Option Investor

Daily Newsletter, Wednesday, 11/30/2011

Table of Contents

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

Market Wrap

Bear Fry

by Keene Little

Click here to email Keene Little
Market Stats

Bank downgrades followed by a downgrade of France's debt didn't mean a hill of beans this morning -- the market got all excited by the announcement by the global central banks, including the Federal Reserve, England, ECB, Canada, Japan and Switzerland, that they were acting together to strengthen the existing swap lines to allow them to provide dollars to domestic banks as needed. The agreement included a reduction of the swap rate by 50 basis points on borrowing the dollar.

So the announcement was made to let everyone know there would be more money at lower cost, just what the overleveraged banks need. The bilateral swap line agreement has been extended to 2013. The Fed declared itself today to be the global lender of last resort. Bernanke will do what the ECB refuses to do -- print more money and as much as is needed. Must be nice to print all the money that's unfit to print.

The danger here for bulls is that this announcement was made not to stimulate economic growth but instead to thwart a liquidity crunch. Bank credit it locking up and a credit freeze between institutions is what helped cause the big collapse in 2008. The last time the Fed made an announcement to reduce swap rates was at the end of June this year (another attempt to save the month and quarter). It helped SPX rally about 60 points up to the 1350 area. Within a week all those gains were given back and SPX proceeded to drop to the 1100 area by the first week of August. The Fed's announcement is a desperate attempt to solve the banking liquidity squeeze, nothing more. It's why it's actually a dangerous sign for the stock market. How long the stock market will keep whistling past the graveyard is anyone's guess.

The central banks are all together in doing whatever is necessary to save the banks. How else can the poor bank heads pay themselves millions in bonuses for doing such a good job? Poor things. Trillions more are going to be handed out to the banks so that they can then leverage that up as well. Where this nonsense will stop is anyone's guess but I strongly suspect it will only stop with a crash in the financial system. Throwing more debt after bad debt has never worked in the past, never. I guess we have some idiots running the central banks who think it will be different this time. We have group think in all the central bankers now, all having been educated together and in the same philosophies.

On the announcement the dollar spiked down and gold spiked up, both indicating worries about devaluation of the dollar as the Fed has effectively announced they'll print all the money they need to in order to take care of the banks. The Fed is clearly more worried about their banking buddies than inflation or the average American (the 99%). I want off this circus ride but it just spinning faster and faster.

The announcement from the Fed included "U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses." What the Fed just announced is QE3.

The central bank announcement happened at 8:00 AM EDT but the futures started a strong rally at 6:00 AM consolidated for a bit and took off to the upside at 8:00 AM. It sure looked like someone got the announcement early. Do you suppose some big hedge funds and bankers got the word early? Nah, that would be like trading insider information. Only Congress is able to legally do that.

Helping today's rally, or at least not taking away from it, were some good economic reports this morning. The market didn't react much to the reports, which has been the ongoing theme here as it only seems to be reacting to what's being done to help the European debt issue, but the positive numbers give the bulls more reason to look for a higher rally.

The ADP report showed 206K jobs added in November, a nice climb from the downwardly revised (is there any other kind?) 110K last month (revised down 20K from the originally reported 130K). How much of this hiring is temporary for the holidays is not known but at least it's a positive change. It bodes well for Friday's payrolls report.

Along with the additional hiring, the other good news for companies is that productivity continues to improve, even if a little less -- 2.3% for Q3 vs. 3.1% in Q2. Unit labor costs continue to drop (good for companies but probably not so good for wages), down -2.5% for Q3 vs. -2.4% in Q2.

The Chicago PMI took a nice jump up to 62.6 from October's 58.4, better than the 57.5 that the market expected. Rounding out the reports, even pending home sales improved -- up +10.4% vs. the downwardly revised (is there any other kind?) -4.6% in September.

This week's rally changed the charts significantly and most importantly the impulsive bearish wave counts no longer work. This week's rally overlapped the previous 1st waves in the move down. That leaves us with two options at the moment: one, we're going to get the year-end rally and complete a larger A-B-C rally off the October 4th low; or two, were stuck with corrective counts up and down and the choppy whippy market could continue for a long time (heading lower, higher or flat). Let's review where we are.

The first thing that jumps out at me about this week's candle (other than the size of it) is that it's a bullish engulfing candlestick. There are still two trading days to the week so we'll have to see how it closes on Friday. Assuming the bounce off the October 4th low is only a correction of the May-October decline, I see the potential for a rally above the October 27th high but short of the May/July highs. Another test of the broken H&S neckline, near 1293, or the downtrend line from May-July, near 1320-1325, is the bullish possibility from here. Otherwise there is risk that this week's 3-wave rally was an end-of-month move that will see no follow through and be reversed lower in the coming month. One thing is certain, the size of the weekly candles since the May high, as compared to the 2010-2011 rally, shows you the extreme volatility that we're currently experiencing. Both bulls and bears have been getting whipped badly.

S&P 500, SPX, Weekly chart

The apex of the previous sideways triangle off the October high, which most viewed as a bullish continuation pattern, is near 1250 and is often support/resistance when tested, as SPX is about to do. I see the possibility for a quick test tomorrow morning and then at least a pullback. If the pullback is choppy then we can expect higher over the next week or two. I'm showing a rally up to the downtrend line from July, near 1272 (if it can get above its 200-dma near 1266), a pullback and then a rally up to a Fib target near 1293. That's where the 2nd leg of the bounce off the October low would achieve 62% of the 1st leg up (considered the normal minimum for wave C of an A-B-C bounce). A higher target is at the May-July downtrend line, near 1320-1325 mentioned for the weekly chart. Much above that would be pointing to a challenge of the May high.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1250
- bearish below 1192

A closer view of the previous sideways triangle pattern shows how close SPX came to the apex today. If it pulls back a little tomorrow but finds support at or above 1235, look for another leg up to the 1272 area, as mentioned for the daily chart. From there a deeper pullback should be expected even if it will lead to more highs in December. A break back below 1195 would leave a confirmed 3-wave bounce and suggest either lower or chop sideways for the rest of the year.

S&P 500, SPX, 120-min chart

To put some icing on today's cake, the last hour shoved the DOW another 100 points higher, nearly achieving a 500-point day. But it had to settle for "only" +490 points. Tch, tch. Relative to SPX the DOW is a little stronger. It rallied above its 200-dma at 11949 and slightly above the bottom of its previous sideways triangle, near 12K. A little higher is its downtrend line from July, near 12125. Above that should lead to a move up to the Fib projection at 12393, where wave C would equal 62% of wave A for the A-B-C bounce off the October low and where it would test the downtrend line from May.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 12,130
- bearish below 11,517

NDX has rallied up into a strong nest of moving averages that's going to be tough to break through, at least on its first try, although it nearly did so with the final push into today's close. Its 20, 50 and 200-dma's are located at 2282-2292. Not shown is its 100-dma at 2264, which was the day's low. As with the other indexes, the wave count has become corrective in both directions and therefore can't be used right now to help predict where price is headed next. We'll have to see if the next pullback becomes impulsive (bearish) or stays corrective (potentially bullish for a move higher into year-end).

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 2295
- bearish below 2205

The RUT managed a +5.9% rally today, handily beating the other indexes' "miserly" gains of only about +3.8% (NDX) to 4.3% (SPX). Thanks to a late-day push it made it back up through its previous sideways triangle off the October high) and its apex near 734. If the bulls can still push it higher, it will run into its downtrend line from July, near 742, and any higher would give it a clear shot to its Fib target near 770 (wave C = 62% of wave A in it’s a-B-C bounce off the October low), which is also where its 200-dma is located. It would also be a test of its October high. It will be tough resistance if tested in the next week or so.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 742
- bearish below 692

The RUT's 120-min chart below shows a little closer view of the trend lines that it's dealing with. After pushing through the previous triangle lines, it's close to testing its downtrend line from July, near 743 early tomorrow. If we're going to get just a pullback before pressing higher again, the apex of the triangle, near 731.60, could offer support and be followed by a break above its longer-term downtrend line.

Russell-2000, RUT, 120-min chart

Considering the strength in the stock market I would have expected a bigger move in the bond market. The selling in the bonds stopped after the morning gap, which supports the idea that the stock market was on a mission for month-end and might not see much if any follow through tomorrow.

The banks were the big beneficiary of today's largess by the central banks. They're one of the more heavily shorted sectors as well so a big short-covering rally usually finds the banks rallying even stronger, up about +7%. Not too much short covering in there (wink). The BIX nearly tagged its downtrend line from February 2011, about another 50 cents higher than today's close. The big question here is whether or not it will have any better luck breaking out of its down-channel, which would obviously be bullish. But it's in a bearish down-channel until proven otherwise and look at the current bounce as a shorting opportunity.

S&P Banking index, BIX, Daily chart

As with the broader market indexes, the TRAN's high bounce now leaves the door open to a move above the October high near 5070. An A-B-C bounce off the October low, with wave C = 62% of wave A, targets 5222 (potentially higher) but a bearish corrective wave count says the rally could fail at any time and start back down. A break below 4712 would put the bears back in control. For now, watch for resistance at its downtrend line from October 27th, near 4960, and its 200-dma at 4990, both of which are only marginally above today's high.

Transportation Index, TRAN, Daily chart

With today's dollar-devaluing announcement by the Fed, the dollar spiked down and broke its uptrend line from October 27th. It found support at its 20 and 50-dma's, located at 78.11 and 77.93, respectively. By breaking its uptrend line from October 27th it opens the door to a further decline in the dollar, one that could take it back down to the 74 area for another test of the August lows. But first it needs to drop out the bottom of a parallel up-channel created off the trend line along the highs since November 1st and a parallel line attached to the October 27th low. Based on this I'd say a break below 77.75 is needed to support the more bearish wave count calling for a drop to 74. In the meantime, the choppy price pattern could literally go anywhere from here and the updated wave count is just one idea (corrective wave counts must be constantly changed to match the current price action and are therefore unreliable predictors).

U.S. Dollar contract, DX, Daily chart

A rally in the dollar to above 82 is still a strong possibility, especially if the market starts to believe that no amount of money printing will be able to overcome the debt destruction that will happen in Europe (which is deflationary vs. what the Fed is attempting to do with money printing). Flocking to the dollar could still cause it to rise vs. the other currencies.

But one thing in favor of dollar bears and euro bulls is what we see from the COT report, which shows a large net long position in the euro by the commercial traders (the smart money). Either a lot of commercial traders are going to get burned by a drop in the euro or else we're going to see a rally in the euro (and a decline in the dollar). You can see by the inverse correlation that the commercial traders are most often correct with their bets.

Euro vs. Commercial traders (COT report), chart courtesy Tom McClellan

While the U.S. dollar spiked lower on the central banks' announcement, fears of inflation (the Fed clearly wants inflation right now as a way to fight the deflationary forces of debt destruction) drove gold higher and gold's pattern looks a lot like the stock market's now. The bounce off its November 21st low has now overlapped the low on November 10th, leaving a 3-wave decline from the November 8th high. This turns the pattern corrective in both directions and the next move is anyone's guess. It could chop sideways or a while but if continues higher and get above 1800 it should be able to make it to about 1850 before running into trouble. A drop back below 1670 and its uptrend line from October 2008 would be trouble for the gold bulls.

Gold continuous contract, GC, Daily chart

Crude inventories took a big jump last week, up +3.9M barrels vs. -6.2M barrels the previous week. But it didn't stop oil from rallying with the stock market, just happy to be going along for the ride. It made it back up to its broken uptrend line from February 2009 and dropped back down. If oil keeps rallying in the next day or two it could make it up to the 105 area for a retest of its broken uptrend line from October 4th. But it's a good setup for a reversal back down from here.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports include unemployment claims, ISM index and Construction spending in the morning and then auto/truck sales in the afternoon. They're not likely to be market moving, especially if there's bigger news from overseas. Friday is a big day with the payrolls report and the unemployment rate (not that many believe the unemployment rate).

Economic reports, summary and Key Trading Levels

The market has once again gone too far too fast and finished at its highs today. That leaves it vulnerable to a reversal tomorrow if today's final hour jam into the close, for month-end, was capitulation by more shorts. It could leave the market vulnerable to no follow through tomorrow morning and at least a pullback. These bear market rallies tend to much stronger than normal rallies and that's one of the telltale signs to be careful to not chase it higher.

The stock market can certainly go higher but it's a healthier rally if it does it without huge gaps to the upside and these 400-500 point moves in the DOW, especially at month end. The short interest was not that high before this rally started and now it's probably a lot lower, which makes the market more vulnerable to a big downside move. Tomorrow is the 1st of December so there could be some new money coming in to help hold it up but then be careful of a possible reversal right back down again.

If we see corrective pullbacks (choppy sideways/down bull flag kind of pullback) it will look good for pressing higher at least into the middle of the month. Minor new highs above the October 27th highs would satisfy 3-wave correction off the October lows and set up the next bear market leg down. We should have a better idea of that next Wednesday when I'll be back with you.

In the meantime, good luck with this bipolar market. Trade small and carefully until the bigger picture clears up.

Key Levels for SPX:
- bullish above 1250
- bearish below 1192

Key Levels for DOW:
- bullish above 12,130
- bearish below 11,517

Key Levels for NDX:
- bullish above 2295
- bearish below 2205

Key Levels for RUT:
- bullish above 742
- bearish below 692

Keene H. Little, CMT

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New Plays

+7.6% in Three Days!

by James Brown

Click here to email James Brown

Editor's Note:

Today's session was very bullish although technicians will argue that the lack of volume behind today's move throws doubt on the rally's sustainability. The S&P 500 did power through several key moving averages and levels of resistance. Yet you can see from the chart below it stalled right at another level of downtrend resistance and looks very short-term overbought. In the last three days the S&P 500 has rallied +7.6%, the NASDAQ composite +7.3%, and the small cap Russell 2000 index +10.6%.

We do not want to chase a move like that. Yet the rally could keep going. At the same time it feels like a bear-market bounce. I'm not saying we're in a bear market but the characteristics of today's move (really violent, low volume) are typical in a bear-market atmosphere. If you're bias is bullish then I would look for a dip back toward the 1220 level as the first spot to consider new positions. The next level would be 1200. As you can see the 1265 level and the simple 200-dma is the next hurdle for the bulls.

Chart of the S&P 500 index:


In Play Updates and Reviews

Stocks Soar on Liquidity News

by James Brown

Click here to email James Brown

Editor's Note:
The European and U.S. markets rallied on news that multiple central banks are working together to provide liquidity to EU banks. This was just part of the rash of positive news that helped fuel stocks higher.

Our ATVI and JJC trades are open. AFL and NXY have been stopped out.


Current Portfolio:

BULLISH Play Updates

AutoNation Inc. - AN - close: 36.11 change: +0.81

Stop Loss: 33.45
Target(s): 39.50
Current Gain/Loss: + 4.8%
Time Frame: 6 to 8 weeks
New Positions: see below

11/30 update: AN managed a +2.2% gain but that feels a bit disappointing versus +4% gains in the major indices. I can't complain about the ongoing bounce here. We will raise our stop loss to $33.45.

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

11/30/11 new stop loss @ 33.45

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: 12.42 change: +0.33

Stop Loss: 11.59
Target(s): 13.45
Current Gain/Loss: + 0.9%
Time Frame: 4 to 8 weeks
New Positions: see below

11/30 update: Our ATVI is now active with positive opens for both the S&P 500 and ATVI this morning. ATVI opened at $12.30 and rallied to a +2.7% gain. If you don't feel like chasing it here then wait for a dip into the $12.20-12.00 zone as your next entry point.

current Position: Long ATVI stock @ $12.30

- or -

Long FEB $13 call (ATVI1218B13) Entry $0.42

11/30/11 trade open. ATVI gaps higher at $12.30
11/29/11 ATVI gapped open lower. Trade not open yet.

Entry on November 30 at $12.30
Earnings Date 02/09/12 (unconfirmed)
Average Daily Volume = 14.9 million
Listed on November 28, 2011

Brocade Communications - BRCD - close: 5.38 change: +0.14

Stop Loss: 4.75
Target(s): 6.45
Current Gain/Loss: + 2.4%
Time Frame: 8 to 12 weeks
New Positions: see below

11/30 update: BRCD has rallied to its next level of resistance near $5.40 and its simple 200-dma. I would not chase it here. Wait for a dip near the $5.10-5.00 zone before considering new positions.

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: + 9.7%
Time Frame: 2 to 3 weeks
New Positions: see below

11/30 update: Uh-oh! Today's action could be a warning sign that HITK's rally is running out of gas. The stock spiked to $42.93 this morning but then reversed lower to close down -0.4%. After a couple of days of relative strength it's disappointing to see HITK underperform like this. More conservative traders may want to exit immediately! I am not suggesting new positions at this time.

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

11/30/11 HITK underperformed. Readers may want to take profits now.
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

Ipath Copper ETN - JJC - close: 46.00 change: +2.23

Stop Loss: 42.90
Target(s): 48.90
Current Gain/Loss: + 1.5%
Time Frame: 4 to 8 weeks
New Positions: see below

11/30 update: Wow! Today was definitely a "risk on" day. News that China had reduced the reserve ratio requirement by 50 basis points helped light a fire under stocks today. This means the country is trying to help spur growth a little bit, which could mean stronger demand for commodities. The JJC gapped open higher at $45.30 and spiked to $46.75 before settling down with a +5.0% gain. Obviously the open at $45.30 is not as attractive as our planned entry point at $44.25 but today's move does represent a bullish breakout. I am adjusting our stop loss to $42.90 and moving our exit target to $48.90.

No new positions at this time.

current Position: Long JJC (ETF) @ $45.30

- or -

Long JAN $45 call (JJC1221A45) Entry $3.30

11/30/11 JJC gaps higher at $45.30. Adjusting stop loss to $42.90 and moving exit target to $48.90.

Entry on November 30 at $45.30
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume = 148 thousand
Listed on November 29, 2011

Kodiak Oil & Gas - KOG - close: 8.88 change: +0.34

Stop Loss: 7.75
Target(s): 9.75
Current Gain/Loss: +18.2%
Time Frame: two to three months
New Positions: see below

11/30 update: The rally in KOG continues to impress. The stock gapped higher and hit $9.08 intraday. The stock settled with a +3.9% gain. Readers may want to take profits now. I am raising our stop loss to $7.75.

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

11/30 new stop loss @ 7.75
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: 37.99 change: +3.53

Stop Loss: 34.40
Target(s): 39.40
Current Gain/Loss: + 9.5%
Time Frame: 4 to 8 weeks
New Positions: see below

11/30 update: NILE saw some serious short covering today with a gap higher and the stock closing up +10.2% on the session. I am raising our stop loss to $34.40. I am adjusting our exit target to $39.40. No new positions at this time.

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

11/30/11 new stop loss @ 34.40. new exit target at $39.40
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: 27.37 change: +0.87

Stop Loss: 24.75
Target(s): 32.50
Current Gain/Loss: + 4.6%
Time Frame: 6 to 8 weeks
New Positions: see below

11/30 update: I am a little surprised that STMP did not see a bigger move today. The is a lot of short interest in the stock. I would have expected more short covering. STMP did spike to $28.30 before paring gains to close up +3.2%.

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

Forest Labs Inc. - FRX - close: 29.96 change: +0.94

Stop Loss: 30.10
Target(s): 25.25
Current Gain/Loss: - 3.4%
Time Frame: 9 to 12 weeks
New Positions: see below

11/30 update: The stock market's widespread gains pushed FRX to a +3.2% advance. The stock closed directly under resistance at $30.00. If the rally continues tomorrow we could see FRX hit our stop loss at $30.10. More aggressive traders might want to consider adjust their stop loss so it's above the simple 50-dma, which was resistance back in October. I am not suggesting new positions at this time.

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

AT&T Inc. - T - close: 28.98 change: +0.92

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

11/30 update: Our AT&T trade is not open yet. The stock has been soaring higher thanks to the market-wide bounce. Shares of T just powered through a lot of technical resistance today, climbing past several moving averages. I am not adjusting our strategy yet. We will leave our trigger to open bearish positions at $27.15 for now. However, readers will want to keep an eye on the $29.50-29.75 zone, which is the top of the right-hand shoulder to T's large head-and-shoulders pattern (a.k.a. this area should be resistance). A failure near $29.50 might prove to be a new entry point for bearish 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


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

Stop Loss: 42.05
Target(s): 38.00
Current Gain/Loss: - 0.4%
Time Frame: 6 to 8 weeks
New Positions: see below

11/30 update: Our AFL trade has been stopped out. Shares gapped open higher at $42.31. We had a stop loss at $42.05. The trade was closed at the open. I would keep AFL on your watch list for a failure at resistance near $45.00 and its simple 200-dma.

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

(Small Positions)

current Position: Short AFL stock @ 42.12, exit $42.31 (-0.4%)

- or -

DEC $40 PUT (AFL1117x40) Entry $1.52 exit $0.59 (-61.1%)

11/30 stopped out at $42.31 (AFL gapped higher)
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

Nexen Inc. - NXY - close: 16.57 change: +1.11

Stop Loss: 16.05
Target(s): 10.25
Current Gain/Loss: - 9.8%
Time Frame: 6 to 9 weeks or more
New Positions: see below

11/30 update: The rally in energy and oil stocks has been tremendous. NXY has surged from the $14.30 area to breakout past resistance near $16.00 and its 50-dma. We had a stop loss at $16.05 but NXY gapped open higher at $16.34 this morning, closing our play.

Currently the longer-term trend for NXY is still down. However, bulls might argue that NXY has formed a bullish double bottom near $14.00 now.

Suggested Position: short NXY stock @ $14.87, exit $16.34 (-9.8%)

- or -

JAN $14 PUT (NXY1221M14) Entry $0.85 exit $0.35*(-58.8%)

- or -

MAR $12 PUT (NXY1217o12) Entry $0.80 exit $0.40*(-50.0%)

*price is an estimate. Option did not trade at the time our stop was hit.
11/30/11 stopped out. NXY gapped open at $16.34, above our stop
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