Option Investor

Daily Newsletter, Tuesday, 1/29/2013

Table of Contents

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

Market Wrap

Market Running Out of Lives?

by Jim Brown

Click here to email Jim Brown

Yields at nine-month highs on the ten year treasury as money rotates out of bonds and into equities.

Market Statistics

The equity markets crept cautiously higher as they close in on the historic highs for the Dow and S&P. However there are some cracks beginning to show in the internals. Those cracks could be simply profit taking ahead of the FOMC, GDP, ISM and Jobs so we don't really want to bail out just yet.

One of the cracks today was a decline in the Russell 2000 small caps. With the Dow, S&P and NYSE all making new five year highs the Russell traded negative for most of the day with resistance at 905 proving to be a challenge. A buy program at the close turned it fractionally positive. If the Russell does continue to weaken it would be a sign fund managers are losing interest at this market level. The current rally may have already exhausted eight of its nine lives and is living on borrowed time.

Helping to dent market sentiment this morning was a major decline in Consumer Confidence for January. Confidence fell -8.1 points to 58.6 and that is the lowest level since November 2011. This was the third consecutive decline since the five year high of 73.1 high in October. The perception of economic conditions and rising tax rates weighed on the survey respondents.

The present conditions component declined from 64.6 to 57.3. The expectations component fell from 68.1 to 59.5 and the lowest level since Oct 2011. Those who felt jobs were plentiful fell -2.2 points to 8.6. That is the lowest level since September.

People who expected their income to decline rose from 19.1 to 22.9 and those expecting a raise fell from 15.6 to 13.6. That put the income index at -20.3 and the lowest level since 2009 when the recession was at its worst.

Those planning on buying a car declined from 12.2% to 10.1%. Home buying plans were unchanged and appliance buyers increased +1.6% to 47.7%.

Sentiment was dramatically lower for younger respondents. Those under 35 saw a monster -18 point decline while those over 35 were less concerned about current conditions.

Analysts claim the tax hikes were to blame for some of the decline in confidence along with the constant debate over spending in Washington. The democrat claim they are going to raise taxes again if they are forced to cut spending is a cloud over consumer spending. Lower spending means a slower economy and eventually a lower market.

Consumer Confidence Chart

The other reports out today were ignored by the market. The Business Employment Dynamics covered Q2-2012 and was a significantly lagging report. The Case Shiller home price index rose +5.5% for November compared to 4.3% in October. This was also a lagging report for the November period and investors ignored it.

The economic calendar for the rest of the week is a veritable mine field of major events. The ADP Employment on Wednesday is the first look at jobs for January. Analysts believe the ADP report will show a decline from +215,000 to +165,000 jobs. The Nonfarm Payroll report on Friday is expected to show jobs were flat at +155,000.

The Q4 GDP report on Wednesday is expected to decline from +3.1% growth in Q3 to only +1.2% in Q4. This number could have a lot of volatility in it as a result of hurricane Sandy and the reconstruction effort.

The FOMC announcement is not likely to roil the market unless there is an increase in dissenters on the Fed's current QE programs. There have been some Fed presidents speaking out against the current QE program where the Fed is purchasing $85 billion in securities each month. Analysts don't believe the Fed is going to change its program this year but there is always that risk as the economy improves. Changes to the FOMC statement will be heavily scrutinized.

Bloomberg published the results of a survey of 44 leading economists. Those economists believe the Fed will buy a total of $1.14 trillion in the current QE programs before ending or changing the program in Q1-2014. They believe it will take months of solid improvement in the economic reports before Bernanke will take his foot off the accelerator. They don't believe those reports will be out this year thanks to the tax hikes and cuts in government spending. Those two factors will cut GDP by up to -1 point and prevent GDP growth from moving over +2% in 2013. Bernanke has said he will not end the program until there are "substantial" gains in employment. In the last FOMC minutes the participants were "approximately evenly divided" between those who felt it would be appropriate to end the programs in mid 2013 and those who would continue until the unemployment target was hit. The Fed's balance sheet rose to more than $3 trillion in January and will be well over $4 trillion by year end if the QE programs are not halted. Nearly all the survey respondents and several members on the FOMC warn that the size of the balance sheet will make it nearly impossible to withdraw from the zero rare interest policy without the risk of major imbalances in rates and inflation.

The ISM Chicago, formerly the Purchasing Managers Index (PMI), will be of importance but not nearly as important as the ISM Manufacturing on Friday. Both of those reports are expected to post a decline in economic activity. If either falls back into contraction territory under 50 it could be market negative.

Plenty on the schedule and the results will be market reactive. These reports can either help push the markets to new highs or kill the current rally.

Economic Calendar

Stocks rallied once again with the Dow adding +72 points and the S&P gained +7. The Nasdaq was flat with a fractional loss. The gains were powered by earnings and not economics. Dow component Pfizer (PFE) reported earnings of $6.3 billion thanks to the sale of its nutrition business. This offset the drag on sales by generic drug competition. Excluding the sale of assets and one time fees Pfizer made $3.51 billion or 47 cents per share. That beat the street by 3 cents. Drug revenue declined -7% due to generic competition to Lipitor. The company guided for the full year to earnings of $2.20 to $2.30 and $57.2 billion in revenue and analysts were expecting $2.28 and $57.55 billion. Shares of Pfizer were +3% to $27.70 and a new five-year high.

Pfizer Chart

Eli Lilly (LLY) reported earnings that earnings of 85 cents compared to estimates for 78 cents despite a decline in sales. Profits declined -4% and revenues fell -1% due to competition from generic drugs. The patent on the drug Zyprexa expired and Cymbalta is the next major expiration in the pipeline. Including that expiration Lilly still expects full year revenues in the range of $23 billion. Analysts were expecting $22.93 billion. The earnings powered LLY shares to a new high at $54.32.

LLY Chart

Homebuilder DR Horton (DHI) reported earnings of 20 cents compared to analyst estimates of 14 cents. Net income rose from $27.7 million to $66.3 million thanks to low mortgage rates and a shrinking inventory of new homes. These results are going to be very tough for other builders to match when they release their earnings. Orders rose +39% to 5,259 homes. The contract backlog rose +70% to $1.76 billion. The CEO said DHI was in the best position it has ever been in its 35 year history. They anticipate a good selling season in the spring and put additional capital to work in Q4 to increase the number of homes under construction. They were also able to raise prices due to the shortage of inventory.

DHI Chart

Seagate (STX) crashed back to earth on Tuesday after it issued guidance for the current quarter that fell short of analyst estimates. Seagate reported earnings of $1.38 that were 10 cents over estimates with revenue rising +16% to $3.7 billion, also above estimates. The trouble came when it guided for revenue of $3.25-$3.45 billion for the current quarter that was below estimates of $3.48 billion and well below the $4.45 billion in the year ago period. That was when the Japanese drive manufacturers were offline from the tsunami and drive prices were going through the roof.

STX Chart

VMWare (VMW) reported earnings yesterday of 81 cents compared to estimates of 78 cents. Revenue rose +22% to $1.29 billion and just a fraction over the $1.28 billion estimate. However, the company said it was cutting 900 jobs and lowered its Q1 revenue forecast to $1.18 billion and below estimates for $1.25 billion. The company said it was facing a tough quarter because of a reduction in government spending and the weak economy. An expected increase in contract renewals has been pushed off until later in the year. Shares of VMW declined -21% on the news.

VMW Chart

After the bell today Amazon (AMZN) reported earnings of 21 cents compared to estimates for 28 cents. Revenue of $21.27 billion missed estimates of $22.27 billion by a whopping billion dollars. For any other company this would have resulted in a massive sell off and that is what happened in the opening seconds. Shares dipped to $249.50 from their close at $268 but the drop was short lived. Shares rebounded to close at $284 in the afterhours session for a gain of +$16 dollars. I know what you are thinking. For a company with a trailing PE of 2,892 you would expect massive investor selling on an earnings miss. Normally you would be right.

Amazon even guided for revenue of $15.8 billion for Q1 and analysts were expecting $16.86 billion. Don't worry, be happy! Who cares?

Investors liked the better than expected operating income of $405 million compared to $260 million in the year ago quarter. They liked the gross profit margins at 24% compared to street estimates for 22%. That was the highest margins in more than three years. Third party market sales rose from 36% to 39% of Amazon's business. That is inventory Amazon sells for others. Unit sales rose more than 40%. Amazon's cloud services, web services and advertising services business rose +68% from the year ago quarter. The video streaming business (like NetFlix) is also exploding higher.

Jeff Bezos said the E-book division was now a multibillion a year category that grew +70% in 2012 compared to only 5% growth in physical books. That 5% growth rate was the lowest in Amazon's 17 years as a retailer. Amazon does not disclose how many Kindles it sells but the CFO said sales would have been higher if they had not sold out of their inventory around the holidays. He said the "Paperwhite" model was the best E-reader in the line and they could not keep them in inventory. Amazon makes no money from selling the actual tablet and readers but they make a fortune from selling the electronic books. A three year old Kindle makes just as much profit as a new Kindle so there is no urgency for Amazon to press readers to upgrade.

As usual Amazon shorts were crushed once again as the stock pushed to a new high after the earnings.

Amazon Chart

The earnings calendar for Wednesday will be led by Boeing, Conoco and Qualcomm. Boeing will update on the current ground of the 787 fleet and the prospect for a solution. Since they have not yet found out what is causing the problem it could be weeks before a solution is reached.

Qualcomm could be interesting because they are the source of products for the majority of smartphones and tablets. However, Broadcom fell sharply after earnings tonight reporting earnings that beat the street by 2 cents but warned that expenses were rising. This puts the pressure on QCOM when they report. Also, the cancellation of orders by Apple could be a challenge.

So far this quarter 75% of the S&P companies already reported have beaten estimates and 67% have beaten on revenue. The revenue number is the highest percentage since Q2-2011. Less than half of companies reporting had higher revenue in Q2 and Q3. Guidance has not been stellar with less than half raising the bar on future earnings.

Earnings Calendar

Irrational exuberance continues to be the name of the game in 3M shares after they reported earnings that were in-line with estimates last Thursday. Revenues rose +1% for the year with earnings of $6.32. 3M's outlook was bullish despite the flat sales. The company is seen as a proxy for the global economic environment and apparently investors liked the story.

MMM Chart

Shares of JC Penny (JCP) rallied +9% after the company said it would hold sales on popular items tied to key events like Valentines Day, Easter, Mothers Day, etc. The spokesman said there would be fewer than 100 of these events in 2013 compared to 600 unique promotions in 2011. The company also said it was sending emails to customers alerting them to clearance items (on sale), $10 in-store coupons, 30% discount coupons, free children's haircuts and free family portraits. Is it just me or did we just see the end of "everyday low pricing" and the return of the weekly sales program? How can you have 100 events in 2013? There are not that many holidays. Shorts ran for cover and the stock posted its biggest gain since early December.

JCP Chart

Chesapeake Energy (CHK) announced after the close that their embattled CEO, Aubrey McClendon, would retire on April 1st. McClendon founded the company in 1989 and has been a lightning rod for the company in recent months. There have been numerous disclosures that suggested McClendon used the company as his personal piggybank and the stock price was cut in half as multiple investigations began. One such dealing was what he called a "Founders Well Participation Program" where he got 2.5% of every well the company drilled. He then arranged for loans on those well interests through shell companies he owned. News of his retirement gave shares an 8% boost in afterhours.

CHK Chart

Apple shares rallied for the second day with an $8 gain after they announced a new iPad with 128GB of memory. They claim this iPad will rival traditional notebooks with its speed, capacity and Retina display. The new tablet will cost $799. Some believe this is the wrong direction for Apple. With competing tablets and phones getting cheaper by the day, Apple is raising prices. Apple saw average revenue per iPad in Q4 of $467 compared to $568 in the year ago quarter. Gross margins shrank from 44.7% to 38.6%. Packing in an extra 64 GB of expensive memory will only appeal to a limited few and the increase in profit may be minimal.

Apple Chart

The strong Durable Goods number on Monday and the news on housing from D.R. Horton helped to push crude prices over the $97 level to a four month high. The durable goods report for December showed a sharp spike in orders of +4.6% compared to the prior month at +0.7% and consensus of only +1.8%. Violence in Egypt and more comments out of Iran also helped to reinforce the security premium.

WTI Crude Oil Chart

The ETF industry celebrates its twentieth birthday this week. The S&P-500 ETF, the SPY, started life 20 years ago with a total of $7 million in assets. Today that ETF has more than $123 billion in assets. The ETF industry has grown to total assets of $1.34 trillion and more than 1,241 funds. Some would say we have done ETF crazy. You can find an ETF on almost anything but there is no guarantee it will have enough volume to be a viable product.

The bond market sold off a little more on Tuesday with the yield on the ten-year treasury easing closer to 2%. This is not a rout or wholesale dumping by any stretch of the imagination. This is a calm rotation on low volume as equities head for their date with destiny at all time highs on the Dow and S&P. Quite a few analysts believe we will see another cycle of bond buying once the equity markets take a much needed rest. Once that equity retracement comes the bond groupies will use the spike in bonds to start unloading so they can buy the dip in equities.

While that story sounds likely we never know what is around the next corner. However, there is almost no scenario where interest rates stay low for much longer. The bond bubble has run its course and once the Fed halts the QE programs bonds will see a tidal wave of sellers. I would expect that most intelligent bond investors would rather get out ahead of that event but they have a few months left before the tide begins to rise.

Ten-year Yield Chart

The Dow closed about 200 points below its historic high and the S&P about 57 points. I think I heard or read at least a dozen analysts claiming we will hit historic highs either this week or next. Very few had a comprehensive guess as to what happens once those highs are hit.

Unfortunately the internals are suggesting there is trouble ahead. Across all the markets there were 3,544 decliners and 3,075 advancers. Yes, there were more decliners than advancers on a day when the Dow and S&P had decent gains. You are probably thinking it was due to the Nasdaq finishing down for the day. You would be wrong. On the Nasdaq there were 1,351 advancers and 1,020 decliners. Yes, more advancers on a down day. The advancing volume at 1,048 million shares was 43% higher than declining at 730 million.

The NYSE A/D line was negative at 1,821 decliners to 1,316 advancers. The S&P was negative with 306 decliners to 170 advancers. New highs declined for the second day but were still healthy at 868 compared to Friday's 1,045.

The point here is that market breadth is shrinking as we near the top. We are half way through the earnings cycle and guidance has not been that exciting. The markets are up 8% to 10% for the year depending on the index and we are not yet out of January.

February is not known as a bullish month. Once the earnings are past the midpoint and the late January economics are in the book we have a good chance of a decent retracement of some of these gains.

Nearly everyone believes there will be a 3% to 5% decline and then we will charge off to new highs in March. As the tax man approaches in April there is typically a sales event as investors raise cash to pay the bill.

This year we have the sequestration coming due on March 1st and the sound bites are starting to flow on that manufactured crisis. That will be followed up by the continuing resolution at the end of March.

When looking at the roadmap for the next 60 days the market direction over the next week is not that important. Stocks go up, stocks go down. We would just like to see a trend higher that lasts for more than a few weeks. I suspect that will be the case once we have some profit taking to provide new entry points.

Looking at the reprint of the 3M chart below I suspect you would not be a buyer of that chart. Multiple that by a thousand other companies that made new highs on Friday and you get the picture. Fund managers may want to be long but they don't want to by 3M or any other breakout stock without a pullback. We just have to understand this and wait for the pullback.

3M Chart

The S&P 500 inched slowly but persistently higher with a $7 point gain to close at 1,507. The index is very extended but the rate of climb over the last month has been slow. In fact it has been at exactly the pace investors would like to see the rest of the year. There has been low volatility and very few major moves. This is the perfect investment environment with nine consecutive gains out of the last ten days. Eventually this will end. Just note the red candles on the chart below. There is no such thing as an uninterrupted bull market. About once every three weeks we see several days of losses except for the month of January. Be prepared, you can rest assured it is coming.

Support is now 1,500 and the next target is the 1515 close from Dec-10th, 2007.

S&P Chart

The Dow chart looks eerily like the 3M chart. The number of days with gains has stretched to 12 out of 14 and there has not been a material dip since 13,500. The 14,000 level could be an electric fence but I think it will depend more on the economics on Wednesday than a 46 point move to 14,000. That is a large round number but the one traders are focused on is 14,164 and the historic high close from 2007. The odds are good we will reach that level in the next 8 days but I would be concerned about the market reaction once it happens.

Dow Chart

The Nasdaq is really struggling to move higher. The three points forward, two points back, movement is very frustrating for tech investors. All the other indexes are breaking out to multiyear or historic highs and the Nasdaq can barely close positive more than one day in a row.

The Nasdaq should get a boost from Amazon on Wednesday but the Nasdaq futures are only up +2 points tonight. The chip sector was a drag on Tuesday and the Semiconductor Index at 413 is far from new highs with the historic high at 1,362. You would think that all the electronic devices in the world today would be powering these companies higher but the competition on price and capability is holding profits in check.

There is the potential for a head and shoulders top on the Nasdaq if there is not a breakout soon. If the Nasdaq rolls over in the next week or so it could drag the rest of the indexes lower as well.

Support is 3,125 and resistance 3,160.

Nasdaq Chart

After spending most of the day in the red the Russell 2000 managed to slip into the green at the close. For four days now the Russell has been fighting prior resistance at 900 and it remains close enough to be clawed back on any market upset. The Russell has gained +167 points since the November low with only one material hiccup in late December. It is very over extended and due for a rest.

Russell Chart

In the dictionary the term overextended has a picture of the Dow Transports chart. I would not buy this chart with your money.

Dow Transport Chart

I am no longer in dip buy mode, at least the kind of dips we have seen recently. The opening declines have been minimal and they have been matched by afternoon gains that kept the major averages moving higher. I think we have reached the end of our yellow brick road.

I would be a dip buyer of a multiple day dip but it needs to be a decent dip of more than a couple percent. We are too close to the historic highs and the bears are getting itchy trigger fingers. We need a decent dip to suck them back into the market and then enough rebound to trigger a new short squeeze.

I would be very cautious about committing new money to the market and I would tighten up stop losses on existing long positions.

We can go higher from here but we NEED to go lower first.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

New Plays

Potential Short Squeeze

by James Brown

Click here to email James Brown


Avis Budget Group - CAR - close: 22.01 change: +0.00

Stop Loss: 21.40
Target(s): 24.75
Current Gain/Loss: unopened

Entry on January -- at $--.--
Listed on January 29, 2012
Time Frame: Exit prior to earnings on Feb. 13th
Average Daily Volume = 1.7 million
New Positions: Yes, see below

Company Description

Why We Like It:
Avis is a car rental company. What makes this company different from its competitors is that CAR is currently in process of buying Zipcar (ZIP) for $511 million. ZIP is a membership car-sharing plan. Whether you believe the ZIP concept will work or not shares of CAR are on the rise. The stock could see a short squeeze. The most recent data listed short interest at almost 15% of the 87.7 million share float.

Right now CAR is hovering near resistance at the $22.00 level. I am suggesting a trigger to open bullish positions at $22.25. If triggered our target is $24.75. However, we will plan on exiting prior to the company's earnings report on Feb. 13th.

Trigger @ 22.25

Suggested Position: buy CAR @ (trigger)

Annotated chart:

In Play Updates and Reviews

Still Buying Dips

by James Brown

Click here to email James Brown

Editor's Note:
Traders are still buying the dips but momentum seems to be slowing down.

NTGR was stopped out today. We have removed MFLX. Prepare to exit a few trades prior to earnings in the next few days.

Current Portfolio:

BULLISH Play Updates

Asbury Automotive Group - ABG - close: 34.77 change: +0.32

Stop Loss: 33.40
Target(s): 38.50
Current Gain/Loss: - 1.4%

Entry on January 24 at $35.25
Listed on January 23, 2012
Time Frame: Exit PRIOR to earnings on Feb. 19th
Average Daily Volume = 275 thousand
New Positions: see below

01/29/13: For the third day in a row ABG has dipped to and bounced from short-term technical support at its rising 10-dma. The stock outperformed the market with a +0.9% gain on the session. Readers can use this intraday rebound as a new bullish entry point.

We are planning to exiting prior to the Feb. 19th earnings report.

Please note that we do want to keep our position size small to limit our risk.

*Small positions*

current Position: Long ABG stock @ $35.25

Acorda Therapeutics - ACOR - close: 29.68 change: +0.09

Stop Loss: 27.25
Target(s): 31.00
Current Gain/Loss: + 4.1%

Entry on January 22 at $28.50
Listed on January 19, 2012
Time Frame: 3 to 4 weeks
Average Daily Volume = 417 thousand
New Positions: see below

01/29/13: There is no change from my prior comments on ACOR. The stock is nearing what could be round-number resistance at the $30.00 level. Do not be surprised to see an initial pullback on the first test of the $30.00 mark. More conservative traders may want to exit early and take profits near the $30.00 mark instead.

current Position: long ACOR stock @ $28.50

Ball Corp. - BLL - close: 46.22 change: +0.12

Stop Loss: 45.80
Target(s): 48.40
Current Gain/Loss: + 5.4%

Entry on November 06 at $43.85
Listed on November 3, 2012
Time Frame: exit prior to earnings on Jan. 31st
Average Daily Volume = 687 thousand
New Positions: see below

01/29/13: This is it. Tomorrow is our last day. We plan to exit this trade tomorrow at the closing bell to avoid holding over earnings. I am raising our stop loss to $45.80.

current Position: Long BLL stock @ $43.85

01/29/13 new stop loss @ 45.80, exit tomorrow at the close
01/26/13 new stop loss @ 45.40, prepare to exit on Jan. 30th at the closing bell if BLL doesn't hit our target by then
01/17/13 new stop loss @ 44.80
01/05/13 adjusting the exit target to $48.40
01/02/13 new stop loss @ 44.40, adjust target to $47.00
12/20/12 new stop loss @ 43.85
12/12/12 new stop loss @ 43.45
11/24/12 new stop loss @ 43.25
11/17/12 new stop loss @ 42.55
11/06/12 triggered @ 43.85

Cognex Corp. - CGNX - close: 39.75 change: -0.15

Stop Loss: 38.80
Target(s): 44.00
Current Gain/Loss: unopened

Entry on January -- at $--.--
Listed on January 26, 2012
Time Frame: Exit PRIOR to earnings on Feb. 11th
Average Daily Volume = 192 thousand
New Positions: Yes, see below

01/29/13: CGNX is coiling for a bullish breakout past resistance at $40.00. There is no change from my prior comments.

I am suggesting a trigger to open bullish positions at $40.15. If triggered our target is $44.00. However, we do not want to hold over the Feb. 11th earnings report.
FYI: The Point & Figure chart for CGNX is bullish with a $57.00 target.

Trigger @ 40.15

Suggested Position: buy CGNX stock @ (trigger)

Computer Sciences Corp. - CSC - close: 42.59 change: -0.01

Stop Loss: 40.90
Target(s): 44.90
Current Gain/Loss: + 0.9%

Entry on January 22 at $42.60
Listed on January 15, 2012
Time Frame: Exit prior to earnings on Feb. 5th
Average Daily Volume = 1.4 million
New Positions: see below

01/29/13: Traders bought the dip near $42.00 this morning. I am raisin our stop loss to $40.90. I am not suggesting new positions.

Don't forget that we plan to exit prior to earnings on Feb. 5th.

current Position: long CSC stock @ $42.60

01/29/13 new stop loss @ $40.90
01/22/13 trade opened on gap higher @ $42.60

FLIR Systems - FLIR - close: 24.28 change: +0.10

Stop Loss: 23.45
Target(s): 26.25
Current Gain/Loss: + 0.3%

Entry on January 28 at $24.20
Listed on January 26, 2012
Time Frame: exit PRIOR to earnings on Feb. 7th
Average Daily Volume = 952 thousand
New Positions: Yes, see below

01/29/13: The dip-buying continues in shares of FLIR. The stock did close near its highs for the session, which should bode well for tomorrow.

Earlier Comments:
This is a short-term trade. I am suggesting small bullish positions at the open on Monday. We will exit prior to the earnings report on February 7th. Our target is $26.25.
FYI: The Point & Figure chart for FLIR is bullish with a $34.50 target.

*Small Positions*

Suggested Position: Long FLIR stock @ $24.20

Gulfport Energy - GPOR - close: 42.60 change: +0.64

Stop Loss: 39.65
Target(s): 44.50
Current Gain/Loss: + 3.9%

Entry on January 22 at $41.02
Listed on January 19, 2012
Time Frame: 4 to 6 weeks
Average Daily Volume = 1.0 million
New Positions: see below

01/29/13: Good news! In just the last few minutes of trading GPOR managed to breakout past resistance near $42.00 and close at a new all-time high. I am raising our stop loss to $39.65.

Earlier Comments:
Our multi-week target is $44.50. Keep in mind that GPOR doesn't move super fast and we will plan to exit prior to its late February earnings report.

current Position: long GPOR stock @ $41.02

01/29/13 new stop loss @ 39.65

Hartford Financial Services Group - HIG - close: 24.89 chg: +0.10

Stop Loss: 23.95
Target(s): 27.50
Current Gain/Loss: + 0.4%

Entry on January 23 at $24.80
Listed on January 22, 2012
Time Frame: exit PRIOR to earnings on Feb. 4th
Average Daily Volume = 4.6 million
New Positions: see below

01/29/13: We only have a few days left for this trade to work and HIG needs to pick up the pace. The stock is trending higher but it's been stuck under round-number resistance at $25.00 the last few days. The company is scheduled to report earnings on Monday, Feb. 4th after the closing bell. We do not want to hold over the report. Therefore we will plan to either exit this coming Friday at the close or on Monday at the closing bell.

I am adjusting our stop loss to $23.95.

current Position: Long HIG stock @ $24.80

01/29/13 new stop loss @ 23.95. We only have a few days left.

Coal ETF - KOL - close: 25.35 change: +0.42

Stop Loss: 24.85
Target(s): 29.85
Current Gain/Loss: - 2.9%

Entry on January 08 at $26.10
Listed on January 07, 2012
Time Frame: 6 to 8 weeks
Average Daily Volume = 190 thousand
New Positions: see below

01/29/13: I am honestly surprised that KOL did not hit our stop loss today. Shares gapped open higher and outperformed the market with a +1.6% gain. It could just be a little oversold bounce after a four-day decline. I would not open new positions.

Suggested Position: Long the KOL (etf) @ $26.10

- (or for more adventurous traders, try this option) -

Long APR $27 call (KOL1320D27) entry $1.03

01/26/13 KOL is not performing. Readers may want to just exit early now.
01/12/13 new stop loss @ 24.85

North American Palladium - PAL - close: 1.70 change: +0.02

Stop Loss: 1.35
Target(s): 2.45
Current Gain/Loss: + 3.0%

Entry on January 14 at $ 1.65
Listed on January 12, 2012
Time Frame: 8 to 9 weeks
Average Daily Volume = 2.8 million
New Positions: see below

01/29/13: PAL spent the day churning sideways in a narrow range. I am not suggesting new positions at this time.

Readers might want to consider raising their stops toward the $1.45 level.

current Position: long PAL stock @ $1.65

Sonic Corp. - SONC - close: 11.17 change: -0.02

Stop Loss: 10.80
Target(s): 12.75
Current Gain/Loss: + 0.2%

Entry on January 14 at $11.15
Listed on January 12, 2012
Time Frame: 8 to 9 weeks
Average Daily Volume = 658 thousand
New Positions: see below

01/29/13: SONC also spent Tuesday's session drifting sideways in a narrow range. A move past $11.25 or its 10-dma could be used as a new bullish entry point.

Earlier Comments:
Our multi-week target is $12.75. We may have to be patient to give SONC time to get that far. FYI: The Point & Figure chart for SONC is bullish with a $15.50 target.

current Position: Long SONC stock @ $11.15

01/26/13 new stop loss @ $10.80

BEARISH Play Updates

K12, Inc. - LRN - close: 18.44 change: -0.20

Stop Loss: 20.05
Target(s): 16.25
Current OPTION Gain/Loss: -10.0%
Entry on January 15 at $18.90
Listed on January 14, 2012
Time Frame: Exit prior to earnings on Feb. 5th
Average Daily Volume = 221 thousand
New Positions: see below

01/29/13: LRN continues to sink. The stock underperformed the market again today. Yet we need LRN to pick up the pace. We only have a few days left. The company is scheduled to report earnings on Feb. 5th. We will plan on exiting on Feb. 4th if shares don't hit our target by then.

long Feb $20 PUT (LRN1316n20) entry $2.00*

01/26/13 new stop loss @ 20.05
*01/15/13 our entry point on the option is an estimate. There were a few trades at $1.80 this morning before LRN hit our entry point.

Questcor Pharmaceuticals - QCOR - close: 25.59 change: -0.06

Stop Loss: 26.25
Target(s): 20.50
Current Gain/Loss: unopened

Entry on January -- at $--.--
Listed on January 15, 2012
Time Frame: exit prior to earnings in late February
Average Daily Volume = 1.8 million
New Positions: Yes, see below

01/29/13: There is no change from my prior comments on QCOR. Right now we are waiting on a breakdown below support.

I am suggesting a trigger to open bearish positions at $24.90. If triggered our target is $20.50.

Please note: that short interest on QCOR is significant. The most recent data listed short interest at 50% of the 54.7 million-share float. It might be easier and safer* to buy put options on QCOR instead of trying to short the stock.

*By using puts you can limit your risk to the cost of your initial investment of the put price.

Trigger @ 24.90

Suggested Position: short QCOR stock @ (trigger)

- (or for more adventurous traders, try this option) -

buy the Feb $25 PUT (QCOR1316n25)


Netgear Inc. - NTGR - close: 36.38 change: -4.45

Stop Loss: 38.90
Target(s): 44.50
Current Gain/Loss: - 0.6%

Entry on January 29 at $39.13
Listed on January 28, 2012
Time Frame: Exit prior to earnings on Feb. 12th
Average Daily Volume = 218 thousand
New Positions: see below

01/29/13: NTGR is another great example of why you have to play with stop losses. Last night NTGR announced they were buying the assets of the Sierra Wireless' AirCard business for $144.5 million. NTGR is a company with $1.27 billion in annual revenues. It was not a big acquisition. However, buried deep inside the acquisition press release NTGR's management also issued an earnings warning and lowered guidance. Now add on top of that the headlines out this morning from the U.S. government about how networking gear was at risk to hackers. They were not picking on NTGR but all the networking gear available. Of course the government warning didn't help the mood for NTGR.

The stock gapped open lower at $39.13 and quickly hit our stop loss at $38.90 before plunging to a -10.8% decline on the session. Thankfully the gap down at the open minimized our losses to just -0.6%.

*Small Positions*

closed Position: long NTGR stock @ $39.13 exit $38.90 (-0.6%)

01/29/13 stopped out at $38.90
01/29/13 opened on gap down at $39.13

Annotated chart:


Multi-Fineline Electronix - MFLX - close: 16.06 change: +0.19

Stop Loss: 15.55
Target(s): 12.65
Current Gain/Loss: unopened

Entry on January -- at $--.--
Listed on January 23, 2012
Time Frame: exit PRIOR to earnings on Feb. 7th
Average Daily Volume = 108 thousand
New Positions: Yes, see below

01/29/13: The oversold bounce in MFLX continues. The stock is up three days in a row and unlikely to hit our bearish entry point at $14.85 before the company reports earnings on Feb. 7th.

I am removing MFLX as a candidate. Our play never opened.

Trade did not open.

01/29/13 removed from the newsletter