Option Investor
Newsletter

Daily Newsletter, Monday, 1/30/2012

Table of Contents

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

Market Wrap

Bad Start, Lackluster Finish

by Todd Shriber

Click here to email Todd Shriber
With Europe's two G's, Germany and Greec, butting heads again, U.S. stocks got off to a dreadful start this morning, but buyers stepped in later in the day helping pare early-session losses and sending the major U.S. indexes off with only moderate declines. With Europe looming large and no marquee earnings reports to speak of before the bell, Monday had the distinct feeling of a risk off day.

Market Stats

Germany, the Euro Zone's largest economy, and Greece, perhaps the most erstwhile of the PIIGS, were commanding plenty of headlines today as European policymakers met to discuss ways to skirt a Greek default and prevent the sovereign debt crisis from escalating further. And again Greece is balking at some of Germany's demands, namely appointing an a European overseer to rein in the Greek budget.

At least Greece is close to getting beleaguered bondholders to accept loss on a 50 percent cut in the face value of more than 200 billion euros of debt, Bloomberg reported. Portugal, the ''P'' in PIIGS, is another issue. Today, Portuguese bond yields spiked to Euro-era highs, surging over 200 basis points to 17.26%. Credit default swaps issued to protect against a default on Portuguese debt are now pricing in a 70% chance the country will default in the next five years, according to the Financial Times.

Earlier this month, Standard & Poor's lowered Portugal's debt rating to junk status, but the European Central Bank has been suspiciously quiet about the Mediterranean nation. Italy held a successful bond auction today and Greece is closing in on some good news, so maybe it makes sense that Portugal is taking center stage now. With bond yields like these, it is easy to understand why.

Portuguese Bond Yields

Going back to Greece for a moment, for those not in the know, there is now a Greece ETF, the Global X FTSE Greece 20 ETF (GREK). I spend a lot time writing about ETFs for other places and when this ETF debuted in December, the best I can say is the reaction was mixed. Mixed no more and maybe a bottom has finally been found in Greek equities because GREK is up almost 23% since its debut. Year-to-date, that is a better performance than just about any other ETF tracking an individual European country. Yes, GREK is new and thinly traded. It is also on fire when a lot of folks were probably writing it off before it was even born.

Greece ETF

Here in the U.S., the one economic data point of the day was fair. The Commerce Department said personal incomes rose 0.5% last month after climbing 0.1% in November. Economists expected a 0.4% increase in December. On the other hand, personal spending fell by $2 billion last month following an $11.4 billion increase in November. Rising incomes are good, declines in spending not so much when the U.S. economy is propelled in large part by consumer spending. That much is true, but my humble opinion is that it is never a bad idea to save part of your hard-earned money.

I happened to come across an article in the Wall Street Journal recently that caught my eye regarding share repurchase plans. One of the key takeaways is with so much cash just sitting around, companies are escalating their buyback efforts. Not surprisingly, this is reigniting the debate about what is a better use of a company’s cash: Buybacks, dividends or reinvested capital?

Among the S&P 500 companies, repurchase spending totaled at least $437 billion last year, a 46% increase from 2010, estimates Howard Silverblatt, senior index analyst at S&P, the Journal noted.

Well, the Journal also included a great chart that shows companies are not all that good at knowing when to buy their own shares. Put another way, there were buybacks aplenty in 2007, not so much in 2009. Among the egregious offenders I turned up in terms of buying their own shares at bad prices: Exxon Mobil (XOM), ConocoPhillips (COP) and Netflix (NFLX). One example of a company that has executed buybacks the right way: IBM.

Buyback Chart

Speaking of Exxon, the largest U.S. oil and natural gas company, reports fourth-quarter results before the bell tomorrow. The shares were down slightly today even after the company announced it will sell its Japanese downstream operations to TonenGeneral Sekiyu K.K. for $3.9 billion. Texas-based Exxon will retain a 22% stake in the venture, but the deal effectively marks Exxon's departure from Japan, the world's third-largest economy. Wary investors can only hope that some or all of that $3.9 billion goes to oil NOT gas production.

And speaking of problems with oil stocks, Chevron (CVX), the second-largest U.S. oil company, continues to tumble and today's slide means the stock has given up its 50-day moving average. The 20-day line was taken out on the downside earlier this month. Today's bad news from Chevron? The company's Kazakh venture, TengizChevroil, said its oil output dropped 0.4% in 2011 from 2010's levels.

That and Brazilian prosecutors are out for blood against Chevron and Transocean (RIG) are preparing to pursue criminal charges against the companies related to a November spill off Brazil's coast.

Chevron Chart

Looking at the charts, the S&P 500 continues its flirtation with support at 1310, though today’s close was three points higher. Exxon's post-earnings performance will have an impact because that is the second-largest U.S. company by market value. If the S&P 500 can hang around in the 1300-1310 area, or better yet, start creeping higher, there is a nice runway back to 1350. Of course, the January jobs number on Friday will have some say in the matter.

S&P 500 Chart

Twelve of the Dow's 30 stocks closed higher today. IBM, Microsoft (MSFT) and Verizon (VZ) led the way each with gains over 1%. When the Dow closes lower by 7 points on Monday, it is difficult for me to give you any new technical tidbits above and beyond what Jim mentioned over the weekend, which is the next obvious resistance point for the Dow is 12,600 and support is 12,300. Besides Exxon, the only other Dow stock making its way to the earnings confessional this week is Merck (MRK).

Dow Chart

Same goes for the Nasdaq. With a mere 4.6-point drop, I am left with few new technical illuminations. The Nasdaq is holding above 2800 with support there and at 2775. Nasdaq earnings besides Apple (AAPL) have not been great and that trend could continue this week, imperiling the Nasdaq's gains or it could be broken.

Amazon (AMZN) and Broadcom report after the bell tomorrow and Qualcomm (QCOM) takes its turn on Wednesday after the bell.

Nasdaq Chart

I want to stop shy of saying this is a make or break week, but it is an important and that is the case excluding Europe. There are enough noteworthy names left to report earnings this week and then we have jobs Friday, so we could be in for some good moves this week. I scooped up some silver earlier this month banking on $50 or higher prices later this year and I still like oil stocks over the long haul.

Todd Shriber


New Plays

Internet Stock Ready to Sing

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 or watch list candidates:

LTM, Z, MDCO, SBUX, RUSHA


NEW BULLISH Plays

Pandora Media, Inc. - P - close: 13.66 change: -0.25

Stop Loss: 13.25
Target(s): 15.90 or 17.75
Current Gain/Loss: unopened
Time Frame: 6 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Pandora is the extremely popular Internet radio service that's also available on your smartphone. The company's management received a lot of flack for not offering a lot of details prior to their IPO back in June. Now months later the CEO is still not providing a lot of guidance. Yet that hasn't stopped the stock from rebounding this past month. There was a big lock up expiration back in early December, which depressed prices late last year.

Now shares of P are poised to breakout past resistance near $14.00 and its exponential 200-dma. I am suggesting a trigger to open small bullish positions at $14.25. We'll use a stop loss at $13.25. I am listing two different targets based on your time frame and risk tolerance ($15.90 or $17.75).

FYI: The Point & Figure chart for P is bullish with a long-term $23.00 target.

Trigger @ $14.25

Suggested Position: buy P stock @ $14.25

- or -

buy the Feb $15 call (P1218B15)

Annotated chart:

Entry on January xx at $ xx.xx
Earnings Date 03/01/12 (unconfirmed)
Average Daily Volume = 1.9 million
Listed on January 30, 2011



In Play Updates and Reviews

Will The Intraday Bounce Continue?

by James Brown

Click here to email James Brown

Editor's Note:
Stocks pared their losses with a decent bounce off the Monday morning lows but can the rebound continue? The major indices were (still are) arguably overbought and due for some profit taking. Yet after hours tonight the S&P 500 futures were climbing higher.

We have several unopened candidates that could get triggered if the market rallies tomorrow.

Current Portfolio:


BULLISH Play Updates

Autodesk, Inc. - ADSK - close: 35.91 change: -0.69

Stop Loss: 34.75
Target(s): 39.90
Current Gain/Loss: - 1.6%
Time Frame: up to the late Feb. earnings report
New Positions: see below

Comments:
01/30 update: ADSK gapped open lower with the rest of the market but failed to recover much. The stock underperformed with a -1.8% decline. The simple 10-dma near $35.30 might offer some short-term support. I am not suggesting new positions at this time. I am still concerned that Thursday's intraday move looks like a potential top.

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.

current Position: Long ADSK stock @ 36.50

- or -

Long Feb $37 call (ADSK1218B37) Entry $1.08

01/26/12 the action today looks like a potential top or bearish reversal. Be careful!

Entry on January 26 at $36.50
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 2.5 million
Listed on January 24, 2011


BioMarin Pharma. - BMRN - close: 35.59 change: -0.26

Stop Loss: 34.49
Target(s): 38.50
Current Gain/Loss: unopened
Time Frame: up to the Feb. 16th earning report
New Positions: Yes, see below

Comments:
01/30 update: BMRN did not make any progress on Monday. We are waiting for a breakout past resistance.

We want to open small bullish positions if BMRN can trade at $36.20 or higher. We'll use a stop loss at $34.49. Our target is $38.50. More aggressive traders could aim higher but we do not want to hold over the Feb. 16th earnings report.

FYI: The Point & Figure chart for BMRN is bullish with a long-term $47.50 target.

Breakout Trigger to buy @ $36.20 (small positions)

Suggested Position: buy stock @ 36.20

- or -

buy the Feb. $35 call (BMRN1218B35)

Entry on January xx at $ xx.xx
Earnings Date 02/16/12 (confirmed)
Average Daily Volume = 1.0 million
Listed on January 28, 2011


Cisco Systems Inc. - CSCO - close: 19.56 change: -0.00

Stop Loss: 18.95
Target(s): 21.75
Current Gain/Loss: + 0.9%
Time Frame: exit ahead of the Feb. 8th earnings report
New Positions: see below

Comments:
01/30 update: CSCO fell toward its rising 20-dma this morning. The stock managed to bounce back and closed unchanged on the session. Nimble traders could buy a dip in the $19.25-19.00 zone but keep in mind we're planning to exit prior to the Feb. 8th earnings report.

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: 38.99 change: -0.26

Stop Loss: 37.90
Target(s): 42.50
Current Gain/Loss: - 1.5%
Time Frame: up to earnings on Feb. 7th
New Positions: see below

Comments:
01/30 update: DIS fell to $38.38 thanks to the market's widespread declines but shares pared their losses by the close. If the market continues to correct we can expect DIS to test the $38.00 level. I am not suggesting new positions at this time.

Earlier Comments:
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.

(Small Positions)

Suggested Position: Long DIS stock @ 39.60

- or -

Long Feb $40 call (DIS1218B40) Entry $0.87

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


Eaton Corp. - ETN - close: 49.66 change: +0.09

Stop Loss: 47.45
Target(s): 54.75
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
01/30 update: ETN gapped open lower and hit $48.75 before climbing back into positive territory. I don't see any changes from my weekend comments.

I am suggesting bullish positions if ETN can trade at $50.25 or higher. We'll use a stop loss at $47.45 to start. Our multi-week target is $54.75.

FYI: The Point & Figure chart for ETN is bullish with a long-term $67 target.

Breakout Trigger to buy @ $50.25

Suggested Position: stock @ $50.25

- or -

buy the FEB $50 call (ETN1218B50)

- or -

buy the APR $50 call (ETN1221D50)

Entry on January xx at $ xx.xx
Earnings Date 01/26/12
Average Daily Volume = 3.7 million
Listed on January 28, 2011


Gulfport Energy - GPOR - close: 33.36 change: -0.44

Stop Loss: 31.40
Target(s): 37.00
Current Gain/Loss: - 2.3%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
01/30 update: It was a volatile morning for GPOR but traders bought the dip near $32.15. The strong intraday bounce is encouraging. If both GPOR and the S&P 500 open positive tomorrow morning I would be tempted to launch new positions.

Our target is $37.00 but keep an eye on the $35.00 level, which could be resistance.

Current Position: long GPOR stock @ 34.15

- or -

Long FEB $35 call (GPOR1218B35) Entry $1.25

01/26/12 Trade finally opened. GPOR @ 34.15
01/25/12 trade did not open. try again.
01/24/12 trade did not open. try again.

Entry on January 26 at $34.15
Earnings Date 03/12/12 (unconfirmed)
Average Daily Volume = 522 thousand
Listed on January 23, 2011


Human Genome Sciences - HGSI - close: 10.40 change: -0.13

Stop Loss: 9.45
Target(s): 11.00
Current Gain/Loss: +14.7%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/30 update: HGSI held up reasonably well on Monday only giving back -1.2%. I am not suggesting new positions at this time. Conservative traders may want to take profits now. Our exit target is $11.00.

Earlier Comments:
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

01/28/12 new stop loss @ 9.45, readers may want to exit and lock in profits now.
01/26/12 new stop loss @ 8.49
01/25/12 readers may want to take profits now (HGSI @ $9.92)
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: 16.33 change: -0.19

Stop Loss: 15.95
Target(s): 17.90
Current Gain/Loss: unopened
Time Frame: up to the Feb. 14th earnings report
New Positions: Yes, see below

Comments:
01/30 update: Our HST is still not open. The stock gapped open lower, as did much of the market today. HST found short-term support at its rising 10-dma. I am suggesting we try again. The plan is to launch small positions tomorrow but only if both HST and the S&P 500 open positive. We want to keep our position size very small. FYI: The Point & Figure chart for HST is bullish with a $24.00 target.

Do not enter position unless HST and the S&P500 are both positive at the open
(Small Positions!!)

Suggested Position: buy HST stock @ the open

01/30/12 still not open. try again.
01/28/12 adjusted entry strategy. Buy HST stock at the open but only if stock and S&P 500 open positive. New stop loss at $15.95. Small positions only!
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: 37.01 change: -0.20

Stop Loss: 35.95
Target(s): 42.50
Current Gain/Loss: - 2.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/30 update: JPM traded under its 10-dma and simple 200-dma this morning but managed to bounce back above both of these moving averages. The stock's up trend is in jeopardy. I am not suggesting new positions at this time.

Earlier Comments:
More conservative traders may want to wait for JPM to actually close over $38.00 before launching new positions. Our multi-week target is $42.50. FYI: The Point & Figure chart for JPM is bullish with a long-term $56 target.

Current Position: Long JPM stock @ $38.05

- or -

Long Feb $38 call (JPM1218B38) Entry $1.00

- or -

Long Mar $38 call (JPM1217C38) Entry $1.50

01/26/12 triggered at $38.05
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 26 at $38.05
Earnings Date 01/13/12
Average Daily Volume = 35.2 million
Listed on January 21, 2011


Marvell Technology - MRVL - close: 15.74 change: -0.05

Stop Loss: 15.40
Target(s): 19.00
Current Gain/Loss: unopened
Time Frame: exit ahead of earnings on Feb. 23rd.
New Positions: Yes, see below

Comments:
01/30 update: MRVL ended the session down -0.3%. We are still on the sidelines waiting for a breakout to new relative highs. Currently our plan is to open bullish positions when MRVL trades at $16.40 or higher. Let's keep our position size small.

If triggered our multi-week target is $19.00. However, keep an eye on the $18.00 area as potential overhead resistance. FYI: The Point & Figure chart for MRVL is bullish with a $21.00 target.

Trigger @ 16.40 (small positions)

Suggested Position: buy MRVL stock @ 16.40

- or -

buy the Feb $17 call (MRVL1218B17)

- or -

buy the May $17 call (MRVL1219E17)

01/28/12 adjusting our entry trigger to $16.40
01/27/12 MRVL issued an earnings warning

Entry on January xx at $ xx.xx
Earnings Date 03/23/12 (confirmed)
Average Daily Volume = 14.1 million
Listed on January 25, 2011


Morgan Stanley - MS - close: 18.20 change: -0.36

Stop Loss: 17.75
Target(s): 21.90 (or 23.75)
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
01/30 update: Most of the market gapped open lower this morning. MS actually gapped higher but shares failed to breakout past resistance and eventually lost -1.9% on the session. Nimble traders might consider buying a dip near $18.00 or the 10-dma.

I am suggesting we open bullish positions if MS can trade at $19.05 of higher. Our multi-week target $21.90 but more aggressive traders can aim for the $24.00 area instead.

Breakout trigger to buy @ $19.05

Suggested Position: buy MS stock @ $19.05

- or -

buy the FEB $20 call (MS1218B20)

- or -

buy the APR $20 call (MS1221D20)

Entry on January xx at $ xx.xx
Earnings Date 04/23/12 (unconfirmed)
Average Daily Volume = 25.5 million
Listed on January 28, 2011


Smith & Wesson Holding Corp. - SWHC - close: 5.05 change: -0.09

Stop Loss: 4.65
Target(s): 5.65 or 6.40
Current Gain/Loss: + 4.5%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
01/30 update: After four up days in a row SWHC hit some profit taking with a -1.7% decline. More conservative traders may want to take profits now. I am not suggesting new positions at this time.

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

01/28/12 new stop loss @ 4.65
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: 42.53 change: -0.36

Stop Loss: 40.75
Target(s): 49.00
Current Gain/Loss: - 1.3%
Time Frame: up to Feb 9 earnings report.
New Positions: see below

Comments:
01/30 update: TCK dipped to technical support at its 10-dma and bounced. Yet shares still lost -0.8% on the session. If both TCK and the S&P 500 open positive tomorrow I would use it as a new bullish entry point.

Earlier Comments:
More aggressive traders might want to keep their stop under $40.00 instead. Our target is the $47.00 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.

(small positions)

current Position: long TCK stock @ 43.10

- or -

Long Feb $43 call (TCK1218B43) entry $2.05

01/26/12 trade opened at $43.10
01/25/12 adjusted exit target to $47.00.

Entry on January 26 at $43.10
Earnings Date 02/09/12 (confirmed)
Average Daily Volume = 2.3 million
Listed on January 23, 2011


Textainer Group Holdings - TGH - close: 31.87 change: -0.55

Stop Loss: 30.60
Target(s): 34.00
Current Gain/Loss: + 4.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/30 update: After a strong multi-day rally TGH was due for some profit taking. The stock gave up -1.7% today. Readers may want to think about taking profits now. 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

01/28/12 new stop loss @ 30.60
01/25/12 new stop loss @ 29.90
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

Superior Energy Services - SPN - close: 27.61 change: +0.67

Stop Loss: 26.25
Target(s): 22.50 or 20.50
Current Gain/Loss: unopened
Time Frame: up to the Feb. 23rd earnings report
New Positions: Yes, see below

Comments:
01/30 update: SPN continues to bounce. Shares outperformed the market today with a +2.4% gain. The stock is nearing resistance in the $28.00 area. Currently our plan is to launch small bearish positions when SPN hits $24.75.

If triggered I'm setting an aggressive target at $20.50 but more conservative traders may want to exit near $22.50, which might be support near its October 2011 lows.

I do have to warn you that being short SPN seems pretty popular these days. The most recent data listed short interest at 33% of the 72.5 million-share float. That definitely raises the risk of a short squeeze. Readers may want to use put options to limit your risk.

FYI: The Point & Figure chart for SPN is bearish with an $18 target.

Trigger @ 24.75

Suggested Position: short SPN stock @ 24.75

- or -

buy the Feb $25 PUT (SPN1218N25)

Entry on January xx at $ xx.xx
Earnings Date 02/23/12 (confirmed)
Average Daily Volume = 2.8 million
Listed on January 26, 2011