Option Investor

Daily Newsletter, Saturday, 6/8/2013

Table of Contents

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

Market Wrap

Goldilocks Jobs

by Jim Brown

Click here to email Jim Brown

If you believe the market reporters the Nonfarm Payroll number on Friday was perfect. Not too hot and not too cold.

Market Statistics

The Nonfarm Payroll report for May showed a gain of +175,000 jobs and +10,000 more than analysts expected. April job gains were revised lower from +165,000 to +149,000. March was revised higher from +138,000 to +142,000. With the revisions the May report added a net of +163,000 jobs. Service jobs added +57,000 with half of the gains by temporary services. Construction gained +7,000, hospitality added +43,000, retail +28,000 and healthcare +26,000.

Now for the bad news. The three month average of job gains has fallen to +155,000 from a high of +233,000 in February. Manufacturing lost -8,000 jobs. Government lost -3,000 and less than expected. Average weekly hours were flat at 34.5, which was somewhat positive since it did not show a further decline towards the 30 hour threshold for Obamacare coverage. The jobs added were mostly low paying food service workers and part time jobs. Temporary workers rose by 72,000 over the last three months.

The unemployment rate rose from 7.5% to 7.6% because there were 420,000 new people joining the labor force. May and June are graduation months and we should see a net addition for June as well. The separate Household survey showed a rise of +101,000 unemployed workers. Moody's expects payroll gains to remain "well under" 200,000 jobs per month for the rest of the year. The long term unemployed (more than 27 weeks) was unchanged at 4.4 million. The average long term unemployment is now 36.9 weeks.

The headline gain of +175,000 jobs should be taken with a large grain of salt because it includes an upward adjustment of +205,000 from the "birth-death" calculation. That is the highest monthly guess since May of 2012. They added +193,000 jobs in the April report. Basically the BLS tries to guess how many jobs may have been missed because of new businesses that might have started or existing businesses that may have died. When they have the real data three months from now the May headline number will be revised. I believe when the "adjustments" are larger than the ending number the data is clearly flawed. They estimated a gain of +5,000 in manufacturing to bring the sector up to only a loss of -8,000 instead of -13,000.

The larger U6 unemployment rate was 13.8% or 21,486,600. That is everyone unemployed that would work if a job was available and 7.9 million "involuntary part time" workers because they can't find a full time job.

The Labor Force Participation Rate rose +0.1 to 63.4% and just above the 35 year low of 63.3% set in March. Not much improvement for such a big market rally.

Over the last year the number of people NOT in the labor force rose by 1,741,000. Over the same period the number of people employed rose by 1,596,000 or an average of +133,000 a month. How healthy is the economy when more people dropped out of the labor force than were hired? The U.S. has to create more than 150,000 new jobs per month just to accommodate graduations and immigration. That does not take into account the millions out of work. We are slowly losing ground despite what the headline numbers say.

Labor Force Participation Rate Chart

Nonfarm Payroll Chart

I think it would make more sense to concentrate on the employment rate, currently 58.6% than the unemployment rate at 7.6%. The employment rate is barely off a 30 year low. It has not been this low since 1983 and is only marginally higher than during the Great Recession. I would point out that the Fed has not gotten a lot of employment bang for its $2.5 trillion in QE since the recession. The economy needs to add about 10 million more jobs to return to the pre recession employment levels.

Employment Rate Chart (Source CNN)

The big concern over the May payroll number was the impact on QE3 and the potential for the Fed to begin tapering their purchases. The hawks were out in force on Friday saying the Fed needed to begin tapering now so they would be done by early 2014 when the economy begins to gain traction. I wish I had the crystal ball they are using to predict economic growth. Apparently they just got it fixed because it has been giving bad data for the last three years. Bank of America, Goldman Sachs and others have recently downgraded their projections for growth to well below the Fed estimates. Who would you trust to be right, BAC, GS or the Fed?

The Fed claims they will not change monetary policy until unemployment reaches 6.5% (currently 7.5%) or inflation rises to 2.5% (Currently +0.7% headline, +1.1% core today). In theory neither of those numbers are not going to be reached for a long time. However, their recent commentary suggests they are about ready to begin tapering those QE purchases down from the current $85 billion a month. Apparently "tapering" is not the same as changing monetary policy or they would have to change their FOMC statements.

The Fed is so confused and opinions so diverse even they don't know what they are really going to do. The payroll numbers were not strong enough to change their QE stance based on their stated goals. Numerous Fed heads have said they would be open to tapering if they saw "several months" of payroll gains over 200,000 per month. February is the only month over 200,000 so far this year so "several months" would put us well into Q4 since the summer months of June, July and August are not normally strong job creation months.

On Friday the market rallied because some analysts said the Goldilocks number would keep the Fed from making any changes in the near future. I expect the opposite next week. I believe the hawks will start making their case that moderate payroll growth is economic progress and they will be calling for the tapering to begin. With the next FOMC meeting the following week we can expect plenty of posturing ahead of that meeting but most likely no actual changes at the meeting. The Fed will need to officially warn in a meeting statement that they are considering reducing purchases before they actually do it. They don't have to warn the markets but they know it would be ugly if they did not warn. That could happen at the June meeting. Several Fed heads have mentioned in their comments the change could occur in the "next several meetings" so we should expect a change to occur.

Dallas Fed President Richard Fisher warned, "We cannot live in the fear that the market is going to be unhappy that we are not giving them more monetary cocaine."

Remember, the government is not issuing as much debt today as they were in 2012. This means there are fewer treasuries in the market for the Fed to buy. The Fed needs to taper their purchases to keep from buying all the paper in the market and monetizing the government debt even more than they are already. The ratings agencies have warned against a continued increase in that monetization.

The following chart is a comparison of when the market expects QE to end compared to Goldman Sachs estimates.

QE3 End Calendar

I know I am boring a lot of readers with this analysis and I apologize. I just want everyone to be aware of the potential for Fed stress in the market over the next two weeks.

The economic calendar for next week is relatively light. The events that could cause trouble are coming from Japan. With the Nikkei down -21% from the May 23rd high of 15,942 to the 12,548 low on Friday the Nikkei has entered a bear market. On Monday Japan releases their GDP and Tuesday the Bank of Japan will announce their decision on rates. On Thursday the BOJ will release the minutes of the rate meeting. With their market in free fall and Abenomics at risk there could be some major announcements that could impact our market.

Investors in Japanese stocks thought they had a guaranteed rally for months to come because of the very aggressive BOJ QE program that buys not only bonds but REITs and equity ETFs. You can imagine their surprise when the market crashed -21% in three weeks.

Nikkei Chart

The Nikkei crash in the middle of a monster QE program struck fear into some U.S. investors and we saw increased volatility over the last three weeks. If the Japanese market were to suddenly rally the U.S. market could catch fire as well. Likewise if the Nikkei continues to fall we would probably decline with it.

On the U.S. calendar the 10-year Treasury auction on Wednesday could be interesting. Yields on the ten-year have rebounded to 2.16% and Alan Greenspan warned on Friday that rates are going up and they could rise at a much higher rate than investors expect. The taper talk is undermining the Fed's attempt to keep rates low. Mortgage rates are back at 4% and home sales are slowing. Mortgage applications declined -11.5% last week. The strength of the auction could impact the Fed's decisions at the FOMC meeting the following week. If demand is lackluster and yields spike they could worry about the impact of a taper statement before the economy is actually improving at a faster pace.

Over the last year the average GDP growth has been +1.8%. The last GDP revision for Q1 is not for a couple weeks and not expected to change much from the last 2.38% reading. This is inflated because of a blip in inventory. However, the Q2 GDP at the end of July is only expected to have risen by +1.5% to +1.7%. The Fed may want to wait to insure the number does not decline further before making any QE changes. Remember, the sequestration is expected to cause a -1.5% drag on GDP in Q2 and Q3. The Fed does not know how that is going to hit the economy until it happens.

Lipper said bond funds saw $9 billion in outflows for the week. You don't have to guess where that money went as investors bought the dip in equities on Thursday when the S&P rebounded from its 50-day average.

Ten Year Yield Chart

Retail sales on Thursday will be important to see if spending is keeping pace with sentiment. We have seen very high sentiment readings over the last month but talk is cheap. Did consumers put their money where their survey responses suggested?

Economic Calendar

The dollar imploded on the weaker than expected ISM, Beige Book and ADP Employment. It rebounded slightly on Friday after the Nonfarm Payrolls but only slightly. The weaker dollar will help the economy and improve earnings for international companies but it needs to return to the levels we saw in Q4 before the impact will be noticeable. The dollar had its worst week against the Yen since October 2008 as the Yen carry trade quickly unwound.

Dollar Index Chart

Precious metals were crushed on Friday as a result of the better headline number on the jobs report. The idea being that the U.S. economy was not as bad as the Manufacturing ISM suggested on Monday. The Armageddon trade is fading and equities are the only game in town. Money is rotating out of precious metals and into equities.

Silver was hurt the worst with a breakdown under support at $22 to close at a two-year low at $21.64. Gold hit $1423 intraday on Thursday as the dollar sold off but then plunged to $1384 at the close on Friday.

Silver Chart

Gold Chart

The payroll report helped boost the price of oil to a two-week high but that was also fueled by increasing concerns over Syria and the potential spread of violence through the Middle East. Also lifting prices was news of an outage at Nexen's 200,000 bpd Buzzard field in the North Sea. In the U.S. BP's 405,000 bpd Whiting, Indiana refinery is on schedule to restart by the end of June after a $4 billion remodeling effort.

Syria said its oil production has fallen from 380,000 bpd to 20,000 bpd because of the civil war. The rebels have captured the fields in northern and eastern Syria where most of the production is located.

Tropical Storm Andrea left the Gulf of Mexico without causing any trouble for the oil patch. Andrea is sprinting up the East Coast towards Massachusetts this weekend but winds are slowing and now in the 40 mph range. No material damage is expected and the storm is evaporating.

Crude Oil Chart

The EU is projecting accelerating growth in 2014. The IMF is projecting accelerating growth in 2014. The Federal Reserve is expecting accelerating growth late this year and into 2014. Unfortunately doctor copper is NOT projecting any global growth. Even though several copper mines have been shut down for strikes or mine problems the price of copper is holding just over two year lows at $3. Copper demand and prices rise ahead of economic growth. Copper is not rising.

Copper Chart

The short squeeze on Friday was the second best gain of the year for the Dow. Also, the Dow has not had a consecutive three day loss in 160 days. That is the longest streak since 1950. You would think that a +400 point rebound from Thursday's low would have come on decent volume. You would be wrong. Friday's short squeeze only managed volume of 6.4 billion shares. Advancers were slightly less than 2:1 over decliners. That is another weak point for the second best day of the year. The internals should have been a lot stronger. The Dow and S&P both bounced from critical support that should have fueled a rebound with even wider breadth. This was simply a short squeeze from a short term oversold condition. The majority of traders believed the Nonfarm Payrolls would miss estimates and everyone was leaning to the downside in their positions.

The S&P declined -15 points intraday to the 50-day average on Thursday and round number support at 1,600 before rebounding to close at 1,622. This was a textbook rebound. Shorts found themselves off balance at the close and Friday's gap higher on the payroll number pushed them into a panic.

The key levels to watch on Monday will be Friday's afternoon low at 1,632 and the resistance from Tuesday at 1,645. A break in either direction should be considered tradable. Stronger resistance at 1,660 would be critical if the rebound made it that far.

S&P Chart - 3 Min

S&P Chart - 30 Min

S&P Chart - Daily

The Dow went from oversold on Thursday to overbought on Friday with the +400 point rebound. Resistance at 15,200 became intraday support after the morning breakout. The critical number for Monday is 15,300 followed by 15,400. When the index was breaking out to new highs these barriers did not exist. As the index declined every lower high becomes future resistance. Like the S&P the Friday afternoon intraday low at 15,160 becomes a pivot point if broken.

Dow Chart - 30 Min

Dow Chart - Daily

The Nasdaq is no different than the S&P and Dow. The short squeeze pushed the index to downtrend resistance where it closed on Friday. It was the same for the Composite and the Nasdaq 100. In theory they should fail at this level. However, theory rarely works in reality. The Composite has additional resistance at 3,480 and again at 3,500. Tech stocks can move higher but it could be a tough climb.

Nasdaq Composite Chart - 60 Min

Nasdaq 100 Chart - 30 Min

While the major indexes averaged a +1.3% gain on Friday the Russell 2000 managed only a .8% gain. The small caps lagged in terms of Friday gains but they had also lagged on the decline earlier in the week. They did not decline as far because they were not as heavily shorted. They have a similar pattern of downtrend resistance but it is not as pronounced. The major resistance for the Russell is the highs from the prior week at 995. That would be a +7 point gain from Friday's close and a good place for an undecided market to stumble. A break over 995 faces that round number resistance at 1,000 that failed twice in late May. Each spike over 1,000 came on a gap open and each spike was immediately sold.

Russell 2000 Chart - 60 Min

The Dow Transports were the opposite of the Russell with a +2.4% gain on Friday. The transports had been down for 10 of the last 12 days and were in danger of a critical support break. They were heavily shorted after the Manufacturing ISM fell into contraction on Monday. The thought behind the selling was contracting business shipping and the rally was over. Those shorting the transports were crushed on Friday. The rebound took the transports to 6,343 and just a hair over resistance at 6,340.

Dow Transports Chart - Daily

The market this week has little in the way of economic reports to push it around. The market will be on its own and the bulls will have to find some conviction to push the market higher. The dip buyers did their part when the S&P hit the 50-day average and now it is up to the real investors to step up and buy stocks. If that conviction is lacking we could see another retest of support.

I found a deal so good I have to pass it on. If you go out to eat a lot and have a Ryan's Grill, Country Buffet, HomeTown Buffet or Fire Mountain Buffet near you this is a deal you can't pass up. I like to eat healthy and I have a Country Buffet down the street from me. I eat there 5-6 times a week. SweetJack.com, a site similar to Groupon, has a special this week where they are selling $10 gift cards for 60% off. You don't have to give them away you can use them yourself. It is like selling $10 bills for $4. I bought $1,000 worth for $400. That means my $8 senior special all I can eat lunch buffet with a drink actually costs me $3.20. You can't buy a crummy hamburger and drink at McDonalds for that. Here is the link to the deal. The deal is for a 50% discount but enter the promo code "Take10" at checkout to get the other 10% off. 60% Off Buffet Deal

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Opportunity is missed by most people because it is dressed in coveralls and looks like work"
Thomas Edison

Index Wrap

Strong Recovery Rally From S&P and Composite Supports

by Leigh Stevens

Click here to email Leigh Stevens

The strong rebound from up trendline support in the S&P 500/SPX (at 1600) and the S&P 100/OEX (at 720) and from other support points in Nasdaq, suggests that the recent decline has run its course. This fit with certain projections I've written about well before the fact of them occurring.

One way of measuring the extent of the recent SPX decline to 1600, was the fact that this level was a key bullish trendline. Another way was by the understanding that so often corrections within an overall bull market have this pattern of a decline, a rebound from this initial pullback low, followed by a second decline that is often greater than the first by a Fibonacci order of magnitude of 1.5 to 1.6. It could be the second more severe decline is double the first sell off. Our first SPX decline took it down 52 points, peak to trough. The second decline just ended at an intraday low of 1598 was 1.5 times the first decline (from 1674 to 1598). This is a common relationship, the 1.5, just as 50% retracements of prior moves in stocks are common and often a good place to buy.

The aforementioned discussion of trading principles was covered in good detail in my my Trader's Corner article of yesterday (6-8-13).

The Nasdaq Composite (COMP) retraced a Fibonacci 38% of its prior advance (from mid-April to late-May), then rallied strongly. Retracing just 38% of its prior advance, not more, suggests that the Nasdaq is still undergoing good buying on dips.

The important Nasdaq 100 (NDX) index 'filled in' the prominent upside price gap from back in early-May and then rallied strongly. Gap areas below current price levels in indexes and stocks are considered to offer technical support. Pullbacks into such 'gap' areas, including price action that fills in the price gap entirely and which is then followed by a rebound, is technically bullish.

Bullish price patterns in the S&P, on its recent strong rebound from 1600 trendline support, bodes well for the Market. SPX is currently the 'lead' index or the one to watch as to how well or poorly the overall Market will fare. Stocks look headed still higher. SPX has the potential to get back to the 1670 area, could then challenge its prior intraday peak at 1687 and perhaps go on to test 1700 without another intervening correction or sideways move.



The S&P 500 (SPX) reversed its near-term bearish pattern, given its strong rebound from key trendline support in the 1600 area. SPX experienced an approximate 62% retracement, one of the common retracements ahead of a turnaround.

The key thing from a chart/technical perspective was price action at SPX's up trendline. There was a very short span of time when buying could have occurred at 1600 in the S&P 500. Then the market rocketed ahead. Good depiction of the hourly chart from the recovery/reversal point until Friday's Close is seen in my Friday Trader's Corner via the OIN site or the link above.

I wrote last week that "... the Index could work back down to the 1600 area. I don't see worst than this currently." It looked like a strong reversal, solid buying, etc. These kind of reversals aren't always so picture-perfect so to speak as this one (rallying as if on 'cue' precisely AT the trendline) but that's a very 'strong' up trendline, representing the rate of upside price change that the Market is willing to pay. More attention by the pundits was paid to the successful 'test' of SPX's 50-day moving average and easier to explain than a trendline.

Support obviously is 1600, extending to 1580 with main support in the 1550 area. I'm anticipating that SPX continues to stay within its broad uptrend channel. Key resistance is seen in the 1645-1650 area, with resistance/selling pressure stepping up around 1675. Ability of the index to hold above 1650 suggests 1700 could be reached on a next upswing.

Bullish sentiment as seen above has continued to moderate even after what looks like a clear cut upside reversal in SPX. But once burned the bulls get more cautious and that's a plus for further upside ahead.


The S&P 100 (OEX) has the same bullish pattern as the broader S&P 500 index, with its strong rebound from trendline support. Sometimes just one, maybe two of the major indexes (including the Dow 30) will be the sole one(s) to trace out a clear cut trend (allowing the use of trend channels) AND clear cut trend reversals; such as when occurring at a well-defined trendline; e.g., either a deflection down, or a deflection UP.

As it sometimes, not always (groan), does, the OEX move this past week unfolded just as would be 'typical' of the pattern. To wit, I wrote last week that: "Downside potential looks it could easily extend to the 720 area and a test of the long-standing bullish up trendline. I expect good support will be found on a retreat to the 720-716 area."

Support, even more so this week, is at 720 and the 50-day moving average, with technical support extending to 710 and certainly to the 700 area.

OEX broke out above 740 resistance with the Friday close. We'll see if that continues! Next resistance is just overhead at 745, extending to the 755-760 area.


The Dow 30 (INDU) Average found strong support on the dip below 15000. INDU did not activate what I call the '2-day rule' on charts and the idea that only TWO consecutive Closes above or below key resistance/support substantially 'confirms' a reversal. I wrote last week that "...if the Average finds support around 15000, it's still within a powerful advancing trend."

The Friday Close above its 21-day moving average renews the bullish short-term outlook and suggesting a continued move higher. But, consistent with what I just said, look for a second Close above this key trading average.

We could get into a sideway trend, with support more or less at 15000 and pivotal resistance half way to 16000, at 15500. 15500 looks like it will be a tough area for the bulls to punch through.

Near support at 15000, key trendline support is at 14700 currently with intermediate trend support at 14500.

Of the 30 Dow stocks, only 3 look like compelling buys still given continued strong performance: AXP, BA, MSFT. There are enough INDU stocks in bullish accumulation uptrends to continue to push the Dow higher, but probably not enough to pull the Average above 15500 anytime soon.


We didn't see a fall to trendline support in the principal Nasdaq indexes unlike the S&P, although both the Composite and the Nas 100 have and had other bullish chart aspects accompanying the latest strong rebound.

COMP found strong support/buying interest above its prior upside price gap from early-May. Prior such price gaps tend to act as support on subsequent pullbacks. In this case COMP didn't even 'fill' its prior gap, unlike the more volatile Nas 100.

COMP also recently completed a Fibonacci 38% retracement of its prior advance, and then rallied strongly. Retracements held to less than 50% like this suggests buying is strong once there's a third or so giveback in prices. Big funds start buying in a zone such as in a pullback taking prices to levels a third to a half down from the most recent top (relative to its prior bottom). Anything in that zone, buy the index or basket.

Enough on the past, what ho ahead? 3500 looks like significant near-term resistance, with resistance/selling pressure extending to the prior recent 3530 high. COMP could get up to 3575 and touch 3600 but I might then be looking to play the downside.

Key near support is 3400, extending to 3350 with trendline support at 3277 currently.


The Nasdaq 100 (NDX) could have reversed its prior short-term bearish trend. The strong rebound from the 2900 area after 'filling in' NDX's key early-May upside price gap was bullish as prices fell to a level just below the low point of that prior open price 'gap', with NDX then rallying strongly.

While a strong rebound from a chart gap area is promising, the bulls aren't there yet so to speak; to keep a renewed bullish trend rolling NDX should next pierce trendline and moving average resistance in the 3000 area. With trade back above 3000 NDX would look like it could retest the prior high in the 3050 area. If buying accelerated further, NDX could reach 3100, pivotal resistance implied by the top of its uptrend channel.

Near support is at 2915-2900, with pivotal technical support at NDX's longstanding up trendline currently intersecting at 2860.


The Nasdaq 100 (QQQ), especially when looked on a closing basis by using the line chart, has rallied from the more or less middle of its broad uptrend channel. The rally from 72 has taken QQQ to the area of its next key resistance at 73.4 at the 21-day moving average. A continued move higher above the 21-day average suggests QQQ could next test resistance in the 74-74.3 zone. Fairly major resistance begins at 75.

Key near support on a Closing basis is at 72, extending to 71.4-70.6. I have no strong urge that I have to be in the stock with a somewhat mixed chart pattern. Could go higher or continue to chop around more of less in a sideways trend. Hey, it's summer! Take trading breaks. I like selling at the high end of price channels and buying at the LOW end. In between can be murder! Or at least disturb my peace of mind.


The Russell 2000 (RUT) remains yet in a still 'mixed' trend as upside momentum has waned some and RUT is in a 'rut' maybe confined to a trading range between 1000 and 950.

If the index achieves a decisive climb above 1000, a next resistance implied by the upper trend channel then comes in around 1028-1030.

I've highlighted RUT initial support at 968, but key support really is the 950-953 zone with trendline support at 945 currently.

It looks like the Russell could reach the 1000 area again but climbing above it for long maybe tough. I'm not banking on it currently.


New Option Plays

Biotech & Small Caps

by James Brown

Click here to email James Brown


Aegerion Pharma. - AEGR - close: 74.00 change: +1.07

Stop Loss: 71.90
Target(s): 84.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
AEGR is a biotech stock. What makes AEGR attractive is that shares did not react much to the market's or the biotech sector's recent pullback. Instead shares of AEGR have continued to melt up.

This is an aggressive, higher-risk trade. Shares of AEGR have been volatile over the last few weeks. I am suggesting small bullish positions if AEGR can hit a new high. This past week saw two intraday spikes to $75.70. We are suggesting a trigger to buy calls at $75.75. If triggered our target is $84.00. More aggressive traders may want to aim higher. New highs could spark another short squeeze. The most recent data listed short interest at 15% of the small 24.3 million share float. FYI: The Point & Figure chart for AEGR is bullish with a $102 target.

Trigger @ 75.75 *Small Positions*

- Suggested Positions -

Buy the Jul $80 call (AEGR1320G80) current ask $4.40

Annotated Chart:

Entry on June -- at $---.--
Average Daily Volume = 980 thousand
Listed on June 08, 2013


iShares Russell 2000 - IWM - close: 98.20 change: +0.75

Stop Loss: 100.65
Target(s): 93.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Stocks looked bullish on Friday with the widespread bounce in reaction to the jobs number. Yet the rally stalled at the short-term trend line of lower highs. If you're bullish on the market you could argue that the major indices have been building a bull-flag pattern. That could be true but the major indices have yet to breakout from these flag patterns. There is also a chance that the correction is not over yet. We want to be ready if the market surprises traders and moves lower.

The Friday afternoon low on the IWM was about $97.60. We are suggesting a trigger to launch small bearish positions if the IWM trades at $97.45. If triggered we will start this trade with a stop loss at $100.65. More conservative traders may want to choose a tighter stop loss (maybe just above the 98.50 level instead). Our target is the rising 100-dma. Currently the 100-dma is at $93.15. We will temporarily set our exit target at $93.50.

Trigger @ 97.45 *Small Positions*

- Suggested Positions -

Buy the Jul $95 PUT (IWM1320S95) current ask $1.68

Annotated Chart:

Entry on June -- at $---.--
Average Daily Volume = 43 million
Listed on June 08, 2013

In Play Updates and Reviews

Stocks Surge on Friday

by James Brown

Click here to email James Brown

Editor's Note:

The market appears happy with the jobs report on Friday morning. Equities rallied with broad-based gains.

We did see our COST and WHR trades hit our entry trigger. Meanwhile SYNA, CAT, and CNQR were stopped out. We have removed CHRW.

As you read tonight's updates, keep in mind that June options expire in two weeks.

Current Portfolio:

CALL Play Updates

Colfax Corp. - CFX - close: 50.53 change: +1.23

Stop Loss: 49.45
Target(s): 55.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

06/08/13: The stock market's rebound from its Thursday lows has lifted CFX off its rising 20-dma. Yet the stock remains under resistance near $51.00. I am suggesting investors wait for a breakout higher. Right now the plan is to buy calls if CFX hits $51.05.

Trigger @ 51.05

- Suggested Positions -

buy the SEP $55 call (CFX1321i55) current ask $1.25


Entry on June -- at $---.--
Average Daily Volume = 1.29 million
Listed on June 04, 2013

Costco Wholesale - COST - close: 110.58 change: -0.51

Stop Loss: 108.80
Target(s): 118.50
Current Option Gain/Loss: - 23.3%
Time Frame: 3 to 6 weeks
New Positions: see below

06/08/13: COST delivered a disappointing session for us. Shares bounced on Friday morning as expected and COST hit our entry trigger at $111.50. Yet the rebound failed at $112.00. I cautioned readers on Thursday night that this might happen and COST retreated to a -0.4% decline on Friday. The relative weakness on Friday is worrisome. Investors may want to wait for a breakout past $112.00 before initiating new positions. FYI: The Point & Figure chart for COST is bullish with a $124 target.

*Small Positions* - Suggested Positions -

Long Jul $115 call (COST1320G115) entry $1.20

06/07/13 triggered


Entry on June 07 at $111.50
Average Daily Volume = 2.0 million
Listed on June 06, 2013

Domino's Pizza - DPZ - close: 59.45 change: +1.10

Stop Loss: 57.75
Target(s): 64.75
Current Option Gain/Loss: - 2.3%
Time Frame: 3 to 6 weeks
New Positions: see below

06/08/13: DPZ continues to rebound and set a new closing high on Friday thanks to a +1.8% gain. I don't see any changes from my prior comments. We are keeping the stop loss just under the Thursday low for now.

Earlier Comments:
I am suggesting that investors keep their position size small.
FYI: DPZ will begin trading ex-dividend on June 12th. The cash dividend should be about 20 cents.

*Small Positions* - Suggested Positions -

Long Jul $60 call (DPZ1320G60) entry $2.15


Entry on June 04 at $60.30
Average Daily Volume = 733 thousand
Listed on May 30, 2013

Western Digital - WDC - close: 64.15 change: +0.29

Stop Loss: 62.40
Target(s): 66.00
Current Option Gain/Loss: +74.5%
Time Frame: 3 to 4 weeks
New Positions: see below

06/08/13: WDC's +0.45% gain on Friday underperformed the broader market. Yet shares did post a new all-time closing high. Plus, WDC is now up seven weeks in a row. I am still suggesting that more conservative traders take profits right now. I am actually turning a little bit more aggressive. We will adjust our exit target to $66.00. The $65.00 level could still be round-number resistance so traders may want to exit earlier near this level. We will also raise the stop loss to $62.40, which is just below Thursday's low.

*small positions* - Suggested Positions -

Long Jun $60 call (WDC1322F60) entry $2.55

06/08/13 new stop loss @ 62.40, adjust target to $66.00
06/04/13 new stop loss @ 61.75
06/01/13 new stop loss @ 61.45, readers may want to exit now
05/29/13 more conservative traders may want to lock in gains now.
05/28/13 new stop loss @ 59.65


Entry on May 21 at $60.65
Average Daily Volume = 3.3 million
Listed on May 18 2013

Whirlpool Corp. - WHR - close: 124.55 change: +1.67

Stop Loss: 118.65
Target(s): 132.00
Current Option Gain/Loss: + 7.4%
Time Frame: 3 to 4 weeks
New Positions: see below

06/08/13: Our new trade on WHR has been triggered. The plan was to buy calls at $123.35 but WHR gapped higher at $123.49 on Friday morning. Shares initially pulled back from potential round-number resistance near $125.00 but traders were buying the dip again on Friday afternoon. Friday's gain helps confirm Thursday's bullish reversal pattern.

- Suggested Positions -

Long Jul $125 call (WHR1320G125) entry $4.70

06/07/13 trade opened on gap higher at $123.49, trigger was 123.35


Entry on June 07 at $123.49
Average Daily Volume = 826 thousand
Listed on June 06, 2013

PUT Play Updates

CARBO Ceramics - CRR - close: 67.84 change: -1.43

Stop Loss: 70.05
Target(s): 62.00
Current Option Gain/Loss: -48.0%
Time Frame: 3 to 4 weeks
New Positions: see below

06/08/13: As expected the rebound in CRR failed at resistance near $70.00. Actually the high on Friday was $69.45, near its 20-dma and 30-dma. If you're looking for a bearish trade then Friday's move could be a new entry point in CRR. Keep in mind that June options expire in two weeks. You may want to buy Julys.

Earlier Comments:
If triggered we do want to keep our position size small. The most recent data listed short interest at 33% of the very small 19.8 million share float. That does raise the risk of a short squeeze but the last squeeze attempt (May 20th) didn't last very long.

*small positions* - Suggested Positions -

Long Jun $65 PUT (CRR1322R65) entry $1.25


Entry on May 31 at $67.65-
Average Daily Volume = 266 thousand
Listed on May 30, 2013

Facebook, Inc. - FB - close: 23.29 change: +0.32

Stop Loss: 24.10
Target(s): 21.50
Current Option Gain/Loss: + 65.4%
Time Frame: 3 to 4 weeks
New Positions: see below

06/08/13: The new NSA spying scandal is unlikely to have any immediate effect on shares of FB. Consumers love their social media and they don't have a lot of alternatives. Most people hate change. Meanwhile shares of FB, which were oversold, managed a bounce on Friday (+1.39%). If you want to get picky you could argue that FB has created a three-day bullish reversal pattern. If the rebound continues the first hurdle is short-term technical resistance at the 10-dma. I am not suggesting new positions at this time.

Note our option has already pulled back from +100% to +65%. Readers may want to take profits now.

- Suggested Positions -

Long Jun $25 PUT (FB1322R25) entry $1.10

06/06/13 new stop loss @ 24.10
06/05/13 our put option has doubled (+100%) readers might want to consider taking profits early right now.
05/31/13 no follow through on the bullish reversal from Thursday
05/30/13 new stop loss @ 25.10, FB was upgraded by two analysts today. The stock has created a technical reversal pattern higher.


Entry on May 24 at $24.65
Average Daily Volume = 38 million
Listed on May 22 2013

Hittite Microwave - HITT - close: 54.46 change: +0.52

Stop Loss: 54.65
Target(s): 50.00
Current Option Gain/Loss: -47.6%
Time Frame: 4 to 6 weeks
New Positions: see below

06/08/13: HITT produced a small gap higher on Friday morning. The stock spent almost the whole day quietly churning sideways above the $54.00 level. Then in the last 30 minutes of trading saw a spike higher. Shares hit $54.58 at its best levels. If there is any follow through higher on Monday we'll see HITT hit our stop loss at $54.65. I am not suggesting new bearish positions at this time.

Earlier Comments:
I do consider this a higher-risk, more aggressive traders because the option spreads on HITT's options are relatively wide. Thus I am suggesting we keep our position size small to limit our overall risk. FYI: The Point & Figure chart for HITT is bearish with a $43 target.

*Small Positions* - Suggested Positions -

Long Jul $50 PUT (HITT1320S50) entry $1.05

06/06/13 new stop loss @ 54.65
06/04/13 adjusted stop loss to $55.45


Entry on June 04 at $53.90
Average Daily Volume = 183 thousand
Listed on June 01, 2013

Johnson & Johnson - JNJ - close: 84.46 change: +0.78

Stop Loss: 85.25
Target(s): 80.50
Current Option Gain/Loss: -38.7%
Time Frame: 3 to 6 weeks
New Positions: see below

06/08/13: It looks like our JNJ put play could be in trouble. The stock has broken one of its short-term trend lines of lower highs. Plus JNJ has closed back above its simple 50-dma. The high on Friday was $85.18. If there is any follow through higher then we'll see JNJ hit our stop at $85.25.

*small positions* - Suggested Positions -

Long Jul $80 PUT (JNJ1320S80) entry $0.80

06/06/13 move stop loss to $85.25.
06/05/13 adjust exit target to $80.50


Entry on June 03 at $83.95
Average Daily Volume = 10 million
Listed on June 01, 2013

Susser Holdings - SUSS - close: 48.63 change: +0.43

Stop Loss: 49.25
Target(s): 45.25
Current Option Gain/Loss: -25.0%
Time Frame: 3 to 4 weeks
New Positions: see below

06/08/13: The Friday morning rally in SUSS failed near $49.00 but traders bought the dip midday. The stock ended the session up +0.89%. If there is any follow through higher we'll likely see SUSS hit our stop loss at $49.25.

FYI: The Point & Figure chart for SUSS is bearish with a $41 target.

- Suggested Positions -

Long Jun $50 PUT (SUSS1322R50) entry $2.60

06/06/13 new stop loss @ 49.25
06/01/13 new stop loss @ 50.25


Entry on May 30 at $48.75
Average Daily Volume = 369 thousand
Listed on May 29 2013

Longer-Term Play Updates

Chicago Bridge & Iron - CBI - close: 60.62 change: +0.15

Stop Loss: 61.45
Target(s): 74.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 months
New Positions: Yes, see below

06/08/13: Friday's performance for CBI was surprisingly disappointing. The rally failed at its 20-dma and shares settled with a +0.24% gain. Compare that to the +1.28% gain in the S&P 500.

There is no change from my earlier comments. Currently we are on the sidelines waiting for a breakout past resistance at $65.00.

Earlier Comments:
Last time we added CBI we successfully caught the bounce from mid April back toward its March highs. You can read the background details and bullish fundamentals for CBI in our original play description
here, since it still applies. Just scroll down to the "longer-term trades" section of the page.

I am suggesting a trigger to buy calls at $65.25. If triggered our long-term target is $74.50. NOTE: the broader market does look vulnerable to more selling. Thus traders may want to start this trade with small positions to limit risk. Even though CBI looks strong it is up six weeks in a row and could succumb to profit taking. More conservative traders may want to wait for shares of CBI to close above $65.25 and then launch bullish positions the next morning as an alternative entry point strategy.

Trigger @ 65.25 *Small Positions*

- Suggested Positions -

Buy the 2014 Jan $70 call (CBI1418A70)


Entry on June -- at $---.--
Average Daily Volume = 1.8 million
Listed on June 01, 2013


Synaptics - SYNA - close: 42.47 change: -0.28

Stop Loss: 40.95
Target(s): 47.50
Current Option Gain/Loss: - 55.1%
Time Frame: 4 to 6 weeks
New Positions: see below

06/08/13: SYNA's performance was definitely disappointing. Thursday's intraday move higher was enough to hit our entry trigger but there was no follow through. Then shares collapsed on Friday, completely ignoring the market's rally. Shares plunged Friday morning to break support and hit our stop loss at $40.95 in the process.

Earlier Comments:
We do want to limit our position size.

*Small Positions* - Suggested Positions -

Jul $45 call (SYNA1320G45) entry $1.45 exit $0.65 (-55.1%)

06/07/13 stopped out


Entry on June 06 at $43.15
Average Daily Volume = 848 thousand
Listed on June 05, 2013


Caterpillar Inc. - CAT - close: 84.65 change: +0.65

Stop Loss: 85.25
Target(s): 80.50
Current Option Gain/Loss: -17.2%
Time Frame: 3 to 4 weeks
New Positions: see below

06/08/13: Thursday night we adjusted our stop loss on CAT just in case the market rallied and CAT followed. Sure enough stocks advanced but the rally in CAT stalled under resistance near its 50-dma. Still our trade was stopped out at $85.25. The stock continues to look bearish but our play is closed.

- Suggested Positions -

Jun $85 PUT (CAT1322R85) entry $1.45 exit $1.20 (-17.2%)

06/07/13 stopped out
06/06/13 new stop loss @ 85.25
05/29/13 adjust stop loss to $87.25, just above the 10-dma


Entry on May 29 at $85.50
Average Daily Volume = 7.0 million
Listed on May 25 2013

CH Robinson Worldwide - CHRW - close: 57.16 change: +0.85

Stop Loss: 56.65
Target(s): 51.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: see below

06/08/13: CHRW is not cooperating. The stock added +1.5% on Friday. With the market bouncing it's less likely that we're going to see CHRW break down under significant support near $56.00. Our trade did not open.

Trade did not open.

06/08/13 removed from the newsletter


Entry on June -- at $---.--
Average Daily Volume = 1.8 million
Listed on June 05, 2013

Concur Technologies - CNQR - close: 80.92 change: +0.17

Stop Loss: 81.25
Target(s): 76.00
Current Option Gain/Loss: -53.1%
Time Frame: 3 to 4 weeks
New Positions: see below

06/08/13: CNQR is another bearish play that fell victim to the market's volatility on Friday. The stock underperformed the market with a +0.2% gain versus a +1.3% rally in the NASDAQ. Yet shares managed to hit our new stop loss at $81.25 intraday.

- Suggested Positions -

Jun $80 PUT (CNQR1322R80) entry $2.35 exit $1.10 (-53.1%)

06/07/13 stopped out
06/06/13 new stop loss @ 81.25
06/04/13 adjusted the exit target from $76.50 to $76.00.


Entry on May 29 at $80.50
Average Daily Volume = 489 thousand
Listed on May 25 2013