Option Investor

Daily Newsletter, Saturday, 4/21/2012

Table of Contents

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

Market Wrap

Volatility at Tops and Bottoms

by Jim Brown

Click here to email Jim Brown

A key sign of a top or bottom in the market is a sharp increase in volatility like we saw last week.

Market Statistics

You may remember the long rally in the first quarter where we went for streaks of days at a time without the Dow trading in a triple digit range much less close with a triple digit gain. Last week the Dow averaged a 147 point daily range and only one day traded in double digits and that was 87 points. The S&P averaged a 15 point daily range. Volatility has definitely returned but volume has not. Daily volume averaged 6.3 billion shares per day but that did increase on Thursday to 7.3 B and 6.6 B on Friday. There was no conviction to any of the market moves either positive or negative. That is also a sign of market tops. When volume does not increase on the dips or spikes it means many traders are content to sit on sidelines and watch until a new trend is established.

This is still a headline driven market and last week had plenty of headlines. Europe, economics and earnings continue to be the major drivers. Europe went through four days of gloom and doom over the pending 10-year bond auction in Spain on Thursday and then when it came the actual auction was a non-event. Bidding was robust and yields were manageable. This weekend the worry is over the French elections. President Nicolas Sarkozy is in a dead heat with socialist Francois Hollande. Some polls have Hollande ahead and he had said he would renegotiate the deal with the EU although his party has tried to walk those comments back. If Hollande did win there would be greater spending on social projects and less agreement with Germany on EU matters. The European markets are confused about direction since spending can be both positive and negative for equities. If Hollande is elected there would probably be less of an inclination towards further EU bailouts.

Also on Friday the IMF announced it had successfully raised another $430 billion to contribute to the European debt crisis. The IMF and EU are frantically trying to raise commitments to the crisis fund in case Spain and/or Italy spiral out of control and the troika has to step in with a monster bailout. The BRIC countries refused to contribute more money until they had a bigger say in how it was used. The IMF committee already has a plan in process to allow that but it requires ratification by the member countries and that could take another 12-18 months. Flush with this new cash the IMF warned the EU that member countries had to cut debt burdens significantly and make bold economic reforms to stabilize its financial systems in order to restore growth. Otherwise the debt problems will resurface in years to come. I doubt anyone was paying attention. When you are up to your neck in alligators it is hard to remember the initial objective was to drain the swamp.

In U.S. economics there were no major reports on Friday. The state employment report for March showed slower job growth than in February. This was a trend already seen in the nonfarm payrolls the prior Friday. Job gains were reported in 29 states for March. However, that was worse than the 42 states that reported gains in February. The biggest job declines were in Ohio -9,500, New Jersey -8,600 and Wisconsin -4,500. New York added +19,100, California +18,200 and Arizona +13,500. Nevada had the highest unemployment at 12%, Rhode Island 11.1%, California 11%. North Dakota had the lowest unemployment at 3% thanks to the Bakken oil field.

The disappointing job news from the states on Friday followed disappointing news on jobless claims on Thursday. Claims came in at 386,000 which sounds like a big increase only the prior week was revised up from 380,000 to 388,000 so this was actually a minor decrease. Since this number will probably be revised higher next week you never know what really happened until you look back from the future. The key point here is that the weekly jobless claims are getting farther away from 350,000 and closer to 400,000 every week. That 400K threshold is not going to be market friendly.

Jobless Claims

For whatever reason the layoffs appear to be accelerating along with a long list of disappointing economic numbers over the last couple weeks. The economic recovery appears to be slowing but you can't go on the day to day numbers you have to look at the month as a whole.

I went back and constructed a list of the major economic reports for April. We are only two thirds through the month but the recent trend has been negative. In the list below the numbers in green are an improvement over the prior report and those in yellow are a worsening since the prior report. In the case of the Monster Employment the numbers were the same but the index has gone up for five consecutive years in March. Not going up was actually negative. Same with industrial production at zero for the last two months. Production not increasing for two months was a negative for me. There is a lot more yellow on that graphic than green.

April Economic Reports

One specific report that was especially bad was the Philly Fed Manufacturing Survey on Thursday. The headline declined to 8.5 from a 12-month high in March at 12.5. New orders fell to the lowest level since September at 2.7. However, the employment component rose to 17.9 from 6.8 and that is a huge increase. Apparently manufacturers are expecting an improvement in conditions later this year.

The economic calendar for next week has several more regional manufacturing reports plus the first look at the Q1 GDP. The GDP is expected to have declined to 2.3% in Q1 from 2.95% in Q4. That report could be a market mover in either direction depending on what it says.

The biggest event for the week is of course the FOMC meeting on Tue/Wed and Bernanke's press conference on Wednesday afternoon. With the sudden worsening of employment numbers on all fronts the Fed is sure to say something in their statement about unemployment and their dual mandate. Bernanke will be grilled on the topic in his press conference. Because of recent comments from the various Fed presidents and FOMC members nobody in the mainstream economic press really expects a new QE3 program to be announced. There are a few outliers still expecting some new action but the odds are dwindling. However, with the next meeting not until June and that is when the Operation Twist expires you would expect the Fed to make some announcement about extending Twist at this meeting. They rarely wait until the day something ends to announce a change. Should they NOT say anything about extending Twist the market would probably react badly.

The FOMC will probably downgrade its economic statement and reiterate they are ready to take additional action if the economic situation deteriorates further. The Fed will want to act sooner rather than later to avoid taking action in the middle of a heated election cycle later this year. How Bernanke is going to orchestrate that is still a mystery to all.

Economic calendar

In the earnings department the news has been better than expected. Two weeks ago the estimate for S&P earnings growth for Q1 had declined to +0.1%. After only a week of actual earnings those estimates are approaching +3.2%. That is still not strong but it is far enough above negative territory that analysts are breathing easier again.

With 75 S&P companies reported the actual earnings growth is +3.7%. About 82% of reported companies have beaten earnings estimates and 74% beat revenue estimates. Revenues are up +3.4% with operating margins declining. While the results have been good so far they are not expected to last. The remaining 425 S&P companies are expected to post an earnings decline of -0.9%. If you exclude Apple that number falls to -2.3% for those 425 or +1.8% for all 500 companies.

Expectations had clearly fallen too low and analysts are playing catch up after the first 75 companies reported. The problem with the reporting cycle is that the grade A blue chips are the first to report. Intel, IBM, Microsoft, GE, JPM, etc. The farther we get into the cycle the lower the quality of the earnings being reported. The +3.7% earnings growth from those first 75 did not help their stocks in most cases. The majority of them declined after their reports.

Exceptions to that trend were Microsoft, GE, Honeywell, Ebay and Schlumberger. Microsoft (MSFT) rallied +5% on Friday and singlehandedly offset the impact of Apple's decline on the Nasdaq 100. Microsoft rallied +$1.41 (+4.54%) but was responsible for +12 NDX points. Apple declined -$14 (-2.4%) to knock 10 points off the NDX. Over 106 million MSFT shares traded on Friday.

Microsoft's earnings showed there was still life in the PC with sales of Windows 7 software surging. Windows 8 is in beta test and should offer touch screen capabilities for things other than tablets and smartphones. Microsoft reported earnings of 60-cents compared to estimates of 58-cents. Microsoft saw sales of Office rise +9% and Windows rose +4%. Server systems and tools rose +14%. Entertainment and services, including the Xbox, declined -16% but Microsoft said it was just a weak quarter for game sales. That has been repeated by all the other game manufacturers as well.

Microsoft Chart

GE reported earnings on Friday of 34-cents that was a penny above street estimates. Nobody really gets excited about GE's earnings but they do tune in for the guidance. CEO Immelt said orders for products and services related to infrastructure were up +20%. Revenue rose +4% to $35.2 billion. With that kind of scale it is hard to move the revenue needle in double digits. The transportation segment saw profits rise +48% and health care +10%. The only decline came in the home solutions segment. Orders for locomotives, aircraft engines and other industrial equipment rose by double digits. Immelt was borderline bullish on the outlook saying "We've got game right now!" GE shares rose a whopping 22-cents.

GE Chart

Honeywell (HON) told analysts last month to expect earnings in the 96-98 cent range. On Friday they posted earnings of $1.04 compared to 88-cents in the year ago quarter. Honeywell said they were not trying to lower the bar on estimates. They were just fortunate to be riding the crest of a major wave of orders. The company said in its forecasts they were assuming Europe would be in recession all year but they still raised their estimates again. HON raised the full year range to $4.35-$4.55 from $4.25-$4.50. They said the growth came without a major rebound in the housing market and the numbers would be even better if the housing sector took off. HON shares rose +2.4%.

Honeywell Chart

Oil service company Schlumberger (SLB) posted earnings of 98-cents and beat the street by a penny but it was the bullish tone that pushed their stock higher. Revenue rose +22% and the company said they expected the growth to continue. SLB expects the number of rigs working outside North America to rise by 10% this year and that is a big profit driver for the industry. UBS said rig utilization and deepwater activity should accelerate in 2013 and beyond.

Halliburton (HAL) also posted an upbeat earnings report and outlook earlier in the week. Both companies said despite a slowdown in gas well drilling there was really no slowdown in overall activity in North America. Oil wells require fewer pumps for fracturing but the number of wells is rapidly increasing. Currently there is a surplus of pumping horsepower but SLB does not expect it to last.

The combined outlooks from HAL and SLB paint a very promising picture for the U.S. energy sector. There is currently a rotation in progress from gas wells to oil wells but the slowdown from that equipment shift is temporary. Eventually gas will pick up again but that does not necessarily mean oil drilling will slow. Overall the number of total rigs will increase but it may take a couple years.

Companies like Chesapeake (CHK) are cutting back from 75 gas rigs to 25 but those 50 rigs are moving to liquids production instead. There are plenty of opportunities in the oil field to keep everyone busy.

Schlumberger Chart

Sandisk (SNDK) was one of the companies that did not rally on earnings. SNDK shares fell -11% after posting profits that fell by almost half from the year ago quarter. Adjusted earnings of 63 cents missed estimates of 67 cents and were well below the 92 cents in Q1-2011. Sandisk said weak demand and low selling prices were to blame and they expect that trend to continue through Q2. Altera (ALTR) missed estimates by a penny with 35 cents per share and shares fell -8%. Freescale (FSL) posted a loss of 4 cents and a penny better than expected but shares declined -12%. Lattice Semi (LSCC) posted earnings inline but shares fell -7%. It was not a fun day in the semiconductor sector.

Sandisk Chart

Semiconductor Index Chart

Riverbed Technology (RVBD) was crushed for a -26% loss after reporting earnings in line with estimates but revenues that were well below analyst estimates. The company said it expected revenue growth for 2012 to fall to 15% compared to the 17% to 20% it predicted last quarter.

Riverbed Chart

Tempur Pedic (TPX) saw its shares decline -20% on Friday. The company reported earnings of 86 cents that beat the street estimates of 84 cents but they guided lower for the full year. The company guided to $3.80-$3.95 and analysts were expecting $3.97. TPX shares had rallied +$35 since December and those profits were cut in half with a -$17.22 drop. Competitor Select Comfort (SCSS) declined -9% on the news.

Tempur Pedic Chart

Ethan Allen (ETH) fell -7% to $22 after raising their dividend by 9 cents but warning on Q1 results. The company said it expects to report profits of 13-14 cents compared to 7 cents in the year ago quarter. They also said by the end of this quarter they will have added new products to the line to replace 60% of existing products. This rejuvenation of the product line also added 4-5 cents in onetime costs and excluding those costs the Q1 earnings would be 17-19 cents. While those earnings should have been good news the CEO warned "we remain cautiously optimistic as macroeconomic conditions remain uncertain." That was enough to knock the stock to a five month low.

Ethan Allen Chart

Bank of America just can't seem to get any respect. After buying Countrywide Financial just before the financial collapse and then being forced by the Fed to buy Merrill Lynch they inherited tens of billions in problems plus two very strong businesses. Once they work through all the problems and the litigation ends BAC will be a dominant player in the financial system. However, the end is not yet in sight. When the Fed forced them to buy Merrill the bank did not disclose at the time that Merrill was losing $15.8 billion in that quarter. BAC has been sued for making the acquisition and paying too much. The millions of mortgages they acquired from Countrywide turned into a black hole of losses. Nothing seemed to go right and the bank has been struggling for four years now.

BAC posted Q1 profits that fell -68% to $643 million, but that included a $4.8 billion accounting charge related to the value of the bank's debt. The earnings beat estimates but the pain just keeps coming. Sell side analyst Mike Mayo downgraded the bank on Friday saying they need to take bolder actions including breaking up the company or selling more assets. He downgraded the bank to a sell from underperform. He warned again about the still unresolved mortgage liabilities, lost market share in mortgages while they try to stabilize and pending write downs in the credit card business. BAC actually reduced bad debt reserves in the Q1 earnings but Mayo believes there is trouble ahead. He said the bank needs to cut 30,000 more workers to accelerate earnings and reduce costs.

Other analysts downplayed Mayo's downgrade saying he has ulterior motives in promoting his book "Exile on Wall Street, One Analyst's Fight to Save Big Banks from Themselves." I agree with those analysts. I personally believe BAC is going to be a premier financial entity once they get past these mortgage problems and the lingering impact of the Merrill acquisition. I would not mind seeing the shares decline to $7.50 or lower because that would be a bargain entry for a long term hold. Once the problems are over BAC shares should easily return to pre recession levels because the business offering is significantly broader and the asset base is huge.

Bank of America Chart

The earnings calendar for next week is very active with more than 400 companies reporting. The ones below are just a sample. However, the entire week will revolve around Apple after the bell on Tuesday. They represent a significant portion of the S&P earnings with estimates for Q1 at $9.99 per share. A significant beat or miss will have a dramatic impact to the market and to the overall S&P-500 earnings for the quarter.

Caterpillar should say good things about the global economy on Wednesday and UPS will be the actual barometer on Thursday. The global economy runs on shipping and their performance and guidance will be critical.

Earnings Calendar

The volatility has increased based on the wide swings in the indexes but the VIX closed at a two week low. There are two reasons for this. One was expiration week. Option premiums used to calculate the VIX had declined to a minimum. The second reason the market volatility was related to specific stocks in the headlines rather than a broad sell off of all stocks. The big declines and gains were limited to the stocks in the news but many of those were Dow stocks so the implied impact on the market was magnified.

There is still an underlying bullishness for the market compared to just a couple weeks ago. The percentage of stocks over their 50-day moving average two weeks ago declined to less than 25% and the lowest level in 2012. That percentage has been rising over the last two weeks to 43.4% today. That is a far cry from the 85% in January and February but the short term trend is rising. As long as it keeps rising the market is going higher. Once that trend begins to decline again it should be a warning signal of a deeper correction ahead. Note on the chart below that the MACD is turning positive again after more than a month in decline.

NYSE Stocks Over 50-Day Average

The S&P closed fractionally under the 50-day average at 1379.50 on Friday but it is still clinging to that support. Over the last two weeks the S&P has tried to recover from the April 10th dip to 1,357 but it remains stuck under prior support turned resistance at 1,390. For two weeks that has been a solid top. Support has formed at 1,370 but that support has been dependent on major blue chip companies reporting better than expected earnings and lifting the indexes. Next week we have hundreds of earnings reports but the quality of those reports will begin to decline. In other words there will be a greater number of misses and lower guidance than we saw last week.

I believe we are at a crossroads with the FOMC announcement on Wednesday a pivotal event. Since the markets are not expecting any new Fed stimulus, any announcement could provoke significant short covering. Conversely since expectations are minimal any lack of an announcement may not be really bad. If the Fed says they are not going to do anything because the economy is recovering as expected then the end of QE could be ignored. Personally I would be surprised if the market did not react negatively but eventually that day will come when the Fed will tell the market the Band-Aids are coming off and it is time to get back into the game.

With the Fed needing to keep mortgage rates low for the rest of the year and Operation Twist ending in June I would be very surprised if they did not mention the program could be extended in the post meeting announcement. That should be the least we could expect.

The S&P has the overhang of resistance at 1,390, the FOMC meeting and a possible decline in the quality of earnings. For those reasons I will be surprised if the market rises above resistance this week. However, until the short term rebound fails the overall trend is still bullish. Once the S&P trades below 1,360 again market sentiment should change. There has been no correction of any consequence in nearly five months. We are due. A material correction could knock us back to the 200 day average at 1275.

S&P Chart - 180 Min

S&P Chart - Daily

The Dow rebound from 12,750 was textbook but it is struggling to move over resistance at 13,025. Friday's +65 point Dow gain was positive for sentiment on a day when the Nasdaq was in negative territory. The Dow managed to close just over 13,025 despite an afternoon sell off. The gains were due to positive results from Microsoft and Travelers, which held the Dow up.

The key short term indicators on the Dow would be the 13,130 high on Tuesday and the 12,900 low on Thursday. A move above or below those outside ranges could dictate direction. The Dow gravitated to the 13,000 level for option expiration but next week it will be free to move away from that obvious pin point.

A move below 12,900 would be a lower low and target a retest of 12,750. A move over 13,130 would he a higher high and target a retest of the highs at 13,275. With the Dow seen as "the market" those levels will be closely watched and a move past either should attract many likeminded buyers or sellers.

Dow Chart

Dow Chart - Daily

Apple has closed lower on eight of the last nine days. Friday's close at $572 was a six week low and -$81 below its high of $644 on April 10th. Apple reports earnings on Tuesday and they are expecting a blowout quarter. However, some manufacturing challenges have resulted in some parts shortages that could have slowed sales. Add to that the impact of multiple patent suits and Apple could fail to beat as significantly as traders are expecting.

Apple normally blows away earnings targets. That means a "simple" beat is not going to be enough to keep the wolves at bay. However, the Apple faithful are lining up to buy stock with both hands on any material dip. Barring unforeseen circumstances any dip should be short lived.

Apple Chart

Unfortunately Apple is a significant impact on the Nasdaq and that helped push the Nasdaq 100 to a 22 point loss for the week. Fortunately Microsoft and Ebay were big gainers or the damage would have been a lot greater.

The Nasdaq Composite closed right on support on Friday at 3,000. That is below the 50-day average by 12 points. The Nasdaq looks very likely to break below that support next week and eventually retest 2,900. Resistance is strong at 3,050.

Nasdaq Chart

Nasdaq Chart - Daily

The Nasdaq 100 big cap index closed right on the 50-day average after three weeks of declines. The unstoppable big cap rally since December has lost momentum and a break below the 50-day could trigger accelerated selling.

Nasdaq 100 Chart - Daily

The Russell 2000 actually performed rather well last week. It tested resistance at 810 multiple times and closed within striking distance. It is well below the 50-day but that break was two weeks ago and the selling has not gotten worse. If the Russell moves over 810 the broader market should take notice. It would be very positive for market sentiment. Recently the big caps have been in charge of market direction and until that trend fades the Russell is in neutral.

Russell 2000 Chart - Daily

This is a big week for headlines with hundreds of earnings reports, a dozen economic reports and the mother of all quarterly FOMC meetings. The uncertainty over Fed direction is going to calm any bullish sentiment until after the Wednesday press conference. We could see some bulls buy the market ahead of the announcement in expectations of a QE surprise but I suspect there will be more sellers setting up for a post FOMC decline than buyers expecting good news.

Cash is a position. I would be hesitant to place any major bets ahead of the FOMC event. The potential for a large bout of volatility post meeting is huge. We are also approaching the sell in May cycle and now that option expiration is behind us there is nothing to keep investors tied to the market. With volatility increasing and a large profit under their belts it is more likely those cycle traders begin moving to the sidelines.

The U.S. may be the dog with the least fleas but it is still a dog. The economic acceleration has slowed and jobs appear to be declining again as we head into the summer doldrums. The political campaigns are going to start ramping up their attacks and telling everyone how bad the other party's policies are going to be on the economy. Consumer sentiment has already begun to decline and could move lower. Gasoline prices have eased to $3.87 on average but remain over $4 in many areas. That is the threshold for slowing the consumer and slowing the economy. There are a lot of warning signs beginning to appear and summer is not normally kind to the market. Institutional investors understand all these signs and will act accordingly. This week should be pivotal for the markets.

Jim Brown

Send Jim an email

"A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it."
Alexis de Tocqueville

New Plays

Tech, Jewelry, & Medical Devices

by James Brown

Click here to email James Brown


ChipMOS Tech. - IMOS - close: 13.21 change: -0.38

Stop Loss: 14.35
Target(s): 11.50
Current Gain/Loss: + 0.0%
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The bloom has fallen off the rose for IMOS, which saw an incredible Q1 rally from $5.00 to nearly $19.00. The stock has seen a -30% correction lower in the last three weeks. Some consider shares of IMOS very undervalued with a P/E less than 8 but a cheap stock can always get cheaper.

I am suggesting small bearish positions with a stop loss at $14.35, which is just above the simple 10-dma. Our target is $11.50. FYI: The Point & Figure chart for IMOS is bearish with a $8.00 target.

(small positions)

Suggested Position: short IMOS stock @ (the open)

- or -

buy the May $12.50 PUT (IMOS1219Q12.5) current ask $0.95

Annotated chart:

Entry on April xx at $ xx.xx
Earnings Date 05/14/12 (unconfirmed)
Average Daily Volume = 356 thousand
Listed on April 21, 2011

Blue Nile Inc. - NILE - close: 29.82 change: -0.16

Stop Loss: 32.51
Target(s): 26.00
Current Gain/Loss: + 0.0%
Time Frame: exit prior to the early May earnings report
New Positions: Yes, see below

Company Description

Why We Like It:
NILE is an online jewelry retailer. The stock has been underperforming the market for weeks. This past month saw NILE's oversold bounce fail at technical resistance near the 30-dma. Shares look poised to renew the march lower.

I am suggesting small bearish positions at the open on Monday. We do want to keep our position size small to limit our risk because the most recent data listed short interest at 31% of the very small 13.7 million share float. That does raise the risk of a short squeeze. You may want to use options to limit your risk. Our exit target is $26.00 but we do not want to hold over the early May earnings report (date not confirmed yet). FYI: The Point & Figure chart for NILE is bearish with a $23.00 target.

(small positions)

Suggested Position: short NILE stock @ (the open)

- or -

buy the May $30 PUT (NILE1219Q30) current ask $2.40

Annotated chart:

Entry on April xx at $ xx.xx
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 246 thousand
Listed on April 21, 2011

St. Jude Medical - STJ - close: 38.02 change: -0.31

Stop Loss: 39.05
Target(s): 34.25
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
This medical device maker reported earnings on April 18th. The company beat the bottom line estimate by 3 cents but management guided lower for the second quarter. Naturally shares dropped on the warning. The stock is about to breakdown under support near $38.00.

Last week's low was $37.73. I am suggesting a trigger to open bearish positions at $37.45. Our target is $34.25. FYI: The Point & Figure chart for STJ is bearish with a $31.00 target.

Trigger @ $37.45

Suggested Position: short STJ stock @ (trigger)

- or -

buy the May $37.50 PUT (STJ1219Q37.5) current ask $1.05

Annotated chart:

Entry on April xx at $ xx.xx
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume = 5.1 million
Listed on April 21, 2011

In Play Updates and Reviews

Friday Rally Fades

by James Brown

Click here to email James Brown

Editor's Note:
The market tried to rally on Friday but gains faded toward the closing bell and option expiration.

Our new trade on CGX was triggered.

Current Portfolio:

BULLISH Play Updates

Hain Celestial Group - HAIN - close: 46.39 change: +1.20

Stop Loss: 43.90
Target(s): 49.00
Current Gain/Loss: + 2.9%
Time Frame: exit prior to the May 3rd earnings report
New Positions: see below

04/21 update: Shares of HAIN shot higher on Friday but I couldn't find any specific news behind the move. The stock hit $47.42 intraday and closed with a +2.6% gain. I am raising our stop loss up to $43.90. If you were waiting for a rise past $45.50 as an entry point you got it. I'm not suggesting new positions at this time .

current Position: long HAIN stock @ $45.05

- or -

Long May$45 call (HAIN1219E45) Entry $1.85

04/21/12 new stop loss @ 43.90
04/03/12 triggered @ 45.05


Entry on April 03 at $45.05
Earnings Date 05/03/12 (unconfirmed)
Average Daily Volume = 279 thousand
Listed on April 02, 2011

rue21, Inc. - RUE - close: 30.52 change: +0.62

Stop Loss: 28.45
Target(s): 33.50
Current Gain/Loss: + 0.8%
Time Frame: 3 to 6 weeks
New Positions: see below

04/21 update: RUE erased Thursday's decline with a nice bounce on Friday (+2.0%) and shares have provided a new bullish entry point with its rally past $30.25.

Our multi-week target is $33.50. We want to exit prior to the late May earnings report. FYI: The Point & Figure chart for RUE is bullish with a long-term $48.00 target.

(small positions)

Suggested Position: Long RUE stock @ $30.25

- or -

Long May $30 call (RUE1219E30) Entry $1.70

04/17/12 triggered at $30.25


Entry on April 17 at $30.25
Earnings Date 05/24/12 (unconfirmed)
Average Daily Volume = 304 thousand
Listed on April 164, 2011

ProShares UltraPro Short QQQ - SQQQ - close: 11.62 change: +0.14

Stop Loss: 10.60
Target(s): 13.25
Current Gain/Loss: + 0.1%
Time Frame: 4 to 8 weeks
New Positions: see below

04/21 update: Our SQQQ trade is back in positive territory with the bullish turnaround on Friday morning. The next level of resistance is the simple 50-dma near $12.00. If you believe the market, more specifically the NASDAQ-100, will continue to trade lower then this is an entry point on the SQQQ.

Remember, this is the triple inverse ETF on the QQQ so expect volatility.

current Position: Long SQQQ @ $11.60

- or -

Long May $12.00 call (SQQQ1219E12) Entry $0.73

04/16/12 triggered at $11.60


Entry on April 16 at $11.60
Earnings Date --/--/--
Average Daily Volume = 2.3 million
Listed on April 10, 2011

TIBCO Software - TIBX - close: 33.50 change: -0.21

Stop Loss: 31.40
Target(s): 35.75
Current Gain/Loss: + 0.0%
Time Frame: 6 to 8 weeks
New Positions: see below

04/21 update: We are back at the starting line with TIBX closing at $33.50 on Friday. The stock should have short-term support at its rising 10 and 20-dma. I'd look for a bounce off the moving averages before considering new positions.

FYI: The Point & Figure chart for TIBX is bullish with a $58.00 target.

Current Position: Long TIBX stock @ $33.50

- or -

Long May $34 call (TIBX1219E34) Entry $1.30

04/13/12 triggered at $33.50


Entry on April 13 at $33.50
Earnings Date 03/29/12 (already announced)
Average Daily Volume = 3.1 million
Listed on April 12, 2011

UTi Worldwide Inc. - UTIW - close: 17.02 change: -0.28

Stop Loss: 16.65
Target(s): 19.50
Current Gain/Loss: - 4.1%
Time Frame: 6 to 8 weeks
New Positions: see below

04/21 update: Readers will want to seriously consider an early exit right now. Not only has UTIW produced a bearish reversal near its late March highs but shares underperformed on Friday. This helps reinforce the idea that UTIW is forming a bearish double top pattern.

I am not suggesting new positions at this time.

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

(small positions)

current Position: Long UTIW stock @ $17.75

04/19/12 triggered at $17.75


Entry on April 19 at $17.75
Earnings Date 06/07/12 (unconfirmed)
Average Daily Volume = 443 thousand
Listed on April 17, 2011

BEARISH Play Updates

Barrick Gold - ABX - close: 40.26 change: -0.69

Stop Loss: 42.20
Target(s): 37.50
Current Gain/Loss: + 1.9%
Time Frame: up to the May 2nd earnings report
New Positions: Yes, see below

04/21 update: Gold prices managed a minor bounce on Friday but gold miners were sinking. ABX closed at new relative lows and looks poised to test potential round-number support at $40.00 soon. I am lowering our stop loss down to $42.20.

More conservative traders may want to wait for a breakdown below $40.00 before initiating positions instead. Our exit target is $37.50. We do not want to hold over the early May earnings report.
FYI: The Point & Figure chart for ABX is bearish with a $32.00 target.

(small positions)

current Position: short ABX stock @ $41.02

- or -

Long May $40 PUT (ABX1219Q40) Entry $1.13

04/21/12 new stop loss @ 42.20


Entry on April 17 at $41.02
Earnings Date 05/02/12 (unconfirmed)
Average Daily Volume = 7.9 million
Listed on April 164, 2011

American Public Education - APEI - close: 35.05 change: -0.04

Stop Loss: 37.05
Target(s): 31.00
Current Gain/Loss: - 0.8%
Time Frame: up to its May 10th earnings report
New Positions: see below

04/21 update: APEI tried to bounce on Friday morning but gains faded. I don't see any changes from my prior comments. The $36.00 area and its 10-dma should be overhead resistance. More conservative traders could wait for a bounce closer to $36 before considering new bearish positions.

Earlier Comments:
The plan was to limit our risk with small positions. Our exit target is $31.00 but we do not want to hold over the May 10th earnings report. This is a higher-risk trade. Lots of investors think APEI is going lower and the most recent data listed short interest at 20% of the very small 16.8 million share float. That does raise the risk of a short squeeze. You may want to limit your exposure by trading options.

(small positions)

Suggested Position: short APEI stock @ $34.75

- or -

Long May $35 PUT (APEI1219Q35) Entry $2.10

04/19/12 triggered at $34.75


Entry on April 19 at $34.75
Earnings Date 05/10/12 (unconfirmed)
Average Daily Volume = 202 thousand
Listed on April 18, 2011

Consolidated Graphics - CGX - close: 40.40 change: -0.91

Stop Loss: 43.05
Target(s): 36.50
Current Gain/Loss: + 1.1%
Time Frame: up to its early May earnings report
New Positions: see below

04/21 update: Our new trade on CGX has been triggered. The stock broke down under short-term support near $41.00 and hit our entry point at $40.85. Shares underperformed the market on Friday with a -2.2% decline. It is possible that the $40.00 level could be round-number support but we're aiming for $36.50. Bear in mind that we may have to exit early ahead of the early May earnings report. FYI: The Point & Figure chart for CGX is bearish with a $28.00 target.

(small positions)

current Position: short CGX stock @ $40.85

04/20/12 triggered at $40.85


Entry on April 20 at $40.85
Earnings Date 05/01/12 (unconfirmed)
Average Daily Volume = 45 thousand
Listed on April 19, 2011

Ctrip.com Intl. - CTRP - close: 21.17 change: +0.06

Stop Loss: 22.26
Target(s): 18.00
Current Gain/Loss: + 2.4%
Time Frame: exit prior to the May 16th earnings report
New Positions: see below

04/21 update: CTRP has spent two weeks churning sideways in this $20.65-22.00 trading range. More conservative traders may want to exit early now and just move on. I am lowering our stop loss just a bit to $22.26. I'm not suggesting new positions at this time.

Earlier Comments:
Readers may want to keep their position size small or limit their risk by trading put options. The most recent data listed short interest at about 10% of the 131 million share float. That could raise the risk of a short squeeze. It's possible the $20.00 level could act as round-number, psychological support but we are aiming for $18.00. The Point & Figure chart for CTRP is bearish with a $15.00 target.

current Position: short CTRP stock @ $21.70

04/21/12 new stop loss @ 22.26
04/19/12 planned exit for the April puts: 10 cents (-84.6%)
04/18/12 prepare to exit the April $21 puts at the close tomorrow
04/12/12 new stop loss @ 22.51


Entry on April 02 at $21.70
Earnings Date 05/--/12 (unconfirmed)
Average Daily Volume = 3.6 million
Listed on March 31, 2011

DeVry, Inc. - DV - close: 32.26 change: -0.07

Stop Loss: 33.25
Target(s): 30.25
Current Gain/Loss: + 0.9%
Time Frame: up to the April 24th earnings report
New Positions: see below

04/21 update: We've got two days left for this DV trade. The company reports earnings on Tuesday, April 24th after the closing bell. We will plan to exit positions at the close on the 24th to avoid holding over the announcement.

current Position: short DV stock @ $32.54

04/21/12 prepare to exit on Tuesday at the closing bell
04/14/12 new stop loss @ 33.25
04/10/12 new stop loss @ 34.05
04/09/12 DV gapped open lower at $32.54


Entry on April 09 at $32.54
Earnings Date 04/24/12 (confirmed)
Average Daily Volume = 670 thousand
Listed on April 07, 2011

Hi Tech Pharmacal - HITK - close: 33.40 change: -0.08

Stop Loss: 35.05
Target(s): $30.50
Current Gain/Loss: + 2.9%
Time Frame: 2 to 4 weeks
New Positions: see below

04/21 update: HITK is hovering under technical resistance at its simple and exponential 200-dma. I am making a couple of adjustments. We will move the stop loss down to $35.05. We'll move our exit target down to $30.50. More conservative traders may want to exit near the simple 300-dma currently at $31.35 instead. I am not suggesting new positions at this time.

current Position: short HITK stock @ $34.40

04/21/12 new stop loss @ 35.05, adjust exit target to $30.50
04/19/12 planned exit for our April put: $1.30 (-13.3%)
04/18/12 prepare to exit our April $35 puts at the close tomorrow
04/14/12 new stop loss @ 35.55
04/10/12 triggered at $34.40


Entry on April 10 at $34.40
Earnings Date 07/05/12 (unconfirmed)
Average Daily Volume = 155 thousand
Listed on April 09, 2011

ICICI Bank Ltd. - IBN - close: 32.99 change: -0.63

Stop Loss: 34.85
Target(s): 30.25
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

04/21 update: IBN has fallen back toward support near $33 and closed under its 100-dma. This is good news if you're bearish. The stock is poised to break support soon.

I am suggesting a trigger to launch bearish positions at $32.75 with a stop loss at $34.85, just above Thursday's high. Our target is $30.25. More aggressive traders could aim lower.

Trigger @ 32.75

Suggested Position: short IBN stock @ (trigger)

- or -

buy the May $32 PUT (IBN1219Q32)


Entry on April xx at $ xx.xx
Earnings Date --/--/-- (unconfirmed)
Average Daily Volume = 1.9 million
Listed on April 14, 2011

Rovi Corp. - ROVI - close: 28.50 change: -0.25

Stop Loss: 30.55
Target(s): 26.25
Current Gain/Loss: + 2.6%
Time Frame: exit prior to the May 3rd earnings report
New Positions: see below

04/21 update: ROV continues to sink and shares closed at new ten-week lows. Nimble traders might want to launch new positions on a bounce near short-term technical resistance at the 10-dma.

Earlier Comments:
There is potential support near $28.00 and $26.00. We are setting our exit target at $26.25.

open positions on Monday morning

Suggested Position: short ROVI stock @ $29.27

- or -

Long MAY $30 PUT (ROVI1219Q30) Entry $2.45


Entry on April 16 at $29.27
Earnings Date 05/10/12 (unconfirmed)
Average Daily Volume = 1.2 million
Listed on April 14, 2011