Editor's Note:

Aerospace and defense-related stocks underperformed on Friday most likely due to budget cut worries. We saw our NOC trade get stopped out.

TEVA was also stopped out. We have removed DLTR and ANF as trading candidates.

Current Portfolio:


CALL Play Updates

Berkshire Hathaway Inc. - BRK.B - close: 79.42 change: -0.24

Stop Loss: 77.75
Target(s): 84.00
Current Option Gain/Loss: -12.2%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/28 update: Traders bought the dip again midday and BRK.B pared its losses by the closing bell. At this point readers may want to wait for BRK.B to breakout past resistance at $80.00 before considering new positions. I am adjusting our exit target to $84.00 and moving our stop loss higher to $77.75.

We do not want to hold over the late February earnings report.

- Suggested Positions -

Long Feb $80 call (BRKB1218B80) entry $0.90

01/28/12 new stop loss @ 77.75, adjusted exit to $84.00
01/25/12 new stop loss @ 77.45
01/18/12 triggered at $78.75
01/14/12 adjusted entry point strategy to use a trigger @ 78.75
01/13/12 BRK.B gapped lower, negating our entry point. Trade did not open.

chart:

Entry on January 18 at $78.75
Earnings Date 02/27/12 (unconfirmed)
Average Daily Volume = 4.4 million
Listed on January 12, 2012


Cognizant Technology - CTSH - close: 71.33 change: +0.10

Stop Loss: 68.75
Target(s): 76.50
Current Option Gain/Loss: -17.6%
Time Frame: exit prior to the Feb. 8th earnings
New Positions: see below

Comments:
01/28 update: Friday proved to be a quiet day for CTSH with the stock drifting sideways in a narrow range. Readers may want to wait for a new dip or a bounce near the $70.00 level before considering new positions.

Our target is $76.50. We do not want to hold over the Feb. 8th earnings report. FYI: The Point & Figure chart for CTSH is bullish with an $85 target.

- Suggested Positions -

Long Feb $75 call (CTSH1218B75) Entry $0.85

01/24/12 trade opened at $71.05

chart:

Entry on January 24 at $71.05
Earnings Date 02/08/12 (confirmed)
Average Daily Volume = 2.3 million
Listed on January 21, 2012


Express Scripts, Inc. - ESRX - close: 51.44 change: -0.92

Stop Loss: 49.95
Target(s): 57.00
Current Option Gain/Loss: -27.5%
Time Frame: exit prior to February earnings
New Positions: see below

Comments:
01/28 update: ESRX underperformed the market on Friday with a -1.7% decline. Yet shares held short-term technical support at the rising 10-dma. A bounce here could be used as a new bullish entry point. Although if the market drops on Monday we might see ESRX test the $50.00 level.

Earlier Comments:
This stock could see more short covering. The most recent data listed short interest at almost 17% of the 482 million-share float. FYI: The Point & Figure chart for ESRX is bullish with a $75 target.

- Suggested Positions -

Long Feb $52.50 call (ESRX1218B52.5) Entry $2.00

chart:

Entry on January 26 at $52.67
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 6.6 million
Listed on January 25, 2012


Flowserve Corp. - FLS - close: 109.12 change: +0.40

Stop Loss: 105.45
Target(s): 114.50
Current Option Gain/Loss: Feb $110c: -11.1% & Apr$115c: - 7.5%.
Time Frame: 3 to 4 weeks
New Positions: , see below

Comments:
01/28 update: FLS bounced off its Friday morning lows near $108 and closed up +0.4% for the session. This is the second day in a row traders have bought the dip near $108 but I'm not ready to move our stop loss yet. More aggressive traders might want to put their stop loss under the $105.00 level instead.

I am setting our target at $114.50 but cautious traders may want to exit at $112.00 instead. FYI: The Point & Figure chart for FLS is bullish with a $139 target.

- Suggested Positions -

Long FEB $110 call (FLS1218B110) Entry $2.59

- or -

Long APR $115 call (FLS1221D115) Entry $4.00

01/26/12 trade opened on FLS' gap open higher at $109.21.
01/25/12 adjusted entry point strategy to buy calls when FLS hits $109.05, and use a stop loss at $105.45

chart:

Entry on January 26 at $109.21
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 400 thousand
Listed on January 21, 2012


Starwood Hotel & Resorts - HOT - close: 54.36 change: +0.62

Stop Loss: 52.65
Target(s): 57.50
Current Option Gain/Loss: +46.1%
Time Frame: exit prior to earnings
New Positions: see below

Comments:
01/28 update: HOT rebounded off its Friday morning low and recouped a good chunk of Thursday's decline. We only have three days left for this trade. We'll plan to exit on Wednesday, Feb. 1st to avoid holding over earnings on Thursday morning. Given our dwindling time frame I am inching up our stop loss to $52.65. I am not suggesting new positions at this time.

- Suggested Positions -

Long Feb $52.50 call (HOT1218B52.5) entry: 1.67

01/28/12 prepare to exit on Feb. 1st at the close
01/28/12 new stop loss @ 52.65
01/26/12 sold half @ the open. Bid was $2.95 (+76.6%)
01/25/12 prepare to sell half at the open tomorrow morning. bid on our call is currently at $3.20 (+91.6%). We will adjust the exit target on the remainder of our position to $57.50
01/25/12 new stop loss @ 52.40
01/24/12 new stop loss @ 51.45
01/18/12 new stop loss @ $49.75
01/13/12 Triggered on a dip at $51.00
01/10/12 initial entry point did not work. New strategy: buy a dip at $51.00.

chart:

Entry on January 13 at $51.00
Earnings Date 02/02/12 (confirmed)
Average Daily Volume = 2.4 million
Listed on January 09, 2012


iShares Russell 2000 ETF - IWM - close: 79.72 change: +0.54

Stop Loss: 75.45
Target(s): 82.50
Current Option Gain/Loss: +23.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/28 update: Small cap stocks were showing relative strength on Friday and the IWM gained +0.6%. The trend is up but I'm still concerned the IWM might be a little bit overbought. I would not be surprised to see a dip close to the rising 10-dma. I am not suggesting new positions at this time.

Earlier Comments:
You may want to consider a stop closer to the 10-dma instead (currently 75.95). Our multi-week target is $82.50. Keep in mind the $80.00 level might offer some overhead resistance. FYI: The Point & Figure chart for IWM is bullish with a $90 target.

- Suggested Positions -

Long Feb $80 call (IWM1218B80) Entry $1.14

01/19/12 IWM gapped open higher at $78.13

chart:

Entry on January 19 at $78.13
Earnings Date --/--/--
Average Daily Volume = 40 million
Listed on January 18, 2012


iShares Transportation - IYT - close: 95.38 change: +0.79

Stop Loss: 91.75
Target(s): 98.50
Current Option Gain/Loss: Jan$95c: - 100% & Feb$95c: +34.4%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
01/28 update: The IYT was showing relative strength on Friday with a +0.8% gain and a close over potential resistance at the $95.00 level. We are raising our stop loss up to $91.75.

- Suggested Positions -

Long Feb $95 call (IYT1218B95) entry $1.45
target 98.50

01/28/12 new stop loss @ 91.75
01/21/12 new stop loss @ 91.40
01/21/12 January $95 calls have expired.
01/12/12 new stop loss @ 89.45
01/07/12 new stop loss @ 88.75
01/03/12 IYT gapped open higher at $91.20, above our trigger at $90.75

chart:

Entry on January 03 at $91.20
Earnings Date --/--/--
Average Daily Volume = 582 thousand
Listed on December 22, 2011


Laboratory Corp. - LH - close: 91.32 change: +0.26

Stop Loss: 88.40
Target(s): 94.75
Current Option Gain/Loss: + 86.6%
Time Frame: up to the Feb. 10th earnings report.
New Positions: see below

Comments:
01/28 update: It looks like LH has spent the last couple of days moving sideways and digesting gains from earlier in the week. The $90-89 area should be support. I am raising the stop loss to $88.40.

We do not want to hold positions over the Feb. 10th earnings report. Our target is the $94.75 mark. FYI: The Point & Figure chart for LH is bullish with a $105 target.

- Suggested Positions -

Long Feb $90 call (LH1218B90) Entry $1.50

01/28/12 new stop loss @ 88.40
01/26/12 sold half @ the open, bid @ $2.65 (+76.6%)
01/25/12 sell half at the open tomorrow. Bid on the Feb. $90 call is at $3.10 (+106%).
01/25/12 new stop loss @ 87.90
01/24/12 rival DGX delivers a strong earnings report
01/23/12 trade triggered at $89.00
01/21/12 new stop loss at $86.90. Still waiting for LH to hit our entry point at $89.00.

chart:

Entry on January 23 at $89.00
Earnings Date 02/10/12 (confirmed)
Average Daily Volume = 564 thousand
Listed on January 10, 2012


Lufkin Industries - LUFK - close: 75.37 change: +1.10

Stop Loss: 73.40
Target(s): 82.00
Current Option Gain/Loss: - 30.5%
Time Frame: up to the Feb. 9th earnings report.
New Positions: see below

Comments:
01/28 update: Good news! There was no follow through on Thursday's bearish reversal candlestick pattern. LUFK outperformed the market on Friday with a +1.4% bounce. I'm still a little cautious here. I'd rather see a new rise past $76.50 before considering new bullish positions.

Our target is $82.00 but we want to exit prior to the Feb. 9th earnings report. FYI: The Point & Figure chart for LUFK is bullish with an $85 target.

- Suggested Positions -

Long Feb $80 call (LUFK1218B80) Entry $2.95

01/25/12 triggered @ 76.60

chart:

Entry on January 25 at $76.60
Earnings Date 02/09/12 (confirmed)
Average Daily Volume = 300 thousand
Listed on January 24, 2012


Mohawk Industries - MHK - close: 63.45 change: +0.09

Stop Loss: 61.95
Target(s): 67.50
Current Option Gain/Loss: -51.6%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/28 update: The intermediate trend for MHK is still higher but short-term the momentum has stalled. Shares have spent a week consolidating sideways. That's not necessarily bad but it's worrisome when the major stock market indices are hitting new relative highs and MHK is not participating. If you look hard enough MHK has a two-week bearish trend of lower highs. More conservative traders might want to consider an early exit. MHK has support near $62.00. We will inch up our stop loss to $61.95. I am not suggesting new positions at this time.

Earlier Comments:
Our target is $67.50 but we do not want to hold over the February earnings report. More aggressive traders could aim higher.

Investors will be interested to note that the most recent data listed short interest at 5% of the 57 million share float. That's not excessive but it's a bit high and could boost any new gains as bears cover their shorts. FYI: The Point & Figure chart for MHK is bullish with a $90 target.

- Suggested Positions -

Long Feb $65 call (MHK1218B65) Entry $2.48

01/28/12 new stop loss @ 61.95
01/26/12 new stop loss @ 61.75
01/17/12 MHK gapped open higher at $63.99

chart:

Entry on January 17 at $63.99
Earnings Date 02/22/12 (confirmed)
Average Daily Volume = 621 thousand
Listed on January 14, 2012


Omnicom Group - OMC - close: 46.52 change: -0.22

Stop Loss: 45.45
Target(s): 49.00
Current Option Gain/Loss: + 8.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/28 update: OMC is still bouncing around the $47-46 area. The trend of higher lows is still in place. Readers might want to start thinking about raising their stop loss.

Our target is $49.00. We do not want to hold over the mid February earnings report. FYI: The Point & Figure chart for OMC is bullish with a $64 target.

- Suggested Positions -

Long Feb $45 call (OMC1218B45) entry $1.80

01/19/12 new stop loss @ 45.45, readers may want to take profits now (+66%)
01/18/12 new stop loss @ 44.75

chart:

Entry on January 12 at $45.75
Earnings Date 02/14/12 (unconfirmed)
Average Daily Volume = 1.6 million
Listed on January 11, 2012


PVH Corp. - PVH - close: 76.70 change: -0.24

Stop Loss: 74.75
Target(s): 83.50
Current Option Gain/Loss: Feb77.50c: -43.7% & Mar$80c: -35.2%
Time Frame: 4 to 6 weeks
New Positions: see below

Comments:
01/28 update: PVH has spent the last day and a half in a very narrow range. If the market dips again I would not be surprised to see PVH pull back toward the $75.00 level. I am not suggesting new positions at this time.

Earlier Comments:
The plan was to keep our position size small to limit risk. FYI: The Point & Figure chart for PVH is bullish with a $92 target.

- Suggested Positions - (small positions)

Long Feb $77.50 call (PVH1218B77.5) Entry $2.40

- or -

Long Mar $80 call (PVH1217C80) Entry $2.55

01/24/12 trade triggered at $77.60
01/23/12 trade still not open
new entry point strategy to use a trigger at $77.60, stop loss at $74.75
01/21/12 trade not open yet. try again.

chart:

Entry on January 24 at $77.60
Earnings Date 03/28/12 (unconfirmed)
Average Daily Volume = 867 million
Listed on January 19, 2012


SPX Corp. - SPW - close: 69.57 change: +0.18

Stop Loss: 67.90
Target(s): 74.75
Current Option Gain/Loss: Unopened
Time Frame: up to the Feb. 16 earnings report
New Positions: Yes, see below

Comments:
01/28 update: I need to issue a correction for our new trade with SPW. On Thursday I mistakenly listed our trigger to buy calls at $74.75 while listing our target to exit at $74.75 at the same time. We actually want to use a trigger to buy calls at $70.50 and exit at $74.75.

Friday was a non-event for SPW with the stock trading sideways in a narrow range under resistance at $70.00.

If triggered we will aim for the $74.75 mark but more aggressive traders could aim higher. We do not want to hold over the Feb. 16th earnings report. FYI: The Point & Figure chart for SPW is bullish with an $82 target.

Trigger @ 70.50

- Suggested Positions -

buy the Feb $70 call (SPW1218B70) current ask $2.05

chart:

Entry on January xx at $ xx.xx
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 711 thousand
Listed on January 26, 2012


TJX Companies - TJX - close: 67.37 change: -0.58

Stop Loss: 66.49
Target(s): 68.50
Current Option Gain/Loss:(Jan$65c: +85.0%) & Feb$65c: +57.1%
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
01/28 update: TJX succumbed to some profit taking ahead of the weekend after hitting new record highs on Thursday. If recent action is any indication then we could see TJX dip toward its 10-dma near $66.85 or its 20-dma near $66.08. Just a couple of days ago we turned more cautious on the stock and raised our stop loss to $66.49. Readers may want to go ahead and exit our February calls now. I am not suggesting new positions at this time.

Earlier Comments:
On January 5th, management announced a 2-for-1 stock split payable on February 2nd, 2012.

- Suggested Positions -

Long Feb $65 call (TJX1218B65) Entry $1.75

01/26/12 new stop loss @ 66.49, Consider taking profits now!
01/18/12 adjusted exit target to $68.50
01/18/12 closed Jan $65 calls @ $1.85 (+85.0%)
01/17/12 prepare to exit January calls at close tomorrow
01/17/12 new stop loss @ 64.75
01/12/12 new stop loss @ 63.75
01/07/12 readers may want to take profits now (Jan$65call +90%, Feb$65call +57%)
01/05/12 new stop loss @ 63.25, TJX announced strong same-store sales and a 2:1 split.
12/31/11 new stop loss @ 62.75

chart:

Entry on December 22 at $64.10
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 2.7 million
Listed on December 21, 2011


PUT Play Updates

Deckers Outdoor Corp. - DECK - close: 82.62 change: +0.27

Stop Loss: 85.25
Target(s): 77.00
Current Option Gain/Loss: -27.4%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/28 update: DECK eked out another gain on Friday but shares are still trading with a bearish trend of lower highs. I am not suggesting new positions at this time. More conservative traders might want to inch down their stop loss.

Earlier Comments:
Our target is $77.00. We want to keep our position size small because any unexpected rally might spark some short covering. The most recent data listed short interest at 14% of the relatively small 37.1 million-share float.

(Small Positions) - Suggested Positions -

Long FEB $80 PUT (DECK1218N80) Entry $3.10

01/25/12 DECK is not cooperating. Readers may want to exit immediately.

chart:

Entry on January 23 at $82.75
Earnings Date 02/23/12 (unconfirmed)
Average Daily Volume = 2.0 million
Listed on January 21, 2012


CLOSED BULLISH PLAYS

Dollar Tree Inc. - DLTR - close: 84.64 change: +0.98

Stop Loss: 83.75
Target(s): 89.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/28 update: I am removing DLTR from the play list, at least temporarily. Shares did outperform the market on Friday with a +1.1% gain. Yet short-term upward momentum has stalled. Long-term the trend is still bullish. I would keep DLTR on your watch list. A breakout past $86.00 or a dip near $80 and its rising 100-dma could both be potential bullish entry points.

Our trade did not open.

Our trade did not open.

01/28/12 removed from the newsletter. trade did not open.
01/26/12 still not open. We want to step back and observe tomorrow. No entry on Friday, Jan. 27th.
01/25/12 still not open
01/24/12 trade did not open. try again.

chart:

Entry on January xx at $ xx.xx
Earnings Date 02/22/12 (unconfirmed)
Average Daily Volume = 1.2 million
Listed on January 23, 2012


Northrop Gruman - NOC - close: 58.71 change: -0.61

Stop Loss: 58.75
Target(s): 64.00
Current Option Gain/Loss: -64.7%
Time Frame: up to NOC's early February earnings report.
New Positions: see below

Comments:
01/28 update: Defense stocks underperformed on Friday most likely due to worries over budget cuts. NOC underperformed its peers with a -1.0% decline. The stock broke down under its simple 200-dma and hit our stop loss at $58.75 in the process. On the weekly chart, this past week's performance looks like a big, bearish reversal pattern.

- Suggested Positions -

Feb $60 call (NOC1218B60) Entry $1.70, exit $0.60 (-64.7%)

01/27/12 stopped out @ 58.75
01/21/12 new stop loss @ 58.75

chart:

Entry on January 19 at $60.34
Earnings Date 02/01/12 (confirmed)
Average Daily Volume = 1.5 million
Listed on January 18, 2012


Teva Pharmaceuticals - TEVA - close: 44.91 change: -0.54

Stop Loss: 44.40
Target(s): 49.50
Current Option Gain/Loss: -49.3%
Time Frame: 3 to 4 weeks
New Positions: see below

Comments:
01/28 update: I could not find any news to explain the relative weakness in TEVA. Shares began to accelerate lower on Friday afternoon as if traders were afraid to hold over the weekend. TEVA dipped to $44.02 before paring its losses but it still underperformed with a -1.1% decline. Our stop loss was hit at $44.40.

(Small Positions)- Suggested Positions -

Feb $45 call (TEVA1218B45) entry $1.50, exit $0.76 (-49.3%)

01/27/12 stopped out at $44.40
01/25/12 new stop loss @ 44.40
01/18/12 TEVA has rebounded. Use it as a new entry point.
01/17/12 Be careful. TEVA hit our trigger and reversed to close back under $45.00

chart:

Entry on January 17 at $45.25
Earnings Date 02/08/12 (unconfirmed)
Average Daily Volume = 5.9 million
Listed on January 14, 2012


CLOSED BEARISH PLAYS

Abercrombie & Fitch - ANF - close: 47.23 change: +1.35

Stop Loss: 46.05
Target(s): 40.00 or 37.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Comments:
01/28 update: ANF is not cooperating. Shares continue to bounce and the stock is on the verge of breaking out past technical resistance at its 50-dma. Our plan was to buy puts on a breakdown to new lows but that is unlikely to happen any time soon. We are dropping ANF as a bearish candidate.

Trigger @ 43.40

Our trade did not open

01/28/12 removed from the play list. trade did not open

chart:

Entry on January xx at $ xx.xx
Earnings Date 02/15/12 (unconfirmed)
Average Daily Volume = 2.9 million
Listed on January 23, 2012