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.


CALL Play Updates

Intl. Business Mach. - IBM - close: 130.90 change: -1.67 stop: 128.90 *new*

IBM soared to new 52-week highs on Wednesday but gave back all of its gains with a 1.2% decline on Thursday. The stock had resistance near $130.00 and 131.50. I would look for the $130.00 level to offer some support. I'm inching our stop loss higher to $128.90. More conservative traders may want to place their stop closer to $130.00. I am not suggesting new positions at this time but a nice bounce from $130 could change my mind.

Our first target is $134.95. Our second target is $139.00. Our time frame is about four weeks. We do not want to hold over IBM's earnings report.

Suggested Options:
No new positions at this time.

Annotated Chart:

Entry  on  December 28 at $131.55
Change since picked:       - 0.65
Earnings Date            01/19/10 (unconfirmed)
Average Daily Volume =        5.8 million  
Listed on  December 26, 2009         


Infosys Tech. - INFY - close: 55.27 change: -0.44 stop: 53.85 *new*

INFY has been hovering in the $55-56 zone and broken resistance near $55.00 should offer some support. I am suggesting we raise our stop loss to $53.85. We only have about ten days left since we plan to exit ahead of the January 12th earnings report. I am not suggesting new positions at this time. INFY has already hit our first target at $55.75. Our second and final target is $59.50.

Suggested Options:
No new positions at this time.

Annotated Chart:

Entry  on  December 05 at $ 51.88 /gap down entry point
                           /originally listed at $52.46
Change since picked:       + 3.39
                            /1st target hit @ 55.75 (+7.4%)
Earnings Date            01/12/10 (confirmed)
Average Daily Volume =        1.4 million  
Listed on  December 05, 2009         


L-3 Communications - LLL - close: 86.95 change: -1.55 stop: 84.90 *new*

LLL is correcting but broken resistance near $86.00 should offer some support. I'm going to adjust our stop loss to $84.90. More conservative traders may want to consider placing their stop closer to $86.00. I am not suggesting new positions at this time but a nice bounce from $86 might change my mind.

I did label this an aggressive, higher-risk trade. Our first target to take profits is at $89.95. Our second and final target is $94.00. We want to exit ahead of the late January earnings report. FYI: The Point & Figure chart is bullish with a $104 target.

Suggested Options:
No new positions at this time.

Annotated Chart:

Entry  on  December 28 at $ 86.80 
Change since picked:       + 0.15
Earnings Date            01/28/10 (unconfirmed)
Average Daily Volume =        1.0 million  
Listed on  December 26, 2009         


NUCOR Corp. - NUE - close: 46.65 change: -0.41 stop: 43.90

Metals stocks are seeing some profit taking but they are still one of the strongest groups in December. I suspect this could just be a short-term pull back. Look for a dip toward $45.00 before considering new bullish positions. More conservative traders might want to raise their stops toward $45.00. Our target is $49.50. We will plan to exit ahead of the late January earnings report.

Suggested Options:
If NUE provides a new entry point near $45 I would use the February calls.

Annotated Chart:

Entry  on  December 22 at $ 45.85 (1/2 position or less) /gap higher entry
Change since picked:       + 0.80
Earnings Date            01/28/10 (unconfirmed)
Average Daily Volume =        4.5 million  
Listed on  December 22, 2009         


Precision Castparts - PCP - close: 110.35 change: -1.40 stop: 109.45 *new*

Investors should be cautious here. While the larger trend is very bullish for PCP short-term many of the technicals have turned bearish. I've been warning readers to expect a pull back toward $110 and we've got it. Now I'm raising our stop loss to $109.45. I'm not suggesting new positions at this time. PCP has already hit our first target at $112.45. Our second target is $118.75. The Point & Figure chart is bullish with a $157 target (it was $131).

Suggested Options:
No new positions at this time.

Annotated Chart:

Picked on  December 01 at $107.35
Change since picked:       + 3.00
                            /1st target hit $112.45 (+4.7%)
Earnings Date            01/20/10 (unconfirmed)
Average Daily Volume =        817 thousand 
Listed on  November 28, 2009         


Stifel Financial - SF - close: 59.24 change: -0.09 stop: 56.45 *new*

SF has been one of the best performers the last three weeks. Shares set a string of new highs last week. If the stock corrects then broken resistance near $57.00 should offer some support. I am raising our stop loss to $56.45. I am not suggesting new bullish positions at this time. Our first target is $64.50, which may be a little optimistic since our time frame is January expiration. The P&F chart is bullish and points to a $70 target.

Suggested Options:
No new positions at this time.

Annotated Chart:

Entry  on  December 22 at $ 58.05
Change since picked:       + 1.19
Earnings Date            02/11/10 (unconfirmed)
Average Daily Volume =        207 thousand 
Listed on  December 16, 2009         


UnitedHealth Group - UNH - close: 30.48 change: -0.53 stop: 28.90

I'm not surprised to see UNH suffer more profit taking. I've been warning readers to expect a dip back toward $30.00. We can use a pull back near $30 as a new entry point although more conservative traders may want to wait for a bounce first before initiating positions.

This was a "lottery ticket" style of play. We knew it was risky given all the political ups and downs for the healthcare bill. Our time frame was several weeks and we listed January and March calls. At this time if you choose to open new positions I'd use March calls but that would require holding over the late January earnings report (to get the most out of your March calls). Our first target is $34.00. Our longer-term target is $36.00.

Suggested Options:
I would use the March calls. I prefer the $32, $33, or $34 strikes.

Annotated Chart:

Entry  on  December 10 at $ 30.31 
Change since picked:       + 0.17
Earnings Date            01/21/10 (unconfirmed)
Average Daily Volume =        819 thousand 
Listed on  December 10, 2009         


Whirlpool - WHR - close: 80.65 change: -1.07 stop: 79.45 *new*

Traders immediately sold into the strength on Thursday morning. The lack of follow through from Wednesday's intraday bounce is short-term bearish. The question right now is will support at the $80.00 level hold. If you think $80 will hold then I suggest you up your stop loss. The newsletter is raising our stop to $79.45. If you don't think $80.00 will hold then it's time to exit early! I am not suggesting new positions at this time. WHR has already hit our first target at $84.75. Our second target is $89.00.

Suggested Options:
No new positions at this time.

Annotated Chart:

Entry  on  December 19 at $ 80.76 /gap higher entry
Change since picked:       - 0.11
                             /1st target hit $84.75 (+4.9%)
Earnings Date            02/08/10 (unconfirmed)
Average Daily Volume =        1.6 million  
Listed on  December 19, 2009         


Zebra Technologies - ZBRA - close: 28.35 change: -0.04 stop: 27.45

ZBRA was showing relative strength most of the day but succumbed to the market-wide sell-off late Thursday afternoon. I am very cautious given the market's weakness. I would consider buying calls on a bounce from $28.00 but I'm raising our stop loss to $27.70. Our first target is $30.00. Our second target is $32.00 but that looks pretty aggressive and we may end up exiting early if the market does correct.

Suggested Options:
Look for a bounce from $28.00 and consider the Feb 30 calls.

Annotated Chart:

Entry  on  December 30 at $ 28.39 
Change since picked:       - 0.04
Earnings Date            02/09/10 (unconfirmed)
Average Daily Volume =        166 thousand 
Listed on  December 30, 2009         


PUT Play Updates

*Currently we do not have any put play updates*


Strangle & Spread Play 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.)

United Parcel Service - UPS - close: 57.37 change: -0.81 stop: n/a

UPS has been stuck trading sideways for more than six weeks now. At this point it looks like shares are going to break lower. With only two weeks left before options expire readers may want to adjust their exit price lower. I'm not suggesting new strangle positions.

January Strangle
The options suggested for the January strangle were the January $60.00 calls (UPS-AL) and the January $55.00 puts (UPS-MK). Our estimated cost was $1.35. I would plan to sell if either option hit $3.50 or more.

Suggested Options:
No new positions.

Annotated Chart:

Picked on  November 21 at $ 57.99 /gap open entry
Change since picked:       - 0.62 
Earnings Date            02/02/10 (unconfirmed)
Average Daily Volume =        4.7 million  
Listed on  November 21, 2009         


CLOSED BULLISH PLAYS

EQUINIX Inc. - EQIX - close: 106.15 change: -0.69 stop: 102.75

I am suggesting readers exit early EQIX and lock in a gain. Technicals have started to turn bearish. I'd rather exit now and watch it for a dip or bounce near $100 again where we might want to jump in again.

Chart:

Entry  on  December 09 at $103.02
Change since picked:       + 3.13 <-- exit early @ 106.15 (+3.03%)
Earnings Date            02/10/10 (unconfirmed)
Average Daily Volume =        501 thousand 
Listed on  December 09, 2009         


Mettler Toledo - MTD - close: 104.99 change: -0.98 stop: 99.45

More aggressive traders may want to keep MTD as a trade. It's true that shares did produce a bearish engulfing (reversal) candlestick on Thursday but the selling stalled near $105 and its 10-dma. If you can handle the volatility shares could easily dip toward $102 or even $100 and still maintain their bullish up trend. Unfortunately I'm concerned about the combination of MTD pulling back toward $100 and the potential for the market to see a deeper decline. Thus I'm suggesting an early exit now and we'll reconsider new positions on a dip near $100 and its rising 50-dma.

Chart:

Entry  on  December 19 at $102.66 (small positions) /gap down entry
Change since picked:       + 2.33 <-- early exit (+2.2%)
Earnings Date            02/04/10 (unconfirmed)
Average Daily Volume =        106 thousand
Listed on  December 19, 2009         


Norfolk Southern - NSC - close: 52.42 change: -0.82 stop: 50.95

The general trend for NSC may still be up but the momentum is just too slow. I'm suggesting an early exit.

Chart:

Picked on  November 21 at $ 51.84 (small positions)/gap higher entry
Change since picked:       + 0.58 <-- exit early (+1.1%)
Earnings Date            01/27/10 (unconfirmed)
Average Daily Volume =        5.4 million  
Listed on  November 21, 2009         


United Tech. - UTX - close: 69.41 change: -1.08 stop: 67.45

Technically UTX should still have support near its 30-dma and the bottom of its rising bullish channel. However, the action on Friday looks like a bearish reversal. I'm suggesting an early exit now to cut our losses. If shares rebound you could always jump back in over $71.00.

Chart:

Entry  on  December 15 at $ 70.25
Change since picked:       - 0.84 <-- early exit @ 69.41 (-1.1%)
Earnings Date            01/21/10 (unconfirmed)
Average Daily Volume =        4.0 million  
Listed on  December 12, 2009         


Valmont Industries - VMI - close: 78.45 change: -1.38 stop: 78.45

There was no follow through on VMI's bounce from Wednesday's low. Instead shares reversed at $80 again and hit our stop loss at $78.45. The move makes VMI look like a bearish candidate.

Chart:

Entry  on  December 10 at $ 81.00
Change since picked:       - 2.55 <-- stopped @ 78.45 (-3.1%)
Earnings Date            02/10/10 (unconfirmed)
Average Daily Volume =        238 thousand 
Listed on  December 05, 2009         


Vertex Pharma - VRTX - close: 42.85 change: -0.70 stop: 41.85

I was concerned that Wednesday's move looked like a top. Thursday's decline only reinforced that view. I'm suggesting an early exit now. You can keep VRTX on your watch list should the stock find support near $38 or $40 again. The high on Wednesday was $44.04 and our target to exit was $44.25.

Chart:

Entry  on  December 03 at $ 40.25
Change since picked:       + 2.60 <-- early exit @ 42.85 (+6.4%)
Earnings Date            02/09/10 (unconfirmed)
Average Daily Volume =        3.2 million  
Listed on  November 23, 2009         


CLOSED STRANGLE & SPREAD PLAYS

Apple Inc. - AAPL - close: 210.73 change: -0.90 stop: n/a

AAPL is still flirting with new 2009 highs but eventually succumbed to minor profit taking. It's possible that shares might shrug off market weakness and continue to climb on expectations over AAPL's next product but at this point I wouldn't bet on it. Most of the gains in the last two weeks were due to excitement over AAPL revealing a new tablet PC in late January. Industry insiders expect the announcement on January 26th. Speculation about the new product has it looking like a big iPhone with a 10.1 inch screen and offer a competing platform for the e-readers out there like Amazon.com's Kindle.

More aggressive traders may want to let it ride since we have two weeks left before January options expire. I am suggesting an early exit now. We can sell the Jan. $220 call for $2.12 and the Jan. $180 put for $0.18 for a total of $2.30.

The options in the January strangle were January $220 calls (AJL-LV) and the January $180 puts (APV-XR). Our estimated cost is $5.60

Chart:

Picked on  November 30 at $199.91
Change since picked:       +10.83
Earnings Date            01/21/10 (unconfirmed)
Average Daily Volume =       15.1 million  
Listed on  November 30, 2009