Option Investor

Daily Newsletter, Saturday, 11/30/2013

Table of Contents

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

Market Wrap

Mall Shoppers, Not Market Shoppers

by Jim Brown

Click here to email Jim Brown

Retailers did well but Black Friday ended in the red for the Dow and S&P.

Market Statistics

The Dow rallied +45 points to a new high early Friday but selling accelerated into the close to knock the Dow -10 points into the red. The S&P rallied to 1,813 but collapsed back to 1,805 and a small loss at the close. The Nasdaq was the big winner with a +15 point gain but still -10 points off the highs. The Russell 2000 kept its record high streak going with minor gain to 1,143.

With the Russell and Nasdaq posting gains and finishing at new highs I am not too worried about the minor decline in the Dow and S&P. It was a minor sell program at the close on a low volume day. Thanksgiving week has a reputation for being choppy but with a slight upward bias. However, Black Friday is typically seen as the beginning of the Santa Claus rally that runs until Christmas.

There were no economic reports on Friday and it was all retail news all day long. Apparently shoppers were out in force and various analysts tried to predict how Friday sales would translate into holiday trends.

IBM tracked 800 e-commerce sites and found only about 1% of visits came from social networks. This should cause retailers to seriously reconsider advertising budgets for social network advertising.

IBM said overall Thanksgiving online sales were up +10% over last year. The average online order was $132.13 compared to $132.57 in 2012. Mobile platforms accounted for 36% of all online traffic, up +30% from 2012. Mobile sales were more than 23% of all online sales. Obviously "show-rooming" is alive and well where shoppers look at the item in the store then use their mobile device to buy it cheaper online.

IBM said smartphones accounted for 23% of all online traffic compared to 13% for tablets. However, tablets accounted for 13% of sales compared to 9% for smartphones. Tablet orders averaged $126.26 compared to $113.19 for orders from smartphones. However, Apple mobile devices were responsible for 17% of mobile orders compared to 5% for Android devices. Apple devices have accounted for 24% of all online shopping traffic so far compared to 10.5% for Android. Facebook referrals averaged $106.86 with Pinterest orders averaging $102.79. Facebook referrals are converting sales at a rate of 84% more than Pinterest referrals.

Overall 33 million people shopped on Thanksgiving compared to estimates of 97 million on Black Friday.

Forester Research predicts there will be $78.7 billion in U.S. online sales this season, up +15% over 2012. The company expects 167 million shoppers will do their holiday shopping online and spend an average of $472 each.

Walmart (WMT) had protests scheduled at 1,500 stores around the country with workers and sympathizers complaining that the starting wage of $8.81 should be raised to $12.50. The number of actual workers protesting was roughly 1 employee for 15 protestors with the rest bussed in by unions from elsewhere. Walmart said the protesters were misreporting the facts. The $8.81 is the average starting wage but the actual average wage is $12.81 plus healthcare, bonuses, education benefits and access to 401Ks for full time employees.

The protests did not seem to slowdown Walmart shoppers. Walmart said they had 10.4 million sales between 5:PM-10:PM on Thanksgiving. Late Friday Walmart said it had been their "most successful Black Friday in Walmart history."

A Neilsen research survey showed that 85% of those polled planned to skip retail store shopping on Black Friday and 46% planned to go online and shop on Cyber Monday, up from 30% last year.

Ebay said at midnight on Thanksgiving they were selling an average of one iPad Mini per second. That is a lot of selling for the middle of the night and nobody had to stand in line for hours or battle crowds.

The economic calendar for next week is busy with multiple events that could move the market. The national ISM Manufacturing for November is expected to be flat and that is actually positive. Several regional reports have been volatile with some sharp declines. Holding the line at 56.5 in expansion territory would be bullish.

The ISM Nonmanufacturing on Wednesday is expected to rise sharply from 55.4 to 59.7 for November. Service businesses normally surge in Q4 as a result of the holiday activity.

The ADP Employment on Wednesday will be the first look at November employment and estimates are for a slight gain to 150,000 from October's 130,000 headline number. The Nonfarm Payrolls on Friday are expected to show a gain of +175,000 jobs compared to the 204,000 gain in October. After the disclosures last month about faked jobs numbers it will be interesting to see if there is any material change from October.

The payroll report is considered the biggest report of the month and the next FOMC meeting is on Dec-17th so this report is critical. There are a lot of traders worried the number could be well over the 175,000 expectations. If that was the case, say something in the 225,000-250,000 range, the fear of tapering would come back strong. The expectations for October were in the +125,000 range and the number surprised everyone at +204,000. If that happened again the market impact would be ugly.

The GDP revision on Thursday is expected to come in at +2.8% and just slightly below the 2.85% print on the prior revision. This level of activity surprised everyone when it was first released. Nobody expected Q3 to be this strong and I would not be surprised to see it revised to a lower level of activity. Q4 GDP is currently being forecast at +1.9%

SalesForce.com (CRM) said it gave its CEO a +20% raise to $1.44 million for FY 2015 with a target bonus of $2.88 million. Not a big deal and he seemed under paid compared to others. However, they also awarded him $29 million in stock options for fiscal year 2015 making him overpaid. CRM shares declined on the news.

One of the headlines on Friday was the near record margin debt. Currently margin debt has risen to $412.5 billion on the NYSE. That is a 13.2% increase YTD but it is 50% higher than January 2012. Investors are so confident the market is going higher they are willing to buy stocks on margin and risk being caught short if a market correction occurs. Margin debt has risen to levels not seen since October 2007. If there is ever a market event that triggers margin calls this level of debt could cause a significant acceleration of any decline. Bull markets are not indestructible and that event will eventually occur. Leveraged lending on little or no collateral has risen to $969 billion, up 29% from year ago levels and second only to the highs from 2007.

Amazon.com (AMZN) is expected to be the big winner this holiday season. Shares gained +7 to another new high on Friday. The stock is accelerating higher despite the nearly $400 price tag. You can literally buy nearly every retail product available in the U.S. market on Amazon and have it shipped to you free in two days under the Amazon Prime membership program.

However, it is not the retail sales that are pushing Amazon shares higher. Most people don't realize it but Amazon Web Services (AWS) is the largest cloud service in the world. It is seven times larger than VMWare, EMC or Rackspace. Stackdriver, a Bain Capital Ventures backed cloud computing management start-up released a very comprehensive survey on AWS spending. They surveyed 15,000 people at developer's conferences on their spending plans. Enterprise spending on AWS has doubled in 2013 and is expected to surge even higher in 2014. More than 23% of respondents said their monthly spending on AWS was over $100,000 a month. That is 11% more than in 2012. More than 43% were spending between $5,000 and $50,000 per month, up from 36% in 2012. More than one-third of the attendees said they were spending more than $50,000 a month. Some Amazon executives believe AWS revenue will one day exceed revenue from Amazon's retail website. Those numbers boggle my mind.

More than 49% said they were going to increase their public cloud infrastructure space. The same survey showed Rackspace cloud usage decreased from 18% to 11% and VMWare fell from 16% to 21%. Since these survey numbers have been made public RAX has been in decline and the reason is obvious. I really wish Amazon would split their stock so the option prices would come back down to earth.

Archer Daniels Midland (ADM) fell -3% after the Australian government rejected the company's bid to buy the rest of GrainCorp LTD. ADM had bid $3.1 billion for the 80% of the company it does not already own. The government rejected the proposed buyout saying it would reduce competition and impede growers access to grain storage and distribution. ADM said full ownership would help expand its agriculture offerings in the Middle East, Africa and Asia.

Moody's upgraded the credit rating for Greece two notches from C to Caa3. That would not be so unusual except it came just hours after the government said talks with bailout creditors had hit a snag that would push negotiations on reforms back at least a week.

Greece is on track to balance its budget this year as long as you don't count interest payments on the $327 billion bailout they received in 2012. Greece will not get any more money from the Troika unless they agree to another round of stringent cost cutting reforms. You would have thought Moody's would have waited until after the reforms were named and voted on before raising their credit rating. If you want logic don't look at the ratings agencies.

China's official manufacturing PMI will be released on Sunday and it is expected to ease slightly from 51.4 to 51.1. Anything over 50.0 represents economic expansion. From the recent spike in the Baltic Dry Index it would appear there is expansion underway not only in China but elsewhere in the world. The dry shipping index represents the cost to ship dry goods in bulk by freighter anywhere in the world. The dry bulk freighters carry things like coal, iron ore, grain, etc. A rise in the shipping price generally means more goods are being shipped. The Dry Index is calculated every day based on the number of available ships and the demand for cargo to be shipped. If there is more cargo than available ships the price goes up. Conversely if multiple ships are competing for the same cargo then the price goes down. The cost to ship dry bulk cargo has nearly tripled since January.

For investors this works as a leading indicator of rising economic activity and suggests 2014 should be stronger than 2013.

Need evidence of a potential market top? What better contrarian evidence could we have than Alan Greenspan speaking out last week and saying there is no evidence of a bubble at Dow 16,000. "This does not have the characteristics, as far as I am concerned, of a stock market bubble. It could come out that way but I don't see it at this stage." This is the same Fed head that did not see a bubble in the housing market in 2007. He said "economists who forecast 2.5% to 3% growth next year may be too optimistic. There is no doubt there's been some acceleration going on, but there's an overall suppression that is going on in the economy largely because of lingering uncertainty." He expects growth in the 2% range but then he has never been right before.

Current Fed head Ben Bernanke does not see a bubble in asset prices and Janet Yellen echoed those feelings in her own comments to the Senate Banking Committee. I guess that makes it official when three Fed heads all agree. That could be the mother of all contrarian indicators.

Greenspan also said "Eventually we are going to have to stop expanding (the Fed's balance sheet) and start bringing it (stimulus) in. That process is going to move interest rates higher, by an indeterminate amount, and that is going to create major problem for the Fed as it always has in the past." That would be a massive understatement and I definitely agree with him on that forecast.

If anyone doubts that QE has inflated the equity market they only need to look at the chart below. The market rises when QE is active but the market goes sideways to down over the periods where QE was on hold. Since the Fed began buying $85 billion a month at the beginning of 2013 both lines are nearly straight up. The blue line is the total treasuries held by the Fed and includes mortgage backed securities. What do you think will happen when QE is removed?

December is going to have its share of potholes. The November Nonfarm Payrolls will be the first hurdle. If those are stronger than expected the FOMC meeting on the 17-18th will be a crisis point as traders worry over a QE announcement. Lastly the budget deadline of December 13th will be a challenge. There is almost no chance the partisan team assigned to come up with a solution will actually agree on anything. This will restart the fiscal follies in Washington and lead to the end of the continuing budget resolution on January 15th. While I doubt there will be another government shutdown there will be a headline war in Washington that will weigh on the markets.

Lastly there is the debt ceiling return on February 7th. If we make it through December intact with no QE announcement then the January 24th FOMC meeting becomes the focal point. That will be after the early January Nonfarm Payrolls report and budget battle and the Fed could be feeling a little better about the economic direction. They will test the debt ceiling winds ahead of the meeting and could decide to make a change to QE. If not in January then the next FOMC meeting is March 19th and that could be a major challenge for the markets since it is well past the Washington deadlines and there will be two more payroll reports added to the mix.

We may not have to worry about market bubbles if the standoff in the South China Sea continues to escalate. On Friday Japan sent 7 flights of 10 planes each consisting of E-767 AWACS, P-3 Orion anti-submarine and maritime surveillance planes and F-15 fighters into the new ADIZ (Air defense identification zone) declared by China. (The U.S. flew unarmed B-52 bombers in earlier in the week.) China retaliated to the Japanese incursion by scrambling SU-30 Flanker C fighters and Shenyang J-11 Flanker B+ fighters along with other aircraft to intercept. No shots were fired but the escalation is clearly evident. They are going to keep playing this one-upmanship until somebody actually pulls the trigger and a shooting war will break out. At stake are the energy resources under this area of the South China Sea that is claimed by both China and Japan. Since Japan is now an ally of the U.S. I would suspect we could get drawn into the conflict.

Japan has demanded an immediate withdrawal of the new ADIZ and a return to prior boundaries. China warned "we are willing to engage in a protracted confrontation with Japan. Our ultimate goal is to beat its willpower and ambition to instigate strategic confrontation against China." Note that China is the one that started the conflict but they are blaming it on Japan.

The S&P closed negative on Friday and gained only 1.4 points for the week despite hitting new highs. The Dow only gained +21 points for the week. I am not really concerned about the weak performance because turkey week can be volatile. It was month end and there were probably some minor portfolio changes underway before everyone headed out for the holidays.

Next week is a different story. Since 1945 the S&P has averaged a gain of +1.8% between Thanksgiving and New Years. The index posted positive gains 71% of the time. When the market was up big ahead of Thanksgiving the average gain has been slightly higher at +1.9%. Since 2009 the post Thanksgiving period has seen gains averaging +4.4% and gains every year. The last time the market declined after Thanksgiving was 2005. These statistics came from Bespoke. Past performance is no guarantee of future results.

The minor moves all week left the S&P right where it started so there has not been any change in the charts. The long term uptrend resistance at 1,810-1,812 is still intact. We did establish some short term support at 1,803 from all the intraday dips.

One point to ponder is the length of the current rally. The first bull market rebound out of the recession lasted 784 days and gained +694 points. There was a -21% decline using intraday levels in 2011. The S&P rebounded starting on October 3rd 2011 and has now risen for an EQUAL 784 days and nearly equal +675 points. (Hat tip to Scott Krisiloff) I am not so worried about the length of the rally since the average bull lasts 915 days. I am more concerned about the points and the velocity of the rally. The S&P is now up about +27% YTD and while I expect some additional gains I am worried about January. It is time for another correction and given the expected January events it would be the perfect month.

I am more concerned about the Dow and its overextended condition. The Nasdaq and the Russell 2000 are historically the best performers in December and for them to go up we could see funds raise cash by selling the large caps. The Dow is fighting resistance at 16,100 and it was solid all week. Friday saw an intraday spike to 16,174 but the decline was about as fast as the spike to close at 16,086.

It will be interesting to see how the indexes perform on the first couple days next week. Historically the first couple days of a month are bullish for the Dow but not so for December. The Dow has a history of minor declines on the first two trading days. However, past performance...etc.

The Nasdaq did not give back all its gains on Friday. The +25 point midday rally was reduced to a +15 point gain at the close but it was still a gain to a new 13-year closing high and a whopping +68 point gain for the week. Apple, Priceline and Amazon were the three big caps powering the move. The Nasdaq built a decent base in early November and should not be susceptible to a sharp decline. We should see mild support at the 4,000 level if it is retested. If we were to see some serious profit taking I would expect 3,895 to hold.

The Russell 2000 also had a great week heading into what is normally a strong month for small caps. The Russell gained +1.6% for the week and is now up +34.6% for the year. Somewhere there is a small cap correction waiting to happen but I don't expect it until 2014.

The Russell has moved to touch uptrend resistance and the 1,150 level could cause some profit taking. I do not expect it to return to strong support at 1,100 so I would be a dip buyer of the Russell ETF (IWM) next week.

The Dow Transports closed at a new high on Wednesday at 7,255. The Transports are now confirming the highs in the Dow Industrials and with oil under $93 and the holiday shipping and travel season in full swing they should continue higher.

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Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"I would be a bum on the street with a tin cup, if the markets were always efficient."
Warren Buffett


Index Wrap

Nasdaq's Turn to Soar

by Leigh Stevens

Click here to email Leigh Stevens

The Nasdaq Composite rallied strongly above what had looked to be tough resistance at the pivotal 4000 level. This continues the pattern of the S&P, then the Composite, alternatively rallying then laying back. As was highlighted in my Trader's Corner of yesterday (11/29/13) and seen online HERE, the 4000 level, extending to 4080, showed up in COMP as possible technical 'resistance' at the upper end of a broad weekly chart uptrend channel; and around 3530 in the Nas 100 (NDX). However, in very strong bull markets like this one, prices may break out ABOVE such price channels, even when longstanding.

This brings me to another means of 'measuring' upside potential before an Index may be at an upper trading 'limit'. Moving average envelope lines are described as a trading tool in the aforementioned companion peace to this (Index Wrap) column. The (moving average) envelope technical indicator will be shown with the Nasdaq indices further on. 'Envelope' lines set at 4% above and below a centered moving average of 21-days are seen on the daily COMP an NDX charts. The upper envelope lines or 'bands' in the two Nasdaq indices plus the related ETF stock QQQ, suggest target areas on the upside where a 'maximum' upside advance is suggested based on historical tendencies. This indicator can be a useful tool to set potential objectives where, if reached, market action related to bullish or bearish strategies should be evaluated at least.

The S&P 500, 100 (OEX) and Dow 30 (INDU) may have reached a temporary or interim high but the Nasdaq looks to have assumed the upside leader role again for the overall Market. All the indices are quite overbought in terms of conventional measures of such things. Unfortunately, in this kind of market, 'overbought' measures are of limited use in terms of suggesting that the major indexes are at or near points where corrections will set in.

Pullbacks or corrections may continue to be limited; more sideways to slightly lower than sharply so. Very tough predicting turning points in this kind of runaway bull move but there are always corrections that set in at some point. But you have to 'know' them when you 'see' them and we just have a low volume holiday hint of a pullback starting in the mainstream stock indices (SPX, OEX and INDU) that more closely reflect the stocks prevalent on the NYSE.



The S&P 500 (SPX) chart continues to trade above 1800 which is bullish. Friday could have begun a minor downside correction although this isn't clear yet given it was a slow Black Friday, volume wise. Lower volume means smaller amounts of concerted selling can have an exaggerated effect on price action. Stay tuned on bigger trading volume in the coming week to see what buying comes in.

An ability to rally from 1800 could lead to a test of expected resistance around 1825.

A couple of back to back closes below 1800 support would suggest declining momentum and a next key test would be an ability for SPX to mostly Close above its 21-day average at 1782, with support extending to 1775. Buying interest in the 1750 area is suggested by the 50-day moving average. In a strong bull market there's rarely a prolonged dip below the 50-day average, a benchmark that's stood the test of time.

Notes on key technical indicators are below the price chart.

SPX continues in overbought RSI territory as seen above, which continues a multiweek pattern.

Bullish sentiment hit another high extreme this past week suggesting traders have little fear factor going.


The S&P 100 (OEX) continued to move higher above 800 maintaining a dominant bullish chart. OEX hit some selling pressure at 810. 815 is potential resistance implied by the upper end of OEX's broad uptrend price channel and a 'natural' place for the rate of price advance to at least slow its rate of climb.

Like big brother SPX, the big cap 100, OEX, could have begun a minor pullback such as a dip that 'tests' 800 again. From 800 down to the 21-day average (795) is key support. 790 is my next highlighted support.

A better than even chance there's no decisive downside penetration of 800-795 and instead another rally carries to 815-820. Conversely, a couple of closes below the 21-day average suggests potential for a dip of more size, such as back to the 780 area.


The Dow 30 (INDU) by the end of this past week climbed above a line of resistance at 16100, got near to my next anticipated target area around 16200. But, by day's end the Dow slid under 16100 in minor league bearish action in terms of the 2-3 day trend best measured on an hourly basis with a 21-hour RSI to spot overbought/oversold areas.

Not surprisingly, volatility came on low volume Friday trade. Expect support in the 16000 area, extending to 15950 and the 21-day moving average which is a key trading average for INDU for projecting a 2-3 week forecast of trend direction.

19 stocks, of the 30 (approximately 2/3rds), Dow Industrials are in strong uptrends which is the reason for strong upswing in the Average in recent weeks and months. In strong primary trends are: AXP, BA, DD, DIS, GE (and INDU bellwether), GS, HD, JNJ, JPM, MMM, MRK, MSFT, NKE, PFE, PG, TRV, UTX, V, and WMT. This is a quite bullish picture given 2/3rds of the 30 Dow Stocks in strong advances.

Near-term support is suggested in the 15950 area, then at 15800. Major support is suggested now at 15500.


The Nasdaq Composite (COMP) came on like bullish gangbusters this past week as COMP played leap-frog ahead of the S&P which lagged due to profit taking selling.

Next COMP resistance/selling pressure could come into play around 4080. I've then pegged possible next resistance for the 4130 area at a 4% moving average 'envelope' line. The 4 percent upper envelope line doesn't represent 'resistance' in the usual way of this concept but rather is where COMP gets about as far above its 21-day moving average as it tends to get before either a slowing sideways trend OR getting pulled lower again; e.g., COMP rallies to 4130, falls back to 4000-3990.

Near support is at 4000-3990, extending to 3955 at the 21-day moving average.

COMP is overbought on a short-term basis and the Index could dip back to the 4000 area and then rebound again strongly. I anticipate some short-term weakness such as over the next 2-3 trading days.


The Nasdaq 100 (NDX) chart has seen a bullish accelerating advance from its earlier lift off from support in the 3400 area of the 21-day moving average. The Friday bout of selling wasn't surprising given how far and fast NDX had run up over the holiday-shortened week and given the low volume of Black Friday not too much selling would tip prices lower more readily.

There may be selling spilling over into the early 1-2 days of the week ahead, especially if NDX started trading below 3470. However I also look for significant support/buying interest on a dip that carried toward 3400 support; again, stressing the key role of the 21-day average.

From any such dip to low-3400 support, a next rebound could carry again to the 3500 area then perhaps to the 3550 area and the upper moving average envelope line; set to 4 percent above that day's 21-day moving average and often suggesting upper price limits.

The 4% upper 'band', relative to the key 21-day moving average, has often pinpointed the furthest reaches of an advance before upside momentum slows a bit and more as when there's a more significant pullback such as when prices dip well under this 'centered' moving average.


The Nasdaq 100 (QQQ) tracking stock is bullish like the underlying NDX index of course so just to focus on the support/resistance levels here relative to QQQ.

I look for resistance coming in starting at 86 and then extending to 87.

Substantial support is seen in the 84 area. I anticipate QQQ being well supported in the 84 area, assuming there's even that much of a dip. Fairly major support looks to begin around 82.

Daily volume was quite low this past week as expected and also as expected I'd say, the On Balance Volume (OBV) line continued to point higher in a positive upside (bullish) direction. The bulls should come in with some buying if there's a dip into the 84 to 83.3 zone.


The Russell 2000 (RUT) chart is bullish, especially so with the accelerated advance of this past week. Upside momentum slowed on Friday.

Some number or traders, including me, tend to be leery of an accelerated upswing after what was already a prolonged advance. Leery at least when holding positions overnight where bearish news could whack you in a overnight gap lower opening. Big rallies can lead to big volatility and surprise dips.

Resistance/selling pressure starts coming in around 1150. On a 'breakout' move above 1150, further upside potential is seen to the 1168-1170 area, at the upper end of RUT's broad uptrend price channel.

RUT should see good buying interest if a dip developed that carried RUT into the 1130-1120 price zone.


New Option Plays

Coffee & Travel

by James Brown

Click here to email James Brown


Starbucks Corp. - SBUX - close: 81.46 change: -0.16

Stop Loss: 79.75
Target(s): 87.50
Current Option Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The ubiquitous coffee giant is on the verge of another breakout. SBUX has spent almost the entire month of November consolidating sideways, albeit with a slightly bullish trend of higher lows as traders buy the dips. The consolidation is narrowing and SBUX is testing its recent high near $82.50 from early November.

The long-term trend is up and SBUX appears to be ready for a bullish breakout into the next leg higher. I am suggesting a trigger to buy calls at $82.75. If triggered our multi-week target is $87.50. However, that might be a little bit optimistic so we'll need to be nimble with our exit strategy. We may end up exiting near SBUX's trend line of higher highs (see chart).

Trigger @ 82.75

- Suggested Positions -

Buy the 2014 Jan $85 call (SBUX1418a85) current ask $1.06

Annotated Chart:

Entry on November -- at $---.--
Average Daily Volume = 4.5 million
Listed on November 30, 2013


Ctrip.com Intl. - CTRP - close: 47.78 change: +0.41

Stop Loss: 49.25
Target(s): 42.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
CTRP is in the services sector. The company provides an array of travel services for travel inside of China. The stock has been an incredible performer in 2013 with a rally from its early 2013 lows near $19.00 to trade over $60 in October this year. It looks like the rally has run its course. The stock produced a bearish double top in October near $60. Then on November 5th CTRP reported earnings that beat Wall Street's estimates by one cent. Revenues were also above expectations. Yet investors sold the news. CTRP has been correcting lower since its earnings report.

The first oversold bounce in mid November failed at its 50-dma. Now it looks like the bounce from three days ago is failing at its converging 10-dma and 100-dma in the $48.50 area.

We are suggesting a trigger to buy puts at $47.25. If triggered we'll start with a stop loss at $49.25. More aggressive traders may want to use a stop above the $50.00 level instead since $50 should be round-number resistance. Our target is $42.00 near its August 2013 lows. More aggressive traders could aim lower since the Point & Figure chart for CTRP is bearish with a $40 target.

Trigger @ 47.25

- Suggested Positions -

Buy the 2014 Jan $45 PUT (CTRP1418m45) current ask $2.00

Annotated Chart:

Entry on November -- at $---.--
Average Daily Volume = 3.7 million
Listed on November 30, 2013

In Play Updates and Reviews

Lock In Gains on COST

by James Brown

Click here to email James Brown

Editor's Note:

The market delivered a mixed session on Friday but the NASDAQ composite and the Russell 2000 hit new record highs again.

FLT was triggered on Friday.
We want to sell half of our COST trade on Monday morning.
Prepare to exit our CTSH and JNJ trades on Monday morning.

Current Portfolio:

CALL Play Updates

Aon Plc. - AON - close: 81.64 change: -0.65

Stop Loss: 79.85
Target(s): 85.00
Current Option Gain/Loss: - 5.8%
Time Frame: 4 to 6 weeks
New Positions: see below

11/30/13: It was a relatively quiet week for shares of AON. The stock consolidated sideways below the $82.50 level. Shares did post a loss for the week, snapping a seven-week winning streak. If the dip continues we can watch for support near $80.00. I am not suggesting new positions at this time.

- 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: 121.23 change: +0.45

Stop Loss: 116.75
Target(s): 124.00
Current Option Gain/Loss: +77.7%
Time Frame: 3 to 4 weeks
New Positions: see below

11/30/13: Another day, another new high for shares of ATK. I am raising our stop loss to $116.75. More conservative traders might want to adjust their stop closer to the simple 10-dma (currently near $118.65) since the 10-dma has been support of the past few weeks.

- Suggested Positions -

Long DEC $120 call (ATK1322L120) entry $1.80

11/30/13 new stop loss @ 116.75
11/26/13 new stop loss @ 115.75
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

The Chubb Corp. - CB - close: 96.45 change: -0.89

Stop Loss: 94.90
Target(s): 99.75
Current Option Gain/Loss: + 31.3%
Time Frame: 3 to 6 weeks
New Positions: see below

11/30/13: Ouch! What happened to shares of CB on Friday? I couldn't find any news to explain the relative weakness. CB initially spiked higher and hit a new high at $97.79 before reversing. The sell off on Friday (-0.9%) erased more than three days of gains. CB also closed below what had been short-term support at the $97.00 level. More conservative traders may want to raise their stop closer to the simple 10-dma (currently near $96.00). I am not suggesting new positions at this time.

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

- Suggested Positions -

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

11/27/13 new stop loss @ 94.90
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: 125.43 change: +0.05

Stop Loss: 123.75
Target(s): 129.00
Current Option Gain/Loss: +134.6%
Time Frame: Exit PRIOR to earnings on Dec. 11th
New Positions: see below

11/30/13: The rally in COST has stalled. Shares have been struggling to rise past the $126.00 level all week long. I will point out that COST did extend its gains to five up weeks in a row. Tonight I am suggesting we go ahead and sell half of our position on Monday morning to take some money off the table. For the remainder of our position we'll raise our stop loss up to $123.75. I'm not suggesting new positions at this time.

FYI: Don't forget that we plan to exit prior to earnings on December 11th.

- Suggested Positions -

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

11/30/13 sell half on Monday morning to lock in gains (Dec. 2nd)
11/30/13 new stop loss @ 123.75
11/27/13 new stop loss @ 123.40
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: 93.89 change: -0.53

Stop Loss: 91.85
Target(s): 99.00
Current Option Gain/Loss: +13.9%
Time Frame: 3 to 6 weeks
New Positions: see below

11/30/13: I am suggesting an early exit for our CTSH. Prepare to exit on Monday morning, Dec. 2nd.

The longer-term trend for CTSH is still higher and more aggressive investors may want to keep the play alive. We're choosing an early exit because CTSH has underperformed the broader market over the last two weeks.

- Suggested Positions -

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

11/30/13 prepare to exit on Monday morning, Dec. 2nd
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: 70.54 change: -0.23

Stop Loss: 68.45
Target(s): 77.50
Current Option Gain/Loss: + 3.0%
Time Frame: 6 to 8 weeks
New Positions: see below

11/30/13: DIS surged to new record highs last Tuesday but there hasn't been any follow through. The stock has seen some profit taking the last couple of sessions. That's good news if you're looking for an entry point. Broken resistance at the $70.00 level should be new support and a dip near $70.00 can be used as another chance to get in. Tonight I am adjusting our stop loss up to $68.45.

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

11/30/13 new stop loss @ 68.45
11/26/13 new stop loss @ 67.95


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

Endo Health Solutions - ENDP - close: 67.19 change: -0.06

Stop Loss: 64.45
Target(s): 74.00
Current Option Gain/Loss: -10.4%
Time Frame: 3 to 6 weeks
New Positions: see below

11/30/13: ENDP tagged a new high on an intraday basis on Friday morning. Unfortunately there was no follow through and shares just drifted sideways during the market's half day on Friday.

If the market were to dip I would not be surprised to see ENDP retest the $66.00 level. Depending on your patience you could buy calls now or wait and see if ENDP provides a dip.

Earlier Comments:
This is a momentum play. Our target is $74.00. Can the $70.00 level be overhead, round-number resistance? Yes, it could so traders may want to limit their position size.

- Suggested Positions -

Long 2014 Jan $70 call (ENDP1418a70) entry $2.40


Entry on November 27 at $67.35
Average Daily Volume = 4.6 million
Listed on November 26, 2013

FleetCor Technologies - FLT - close: 121.78 change: +0.58

Stop Loss: 119.70
Target(s): 128.50
Current Option Gain/Loss: - 16.6%
Time Frame: 4 to 6 weeks
New Positions: see below

11/30/13: Our new trade on FLT has been triggered. The stock shot higher at Friday's open and tagged a new high near $122.80 before paring its gains. Our suggested trigger to buy calls was hit at $122.50. If you missed the move on Friday readers may want to wait for a new rally above $122.50 before initiating positions.

Earlier Comments:
Our target is $128.50. More aggressive traders may want to aim higher since the Point & Figure chart for FLT is bullish with a $145 target.

- Suggested Positions -

Long 2014 Jan $125 call (FLT1418a125) entry $3.30*

*option entry price is an estimate since the option did not trade at the time our play was opened.


Entry on November 29 at $122.50
Average Daily Volume = 936 thousand
Listed on November 27, 2013

Hanesbrands Inc. - HBI - close: 70.10 change: -0.34

Stop Loss: 68.90
Target(s): 74.75
Current Option Gain/Loss: -21.5%
Time Frame: 4 to 6 weeks
New Positions: see below

11/30/13: It looks like shares of HBI are in sleep mode. The stock has been drifting sideways above the $70.00 level the last three days. More conservative traders might want to consider raising their stop closer to the simple 10-dma near $69.70. If you're looking for a new entry point I would consider waiting for a new rally past $70.75.

Earlier Comments:
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.

- Suggested Positions -

Long 2014 Jan $70 call (HBI1418a70) entry $2.74

11/25/13 adjust the stop loss from $69.25 to $68.90


Entry on November 25 at $70.65
Average Daily Volume = 681 thousand
Listed on November 23, 2013

Johnson & Johnson - JNJ - close: 94.66 change: -0.32

Stop Loss: 93.40
Target(s): 99.75
Current Option Gain/Loss: - 5.9%
Time Frame: 3 to 6 weeks
New Positions: see below

11/30/13: Tonight we are suggesting an early exit for our JNJ trade. Plan to exit on Monday morning, Dec. 2nd.

The overall trend for JNJ is still higher but its upward momentum is waning. The stock just ended an eight-week winning streak.

- Suggested Positions -

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

11/30/13 prepare to exit on Monday morning, Dec. 2nd


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

Michael Kors - KORS - close: 81.55 change: -0.29

Stop Loss: 77.75
Target(s): 89.00
Current Option Gain/Loss: - 2.7%
Time Frame: 4 to 8 weeks
New Positions: see below

11/30/13: Before the opening bell on Friday shares of KORS were trading higher. This pre-market trading failed near the $83.00 level, which was resistance a couple of weeks ago. During the market's normal hours we saw KORS churn sideways. At the moment I am not suggesting new positions. If we see the market dip then KORS could test the $80.00 level again.

- 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: 141.67 change: -2.27

Stop Loss: 138.45
Target(s): 148.50
Current Option Gain/Loss: +104.5%
Time Frame: 4 to 6 weeks
New Positions: see below

11/30/13: After a multi-day rally shares of LMT hit some profit taking on Friday. Shares underperformed the broader market with a -1.5% decline. Watch for likely support at the $140.00 level. I am not suggesting new positions at this time.

- Suggested Positions -

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

11/26/13 new stop loss @ 138.45
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

Constellation Brands Inc. - STZ - close: 70.41 change: -0.58

Stop Loss: 68.40
Target(s): 74.75
Current Option Gain/Loss: -17.1%
Time Frame: 4 to 6 weeks
New Positions: see below

11/30/13: STZ also experienced some profit taking on Friday with a -0.8% decline. If this dip continues we can look for support at its 10-dma, which has been consistent support in recent weeks.

Earlier Comments:
Our plan was to limit our risk by using small positions.

*small positions* - Suggested Positions -

Long 2014 Jan $72.50 call (STZ1418a72.5) entry $1.75


Entry on November 25 at $70.55
Average Daily Volume = 1.3 million
Listed on November 23, 2013

United Parcel Service - UPS - close: 102.38 change: -0.16

Stop Loss: 99.75
Target(s): 108.00
Current Option Gain/Loss: - 2.0%
Time Frame: 4 to 8 weeks
New Positions: see below

11/30/13: UPS tagged another new high on Friday morning before reversing gains. Shares settled with a minor loss. I would not be surprised to see another to short-term support at its rising 10-dma (near 101.50).

- 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: 75.04 change: -1.15

Stop Loss: 73.40
Target(s): 79.75
Current Option Gain/Loss: -18.4%
Time Frame: 4 to 8 weeks
New Positions: see below

11/30/13: The stock market's half day on Friday was not a good one for WDC. Shares hit new highs on Friday morning only to reverse and give them all back and more. The stock underperformed the market with a -1.5% decline. Furthermore Friday's move has produced a bearish engulfing candlestick reversal pattern. It's tough to put too much emphasis on Friday's move due to the lack of volume thanks to the holiday. I am not suggesting new positions at this time.

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

11/27/13 new stop loss @ 73.40


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

WellPoint Inc. - WLP - close: 92.88 change: -0.74

Stop Loss: 89.75
Target(s): 99.00
Current Option Gain/Loss: +46.9%
Time Frame: 3 to 6 weeks
New Positions: see below

11/30/13: Friday's -0.79% decline in WLP pushed the stock to a weekly loss that snapped a four-week winning streak. Currently we have our stop loss at $89.75 because the $90.00 level should be support. More conservative traders may want to raise their stop closer to the $92.00 area instead. I am not suggesting new positions at current levels.

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: 120.70 change: +1.24

Stop Loss: 122.55
Target(s): 115.50
Current Option Gain/Loss: -31.1%
Time Frame: 3 to 6 weeks
New Positions: see below

11/30/13: The U.S. dollar hit a new three-week low on Friday. Gold managed a bounce but you'll notice that the GLD's rally stalled at short-term technical resistance at its 10-dma.

We are adjusting our stop loss down to $122.55.

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

11/30/13 new stop loss @ 122.55


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

The St. Joe Company - JOE - close: 17.74 change: +0.04

Stop Loss: n/a *use small positions*
Target(s): $11.00-13.00 range
Current Option Gain/Loss: -32.6%
Time Frame: 2 to 3 months
New Positions: see below

11/30/13: JOE is still trying to bounce and eked out a fractional gain on Friday.

Remember, this is a lottery ticket style of trade.

Readers may want to wait for the next failed rally or lower high before initiating new bearish positions. I don't see any changes from last weekend's new play description.

Earlier Comments:
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.

Our long-term target is $11.00 although we'll seriously consider exiting near the 2011 lows around $13.00.

*Small Positions* - Suggested Positions -

Long 2014 March $15 PUT (JOE1422o15) entry $0.52


Entry on November 25 at $17.50
Average Daily Volume = 627 thousand
Listed on November 23, 2013

Twitter, Inc. - TWTR - close: 40.90 change: +0.72

Stop Loss: n/a
Target(s): 35.25
Current Option Gain/Loss: - 66.6%
Time Frame: 3 to 4 weeks
New Positions: see below

11/30/13: Our aggressive put trade on TWTR is not panning out. There was no follow through on the November 25th breakdown to new lows. Instead TWTR has seen a three-day bounce (thanks in part to bullish analyst comments on Nov. 27th).

This coming Monday, December 2nd, could be interesting. TWTR's quiet period ends on Monday according to Wunderlich. They are bearish on the stock but warned TWTR could see a short-term rally.

More conservative investors might want to abandon ship and exit early now. I am not suggesting new positions at this time. If TWTR continues to rally we will probably close this trade soon.

Keep in mind that our December options only have three weeks left.

Earlier Comments: (November 25th)
It looks like the IPO hype is finally wearing off as TWTR underperformed the market today and broke down to a new low. I'm not listing a stop loss because TWTR can be pretty volatile. Therefore you'll need to manage your risk by adjusting your position size. We'll use the December options with just less than four weeks. You may want to buy Januarys instead. Our short-term target is $35.25.

*Small Positions* - Suggested Positions -

Long Dec $35 PUT (TWTR1321x35) entry $0.60


Entry on November 26 at $39.16
Average Daily Volume = 19.7 million
Listed on November 25, 2013

Longer-Term Play Updates

Vanguard FTSE Europe ETF - VGK - close: 57.36 change: +0.22

Stop Loss: 54.90
Target(s): Sell half @ $58.00, sell the rest at $63.00
Current Option Gain/Loss: +66.6%
Time Frame: exit PRIOR to 2014 March option expiration
New Positions: see below

11/30/13: Friday was a mixed day for the European markets. Yet the VGK gapped open higher and traded at a new two-year high before paring its gains.

Please note our new stop loss at $54.90.

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*

11/30/13 new stop loss @ 54.90
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