Option Investor
Newsletter

Daily Newsletter, Tuesday, 1/24/2012

Table of Contents

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

Market Wrap

Apple Pie

by Jim Brown

Click here to email Jim Brown
Apple's earnings report was as pleasing as a warm slice of mom's apple pie complete with ice cream.

Market Statistics

After a diet of mediocre earnings the desert was large slice of Apple pie complete with ice cream and a promise of more to come. Apple blew away already bullish estimates on every metric available.

Earnings were $13.87 ($13.06 billion) compared to consensus of $10.16 and whisper numbers of $12.18. Revenue was $46.3 billion compared to estimates of $38.9 billion. That is a monster beat of more than $7 billion and a +73% increase in revenue. More than 37 million iPhones sold compared to estimates of only 32 million. iPad sold 15.4 million units, vs estimates of 13.8 million and iMac 5.2 million. The company also guided for Q1 for earnings of $8.50 and revenue of $32.5 billion. They currently have more than $97 billion in cash. According to Bespoke Investments that cash on hand is more than the market cap of 474 S&P 500 companies. Only 25 companies have market caps of more than $97 billion.

Apple shares rallied from the $420 close to nearly $470 before cooling to end at $453. At $449 per share that will make Apple the largest market cap company at $419 billion with Exxon dropping to second place. Apple reported $1.7 billion in revenue in iTunes alone. That is $503 million more than Yahoo's total revenue from all sources of $1.17 billion.

Where do they go from here? How do they beat those numbers going forward? Is this the quarter they top out for years to come? They will open at a new all time high on Wednesday. Is that the end of the road? Google is hot on their tail with Android. Samsung is winning tablet wars in various overseas markets. Over 100 new tablets were announced at CES earlier this month. Can Apple continue to expand sales in the iPhones and iPads? It is entirely possible with the iPad 3 expected to be announced in March and the next iPhone 5 shortly thereafter and that is rumored to be a very significant upgrade. The new Apple TV is also rumored to be out this summer. The Apple CEO said the demand of the iPhone 4S in China was "staggering" and "off the charts." Obviously China has enough people to keep the sales wave rolling. China Mobile with 600 million subscribers is six times the size of Verizon and they are not yet a major customer of Apple.

Of the 60 analysts covering Apple there is only one sell rating. It will be interesting to see if any of those buy ratings change given the explosive results not likely to be equaled in the quarters to come.

Apple Chart

The Apple earnings were also good news for those in the Apple food chain. Suppliers to Apple including Nuance (NUAN), Broadcom (BRCM), Cirrus Logic (CRUS) and Qualcomm (QCOM) also say major gains in afterhours trading. Some of those companies in the food chain may be acquisition targets for Apple given the cash on the balance sheet. The Apple earnings and spikes in the food chain companies will have a positive impact on the S&P at the open on Wednesday. Nasdaq futures are up +24 late Tuesday.

Other earnings included Western Digital (WDC), which posted $1.51 per share compared to estimates of 65-cents. Those results excluded the impact of the Thailand floods. The CEO said progress on restoring capacity damaged in the floods is significantly ahead of original expectations. Vastly higher prices for the lowered quantity of drives that made it to market helped to overcome the loss of capacity. WDC said drive prices rose +72% and greatly increased margins.

WDC Chart

Johnson & Johnson (JNJ) reported earnings of $1.13 that was slightly better than estimates of $1.09. However, shares closed flat after a volatile day because of $2.9 billion in charges for product recalls. The company recalled more than two dozen products in 2011. The company said a slump in elective surgeries due to unemployment and/or uninsured people delaying the procedures cost them sales. This impacted their artificial joint segment as well as surgical implements and supplies. However, the CEO said he felt better about the business now than at any time in the last five years. Shares ended the day flat.

DuPont (DD) reported earnings of 35-cents compared to estimates of 33-cents. Revenue rose +20% to $38 billion. The CEO said after a challenging Q4 they anticipate conditions will improve in many of their industrial businesses for the rest of this year. The beat was against lower estimates after DuPont guided lower last month. The company said weaker consumer sales of electronics using materials produced by DuPont caused that division to see a 33% decline in volume and 18% decline in revenue. The agriculture unit was the only area where revenues increased. DuPont shares also closed flat on the day.

Dow component McDonalds (MCD) shares fell -$2.20 after reporting earnings of $1.33 compared to estimates of $1.30. That was +15% higher than the comparison quarter. Sales rose +9.8%. More than 50% of their profits are now earned overseas compared to 40% just five years ago. The shares declined on the better results because MCD guided analysts higher to the +9% sales a couple weeks ago and expectations were already priced into the stock.

McDonald's Chart

Travelers (TRV), also a Dow component, reported earnings of $1.51 compared to estimates of $1.54. This was a decline from $1.89 in the year ago quarter. The earnings miss was even more disturbing because Travelers bought back 10.5% of its shares during the quarter and reduced the outstanding shares. That increased earnings per share but they still could not meet the estimates. Investment income for the quarter declined -19% and claims due to storms increased significantly. TRV shares declined -4% on the news.

Travelers Chart

Coach (COH) shares rallied after the company posted earnings of $1.18 and beat estimates of $1.15. Revenue rose +15% and there was no weakness for sales of their luxury products.

Peabody Energy (BTU) reported earnings that rose +6% on increased demand from China and other Asian countries. Peabody received higher prices for that coal sold overseas. U.S. coal producers increased exports by 29% in 2011. This easily made up for the -5% decline in coal used by U.S. utility companies. China consumed 14% more and India imported 9% more. Peabody supplies coal that produces 10% of electricity in the USA and they predicted demand between 245 to 265 million tons in 2012. That compares to 250 million in 2011. Earnings or 98-cents missed street estimates of $1.33. They also guided lower for Q1 due to lower demand from the warmer than normal winter.

Peabody Chart

Yahoo (YHOO) reported earnings of 31-cents compared to estimates of 24-cents. However, the decline in revenue to $1.17 billion was a weight on the stock price. The new CEO said the company was "actively involved" in restructuring its Asian assets in a way to benefit shareholders. He also said there would be no further details until the final plan was announced. CEO Thompson also said the company "had to do better" in its performance. That would be an understatement. This was the 13th consecutive quarter Yahoo has missed its revenue number. Shares were down fractionally after the report.

Yahoo Chart

Research in Motion (RIMM) dropped sharply for the third day after the co-CEOs left and a new single CEO was installed. The market is expressing its displeasure with the choice. Some analysts are even dropping coverage on RIMM due to lack of visibility, direction and management competence. The new CEO was on CNBC and it was the most uninspiring performance I can remember. Was there a complete lack of quality candidates applying for the job?

RIMM Chart

VMWare (VMW) rallied strongly after reporting earnings on Monday evening of 62-cents, a +35% increase and beating estimates by 9-cents. They also guided analysts higher for the current quarter.

VMWare Chart

Earnings for tomorrow include BA, COP, NFLX, UTX, SNDK and WLP.

Earnings Calendar

On the economic front there was only one report of note. The Richmond Fed Manufacturing Survey rose significantly for January to 12.0 from 3.0. That is a +22 point gain since the -10.0 in August. The new orders component rose to 14 from 7 and inventories, an indicator of future activity, fell to 9.0 from 23.0. That suggests activity will increase in future months to replace that inventory.

However, backorders declined to -4 from +1. It was a minor move and not a critical factor for January. Employment increased to +4 from -4. Overall this was a positive report.

Richmond Fed Chart

The economic calendar for Wednesday will be dominated by the FOMC announcement and the Bernanke press conference after the meeting. There is about a 30% chance the Fed will announce QE3 but the majority of analysts believe it will come at the March meeting rather than this week. The Fed wants to avoid deflation and inflation is zero today. They would like to see a small increase in inflation to keep prices under control.

Economic Calendar

The market was weak today after Greek bondholders and EU officials came to a deadlock over the haircut for the private sector investors. The private sector debt of 190 billion euros has to be resolved before the troika will agree to complete the terms of the next 130 billion euro bailout scheduled to start in March. They have been trying to get a deal done for seven months now and have been unable to come up with a solution.

In theory the private holders have agreed to a 50% "voluntary" haircut in principal in exchange for some new long dated debt. However, the EU, specifically Germany, wants the interest rate on the debt to be something in the 2.5% to 3.5% range and that would equate to a 75% haircut on a net present value basis. The bond holders are holding firm at 4%. They gave the EU officials their "maximum" offer over the weekend and that offer was decline on Monday.

That increases the threat of an involuntary haircut where Greece will change the rules to force repayment at a lower amount. That would trigger the credit default swaps and negotiators have tried to avoid that scenario. However, at this point the odds are increasing. Analysts now say there are only about 3.7 billion euros of swaps in force and 90% of those have already been collateralized. That means when a swap appears to be in danger of being triggered the writer of that swap must put up collateral to insure their future performance. If 90% have already been collateralized then the triggering of the swaps would not be a major deal.

As Greece draws closer to a default on its debt the worries are increasing that it may default on more than just the 190 billion of private debt. The IMF was saying today that the ECB should also be willing to take a haircut on its loans to Greece. That brings up an entirely new set of problems that EU officials will have to face.

Greece has 14 billion in debt payments due in early March and will default on those payments unless the private sector debt swap problem is solved because the solution is a requirement for the next tranche of bail out money.

The IMF is about ready to pull the plug on Greece. Comments from various officials suggest they are no longer ready to throw good money after bad since Greece is likely to default anyway as their economy crashes and tax receipts decline. The concerns about a pullout by the IMF and a potential default by Greece pressured European banks. U.S. banks also declined as European investors shorted them to hedge against European losses.

To emphasize the decline in the European economy German manufacturing and services giant Siemens posted earnings that declined -23% on falling revenues.

The IMF warned that global growth will decline to levels bordering on stagnation and the entire eurozone will be plunged into a severe recession if the crisis in Europe is not solved soon. The IMF said growth in the world's most advanced economies will be too slow to make a dent in very high unemployment. Under a scenario that does not include a breakup of the eurozone the IMF is predicting a decline in eurozone growth of -4% and global growth to rise only +1.3%. The IMF chief economist said global growth is in "danger of stalling."

The problems in Greece and the negative forecasts by the IMF weighed heavily on the U.S. markets at the open. The Dow declined -95 points and struggled to recover the rest of the day to end down only -33 points.

The S&P closed slightly negative to break its six day winning streak. For four days now the S&P has hovered in the 1310 range with only minor gains but every dip has been bought. The worry over Greece, Apple earnings and the impact of the Fed meeting kept many traders on the sidelines. Volume was very low at only 6.1 billion shares and the second lowest level in 2012.

Note in the first chart below the complete lack of movement. Spikes were sold and dips were bought but the range held. This is a consolidation while traders awaited the events in Europe and the Fed meeting results.

Apple's afterhours gains will boost the S&P at the open but the hang time could be brief ahead of the Fed announcement at 12:15. Remember, we are still at risk of headlines out of Europe and the risk of a Greek default is growing.

After the Fed announcement anything is possible BUT assuming they don't announce QE3 I have growing concerns about the market. We have had a good run of nearly five weeks without any material profit taking. A decline of 2-3% from this level would be very healthy.

Just remember the gains by Apple and the stocks benefiting from Apple's growth will spike the S&P at the open on Wednesday. If that spike is sold hard like the two on Monday then I expect support at 1310 to break.

Current resistance is 1315 and support 1310 followed by 1280.

S&P Chart - 15 Min

S&P Chart - 60 Min

S&P Chart - Daily

The Dow spiked to critical resistance at 12,750 on Monday and then failed to even come close today. With the tech stocks likely to rally on Wednesday there may be another attempt at the highs but the Dow futures are not showing any material strength as of 9:PM on Tuesday. They are up only +21 points. If the Dow were to retest the 12,750 level and fail again I think it would be a sign of a exhaustion from the long rally.

The Dow is very over extended and that strong resistance is very clear for anyone with a charting program. Conversely, should the market catch fire and move over that level it would prompt serious short covering. This is a clear inflection point for the Dow and for the market in general.

Dow Chart

The Nasdaq futures are up +24 points tonight and absolutely flat. There has been no follow through since the initial spike. This suggests traders are not rushing in on expectations for a big rally on Wednesday.

Nasdaq Futures Chart - 5 Min

The Nasdaq shows the same pause after the five weeks of gains. The Nasdaq did end the day positive and should also be positive on Wednesday. If it closes well over 2800 the rally could continue to 2875 but with weakness in the other indexes that move could be blunted.

I am concerned the Apple spike could be a one and done event and the buying climax many analysts have been expecting. I would be very cautious of adding new tech longs at this point.

Nasdaq Chart - Daily

In case you have not caught my concern above I am becoming increasingly worried that a decline is in our future. However, the Russell is not sharing those feelings. The Russell managed a +5 point gain on Tuesday and it was a steady gain all day. Unlike the other indexes that posted a tepid rebound the Russell was bought early and that buying continued all day. The close at 787 was a new five month high.

Fund managers were buying small caps. Bond yields were rising as money was coming out of bonds and I believe it was flowing into equities, especially the small caps.

Wouldn't it be ironic if the day after the fund managers decided to commit funds to small caps that the market made a new multi-month high and then collapsed?

Support 780, resistance 792.

Russell Chart - 15 Min

Russell Chart - Daily

I would be VERY cautious about entering new longs at the open on Wednesday. The Apple spike could be a climatic event and the Fed is always a wild card. If anything I would probably consider looking at some puts on the DIA or SPY if the opening bounce begins to fade.

Earnings have been lousy. Greece is headed for a default cliff and the Fed is not likely to announce any new policy measures. Market expectations are high but reality may be about to bite.

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


New Plays

Tech-tastic!

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:

ADBE - shares look bullish with a bounce from the $30.00 level to new multi-month highs.

TRMB - wait for a breakout past resistance near $45.00 as a bullish entry point. Keep in mind that earnings are due on Feb. 2nd.

FIRE - this stock looks tempting with today's bounce. Consider using a trigger at $32.40 as a possible entry point.

CRI - the bullish trend of higher lows is pushing CRI toward resistance near $42.00. A breakout past $42 could be a bullish entry point for a short-term move.

IVN - this mining stock continues to underperform. I would consider it an aggressive trader but IVN looks like a bearish candidate.

NOTE: Normally we want to avoid holding over an earnings announcement.


NEW BULLISH Plays

Autodesk, Inc. - ADSK - close: 35.81 change: +1.15

Stop Loss: 34.75
Target(s): 39.90
Current Gain/Loss: unopened
Time Frame: up to the late Feb. earnings report
New Positions: Yes, see below

Company Description

Why We Like It:
ADSK has been making gains on strong volume, which is normally a good sign. Shares appear to be breaking out of a short-term bull-flag pattern with today's rally. Yet I still see some resistance near $36.00. I am suggesting we use a trigger at $36.50 to open bullish positions with a stop at $34.75. Our target is $39.90 but more aggressive traders could definitely aim higher. We do not want to hold over the late February earnings report. FYI: The Point & Figure chart for ADSK is bullish with a long-term $49.00 target.

Trigger to open positions @ 36.50

Suggested Position: buy ADSK stock @ 36.50

- or -

buy the Feb $37 call (ADSK1218B37)

Annotated chart:

Entry on January xx at $ xx.xx
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 2.5 million
Listed on January 24, 2011



In Play Updates and Reviews

New Exits and Entries

by James Brown

Click here to email James Brown

Editor's Note:
The stock market has lost some of its upward momentum. We're taking a moment to adjust some of our entry points (HST, JPM) and some of our exits (SIA, CJES).

Current Portfolio:


BULLISH Play Updates

Ball Corp. - BLL - close: 37.75 change: -0.04

Stop Loss: 39.00
Target(s): 37.25
Current Gain/Loss: + 3.2%
Time Frame: up to the earnings report (01/26)
New Positions: see below

Comments:
01/24 update: This is it. Tomorrow is our last day. We want to exit Wednesday, Jan. 25th to avoid holding over earnings on Thursday morning. I'm suggesting we exit at the closing bell tomorrow. We will raise our stop loss up to $37.25 in the meantime.

current Position: Long BLL stock @ 36.55

- or -

Long Feb $35 call (BLL1221A35) entry 2.30

01/24/12 prepare to exit at the close tomorrow
01/24/12 new stop loss @ 37.25
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

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


Cisco Systems Inc. - CSCO - close: 19.82 change: -0.01

Stop Loss: 18.95
Target(s): 21.75
Current Gain/Loss: + 2.3%
Time Frame: up to CSCO's February earnings
New Positions: see below

Comments:
01/24 update: CSCO clawed its way back from its morning lows to close virtually unchanged on the session. The bullish earnings report from AAPL tonight could have a positive impact on all big tech names tomorrow. I am raising our exit target to $21.75. We'll adjust our stop loss to $18.95.

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

01/24/12 new stop loss @ 18.95, target adjusted to $21.75
01/18/12 trade opened on gap higher at $19.37

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: 39.25 change: -0.00

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:
01/24 update: The stock market's widespread losses this morning pushed DIS down, just past its 20-dma, before shares reversed. The stock managed to close unchanged on the session. We are still waiting for a breakout higher. The plan is to keep our position size small. We're waiting for DIS to hit our trigger at $39.60.

Our bullish target might be a little optimistic given our time frame. We do not want to hold over DIS' earnings report on Feb 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.

Trigger @ 39.60 (Small Positions)

Suggested Position: buy DIS stock @ 39.60

- or -

buy the Feb $40 call (DIS1218B40)

01/23/12 adjusted strategy. Use trigger @ 39.60
01/21/12 trade not open yet. try again.

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


Gulfport Energy - GPOR - close: 33.30 change: +0.10

Stop Loss: 31.40
Target(s): 37.00
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
01/24 update: Our new play on GPOR is not open yet. Both the stock and the S&P 500 opened lower this morning. Shares recovered and managed to post another gain. We want to try again.

I am suggesting small bullish positions at the open but only if both GPOR and the S&P 500 open positive. We'll use a stop loss at $31.40. Our target is $37.00 but keep an eye on the $35.00 level, which could be resistance.

Do not enter position unless GPOR and the S&P500 are both positive at the open

Suggested Position: buy GPOR stock @ the open

- or -

buy the FEB $35 call (GPOR1218B35) current ask $0.90

01/24/12 trade did not open. try again.

Entry on January xx at $ xx.xx
Earnings Date 03/12/12 (unconfirmed)
Average Daily Volume = 522 thousand
Listed on January 23, 2011


Human Genome Sciences - HGSI - close: 8.91 change: -0.02

Stop Loss: 8.30
Target(s): 11.00
Current Gain/Loss: + 0.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/24 update: Traders bought the dip this morning and HGSI delivered a nice rebound by the closing bell. Shares managed to outperform the market with a +2.4% gain.

Readers could be tempted to buy this bounce and just ratchet up your stop loss closer to today's low ($8.70). Or you could wait for HGSI to breakout past resistance near $9.50 or its 100-dma as an alternative 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

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


Host Hotels & Resorts - HST - close: 16.46 change: +0.19

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

Comments:
01/24 update: Unfortunately our HST is not open yet. Both the stock and the S&P 500 opened lower. Yet HST rallied quickly off its morning lows to post a +1.1% gain and a new relative high. Readers might want to chase it here. I am suggesting an alternative. Let's adjust our strategy to buy a dip at $16.00 instead. FYI: The Point & Figure chart for HST is bullish with a $24.00 target.

Buy-the-dip trigger @ 16.00
(Small Positions)

Suggested Position: buy HST stock @ $16.00

- or -

buy the Feb $16 call (HST1218B16)

01/24/12 trade not open yet. adjust strategy to buy the dip at $16.00.

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: 37.66 change: +0.00

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

Comments:
01/24 update: JPM rebounded from its morning lows to close unchanged on the session. I am suggesting we adjust our entry point strategy. We'll use a trigger to open bullish positions at $38.05 with a stop at $35.95. More nimble traders may want to try and buy a dip in the $36.50-36.00 zone instead. 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.

Trigger @ 38.05

Suggested Position: buy JPM stock @ $38.05

- or -

buy the Feb $38 call (JPM1218B38)

- or -

buy the Mar $38 call (JPM1217C38)

01/24/12 still not open. adjust strategy to use a trigger @ 38.05
01/23/12 trade not open yet, S&P 500 opened negative. Try again.

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


SAIC, Inc. - SAI - close: 12.88 change: -0.12

Stop Loss: 12.74
Target(s): 14.50
Current Gain/Loss: - 1.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/24 update: Hmm... I am growing more concerned about SAI. Shares underperformed today. The intraday bounce failed at $13.00 this morning. I am suggesting we exit positions immediately at the open tomorrow.

(Small Positions)

Suggested Position: long SAI stock @ $13.10

- or -

Long Feb $12 call (SAI1218B12) Entry $1.30

01/24/12 Exit early. We want to exit at the open tomorrow.

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: 47.65 change: +0.31

Stop Loss: 46.95
Target(s): 49.00
Current Gain/Loss: + 3.4%
Time Frame: up to the January earnings report.
New Positions: see below

Comments:
01/24 update: We've only got two days left on this trade. SBUX reports earnings after the closing bell on January 26th. Right now I am planning to exit this trade at the close on Thursday to avoid holding over earnings. More conservative traders may want to exit tomorrow at the close instead.

SBUX managed to bounce at the $47.00 level this morning. We will inch up our stop loss to $46.95.

current Position: long SBUX stock @ $46.08

- or -

Long FEB $47 call (SBUX1218B47) entry $1.56

01/24/12 prepare to exit at the close on Jan. 26th.
new stop loss @ 46.95
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

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: 4.88 change: +0.16

Stop Loss: 4.55
Target(s): 5.65 or 6.40
Current Gain/Loss: + 1.0%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/24 update: Traders bought the dip near $4.60 again. The stock rallied off this short-term support and closed up +3.3% on the session. I am raising our stop loss to $4.55.

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

01/24/12 new stop loss @ 4.55

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


Teck Resources - TCK - close: 41.26 change: -0.34

Stop Loss: 40.75
Target(s): 49.00
Current Gain/Loss: unopened
Time Frame: up to Feb 9 earnings report.
New Positions: Yes, see below

Comments:
01/24 update: Profit taking pushed TCK to a -0.8% decline. I don't see any changes from my prior comments. We are waiting on a breakout past resistance.

I am suggesting small bullish positions if TCK can trade at $43.10 or higher. We'll use a stop loss at $40.75 to start. More aggressive traders might want to keep their stop under $40.00 instead. Our target is the $49.00 level. Our target is pretty optimistic given our time frame. We do not want to hold over the Feb. 9th earnings report. FYI: The Point & Figure chart for TCK is bullish with a long-term $61.00 target.

Trigger @ $43.10 (small positions)

Suggested Position: buy TCK stock @ 43.10

- or -

buy the Feb $43 call (TCK1218B43)

Entry on January xx at $ xx.xx
Earnings Date 02/09/12 (confirmed)
Average Daily Volume = 2.3 million
Listed on January 23, 2011


Textainer Group Holdings - TGH - close: 31.77 change: +0.22

Stop Loss: 29.40
Target(s): 34.00
Current Gain/Loss: + 3.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/24 update: TGH did not see much of a sell-off this morning, which is encouraging. If the market rallies tomorrow I would expect TGH to breakout past the $32.00 level. I am not suggesting new positions at this time.

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.

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: 17.62 change: +0.10

Stop Loss: 19.75
Target(s): 15.00
Current Gain/Loss: - 2.6%
Time Frame: 4 to 6 weeks, exit prior to earnings
New Positions: see below

Comments:
01/24 update: CJES is not cooperating. The stock spiked down to a new relative low by one cent at $17.10 and then immediately rebounded higher. CJES now looks poised to breakout from its recent sideways consolidation. The larger pattern is still bearish but I don't want to endure a new bounce back toward resistance near $20 and its 50-dma. Therefore I am suggesting an early exit immediately at the open tomorrow. We can keep CJES on our watch list for a failed rally near $20.00 as a potential entry point for new bearish trades.

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

01/24/12 CJES is not cooperating. Prepare to exit at the open tomorrow morning

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