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Newsletter

Daily Newsletter, Saturday, 4/28/2012

Table of Contents

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

Market Wrap

Earnings Power

by Jim Brown

Click here to email Jim Brown

Better than expected earnings overcame weak economics and Spanish downgrades to power the markets to a three week high.

Market Statistics

The market climbed a wall of worry last week with strong help from several high profile earnings reports. Apple, Ebay and Amazon were instrumental in pushing the Nasdaq over resistance at 3060. The much better than expected Q1 earnings overcame weak economics, a passive Fed and downgrades to Spain to close the week with a strong three day gain on the Nasdaq.

On Friday we got the first look at the Q1 GDP and it was lower than analysts expected. The initial Q1 reading showed growth declining to +2.2% from the 2.95% growth in Q4. Analysts had recently upgraded their estimates to 2.3% to 2.5% growth. Apparently they overshot on the revisions.

The slowing growth came mainly from declining investments in inventory and lower fixed investments. Offsetting the declining investments was a smaller than expected decline in government spending. Final sales jumped to 1.6% in Q1 from 1.1% in Q4.

The PCE price index showed a sharp spike in inflation to 2.4% and double the rate in Q4. The core rate, excluding food and energy, declined sharply to 0.4% from 1.7%. High fuel prices in Q1 were clearly moving into the distribution channel.

The savings rate fell to 3.9% from 4.5%. That is the result of higher spending levels and it is the lowest rate since 2007.

In theory the warmer weather in Q1 should have increased economic activity. That is what the analysts claims was the reason for the stronger payroll gains in January and February. That is also a factor in why analysts had upgraded their forecasts. The missed forecasts will require analysts to rethink the Q1/Q2 economic cycle and we could see downward revisions in GDP targets for the next two quarters. Currently the estimates for Q2 are +2.3%, Q3 +2.7% and Q4 +2.9%.

Helping to support estimates is an auto sector selling cars at the annual rate of 15.4 million units, a rebounding housing sector and strong consumer sales. Higher gasoline prices could weigh on all of those growth centers.

GDP Chart

The final revision of the Michigan Consumer Sentiment Survey rose slightly to 76.4 and notching a slight +0.2 gain for the month. The preliminary reading of 75.7 was a -0.5 decline. The final revision brought the index back to a gain and stretched the streak of positive gains to eight months. The inflation expectations component declined to 3.2% from 3.9% thanks to the decline in gasoline prices.

The headline gain was supported by a rise in the expectations component to 72.3 from 69.8 while the present conditions component declined to 82.9 from 86.0.

The sudden uptick in jobless claims could be weighing on that present conditions component.

Consumer Sentiment Chart

The weekly jobless claims came in at 388,000 and the prior week's 386,000 reading was revised higher to 389,000. That makes three weeks of claims at a pace of 388,000 and a significant uptick from 360s we saw earlier in the year. I keep expecting one of these reports to hit 400,000 again and that four handle would be seriously market negative.

There is no way to blame the weather on the jobless claims. These numbers are the result of companies laying off employees and there is no other explanation. However, if you look at the chart below for the same period in 2011 there was also a sharp rise in claims in April. Maybe this is a seasonal trend and not a change in the underlying economy. Maybe that is also grasping at straws. Time will tell.

Jobless Claims

We will know if the increased jobless claims had any real impact on overall employment when the payroll numbers are released next week. The cycle starts on Wednesday with the ADP Employment report, Challenger Employment on Thursday and Nonfarm Payrolls on Friday. The current estimate for the nonfarm report is a gain of +165,000 jobs. That would be an increase from the +120,000 in March but a continued decline from +246,000 average pace for the three months ending in February.

Nonfarm Payrolls Chart

Also making waves next week will be the four ISM reports. The national manufacturing ISM will be on Tuesday and it is expected to decline as is the ISM Services on Thursday. Anything other than very minor declines in these reports would be market negative.

Economic Calendar

Coming the following Sunday is the runoff in the French elections. Socialist Hollande is now expected to beat the conservative incumbent Nicolas Sarkozy and dramatically change the balance of power in the EU. Hollande is calling for the hiring of an additional 210,000 government workers, keep the retirement age at 60 and continue all the current welfare and entitlement programs. He plans to tax the rich with incomes over one million euros at 75% and those over 150,000 euros in income at 45% to force the rich to pay their "fair" share. Also he wants to limit executive pay to 20 times the average manufacturing wage or about $500,000. That would drive businesses out of France and force higher unemployment. There is an interesting article on Forbes about the comparison between Hollande and Obama. Read it here

With Spain and Italy heading back into the headlines and probably headed into bailout territory in the months ahead the change in the French leadership will make those twin problems even more difficult to deal with. They will come back to haunt the market. You can count on it.

S&P cut Spain's credit rating two notches last week and the country faces an even bigger problem in the months ahead on fears of further downgrades. Unemployment is 24% and retail sales declined for the 21st consecutive month as the recession forces consumers to cut back on spending. The country has already fallen back into recession and can't meet the deficit targets agreed to with the EU. The government has already bailed out many of the banks but the deepening recession is pushing even more to the edge of collapse. S&P cited the increasing risk of loan defaults at Spanish banks and called on the EU to take action. The Spanish economic minister said job growth and economic recovery is still two years off. The country is expecting GDP of only +0.2% in 2013 and +1.4% in 2014. More than 365,000 people lost their jobs in Q1 and that number is accelerating. Youth unemployment, age 25 and below, is over 50%. The credit downgrade will make it even harder for Spain to sell debt. This situation can only get worse and it will eventually lead to more bailouts.

Italy successfully sold debt at 5.84% right after the Spain downgrade but you can expect those yields to rise as the two debtors each sabotage the fate of the other as future economic news worsens. Italy still needs to sell an additional 257 billion euros of debt in 2012, possibly more if rates continue to climb higher, tax receipts continue to decline and more Italians end up on welfare and unemployment.

The markets ignored the news from France, Spain and Italy thanks to the better than expected earnings reports. Three weeks ago Q1 earnings expectations were teetering on the brink of going negative for the quarter. After three weeks of earnings and more than 177 S&P companies reported the overall earnings growth is +6.9%. As of the prior Friday a whopping 82% had beaten street estimates. That number has declined to 65% by Friday's close. Typically 62% beat estimates. The average earnings surprise is 12.1% but if you exclude Apple that falls to 7.5%. However, 42% of those companies already reported warned about lower earnings in future quarters. That is very high. However, 32% of companies raised guidance. Earnings estimates for Q2/Q3 are being lowered daily as a result of the repeated warnings. Only three sectors have seen estimates rise. Those are consumer discretionary, tech and financials. All other sectors are seeing estimates decline.

The main reason was the slowdown in Europe. More than half the companies in the S&P 500 generate a substantial portion of their earnings in Europe. Starbucks, Proctor & Gamble, Caterpillar and many more warned the slowdown in Europe was impacting sales. This is not likely to change in the near future. Europe is not plunging into a full blown recession but overall growth is very weak to nonexistent. Governments are dissolving, citizens are rioting in the streets and the ballot boxes in objection to austerity. Europe is facing a long period of weakness and that is bad for the U.S. and China.

That is why I am so shocked about the current earnings rally. With so many companies warning and the European outlook so weak you would think investors would be dumping stocks rather than loading up.

One of the reasons for the gains is the positively ugly earnings estimates going into this earnings cycle. Analysts had focused too intently on the global problems. Like me, they thought the European weakness would depress earnings. They did not count on the strong consumer spending in the U.S. in Q1. Analysts can claim it was the warm weather that allowed the U.S. to get a head start on spring but that still qualifies as grasping at straws.

For whatever reason the earnings estimates were grim. Shorts were loading up for the anticipated disaster that never appeared. It did appear for some stocks like Deckers (DECK) down -25% today, but for the companies that counted the news was good.

Everybody knows the Apple story from earlier in the week. They blew away estimates of $10.04 with earnings of $12.30. Sales in Asia were exploding to offset weakness in Europe. The earnings were so strong that when they lowered estimates for Q2 everybody gave them a pass. Shares rebounded from $560 to $618 at Wednesday's open then closed lower for the rest of the week to end at $603.

Apple Chart

Amazon (AMZN) closed at $196 on Thursday and sprinted higher to close at $227 on Friday for a 16% gain. Amazon posted a 35% drop in net income but a +34% jump in sales. Earnings came in at 28-cents per share compared to analyst estimates for 6-cents. Sales of media products rose by +19% to $4.7 billion. Electronics sales were up +43%. Cloud services grew by 61%. Clearly the Kindle sales plan is working. They sell the devices at a loss but make a huge profit on every downloaded book. Amazon does not release sales numbers on the Kindles but they did say their top ten products were mostly digital downloads. This pushed gross margins up by 120 basis points to 24% according to Macquarie analyst Ben Schachter. That is the biggest margin gain in ten years. The Kindle Fire is not just a tablet. It is a personal point of sale terminal for Amazon products. Every Kindle Fire owner has to buy additional items from Amazon. The company said its sales of online movies, games and music was exploding. Amazon guided for Q2 to a slightly lower revenue range than analysts were expecting and said it could lose money in the quarter as it continued building 11 new distribution centers. Amazon added 9,500 employees in the quarter.

It is too bad Amazon has a PE of 170 or there would be a lot more people buying the stock as a growth story. However, I would be seriously tempted to short AMZN at this level. This was a major short squeeze and once this squeeze ends it could see a decent decline as owners from the $180 level take profits. Amazon guided analysts to a loss of as much as $260 million in Q2. Their upper range was a profit of $40 million. Analysts were expecting a profit of $97 million. Why would Amazon predict such a wide range unless they were planning on using it? I suspect the $40 million profit high range was simply a tease to distract from the huge loss potential.

Amazon Chart

Expedia (EXPE) reported adjusted earnings of 26-cents that beat the street estimates of 15-cents. Revenue rose by 12% due to a +24% surge in hotel room bookings. That accounts for 18% of their revenue despite a decline in the average nightly rate. Booking at Hotels.com rose by 37%. Airline ticketing revenues fell -17% due to lower prices for tickets even though they sold more seats. Shares rallied +23% on the news.

Expedia Chart

Priceline (PCLN) shares rallied +$28 on the Expedia news.

Priceline Chart

Deckers (DECK) reported earnings of 20 cents that missed the street estimates of 25 cents. That was also a 60% haircut from the 49 cents it earned in the year ago quarter. Deckers said the warmer winter significantly reduced sales of UGG boots. Plus, the 40% rise in the price of sheepskin increased operating costs and impacted profits. The company also warned on full year 2012 earnings. Revenue did rise +20.2% to $246.3 million thanks to early demand for the spring collection. On the bright side Deckers has no debt and it had $228 million in cash. Shares of DECK declined -25% on the news.

Deckers Chart

Starbucks (SBUX) reported earnings that rose +19% and raised guidance but the stock was pounded for -5% loss. Weakness in Europe was their Achilles Heel. Analysts were expecting a 2.2% rise in same store sales in Europe but Starbucks reported a -1% decline in European sales. Globally sales rose +7% and thanks to Europe that was below the 8.2% analysts expected.

The CFO said Europe has taken a turn for the worse over the last couple of months. However, he said that was transitory and the company was taking steps there to rebuild the business similar to what Starbucks did to revive the U.S. during the financial crisis.

Starbucks said growth in China was exploding with same store sales up +18% and revenue up +32%. That is the seventh straight quarter of revenue growth over 20%. In the Americas sales rose only 8.1%. The CFO said they were not seeing the fall off in sales in China as reported by McDonalds and Yum Brands. They plan on accelerating store openings in Asia to 400 in 2012 with half in China.

The company also reported coffee prices reduced operating income by $63.5 million and cut 200 basis points off operating margin, which was flat at 13.5%. Starbucks raised coffee prices at some of its 17,200 stores to keep pace with rising costs. Starbucks hedges its coffee prices and they expected costs to decline in the second half of the year. The company raised revenue growth guidance to the "low teens" from an earlier target of 10%. They raised earnings guidance to $181-$1.84 from $1.78-$1.82. They expect to open 1,000 net new stores in 2012 and expand sales of packaged coffee. They are going to accelerate the delivery of the Verismo coffee machine in China. Currently Starbucks has a 19% share of the k-cup market and they expect to increase that share as well. Howard Schultz was also bragging about how well the Evolution Juice brand is going to do and expectations for it to quickly become a billion dollar brand. The first store was opened in Bellevue Washington in March.

I am a believer in the Starbucks brand. You can't always anticipate things like the collapse of Europe but you can manage it and I believe they will succeed. SBUX shares declined ahead of earnings from the $62 April high but still gave back another $3 to close at $57.45 on Friday. I believe this is a bump in the road and a buying opportunity. Long term support is in the lower $50s.

Starbucks Chart

The earnings calendar for next week is missing all the big tech names that can move the market. However, Pfizer, Mastercard, Visa, AIG, Time Warner and Kraft will get plenty of attention. GMCR is not a tech but as a Nasdaq stock it could be influential. It has fallen out of favor recently but still has a following.

The quality of earnings should begin to decline as the companies reporting decrease in size.

Earnings Calendar

The FOMC statement on Wednesday did not mention any new monetary stimulus program but Bernanke held out hope for the market when he said again the Fed remains ready to take additional steps if economic conditions worsen. It was only one sentence in a day filled with doublespeak and innuendo but the market clung to it like a life preserver in a stormy sea.

The dollar index closed at a two month low on Friday and even with the Bernanke comments that seems like a contradiction. The euro is in trouble again with governments dissolving, leaders being evicted, too big to fail countries failing, etc. However, the dollar is weakening against a basket of currencies and that is helping commodities.

Crude oil rallied to close just below resistance at $105 and gold closed at a two week high at $1664. Two days do not make a trend but I am not going to complain.

Dollar Index Chart

WTI Crude Oil Chart

The S&P 500 rallied to resistance at 1390 on Thursday then held there for three hours until breaking out at 1:PM. Immediate short covering began just like I warned in the Tuesday night newsletter. That level was a solid resistance target and the breakout was strong. However, the volume was not. At 6.4 billion shares it was mediocre. Friday's volume at 5.9 billion was worse but as we move closer to summer the volume on Friday's is going to decline significantly.

I think Friday's rally of +3 points on the S&P was purely Amazon and Expedia. The 1400 level was broken at 10:30 and it took the rest of the day to add +3 points.

The S&P chart shows a textbook rebound from 1360 and a strong three day rally. In reality it was an Apple spike on Wednesday that gapped to 1390 at the open and then closed at 1390. No further progress other than the opening gap was ever achieved. Thursday and Friday built on that short squeeze once it was clear it was not going to be instantly erased.

Resistance now is about 1420 followed by 1428 and the May 2011 highs. Personally I doubt the staying power in this rally. Apple declined steadily from its opening highs on Wednesday. Once the Amazon short squeeze ends I suspect it will also relinquish some gains. I just don't see any set of earnings reports next week that might keep the tech rally alive.

However, this market climbed an amazing wall of worry last week with numerous detours. If investors are betting on a Bernanke put they may be misled. Before Bernanke invokes QE3 the economics would have to get a lot worse and that would be market negative. If investors are betting on continued positive earnings surprises they could be mistaken there as well. Remember we went from an 82% beat rate to 65% in the space of a week. We could see that rate continue to decline as the quality of the reporting companies weakens.

Sell in May? There were several commentaries out last week suggesting that strategy does not work in election years. The idea was an incumbent party promising a chicken in every pot and a car in every driveway if reelected. The improving sentiment is supposed to be reflected in the market. I am not sure that is going to work this year.

We have to focus on the rally from the December lows and the possibility for traders to take those profits off the table. Unfortunately if you look at the chart the entire month of April was a bout of solid profit taking and consolidation so the Q1 rally pressures have already been equalized.

That means all things being equal there is just as good a chance of the market moving higher than lower. Are all things equal? Europe is making daily headlines, China is slumping and the combination is causing an abnormal amount of lowered earnings guidance. Iran could be attacked at any moment. Gasoline prices are moving back towards $4 and the U.S. economy is weakening. If the nonfarm payrolls next Friday are disappointing again it could be an ugly summer.

We have to look at the market for what it was last week. It was driven higher by massive gains in a very few stocks. That is not an ideal situation but major rallies can be started by unexpected short squeezes. We have to either play the cards we are dealt or fold the hand. You will never get rich betting against the trend.

The S&P is in breakout mode with 17 points to go before testing some major resistance. That 1420 level would be the key for me. A failure there would be a double top and a possible setup for a decline into the summer doldrums. Don't forget the high in 2011 occurred on May 2nd after a profit taking dip in both March and April.

S&P Chart

The Dow is still running on the strength of IBM and McDonalds. They made up for the -2.43 loss in Proctor & Gamble on Friday. The +23 point gain was lackluster and suggested the nearer the Dow moves to solid resistance at 13,300 the fewer stocks are going to participate.

The 13,300 level is a road sign with flashing lights. It is flashing "proceed at your own risk" the road ahead is not charted. If we are fortunate enough to punch through that level the bears would have to relent and there would be massive short covering that could trigger a new leg higher.

I don't want to bet against it but I would lighten up on profitable positions when that level is reached. It never hurts to take a partial profit just in case the bridge to 14,000 collapses with us on it.

Dow Chart - Daily

The Nasdaq powered through resistance at 3060 thanks to monster gains in AAPL, EBAY, AMZN, EXPE and PCLN. Which stock is going to provide the lift next week? Those short squeezes will likely fade and become a drag on the index. Tech stocks have been reporting good earnings thanks to a select few but once the generals are gone there may not be enough troops to provide a continued rally.

The most likely scenario would be a drop back into the consolidation range and another battle with support at 3000.

Nasdaq Chart

The Russell is actually slightly bullish thanks to the short covering. The Russell is closing in on strong resistance at 832 and a breakout there would be bullish. It will also be a strong possibility we could see a failure there and the beginning of a right shoulder in a H&S pattern. If the RUT can break past 832 I would expect the 847 high to fail as well. That is how critical the 832 level is this week.

Russell 2000 Chart

Payroll Week

While the ISM reports are key to the economic picture the market will be focused on the Nonfarm Payrolls on Friday. The rising jobless claims are suggesting there is trouble ahead but the regional manufacturing reports have all seen strong employment components. This payroll report could go either way. With consensus estimates at 169,000 and some outlier estimates at 75,000 to 250,000 there could be either a big beat or a big miss and either way will be a market mover.

The ADP report on Wednesday is like a peek inside the nonfarm report. That will be the last chance for analysts to clean up their estimates before Friday. One reporter was calling for 275,000 on the nonfarm payrolls right up until the actual announcement last month. That kind of error makes an analyst much more conservative going forward. If the 169,000 estimate today is a reflection of "conservative" views then a lower number is going to be a shock.

I believe the weekly jobless claims are an indicator. They have risen by an average of 20,000 claims per week but in the overall scheme of things that equates to 80,000 lost jobs out of a workforce of 154 million workers.

I have no forecast for the payroll numbers. I am neutral and will plan to be an observer rather than a bettor when they are announced.

Jim Brown

Send Jim an email

"To the man who only has a hammer, everything he encounters begins to look like a nail."
Abraham Maslow


New Plays

Oil Services & Specialty Retailer

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 ideas) LPI, RNDY, NEOG, GLW, OIH, NTRS, IR, MAR, WRB, WAG, PDCO, FIS, USB, CYH, XLF, SNV


NEW BULLISH Plays

SeaDrill Limited - SDRL - close: 38.43 change: +0.05

Stop Loss: 37.40
Target(s): 41.50
Current Gain/Loss: unopened
Time Frame: up to the late May earnings report
New Positions: Yes, see below

Company Description

Why We Like It:
The oil services sector appears to have bottomed over the last three weeks and the OSX oil service index is ready to breakout past resistance. SDRL has a similar pattern but it's showing a bit more relative strength. This past week saw shares breakout past its 50-dma.

I am suggesting a trigger to open bullish positions at $38.65. If triggered we will target a run to $41.50. We do not want to hold over the very late May earnings report (end of the month).

Trigger @ $38.65

Suggested Position: buy SDRL stock @ (trigger)

- or -

Buy the Jun $40 call (SDRL1216F40) current ask $0.60

Annotated chart:

Entry on April xx at $ xx.xx
Earnings Date 05/31/12 (unconfirmed)
Average Daily Volume = 2.0 million
Listed on April 28, 2011


Williams Sonoma Inc. - WSM - close: 39.50 change: +0.46

Stop Loss: 38.40
Target(s): 44.00
Current Gain/Loss: unopened
Time Frame: exit prior to the mid May earnings report
New Positions: Yes, see below

Company Description

Why We Like It:
Shares of this specialty retailer on rebounding back towards resistance at the $40.00 level. The stock has been building on a pattern of higher lows for weeks. I suspect WSM is poised to breakout past key resistance at $40.00 soon. If that happens shares could see some short covering.

I am suggesting a trigger to launch bullish positions at $40.15 with a stop loss at $38.40. We will target a run to $44.00 but we do not want to hold over the mid May earnings report.

Trigger @ $40.15

Suggested Position: buy WSM stock @ (trigger)

- or -

buy the May $40 call (WSM1219E40) current ask $1.20

Annotated chart:

Entry on April xx at $ xx.xx
Earnings Date 05/17/12 (unconfirmed)
Average Daily Volume = 2.1 million
Listed on April 28, 2011



In Play Updates and Reviews

Exit Prior to Earnings

by James Brown

Click here to email James Brown

Editor's Note:
We have several candidates that are due to report earnings soon. We do not want to hold over the announcement. Please see the individual update for details.

Our HD trade was triggered. CTRP was closed early. IMOS was stopped out. We want to exit HAIN and CGX on Monday.

Current Portfolio:


BULLISH Play Updates

Hain Celestial Group - HAIN - close: 47.76 change: +0.47

Stop Loss: 43.90
Target(s): 49.00
Current Gain/Loss: + 6.0%
Time Frame: exit prior to the May 3rd earnings report
New Positions: see below

Comments:
04/28 update: HAIN has delivered a strong three-day bounce that closed the week at new highs. The stock is now testing its trend line of higher highs. I am suggesting we go ahead and exit our positions at the opening bell on Monday morning. FYI: currently the bid on our May $45 call is at $3.10 (+67.5%).

current Position: long HAIN stock @ $45.05

- or -

Long May$45 call (HAIN1219E45) Entry $1.85

04/28/12 prepare to exit positions on Monday morning
04/21/12 new stop loss @ 43.90
04/03/12 triggered @ 45.05

chart:

Entry on April 03 at $45.05
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 279 thousand
Listed on April 02, 2011


The Home Depot - HD - close: 51.95 change: +0.08

Stop Loss: 50.75
Target(s): 54.75
Current Gain/Loss: - 0.5%
Time Frame: exit prior to the May 15th earnings report
New Positions: see below

Comments:
04/28 update: Hmm... HD posted a gain on Friday but the action actually looks bearish. The stock broke out to a new high and hit $52.39 intraday. That was enough to hit our trigger and open the trade at $52.25. Unfortunately the rally reversed and shares of HD closed back under resistance near $52.00.

I am cautious here. Readers may want to wait for a new high past $52.40 before considering new positions.

Our short-term target is $54.75 but we'll plan on exiting prior to the May 15th earnings report.

Suggested Position: Long HD stock @ $52.25

- or -

Long May $52.50 call (HD1219E52.5) Entry $0.85

04/27/12 triggered at $52.25

chart:

Entry on April 27 at $52.25
Earnings Date 05/15/12 (confirmed)
Average Daily Volume = 8.6 million
Listed on April 26, 2011


rue21, Inc. - RUE - close: 30.92 change: +0.75

Stop Loss: 29.10
Target(s): 33.50
Current Gain/Loss: + 2.2%
Time Frame: exit prior to the late May earnings report
New Positions: see below

Comments:
04/28 update: Good news! RUE is breaking out higher from its recent consolidation. The stock rallied toward its recent highs on Friday and outperformed the market with a +2.4% gain.

Our multi-week target is $33.50. We want to exit prior to the late May earnings report. FYI: The Point & Figure chart for RUE is bullish with a long-term $48.00 target.

(small positions)

Suggested Position: Long RUE stock @ $30.25

- or -

Long May $30 call (RUE1219E30) Entry $1.70

04/26/12 new stop loss @ 29.10
04/17/12 triggered at $30.25

chart:

Entry on April 17 at $30.25
Earnings Date 05/24/12 (unconfirmed)
Average Daily Volume = 304 thousand
Listed on April 164, 2011


ProShares UltraPro Short QQQ - SQQQ - close: 10.76 change: -0.18

Stop Loss: 10.60
Target(s): 11.25
Current Gain/Loss: - 7.2%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
04/28 update: I am honestly surprised that our SQQQ trade is still open. Shares came close to hitting our stop loss but the low on Friday was only $10.65. The action last week has painted a huge bearish reversal candlestick on the weekly chart (which is actually bullish for the NASDAQ-100).

Since our trade is still open we will leave it open and try to reduce losses by exiting on a bounce if we see one. More conservative traders will want to exit early now. There is still a good chance the SQQQ hits our stop at $10.60 on Monday. If not, if the market sees a pullback, then we can try and exit positions. I am suggesting we exit positions on a bounce back to $11.25. I am not suggesting new positions at this time.

Remember, this is the triple inverse ETF on the QQQ so expect volatility.

current Position: Long SQQQ @ $11.60

- or -

Long May $12.00 call (SQQQ1219E12) Entry $0.73

04/28/12 try to reduce losses by exiting on a bounce. Adjust exit target to $11.25
04/26/12 odds are we will see the SQQQ hit our stop early tomorrow
04/16/12 triggered at $11.60

chart:

Entry on April 16 at $11.60
Earnings Date --/--/--
Average Daily Volume = 2.3 million
Listed on April 10, 2011


Teva Pharma - TEVA - close: 45.63 change: +0.02

Stop Loss: 44.45
Target(s): 49.50
Current Gain/Loss: unopened
Time Frame: exit prior to the May 9th earnings report
New Positions: Yes, see below

Comments:
04/28 update: TEVA continues to consolidate sideways under resistance near $46.00. The trend of higher lows is suggesting the stock will breakout higher soon. I am suggesting a trigger at $46.25 to launch positions. We'll use a stop loss at $44.45 to start. Our target is $49.50 but we will probably exit early to avoid the mid-May earnings report.

Trigger @ $46.25

Suggested Position: buy TEVA stock @ (trigger)

- or -

buy the May $45 call (TEVA1219E45)

chart:

Entry on April xx at $ xx.xx
Earnings Date 05/09/12 (confirmed)
Average Daily Volume = 3.3 million
Listed on April 25, 2011


BEARISH Play Updates

Barrick Gold - ABX - close: 40.66 change: +0.72

Stop Loss: 41.55
Target(s): 37.50
Current Gain/Loss: + 0.9%
Time Frame: up to the May 2nd earnings report
New Positions: see below

Comments:
04/28 update: Shares of ABX finally managed to bounce past resistance near $40.00. Readers may want to exit early now. The close over its simple 10-dma is short-term bullish. Keep in mind that we only have two days left. ABX reports earnings on May 2nd. We will plan on exiting positions on May 1st at the closing bell. I am adjusting our stop loss down to $41.55. I am not suggesting new bearish positions at this time.

(small positions)

current Position: short ABX stock @ $41.02

- or -

Long May $40 PUT (ABX1219Q40) Entry $1.13

04/28/12 new stop loss @ 41.55
04/28/12 prepare to exit on May 1st at the closing bell
04/21/12 new stop loss @ 42.20

chart:

Entry on April 17 at $41.02
Earnings Date 05/02/12 (confirmed)
Average Daily Volume = 7.9 million
Listed on April 164, 2011


American Public Education - APEI - close: 34.84 change: -0.16

Stop Loss: 36.05
Target(s): 31.00
Current Gain/Loss: - 0.3%
Time Frame: up to its May 10th earnings report
New Positions: see below

Comments:
04/28 update: APEI continues to underperform the broader market. The bounce on Friday stalled at the 10-dma. This is the third day in a row that APEI has been rebuffed at the 10-dma. I am lowering our stop loss down to $36.05.

Earlier Comments:
The plan was to limit our risk with small positions. Our exit target is $31.00 but we do not want to hold over the May 10th earnings report. This is a higher-risk trade. Lots of investors think APEI is going lower and the most recent data listed short interest at 20% of the very small 16.8 million share float. That does raise the risk of a short squeeze. You may want to limit your exposure by trading options.

(small positions)

Suggested Position: short APEI stock @ $34.75

- or -

Long May $35 PUT (APEI1219Q35) Entry $2.10

04/28/12 new stop loss @ 36.05
04/23/12 new stop loss @ 36.60
04/19/12 triggered at $34.75

chart:

Entry on April 19 at $34.75
Earnings Date 05/10/12 (unconfirmed)
Average Daily Volume = 202 thousand
Listed on April 18, 2011


Consolidated Graphics - CGX - close: 38.85 change: -0.29

Stop Loss: 40.25
Target(s): 36.50
Current Gain/Loss: + 4.9%
Time Frame: up to its early May earnings report
New Positions: see below

Comments:
04/28 update: Our time is almost up. We can't find a confirmed earnings date for CGX but the date we do have says the company reports on May 1st. We don't want to take any chances so we will plan to exit positions on Monday at the closing bell. I am lowering our stop loss down to $40.25.

(small positions)

current Position: short CGX stock @ $40.85

04/28/12 prepare to exit positions on Monday at the close
new stop loss @ 40.25
04/26/12 new stop loss @ 41.55
04/23/12 new stop loss @ 42.25
04/20/12 triggered at $40.85

chart:

Entry on April 20 at $40.85
Earnings Date 05/01/12 (unconfirmed)
Average Daily Volume = 45 thousand
Listed on April 19, 2011


First Solar, Inc. - FSLR - close: 18.35 change: +0.04

Stop Loss: 20.75
Target(s): 15.25
Current Gain/Loss: + 4.4%
Time Frame: exit prior to earnings in early May
New Positions: see below

Comments:
04/28 update: We are almost out of time on our FSLR trade. It looks like FSLR is due to report earnings on May 3rd. We will plan to exit on May 2nd at the closing bell assuming shares don't hit our target or stop between now and then. Please note that I am lowering our stop loss to $20.75. I am not suggesting new positions at this time.

Earlier Comments:
Broken support at $20.00 should be new resistance. Please note that we want to keep our position size small to limit our risk because the most recent data listed short interest at 42% of the 59.8 million share float. That does raise the risk of a short squeeze. Readers might want to use put options to really limit risk.

(small positions)

current Position: short FSLR stock @ $19.19

- or -

Long May $18 PUT (FSLR1219Q18) Entry $1.36

04/28/12 we will plan to exit on May 2nd at the close if the trade is still open by then
04/28/12 new stop loss @ 20.75
04/26/12 new stop loss @ 21.55

chart:

Entry on April 24 at $19.19
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 7.1 million
Listed on April 23, 2011


Hi Tech Pharmacal - HITK - close: 34.21 change: +0.67

Stop Loss: 35.05
Target(s): $30.50
Current Gain/Loss: + 0.6%
Time Frame: 2 to 4 weeks
New Positions: see below

Comments:
04/28 update: Ouch! HITK just took a big chunk out of our unrealized gains with a +1.9% bounce on Friday. The stock remains under resistance near $$35.00 and both its simple and exponential 200-dma. Yet bulls could argue that HITK just produced a higher low last week. We have a stop at $35.05. I am not suggesting new positions at this time.

More conservative traders may want to lock in gains on a dip near $32.00. Currently we're aiming for $30.50.

current Position: short HITK stock @ $34.40

04/21/12 new stop loss @ 35.05, adjust exit target to $30.50
04/19/12 planned exit for our April put: $1.30 (-13.3%)
04/18/12 prepare to exit our April $35 puts at the close tomorrow
04/14/12 new stop loss @ 35.55
04/10/12 triggered at $34.40

chart:

Entry on April 10 at $34.40
Earnings Date 07/05/12 (unconfirmed)
Average Daily Volume = 155 thousand
Listed on April 09, 2011


ICICI Bank Ltd. - IBN - close: 33.26 change: +0.80

Stop Loss: 34.15
Target(s): 30.25
Current Gain/Loss: - 3.8%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
04/28 update: We were expecting a bounce back toward $33.00 but the close above $33.00, which should be resistance, is a surprise. The reason behind the rally was a better than expected earnings report from IBN. The company's net profits rose to 31.1% at 19.02 billion rupees. Analysts was only expecting 17.3 billion. You'll notice that the rally stalled just under resistance at its 100-dma and 200-ema.

I am lowering our stop loss down to $34.15. We'll wait for this bounce to fail before considering new positions.

Our target is $30.25. More aggressive traders could aim lower.

Suggested Position: short IBN stock @ 32.05

- or -

Long May $32 PUT (IBN1219Q32) Entry $1.32

04/28/12 new stop loss @ 34.15
04/23/12 triggered on gap down at $32.05, trigger was 32.75

chart:

Entry on April 23 at $32.05 (gap down)
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume = 1.9 million
Listed on April 14, 2011


Quality Systems - QSII - close: 37.58 change: -0.82

Stop Loss: 40.25
Target(s): 34.50
Current Gain/Loss: + 2.0%
Time Frame: exit prior to the late May earnings report
New Positions: see below

Comments:
04/28 update: QSII underperformed the market on Friday with a gap down and then a spike toward $37.00. Shares ended the session with a -2.1% decline. The relative weakness is encouraging if you're bearish but I am not suggesting new positions. More conservative traders may want to start inching their stop loss lower.

Earlier Comments:
I do see potential support at $36.00 and $34.00 and we are going to set our exit target at $34.50 but we plan to exit prior to the late May earnings report. Readers may want to use small positions. The most recent data listed short interest at 12% of the relatively small 39.4 million share float so that does raise the risk of a possible short squeeze.

current Position: short QSII stock @ $38.33

- or -

Long May $40 PUT (QSII1219Q40) Entry $1.90

chart:

Entry on April 26 at $38.33
Earnings Date 05/24/12 (unconfirmed)
Average Daily Volume = 476 thousand
Listed on April 25, 2011


Rovi Corp. - ROVI - close: 29.26 change: +0.19

Stop Loss: 30.25
Target(s): 26.25
Current Gain/Loss: + 0.0%
Time Frame: exit prior to the May 3rd earnings report
New Positions: see below

Comments:
04/28 update: We only have a few days left on our ROVI trade and readers may want to exit early. The stock has bounced back to unchanged on our trade. Technically last week's rebound has created a bullish engulfing candlestick reversal pattern on the weekly chart. The stock should still see resistance near $30.00 but we don't have a lot of time left.

We will plan on exiting positions on May 2nd at the closing bell if the trade is still open. We'll leave our stop at $30.25 for now. I am not suggesting new positions at this time.

Earlier Comments:
There is potential support near $28.00 and $26.00. We are setting our exit target at $26.25.

open positions on Monday morning

Suggested Position: short ROVI stock @ $29.27

- or -

Long MAY $30 PUT (ROVI1219Q30) Entry $2.45

04/28/12 plan to exit on May 2nd at the close if trade is still open
04/23/12 new stop loss @ 30.25

chart:

Entry on April 16 at $29.27
Earnings Date 05/03/12 (confirmed)
Average Daily Volume = 1.2 million
Listed on April 14, 2011


Red Robin Gourmet Burgers - RRGB - close: 34.88 change: -0.02

Stop Loss: 35.55
Target(s): 31.50 or 200-Ema
Current Gain/Loss: unopened
Time Frame: exit prior to the May 17th earnings report
New Positions: Yes, see below

Comments:
04/28 update: RRGB did not participate with the market's bounce on Friday. Shares still have a bearish trend of lower highs. I don't see any changes from my prior comments except that we will plan to exit prior to the May 17th earnings report.

Currently I am suggesting a trigger to open small bearish positions at $33.75. We'll use a stop loss at $35.55 to start. Our target is $31.50 or the exponential 200-dma, whichever RRGB hits first. We do want to keep our position size small because the most recent data listed short interest at 12% of the very small 13.3 million share float. That does raise the risk of a possible short squeeze. You may want to trade the put options to limit your risk

Trigger @ $33.75

Suggested Position: short RRGB stock @ (trigger)

- or -

buy the May $35 PUT (RRGB1219Q35)

04/28/12 if the trade opens we will plan to exit prior to the May 17th earnings report.

chart:

Entry on April xx at $ xx.xx
Earnings Date 05/17/12 (confirmed)
Average Daily Volume = 205 thousand
Listed on April 24, 2011


St. Jude Medical - STJ - close: 38.63 change: +0.10

Stop Loss: 40.05
Target(s): 34.25
Current Gain/Loss: - 3.2%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
04/28 update: The stock market's widespread bounce last week has helped STJ to a four-day rebound. Shares are nearing potential short-term resistance near $39.00 and the 150-dma. More conservative traders may want to tighten their stops toward the $39 area. If we see STJ close over $39.00 we will be tempted to exit early. I am not suggesting new positions at this time.

Our target is $34.25. FYI: The Point & Figure chart for STJ is bearish with a $31.00 target.

current Position: short STJ stock @ $37.45

- or -

Long May $37.50 PUT (STJ1219Q37.5) Entry $1.20

04/23/12 new stop loss @ 40.05
04/23/12 triggered at $37.45

chart:

Entry on April 23 at $37.45
Earnings Date 04/18/12
Average Daily Volume = 5.1 million
Listed on April 21, 2011


CLOSED BEARISH PLAYS

Ctrip.com Intl. - CTRP - close: 21.66 change: +0.17

Stop Loss: 22.26
Target(s): 18.00
Current Gain/Loss: - 1.0%
Time Frame: exit prior to the May 16th earnings report
New Positions: see below

Comments:
04/28 update: CTRP only added 17 cents on Friday but that doesn't tell the whole story. The stock briefly broke out from its trading range and rallied past resistance near $22.00 before reversing lower. We had already decided on Thursday night to exit positions at the open on Friday morning. CTRP gapped open higher at $21.92 on Friday.

Earlier Comments:
Readers may want to keep their position size small or limit their risk by trading put options. The most recent data listed short interest at about 10% of the 131 million share float. That could raise the risk of a short squeeze.

closed Position: short CTRP stock @ $21.70 exit $21.92 (-1.0%)

04/27/12 exit at the open
04/26/12 prepare to exit at the open tomorrow
04/21/12 new stop loss @ 22.26
04/19/12 planned exit for the April puts: 10 cents (-84.6%)
04/18/12 prepare to exit the April $21 puts at the close tomorrow
04/12/12 new stop loss @ 22.51

chart:

Entry on April 02 at $21.70
Earnings Date 05/--/12 (unconfirmed)
Average Daily Volume = 3.6 million
Listed on March 31, 2011


ChipMOS Tech. - IMOS - close: 13.70 change: +0.17

Stop Loss: 14.05
Target(s): 11.50
Current Gain/Loss: - 7.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
04/28 update: I had cautioned readers on Thursday that we would probably see IMOS hit our stop loss at $14.05 due to another rally in tech stocks. Sure enough IMOS crossed the $14.00 level and hit our stop. Although it's worth noting that the rally reversed at its 50-dma. We knew IMOS was a volatile stock and it definitely lived up to that label.

Earlier Comments:
The plan was to keep our position size small to limit our risk. IMOS can be a volatile stock.

(small positions)

closed Position: short IMOS stock @ $13.08 exit $14.05 (-7.4%)

- or -

May $12.50 PUT (IMOS1219Q12.5) Entry $0.99 exit $0.35* (-64.6%)

04/27/12 stopped out at $14.05
* option exit is an estimate. option did not trade at time of our exit
04/24/12 new stop loss @ 14.05, readers may want to take profits now with our trade up +8%.

chart:

Entry on April 23 at $13.08
Earnings Date 05/14/12 (unconfirmed)
Average Daily Volume = 356 thousand
Listed on April 21, 2011