Option Investor
Newsletter

Daily Newsletter, Saturday, 12/17/2011

Table of Contents

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

Market Wrap

Expiration Passes Quietly

by Jim Brown

Click here to email Jim Brown

The quadruple expiration failed to cause any volatility and the markets traded flat ahead of the weekend event risk.

Market Statistics

Index options, equity options, index futures and single stock futures expired peacefully on Friday but the damage was done earlier in the week to leave the markets down an average of -3% and the first weekly loss in three weeks.

The obligatory opening spike was instantly sold and the indexes faded quickly but with the exception of the Dow they managed to hold onto minimal gains. Trading was lackluster despite strong volume of 9.0 billion shares. The extra volume came from the option expiration and from the normal quarterly rebalancing of the S&P-500 and the Russell indexes.

The big news for the day came from ratings agency Fitch. The agency affirmed the AAA rating on France but said it could downgrade the country over the next two years. Fitch also warned it was placing Spain, Italy, Belgium, Solvenia, Ireland and Cyprus on ratings watch negative to be completed by the end of January. This suggests those countries will have their ratings lowered. Fitch said the change was due to Europe's failure to find a comprehensive solution to the crisis. S&P and Moody's both downgraded Belgium earlier in the week.

Fitch said without a full solution the crisis will persist, "punctuated by episodes of severe financial market volatility that is a particular source of risk to the sovereign governments of those countries with levels of public debt, contingent liabilities and fiscal and financial sector financing needs that are higher relative to rating peers."

Fitch also said,"A comprehensive solution to the euro zone crisis is technically and politically beyond reach." All the ratings agencies were disappointed with the EU plan announced last week. They said that is fine for the next crisis but it has no relevance to the current crisis. "Of particular concern is the absence of a credible financial backstop", "This requires more active and explicit commitment from the ECB." The agencies understand that without a lender of last resort with an active bailout strategy the problems of the individual countries will continue to get worse.

The worry all day on Friday was the potential for an S&P downgrade of European countries after the close. They downgraded the U.S. back on Friday August 5th after the close. The worry of specific and numerous S&P downgrades has troubled the market all week. They said they would review their ratings immediately after the EU summit concluded and analysts believe the result of that review could be announced any day now. S&P placed the ratings of 15 nations on review for a possible downgrade on Dec 5th. Moody's said on Dec 12th it will review the ratings of all EU countries because the Dec 9th summit did not produce "decisive policy measures." Late after the bell on Friday Moody's downgraded Belgium two notches from AA1 to AA3 with a negative outlook.

I think it is pretty obvious there will be downgrades to euro zone countries. The market is slowly factoring it in but nobody really knows how bad they will be and who will be affected. It is tough to fully price in an unknown.

Without spending too much time on Europe it is clear the plan to make a new plan was not well received. What they did right is being ignored. The dollar swap lines announced two weeks ago is relieving temporary liquidity problems. The ECB announced three year loans to any bank at very favorable rates. These two actions should act to reduce the pressure on the European banking system until Europe finally comes up with a plan that works. Unfortunately those actions don't have any impact on excessive sovereign debt. They only help the banks deal with the daily cash drain as customers continue to withdraw money to put under the mattress.

The ECB three year loans carry an interest rate of 1%. They also said they were going to relax the collateral rules currently set at A-. That means the banks put up loans, notes, bonds, etc rated at least A- as collateral for the loans. If the ECB relaxes those rules enough to allow sovereign debt with a slightly lower rating then the banks would have a sudden windfall. They could borrow three year money from the ECB and then buy short term sovereign debt currently yielding 3% to 6% and put that same debt up as collateral for the loan. Pay attention, this is a critical point. The ECB can't loan money directly to a country. However, if they are willing to loan to banks using sovereign debt as collateral it would be a major change in sentiment. Suddenly there would be a market for that high yielding sovereign debt. New debt sales would be heavily bid and yields would go down. Banks would make the spread and that would provide a strong infusion of cash. This is a very subtle change in stance by the ECB and it could be a game changer. It would be the ultimate carry trade and the possible end to the rising yields on sovereign debt. The new collateral guidelines are expected to be announced next week and be effective immediately. This is effectively a new version of quantitative easing by the ECB and there is no limit on the loans.

This would in theory expose the banks to "Private Sector Involvement" or PSI. You may remember that private holders of Greek debt are going to get a 50% haircut or worse. You may also remember the major comment from the EU summit. "We will never do a PSI haircut again. That was a bad idea and it won't happen again." (paraphrased) Was this a signal to the banks so they would jump back into the sovereign debt markets financed with ECB money? Strange this situation is not being reported in the mainstream press.

Fitch was in a downgrade mood and they also downgraded BAC, BCS, BNP Paribas, GS, CS, DB and Societe Generale. All finished marginally lower for the day.

On the economic front the Consumer Price Index (CPI) for November showed inflation at the consumer level was zero for the month. This compares to a decline of -0.1% in the prior month and +0.3%, +0.4% and +0.5% in Sep, Aug and July. However, the core CPI rose at a +0.2% pace. On a year over year basis the core rate is up +2.2% but still within the range comfortable with the Fed. Energy prices declined slightly from the prior months but remains up +12.4% over the same period in 2010.

There was nothing notable about the CPI other than suggesting the slump in Europe is migrating to the U.S. and reducing demand and therefore prices. The drop in crude prices last week should help push consumer prices lower over the coming months.

CPI Chart

The economic calendar for next week is also light. The only material report is the Chicago Fed Index and that is still not high on the importance scale. The consumer sentiment surged in the last report and analysts are targeting much lower numbers on thoughts that was a data error. Estimates are a full 10 points below the last reading.

Economic Calendar

In stock news it was all Zynga (ZNGA). Unfortunately the IPO pop was a flop. Shares were priced at $10 and opened over $11 but fell almost immediately to as low as $9 before closing at $9.50 and a loss of -5%. Zynga may have been the victim of IPO overload. Last week was the most active week for IPOs since 2007. Nobody had any specific problems with Zynga but the 100 million share offering put a lot of shares into the market on a week that saw a -3% market decline. Zynga has a valid business model with earnings of $31 million over the last nine months with revenue of $829 million. High marketing costs of $122 million are typical for a rapidly expanding business. Zynga has 54 million users.

Eighteen out of the last 30 Internet stock IPOs are trading below their issue price. I believe this is related to the weak market rather than weak IPO stocks. Granted some of them are dogs but some are not. After a rocky start Groupon (GRPN) is starting to find buyers and the stock has rebounded +$10 from its $15 low.

Research in Motion was the second most discussed (cussed) stock of the day. RIMM shares fell -11% after a disappointing earnings report Thursday night. The blogosphere is alive with calls for the company to be broken up. One investor representing better than 10% of the outstanding shares and hoping to get to 20% believes splitting out the handset business and concentrating on the communications service business and enterprise platform could free RIMM to even bigger things. He suggested RIMM should quit competing with Android and offer the Blackberry software for the Android platform as well. The Blackberry platform is much more focused on businesses and could allow corporations to integrate the multiple devices used by consumers into one secure platform. I am not holding my breath.

RIMM's co-CEOs, Jim Balsille and Mike Lazaridis, announced they are cutting their own annual salaries to $1 each. Many investors probably thought that was still too much with the stock of this former high flyer down -75% this year. According to Yahoo Finance they have recently exercised $3.63 million in stock options. That may be chicken feed in the corporate world but it was still a slap in the face for RIMM investors. There may be a dual lynching in Ontario very soon. The bigger event was the delay of the new Blackberry version from Q1 to Q4. That is a lifetime in the smartphone world. Apple could have two new iPhones out in that same period. Turn out the lights, the party is over unless they find new management soon and make some drastic changes.

RIMM Chart

MagicJack VocalTec Ltd (CALL) said it canceled a planned stock offering because the devices were selling so fast they no longer needed to raise outside money. The company said it sold 365,000 MagicJack Plus devices over the last 30 days. The new device is no longer $14.95 but $69.95 and is expected to raise $50 million in cash over the next month. The old device plugged into a PC. The new device works by plugging it into any Internet outlet like a router or switch. The company said instead of going ahead with its secondary offering it was cancelling the offering and resuming the stock buyback program while the stock was so "attractively" priced.

Does anyone else think this sounds like a cleverly designed advertising campaign? On Dec 1st they announced a 2:1 stock split for Dec-16th. On Dec 9th they announced they would offer 1.5 million ordinary shares, 300,000 of those would be sold by existing shareholders. Seven days later they cancel the offering because of a sudden surge in sales. Now they are buying back shares because the stock crashed from $26 to $20 on the secondary offering announcement. Was this a serious miscalculation by management or a cleverly designed advertising campaign to get the name MagicJack in the news? As ugly as their chart is they needed something to produce a trend.

CALL Chart

Sears Holdings (SHLD) is going to become the world's largest seller of printed books in January. Yes, you read that headline correctly. Sears will begin listing online in January the inventory from all the Alibris sellers. Alibris is a portal through which independent authors, small book sellers and rare book vendors all list their publications. They have portals in countries around the world and a consolidated shipping service. Obviously they are not going to give Amazon or Barnes & Noble a lot of competition but at least it is one more step out of their humdrum routine existence. Unfortunately it did not help their stock price with a -8% decline on Friday.

Sears Chart

Saturday Dec 17th is the second busiest shopping day of the year. Fortunately for terminal procrastinators like myself there is still a week left to mull over my potential purchases. My wife discovered Amazon this year and bought nearly all her gifts without leaving the house. I am in the doghouse because I never told her I had an Amazon Prime account and two day shipping was free. She compensated for that omission by seriously abusing that feature this year.

Unfortunately there are not enough spouses shopping on Amazon this year to rejuvenate the stock price. It remains stuck to support at $180 on multiple worries. Once of those worries comes around every December when those Prime accounts get used to the maximum and Amazon has to eat millions in shipping costs. Amazon charges that off to marketing while other retailers charge it to cost of sales. That helps Amazon's profit margin calculations.

The second problem this year is the explosion of Kindle Fire tablets. Amazon does not release numbers sold but analysts are predicting between 6-7 million in Q4. Amazon claims it is the number one seller on the website. At $199 each and less than the cost of manufacture many analysts are expecting Amazon to take a huge hit on Q4 profits. They will make up for it in the long run because the Kindle is the greatest sales tool Amazon has ever created. Each tablet will be responsible for dozens if not hundreds of downloaded books and purchases from the Amazon site of non-book items. What else could Amazon ask for but a direct website link forever to every Kindle Fire sold? I just wish they could split their stock before the next rally.

Amazon Chart

The broader market managed to make it two days without a major decline but still ended down -3% for the week. The S&P bounced off resistance at 1225 on Thursday and then broke through that level to hit 1231 on Friday but could not hold its gains. The S&P closed at 1219 and a minor four point gain for the day. Support at 1215 has held for two days but there was no serious test.

The nine billion shares of volume on Friday were either expiration activity or index rebalancing. There was minimal activity otherwise. Traders were in the malls not the market. I am afraid that is going to be the pattern for next week as well. Traders have lost the incentive to be in the market. Quite a few hedge funds and professional traders close their books after the December option expiration until after the holidays.

While everyone is hoping for a Santa Claus rally the money flows are suggesting Santa may be AWOL. According to new data from EPFR, global equity funds saw outflows of $9.5 billion in the week ended Dec 14th. That was the fourth consecutive week of redemptions. Bond funds saw inflows of $1.1 billion and money markets $3.2 billion. Money market funds now have 12 consecutive weeks of positive inflows. That is the longest streak since Q4-2008.

EPFR said there was positive inflows of cash to equity funds on the Friday the EU summit plan was announced. However, four days later when everyone began trashing the plan to make a new plan, equity funds saw outflows of nearly $7 billion in one day. That was the biggest one day outflow since August. Emerging market funds have seen outflows of $38.8 billion year to date on worries China is in for a hard landing. This time last year they were sitting on $91 billion in inflows.

I believe the volatility over the last six months has scared investors out of the market. Triple digit ranges on the Dow are an everyday occurrence and quite often it is triple digits in both directions. Most retail investors are probably nursing losing positions and contemplating closing more than usual before year end to capture the tax deductions.

We may not see investors come back to the market until January. Everyone wants to see a Santa Rally but few are willing or convicted enough to make it happen. Opening spikes the last two days were instantly sold. The buyers are notably absent but it was an expiration week. This coming week will be the key.

Resistance on the S&P is still 1225 followed by downtrend resistance at 1250 and the 200-day at 1260. Support is 1215, maybe 1200 as a round number, 1185 and 1160. With a growing number of analysts talking up 1160 it may keep buyers on the sidelines in hopes of getting a bigger dip.

The offset to the bearish sentiment will be the end of year retirement contributions and investment of year-end bonuses. That typically produces an end of December early January bounce. However, I fear for January. Once the year is over and managed funds are able to revert to cash we may see some move to the sidelines until the European crisis cools and China's economic picture becomes clear. The PMI for China was in contraction territory last week for the fifth consecutive month. They are still correcting and were it not for Europe grabbing the headlines every day the market would be a lot more worried about China.

S&P Chart

The Dow was the only major index to close negative thanks to IBM -$3.91 (-32 Dow points) and UTX -$1.55 (-12 Dow points). IBM said it was acquiring software vendor Emptoris for an undisclosed amount.

The Dow is not normally moving average sensitive because of its narrow 30 stock construction but it has come to a dead stop on the support of the 50-day average (11,807) for the last three trading sessions. The 200-day average (11,938) has been the limiting factor on the upside. The reason these averages are asserting themselves now is the thin volume and relative uncertainty about market direction.

The Dow is still mildly bullish until it breaks stronger support at 11,600 and a rebound over 12,200 would be strongly bullish.

Dow Chart

The Nasdaq is in a rut. It has traded in the same basic range for the last three days centered around 2550. The 100-day average (2565) is now solid resistance on the Nasdaq. The Nasdaq was knocked lower on Tue/Wed when Apple declined -$15, Priceline -$40 and Google -$20. Techs were hit hard on those two days and buyers have not returned. However, it was expiration. Monday starts a new week.

Nasdaq Chart

The Russell is holding above critical support and performing slightly better than the large cap indexes. This is probably related to the January effect where fund managers buy small caps for the coming year. Small caps typically rise in late December.

Russell 2000 Chart

The Dow transports have the best chart of all. The falling oil prices are stimulating the airlines and taking the pressures off the trucking sector. The transports have strong resistance at the 200-day at 4975 and a break over that level would be strongly bullish for the market.

Dow Transport Chart

I am neutral for next week. Belgium was downgraded Friday night but it was expected. That could increase the growing expectations for further downgrades of European nations. On the plus side expiration week is over and the institutional traders have left the building. This week is normally bullish as retail traders invest their bonuses and retirement contributions are put to work.

Normally bullish is like saying it normally snows in January. It almost always snows but that does not mean there may be weeks of sunshine. Normally bullish does not mean always bullish. Market sentiment has been damaged by Europe and by numerous earnings warnings. That means the rest of the year is a tossup. Volume should become increasingly light and that favors historical trends.

I would continue to suggest if you must be in the market to limit position size and quantity and exit early.

 

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Jim Brown

Send Jim an email

You cannot bring about prosperity by discouraging thrift.
You cannot strengthen the weak by weakening the strong.
You cannot help little men by tearing down big men.
You cannot lift the wage earner by pulling down the wage payer.
You cannot help the poor by destroying the rich.
You cannot establish sound security on borrowed money.
You cannot further the brotherhood of man by inciting class hatred.
You cannot keep out of trouble by spending more than you earn.
You cannot build character and courage by destroying men's initiative and independence.
You cannot help men permanently by doing for them what they can and should do for themselves.


Commonly attributed to Abraham Lincoln but actually penned by John Henry Boetcker in 1916.


New Plays

Apparel & Airlines

by James Brown

Click here to email James Brown

Editor's Note:

I am urging caution here. The U.S. market fared better than its European counterparts this past week. Yet the current two-day bounce in the S&P 500 could be nothing more than an oversold bounce before the index breaks down again. We would love to see a traditional "Santa Claus" rally but nothing is guaranteed.

My market bias is neutral to down but the best candidates we found this weekend are actually bullish ones (OXM and UAL). Personally, Monday might be a good day to just sit back and watch. If you do feel compelled to trade I would keep positions small to limit your exposure.

-James


NEW BULLISH Plays

Oxford Industries Inc. - OXM - close: 42.09 change: +0.98

Stop Loss: 40.65
Target(s): 44.90
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
OXM is an apparel maker. Shares have been showing relative strength. Traders recently bought the dip near $40 and its rising 10-dma. If the market cooperates we could see OXM extend its run to new multi-year highs.

I am suggesting we open small bullish positions on Monday morning but only if both the OXM and the S&P 500 index open positive. If our trade is opened we'll use a tight stop loss at $40.65 and we want to keep positions small to limit our risk. Our target is $44.90.
FYI: The Point & Figure chart for OXM is bullish with a $62 target.

*see Entry Details above* (small positions)

Suggested Position: buy OXM stock @ the open

- or -

buy the Jan $45 call (OXM1221A45) ask $0.95

Annotated chart:

Entry on December xx at $ xx.xx
Earnings Date 03/29/12 (unconfirmed)
Average Daily Volume = 220 thousand
Listed on December 17, 2011


United Continental Holdings - UAL - close: 21.24 change: +0.60

Stop Loss: 20.35
Target(s): 24.75
Current Gain/Loss: unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The recent sell-off in oil prices has been a boon for airline stocks. Shares of UAL just broke out from a two-week consolidation and past resistance near $21 and its 200-dma. Readers may want to open bullish positions now. However, I see potential resistance near $21.50 so the newsletter is suggesting a trigger to open small bullish positions at $21.55. We'll use a stop loss at $20.35. We'll set our exit target at $24.75.
FYI: The Point & Figure chart for UAL is bullish with a $31.50 target.

Trigger @ $21.55 (small positions)

Suggested Position: buy UAL stock @ 21.55

- or -

buy the 2012Jan $22.50 call (1221A22.5) ask $0.69

Annotated chart:

Entry on December xx at $ xx.xx
Earnings Date 01/25/12 (unconfirmed)
Average Daily Volume = 7.1 million
Listed on December 17, 2011



In Play Updates and Reviews

Friday Morning Bounce Fades

by James Brown

Click here to email James Brown

Editor's Note:
Many stocks saw a Friday morning rally but gains had faded by the closing bell.

-James

Current Portfolio:


BULLISH Play Updates

AirMedia Group Inc. - AMCN - close: 3.44 change: -0.02

Stop Loss: 3.30
Target(s): 4.90
Current Gain/Loss: - 7.0%
Time Frame: 8 to 10 weeks
New Positions: see below

Comments:
12/17 update: Another day, another 10-cent range, another two-cent decline. AMCN is drifting sideways near the bottom of its prior trading range with support near $3.40 and its simple 200-dma. If you look at the weekly chart then shares may have just produced a top this past week. The failed rally on Tuesday and Wednesday does look ominous.

Remember, the rally to new relative highs was fueled by positive news that AMCN raised guidance but there was no follow through. More conservative traders may want to exit early now. I am not suggesting new positions at this time.

Earlier Comments:
Let's keep our position size small to limit our risk.

(small positions)

current Position: long AMCN stock @ 3.70

chart:

Entry on December 13 at $3.70
Earnings Date 03/05/12 (unconfirmed)
Average Daily Volume = 170 thousand
Listed on December 12, 2011


AutoNation Inc. - AN - close: 35.77 change: -0.22

Stop Loss: 34.95
Target(s): 39.50
Current Gain/Loss: + 3.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/17 update: AN underperformed the market on Friday with a -0.6% decline. Shares reversed near their 100-dma and are nearing the bottom of its two-week trading range. If the market breaks down again this week then AN will likely drop toward $35.00 or lower. Readers may want to exit early now to lock in a gain. 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

12/15/11 new stop loss @ 34.95
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: 11.88 change: +0.02

Stop Loss: 11.69
Target(s): 13.45
Current Gain/Loss: - 3.4%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
12/17 update: ATVI has been churning sideways the last three days between technical support at its 200-dma and short-term resistance near $12.00. I am concerned that the two-week trend is down. Conservative traders may want to exit now to limit any losses. I am not suggesting new positions at this time.

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


BEARISH Play Updates

Broadcom Corp. - BRCM - close: 28.72 change: +0.56

Stop Loss: 30.25
Target(s): 26.00
Current Gain/Loss: + 5.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
12/17 update: It's been a volatile week for BRCM but shares have broken down from a two-week consolidation to hit new lows for the year. The larger pattern and the point & figure chart would suggest a much bigger decline yet to come. We're currently aiming for a drop to $26.00 but more aggressive traders may want to aim lower.

Suggested Position: short BRCM stock @ $30.53

- or -

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

12/14/11 new stop loss @ 30.25
12/13/11 new stop loss @ 30.55
12/12/11 new stop loss @ 31.20
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


Cash America Intl. - CSH - close: 46.98 change: +0.89

Stop Loss: 47.25
Target(s): 40.25
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
12/17 update: CSH is still bouncing from support near $45.00. The stock should hit some short-term resistance near $48.00. I would be tempted to open new bearish positions if we see CSH roll over near resistance around the $50 level and its 200-ema. Until then we'll wait for a breakdown with a trigger to open bearish positions at $44.75. Our target is $40.25.
FYI: The Point & Figure chart for CSH is bearish with a $33 target.

Trigger @ 44.75

Suggested Position: short CSH stock @ 44.75

- or -

buy the Jan $45 put (CSH1221M45)

chart:

Entry on December xx at $ xx.xx
Earnings Date 01/26/12 (unconfirmed)
Average Daily Volume = 331 thousand
Listed on December 14, 2011


Ctrip.com Intl. - CTRP - close: 23.10 change: +0.10

Stop Loss: 25.05
Target(s): 20.25
Current Gain/Loss: - 0.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/17 update: I am starting to worry that CTRP may be building a bottom in the $22.80-23.00 zone. The stock has been consolidating sideways with this level as support for over a week. Currently we have a stop at $25.05 but readers might want to just exit early or lower their stop toward the $24.00 level instead. I am not suggesting new positions at this time.

Earlier Comments:
I do consider this an aggressive trade. 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*

current Position: short CTRP stock @ 23.00

- or -

Long 2012Jan $22.50 PUT (CTRP1221M22.5) entry $1.40

12/13/11 readers may want to exit early. CTRP is not cooperating.
12/12/11 CTRP gapped open lower @ 23.00

chart:

Entry on December 12 at $23.00
Earnings Date 02/13/12 (unconfirmed)
Average Daily Volume = 5.2 million
Listed on December 10, 2011


Electronic Arts - ERTS - close: 20.23 change: -0.70

Stop Loss: 22.05
Target(s): 18.05
Current Gain/Loss: + 2.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/17 update: ERTS has produced a new sell signal. The Friday morning rally reversed at technical resistance near the exponential 200-dma. The stock underperformed with a -3.3% decline and new relative low. I would still consider new positions now. More conservative traders might want to lower their stop toward today's high (21.52).

FYI: ERTS announced that its ticker symbol will change to "EA" starting on December 20th.

Earlier Comments:
Our multi-week target is $18.05. I would expect possible support at $20.00 and $19.00. This trade is going to take some patience. Let's keep our position size small.

(small positions)

current Position: short ERTS stock @ 20.65

- or -

Long 2012Jan $20 PUT (ERTS1221M20) entry $1.05

chart:

Entry on December 14 at $20.65
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 5.7 million
Listed on December 13, 2011


PACCAR Inc. - PCAR - close: 36.22 change: -0.16

Stop Loss: 39.05
Target(s): 32.50
Current Gain/Loss: + 7.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/17 update: PCAR saw its Friday morning rally reverse. Shares closed at new relative lows. The trend is down but I am concerned that PCAR is growing oversold. We will lower our stop loss to $39.05. I am not suggesting new positions at this time.

NOTE: Our 2012Jan $36 puts are now $35.30 puts thanks to the recent dividend.

Earlier Comments:
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 $35.30 PUT (PCAR1221M35.3) Entry $0.80

12/17/11 new stop loss @ 39.05
12/15/11 thanks to a 70-cent dividend our 2012Jan $36 puts are now 35.30 puts.

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: 28.85 change: +0.06

Stop Loss: 29.65
Target(s): 24.25 or 22.75
Current Gain/Loss: + 1.8%
Time Frame: 6 to 9 weeks or more
New Positions: see below

Comments:
12/17 update: Most of the market saw a rally attempt on Friday morning. AT&T was moving the opposite direction. The stock spike down toward $28.50 before bouncing. Midday the company announced they were raising their cash dividend from 43 cents to 44 cents a share. That puts AT&T's annual yield at 6.0%. It's an impressive yield, especially for a market where investors have been buying up high-yielding equities. Yet the high-yield does not seem to be helping shares of T. The stock is still building a bearish trend of lower highs and a multi-month bearish head-and-shoulders pattern.

We are lowering our stop loss to $29.65, so it's just above the simple 200-dma.

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

12/17/11 new stop loss @ 29.65

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


Vera Bradley, Inc. - VRA - close: 32.96 change: -0.21

Stop Loss: 36.05
Target(s): 27.50
Current Gain/Loss: +0.6%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/17 update: VRA saw a spike higher on Friday morning but the rally reversed near $34.50. Shares underperformed the market with a -0.6% decline. I don't see any changes from my Thursday night comments. I would still consider new bearish positions now. Traders need to keep in mind this is an aggressive, higher-risk trade. We want to keep our position size very small to limit risk. The most recent data listed short interest at almost 80% of VRA's very small 19.7 million share float. If there is some sort of unexpected rally in this stock it could spark a short squeeze and stops may not work very well in a fast market environment. I would suggest using put options in a situation like this to limit your risk but the spreads on the January puts are too wide. Our target is $27.50 although readers may want to take profits near $30.00 since it could prove to be round-number support. FYI: The Point & Figure chart for VRA is bearish with a $26 target.

(very small positions only!)

current Position: short VRA stock @ $33.17

12/15/11 this is an aggressive, higher-risk trade.

chart:

Entry on December 16 at $33.17
Earnings Date 12/07/11
Average Daily Volume = 796 thousand
Listed on December 15, 2011