We're putting the play list on a diet and trimming some of our candidates while raising stop losses on several more.

Editor's Note:

Traders have a decision to make!

Stocks traded sideways for most of November and December. The Christmas week breakout higher was driven by the NASDAQ and the small cap Russell 2000 but the S&P 500 did break through significant resistance in the 1115-1120 zone. Unfortunately there has been no follow through this past week. To make matters worse in the last 30 minutes of trading on December 31st the bottom fell out of the market with stocks plummeting. It's possible this very late day sell-off was just a function of a severe lack of volume with most market participants already gone for the day and no one to balance out any sell orders. However, the sharp weakness has cast an ominous shadow across the first week of January.

Readers already know that we're concerned about January and strongly suspect that stocks will see a correction. Now that we're in the new year investors who have been holding on to gains can sell to lock in a profit and not have to worry about the tax consequences until April 2011. Was the late Thursday decline an early rush to lock in gains? Is it a sign of things to come? Again, it's hard to put much emphasis on the 30-minute move because volume was light.

It is always challenging to try and craft your trading strategy around a trend change especially when the reversal hasn't happened yet. I was expecting the market to reverse after the January 8th jobs report - essentially Monday, January 10th. In reality the reversal could happen any day, it could have already started on Thursday afternoon, or it may not happen at all. That's the problem with trying to predict the future. The last three quarters of 2009 was painfully surprising for traders trying to follow traditional bearish technical patterns that reversed or failed on a regular basis.

The big picture here is that the trend is still up for all the major market averages. Yet short-term stocks look tired and have begun to weaken. Is this just a short-term correction that will be over in a couple of days? Or is it the start of the deeper multi-week correction we've been expecting in January, which could ultimately be a new entry point for bullish positions.

Traders need to reconsider how much you're willing to risk in this market. Double check your stop loss placement. You may want to exit a number of your bullish positions or you might just want to raise your stop losses, or you could just exit all of them and start 2010 with a fresh slate. I'm going to trim our play list by closing some trades and raising stops on others.


BULLISH Play Updates

Bank of Hawaii - BOH - close: 47.06 change: -0.59 stop: 46.25 *new*

I'm still concerned about financials and while BOH has been outperforming its sector the stock finally hit some profit taking on Thursday. I am raising our stop loss to $46.25 to hopefully eliminate any chance of a loss. More conservative traders may want to exit early but I'm expecting some support near $46.50. I am not suggesting new bullish positions at this time. Our target to exit is $49.85.

Annotated chart:

Entry on  November 18 at $46.20 
Change since picked:     + 0.86   			
Earnings Date          01/25/10 (unconfirmed)    
Average Daily Volume:       424 thousand
Listed on  November 17, 2009    


Disney - DIS - close: 32.25 change: -0.03 stop: 31.70 *new*

DIS hit new 52-week highs Thursday morning but then gave back all of its gains. The failed rally is short-term bearish although the larger trend for DIS is clearly higher. Aggressive traders willing to weather the storm may want to keep their stop loss under the $30.00 level and its 50-dma and just ride out any ups and down. I'm turning more defensive and raising our stop loss to breakeven at $31.70. No new positions at this time. Our target is $34.75. We will plan to exit ahead of the February earnings report.

Annotated chart:

Entry on  December 12 at $31.70 
Change since picked:     + 0.55   			
Earnings Date          02/09/10 (unconfirmed)    
Average Daily Volume:      11.0 million 
Listed on  December 12, 2009    


EMCOR Group - EME - close: 26.90 change: -0.62 stop: 25.75

We are starting to see shares of EME correct back toward previous resistance. The $26.25-26.00 zone should be new support. Wait for a bounce near $26.00 before considering new bullish positions. The Point & Figure chart is bullish with a $42 target. I'm listing our first target at $29.85. Our time frame is several weeks.

Annotated chart:

Entry on  December 21 at $27.18 
Change since picked:     - 0.28   			
Earnings Date          02/25/10 (unconfirmed)    
Average Daily Volume:       514 thousand
Listed on  December 21, 2009    


Home Depot - HD - close: 28.93 change: -0.20 stop: 27.75 *new*

The momentum in HD is also beginning to stall and shares look ready to pull back toward the $28.00 level, which should be support. I'm upping our stop loss to $27.75. Wait for a dip or bounce near $28.00 before considering new positions. Our first target is $30.60. Our second target is $32.45. We'll plan to exit ahead of the February earnings report. FYI: The P&F chart is very bullish with a $44 target.

Annotated chart:

Entry on  December 14 at $28.82 *gap higher entry  
Change since picked:     + 0.11   			
Earnings Date          02/23/10 (unconfirmed)    
Average Daily Volume:      15.7 million 
Listed on  December 12, 2009    


Potlatch Corp. - PCH - close: 31.88 change: -0.53 stop: 30.45 *new*

I would consider an early exit out of PCH. The action this past week has turned bearish. Watch the $31.00 area for short-term support. I'm inching up our stop loss to $30.45. Our first target to take profits is at $33.60. Our second target is $35.75. No new positions at this time.

Annotated chart:

Entry on  November 16 at $30.30
Change since picked:     + 1.58   			
Earnings Date          02/11/10 (unconfirmed)    
Average Daily Volume:       503 thousand
Listed on  November 11, 2009    


Renolds American - RAI - close: 52.97 change: -0.50 stop: 51.45

Take some money off the table in RAI. I'm suggesting we sell half our position if not all of it. The action on Wednesday and Thursday last week looks like a bearish breakdown from its sideways consolidation. RAI might have some short-term support near $52 and its 50-dma near $51.50. I am not suggesting new positions at this time. Our target to exit is $54.90. More aggressive traders may want to aim for the $56.50-57.00 zone.

FYI: We should be receiving a $0.90 dividend from RAI soon. The record date was December 10th and the payable date is January 4th.

Annotated chart:

Entry on  November 14 at $50.32 
Change since picked:     + 2.65   			
Earnings Date          02/11/10 (unconfirmed)    
Average Daily Volume:       1.6 million 
Listed on  November 14, 2009    


Starbucks Corp. - SBUX - close: 23.06 change: -0.25 stop: 21.75

SBUX is also seeing a minor correction. The $23 zone should offer some short-term support. If that breaks then the $22.00 level should be support again. I'm not suggesting new bullish positions at this time but another bounce near $22 might change my mind. Our target to exit is $24.90.

Annotated chart:

Entry on  December 10 at $22.25
Change since picked:     + 0.81   			
Earnings Date          01/28/10 (unconfirmed)    
Average Daily Volume:      10.9 million 
Listed on  November 30, 2009    


Sonoco Products - SON - close: 29.25 change: -0.63 stop: 28.49

The action in SON has taken on a more sinister tone with the late Thursday sell-off. More conservative traders may want to consider an early exit now or raising their stop closer to $29.00. The 30-dma near $29.00 could offer some support but I'm not suggesting new positions at this time. Our first target is $34.50.

Annotated chart:

Entry on  December 26 at $30.31 
Change since picked:     - 1.06   			
Earnings Date          02/04/10 (unconfirmed)    
Average Daily Volume:       343 thousand
Listed on  December 26, 2009    


Seagate Technology - STX - close: 18.19 change: -0.25 stop: 16.95 *new*

STX managed to tag another new high on an intraday basis. Traders need to be cautious here. STX could see some selling pressure from investors who waited for 2010 before taking profits. I'm raising our stop loss to $16.95. I would hesitate to launch new positions. Our target is $19.75 as the $20.00 level will probably act as round-number, psychological resistance. We will plan to exit ahead of the mid January earnings report. The plan was to keep positions small to limit our risk.

Annotated chart:

Entry on  December 19 at $17.83 /gap open higher (small positions)
Change since picked:     + 0.36  			
Earnings Date          01/19/10 (unconfirmed)    
Average Daily Volume:       8.2 million 
Listed on  December 19, 2009    


Texas Instruments - TXN - close: 26.06 change: +0.08 stop: 25.30 *new*

Technically the move on Thursday in TXN above the $26.00 level looks like a new entry point. Yet at the same time I'm concerned that the major market averages are poised to decline and the SOX semiconductor index looks overbought and due for a correction. This may not be a great environment to launch new bullish positions in TXN. If you do buy TXN I'd keep positions small. The low on Wednesday last week was $25.31 so I'm raising our stop loss to $25.30. Our target to exit is $29.75.

Considering our market outlook more conservative traders might just want to exit early now and keep any losses to a minimum.

Annotated chart:

Entry on  December 02 at $26.15
Change since picked:     - 0.09   			
Earnings Date          01/26/10 (unconfirmed)    
Average Daily Volume:      12.6 million 
Listed on  December 01, 2009    


Warner Chilcott - WCRX - close: 28.47 change: +0.02 stop: 27.95 *new*

WCRX has continued to show impressive relative strength but shares now look very overbought and a prime target for profit taking now that the calendar has rolled over into 2010. More conservative traders may want to do some profit taking of their own and exit now. I am raising our stop loss to $27.95. I am not suggesting new positions at this time. Our first target has been hit at $27.40. Our second target is $29.45.

Annotated chart:

Entry on  December 01 at $24.77 gap open entry point (small positions)
Change since picked:     + 3.68   	
                         /1st target hit @ 27.40 (+10.6%)
Earnings Date          02/25/10 (unconfirmed)    
Average Daily Volume:       1.8 million 
Listed on  November 28, 2009    


Wright Express Corp. - WXS - close: 31.86 change: -0.17 stop: 30.95 *new*

WXS managed to hit a new 2009 high on Thursday around lunch time and then gave it all back. I am raising our stop loss to $30.95. Given our outlook on stocks I would hesitate to launch new positions but a move over $32.75 would look like a new bullish entry point. Our target is $35.90. Our time frame is several weeks probably the first of February. FYI: The Point & Figure chart is bullish with a $41 target.

Annotated chart:

Entry on  December 21 at $32.30
Change since picked:     - 0.44   			
Earnings Date          02/10/10 (unconfirmed)    
Average Daily Volume:       209 thousand
Listed on  December 19, 2009    


Wyndham Worldwide - WYN - close: 20.17 change: -0.23 stop: 19.90 *new*

The slow correction in WYN continues. The stock has almost reached what should be round-number support at $20.00. We're raising the stop loss to $19.90 to limit our risk. I am not suggesting new positions at this time. Our first target has already been hit at $21.00. We're currently aiming for $22.40. The plan was to use small positions (1/2 a position).

Annotated chart:

Entry on  November 10 at $18.88 (1/2 position) /gap open higher
Change since picked:     + 1.29
                          /1st target hit @ 21.00 (+11.2%)
Earnings Date          02/11/10 (unconfirmed)    
Average Daily Volume:       3.5 million 
Listed on  November 10, 2009    


BEARISH Play Updates

Wells Fargo - WFC - close: 26.99 change: +0.17 stop: 27.55

The intraday bounce rolled over again but WFC did manage to out perform the major market indices. While our market outlook is growing more cautious I will note that some of the short-term technicals in WFC are actually starting to improve. Thus I'm not suggesting new bearish positions in WFC at this time. The 50-dma at $27.40 should act as overhead resistance.

We knew this was going to be an aggressive, higher-risk trade so the plan was to use smaller positions. Our first bearish target for WFC is $23.10. Our second and final target is $21.00.

Annotated chart:

Entry on  December 10 at $25.75 (small positions)
Change since picked:     + 1.24   			
Earnings Date          01/27/10 (unconfirmed)    
Average Daily Volume:        37 million 
Listed on  December 08, 2009    


CLOSED BULLISH PLAYS

Adobe Systems - ADBE - close: 36.78 change: -0.40 stop: 36.45

We've been waiting for ADBE to breakout higher from its consolidation but shares are heading lower following the market's late day Thursday decline. The larger trend is still bullish and traders may want to consider buying a bounce from the simple 50-dma.

chart:

Entry on  December xx at $xx.xx <-- TRIGGER @ 37.75
Change since picked:     + 0.00   			*never opened*
Earnings Date          03/17/10 (unconfirmed)    
Average Daily Volume:       5.3 million 
Listed on  December 22, 2009    


Broadcom - BRCM - close: 31.47 change: -0.38 stop: 29.45

I am giving up on BRCM. The general trend is up but it's been about three weeks and we haven't made any progress. Technicals have started to turn bearish. I'd keep the stock on your watch list. We might get a new entry point down the road on a dip near $29 or $30 or a breakout to new highs. Right now I'd rather exit early and avoid a loss.

Annotated chart:

Entry on  December 07 at $31.25
Change since picked:     + 0.22 <-- early exit @ 31.47 (+0.7%)
Earnings Date          01/28/10 (unconfirmed)    
Average Daily Volume:       7.4 million 
Listed on  December 05, 2009    


CSX Corp. - CSX - close: 48.49 change: -0.63 stop: 47.40

I am suggesting we cut our losses early with CSX. The larger trend for the railroads is up but short-term the group has seen its momentum vanish and the breakout over $50 in CSX looks like a bull trap.

chart:

Entry on  December 24 at $50.30 
Change since picked:     - 1.81 <-- exit early @ 48.49 (-3.6%)
Earnings Date          01/19/10 (unconfirmed)    
Average Daily Volume:       3.0 million 
Listed on  December 22, 2009    


Johnson & Johnson - JNJ - close: 64.41 change: -0.50 stop: 61.75

I'm giving up on JNJ. It's been more than a month and shares appear to have formed a possible double top. I'm suggesting we exit now. Keep JNJ on your watch list for a possible entry point on a bounce near $62.00.

chart:

Entry on  November 23 at $63.05
Change since picked:     + 1.36 <-- exit early @ 64.41 (+2.1%)
Earnings Date          01/26/10 (unconfirmed)    
Average Daily Volume:      12.6 million 
Listed on  November 21, 2009    


Kansas City Southern - KSU - close: 33.29 chg: -0.54 stop: 29.95

I am concerned about the railroad sector. The upward momentum has stalled. While KSU had been outperforming its peers I'd rather exit now to lock in a gain. We can keep KSU on our watch list for a new entry point should the stock bounce near $30.00 again.

chart:

Entry on  December 14 at $30.90 
Change since picked:     + 2.39 <-- exit early @ 33.29 (+7.7%)
                          /take profits 12/26/09 @ 34.05 (+10.1%)
Earnings Date          01/28/10 (unconfirmed)    
Average Daily Volume:       677 thousand
Listed on  December 14, 2009    


United Parcel Service - UPS - close: 57.37 change: -0.81 stop: 56.95

I am giving up on UPS. The stock has been stuck in a trading range for weeks and now it looks like shares are poised to break lower. Exit early now before UPS breaks the 50-dma and really accelerates lower.

chart:

Entry on  December 14 at $58.99 
Change since picked:     - 1.62 <-- early exit @57.37 (-2.7%)
Earnings Date          02/02/10 (unconfirmed)    
Average Daily Volume:       4.2 million 
Listed on  December 14, 2009