Editor's Note:

Traders should be cautious here. The S&P 500 index rallied toward resistance and reversed on Friday. We had a handful of stocks produce bearish engulfing candlestick patterns (ALXN, DCI, EW, FDO, NTAP, and ORLY). These patterns are normally seen as potential bearish reversals.

We are taking a more conservative stance tonight so we've updated several stop losses. I am suggesting an early exit for DCI and we're dropping ARLP with the trade unopened. FYI: Our SPY trade was opened on Friday morning.

-James

Current Portfolio:


CALL Play Updates

Alexion Pharmaceuticals - ALXN - close: 66.98 change: -2.28

Stop Loss: 67.40
Target(s): 74.75 or 79.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
12/03 update: ALXN produced a sharp reversal at resistance on Friday. The stock rallied to $69.72 and then dropped to a -3.2% decline. It could be just fear of the weekend profit taking. We are still waiting for a breakout. Currently our plan calls for a trigger to open small bullish positions at $70.55.

I am setting our exit target at $74.75 but if you're patient I could see ALXN make a run towards $80. FYI: The Point & Figure chart for ALXN is bullish with an $82 target.

Trigger @ $70.55 (Small Positions)

- Suggested Positions -

buy the Jan $75 call (ALXN1221A75)

chart:

Entry on December xx at $ xx.xx
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 1.1 million
Listed on December 01, 2011


Edwards Lifesciences - EW - close: 64.99 change: -1.84

Stop Loss: 63.25
Target(s): 69.50
Current Option Gain/Loss: Dec$65c: + 0.0% & Jan$70c: -14.7%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/03 update: Warning! EW underperformed the market on Friday with a -2.7% decline. Furthermore Friday's move looks like a failed rally under the 20-dma and shares did paint a bearish engulfing candlestick pattern. I am expecting a dip back to the 10-dma near $64.00. We will try and limit our risk by raising the stop loss to $63.25. I am not suggesting new positions at this time.

More conservative traders may want to exit early now to avoid or limit any losses.

- Suggested Positions -

Long DEC $65 call (EW1117L65) Entry $1.95

- or -

Long 2012Jan $70 call (EW1221A70) Entry $1.70

12/03 new stop loss @ 63.25
11/30 new stop loss @ 61.95
11/28 trade opened. EW gapped higher at $63.97
11/26 trade still not open. Adjusting stop loss to $59.90
11/23 still not open
11/22 not open yet

chart:

Entry on November 28 at $63.97
Earnings Date 02/02/12 (unconfirmed)
Average Daily Volume = 1.2 million
Listed on November 21, 2011


Family Dollar Stores - FDO - close: 58.70 change: -0.36

Stop Loss: 56.75
Target(s): 64.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Comments:
12/03 update: FDO looks poised for a little pull back. We are adjusting our buy-the-dip entry point from $58.50 to $58.00 and we'll move our stop loss higher to $56.75.

Earlier Comments:
We want to keep our position size small because the spreads on the options below are getting wide, making this trade more risky.

buy the dip Trigger @ 58.00 (small positions)

- Suggested Positions -

buy the DEC $60 call (FDO1117L60)

- or -

buy the JAN $60 call (FDO1221A60)

12/03/11 Adjust buy-the-dip trigger to $58.00
12/03/11 new stop loss @ 56.75
11/30 New strategy to account for FDO's bullish breakout higher. We want to use a trigger at $58.50 to open bullish positions with a stop at $56.45. New target is $64.00. I've updated our option strikes.
11/26 new strategy. buy a dip at $54.50, stop loss @ 53.75. Keep positions small because option spreads are wide.
11/22 not open yet

chart:

Entry on November xx at $ xx.xx
Earnings Date 01/04/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on November 21, 2011


JB Hunt Transport Services - JBHT - close: 45.69 change: +0.22

Stop Loss: 44.75
Target(s): 48.25
Current Option Gain/Loss: +17.0%
Time Frame: 4 to 8 weeks
New Positions: see below

Comments:
12/03 update: The Dow Jones Transportation index managed to eke out a +0.7% gain. Shares of JBHT were not far behind with a +0.4% gain on Friday. This stock managed a rally to $46.47 intraday. It's very possible that JBHT could correct back toward the $44.00 level, which as broken resistance should be new support. More aggressive traders will want to keep their stop loss under $44.00. We are taking a more cautious approach and raising our stop loss up to $44.75 instead. No new positions at this time.

Earlier Comments:
Our multi-week target is $48.25. JBHT doesn't move super fast so give yourself time for the trade to work. FYI: The Point & Figure chart for JBHT is bullish with a $63 target.

- Suggested Positions -

Long 2012JAN $45 call (JBHT1221A45) Entry $2.05

12/03/11 new stop loss @ 44.75. More aggressive traders may want to leave their stop under $44.00 instead
11/30/11 new stop loss @ 42.45
11/29/11 triggered at $44.35

chart:

Entry on November 29 at $44.35
Earnings Date 01/30/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on November 22, 2011


NetApp, Inc. - NTAP - close: 36.54 change: -0.38

Stop Loss: 34.95
Target(s): 39.50
Current Option Gain/Loss: +13.9%
Time Frame: 3 to 5 weeks
New Positions: see below

Comments:
12/03 update: There was some minor profit taking in NTAP on Friday. Unfortunately the stock has produced a bearish engulfing candlestick pattern. On a short-term basis we might see NTAP dip back to test its 10-dma near $35.53. We'll try and reduce our risk by raising the stop loss to $34.95. I am not suggesting new positions at this time.

Earlier Comments:
I do consider a more aggressive trade. We want to keep our position size small to limit risk. FYI: Readers should note that there is a risk that NTAP might make an acquisition soon. There are rumors floating around that NTAP could buy Quantum (QTM) or CommVault (CVLT) in an effort to better compete with rival EMC. If NTAP does make a bid for either company typically shares of the buyer go down while shares of the target go up.

- Suggested Positions - (small positions)

Long JAN $35 call (NTAP1221A35) Entry $2.51

12/03/11 new stop loss @ 34.95

chart:

Entry on November 29 at $35.82
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 9.2 million
Listed on November 28, 2011


O'Reilly Automotive - ORLY - close: 77.03 change: -0.67

Stop Loss: 74.90
Target(s): 82.50
Current Option Gain/Loss: Dec$75c: -10.7% & Jan$80c: -26.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/03 update: We need to be careful here. There was some normal profit taking in ORLY on Friday with a -0.8% decline. Unfortunately the stock has produced a bearish engulfing candlestick pattern. This is a potential reversal signal but it usually needs to see confirmation first. We are raising our stop loss up to $74.90. I am not suggesting new positions at this time.

Earlier Comments:
Our target is $82.50 but more conservative traders may want to exit in the $79.50-80.00 zone instead. FYI: The Point & Figure chart for ORLY is bullish with a $103 target.

- Suggested Positions -

Long DEC $75 call (ORLY1117L75) Entry $2.80

- or -

Long JAN $80 call (ORLY1221A80) Entry $1.50*

12/03/11 new stop loss @ 74.90
11/28/11 ORLY gapped open higher at $76.96, which was above our trigger to buy calls at $76.15.
*Jan $80 call did not trade today. Entry price is an estimate.

chart:

Entry on November 28 at $76.96
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 1.0 million
Listed on November 26, 2011


Phillip Morris Intl. - PM - close: 75.47 change: -0.22

Stop Loss: 73.75
Target(s): 78.50
Current Option Gain/Loss: + 87.5%
Time Frame: 6 to 9 weeks
New Positions: see below

Comments:
12/03 update: Last week PM rallied to new all-time highs. Our call option more than doubled. Thus far shares have seen two days of mild profit taking. I wouldn't be surprised to see a dip back toward the $74.00 level. More conservative traders may want to go ahead and exit now, especially now since we've seen or option gain fade to +87%. We're raising our stop loss up to $73.75. I am not suggesting new positions at this time.

Earlier Comments:
Our multi-week target is $78.50. FYI: The Point & Figure chart for PM is bullish with a $95 target.

- Suggested Positions -

Long 2012 Jan $75 call (PM1221A75) Entry $1.12

12/03 new stop loss @ 73.75
11/30 new stop loss @ 71.40
11/23 adjusted stop loss to $69.49
11/22 trade opened. PM opened at $72.11

chart:

Entry on November 22 at $72.11
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 7.3 million
Listed on November 19, 2011


Boston Beer Co. Inc. - SAM - close: 102.51 change: +1.61

Stop Loss: 98.75
Target(s): 109.50
Current Option Gain/Loss: - 7.8%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/03 update: Our new trade on SAM has been triggered. The stock gapped higher at $101.96 and rallied to $105.08 before paring its gains. This is a new all-time high for the stock. Unfortunately the sharp pull back is a bit short-term worrisome. I would expect a dip back toward the $101-1000 zone soon. Look for that dip or a bounce from the same area as a new entry point to buy calls. We are raising our stop loss up to $98.75.

Earlier Comments:
Our exit target is $109.50. More aggressive traders may want to aim higher. FYI: The Point & Figure chart for SAM is bullish with a $117 target. NOTE: The most recent data listed short interest at 20% of SAM's extremely small 8.3 million-share float. That's definitely a recipe for a short squeeze.

(small positions) - Suggested Positions -

Long JAN $105 call (SAM1221A105) Entry $2.05

12/03/11 new stop loss @ 98.75
12/02/11 trade triggered at $102.00

chart:

Entry on December xx at $ xx.xx
Earnings Date 03/08/12 (unconfirmed)
Average Daily Volume = 72.3 thousand
Listed on December 01, 2011


PUT Play Updates

SPDR S&P 500 ETF - SPY - close: 124.97 change: -0.02

Stop Loss: 127.55
Target(s): 120.50
Current Option Gain/Loss: +13.1%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/03 update: We have been concerned that the S&P 500 index might roll over at resistance near 1260 or the 200-dma near 1265. On Friday this index hit 1260.08 before reversing into negative territory. It doesn't bode well for the bulls. The market is still short-term overbought. Our SPY trade was opened on Friday. We had a trigger to buy puts at $126.00 and the SPY opened at $126.12 and hit $126.50. Currently we have a stop loss at $127.55. More aggressive traders may want to inch their stop higher so it's just above $128.00 instead.

Earlier Comments:
We want to keep our position size small to limit our risk.

- Suggested Positions -

Long 2012Jan $120 PUT (SPY1221M120) Entry $2.67

12/02/11 trade opened at $126.12 (gap higher), trigger was 126.00

chart:

Entry on December 02 at $126.12
Earnings Date --/--/--
Average Daily Volume = 224 million
Listed on November 30, 2011


CLOSED BULLISH PLAYS

Donaldson Company - DCI - close: 66.85 change: -0.79

Stop Loss: 63.80
Target(s): 69.50
Current Option Gain/Loss: -13.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
12/03 update: Our new trade on DCI is not performing very well. I warned readers on Thursday that the stock might be forming a bearish reversal. Friday's bearish engulfing candlestick pattern didn't improve matters. I am suggesting we go ahead and exit early now.

NOTE: the wide spreads on DCI's options are definitely impacting our performance. We may not trade DCI again until the spreads improve.

(small positions) - Suggested Positions -

Long JAN $65 call (DCI1221A65) Entry $4.50*, exit $3.90 (-13.3%)

12/03/11 exit early
12/01/11 DCI hit $69.43. Our target is 69.50. The reversal looks bearish. Readers may want to go ahead and exit early now
11/30/11 new stop loss @ 63.80
11/30/11 DCI gapped higher at $66.15. Our trigger was $65.55.
*entry price is an estimate. Option did not trade on Wednesday morning.

chart:

Entry on November 30 at $66.15
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 306 thousand
Listed on November 29, 2011


CLOSED BEARISH PLAYS

Alliance Resource Partners - ARLP - close: 74.15 chg: +1.46

Stop Loss: 72.55
Target(s): 60.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/03 update: We are giving up on ARLP as a bearish candidate. The stock's long-term trend is still one of lower highs and lower lows (just look at the weekly chart) but on a short-term basis this past week has produced some bullish developments. Friday's +2% gain is a bullish breakout past the four-week trend of lower highs and it's a breakout past technical resistance at the simple 200-dma.

Our trigger to open bearish positions was never hit. I am removing it from the play list unopened.

Trade Did Not Open

chart:

Entry on November xx at $ xx.xx
Earnings Date 01/30/12 (unconfirmed)
Average Daily Volume = 45 thousand
Listed on November 26, 2011