Option Investor

Daily Newsletter, Saturday, 11/23/2013

Table of Contents

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

Market Wrap

New Highs All Around

by Jim Brown

Click here to email Jim Brown

After a lackluster week the major indexes finally broke out to new highs to set the stage for next week.

Market Statistics

The Dow and S&P spiked to a new high over their round number resistance on Monday and then pulled back as is often the case as traders took profits after the target was hit. After languishing throughout the week the indexes began strengthening on Thursday and accelerated into Friday's close. The Dow closed at 16,064 and well over that round number resistance at 16,000. The S&P finally moved to close at 1,804 and also over the resistance that knocked it into a hole when the week began.

The most important index high was the Russell 2000, which closed at 1,124.70 and a new historic high. The Russell had pulled back sharply to trade at 1,096 on Wednesday only to rally +2.5% in the last two days. The small cap rebound from the sharp sell off to a new historic high is very bullish for the market next week.

Even the Nasdaq squeezed out a new 13 year high at 3,991 but remained slightly below the round number resistance at 4,000.

Despite closing at new highs it was actually a lackluster day in the markets. Volume was the lowest of the week at 5.5 billion shares. It would have been much more bullish if volume was rising but we will not complain about the result.

The economics were also lackluster without any material reports on Friday. The E-Commerce sales rose from $64.8 Billion to $67.0 billion in Q3. Nobody seemed to care.

The Job Openings Labor Turnover Survey (JOLTS) was flat at 2.8% in September after rising +2.8% in August. Employers posted 3.9 million job openings up from 3.8 million in August. Hiring also rose slightly from 4.56 million to 4.59 million. This was a lagging report for the September period and it was ignored.

The Kansas Fed Manufacturing Survey improved only marginally from 6.0 in October to 7.0 in November. However, the internal components were more upbeat. New orders rose from 3.0 to 15.0 and backorders increased from -2.0 to +14.0. Employment rose from -2.0 to +6.0. The Kansas area tends to be tied to auto production and that was seen as the driver in November. The report was mostly ignored.

The market was in rally mode on Friday as a result of the Philly Fed Manufacturing report on Thursday. The Philly Fed headline number declined from 19.8 to 6.5 and the lowest level since May. New orders declined from 27.5 to 11.8 and backorders fell from 9.1 to -4.2. Employment declined from 15.4 to 1.1.

The Philly Fed Mfg Survey is seen as a proxy for the entire U.S. and the poor performance suggests the Fed will continue QE well past December. James Bullard tried to talk up the possibility of a December cut to QE but with economics like this it is not likely to happen.

The volatility in the various economic reports means there is no sustainable recovery in progress and the Fed will look at the reports along with the fiscal follies about to start in Washington and QE will continue well into 2014. The consensus estimate as of Friday is for a March taper announcement.

The economic calendar for next week will likely be ignored as well. The Richmond Fed and Chicago Fed surveys will be the highlights along with the Chicago ISM (PMI) the end of the week for traders. Once that report is released many traders will hit the door for the long weekend.

The market is closed on Thursday and closes early at 1:PM on Friday. Volume will be seasonally low all week.

Thanksgiving week is typically bullish but the week after Thanksgiving is even stronger.

The week starting with Black Friday has been up 7 of the last 7 years and 9 of the last 11. The period from Thanksgiving to Christmas is seasonally strong. The challenge will be the budget deadline on Dec 13th and the headline war that it will produce.

Stock news was pretty sporadic with hits and misses coming from several unrelated sectors. Intel (INTC) shares fell -5% the day after the company held its analyst meeting. In that meeting the CFO Stacy Smith said Intel will see 2014 revenue flat with this year as 9% growth in server chips will be offset by a "mid-teens" percentage decline in sales of chips for client computing devices.

Analysts said Intel was more candid than normal in their disclosures. However, the lukewarm outlook suggests the company is having trouble combating the slowdown in its PC business. Intel said it was going to make a bigger push into mobile and expand its manufacturing chips for a fee for other chip makers. Some analysts felt the slowdown in PC chips was forcing Intel to branch out into so many areas they might lose focus.

Some analysts pointed out the strong demand for the iPad Air and other iPad products as downward pressure on PC chips. The explosion of tablets is forcing Intel to compete in another product area where it is not the leader. However, Intel is going to debut two new Atom chips in 2014 that could bring tablet prices down to the sub $100 level and that will be bullish for chip and tablet demand. However, by pushing the price of chips so low it will also squeeze their margins. There is also the potential for the ARM chips to begin eating away margin from the core PC business.

Goldman Sachs left the meeting disappointed and reiterated a "sell" rating with a price target of $16. They saw Intel guiding for another year of no revenue or earnings growth but record capex investments. Goldman expects computer and chip prices to continue to decline and they are worried about further guidance warnings throughout the year.

Herbalife (HLF) shares shook off another strong attack by Bill Ackman and gained +5% for the day. So far Ackman's $1 billion short has cost his Pershing Square Capital hedge fund $500 million but he refuses to give up saying he will pursue his Herbalife battle to the ends of the earth. He said he was speaking with regulators on at least a weekly basis.

Herbalife continues to deny it is a pyramid scheme and pointed to a lack of progress by Ackman despite spending millions to press his case. A Herbalife spokesman said "Mr. Ackman presented nothing new today after a year of baseless claims and hundreds of millions of dollars of losses for his investors. The only thing he has proven with his ego-driven, obsessive investing decisions is his lack of understanding of consumer product companies." The spokesman pointed to Ackman's investment losses in Target, JC Penny, Borders, etc as evidence of his investing mistakes.

Ackman said "Every day that goes by without an audit, I can't believe people own this stock." Herbalife lost its auditor a year ago and hired a new firm. The results of the new audit should be released soon. The new firm is taking its time because they know the audit will be under a microscope as soon as it is released.

George Soros, Carl Icahn and William Stiritz have all taken major long positions against Ackman. In his presentation on Friday Ackman said it was curious that 80-year old billionaires had taken long positions in the company. Ackman said he had taken some of the risk out of the trade by converting 40-43% of his short position into long dated puts and covering the corresponding short in the shares. He is obviously feeling the pain.

Time Warner Cable (TWC) and Comcast (CMCSA) both soared on Friday after Comcast said it was seeking advice on possible regulatory hurdles it might face if it made a bid for Time Warner. This came right after the Wall Street Journal said Charter (CHTR) was trying to line up financing to make a bid for Time Warner. There was a report that Time Warner had reached out to Comcast as the company they would rather see make a bid. Time Warner saw income fall in Q3 after a dispute with CBS took the channel off the air for 3 million homes for about a month. Net income fell -34%. Time Warner has a market cap of roughly $37 billion but an acquisition could be in the range of $55-$58 billion.

Previously federal rules prohibited any one company from having more than 30% of cable subscribers. The rule was eliminated in 2009 but there would probably be some antitrust concerns with a TWC/CMCSA merger that would end up with about 37 million customers or 33% of the market. Comcast owns 20% share today. Analysts believe a combined company would control the way content was presented in America and what channels it would allow. That could be too much control for regulators to allow.

Lumber Liquidators (LL) was knocked for a -12% loss after Whitney Tilson, manager of the Kase Capital Management hedge fund gave a presentation at the Robin Hood Investors Conference. He said the fund was short LL because the gross margins were too good to be true. He suggested it might be related to alleged imports of illegal timber from eastern Russia. The federal government is probing those purported shipments and raided LL headquarters in late September. Tilson quoted from a report from London-based nonprofit Environmental Investigative Agency on the company's practices. The agency alleged LL had turned a blind eye towards the source of timber and it had fueled rampant illegal logging in Eastern Russia.

Shares of LL had been spiking after they reported earnings with the best sales growth in several years thanks to the wave of remodeling currently underway. Even after Friday's drop the stock is up +93% for the year.

The Fresh Market (TFM) crashed -19% after missing on earnings and revenue and warning on Q4. Earnings were 23 cents compared to estimates for 26 cents. Revenue rose +14% to $364.5 million but missed estimates of $373.4 million. The company lowered the full year forecast from $1.50-$1.55 to $1.42-$1.47. Analysts were expecting $1.53. Fresh Market said it "experienced increasingly challenging economic conditions as the quarter progressed." I suspect it is because Whole Foods is eating their lunch and rapidly gaining market share. Whole Foods is not having the same problems as Fresh Market.

3D Systems (DDD) and Motorola Mobility, a Google company, entered into a multiyear development agreement to create a continuous high-speed 3D printing production platform for the phones to be produced in support of Motorola's Project Ara. "These highly-custom, modular smartphones will allow users to make functional and aesthetic choices about their device" according to the press release.

Several analysts said this development agreement would move 3D printing into the mainstream and showcase the revolutionary change in the manufacturing business model. 3D printing is rapidly going from a novelty to a mass produced reality and we could see this company and process surge in the coming months.

Motorola invented the cell phone and 3D Systems invented the 3D printer. How appropriate they joined forces to create the first mass produced 3D manufacturing system. This will bring even more credibility for 3D Systems. It is not just a fad anymore.

Novartis (NVS) held an investor day on Friday and Christmas came early for Novartis investors. The company said it was launching a $5 billion stock buyback to start immediately and run over the next two years. That is part of an $11 billion plan launched in 2008 with more than 75% still unpurchased. The company also set aside additional funds for a dividend and for acquisitions. They recently announced the sale of the majority of their diagnostic business to Spain's Grifols for $1.68 billion in cash. The company said it was starting to develop new business segments in dermatology, Heart Failure and respiratory illnesses. The company also said it had a new breast cancer drug going into Phase III clinical trials. The LEE011 drug is a CDK 4/6 inhibitor similar to one in development by Pfizer (PFE), which is thought to be a $5 billion a year drug by the end of the decade. Novartis is taking it a step farther and has early stage studies with LEE011 looking at melanoma, lymphoma and pediatric cancers. I thought the investor day news was very bullish for Novartis and I would be a buyer on any pullback.

After the bell on Friday the S&P announced JCP was being dropped from the S&P-500 and replaced by security provider Allegion (ALLE), a spinoff from Ingersoll Rand (IR) effective Nov 29th. ALLE shares will begin trading on December 1st. Earlier Friday JCP reported an adjusted loss of -$1.81 on a -5.1% drop in revenue to $2.76 billion. Analysts were expecting a loss of -$1.74. Same store sales for the quarter declined -4.8% but sales for September posted the first monthly gain since December 2011. Shares reached a two-month high on Wednesday at $9.63. Shares fell -10 cents in afterhours on Friday.

The swirling comments over tapering QE sent the yield on the ten-year treasury to 2.84% on Thursday morning but the two-month high spike was short lived. The yield came back down to 2.75% by Friday's close. However, Bank of America believes there are higher yields ahead and the market could come "unhinged" when it happens. The 3.0% level seems to be the next target and BAC believes we could see 3.17% to 3.3%. While the market may see some volatility from that move BofA said any move over 3.3% is going to produce dramatic volatility in the equity markets. "Safe" yields over 3.3% will be very attractive to large institutions looking to preserve capital rather than risk it. Insurance companies, pension funds, etc will start shifting capital out of equities and back into treasuries over 3.3%. It is only a matter of time until this happens but the Fed should be able to keep rates low for the next six-months or so with QE. Once they start tapering the rates will soar.

Oppenheimer updated their yearend forecast for 2014 to 2,014. No that is not a typo. They are expecting the S&P to rise to 2,014 by the end of 2014. They said "The 2,014 target reflects our expectation that the stock market will have opportunity to move higher over the course of next year, and turn in yet another double-digit increase...albeit around half the size of this year's rally to date. Our price target is set using the mid-point between our dividend discount model and a price/earnings model." They expect these valuation projections to be supported by improving fundamentals now that US economic growth has been "primed" by the Fed's QE program.

The P/E model puts the price target at 2,060 while the dividend-discount model prices the index at 1,967. The actual average is 2,013.50 so they rounded up to 2,014. Oppenheimer's chief market strategist John Stoltzfus raised the 2013 price target from 1,730 in October to 1,812, less than 1% above Friday's closing level.

The S&P closed at 1,804 on Friday and a new record high. This just happens to be the long term uptrend resistance from March 2012. I expect it will be broken for multiple reasons. The first is the normal seasonal strength of Thanksgiving week and the Santa Claus rally starting the week after Thanksgiving. We also have the support from continued QE and rising fundamentals for stocks. Q4 earnings estimates are still rising despite the round of ugly earnings and lowered guidance from the retail sector.

On a side note JP Morgan pointed out last week that more than 60% of earnings growth over the last two years has come from stock buybacks rather than rising sales growth. Buying back stock reduces the number of shares outstanding and increases the earnings per share. In case you have not noticed the stock buyback announcements have been booming over the last several weeks.

If we add improving fundamentals and improving economics to the buyback trend we should get even higher earnings in the next several quarters. Q4 is the first quarter in over a year where the earnings estimates are rising instead of falling as the quarter progresses.

Lastly, I think the S&P will move higher because funds are behind the S&P on performance. The S&P is up +26% for the year and the average fund is up only in the mid teens in percentage terms. That comparison does not look good on year end statements. Funds are going to be chasing performance. The momentum stocks that have outperformed over the last quarter should continue that performance over the next five weeks.

This is no longer a technically driven market. This is a bull market and without some major unexpected event the market should rally into year end. The S&P just managed the longest winning streak (7 weeks) since May 2007. One event that could trip it up is the budget deadline on December 13th. If Washington goes back into trench warfare mode it could damage sentiment and slow any year end gains. If Washington somehow came up with a grand bargain everyone agreed on the market would explode higher. I am not holding my breath.

The S&P is over extended but it can remain that way for weeks to come. Small dips of 2-3% like we had last week should continue to be bought. Initial support is now 1,780 followed by 1,765-1,750. Eventually we will revisit the 100-day average but I expect that in early 2014 rather than the next five weeks.

The big caps are still leading the charge but the small caps are now in chase mode. The Dow rocketed through 16,000 after four days of consolidation and chipping away at that round number resistance. The Wednesday dip back to 15,900 after the FOMC minutes was a buying opportunity and it was not missed.

The Dow has no material near term resistance now that it is over 16,000. The week of consolidation gave it a decent base to launch from and we could see continued gains in the days ahead.

The Dow is very overextended but bull markets can remain overextended for a long time. Support is 15,900 and I doubt we will see that again next week without some external event reversing market sentiment.

The Dow Transports closed at 7,211 on November 15th and then powered up to 7,240 last Monday before selling off sharply to close under 7,100 on Wednesday. The Transports are supposed to confirm new Dow highs by making new highs. Friday's 26 point gain closed at 7,199 and not quite that new high. Considering crude prices are at four month lows, rail loadings at 13 week highs and airlines at new highs you would have thought the transports would be breaking out every day. FedEx is a drag on the index. Shares of FDX have been very choppy of late on warnings of lower overnight volumes and more ground shipments. UPS is making new highs because the majority of their business is ground oriented. I believe the Transports will breakout this week and confirm the Dow Industrials.

The Nasdaq Composite closed at 3,991 and a new 13-year high by +5 points. Very few of the Nasdaq big caps closed positive on Friday with most of the heavy lifting done by the biotechs. Biogen Idec (BIIB) gained +33 points on positive news and Regeneron (REGN) added +19. Missing from the point gainers list are GOOG, AAPL, PCLN, etc, making it hard for the Nasdaq to accelerate.

The Nasdaq has not broken over round number resistance at 4,000 but it should this week. There is strong support at 3,920 and the rising 50-day average at 3,860. I doubt either level will be tested this week.

The Russell 2000 came roaring back after three weeks of profit taking and fund rotation into big caps. Apparently when they saw the small caps were not going to decline any further the fund managers began pouring cash back into small cap leaders. The Russell closed at a historic high on Friday and should continue to make new highs during the seasonally bullish weeks ahead. Small caps are usually favored in December.

Support is 1,096 and resistance around 1,135-1,145.

Bull market corrections show up unannounced and they are usually fast and deep and are over quickly. Since they are unannounced it is tough to plan for them so we should always be prepared. They rarely appear in December but January could be a very good possibility.

December is the top month for S&P gains with an average of +1.7% since 1950. It is also the best month for the Russell 1000 and Russell 2000 and second best for the Nasdaq since 1971.

The current market is fueled by QE. The following chart is the best example I have seen. Without QE the market would be focused on fundamentals and global fundamentals are terrible but global stock prices continue to rise. What is wrong with this picture? Remove QE and the market will collapse.

Source Bloomberg via Zerohedge


Goldman Sachs (GS) is projecting a good year for stocks in 2014 but David Kostin reiterated a yearend target of 1,900, a gain of only 6% from here. Morgan Stanley is now projecting 1,840. Goldman said the S&P could fall -6% in the next three months and 11% at some point over the next 12 months. (1,600) Kostin sees a 67% chance of a 10% drop at some point in 2014 before rebounding to close at 1,900. He also sees S&P 2,100 by year end 2015 and 2,200 by yearend 2016. They base that on $108 earnings in 2013, $116 in 2014, $125 in 2015, $132 in 2016, $138 in 2017. Goldman expects $150 billion to flow into stocks in 2014 from individuals, investors and companies. Another $225 billion will flow into equities from mutual, pension funds and life insurers.

Morningstar said $172 billion flowed into stock funds in the first 10 months of 2013. That is the largest amount since the $272 billion in all of 2000. Most of the cash this year went to international funds but domestic equity inflows are still the highest since 2004.

Blackrock CEO Laurence Fink said stocks may decline as much as 15% in 2014 because of political risks in China, Japan, France and the USA. China and Japan are on the verge of war over disputed islands in the South China Sea.

A factor I believe is being ignored is the implementation of Obamacare. With insurance rates for most people rising 25% to 75% with some over 100% this is going to be a huge drain on consumer spending in 2014. The GDP could plummet as consumer spending crashes. When oil prices soar and gasoline prices near $4 the economy slows dramatically. In reality that is only about a $20-$25 a week hit to the average commuter.

The sharp increase in insurance premiums is going to be significantly more than the cost of gasoline and the economic impact could be huge. When the mandate for employer supplied insurance rolls around at year end 2014 there is an estimated 75-80 million policies that will be cancelled. That means those plans will be replaced with higher cost programs and the impact will be about 600% greater than the current displacement of individual plans. Estimates are between 8-12 million individual policies have been cancelled and participants are being pushed into the higher cost exchanges. Multiply that by the much larger number of group plan holders at the end of 2014 and it will be a significant economic hit. The market in 2014 and 2015 could suffer significantly under the burden of dramatically lower consumer spending.

Lastly, we should not forget QE. The Fed will begin tapering somewhere in 2014 and that could produce a -15% decline in the market according to several analysts. Once that support is removed the market will focus more on the fundamentals and interest rates and money could quickly shift back into treasuries. You can't forecast 2014 targets without taking into account the end of QE.

If I was going to worry about anything over the next few weeks it would be the lack of worry in the market. Volatility is too low and bullishness too high BUT market action is too reserved given those factors. The risk of a headline war ahead of the December 13th budget deadline and the potential for another debt ceiling battle in late January may be holding back cautious investors but that is not showing up in the volatility. Everybody seems to be bullish but the market is in slow meltup mode instead of rally mode. The market is too calm. Remain long but keep those stops in place.

The yearend renewal special starts this week! Keep your eyes on your email so you don't miss out on the best savings of the entire year.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"If at first you don’t succeed, skydiving is not for you."
Francis Roberts


Index Wrap

S&P and Dow Close Above Big Round Numbers

by Leigh Stevens

Click here to email Leigh Stevens

The Dow 30 (INDU) looks quite bullish as its weekly chart formation, that of a sideways May to November rectangle, projects a 'minimum' next upside target to the 16600 area given INDU's decisive upside penetration in early-November above its line of highs at 15680. I show this rectangle pattern and subsequent bullish 'breakout' on INDU's weekly chart in my Trader's Corner column of Friday, 11/22/13 which can be seen online HERE

The other major indexes, such as the S&P 500 (SPX) and 100 (OEX) will run into some technical resistance as implied by the top end of their uptrend channels at just modestly higher levels as will be seen in my major index commentaries below.

The Nasdaq Composite (COMP), as I've been saying for awhile, looks to be facing tough resistance just overhead at 4000. COMP has been basically in a sideways 'holding' pattern since hitting resistance implied by the top end of its broad weekly chart uptrend price channel over the past 5 weeks. See COMP's weekly uptrend price channel highlighted at the aforementioned LINK to yesterday's (11/22) Trader's Corner article.

There is usually ONE of the major indexes that 'projects' a further major move higher (or lower) in this case INDU, which in turn suggests how high or low the overall market could get on a next major price swing; just as in a big bull move like this one, there is sometimes ONE of the major indexes (e.g., COMP) that suggests an area of key resistance in the current trend, whether just a temporary pause or not.



The S&P 500 (SPX) chart continues in a bullish pattern as the Index had a bullish end of the week Close above key near resistance at 1800. Next and possibly the most pivotal technical resistance is implied at the top end of SPX uptrend price channel highlighted below, with this line currently intersecting in the 1820 area. I don't currently have a higher upside projected target above 1830 on near-term basis.

On a monthly chart basis (not shown) SPX continues to point to a very bullish long-term bull market as the Index continues to move higher above resistance zone of 1535-1570 implied by its September 2000 and October 2007 tops.

Near support is seen at 1775, extending to 1750. More on key technical indicators BELOW the SPX daily chart.

SPX continues in overbought territory again as seen above. Bullish sentiment hit a high extreme on this past Thursday and the Relative Strength Index (RSI) indicator continues to trade in its 'overbought' zone. These technical indicators don't suggest a top the way, for example, a key downside price reversal would, but do suggest that the risk of a correction is above average.

The other 'risk' is that I cry 'wolf' over these things too much as overbought conditions are part of almost all MAJOR bull moves and can go on for an extended period. Of course, there is always, eventually, a correction even if only a sideways time correction; i.e., a sideways move (versus much of a downside pullback) that 'throws off' such high extremes in key technical indicators.


The S&P 100 (OEX) chart has seen another bullish surge higher with Friday's strong upside move that took OEX to a Close well over prior intraday highs. Currently, OEX is nearing some technical resistance in the 812 area as implied by the TOP end its broad uptrend price channel. I have no current higher projections on a technical/chart basis, based on either the daily or longer-term charts.

The foregoing is of course not to say that OEX can't or won't get to the 820-825 area and equal a move duplicating the last upside spurt higher. I tend to rely on such upper channel boundaries to suggest where an index may correct or SLOW its upside momentum. Stay tuned on this as we're in a very strong bull market.

Near support is seen at 790, then at 780. A Close below 780 would suggest further downside potential. Major support comes in around 765 currently.


The Dow 30 (INDU) has climbed to above key resistance at 16000 and could be headed to the 16200 area next and possibly to the 16600 area longer-term. INDU, because of its multimonth sideways move from May into early-November has a different looking chart than the S&P.

INDU's upside potential now projects significantly higher than the much broader S&P indices given continued longer-term bullish upside momentum in INDU stocks AXP, BA (but paused in its upside momentum) DD, DIS, GE, HD, now INTC, JNJ, now JPM!, MMM, MSFT, NKE, PFE, PG, TRV and V and a resurgent WMT and XOM (18 stocks, more than half of the Dow 30).

Near-term support is seen in the 15800 area, then at 15600; major support is suggested around 15400.

There's no 'technical' reason why the Dow won't continue to work higher based on CURRENT upside momentum. INDU isn't even quite as overbought in terms of the 13-day RSI as it 'typically' gets at price peaks. The Dow is starting to get well over its 21-day average but wouldn't be really 'extended' on the upside (relative to this key trading average) until around 16300 where INDU would be 3 percent above its 21-day moving average.


The Nasdaq Composite (COMP) Index remains in sideways type holding pattern but has made a slight new Closing high relative it its prior trading range. COMP is now within a hair's breath of climbing above key resistance at 4000. Resistance implied by the upper end of COMP's broad uptrend price channel intersects currently in the 4027 area with next higher resistance estimated for the 4100 area.

Near support is highlighted at 3900, extending to 3860.

Bullishness is on the rise recently, as seen in my 'CPRATIO' indicator at the bottom of the daily COMP chart. Bullish sentiment has occasionally gotten extreme on a daily basis but only got fairly 'extreme' on a 5-day moving average basis the last time COMP got to the top end of its uptrend channel. It's of course still a strong overall bull market but COMP's chart pattern may suggest that the tech-heavy Nasdaq may act as a drag to the overall market in the near-term. Stay tuned on whether COMP breaks out above the upper channel line (at 4027-4030)! I don't currently see a strong likelihood of COMP climbing above the 4000 level on a weekly Closing basis.


The Nasdaq 100 (NDX) chart remains bullish although it hasn't gone to a new closing high yet but could be headed there if the coming week opens strong. 3429 is the recent intraday high that needs to be overcome. Next higher resistance is suggested at the upper channel line, currently intersecting in the 3476 area. 3500 is my current upper end target for NDX.

Technical support is highlighted in the 3350 area, extending to around 3500.

We could be nearing the end of this run in the big cap tech stock NDX Index but the rest of the market has been pretty strong. Not strong enough I think to propel NDX above 3475-3500 anytime soon, especially not on a weekly Closing basis in my current estimation.


The Nasdaq 100 (QQQ) tracking stock is bullish but has stalled some below 84 near resistance at the prior recent intraday price peak. Next technical resistance is projected in the 85 area.

I don't currently have upside price targets above 85. There's a well-defined long-term uptrend channel that intersects currently in the 85 area. This isn't to say that this ETF won't climb still higher above 85 but NDX hasn't cleared prior highs yet of course and can't be said to be in a major new UP leg although some key Nasdaq stocks remain in strong uptrends; e.g., GOOG and (to some extent) AMZN. AAPL is stalled recently although the stock still looks quite bullish on a longer-term basis.

Near support in QQQ is at 82-81.4, with next support at 80.8.

The On Balance Volume (OBV) line has dipped recently, which suggests caution on the buy side as daily trading volume has stalled. Normally, we don't see QQQ volume spikes unless there's a break below perceived chart support, as would likely be the case if QQQ broke below 82 and lower, such as to under 81.4 currently.


The Russell 2000 (RUT) chart is no longer 'mixed' in that RUT has managed at least one Close over its prior intraday (1123) high. RUT could be headed to the 1140 area next and possibly to the 1160 area over time. The Russell is bullish above 1120, not so much below this level.

Near support is seen at 1100-1096, then at the low end of its uptrend price channel in the 1080 area.

RUT is performing well given its tendency to move in tandem with Nasdaq, which is lagging some relative to the S&P and Dow. The Russell 2000 also typically has some seasonal type strength in the first quarter of the new year and this recent rally may be 'early' in that sense but a move above prior resistance is worth watching for what comes next.


New Option Plays

Apparel, Alcohol, & Acres

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:

(bullish ideas)

(bearish ideas)


Hanesbrands Inc. - HBI - close: 70.29 change: +0.84

Stop Loss: 69.25
Target(s): 74.75
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
HBI is in the consumer goods sector. They manufacturer a wide range of apparel goods. The company last reported earnings in late October. HBI beat bottom line estimates by 10 cents but missed the revenue number. Management's guidance was lackluster but the stock rallied anyway. HBI broke out past resistance near $65 following its earnings report. Since then shares have slowly drifted higher with investors buying dips at its rising 10-dma. Now HBI is breaking out past round-number resistance at the $70.00 level.

Friday's intraday high was $70.57. I am suggesting a trigger to buy calls at $70.65. If triggered our target is $74.75. More aggressive traders may want to aim a lot higher since the Point & Figure chart for HBI is bullish with a long-term $95 target.

Trigger @ 70.65

- Suggested Positions -

Buy the 2014 Jan $70 call (HBI1418a70) current ask $2.60

Annotated Chart:

Entry on November -- at $---.--
Average Daily Volume = 681 thousand
Listed on November 23, 2013

Constellation Brands Inc. - STZ - close: 70.36 change: +1.01

Stop Loss: 68.40
Target(s): 74.75
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
STZ is in the consumer goods sector. The company makes alcoholic beverages. We successfully traded STZ recently but shares have continued to rally. The last few days have seen STZ digest its gains with a sideways consolidation under round-number resistance at $70.00. That changed with Friday's bullish breakout past the $70.00 level.

Bears could easily argue that STZ is overbought. The stock is up seven out of the last eight weeks and that one down week was pretty mild. STZ is up about $12 from its earnings report in early October (a +20% gain). Fortunately for the bulls there doesn't appear to be any slowdown in STZ's momentum.

Friday's intraday high was $70.40. I am suggesting small bullish positions if STZ can trade at $70.55. We want to limit our position size because STZ is way overdue for a dip. If triggered at $70.55 our short-term target is $74.75.

Trigger @ 70.55 *small positions*

- Suggested Positions -

Buy the 2014 Jan $72.50 call (STZ1418a72.5) current ask $1.60

Annotated Chart:

Entry on November -- at $---.--
Average Daily Volume = 1.3 million
Listed on November 23, 2013


The St. Joe Company - JOE - close: 17.46 change: -0.06

Stop Loss: n/a *use small positions*
Target(s): $11.00-13.00 range
Current Option Gain/Loss: Unopened
Time Frame: 2 to 3 months
New Positions: Yes, see below

Company Description

Why We Like It:
JOE is in the financial sector. The stock is classified as a REIT. Believe it or not but during the housing boom shares of JOE peaked above $80 a share back in 2005. It's been a long slow demise for shares. The stock was making a lot of headlines this past week thanks to Greenlight Capital hedge fund manager David Einhorn. Mr. Einhorn was on CNBC this past Thursday and said he was still short the stock. According to the interview Einhorn had been "paying attention (to JOE stock) since 2006." He reiterated his bearish thesis back in October 2010. This week he remains bearish.

Evidently JOE recently sold about two-thirds of their land for about $5 to $6 a share (essentially about 380,000 acres at $1,475 a acre). This was undeveloped land and the market applauded the news a couple of weeks ago with a huge spike higher in the stock. That was mostly due to short covering. There is a lot of short interest in the name. Einhorn believes that based on the value of JOE's remaining one-third of its Florida acreage and its few remaining properties the stock should only be worth $7 to $10 a share.

It seems like his thesis for shorting or selling the stock is landing on eager ears. The big spike higher a couple of weeks ago immediately reversed. Traders continue to sell into any strength. Volume has picked up significantly in recent days.

We suspect the trend lower will continue. However, I do consider this an aggressive, higher-risk trade. Not everyone agrees with Einhorn. There are some big names in the stock on the bullish side. Plus, there are so many bears that any good news can produce these massive spikes higher. The most recent data listed short interest at 35% of the 92.1 million share float.

I am going to label this one a lottery ticket trade. We'll buy a cheap, out of the money option. If JOE continues to sink like we expect it to then great! We expect to more than double our money. If not, then we did not have that much invested. We definitely want to limit our position size to reduce our risk. I am not listing a stop loss because shares of JOE can be so volatile.

Buy puts at the opening bell on Monday. Our long-term target is $11.00 although we'll seriously consider exiting near the 2011 lows around $13.00.

*Small Positions* buy puts at the open

- Suggested Positions -

Buy the 2014 March $15 PUT (JOE1422o15) current ask $0.55

Annotated Chart:

Entry on November -- at $---.--
Average Daily Volume = 627 thousand
Listed on November 23, 2013

In Play Updates and Reviews

Updating Stop Losses

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 index has extended its gains to seven up weeks in a row. Tonight we are updating several stop losses.

DIS, KORS, and WDC hit our entry triggers.
GNC has been removed.

Current Portfolio:

CALL Play Updates

Aon Plc. - AON - close: 82.55 change: +1.17

Stop Loss: 79.45
Target(s): 85.00
Current Option Gain/Loss: +23.5%
Time Frame: 4 to 6 weeks
New Positions: see below

11/23/13: AON's rally on Friday managed to outpace the market's major indices. Shares added another +1.4% and broke through short-term resistance near $82.00. We are adjusting our stop loss up to $79.85.

- Suggested Positions -

Long 2014 Jan $82.50 call (AON1418a82.5) entry $1.70

11/23/13 new stop loss @ 79.85
11/18/13 new stop loss @ 79.45
11/13/13 new stop loss @ 78.75


Entry on November 08 at $80.50
Average Daily Volume = 2.3 million
Listed on November 06, 2013

Alliant Techsystems Inc. - ATK - close: 119.85 change: +1.42

Stop Loss: 114.90
Target(s): 124.00
Current Option Gain/Loss: +50.0%
Time Frame: 3 to 4 weeks
New Positions: see below

11/23/13: ATK was showing relative strength on Friday as well. The stock added +1.19% and closed just below potential round-number resistance at the $120.00 mark. I would not be surprised to see shares pull back and retest short-term technical support at the 10-dma near $116.75. Please note our new stop loss at $114.90.

Currently our option value has risen +50%. More conservative traders may want to take profits now with ATK near $120.

- Suggested Positions -

Long DEC $120 call (ATK1322L120) entry $1.80

11/23/13 new stop loss @ 114.90
11/21/13 new exit target @ 124.00 (was $120.00)
11/14/13 trade opened on gap higher at $116.80. trigger was 116.55


Entry on November 14 at $116.80
Average Daily Volume = 321 thousand
Listed on November 13, 2013

Cardinal Health, Inc. - CAH - close: 65.02 change: -0.33

Stop Loss: 63.45
Target(s): 67.50
Current Option Gain/Loss: + 78.5%
Time Frame: 3 to 6 weeks
New Positions: see below

11/23/13: Shares of CAH saw a slow drift higher last week. The stock managed to tag a new all-time high on Friday before paring its gains. I am concerned that CAH is short-term overbought and due for a dip. With our option up almost + 80% readers may want to take profits now.

The $62.00 level is the closest thing to support but I am raising our stop loss up to $63.45.

- Suggested Positions -

Long 2014 Jan $65 call (CAH1418a65) entry $0.84

11/23/13 new stop loss @ 63.45
11/21/13 new stop loss @ 62.80
11/19/13 investors may want to take some money off the table with our option up +84%.
11/16/13 new stop loss @ 61.80
11/13/13 new stop loss @ 61.40


Entry on November 11 at $62.50
Average Daily Volume = 3.8 million
Listed on November 09, 2013

The Chubb Corp. - CB - close: 96.84 change: +0.72

Stop Loss: 94.40
Target(s): 99.75
Current Option Gain/Loss: + 49.1%
Time Frame: 3 to 6 weeks
New Positions: see below

11/23/13: It proved to be a bullish week for CB. The stock broke out past short-term resistance on Thursday and the rally continued on Friday with an additional +0.74% gain. This is a new all-time high for the stock. Tonight we are adjusting our stop loss up to $94.40.

FYI: The Point & Figure chart for CB is bullish with a $104 target.

- Suggested Positions -

Long 2014 Jan $95 call (CB1418a95) entry $1.85*

11/23/13 new stop loss @ 94.40


Entry on November 21 at $95.25
Average Daily Volume = 967 thousand
Listed on November 18, 2013

Costco Wholesale - COST - close: 125.21 change: +1.32

Stop Loss: 122.25
Target(s): 129.00
Current Option Gain/Loss: +130.7%
Time Frame: Exit PRIOR to earnings on Dec. 11th
New Positions: see below

11/23/13: It looks like our patience on COST is going to pay off. The stock has been churning sideways below resistance at the $125 level for days. Fortunately the recent two-day rally has produced a bullish breakout above this resistance level. The next level of likely resistance is the $130 area. Tonight we are raising our stop loss up to $122.25.

- Suggested Positions -

Long 2014 Jan $125 call (COST1418a125) entry $1.30

11/23/13 new stop loss @ 122.25
11/18/13 today's session has created a bearish reversal candlestick pattern. Traders may want to take profits now
11/16/13 new stop loss @ $121.40
11/09/13 new stop loss @ $119.40


Entry on November 06 at $120.50
Average Daily Volume = 1.9 million
Listed on November 02, 2013

Cognizant Technology - CTSH - close: 93.12 change: -0.62

Stop Loss: 91.85
Target(s): 99.00
Current Option Gain/Loss: + 4.6%
Time Frame: 3 to 6 weeks
New Positions: see below

11/23/13: We may need to turn more defensive on our CTSH trade. Monday's session saw a morning spike to $95.65 that quickly reversed. Friday's session just produced a spike to $95.75 that immediately reversed. Is this a new short-term bearish double top? More conservative investors may want to raise their stop loss again. I am not suggesting new positions.

- Suggested Positions -

Long 2014 Jan $95 call (CTSH1418a95) entry $2.15

11/21/13 new stop loss @ 91.85
11/18/13 new stop loss @ 91.45
11/16/13 new stop loss @ 89.85


Entry on November 12 at $91.25
Average Daily Volume = 2.1 million
Listed on November 11, 2013

The Walt Disney Co. - DIS - close: 70.20 change: +0.26

Stop Loss: 67.00
Target(s): 77.50
Current Option Gain/Loss: - 5.4%
Time Frame: 6 to 8 weeks
New Positions: see below

11/23/13: We have been patiently waiting for DIS to breakout past resistance at the $70.00 level. Shares finally hit our suggested entry point at $70.25 on Friday. I would still consider new positions now at current levels.

Our multi-week target is $77.50. More aggressive investors could aim higher. The Point & Figure chart for DIS is bullish with an $83 target.

- Suggested Positions -

Long 2014 Jan $70 call (DIS1418a70) entry $1.66


Entry on November 22 at $70.25
Average Daily Volume = 6.6 million
Listed on November 14, 2013

eBay Inc. - EBAY - close: 50.33 change: +0.12

Stop Loss: 49.45
Target(s): 56.00
Current Option Gain/Loss: -14.4%
Time Frame: 4 to 8 weeks
New Positions: see below

11/23/13: I am starting to worry about our EBAY play. Shares are not seeing much of a bounce from support near $50.00. I am still suggesting that investors wait for a new rise past $50.75 before initiating new positions.

- Suggested Positions -

Long 2014 Jan $52.50 call (EBAY1418a52.5) entry $1.73

11/21/13 trade opened on gap higher at $50.77. suggested trigger was $50.65.


Entry on November 21 at $50.77
Average Daily Volume = 11 million
Listed on November 20, 2013

Johnson & Johnson - JNJ - close: 95.20 change: +0.05

Stop Loss: 93.40
Target(s): 99.75
Current Option Gain/Loss: +22.5%
Time Frame: 3 to 6 weeks
New Positions: see below

11/23/13: JNJ gapped down at the open on Friday but traders bought the dip near short-term technical support at its 10-dma. The stock quickly bounced back only to drift sideways the rest of the session. Friday's high was $95.58. More conservative traders might want to wait for a new rise past this level before initiating new positions.

Earlier Comments:
If JNJ can breakout past the $95.00 level the next logical spot for resistance is the $100.00 mark. Our multi-week target is $99.75.

- Suggested Positions -

Long 2014 Jan $95 call (JNJ1418a95) entry $1.51


Entry on November 20 at $95.25
Average Daily Volume = 6.8 million
Listed on November 19, 2013

Michael Kors - KORS - close: 80.64 change: +0.20

Stop Loss: 77.75
Target(s): 89.00
Current Option Gain/Loss: - 8.1%
Time Frame: 4 to 8 weeks
New Positions: see below

11/23/13: Wall Street's tone for the retail sector has turned significantly more cautious in the last few days. Suddenly everyone is worried that this holiday shopping season is going to be worse than expected. Next weekend we will hear market pundits expounding on the Black Friday shopping traffic and numbers. However, we are not seeing a lot of selling in the retail sector in spite of all this caution.

Shares of KORS underperformed the major indices on Friday but the bounce did continue. Our suggested trigger to buy calls was hit at $81.05. Cautious traders may want to wait for a rise past Friday's high at $81.26 before initiating new positions.

- Suggested Positions -

Long 2014 Jan $85 call (KORS1418a85) entry $1.85

11/22/13 trigger hit at $81.05
11/21/13 adjust entry strategy. Instead of buying a dip at $76.50, move the entry trigger to $81.05. Adjust the stop loss to $77.75. Adjust the option strike to 2014 Jan. $85 call.


Entry on November 22 at $81.05
Average Daily Volume = 7.2 million
Listed on November 20, 2013

Lockheed Martin - LMT - close: 140.88 change: +2.21

Stop Loss: 136.40
Target(s): 148.50
Current Option Gain/Loss: +36.3%
Time Frame: 4 to 6 weeks
New Positions: see below

11/23/13: LMT had positive headlines on Friday with news that South Korea will buy 40 of LockheedMartin's F-35 stealth fighter jets. This may have given shares a boost, which outperformed the major indices with a +1.59% gain and a bullish breakout past potential round-number resistance at the $140 mark.

Last week's low was near $137.00. I am raising our stop loss up to $136.40. I am not suggesting new positions at this time.

- Suggested Positions -

Long 2014 Jan $140 call (LMT1418a140) entry $2.20

11/23/13 new stop loss @ 136.40
11/13/13 new stop loss @ 134.90


Entry on November 07 at $137.25
Average Daily Volume = 1.5 million
Listed on November 06, 2013

National Oilwell Varco, Inc. - NOV - close: 83.66 change: -0.20

Stop Loss: 81.25
Target(s): 88.50
Current Option Gain/Loss: -18.6%
Time Frame: 6 to 8 weeks
New Positions: see below

11/23/13: It was a relatively quiet week for NOV. Shares spent most of it churning sideways inside the $83-84 zone. Traders were buying the dips at NOV's rising 10-dma. Thursday's high was $84.18. Traders may want to wait for a rise past $84.25 before initiating new positions.

- Suggested Positions -

Long 2014 Jan $85 call (NOV1418a85) entry $2.25

11/16/13 trade opened on gap higher at $83.98. suggested trigger was $83.75


Entry on November 15 at $83.98
Average Daily Volume = 3.0 million
Listed on November 14, 2013

United Parcel Service - UPS - close: 101.98 change: +0.85

Stop Loss: 99.75
Target(s): 108.00
Current Option Gain/Loss: -14.2%
Time Frame: 4 to 8 weeks
New Positions: see below

11/23/13: UPS continues to show relative strength. The stock outperformed the S&P 500 and the Dow Jones Transportation average on Friday with a +0.84% gain. It looks like Wall Street is applauding news that UPS will raise its rates in 2014. Tonight we are raising our stop loss up to $99.75.

- Suggested Positions -

Long 2014 Jan $105 call (UPS1418a105) entry $0.98

11/23/13 new stop loss @ 99.75
11/20/13 new stop loss @ 98.95


Entry on November 14 at $101.25
Average Daily Volume = 3.8 million
Listed on November 13, 2013

Western Digital Corp. - WDC - close: 75.13 change: +0.30

Stop Loss: 72.75
Target(s): 79.75
Current Option Gain/Loss: - 3.4%
Time Frame: 4 to 8 weeks
New Positions: see below

11/23/13: Traders bought the dip in WDC near $74.00 and its 10-dma on Friday morning. The rebound pushed shares back above $75.00. WDC hit our suggested entry point to buy calls at $75.25 on Friday afternoon. I would still consider new positions now at current levels. More conservative traders may want to wait for a rally past the November 15th high at $76.10 before initiating positions.

Our target is $79.75 but more aggressive traders may want to aim higher. The Point & Figure chart for WDC is bullish with a $91 target.

- Suggested Positions -

Long 2014 Jan $80 call (WDC1418a80) entry $1.46


Entry on November 22 at $75.25
Average Daily Volume = 2.4 million
Listed on November 21, 2013

WellPoint Inc. - WLP - close: 93.03 change: +0.95

Stop Loss: 89.75
Target(s): 99.00
Current Option Gain/Loss: +62.6%
Time Frame: 3 to 6 weeks
New Positions: see below

11/23/13: WLP has extended its gains to four weeks in a row. Last week was important because WLP broke through significant resistance near the $90.00 mark. Traders bought the dip on Friday morning and shares rebounded to a new closing high. Tonight we are raising our stop loss to $89.75.

FYI: The Point & Figure chart for WLP is bullish with a $103 target.

- Suggested Positions -

Long 2014 Jan $95 call (WLP1418a95) entry $1.15

11/23/13 new stop loss @ 89.75


Entry on November 18 at $90.50
Average Daily Volume = 2.6 million
Listed on November 16, 2013

PUT Play Updates

SPDR Gold ETF - GLD - close: 119.92 change: -0.02

Stop Loss: 124.25
Target(s): 115.50
Current Option Gain/Loss: - 3.3%
Time Frame: 3 to 6 weeks
New Positions: see below

11/23/13: Usually a weaker dollar would be bullish for gold but the GLD did not react to Friday's decline in the dollar. Instead the GLD just drifted sideways along the $120 level.

I would still consider new bearish positions now at current levels. More nimble traders could try and buy puts on a failed rally near $122.00 or its 10-dma instead.

Earlier Comments:
Traders may want to limit their position size to limit risk.

Our target is $115.50. More aggressive traders may want to aim lower since the Point & Figure chart for GLD is bearish with a $110 target.

- Suggested Positions -

Long 2014 Jan $115 PUT (GLD1418m115) entry $1.80


Entry on November 20 at $121.00
Average Daily Volume = 7.0 million
Listed on November 12, 2013

Longer-Term Play Updates

Vanguard FTSE Europe ETF - VGK - close: 56.95 change: +0.31

Stop Loss: 53.90
Target(s): Sell half @ $58.00, sell the rest at $63.00
Current Option Gain/Loss: +52.7%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

11/23/13: Most of the European markets closed in positive territory on Friday. This helped the VGK gap higher on Friday morning. It looks like this ETF's longer-term bullish trend of higher lows and higher highs is still in place.

Earlier Comments:
Don't forget that we have two exit targets for this trade!

We are taking a multi-month time frame with this trade. FYI: The Point & Figure chart for VGK is bullish with a $63 target.

- Suggested Positions -

Long 2014 Mar $55 call (VGK1422C55) entry $1.80*

10/22/13 Strategy Update: Plan to exit half @ $58.00 and exit the rest at $63.00. New stop loss @ 53.90
10/19/13 new stop loss @ 52.75
09/11/13 trade opens. VGK @ 53.60
*option entry @ 1.80 is an estimate. Ask closed at $1.75 yesterday
09/10/13 entry trigger met. open positions tomorrow.
09/10/13 new stop loss @ 50.95
08/24/13 adjust the option strike from 2013 Dec $55 to $2014 Mar $55.


Entry on September 11 at $---.--
Average Daily Volume = 3.0 million
Listed on August 10, 2013


GNC Holdings - GNC - close: 58.83 change: +0.30

Stop Loss: 57.95
Target(s): 64.50
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: see below

11/23/13: GNC does not want to cooperate. We have been waiting for a breakout past resistance near $60.00. GNC has gotten close but continues to struggle. Our suggested entry point was $60.50 but GNC has not triggered it yet. Tonight we are removing GNC from the newsletter. Traders may want to keep an eye on it since a bounce from its 50-dma or a breakout past $60.00 could be used as new bullish entry points.

Trade did not open.

11/23/13 removed from the newsletter. suggested trigger was $60.50


Entry on November -- at $---.--
Average Daily Volume = 1.5 million
Listed on November 05, 2013