Option Investor
Newsletter

Daily Newsletter, Monday, 3/5/2012

Table of Contents

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

Market Wrap

Will the Sun Come Out Tomorrow?

by Linda Piazza

Click here to email Linda Piazza
Market Internals

Introduction

Sunday night, U.S. futures weakened under the dual influences of rising default fears related to Spain and declining prospects for European and Chinese growth. China lowered its growth target for the year to 7.5 percent, a target that Zhou Xin and Kevin Yao, Reuters reporters, termed an eight-year low. The Chinese premier set a goal of increasing domestic demand and lowering the dependence on foreign demand and capital. In Europe, the Final Services PMI and Sentix Investor Confidence numbers both disappointed. The PMI measured 48.8, down from the prior 49.4 and well below the expected 49.5. As with the U.S., anything below 50 signals contraction. In overnight trading, the euro weakened, the euro/dollar pair declined, and Italian and Spanish two-year bond yields rose as did the cost of default insurance.

As the premarket session advanced toward the U.S. open, U.S. futures recovered off their lows. Sellers were waiting, however, when the opening bell rang. Stocks such as AA and CAT were hit by the China news.

Monday's Developments

Selling was modest in the first few minutes after the open, while traders waited for the usual 10:00 economic release time slot. The U.S. ISM Non-Manufacturing PMI surprised to the upside. This ISM is, like the manufacturing number, a diffusion index obtained by surveying purchasing managers, and is considered a leading indicator of economic health. It was expected to contract slightly to 56.1 from the prior 56.8, but instead it rose to 57.3. Equity markets did not respond as if this number and the Factory Orders numbers were the upside surprises that they were. Inside the report, the New Orders Index jumped to 61.2 percent, but the Employment Index softened to 55.7 percent, perhaps contributing to the downdraft that hit the markets as these numbers were released. The Prices Index also increased by 4.9 percentage points.

Factory Orders also surprised to the upside, although in the "not as bad expected" vein. These orders provide insight into the economy's health. The numbers measure the change in the total value of new purchase orders placed with managers, according to Forex Factory. Forex Factory considers this number a revision of the Durable Goods numbers that come out a week prior to this release. Market watchers predicted that these orders would decline 1.3 percent after rising 1.1 percent in the prior month, but the decline proved to be only 1.0 percent.

Headlines did not endorse this "not as bad as expected" slant, instead trumpeting the first decrease in orders to U.S. factories in three months. Some economists speculated that the rise in oil prices had begun to be felt. Bloomberg author Timothy R. Homan also pointed to the 2011 expiration of a tax credit for business investment that had permitted full depreciation on purchases of equipment. Good news within the report included the most monthly sales for cars and light trucks since February, 2008.

Despite the immediate market reaction, at least one well-known prognosticator thought there was good news to be found. Shortly after those numbers were released, Lazlo Birinyi began hitting the pavement with his prediction for the year. His current bet is that 2012 GDP will measure 2-2.5 percent. However, he said that when he looks at the performance of the markets and specific companies such as GM, MSFT and others, he wonders if the markets will repeat 1995's performance, when the market's climb surprised everyone. He believes in a 3-3.5 percent 2012 GDP growth possibility. He suggested $1,700 as a possible year-end SPX target.

Story stocks today included BP, AIG, YHOO and AAPL. Jim Brown detailed BP's settlement news in this weekend's newsletter. Today was the first day in which traders had an opportunity to react. Since early February, BP (47.96, +.46) has been climbing in an ever narrowing wedge shape, mostly closing each day above the daily 9-ema even if it pierced it during the day. Today, BP gapped higher and ran up within that rising wedge shape in which it's been trading since early February. It did not break through the top, now at about $48.50, but it came close. The lower boundary of that wedge is concurrent with the 9-ema, now at about $47.50. Despite the settlement, nothing got settled on that chart today.

AIG (30.39, +.59) took another step toward repaying its bailout money by selling $6 billion value in Asia subsidiary AIA's common shares. In other news, some news venues unveiled an AllThingsD report that YHOO (14.62, -.10) could be preparing for a "massive restructuring." Another tech darling, AAPL (533.16, -12.02), saw a sudden, sharp decline driven by block orders ahead of AAPL's Wednesday event. As Jim reported in this weekend's Wrap, everyone knows AAPL's pattern ahead of these announcements. AAPL recovered much of the initial drop but then drifted slowly back down through the afternoon.

Fidelity was also in the news, registering a protest against the SEC's proposed changes to money market funds. Some of those changes include floating net asset value or NAV to avoid the break-the-buck hysteria, and the imposition of capital buffers and redemption restrictions. Fidelity says that the planned changes would "ruin" the industry. It would raise the cost of capital for countless corporate and municipal issuers, the company claimed. Its risks outweigh the benefits when investors already understand the risks, the company complained.

The results of the Russian election have led to protests in the streets, but the Russian stock market applauded the development. Some inside Russia hope that Putin can make good on his wishes to make the stock market there into something that will "rival" others, a newscaster said. Some trust issues have to be resolved before that happens.

Charts

So far, the SPX maintains closes above its 9-ema, and therefore its potential upside targets.

The SPX's potential upside target of about 1430-1435 will be maintained as long as it maintains consistent daily closes above the 9-ema. That potential upside target should not be considered a given, but a level against which you should be able to protect your trades, if reached. However, it's been a long time since the SPX has pulled back to the bottom of its smallest Keltner channel, and it's long overdue to do so. If it should pull back to about 1350-1351, one potential downside target, and not soon recover the 1364 level, then it's lessening the likelihood of that potential upside target being reached before a deeper pullback is accomplished. Key potential targets and levels of resistance or support are marked by colored ovals on the chart, in green for upside targets and red for downside ones.

Annotated Daily Chart of the SPX:

For now, the SPX is mostly holding onto that support of the 9-ema, although it slipped slightly below it today. It's still possible to see it bounce from this tomorrow and continue its pattern from previous months, but a warning knell has been sounded. The SPX, Dow, and NDX have been outperforming the RUT on the Keltner charts lately, with the RUT first flattening along its flattening 9-ema and then falling beneath it to test lower support. When we interpret the other indices' charts, it might be best to keep the RUT's example in mind. Therefore, when we see the SPX beginning to slip beneath its 9-ema, we have to at least consider the possibility that the SPX could also dip to lower downside targets and potential support levels. I want to remind readers that I don't predict where prices are going to go but rather think in terms of "Can I protect my trade if prices should go to the next target area?" Given the pattern the RUT has set for us, we have to consider the possibility that the SPX might dip to 1349-1352 or even the next lower potential target, 1326-1328, with an even lower potential target marked near 1290.

I use the transports ($DJT on many charting systems) as a signal/confirmation/divergence index for the DOW, and, to some degree, the SPX and OEX. I don't like to bet on those three indices going too far in any one direction while the transports are going the opposite direction. The transports have been dropping since early February. It's a good thing that I don't use the industrials/transports divergence as a market-timing tool because those three indices stayed relatively strong while the transports were dropping. However, I'm not surprised to see that the Dow has been flattening along its also-flattening 9-ema, rather than bounding strongly from it over the last couple of weeks.

Annotated Daily Chart of the Dow:

The Industrial's setup proves similar to the SPX's. The index closed at its daily 9-ema, calling into question whether it maintains that support or is slipping beneath it. Unlike the SPX, however, the industrials have clearly slipped beneath other potential resistance in the 13,044-13,095 region, so that might again provide resistance if the Dow does muster another bounce attempt. If it can't push through that resistance on daily closes, we must consider the potential downside targets and support areas as possible next moves, to about 12,829-12,830, 12,695-12,705, or even 12,360-12,367. I tend to think in terms of support or resistance zones rather than one specific number.

The NDX has continued bounding higher from each test of its 9-ema, preserving its potential upside target, but today it closed right on that 9-ema, calling that support into question. Is it time for a test of the next lower target or will it reach instead for its next upside target?

Annotated Daily Chart of the NDX:

For the moment, NDX traders must consider whether they can defend their trades if the NDX were to zoom up toward 2,693-2,700. However, they must also consider whether they can defend their positions if the NDX were to drop to 2,577-2,579, 2,500-2,505 or even 2,395-2,424.

Since last week, the RUT did drop through to meet downside targets. It established a pattern of closes beneath the 9-ema. Now that 9-ema must be consider potential resistance on daily closes on any bounce. If the RUT can overcome that resistance, and we all know the RUT is quite capable of overrunning either support or resistance, then resistance at 830-835 awaits. The RUT setup no longer suggests a potential upside target of 886-888 is likely to be tested before the next downside target is tested.

Annotated Daily Chart of the RUT:

Tomorrow may be key for the RUT and for other indices because of what the RUT has to say about fund managers' risk tolerances. The RUT dropped straight to the first downside target pinpointed by the Keltner channels and did find support on the daily close at that downside target. A gap and run below today's low that isn't quickly reversed sets up a deeper downside potential target and support area, near 764-766. Will that happen? Unfortunately, these charts do not give a probability rating, but it seems about equally likely that the RUT would attempt a bounce up to retest the now-declining 9-ema, now at about 814. RSI suggests that a lot of its overbought status has been burned off, but that doesn't give us a good prediction of what will happen next.

In the past, the RUT has been sensitive to rising interest rates because the smaller caps are more seriously impacted by higher financing costs, but neither the TNX nor the TYX moved much today. The dollar did not give a strong indication of next direction, either, but rather consolidated Friday's huge gain with a small-bodied candle. Last week, resistance had appeared to be strengthening above the dollar futures' then-current level. I had mentioned that there would need to be an upside jolt, and speculated whether that could come from Europe, to break the dollar futures above that resistance. Europe--or Spain, specifically--did deliver the jolt on Friday.

Annotated Daily Chart of the Dollar:

Small-bodied candles with upper and lower wicks or candle shadows are indicative of indecision. Indecision would be the normal expectation after a large-range candle such as Friday's, and when we look past the technical to the fundamental, we can find lots of reasons for indecision ahead of Tuesday's Eurozone developments.

Tomorrow's Economic and Earnings Releases

Tomorrow's U.S. economic calendar includes few U.S. releases. The little noted ICSC-Goldman Store Sales at 7:45 am ET and the Redbook weekly measure of sales at chain stores, discounters and department stores at 8:55 AM ET sit alone on the schedule. Four- and 52-week bill auctions at 11:30 am ET and a Treasury STRIPS report at 3:00 pm round up the day's bond-market activities.

Jim Brown's Wrap this weekend pointed to an event that might have far more implications for the financial markets across the globe. Jim noted that the results for the Greek PSI vote will be known. Jim's conclusion was that if 66 percent accept the haircut they're being asked to accept, Greece will be able to enact the "Collective Action Clause" (CAC) and force others to agree to the same deal. According to a CNBC commentator, that amount also has to be under 90 percent in order to trigger the CAC. Triggering the CAC could, in turn, result in ISDA actions that could trigger the $3.25 billion of credit default swaps, Jim noted, but he also warned that Greece had enacted legislation last week that might avoid triggering those swaps. If that result should occur, creditors might question the insurance value of credit default swaps. What happens to European countries seeking investors to buy their debt if that happens?

What about Tomorrow?

The morning's action dropped the SPX to the potentially strong support of a Keltner channel boundary on the 30-minute chart. The SPX struggled to hold onto 30-minute closes above that boundary, often piercing it during the 30-minute periods, but then finally gained traction and rose to rest next resistance, in the 1,365-1,368 zone. It's unclear as yet whether it will maintain the support of the 30-minute 9-ema, now at about 1,364 or if that resistance will prove more important. If the SPX breaks through the resistance and maintains 30-minute closes above it, the next target level and potential resistance zone on the Keltner charts is about 1,374-1,376. If it falls through the support of the 9-ema again, the next downside target and potential support zone is 1,358-1,360. If that support fails on consistent 30-minute closes, a much lower target near 1,348 might be set up.

Annotated 30-Minute Chart of the SPX:

The early story was the same for the Dow, with the Dow dropping to the same Keltner channel boundary on the 30-minute chart. However, the smaller and more easily manipulated Dow broke through the same resistance setup that held the SPX back.

Annotated 30-Minute Chart of the Dow:

The Dow struggled to maintain that breakout above resistance, however. I don't think we can truly say that it maintained 30-minute closes above it, so the jury is out as to whether it's more likely to zoom up toward 13,030-13,040 or drop toward 12,925-12,930 or lower.

Like the other indices, the NDX dropped to the same Keltner channel boundary, where it struggled to maintain 30-minute closes above the channel line. However, it proved weaker by Keltner measures than either the SPX or the Dow, as it fell back below its 9-ema again after testing the first level of resistance.

Annotated 30-Minute Chart of the NDX:

All the other indices we've looked at have dropped to the same Keltner channel level. In each case, I've pointed out the downside targets made possible if the support at those channel lines doesn't hold if they're tested again. The RUT provides the verification. The RUT tends to overrun boundaries, so its behavior with respect to Keltner channel lines isn't as clean. It is possible to see that its breakdown with consistent 30-minute closes beneath that channel came on Friday, however, and today saw the RUT hit and violate the 803-805 target that would have been set that day. It hit it rather quickly, as is sometimes seen when Keltner lines are so widely spaced.

Annotated 30-Minute Chart of the Russell 2000:

What's the verdict? The SPX, DJI and NDX are on the cusp of following the RUT through to test their next lower target on their daily charts. The afternoon charge higher into levels that are important on 30-minute charts did not provide a clean upside breakout on any of these 30-minute charts. Resistance held. Neither have any but the RUT and the not-depicted transports shown a clean breakdown on the daily charts. They're on the cusp, but it's still possible for them to hold it all together. Personally, I think it's time for a pullback to the first Keltner support levels at least, to shake out weak hands, but the markets haven't asked me.


New Plays

Natural Gas Services

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 and watch list candidates:

(bullish candidates) SLXP, DXPE, SUI, PLD, CHKR, EXBD


NEW BULLISH Plays

Targa Resources - TRGP - close: 44.78 change: +0.58

Stop Loss: 43.75
Target(s): 48.00
Current Gain/Loss: unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
TRGP is in the natural gas utility industry. Shares have been marching higher for weeks. The recent correction has stalled as traders buy the dip near $44.00 and its 20-dma. Today's display of relative strength looks like a potential entry point.

I am suggesting small bullish positions if TRGP can trade at $45.05 and we'll use a stop loss at 43.75. Our target is $48.00.

Trigger @ $45.05 (small positions)

Suggested Position: buy TRGP stock @ 45.05

Annotated chart:

Entry on March xx at $ xx.xx
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume = 215 thousand
Listed on March 05, 2011



In Play Updates and Reviews

Short Plays Off to Strong Start

by James Brown

Click here to email James Brown

Editor's Note:
Our new bearish trades (ACI and AKS) are off to a strong start this week. Meanwhile AIG was triggered and EXXI was stopped out.

Current Portfolio:


BULLISH Play Updates

Archer-Daniels-Midland Co - ADM - close: 31.65 change: +0.01

Stop Loss: 29.75
Target(s): 34.00
Current Gain/Loss: + 1.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/05 update: ADM tried to rally but failed at short-term resistance near $31.80 again. I am not suggesting new positions at this time.

current Position: Long ADM stock @ $31.21

- or -

Long Mar $32 call (ADM1217C32) Entry $0.47

Entry on February 15 at $31.21
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 5.6 million
Listed on February 14, 2011


American Intl. Group - AIG - close: 30.39 change: +0.59

Stop Loss: 28.40
Target(s): 34.50
Current Gain/Loss: - 0.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/05 update: Wall Street was applauding news that AIG sold its stake in AIA group for $6 billion as the company seeks to pay back its $182 billion bailout to the government. Shares of AIG spiked to $31.30 and settled with a +1.9% gain. Our trigger to poen bullish positions was hit at $30.50.

Earlier Comments:
More conservative traders might want to wait for AIG to actually close over the $30.00 level before considering new positions. Our multi-week target is $34.50. FYI: The Point & Figure chart for AIG is bullish with a long-term $42.50 target.

- small positions -

current Position: Long AIG stock @ $30.50

- or -

Long Apr $30 call (AIG1221D30) Entry $1.88

03/05/12 triggered at $30.50
03/03/12 adjust entry strategy to use a trigger at $30.50, stop loss @ 28.40
03/02/12 trade did not open.

Entry on March 05 at $30.50
Earnings Date 05/07/12 (unconfirmed)
Average Daily Volume = 6.1 million
Listed on March 01, 2011


Discover Financial Services - DFS - close: 30.49 change: -0.04

Stop Loss: 29.75
Target(s): 31.50
Current Gain/Loss: + 8.4%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/05 update: Traders started buying the dip this afternoon and DFS pared its losses to just -0.1%. I am raising our stop loss up to $29.75. I am not suggesting new positions at this time.

Current Position: Long DFS stock @ $28.15

- or -

(closed)
MAR $28 call (DFS1217C28) Entry $1.10 exit $2.65 (+140.9%)

03/05/12 new stop loss @ 29.75
03/02/12 morning exit for the calls @ $2.65 (+140.9%)
03/01/12 prepare to exit our March $28 calls at the open tomorrow. current bid is at $2.65
02/28/12 new stop loss @ 29.40
02/25/12 new stop loss @ 28.45
02/16/12 new stop loss @ 27.95
02/15/12 new stop loss @ 27.75
02/10/12 triggered at $28.15
02/08/12 new trigger @ 28.15, stop loss 27.25
02/07/12 still not open. Adjust strategy to buy a dip at $28.30, stop loss at $27.40
02/06/12 not open yet. try again.

Entry on February 10 at $28.15
Earnings Date 03/22/12 (unconfirmed)
Average Daily Volume = 6.2 million
Listed on February 04, 2011


Graco Inc. - GGG - close: 50.50 change: -0.65

Stop Loss: 49.75
Target(s): 54.50
Current Option Gain/Loss: + 0.5%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
03/05 update: Hmm... on a short-term basis today's close under the 10-dma is bearish. GGG should still have some price support near $50.00 but if the market rally starts to breakdown then GGG will likely hit our stop loss at $49.75. I am not suggesting new positions.

Earlier Comments:
The plan was to keep our position size small to limit our risk. Our target is $54.50. FYI: The Point & Figure chart for GGG is bullish with a long-term $77 target.

(small positions)

current position: Long GGG stock @ $50.25

03/03/12 new stop loss @ 49.75
02/27/12 triggered at $50.25
02/25/12 trade did not open. Adjust entry to buy a dip at $50.25
02/23/12 trade did not open, try again.
02/22/12 trade did not open, try again.

Entry on February 27 at $50.25
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 414 thousand
Listed on February 21, 2012


The Hain Celestial Group - HAIN - close: 41.11 change: +0.11

Stop Loss: 39.75
Target(s): 44.75
Current Gain/Loss: + 0.6%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/05 update: HAIN produced a minor bounce but it's +0.2% gain outperformed the market. I am not suggesting new positions at this time. We will raise our stop loss to $39.75.

(small positions)

current Position: Long HAIN stock @ $40.85

03/05/12 new stop loss @ 39.75
03/03/12 new stop loss @ 39.45
02/29/12 triggered at $40.85
02/27/12 trade did not open. Adjusting entry strategy to buy HAIN at $40.85 with a stop loss at $38.95
02/25/12 trade did not open. Try again

Entry on February 29 at $40.85
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 430 thousand
Listed on February 23, 2011


Jos. A. Bank Clothiers - JOSB - close: 51.71 change: +0.30

Stop Loss: 49.75
Target(s): 54.00
Current Gain/Loss: + 1.8%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/05 update: Traders bought the dip this morning and JOSB ended the session up +0.5%. I am not suggesting new positions at this time.

Earlier Comments:
Further gains could spark a short squeeze. The most recent data listed short interest at 19.8% of the 27.5 million-share float.

current Position: long JOSB stock @ $50.75

- or -

Long Mar $50 call (JOSB1217C50) Entry $1.90

02/18/12 adjusted exit target to $54.00.
02/14/12 new stop loss @ 49.75

Entry on February 13 at $50.75
Earnings Date 03/29/12 (unconfirmed)
Average Daily Volume = 301 thousand
Listed on February 11, 2011


NYSE Euronext - NYX - close: 29.45 change: -0.27

Stop Loss: 28.95
Target(s): 34.75
Current Gain/Loss: - 2.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/05 update: NYX is still drifting lower. Shares tagged their 20-dma this afternoon. I am not suggesting new positions at this time.

Earlier Comments:
We want to keep our position size small. Our multi-week target is $34.75. FYI: The Point & Figure chart for NYX is bullish with a $41.00 target.

(small positions)

current Position: Long NYX stock @ $30.05

- or -

Long Mar $30 call (NYX1217C30) Entry $0.55

02/29/12 triggered at $30.05
02/28/12 adjusted trigger to $30.05 and stop to $28.95
02/25/12 adjust entry point strategy to buy a dip at $30.25 and adjust stop loss to $28.75
02/23/12 not open yet, try again.

Entry on February 29 at $30.05
Earnings Date 04/30/12 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on February 22, 2011


Charles Schwab - SCHW - close: 13.83 change: +0.01

Stop Loss: 12.90
Target(s): 14.75
Current Gain/Loss: + 4.3%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/05 update: SCHW rebounded off its morning lows near $13.63 and managed to close in positive territory, albeit by a very narrow margin. There is no change from my prior comments. More conservative traders may want to take profits now.

I am not suggesting new positions at this time.

Earlier Comments:
Our multi-week target is $14.75. FYI: The Point & Figure chart for SCHW is bullish with a $19.00 target.

current Position: Long SCHW stock @ $13.25

- or -

Long Apr $13 call (SCHW1221D13) entry $0.59

03/03/12 new stop loss @ 12.90

Entry on February 27 at $13.25
Earnings Date 04/16/12 (unconfirmed)
Average Daily Volume = 15.9 million
Listed on February 25, 2011


United States Oil Fund (ETF) - USO - close: 40.97 change: +0.20

Stop Loss: 39.90
Target(s): 43.50
Current Gain/Loss: + 1.7%
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
03/05 update: Most commodities traded lower on concerns about a slowdown in China. Yet oil managed to eke out a gain as tensions continue to rise between the West and Iran. There is no change from my prior comments:

The USO gapped open lower at $41.28 and fell to a -2.3% decline. The $40.00 level should still be support I would consider new bullish positions on dips (or bounces) in the $40.25-40.00 zone. More aggressive traders may want to widen their stop loss a bit. Ours might be too tight at $39.90.

Our target to exit is still $43.50 but longer-term traders could aim for the $45.00 area.

Earlier Comments:
We do not want to use the USO for long-term positions. This ETF is constantly rolling over its futures positions over time, which can have a negative impact on the share price. FYI: The Point & Figure chart for USO is bullish with a long-term $58.00 target.

(small positions!)

current Position: Long the ETF @ $40.25

- or -

Long April $40 call (USO1221D40) Entry $2.10

03/01/12 new stop loss @ 39.90
02/29/12 new stop loss @ 39.75
02/25/12 new stop loss @ 39.40

Entry on February 21 at $40.25
Earnings Date --/--/--
Average Daily Volume = 8.8 million
Listed on February 18, 2011


Zumiez Inc. - ZUMZ - close: 31.34 change: -0.19

Stop Loss: 29.90
Target(s): 33.00 or 34.50
Current Gain/Loss: + 9.0%
Time Frame: exit ahead of the March 8th earnings
New Positions: see below

Comments:
03/05 update: ZUMZ spiked lower this morning but shares managed to pare their losses. We don't have much time left. Earnings are coming up on March 8th and we do not want to hold over the report.

I am not suggesting new positions at this time.

current Position: Long ZUMZ stock @ 28.75

- or -

Long Mar $30 call (ZUMZ1217C30) Entry $2.35

03/03/12 new stop loss @ 29.90
03/01/12 conservative target hit at $33.00 (+14.7%)
bid on the March $30 call @ $3.30 (+40.4%)
02/29/12 ZUMZ announced better than expected same-store sales growth of +14.2%. We will adjust our conservative exit target to $33.00. Aggressive target is still $34.50. New stop loss @ 29.75
02/28/12 ZUMZ hit our entry point for new positions at $31.05
March $30 calls entered.
02/25/12 new stop loss @ 29.25
02/24/12 ZUMZ did not meet our new entry point conditions.
02/16/12 new stop loss @ 28.90
02/15/12 exited Feb. $30 calls. bid @ $0.55 (-45%)
02/14/12 prepare to exit Feb. $30 calls at the close tomorrow
02/11/12 new stop loss @ 28.45
02/08/12 new stop loss @ 27.90
02/01/12 Trade opened with ZUMZ gapping higher at $28.75

Entry on February 01 at $28.75
Earnings Date 03/08/12 (confirmed)
Average Daily Volume = 627 thousand
Listed on January 31, 2011


BEARISH Play Updates

Arch Coal Inc. - ACI - close: 12.20 change: -0.69

Stop Loss: 13.75
Target(s): 10.10
Current Gain/Loss: + 5.2%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/05 update: ACI continues to underperform and our new trade is off to a strong start. Shares opened at $12.87 and then plunged to a -5.3% decline. I am lowering our stop loss to $13.75.

Earlier Comments:
Being short ACI is a popular trade with short interest already at 16.5% of the 210-million share float. That does raise the risk of a short squeeze should the stock (or industry) suddenly find strength.

Our multi-week target is $10.10. The $10.00 level could be psychological support.

(Small positions)

current Position: short ACI stock @ $12.87

- or -

Long Apr $12 PUT (ACI1221P12) Entry $0.49

03/05/12 new stop loss @ 13.75

Entry on March 05 at $12.87
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 9.4 million
Listed on March 03, 2011


AK Steel - AKS - close: 7.29 change: -0.47

Stop Loss: 8.15
Target(s): 7.05
Current Gain/Loss: + 6.0%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/05 update: Our new AKS trade is also off to a strong start. Shares opened at $7.76 and then plunged to a -6.0% decline. I am not suggesting new positions at this time. Our initial target to take profits is at $7.05. More aggressive traders may want to aim lower.

Earlier Comments:
Being short AKS is a popular trade with short interest at 23% of the 108 million-share float. That does raise the risk of a short squeeze if the stock suddenly sees any strength. Thus readers may want to limit their risk by trading the options instead.

(Small positions)

current Position: short AKS @ $7.76

- or -

Long Apr $8.00 PUT (AKS1221P8) Entry $0.65

Entry on March 05 at $ 7.76
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 7.6 million
Listed on March 03, 2011


CLOSED BULLISH PLAYS

Energy XXI Ltd. - EXXI - close: 36.10 change: -1.37

Stop Loss: 36.45
Target(s): 42.50
Current Gain/Loss: - 5.1%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/05 update: The correction in EXXI accelerated and shares lost -3.6%. Our stop loss was hit at $36.45 (-5.1%).

Earlier Comments:
The plan was to keep our position size small to limit our risk.

(small positions)

closed Position: Long EXXI stock @ $38.43 exit $36.45 (-5.1%)

- or -

Mar $40 call (EXXI1217C40) Entry $1.00 exit $0.10 (-90%)

03/05/12 stopped out at $36.45
03/03/12 trading in EXXI has turned a bit bearish. Readers should be cautious here.

chart:

Entry on February 17 at $38.43
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 1.2 million
Listed on February 16, 2011