Option Investor

Daily Newsletter, Thursday, 1/14/2010

Table of Contents

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

Market Wrap

Market Rallies Into INTC/JPM Earnings

by Keene Little

Click here to email Keene Little
Market Stats

This week's rally has been very weak, with low volume, but it's had just enough buyers to keep the bears at bay. This has been going on for a long time and it could continue for a long time. But I think it reached the end of its rope today, or perhaps there's one more inch to it. There's been a high expectation for Intel (INTC) and JPMorgan (JPM) whose earnings came tonight (INTC) or will come out tomorrow morning before the bell (JPM). The rally has been a classic earnings run, albeit a weak one.

It would appear most traders don't know that it's better to exit your long position before the grand announcement. That's of course not always the best course of action but "sell the [good] news" is probably more common than buying the news. Whenever there's been a run up into a highly anticipated announcement, be it the Fed's announcement or a important company's earnings, it invariably turns into a sell-the-news event. Will it happen again tomorrow? Ask me that question at the end of the day and I'll give you the correct answer. My guess as of this evening is yes, we'll get a sell-the-news reaction to whatever the news is. And remember, it's the reaction to the news that counts, not the news itself.

There are many traders, and I used to be one, who will buy or hold a stock in a decline because they just knew it would have to go back up "once the stupid market realized how wrong it was to sell." I worked for many years in the semiconductor industry before trading full time (I started full time in February 2000--great timing on my part). I knew that industry inside and out and I was convinced that some of the semiconductor stocks would turn around once the "little" decline was over and people realized what a great value it was. I knew the companies were strong and leaders in their field. They were my customers. Looking back I wonder how I could have been the one that was so stupid. Since then I've become a little more adept at reading the charts instead of the tea leaves.

INTC is a very strong stock and it is clearly a leader in its field, as is JPM in the banking industry. The only competitors to INTC, like AMD, are there because INTC wants them there and helps them (just enough to stay in business). Strong earnings from INTC should be proof positive that their stock will do well. Nothing could be further from the truth. It's all about sentiment and when trader sentiment turns from greed to fear they'll sell. It's really as simple as that, and that's what's reflected in the charts. How anxiously traders are buying the stock, which shows up in volume and momentum indicators, will tell you when the trend is strong and when it's nearing exhaustion.

Fibonacci ratios do an amazing job at showing where traders will react to a move--they sense the size of the move without even recognizing or measuring it. We react to certain stimuli without realizing it and certain patterns elicit responses from us. A normal ebb and flow in the market (when it's not being interfered with) will shows these reactions when we place trend lines and channels and other technical patterns around price action. The price moves tend to be related to each other and is a reason I often refer to "two equal legs" up or down. There's symmetry in the market's moves and we react to them. I also use them to determine when a trend could be coming to an end so that I can take profits and get ready to trade the other direction.

There is a technical tool called the DeMark Indicator, named after Tom DeMark. Not a lot of people use this tool and many charting programs do not have it available. Many big institutions use it and for that reason it's a good tool to use. I know TradeStation has it but QCharts does not. It's another good tool to help identify potential turning points in the market, which I like to use to help confirm the signals I'm getting from other tools such as EW (Elliott Wave), Fibs and trend lines--they're all very good for at least identifying where a run could finish. When I get several tools giving me a similar message I pay attention.

The DeMark indicators include several different types of setups and rather than get into an educational article on the use of this tool (google it and you'll find plenty of information) I just want to show two charts that are showing us an interesting setup. The premise of the TD Sequential indicator is that it counts each candle, using a method for identifying when to start and stop the counts, and when it hits 9 you look for a possible reversal of the trend. You let the chart put the counts on and when it hits 9 start paying attention--pretty simple. Sometimes it will count to 9 and then a new count to 13 and then a new count to 9. The 9-13-9 is a particularly strong signal for a coming reversal.

The ThinkorSwim platform has a charting package that includes the Sequential indicator and I'm showing it on the SPX monthly chart below. Notice that the count went to 9 in February 2009. It was warning at that time that a turn was potentially coming. The market bottomed in March and it was all up from there. Now the count is showing the 9th candle for the current month and it's warning us about the possibility for a reversal of the trend.

SPX monthly chart with DeMark Sequential indicator

Then we move into the weekly chart to look at the rally from March. The weekly Sequential count is a 9-13-9 and this is a particularly bearish setup. As soon as a candle takes out the closing price of the previous 4th candle it will start the count in the other direction. So for this week's candle the previous 4th one is for the week of December 14th which closed at 1102.47. Next week's candle would start the count to the downside if it closes below the week of December 21st, which was 1126.48. From a DeMark Sequential perspective, 1126.48 is an important number for next week and I'll update this to see where we are on the count.

SPX weekly chart with DeMark Sequential indicator

I've introduced other tools in the past and one is the Gann Square of Nine chart. This is based on a spiral of numbers starting at zero in the center and spiraling clockwise out as far as you want to go. I've got mine in an Excel spreadsheet and have it to 1600 to accommodate the S&P 500 prices. When numbers in this chart are opposite or one or more "rings" away from each other, they are referred to as "vibrating" off one another and tend to market reversal levels. When I've discussed this in the past I've mentioned the fact that the October 2002 low of 768 and October 2007 high of 1576 are opposite each other on the chart. Opposite to 667, the March 2009 low is 1144. Where has SPX been struggling lately? The next important level on the Square of Nine chart is around 1160 and as I'll review in the SPX charts later, that number shows up near some potentially important Fib levels.

So as I'll review in tonight's charts, there's now a very good setup for a market top. Last week I mentioned that there's a good likelihood we'll see the market push a little higher into opex week as it's generally a bullish week. This has actually been one of the weaker opex weeks we've seen in awhile. Earlier this week on the Market Monitor I showed some Fib projections pointing to the possibility that we'd see SPX make it up to the 1159 area but so far it hasn't been able to do it. It's still there beckoning SPX with its siren call but I'm not so sure it will make it. Friday's price action should tell us a lot.

Before getting to the SPX charts I thought I'd start with the Russell 2000 index. Last week I started with the DOW's weekly chart, instead of SPX, to mix it up a little. This week I'll start with the RUT. It's got a good setup this week and I think the small caps will be one of the leaders to the downside so I've been watching it carefully for topping signals as I'd like to ride that one back down. Even if back down is only to a low sometime in March, which seems to be a very good turn month, it should be a good ride for a trade.

The weekly chart, using the log scale, shows the RUT has pushed up against its downtrend line from October 2007 through its September 2008 high. This week's candle so far is a hanging man doji up against resistance. This candle, following a long run, is a potentially important turn signal, especially if it's followed by a red candle next week. Slightly higher, at 657.44, is the 62% retracement of the 2007-2009 decline.

Russell-2000, RUT, Weekly chart

The daily chart of the RUT is getting crowded and I apologize for all the stuff I have on it but there are a number of things I want to point out on the chart below.

Russell-2000, RUT, Daily chart

First are the trend lines--in addition to the downtrend line from October 2007 there is the broken uptrend line from November 27th that the RUT is pressing up against yesterday and today. It's giving me the impression it's testing it and is going to give it a kiss goodbye, which would of course be a sell signal.

Second are the Fibs--in addition to the 62% bear market retracement at 657.44 there is a Fib projection at 652.32 where the 2nd leg of the bounce up from November 2nd would achieve 162% of the 1st leg up, a common relationship in an a-b-c move.

The third thing has to do with a timing window. Using the time it took for the 2007-2008 decline, I've placed a Fib time projection on the chart, which includes the vertical lines with the 38%, 50% and 62% projections seen at the bottom of the chart. You can see the previous times were on or close to previous turns. The 62% projection is on Monday, January 18th.

So we've got Fibonacci time and price coming together and trend lines pointing to the strong possibility that we're at or very close to a high of importance for the RUT. Throw in some waning momentum on both the weekly and daily charts and it only reinforces the likelihood that we're topping here and now (or Monday).

Key Levels for RUT:
- cautiously bullish to 650-657
- bearish below 633

Zooming in closer to the December rally you can see the broken uptrend line from November 30th and price is pressing back up against it for what looks like a bearish kiss in the making. If it can push a little higher on Friday it will run into Fib and trendline resistance near 652 so that's the level to watch for a reversal. If the market instead sells off on the INTC/JPM earnings and the RUT drops below 633 that will tell us the high is in and I'd start looking for bounces to get short.

Russell-2000, RUT, 60-min chart

Looking at the SPX daily chart below, I'm showing a price projection at 1158.76 for two equal legs up from March (March to June instead of May that I used last week, and then July to January). So that's the upside target that I identified earlier this week. Today marks the time when the rally from March equals 62% of the time for the 2007-2009 decline. So we've essentially got time and price now aligned for a market reversal.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- cautiously bullish to 1159
- bearish below 1115

The 60-min chart below shows the wave count for the move up from the low on December 18th. Whether it makes it up to the 1158-1159 area on Friday is the question but at this point the risk is for a turn back down to at least correct the 5-wave move up from December. The bigger risk to those who are long the market is that the move up from December should be the last leg of the rally from March and therefore I'm looking for a much larger decline--one that will either correct the rally (pull back to some Fibonacci retracement) or completely retrace it as it heads for new lows, which is what I'm thinking it will do. Therefore the setup here is major since a turn back down could really pick up speed over the coming weeks and months.

S&P 500, SPX, 60-min chart

The DOW is pressing up against the top of its rising wedge pattern from October/November. A price projection at 10733 is where the 2nd leg of the move up from November 2nd would equal 62% of the 1st leg up, a very common relationship inside a rising wedge pattern. The DOW's high today was about 10 points shy of that target. Like SPX, its Fibonacci turn date is today (the rally from March is 62% of the time for the 2007-2009) decline. The next move out of this should be a relatively fast retracement of the rising wedge, so back below the November lows, before we see much of a bounce.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- cautiously bullish to 10733
- bearish below 10424

NDX is also in a rising wedge pattern and pressed up against the top of it today. There are two Fib projections based on wave relationships for its rally--at 1891 and 1904. The high for NDX so far is a little more than 1897, placing it within the target zone. While it could press marginally higher I think bulls are on borrowed time here. The much greater risk now is for a fast selloff back below the November low near 1650.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- cautiously bullish to 1904
- bearish below 1852

In just about any investment advisory you read you'll be told that the emerging market is the place to have some of your money invested. It has been outperforming our markets so there's the effort to chase performance. And many recommend investing in the international markets, and the emerging markets in particular, to be diversified.

As for the diversification argument, let me shoot it down right away. We are a global economy and if you lay any country's chart against any other country's chart over the past decade you will find them all virtually the same. There is a different timing in the peaks and valleys but the form is essentially the same. Therefore putting your money into a country that you do not understand and follow closely is risky enough and the rewards are practically nil.

If you do trade foreign markets, either directly or through funds, it can be a good trade but you have to know when the tide may be turning. I see the possibility that the tide is turning for the emerging markets relative to our markets. If you look at a weekly chart of RS (relative strength) between EEM, an emerging market ETF and SPX you'll see that it did outperform very nicely since October 2008. But it's developing a bit of a rounded top and the waning momentum says it's about to roll over. In other words EEM looks like it will soon underperform the S&P.

RS of Emerging Markets (EEM) vs. SPX, Weekly chart

Remember, RS measures the strength of one symbol against another. Both could be declining but if the first one is declining faster then the RS of the 2nd one will actually be climbing. This is important here because if our stock market is getting ready to roll over and the RS of EEM is getting ready to roll over then EEM is expected to outperform to the downside. Those who are chasing momentum in the emerging market are about to get burned if they hang around too long.

In line with investing in the emerging markets we read constantly what a great play China is. It's a growing economy, has the largest population that's hungry for (you name it), has much more room to grow, etc., etc. The trouble is the charts don't support that thesis. Look at the RS chart of China (FXI is an ETF for the China 25 index) vs. EEM and it's been underperforming since 2007.

RS of China 25 index (FXI) vs. EEM, Weekly chart

For all of 2009 China has been underperforming the emerging market sector. I'm not seeing any hint of bottoming in the above chart so that has me thinking it will continue to underperform EEM. And if EEM is getting ready to roll over we should see FXI continue to underperform, or said another way, it will outperform to the downside. The daily chart of FXI looks like a big rounding top with negative divergence since the summer. FXI looks like a short play to me (FXP is the inverse China fund).

China 25 index ETF, FXI, Daily chart

And remember, China has been leading our stock market--it topped at the same time as ours in 2007 but it led the way down and bottomed about 4-1/2 months before ours. It peaked in July 2009 and now we're about 5-1/2 months later so I consider our rally on borrowed time. The fact that China is rolling over only adds to topping signals I'm seeing in our market. As the chart below shows, China made lower highs in last quarter while our market chugged higher (but notice the declining volume).

DOW vs. Shanghai Stock Exchange Composite index, SSEC, Daily chart

With the rally the past two days the banking index has given us a clean wave pattern. The move up from December 18th is now a clean 5-wave move and BIX reached its Fib target zone of 138.16-138.85 (today's high was 138.97). This should complete the A-B-C bounce pattern off the November low and we should now get a resumption of the selling on Friday. This portends a sell-the-news reaction to JPM's earnings so heads up on this.

S&P Bank index, BIX, Daily chart

If the market continues rallying instead of getting a sell-the-news reaction to INTC/JPM, we could see the TRAN head up to a Fib target zone of 4300-4313 and the top of its rising wedge pattern. The risk is for an immediate selloff while the upside potential is small.

Transportation Index, TRAN, Daily chart

The U.S. dollar has continued to chop its way lower since making a high on December 22nd. It's looking very much like a correction following its impulsive rally off the November low and continues to support the idea that we've seen a major low for the dollar. The next big move once the pullback correction finishes, which could be within hours/days, will be a very strong rally into February/March, one that should easily make it up into the low 80s before consolidating again.

U.S. Dollar contract, DX, Daily chart

If the dollar rallies we can expect to see more price pressure on commodities. The commodity-related equity index, CRX, is showing a top in place after doing a small throw-over above the top of its rising wedge pattern from last summer. It should relatively quickly retrace back below 550.

AMEX Commodity Related Equity index, CRX, Daily chart

The metals peaked out about a month ahead of many of the other commodities and gold looks like it has completed a correction to its first leg down. The next big move should be well below $1000.

Gold continuous contract, GC, Daily chart

While oil made a new high this month above its October high, it looks to be part of a larger corrective pattern, wave-b of an a-b-c pullback from October. Because the January high was higher it makes it likely that the next leg down, wave-c, will be 162% of the 1st leg down. That gives us a downside projection of 62.25, which crosses the long-term uptrend line from 1998 next month.

Oil continuous contract, CL, Daily chart

In addition to the JPM earnings report tomorrow morning, and the reaction to INTC's report, we've got a few potential market movers in the morning economic reports. It could be a volatile morning so be careful, especially with any January options.

Economic reports, summary and Key Trading Levels

Intel (INTC) provided a boost to after-hours prices as they reported good earnings, which I think just about everyone expected they would. After closing regular trading hours (RTH) at 21.47, their stock rallied in after-hours up to 22.20 before dropping back below its closing price and then bouncing back up to marginally positive (21.69 as I near 8:00 PM EST). That's not terribly impressive price action so far and it has NQ trading down a point after gapping up in the after-hours session. QQQQ also traded higher, up to 46.78, after closing at 46.39. But it too pulled back from that high and is trading near the flat line this evening.

We've seen many (most?) times where we get a very positive reaction to INTC earnings in after-hours but it either doesn't hold into the morning or it immediately gets sold into the following morning. I can't say we've got a very positive reaction at this point so it will be interesting to see how the cash market deals with INTC and the techs in general. A post-INTC gap up seems to be a time big money is just waiting for everyone to start their buying so that they can sell into it. With the market elevated as much as it is I can only imagine how many big money managers are licking their lips for an opportunity to sell into any early-morning rally. In fact I have no doubt they were the ones pushing the market higher into earnings so that they could get everyone excited about buying the news. It's a perfect ploy for them to generate volume and liquidity so that they can then sell into! It's all a game.

SentimentTrader.com has an interesting statistic for QQQQ following INTC earnings: "When INTC gaps > +2% on earnings and QQQQ is near a 52-week high [which it is now], QQQQ was positive only 1/10 times two weeks later." You can't base your trading decisions off statistics but it can have you leaning one direction or another. QQQQ can certainly head higher over the next week but that statistic says you might not want to be married to the position. Combine that with the signals I'm seeing in the charts and I'm thinking you don't even want to be long to begin with.

So I'll leave you with one last chart, since I'm talking about the Qs. Looking at the all-hours chart, the move up from Tuesday now counts as a complete 5-wave move. It could nibble higher in the morning but basically this pattern tells me to look for a top rather than a continuation. We should see at least a pullback to correct the 5-wave move up. But this 5-wave move should be the last leg up for the larger pattern, meaning it should be the leg that completes the entire rally from March. We'll know more tomorrow if that's true but that's the setup as I see it tonight--sell rallies from here.

Nasdaq-100 tracking stock, QQQQ, 60-min chart

As I had shown for the NDX chart earlier, I see a little more upside potential so we could see a bullish response in the morning. I just wouldn't trust it. But a big warning to bears here--the setup for a reversal is a strong one, with several different indicators supporting an imminent turn. If the upside targets that I showed on tonight's charts (such as SPX 1159-ish, NDX 1904, RUT 650-657)are exceeded and held, do not get in the way of the next leg up since it could be a strong one (possibly a blow-off top). The market is set up to fail here and now so if it doesn't it will speaking in volumes to us. It will pay to listen.

Tomorrow is opex Friday and other than some early-morning volatility (we still have to see how JPM's earnings look) it could turn into a quiet trading day. Good luck and I'll be back with you next Thursday.

Key Levels for SPX:
- cautiously bullish to 1159
- bearish below 1115

Key Levels for DOW:
- cautiously bullish to 10733
- bearish below 10424

Key Levels for NDX:
- cautiously bullish to 1904
- bearish below 1852

Key Levels for RUT:
- cautiously bullish to 650-657
- bearish below 633

Keene H. Little, CMT

New Option Plays

Friday Morning Could Be Strong

by James Brown

Click here to email James Brown

Editor's Note:

The stock market's major averages are flirting with new highs. Trading was somewhat timid today as investors wait for earnings from two high-profile companies. Intel (INTC), one of the world's biggest semiconductor manufacturer, and J.P.Morgan Chase (JPM), one of the world's largest banks. Earnings results from both companies could have a big impact on their sectors and the market itself.

Investors are looking for confirmation that business is improving. They want to see stronger sales, not just cost cutting. Bears complain that the market has gotten ahead of itself. Better than expected earnings numbers might assuage those fears (a little).

Wall Street was expecting INTC to report a profit of $0.30 a share. It appears the company beat estimates by 10 cents. Revenues surged 28.5% to $10.57 billion, well above analysts' estimates. Gross margins hit 65%, which was also better than expected. All in all it was a very positive earnings report. While shares of INTC are higher after hours they're not that much higher as it was widely expected that INTC would beat the numbers. The bigger impact will be on the rest of the tech sector, which should be boosted by Intel's positive results.

Bears could suffer a double whammy if JPM also blows away the earnings estimates. Wall Street is looking for JPM to earn $0.61 a share. I would bet on JPM beating those estimates and giving the banking sector a lift.

Friday morning is shaping up to be bullish. It wouldn't surprise me to see stocks gap open higher. My concern is that investors could actually sell into strength like they did with Alcoa. Of course Alcoa missed earnings back on Monday but it probably didn't matter as investors rushed to sell the news following Alcoa's run up. I'm not adding new plays tonight. If stocks do gap higher it will be tough on your entry points. What I'm watching is how the market closes on Friday.

In Play Updates and Reviews

Stocks Quiet Ahead of Earnings

by James Brown

Click here to email James Brown

CALL Play Updates

Apple Inc. - AAPL - close: 209.43 change: -1.22 stop: 203.99

AAPL traded sideways near the $210 level as investors waited for Intel's earnings report after the closing bell. Intel's numbers were good so tech stocks could get a boost tomorrow. I would probably play this a little cautious and look for a move over $211 to open positions. Our plan is to exit ahead of AAPL's earnings report on January 25th.

I consider this an aggressive trade. I would use very small positions (1/4 to 1/2 your normal trade). Our first target to exit is $219.50. Our second target is $224.50.

Entry  on   January 13 at $210.65 
Change since picked:       - 1.22
Earnings Date            01/25/10 (confirmed)
Average Daily Volume =       17.1 million  
Listed on   January 13, 2010         

AvalonBay Commty. - AVB - close: 79.94 change: -0.48 stop: 77.90

We are still waiting for AVB to move. The stock's sideways consolidation has narrowed as it hovers around the $80.00 level. Shares should see a break one way or the other soon. I'm suggesting we wait for the move over $82. Our plan is to buy calls at $82.05. If triggered our first target is $87.50. We will plan to exit ahead of the early February earnings report.

Entry  on   January xx at $ xx.xx <-- TRIGGER @ 82.05  
Change since picked:       + 0.00   
Earnings Date            02/03/10 (confirmed)
Average Daily Volume =        1.4 million    
Listed on   January 09, 2010         

Caterpillar - CAT - close: 61.98 change: -0.35 stop: 59.45

Shares of CAT continue to churn sideways in a narrow range. This is the third day in a row that shares failed to move. The consolidation is narrowing. We should see CAT move soon. The $60 level should now be new support. Our second and final target is $67.00. Earnings are coming up quick and we plan to exit ahead of the report on January 26th.

Entry  on   January 09 at $ 60.95 /gap higher entry (small positions)
Change since picked:       + 1.03     
                         /take profits early $ 64.13 (+5.2%)
Earnings Date            01/26/10 (confirmed)
Average Daily Volume =        4.8 million    
Listed on   January 09, 2010         

Express Scripts - ESRX - close: 90.95 change: +0.85 stop: 87.45

ERSX displayed some relative strength with a 0.9% gain and another close over $90.00. Volume remains light but this looks like a bullish entry point to buy calls. Our first target is $95.75. Our second target is $99.75. We do not want to hold over the February earnings report.

Entry  on   January 09 at $ 91.65 (small positions)    
Change since picked:       - 0.70     
Earnings Date            02/24/10 (unconfirmed)
Average Daily Volume =        2.6 million      
Listed on   January 09, 2010         

FUQI Intl. - FUQI - close: 21.26 change: -0.05 stop: 18.99

We're not seeing any movement in FUQI. The stock has been trading sideways for three days now. There is no change from my prior comments. If you are looking for a new entry point I would still wait for a dip closer to $20.00. This was a very aggressive trade and I suggested very small positions. Our target to exit is $24.75 but more conservative traders may want to start taking profits early anywhere above $22.50.

Entry  on   January 06 at $ 20.51   (small positions 1/4) 
Change since picked:       + 0.75       
Earnings Date            03/31/10 (unconfirmed)
Average Daily Volume =        1.0 million      
Listed on   January 04, 2010         

Goldman Sachs - GS - close: 168.53 change: -0.54 stop: 164.95

Shares of GS gapped open lower this morning presumably on Obama's new tax idea for the big financial firms. The stock opened at $168.00, which provided us a better entry point to buy calls. The midday rally failed at $170.72. More conservative traders may want to wait for a move over $171 to open bullish positions. Our first target to take profits is at $174.90. Our second target is $179.00.

Suggested Options:
I am suggesting the February calls but we'll exit ahead of earnings. I would use the $170 or $175 strike but my preference is for the $175s.

Entry  on   January 13 at $168.00 /gap down entry
Change since picked:       + 0.53
Earnings Date            01/21/10 (unconfirmed) 
Average Daily Volume =        7.1 million  
Listed on   January 13, 2010         

L-3 Communications - LLL - close: 90.07 change: +1.13 stop: 86.90

Target achieved. LLL displayed relative strength with a 1.2% gain. Not only did shares hit our first target to take profits at $89.95 but the stock closed above round-number resistance at $90.00. This was a bullish session for LLL.

If you have the January options you'll need to exit tomorrow. The newsletter will "exit" the January $90 calls at tomorrow's closing bell. The safer bet is to probably exit tomorrow morning. We still have the February $90 calls.

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.


Entry  on  December 28 at $ 86.80
Change since picked:       + 3.27
                            /1st target hit @ 89.95 (+3.6%)
Earnings Date            01/28/10 (unconfirmed)
Average Daily Volume =        1.0 million      
Listed on  December 26, 2009         

Precision Castparts - PCP - close: 115.34 change: +0.53 stop: 112.99 *new*

Tomorrow is our last day. Our original play listed January calls. We'll plan to exit tomorrow before the closing bell. I'm raising our stop loss to $112.99. Our final target is $118.75.

Picked on  December 01 at $107.35    
Change since picked:       + 7.99    
                            /1st target hit $112.45 (+4.7%)
Earnings Date            01/20/10 (unconfirmed)  
Average Daily Volume =        817 thousand      
Listed on  November 28, 2009         

TORO Co. - TTC - close: 43.08 change: -0.77 stop: 41.40

TTC ran into some profit taking near resistance at $44.00. The stock gave up 1.7% although volume was light. Look for short-term support near $42.00. Our exit target is $45.90. We don't want to hold over the February earnings report. The plan calls for small positions to limit our risk.

Entry  on   January 07 at $ 42.60 (small positions)
Change since picked:       + 0.48      
Earnings Date            02/18/10 (unconfirmed)
Average Daily Volume =        289 thousand     
Listed on   January 05, 2010         

UnitedHealth Group - UNH - close: 33.32 change: +0.78 stop: 29.90

Healthcare stocks were some of the better performers on Thursday. UNH displayed relative strength with a 2.3% gain and a new 52-week closing high. If you're holding January calls you'll need to exit tomorrow. The newsletters will plan to exit tomorrow at the closing bell. However, we still have March calls.

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.

Entry  on  December 10 at $ 30.31    
Change since picked:       + 3.01    
Earnings Date            01/21/10 (unconfirmed) 
Average Daily Volume =        819 thousand      
Listed on  December 10, 2009         

Union Pacific - UNP - close: 66.38 change: -1.09 stop: 64.90

The correction in railroad stocks continues. UNP has dipped toward previous resistance and what should be support near $66.00. The overall trend, which is bullish, is unchanged. I am suggesting readers use this pull back as a new bullish entry point to buy calls.

Our first target is $69.95. Our second target is $72.00 but that is very optimistic. Earnings are coming up this month and we plan to exit ahead of earnings. Our risk/reward is not super attractive here so consider smaller positions.

Entry  on   January 12 at $ 67.39 
Change since picked:       - 1.01 
Earnings Date            01/21/10 (confirmed)
Average Daily Volume =        2.5 million    
Listed on   January 12, 2010         

Whirlpool - WHR - close: 83.17 change: +0.10 stop: 79.90

Time has run out. January options expire after Friday. We will plan to close this play at Friday's closing bell.

WHR has already hit our first target at $84.75. Our second target is $89.00.

Entry  on  December 19 at $ 80.76 /gap higher entry  
Change since picked:       + 2.51      
                             /1st target hit $84.75 (+4.9%)
Earnings Date            02/08/10 (unconfirmed)     
Average Daily Volume =        1.6 million       
Listed on  December 19, 2009         

PUT Play Updates

*Currently we do not have any put play updates*


J.P.Morgan Chase - JPM - close: 44.69 change: +0.44 stop: 42.85

JPM rallied into earnings with a 0.99% gain. The company reports earnings tomorrow morning. Our plan was to exit today at the closing bell.


Entry  on   January 04 at $ 42.85 (small positions 1/2)
Change since picked:       + 1.84  <-- final exit @ 44.69 (+4.29%)
                   take profits on 01/09/10 @ 44.68 (+4.2%)
Earnings Date            01/15/10 (confirmed) 
Average Daily Volume =       31.6 million    
Listed on   January 04, 2010