Option Investor
Newsletter

Daily Newsletter, Saturday, 1/21/2012

Table of Contents

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

Market Wrap

Thank You IBM

by Jim Brown

Click here to email Jim Brown

IBM's +8 point gain on Friday was responsible for a 60.56 point gain in the Dow. Microsoft and Intel contributed but to a much lesser degree.

Market Statistics

With the Dow up +96 at the close the other 29 components only contributed to 36 points of the gain or roughly only one point each on average. Conversely Google's -53 point loss was a heavy load for the Nasdaq and S&P to carry and that held the Nasdaq to a minor -2 point loss and nearly did the same for the S&P but the index managed a closing rally to end fractionally in the green.

Basically it was tech Friday with the four tech stocks reporting on Thursday night being responsible for the majority of the gains and losses on Friday. After a choppy session for the Nasdaq and S&P a strong buy program appeared at 3:30 that pushed the indexes to their highs for the day.

S&P Chart - 3 min

Earnings on Friday left a lot to be desired with the headliner, GE, spoiling the party already in progress. GE missed on revenue with a decline of -8% due mostly to businesses they sold. Earnings of 39-cents beat estimates of 38-cents but revenue of $37.98 billion was well below estimates of $40.05 billion. GE shares dropped at the open but recovered to end the day flat.

GE is watched more for global guidance than actual earnings because they always report roughly in line with estimates. The company said it expected China and Latin America continue to grow but Europe was falling rapidly into a recession. CEO Jeffrey Immelt said the last three months were good but could have been better. He is still predicting double digit growth for GE in 2012. Revenue in some divisions like energy and infrastructure grew by double digits but the home, business solutions and appliances were down sharply. Profits in those divisions declined by 41%. Infrastructure orders rose by 15% leaving GE with a record backlog of $200 billion. Equipment orders increased by +23%. However, the overall global caution comments weighed on the market.

GE Chart

Friday's economics were a mixed bag but generally positive. Existing home sales for December came in at an annualized rate of 4.61 million. That was a +5% increase in December to bring sales back to the same pace as we started 2011. It was the third consecutive month of sales gains thanks to the record low interest rates.

A major bullet point was the drop in months of supply to 6.2 months and the lowest level since 2006. Supply was at 9.5 months as recently as July after peaking at 12.5 months in July 2010. In July 2010 homes were selling at the rate of 3.84 million a year. There are 21% fewer homes on the market today than in July 2010. Inventories will likely increase in the spring as banks begin listing homes they have been holding in hopes of a better market. Sales should also increase because there is significant pent up demand. Buyers have been waiting for a bottom to appear and now that sales are starting to accelerate there could be a rush of customers into the market. You are not going to get a better interest rate or at least not materially better. This is the best rates you are likely to see for decades. Once the Fed begins to remove stimulus from the economy and trim its balance sheet we could see rates move quickly higher.

In the chart below the spike in 2009 was due to the home buyer tax credit sales. You can clearly see where sales were pulled forward from early 2011 as buyers accelerated buying plans to capture the credits.

Home Sales Chart

The only other report on Friday was the Risk of Recession. The risk of returning to recession over the next six months fell to 29% in January from 34% in December. That is down from a recent high of 45% in September. It was as low as 19% last February but worries over the budget deficit, slowdown in Europe and a sudden dip in economic activity in Q3 spiked the risk back to 45%.

We appear to be on the right track today if hiring continues to improve along with home sales. Economic activity is increasing at a snail's pace but it is increasing.

For next week the main events include the two day Fed meeting starting on Tuesday and culminating with the announcement and Bernanke quarterly press conference on Wednesday. The Q4 GDP is out on Friday. Estimates are for something in the +3% range and significantly better than the +1.81% in Q3. Along that same line the Q1 GDP was estimated at +1.4% to 2.1% just a couple weeks ago and those estimates are rising as well. Recent numbers have been in the 2.0% to 2.4% range.

There are several Fed manufacturing surveys out as well and we really need to see continued improvement to keep the markets moving higher.

Friday is the deadline for European banks to submit their recapitalization plans to regulators. Banks have to increase their capital reserves by 115 billion euros ($147 billion) by June. Banks have been selling assets and cutting back on loans to raise capital. Few have gone to the capital markets after Unicredit was crushed when it announced a new stock offering last month. This deadline may not get much play in the U.S. press but it is still a factor given the risk of a Greek default.

Economic Calendar

The biggest problem for Monday could be the Greek debt swap talks. Greece has over 350 billion euros of debt and 190 billion are held by private investors. Europe realized Greece would never be able to pay back all its debts and they launched the plan to give the private sector holders a 50% haircut. In retrospect they realize this was a flawed concept since it forced the interest rates higher on nearly all European debt. If Greece debt holders can be forced to take a 50% cut then why not Italian, Spanish, Irish, Portuguese holders as well? Suddenly investors were faced with the potential of a loss of principal from sovereign nations. It did not go over well.

Now months later and after thousands of hours of meetings and arguments, Greece and its private sector creditors are close to a deal. The 50% haircut has changed to a 70% haircut and investors have little choice but to take it. The lack of a private sector deal is a roadblock to the next 130 billion euro bailout already agreed to for Greece. No deal, no further bailouts.

The EU Finance Ministers are meeting on Monday. Greece wants to have a deal on paper to submit to the ministers for approval at that meeting. If no agreement can be reached this weekend Greece will miss that opportunity and could be forced to wait another month for resolution. That won't work for Greece because they have a 14.4 billion euro debt payment in the middle of March. Since the new bailout still needs weeks of discussions and approvals before checks will be cut, Greece cannot afford to miss the Monday ministers meeting. It could delay everything else by weeks and force Greece to default on that March payment.

Greece strongly believed it would get a haircut agreement with the private sector this weekend. It is amazing what you can get done when there is a hard deadline approaching and missing the deadline is not an option. However, news out late Saturday suggests the talks are not going to succeed in time. The top official for the Institute of International Finance (IIF), who represents 450 financial institutions, left Greece suddenly for Paris on Saturday afternoon. Greek television reported talks would continue by phone from Paris. However, analysts said an agreement by phone was not likely. Early reports said IIF head Charles Dallara "left suddenly." Later reports claim he had a "longstanding personal appointment." You have to wonder what "personal appointment" could have taken precedence over resolving the Greek debt swap agreement threatening to push Greece into a default. I fear everything is not as it seems. Hopefully the equity markets will understand his abrupt departure on personal business as acceptable.

If they get a deal done by Monday then our markets could move significantly higher at the open. It will be one more cloud removed from the market horizon. If they fail in this task it could be a bad day because all the worries about Greece leaving the euro will immediately come back to haunt us.

Another weekend event could be a reserve-ratio cut in China. The People's Bank of China injected 353 billion yuan ($55 billion) into the financial system on Friday. That increased the liquidity in the banking system ahead of the Chinese New Year next week. That was the largest injection of liquidity since Bloomberg began collecting data in 2008. That injection was done with 14-day reverse-repo contracts. The amount injected was almost exactly the amount equaling one reserve-ratio cut.

Nearly all analysts believe a cut is imminent because of the decline in inflation and the decline in economic activity. The PBOC cut the reserve ratio last month for the first time since 2008. The reserve ratio is that percentage of funds that banks are required to keep on deposit as reserves. China also said the top five banks were allowed to loan 5% more in Q1 than Q4 in a bid to stimulate the economy. China has been in tightening mode for two years. The decline in economic activity has reached a point where they need to reverse that tight policy. Analysts believe the next rate cut is imminent with quite a few expecting it this weekend. China likes to announce its actions on Saturdays and they are particularly fond of holiday weekends. As of 9:PM ET Saturday no cut had been announced.

A Chinese rate cut along with a Greek debt swap deal would be a very strong motivator for the U.S. markets on Monday. At this point I am not expecting either to occur. Keep your fingers crossed.

Seventy two S&P 500 companies have reported earnings. Some 60% have beaten on revenue and 55% on earnings according to Thompson Reuters. Bloomberg reported different statistics claiming of the 51 companies reporting since Jan 9th, only 33% have posted earnings that beat estimates. Bloomberg also updated forecasts claiming Q4 earnings will now show only 3.4% growth over Q4-2010. Thompson Reuters is predicting 5.8% growth. Estimates at the beginning of Q4 predicted 14% earnings growth.

S&P claims 18% of the S&P have reported and 55% beat estimates. The average for companies beating earnings estimates over the prior four quarters is 69%. The historical average over the last ten years is a 62% beat. According to S&P this will be the lowest quarterly earnings growth in ten years and the first quarter in more than two years with less than double digit growth.

Google (GOOG) ended the day with an -8.37% decline and a loss of -$53.58. Google has not missed estimates in six years until this report. As a result of the Google miss many others in the sector traded lower. It may have been guilty by association or just worries that other high flyers might also surprise to the downside. This weighed on the Nasdaq BUT it only produced a -12 point drop at the open and the index closed with less than a two-point loss.

It may be just my imagination but more companies are missing estimates and the market is moving higher. Some of these misses are huge. What is wrong with this picture? The bulls claim stocks are undervalued because of the declines in 2011 and the problems in Europe. Now that Europe is healing it is time to buy stocks. While it may be a couple years before we know if Europe has actually healed I do agree with that thought process once we get past the Greek debt swap. I still believe Greece will eventually default but that could be well down the road and I believe that is already priced into the market to some extent.

The bulls tell us the earnings decline is due to European worries making businesses and consumers more cautious in their spending. The currency translation problem in Q4 is also a pressure on earnings. We also had a temporary dip in the U.S. economy late in Q3 and early Q4 and that is being shown in the current earnings cycle. However, they tell us conditions are starting to improve and the economy is accelerating. Personally I think they have overdosed on the Kool-Aid and their expectations are about six months early. I will be pleasantly surprised if conditions continue to improve but I am not counting on a sudden return to strong employment and a retail boom. Of course if it does happen in mid to late summer as I expect, the market is correct in anticipating it six months in advance.

Next week has the most earnings I can ever remember in a single week. More than 125 S&P companies report plus hundreds of companies not in the S&P. I did not count them all but there could be more than 1,000 companies reporting. The number of reports is staggering.

The key reports for me (in green) will be led by Apple on Tuesday. That is probably the biggest report for the week in terms of market sentiment. Other techs report including JNPR, NFLX, SNDK, etc but Apple is the 800-pound gorilla. After Google missed so spectacularly traders are obviously worried that Apple will follow suit. Shares of AAPL fell -7.45 on Friday to initial support at $420.

On a side note Apple flirted with $400 billion in market cap last week. Only Exxon is larger at $420 billion. To put Apple's market cap in perspective consider these facts. That is more than double the cost of the Apollo space program that put people on the moon multiple times. That cost $170 billion when adjusted for inflation. $400 billion is five times the cost of all the beef consumed in the USA in 2011 at $74 billion. Apple's market cap is more than 12 times the value of all the NFL teams at a total of $33 billion. Apple's market cap is almost three times the value of the U.S. apparel industry with more than 100,000 retail stores and a value of $150 billion. Apple is worth more than all the gold stored at the NY Fed, more than 7,000 tons valued at $350 billion today. Apple is worth eight times more than all the tickets for all the Star Wars, Star Trek, Harry Potter, Stephen King and Twilight movies ever sold. Those franchises have sold $49 billion in tickets. Apple is expected to post a 45% increase in sales for Q4 and that is why they have such a steep valuation.

This is also the beginning of the reporting cycle for energy companies. COP, CVX, OXY, HES and HAL will lead the list. Exxon does not report until next week. We already know the big integrated oil companies are probably going to disappoint because of the losses in the refining sector. The smaller exploration and production companies report the following two weeks.

The financial sector heavyweights have already reported and we are left with a lot of local and regional banks and their earnings should be decent. They have no exposure to subprime mortgage litigation and no exposure to Europe. All reports so far suggest loan demand is picking up for business loans.

There are quite a few biotech and drug companies reporting with AMGN, BIIB, IMGN, CELG, IDXX and ABT leading the list. Based on their charts investors must believe they are all going to do well.

Earnings Calendar

In stock news for Friday Sears Holding (SHLD) rallied another 13% to $50 to qualify as the best performing stock for 2012. SHLD is up +54% for the year. Sears beat out NetFlix for the title on Friday. The gains are coming after Eddie Lampert went on a buying spree and drove up rumors he may take the company private. Lampert personally bought shares worth $159 million so far this month. This has created a monster short squeeze since Sears was heavily shorted in Q4 as it plunged from $80 to $30. Lampert personally owns 21% of Sears plus firms that he controls hold another 40%. Lampert's buying has shrunk the available pool of shares available for shorting. Demand has skyrocketed making SHLD one of the most expensive shares to borrow and short. Only about 11% of SHLD shares are available for loan and they are all loaned out according to Data Explorers. Alex Brog, an analyst at the firm, said there are no available shares to short. Lampert and his funds declined to comment on the rally.

Sears Chart

Treehouse Foods (THS) lost -11% to $56 after warning that Q4 results would be significantly below market expectations. They blamed warmer weather that cut demand for soups and hot cereals. They also said higher sales volume in discount outlets like dollar stores and club stores ate into margins. Treehouse makes generic foods like pickles, sauces, soups and salad dressings that retailers brand themselves with their own labels. The CEO said "consumer purchases of shelf stable dry groceries for Q4 showed their sharpest decline in six years." The company now expects earnings to be in the range of 85-cents and analysts were expecting $1.07 per share. The company also cut its full year estimates for the third time.

Since nobody else has reported a similar decline in sales this sounds like a company problem not an industry problem. Short the bounce?

TreeHouse Chart

Oil prices cooled to close at $98.15 for a loss of $2 on worries the Iran problem was fading. At least that is what the talking heads on TV were saying. I seriously doubt anyone suddenly decided Iran was going to cave in to western demands to halt uranium enrichment. They also said traders were worried about a decline in demand in Europe if the Greek debt swap solution did not appear this weekend. While that sounds like a reasonable excuse to the uneducated it was also bogus. Oil suddenly dropped $2 because the February futures contract expired on Friday. Anybody holding longs and hoping for a breakout over $103 was forced to close their positions. This is not rocket science. Expiration is a hard deadline and all plays have to be closed. On Monday they will start over using the new current month contract.

In reality Iran will be back in the news on Monday. The EU Finance Ministers are poised to approve the oil embargo on Monday and release some details on how it will be implemented including specific dates. If they do approve the embargo as expected you can bet Iran will be back in the headlines threatening to close the Strait of Hormuz. Any decline in the Iranian security premium from Friday could quickly return.

Oil producer Nigeria suffered a series of massive attacks from the Boko Haram Islamic group. The name means "Western education is a sin." More than 165 were killed. President Goodluck Jonathan declared a state of emergency and police and military around the country and setup a special counter terrorism unit to coordinate the response. Nigeria produces over two million barrels of light crude per day. The increased violence in Nigeria should also increase the security premium in oil.

Crude Oil Chart

Silver was the bright star on Friday. Silver rallied for a +5.46% (+$1.67) gain to close at $32.17 and a new five week high. There was no specific news on Friday but the contract broke through the resistance of the 50-day average and exploded higher. There may have been some residual impact from the Sprott Physical Silver ETF secondary offering earlier in the week. The ETF (PSLV) raised $303 million in a secondary with the proceeds used to buy additional silver. The announcement was made on Tuesday and priced on Wednesday. Apparently they put that money to work on Friday. The 50-day average had been strong resistance and it was broken on Friday. The next test will be the 100-day average at $33.

Silver Chart

Volume remains a challenge for the stock market rally. Just over 6.8 billion shares traded on Friday with the average in January being about 6.5 billion. Only three days have traded over seven billion shares in 2012 and those were just barely over 7B. There is no conviction despite the breakout to new highs.

TrimTabs.com reported that investors put $932 billion into money market, savings and checking accounts in 2011. That was eight times higher than the $117 billion that flowed into stock funds, ETFs and bond funds. Retail traders have remained bearish with only $3.3 billion flowing into stock funds so far in 2012. Typically early January sees a lot of new cash come into funds.

Reportedly the market gains have been produced by institutional buying. TrimTabs claims that institutions believe the Fed will announce another round of QE either next week or at the March 13th meeting. Their rationale is the election year and for Fed officials, who serve at the pleasure of the president, to do everything possible to keep President Obama in office and keep their jobs. An election of someone like Ron Paul would have serious consequences for Fed employees.

I think the TrimTabs position is a stretch of the imagination but then volume has been so low that anything is possible. With volume this low it does not take a lot of institutional money to push the markets around using the overnight futures and there has been a solid trend of dip buying late in the day.

The problem with this theory is the immediate crash if the Fed does not announce anything at next week's meeting, or worse, they announce there will not be any further stimulus until certain events occur. The damage to the market would be immediate and dramatic if TrimTabs is correct and the reason for the market's gains was anticipation of further Fed action.

Despite the low volume and the serious weight of Google losses the S&P was able to close at another new five month high. I know it was only 0.88 of a point higher but that was enough to avoid the negative headlines in the weekend papers.

With the close at 1315 the S&P is only about 30 points from major resistance. There are also only seven trading days left in the month and massive pothole in our immediate future. That pothole is the FOMC announcement on Wednesday. The Greek debt swap is also an issue but the Fed could be the bigger problem. With the improvement in economics and the market rally the Fed is not likely to take any action. If TrimTabs is correct about the market motivation to this point the results could be ugly.

However, if China and Greece had cooperated this weekend that could have blunted the pain from the Fed. We won't know for sure those events won't happen until the opening bell rings on Monday. Regardless of what powers the S&P to 1345-1350 that resistance is going to be a major roadblock. Since December 20th the rally has gone nearly straight up with very little deviation. It is time to rest. Unfortunately markets never behave as expected and as long as analysts keep calling for a decent dip to buy it may never appear.

S&P Chart - Daily

The Dow chart is a textbook picture of an overextended move with Friday's close at 12,720 only five points from the July closing high at 12,725. Thanks to IBM the index pulled to within striking distance of the 12,750 high from July. I visualize this resistance as an electric fence and there is a strong potential for a shock that knocks us well back into last week when it is touched. This is major resistance and the markets have been slowly moving higher on a serious lack of conviction. The line on the chart is so clear that even a beginner trader can see it and take the appropriate corrective action. With the lack of an agreement in Greece and no rate cut in China the odds of blowing through that level on Monday are extremely slim. There will not be any single Dow stock producing monster gains from a blowout earnings report.

Support is 12,600, resistance 12,750.

Dow Chart - Daily

The Nasdaq is still well below resistance at 2875 and Apple earnings are on Tuesday. If Google shares are not down double digits again on Monday the rally in techs could continue assuming the Greek debt talks failure has not soured investors. That would be a very distinct possibility. The Nasdaq is not quite as overextended as the Dow but after a month of gains with only three real down days it is still overbought.

However, considering the -58 point drop in Google only managed to knock -2 points off the Nasdaq at the close, there is considerable bullish sentiment for tech stocks. Why that is I have no idea since tech earnings have been lousy and volume very low.

Support is well back at 2700 and resistance at 2875 so plenty of room for volatility without damaging the trend.

Nasdaq Chart

In the "you can't make this stuff up" category the Nasdaq 100 with Google a full 12.5% of the index, declined only -5 points on Google's -58 point loss. Thanks to Microsoft and Intel and the positive sentiment from the non Nasdaq IBM earnings the damage to the NDX was minimal.

The Nasdaq 100 held its gains for the month and remains at a 10 year high. ANY material gains from here could trigger significant short covering and a blowout into blue sky territory. Should that happen in light of the global news I will be very shocked.

Big cap techs have been the favorite place for fund managers to store cash while they wait for the European crisis to fade. With the decent earnings by MSFT and INTC I don't see that changing unless Apple imitates Google's miss and that would really be a shock. Eventually this melt up will end with a decent bout of profit taking and those waiting patiently on the sidelines can buy in for the next move up, assuming there will be one.

Nasdaq 100 Chart

The Russell posted a minor gain on Friday but it was important because it was another five month high. Fund managers were not just throwing money at small caps but they were not running away in panic either. I believe we could be on the verge of an acceleration in small caps if we could get just a couple days of profit taking to convince managers it was safe to commit more funds. Nobody likes to buy the highs even though that is a valid strategy. It just goes against the average investor mindset. Buy the dip is learned in investor infancy.

Russell Chart

The Dow Transports faded slightly but did not give back any material gains on Friday. The rising transports are a confirmation signal for the rising Dow and despite their breakout this chart is not nearly as overbought as the Dow Industrials. The transports spent a week consolidating their gains over the red line in mid January. The move higher last week was a move out of that consolidation and a bullish signal.

Dow Transport Chart

The markets are running on hope more than reality. The worst earnings cycle in years is proof of that. We continue to see signs the U.S. economy is improving but we are not alone in the world. The global economy is slowing and it is not just Europe. There have been 61 monetary easings around the world in just the last four months. Central banks don't ease when the economy is growing. The IMF and the World Bank still believe the global economy will continue to grow at 2% to 2.5% GDP despite the weakness in Europe. Let's hope they are right. So far the evidence of the easings suggests the trend is weakening.

The Baltic Dry Index ($BDI), a way of tracking shipping activity between countries, has imploded to three year lows and levels not seen since the Great Recession. This is a very good predictor of economic activity since ordered goods have to be shipped and the index suggests global shipping has nearly come to a halt.

Baltic Dry Index Chart

The euro rallied 300 pips over the last four days after setting a new 15-month low on Jan 13th. You may remember I reported last week the short interest on the euro was at record levels. Market reporters suggested the spike last week was due to a short squeeze. In a short squeeze the shorts exit their positions. Instead the number of non-commercial speculative contracts increased from the record of 155,000 contracts short to more than 160,000 and a new record. Traders are adding to their positions on the bounce. With the Greek debt talks in disarray that could be a winning trade on Monday.

Unfortunately a decline in the euro means the dollar will rise and commodities and equities will decline. There is never an easy answer to the complex market interactions.

I have been cautiously bullish for the last couple of weeks but my caution indicators are beginning to flash from yellow to red. The lack of progress in Greece and the lack of a rate cut on Saturday in China could be a challenge for the markets on Monday. I would tighten stops on long positions and look to reevaluate if we get a decent dip.

The EOY special is over but we have a few packets left. First come, first served. When they are gone they are gone. 2011 Special

Jim Brown

Send Jim an email

"Insanity is doing the same thing over and over again expecting a different outcome."
Albert Einstein.


New Plays

Hotels and Banking

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate, consider these stocks as possible trading ideas:

NTRS - shares are surging past technical resistance and its October highs.

CRK - this stock continues to underperform. Readers might want to consider bearish positions and target a drop toward the $10 area.

FEIC - shares are still drifting higher and a dip near the 10-dma might be a new entry point.

AA - After bottoming in late December shares of AA are now challenging technical resistance at their 100-dma.

CTL - a breakout past $38.00 could be a bullish entry point.


NEW BULLISH Plays

Host Hotels & Resorts - HST - close: 16.23 change: +0.37

Stop Loss: 15.45
Target(s): 17.90
Current Gain/Loss: unopened
Time Frame: up to the Feb. 14th earnings report
New Positions: Yes, see below

Company Description

Why We Like It:
HST is a REIT focused on hotel properties. The stock has been showing strength and building on its bullish trend of higher lows. Shares just recently broke through resistance in the $15.65-16.00 zone. I am suggesting small bullish positions at the open on Monday but only if both HST and the S&P 500 index open positive. Nimble traders may want to take a different approach and wait for a dip near the rising 10-dma instead as their entry point. FYI: The Point & Figure chart for HST is bullish with a $24.00 target.

*See Entry Details Above* (Small Positions)

Suggested Position: buy HST stock @ the open

- or -

buy the Feb $16 call (HST1218B16) current ask $0.65

Annotated chart:

Entry on January xx at $ xx.xx
Earnings Date 02/14/12 (confirmed)
Average Daily Volume = 7.5 million
Listed on January 21, 2011


J.P.Morgan Chase & Co - JPM - close: 37.36 change: +0.43

Stop Loss: 35.95
Target(s): 42.50
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
JPM is generally considered the best-in-breed among the major U.S. banks. The stock saw a short-term dip following a disappointing revenue number when the company reported earnings on the 13th. Shares have recovered. JPM just broke out past technical resistance at its simple 200-dma on Friday.

If Greece gets a deal done with private sector investors over the weekend then it could be a big boost for the financial sector. We are suggesting bullish positions in JPM at the open on Monday but only if both JPM and the S&P 500 open positive. More conservative traders may want to wait for JPM to actually close over $38.00 before launching new positions.

If our trade is opened we'll use a stop loss at $35.95. Our multi-week target is $42.50. FYI: The Point & Figure chart for JPM is bullish with a long-term $56 target.

*See Entry Details Above*

Suggested Position: buy JPM stock @ the open

- or -

buy the Feb $38 call (JPM1218B38) current ask $0.78

- or -

buy the Mar $38 call (JPM1217C38) current ask $1.32

Annotated chart:

Entry on January xx at $ xx.xx
Earnings Date 01/13/12
Average Daily Volume = 35.2 million
Listed on January 21, 2011



In Play Updates and Reviews

Starbucks Bubbles to Another New High

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. markets extended their gains to three weeks in a row. Meanwhile Starbucks (SBUX) marched to another new high.

Our DIS trade is not open yet. Our HOG trade has been closed as planned.

UPDATE: The Greece/PSI negotiations over the weekend appear to have broken down. This is definitely a negative since so many were expecting a resolution with private sector investors (PSI) over the details of the Greek debt haircut by Monday. Monday morning could see a spike downward. We'll have to wait and see if there are any new headlines produced on Sunday.

Current Portfolio:


BULLISH Play Updates

Ball Corp. - BLL - close: 37.91 change: -0.24

Stop Loss: 39.00
Target(s): 36.65
Current Gain/Loss: + 3.7%
Time Frame: up to the earnings report (01/26)
New Positions: see below

Comments:
01/21 update: BLL is up four out of the last five weeks. Shares saw a little profit taking on Friday. Readers may want to start exiting now. We only have a few days left. The plan is to exit at $39.00 or prior to the earnings report on Jan. 26th. I am not suggesting new positions at this time.

current Position: Long BLL stock @ 36.55

- or -

Long Feb $35 call (BLL1221A35) entry 2.30

01/21/12 remember, we want to exit prior to earnings on 01/26
01/18/12 new stop loss @ 36.65
01/12/12 new stop loss @ 36.25
01/11/12 new stop loss @ 35.75
01/06/12 trade triggered at $36.55
01/05/12 adjusted stop loss to $35.35, plan to exit prior to earnings

chart:

Entry on January 06 at $36.55
Earnings Date 01/26/12 (confirmed)
Average Daily Volume = 985 thousand
Listed on January 03, 2011


BioMarin Pharmaceuticals - BMRN - close: 35.20 change: -0.54

Stop Loss: 34.75
Target(s): 39.50
Current Gain/Loss: unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
01/21 update: If BMRN doesn't show some strength soon we're going to drop it. Shares underperformed the market on Friday with a -1.5% decline. Currently our plan is to open small bullish positions when BMRN trades at $36.20 or higher. Please note I am raising our stop loss to $34.75.

Earlier Comments:
We want to keep our position size small to limit our risk. Our target is $39.50. We want to exit prior to the earnings report in mid February. FYI: The Point & Figure chart for BMRN is bullish with a $47.50 target.

NOTE: BMRN does have options but the spreads are too wide to trade.

Trigger @ 36.20, stop loss 34.75 (small positions)

Suggested Position: buy BMRN stock @ $36.20

01/21/12 new stop loss @ 34.75, still waiting for a breakout.
01/19/12 trade did not open. Adjust entry to use a trigger at $36.20, new stop loss at $34.20
01/18/12 trade did not open. try again.

chart:

Entry on January xx at $ xx.xx
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 839 thousand
Listed on January 17, 2011


Cisco Systems Inc. - CSCO - close: 19.92 change: +0.13

Stop Loss: 18.60
Target(s): 20.75
Current Gain/Loss: + 2.8%
Time Frame: up to CSCO's February earnings
New Positions: see below

Comments:
01/21 update: It was a bullish week for CSCO with shares up four days in a row. The stock is nearing what could be round-number, psychological resistance at the $20.00 level. Don't be surprised to see some profit taking soon. I am not suggesting new positions at this time but look for short-term support near the 10-dma.

Earlier Comments:
We want to ride the stock up to its early February earnings report but exit prior to the announcement. FYI: The Point & Figure chart for CSCO is bullish with a long-term $27.00 target.

Long Position: Long CSCO stock @ 19.37

- or -

Long Feb $20 call (CSCO1218B20) Entry $0.43

01/18/12 trade opened on gap higher at $19.37

chart:

Entry on January 18 at $19.37
Earnings Date 02/08/12 (confirmed)
Average Daily Volume = 39.0 million
Listed on January 12, 2011


Walt Disney Company - DIS - close: 39.31 change: -0.13

Stop Loss: 37.90
Target(s): 42.50
Current Gain/Loss: unopened
Time Frame: up to earnings on Feb. 7th
New Positions: Yes, see below

Comments:
01/21 update: Our trade on DIS is not open yet. The stock opened lower and spent Friday consolidating sideways in a narrow range. I don't see any changes from my Thursday night comments so I'm suggesting we try again.

The plan is to open bullish positions on Monday morning but only if both DIS and the S&P 500 index open positive. Our bullish target might be a little optimistic given our time frame. We do not want to hold over DIS' earnings report on Jan 7th. Speaking of targets, we are aiming for $42.50 but the Point & Figure chart for DIS is bullish with a long-term $53 target.

*See Entry Details Above* (Small Positions)

Suggested Position: buy DIS stock @ the open

- or -

buy the Feb $40 call (DIS1218B40)

01/21/12 trade not open yet. try again.

chart:

Entry on January xx at $ xx.xx
Earnings Date 02/07/12 (confirmed)
Average Daily Volume = 7.7 million
Listed on January 19, 2011


Human Genome Sciences - HGSI - close: 8.93 change: -0.12

Stop Loss: 8.30
Target(s): 11.00
Current Gain/Loss: - 1.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/21 update: HGSI has not made much progress the last couple of days with Friday's decline erasing Thursday's gain. Shares are still digesting the big rally from January 11th. At this point I would be tempted to wait for a dip into the $8.75-8.50 area, focusing on potential support at the 10-dma near $8.65. As an alternative you could wait for a rally past $9.30 as a bullish entry point.

Keep in mind this is an aggressive trade and HGSI can be a volatile stock.

Our target is $11.00 but readers should note that the $10.00 level and the simple 100-dma could act as overhead resistance. I am suggesting we keep our position size small to limit our risk.

(small positions)

current Position: Long HGSI stock @ $9.06

- or -

Long Feb $10 call (HGSI1218B10) Entry $0.59

01/19/12 HGSI gapped open higher at $9.06 on a new "buy" rating

chart:

Entry on January 19 at $9.06
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 7.1 million
Listed on January 18, 2011


SAIC, Inc. - SAI - close: 13.00 change: -0.26

Stop Loss: 12.74
Target(s): 14.50
Current Gain/Loss: - 0.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/21 update: The nearest strike price was $13.00 and SAI made a bee-line for the $13.00 level thanks to option expiration. Traders did buy the dip near its rising 10-dma. I would consider new positions here if both SAI and the S&P 500 open positive on Monday.

Earlier Comments:
Our target is $14.50 but I have to warn you that I see potential resistance near $13.50, and the 150-dma, the exponential 200-dma and the simple 200-dma.

(Small Positions)

Suggested Position: long SAI stock @ $13.10

- or -

Long Feb $12 call (SAI1218B12) Entry $1.30

chart:

Entry on January 17 at $13.10
Earnings Date 03/22/12 (unconfirmed)
Average Daily Volume = 1.7 million
Listed on January 14, 2011


Starbucks Corp. - SBUX - close: 48.15 change: +0.13

Stop Loss: 46.75
Target(s): 49.00
Current Gain/Loss: + 4.4%
Time Frame: up to the January earnings report.
New Positions: see below

Comments:
01/21 update: We only have four days left for this trade. The plan is to exit prior to the earnings report on Jan. 26th, after the closing bell. I am optimistic given the trading action in SBUX on Friday. Our exit price is $49.00 but more aggressive traders may want to aim higher. We are raising our stop loss to $46.75.

current Position: long SBUX stock @ $46.08

- or -

Long FEB $47 call (SBUX1218B47) entry $1.56

01/21/12 new stop loss @ 46.75
01/19/12 Readers may want to take profits now!
01/18/12 new stop loss $ 46.40, adjust exit to $49.00
01/17/12 new stop loss @ 45.95
01/14/12 new stop loss @ 45.75, plan to exit prior to earnings
01/12/12 new stop loss @ 44.90
01/11/12 new stop loss @ 44.60
01/07/12 new stop loss @ 43.95

chart:

Entry on December 29 at $46.08
Earnings Date 01/26/12 (confirmed)
Average Daily Volume = 5.1 million
Listed on December 28, 2011


Smith & Wesson Holding Corp. - SWHC - close: 4.74 change: -0.07

Stop Loss: 4.45
Target(s): 5.65 or 6.40
Current Gain/Loss: - 1.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/21 update: The firearm industry just had a record-setting year but short-term it looks like the rally in SWHC (and RGR) might be a little tired. At least that's the impression I'm getting with the lack or progress these last two days. Nimble traders might want to consider buying a dip or a bounce near $4.65-4.60.

Earlier Comments:
I do consider this a very aggressive trade and we want to keep our position size small. The $5.00 level could be resistance but we're going to aim higher. I am setting two different targets depending on your risk tolerance. I'd aim for $5.65 or $6.40. FYI: The Point & Figure chart for SWHC is bullish with a long-term $9.50 target.

(Small Positions)

Suggested Position: long SWHC stock @ $4.83

chart:

Entry on January 17 at $4.83
Earnings Date 03/12/12 (unconfirmed)
Average Daily Volume = 962 thousand
Listed on January 14, 2011


Textainer Group Holdings - TGH - close: 31.34 change: +0.11

Stop Loss: 29.40
Target(s): 34.00
Current Gain/Loss: + 2.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/21 update: TGH posted another gain on Friday but I suspect the stock could see a little pull back on Monday. Of course that might depend on how the market's major indices perform on Monday. I would wait for a dip or a bounce in the $30.50 area before considering new positions.

Earlier Comments:
A breakout could spark some short covering. The most recent data listed short interest at 11% of the very small 12.8 million share float. That raises the risk of a short squeeze. Plus, TGH should appeal to the high-yield crowd since shares sport a 4.7% yield. NOTE: TGH does have options but the spreads are a little wide.

current Position: Long TGH stock @ 30.60

01/19/12 new stop loss @ 29.40
01/13/12 TGH hit our trigger at $30.60 and reversed in less than one second. I am suggesting caution here.

chart:

Entry on January 13 at $30.60
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 172 thousand
Listed on January 11, 2011


BEARISH Play Updates

C&J Energy Services, Inc. - CJES - close: 17.52 change: -0.22

Stop Loss: 19.75
Target(s): 15.00
Current Gain/Loss: + 1.5%
Time Frame: 4 to 6 weeks, exit prior to earnings
New Positions: see below

Comments:
01/21 update: CJES continues to underperform the market. The stock tried to bounce on Friday morning but reversed at $18.24. I am still a little cautious launching new positions given the broader market's strength but the trend in CJES is definitely down. The stock looks like it might have overhead resistance near $19.00 and its 10-dma (near 19.15).

Earlier Comments:
Our target is $15.00. We do want to keep our position size small to limit our risk. The most recent data listed short interest at about 15% of the small 35.9 million-share float. That does raise the risk of a short squeeze. You may want to use put options to limit your risk instead of shorting the stock. FYI: The Point & Figure chart for CJES is bearish with a $12.00 target.

(small positions)

Current Position: short CJES stock @ 17.80

- or -

Long Feb $17.50 put (CJES1218N17.5) Entry $0.98

chart:

Entry on January 18 at $17.80
Earnings Date 02/15/12 (unconfirmed)
Average Daily Volume = 923 thousand
Listed on January 17, 2011


CLOSED BULLISH PLAYS

Harley-Davidson - HOG - close: 41.96 change: -0.09

Stop Loss: 40.99
Target(s): 44.50
Current Gain/Loss: + 3.9%
Time Frame: up to the earnings report Jan. 24th
New Positions: see below

Comments:
01/21 update: HOG has been going nowhere with the last three session churning sideways. That's a bit worrisome with the market in rally mode and the S&P 500 breaking out past resistance. On Thursday we altered our plan to exit this position at the close on Friday.

closed Position: long HOG stock @ 40.35, exit $41.96 (+3.99%)

- or -

Feb $40 call (HOG1221B40) entry $2.06 exit $2.87 (+39.3%)

01/20/12 planned exit at the close
01/19/12 prepare to exit tomorrow (Jan 20th) at the closing bell.
01/19/12 new stop loss @ 40.99
01/14/12 new stop loss @ 39.40. There is potential resistance in the $43.00-43.25 area.

chart:

Entry on January 10 at $40.35
Earnings Date 01/24/12 (confirmed)
Average Daily Volume = 1.5 million
Listed on January 05, 2011