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Call Updates

Cummins Inc. - CMI - close: 99.46 change: -2.55 stop: 96.95

News that the SEC had performed an informal probe into CMI's accounting may have sent shares a bit lower than normal today. Fortunately, the SEC has closed their inquiry and failed to find any fraud. The government agency filed a cease and desist order targeted at some forms of financial reporting but failed to fine the company. On a technical basis this abrupt reversal following yesterday's new high is not encouraging. We are not suggesting new positions. There is potential support at the 10-dma near $98.30 but CMI appears to have slightly stronger support near $96 and a pull back to $96 would stop us out.

Picked on February 2 at $101.01
Change since picked: - 1.55
Earnings Date 01/30/06 (confirmed)
Average Daily Volume = 742 thousand

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Express Scripts - ESRX - close: 90.55 chg: +0.79 stop: 87.45

The bull-bear tug-of-war in ESRX continues. The stock bounced back above the $90.00 level but failed to hit any new highs. We remain very cautious here.

Picked on January 29 at $ 92.42
Change since picked: - 1.87
Earnings Date 02/22/06 (unconfirmed)
Average Daily Volume = 2.1 million

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Universal Health - UHS - close: 49.76 chg: +0.06 stop: 48.49

Wow! That was a close call today. UHS broke out over resistance at the $50.00 level on an intraday basis today. Our trigger to buy calls is at $50.51 but shares only traded to $50.39 so we remain on the sidelines. We label it a close call because UHS failed to maintain its gains. Our trigger at $50.51 is still valid but we hesitate to open new bullish positions with the major averages looking weak. If triggered then we'll target a rally into the $54.50-55.00 range. The P&F chart is bullish with a $61 target. We do not want to hold over the late February earnings report.

Picked on February x at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/27/06 (confirmed)
Average Daily Volume = 613 thousand
 

Put Updates

Ambac Fincl. - ABK - close: 75.90 change: +0.05 stop: 78.05

ABK churned sideways on Tuesday. We're not that encouraged by its failure to move lower but the trend remains bearish. There is some short-term technical support at its exponential 200-dma and simple 100-dma near the $74 level. We do expect a bounce there. Our target is $71.00. Our time frame is four to six weeks, probably sooner.

Picked on February 05 at $ 76.09
Change since picked: - 0.19
Earnings Date 01/25/06 (confirmed)
Average Daily Volume = 463 thousand

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Intl Bus. Mach. - IBM - close: 79.85 change: +0.34 stop: 82.05

IBM produced a bit of an oversold bounce today but the stock continues to look bearish following its breakdown below the 200-dma and the $80 level. Our target is the $75.25-75.00 range.

Picked on February 06 at $ 79.49
Change since picked: + 0.36
Earnings Date 01/17/06 (confirmed)
Average Daily Volume = 6.0 million

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Johnson Controls - JCI - cls: 67.24 chg: -0.75 stop: 70.05*new*

JCI continues to slide and today's failed rally at the 100-dma looks good for the bears. Our target is the $65.50-65.00 range. We're going to lower our stop loss to $70.05.

Picked on January 25 at $ 69.90
Change since picked: - 2.66
Earnings Date 01/20/06 (confirmed)
Average Daily Volume = 955 thousand

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MGIG Invest. - MTG - close: 63.10 change: +0.11 stop: 66.05

MTG produced a bit of an oversold bounce today but it looks like the bounce failed near its 200-dma just south of the $64 level. We remain bearish on the stock here. Our target is the $58.00-57.50 range.

Picked on February 06 at $ 63.70
Change since picked: - 0.60
Earnings Date 01/12/06 (confirmed)
Average Daily Volume = 833 thousand

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Meritage Homes - MTH - close: 58.13 chg: -2.27 stop: 62.05

Negative news from Toll Brothers (TOL) took its toll on the homebuilding industry. TOL reported that orders in January fell more than expected and the company reduced its guidance for 2006. The DJUSHB home construction index fell more than 3% on the news. Shares of MTH gapped lower and closed with a 3.75% loss. This looks like a new entry point to buy puts on MTH. Our target is the $52.00-50.00 range.

Picked on February 02 at $ 58.76
Change since picked: - 0.63
Earnings Date 01/26/06 (confirmed)
Average Daily Volume = 560 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: 72.30 chg: -6.30 stop: n/a

It was a rough day for BMHC. The company reported earnings this morning and missed Wall Street's estimates by 8 cents a share. The market reacted negatively and BMHC gapped open at $72.01 and closed with an 8% loss. 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.

Picked on December 18 at $ 80.95
Change since picked: - 8.65
Earnings Date 02/07/06 (confirmed)
Average Daily Volume = 527 thousand

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Encana Corp. - ECA - close: 45.02 chg: -2.63 stop: n/a

A pull back in oil and forecasts for warmer weather sent shares of ECA falling lower. The stock lost 5.5% and is near support at $45.00 and its 200-dma near $44.30. A warm winter will put less demand on heating oil and some suspect there could actually be a glut. If you remember just a couple of months ago the markets were worried about a heating oil shortage if the winter was too cold. We're not suggesting new positions in ECA right now. 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.

Picked on January 10 at $ 45.56
Change since picked: - 0.54
Earnings Date 02/15/06 (confirmed)
Average Daily Volume = 4.4 million

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Google Inc. - GOOG - close: 337.92 chg: -17.18 stop: n/a

The profit taking in GOOG continues. Shares slipped another 4.4% and have closed under technical support at the 100-dma. The put side of our strangle, the February $420 puts (GOP-ND), hit a high today of $56.00 and is currently trading at $52.10bid/$52.50ask. We want to remind readers that this is still a very aggressive play. GOOG could bounce at any time and we have less than two weeks before February options expire. The target for our strangle is $60.00. Our estimated cost is $40.10. It would be very tempting to exit now for a 30% gain. If you choose not to exit then consider putting a stop loss on your put option (we'd consider $35 or even $40). We are keeping the play open and won't hesitate to exit at $60.

Picked on January 29 at $433.49
Change since picked: -65.58
Earnings Date 01/31/06 (confirmed)
Average Daily Volume = 11.1 million

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Ryland Group - RYL - close: 67.62 change: -2.01 stop: n/a

A warning from Toll Brothers (TOL) hit the housing sector hard today. Shares of RYL lost 2.88% on above average volume. We're not suggesting new positions. Our play involves the April $80 calls (RYL-DP) and the April $70 puts (RYL-PN). Our estimated cost is $7.00. Our target is $12.00.

Picked on January 22 at $ 75.19
Change since picked: - 7.57
Earnings Date 01/24/06 (confirmed)
Average Daily Volume = 1.1 million
 

Dropped Calls

Aetna - AET - close: 96.63 change: -0.97 stop: 93.99

We were planning to exit on Wednesday to avoid AET's Thursday earnings report but the stock's weakness today and failed rally at $98.72 is our cue to jump out. If you had the intuition to exit this morning near the high then kudos to you. Our target was the $99.00 level.

Picked on January 30 at $ 94.05
Change since picked: + 2.58
Earnings Date 02/09/06 (confirmed)
Average Daily Volume = 1.7 million
 

Dropped Puts

None
 

Dropped Strangles

None
 

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