Option Investor
Newsletter

Daily Newsletter, Monday, 2/6/2012

Table of Contents

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

Market Wrap

Greek Tragedy Still Not Over

by Todd Shriber

Click here to email Todd Shriber
Just when it appeared safe to start wading back into the water Greece had to go and remind investors that it is still a hurdle to overcome. Monday's losses, while nothing to get too worked up about, serve as a stark reminder that default for Greece is still a realistic option and the country is quite reluctant to go along with any of the solutions to its sovereign debt mess proposed by European policymakers. That about sums up the day as the three major U.S. suffered small losses and traded in fairly narrow ranges for most of the day.

Stats Table

Greek politicians were scheduled to meet today, but that meeting has been pushed back to Tuesday. Speaking of pushing, that is exactly what the Euro Zone’s big wigs such as France and Germany are doing with Greece. As in their pushing Greece to its end of the bargain on a $171 billion bailout fund. The problem with all of this is that the market has heard this noise before. One day it looks like there will be salvation for Greece, the next day, it is being pushed back and usually because Greece itself does not want to agree to whatever proposal is being set forth.

It is all very 2011 and just when it looked like the past of least resistance was higher, problems from across the Atlantic would provide the perfect excuse for some profit-taking in near-term. There was kind of sort of some good news regarding Portugal today. Press reports there picked up on a Goldman Sachs report that said the country could get another 30 billion to 50 billion euros in bailout funds that could help it stay out of the long-term bond market until the end of 2014.

Be advised, Portugal is no peach. When Moody's downgraded the country's credit rating to A1, it cited the government’s weakening financial strength while saying the ''Portuguese economy's growth prospects are likely to remain relatively weak unless recent structural reforms bear fruit over the medium to longer term.''

Portugal Debt To GDP Chart

In stock-specific news, biotech firm Dendreon (DNDN), one of the more volatile names in a sector known for its volatility, surged almost 17% on volume that was better than triple the daily average after the FDA published a not too kind review of rival Amgen's (AMGN) drug for prostate cancer. Amgen is seeking approval for its injectable drug Xgev as a preventive measure for men with recurring prostate cancer, according to the Associated Press.

The FDA did not seem impressed, noting Xgev did not extend life. Bad news for Amgen, good news for Dendreon, which makes Provenge, a drug designed to bolster a patient's immune system against prostate cancer. Even with today’s big gain, Dendreon still has a long way to go to fill in that huge down gap that occurred last August.

Dendreon Chart

Shares of health insurance provider Humana (HUM, $xx) slipped 5.4% despite the fact that the company raised its full-year 2012 outlook to $7.50-$7.70 a share from $7.40-$7.60. Analysts are expecting $7.99 a share. Humana’s fourth-quarter profit rose to $199 million, or $1.20 per share, from $107 million, or 63 cents per share, a year earlier. Revenue climbed 9% to $9.06 billion. EPS was in line with estimates, but analysts expected $9.24 billion in revenue.

Humana Chart

Despite a day that had risk off way about it, beleaguered coal miner Alpha Natural Resources (ANR) enjoyed a strong volume gain of 3.3% and that came on news of production cuts announced last Friday. The company said it will halt production at four mines immediately and two more in 2013. Slack demand from electric utilities was the primary reason given for the output reductions.

Standard & Poor's Ratings Services said today that its 'BB' rating on Alpha Natural Resources would not be affected at the moment by the announcement. S&P said it expects Alpha Natural to to ''sell about 120 million tons of coal in 2012, including slightly more than 20 million tons of metallurgical coal, which is at the lower end of company-provided guidance of 119 million tons to 132 million tons.''

Alpha Natural Chart

After the bell, Anadarko Petroleum (APC), the largest U.S. independent oil and natural gas producer, reported a fourth-quarter loss of $358 million, or 72 cents a share.

''These results include certain items typically excluded by the investment community in published estimates. In total, these items decreased net income by approximately $781 million, or $1.57 per share (diluted) on an after-tax basis.Cash flow from operating activities in the fourth quarter of 2011 includes a $4 billion payment to settle the BP dispute. This resulted in negative cash flow from operating activities for the fourth quarter of $2.087 billion. Discretionary cash flow for the quarter totaled $1.752 billion,'' Anadarko said in a statement. The company added it replaced 159% of production and that it achieved an 80% success rate in offshore exploration and appraisal drilling programs.

Shares of Anadarko were higher by 1.5% as of this writing in the after-hours session.

Anadarko Chart

Looking at the charts, I have to apologize in advance because as was the case last Monday, the closing tallies today were so small that I cannot offer many new technical revelations compared to what Jim discussed over the weekend. Hopefully that will change and change for the better over the next week. A close at 1344 puts the S&P 500 well above support at 1325 and from here, the 1345-1350 range needs to be taken out before we can start having a conversation about resistance at 1370.

S&P 500 Chart

The Dow is still holding well above 12,800 with support being 12,700. There will probably be some round number resistance at 13,000, but more material resistance shows up around 14,000-14,100. Believe it or not, there are still a couple of earnings reports for the Dow to deal with as Coca-Cola (KO) reports before the bell tomorrow and Walt Disney (DIS) reports after. Good news from either might be an excuse to buy, but it probably will not ignite a huge Dow rally.

Dow Chart

There are still some Nasdaq stocks left to report, but forgive me if I am not excited about Cisco Systems (CSCO) after the close Wednesday. I am willing to bet that any news tied to the Facebook IPO, whatever it may be, will move the Nasdaq more than Cisco's earnings and that is without knowing for certain that Facebook will even trade on the Nasdaq. Nasdaq support is 2800.

Nasdaq Chart

Obviously everyone knows that the Super Bowl was played yesterday and that the New York Giants won. Even if you are a Patriots fan, there is good news and it comes in the form of the S&P 500’s performance following a Super Bowl won by an NFC team. I will let this chart from Bespoke Investment Group do the talking.

Super Bowl Chart

Todd Shriber


New Plays

Homebuilders

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Beazer Homes USA - BZH - close: 3.64 change: +0.04

Stop Loss: 3.10
Target(s): 4.40
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The homebuilders have been strong performers this year. BZH just recently broke out from a three-week consolidation. More aggressive traders may want to open bullish positions now. I am suggesting we wait and buy a dip at $3.45 instead. If triggered we'll use a stop at $3.10. Our multi-week target is $4.40. FYI: The Point & Figure chart for BZH is bullish with a long-term $8.50 target.

I do consider this an aggressive trade because BZH can be a volatile stock. We want to keep our position size small.

buy-the-dip Trigger @ 3.45, stop loss $3.10 (small positions)

Suggested Position: buy BZH stock @ 3.45

Annotated chart:

Entry on February xx at $ xx.xx
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 3.7 million
Listed on February 06, 2011



In Play Updates and Reviews

BMRN & HGSI Hit Our Targets

by James Brown

Click here to email James Brown

Editor's Note:
Relative strength in both BMRN and HGSI was enough to hit our exit targets. Meanwhile our relatively new ACOM trade displayed significant volatility and hit our stop loss.

Current Portfolio:


BULLISH Play Updates

Autodesk, Inc. - ADSK - close: 37.76 change: -0.10

Stop Loss: 35.75
Target(s): 39.90
Current Gain/Loss: + 3.4%
Time Frame: up to the late Feb. earnings report
New Positions: see below

Comments:
02/06 update: ADSK gapped down at the open and spent the rest of the session consolidating sideways. The stock remains under resistance near the $38.00 level. I am not suggesting new positions at this time.

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

02/02/12 new stop loss @ 35.75
02/01/12 new stop loss @ 35.25
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


Cisco Systems Inc. - CSCO - close: 20.09 change: +0.29

Stop Loss: 19.60
Target(s): 21.75
Current Gain/Loss: + 4.2%
Time Frame: exit ahead of the Feb. 8th earnings report
New Positions: see below

Comments:
02/06 update: CSCO displayed relative strength with a +0.49% gain and a new multi-month high. We only have two days left. We'll plan to exit on Wednesday at the closing bell (Feb. 8th) to avoid holding over earnings later that evening. Please note I am raising our stop loss up to $19.60.

Long Position: Long CSCO stock @ 19.37

- or -

Long Feb $20 call (CSCO1218B20) Entry $0.43

02/06/12 new stop loss @ 19.60, Two days left, exit Feb. 8th at the close
02/04/12 new stop loss @ 19.25
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


Discover Financial Services - DFS - close: 28.28 change: +0.06

Stop Loss: 26.95
Target(s): 31.50
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
02/06 update: Our new DFS trade is not open yet. Both the stock and the S&P 500 opened lower. I am suggesting we try again. We want to launch new bullish positions at the open tomorrow but only if both DFS and the S&P 500 open positive. We'll use a stop loss at $26.95. Our multi-week target is $31.50.

Do not enter position unless DFS and the S&P 500 are both positive at the open

Suggested Position: buy DFS stock @ the open

- or -

buy the MAR $28 call (DFS1217C28)

02/06/12 not open yet. try again.

Entry on February xx at $ xx.xx
Earnings Date 03/22/12 (unconfirmed)
Average Daily Volume = 6.2 million
Listed on February 04, 2011


Eaton Corp. - ETN - close: 51.09 change: +0.16

Stop Loss: 48.40
Target(s): 54.75
Current Gain/Loss: + 1.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/06 update: ETN displayed some relative strength today. Shares rebounded off their morning weakness to close higher. I would still consider new positions on a dip near $50.00. Please note I am raising our stop loss to $48.40.

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

current Position: Long ETN stock @ $50.25

- or -

Long FEB $50 call (ETN1218B50) Entry $1.00

- or -

Long MAR $50 call (ETN1221C50) Entry $1.70

02/06/12 new stop loss @ 48.40

Entry on February 03 at $50.25
Earnings Date 01/26/12
Average Daily Volume = 3.7 million
Listed on January 28, 2011


Flextronics Intl. Ltd. - FLEX - close: 7.12 change: -0.02

Stop Loss: 6.80
Target(s): 8.00
Current Gain/Loss: +1.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/06 update: FLEX spent Monday drifting sideways to post a very small loss. If the market corrects we should expect a drop to $7.00 or its 10-dma. I am not suggesting new positions at this time.

Our multi-week target is $8.00. FYI: The Point & Figure chart for FLEX is bullish with a $9.00 target.

(small positions)

current Position: Long FLEX stock @ $7.03

- or -

Long Feb $7.00 call (FLEX1218B7) Entry $0.22

02/04/12 new stop loss @ 6.80
02/03/12 trade opened. FLEX opened at $7.03
02/02/12 not open yet. try again.

Entry on February 03 at $7.03
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 6.0 million
Listed on February 01, 2011


Gulfport Energy - GPOR - close: 35.84 change: +0.61

Stop Loss: 33.75
Target(s): 37.00
Current Gain/Loss: + 4.9%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
02/06 update: Energy stocks were showing relative strength today. GPOR managed to outperform its peers with a +1.7% gain. More conservative traders may want to start taking money off the table. Our exit target is $37.00. I am raising our stop loss up to $33.75.

Current Position: long GPOR stock @ 34.15

- or -

Long FEB $35 call (GPOR1218B35) Entry $1.25

02/06/12 new stop loss @ 33.75
02/02/12 new stop loss @ 31.85
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


J.P.Morgan Chase & Co - JPM - close: 38.14 change: -0.14

Stop Loss: 36.90
Target(s): 42.50
Current Gain/Loss: + 0.2%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/06 update: Financial stocks lagged behind the major indices today. Yet JPM managed to stay above resistance at the $38.00 level. If both JPM and the S&P 500 open positive on Monday we can use this as a new entry point.

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

02/04/12 new stop loss @ 36.90
02/02/12 new stop loss @ 36.45
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: 16.34 change: -0.30

Stop Loss: 15.40
Target(s): 19.00
Current Gain/Loss: - 0.3%
Time Frame: exit ahead of earnings on Feb. 23rd.
New Positions: see below

Comments:
02/06 update: After big gains last week MRVL hit some profit taking today with a -1.8% decline. Today's dip or a dip near $16.00 could be used as a new bullish entry point. More conservative traders may want to raise their stops closer to the $15.75-16.00 area.

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

(small positions)

current Position: Long MRVL stock @ 16.40

- or -

Long Feb $17 call (MRVL1218B17) Entry $0.25

- or -

Long May $17 call (MRVL1219E17) Entry $1.06

02/02/12 triggered at $16.40
01/28/12 adjusting our entry trigger to $16.40
01/27/12 MRVL issued an earnings warning

Entry on February 02 at $16.40
Earnings Date 03/23/12 (confirmed)
Average Daily Volume = 14.1 million
Listed on January 25, 2011


Morgan Stanley - MS - close: 20.51 change: +0.20

Stop Loss: 18.65
Target(s): 21.90 (or 23.75)
Current Gain/Loss: + 6.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/06 update: MS bucked the down trend in financials and posted a +0.9% gain instead. The stock remains short-term overbought.

If you're holding the Feb. $20 calls I would consider an early exit now to lock in gains (+154%).

I am not suggesting new positions at this time. Our multi-week target $21.90 but more aggressive traders can aim for the $24.00 area instead.

current Position: Long MS stock @ $19.19

- or -

Long FEB $20 call (MS1218B20) Entry $0.35

- or -

Long APR $20 call (MS1221D20) Entry $1.16

02/06/12 readers may want to take profits on the Feb. 20 calls (+154%)
02/04/12 new stop loss @ 18.65
02/02/12 new stop loss @ 18.25
02/01/12 Trade opened on MS' gap open higher at $19.19, above our trigger of $19.05

Entry on February 01 at $19.19
Earnings Date 04/23/12 (unconfirmed)
Average Daily Volume = 25.5 million
Listed on January 28, 2011


Smith & Wesson Holding Corp. - SWHC - close: 5.31 change: -0.01

Stop Loss: 4.90
Target(s): 5.60
Current Gain/Loss: + 9.9%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/06 update: SWHC spent the day consolidating sideways to close virtually unchanged. I am not suggesting new positions at this time. More conservative traders may want to take profits now.

Earlier Comments:
I do consider this a very aggressive trade and we want to keep our position size small. 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

02/04/12 new stop loss @ 4.90, adjust exit to $5.60
02/02/12 new stop loss @ 4.75
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


Textainer Group Holdings - TGH - close: 31.50 change: -0.17

Stop Loss: 30.80
Target(s): 34.00
Current Gain/Loss: + 2.9%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/06 update: I don't see any changes from my weekend comments on TGH.

I am growing cautious on this trade. We plan to exit prior to earnings on Feb. 14th. 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

02/04/12 new stop loss @ 30.80, exit prior to earnings (Feb 14th)
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 02/14/12 (confirmed)
Average Daily Volume = 172 thousand
Listed on January 11, 2011


Metals & Mining ETF - XME - close: 56.58 change: -0.19

Stop Loss: 53.95
Target(s): 64.75
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Comments:
02/06 update: Our new trade on the XME is not open yet. Both the ETF and the S&P 500 opened lower. The XME didn't see that much profit taking. I am suggesting we try again.

The plan is to open small bullish positions at the start of trading tomorrow but only if both XME and the S&P 500 open positive. I do consider this an aggressive, higher-risk trade. The XME could still have resistance at its simple 200-dma near $58.50 and price resistance near the $60.00 level.

We will need some patience for this trade to pay off. Our multi-week target is $64.75. FYI: The Point & Figure chart for XME is bullish with a long-term $76 target.

Do not enter position unless XME and the S&P 500 are both positive at the open

(small positions)

Suggested Position: buy XME @ the open

- or -

buy the MAR $60 call (XME1217C60)

02/06/12 not open yet. try again.

Entry on February xx at $ xx.xx
Earnings Date --/--/--
Average Daily Volume = 3.2 million
Listed on February 04, 2011


Zumiez Inc. - ZUMZ - close: 29.71 change: -0.01

Stop Loss: 27.40
Target(s): 32.25 or 34.50
Current Gain/Loss: + 3.3%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/06 update: ZUMZ rebounded off its intraday lows. The recent action remains neutral. I'm suggesting readers way to for a rise past $30.30 before considering new bullish positions.

Earlier Comments:
I am setting two different targets. Conservative traders can exit at $32.25. More aggressive traders can exit at $34.50.

current Position: Long ZUMZ stock @ 28.75

- or -

Long Feb. $30 call (ZUMZ1218B30) Entry $1.00

02/01/12 Trade opened with ZUMZ gapping higher at $28.75

Entry on February 01 at $28.75
Earnings Date 03/12/12 (unconfirmed)
Average Daily Volume = 627 thousand
Listed on January 31, 2011


BEARISH Play Updates

None. We do not have any active bearish trades.


CLOSED BULLISH PLAYS

Ancestry.com - ACOM - close: 33.09 change: +1.51

Stop Loss: 29.90
Target(s): 36.00
Current Gain/Loss: - 6.7%
Time Frame: exit prior to the Feb. 15th earnings report
New Positions: see below

Comments:
02/06 update: Ouch! ACOM is suddenly showing WAY too much volatility. Shares plunged -10% intraday only to bounce back before fading again. I couldn't find any news to account for the extreme volatility and relative weakness. The $30 level and the 10-dma and the 200-dma should have all acted as potential support. They all failed. Our stop loss was hit at $29.90.

Earlier Comments:
The most recent data listed short interest at 22.9% of the small 30 million-share float. That's definitely enough fuel for a short squeeze. Our target is $36.00. FYI: The Point & Figure chart for ACOM is bullish with a $52.00 target.

closed Position: Long ACOM stock @ 32.05 exit 29.90 (-6.7%)

- or -

Feb $32.50 call (ACOM1218B32.5) Entry $1.35, exit $0.60 (-55.5%)

02/06/12 ACOM displayed significant volatility with a -10% intraday drop and hit our stop loss at $29.90

chart:

Entry on February 03 at $32.05
Earnings Date 02/15/12 (confirmed)
Average Daily Volume = 905 thousand
Listed on February 02, 2011


BioMarin Pharma. - BMRN - close: 38.27 change: +0.74

Stop Loss: 35.85
Target(s): 38.50
Current Gain/Loss: + 6.3%
Time Frame: up to the Feb. 16th earning report
New Positions: see below

Comments:
02/06 update: Target achieved. BMRN broke out to new highs and hit $38.66 intraday. Our exit target was $38.50. Readers may want to keep BMRN on their watch list but I would not hold over the earnings report on Feb. 16th.

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

(small positions)

current Position: long BMRN stock @ 36.20, exit 38.50 (+6.3%)

- or -

Feb. $35 call (BMRN1218B35) Entry $1.90 exit $3.40*(+78.9%)

02/06/12 exit target hit at $38.50
*exit price on option is an estimate. option did not trade at time of our exit.
02/04/12 new stop loss @ 35.85
02/01/12 new stop loss @ 35.40

chart:

Entry on February 01 at $36.60
Earnings Date 02/16/12 (confirmed)
Average Daily Volume = 1.0 million
Listed on January 28, 2011


Human Genome Sciences - HGSI - close: 10.77 change: +0.61

Stop Loss: 9.75
Target(s): 11.00
Current Gain/Loss: +21.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
02/06 update: Target achieved.

As expected HGSI broke out from its mini-pennant formation. Shares rallied to exactly $11.00 this afternoon. Our exit target was $11.00. The overall trend is still bullish. Readers may want to keep an eye on this stock.

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

(small positions)

current Position: Long HGSI stock @ $9.06 exit $11.00 (+21.4%)

- or -

Feb $10 call (HGSI1218B10) Entry $0.59 exit $1.15 (+94.9%)

02/06/12 exit target hit at $11.00
02/04/12 new stop loss @ 9.75
02/02/12 new stop loss @ 9.65
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

chart:

Entry on January 19 at $9.06
Earnings Date 02/27/12 (confirmed)
Average Daily Volume = 7.1 million
Listed on January 18, 2011