Support is 2600, resistance 2670.

Nasdaq Chart

The Russell rebounded more than 3% and was the best performing index on Friday. I believe this was a result of the heavy shorting on Thursday when it appeared the EU summit was spinning out of control. The small caps are normally the best performers in December and a break over 750 would be a buyable event.

Russell Chart

Europe is out of the headlines. At least that is what most investors will think. For next week I suspect the number of articles will decline sharply and be replaced by U.S. news, OPEC and China. That does not mean the European problem has been solved. It just means without an active summit in progress there will be few high profile events to report. The real work will now be done by the staff working for the public figures and they don't normally generate headlines.

If Europe is out of the headlines next week we should see buyers return unless of course some new disaster appears. The FOMC meeting would be the likely place but I don't see anything coming from the Fed except an upgraded statement on the economic progress. They rarely make any kind of move at the December meeting.

The market will be left to its find direction on its own and with investors and funds trying to find a place to put the yearend bonuses and retirement contributions to work the most likely market direction will be a retest of resistance at 1265 on the S&P. There are multiple analyst meetings next week hosted by UTX, HON, GE, DD and CSX. Best Buy (BBY) has earnings on Tuesday before the open. FedEx (FDX) has earnings on Thursday along with Adobe (ADBE), Discover (DFS), Accenture (CAN) and Pier One (PIR). Darden Restaurants (DRI) has earnings on Friday.

The Ultimate Investor Newsletter

We are adding a new publication to the End of Year special this year. Option Investor and Premier Investor have gravitated over the years to shorter term trades. I am launching a different type of newsletter for longer term investors that don't want to be managing trades every day. The types of positions in the Ultimate Investor could last from weeks to months depending on the position. These will be lower volatility "investments" rather than trades.

This newsletter will focus on "story stocks" and special situations that provide us with a low risk opportunity to profit. An example would be a long term call option on Hewlett Packard when they fired their CEO and hired Meg Whitman to turn the company around. That would be a 3-6 month position. Another example would have been taking a position in Yahoo when Carol Bartz was fired and the company put up for sale. We will also take positions in stocks ripe for a takeover as we have seen in the oil sector with Global Industries (GLBL) and Brigham Exploration (BEXP).

Click here for Full Description of Ultimate Investor

Ultimate Investor will use all investment strategies including stocks, options of all types, spreads, etc. The type of strategy used will fit the special situation we are targeting.

This will be an investment newsletter rather than a trading newsletter. If market volatility has gotten you down then maybe something with a longer focus is what you need.

Subscribers to the End of Year Special below will receive six months of the Ultimate Investor Newsletter as well.

Have You Renewed Yet?

Every December we offer the best prices of the year on a renewal package of our top newsletters. If you have been a subscriber for several years you know this is the best price and the best deal of the year.

This year we are offering Option Investor, Premier Investor, Leap Trader, Option Writer and our new newsletter starting in January, Ultimate Investor.

Please follow the link below to see for yourself the EOY subscription special for 2011. You will not be disappointed!

Jim Brown

Send Jim an email

"There can be no return to prosperity while the government believes that taking money from the people who have earned it and giving it away to the people who haven't, in exchange for their votes."
Conrad Black


New Plays

Railroad & Travel

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Trinity Industries - TRN - close: 29.77 change: +1.40

Stop Loss: 28.75
Target(s): 34.75
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
TRN sells equipment and railcars to the railroad industry. The stock has been consolidating under significant resistance near $30.00 and its 200-dma for days. A breakout could signal a run towards the stock's highs near $37. I am suggesting we use a trigger to open bullish positions at $30.55. If triggered we'll aim for $34.75. More aggressive traders could aim higher.

Trigger @ $30.55

Suggested Position: buy TRN stock @ 30.55

- or -

buy the Jan $30 call (TRN1221A30) ask $1.90

Annotated chart:

Entry on December xx at $ xx.xx
Earnings Date 02/15/12 (unconfirmed)
Average Daily Volume = 703 thousand
Listed on December 10, 2011


NEW BEARISH Plays

Ctrip.com Intl. - CTRP - close: 23.20 change: +0.14

Stop Loss: 25.05
Target(s): 20.25
Current Gain/Loss: + 0.0%
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
CTRP is an online travel service focus on China. The last couple of months have been pretty ugly for the stock, especially following its latest earnings report in the middle of November. The company missed expectations and guided lower. Shares of CTRP did not fully participate in the market's widespread bounce on Friday.

I do consider this an aggressive trade because CTRP is arguably still short-term oversold here six-days of losses (prior to Friday's bounce). We will use a stop loss at $25.05. You may want to use a tighter stop loss. We are aiming for $20.25. FYI: The Point & Figure chart for CTRP is bearish with a $9.00 target.

Note: We want to keep our position size small to limit our risk. CTRP can be a volatile stock and short interest is nearing 10% of the float.

*Small Positions*

Suggested Position: short CTRP stock @ the open

- or -

buy the 2012Jan $22.50 PUT (CTRP1221M22.5) ask $1.45

Annotated chart:

Entry on December xx at $ xx.xx
Earnings Date 02/13/12 (unconfirmed)
Average Daily Volume = 5.2 million
Listed on December 10, 2011



In Play Updates and Reviews

Big Bounce for KOG

by James Brown

Click here to email James Brown

Editor's Note:
Shares of Kodiak Oil & Gas (KOG) produced a big bounce on Friday. Readers may want to consider locking in gains with an early exit in our KOG trade.

Meanwhile I have adjusted our entry point strategy on FSYS and NVDA.

Don't forget that normal December options expire after this coming Friday (16th).

-James

Current Portfolio:


BULLISH Play Updates

AutoNation Inc. - AN - close: 36.90 change: +1.19

Stop Loss: 34.75
Target(s): 39.50
Current Gain/Loss: + 7.1%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/10 update: AN saw a big bounce on Friday with shares gaining +3.3%. The strong close on Friday afternoon should bode well for Monday. More conservative traders may want to lock in a gain now or raise their stop loss toward last week's low (near $35.50). I am not suggesting new positions at this time.

Earlier Comments:
Our multi-week target is $39.50. More conservative traders may want to exit in the $37.75 region instead.

current Position: Long AN stock @ $34.45

- or -

Long Jan $35 call (AN1221A35) Entry $1.95

12/03/11 new stop loss @ 34.75
11/30/11 new stop loss @ 33.45

chart:

Entry on November 22 at $34.45
Earnings Date 02/02/12 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on November 21, 2011


Activision Blizzard, Inc. - ATVI - close: 12.24 change: +0.31

Stop Loss: 11.69
Target(s): 13.45
Current Gain/Loss: - 0.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
12/10 update: ATVI almost completely recovered Thursday's big loss with a +2.6% gain on Friday. I am somewhat reluctant to chase it but readers could buy Friday's bounce and use a tight stop under Thursday's low. The newsletter is raising our stop loss to $11.69 instead.

current Position: Long ATVI stock @ $12.30

- or -

Long FEB $13 call (ATVI1218B13) Entry $0.42

12/10/11 new stop loss @ 11.69
11/30/11 trade open. ATVI gaps higher at $12.30
11/29/11 ATVI gapped open lower. Trade not open yet.

chart:

Entry on November 30 at $12.30
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 14.9 million
Listed on November 28, 2011


Brocade Communications - BRCD - close: 5.55 change: +0.20

Stop Loss: 5.12
Target(s): 6.45
Current Gain/Loss: + 5.7%
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
12/10 update: The stock market's widespread gains on Friday helped BRCD recover Thursday's decline. Shares rallied +3.6% on Friday to close just under resistance near $5.60 (again). I am not suggesting new positions at this time. Please note our new stop loss at $5.12.

Earlier Comments:
Keep in mind that the simple 200-dma near $5.40 could still be technical resistance. I expect this trade to take many weeks to play out but we're aiming for $6.75. We'll make adjustments to our exit strategy as needed.

current Position: Long BRCD stock @ $5.25

- or -

Long 2012JAN $5.50 call (BRCD1221A5.5) Entry $0.37

12/10/11 new stop loss @ 5.12
12/05/11 new stop loss @ 4.98
12/03/11 new stop loss @ 4.84

chart:

Entry on November 28 at $5.25
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 8.6 million
Listed on November 26, 2011


Fuel Systems Solutions, Inc. - FSYS - close: 17.58 change: +0.61

Stop Loss: 16.85
Target(s): 20.50
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
12/10 update: FSYS delivered a +3.6% bounce on Friday but shares remain inside Thursday's trading range. This is an inside day and suggests indecision by traders. I am suggesting we open small bullish positions if FSYS can trade at $18.10 or higher. We'll use a stop loss under Thursday's low. Our target remains $20.50.

Earlier Comments:
We want to keep our position size small to limit our risk.

Trigger @ 18.10 (small positions)

Suggested Position: buy FSYS stock @ $18.10

- or -

buy the 2012Jan $20 call (FSYS1221A20)

chart:

Entry on December xx at $ xx.xx
Earnings Date 03/05/12 (unconfirmed)
Average Daily Volume = 282 thousand
Listed on December 06, 2011


iShares Gold ETF - IAU - close: 16.68 change: +0.03

Stop Loss: 16.85
Target(s): 19.75*
Current Gain/Loss: unopened
Time Frame: 6 to 9 weeks or more
New Positions: Yes, see below

Comments:
12/10 update: The IAU gold ETF barely moved on Friday and closed on its 50-dma. I am still expecting a bullish breakout from this triangular consolidation but it's not guaranteed. More nimble traders may want to consider bearish positions on a break down below $16.25.

The newsletter is suggesting a trigger for small bullish positions at $17.25. If triggered at $17.25 we'll set our multi-week target at $19.75. The 2011 highs near $18.50 could definitely prove to be resistance. We want to keep our position size small.

NOTE: If you're an option trader you may want to consider a market-neutral strategy like a straddle or a strangle.

Trigger @ 17.25 (small positions)

Suggested Position: buy the IAU @ 17.25

- or -

buy the April $18 call (IAU1221D18)

*final exit price will be adjusted as the trade progresses.

chart:

Entry on December xx at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 5.0 million
Listed on December 03, 2011


Kodiak Oil & Gas - KOG - close: 9.18 change: +0.66

Stop Loss: 8.45
Target(s): 9.45
Current Gain/Loss: +22.2%
Time Frame: two to three months
New Positions: see below

Comments:
12/10 update: Friday's positive tone provided a fertile environment for KOG, which really outperformed the major indices. The stock surged +7.7% to set a new closing high. More conservative traders may want to exit now to lock in a gain. Officially the newsletter is aiming for an exit at $9.45. Please note our new stop loss at $8.45.

We are not suggesting new positions at this time.

current Position: Long the stock @ 7.51

12/10 new stop loss @ 8.45
12/05 KOG gapped higher at $9.13. Exit on the March $7.50 calls at $2.15 (+72%)
12/05 new stop loss @ 8.20
12/03 plan to exit our March $7.50 calls @ Monday's open (currently +60%)
12/01 Readers may want to exit now to lock in a gain (+18.3%). I am adjusting our exit target to $9.45
11/30 new stop loss @ 7.75
11/28 new stop loss @ 7.49
11/23 new stop loss @ 7.38
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.

chart:

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


NVIDIA Corp. - NVDA - close: 14.90 change: +0.21

Stop Loss: 14.35
Target(s): 15.95 or 16.95
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks,
New Positions: Yes, see below

Comments:
12/10 update: New entry point!

After a four-day sell-off NVDA produced a perfect bounce off its trendline of higher lows Friday morning. The stock should be poised for a rally back to resistance at $16.00. We are adjusting our strategy and taking a more aggressive approach given the market's widespread gains on Friday.

I am suggesting we open small bullish positions on Monday morning but only if both NVDA and the S&P 500 index open positive. We'll use a stop loss at $14.35, just under Friday's low. Readers have to decide, do you exit at $15.95 (just under resistance at $16.00) or do you exit at $16.95.

Earlier Comments:
We want to keep our position size small because NVDA can be a volatile stock.

*See Entry Details Above (small positions)

Suggested Position: buy NVDA stock @ the open

- or -

buy the 2012Jan $15 call (NVDA1221A15) ask $0.98

12/10/11 Adjusting our entry strategy. Open small bullish positions on Monday morning if NVDA meets our entry criteria. New stop loss @ 14.35.

chart:

Entry on December xx at $ xx.xx
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 18.5 million
Listed on December 03, 2011


Piper Jaffray Companies - PJC - close: 21.82 change: +0.83

Stop Loss: 20.75
Target(s): 25.75
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
12/10 update: Financials were some of the best performers on Friday. PJC delivered a +3.9% gain and shares rallied right back to resistance near $22.00.

I am suggesting a trigger to open positions at $22.55, which is just above the late October highs. There is potential resistance at $24.00 but we're setting our multi-week target at $25.75. FYI: The Point & Figure chart for PJC is bullish with a $31.50 target.

I would keep position size small to limit our risk.

Trigger @ 22.55 (small positions)

Suggested Position: buy PJC stock @ $22.55

- or -

buy the Jan $22.50 call (PJC1221A22.5)

chart:

Entry on December xx at $ xx.xx
Earnings Date 01/25/12 (unconfirmed)
Average Daily Volume = 207 thousand
Listed on December 07, 2011


BEARISH Play Updates

Broadcom Corp. - BRCM - close: 30.29 change: +0.52

Stop Loss: 31.55
Target(s): 26.00
Current Gain/Loss: + 0.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/10 update: BRCM spiked down to a new 2011 low before bouncing back and closing up +1.7% on Friday. The larger trend is still very bearish but BRCM has spent two weeks now churning sideways in the $29.50ish-31.00 zone. I am not suggesting new bearish positions on this bounce.

Readers may want to consider an early exit soon. BRCM is scheduled to hold their "analyst day" on December 14th. Conservative traders might want to exit prior to this event to avoid any unnecessary headline risk.

Our target is $26.00 although more aggressive traders could aim lower. FYI: The Point & Figure chart for BRCM is bearish with a $21.00 target.

Suggested Position: short BRCM stock @ $30.53

- or -

Long 2012Jan $28 PUT (BRCM1221M28) Entry $0.88

12/05/11 BRCM gapped open higher at $30.53.

chart:

Entry on December 05 at $ 30.53
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume = 8.2 million
Listed on December 03, 2011


PACCAR Inc. - PCAR - close: 40.10 change: +1.36

Stop Loss: 40.55
Target(s): 32.50
Current Gain/Loss: - 2.5%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/10 update: Friday was not a great day for the bears. Shares of PCAR completely erased Thursday's losses. The stock opened higher at $39.11 and rallied to $40.26 intraday. The close over $40.00 and its 50-dma is short-term bullish. If the stock market's widespread rally continues on Monday I would expect PCAR to hit our stop loss at $40.55.

I am not suggesting new positions at this time.

Earlier Comments:
while more aggressive traders could place their stop above $41.30 instead. There is possible support near $36.75, near its November low, but we're aiming for $32.50.

(Small Positions)

current Position: short PCAR stock @ $39.11

- or -

Long 2012Jan $36 PUT (PCAR1221M36) Entry $0.80

chart:

Entry on December 09 at $39.11
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 2.7 million
Listed on December 08, 2011


AT&T Inc. - T - close: 29.03 change: +0.17

Stop Loss: 30.05
Target(s): 24.25 or 22.75
Current Gain/Loss: + 1.2%
Time Frame: 6 to 9 weeks or more
New Positions: see below

Comments:
12/10 update: AT&T managed a bounce off short-term technical support on Friday. Yet the +0.5% gain underperformed the broader market. Readers can watch for a new failed rally near $29.40 or resistance near $29.50 as a new entry point for bearish positions.

current Position: short T stock @ 29.40

- or -

Long 2012Jan $27.50 PUT (T1221M27.5) Entry $0.31

- or -

Long Mar $26 PUT (T1217O26) Entry $0.42

chart:

Entry on December 07 at $29.40
Earnings Date 01/26/12 (unconfirmed)
Average Daily Volume = 23.4 million
Listed on November 26, 2011