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Call Updates

Caterpillar - CAT - close: 60.78 change: -1.73 stop: 59.90

Dow-component CAT was hit with some selling pressure as the DJIA fell more than 200 points on Friday thanks in large part to big declines in GE and Citigroup (C). Shares of CAT lost 2.7% and closed below their simple 10-dma. Short-term technicals are now bearish as we move into the final days of our play. The company is expected to report earnings on January 26th. We do not want to hold over the report. That means we will plan to exit on Wednesday afternoon at the closing bell. That is assuming that we are not stopped out between now and then. The market sell-off on Friday looks pretty bad and a lot of traders are expecting Monday morning to be weak but it is anyone's guess if there will be an oversold bounce or if stocks will continue to decline. More conservative traders may just want to exit here in an effort to preserve their capital. We are going to keep the play open. CAT still has what should be support at the $60.00 level and there is still optimism over the company's upcoming earnings report. We are not suggesting new plays at this time. Our target is the $64.75-65.00 range. The Point & Figure chart points to a $72 target.

Suggested Options:
We are not suggesting new bullish plays in CAT at this time.

Picked on January 08 at $ 60.45
Change since picked: + 0.33
Earnings Date 01/26/06 (confirmed)
Average Daily Volume = 4.0 million

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Fortune Brands - FO - close: 77.53 change: -1.06 stop: 76.45

We are not very optimistic on FO at the moment. We listed the play a few days ago with two separate triggers to catch the breakout from its neutral wedge-like pattern. On January 18th the stock broke out to the upside and hit our trigger to buy calls. Unfortunately, there was no follow through on Thursday and that immediately made us cautious. Now the stock is slipping lower and could easily reverse into a bearish pattern. There is still a trendline of support (see chart) that should offer FO some support near $77.00. A strong bounce from $77 could be used as a new bullish entry point but we are not suggesting new bullish plays at this time (even on a bounce). We don't have a lot of confidence here given the market's weakness and conservative traders may want to abandon the play early. More nimble traders may want to consider switching to put positions if FO trades under $76.50. This is a strategy we are considering for the newsletter. Earnings are expected in early February and we do not want to hold over the report.

Suggested Options:
We are not suggesting new bullish plays in FO at this time.

Picked on January 18 at $ 78.65
Change since picked: - 1.12
Earnings Date 02/03/06 (unconfirmed)
Average Daily Volume = 803 thousand

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Giant Ind. - GI - close: 61.60 change: +2.36 stop: 55.45

Strength in the oil stocks and in crude oil helped push GI over resistance in the $60.00-60.80 region and close at a new all-time high. Our trigger to buy calls in GI was at $60.85 so the play is now open. If you read the market wrap this weekend then you already know that oil is likely to trade higher this year. The rising tensions between Iran and the west are bad enough but these concerns are exacerbated by ongoing violence in Nigeria who is also a major exporter of oil. It is very unfortunate for the rest of the world, which will have to face higher fuel costs but this will prove to be beneficial for the oil companies. Technically GI is looking bullish with the new breakout on above average volume. The Point & Figure chart shows a quadruple top breakout buy signal with an $85 target. Our target is the $66.00-67.00 range. More aggressive traders may want to aim for the $70 level. We do not want to hold over the February 20th (unconfirmed) earnings report.

Suggested Options:
We are suggesting the March calls so we can hold our position right up to, but not over, GI's February earnings report.

BUY CALL MAR 55 GI-CK open interest= 51 current ask $9.20
BUY CALL MAR 60 GI-CL open interest=271 current ask $6.20
BUY CALL MAR 65 GI-CM open interest=220 current ask $3.90

Picked on January 20 at $ 60.85
Change since picked: + 0.75
Earnings Date 02/20/06 (unconfirmed)
Average Daily Volume = 279 thousand

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Holly Corp. - HOC - close: 68.68 chg: +0.94 stop: 61.95 *new*

HOC continues to rally fueled by the strength in crude oil. The stock is quickly approaching our target in the $69.75-70.00 range. We are not suggesting new positions at this time. More aggressive traders may want to aim higher. We are not suggesting you aim for it but the P&F chart points to a $92 target. We are raising the stop loss to $61.95. We would not hold over the February earnings report.

Suggested Options:
We are not suggesting new bullish plays in HOC at this time.

Picked on January 17 at $ 65.65
Change since picked: + 3.03
Earnings Date 02/06/06 (unconfirmed)
Average Daily Volume = 303 thousand

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Lehman Brothers - LEH - close: 134.79 chg: -2.70 stop: 131.05

High-flying shares of LEH were not immune from the market-wide sell-off on Friday but they held up better than expected. The stock lost 1.9% and remains above its rising 10-dma. We are not suggesting new long positions at the moment. We'll watch to see where shares of LEH bounce. If the stock breaks down under its 10-dma (133.98) then the next level of short-term support looks like the $132.00 mark. Our target is the $138.50-140.00 range.

Suggested Options:
We are not suggesting new bullish plays in LEH at this time.

Picked on January 09 at $131.05
Change since picked: + 3.74
Earnings Date 03/14/06 (unconfirmed)
Average Daily Volume = 2.3 million

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Ipsco Inc. - IPS - close: 86.10 change: +1.20 stop: 81.95

We are pleasantly surprised to see IPS displaying some relative strength on Friday. The stock actually gapped open higher and crept to a 1.4% gain by the closing bell. Volume came in above average on Friday's bullish breakout from its two-week consolidation. This is great news for our current play and it looks like a new bullish entry point but considering the market's weakness on Friday we hesitate to suggest new call positions here. Our target is the $89.00-90.00 range.

Suggested Options:
We are not suggesting new bullish plays in IPS at this time.

Picked on December 30 at $ 83.55
Change since picked: + 2.55
Earnings Date 02/06/06 (confirmed)
Average Daily Volume = 396 thousand

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Selective Ins. - SIGI - close: 55.44 chg: -0.32 stop: 53.79

Insurance stock SIGI weathered the storm on Friday better than expected. The stock lost just over 0.5% and rebounded from its lows near the $55.00 level. This is encouraging but there is no guarantee that SIGI will continue to hold up if the markets continue to sink. Thus we are not suggesting new bullish positions at this time. If SIGI were to trade over Thursday's high near $56.42 we might change our minds. We do not want to hold over the late January earnings report. Our target is the $59.50-60.00 range. FYI: SIGI might announce a stock split with its earnings report. The company last split its stock in December 1997 in the $50-52 region.

Suggested Options:
We are not suggesting new bullish plays in SIGI at this time.

Picked on January 19 at $ 56.05
Change since picked: - 0.61
Earnings Date 01/31/06 (confirmed)
Average Daily Volume = 163 thousand
 

Put Updates

DRS Tech. - DRS - close: 48.48 change: -0.72 stop: 51.01

Friday was a big reversal of fortunes and our play in DRS has new life. The action in DRS on Friday looks like a failed rally under the $50.00 level and new technical resistance at its simple 200-dma. We would use it as a new bearish entry point to buy puts. More conservative traders may want to wait for a little more follow through lower before initiating new plays. The upward momentum in DRS has stalled a long time ago and the stock is finally beginning to breakdown after months of consolidating. We believe that shares can trade into the $45.00-44.00 range before its February earnings report.

Suggested Options:
We are suggesting February puts. If you want more option volume consider using March puts.

BUY PUT FEB 50 DRS-NU open interest=980 current ask $2.50
BUY PUT FEB 45 DRS-NI open interest=233 current ask $0.75

Picked on January 17 at $ 47.95
Change since picked: + 0.53
Earnings Date 02/09/06 (unconfirmed)
Average Daily Volume = 275 thousand

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Omnicare - OCR - close: 54.75 change: -1.35 stop: 57.51

OCR is a new put play from the Thursday night newsletter. The stock lost 2.4% on Friday with volume coming in way above the daily average. Shares have broken down below support at the 100-dma and the $55.00 level. Our trigger to buy puts was at $54.99 so the play is now open. We do not see any change from our original play description so we're reposting it here:

The bullish pattern in OCR appears to be in trouble. The stock has peaked back in early December and now the stock's upward momentum has reversed. Today's 3% decline was fueled by very strong volume, which is bearish. Plus, shares have broken down below technical support at the 50-dma. Technical oscillators on the daily and weekly charts are bearish and its P&F chart has produced a new sell signal. Aggressive traders may want to open put positions here under $57.00. We are going to suggest a trigger at $54.99 to open the play. We're suggesting a trigger because we want to see confirmation that OCR is going to breakdown under its 100-dma (56.08). If triggered we'll target a decline into the $51.00-50.00 range before its February earnings report.

Suggested Options:
We are going to suggest the March puts so we can hold the position right up to, but not over, its earnings report. The list of options here are for reference. You the individual trader need to decide which strike fits your trading style best.

BUY PUT MAR 60 OCR-OL open interest= 615 current ask $6.30
BUY PUT MAR 55 OCR-OK open interest=1025 current ask $3.20
BUY PUT MAR 50 OCR-OJ open interest=1724 current ask $1.30

Picked on January 20 at $ 54.99
Change since picked: - 0.24
Earnings Date 02/23/06 (unconfirmed)
Average Daily Volume = 1.3 million

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Scotts Miracle grow - SMG - cls: 45.84 che: -0.76 stop: 47.05

Time is almost up. We have one more day and plan to exit at the close on Monday to avoid holding over SMG's Tuesday morning earnings report. Analysts are estimating that SMG will report a loss of $0.82 cents a share.

Suggested Options:
We are not suggesting new positions in SMG.

Picked on January 01 at $ 45.24
Change since picked: + 0.60
Earnings Date 01/24/06 (confirmed)
Average Daily Volume = 354 thousand
 

Strangle Updates

(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)

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Building Materials - BMHC - cls: 74.55 chg: -0.03 stop: n/a

We are very surprised by the trading in BMHC on Friday. The stock closed almost unchanged with shares hugging the simple 200-dma. The current pattern is bearish with its multi-month trend of lower highs but Friday's show of relative strength was unexpected. We are not suggesting new strangle positions at this time. The options in our strangle play are the March $90 calls (BGU-CR) and the March $70 puts (BGU-ON). Our estimated cost is $8.20. Our target is $12.50 by March expiration.

Suggested Options:
We are not suggesting new strangle plays at this time.

Picked on December 18 at $ 80.95
Change since picked: - 6.50
Earnings Date 02/07/06 (unconfirmed)
Average Daily Volume = 527 thousand

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Encana Corp. - ECA - close: 47.60 chg: -0.30 stop: n/a

ECA tried to rally past its 100-dma on Friday but the momentum failed. We're not suggesting new positions. Our strategy involves the April $50 calls (ECA-DJ) and the April $40 puts (ECA-PH). Our estimated cost is $3.45. We are aiming for a rise to $5.95.

Suggested Options:
We are not suggesting new strangle plays at this time.

Picked on January 10 at $ 45.56
Change since picked: + 1.74
Earnings Date 02/15/06 (confirmed)
Average Daily Volume = 4.4 million
 

Dropped Calls

Biogen Idec - BIIB - close: 44.93 change: -1.12 stop: 44.45

Biotech stocks sold off along with the rest of the market. What makes the 1.4% decline in the BTK index look so troubling is that the daily chart now appears to have a short-term double-top pattern. BIIB closed for a 2.4% loss but traded under support at the $45.00 level and its 50-dma on an intraday basis. We were stopped out at $44.45.

Picked on December 27 at $ 46.11
Change since picked: - 1.18
Earnings Date 02/15/06 (confirmed)
Average Daily Volume = 3.2 million

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Gannett Co - GCI - close: 62.25 change: -1.29 stop: 61.99

It was a very weak Friday morning for GCI. The stock gapped lower to open at $63.10 and then quickly fell below support at the 50-dma and the $62.00 level. We were stopped out at $61.99. Volume was above average on the decline and technical indicators have turned bearish.

Picked on January 15 at $ 64.28
Change since picked: - 2.03
Earnings Date 01/27/06 (confirmed)
Average Daily Volume = 1.4 million

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Hydril - HYDL - close: 76.44 change: -0.74 stop: 69.99

Target achieved. Shares of HYDL spiked higher on Friday morning and traded to $79.32. Our target was the $79.00-80.00 range. The stock was not able to maintain its gains even though the oil services sector was the best performing group on Friday. This looks like a failed rally and if you did not exit with us we suggest you trade cautiously. We'll be watching for a dip back to the 10-dma as a potential entry point for new bullish positions.

Picked on January 18 at $ 73.94
Change since picked: + 2.50
Earnings Date 01/31/06 (unconfirmed)
Average Daily Volume = 259 thousand

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Lennar Corp. - LEN - close: 61.75 chg: -0.87 stop: 61.90

We have been defensive on LEN for a few days now and Friday's market meltdown was too much for the stock and the sector. The DJUSHB home construction index lost 1.7%, the HGX housing index lost 1.6% and shares of LEN fell 1.3%. We have been stopped out at $61.90.

Picked on January 09 at $ 64.01
Change since picked: - 2.26
Earnings Date 03/16/06 (unconfirmed)
Average Daily Volume = 2.6 million
 

Dropped Puts

None
 

Dropped Strangles

Amer. Eagle Out. - AEOS - cls: 24.30 chg: -0.57 stop: n/a

Our strangle play in AEOS has expired with January's option expiration.

Picked on November 13 at $ 25.47
Change since picked: - 1.17
Earnings Date 02/23/06 (unconfirmed)
Average Daily Volume = 3.6 million

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Abercrombie&Fitch - ANF - close: 61.08 chg: -0.62 stop: n/a

Our strangle play in ANF has expired with January's option expiration.

Picked on November 13 at $ 59.67
Change since picked: + 1.41
Earnings Date 02/14/06 (unconfirmed)
Average Daily Volume = 2.7 million

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Blue Coat Sys. - BCSI - cls: 41.12 chg: -0.35 stop: n/a

Friday's market sell-off was a last ditch opportunity for BCSI to breakdown under the $40.00 level before options expiration but it didn't happen. The stock failed to follow through on the current trend of lower highs. Our strangle play is closed.

Picked on December 04 at $ 45.43
Change since picked: - 4.31
Earnings Date 02/23/06 (unconfirmed)
Average Daily Volume = 416 thousand

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Chicago Merc. Exchg. - CME - cls: 376.64 chg: -5.34 stop: n/a

Our strangle play in CME has expired with January's option expiration.

Picked on November 20 at $375.90
Change since picked: + 0.74
Earnings Date 01/31/06 (confirmed)
Average Daily Volume = 879 thousand

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Four Seasons - FS - close: 53.74 chg: -1.00 stop: n/a

Our strangle play in FS has expired with January's option expiration.

Picked on November 08 at $ 55.37
Change since picked: - 1.63
Earnings Date 02/26/06 (unconfirmed)
Average Daily Volume = 319 thousand

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Texas Ind. - TXI - close: 50.02 chg: -1.35 stop: n/a

Our strangle play in TXI has expired with January's option expiration.

Picked on November 27 at $ 49.57
Change since picked: + 0.45
Earnings Date 01/05/06 (confirmed)
Average Daily Volume = 354 thousand

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