Option Investor

Daily Newsletter, Tuesday, 11/22/2011

Table of Contents

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

Market Wrap

Can We Just Skip Wednesday?

by Jim Brown

Click here to email Jim Brown
Can we just skip trading on Wednesday and Friday and go straight to Monday?

Market Statistics

The market needs a holiday, a long holiday. It would be great if we could just skip to Monday or maybe even Tuesday. The daily news headlines continue to rule and there are so many headlines they are leaving traders confused. Events in Europe are changing so quickly that we don't know from day to day who is going to bail out whom and with what money. There are threats of ratings downgrades on nearly everyone including the U.S. and France and now new stress tests on U.S. banks with Armageddon like conditions.

The minutes of the last FOMC meeting showed that some members wanted to add more quantitative easing because of fears of a spillover of the European debt crisis. However, they could not ease again because there were fears headline inflation was rising too quickly and it would upset their new communication protocol to the markets.

We found out today the Fed now wants to test the six largest U.S. banks with a dramatic scenario suggesting they could be worried about a further deterioration of Europe. They said they would test banks along the same guidelines and rate movements as we saw in the last half of 2008 BUT they would use a rise in unemployment to 13% from the current 9% and a drop in GDP of -8% in ONE quarter. If those conditions occurred it would be a recession worse than we saw in 2008. This heightened test would apply to the top six banks and would be part of a new stress test with lower requirements for the top 19 firms with at least $50 billion in assets. The Fed is also adding another 12 banks and financial companies to the list with a lower threshold of testing requirements.

The banks must submit their capital plans to the Fed by January 9th. The Fed will respond to the banks by March 15th. The capital plans would cover dividend plans, capital raises, proposed spending, etc. Banks are supposed to be progressing towards the increased capital requirements of the Basel accords. The Fed has indicated it will take a tough stance on any bank that is not making sufficient progress on upping their capital to meet those accords. The Fed has already rejected plans by Bank of America to increase its dividend.

I believe this will degrade the economy even more. Telling banks they need to plan for 13% unemployment and a severe recession to -8% GDP means they are going to hoard capital even more vigorously than they are today. If you think loans are hard to get today just wait until next quarter.

The six banks undergoing the heightened stress test are BAC, C, GS, JPM, MS and WFC. Some analysts believe this is a market positive because the scenario is so tough, much tougher than Europe, that any bank with a passing grade would be seen as nearly indestructible. None of the banks above are expected to fail although Bank America would probably need to hold off on raising its dividend until it had accumulated some more capital.

There is a bright side to the European debt crisis. With the banks in Europe imploding with a constant cash drain and suspicions on which will fail and which will be nationalized the banks in America should be picking up a lot of really good business relationships. Foreign companies no longer comfortable with leaving large sums of money in European banks or worried their bank won't be then when a need arises, should be creating new banking relationships with American banks.

The FOMC minutes showed the Fed remained worried about economic growth even though the recent indicators had improved slightly. They expect only mild economic growth in 2012 and into 2013. Based on their outlook the odds are increasing they will announce some additional monetary stimulus at the December meeting or at least by the next meeting. The expected increase in stimulus will be purchases of mortgage backed securities in order to keep housing rates low.

Did you really expect the Joint Super Committee to succeed? The lack of a plan has been blamed for the market decline this week but did you really expect them to succeed? This is an election year and no republican is going to risk losing votes because he agreed with a tax increase and no democrat is going to agree to cut spending on social programs. Really, how hard would it have been to come up with $120 billion a year in spending cuts when the budget is nearly $4 trillion dollars a year? That is 4,000 billion. That would be a 3% annual budget cut. If you completely ignore entitlements that would rise to 6%.

Since these are not really actual cuts but can be reductions in future spending increases that makes it even easier. That can be in the form of a reduction in spending or in increased taxes from any source. Cut a few deductions, drop a few research programs like the one last year on why Chinese hookers drink and it just would not have been that hard to trim a few bucks. Even if they could not have come up with the entire $1.2 trillion over ten years they could have found a few billion here and there to offset the required cuts by sequestration. This was just another case of political theater and everyone should have realized that long before the final announcement.

There was some bad economic news today. The GDP for Q3 was cut from +2.5% to +2.0%. The pressure came from a revision to inventories, business investment and consumer spending. The biggest revision came from the inventories. Inventory levels dropped faster than expected due to higher consumer demand. The upside to that is the need to rebuild inventory levels and that will push Q4 GDP higher. Overall the revision to the headline number will be a nonevent because it was primarily from inventory decline and not from slower consumer spending. This bodes well for Q4.

GDP Chart

The Richmond Fed Manufacturing Survey rose to zero in November from -6.0 in the prior month. This is the first time since June that manufacturing did not decline. All the internal components improved but conditions are not yet booming. New orders rose from -5.0 to -2.0 and backorders rose to -10.0 from -15.0. Employment rose to zero from -7.0. None of the items were particularly exciting but at least they are moving in the right direction.

Richmond Fed Chart

The Mass Layoffs for October fell to 1,353 events from 1,495. Employees affected declined to 118,689 from 153,229. A mass layoff event is defined as a single employer laying off 50 or more workers. Manufacturing accounted for 25% of the events 29% of the initial claims. Transportation and food manufacturing were the largest hit subsections in the manufacturing layoffs. This was the second monthly decline in layoffs after a spike in August to 1,587 events and 165,547 workers.

Because of the holiday shortened week, Wednesday is filled with numerous economic reports. The most important will be the Kansas Fed Manufacturing Survey. Kansas is impacted by auto production so the report should show a gain from the +8.0 in October.

Economic Calendar

It was a relatively quiet day for stock news. Volume at 6.9 billion shares was on the high side of mediocre but it was 2:1 negative. That was much better than the 6:1 negative on Monday but still negative. Hewlett Packard (HPQ) started the day off in the cellar after providing cautious guidance with their earnings on Monday. HPQ beat the street with earnings of $1.17 compared to estimates of $1.13 but the guidance was weak. HPQ said 2012 earnings would be "at least $4" when consensus estimates were $4.56. Shares declined to support at the 50-day at $25.32 at the open for a -4% loss but rallied to close at the high of the day with only a 21-cent loss.

Hewlett Packard Chart

Netflix (NFLX) has lost its mojo and its credibility. The company warned it expected a loss in 2012 and analysts immediately cut estimates and price targets. Originally the company had said it would only lose money in the first quarter. Netflix said it had lost a significant number of customers who objected to the split of the DVD and streaming businesses.

Netflix said, "If we do not reverse the negative consumer sentiment toward our brand, and if we continue to experience significant customer cancellations and a decline in subscriber additions, our results of operations including our cash flow will be adversely impacted."

The company warning came in a SEC filing on Monday, which said it had raised $400 million in new capital by selling convertible bonds to long time backer Technology Crossover Ventures and T.Rowe Price funds. Analysts were hostile the company did not provide that guidance in the Oct-24th quarterly conference call but chose instead to bury it in the SEC filing. Investor relations called the decision to add guidance to the SEC filing as a "clarification" to its prior comments.

Everybody I have asked has cancelled their Netflix subscriptions but not because of the split of DVD and streaming. Most are frustrated about the limited titles available for streaming. This is a download world and the number of companies streaming content seems to grow daily. This could be a terminal problem for Netflix because of their monster debt load. If they don't halt the bleeding soon there could be a serious financial problem ahead.

Netflix Chart

The trustee for MF Global said today they found $1.3 billion at the Bank of Montreal's Harris Bank unit. However, this is not the $1.2 billion missing from customer accounts. The $1.3 billion consisted of cash, foreign currencies and securities. It will be combined with the $3.7 billion of other assets already under control of the trustee. That will eventually be distributed to customers.

It does not look good for those customers of MF Global. Several people with inside knowledge claim the losses could go a lot higher to as much as $2.5 billion. This is a major problem for customers who were at least expecting to get 60% of their funds returned. Others claim the $5 billion in assets is very close to the $5.45 billion estimate for all IMF Global segregated funds. That would return about 90% to all 38,000 customers.

CEO Corzine and COO Bradley Abelow have been called to testify before the House Financial Services committee. That should be an interesting show with Corzine a past governor and head of Goldman Sachs. Each of the committee will definitely be looking to extract a pound of flesh.

Merck (MRK) announced it had agreed to pay $950 million to settle charges over Vioxx. The company withdrew Vioxx from the market in 2004 after being linked to heart attack risk. The FDA said Merck was wrong for recommending the drug for arthritis before it had been approved for that condition by the FDA. The total payment will be a $321.6 million criminal fine and 628.4 million in a civil settlement. MRK shares were unfazed by the news.

Merck Chart

Autonation (AN) rallied after Goldman Sachs upgraded to neutral from sell. Shares rose +3.5% on the upgrade and news they were going to get another $1.5 billion in a new credit line. Their chart looks like an EKG over the last five months.

Autonation Chart

I think the S&P is beyond EKG recognition. It is time to breakout the paddles for an electric shock to restart the dying index. About the only thing I can say positive is that Monday's lows held. Unfortunately those lows were right at last ditch support at 1185.

This is an ugly pattern and just looking at the chart and ignoring the macro fundamentals it looks like a definite short. The major problem weighing on the markets is of course Europe. As each day passes it appears more likely that Europe is going to get worse before it gets better.

The IMF announced today a Precautionary Liquidity Line of credit (PLL) for Europe. The IMF has about $400 billion in unspent cash in its coffers and it reached out to Europe with that cash today. The nations suffering from the debt problems of others, called innocent nations, could borrow the cash from the IMF without all the normal red tape and guarantees normally associated with IMF loans. Governments with good fiscal policies are eligible to borrow up to 10 times their standard quota. Their quota is the amount of money they commit to loan the IMF. For instance in normal times if France had an IMF quota of $5 billion to commit to helping other countries then they could borrow today up to $50 billion from the IMF.

The amount of cash available from the IMF is still not enough to really fix anything in Europe but it is still another deep pocket from which cash can be paid. Most believe that it will take the equivalent of 2-3 trillion euros, some feel as much as 6 trillion, to solve the debt crisis.

News broke this week that the ECB has imposed a weekly 20 billion euro limit on buying bonds to support rates on countries like Italy and Spain. Reportedly that is the newly reduced limit but nobody knows what the old limit was. The ECB lowered the limit end it became concerned the bond buying was having no lasting impact on bond yields of the target countries.

The problem with the market is that every program and governmental change in Europe has failed to be enough to halt the slide into even deeper trouble. The size of the troubled countries has risen to the point where the ECB/IMF can no longer bail them out and it is starting to impact bond yields in countries not previously impacted, like France.

Analysts have warned for some time that some countries may be forced to leave the eurozone and they were referring to Greece and Portugal at the time. Nobody ever really considered Italy or Spain would be at risk.

The European debt crisis is going to continue to weigh on our markets for months to come and it would take a monster improvement in U.S. economics to keep our market from deteriorating. It will be hard for our economy to continue growing because numerous European countries are falling back into recession as a result of the growing austerity movement.

Our markets have moved from operating on U.S. fundamentals to moving on sagging European fundamentals. We may no longer be in control of our own fate.

However, there is still hope. Even though Merkel claims they have no bazooka to use against the rising problems, they may have to find one and find it soon in order to keep the situation from getting significantly worse. In the end they may not want to cough up the trillions in euros it will take to isolate the fiscally irresponsible nations but they may not have any choice. You may not want to jump out of a third story window to escape a house fire but when the flames get hot enough you will jump. When their flames get hot enough they will come up with the bazooka and I suspect it will be soon.

Meanwhile the S&P is poised on the precipice at 1185. A break here could retest 1100 or somewhere in that range while we wait for the eventual headline that either solves the problem or pours gasoline on the flames.

The 1185 level is critical and a break here will be ugly.

S&P Chart

The Dow has initial support at 11,500 but that broke at the close. The next support level is 11,400 but a break there targets 10,600 and it could be a really fast drop. The Dow was hurt today by the declines in UTX, CAT and BA. That is not a good sign with the strong blue chip manufacturers are falling.

A break of 11,400 could lead to a retest of 10,600 and that could come very quickly.

Dow Chart

A strong rebound in Apple of +7.50 today could not rescue the Nasdaq from a loss but at least the loss was only fractional. The Nasdaq has found round number support at 2500 but I fear that is only temporary. The disk drive problem and the warnings by multiple computer makers have put the tech sector on a downward trajectory.

On a break of support at 2500 the next target is 2350 and it could come very quickly.

Nasdaq Chart

Thanksgiving week is not shaping up as a bullish week. The major averages are suffering from investor flight because nobody understands the problems in Europe or how they will be solved. Investors would rather close positions and go shopping than try to find something to buy in this environment.

The normally bullish Thanksgiving week is shaping up to be a loser in 2011 but there are still a lot of trading days left in 2011. We have to take them a week at a time and play the hand we are dealt. The U.S. economy is improving and it will take time but there are better days ahead. Be patient and we will be rewarded.

Black Friday Special

It seems like every year the retailers move their special hours and deals closer to the beginning of Thanksgiving week. Numerous retailers are now opening Thanksgiving evening for Black Friday and some online retailers are having a Black Friday week with specials starting this weekend.

We don't want to be left out while everyone else is having all the fun. We normally start the End of Year Subscription Special on Black Friday. This year we are jumping ahead and starting it this weekend.

Not to let Target, Wal-Mart or Toys-R-Us beat us to the punch with their "Early Bird Specials" we have adopted one of our own.

Sign up for the End of Year Special before midnight Sunday and we will give you a genuine U.S. Silver Dollar as an additional bonus. At today's silver price this dollar is worth about $27 in silver value alone.

Genuine U.S. 90% Silver Dollar

Of course there are some other bonus items as well but this is real money that goes up in value every year. No deflation here!

Click this image to see the full End of Year Special!

Jim Brown

Send Jim an email

New Plays

Online Retail

by James Brown

Click here to email James Brown


Blue Nile Inc. - NILE - close: 34.09 change: +0.02

Stop Loss: 31.70
Target(s): 39.75
Current Gain/Loss: unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
I am sure you noticed the big gap down in NILE's chart. The stock fell from $49 to $33 in one day following its earnings report. The company missed estimates by four cents and guided lower. That's not what you want to hear going into the holiday shopping season. Yet after the big sell-off NILE hasn't seen any follow through lower. The stock has been consolidating sideways. Is all the bad news priced in?

I suspect that if NILE can breakout from this trading range it could see a sharp, oversold bounce higher. I am suggesting we open small bullish positions with a trigger at $34.60. If triggered we'll use a stop loss at $31.70. Readers should consider this an aggressive, higher-risk trade. If triggered our target is $39.75. More conservative traders may want to exit at the 50 or 100-dma instead.

Trigger @ $34.60 (small positions)

Suggested Position: buy NILE stock @ 34.60

- or -

buy the 2012Jan $35 call (NILE1221A35) current ask $2.80

Annotated chart:

Entry on November xx at $ xx.xx
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 491 thousand
Listed on November 22, 2011

In Play Updates and Reviews

Ryder Underperforms

by James Brown

Click here to email James Brown

Editor's Note:
Shares of Ryder System, Inc. (R) underperformed the market today. Our new trade on the stock was stopped out. Meanwhile our plays on AN and HITK are open.


Current Portfolio:

BULLISH Play Updates

AutoNation Inc. - AN - close: 34.83 change: +1.17

Stop Loss: 32.45
Target(s): 39.50
Current Gain/Loss: + 1.1%
Time Frame: 6 to 8 weeks
New Positions: see below

11/22 update: Our new trade on AN is now open. Shares gapped higher at $34.11 and rallied to $35.05 intraday. AN settled with a +3.4% gain. The big move was fueled by news that Goldman Sachs had upgraded the stock from a "sell" to a "neutral". The breakout past $34.00 is bullish. The stock hit our trigger to open positions at $34.45. I would still consider new positions now or nimble traders could try and buy a dip near $34.00 instead.

Earlier Comments:
Our multi-week target is $39.50. More conservative traders may want to exit in the $37.75 region instead.

current Position: Long AN stock @ $34.45

- or -

Long Jan $35 call (AN1221A35) Entry $1.95

Entry on November 22 at $34.45
Earnings Date 02/02/12 (unconfirmed)
Average Daily Volume = 1.3 million
Listed on November 21, 2011

Beazer Homes - BZH - close: 1.95 change: -0.04

Stop Loss: 1.88
Target(s): 3.25
Current Gain/Loss: -10.9%
Time Frame: 6 to 8 weeks
New Positions: see below

11/22 update: It's not looking good for our BZH trade. Shares lost another -2% today. If the stock market turns lower again tomorrow we could see BZH hit our stop. Speaking of our stop loss I am suggesting we make a minor tweak and move it from $1.90 to $1.88.

At this point, given the sour tone on Wall Street, I would wait for BZH to rally past $2.10 before initiating new positions.

current Position: Long BZH stock @ $2.19

- or -

Long 2012 Jan $3.00 call (BZH1221A3) Entry $0.15

11/22 adjust stop loss to $1.88
11/12 new stop loss @ 1.90. More conservative traders may want to exit prior to the earnings report to lock in a gain.

Entry on October 31 at $2.19
Earnings Date 11/15/11 (confirmed)
Average Daily Volume = 2.4 million
Listed on October 29, 2011

Casey's General Stores - CASY - close: 50.35 change: -0.48

Stop Loss: 49.40
Target(s): 54.50
Current Gain/Loss: - 1.6%
Time Frame: up to its earnings report.
New Positions: see below

11/22 update: Hmm... CASY intraday rally failed at its 10-dma and the stock underperformed the major indices with a -0.9% decline. That doesn't bode well. The stock is still trading above $50.00 but I am not suggesting new positions at this time. More conservative traders might want to inch up their stop loss closer to the $49.85 level.

Keep in mind that CASY is due to report earnings in the next two or three weeks and we will exit ahead of the announcement.

Earlier Comments:
FYI: The Point & Figure chart for CASY is bullish with a $70.00 target.

Current Position: Long CASY stock @ $51.19

- or -

Long DEC $50 call (CASY1117L50) Entry $2.90

11/15 new stop loss @ 49.40
11/12 new stop loss @ 48.75
11/08 new stop loss @ 47.95
11/08 trade opened.

Entry on November 08 at $51.19
Earnings Date 12/06/11 (unconfirmed)
Average Daily Volume = 250 thousand
Listed on November 5, 2011

Carlisle Companies - CSL - close: 42.06 change: +0.20

Stop Loss: 39.85
Target(s): 49.50
Current Gain/Loss: + 0.7%
Time Frame: 6 to 8 weeks
New Positions: see below

11/22 update: Today looked a lot like yesterday with CSL churning sideways in a narrow range on light volume. The stock did manage to outperform the S&P 500 with a +0.4% gain.

More conservative traders may want to wait for a rally past $43.00 before considering new positions.

Earlier Comments:
We want to keep our position size small to limit our risk on this aggressive entry point.

(small positions)

current Position: Long CSL stock @ $41.75

11/21 trade opened at $41.75
11/19 moved our trigger down to $41.75
11/17 adjusted entry point to trigger @ 42.25, stop loss to $39.85
11/16 adjusted entry point strategy to use a trigger at $45.05

Entry on November 21 at $41.75
Earnings Date 02/07/12 (unconfirmed)
Average Daily Volume = 327 thousand
Listed on November 14, 2011

Hi Tech Pharmacal Co. - HITK - close: 39.23 change: +1.51

Stop Loss: 35.80
Target(s): 44.00
Current Gain/Loss: + 3.6%
Time Frame: 2 to 3 weeks
New Positions: see below

11/22 update: Our new trade on HITK is now open. The stock gapped higher at $37.84 and rallied to $39.60 intraday before settling with a +4.0% gain. I didn't see any specific news behind the rally but I warned readers that HITK could see a short squeeze, which is what the morning rally looked like. If you missed the entry this morning then I would wait for a dip near $38.00 as a new entry point.

Earlier Comments:
The stock could see a short squeeze. The most recent data listed short interest at 14% of the very small 9.9 million-share float. The $40.00 level might be resistance but if HITK does see a short squeeze I am expecting a much bigger move. FYI: The Point & Figure chart for HITK is bullish with a $58.00 target. NOTE: We do not want to hold over the December earnings report so we only have two or three weeks.

current Position: Long HITK stock @ $37.84

- or -

Long DEC $40 call (HITK1117L40) Entry $1.65

Entry on November 22 at $37.84
Earnings Date 12/08/11 (unconfirmed)
Average Daily Volume = 180 thousand
Listed on November 21, 2011

KB Home - KBH - close: 7.08 change: +0.10

Stop Loss: 6.70
Target(s): 9.50
Current Gain/Loss: -6.2%
Time Frame: 6 to 8 weeks
New Positions: see below

11/22 update: The relative strength in KBH today was encouraging. Furthermore the stock rebounded off its 50-dma. It almost looks like a mini double bottom near the $6.73 mark. I remain cautious on launching new positions. I'd rather see KBH trade past $7.25 before considering new bullish positions.

Earlier Comments:
The most recent data listed short interest at more than 50% of the relatively small 65.4 million-share float. That's definitely enough fuel for a significant short squeeze.

KBH can be a volatile stock so we need to use a wide stop loss. This raises the risk profile on this trade. We will aim for $9.50 but the exponential 200-dma might be overhead resistance (currently at 9.10).

current Position: Long KBH stock @ 7.55

- or -

Long Jan $7.50 call (KBH1221A7.5) Entry $0.91

11/11 trade opened at $7.55

Entry on November 11 at $ 7.55
Earnings Date 01/09/12 (unconfirmed)
Average Daily Volume = 5.8 million
Listed on November 10, 2011

Kodiak Oil & Gas - KOG - close: 7.99 change: -0.02

Stop Loss: 7.20
Target(s): 9.75
Current Gain/Loss: + 6.3%
Time Frame: two to three months
New Positions: see below

11/22 update: Today was a nonevent for KOG. Shares spent the session drifting sideways near the $8.00 level. I am not suggesting new positions at this time. More conservative traders might want to consider raising their stops closer to the $7.40 level.

Earlier Comments:
Our multi-month target is $9.75. FYI: The Point & Figure chart for KOG is bullish with a $13.75 target. KOG is a potential takeover target.

current Position: Long the stock @ 7.51

- or -

Long 2012 MAR $7.50 call (KOG1217C7.5) Entry $1.25

11/15 gap down at 7.41 and hit 7.21 before bouncing.
11/14 new stop loss @ 7.20
11/14 KOG announces plans to sell an additional 37.5 million shares of new stock
11/08 trade opened at $7.51.

Entry on November 08 at $ 7.51
Earnings Date 03/05/12 (unconfirmed)
Average Daily Volume = 6.6 million
Listed on November 5, 2011

Newfield Exploration Co. - NFX - close: 39.99 change: -0.79

Stop Loss: 39.70
Target(s): 43.90
Current Gain/Loss: - 0.6%
Time Frame: 3 to 6 weeks
New Positions: see below

11/22 update: Uh-oh! The action in NFX today is bearish. Shares lost -1.9%, underperforming the major indices and the oil sector. Plus the close under $40.00 is bearish. We have a stop loss at $39.70, which could easily be hit tomorrow if the market declines again. Aggressive traders might want to consider new bearish positions if NFX trades under $39.50 and target a drop toward the $37-35 zone.

Earlier Comments:
I am suggesting we keep our position size small to limit our risk.

(small positions)

current Position: Long NFX stock @ $40.25

- or -

Long DEC $40 call (NFX1117L40) Entry $2.50

11/18 trade opened at $40.25
11/17 adjusted our entry strategy to buy-the-dip at $40.25, stop loss 39.70
11/16 adjusted entry strategy to use a trigger at $44.25, stop @ 41.95

Entry on November 18 at $40.25
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 4.1 million
Listed on November 12, 2011

Stamps.com - STMP - close: 27.03 change: +0.87

Stop Loss: 24.75
Target(s): 32.50
Current Gain/Loss: unopened
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

11/22 update: STMP outperformed the market today with a +3.3% gain. Unfortunately our trade wasn't triggered. Shares of STMP opened one cent lower and then rallied sharply to hit $27.88 before paring its gains.

I remain bullish on STMP and suggest we try again. Open bullish positions tomorrow morning but only if both STMP and the S&P 500 index open positive (if the S&P500 opens flat then we'll go off of STMP's open alone).

*See Entry Details Above*

Suggested Position: buy STMP stock @ the open

- or -

buy the Feb $30 call (STMP1218C30)

11/22 trade did not open. STMP opened lower by one cent.
11/21 trade not open. try again. Move stop loss to $24.75

Entry on November xx at $ xx.xx
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 646 thousand
Listed on November 19, 2011

BEARISH Play Updates

AFLAC Inc. - AFL - close: 41.01 change: -0.06

Stop Loss: 44.05
Target(s): 37.50
Current Gain/Loss: + 2.6%
Time Frame: 6 to 8 weeks
New Positions: see below

11/22 update: Hmm... once again I am urging caution here. AFL was downgraded this morning. This caused the spike lower to $39.67. Yet AFL managed a sharp recovery and closed almost unchanged on the session. This bounce back from under support near $40.00, its 50-dma and its 100-dma is potentially bullish.

I am not suggesting new positions at this time.

Earlier Comments:
The plan was to keep our position size small to limit risk.

(Small Positions)

current Position: Short AFL stock @ 42.12

- or -

Long DEC $40 PUT (AFL1117x40) Entry $1.52

11/21 new stop loss @ 44.05

Entry on November 18 at $42.12
Earnings Date 02/01/12 (unconfirmed)
Average Daily Volume = 4.3 million
Listed on November 17, 2011

Forest Labs Inc. - FRX - close: 29.23 change: +0.22

Stop Loss: 30.55
Target(s): 25.25
Current Gain/Loss: - 0.9%
Time Frame: 9 to 12 weeks
New Positions: see below

11/22 update: FRX recovered most of yesterday's decline with a +0.75% gain. It is worth noting that the rally today struggled with resistance near $29.50. Yesterday I suggested readers look for an oversold bounce into the $29.00-30.00 zone as a new entry point and we got it today.

Earlier Comments:
Our multi-week target is $25.25. FRX doesn't move very fast so we have to give it some time. FYI: The Point & Figure chart for FRX is bearish with a $19 target.

NOTE: You may want to trade the options instead of the stock to limit risk. FRX has about 6 or 7 days worth of short interest (approximately 9% of the float). Looking at the chart you can see the super sharp bounces caused by short covering.

current Position: short FRX stock @ 28.95

- or -

Long FEB $30 put (FRX1218N30) Entry $2.25

Entry on November 21 at $28.95
Earnings Date 01/17/12 (unconfirmed)
Average Daily Volume = 2.5 million
Listed on November 19, 2011


Ryder System, Inc. - R - close: 49.15 change: -0.96

Stop Loss: 48.99
Target(s): 54.75
Current Gain/Loss: - 2.2%
Time Frame: 6 to 9 weeks
New Positions: see below

11/22 update: Our new trade on R did not pan out. Shares displayed relative weakness with a -1.9% decline. The intraday bounce failed near the $50 level and shares hit our stop loss at $48.99 intraday. The wide spreads on R's call hurt us.

closed Position: Long R stock @ $50.13, exit $48.99 (- 2.2%)

- or -

2012 Feb. $55 call (R1202B55) Entry $2.45, exit $1.50*(-38.7%)

11/22 stopped out at $48.99
*option did not trade today. this is an estimate
11/21 trade opened on R's gap open lower at $50.13
11/17 adjusted our entry point strategy to buy the dip at $50.25 with a stop loss at $48.99
11/16 adjusted entry strategy to use a trigger at $54.05 and a stop at $51.40


Entry on November 21 at $50.13
Earnings Date 02/02/12 (unconfirmed)
Average Daily Volume = 727 thousand
Listed on November 15, 2011