Editor's Note:

The major U.S. indices have produced a two-day bounce from last week's lows. Gains were relatively widespread on Friday but stocks were gravitating toward their nearest strike price for option expiration. We had FOSL, JOYG and UNP all hit our stop losses.

-James

Current Portfolio:


CALL Play Updates

Caterpillar Inc. - CAT - close: 105.06 change: +1.94

Stop Loss: 99.00
Target(s): 109.00, 114.00
Current Option Gain/Loss: - 1.4%, and - 4.7%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/19 update: Our new play in CAT is already open. Shares gapped higher on Friday at $104.99. There was a brief dip toward $104.66 before bouncing back toward the $105 level. CAT hovered there the rest of the session.

This morning CAT announced that sales for the last three months were up +59%, which was an improvement from the +49% in the three months ending January. Thus far the company has seen ten months in a row of improving sales figures. This news probably sparked the gap higher on Friday morning.

Meanwhile the company issued a press release regarding its Japan operations. Here's an excerpt:

Caterpillar's facilities in Tokyo, Akashi and Sagami were not damaged by the earthquake, and are outside of the current area the Japanese government has declared as a mandatory evacuation zone. Both the Sagami and Akashi facilities have continued to operate and produce product, although the current situation in Japan is having some impact on production, which has varied day to day over the last week. To date, the disruption to the supply chain in Japan has not stopped production at other Caterpillar facilities around the world; although moving forward, it is possible those facilities may be sporadically impacted as a result of the situation in Japan.

Our plan was to buy calls on CAT at $104.00 so the play was opened this morning at $104.99. If you missed the entry point I would probably wait. We might see a better entry point on a dip back into the $104.50-103.50 zone. Or you could buy calls on a breakout past its recent high at $106.00. Our targets are $109.00 and $114.00.

- Suggested Positions -

Long the April $105 calls (CAT1116D105) Entry @ $3.40

- or -

Long the May $110 calls (CAT1121E110) Entry @ $3.15

chart:

Entry on March 18th at $104.99 (gap higher)
Earnings Date 04/29/11 (unconfirmed)
Average Daily Volume = 7.4 million
Listed on March 17th, 2010


Cerner Corp. - CERN - close: 103.10 change: +0.42

Stop Loss: 99.45
Target(s): 104.85, 109.00
Current Option Gain/Loss: -27.7%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/19 update: CERN rallied Friday morning but shares failed again at resistance near the $105 area. The stock might be stuck in the $105-100 trading range until the broader market recovers or breaks down again. Bigger picture the trend in CERN remains higher. At this time I would wait for dips near $101 or a breakout over $105 before initiating new positions.

Our second and final target is $109.00.

FYI: I want to point out that the most recent data (as of Feb. 15th) listed short interest at 13.9% of CERN's 70-million share float. That definitely seems like a high amount of shorts and fuel for a short squeeze. Plus, the Point & Figure chart for CERN is bullish with a $115 target and what appears to be a relatively fresh quadruple top breakout buy signal.

- Suggested Positions -

Long the April $105 calls (CERN1116D105) Entry @ $2.70

03/12 New stop loss @ 99.45
03/04 1st Target Hit @ $104.85, Option @ $3.15 (+16.6%)

chart:

Entry on March 3rd at $102.62
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 600 thousand
Listed on March 2nd, 2010


Capital One Financial - COF - close: 51.05 change: +0.27

Stop Loss: 47.75
Target(s): 54.75, 59.00
Current Option Gain/Loss: - 5.7% and -24.6%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/19 update: Many of the financials were showing strength on Friday after it was announced the Federal Reserve would allow 19 of the major banks to resume or raise their dividends. The announcement was widely expected but stocks rallied anyway. COF rose to $52.28 before trimming its gains. In the news COF issued a press release stating they plan to keep their quarterly cash dividend at $0.05 per share through the first quarter of 2011.

Overall I don't see any changes from my prior comments. Readers can open call positions now or hope for another dip closer to the $50.00 mark. Our targets are $54.75 and $59.00.

- Suggested Positions -

Long the April $50 call (COF1116D50) Entry @ $2.63

- or -

Long the April $55 call (COF1116D55) Entry @ $0.65

chart:

Entry on March 16th at $51.08
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 4.4 million
Listed on March 15th, 2010


Jones Lang Lasalle Inc. - JLL - close: 98.35 change: +1.55

Stop Loss: 93.85
Target(s): 102.50, 109.00
Current Option Gain/Loss: - 2.9%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/19 update: JLL is still slowly bouncing from the bottom of its recent trading range toward the top of its range and resistance near $100.00. I am not suggesting new bullish positions at this time.

Prior Comments:
We wanted to keep our position size small to limit our risk. Our targets are $102.50 and $109.00.

- Suggested Positions - (Small Positions)

Long the April $100 calls (JLL1116D100) Entry @ $3.40

03/17 Exited March calls @ open, Estimated exit @ 0.10 (-94.2%)
03/10 New stop loss @ 93.85

chart:

Entry on February 28th at $97.96
Earnings Date 04/27/11 (unconfirmed)
Average Daily Volume = 386 thousand
Listed on February 26th, 2010


Polaris Industries, Inc. - PII - close: 81.87 change: +0.42

Stop Loss: 78.49
Target(s): 84.95, 89.00
Current Option Gain/Loss: -20.0%
Time Frame: 4 to 7 weeks
New Positions: see trigger

Comments:
03/19 update: Our bullish play on PII has been triggered. The stock opened at $82.23 and rallied to $82.91 before paring its gains. Our trigger to buy calls was hit at $82.25. I would still consider new positions now or you could wait for another dip into the $80.50-80.00 zone.

PII has been showing relative strength lately and just hit new all-time highs on Friday morning. I would keep our position size small to limit our exposure. Our targets are $84.95 and $89.00. FYI: The Point & Figure chart for PII is bullish with a $98 target.

- Small Positions -

Long the April $85 calls (PII1116D85) Entry @ 2.00

chart:

Entry on March 18th at $82.25
Earnings Date 04/21/11 (unconfirmed)
Average Daily Volume = 396 thousand
Listed on March 14th, 2010


Quality Systems Inc. - QSII - close: 79.51 change: +0.24

Stop Loss: 77.90
Target(s): 87.25, 94.50
Current Option Gain/Loss: -59.2%, and -25.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/19 update: QSII has spent the last three trading days in a narrow range. Friday saw the early rally attempt fade but at its lows of the day traders were buying the dip near $79.00. I don't see any changes from my prior comments. If the market rolls over then we can expect QSII to breakdown. More conservative traders might want to raise their stops toward this past week's low near $78.66. For the moment I am keeping our stop loss under the 50-dma (near $78.00). Readers might want to wait for a rally over $81.00 before initiating new bullish positions.

Prior Comments:
FYI: Readers will be interested to note that the most recent data listed short interest in QSII at almost 28% of the very small 17.5 million-share float. That's definitely a recipe for a short squeeze. Plus, the Point & Figure chart for QSII is bullish with a $119 target.

- Suggested Positions -

Long the April $85 calls (QSII1116D85) Entry @ $1.35

- or -

Long the June $85 calls (QSII1118F85) Entry @ $3.40

chart:

Entry on March 4th at $81.44
Earnings Date 05/31/11 (unconfirmed)
Average Daily Volume = 154 thousand
Listed on March 3rd, 2010


PUT Play Updates

Fortune Brands Inc. - FO - close: 60.12 change: +0.49

Stop Loss: 62.05
Target(s): 55.15
Current Option Gain/Loss: - 9.3% and - 3.7%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/19 update: The stock market is trying to bounce. FO is not seeing much follow through on this past week's bearish breakdown. That makes me a little more cautious here. However, Friday's action was probably clouded by option expiration. FO hovered near the $60.00 strike price all day. Monday should offer some new insight in FO's strength or weakness. I am thinking about lowering our stop loss closer to the $61.50 level. For the moment we'll leave the stop unchanged at $62.05.

If you're looking for a new entry point consider waiting for another failed rally under $61.00 or a new drop under $59.50.

Remember our plan was to keep our position size small to limit our risk. Our target is $55.15. More aggressive traders may want to aim for the simple 200-dma instead.

- Open Small Bearish Positions -

Long the April $60 put (FO1116P60) Entry @ $1.60

- or -

Long the June $55 put (FO1118R55) Entry @ $1.35

chart:

Entry on March 17th at $60.26
Earnings Date 04/28/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on March 16th, 2010


Infosys Technologies - INFY - close: 64.55 change: -0.68

Stop Loss: 68.15
Target(s): 60.25, 57.50
Current Option Gain/Loss: - 1.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/19 update: Our INFY is off to a decent start. Shares underperformed the market on Friday. The stock opened at $65.30 and eventually settled with a -1.0% loss. INFY looks poised to breakdown to new lows soon. I would still consider new bearish positions now or you could wait for a breakdown under the $64.00 level.

We want to keep our position in INFY pretty small to limit our risk. I'm suggesting a stop loss at $68.15. Our targets are $60.25 and $57.50. INFY looks like it might have support near $60.00 and the $57.00 levels.

- Small Bearish Positions -

Long the April $65 PUT (INFY1116P65) Entry @ $2.48

chart:

Entry on March 18th at $65.30
Earnings Date 04/15/11 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on March 17th, 2010


CLOSED BULLISH PLAYS

Fossil, Inc. - FOSL - close: 79.52 change: -1.52

Stop Loss: 79.40
Target(s): 82.00, 88.00
Current Option Gain/Loss: + 21.1%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
03/19 update: The tone of trading in FOSL is getting worse. Shares slipped to new two-week lows late in the day. The drop toward $80.00 was not unexpected since this was an option expiration weekend. Stocks tend to gravitate toward the nearest strike price. However, FOSL traded under the $79.50 level and hit our stop loss at $79.40. The low for the day was $79.22.

- Suggested Positions -

April $80 calls (FOSL1116D80) Entry @ $2.60, Exit @ 3.15 (+21.1%)

03/18 Stopped out @ 79.40, April call @ $3.15 (+21.1%)
03/17 FOSL opens at $83.03, March option exit @ $2.10 (+50%)
03/16 Exit the March calls ASAP (morning of 3/17) currently +39%
03/09 New stop loss @ 79.40
03/05 New stop loss @ 76.75
03/05 1st Target Hit @ $82.00, Options @ +142% and +92.3%
03/03 new stop loss @ 74.75

chart:

Entry on February 28th at $76.75
Earnings Date 05/11/11 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on February 26th, 2010


CLOSED BEARISH PLAYS

Joy Global Inc. - JOYG - close: 91.96 change: +0.76

Stop Loss: 93.75
Target(s): 85.25
Current Option Gain/Loss: -53.6%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
03/19 update: The market's strength on Friday was enough to lift JOYG past resistance near $92 and its 50-dma. Yet I suspect it was the drop in the dollar to new relative lows that had the biggest impact. A falling dollar makes commodities more expensive. JOYG sells mining equipment yet it tends to trade like a mining stock. Dollar weakness is bullish for commodities and thus mining stocks. JOYG hit $93.77 intraday. Our stop loss was hit at $93.75 closing our trade.

- Suggested Positions -

April $85 puts (JOYG1116P85) Entry @ $2.50, Exit @ 1.16 (-53.6%)

03/18 Stopped out. Option @ $1.16 (-53.6%)
03/15 New stop @ 93.75

chart:

Entry on March 11th at $90.00
Earnings Date 06/02/11 (unconfirmed)
Average Daily Volume = 3.4 million
Listed on March 10th, 2010


Union Pacific Corp. - UNP - close: 93.80 change: +2.33

Stop Loss: 95.05
Target(s): 85.25, or 200-dma
Current Option Gain/Loss: -37.1%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
03/19 update: Lack of follow through on the market's sell-off this past week doesn't bode well for the bears. A drop in oil prices helped lift the transportation stocks toward their recent highs. While UNP is underperforming the bounce in the transportation index it did bounce enough to hit our stop loss. Shares of UNP rallied past resistance at $95 and its 50-dma to hit a high of $96.00.

UNP actually gapped open at $95.15 on Friday morning. Since our stop loss was at $95.05 the play was closed immediately.

- Small Bearish Positions -

April $90 PUTS (UNP1116P90) Entry @ $1.75, Exit @ $1.10 (-37.1%)

03/18 Stopped out, gap open higher. Option @ -37.1%)

chart:

Entry on March 17th at $92.90
Earnings Date 04/20/11 (unconfirmed)
Average Daily Volume = 2.7 million
Listed on March 16th, 2010