Option Investor

Daily Newsletter, Tuesday, 11/29/2011

Table of Contents

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

Market Wrap

Mixed Gains But Resistance Held

by Jim Brown

Click here to email Jim Brown
The two day rally ended with a mixed close with the Nasdaq negative and the Dow and S&P right below resistance.

Market Statistics

The markets continued to move on European headlines but U.S. news events increased in frequency and stocks were back as a topic once again. The two big news items from Europe was more chatter over a financial stability pact under discussion by the stronger euro zone countries and the high interest rates on the Italian debt sale.

The EU finance ministers are meeting in Brussels and there are rumors France and Germany will announce a new financial union among eight of the strongest countries. In theory they would band together to help support the weaker nations while their financial stability pact would prevent their own debt yields from getting out of control. This is seen as a positive step but until something is actually announced it is just more talk. That has been the only real result from the last 15 meetings of the finance ministers.

They did agree to release the next tranche of eight billion euros to Greece to avoid a default by Dec 15th. They also talked again about scaling up the EFSF with some sort of leverage only now they are talking about only 2-3 times the remaining 250 billion euros instead of the 4-5 times initially suggested. They are having trouble coming up with a way to leverage it up since no investors want to invest in a vehicle that will loan money to Greece, Italy and Spain.

The next week will be a steady procession of meetings in Europe and while there may be progress in handling the problems nothing earth shaking is likely to be enacted. Most analysts already believe Europe has fallen into a recession that could last for some time and not just in the troubled countries. Most euro countries, even the ones not in the spotlight, are carrying excessive debt loads because of their socialist policies. It will take the better part of the decade for these countries to pay down their debt and it could be the end of the welfare state mentality in Europe. For those countries not in the spotlight they are also slashing spending and trying to reduce budgets so they don't end up like Italy or Spain. Bill Gross called the euro zone a big dysfunctional family with too many relatives depending on the others for support. Eventually the rich uncles, including Germany and France, will cut support for those who are not cutting spending fast enough.

Italy succeeded in selling 7.5 billion euros of debt on Tuesday with the 2014 notes yielding 7.89% and a record yield. It was a monster premium but Italy was able to sell the entire package of debt. There were willing buyers at those yields. New Prime Minister Mario Monti is planning on announcing the new measures to cut the debt before the EU summit next week.

The Italian bond auction may have succeeded but the ECB failed to fully sterilize its last batch of bond buys. When the ECB buys bonds in the market to suppress bond yields of troubled countries it sterilizes those purchases by drawing back a similar amount from European banks in the form of interest paying deposits. It was only able to claw back 194 billion euros of a 203.5 billion purchase of bonds. Even worse, a total of 192 banks took advantage of the new liquidity program and took a combined 265.5 billion euros in seven day loans from the ECB. That was more than the 247 billion from 178 banks in last week's funding and a new record high since the 2008 recession. They will also offer three month loans on Wednesday and Reuters expects banks to draw down another 50 billion.

The bank runs in Europe are becoming a problem. People are withdrawing funds because they are afraid the banks will fail. It has been a stealth run on the banks in prior months but it is accelerating and the ECB and the EU leaders need to do something quick or it could turn into a full scale panic. On Tuesday Moody's said it could downgrade the debt of 87 European banks across 15 countries on fears the governments will not be able to bail them out. A French newspaper reported S&P would likely cut France's AAA rating within days.

For the time being the market is watching the last plan to produce a plan in Europe. This is probably the 15th to 20th time they have announced a new plan was coming and they always seem to fall short or never materialize at all. That means the rally can also fall short at any moment on a European headline. Getting 17 countries in the common currency euro zone to agree on anything is a challenge. However, getting the eight strongest to agree on a plan is entirely possible because they will be doing it to protect themselves from the debt contagion.

In the U.S. the Consumer Confidence for November rocketed higher to 56.0 from 40.9, revised up from 39.8. That is the highest level since July and it confirms the rampant spending we saw over the Thanksgiving weekend. The present conditions component rose to 38.3 from 27.1 and the expectations component spiked to 67.8 from 50.0. This is a monster move in these numbers. It was the largest gain in the headline number since April 2003. The share of people finding jobs hard to get fell dramatically from 46.9% to 42.1% and the lowest level since January 2009. Those expecting their income to decline fell from 19.3% to 13.8%. Those expecting the stock market to rally rose from 19.5% to 24.9%. That is a huge change in confidence on all components.

Consumer Confidence Chart

Case Shiller home prices improved slightly to -3.6% year over year compares to -3.8% in the prior report. This was for the three month period ending on Sept 30th. As a severely lagging report it was ignored.

The corresponding FHFA Purchase-only House Price Index improved sharply from -4.0% to -2.2% and the highest level in over a year. Demand and supply are beginning to stabilize and this suggests prices will rise in 2012.

Moody's FHFA Chart

Wednesday is the really busy report day this week and it is chock full of important reports. The payroll reports, ISM and Beige Book are the ones to watch.

Economic Calendar

In stock news AMR, the parent of American Airlines, filed for bankruptcy. The company is seeking relief from the crushing debt caused by high fuel prices and expensive labor contracts. American's competitors filed for bankruptcy several years ago and got rid of unprofitable routes, gates, gas guzzling planes and expensive labor contracts. The AMR bankruptcy will allow American to do the same thing and compete on a level playing field. The airline said it would continue its normal business although it did cut its flight schedule "modestly" while it reorganizes. The company said most travelers will never know there has been a change and they will honor all tickets, reservations and the frequent flier program will be unaffected. CEO Gerald Arpey, a veteran of 30 years and CEO since 2003 retired and a new CEO was named in the bankruptcy announcement.

American has 78,000 employees and serves 240,000 passengers every day. The company said it had 29.6 billion in debt and $24.7 billion in assets. This will delay the spinoff of its regional airline American Eagle. American also said it wanted to push ahead with its plans to order 460 new planes from Boeing and Airbus and take delivery of 50 planes currently on order. They will save money on fuel and maintenance but the plan must be approved by the bankruptcy court.

AMR Chart

Bank of America (BAC) sank even lower today and closer to the $5 threshold where some funds can't own the stock. BAC, C, GS, JPM, MS and WFC were cut by S&P in what the company said was a change in criteria for rating banks. The new criteria incorporates shift in the industry and the role of government regulations in this new environment. BAC debt was cut to A from A+ and its Countrywide Financial and Merrill Lynch units were cut to A- from A.

This could be a challenge for BAC since there were already worries it may not have enough capital to weather the next stress test with extremely harsh conditions. BAC had already been restricted by the Fed from raising its dividend in order to retain capital. This could also hurt BAC because of trillions of derivatives it has outstanding. A cut in credit rating can force the bank to put up more collateral and with something in the $75 trillion range of derivatives on the books that could be a lot of collateral.

Bank of America Chart

Tiffany (TIF) reported earnings that beat the street but warned that a slowdown in sales in Europe would weigh on Q4 sales. The company said it had seen "recent sales weakness in Europe and the eastern part of the U.S." The CFO said Tiffany is "cognizant of the challenging economic conditions and uncertainties in a number of markets." The company said sales rose +17% in Q3 but that was below the +19% pace of the first three quarters combined. The slowdown was limited to the Americas and Europe but Tiffany gets 60% of its sales from those regions. Tiffany shares declined -9% on the news.

Tiffany Chart

Shares of Transocean Offshore (RIG) hit a 52-week low after it said it was selling 26 million shares in order to finance its acquisition of Aker Drilling. That acquisition was completed in October. Transocean is also in the process of paying a $1 billion dividend in four quarterly payments. Shares declined -9% on the news to a new seven-year low. There are also some worries that Transocean will be hit by new complaints from the government after Michael Bromwich, director of the Bureau of Safety and Environmental Enforcement said BP and two other companies would be served soon. Halliburton is the third most likely company in that group.

Transocean Chart

Oil prices edged over $100 intraday on new problems in Iran. The British embassy in Iran was stormed and taken over by protestors with cars burned and file cabinets of documents tossed out windows. The embassy was cleared by police about three hours later but the damage was done. There is going to be a vote later this week by European countries to halt imports of Iranian oil over the nuclear problem and that is what sparked the uprising.

Crude Oil Chart

Gold prices rose slightly to $1723 and eased back over the 100-day average as the dollar declined compared to the rising euro. If they ever did get a real plan implemented in Europe the dollar would decline and gold prices would rise. Today gold is neutral. It is not being considered a daily safe haven but more of a catastrophe haven. If Europe imploded it will probably rise along with the dollar just because the world financial system would be in shock. I don't see gold going below the current uptrend but I don't see a breakout in the next several weeks unless conditions in Europe decline significantly.

Gold Chart

The markets saw a huge short squeeze on Monday as a result of the plan to make a new plan in Europe. The concept they are proposing now has a chance of passing but what happens after that is unknown. Nobody knows how the mechanics of the new stability pact would really work when it came to funding the weaker countries. Time will tell "IF" they can get it passed. The main meetings of the EU finance ministers and the EU leaders are not until next week. That leaves a lot of dead time for the headlines to knock us around while we wait.

During that week we will have a dozen high profile economic events including the Nonfarm Payroll numbers and the FOMC meeting is only four days after the EU leaders meet. There is a very steep wall of worry with quite a few crisis points over the next two weeks.

The market looks like it wants to move higher on improving economics and confidence in the U.S. but this week's reports could make or break that premise. Resistance at 1200 is strong and although we penetrated it many times in Aug-Sept it held the market back for 60 days. We are at that level again and the market does have a memory.

However, if we were successful in moving over 1200 that would trigger some additional short covering. If the economics were positive and Europe has not hit quicksand in its discussions we could go higher.

I am not convinced and I think there is a better chance they try to patch the problem in Europe rather than overwhelm it. They have a history of failing to take the giant step to fix it. Until they decide to go "all in" whatever the cost there will always be risk and I think the market is anticipating that risk.

If we do move higher from here I would remain cautious unless there is a dominate headline from Europe that promises a better result.

Support from here is 1185 followed by 1160. More than 75% of the S&P components are oversold on their daily charts and this two day rally is the result of an oversold bounce on wishful headlines. Two days does not make a rally but every rally starts with a two day bounce.

S&P Chart

The Dow used 11,600 as strong support in early November and now that level is strong resistance. That is also the 100-day average and it should be a serious challenge as the market tries to digest the endless stream of headlines.

The rebound is shaky at best with the Dow giving up a triple digit intraday gain to end up only +32 points. The Dow was handicapped by techs and financials and the financial sector is not likely to improve soon.

Support is 11,450.

Dow Chart

The Nasdaq was the weakest link with an early gain evaporating and the index closing near the lows of the day. The biggest decliners were PCLN -10.50, GOOG -7, AMZN -6, CME -5, WYNN -5 and AAPL -4.

Tech stocks were not impressed with Intel's claims they were seeing no impact to PC demand from the Thailand floods. It would appear investors were not buying the claim.

The 2500 level appears to be the battleground for tech stocks and a dip below that level would likely see selling accelerate. Support is 2450.

Nasdaq Chart

Wednesday is month end but I don't expect any material market change from that calendar change. If anything there might have been some buying on Monday in order to settle in November.

December is normally a bullish month with the index up an average of 2% over the last 25 years. The S&P has risen 80% of the time. However, this is far from a "normal" December given Europe's accelerating slide into the abyss. Until Europe finds a plan that works and that could take month to know for sure, we may not see a normal market.

The downgrade of the financial sector by S&P and the warning of a downgrade of 87 banks in 15 countries by Moody's is not going to be a positive factor for the market for the rest of the week. The market can rally without the financial sector but it is a rare occasion when that happens.

I am neutral for the rest of the week and continue to believe we will be headline driven rather than movement based on techncials.

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Jim Brown

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New Plays

Will Copper Breakout or Breakdown?

by James Brown

Click here to email James Brown


Ipath Copper ETN - JJC - close: 43.77 change: +0.65

Stop Loss: 41.85
Target(s): 48.20
Current Gain/Loss: unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
If you believe the global economy is slowing down then demand for industrial metals is going to wane. Yet if you look at the trend in shares of the JJC then copper looks like it's on the verge of breaking out higher instead. We think JJC could see a short-term rally toward its October highs. Currently this ETN is fighting with resistance near its 50-dma and the $44.00 level.

I am suggesting a trigger to open bullish positions at $44.25. More aggressive traders could lower their trigger while more conservative traders may want to use a trigger over $44.50 instead.

NOTE: The spreads on the options are pretty wide. That puts option traders at a disadvantage.

Trigger @ 44.25

Suggested Position: buy the JJC (ETF) @ $44.25

- or -

buy the JAN $45 call (JJC1221A45) current ask $2.15

Annotated chart:

Entry on November xx at $ xx.xx
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume = 148 thousand
Listed on November 29, 2011

In Play Updates and Reviews

A Couple of New Highs

by James Brown

Click here to email James Brown

Editor's Note:
We had a couple of candidates hit new all-time highs today (HITK & KOG). Overall the market's action was a bit disappointing following yesterday's big bounce.


Current Portfolio:

BULLISH Play Updates

AutoNation Inc. - AN - close: 35.30 change: +0.07

Stop Loss: 32.45
Target(s): 39.50
Current Gain/Loss: + 2.4%
Time Frame: 6 to 8 weeks
New Positions: see below

11/29 update: Trading in AN today was disappointing. The stock attempted to rally but failed at its 50-dma. I am starting to suspect that we'll see AN retest the $34.00 area soon. Readers will want to wait for the dip or a bounce near $34.00 as our next entry point.

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

Activision Blizzard, Inc. - ATVI - close: 12.09 change: -0.05

Stop Loss: 11.59
Target(s): 13.45
Current Gain/Loss: unopened
Time Frame: 4 to 8 weeks
New Positions: Yes, see below

11/29 update: Our trade on ATVI is not open yet. The stock gapped open lower at $12.09 and dipped toward its exponential 200-dma before bouncing back. I don't see any changes from my prior comments.

I am suggesting small bullish positions tomorrow morning but only if both ATVI and the S&P 500 open positive. If the S&P 500 opens flat then we'll base our entry on the move in ATVI alone. I am suggesting a stop loss at $11.59. We will set our target for $13.45.

FYI: More conservative traders may want to wait for a rally past $12.25 as their entry point instead.

*See Entry Details Above*

Suggested Position: buy ATVI stock @ the open tomorrow

- or -

buy the FEB $13 call (ATVI1218B13)

11/29/11 ATVI gapped open lower. Trade not open yet.

Entry on November xx at $ xx.xx
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 14.9 million
Listed on November 28, 2011

Brocade Communications - BRCD - close: 5.24 change: -0.05

Stop Loss: 4.75
Target(s): 6.45
Current Gain/Loss: - 0.1%
Time Frame: 8 to 12 weeks
New Positions: see below

11/29 update: Tuesday proved to be a quiet day for BRCD. The stock churned sideways in the $5.20-5.30 zone for most of the session. I would still consider new positions now if the S&P 500 opens positive tomorrow. Otherwise readers may want to wait for a new dip or bounce from the $5.00 mark.

Earlier Comments:
Keep in mind that the simple 200-dma near $5.40 could still be technical resistance. I expect this trade to take many weeks to play out but we're aiming for $6.75. We'll make adjustments to our exit strategy as needed.

current Position: Long BRCD stock @ $5.25

- or -

Long 2012JAN $5.50 call (BRCD1221A5.5) Entry $0.37

Entry on November 28 at $5.25
Earnings Date 02/16/12 (unconfirmed)
Average Daily Volume = 8.6 million
Listed on November 26, 2011

Hi Tech Pharmacal Co. - HITK - close: 41.72 change: +1.31

Stop Loss: 37.65
Target(s): 44.00
Current Gain/Loss: +10.2%
Time Frame: 2 to 3 weeks
New Positions: see below

11/29 update: HITK continues to outperform. The stock added another +3.2% and closed at new highs again. Shares are starting to look overbought here. More conservative traders may want to exit early now. The stock is up +10% while the Dec. $40 call is up +66%. We are raising our stop loss to $37.65.

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

11/29/11 new stop loss @ 37.65
Readers may want to take profits early right now.
HITK +10.2%, Dec $40 call +66%
11/28/11 new stop loss @ 36.75

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

Kodiak Oil & Gas - KOG - close: 8.54 change: +0.30

Stop Loss: 7.49
Target(s): 9.75
Current Gain/Loss: +13.7%
Time Frame: two to three months
New Positions: see below

11/29 update: Oil and energy stocks were some of the market's best performers on Tuesday. Shares of KOG rallied again and hit new all-time highs at $8.69 intraday. The stock settled with a +3.6% gain. I would not chase it here. More conservative traders might want to consider taking profits early. (KOG +13.7%, Mar $7.50 call +44%)

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

11/28 new stop loss @ 7.49
11/23 new stop loss @ 7.38
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

Blue Nile Inc. - NILE - close: 34.46 change: -0.07

Stop Loss: 31.70
Target(s): 39.75
Current Gain/Loss: - 0.6%
Time Frame: 4 to 8 weeks
New Positions: see below

11/29 update: I am a little surprised that NILE held up as well as it did today. Tiffany & Co. (TIF) reported earnings that were better than expected but TIF guided lower for the fourth quarter. Suddenly the high-end consumer doesn't seem so bulletproof to this economy. While NILE has a different business model that TIF they are both selling jewelry.

Shares of NILE did see a little volatility this morning but the stock bounced near its 10-dma. Readers may want to wait for a new rally past $35.00 before considering new positions.

Earlier Comments:
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.

(small positions)

current Position: Long NILE stock @ 34.67

- or -

Long 2012Jan $35 call (NILE1221A35) Entry $2.90

11/28/11 NILE gapped higher at $34.67, which was above our entry trigger at $34.60

Entry on November 28 at $34.60
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 491 thousand
Listed on November 22, 2011

Stamps.com - STMP - close: 26.50 change: -0.39

Stop Loss: 24.75
Target(s): 32.50
Current Gain/Loss: + 1.3%
Time Frame: 6 to 8 weeks
New Positions: see below

11/29 update: Hmm... trading in STMP was a bit disappointing today. The stock traded down to $25.75 before paring its losses and closing with a -1.4% loss. The larger trend is still up but readers may want to wait for a move past $27.50 before considering new bullish positions.

Earlier Comments:
NOTE: STMP could see a short squeeze if the market bounces. The most recent data listed short interest at more than 10% of the very small 12.3 million-share float.

current Position: Long STMP stock @ $26.16

- or -

Long Feb $30 call (STMP1218C30) Entry $2.00

11/28 trade opened. STMP gapped higher at $26.16
11/26 No change in our strategy. Trade not open yet. Readers may want to consider alternatives listed in tonight's update.
11/23 STMP gapped down again. Trade not open.
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 28 at $26.16
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 646 thousand
Listed on November 19, 2011

BEARISH Play Updates

AFLAC Inc. - AFL - close: 40.88 change: +0.14

Stop Loss: 42.05
Target(s): 38.00
Current Gain/Loss: + 2.9%
Time Frame: 6 to 8 weeks
New Positions: see below

11/29 update: The oversold bounce in AFL continues. Shares didn't make that much progress. If the stock fails at its 10-dma then nimble traders might want to consider new bearish positions (with a tight stop).

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

11/26 new stop loss @ 42.05, new exit target at $38.00
More conservative traders may want to take profits now
11/23 new stop loss @ 43.55
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: 29.02 change: -0.13

Stop Loss: 30.10
Target(s): 25.25
Current Gain/Loss: - 0.2%
Time Frame: 9 to 12 weeks
New Positions: see below

11/29 update: FRX failed to see any progress on yesterday's bounce. You could argue that today's session looks like a failed rally at its simple 10-dma. Please note that I am lowering our stop loss down to $30.10.

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

11/29/11 new stop loss @ 30.10

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

Nexen Inc. - NXY - close: 15.46 change: +0.69

Stop Loss: 16.05
Target(s): 10.25
Current Gain/Loss: - 3.9%
Time Frame: 6 to 9 weeks or more
New Positions: see below

11/29 update: NXY outperformed today after the company offered its 2012 production guidance and said it would sell a 40% stake in its British Columbia assets for $700 million. We still expect the company to suffer due to its failed negotiations with the Yemeni government but the rest of the company appears to be doing fine.

I would wait for this bounce to fail (rollover) under the $16.00 level before considering new bearish positions.

Earlier Comments:
The 2008 lows near $11.50 could be support but we will tentatively put our multi-week (month?) exit target at $10.25.

Suggested Position: short NXY stock @ $14.87

- or -

Long JAN $14 PUT (NXY1221M14) Entry $0.85

- or -

Long MAR $12 PUT (NXY1217o12) Entry $0.80

11/28/11 NXY gapped open higher at $14.87

Entry on November 28 at $14.87
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume = 3.0 million
Listed on November 26, 2011

AT&T Inc. - T - close: 28.06 change: +0.11

Stop Loss: 28.55
Target(s): 24.25 or 22.75
Current Gain/Loss: unopened
Time Frame: 6 to 9 weeks or more
New Positions: Yes, see below

11/29 update: AT&T extended its oversold bounce but it seemed to lose steam when it hit short-term technical resistance at its 10-dma. More aggressive traders might want to consider bearish positions now. Our plan calls for a trigger at $27.15 to open positions.

Earlier Comments:
AT&T has significant support in the $27.20-27.50 zone. Currently we are suggesting a trigger to open bearish positions at $27.15. More conservative traders may want to use a trigger under $27.00 instead as their entry point for bearish positions. If we are triggered at $27.15 our multi-month target is $22.75, however, more conservative traders may want to exit near $24.00 instead. I have listed to targets (24.25 and 22.75) above depending on your risk tolerance. The $24.00 level was significant support back in 2010. Unfortunately for AT&T shareholders the stock has produced a huge (bearish) head-and-shoulders pattern over the last several months. A breakdown under $27.00 would signal a drop toward the $22.50 area (see weekly chart).

Trigger @ $27.15

Suggested Position: short T stock @ 27.15

- or -

buy the 2012Jan $25 PUT (T1221M25)

- or -

buy the Mar $25 PUT (T1217O25)

Entry on November xx at $ xx.xx
Earnings Date 01/26/12 (unconfirmed)
Average Daily Volume = 23.4 million
Listed on November 26, 2011