Option Investor

Daily Newsletter, Thursday, 11/19/2009

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Does the Dollar Make Cents?

by Keene Little

Click here to email Keene Little
Market Stats

Everyone's talking about the lousy dollar and how it's swirling the drain. The bearish sentiment remains extreme (which from a contrarian perspective is a warning to dollar bears). And just about everyone is watching the twitches in the dollar and correlating it with counter-twitches in the stock and commodity markets. But while the dollar rallied a little this morning it gave most of it back by the end of the day. That didn't help the stock market recover.

Most commodities and the commodity related equities dropped with the stock market today which may be related to a sense by many that perhaps the dollar is finding a lasting bottom. The currency markets are much bigger than the stock markets and therefore the stock market is more likely to follow currencies than the other way around. So having some sense for where the dollar is heading could help us figure out where the stock market might go. I'll take a little extra time tonight in reviewing the dollar.

It was a bearish day today, which in light of the good economic news the market received this morning, made for an even more bearish day (selling good news). But our market was not helped by the overseas markets which had our futures down before the opening bell. Once the market gapped down there was a scramble to protect positions. Selling can become exacerbated during opex because many are positioned bullishly, using short puts for example to generate monthly income. Once those short puts become threatened with a declining market traders will either exit them (buy the puts back) or hedge them (short the stock). Both actions are bearish and it adds to the selling pressure. Therefore a hard-down day during opex may be as much about opex position squaring as anything else.

Which begs the question--was today's decline just a 1-day blip on the way to higher highs or did the market hit a brick wall this week? I'm on the side of the brick wall but we'll let the charts speak for themselves and I'll point out what to watch for. Bullish sentiment in the stock market is about as extreme as bearish sentiment in the dollar. I would say most people are expecting a year-end rally and it all has me thinking the market is setting itself up for disappointment. The seasonal factors that normally affect the direction of the market have been turned upside down this year so a year-end decline is certainly something that needs to be seriously considered.

One of this morning's economic news was the Leading Indicator rising by +0.3% in October, making for the 7th consecutive month of a positive change. Many of course feel this is positive proof that the economy continues to recover from its recession (many of whom are claiming the recession is over, just not officially recognized yet). But if the market rallies on "less bad" news should is it now ready to sell off on "less good" news? The graph of the Leading Indicators, showing the month-over-month results, is positive since April but the trend is down.

Leading Indicators Month/Month %

This report tends to already be known from other reports so the market rarely reacts to it but it is potentially important what the trend is showing. What should have helped the market more was the Philly Fed Index that was also released at 10:00 AM. It showed a jump from 11.5 in October to 16.7 in November, which was largely a result of new orders and shipments. But inventories continue to shrink (albeit at a slower rate with November coming in at -17.3 vs. -31.8 in October) and employment remained below zero at -0.5.

The unemployment picture remains essentially unchanged from the week before. I came across some interesting little factoids about our unemployment, as compared to past recessions (I maintain we're in a depression but it hasn't been recognized as one yet). Normally during a recession we've seen the elimination of two million jobs and never before have we seen more than six million jobs eliminated. But during the last two years there have been ten million jobs eliminated. Granted, that comes out of a larger population base but from a percentage standpoint that's a lot of lost jobs compared to previous periods. And normally during a recession the average duration of unemployment peaks at 16.6 weeks (interestingly enough, that's the length of time that unemployment insurance typically lasts). It's now running at an all-time high of 26.9 weeks.

And it's gotten so bad that we're now accepting donations from Mexico. Not to pick on Mexico but for many years we've been sending Mexico U.S. dollars through Mexican migrant workers. The workers were up here to find better paying jobs (and usually jobs that Americans did not want) and many, if not most, sent money back home to help support their families. They have a much deeper sense of commitment to family support than most Americans. We'd rather shove our parents into nursing homes and let the State take care of them. But I digress. Now it appears many of the migrant workers can't find jobs and are fearful about losing their homes/apartments. Their families back in Mexico are now starting to send pesos to the north to help. It's quite a turn of events and speaks loudly for the unemployment situation hitting everyone. If you feel some compassion and have a few extra coins, hire those workers standing at the exits of Home Depot and Lowes. At least they're not on the street corners begging for money.

The market essentially ignored this morning's reports and sold off harder once the cash market opened. A low was found by 11:00 AM and the rest of the day looks like a consolidation of the day's losses. This is another factor that points to a continuation of the decline on Friday (but only for a quick leg down before reversing back up into a bounce correction). In the final 20 minutes of the trading day the market got goosed to the upside in an apparent attempt to get SPX as close as possible to 1100 for Friday morning expiration. It didn't make it (got just above 1096 before dropping back a little). Now I'm wondering if we'll see the futures rally overnight, "magically" getting SPX to settle around 1100 tomorrow morning. It'll be interesting to see what happens.

Depending on how price finishes on Friday it's looking like we're going to have a little doji or shooting star at resistance for the weekly candle. That's a setup for a reversal and a down week next week would confirm the reversal signal. So it's an early call for a top but based on some other things I'm seeing after today's price action I believe the market has topped out. Whether it will be any more significant a top than the previous ones obviously can't be known yet, or even if it will be at least a short-term top, but I like the setup for it.

S&P 500, SPX, Weekly chart

The significance of this year's rally is that it should complete the correction to the 2007-2009 decline. That means the next bear market leg down should begin and take us to new lows next year. One other possibility is that this year's rally is only wave A of what will be a larger A-B-C bounce into next year, represented in pink on the weekly chart above. Otherwise a decline in January should be followed by a bounce into March and then a continuation lower, which is shown a little more clearly on the daily chart below. This is obviously speculation at this point as to how a decline would unfold but the pattern is a typical one. By dropping below 1097 SPX broke back below its downtrend line from October 2007 and its March-July uptrend line.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- cautiously bullish above 1121
- bearish below 1085

Moving in closer, the 60-min chart below shows the two trend lines mentioned above. You can see how price bounced back up to them this afternoon and found them to be resistance. A kiss goodbye first thing Friday morning, followed by a new low would give us a 5-wave move down from Wednesday's high and that would be a strong signal that the trend has turned down. A bounce into Monday, perhaps back up to about 1100, would be an ideal shorting opportunity.

S&P 500, SPX, 60-min chart

Last week I had discussed Fibonacci timing and pointed out that last week was an ideal time for a turn window, which extended into Tuesday of this week. Wednesday was this week's high. I then started playing with some numbers and noticed something interesting. The price retracement of this year's rally was 51.3% for the DOW. As an aside, the bounce in 1930, following the crash of 1929, was 53.7% and had the majority pronouncing the start of the next bull market. I don't have space to show the chart of 1929-1932 but suffice it say, the market proceeded to drop well below the 1930 low into a 1932 low. The same potential exists for our market today (taking out the March 2009 low and heading to much lower lows).

So the DOW retraced 51.3% of the price decline at this week's high. I then changed the time projection to see where a 51.3% projection would be and as shown on the weekly chart below, it's this week. We therefore have the potential for a reversal from a price and time retracement of 51.3% for both. Gotta love numbers. It's hard to see behind the vertical dotted line at 51.3% but this week's candle, so far, is a shooting star at Fib and downtrend line resistance.

Dow Industrials, INDU, Weekly chart

The DOW also came close to its price projection at 10,495 where the a-b-c bounce off the March low (labeled w-x-y because it's a double zigzag wave count) would have achieved equality between the two up legs. It could still get there of course but this week's price action looks like it topped out. As can be seen on the daily chart below, the DOW ran up to its downtrend line from October 2007 and its trend line along the highs since May, which has stopped every rally attempt since then. The negative divergence at each of the highs since August is a warning that the rally can't continue like this. It may not be a good timing signal but it is a warning.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- cautiously bullish above 10,500
- bearish below 10,000

The November rally stopped at the mid line of the parallel up-channel for NDX's price action from March. It got slightly above its 62% retracement of the 2007-2009 decline but now is back down to it. Here's where the real test begins--NDX stopped at support by its 1773 Fib level and its previous high in October. The bulls will see this as strong support and look to buy the dip and I can't say that I blame them. If I were looking for the market to continue higher this is exactly the kind of buying opportunity I'd look for. It's only because of the move up from November 2nd looking complete am I thinking this support level will break. But price is king and we'll have to see who's going to win the fight here. A break below 1740, while not a death knell to the bulls, would be a good indication that the top is in fact in.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- cautiously bullish above 1820
- bearish below 1740

As others have also been commenting, the weakness in the small caps is a bearish omen. The unwillingness to own these higher-beta stocks is usually indicative of a defensive posture and not the sign of a continuation of the bull market. The inability to make a new high in November has the RUT looking like it will continue to lead to the downside. Today it broke its uptrend line from November 2nd.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- cautiously bullish above 600
- bearish below 575

The banking index (BIX) bounced back up to its broken uptrend line from July and then left a bearish engulfing candle today. A break below 125 would confirm the high for the bounce is in and the next leg down should see stronger selling than the first leg down from the October high. I've drawn in a H&S neckline from September and the downside projection for it is near 105, near its 200-dma so that makes for a good initial target for the bears.

S&P Banking index, BIX, Daily chart

After giving us a double top at the October high, the transports now look to be giving us a triple top, with a continuation of the negative divergences. But right now the bulls will look at this and see the TRAN closed at support at its March-July uptrend line. Obviously a turn back up and break above 4060 would be bullish. I don't see it happening but I won't argue with price if it does. The only warning in that case would be to watch out for a head-fake break, as it faked out bears to the downside into the November 2nd low. With any setup like this, any breakout to the upside must find that resistance line to be support otherwise a break back below the line would signal a bull trap.

Transportation Index, TRAN, Daily chart

I'm going to spend a little more time tonight than I usually do on the U.S. dollar. I've had a number of discussions with others over the past couple of months about why I'm bullish on the dollar and bearish on the stock and commodities markets for at least the next year. I've given fundamental reasons to be bullish the dollar, such as it will be the stronger of the fiat currencies and people will flock to it for the perceived safety of it. Saying it will be the stronger of the fiat currencies is not saying a lot but that's how the dollar is measured--against other currencies.

The bearish sentiment on the dollar (and 97% bullish sentiment on gold) is screaming for a reversal in each. The charts tell me we should be looking for reversals. Starting with the daily chart of the dollar, it has a wave count that says it's in the final 5th of its 5th wave down from March 2009. The fact that the stock market made its bottom in March 2009 is not coincidental. Nor will the timing of their reversals be coincidental. The bullish divergences on the dollar have been going on about as long as the bearish divergences in the stock market. Whether the dollar chops its way a little lower over the next couple of weeks before starting its rally, or starts from here, the price pattern strongly suggests the dollar is getting ready to rally.

U.S. Dollar contract, DX, Daily chart

The weekly chart below keeps the move down from its June bounce high in perspective. The dollar rallied off its low in April 2008 and finished its first leg up in November 2008 (for wave A). The pullback since then, even with a slightly higher high in March 2009, is finishing a correction of the April-November 2008 rally (wave B). Another rally leg is due and it would achieve equality with the 1st leg up by reaching 92.95 (for wave C).

U.S. Dollar contract, DX, Weekly chart

From 75 to 93 sounds like a big rally for the dollar and there are many (the majority perhaps) who believe it can't happen because of the inflationary pressures of the Fed's quantitative easing program (monetizing the debt by purchasing it with electronically-derived dollars, i.e., it's being printed from nothing and dropped from helicopters). The more dollars the Fed prints the less value each dollar holds and the more we'll have an inflationary problem. While in theory this is absolutely correct I keep reminding people that it's a matter of timing. And before inflation becomes a problem we have to get through deflation.

Inflation and deflation are related to credit and not whether the prices of goods go up or down. Price is how we conveniently measure it but it's the change in the money supply that gives us inflation or deflation. And an increase in the money supply needs an increase in the velocity of the creation of money (how much and how fast it grows through leveraging--it gets lent out and leveraged some more). Credit is an important component in the velocity equation and we currently have a credit contraction in progress. That's deflationary. It's a result of a depression which is driven by social mood, which clearly has become worse than it was for most of this decade and the two decades before it. People and businesses are reluctant to borrow more out of fear of more trouble ahead. Fear replaces hope. It's a natural cycle following the huge credit boom we experienced over the past two decades and most especially in the past 10 years.

But in the end I do agree with dollar bears and gold bulls--the government's effort to re-inflate the credit bubble will end very badly. Once the deflationary cycle runs its course the Fed will not have a clue how to stop the hyperinflationary cycle that will likely follow (unless they did everything right to prevent it which I have little hope they'll do). And the monthly chart keeps in perspective what the weekly chart above shows. What looks like a big rally coming in the dollar (and a move from 75 to 93 would be a good-sized 24% rally) it would pale by comparison to its decline from 2001 (it would not amount to even a 50% retracement).

U.S. Dollar contract, DX, Monthly chart

The A-B-C bounce off the 2008 low would simply be a correction to the longer-term decline in the dollar. What I'm showing is only one possibility. It could rally higher or consolidate sideways longer but the point is that it's just a correction to the decline. I'm also showing a time retracement of only 38% which is on the short side. A more typical time retracement is closer to 62% which would put a dollar rally/consolidation out to the middle of 2012. It's actually not unreasonable to think that the deflationary cycle will last into 2012, helping keep the dollar up (and stock market down into that timeframe). So while I say I'm bullish the dollar and bearish gold, I'm taking it one year at a time and will be evaluating the pattern as we move forward.

So how does this then relate to gold? If the dollar rallies back above its March 2009 high I fully expect gold to decline back below its March 2009 low (681). Blasphemy you say. First we have to find a top to the current rally and I'm thinking it's in or very close to being in (not sure yet if the bottom of the dollar is in either). Gold has rallied up to the top of a parallel up-channel based off its uptrend line from October 2008 and is leaving some bearish candlesticks this week--a hanging man followed by a shooting star followed by another hanging man (or more bearish dragonfly doji). The daily oscillators appear ready to roll over so I'm anticipating price will do the same. There is a Fib projection near 1169 if the bulls can squeeze a little more juice out this rally. As commodity rallies typically do, this one looks like a blow-off move from the end of October.

Gold continuous contract, GC, Daily chart

The weekly chart below shows the rally from July as even more of a potential blow-off move. It ran into the trend line along the two previous highs in October 2008 and February 2009. It's also close to the top of a parallel up-channel for price action since the July 2005 low. The top of that channel is also close to the Fib projection near 1169 so that's a good upside target if gold is not quite finished yet. That 1169 Fib projection is 138% of the previous move down which is the 2008 decline.

Gold continuous contract, GC, Weekly chart

I'm counting the move from March 2008 as a large A-B-C correction to the rally and the b-wave is the rally from October 2008. When it makes a new high, as it's done, it's common to achieve between a 127% and 138% projection. The next leg down, for the c-wave, will then often be 162% of the previous leg down (the 2008 decline) and that gives us a downside target that's a little below $600 (not shown on the chart). Yes, I think that kind of decline is very possible. It would also be a buying opportunity of a lifetime to buy as much gold as you can get your hands on (which should be easy because it will be a very hated metal at that point).

The gold miners also look to be in a topping pattern. This week's candle so far is a long-legged doji or a spinning top, both of which are warning's of a reversal. The fact that it's at potential resistance at the trend line along the highs since May is a stronger warning. This line, being the top of a rising wedge, means the little throw-over above the line this week followed by a close below the line (which is at 51, where it closed today) would be a sell signal. Notice the same A-B-C pullback pattern for the move down from 2008. Again, it should drop below the October 2008 low but once it's finished it will set up a good buying opportunity.

Gold Miners, GDX, Weekly chart

Silver has been weaker than gold which should come as no surprise. Silver is more of an industrial metal, with some jewelry and investment uses, while gold holds more of an emotional content (alternate currency). But the fact that silver has not matched gold's new high above the 2008 high is bearish non-confirmation of gold's high. Silver has rallied up to the top of its parallel up-channel for the bounce off the October 2008 low (bear flag pattern) and should be finishing the b-wave of an A-B-C pullback pattern from 2008 (so again, it should make a new low below the October 2008 low).

Silver continuous contract, SI, Weekly chart

Oil's bounce this year, as compared to gold and even silver, pales by comparison. It has barely been able to retrace 38% of its 2008 decline. This is one of the better predictors of an economy in trouble and the next leg down (wave C) below its January 2009 low will be a result of further weakening in demand for black gold.

Oil continuous contract, CL, Weekly chart

What should by now be no surprise, the commodity related stocks look the same as the commodity charts reviewed above. The stocks did fairly well by retracing 62% of the 2008 decline but this week's shooting star candlestick at resistance is setting up the reversal. Playing with some numbers, using an equal percentage drop as the 2008 decline (-65%) and taking that away from this week's high of 780.05, that would give us a downside target for the c-wave at 273. I know a lot of commodity bulls who are going to think I've been smoking bull dung when I mention that kind of downside potential but I report it as I see it and let the bull chips land where they will.

MS Commodity Related Equity index, CRX, Weekly chart

Economic reports, summary and Key Trading Levels

There are no significant economic reports on Friday so the market will have to deal with opex shenanigans all by itself. It could be a rather quiet day as opex Fridays tend to be

Dell stunk up the place after hours with their earnings report (when do they not stink up the place with their earnings?). They reported a drop in their profit by -57% from a year ago. They had been forecast to earn 28 cents but instead reported 17 cents. Big miss. Their stock dropped about a dollar from 15.86, settling at 14.90. Equity futures are down some but not that much. I don't think a lot of people pay that much attention to Dell anymore.

Summarizing where we are I'd say watch out if you're long the market. While it could be a tad early to aggressively short the market I think we're close to getting the green light to hit it hard on the short side. A drop on Friday to a minor new low, followed by a bounce into Monday, could be the setup to hit it hard.

I'm feeling like the boy who cried wolf since my previous calls for a top to the market led to only brief declines and then new highs. Some top. Each month we've had good setups for a top and they were worth testing. This is another one. But each one has become a little more certain because of the added benefit of seeing negative divergences and November's is no different. Short the market with a stop above this week's high is the recommended position and if we get a minor new high next week (e.g., DOW 10495 and SPX 1121) it would be another setup but I'll have to evaluate it if and when it happens.

Because we don't have proof of a turn down yet (with some impulsive price action and breaking of support and key levels) I know I'm early but I write this newsletter only on a weekly basis and based on what I'm seeing this week I'm making the call that the top is in. For those of you who subscribe to the live Market Monitor I'll be updating this view on an hourly basis and calling out the setup for another shorting opportunity on Monday/Tuesday if it sets up as I think it will. Or I'll abandon the short side if price starts violating key levels to the upside.

The fist key level to the upside that would tell me I'm early on the bearish call is if tomorrow rallies above SPX 1103 before we get a new low below today's. Once we get the new low then I'll be watching for a typical 50% retracement of the decline from Wednesday to set up the next shorting opportunity. But the bounce could make it all the way back up to Wednesday's high (but not exceed it) and still be just a correction. That's why Wednesday's high must be the stop level for short plays for now.

This is all short-term stuff in hopes that I can help you get out of long positions and/or into short positions. For longer-term traders I've been recommending you exit long and start nibbling on the short side. Nothing has changed in that regard. I see far more risk to the downside than I see upside potential. The potential gains to the upside, especially right now, are dwarfed by the risk to the downside.

This is of course just my opinion. I encourage everyone to find as many dissenting voices as you can and take in everything they point out, bullish and bearish, make sure you understand the points being made, and only then can you form your own opinion about what you want to do with your money. Good luck and I'll be back with you next Thursday at which time we should know without a doubt whether my call for a top was correct or not. Just never argue with price; it always wins.

Key Levels for SPX:
- cautiously bullish above 1121
- bearish below 1085

Key Levels for DOW:
- cautiously bullish above 10,500
- bearish below 10,000

Key Levels for NDX:
- cautiously bullish above 1820
- bearish below 1740

Key Levels for RUT:
- cautiously bullish above 600
- bearish below 575

Keene H. Little, CMT

New Option Plays

Biotechs Falter

by James Brown

Click here to email James Brown


iShares Biotech - IBB - close: 77.86 change: -1.03 stop: 80.05

Why We Like It:
Biotech stocks are rolling over. The BTK index is failing under the 900 level. In a similar fashion the IBB has failed near $80.00. This failed rally pattern is a new entry point for bearish trades. I'm suggesting put positions now with a stop loss at $80.05. The biotech stocks can be a volatile group so I'm suggesting small positions. Our target is near the November lows at $73.50.

Suggested Options:
I'm suggesting the December puts. My preference is for the $75 strike.

BUY PUT DEC 75.00 IBB-XO open interest=1192 current ask $1.00

Annotated Chart:

Picked on  November 19 at $ 77.86
Change since picked:       + 0.00
Earnings Date            --/--/--
Average Daily Volume =        4.9 million  
Listed on  November 19, 2009         

In Play Updates and Reviews

Profit Taking Accelerates Toward Expiration

by James Brown

Click here to email James Brown

CALL Play Updates

Arch Cap Group - ACGL - close: 70.68 change: -0.33 stop: 67.95

ACGL held up reasonably well. The stock lost 0.4% versus a 1.3% drop in the S&P 500. Shares did fall back under resistance at $71.00 again. I'm not suggesting new bullish positions at this time. Our target is the $74.00 level.

Picked on  November 07 at $ 68.81
Change since picked:       + 1.87
Earnings Date            10/26/09 (confirmed)
Average Daily Volume =        444 thousand 
Listed on  November 07, 2009         

Canadian Nat. Res. - CNQ - close: 67.02 change: -1.11 stop: $64.95 *new*

CNQ managed to find support at $66.00 this morning but shares still closed with a 1.6% decline. If this pull back continues CNQ should find additional support near $65.00.

Our original play suggested November calls so we're going to exit tomorrow at the closing bell. I'm raising our stop loss to $64.95.

Picked on  November 09 at $ 67.74 *gap open higher entry
                          /original trigger was $66.05
Change since picked:       - 0.72
Earnings Date            03/04/10 (unconfirmed)
Average Daily Volume =        2.8 million  
Listed on  November 07, 2009         

Chevron Corp. - CVX - close: 77.34 change: -1.58 stop: 76.75

The bounce in the dollar sparked some profit taking in crude oil. This drug the energy stocks lower. CVX broke its short-term bullish trend of higher lows and almost hit our stop loss. More conservative traders may want to exit early right here. I'm not suggesting new bullish positions at this time. Our first target is $84.00.

Picked on  November 11 at $ 78.87 /gap higher entry point
Change since picked:       - 1.53
Earnings Date            01/28/10 (unconfirmed)
Average Daily Volume =       10.6 million  
Listed on  November 10, 2009         

Deere & Co - DE - close: 50.89 change: -0.57 stop: 46.85

DE pulled back toward prior resistance and what should be new support near $50.00. The stock might try to fill the gap from Wednesday morning so don't be surprised to see a dip toward $49.00. While the pattern on DE is bullish I would hesitate to launch new positions with the major indices showing weakness.

Our first target is $54.90. Our second target is $59.00. Keep in mind that we'll plan to exit ahead of DE's earnings report later in the month. More aggressive traders willing to hold over DE's earnings report will want to consider January 2010 calls.

Picked on  November 18 at $ 50.52 *gap open higher   
Change since picked:       + 0.37
Earnings Date            11/25/09 (unconfirmed)
Average Daily Volume =        6.2 million  
Listed on  November 09, 2009         

Deckers Outdoor - DECK - close: 95.49 change: -3.62 stop: 96.95

DECK is breaking its short-term trend of higher lows. The stock managed to find some support near $95.00. We're still sitting on the sidelines waiting for a real breakout over the $100 level. I'm suggesting a trigger to buy calls at $100.75. If triggered our first target is $107.50.

Picked on  November xx at $ xx.xx <-- TRIGGER @ 100.75
Change since picked:       + 0.00
Earnings Date            02/25/10 (unconfirmed)
Average Daily Volume =        659 thousand
Listed on  November 16, 2009         

Gold ETF - GLD - close: 112.30 change: +0.05 stop: 104.90

Most of the commodity sector turned lower on the dollar's bounce. Gold managed to ignore any dollar strength and hold on to its gains. The GLD dipped to $110.76 but bounced back into positive territory.

If you are holding November calls tomorrow is your last day to exit! I'm not suggesting new positions at this time. The newsletter's remaining position are the January $110 calls. Our second target to exit is $119.00. Our time frame is still several weeks.

Picked on   October 06 at $102.28
Change since picked:       +10.02
                               /1st target hit @ 109.50 (+7.0%)
Earnings Date            00/00/00
Average Daily Volume =       14.2 million  
Listed on   October 06, 2009         

MSC Industrial Direct - MSM - close: 45.80 change: -0.35 stop: 44.49

MSM is dipping toward the $45.00 level, which is where the stock should find support. Bulls should also get support from the rising 50-dma. Look for a bounce from $45.00 before considering new positions. An alternative entry would be to wait for a rise over $46.75. Our first target is $49.75. Our second target is $52.50.

Picked on  November 17 at $ 46.62
Change since picked:       - 0.82
Earnings Date            01/07/10 (unconfirmed)
Average Daily Volume =        513 thousand 
Listed on  November 17, 2009         

Parker Hannifin - PH - close: 54.31 change: -1.50 stop: 53.40 *new*

PH has fallen to technical support at its rising 50-dma. Any further breakdown from here would be bearish. The low today was $53.82. I'm raising our stop loss to $53.40. Traders could buy calls on a bounce but I'd suggest readers wait.

Our original trade suggested November calls so we will plan to exit tomorrow at the closing bell assuming we don't get stopped out first.

Picked on  November 03 at $ 55.25 (small positions)
Change since picked:       - 0.94
Earnings Date            01/20/09 (unconfirmed)
Average Daily Volume =        1.6 million  
Listed on  November 03, 2009         

Waters Corp - WAT - close: 59.37 change: -0.60 stop: 58.75

WAT is testing prior resistance near $59.00 as new short-term support. Fortunately we're still on the sidelines waiting for a new relative high. I suggest we keep waiting.

Our trigger to buy calls is at $61.50. If triggered our first target is $64.90. We'll cautiously set a secondary target at $67.45.

Picked on  November xx at $ xx.xx <-- TRIGGER @ 61.50
Change since picked:       + 0.00
Earnings Date            01/27/10 (unconfirmed)
Average Daily Volume =        1.2 million  
Listed on  November 12, 2009         

PUT Play Updates

Green Mountain Coffee Roasters - GMCR - cls: 65.13 chg: -0.73 stop: 71.05

GMCR broke support at its 100-dma and the $65.00 level on Thursday. The intraday dip slipped to $63.32 before bouncing back to a 1.1% loss. Our trigger to buy puts was hit at $64.75. The play is now open.

I want to remind readers that this is a very aggressive trade. GMCR has seen several short squeezes in the past and the stock has very high short interest. Our first target is $60.25. Our second target is $55.50.


Picked on  November 19 at $ 64.75
Change since picked:       + 0.38
Earnings Date            01/28/10 (unconfirmed)
Average Daily Volume =        1.5 million  
Listed on  November 18, 2009         

Northern Trust - NTRS - close: 47.67 change: -1.01 stop: 52.25

NTRS sank to new multi-month lows with a close under short-term support near $48.00. I'm not suggesting new positions at this time. Our first target to take profits is at $45.25. Our second target is $41.00. The Point & Figure chart is bearish with a $39.00 target.

Picked on  November 12 at $ 49.18
Change since picked:       - 1.51 
Earnings Date            01/21/10 (unconfirmed)
Average Daily Volume =        3.0 million  
Listed on  November 12, 2009         

Research In Motion - RIMM - close: 58.84 change: -1.01 stop: 65.26

RIMM dipped to $57.93 intraday. Shares spent most of the session trading sideways above the $58.00 level. I'm encouraging by the decline but you could argue shares are now short-term oversold from their recent $65 high. Our first target is $55.25. Our second target is $50.50. RIMM can be a volatile stock so I'm suggesting smaller position sizes.

Picked on  November 16 at $ 61.80
Change since picked:       - 2.96
Earnings Date            12/17/09 (unconfirmed)
Average Daily Volume =       18.9 million  
Listed on  November 12, 2009         

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.)

Ultra(Long)-S&P500 - SSO - close: 36.85 change: -1.00 stop: n/a

The S&P 500 and the SSO are pulling back from their highs. The retracement may not be over yet. I'm not suggesting new positions but this ETF has pulled back toward our original entry point.

The options suggested for this strangle were the December $40 calls (SUC-LN) and the December $34 puts (SOJ-XH). Our estimated cost was $1.70. We want to sell if either option hits $3.00 or higher.

Picked on  November 11 at $ 37.08
Change since picked:       - 0.23
Earnings Date            --/--/--
Average Daily Volume =         32 million  
Listed on  November 11, 2009         


Caterpillar - CAT - close: 58.61 change: -0.80 stop: 57.75

Dow-component CAT really under performed on Thursday. Shares gapped open lower and dipped under short-term support at $58.00. The stock hit our stop loss at $57.75. I didn't see any stock specific news to account for this relative weakness.


Picked on  November 16 at $ 60.40
Change since picked:       - 2.65 <-- stopped @ 57.75 (-4.3%)
Earnings Date            01/26/10 (unconfirmed)
Average Daily Volume =       11.3 million  
Listed on  November 16, 2009         

Coach Inc. - COH - close: 33.92 change: -0.52 stop: 33.75

Retail names continued to retreat and COH posted another decline. Shares broke technical support at the 50-dma and hit our stop loss at $33.75.


Picked on  November 14 at $ 36.93 /gap open higher
                               /originally listed at $35.56
Change since picked:       - 3.18 <-- stopped out @ 33.75 (-8.6%)
Earnings Date            01/21/10 (unconfirmed)
Average Daily Volume =        4.9 million  
Listed on  November 14, 2009         

Essex Property - ESS - close: 79.12 change: -1.90 stop: 78.90

Shares of ESS were downgraded this morning. The stock gapped open lower on the news and hit our stop loss at $78.90.


Picked on  November 10 at $ 80.65
Change since picked:       - 1.75 <-- stopped out @ 78.90 (-2.1%)
Earnings Date            02/03/10 (unconfirmed)
Average Daily Volume =        500 thousand 
Listed on  November 09, 2009         

Roper Industries - ROP - close: 52.49 change: -1.14 stop: 51.75

It was an ugly day for ROP. The stock spiked lower this morning and dipped to $51.56. That was enough to tag our stop loss at $51.75 ending this play. Readers may want to keep ROP on their watch list. A strong bounce from the rising 100-dma or a close over $54.00 may be new bullish entry points.


Picked on  November 17 at $ 53.98
Change since picked:       - 2.23 <-- stopped out @ 51.75 (-4.1%)
Earnings Date            02/04/10 (unconfirmed)
Average Daily Volume =        915 thousand 
Listed on  November 17, 2009