Option Investor

Daily Newsletter, Tuesday, 12/14/2010

Table of Contents

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

Market Wrap

No Change In Fed Policy

by Jim Brown

Click here to email Jim Brown
The Fed is unshaken by the rise in interest rates since QE2 began. Today they said inflation was too low and unemployment too high so the QE2 program would continue.

Market Statistics

The Fed left rates unchanged and repeated the "exceptionally low levels for the federal funds rate for an extended period" comment suggesting rates would remain unchanged for at least the next six months. They can't raise rates until they finish the QE2 program and begin removing liquidity from the market. Most analysts believe it will be 2012 before the Fed changes rates.

The Fed said it would continue buying up to $600 billion in longer-term treasuries by the second quarter of 2011. Not so heavily reported the Fed will also roll over maturing securities into new purchases of another $300 billion. In quantitative easing the Fed creates money and uses its new money to buy treasuries and remove those investment vehicles from the market and forcing investors to look for other places to put their money, preferably the stock market.

In theory this increases bidding for the available treasuries and drives up prices producing a lower implied interest rate. Unfortunately for the Fed the economy began improving about the time the QE2 program began and the European debt crisis flared up again. The European crisis pushed the dollar higher and the improving economy is convincing investors to pull out of bonds and chase stocks. That pushes interest rates higher. Both factors are opposed to the Fed's goals.

Since the interest rate has been rising instead of following there was some thought the Fed might warn of a potential increase in the QE2 purchases in order to force its will on the bond market and force rates lower. This did not happen but it does not mean the Fed can't change the program in the future. They left themselves and out with the sentence: "The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability." Also, "The Fed will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary." Those statements mean they can change policy at will if they deem necessary.

The Fed repeated the list of problems in the economy but noted again that a gradual uptick in activity had begun. However, "progress toward its objectives has been disappointingly slow." The Fed's objectives are low unemployment and price stability, which is normally expected to be a +2% inflation rate.

The Fed noted that consumer spending is "increasing at a moderate pace" compared with "increasing gradually" in the prior statement. However, they also noted the overall pace of business growth has slowed.

The tax compromise, which includes a cut in the social security tax and extension in unemployment benefits for millions of workers, should mean the Fed would not have to implement more aggressive policy actions to stimulate growth. Most analysts have raised their GDP estimates for 2011 by 1.0% to as much as 1.5% with the higher GDP predictions now in the +4.2% to +4.5% range. That would be nearly double the 2009 levels.

It would also put the Fed in a bind with nearly $3 trillion in treasuries on their books and rising interest rates pushing down their value as each day passes. A suddenly accelerating economy would also mean a greater fear of inflation and a need for the Fed to reverse its position very quickly. This is going to be a major challenge for the Fed when it occurs and they could actually end up killing the new recovery by too aggressive a revision in policy change.

The bottom line to the current Fed environment is a very accommodative interest rate policy at a time when the economy is poised to accelerate in 2011. As Ken Heebner said after the FOMC announcement, "we are expecting the economy to grow significantly over the next several years and this is a very attractive time to buy stocks. Conditions could not be better!"

The Senate test vote on the tax compromise was 83-15 in favor and when the real vote occurs it is expected to pass and move on to the house. This will be beneficial to the economy and with the Fed greasing the wheels we could actually see 4.5% growth by the end of 2011.

Elsewhere on the economic front the Producer Price Index (PPI) showed prices for finished goods rose +0.8% in November. The core rate without food and energy components rose +0.3%. The core rate was up +1.9% over the same period in 2009 but 1.7% of that was due to a rise in the sticker price of new cars. Wednesday's Consumer Price Index (CPI) will be the more important report with the level of inflation at the consumer level. I expect it to be tame or the Fed would have been more aggressive in their statement.

Retail Sales rose +0.8% in November compared to an upwardly revised +1.7% gain in October. Excluding autos sales rose +1.2%. I was surprised to see electronics and appliance stores post a decline in sales in November. You may remember the Black Friday sales actually started the day after Halloween and ran all month. I was expecting a good November for the electronics stores.

Of course everything is relative since November sales were still up +7.7% above November 2009. This was the third consecutive month of growth near 8% year-over-year. Sales are up at an annualized rate of +13.7% over the last four months.

There is a lot of pent up demand and most analysts have been projecting that demand increase in this holiday shopping cycle. I personally tried to visit a local mall twice in the last week and literally could not even get in the parking lot. Cars were lined up around the block just waiting to pull into the parking lot. Fortunately I was in no rush to spend money and went elsewhere. The real point is that December sales could be very strong.

Noteworthy reports left for this week include the CPI and Industrial Production on Wednesday and Philly Fed Survey on Thursday.

Economic Calendar

Another sign of a weak consumer was the implosion in Best Buy (BBY) today after they slashed their guidance and posted worse than expected earnings. Best Buy reported earnings of 54-cents for Q3 compared to analyst estimates for 60-cents. The company lowered its guidance for the full year to $3.20 to $3.40 per share compared to prior guidance of $3.55 to $3.70.

Evidently Best Buy did not discount prices enough to offset stronger competition from Wal-Mart, Target, Costco, Sears and Amazon. Those companies have said business was good and momentum was growing in electronics. Wal-Mart reported a "solid increase" in sales of LCD, plasma TVs and laptops.

The various smartphone apps that scan barcodes and tell you who has the same item for a cheaper price are getting a lot of play and creating some point of sale traffic. If you are standing in front of a $700 TV at Best Buy and your smartphone says Wal-Mart has the same model for $599 you are probably going to go immediately to Wal-Mart. Same for Amazon. If Amazon is showing it for $100 cheaper and it takes 2 clicks on your phone and no waiting in line then Amazon wins even with shipping.

Best Buy also said consumers were buying the cheaper priced models of flat panel TVs with screens 36 inches or smaller for $229 to $299 and that hurt both sales revenue and margins. Tablet computers are also credited with impacting sales of PCs and laptops.

Best Buy shares were hammered for a -15% loss.

Best Buy Chart

FedEx said Monday was probably the busiest shipping day of the holiday season with nearly 16 million packages moving through its system. That is a 13% increase over the 14.2 million packages handled on the same day in 2009 and it is double a normal days activity. About half of that increase comes from a deal with the Postal Service. FedEx ships lighter packages for the Post Office and delivers them to a local post office in the delivery area where the USPS takes over again for their final delivery to the address on the label.

Online merchants across the country are promoting this coming Friday as "free shipping" day and FedEx expects another spike in volume. Without the shipping promotions the online retailers would see their business drop off significantly in the week before the holidays. Their shopping season is almost over. Online spending is expected to increase up to 4% this year.

UPS expects its busiest day to be Dec-22nd when it expects to move about 24 million packages. That is 60% more than a normal day. UPS hired 50,000 part time workers to handle the load. For the entire season FedEx expects to ship 223.3 million packages and UPS more than 430 million. FedEx said the majority of its holiday shipments come from Amazon and other online retailers and mostly consist of books, cameras and electronics.

FedEx reports earnings on Thursday before the open. Estimates are for $1.31 per share.

FedEx Chart

In the recovery story of the century AIG gained another $3 today after the Chairman Steve Miller said he was encouraged about the company's prospects and they were more interested in BUYING insurance companies today than selling them. AIG has sold off dozens of assets to raise cash to repay the $49 billion bailout by the government. Their plan to pay off the loans and return the stock to private hands appears to be on track. The government owns 90% of the outstanding shares in AIG and they have to be very happy about the gains over the last couple of weeks.

AIG Chart

Bank of America raised their estimates for the S&P for 2011. They now believe global GDP growth will slow to 4.2% in 2010 from 4.9% in 2009 with emerging markets accounting for 80% of that growth. The bank still has one of the lowest estimates of U.S. GDP at +2.8%. However, the bank believes strong corporate profits in the U.S. will power the S&P-500 over 1,400 by year end. The 1400-1450 range seems to be garnering most of the estimate upgrades from the major analysts but there have been estimates as high as 1500.

David Bianco, chief U.S. equity strategist for BAC said 2010 was a good year for the markets but 2011 will me even better. Stocks are going to be an asset class that comes back into favor. Bianco said S&P 1500 is where he would expect the market to be by year end but the 1400 forecast is the banks cautious way of hedging their bet. He said oil should hit $100, gold $1500 but agricultural prices will decline as new crops replace those burned in the Russian fires or washed away in the floods.

In the energy markets there could be some volatility in crude prices this week. MasterCard's Spending Pulse report showed there was a 3% drop in gasoline demand last week and that was a heavy shopping week when consumers should have been bouncing from mall to mall. Gasoline over $3 per gallon in 21 states is weighing on consumers and they are electing not to drive any more than necessary. John, a reader in Maui told me he paid $4.10 today and reflexively stopped short of filling tank. (John, I think readers in the Midwest and Northeast suffering in the cold would gladly fill your tank if you would trade places with them this week.)

Oil prices over $85 per gallon are an economic drag because that is the level where those fill-ups start being painful to the discretionary budget. With so many people out of work and depending on unemployment for gas and food it is an even bigger problem.

With the current month crude contract expiring at the close next Monday I am expecting to see some profit taking from the nearly $10 spike we saw since Thanksgiving. We shorted the e-mini crude futures in OilSlick this afternoon.

Register for my OilSlick.com newsletter and receive free daily updates and commentary on the energy sector. Register here

The markets appeared to express indifference to the FOMC announcement but bled a few points into the close when a sell program hit about 3:PM. I would not be surprised to see some real profit taking occur now that the FOMC is behind us. There was no change in policy and almost no change in the statement so a sell the news session would not surprise me.

The S&P touched a high of 1246 both yesterday and today and both times there was an almost immediate decline. Today's intraday low was a lower low at 1238 but the range was still minor. An eight-point range on the S&P with a positive close in the middle is nothing to worry about but I think the Best Buy cloud could be with us for a couple days. The FedEx earnings on Thursday morning could be a bright spot.

Support on the S&P is well back at 1225-1228 so there is some risk if real profit taking appears. Fund managers should use any dips to window dress into year-end so I don't expect any material decline.

S&P-500 Chart

The Dow finally moved to a new high at 11,514 after lagging the other indexes for the last couple of weeks. The move came on upgrades to Verizon, Kraft and Caterpillar. The Dow has decent support at 11,335 with today's close nearly 150 points higher. That gives the Dow plenty of room to wander without any material danger of breaking support.

Dow Chart

On the ninth day the Nasdaq rested. Yes, after a streak of eight consecutive gains the Nasdaq rested on Monday but the decline was minimal. After being up about 15 points intraday today the index came back to initial support at 2625 at the close. This was the result of a 3:PM sell program that hit all indexes. Several of the Nasdaq big caps were in negative territory like NFLX, FFIV and AAPL. After the strong December to date a little weakness was to be expected. I still believe funds will use this opportunity to window dress into year-end so today's action was not troubling.

Nasdaq Chart

The Russell completed its second day in negative territory but only fractionally. The Russell can decline to 765 without causing any alarm and I believe that level would be bought. After the performance so far in December it would be somewhat unbelievable to expect the run to continue without a rest.

Russell Chart

After the bell today TrimTabs.com reported U.S. stock mutual funds have taken in a net $2.7 billion so far in December. If the trend continues through year-end it will be the first month since April that stock funds have seen net inflows. Year to date stock funds have seen outflows of $69.8 billion in redemptions. Bond mutual funds have seen outflows in December of $2.3 billion. The tide is turning. Once the tax deal is in place and investors can look two more years into the future before worrying about an increase in capital gains taxes I believe the bond funds will hemorrhage money and stocks will benefit.

I don't have any particular market bias for the rest of the week but I do expect to see some higher highs before year-end. We could easily see some sell the news profit taking this week now that the FOMC is behind us. I would continue to buy the dips until proven wrong.

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Jim Brown

New Plays

Steel Strength

by James Brown

Click here to email James Brown


Ternium S.A. - TX - close: 39.58 change: -0.23

Stop Loss: 35.85
Target(s): 43.00, 45.00
Current Option Gain/Loss: unopened
Time Frame: 12 to 14 weeks
New Positions: Yes, see trigger

Company Description

Why We Like It:
Steel and metal stocks have been showing lots of strength the last few weeks. As investors bet the improving global economy raising demand for steel. Shares of this European steel maker (based in Luxembourg) have broken out over resistance near $38.00. I am suggesting we buy this stock on a dip at $38.25. If triggered we'll use a stop loss at $35.85. Our targets are $43.00 and $45.00. Keep in mind that it could take several weeks for TX to hit these targets.
FYI: The Point & Figure chart for TX is forecasting a bullish target of $48.

Buy-the-Dip Trigger @ $38.25

Suggested Position: Buy TX stock

Note: TX does have options but the spreads are horrendously wide so I'm not suggesting any calls on this trade.

Annotated chart:

Entry on December xx at $xx.xx
Earnings Date 02/23/11 (unconfirmed)
Average Daily Volume: 295 thousand
Listed on December 14th, 2010

In Play Updates and Reviews

Another Target Hit

by James Brown

Click here to email James Brown

Editor's Note:
We had another profit target hit today, this time in a tech stock. Plus, we had an entry point triggered this afternoon. MSFT hit our first target to take profits. Meanwhile BPOP hit our buy-the-dip trigger.


Current Portfolio:

BULLISH Play Updates

Alcoa Inc - AA - close: 14.20 change: -0.16

Stop Loss: 12.90
Target(s): 14.95, 15.95
Current Option Gain/Loss: + 7.7%
Time Frame: 8 to 10 weeks
New Positions: Yes, but see below

12/14 update: A bounce in the U.S. dollar helped prompt some profit taking in commodity-related names. AA may have just formed a short-term double top (bearish) pattern. I am still expecting a correction toward $13.60. I would wait for a dip near $13.60 before considering new positions. (If we do see another entry point we might consider buying some 2011 call options).

Current Position: Long AA stock @ 13.18

Entry on November 16 at $13.18
Earnings Date 01/10/11 (unconfirmed)
Average Daily Volume: 26.1 million
Listed on November 6th, 2010

Alaska Air Group - ALK - close: 56.34 change: -0.15

Stop Loss: 54.90
Target(s): 59.75
Current Option Gain/Loss: + 2.6%
Time Frame: 8 to 9 weeks
New Positions: see below

12/14 update: Readers need to be cautious on this trade. The XAL airline index has broken down under its simple 50-dma. If the sector starts to fall it could make things tough for shares of ALK. Cautious traders could just exit early now and keep your cash ready for the next bullish candidate. I am raising our stop loss to $54.90. No new positions at this time.

Current Position: Long ALK stock @ $54.91

- or -

Long the 2011 January $60 calls (symbol: ALK1122A60) entry @ $1.60

Entry on November 22 at $54.91
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 331 thousand
Listed on November 20th, 2010

American Express - AXP - close: 46.20 change: -0.17

Stop Loss: 41.95
Target(s): 47.50, 49.85
Current Option Gain/Loss: unopened
Time Frame: 10 to 12 weeks
New Positions: Yes, see trigger

12/14 update: Financials are starting to see some profit taking after their big gains in December. Let's hope the pull back continues. We want to buy AXP or calls on AXP on a dip to $44.50.

Trigger @ $44.50 Suggested Position: Buy AXP stock at $44.50

- or -

Buy the 2011 April $45 calls (AXP1116D45)

Entry on December xx at $xx.xx
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume: 9.0 million
Listed on December 2nd, 2010

Popular Inc. - BPOP - close: 3.00 change: -0.02

Stop Loss: 2.69
Target(s): 3.40, 3.95
Current Option Gain/Loss: + 0.3%
Time Frame: 12 to 16 weeks
New Positions: Yes, see below

12/14 update: Our new play on BPOP has been triggered. Shares dipped to $3.00 late this afternoon. While I would still consider new positions here near $3.00 there is a good chance we might see a better entry point on a dip near $2.95-2.90. Our first target is $3.40. Our second, much longer-term target is $3.90.

Triggered Today

Current Position: Long BPOP stock @ $3.00

- or -

Long the 2011 April $3.00 calls (BPOP1116D3) Entry @ $0.34

Entry on December 14 at $ 3.00
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume: 11.7 million
Listed on December 11th, 2010

Companhia Brasileira de Distribuicao - CBD - close: 40.81 change: +0.85

Stop Loss: 36.75
Target(s): 44.95, 49.00
Current Option Gain/Loss: + 1.3%
Time Frame: 10 to 12 weeks
New Positions: Yes, see below

12/14 update: The rebound in CBD continues. Shares gained +2.1% and challenged the $41.00 level this afternoon. I don't see any changes from my prior comments. I would still consider new positions in the $40-39 zone.

More conservative traders may want to consider a stop loss closer to $38.00. We have a wide stop because CBD can be so volatile. Bear in mind this is a higher-risk trade.

Current Position: Long CBD stock @ $40.25

Entry on November 23 at $40.25
Earnings Date 03/02/11 (unconfirmed)
Average Daily Volume: 608 thousand
Listed on November 20th, 2010

City National Corp. - CYN - close: 60.00 change: -0.15

Stop Loss: 54.75
Target(s): 60.00, 64.00
Current Option Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see trigger

12/14 update: It looks like the rally in CYN has finally stalled. We want to see a correction in this stock. The plan is to wait for a dip to $57.00. FYI: The Point & Figure chart is bullish with a $77 target.

Trigger @ $57.00

Suggested Position: buy CYN stock @ $57.00

- or -

Buy the 2011 February $60 calls (cyn1119B60)*

*Caution: most of the option spreads on CYN seem a little too wide. I consider the options a more aggressive trade. You may want to keep your position size small.

Entry on December xx at $xx.xx
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 223 thousand
Listed on December 4th, 2010

JB Hunt Transport Services - JBHT - close: 39.82 change: -0.14

Stop Loss: 36.75
Target(s): 40.70, 43.75
Current Option Gain/Loss: unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see trigger

12/14 update: JBHT is slowly starting to pull back. There is no change from my prior comments, which I am reposting here:

The outlook for our economy and GDP growth in 2011 is improving. If the data continues to back up these positive expectations then transports could be in for a long trend higher. Big picture the transports already look bullish. Short-term the sector looks a little tired and due for a pull back. The action in JBHT actually turned bearish today with a bearish engulfing (reversal) candlestick pattern. Odds are good that JBHT will correct back toward broken resistance and new support at $38.00. A week ago the NASDAQ announced they were removing JBHT from the NASDAQ-100 index and this removal takes place on Dec. 20th. Firms should start selling shares of JBHT to make room for those stocks being added to the index. Nimble traders could try and scalp the decline. I would rather wait to just buy the dip. If triggered we'll start with a stop loss at $36.75.

Trigger to buy the dip at $38.00

Suggested Position: Buy JBHT stock @ 38.00

- or -

Buy the 2011 February $40 calls (JBHT1119B40)

Entry on December xx at $xx.xx
Earnings Date 01/28/11 (unconfirmed)
Average Daily Volume: 1.2 million
Listed on December 13th, 2010

Microsoft Corp. - MSFT - close: 27.62 change: +0.38

Stop Loss: 25.45
Target(s): 27.45, 29.00
Current Gain/Loss: + 8.1%
Time Frame: 8 to 10 weeks
New Positions: see below

12/14 update: Target achieved. MSFT displayed some relative strength and closed with a +1.3% gain and a new five-week high. Our first target to take some money off the table was hit at $27.45. That's a +7.4% move in MSFT and a +83% move in the option. I am still concerned that MSFT is short-term overbought. I'm not suggesting new bullish positions at current levels.
FYI: We may need to adjust our time frame and focus on three or four months for MSFT to pay off. If you're buying calls, keep that in mind.

Current Position: Long MSFT stock @ 25.55

- or -

Buy the 2011 January $25.00 calls (symbol: MSFT1122A25) Entry @ $1.39

12/14/10 Target hit @ 27.45 (+7.4%), option @ $2.55 (+83.4%)
12/11/10 New stop @ 25.45
11/29/10 New stop @ 24.70


Entry on November 17 at $25.55
Earnings Date 01/27/11 (unconfirmed)
Average Daily Volume: 68.4 million
Listed on November 15th, 2010

Peir 1 Imports - PIR - close: 10.41 change: -0.24

Stop Loss: 10.24
Target(s): 11.90
Current Option Gain/Loss: + 1.6%
Time Frame: 10 to 12 weeks
New Positions: No

12/14 update: - Attention - Tomorrow is our last day for this play. I've decided that in an effort to preserve capital we will exit PIR at the closing bell on Wednesday. This way we can avoid holding over earnings on Thursday morning. I am raising our stop loss to $10.24 (breakeven).

Current Position: Long PIR stock @ $10.24

- or

Buy the 2011 March $10.00 calls (PIR1119C10) Entry @ $1.55

Entry on December 2 at $10.24
Earnings Date 12/16/10 (confirmed)
Average Daily Volume: 2.3 million
Listed on December 1st, 2010

Starbucks Corp. - SBUX - close: 32.11 change: +0.12

Stop Loss: 29.90
Target(s): 34.75
Current Option Gain/Loss: unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see trigger

12/14 update: There is no change from my prior comments. We're waiting for a dip toward $31. We have a trigger to launch bullish positions at $31.25. If triggered our first target is $34.75.

FYI: SBUX is currently in a legal battle with Kraft Foods (KFT) over distribution of SBUX's ground coffee brand but investors seem to be ignoring it.

Trigger @ $31.25

Suggested Position: Buy SBUX stock @ $31.25

- or -

Buy the 2011 January $32.00 call (SBUX1122A32)
Buy the 2011 April $33.00 call (SBUX1116D33)

Entry on December xx at $xx.xx
Earnings Date 01/20/11 (unconfirmed)
Average Daily Volume: 7.1 million
Listed on December 8th, 2010

SAKS Inc. - SKS - close: 11.60 change: +0.09

Stop Loss: 10.90
Target(s): 13.95, 14.95
Current Option Gain/Loss: - 3.1%
Time Frame: 10 to 12 weeks
New Positions: No

12/14 update: Thankfully there was no follow through on yesterday's bearish reversal in SKS. That doesn't mean we're out of the woods. I remain cautious here. Readers may want to wait for a close over $10.80 or $11.00 before considering new bullish positions. Cautious traders may want to raise their stop loss (maybe toward $11.30-11.40ish).

Suggested Position: Long SKS stock @ $11.98

- or -

Buy the 2011 February $12.50 calls (SKS1119B12.5) Entry @ $0.65

Entry on December 13 at $11.98
Earnings Date 02/22/11 (unconfirmed)
Average Daily Volume: 3.1 million
Listed on December 11th, 2010

Sara Lee Corp - SLE - close: 16.26 change: +0.37

Stop Loss: 14.70
Target(s): 17.00, 17.90
Current Option Gain/Loss: + 3.7%
Time Frame: 10 to 12 weeks
New Positions: see below

12/14 update: Some positive analyst comments this morning helped SLE outperform the major averages. Shares added +2.3% to close at new relative highs. I am not suggesting new bullish positions at current levels. Broken resistance at $15.50 and $15.00 should be support.
FYI: the Point & Figure chart is suggesting a long-term bullish target of $32 for SLE.

Current Position: Long SLE stock @ $15.68

- or -

Long the 2011 April $15.00 calls (SLE1116D15) Entry @ $1.35

Entry on December 8 at $15.68
Earnings Date 02/03/11 (unconfirmed)
Average Daily Volume: 7.6 million
Listed on December 7th, 2010

Sony Corp. - SNE - close: 35.63 change: -0.25

Stop Loss: 33.45
Target(s): 36.50, 39.00
Current Option Gain/Loss: unopened
Time Frame: 10 to 12 weeks
New Positions: Yes, see trigger

12/14 update: The correction in SNE, while slow, continues lower. We want to open bullish positions on a dip at $34.50.

Trigger @ $34.50

Suggested Position: Buy SNE stock
- or -
Buy the 2011 APRIL $35 calls (SNE1116D35)

Entry on December xx at $xx.xx
Earnings Date 02/03/11 (unconfirmed)
Average Daily Volume: 888 thousand
Listed on November 23rd, 2010

Trimble Navigation - TRMB - close: 40.76 change: -0.90

Stop Loss: 36.40
Target(s): 41.00, 43.00
Current Option Gain/Loss: unopened
Time Frame: 8 to 10 weeks
New Positions: Yes, see trigger

12/14 update: It's about time! We've been waiting for TRMB to pull back. Yesterday's blow-off top looking move and today's bearish engulfing candlestick pattern are definitely suggesting the rally in TRMB has run out of steam - at least short-term. Very nimble traders could try short-term bearish positions to scalp the move lower but that's a high-risk trade. I suggest that the rest of us just wait for the pull back toward support near $38.00. We have a trigger to buy TRMB or calls at $38.50.

Trigger @ $38.50

Suggested Position: Buy TRMB stock @ $38.50

- or -

Buy the 2011 February $40.00 calls (TRMB1119B40) current ask $2.35

Entry on December xx at $xx.xx
Earnings Date 02/02/11 (unconfirmed)
Average Daily Volume: 435 thousand
Listed on December 4th, 2010

Wells Fargo & Co - WFC - close: 29.82 change: -0.40

Stop Loss: 27.90
Target(s): 29.25, 31.90
Current Option Gain/Loss: +10.9%
Time Frame: 10 to 12 weeks
New Positions: see below

12/14 update: Financial stocks are seeing some overdue profit taking after their early December gains. If you're looking for a new entry point I would wait for WFC to pull back and redefine short-term support. That support might be $29.25 or it could be the 200-dma near $28.00. Our final target to exit is $31.90.

Current Position: Long WFC stock @ $26.88

- or -

Long the 2011 January $27.50 call (WFC1122A27.5) Entry @ $1.16

12/09: New stop loss @ $27.90
12/08: Target Hit $29.25 (+8.8%), Option @ $2.30 (+98.2%)

Entry on November 30 at $26.88
Earnings Date 01/19/11 (unconfirmed)
Average Daily Volume: 32.7 million
Listed on November 29th, 2010

World Wrestling Entertainment - WWE - close: 14.45 change: +0.17

Stop Loss: 13.75
Target(s): 14.95, 16.40
Current Option Gain/Loss: + 2.4%
Time Frame: 10 to 12 weeks
New Positions: see below

12/14 update: Shares of WWE are showing a little relative strength on Tuesday. The stock added +1.1% with decent volume. I would still consider new positions here. However, the market looks like it might dip tomorrow. You may see another entry point in the $14.20-14.00 zone if you're patient.

Suggested Position: Long WWE stock @ $14.10

- or -

Buy the 2011 April $15.00 calls (WWE1116D15), entry @ $0.45

*Note: The call options on WWE have very large spreads, making them a higher-risk trade.

Entry on December 13 at $14.10
Earnings Date 02/10/11 (unconfirmed)
Average Daily Volume: 242 thousand
Listed on December 9th, 2010