Option Investor

Daily Newsletter, Monday, 11/5/2012

Table of Contents

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

Market Wrap

All the World's a Stage

by Linda Piazza

Click here to email Linda Piazza
Market Internals


Our elections take stage center this week, but we're not alone among the globe's governmental and economic actors standing there. A Greek parliamentary vote on Wednesday will also factor as a plot development in the current production, and China's transition of power is anticipated to be a plot-thickener on stage Thursday.

Despite the uncertainties, the overnight decline of bourses around the globe, and early weakness in the U.S. markets, many U.S. indices gained by the close. The SPX gained 0.22 percent; the Dow, 0.15 percent; the NDX, 0.63 percent; and the RUT 0.63 percent. The SOX gained a more sizeable 1.63 percent. The retailers as represented by the S&P retail index, the RLX, gapped higher, but couldn't make any progress from that point. The volatility indices VIX and RVX gained, too, as often happens ahead of a market-changing announcement, no matter the direction of the indices. Gold, silver and crude futures reversed early weakness to produce small-bodied candles on their daily charts.

Monday's Developments

Influences from China and the West drove Asian bourses lower last night. Caution about Thursday's transition of government in China, our election, and the ongoing G20 meeting combined with the first opportunity to react to our market behavior on Friday and the continuation of the dollar's strengthening. Those influences pushed many Asian bourses lower. China's Shanghai Composite dropped 0.14 percent. The Nikkei 225 dropped 0.48 percent; the Hang Seng, 0.47 percent; and the Kospi, 0.55 percent. The Straits Times lost only 0.3 percent.

On the second day of the two-day G20 meetings in Mexico City, the surprise lay in the fact that the meetings played a secondary role on the world's stage, not the leading role they often do in the recent past. Attention will likely refocus on these other actors again, perhaps as soon as the middle of this week, once we're past our elections and Greece's Parliamentary vote and China's transition. For now, bullet points issuing from that meeting include heightened concern about the U.S.'s fiscal cliff, uncertainty about Spain and Greece, and looming problems in Japan. The voice of Germany's representatives were often heard calling for explanations of the U.S.'s plan for solving the fiscal cliff problem, but Germany wasn't alone. The chorus included the European Commission members and others. The globe's financial experts also worry that Japan faces a fiscal cliff of its own.

Today's European release schedule proved busy. The Spanish Unemployment Change was expected to rise to 90.3K, but instead rose a much bigger 128.2K. Experts predicted that Europe's Sentix Investor Confidence would be less negative than the prior report, rising to -20.7, but it rose higher off its previous number than expected. It rose to -18.8. The U.K.'s Services PMI disappointed at 50.6, lower than the forecast 52.0.

The European bourses watched these and other developments closely, while their attention also focused on Greek Prime Minister Antonis Samaras' presentation of a new austerity package to Greece's parliament today. Experts expect a parliamentary vote on the package on Wednesday, with 48-hour protests and various marches planned ahead of the vote.

European bourses started out in negative territory and ended there, too. The FTSE 100 declined 0.50 percent; the DAX, 0.51 percent; the CAC 40, 1.26 percent.

Spain's IBEX 35 tumbled a deeper 1.89 percent. The yield on Spanish 10-year government bonds climbed by 0.0930 percentage points. On Thursday, Spain will likely auction both a new five-year bond offering and a bond maturing in 2032. If that happens, the auction will mark the first time in more than a year that Spain has attempted to sell bonds with maturities greater than 10 years. Experts predict that Spain will have to frequently sell longer maturities next year to meet funding requirements. The decision to reopen those bonds with longer expirations now may be due to the changes the European Union rescue framework will require to new bonds and restrictions on opening old bonds, beginning in January, 2013.

Here in the U.S. the ISM Non-Manufacturing PMI dropped to 54.2 percent, lower than the anticipated drop to 54.6 percent. The prior number had measured 55.1 percent. Separating out the various components shows that the business activity component measured 55.4 percent; the new orders component, 54.8 percent; and the employment component, 54.9 percent. The business activity and new orders components decreased but remained above the 50 benchmark, showing continued expansion. The ISM points out that this is the 39th straight month of expansion in the business activity index, although "the continued growth this month [was] at a slightly slower rate in the non-manufacturing sector." Out of 18 industries surveyed, 13 reported growth. Mining, arts, entertainment and recreation, wholesale trade, utilities and public administration were the five industries that reported contraction.

The employment component rose by 3.8 percentage points. ISM indicates that this is the third month in a row of growth in employment. The prices component fell.

Story stocks included Netflix (NFLX, 78.24, up 1.34 or 1.74 percent). The company reported that it had adopted a poison pill plan to protect from a takeover attempts from Carl Icahn and anyone else "that the Board of Directors determines are not in the best interests of Netflix and its stockholders." The plan, likely enacted in response to Carl Icahn's purchase of 10 percent of the company's stock, is meant to make a takeover prohibitively expensive.

HSBC also appeared on stage among story stocks, and the story was one HSBC would rather not be telling. The bank announced today that the U.S.'s investigation into money laundering had compelled the company to add another $800 million to the $700 million that it set aside last summer. The money is being set aside to cover a possible fine, and the bank noted that the fine could be bigger and added that the investigation had damaged its reputation. It also revealed that corporate criminal and civil charges would likely result from the investigation. This information was revealed as the bank reported earnings in which the company still was able to produce a profit.

Morgan Stanley (MS, 17.75, down 0.03 or 0.17 percent) also made a brief appearance on stage. The company announced that its co-president of institutional securities, Paul J. Taubman, will retire, ending his 30-year run at MS. His co-president, Colm Kelleher, will take over the helm as president. Other changes were made in the executive lineup.

Another financial, KBW (KBW, 17.47, up 1.17 or 7.18 percent), announced a merger with Stifel Financial (SF, 32.58, up 0.67 or 2.10 percent), with KBW shareholders to receive $17.50 per share in the merger. That's a premium to Friday's closing price. SF also announced earnings, beating on both EPS and revenue.

Also, JPMorgan Chase (JPM, 42.27, down 0.15 or 0.35 percent) will buy MetLife's (MET, 34.69, down 0.01 or 0.03 percent) mortgage servicing portfolio. This goes again the consensus that banks were going to divest themselves of exposure to mortgage servicing.

Because so many of our readers trade AAPL (584.62, up 7.82 or 1.36 percent), it might be worth noting that the company sold 3 million units, combined, of the iPad mini and fourth-generation iPad this last weekend. Supplies for the mini still prove problematic, however. News also came that a federal judge threw out a suit AAPL had filed against GOOG, with suit addressing Motorola patent licensing practices that AAPL claimed were unfair.

Warren Buffett's company Berkshire Hathaway made an appearance on stage, too. During the three-month period ending September 30, the company's cash rose to $47.8 billion. That's almost a record, several news sources reported. Several pundits speculate that the colorful actor in the financial world intends more acquisitions. He's being careful, as is typical, and looking for bargains.

Companies reporting earnings today included Tesla (TSLA, 31.50, up 2.58 or 8.93 percent), Time Warner Cable (TWC, 91.93, down 6.24 or 6.36 percent) and Humana (HUM, 75.52, up 0.31 or 0.41 percent), all reporting in the pre-market period. TSLA reported a net loss of $0.92/share on an adjusted basis. The company had been expected to lose $0.90/share. Revenue was $50 million. Unlike some reporting companies this quarter, TSLA maintained its forecast of $400-450 million for the current quarter.

TWC's profit of $1.34/share fell short of analysts expectations of $1.43 a share, and revenue of $5.36 billion also disappointed. Analysts had anticipated $5.39 billion. The country's second largest cable operator lost 140,000 video subscribers during this quarter, more than analysts had anticipated. It added 85,000 internet customers, fewer than predicted. Analysts point to a pullback in discretionary spending for the lackluster report.

HUM reported earnings of $2.62/share, well above expectations of $2.05 per share. Revenue was $9.65 billion, below the anticipated $9.88 billion. EPS was below the year-ago level while revenue was above the year-ago level.

HUM noted in its conference call that it would construct about 15 primary and chronic care centers and also revealed that it had acquired Certify Data Systems and would acquire Metropolitan Health Networks Inc. Membership in its Medicare Advantage program rose 18 percent from the year-ago level, and, in the Medicare prescription drug plans, 25 percent. HUM also noted a change in executive lineup, with President Bruce Broussard promoted to Chief Executive.

Other reporting companies included IntercontinentalExchange (ICE, 133.28, up 3.45 or 2.66 percent), Rockwell Automation (ROK, 78.02, up 2.51 or 3.32 percent), and Sysco (SYY, 30.78, down 0.56 or 1.79 percent). ICE reported profit of $1.79/share, well above the $1.72/share consensus. That profit was lower than the $1.80 share of the year-ago period, as was the revenue. Revenue for the quarter, at $323.2 million, failed to meet expectations or $361.9 million. Although the management was glowing in its praise of the company's "successful and timely transition from OTC energy swaps contracts to fully regulated futures on October 15" (WSJ Cheatsheet), analysts have been steadily ratcheting down their Q4 and FY estimates over the last three months.

SYY reported adjusted earnings of $0.58/share on revenue of $11.09 billion. Analysts had anticipated $0.50 per share. A company spokesperson mentioned a moderation in inflation of food costs as well as volume gains. However, the WSJ Cheatsheet points out that the quarter's results reveal a fifth quarter in a row of shrinking margins.

In its Q4 report, ROK reported earnings of $1.39/share, below the year-ago level but well above the analyst consensus of $1.32/share. Revenue fell from the prior quarter but rose from the year-ago quarter, and, at $1.66 billion, it beat estimates of $1.6 billion. For fiscal 2013, the company expects adjusted earnings of $5.35-5.75/share on sales of $6.35-6.65 billion. Both are higher than the $5.29/share and $6.26 billion for fiscal 2012. The company pointed to "five percent organic sales growth" and noted that the comparison quarter from last year had been a strong one. However, analysts have been lowering the estimates for the company's next quarter over the last several months. The company said its restructuring action reduced margins for the quarter.

After hours, Zillow (Z, 34.37, down 1.91 or 5.26 percent) reported earnings that disappointed. As this report was prepared, the stock was down another 8.02 or 23.33 percent from the closing value, at 26.35. The problem appeared to be in the company's guidance for the next quarter. Earnings of $0.07/share matched expectations, and revenue of $31.9 million beat expectations of $31.7 and was well ahead of the year-ago revenue. However, Z guided expectations to $30-31.5 million, with the midpoint of that guidance well below the previously anticipated $32.5 million. Guidance for full-year revenue of $113 million was also lower than expected. The company also said it would acquire Mortech, a mortgage technology company.

Express Scripts (ESRX, 62.88, up 0.86 or 1.39 percent) also dropped more than 8.00 from that closing price after reporting earnings in after hours. As this report was prepared, it last traded at $54.75, down 8.13 from the closing value. The problem was the same: ESRX's lowered guidance. Earnings/share at $1.02 beat expectations of $0.99. The company blamed a weak business and unemployment climate.

Weight Watchers (WTW, 47.48, down 0.35 or 0.73 percent) gained in after hours trading after reporting earnings. As this report was prepared, it was last at 51.32, up 3.84 from the closing value. The company said Q3 earnings were a bit better than their expectations, with losses in some sectors offsets by gains in their online business. They narrowed FY 2012 guidance to $4.00-$4.190.

Clean Energy Fuels Corp. (CLNE, 11.32, up 0.26 or 2.35 percent), founded by T. Boone Pickens, rose 0.41 in after-hours trading after its report. Gallons delivered rose 24 percent from the year-ago period, to 50.9 million gallons. The GAAP loss for the quarter was $0.19/share, a bigger loss than the $0.16 of the year-ago quarter.

Jive Software, Inc. (JIVE, 11.20, up 0.06 or 0.54 percent) rose 0.66 from its closing value in after-hours trading after its report. It was expected to lose $0.11/share on revenue of $29 million, and appeared to miss on both if I'm comparing apples to apples. GAAP loss was $0.18/share on revenue of $28.9 million. They announced the acquisitions of Meetings.io and Producteev. They are described as a company helping businesses build a social network.

Transocean (RIG) reported earnings of $1.29/share, $0.53 above expectations according to one source. Revenue rose but was came in shy of expectations. The company mentioned rising commodity costs and the aftermath of the Deepwater Horizon oil rig collapse as challenges, but said that more efficient operations allowed it to beat EPS guidance.

Just as this report went to press, EOG Resources (EOG, 116.81, up 1.61 or 1.40 percent) reported earnings. The company was expected to show earnings of $1.12 per share, but reported $1.31 per share. This was lower than the year-ago earnings, with lower natural gas prices at least partly to blame. The company raised its production target for 2012, however.

Also in the after-hours period, PayPal announced a reorganization that would result in job cuts.

Many more companies reported earnings, but the lengthiness of this report dictated that some be excluded here and some reports be brief. The Wrap is already too long. I tended to exclude those with low average daily volume, but check your favorite stock's report if it was reporting earnings today.

Let's look at daily charts.


Those new to my Monday Wraps might find the following two paragraphs useful when interpreting my charts. Those who have read the Wraps can skip straight to the charts. I set up nested Keltner channels on my charts. It's a run-of-the-mill channeling system like the more familiar Bollinger Bands. As with those more familiar BB's, channel boundaries are often targets for upside or downside moves. They also mark levels where prices might find support or resistance on closes. When several channel lines converge, that potential resistance or support might appear stronger, just as it would if 20-, 50- and 100-sma's all converge in one spot.

For the benefit of subscribers, I mark potential upside and downside target/support/resistance levels with ovals, usually green for upside and red for downside. Orange ovals are sometimes used when the darker-colored ones would not allow for a clear examination of the next target. From now on, I will mention the nearest potential support or resistance level in the discussion on the chart, but not the further-out ones. They can be located on the charts if price breaks through the nearest levels on consistent daily closes. If an interpretation such as "support levels appear stronger than resistance, so up looks more likely than down" is possible, I'll tell you. Often we traders must be able to defend our trade against a move in either direction.

As with any type of potential support or resistance, those with profits should be protective of those profits as support or resistance is tested. If prices find support and climb, look to the next higher oval, even one just broken through, as potential resistance. Do the reverse when resistance is breached. Hopefully, this format provides you with the information you need without requiring all night to read as happens when I list each potential support or resistance level individually.

Annotated Daily Chart of the SPX:

The SPX ran up late last week, along with other indices, but the attempt to breach resistance was a failed one. The SPX couldn't maintain daily closes above the resistance grouped near the bottom of the descending price channel. That area of grouped resistance is marked by an orange rectangle. Until and unless the SPX can maintain daily closes above that rectangle, it maintains a downside target at the nearby red rectangle, from about 1386-1400. On other indices, that channel and its support have already turned lower with index prices sliding lower along turning-lower support. That could happen with the SPX.

I had mentioned last week to be wary if the SPX pushed up and then stalled at resistance, as the chart setup predicted that it could then roll down. Because this stall and a partial pullback, at least, has happened, the potential has increased that the SPX will break much lower. However, the bearish potential has not yet been confirmed, and a break higher out of a potentially bearish formation can sometimes prompt rabid rallies.

Remain aware that the bears have more to cheer in last week's developments than the bulls do, but that it's dangerous to assume that the bearish potential will definitely be fulfilled. While we're seeing a potentially bearish setup here, the Dow Jones transports are hovering near the descending trendline off the years highs, still in reach of an upside break through that long-term descending trendline. I don't like to bet against the SPX, OEX or Dow if the transports are showing particular strength, so bears in these indices might put the transports on their radar screens, too.

In case the SPX breaks to the upside after the elections or cascades lower, next potential targets are marked on the chart. In a recent Trader's Corner article, Leigh Stevens mentioned his "1-day Rule," and I concur. A one-day breach of important resistance or support, particularly as a knee-jerk reaction to some important development, should be treated with some skepticism. That doesn't mean to ignore maximum loss parameters you set up before entering a trade, of course.

Annotated Daily Chart of the Dow:

As is typical, the Dow's setup proves similar although it does differ in some particulars. The Dow has set a potential downside target near 12960, a potential target that will be maintained unless the Dow can sustain daily closes above the red 9-ema. The Dow's potential resistance doesn't converge as tightly as the SPX's, so it could bump its head against resistance at the 9-ema and then soon again at the top orange rectangle.

Other potential upside and downside targets are marked on the chart in case the Dow breaks through support or resistance on sustained daily closes. For now, anything between 13000 and 13290, and maybe even between 12960 and 13370, looks like noise and churn. Watch the Dow's sister index, the $DJT, for validation or invalidation of what you're seeing on the Dow. The transports sometimes lead. For example, I would be skeptical of bearish potential if the $DJT were to break above last week's high of 5196.23 and sustain closes above that level for several days or by many points.

For now, however, the Dow has done nothing to undo the potentially bearish setup on its chart.

Annotated Daily Chart of the NDX:

The NDX's formation on the chart is different than the other indices already covered, but it, like them, could not maintain last week's upside breakout attempt. Until and unless the NDX can maintain consistent daily closes above last week's high, it has the potential to slide down turning-lower Keltner support or even break down and set a new lower target.

If the NDX does break higher, watch for potentially strong resistance in the 2720-2725 zone and then again at the nearest green rectangle. Bulls could start breathing easier if the NDX could maintain daily closes above about 2725, even on subsequent pullbacks. Until then, potential targets and support and resistance zones are marked on the chart.

Annotated Daily Chart of the RUT:

Here's the RUT, typically the renegade, overrun-the-boundaries index performing beautifully with regard to typical technical analysis. It adheres to the boundary of the rising channel and the smaller descending channel in which it had been pulling back. It has held to potential Keltner support that converges near that confluence of support lines.

Yet, like the other indices, the RUT could not maintain its breakout attempt last week. It created a bearish engulfing candle that looked quite bearish, but, in that regard at least, the candle just fits the RUT's reputation. A glance at the declines since September shows that on the RUT, at least, they can be quite sharp and sudden. When the RUT is going to head to support, it often takes the most direct route.

The RUT's immediate support and immediate resistance appear almost equally balanced, with the resistance perhaps appearing slightly stronger. The reaction to the election, whatever that election result and whatever that response, could undo any slight evidence on this chart. Therefore, it may be about as likely that the RUT will head toward 805-807 and maybe even 797-800 as it is that it will head toward 818-820 and maybe even 826-830. We may not know tomorrow, but we will likely know sometime this week.

I don't think we know anything at all as long as the RUT churns between last week's high and the 805-806 zone. That's just noise. Next potential downside and upside targets are marked on the chart.

Annotated Daily Chart of the Dollar:

The dollar has now retraced 38.2 percent of its decline from its summer high into the September low. This is one of the more closely watched Fibonacci retracement levels. Whether that resistance is truly due to the Fibonacci effect or is just self-fulfilling, those who use the dollar's behavior as a guide to helping them predict what might happen to their equity, commodity, or other investments will want to be aware of potential resistance here. So far, the dollar has broken out above the resistance zone at about $80.20-80.30, and then maintained the breakout. Those who want to see the dollar continue to strengthen will want to see it push above today's high and then another resistance band that begins at about $81.36 and extends up to about $81.49-81.62. The election results and other geopolitical and economic developments can and likely will impact the dollar. Therefore, a pullback to test the breakout level at $80.20-80.30 seems about as likely as a push up to that next target zone near $81.49-81.62.

This week could be volatile, and the dollar's action could help investors or traders at least validate their impressions of what is happening if not predict what will happen next. Investors in equities, equity indices and commodities should remember that, at least in recent history, dollar strengthening has pushed those securities lower, while a weakening dollar has resulted in higher values. Those relationships can and do change at times.

Tomorrow's Economic and Earnings Releases

We will not know the results of the elections during trading hours, of course, but I would not be surprised to see implied volatilities rise whatever the directions of the markets tomorrow. Big-money and mom-and-pop retail traders alike will position their portfolios ahead of the elections. We often see choppy, tightening-range trading ahead of such developments, but we also often see light volume. That light volume can exaggerate any move once it gets started.

What about Tomorrow?

Annotated 30-Minute Chart of the SPX:

Until this afternoon, the SPX continued to find resistance on 30-minute closes at the red 9-ema. After more than a day of trending lower along that descending 9-ema and finding support on 30-minute closes on the central Keltner channel, it was about time for the SPX to rise up and test the resistance just overhead. That's what it did this afternoon, with resistance so far holding on 30-minute closes. Those orange rectangles on this chart and the others that follow were placed on the charts well ahead of the end of the day run up. There accurately predicted likely resistance, and the upper one showed that resistance indeed held for now. That potential resistance on 30-minute closes spans the distance covered by the top orange rectangle.

That resistance looks at least as strong as the support that was tested this morning. For now, movement between the two rectangles represents chop. The SPX perhaps needs either a strong thrust through support or resistance or else a period of time to unbalance the support and resistance.

That period of time could last as long as a trading day tomorrow. Or, resistance, at least, could be broken at the open tomorrow, and support, not long after the open if there's a gap lower. In either case, confirmation would need to come from sustained 30-minute closes above resistance or below support. If that happens, further potential targets and their support and/or resistance on 30-minute closes are marked on the chart.

Annotated 30-Minute Chart of the Dow:

The Dow's setup is similar to the SPX's. Movements that result in 30-minute closes between today's low and about 13130 appear to be just noise. Breakouts require sustained 30-minute closes above or below those levels, with next targets and their potential support or resistance on 30-minute closes marked on the chart. As was the case with the SPX, the setup appears to require either a sharp thrust through support or resistance or else a period of chop that unbalances the support and resistance. That could require as much as a day of chop or the thrust could come at or shortly after the open. This afternoon's run up to resistance failed to break through it on sustained 30-minute closes and so proved nothing. All it did was validate the resistance.

Further potential targets and their associated potential resistance and support on 30-minute closes are marked.

Annotated 30-Minute Chart of the NDX:

Ditto. Any movement that results in 30-minute closes between the two orange rectangles is just chop. An end-of-day run appeared to break the NDX above the first layer of resistance. By the end of the last 30-minute period, however, the NDX had also fallen back. That action showed that resistance held, at least temporarily. Breaking out requires sustained 30-minute closes above or below those orange rectangles and not just a single 30-minute close outside them, much less a temporary piercing that leaves only a candle shadow or wick above the resistance. If the move continues to the upside tomorrow morning, the NDX will soon run right into another potential resistance level on 30-minute closes. That level and other subsequent targets and support and/or resistance levels on 30-minute closes are marked on the chart.

Annotated 30-Minute Chart of the Russell 2000:

The RUT did overrun its lower boundary this morning on this intraday chart but not on sustained 30-minute closes. It also ran higher, straight into the next potential resistance on 30-minute closes. As was true with the other indices, any price movement that results in 30-minute closes occurring inside or between those two orange rectangles is chop. As is often true with the RUT, it may lead the way one direction or another, but remember that breaking out requires sustained 30-minute closes above or beneath these rectangles, not a single break. Subsequent next targets at potential support and/or resistance on 30-minute closes are marked on the chart.

What do I think will happen next based on these intraday charts? They don't predict what happens next, with indices caught in chop. If the volume weren't likely to be so low, I would build a scenario that posed the most likely action as chop between those orange rectangles tomorrow, with an occasional failed breakout either direction. However, the likely low volume ahead of the election results could exaggerate any movement, triggering stops and causing a momentum run that might or might not stick. Remember that big money will be taking positions ahead of not only our election but also the Greek parliament vote, the Spanish auction of long-term bonds and China's transition of power.

I closed out my own butterfly trades on Friday, accepting a lower profit so that I wouldn't have to manage the trade ahead of this week. I felt that the charts suggested that a big downside move could happen but a huge relief rally was likely to happen if the downside move didn't. No prediction was possible. I can position my trades to endure a relatively wide price movement without too much damage, but this setup and that number of possible triggers seemed more risk to my already accumulated profit than I wanted.

Whatever your political persuasion, I hope you will vote if you haven't already. We are lucky to be able to go to the polls, no matter what our political or religious beliefs, no matter what our ethnicity, gender or choices of partners, without fear of repercussions. Many articles have focused lately on what will happen after the elections, many of them lamentably fear-inducing. Let's just resolve to pull together as the great people that we are, whether the result matches what we personally wanted or not. I'll be pulling for my guy and you'll be pulling for yours, but we'll all pull for this great country and recognize our resilience.

And to our subscribers in the Northeast enduring a blast of cold air so closely following Sandy, I wish you all a warm place to stay.

New Option Plays

Industrial Goods

by James Brown

Click here to email James Brown


SPX Corp. - SPW - close: 69.87 change: +1.96

Stop Loss: 68.35
Target(s): 74.75
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
SPW displayed relative strength today with a +2.8% gain. Furthermore the stock is in the process of breaking out past major resistance at $70.00 and its 200-dma. I want to see a little more confirmation. Thus I am suggesting a trigger to buy calls at $70.25. Our target is $74.75.

Trigger @ 70.25

- Suggested Positions -

buy the Dec $75 call (SPW1222L75) current ask $1.00

Annotated Chart:

Entry on November xx at $ xx.xx
Average Daily Volume = 500 thousand
Listed on November 5, 2012

In Play Updates and Reviews

Stocks Hover Ahead of Election

by James Brown

Click here to email James Brown

Editor's Note:

Most of the market saw a minor bounce as stocks hovered mostly sideways ahead of the U.S. election tomorrow.

DE and SRE hit our stops. LLL was triggered. WYNN was closed.

Current Portfolio:

CALL Play Updates

EV Energy Partners - EVEP - close: 65.01 change: +0.40

Stop Loss: 63.95
Target(s): 69.85
Current Option Gain/Loss: - 29.8%
Time Frame: exit prior to the Nov. 8th earnings report
New Positions: see below

11/05/12: The gap down in EVEP this morning was due to the stock trading ex-dividend today. EVEP had a quarterly cash dividend of $0.766 a share. Traders bought the dip and EVEP outperformed the market with a +0.6% gain. I am not suggesting new positions at this time.

We want to exit prior to the Nov. 8th earnings report. Right now our exit will be on Nov. 8th at the closing bell.

- Suggested Positions -

Long NOV $65 call (EVEP1217k65) entry $2.85

11/05/12 prepare to exit on Nov. 8th at the close to avoid earnings
11/05/12 EVEP traded ex-dividend today ($0.776).

Entry on November 02 at $66.25
Average Daily Volume = 111 thousand
Listed on October 27, 2012

Green Mountain Coffee Roasters - GMCR - close: 25.15 change: -0.52

Stop Loss: 23.90
Target(s): 29.50
Current Option Gain/Loss: - 35.2%
Time Frame: 3 to 4 weeks
New Positions: see below

11/05/12: I cautioned readers to expect a dip toward $25.00. Sure enough GMCR gapped open lower at $25.40 and fell to $24.92 before paring its losses. A bounce from here could be used as a new bullish entry point. More conservative traders might want to consider raising their stops closer to $25.00.

Earlier Comments:
GMCR could see a short squeeze. The most recent data listed short interest at 37% of the 127 million-share float. There is short-term technical resistance at the 50-dma.

*Small Positions* - Suggested Positions -

Long NOV $27 call (GMCR1217k27) entry $0.85

11/01/12 triggered @ 25.50

Entry on October xx at $ xx.xx
Average Daily Volume = 6.0 million
Listed on October 24, 2012

Harley-Davidson - HOG - close: 47.34 change: +0.05

Stop Loss: 45.40
Target(s): 52.25
Current Option Gain/Loss: -13.4%
Time Frame: 3 to 6 weeks
New Positions: see below

11/05/12: Monday was a quiet session for HOG with shares drifting in a narrow range.

I would not be surprised to see shares dip back into the $47.00-46.00 zone. Wait for a bounce there before considering new bullish positions.

Earlier Comments:
The $50.00 level could be round-number resistance and conservative traders may want to exit near $50.00. I am setting our exit target at $52.25 instead.

- Suggested Positions -

Long DEC $50 call (HOG1222L50) entry $0.82

11/01/12 triggered at $47.50

Entry on November 01 at $47.50
Average Daily Volume = 2.5 million
Listed on October 31, 2012

L-3 Communications - LLL - close: 75.85 change: +0.00

Stop Loss: 73.75
Target(s): 79.75
Current Option Gain/Loss: + 2.5%
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

11/05/12: Bingo! Right on cue LLL produced a dip back toward broken resistance and now new support at $75.00. Shares hit our entry point at $75.25 and bounced back to close unchanged on the session. I would still consider new positions now at current levels.

- Suggested Positions -

Long Dec $75 call (LLL1222L75) entry 2.00*

11/05/12 triggered @ 75.25
*option entry price is an estimate since the option did not trade at the time our play was closed.

Entry on November 05 at $75.25
Average Daily Volume = 423 thousand
Listed on November 3, 2012

Stericycle, Inc. - SRCL - close: 94.52 change: -0.25

Stop Loss: 93.60
Target(s): 99.75 or $104.00
Current Option Gain/Loss: - 33.3%
Time Frame: 3 to 6 weeks
New Positions: see below

11/05/12: SRCL dipped to $93.69 and bounced. Readers may want to use this intraday rebound as a new entry point or wait for a new rise past today's high (95.02) as an alternative entry point.

Earlier Comments:
Please note that I am setting two exit targets. Our conservative exit target is $99.85 since the $100.00 level could be round-number, psychological resistance. Our more aggressive, longer-term target is $104.00.

- Suggested Positions -

Long DEC $100 call (SRCL1222L100) Entry $0.75

Entry on November 2 at $95.98
Average Daily Volume = 509 thousand
Listed on November 1, 2012

PUT Play Updates

The Mosaic Co. - MOS - close: 52.54 change: +0.35

Stop Loss: 54.25
Target(s): 48.00
Current Option Gain/Loss: + 2.3%
Time Frame: 3 to 6 weeks
New Positions: see below

11/05/12: MOS bounced off the $52 level today but shares didn't actually move that far. Tomorrow the stock could show more volatility as investors react to earnings from a rival in the fertilizer industry. CF reported earnings tonight after the closing bell. The results were in-line with estimates so it's unclear which way the industry stocks might move tomorrow. I am not suggesting new positions at this time.

- Suggested Positions -

Long NOV $55 PUT (MOS1217w55) entry $2.60

10/27/12 new stop loss @ 54.25
10/23/12 triggered @ 53.45

Entry on October 23 at $53.45
Average Daily Volume = 3.9 million
Listed on October 20, 2012

Oil States Intl. - OIS - close: 70.88 change: +1.14

Stop Loss: 72.25
Target(s): 65.25
Current Option Gain/Loss: -31.0%
Time Frame: 3 to 6 weeks
New Positions: see below

11/05/12: There was no follow through on Friday's bearish breakdown below support at $70.00. Yet the overall trend for OIS is still bearish and shares should find resistance at the $72.00 level. Readers may want to wait for a new low under $69.59 before opening new put positions.

- Suggested *Small* Positions -

Long DEC $65 PUT (OIS1222x65) entry $1.45

Entry on November 05 at $69.80
Average Daily Volume = 589 thousand
Listed on November 3, 2012

Schlumberger Ltd. - SLB - close: 69.95 change: +1.18

Stop Loss: 71.05
Target(s): 65.25
Current Option Gain/Loss: -17.0%
Time Frame: 3 to 4 weeks
New Positions: see below

11/05/12: SLB saw a similar lack of follow through on Friday's decline. Shares reversed higher and outperformed the market with a +1.7% gain. Shares are now testing resistance near $70.00 and its 150-dma. A failure here can be used as a new bearish entry point.

Earlier Comments:
SLB appears to have formed a bearish head-and-shoulders pattern, which would forecast a drop toward the $62 area. FYI: The Point & Figure chart for SLB is bearish with a $64 target.

- Suggested Positions -

Long NOV $70 PUT (SLB1217w70) entry $1.70

11/01/12 warning, today could be a bullish reversal
10/31/12 triggered @ 69.65

Entry on October 31 at $69.65
Average Daily Volume = 5.3 million
Listed on October 25, 2012


Deere & Co - DE - close: 85.89 change: +0.29

Stop Loss: 84.75
Target(s): 89.90
Current Option Gain/Loss: -60.2%
Time Frame: 3 to 4 weeks
New Positions: see below

11/05/12: DE saw a little too much volatility this morning. Shares gapped open lower at $84.23 but quickly bounced back to close in positive territory. It was too late since our stop loss was at $84.75.

- Suggested Positions -

NOV $87.50 call (DE1217k87.5) entry $0.88 exit $0.35 (-60.2%)

11/05/12 DE gapped open below our stop loss at $84.23
11/01/12 new stop loss @ 84.75
10/26/12 triggered @ 85.55
10/25/12 adjust the entry trigger to $85.55, stop to $84.25


Entry on October 26 at $85.55
Average Daily Volume = 3.3 million
Listed on October 22, 2012

Sempra Energy - SRE - close: 68.24 change: -0.89

Stop Loss: 68.40
Target(s): 72.00
Current Option Gain/Loss: -21.4%
Time Frame: Exit prior to the Nov. 6th earnings report
New Positions: see below

11/05/12: We had prepared to exit our SRE positions today at the closing bell but over the weekend we raised our stop loss to $68.40. Unfortunately, SRE displayed relative weakness today with a -1.2% decline and hit our new stop loss.

- Suggested Positions -

DEC $70 call (SRE1222L70) Entry $0.70 exit $0.55 (-21.4%)

11/05/12 stopped out at $68.40
11/03/12 new stop loss @ 68.40, prepare to exit on Monday at the closing bell


Entry on October 26 at $68.65
Average Daily Volume = 939 thousand
Listed on October 25, 2012

Wynn Resorts - WYNN - close: 111.52 change: -1.28

Stop Loss: 117.75
Target(s): 129.75
Current Option Gain/Loss: - 0.0%
Time Frame: 3 to 6 weeks
New Positions: see below

11/05/12: Dividends are giving us trouble today. It looks like WYNN plunged 10 points today. Shares actually fell -1.28 following an $8.00 dividend. Yes, WYNN began trading ex-dividend this morning after an $8 dividend. Instead of a plunge from $120.48 to $110.80 the new price on Monday morning was $112.48. The $1.70 decline at its worst levels of the day would not have hit our stop loss had we adjusted it for the $8 dividend. You could argue the play is still open but we didn't specifically plan for the dividend so I'm closing this trade.

Shares opened at $114.00, which is actually a gap higher (a gain) adjusted for the -$8 dividend, before turning south, which means the option should have jumped higher at the open.

Earlier Comments:
WYNN can be a volatile stock so I am suggesting we keep our position size small to limit our risk.

- Suggested *Small* Positions -

Long DEC $125 call (WYNN1222L125) entry $3.00 exit $3.00 (+0.00%)

11/05/12 WYNN gapped down due to an $8.00 dividend. We are closing this trade. Shares opened at $114.00 (actually a gain before turning lower).


Entry on November 02 at $121.25
Average Daily Volume = 1.8 million
Listed on November 1, 2012