NEW DIRECTIONAL CALL PLAYS

Caterpillar - CAT - close: 60.34 change: +0.67 stop: 57.49

Why We Like It:
Heavy equipment manufacturer CAT has broken out past short-term resistance near $59.00 and the $60.00 level. Technical picture is improving. If the stock can breakout past the $61.00 level it will produce a new quadruple top breakout buy signal on the Point & Figure chart.

I am suggesting small bullish positions now given the recent strength. There is additional resistance at $61.00 and more conservative traders will want to wait for CAT to rise past or close over $61 before initiating positions. Once CAT clears the 2009 highs we can think about adding to positions. Our first target is $64.75. Our time frame is short. Earnings are about two weeks away and we want to exit before CAT reports.

Suggested Options:
This is a two-week trade. I'm suggesting the February calls. My preference is for the $60 strike or the $62.50 strike.

BUY CALL FEB 60.00 CAT-BL open interest=17026 current ask $2.65
-or-
BUY CALL FEB 62.50 CAT-BU open interest=4173  current ask $1.54

Annotated Chart:

Entry  on   January 09 at $ 60.34 (small positions)     
Change since picked: + 0.00
Earnings Date 01/26/10 (confirmed)
Average Daily Volume = 4.8 million
Listed on January 09, 2010


Express Scripts - ESRX - close: 91.65 change: +2.98 stop: 87.45

Why We Like It:
ESRX is a pharmacy benefits manager throughout North America. Shares have spent the last several weeks consolidating sideways under resistance in the $89-90 zone. Friday finally saw a breakout past this resistance on above average volume. This move has produced a brand new triple-top breakout buy signal on the Point & Figure chart with a $108 target.

I'm suggesting we initiate small bullish positions now. If you're patient odds are pretty good that ESRX will dip back toward $90.00, which would be a better entry point. Our first target is $95.75. Our second target is $99.75. We do not want to hold over the February earnings report.

Suggested Options:
I am suggesting the February calls. My preference is the $95 strike.

BUY CALL FEB 95.00 XTQ-BS open interest=1332 current ask $1.80

Annotated Chart:

Entry  on   January 09 at $ 91.65 (small positions)     
Change since picked: + 0.00
Earnings Date 02/24/10 (unconfirmed)
Average Daily Volume = 2.6 million
Listed on January 09, 2010


NEW DIRECTIONAL PUT PLAYS

Sears Holding - SHLD - close: 99.17 change: -0.01 stop: 102.05

Why We Like It:
Last Thursday SHLD announced some great news! The company raised their guidance for the current quarter. The stock reacted with a huge gap higher toward round-number, psychological resistance near $100. My thought process is that all the good news is already in the stock, why buy it now? Odds are greater that SHLD will retrace and fill the gap with a decline toward $90.00.

I'm suggesting small bearish positions with a stop loss above last week's high. Our first target to exit is $95.25. Our second target to exit is $91.00.

Suggested Options:
I'm tempted to buy the March puts but stocks tend to move down faster than the move higher. We'll use the February puts. I'm suggesting the $95 strike.

This is the CBOE's new format:

Feb 95.00 KTQ1020N95 (put) open interest= 922 current ask $4.10

Annotated Chart:

Entry  on   January 09 at $ 99.17 
Change since picked:       + 0.00
Earnings Date            02/25/10 (unconfirmed)
Average Daily Volume =        2.0 million  
Listed on   January 09, 2010