Option Investor

Daily Newsletter, Wednesday, 10/20/2010

Table of Contents

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

Market Wrap

Whipsaw Wednesday

by James Brown

Click here to email James Brown

Market Stats

Negative reaction to China's surprise rate hike on Tuesday died quickly as fears eased that Beijing would slow down their economy too fast. Stocks here and across the Atlantic saw a very widespread bounce. U.S. dollar weakness was fueling big moves in commodity names. Better than expected earnings results from Dow-components Boeing (BA) and United Technologies (UTX) helped drive the DJIA back above the 11,100 level. Very bullish earnings in the airline sector helped lift the XAL airline index to new three-year highs and gave the Dow Jones Transportation index a nice boost. Financial stocks were still laggards as investors worry over efforts to force big banks into buying back billions of bad loans. Meanwhile the Fed's Beige Book report only showed modest growth. Traders decided to interpret the data as confirmation that the Federal Reserve would proceed with their plans to launch another round of quantitative easing (better known as QE2 these days).

Asian markets were mixed. The Japanese NIKKEI was still reeling from China's surprise rate hike and the Japanese market sank -2.3% intraday with the NIKKEI closing down -1.7%. I'm sure the dollar weakness with a drop to under 81.0 yen intraday certainly played a roll in the stock market's weakness since a weaker dollar makes Japanese exports more expensive. In China the market was poised to drop but the Shanghai index rebounded from its early morning weakness to close in positive territory. Yesterday was China's first rate hike (+0.25%) in almost three years. Initially investors were worried that China would cause their economy to stumble. Fortunately the market recovered and the Shanghai index inched up +0.7% to close at 3,003. The Hong Kong Hang Seng index lost -0.8%.

European markets saw widespread gains as stocks rallied off their morning lows. Metals, miners, and commodity-related plays were big winners thanks to the dollar's reversal lower. The minutes from the recent Bank of England meeting affirmed expectations that the BoE was still leaning towards additional quantitative easing. Unfortunately, gains in England were tempered by some of the deepest budget cuts the country has ever seen. The U.K. plans to cut 500,000 government jobs and impose further taxes on the banks in an all-out effort to eliminate the country's 156 billion pound deficit. The English FTSE rose +0.44%. The German DAX gained +0.5%. The French CAC-40 rose +0.5%.

It seems that these days trading is all about the U.S. dollar with concerns over currency wars and devaluations as countries try to stay competitive in the export market with a plunging dollar. The stock market has seen a relatively strong correlation with the dollar's move as dollar weakness bolsters stock gains. Today the dollar hit a new 15-year low against the yen, closing near 81.0 yen and hitting 80.85 intraday. The dollar's reversal lower today ended a three-day bounce against the euro with the euro rising toward $1.3958. The $1.40 level has been resistance and there is definitely speculation that a breakout past $1.40 on the euro would launch a new leg higher.

Yesterday's dollar declines sparked sharp profit taking in the commodity space. Crude oil lost -4.3% yesterday while gold plunged -2.6%. Today's decline in the dollar lifted oil +2.9% to $82.55 a barrel with a little help from the EIA report that showed a smaller than expected build in oil inventories last week. Metals saw a strong bounce on dollar weakness with copper up +1.2% and gold futures up +0.8% to $1,346.50 an ounce. The dollar's decline was also having a big impact on agricultural futures with corn up +5%, cotton +3.6%, oats +2.9%, rice +3.4% and soybeans hitting new 16-month highs. A weaker dollar makes U.S. exports of grains more competitive. Plus a weaker dollar means you need more dollars to buy the same bushel of corn.

The major economic report today was the Federal Reserve's Beige Book report, named for the color of its cover. A big picture look at the nation showed growth was modest. Seven of the 12 Fed districts reported modest improvements in business activity. Three regions said activity was flat while two regions, Atlanta and Dallas, said growth was slowing down. The Fed pointed out that businesses are still reluctant to hire new workers. Naturally our high unemployment is keeping the housing market weak with only scattered reports of mild improvements for residential real estate. Speaking of homes, the Mortgage Bankers Association weekly look at mortgage applications saw their index drop for the first time in six weeks. The application index fell -11% for its biggest drop since June led by a -11% in refinance applications and -6.7% drop in new purchases.

Most of the headlines today that weren't focused on the Beige book or the dollar were all about earnings. This earnings season has been much better than expected and results continue to prop up the market, even if they do take a back seat to the dollar's moves. Today the airline sector was soaring on strong earnings from three large carriers. American Airlines (AMR) ended a string of seven quarterly losses and reported a profit of $0.39, which was seven cents better than expected. Revenues jumped almost +14% and matched estimates at $5.84 billion. Delta Airlines (DAL) delivered a profit of $1.10 a share, which bested estimates of 94 cents. DAL's revenues grew +18.2% to $8.95 billion, besting estimates. Management issued bullish comments for growth through the end of 2010. U.S. Air (LCC) announced a profit of $1.22 a share versus a loss of 60 cents a share last year. Analysts were only expecting $1.17. LCC's revenues grew nearly +17% to $3.18 billion. Together the three airlines said average ticket prices were rising and traffic was healthy thanks the return of the business traveler and strong demand for international flights. Big gains for these three companies (AMR +12.5%, DAL +10.8%, and LCC +7.4%) helped push the XAL airline index (+5.2%) to new three-year highs.

Chart of the XAL airline index:

In related news Boeing Co. (BA), one of the world's largest manufacturers of commercial airplanes, rose +3.3% on its earnings report. Profits for BA came in at $1.12 last quarter with revenues hitting $16.97 billion. Wall Street was only expecting $1.06 a share on revenues of $16.81 billion. BA said demand had improved and management raised their forecasts. Another Dow-component reporting earnings this morning was UTX. Earnings came in at $1.30 a share, which beat estimates by 2 cents. Revenues were a miss but UTX narrowed its 2010 full year forecast toward the top of its previous range. The stock initially gapped down this morning but managed to bounce back into positive territory with a +0.4% gain.

Financials remain in the spotlight as investors struggle over headline risk with the major mortgage lenders. The markets are worried that growing efforts to force the banks to buy back billions of mortgages will succeed. Bank of America (BAC) is the biggest target and two firms downgraded the stock today. Shares of BAC tagged new 52-week lows this morning before paring its losses. Outperforming its peers was Wells Fargo (WFC), which reported earnings this morning of $0.60 a share on revenues of $20.87 billion. The street was expecting a profit of 55 cents on revenues of $20.95 billion. While the revenue number was a miss the $3.34 billion in net income was a new all-time high for WFC. The stock rallied +4.2%. Another financial company making headlines was Morgan Stanley (MS), which reported earnings of just 5 cents per share. Wall Street was looking for 15 cents a share. MS' revenues dropped nearly 20%. Trading revenues plunged from a year ago and yet in spite of these numbers the stock closed virtually unchanged on the session. Larger rival Goldman Sachs (GS) delivered a very strong earnings report yesterday and the stock rallied +1.8% today to set a new five-month closing high just under $160 a share.

In other news Amlyn Pharmaceuticals (AMLN) and Apple Inc. (AAPL) were making a splash. Shares of AMLN were nearly cut in half with a -46% drop to $11 on news that the FDA had rejected AMLN's once a week diabetes drug, Bydureon. AMLN is trying to compete with a similar drug, Victoza, manufactured by Novo Nordisk. AMLN's shares were not the only ones hurt by the FDA announcement. Eli Lilly (LLY) and Alkermes (ALKS) both had a stake in Bydureon. ALKS fell -27% to $10.50 and LLY dropped -3.8% to $36.01. The FDA has requested more information on how this new drug affects patients heart rate and any new decision has been postponed until mid 2012.

Chart of the Amlyn Pharmaceuticals (AMLN):

Shares of AAPL are hovering near their all-time highs. The stock only managed a +0.33% gain as investors digested the "Mac Event" scheduled today. CEO Steve Jobs unveiled Apple's new operating system called "Lion" and introduced two new MacBook Air models that weigh less than three pounds and have a battery life of seven hours. The new Macs also include "FaceTime" video similar to the new iPhone 4 video chat.

After hours the earnings results continued to pour in. Topping the tape were Ebay Inc. (EBAY) and Netflix Inc. (NFLX). EBAY reported earnings of 40 cents a share, which was three cents better than expected. Revenues improved to $2.24 billion, better than the $2.18 billion estimate. PayPal continues to be EBAY's crown jewel with strong growth. Management has raised their Q4 guidance to 45-48 cents a share, above consensus estimates of 44 cents. Shares of EBAY are up nearly +7% in after hours. Shares of NFLX are also trading up about +7% after hours as traders react to its earnings report. The company has raised its full-year subscriber forecast from 17.7-18.5 million up to 19.0-19.7 million. There seemed to be some confusion over the earnings results. Wall Street was expecting 71 cents a share. CNBC couldn't decide if NFLX had earned 70 cents or 78 cents. Revenues clearly beat with Q3 revenues of $553 million compared to the $550 million estimate. NFLX said they were seeing strong growth in their streaming video service.

Taking a step back to look at the market, technically, not too much has changed. The trend is still up and traders quickly bought Tuesday's dip. Stocks remain very overbought and due for a correction but that may not happen until after the elections. However, yesterday's sharp decline and the bounce back today does suggest a potential crack in the bull's armor. The rebound on Wednesday paused under yesterday's close and stocks began to wane late in the afternoon. I urge you to take a closer look at the intraday charts. Like I said, the trend is up, but if stocks struggle to make it past the highs this week we might be seeing a change in character.

On a short-term basis the S&P 500 index has resistance near 1185. Yesterday proved that 1160 was short-term support but I would watch the 1150 level as stronger support. A breakout past 1185 would leave the index open for a quick rally toward round-number resistance at 1200.

Intraday Chart of the S&P 500 index:

Chart of the S&P 500 index:

The NASDAQ composite is holding up pretty well and has yet to breakdown under its rising 10-dma. On a short-term basis we can look for support near 2420 and 2400 and overhead resistance at 2480 and 2500.

Chart of the NASDAQ index:

Meanwhile the small cap Russell 2000 index continues to march along. The index has been moving higher in a tight channel. Yesterday's close looked like a breakdown but there was no follow through. It might take a close under the 690 level before we actually see any real profit taking in the small caps. Until then the bulls are aiming for the 720 level.

Chart of the Russell 2000 index:

Tomorrow's economic data will be led by the Philly Fed survey and leading indicators. Plus, we'll see the weekly initial jobless claims. Economists are expecting new claims to come in at 450,000 last week. Odds are good the real headlines will focus on earnings data. Topping the list of companies reporting tomorrow are McDonald's (MCD), Amazon.com (AMZN), Caterpillar (CAT), and American Express (AXP). Thus far the number of S&P 500 components that are beating earnings expectations is up to 84%.

Personally I find it very challenging to want to buy stocks at these levels with the potential for a correction looming so large but nothing seems to keep this market down for very long. Negative economic data and earnings misses over the past couple of weeks haven't been able to spark any serious profit taking and even a surprise rate hike by China was quickly waved off as healthy. The trend of dollar weakness and commodity strength remains intact. Obviously we would prefer to buy a nice -5% or -10% correction but it may not happen until after the midterm elections and the next FOMC meeting. You would think that after the big gains we've seen so far in September and October that expectations for the Federal Reserve to launch another round of QE are completely baked into this market. Yet the QE yeast continues to rise. If you don't mind me mixing my baking metaphors, I'm worried that when the Fed finally does meets in early November we might hear this whooshing sound as the stock market deflates like an undercooked soufflé.


New Plays

Home Builder

by Scott Hawes

Click here to email Scott Hawes

Pulte Group, Inc - PHM - close 8.31 change -0.11 stop 9.05

Target(s): 7.20, 6.75
Key Support/Resistance Areas: 9.00, 8.00, 7.00, 6.50
Current Gain/Loss: Unopened
Time Frame: 1 to 3 weeks
New Positions: Yes

Company Description:
Pulte Homes, Inc. (Pulte Homes) is a holding company whose subsidiaries engage in the homebuilding and financial services businesses. The Company’s direct subsidiaries include Pulte Diversified Companies, Inc., Del Webb Corporation (Del Webb), Centex Corporation (Centex) and other subsidiaries engaged in the homebuilding business. The Company also has mortgage banking operations, conducted through Pulte Mortgage LLC (Pulte Mortgage), and title operations. Homebuilding, the Company’s core business, is engaged in the acquisition and development of land primarily for residential purposes within the continental United States and the construction of housing on such land targeted for first-time, first and second move-up, and active adult home buyers. (source: company press release or website)

Why We Like It:
We are adding a short candidate to the model portfolio to balance our positions a bit. I consider this a more aggressive play so please use small position size. PHM saw some unusual option activity on the put side across various strikes in the November, December and January months. In total, 24,000 contracts traded and 75% of them were bought on the ask. PHM is having problems with their debt and their costs to borrow are rising as their credit spreads widen. I suggest we initiate a small short position now and target a move towards the 2008 lows which are about -10% and -13% lower than current levels. Our initial stop will be above the recent highs. I have provided a weekly chart below.

Note: We will most likely experience some volatility in this trade so please use appropriate position size to manage risk. I also like an option play here so that your risk is better defined.

Suggested Position: Short PHM stock at current levels

- or -

BUY the December $8.00 PUT, current ask $0.54

Annotated weekly chart:

Entry on October 21, 2010
Earnings Date 10/28/10 (unconfirmed)
Average Daily Volume: 4.5 million
Listed on October 16th, 2010

In Play Updates and Reviews

Whipsaws Continue

by Scott Hawes

Click here to email Scott Hawes

Editor's Note:
Good evening. I think we are going to see this volatility continue. Tuesday's losses were reversed today and I would not be surprised if today's gains are reversed tomorrow. Staying nimble and working both sides of the market is the right strategy. Our short XLNX play looks promising tomorrow for a solid move lower (see play update for details). We also have several positions still waiting to be triggered which could happen at any time. Please email me with any questions.

Current Portfolio:

BULLISH Play Updates

Boyd Gaming - BYD - close 7.74 change -0.13 stop 7.28

Target(s): 8.65, 8.95, 9.20
Key Support/Resistance Areas: 9.60, 9.25, 8.75, 8.00, 7.40
Current Gain/Loss: -5.61%
Time Frame: 1 to 2 weeks
New Positions: Yes

10/20: BYD is finding support at its 20-day SMA and key long support/resistance level in the $7.40 to $7.60 area. This is a logical place to for the stock to make a higher low and head back to at least retest its recent highs. If it does this we can book a decent in the +5% range. I've added a lower target to reflect this strategy. Launching new bullish positions at these levels with tight stop below makes sense a lot of sense to me.

10/19: BYD looked promising this morning but completely lost it in the afternoon. I suggest we keep our stop in place for now and not panic out of the position. BYD is still above the 20-day and 50-day SMA's and has support near current levels.

10/18: I do not see many changes from James' comments below. BYD experienced a relief rally after the Thursday/Friday sell-off. Broken support near $8.00 was a key level that BYD will have to contend with on bounces. Readers may want to consider exiting positions early or tightening stops to the $7.45 area to protect capital, especially considering the overbought broader market conditions.

Current Position: Long BYD stock, entry was at $8.20

Entry on October 14, 2010
Earnings 10/27/10 (unconfirmed)
Average Daily Volume: 1.8 million
Listed on October 9, 2010

Companhia Brasileira de Distribuicao - CBD - cls: 37.14 chg: -0.12 stop: 34.75

Target(s): 39.00
Key Support/Resistance Areas: 35.00, 36.50, 39.00
Current Gain/Loss: +1.06%
Time Frame: 4 to 6 weeks
New Positions: Yes

10/20: CBD has made a series of higher lows since the stock slit on Monday. Now we need the stock to follow through higher and retest its highs.

10/19: CBD traded right down to our trigger of $36.75 and bounced nicely. The comments below all remain valid.

10/18: We are waiting to be triggered at $36.75 which I expect to happen in the coming days. This is a prior long term resistance area which should now be support. The comments from the play release below remain the same.

10/16: Shares of Brazilian grocery food chain CBD appear to be in breakout mode. The Brazilian economy continues to grow and the surging middle class likes to spend. This has pushed CBD toward all-time highs. Now normally I wouldn't list a stock in the $70s as a PremierInvestor play. However, CBD will see a 2-for-1 split on Monday morning (Oct. 18th). The stock should open around $38.20. I am suggesting we look to buy CBD on a pull back. Broken resistance near $73.50 (post-split will be $36.75) should be new support. Thus, use a trigger at $36.75 to open bullish positions. We'll use a stop loss at $34.75 since the $70 level (post-split: $35) should be additional support.

If triggered our first target is $39.00 (pre-split $78.00). Our second, longer-term target is $42.00. The inverse (bullish version) head-and-shoulders pattern would suggest a bullish target of $88 (post-split would be $44). The Point & Figure chart is very bullish with a price target of $101.00 (post-split $50.50).

Current Position: Long CBD stock, entry was at $36.75

Entry on October 19, 2010
Earnings Date 11/10/10 (unconfirmed)
Average Daily Volume: 545,000
Listed on October 16th, 2010

Hansen Natural Corp. - HANS - close: 49.73 change: -0.27 stop: 44.95

Target(s): 50.00, 52.50,
Key Support/Resistance Areas: 45.00, 47.50, 50.00, etc.
Current Gain/Loss: Unopened
Time Frame: 4 to 6 weeks
New Positions: Yes, see below for details

10/18 & 10/19 & 10/20: We are waiting for our trigger at $48.25. I like the set-up and suggest we remain patient. We could get a pullback in the coming days and using the dips as buying opportunities is the right strategy.

10/16: HANS is probably best known for their Monster brand energy drinks. The stock has been a monster in its own right and shares have been a popular momentum trade over the years. Well once again shares of HANS are surging higher. We'd like to hop on board but we don't want to chase it at these levels. I'm suggesting a trigger to buy the stock (or call options) at $48.25 since broken resistance at $48.00 should be new support. I'm suggesting a stop loss at $44.95 but we may want to raise the stop closer to the rising 50-dma (technical support) currently near 46.20.

If triggered at $48.25 our first target is $51.00. Our second target is $52.50. FYI: The point & figure chart is very bullish and is forecasting a long-term target of $78.

Suggested Position: BUY the stock at $48.25

- or -

BUY the November $50.00 calls (on a dip at $48.25).

Entry on October xx
Earnings Date 11/04/10 (unconfirmed)
Average Daily Volume: 4.5 million
Listed on October 16, 2010

Itron, Inc - ITRI - close 60.69 change +0.32 stop 57.45

Target(s): 63.00, 64.00, 65.00, 66.00
Key Support/Resistance Areas: 66.00, 64.00, 60.50, 59.00, 57.00
Current Gain/Loss: +0.73%
Time Frame: 1 to 3 weeks
New Positions: Yes

10/20: I don't see many changes to my comments below. Look for a move back up to $63.00 which when is we will begin to tighten stops and look for a possible break out higher. ITRI may want to test its 50-day SMA which is near $59.00 so we may need to exhibit some patience.

10/19: The correction came a little faster than I anticipated but ITRI hit our trigger of $60.25 to enter long positions. I am a little concerned about the strength of today's sell-off and we may need to exhibit some patience in the coming days. Tighter stops could be considered at $58.45. When the selling subsides ITRI should move back to the $63.00 level with ease and I would target incremental $1 moves higher from there, possibly all the way up to $66.00. I would view any further dips as buying opportunities with tighter stops.

Current Position: Long ITRI stock, entry was at $60.25

Entry on October 19, 2010
Earnings 10/27/2010 (unconfirmed)
Average Daily Volume: 412,000
Listed on October 4, 2010

Jeffries Group, Inc - JEF - close 23.83 change +0.29 stop 22.75

Target(s): 25.10, 25.75
Key Support/Resistance Areas: 25.85, 25.25, 24.25, 23.50, 23.00
Current Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see entry point below

10/21: JEF closed above its 50-day SMA for the first time in a month which should provide support on a pullback. We are likely going to get triggered to launch bullish positions tomorrow on a breakout. Readers may want to consider an entry on a dip to the 50-day (currently $23.50) as the stock keeps getting bought, but I would keep a tight leash on the trade.

10/19: Investment Banks are beginning to trade well, especially those that have little risk exposure to mortgage backed securities like many of the money center banks. JEF should do well in this era of corporate advisory services and M&A activity. JEF could even be a takeover candidate themselves. I like JEF to trade higher as long as the stock breaks out above today's highs. Technically, The volume patterns look good and JEF has closed above short term resistance from the past couple of weeks at $23.50 for two consecutive days. I suggest we enter long positions if the stock trades to $23.91 which is above today's highs. Our stop will be $22.75 and our targets are near the September and August highs, which are +5% and +7.5% from our trigger.

Suggested Position: Long JEF stock if it trades to $23.91
Options Traders: Buy December $24.00 CALL, current ask $1.10

Entry on October xx
Earnings Date 1/20/11 (unconfirmed)
Average Daily Volume: 1.1 million
Listed on October 19, 2010

Mylan Inc. - MYL - close: 18.98 change: +0.15 stop: 18.45

Target(s): 19.80, 20.45, 21.00, 22.00
Key Support/Resistance Areas: 18.50, 19.00, 20.00, 20.50
Current Gain/Loss: -1.40%
Time Frame: 4 to 6 weeks
New Positions: Neutral

10/20: MYL is playing moving average ping pong, bouncing back and forth between the 200-day (above) and rising 20-day (below). The stock is hanging tough and looks bullish. Now we need follow through.

10/19: I could not find any follow-up news to my 10/18 comments. MYL is hanging tough and is holding onto its upward trend line that began on 8/31 and its 20-day SMA. I've adjusted the targets slightly.

10/18: MYL got hit hard today on news that a preliminary injunction against GlaxoSmithKline and Apotex pertaining to the generic drug Paxil CR was denied in US District Court of New Jersey. After the initial reaction the selling subsided and MYL bounced after the company said they are appealing the decision. Regardless of the outcome, this is a new development and readers should use caution, especially considering the overbought broader market conditions. Our stop is in the right place if MYL breaks lower as this will signal a break in trend.

10/16: MYL is a short squeeze candidate. Bigger picture the generic drug makers are facing a potential boom for the next few years as more brand name drugs lose their patent protection. On a short-term basis MYL just broke out over heavy resistance at $19.00 and its 200-dma following news the FDA has approved to generic versions of Merck's Hyzaar and Cozaar blood pressure drugs. Now don't get too excited here since TEVA has already begun selling generic versions of these drugs months ago but it does mean MYL can try and grab its slice of the pie. Technically MYL is seeing a bullish breakout and could see a short squeeze. The most recent data available listed short interest at almost 29% of the 260 million-share float.

I do consider this an aggressive trade so keep your positions somewhat smaller. Buy the stock now (or the calls) and target a move to $20.00, $21 and beyond. FYI: The P&F chart is forecasting at $33 target.

Current Position: Long MYL stock, entry was at $19.25
Options Traders: Long November $20.00 calls

Entry on October 18, 2010
Earnings Date 10/28/10 (unconfirmed)
Average Daily Volume: 4.5 million
Listed on October 16, 2010

PerkinElmer, Inc - PKI - close 23.10 change +0.38 stop 22.05

Target(s): 23.60, 24.25, 24.85
Key Support/Resistance Areas: 25.40, 24.40, 23.30, 22.50
Current Gain/Loss: +0.00%
Time Frame: 1 to 2 weeks
New Positions: Yes

10/20: We are right back to where we started with PKI and are breakeven on the trade as the stock rebounded nicely today. My comments below remain valid.

10/19: Our +2% gain in PKI has turned into a loss with today's -3.4% decline. PKI has broken through its upward trend line from the July lows and its 20-day SMA, so now we have to turn to support levels. The stock has support at $22.50 and the rising 50-day and 200-day SMA's at $22.30 and $22.13. I suggest we protect the trade here and lower our stop $22.05 as PKI may be headed to test one of the SMA's just below. If support is not found at one of the three aforementioned levels the new stop still keeps losses relatively small while giving the trade room to work. Conservative traders may want to consider exiting positions now.

10/18: PKI regained all of Friday's losses and closed at new multi-month closing highs that haven't been seen since early May. However, the broader market is overbought so readers should use caution. Tighter stops in the $22.75 area could be considered to limit downside risk. James' comments below remain valid.

Current Position: Long PKI stock, entry was at $23.10

Entry on October 12, 2010
Earnings 11/4/10 (unconfirmed)
Average Daily Volume: 1.4 million
Listed on October 11, 2010

Thompson Creek Metals - TC - close 11.06 change +0.30 stop 10.45

Target(s): 11.10 (hit), 11.75 (hit), 12.40
Key Support/Resistance Areas: 12.60, 11.80, 11.00, 10.55
Current Gain/Loss: -0.81%
Time Frame: 1 to 3 weeks
New Positions: Yes

10/20: TC recovered nicely but the stock still has a lot of work to do to regain the losses from Tuesday. Unfortunately we do not have a good reference to raise the stop just yet. Let's see how much more we can get out of the position and keep looking for areas to move up the stop. All of the targets above remain valid.

10/18: TC drifted sideways in a fairly tight range on Monday. The stock closed near its highs and continues to look bullish, however, be aware of some possible profit taking in the coming days which I would use an opportunity to launch new positions. If TC breaks above last week's highs there is little resistance until the $12.50 area which is just above our final target. Tighter stops could be considered in the $10.80 area to limit downside risk.

10/16: There is no change from my Thursday comments on TC. The stock saw a little volatility on Friday morning but consolidated sideways into the weekend. A pull back toward the $11.15-11.00 zone should be a new bullish entry point.

10/13: TC hit our first target at $11.75.

Current Position: Long TC stock, entry was at 11.15

Options Traders: Long November $11.00 CALL

Entry on October 12, 2010
Earnings 10/4/2010 (unconfirmed)
Average Daily Volume: 1.7 million
Listed on October 9, 2010

TJX Companies - TJX - close 44.56 change -0.64 stop 43.35

Target(s): 46.95, 48.20
Key Support/Resistance Areas: 48.50, 47.00, 45.40, 43.50
Current Gain/Loss: Unopened
Time Frame: 2 to 4 weeks
New Positions: Yes, see entry point below

Comments :
10/20: TJX is forming a nice bullish high and tight ascending triangle. We are playing the breakout with a trigger of $45.52.

10/19: I suggest we play this conservative and keep the set-up in place with a breakout trigger of $45.52. A dip towards $43.75 would catch my eye as another possible bullish entry point.

10/18: TJX has been consolidating above its rising 20-day SMA for the past couple of weeks and is forming an ascending triangle along the way. Resistance is $45.40 and I suggest readers use a breakout to enter long positions. Let's use a trigger of $45.52 and target a move back towards the stock's 52-week highs. Our targets are $46.95 and $48.20 and our stop is $43.35. More nimble traders may want to try to time an entry on a pullback in the $44.50 area.

Suggested Position: Long TJX stock if it trades to $45.52

Entry on October xx
Earnings Date 11/16/10 (unconfirmed)
Average Daily Volume: 3 million
Listed on October 18, 2010

BEARISH Play Updates

FLIR Systems - FLIR - close 25.42 change +0.35 stop 27.05

Target(s): 24.40, 23.70, 21.60
Key Support/Resistance Areas: 28.00, 27.00, 26.50, 25.50, 24.00
Current Gain/Loss: +1.51%
Time Frame: 4 to 6 weeks
New Positions: Yes, see below

10/20: FLIR has a ton of overhead resistance to deal with on any bounces and continues to look bearish. Be ready to take profits or tighten stops to protect them if the stock breaks lower.

10/19: FLIR continues to look vulnerable and if the correction continues our first two targets could be hit relatively quick. I suggest being ready to take profits or tighten stops to protect them as they approach. I've made some adjustments to the targets.

10/18: FLIR has rallied right into resistance (prior support from February) which also happens to be its 20-day SMA. FLIR also has a downtrend line and its declining 50-day SMA just overhead in the $25.25 area. I like new positions here and suggest playing for a pullback of $1.50 to $2.50.

Current Position: Short FLIR stock, entry was at $25.81

Entry on October 15, 2010
Earnings Date 10/21/10 (unconfirmed)
Average Daily Volume: 1.7 million
Listed on October 2nd, 2010

Xilinx, Inc. - XLNX - close 26.33 change -0.00 stop 27.42

Target(s): 25.35, 25.00, 24.60
Key Support/Resistance Areas: 26.75, 26.00, 25.30, 25.00, 24.00
Current Gain/Loss: -0.81%
Time Frame: 1 to 2 weeks
New Positions: Yes

10/20: We got what we were looking for in XLNX's earnings report. The company's earnings merely met estimates but revenues missed slightly. More importantly, the company guided sales "flat to down 4%" q/q, which implies revenues of $595M to $620M compared to estimates of $623M. This is not what I would want to hear as a shareholder. On 10/1 Goldman Sachs downgraded this stock and slapped a price target of $22 on it, yet the stock has held its ground, probably because the broader market has also. Today's earnings report may be the catalyst we need for a move lower. At the time of this writing XLNX is down about -1.50% in the after market. I expect there to be a wave a selling at the open tomorrow which should send the stock towards our targets. Be prepared to take profits or tighten stops to protect them. If the broader market is weak the selling could pick up steam.

10/19: This is turning out to be a frustrating trade as the dips in XLNX keep getting bought. The company reports earnings tomorrow after the bell so if you are not comfortable holding positions close them tomorrow. I've adjusted the targets and suggest readers use weakness to consider exiting positions. My comments below have not changed.

10/18: XLNX was down nearly -2.5% in early trading today but the stock found support at its 50/200 day SMA and drifted higher into the close, regaining most of those losses. XLNX has not performed as well as the broader market since its April highs and is at resistance levels. If the broader market corrects here XLNX and the Semi's could fall hard and this is when readers should exit positions and book profits. If XLNX takes out today's lows I believe the selling could quickly gain momentum.

Current Position: Short XLNX stock, entry was at $25.80

Options Traders: Long November $25.00 PUT

Entry on October 7, 2010
Earnings: 10/20/10 (unconfirmed)
Average Daily Volume: 7.3 million
Listed on October 6, 2010