Option Investor

Daily Newsletter, Wednesday, 12/4/2013

Table of Contents

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

Market Wrap

Another Day, Another Selloff

by Keene Little

Click here to email Keene Little
The S&P 500 and Dow Industrials have declined 4 days in a row, which has some thinking the long-awaited market correction is upon us. While more downside can be expected, the bulls are far from in trouble.

Market Stats

It was a fairly volatile day today as the bears tried to drive the market lower but the bulls kept wrestling back the control stick. As we've seen each day this week, the market started off with selling but then tried a recovery. For the 3rd day in a row the dipsters went unrewarded as the bounce failed and the market dropped to new lows. There was a spike down of about 60 points for the DOW, followed by a spike up of about 110 points, followed by a stronger drop where the DOW gave up about 170 points and that was followed by an afternoon bounce that retraced about 100 of that 170 point drop. The end result was a finish in the red but only down about -25 points. Nice roller coaster ride though.

We got a lot of economic reports this morning and Thursday and Friday will be busy as well. Before the bell we got the MBA Mortgage Index, which declined by -12.8% in the last week of November. After the bell we got the New Home Sales reports for September and October and it was a mixed message. The September number came in less than expected, 354K vs. 432K, and it was a drop from August's downwardly revised 379K. But then October picked up with an increase to 444K, which was better than the 420K that had been expected and certainly better than September's 354K.

There was a big jump up at 10:00 this morning and it could have been the better-than-expected New Home Sales report or it might have been the worse-than-expected ISM Services number, also out at 10:00 AM. The number for November was 53.9, a drop from October's 55.4 and below expectations for 55.0. Worse than expected is good for the Fed watchers who don't want to hear about any tapering. There's a reason why it doesn't pay to follow news since it really is hard to guess how the market is going to react.

Before the bell we also received the ADP Employment report, which showed a gain of +215K. That was better than the expected +160K and better than October's upwardly revised +184K (revised up from +130K). This was a good report (about employment) and there was a small positive reaction in the equity futures but then it dropped a little lower into the open as traders realized good employment numbers are bad for the market (Fed tapering and all).

Many have been expecting this Friday's Payrolls report to show a downward revision of the +212K that was reported in October (because of all the adjustments that were made because of the government shutdown) but today's ADP report now has many thinking the Payrolls report will be stronger than expected. Will that be good or bad? How will the Fed react? Is a strong employment number good for the economy and therefore the stock market? What happens if the Payrolls report bombs? Will that spark a rally in favor of the Fed keeping their foot firmly planted on the gas pedal? It will be a pleasure when we get to exclude the Fed from the equation.

At 2:00 PM the Fed's Beige Book was released and that helped the market continue its afternoon rally. Or at least it didn't kill the rally that had already started. There were no surprises in the report and the same language about the economy was used -- "modest to moderate" economic growth. There was a small boost in the economy from manufacturing, especially autos and high-tech production, and a housing recovery (mostly multi-family) but it was noted that the pace has been slowing. Overall the assessment seems to be that the report shows mixed reviews about the economy. Stuck in neutral.

I'm going to spend a little more time than usual on some longer-term charts of the DOW and SPX to provide some perspective on where we are and what I see as the next big move. Starting with the DOW's monthly chart, it shows the DOW finally made it up to the trend line along the highs from 2000-2007, near 16140. During Friday's half-day session it popped above the line, with a high at 16174, but then closed down for the day. From a Fib perspective I see the potential for a rally to 16300, which is where the leg up from 2009 would achieve the 127% extension of the previous decline (2007-2009). That's just a guide, and we could certainly be close enough, but it's often a good level to watch for a reversal setup. The big expanding triangle pattern calls for one more leg down to complete the a-b-c-d-e pattern and a drop to about 5400-5500 in the 2016-2018 time span is the current projection. Once that completes we'll then be at the conclusion of the big bad bear market and ready for the next secular bull market.

Dow Industrials, INDU, Monthly chart

The leg up from 2009 is essentially a 3-wave move, as would be expected in a triangle pattern, and the 2nd leg up started from October 2011. There are a couple of ways I can label the move from an EW (Elliott Wave) perspective and the weekly chart below shows one. As part of a double zigzag wave count I've got the rally labeled as an A-B-C (3-wave move up to the 2012 high and then the 2nd 3-wave move up from October 2011. The 2nd leg of the move up from October 2011 would be 162% of the 1st leg up at 16702, which is very close to the projection for two equal legs up from 2009, which points to 16686. So that's the upside potential if the bulls are not finished yet. As pointed out above, there's also the 127% extension at 16300. But now that the DOW has reached the line across the highs from 2000-2007 there is the potential the rally has now completed. Part of the problem in figuring out whether or not a high is in place is how to count the move up from either August or September.

Dow Industrials, INDU, Weekly chart

Getting in closer with the daily chart below, you can see how last Friday's candle was a shooting star at resistance, which was then followed by Monday's red candle. That made for a confirmed reversal signal at resistance and I started looking for lower from there. Today's close was below its 20-dma, which held yesterday's close, and this is the first time since it was recovered in mid-October. The short-term wave count suggests a bounce into tomorrow, maybe Friday, and then another leg down into next week to match the leg down from Friday. I'm taking it one leg at a time while trying to figure out the longer-term pattern but at the moment the DOW is looking bearish.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 16,175
- bearish below 15,721

A couple of weeks ago I had shown a monthly chart of SPX and how it has pressed above its Bollinger Band (and I labeled the rally the "Bernanke Bubble" following the Tech Bubble in 2000 and Housing Bubble in 2007) as well as a comparison to the commodity index, showing how wide the two have separated as the stock market has rallied while the commodity index has declined. Neither of these charts has changed and both point to a very strong correction coming when it comes (she'll be coming around the mountain when she comes...). The DOW's monthly chart supports this expectation as well.

Another way to look at the longer-term chart is to compare it to the VIX, which as can be seen on the SPX monthly chart below, the VIX has made a higher low than its 2007 low while SPX has rallied to new highs. That's bearish non-confirmation. In addition to that we have RSI showing bearish divergence at the 2007 high and now the new high. We should not be seeing this if the bull market had a couple more years to run, as many market pundits now claim. At market tops it's important to keep in mind that most people believe the bull market has a lot more to go.

S&P 500, SPX, vs. VIX, Monthly chart

Along with the longer-term bearish divergence seen on the monthly chart above, we can see shorter-term bearish divergence on the weekly chart below. This one compares the new price highs to the lower a-d line (I'm using a 10-dma to smooth out the jagged peaks and valleys). Notice the lower a-d high into the May 2011 price high and now the a-d divergence since the September 2012 high. This can't continue and will very likely resolve in favor of the bears.

SPX vs. Advance-Decline line, Weekly chart

At the moment I'm counting the move up from August as a completed 5-wave move, which suggests we're at the very beginning of a major decline. But I could also argue that last Friday's high was the completion of the 3rd wave and not the 5th, which means we need a pullback followed by one more rally leg into the end of the year (green dashed line). The short-term bullish path would likely see SPX reach at least 1835 (I've got a price projection there) and probably 1850.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1814
- bearish below 1775

One of the first things I was looking for this week was to see if we'd get a 5-wave move down or just another 3-wave pullback correction. That gives me the first clue about the larger pattern. As of this afternoon's low we have a 5-wave move down, which is an impulsive move, and that tells us we have at least a short-term change in trend. A bounce to correct the decline from last Friday, perhaps into this coming Friday, should then be followed by another leg down.

On the 60-min chart below I'm projecting a bounce to support-turned-resistance near 1802 but obviously that's just a guess right now. But assuming it reaches that level and turns back down from there I would expect a drop at least to the 1768 area for two equal legs down from last Friday. A stronger decline, where the 2nd leg of the decline achieves 162% of the 1st leg, would target the 1746-1747 area. What I'm showing is a 4th wave correction from the 1746 area and then another leg down to the 1740 area before the end of next week to give us a larger 5-wave move down. If that plays out then we'll get a bounce into opex week but it will be a bounce to short into the end of the year (no Santa Claus rally). But if another leg down finds support in the 1768 area and starts back up strongly then I'll be looking for an end-of-year rally, possibly into early January to meet some cycle turn dates.

S&P 500, SPX, 60-min chart

Unlike the other indexes, NDX has been chopping its way lower this week and this supports the idea that it's in a small 4th wave pullback correction in the move up from November 7th. The uptrend line from October 9th, currently near 3431, should hold the pullback if reached, and then one more leg up to compete the 5th and final wave. At the moment I'm showing a projection up to about 3540 before the end of next week and then start a decline from there. That would mean a bearish opex week so it will obviously have to be evaluated more closely next week. A drop below the November 18th high, at 3429.20, would be bearish since it would be an overlap of the 1st wave in the move up from November 7th. Therefore NDX stays bullish above that level, especially since a drop below it would also be a break of its uptrend line.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 3514
- bearish below 3429

The choppy pullback pattern for NDX this week is shown on its 60-min chart below. I'm showing an expanding triangle, which are not as common as contracting triangles but they're typically found in 4th and b-wave positions. So it fits here. The expanding triangle pattern calls for a lot of volatility and whipsaws and we certainly had that today. One more leg down in the widening pattern would finish it and set up the 5th wave rally into next week. Another drop to the bottom of the triangle would also be a test of its uptrend line from October 9th and as long as it stays above 3429 I'd look to be a buyer of the decline and ride it back up into next week.

Nasdaq-100, NDX, 60-min chart

The RUT's daily pattern mimics the others but it hasn't been clear enough for me to trust. The drop below its November 18th high, at 1119.98, negates the 5-wave count for the move up from November 7th but for the wave count I'm using it doesn't matter. An ending diagonal rising wedge) for the 5th wave starting from August fits very nicely here and calls for the next rally leg to start from here. I've got an upside projection to about 1160 into opex week. This is in opposition to what I'm expecting for the other indexes (another leg down following the bounce off today's low) so we'll have to see who will win the tug of war here.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1147
- bearish below 1096 -

Bond prices have been working lower since the October highs but the pattern looks choppy and supports the idea that we're going to get another rally for bonds. The 10-year yield, TNX, has made it back up to its downtrend line from 2007-2011 (log scale chart) with today's high at 2.852%. We'll soon find out if that line of resistance will hold or not but at the moment I'm thinking it will and it could be completing the right shoulder of a H&S reversal pattern since June. It takes a break below the July and October lows at 2.46% to confirm a high for the rally, which started from the July 2012 low, has finished.

10-year Yield, TNX, Daily chart

A longer-term perspective of the banks is shown with the weekly BKX chart below. The rally into the November 25th high, at 68.45, had achieved two equal legs up from its October 9th low and at the time I thought that might cap its rally. A sharp decline to below the October 9th low, at 61.07, could follow as part of a larger corrective pattern off the July 28th low, or something more bearish. There's a little more upside potential if we get a Santa Claus rally -- the 50% retracement of the 2007-2009 decline is at 69.45, only a dollar above the November 25th high. Reaching that 50% retracement, to complete its 3-wave bounce pattern off the 2009 low, would be an interesting setup for the start of the next bear market.

KBW Bank index, BKX, Weekly chart

The U.S. dollar has been ping-ponging between its 20-dma above and 50-dma below and could be consolidating before it gets another leg down to complete a pullback before heading higher again. But it could also be basing just above its 50-dma and getting ready to take off to the upside. The strong impulsive move up from the end of October to the November 7th high, followed by a very choppy pullback pattern, strongly suggests we've got another rally leg coming.

U.S. Dollar contract, DX, Daily chart

The metals got a strong bounce today, which reversed the strong decline on Monday. It's not clear yet whether a higher bounce will continue or if it's instead going to continue lower. I've been expecting a bounce up to the 1300 area for a couple of weeks but so far it's been struggling to get anything going. Until gold can climb above 1300 I'll continue to look for lower prices.

Gold continuous contract, GC, Daily chart

Silver also bounced today and almost broke its downtrend line from the end of October. It broke it briefly today but then pulled back and closed at the line. I show a higher bounce coming, maybe up to the 21.75 area, but unless it can get above 22 I'm expecting lower prices for silver as well as gold.

Silver continuous contract, SI, Daily chart

Oil finally got a bounce off support near 92 and today it hit resistance at its downtrend line from August, near 97.40. Its 50-dma is just above that at 97.62 and then its 200-dma at 98.46. Bullishly, RSI has broken its downtrend line from July and I see the potential for a higher bounce following a pullback from resistance, perhaps up to the 100 area by the end of the year. But then lower prices from there.

Oil continuous contract, CL, Daily chart

Before the bell tomorrow morning we'll get the Challenger Job Cuts, unemployment claims and the 2nd estimate for GDP. Factory orders will come out at 10:00, which are expected to show slowing into contraction territory

Economic reports and Summary

There's been a lot of speculation this fall about how much longer this bull market from 2009 can continue. Some claim it's long in the tooth while others claim it has years to go. I came across this interesting chart that T. Rowe Price had done, showing the bull markets since 1928. It shows each bull market in both length of time (horizontal axis) and % gain (vertical axis). The average gain is +165% and the average length of time is 57 months. As of this month the bull market is 57 months old and the S&P 500 has gained +164%. So it's an average bull market so far. Interestingly, you can see how far out in left field the 1990-2000 bull market was, both in time and % gain. So neither side can make a strong argument for either an end to the bull market or for further gains. But while the bull market could continue, we know what comes next.

Historical Bull Markets, chart courtesy T. Rowe Price

The bulls have the first sign of trouble for the stock market when looking at the price pattern for the blue chips -- they suggest the impulsive decline off last Friday's high into today's low will be followed by at least one more leg down into next week. What happens following a larger 3-wave move down will be the next puzzle to solve. One leg at a time while we figure out the larger pattern.

Both the NDX and RUT support the idea that just one more low for the current pullback will set up the Santa Claus rally, although it could finish as early as the end of next week (to be followed by a bearish opex week). We have enough of a difference between indexes to warrant caution by both sides. Today's whipsaws also support the idea that caution is probably a better choice than aggressive trading. While there's additional upside potential, depending on which index I'm looking at, I see a whole lot more downside risk than upside potential so keep stops tight for now, no matter which direction you're trading.

A trader friend, who does some really good work with cycle studies (Fibonacci and other math related periods), sees a lot of correlation for a major market top around January 10th. Whether it rallies from here or after a larger 3-wave pullback into next week, there is certainly the potential for new highs into early January so bears need to stay cautious no matter how bearish things look on a daily basis. By the same token, blindly going long from here could be a very costly mistake -- I think when this market cracks it could drop very fast.

We'll see how it's looking next week and in the meantime be very careful out there.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

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New Plays

Relative Strength in Tech

by James Brown

Click here to email James Brown

Editor's Note:

Additional Trading Ideas:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these may need to see a break past key support or resistance:

(bullish ideas)


Autodesk, Inc. - ADSK - close: 46.29 change: +0.53

Stop Loss: 44.90
Target(s): 50.00
Current Gain/Loss: unopened

Entry on December -- at $--.--
Listed on December 04, 2013
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.0 million
New Positions: Yes, see below

Company Description

Why We Like It:
ADSK is in the technology sector. The company makes computer-aided design (CAD) software and similar products. The stock rallied following its better than expected earnings report on November 20th. Shares have since been resistant to any profit taking. You can see that ADSK has consolidated sideways and actually rallied in spite of the market's recent weakness.

Today the stock got a boost thanks to one firm raising their price target on ADSK to $56.00. Another firm raised their price target to $55.00 following the earnings report. That's encouraging but ADSK does have resistance in the $51.00 area.

Today's intraday high was $46.47. I am suggesting a trigger to open bullish positions at $46.55. If triggered our short-term target is $50.00. More aggressive investors may want to aim higher.
FYI: The Point & Figure chart for ADSK is bullish with a $56.00 target.

Trigger @ 46.55

Suggested Position: buy ADSK stock @ (trigger)

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

Buy the 2014 Jan $47 call (ADSK1418a47) current ask $1.38

Annotated chart:

In Play Updates and Reviews

Stocks Pare Their Losses

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market continued to sink for a fourth day but equities did pare their losses with an afternoon rebound.

EAT, HFC, and BBY all hit our stop loss.

We want to exit our EVR trade tomorrow morning.

Current Portfolio:

BULLISH Play Updates

Comerica Inc. - CMA - close: 45.26 change: +0.31

Stop Loss: 44.40
Target(s): 49.90
Current Gain/Loss: - 1.1%

Entry on November 25 at $45.76
Listed on November 21, 2013
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.5 million
New Positions: see below

12/04/13: CMA managed to outperform the broader market indices with a +0.6% gain today. Yet the intraday rally's pullback looks like a new lower high. I remain cautious here. We are not suggesting new positions.

current Position: Long CMA stock @ $45.76

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

Long 2014 Jan $45 call (CMA1418a45) entry $1.72*

11/25/13 trade opened on gap higher at $45.76. suggested trigger was $45.65
*option entry price is an estimate since the option did not trade at the time our play was opened.

Evercore Partners - EVR - close: 53.69 change: -0.75

Stop Loss: 52.40
Target(s): 59.00
Current Gain/Loss: + 2.3%

Entry on November 07 at $52.50
Listed on November 06, 2013
Time Frame: 6 to 8 weeks
Average Daily Volume = 439 thousand
New Positions: see below

12/04/13: EVR's breakdown below what should have been support near $54.00 is a potential warning signal. Tonight we are suggesting an immediate exit tomorrow morning to avoid any losses. More aggressive traders may want to hold on to their positions instead since EVR did bounce near its rising 20-dma, which appears to have been support earlier in November.

current Position: Long EVR stock @ $52.50

12/04/13 prepare to exit tomorrow morning
11/30/13 new stop loss @ 52.40
11/21/13 new stop loss @ 51.90
11/19/13 new stop loss @ 51.40

Exterran Holdings, Inc. - EXH - close: 32.91 change: +0.09

Stop Loss: 31.90
Target(s): 36.50
Current Gain/Loss: - 1.3%

Entry on November 20 at $33.35
Listed on November 19, 2013
Time Frame: 6 to 8 weeks
Average Daily Volume = 900 thousand
New Positions: see below

12/04/13: EXH continues to bounce with the stock up four days in a row versus a four-day decline for the market. Gains have been mild but the trend is moving the right direction.

current Position: long EXH stock @ $33.35

Gentium S.p.A. - GENT - close: 53.20 change: -0.67

Stop Loss: 49.95
Target(s): 59.00
Current Gain/Loss: + 2.3%

Entry on November 25 at $52.00
Listed on November 23, 2013
Time Frame: 4 to 8 weeks
Average Daily Volume = 235 thousand
New Positions: see below

12/04/13: We've only got two days left for the week and this week is shaping up to be a loser. If GENT does post a weekly decline it will snap a seven-week winning streak for the stock. I am not suggesting new positions at current levels.

Earlier Comments:
Regular readers know that I label most biotech stocks as higher-risk, more aggressive trades. We never know when a headline might surface about some approval process or clinical trial that could send the stock gapping lower (or higher). The stock has been volatile this past month. That might be a reflection of GENT's very small float of only 9.23 million shares. We want to keep our position size small to limit our risk.

*small positions*

current Position: long GENT stock @ $52.00

11/30/13 new stop loss @ 49.95

Iconix Brand - ICON - close: 39.38 change: -0.54

Stop Loss: 37.90
Target(s): 44.00
Current Gain/Loss: - 0.3%

Entry on November 27 at $39.50
Listed on November 26, 2013
Time Frame: 6 to 8 weeks
Average Daily Volume = 728 thousand
New Positions: see below

12/04/13: ICON hit some profit taking today. The stock should find support near the $39.00 level. A dip or a bounce near $39.00 could be used as an alternative entry point for bullish positions.

Earlier Comments:
It is possible that the $40.00 level could be round-number resistance. Therefore more conservative traders may want to wait for ICON to trade over $40.00 before initiating positions. If we are triggered at $39.50 our multi-week target is $44.00.

current Position: long ICON stock @ $39.50

Voxeljet AG - VJET - close: 43.19 change: -0.06

Stop Loss: 37.75
Target(s): 54.50
Current Gain/Loss: unopened

Entry on December -- at $--.--
Listed on December 03, 2013
Time Frame: 6 to 8 weeks
Average Daily Volume = 4.1 million
New Positions: Yes, see below

12/04/13: VJET held up pretty well today. Shares bounced back from its intraday lows to close almost unchanged. The stock looks poised to breakout higher. There is no change from my prior comments.

Earlier Comments:
VJET is involved in the growing 3-D printing industry. Before I go any further I want to warn you that VJET has been a very, very volatile stock. The month of November saw VJET surge from $35 to $70 and back again to $35.

If you are interested in the 3-D printing industry you could also look at stocks like DDD, SSYS, and XONE. These are also volatile stocks but not quite as volatile as VJET. I would consider all of them, including VJET, to be higher-risk, more aggressive trades.

Right now 3-D printing is a hot topic and there is already speculation that these companies could be takeover targets. Of the four listed above, VJET has the small market cap at $675 million.

Tuesday's high was $43.85. I am suggesting a trigger to open small bullish positions at $44.00. If triggered we'll use a stop loss at $37.75. Our target is $54.50.

Trigger @ $44.00 *small positions*

Suggested Position: buy VJET stock @ (trigger)

VeriSign, Inc. - VRSN - close: 56.83 change: +0.17

Stop Loss: 55.65
Target(s): 59.50
Current Gain/Loss: +2.9%

Entry on November 14 at $55.25
Listed on November 13, 2013
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.1 million
New Positions: see below

12/04/13: VRSN is also holding up well. Shares bounced from their early afternoon lows to close up on the session with a +0.3% gain. I am not suggesting new positions at this time.

FYI: The Point & Figure chart for VRSN is bullish with a long-term $76.00 target.

current Position: long VRSN stock @ $55.25

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

Long 2014 Jan $55 call (VRSN1418a55) entry $2.01

12/02/13 new stop loss @ 55.65
11/30/13 new stop loss @ 54.90
11/23/13 new stop loss @ 54.40

BEARISH Play Updates

Digital Realty Trust Inc. - DLR - close: 45.00 change: +0.47

Stop Loss: 47.25
Target(s): 40.25
Current Gain/Loss: - 0.2%

Entry on December 03 at $44.90
Listed on December 02, 2013
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.7 million
New Positions: see below

12/04/13: DLR recovered about a third of yesterday's losses. More importantly the stock has filled the gap down from yesterday and produced what appears to be a failed rally near $46.00. I would still consider new bearish positions at current levels.

Earlier Comments:
I do consider DLR a more aggressive trade because there are already a lot of shorts. The most recent data listed short interest at 25% of the 128 million share float. Readers may want to try and limit their risk and buy puts options instead of shorting DLR stock.

Our target is $40.25. More aggressive traders may want to aim lower since the point & figure chart is bearish with a $33 target.

*small positions*

current Position: short DLR stock @ $44.90

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

Long 2014 Jan $45 PUT (DLR1418m45) entry $2.20


Brinker Intl. Inc. - EAT - close: 45.93 change: -0.84

Stop Loss: 45.75
Target(s): 49.75
Current Gain/Loss: + 0.0%

Entry on November 06 at $45.75
Listed on November 05, 2013
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.4 million
New Positions: see below

12/04/13: EAT underperformed the market today with a -1.8% decline. Shares did not participate in the market's afternoon rebound higher. Today's move broke down below the 20-dma and the $46.00 level. Our stop loss was hit at $45.75.

closed Position: long EAT stock @ $45.75 exit $45.75 (+0.0%)

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

2014 Jan $45 call (EAT1418a45) entry $1.70* exit $1.80** (+ 5.8%)

12/04/13 stopped out
**option exit price is an estimate since the option did not trade at the time our play was closed.
11/23/13 new stop loss @ 45.75
11/21/13 new stop loss @ 45.40
11/18/13 new stop loss @ 44.95
11/13/13 new stop loss @ 44.75
*option entry price is an estimate since the option did not trade at the time our play was opened.


HollyFrontier Corp. - HFC - close: 45.80 change: -2.15

Stop Loss: 45.90
Target(s): 54.00
Current Gain/Loss: - 3.9%

Entry on November 27 at $47.75
Listed on November 25, 2013
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.8 million
New Positions: see below

12/04/13: Ouch! Shares of HFC have been pretty volatile the last few days. The last two days have been the worst. The failed rally near $50.00 yesterday was compounded with a -4.48% plunge today. The stock appears to be reacting to news out last night that HFC is lowering its throughput estimates. Due to refinery waste water constraints at its Navajo refinery the company said its Q1 total crude throughput could be down -10,000 barrels per day. The stock gapped open lower at $47.20 and then plunged through support near $47.00 and its simple 200-dma. Our stop was hit at $45.90.

closed Position: long HFC stock @ $47.75 exit $45.90 (-3.9%)

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

2014 Jan $49.00 call (HFC1418a49) entry $1.50* exit $0.90 (-40.0%)

12/04/13 stopped out
11/27/13 triggered @ 47.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
11/26/13 option strike adjusted down 50 cents from $49.50 to $49.00



Best Buy Co. - BBY - close: 42.80 change: +0.80

Stop Loss: 42.25
Target(s): 35.25
Current Gain/Loss: - 3.5%

Entry on December 03 at $40.84
Listed on November 30, 2013
Time Frame: 6 to 8 weeks
Average Daily Volume = 7.3 million
New Positions: see below

12/04/13: Our aggressive bearish play on BBY did not pan out. The stock has continued to rally in spite of bearish traffic numbers from the Black Friday shopping weekend. Today's move is a bullish breakout past the $42.00 level and its 30-dma. Our stop was hit at $42.25.

Earlier Comments:
The plan was to use small positions to limit our risk.

*small positions*

closed Position: short BBY stock @ $40.84 exit $42.25 (-3.5%)

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

2014 Jan $40 PUT (BBY1418m40) entry $1.97 exit $1.46 (-25.8%)

12/04/13 stopped out
12/03/13 trade opens. BBY @ $40.84
12/02/13 strategy change. Instead of a trigger, launch bearish positions at the opening bell tomorrow. Use a new stop loss at $42.25.