QCOM (Short)...

QUALCOMM is too juicy of a short to pass up on. They reported earnings after the close Wednesday, and as you can see, the market didn't like what they had to say. I didn't listen to the call, but I read several recaps of the call and the quarter and it was pretty ugly.

So I wasn't short going into earnings. So what? QCOM looks destined to go much lower from here. As you can see, the two-day blitzkrieg left a massive gap-down and on Friday it took out previous support at $40. Gaps this big don't get filled quickly, so I'm not inclined to look at this as a long. Most likely, what will happen is QCOM will establish some kind of short-term low, perhaps Friday's low around $38.50, and bounce higher up towards either resistance at round-number $40 or Thursday's high around $42. The bears and I will be waiting for that to happen to load up on some short exposure. Based on the weekly chart, I think QCOM's going back to the mid $30's, but it could go as low as $32.

Options-wise, if the short-term rally plays out like I expect it to, I'm looking to load up on some February $43 puts. Depending on how long this rally takes to play out, I might look out to March and create a put spread involving February puts.






Position: None

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Weekly View Friday 29 January 2010...

Weekly Review:

Last week, like the week before it, was pure carnage. Selling was heavy and volume was high despite the markets getting some pretty good newsflow. The dip-buyers are still MIA.

Weekly Preview:

Earnings will start to slow, as most of the big names are out of the way. We're pretty oversold, and I think we're due for a relief bounce to the upside, a bounce which I view as an opportunity to establish some trading shorts. There are a lot more good short setups out there now, but they still need a bit of a bounce to allow a lower-risk entry.

Earnings season keeps going this week. Here's a breakdown of the ones I'm watching day by day. Note that when I say, "For [blank] morning," I mean the stock reports earnings either after the close the previous day or before the open on that day.

Monday: EEP, ACV, CYOU, GCI, HEW, HUM, NI, SOHU, SYY,

Tuesday: APC, PCL, RCII, TUP, ADS, AMB, AMSC, AXE, ADM, ADP, BEAV, CMI, DHI, EMR, ETR, NRGY, LXK, MAN, MPEL, MTU, SEED, PCX, PNR, PBG, PRGO, PXD, RDWR, SU, DOW, HSY, PTRY, SMG, TKR, TNB, TDW, UPS, UTI, WHR, WEC

Wednesday: ACE, AFL, AMX, AJG, CHRW, CTRP, FISV, SOLR, IRF, JDSU, MTW, MEE, MET, MIL, MWA, NETL, NWS, QSFT, RSYS, RVBD, SGI, TSO, TRMB, VRSN, AKAM, ALVR, ASCA, AOL, ARW, BDK, CKSW, CNQR, DBD, HW, HNT, HMC, IP, ITG, ITT, LAZ, MHO, MMP, WFR, NOV, NVLS, LIIM, PFE, RL, POWL, R, SGU, BCO, TMO, TWX, TM, TZOO, WU, WWW,

Thursday: NDN, ACTS, ALEX, AMP, AIZ, ATW, AVB, BBBB, CELL, BRS, BRCM, CBG, CSCO, CYTK, DLB, DCP, EFX, EQR, KIM, MWW, NBIX, OPNT, SPTN, STLD, THQI, TGI, V, WLT, YUM, ACTI, ALKS, AGN, ATK, AIPC, AVP, STD, BCE, BDC, BCRX, BG, BKC, CME, CI, CINF, CLX, DB, DO, ELNK, ENS, FALC, GSK, HIT, HSP, K, LZ, MA, MCO, MWIV, NCR, NOC, NUS, OPWV, PENN, PBI, POL, RAI, SLE, SFLY, SNA, SNE, SE, SPR, HOT, TEN, TBL, UL, WBC,

Friday: ARAY, ACTL, BEZ, BEBE, BBND, BAP, FMC, ILMN, IN, MTD, MCHP, MPWR, NFG, N, OPXT, PKI, PWAV, RAH, SLH, SUN, TSYS, AET, AYE, AXL, AIV, BZH, BPO, BRKS, BPL, XIDE, LEA, MDC, NTT, PC, PPL, SPG, SEP, SYT, TE, TSN, GROW, WY,

Monday: BWP, CVS, HAR, HAS, HS, L, LO, MCY, NTE, GOLD,

For a preview of this week's major economic announcements, I'll send you here. Michael McDonough does a better job of summing this stuff up than I could. Since this is a stock-picking blog versus an economics blog, I typically won't talk about this kind of stuff. Also, for a better preview of the week's market-related events, I'd recommend going here. TheStreet.com typically has a good weekly preview article for more stock-related events.

Position: None

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Index Update 31 January 2010...

In my 401k, I have a limited array of investment options, as does pretty much everyone. But, I have a very good 401k in that it has passively-managed index funds available and I don't have to rely exclusively on actively-managed mutual funds. The difference is very important. Passive funds are designed to exactly track an index, say the $SPX. Often, they have pretty low annual fees (mine are ~25bp or 0.25%). Active funds, on the other hand, try to beat the index they've benchmarked themselves to, again say the $SPX. Since they're trying to beat the index, they'll charge higher fees (typically 50-100bp, but sometimes more). Really, active funds are little more than a Wall Street marketing sham to try to bleed more money from you. Who wants to just match the market when you can beat the market? That's the thing. The vast majority of active mutual funds does not even perform as well as its benchmark (I'm talking 2/3 here or more). So, that means if you buy an active fund, you're probably paying them more money to underperform. You're getting ripped off. Obviously, not all active funds underperform the market, but most do.

Except for a couple cases in my 401k, I stick with passive funds. The exceptions are a FCNTX, which is a legacy position I kept open because it's closed to new investors; SGIIX, a top-performing global blend fund that is actually within spitting distance of its all-time highs; and TEEMX, an emerging markets fund (because I don't have direct access to emerging markets in my 401k). I also have my fixed income fund (which I refer to as 'cash'), UTX common stock from my employer, and my index funds for $IEE, $MDY, $RLG, $RLV, $RUT, and $SPX.

My system has served me very well in allowing me to sidestep much of the 2008 collapse, though it did not get me back in last year as quickly as I would have liked. That said, since I started this at the beginning of 2006, as of today, my 401k's performance is 12.01% annualized versus the $SPX's -3.67% in the same time.

The reason I bring this up is the market in the past two weeks has done some significant damage to my signals. The monthly signals are still fully bullish, except for the $IEE signal, which fell this month from fully bullish to partially bullish. The weekly signals are where the carnage is. The $IEE, $MDY, $RLG, $RLV, $RUT, $SPX, and UTX have all gone from fully bullish to bullish neutral in the past two weeks. I use a 5-point system to rank the indices on the daily, weekly, and monthly timeframes.

0 = fully bearish
1 = partially bearish
2 = neutral bearish
3 = neutral bullish
4 = partially bullish
5 = fully bullish

I use the monthly signal to tell me what my maximum asset allocation will be towards a particular holding. The weekly tells me how much of that maximum I should commit right now. The daily helps me fine-tune my entries and exits.

Because of the strength in the monthly charts, I will still go ahead with my plan to add at the 200-day EMAs, as I did earlier this month at the 50-day EMAs. However, if the 200-day EMA fails to hold, I will sell what I've bought and take the minor loss despite the strength in the monthly charts. When a stock or an index has used a level, say the 50-day EMA, as support for a long time, and that level gets decisively broken and is not quickly reclaimed, that is your first red flag of trouble. Then, the next support level, in this case the 200-day EMA, is the next key. If this gets decisively broken and is not quickly reclaimed, that's your second red flag and that's your cue to sell your position down to a small placeholder and step away until the security is able to reclaim the 200-day EMA. Previous support has now become new resistance, so in this case, you let it drop until it shows you signs of life.

This approach saved me big time in 2008's meltdown. It left me slower to get in 2009's rally than I would've liked, but look at it this way. If you lose 50%, then gain 50%, you're still 25% below where you were to start because once you lose 50%, you need to gain 100% to get back to even. The trick is to try to keep your assets as close to all-time highs as possible.

Position: Long FCNTX, SGIIX, TEEMX, UTX, and index funds for $IEE, $MDY, $RLG, $RLV, $RUT, and $SPX

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Friday 29 January 2010...

An ugly end to an ugly week. It looked like the bulls were going to get some bounce action going, with good tech earnings and a great GDP (5.7% versus 4.4% expected). Everything aligned perfectly for the bulls, but the sellers overwhelmed them and we closed very weak. Ouch.

No 401k trades or regular account trades, but I sold RGR for a small loss in the IRA. I wasn't about to repeat the mistake I made with FUQI. Once a breakout fails, the key is to get out and minimize the damage. With FUQI, I let hope get to me, and it cost me.

The market is changing character. This correction is more painful than any pullback we've had over the past several months. It's feeling to me like the market was held up through the end of last year to lock in profits in 2010 for tax reasons. The basic logic is if you close a trade in a year, it goes on that year's taxes, so if you've got to take some loses in 2009, you sell before 2009 ends and take the tax loss on 2009, but if you have gains from 2009, sell them in 2010 so you don't have to pay the taxes for another year.

I'm still in the CBI calls, too. CBI is holding its breakout level and its 50-day EMA...for now. It's one of the best-looking charts I see, as it's still holding support. Plus, the volume on the decline in the name hasn't been overwhelming, which cannot be said for many other stocks.

I forgot to mention earlier this week that CRE's shareholders have approved the liquidation plan, so this one's looking like its on track. It had a huge-volume selloff on Friday, but the price didn't drop that much. I'm not sure what to make of that, but I'm a buyer of CRE on weakness.

Position: long CBI, CRE, FUQI

Disclaimer: This is not a recommendation and is presented for informational purposes only.

TSL (Short)...

I think Trina Solar is looking pretty vulnerable here. Sure, it's down about 25% in the past couple weeks, but I still think it has further to fall. I see a momentum stock that has broken down technically. I'm looking to get short here through some puts as it rallies back towards its 50-day EMA. Note the declining volume on the advance following a solid week plus of selling. Massive, high-volume breakdowns like this are often the first shot across the bow to tell us that a stock that's had a monster run is getting ready to reverse and head lower. You can also see TSL hasn't traded consistently below the 50-day EMA in almost a year, so the level was solid support, and I now believe it will be solid resistance. TSL has support for now at the most recent low around $21, but I think this will yield and TSL won't find steady support again until the 200-day EMA around $18.

TSL doesn't report earnings again until March.

I think the February puts are pretty fairly priced, especially compared to the March ones. This should come as no surprise since the March puts would have extra premium baked into them due to the longer time duration and the earnings catalyst. I like the February $24 puts the best here, and even more on a low-volume rally up towards the 50-day EMA around $24.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Thursday 28 January 2010...

The markets were down pretty hard today. It was not pretty. The big disappointment was QCOM, a large component of the Nasdaq 100 who happened to be down about 14% today. In other news, Big Ben was confirmed for a second term, which is probably a market-friendly development. The big aftermarket reports were MSFT and AMZN, and we have GDP news in the morning.

No trades today in any account. I'm not seeing much I want to buy right now, but I'm also not seeing much I want to short. The market has had a decisive change in character the past two weeks, and I now believe we're in a market where one can actually make money on the short side.

As far as the watchlist goes, I'm actually considering a short of ARO. Resistance is looking like it's setting in and I believe the stock could return to the previous lows, which is ~15% downside from current levels with maybe 3% risk (I wouldn't give it much room above the 50/200-day EMAs).

CBI is holding tough. I considered adding to my position today, but elected not to. If it breaks down from here, it's got further to fall and I'll cut my losses.

CRE's powering higher. I'm wishing I loaded up more aggressively at lower levels, but the solid accumulation in a declining market suggests to me that maybe the market thinks the liquidation will be better than I'm currently thinking.

I still want to see rallies in EJ and NTES before getting short of them.

SPAR is interesting me on the long side, too. It's pulled back right to the 50/200-day EMAs (and the breakout level I mentioned before). Furthermore, the volume on its declines has been very mild. I'm liking this one for a long at current levels with a stop below the 50/200-day EMAs.

RGR, ROST, and IACI are also holding tough.

Position: long CBI, CRE, RGR

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Wednesday 27 January 2010...

A really quick post because it's even later than last night. :-p Lots of news today and all of it appears to be market-friendly. The iPad wasn't as overwhelming as I thought it would be, but it's still pretty darn cool. Geithner and Paulson got grilled by Congress, but again there wasn't really much to report on there. Nothing of note from the Federal Reserve, either. We had one dissenting vote, but that was about the language (Hoenig wanted to remove the bit about keeping rates low 'for an extended period', but was ok with keeping the rate unchanged). The market really liked that, as the bulls were really able to take us higher into the close.

As for Obama's address (and the GOP response), I don't think these will be big market impacts tomorrow, mainly because Obama did a decently good job at remaining fairly centrist and kept the hostile rhetoric to a minimum. He was much less populist than I feared he would be, and I think we'll be ok tomorrow.

UTX reported a good quarter this morning. No real surprises in it, but the stock sold off a little bit. I made no trades in the 401k today.

I did, however, close the sell-leg of my CBI call spread. CBI rallied quite nicely for me and this position is now back pretty close to even. If CBI can continue its upside tomorrow, I think this position will finally be back to being profitable.

Once again, no pick tonight. I'll have some tomorrow or over the weekend.

Position: long CBI, UTX

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Tuesday 26 January 2010...

I know, it's pretty late posting this one, so I'll make it a quickie. I'm not liking the way the market's acting. The bounce continued today...sort of...and it wasn't very vigourous at all. The thought is entering into my head that maybe it is different this time and the pullback won't yield one of those V-shaped bounces we've all become so used to over the past nine or so months. The volume was big last week on the selloff and it's pretty small so far this week on the bounce, which is a classic tell of a dead-cat bounce. This could be associated with the fact that the Fed is due to announce its decision tomorrow, along with Apple and their iTablet or whatever it will be, and then we have Obama's State of the Union tomorrow night. The market is extremely fragile right now, to say the least.

I'm not putting up a pick tonight, either. However, I'm more inclined to get short rather than long at this point, pretty much across the board. That being said, I'm not going to sell what I just bought last week in the 401k, at least not yet. The anticipation for the potential of more downside is the reason I moved small there, leaving plenty of room to add should we fall further. Note that I would have added to my 401k position in my employer, United Technologies today, as it dipped below its 50-day EMA, but I didn't because UTX reports earnings Wednesday morning before the open.

Position: long UTX

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Monday 25 January 2010...

It was a pretty lackluster day in the markets today. We managed a slight bounce, but this appears to be an oversold bounce in the wake of last week's carnage. Not really much to say about the trading action itself today besides that.

News wasn't bad today like it was last week, when we had China tightening, Obama talking about declaring war on Wall Street with his Volcker Rule (don't get me started on how misguided this rule is and how it shows a complete lack of comprehension on the part of Obama and friends as to what caused the crisis; unless history's been rewritten, it was bad loans, not proprietary trading, but what would I know? :-p), and rumblings that Big Ben may not be reconfirmed (I can't fathom how he didn't see this bubble coming, but he did what had to be done to avert a global financial collapse).

In the aftermarket, AAPL at first glance, would appear to have crushed expectations. However, they had some accounting changes that really matter, and the beat is greatly diminished as a result. That said, AAPL is trading flat in the aftermarket right now. It'll be very interesting to see what happens tomorrow morning.

I made no moves in either the 401k, IRA, or trading account today. We have actual short setups for the first time in a long time, though. I'm not putting out a new pick tonight, either. AAPL earnings tend to be a particularly big deal, so I'm really curious to see what happens tomorrow.

Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

EJ (Short)...

E-House is a Chinese real estate agency/brokerage company. It does not report earnings again until early March. It scores 93% on the Peter Lynch screen and 85% on the Martin Zweig screen.

EJ's short setup is very similar to NTES's, which was the previous short pick. EJ recently broke below its 200-day EMA on heavy volume, falling out of a base that has been forming for the past several months. As with NTES, I am hoping for EJ to rally about 10% or so to return towards its 200-day EMA, and I would look to use such a bounce as a chance to get short. It is similarly oversold, as it's fallen now for 8/10 last trading days. I also anticipate the 50-day EMA being dragged down towards the 200-day EMA to provide an additional layer of resistance. Based on the weekly chart, if the bears can really get a hold of EJ, I could see the stock getting cut in half from here, plunging all the way back to $8.

In the options, I like the March $17.50 or $20 puts, which could be put into a put spread with the February (and eventually March) $15 puts. Again, I'm looking for it to have a little oversold rally in the short term to set up a better shorting opportunity.





Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

NTES (Short)...

Before I proceed to detail my first short pick on here, I need to provide a quick overview of my shorting methodology. Ok, for starters, I short using puts and/or put spreads most of the time, but sometimes I will short using common stock as long as I can hedge it somehow, be it through selling covered puts or buying calls at a higher strike. So if it's not a stock with a good options chain, I'm probably not going to look to short it. Shorting is inherently more risky than going long because reward/risk symmetry is not your friend. Said another way, if you go long a stock, your theoretical maximum profit is infinite and your maximum theoretical loss is 100%, but if you get short of a stock, your theoretical maximum profit is 100% and your maximum theoretical loss is infinite (in reality, your broker would most likely automatically close out your short once the losses get too high). Also, when picking stocks to short, the primary driving force is the technicals. Fundamentals don't matter as much to me when shorting (shorting something because it is 'overvalued' is a great way to lose money because overvalued stocks tend to become more overvalued before they become fairly valued). That being said, if a stock scores strongly on the screens, I'll be a bit more cautious when shorting it, versus if the screens say it's a weak stock, at which point I'll be a bit more aggressive.

So, onto NetEase.com. Why am I picking on this Chinese internet gaming/advertisement firm? Simple - the chart is awful. The fundamentals are actually pretty decent, as it scores quite highly on the Peter Lynch screen (93%) and 72% on the Motley Fool screen, but beyond that, it doesn't get above 70% on any screen. NTES doesn't report again until late February or early March, and it has a good enough options chain for me.

So, I hate the chart. It was looking ok until this week, when NTES broke down below its 200-day EMA (and multi-month) support on heavy volume. NTES was down ~10% last week. The stock was as high as $42 a couple weeks ago, but it closed Friday at $33.50, so this is a pretty oversold stock. Shorting an oversold stock like this is playing with fire, especially considering that NTES has been down 10 of the past 11 trading days, including the past five straight. This one is set-up to have a short-covering snapback rally, which would present a safer shorting opportunity. What I want to see in NTES is a low-volume rally up towards the 200-day EMA, currently around $36.50. That's when I'd be looking to start my short, and I wouldn't give it much room above the 200-day EMA because the most recent high was up around $42 and that's a lot of pain to endure. Longer term, based on the weekly chart, I would expect NTES to have downside towards the upper or mid $20's, as it has a substantial base built there.

For options, I like the February $36 puts if I was going to short it right here, right now. However, I believe it will have a little rally and will present a better entry in these puts or even the February $37 or $38 puts. If I was going to short it right now, I would form it into a debit put spread with the February $36 and $33 puts for ~$2.





Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Weekly View: Friday 22 January 2010...

Weekly Review:

Last week was pure carnage, to put it mildly. We had heavy, high-volume selling pretty much all week long. It's not the news that matters so much as the market's reaction to the news. The dip-buyers were nowhere to be seen, and we had some big earnings reports last week.

Weekly Preview:

We have more big earnings reports this week, as well. I'm still sticking with the view that this is a correction rather than the start of a reversal, though the heavy volume with which we sold off last week is a major red flag. Regardless, I'm going to become more aggressive on the short side than I have been in a very long time. Said another way, I'm actually actively looking for shorts again, which I haven't done in many months.

Earnings season keeps going this week. Here's a breakdown of the ones I'm watching day by day. Note that when I say, "For [blank] morning," I mean the stock reports earnings either after the close the previous day or before the open on that day.

Monday: AKS, CNH, DGX, ETN, HAL, SEE, VSEC, WAT

Tuesday: AMGN, AAPL, ATHR, CR, GGG, JDAS, OLN, PRXL, TXN, TSCM, VMW, ZION, ABC, AME, BHI, CRS, CCUR, CBE, GLW, DAL, DD, EMC, ENR, FPL, JEC, JNJ, MTG, NVS, NUE, BTU, RYN, RF, SHW, SI, SIFY, TLAB, MHP, TRV, TUES, X, VZ, GWW, WFT,

Wednesday: ALTR, BXP, BKI, ELY, CNI, CASB, DV, GILD, MCK, MTH, MOLX, QLGC, RFMD, RKT, STM, SYK, WMS, YHOO, ABT, AAI, ATI, BMC, CAJ, CAT, COP, EXP, EWBC, EOC, ENI, GD, HES, HOKU, ITW, LRCX, NVR, PX, ROK, SAP, SII, SO, STJ, BA, SWK, TEL, UAUA, UTX, USG, VLO, WLP,

Thursday: ACF, AMLN, BYI, CBT, CMO, CTXS, CVD, ETFC, FLEX, GMCR, HBI, HRS, LSTR, MEOH, MUR, NFLX, NYB, NE, NSC, QCOM, RYL, SRDX, SYMC, TER, TTEK, VAR, MMM, ADPT, ALK, MO, AEP, ABFS, AZN, T, AVID, BLL, BAX, BDX, BMS, BMY, CP, CAH, CSH, CELG, CL, COLM, CPWR, CNX, CY, D, DRE, EK, LLY, EQT, ETH, F, BEN, GR, HP, ISCA, JNS, JBLU, KSU, KMT, LLL, LEG, LMT, MKC, MJN, MNRO, MOT, NOK, OXY, ODFL, OXPS, OSK, PII, POT, PG, RTN, COL, SY, TROW, TSM, TXT, EL, TWC, TYC, LCC, WRLD, ZMH

Friday: ARG, AMZN, AMCC, ARBA, BCR, CPHD, CB, CYT, DHR, EMN, FII, GNW, IMGN, RMBS, JNPR, KLAC, KYO, MXIM, MSFT, NEU, RHI, SNDK, SNV, ACI, ALV, AVY, CVX, FO, GHM, HON, MAT, NWL, DCM, NS, PCAR, SAIA, WL,

Monday: EEP, ACV, CYOU, GCI, HEW, HUM, NI, SOHU,

For a preview of this week's major economic announcements, I'll send you here. Michael McDonough does a better job of summing this stuff up than I could. Since this is a stock-picking blog versus an economics blog, I typically won't talk about this kind of stuff. Also, for a better preview of the week's market-related events, I'd recommend going here. TheStreet.com typically has a good weekly preview article for more stock-related events.

Validea rebalanced their monthly portfolios this weekend, so I didn't run the screens and instead updated those watchlists.

Position: Long UTX

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Friday 22 January 2010...

And the bloodbath continues. Today's action just caps a week of pure, unadulterated carnage in the markets. Despite the selling onslaught, I still believe (for now) this is a painful correction rather than a reversal, and I'm playing it as such. We've had a 5% or so pullback in the domestic indices and 10% or so in the foreign indices. The selling this week, and particularly today, felt very panicky. We're due for an oversold bounce and the success/failure of the bounce will be very instructive.

I'm not a slave to the $VIX, but in the past two days, it's gone from 18 to 27 and it spiked right into its 200-day EMA. The last time it did that was back in early November, at which point all the indices ended their short-term corrections and proceeded to power higher.

I made no trades in the trading account or IRA today, but I did a little buying in the 401k. Small additions to my $MID and $RUT index funds, as those hit my buy points at the 50-day EMAs with today's close. Those two tagged their 50-day EMAs at the close today, while pretty much every other index I'm in sliced right through them today.

Another ugly day on the watchlist. For active positions, RGR and CRE held tough today, which is a true testament of strength in both names. I'm liking both of these. CRE had particularly large volume today, which is interesting to me. FUQI was flat on the day, but showed some signs of life. This one may give me the rally I'm looking for to reduce my loss in the position. CBI pulled back today a couple percent. I'd like to see it pull back a bit further before I close the sell leg, and I think I'll get that. Like with FUQI, I'll add to my existing long call position once I see some signs of upside.

CEU, EME, GFRE, and IACI have all pulled back to logical buy points. These are ones I'm looking at to get long with a tight stop. ESI is looking strong, as well.

JST is in no man's land. I'll keep it on the watchlist, but I'm not looking to enter it yet.

I'm updating my watchlists and screens tonight, which I'll discuss in the weekly view.

Position: Long CBI, CRE, FUQI, RGR, $MID index fund, $RUT index fund

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Thursday 21 January 2010...

Oh man did it get ugly today (again). Yesterday was bad, but today was even worse. The selling today was broad-based and with heavy volume. This is not what you want to see. We have some big news going on in the aftermarket tonight (earnings) and tomorrow we'll know China's GDP growth, which has become a very big deal lately because it's too hot for comfort. GOOG got whacked pretty good in the aftermarket following its earnings tonight, and will likely open weak tomorrow morning, putting pressure on the market.

The US indices are all pulling back near their 50-day EMAs, which have acted as support consistently the past several months. As such, I am still viewing this pullback as a buying opportunity. In the 401k today, I made small purchases in my $RLG, $RLV, and $SPX index funds, as these are basically right at their 50-day EMAs. The weekly charts are still bullish, so I'm comfortable buying a little on weakness. These are not big buys, and I'm leaving plenty of room in case support fails to hold.

I'm not doing a new pick tonight. The carnage this week has been too broad and I want to let the week conclude and the weekend begin so I can catch my breath and regroup. I'll possibly delete a couple picks from the list here. I may also retool my approach to picking in the list. The more I think about it, the more I realize I'm a chartist first, an options player second, and a fundamentalist third. So, I need to tweak my approach accordingly. So far in this blog, I've been doing fundamentals first, then charts, then options. It's just not a style I'm feeling comfortable with.

Today was a bad day on the watchlist. My unwillingness to play ESI prior to its earnings proved costly, as the stock was up over 10% at one point before closing up about 6%. ESI left an inverted hammer, which makes me think that I'll get a chance to buy into it as it fills the gap-up it created. A close like today's, at the lows of the day, indicates weakness, or at the least an inability of the bulls to take it higher.

There were breakdowns left and right today. FUQI failed to hold support and shed another 5% today. My remaining calls are really hurting and this chart feels like it's breaking down, so I'm thinking the plan is to look for a rally to escape the calls to minimize the damage. As of right now, the call spread cut the loss in half on this trade, and if I can get a rally to unload these calls, I can cut into that remaining loss.

CBI had a nasty pullback and this trade is now back to flat. Had I entered it better, it would've been a decently profitable trade. I'm looking to exit this trade with at worst a minimal loss. The chart still looks good, but the position was entered poorly, so I might just cover the sell leg on a dip and look for the stock to hold its breakout.

CEU and EME continued their pullbacks today. Both still have further to fall, I'm thinking. IACI is testing its breakout level and has filled that gap-up. It's holding tough along with CRE, RGR, ROST, and SPAR.

GFRE pulled back to the 50-day EMA on heavy volume. I'm still liking this one. JST, however, absolutely collapsed today, down 12% on very heavy volume as it decisively sliced through its 50-day EMA. It's now right back at the breakout level at $38, and to be honest, I think it has further to fall. The 200-day EMA around $33.50 is definitely in play right now.

Position: Long CBI, FUQI, RGR, $RLG index fund, $RLV index fund, $SPX index fund,

Disclaimer: This is not a recommendation and is presented for informational purposes only.

GFRE (Long)...

Gulf Resources is a Chinese chemical manufacturer. It doesn't report earnings until mid to late March. GFRE pays no dividend. It is optionable, but the chain has wide strikes, wide bid/ask spreads, low volume, and low open interest, so it's not a great place to be buying. To be honest, this options chain is so bad that we might as well just say it doesn't have one.

GFRE scores a 2/1, with 100% interest on the Motley Fool screen, 92% interest on the Martin Zweig screen, 74% on the Peter Lynch screen, 71% on the Momentum screen, and 70% on the Joel Greenblatt screen.

GFRE's pulled back about 20% in the past week, peaking just under $15 and closing today right around $12.25. I expect the 50-day EMA to act as support, but it's about $1 lower than current levels. If the 50-day EMA fails to act as support, there is also the previous breakout level around $10.50 to act as support. GFRE has shown exactly zero signs of reversing this pullback, so I'm content to watch this one drop. However, I expect this drop to prove to be a buyable pullback, so I wanted to get it on the watchlist with that in mind.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Wednesday 20 January 2010...

We sold off today, as I expected last night. However, we did bounce back pretty well into the close, making a bad day look less bad. The motivators for the selloff were the sell-the-news reaction to the victory of Scott Brown last night and the tightening news out of China. Both are a big deal fundamentally. Earnings came fast and furious today, and that continues tomorrow night. On the whole, the reactions today were pretty good.

I put a few trades on today. I'm now long RGR through common stock. I couldn't bring myself to buy into the RGR option chain. It's too thin for me. The fact that it has an options chain will allow me to sell covered calls and still buy puts for further downside protection (the purchase of common stock, sale of a covered call, and purchase of a put is called a collar). I generally prefer to buy options instead of common stock because options, when used properly, are inherently less risky, but I will make exceptions from time to time.

I also closed the sell leg of the FUQI call spread by buying back the February $22.50 calls I sold. I sold them for $1 each and bought them back for $0.25 this morning, netting a profit of $0.75. However, the trade is overall still a losing position, as the February $20 calls are still in my portfolio. If it fails to hold today's lows around $19 (which coincides with the 200-day EMA), then FUQI's heading back towards the previous low around $17. As it is, the breakout above the 50-day EMA is looking like a failed breakout.

CEU and JST are continuing to pull back, but these are so darn thin that I find them hard to buy. Also, neither is optionable, which greatly diminishes my margin of safety (if you're brainwashed into the conventional thinking about options, that statement probably just blew your mind).

I'm liking the action in IACI, CBI, SPAR, and ROST here. They're consolidating nicely. I'm kind of stuck in the CBI call spread because I sold calls way too early.

Away from the regular watchlist, I did a little buying in my 401k today. I have a massive cash position there because of some heavy selling I did late last year (my weekly charts are all still bullish, but I was feeling greedy and wanted to lock in profits). I will probably do a little more tomorrow on this pullback. I bought a little in my $IEE index fund (or EFA, if you prefer ETFs) and a little in my emerging markets fund, TEEMX. I'm now back at 4% in each of these. Tomorrow, I'll put a little more cash to work in SGIIX because I didn't today, which is my blended foreign fund, to take that one back to 4%. I believe the domestic indices have a bit further to fall, so that's why I didn't go after any of those today.

Position: Long CBI, FUQI, RGR, $IEE index fund, SGIIX, TEEMX

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Tuesday 19 January 2010...

The market snapped back from Friday's selling today on the broad indices, but under the surface, it didn't seem to snap back as vigourously. The market felt like it was trapped by the Massachusetts special senate election, in a wait and see mode. Clearly, the market is hoping for a GOP victory to bog down healthcare reform and the Democrat agenda. Generally, political gridlock is good for the markets (the financial meltdown of late 2008 is one glaring exception because the passage of TARP prevented an even worse meltdown). I don't know who wins the election, but I think the markets are going to sell the news either way and we'll just sell off worse if the Democrat wins.

No trades again today. I was quite busy with the darned dayjob, sadly. No pick today, either. The screens don't update to reflect the day's close until I'm guessing midnight, so there won't ever be a pick after the first trading day of the week unless I find a special case.

The big update today came out of CRE, which released an updated 8k. The fee structure was updated to raise the total payment to $8.90, with a provision allowing for a bonus to paid to management if it goes out over $9.25. Methinks such a provision wouldn't have been put in if management didn't think they would easily hit it. I'm thinking it'll be more like $10-$11 once it's all said and done. Even if it's $9.26, CRE's presently trading at $8.16, so that's a minimum $1.10 (~14%) upside, versus at $10 (~23%) or at $11 (~35%), which is still pretty respectable. I'm a buyer on any weakness, but I don't think it's going much below $8.

I didn't get into EME, RGR, CEU, and JST today like I wanted to. I'm not worried about that, though. I'll get a chance tomorrow.

I'm also looking to close out the sell leg of the FUQI call spread. They're trading down over 50%. I'll probably roll the proceeds into more calls. I'm wishing I waited to sell calls in CBI. Oh well.

Position: Long CBI, CRE, FUQI

Disclaimer: This is not a recommendation and is presented for informational purposes only.

ESI (Long)...

ITT Educational Services is a post-secondary education firm in the US. It offers over 30 degree programs on the associate, bachelors, and master levels at over 100 facilities in 37 states, serving over 60,000 students. ESI does not pay a dividend and is optionable. The options chain is liquid and has both tight strikes and tight spreads. Note that ESI reports earnings this week, before the open on Thursday 21 January 2010.

ESI scores a 3/1 on the screens. ESI scores 100% on both the Warren Buffett and Joel Greenblatt screens, 93% on the Peter Lynch screen, and 85% on the Martin Zweig screen. This is an interesting mix of screens to perform well on, as it has a good blend of growth and value.

ESI is in a very interesting place technically. It's rallied about 20% from lows in December from $85 to its current level of $100. $85 appears to be a strong support level, and above it we now have the 50-day and 200-day EMAs just below current levels around $96.50 and $98.50, respectively. ESI also has a big gap-down to fill that would take it up to $110.

ESI's in a tricky place because it reports earnings this week, so it makes for a complex play. I usually don't play stocks before earnings due to the unpredictability of the stock's reactions to earnings. In this case, I'm going to, but I'm going to construct a multi-legged options strategy to reduce my earnings risk. I don't have this one entirely worked out yet, to be honest. I'm considering a call spread combined with either a put purchase or a put spread, and I'm also considering a strangle. I'm looking at various purchase and sale combinations of the February $95, $100, and $105 calls along with the February $100, $95, and $90 puts. I'll detail what I do if/when I make a pre-earnings move.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

JST (Long)...

Jinpan International is a Chinese company that designs and manufactures electrical infrastructure equipment including cast resin transformers, switchgears, unit substations, and line reactors. It operates in China, Europe, and the US. JST pays a small dividend and is not optionable. It doesn't report earnings again until late March or early April.

JST scores a 1/2 on the screens. It scores 93% on the Peter Lynch screen, 86% on the Warren Buffett screen, 77% on the Martin Zweig screen, 76% on the Motley Fool screen, and 71% on the Momentum screen.

JST has undergone a pretty steep correction in the past week or so, falling from $52 to the current level of $43.50. I view this correction as a buying opportunity, as the 50-day EMA is about a dollar below current levels. JST is pulling back from all-time highs, as well. I'm looking to take a starter long around current levels, but if it fails to hold the 50-day EMA, then I'd probably sell that starter for a minor loss. If it fails to hold the 50-day EMA, I believe a fall back toward the August highs at $38 is not out of the question.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Weekly View Friday 15 January 2010...

Remember the market's closed Monday.

Weekly Review:
Last week wasn't the best of weeks for the bulls, as profit-taking and sell-the-news reactions are setting in. Last week was also options expiration week. Earnings season really began. I took starter longs in CRE (common stock), CBI, and FUQI (call spreads).

Weekly Preview:
So is this just a garden-variety pullback in a bull market, or is it the start of a more sinister reversal? It's a pullback until the market proves otherwise, and I'm playing it accordingly by looking to stock up on long exposure.

Earnings season really picks up steam this week. Big names including C for Tuesday morning; BAC, COH, CSX, IBM, MS, STT, USB, and WFC for Wednseday morning; CAL, EBAY, ED, ESI, FCX, FFIV, FITB, GS, ISRG, KEY, LM, LUV, PCP, PNC, PPG, SBUX, STX, UNH, and UNP for Thursday morning; AXP, BBT, BNI, COF, EXC, GE, GOOG, HBAN, HOG, IGT, JCI, KMB, MCD, PBCT, SLB, STI, and WDC for Friday morning; and AKS, AMGN, CNH, DGX, ETN, HAL, and SEE for Monday morning. Note that when I say, "For [blank] morning," I mean the stock reports earnings either after the close the previous day or before the open on that day.

For a preview of this week's major economic announcements, I'll send you here. Michael McDonough does a better job of summing this stuff up than I could. Since this is a stock-picking blog versus an economics blog, I typically won't talk about this kind of stuff. Also, for a better preview of the week's market-related events, I'd recommend going here. TheStreet.com typically has a good weekly preview article for more stock-related events.

I ran the screens this weekend and the results were as follows:

Five stocks showing over four screens of interest (some and strong), four of which are on the watchlist.
15 stocks showing four screens of interest (some or strong), two of which are on the watchlist.
75 stocks showing three screens of interest (some or strong), three of which are on the watchlist.
27 stocks showing two screens of strong interest, one of which is presently on the watchlist.

Position: Long CBI, CRE, FUQI

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Friday 15 January 2010...

Profit-taking set in today, and pretty hard at that. The action under the surface was worse than the indices show. This seems to be a common theme so far in 2010, that the indices aren't showing accurately what's going on underneath, either good or bad. Chinese stocks, in particular, got annihilated today. It's options expiration ahead of a three-day weekend because the markets are closed Monday.

No trades today. I didn't want to pull the trigger on anything ahead of a long weekend.

RGR was the big gainer today, and it appears to have taken out resistance at the 50 and 200-day EMAs with heavy volume. I'm probably going to take a starter next week.

CRE was flat today, and everything else was down, some worse than others.

EME was noteworthy today in that it is dangerously close to failing to hold the breakout level and the 50-day EMA, both of which are around $26. A failure to hold here would probably lead EME lower toward the 200-day EMA around $24.

Position: Long CRE,

Disclaimer: This is not a recommendation and is presented for informational purposes only.

IACI (Long)...

Interactive Corp is a multinational internet firm that is divided into four segments, namely media/advertising, match (personals), ServiceMagic (online marketplace), and Emerging Businesses (mainly Shoebuy and Pronto). They report earnings again on 9 February before the open, and they do not pay a dividend. IACI is optionable with tight strikes and decent bid/ask spreads, open interest, and volume.

IACI passes the Joseph Piotroski screen with 100%. It doesn't score above 60% on any other screen, but the Piotroski screen is very hard to pass, so I'm naturally interested.

IACI broke out this week decisively above resistance at $21, leaving a gap and drift setup. I expect this gap to get filled in the short term, but I view a pullback to $21 as a tremendous buying opportunity because $21 has been resistance since May 2008 and IACI has carved out a sloppy head and shoulders bottom on the weekly chart, with $21 as the neckline and $13 as the bottom. This makes for a 'measured move' of $8 ($21-$13), which makes for an upside target of $29 ($21+$8). And, wouldn't you know it, that correlates with significant resistance from 2007. I've provided a weekly and daily chart here.

Given the longer-term nature of this pattern, I'm considering some longer-dated options here, which I would subsequently spread against more near-dated options. The January 2011 options are actually pretty cheap.





Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Thursday 14 January 2010...

Today was a pretty dreary day in the markets, to be honest. The market drifted with a bullish bias as it awaited earnings reports from Intel after the close and JP Morgan tomorrow morning. Besides those, there's nothing else of interest reporting for tomorrow morning that I know of. Tomorrow is also options expiration, and tonight is index options expiration.

Intel popped in the aftermarket briefly, but it's since settled down and is more or less flat from where it closed.

I took my starter in CRE today. I left room to add should it fall back towards $7.75 (50-day EMA) and again should it fall back towards $7.25 (200-day EMA). Conversely, I'll add more on a breakout above $8.25. The stock got perky today and supported my theory from yesterday that the 50-day EMA was now becoming support instead of resistance. Remember, this is a special case stock.

We also had a pair of updates to screen scores today. CEU became a 0/4, as it decreased from 91% to 85% on the Motley Fool screen (this is because the screen calls for a stock to close above $7, and CEU is right around there) and it increased from 77% to 85% on the David Dreman screen. RGR is now a 1/4. It decreased from 90% to 80% on the Kenneth Fisher screen, but increased from 60% to 87% on the Motley Fool screen.

I was way early selling calls in CBI yesterday. Oh well. I've got to learn to leg into spreads better. The problem is I was so nervous about a reversal that I put on the sell leg too early, and what I need to recognize is that by virtue of buying options instead of common stock, I'm already diminishing my downside risk. Buy the dips and sell the rips. The same goes for FUQI.

EME is right where I want it. I'll probably pull the trigger on the buy leg of a call spread tomorrow.

GME, NEU, SPAR, and CEU are getting interesting, as well. I'm still mad about missing the plunge in CEU yesterday morning, but there's nothing I can do except hope I get a second chance. SPAR, GME, and NEU are two I'd like to see pull back just a little more before I take starters in them.

UTA is still drifting in a volatility squeeze between the 50-day and 200-day EMA. I plan to wait for it to resolve itself. If it resolves bullishly by breaking out above resistance, I'll get long. If it resolves bearishly and breaks down below support at the 200-day EMA, I'll probably take a small short for a trade, as it would likely fall back to $9, where I would cover. If it firms up, I'll reverse and go long, but if it doesn't, I'll remount the short.

RGR, ARO, and ROST are all still in show-me mode, meaning I need more convincing before I go long in any of them.

Position: Long CBI, CRE, FUQI

Disclaimer: This is not a recommendation and is presented for informational purposes only.

NEU (Long)...

NewMarket Corporation is a holding company that is the parent company with an odd mix of petroleum additives business and Virginia real estate. I'm not really sure how that works out. NEU reports earnings in early February (sometime on or before the 11th). It pays a small dividend that works out to ~1.5%/year at current prices. NEU is optionable, with narrow strikes, but wide bid/ask spreads and low open interest and low volume. Not my favourite setup, but it can work.

NEU scores a 2/0, with 100% on the Momentum screen and 93% on the Peter Lynch screen. Besides those, nothing scores above 70%, so it's not the strongest on the screens.

All that being said, I love the chart. It' just a gently-rising stock that's at all-time highs. Tags of the 50-day EMA have proven to be great buying opportunities and guess what it tagged today with a high-volume hammer. This makes me think it just hit a selling climax and that it has higher to go.

Since earnings are so close, that changes the gameplan a bit. I think NEU will rally into earnings, so I'm going to look to buy some February $120 calls and ride them higher into February. Once February rolls around, I'll have to figure out how to protect the position from earnings risk. It might be with buying puts to create a strangle, or it might be selling other calls to create a call spread, or it might be with both a call spread and a put spread. I'm not sure yet.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Wednesday 13 January 2010...

It looks like the profit-taking that started yesterday could only last a couple hours, as we saw a very weak open across the board before a pretty powerful rally into the close. This pains me because I was away from my desk for the morning and was unable to bottom-tick today, then I saw the stocks rally with little relent. Oh well. It happens. The perils of having an actual dayjob. I bet a lot of stops were taken out this morning, and probably a lot of traders saw that they bottom-ticked their sales (not something that happened to me, but again, oh well, it happens). The only thing more frustrating than the former is the latter.

Earnings season resumes this week as we get some big ones coming into Friday's trading (Intel reports Thursday night and JP Morgan reports Friday morning). Those will likely leave us with a quiet day of trading tomorrow, but some fireworks on Friday.

For trades, I took a call spread in CBI today with the February $20 and $22.50 calls for a net debit of $1.50. I totally botched the entry of the buy leg, but did well on the sell leg. I tried to get into CBI near the lows of the day, but I got too cute with my entry and subsequently had to adjust the trade, entering it higher than I wanted to. Had I been better with the buy leg, I probably would've been able to put this trade on with something closer to a $1 or less debit. I have a bad habit of trying to get too cute with entries and exits by trying to bottom/top-tick, and today it cost me money. I need to work on that and get better by just setting my price and letting it hit.

The FUQI call spread didn't really move much. I've found that I like starting an option position in a stock with a spread rather than an outright purchase because it helps me minimize my risk. Sure, it caps my reward, but since the spread is committing some, not all, of the capital I'm willing to put into the trade, it's a good way for me to get myself involved. It helps with the bad habit I mentioned above.

CEU and EMR also put in nice hammers today, more pronounced than those from FUQI, CBI, or UTA. I missed the big plunge in CEU and EMR this morning, but I'm not terribly concerned because I think I'll have the chance to catch CEU and EMR. UTA bounced right off its 200-day EMA today, and I missed the chance to get in there. Like CEU and EMR, I'm not concerned there, either.

CRE's hanging right in there. I think the 50-day EMA has now become support. I'll take a starter here in the IRA soon, as well.

RGR, SPAR, and GME didn't really do much today, and there's no real change to their technical pictures.

ARO and ROST are both trying to work their ways higher, but I'm still not quite convinced. ROST had a screen score update. It's back to 3/3 from 2/3. The James O'Shaughnessey screen took ROST from 75% to 100%.

Position: Long CBI, FUQI

Disclaimer: This is not a recommendation and is presented for informational purposes only.

GME (Long)...

Gamestop is the leading video game retailer in America, selling new and used hardware and software. It has over 6,000 stores worldwide. GME does not pay a dividend. GME is optionable with decent volume and open interest along with tight strikes and bid/ask spreads, making it an ideal candidate for options. GME doesn't report earnings again until probably mid to late February.

GME scores 100% on the Joel Greenblatt screen, 93% on the Peter Lynch screen, 90% on the Kenneth Fisher screen, and 75% on the James O'Shaughnessey screen.

Technically, this stock looks like death warmed over. Note the vicious, high-volume gap-down created last week. However, it held the $20 level, which acted as supported this summer. GME peaked over $60 just two years ago, and bottomed out around $18 back in late 2008, so if $20 fails to hold, I'd look for that to be the next downside level.

GME's going to be a bit of an experimental pick for me. I plan to actively trade this name using a series of monthly call spreads. January options are basically done, but not quite. Tomorrow, I'm going to buy some February calls in GME, probably the $19 strike, and if I can, I'll sell the January $21 calls against those, just to try to pick up a quick couple bucks here on expiration week. If I can't do that, I'll just sell February $21 calls (probably some February $22 calls also because GME may report before February expiration). I believe GME will be rangebound for a while between $20 and $21.

Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Tuesday 12 January 2010...

Well, that's what profit-taking feels like. The sellers showed up today. The action under the surface was much worse than the indices would indicate, as some of the recent hot stocks (like China stocks) got whacked pretty hard today. I'm not terribly concerned here, as I believe this is simply a pullback and some profit-taking. The indices haven't done anything wrong yet, nothing that makes me think this pullback will become a full-blown reversal.

Earnings season has officially begun, as Alcoa is regarded as the 'official' start of earnings season, and as usual, AA was the perennial failure we've all come to expect it to be. Earnings will pick up steam this week and really kick it into overdrive between now and the end of the month.

FUQI is pulling back towards the 50-day EMA, which I theorize will be new support. I took a starter position in FUQI today in the form of buying a February $20/$22.50 call spread, 1/1 for a net debit of $1.10. Translation: I bought 1 February $20 call at $2.10 for every 1 February $22.50 call I sold at $1, and the difference between what I bought ($2.10) and sold ($1) is $1.10. Since I paid more than I received, it's a debit of $1.10. I took this trade because I believe FUQI will hold support and rally. If it fails to hold support, I'll unwind the trade at what should be a small loss.

Everything on the watchlist besides ROST and ARO was down today. I still think ROST is in no-man's land, however. I'd love to see it fill that gap-down before it fills that gap-up, though. I think ARO's in worse shape than ROST because ARO today filled its gap-down. I think there's further downside in ARO. It's still stuck at resistance by the 50-day and 200-day EMAs.

CBI, CEU, EME, and SPAR all pulled back a bit today, coming closer to their breakout levels. I'm keeping an eye on all of these to make sure they hold those breakout levels.

RGR is struggling to break through resistance similar to ARO, and like ARO, I expect further downside there because it is strong resistance.

CRE is boring, but it's now formed a couple-week base at resistance (which may be morphing into support). I'm tempted to take a starter here and leave room to add should it fall further.

UTA got whacked pretty hard today. I considered a small starter of common stock today, but decided against it.

Position: Long FUQI

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Monday 11 January 2010...

I'll be honest here. I didn't really pay much attention to the market today because today's my birthday and I don't really like to do much work of any kind on my birthday. There's also no new pick for today.

There just wasn't really much going on today. The newsflow seemed to be fairly tame, and for the most part, I was seeing minor pullbacks in a lot of stocks. Nothing drastic, mind you. Also, I saw a few stocks breakout to new highs, yet close well below their highs of the day, which is a sign of weakness (or at the least, a lack of strength).

Obviously, no trades today since I wasn't really watching very closely. Nothing really of interest happened to the watchlist today.

CEU was the strongest stock on the list today, but it was one of those that I mentioned above that had a gap-up to start the day, yet meandered for the day. UTA was up a couple percent today, but still appears to be consolidating. CRE showed some life today, but as I've said before, this is one boring stock. ROST and RGR both were up a bit.

ARO, CBI, EME, and FUQI were all basically flat today.

SPAR was the laggard today, pulling back about 2%. I like it, but I also think it still has further to fall.

Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

CBI (Long)...

Chicago Bridge and Iron is an old favourite of mine. I made good money in this company in the time before and after their 'accounting irregularities' (whenever you see that about a company you've a long position in, sell first and ask questions later). CBI is now back to levels a bit above when I first got involved in the name a few years ago. The stock peaked over $60 in early 2008 and bottomed out at $5 in early 2009. How's that for a wild ride in the world of buy and hold? :-p

Anyway, CBI is an engineering and construction/maintenance firm, serving primarily the energy and natural resource industries. CBI pays a negligible dividend, but it is optionable. Though not my favourite options chain, it is sufficiently liquid in terms of volume and open interest with manageable strike gaps and bid/ask spreads. CBI is a candidate for call spreads. CBI reports earnings again in late February or early March.

CBI scores a 1/3 on the screens, with 100% interest from the Joel Greenblatt screen, 80% from the Kenneth Fisher screen, 74% from the Peter Lynch screen, 71% from the Momentum screen, and 69% from the Martin Zweig screen.

Technically, CBI just broke out above multi-month resistance at $21. Volume was solid on the breakout and volume has been increasing as it powers higher. However, Friday CBI put in a weak-looking doji bar with heavy volume. This makes me think the pullback will happen sooner rather than later, so I'm keeping an eye on this one and hoping it falls a few percent to allow me to put a position on.

For options, I'm liking the April $17.50 calls as my buy leg, but I would also consider the April $20 calls. Depending on what happens early this week, I may pick some calls up here and sell some January $22.50 calls to make a quick few bucks.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

SPAR (Long)...

Spartan Motors specializes in custom engineering and manufacturing for heavy-duty vehicles. It is split into two segments. Spartan Chassis designs and manufactures custom heavy-duty chassis and the Emergency Vehicle Team designs and manufactures emergency vehicles. This is a classic early cyclical play. SPAR pays a dividend of ~4%. It is optionable, but the options chain is awful, with low volume, low open interest, wide strikes, and wide bid/ask spreads. It's not even a buy-write candidate. SPAR doesn't report earnings again until mid February.

SPAR has a screen score of 0/3. It scored 90% on the Kenneth Fisher screen, 86% on the Benjamin Graham screen, 75% on the James O'Shaughnessey screen, and 74% on the Peter Lynch screen.

This is what a technically-extended stock looks like. SPAR broke out decisively above its 200-day EMA this week, following a base that's been forming since August. Presently, the 200-day EMA lines up around $6, which is around the top of that base, so I expect old resistance to become current support on a pullback. I'm loathe to chase a stock that was up 25% last week, so I'm going to watch this one and hope for a pullback. A 10% pullback from current levels would not surprise me. If it breaks above $7, which I doubt will be the case before a pullback, I might chase it with a small position with a tight stop. In that case, I would probably use the 5-day EMA (green line) as a stop loss.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

EME (Long)...

Emcor is an engineering/construction firm providing services pertaining to electrical and mechanical systems. EME does not pay a dividend. EME is optionable, but the option chain is thin in terms of volume and open interest with wide strikes and bid/ask spreads. It's not an option buyer-friendly name, but it's ok for option sellers, so while spreads are not of interest to me, buy-writes are. EME is due to report earnings in late February or early March.

EME scores a 2/2 on the screens. It has 93% interest from the Peter Lynch screen, 90% from the Joel Greenblatt and Kenneth Fisher screens, 86% from the Benjamin Graham screen, and 75% from the James O'Shaughnessey screen.

Technically, I like what I see in EME. Here's a stock that has been basing since August and attempted three times to clear resistance at $26 before successfully doing so in December. It's also trading at 52-week highs. The breakout's volume wasn't as big as I would like to see, but the stock has consolidated above the breakout level for a couple weeks now. I expect $26 will now act as support because it's not only the old resistance level (broken resistance levels tend to become new support levels, and vice versa), but also because the 50-day EMA is creeping upward.

As I mentioned above, I like this stock for buy-writes instead of call spreads. It's not an options chain I want to be buying in and I'd rather be selling in it. Monday morning, I play to buy some shares of EME and quickly sell the January $27.50 calls against those shares. For every 100 shares I buy, I will sell one of those calls. Next week, once those calls have expired (hopefully worthless, but if not, that's ok), I'll sell some February calls against the stock in the same ratio.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Weekly View Friday 8 January 2010...

I'm doing the weekly review and preview a bit early this week because I've got a mini-trip this weekend and want to get a bit ahead on posting so I can run the screens and update my watchlists and get my picks out for today and the weekend (the screens update based on the previous day's close overnight). I'll post again Sunday with the screen results overview and a separate post for each new pick. In that post, I'll also discuss a hybrid scoring approach to create a total score between fundamentals (screen results) and technicals (the chart).

Weekly Review:
Last week was a good week for the bulls. They kept the market powering broadly higher despite an array of what could be considered bad news. This is positive seasonality in action. I made no trades last week, but there are some solid opportunities forming on several watchlist picks. I summed these up in Friday's daily view.

Weekly Preview:
This week is everyone's favourite week of the month. Yes, it's options expiration week, when we often see some pretty chaotic action. That will especially be the case this time around because this is when a lot of LEAPS expire (in your typical options chain, right now the only options you can buy for 2011 or beyond are in January). Also, options expiration week typically brings at least one painful down day. Pullbacks are your best friend when you're underinvested, and a lot of people are.

For a preview of this week's major economic announcements, I'll send you here. Michael McDonough does a better job of summing this stuff up than I could. Since this is a stock-picking blog versus an economics blog, I typically won't talk about this kind of stuff. Also, for a better preview of the week's market-related events, I'd recommend going here. TheStreet.com typically has a good weekly preview article for more stock-related events.

UPDATE 10 January 2010:

I ran the screens this weekend and the results were as follows:

Four stocks showing over four screens of interest (some and strong), three of which are on the watchlist.
15 stocks showing four screens of interest (some or strong), one of which is on the watchlist.
74 stocks showing three screens of interest (some or strong), two of which are on the watchlist.
35 stocks showing two screens of strong interest, none of which are presently on the watchlist.

We also had some updates to a few existing picks.

CEU entered the watchlist at 0/3 and is now 1/2. The Motley Fool screen increased from 85% to 91%.

RGR entered the watchlist at 1/4 and is now 1/3. The Dreman screen dropped from 69% to 50% and the Motley Fool screen dropped from 87% to 60%.

ROST entered the watchlist at 3/3 and is now 2/3. The only change I can see is the Momentum screen increased from 43% to 71%, so I don't know what the deal is there.

Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Friday 8 January 2010...

We started to get somewhat of a pullback today in some stocks, but nothing really meaningful yet. The indices haven't done anything wrong yet. Volume was lighter than the rest of the week, but still pretty decent. The market was broadly down this morning, but clawed back into the close. A pretty boring trading day, to be honest.

No trades today, though I had some buy orders on FUQI that failed to trigger. It broke out above the 50-day EMA today on pretty heavy volume, but my orders didn't hit. I'm not terribly concerned about that because this is just the beginning for FUQI. Today's breakout was on pretty powerful volume, and I now view the 50-day EMA as support. Most likely, I'll enter the trade on Monday by buying some in-the-money February calls (I'm thinking at the $20 strike or below), and then sell the January $22.50 calls against those calls in a quickie call spread just to make a couple extra bucks because I don't think FUQI would be able to take out $22.50 next week. Next week is expiration week, which is one time I like to put on the sell leg of call spreads.

Watching CRE trade is like watching paint dry. The darn thing doesn't move, but that's a function of its small volume. I'll typically disregard stocks with such low volume due to liquidity, but CRE's a special case.

RGR continues its pullback from resistance. I think it's got further to fall. It could drop another 5-10% without doing anything wrong technically.

UTA is right at resistance still. This is another one I'll probably pull the trigger for on Monday. I'm liking the May $5 calls there, which I might call spread with the February $12.50 calls.

CEU's action today makes me think it's about to begin a small pullback, hopefully back towards the breakout level around $6.50 to provide a very low-risk entry point. The volume was significantly down today, which is a good thing.

And then there were ROST and ARO. This is exactly what I was afraid of about entering them based on yesterday's action (by contrast, this shows why I'm much more interested in entering CEU and FUQI). The fact that both ROST and ARO reached their highs early in the day and were unable to power higher showed that the bulls were basically out of steam. Today's gap down open in either name doesn't surprise me at all. ARO couldn't even hold onto the gap, and has now broken down further on heavy volume, albeit lighter than yesterday. I think ARO's got further to fall. ROST is not in as bad of shape as ARO here. Remember, ROST was able to hold its gap yesterday, but it failed to hold that today. My expectation here is ROST will pull back to fill that gap-up, and that's where I'm looking to buy (call it $44.25). Volume today in ROST was about average, and nowhere near as heavy as yesterday's.

Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

CEU (Long)...

Let's go learning in China, shall we? I'm looking at China Education Alliance tonight. As the name implies, CEU provides online education and onsite training in China.

CEU does not have the strongest screen score, as it's only a 0/3. It scores 89% on the Momentum screen, 85% on the Motley Fool screen, 77% on the Martin Zweig screen, and 74% on the Peter Lynch screen.

CEU, as far as I know, does not pay a dividend, nor is it optionable. I also have no idea when it will next report earnings, but they last reported in mid November, so mid February is a reasonable guess.

The main reason I'm looking at this stock is the chart. The chart is a thing of beauty. Wednesday was a textbook breakout to all-time highs with heavy volume. Today's volume wasn't quite as heavy as yesterday's, but that's ok. It's not often I find a stock with such strong screen interest at all-time highs. Furthermore, this stock has been building a base for the past six months between $4.50-$5 and $6.50. This stock's breakout was only a matter of time. It's hard to pick a stock that's up ~15% on the week, but I think this one's too potent to pass up.

It's a bit extended to be buying heavily, but I'm looking to take a starter long in CEU around current levels, but ideally a bit closer to the breakout level around $6.60. That's nearly 10% lower than present levels, so the way into this stock is to start small. I wouldn't give it much room below that level, though. If it fails to hold there, it's going to drop back into congestion and isn't ready to power higher quite yet.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Thursday 7 January 2010...

Today was another day where the indices didn't really do a whole heck of a lot. We saw a lot of strength in retail, homebuilders, and financials, which strikes me as a classic early cycle move. On the other hand, we're starting to see pullbacks in tech and the small caps that were the real winners last year and early this year. Maybe today was a one-day mini-rotation. Tomorrow we have the jobs report, which will shake up the action. The market today was probably just waiting around for this.

Once again, I made no trades today. RGR, FUQI, and UTA appear to be experiencing trouble with resistance. I'd like to see these three pull back further so I can get a starter on in each of them or break out above resistance so I can get a starter on in each of them. Either way.

CRE is still holding above that 50-day EMA, and I'm wondering whether I'll get that pullback towards the 200-day EMA I've been expecting. Most likely, I'll take a starter around present levels tomorrow after the jobs report. Just a starter because I want to leave room to add if it does indeed pullback like I think it will.

ARO gapped up above resistance at the 50/200-day EMAs, but it fell right back towards them, having fully closed the newly created gap in the first 30 minutes of trading. Such action is not typically bullish. Combine that with the fact that ARO's volume was pretty heavy today and it makes me think ARO has further downside. Today's action in it felt like a short-term buying climax. If you're long ARO, don't give it much room below the 50/200-day EMAs because if it fails to hold, it's a long way down and you don't want to ride through that pain.

ROST, like ARO, had a powerful gap-up to start the day. However, unlike ARO, ROST was able to sustain the gap, which is bullish. The gap-up was also on heavy volume and broke ROST decisively above its downtrend and the 50-day EMA, which is also bullish. What was not bullish, however was neutral, is the fact that ROST was unable to continue moving higher as the day progressed. It reached its highs for the day early in the morning and proceeded to drift for the rest of the day. When we see gap-ups like this, the ideal scenario is a stock that pops early in the morning, pulls back to test the early low, rallies back towards the early high, and breaks right through that high decisively. We did not see that in ROST today, which should give you pause. I'll watch this one closely over the next couple days. If it manages to hold that gap, I'll take a starter long. However, if it starts to fade, I'll let that gap get filled before taking my starter long.

I've provided intraday charts of ROST and ARO below so you can see what I'm talking about.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

ARO (Long)...

Aeropostale is not a store I typically buy clothes from, but it's a stock I would consider. They sell clothing in over 900 stores throughout the US, mostly under the Aeropostale name.

ARO has a score of 4/2. It scores 100% on the Warren Buffett, Joel Greenblatt, and James O'Shaughnessey screens, 93% on the Peter Lynch screen, 90% on the Kenneth Fisher screen, 81% on the John Neff screen, and, oddly enough, 71% on the Benjamin Graham screen. This is another stock lighting up the growth screens, but it's also interesting to see it light up some more value-oriented screens.

ARO doesn't report earnings again until early March, and it does not pay a dividend.

ARO is technically looking like many of my other picks - a fundamentally strong company in a brief downtrend that's rallying into heavy resistance. The 50-day and 200-day EMAs are literally right on top of each other. If ARO can clear this hurdle, these levels will provide solid support, but for now, they're resistance. I believe ARO will eventually overtake these levels, but I also believe a pullback is necessary first.

ARO is optionable and has a strong chain that is liquid in terms of volume and open interest and the strikes and bid/ask spreads are tight. The options are pretty cheap in this stock, and this is another call spread candidate. I don't typically play with front-month options, but a call spread buying the January $31's and selling the January $35's and/or $36's makes sense here if you believe as I do that the stock will not be able to clear resistance just yet. Most likely, however, I would make such a play by buying February and/or April calls while selling January calls. The trick is to buy the dip and sell the rip when making call spreads.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Wednesday 6 January 2010...

Today was a lot like yesterday in that the indices were relatively tame, but the action underneath them was pretty fierce. We've had the positive seasonality for the past three days, but this probably won't last much longer. Not a whole lot of news came out today, really. Some economic releases, some earnings, and the last Fed meeting minutes.

Again, I made no trades today. CRE continues to drift, and I expect I'll be able to start it a few percent lower. FUQI, RGR, and ROST continued to drift up towards resistance, yet each has failed to decisively break it. UTA cracked its downtrend line today slightly, but not exactly with any vigour. I expect all of these names to pull back, but if they don't and they break through their resistance levels, I'll chase the breakouts with trailing stops back in the congestion.

I also have an update on ROST. It moved from being a 2/4 to being a 3/3. The James O'Shaughnessey screen moved from 70% to 100% with yesterday's close. This makes ROST an even stronger stock fundamentally, and it makes me even more interested.

Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

RGR (Long)...

Time to add some firepower to the watchlist with Sturm, Ruger, & Company. RGR makes guns. That's really the only introduction RGR needs. :-)

RGR has a score of 1/4, meaning one screen with strong interest and four screens with some interest (I'll adapt this convention from now on). RGR scored 100% on the Joel Greenblatt screen, 90% on the Kenneth Fisher screen, 87% on the Motley Fool screen, 85% on the Martin Zweig screen, and 74% on the Peter Lynch screen. This is another stock that's screaming growth.

Technically speaking, RGR is in an interesting spot. It's had a rough couple months, falling from a peak around $15 down out of double digits briefly. It's rallied back into double digits to start the year. The $9-$9.50 range will serve as support, as it corresponds with December's low and the high-volume low from late October. That looks to me like a selling climax in that the bears weren't able to take it below $9 that day. RGR made a run at $11 today, trying to clear both the 50-day and 200-day EMAs, but it was turned back at the lower and closed today around $10.60. Like the big bar from late October that stopped at $9, today's tail probably indicates a short-term climax, but this time it's a buying climax (these bars are called hammers; note the long tail).

I don't think RGR will be able to clear these layers of resistance easily, so I'm expecting RGR to pull back closer to the $9-$9.50 range, at which point I would start buying. Alternatively, if it did clear this resistance decisively, I would start buying.

RGR doesn't report again until late February or so. It also pays a decent dividend of ~4% annually.

RGR is optionable, but the strikes are wide, the bid/ask spreads are wide, and the volume and open interest are both pretty thin. Between the options chain and the dividend, I would be inclined to stick with common stock here instead of trying to play the options. Even with just using the common stock, we can still make a little extra money by selling covered calls against any common stock that's purchased (this is called a buy-write and it's just like the call spreads I speak of, except that instead of selling calls against other calls, you're selling calls against stock).



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

Daily View Tuesday 5 January 2010...

Today was another strong day for the bulls. The indices were more or less flat, but the action under the surface was way stronger than the indices are showing. A lot of bad news came out today, such as slumping housing sales and a downgrade on GS, but the bulls were pretty well able to shake it off. There continues to be strong momentum under the surface, but I believe this is still strong first-week seasonality in action and I expect a minor pullback in the coming weeks.

Again, I made no trades today. UTA and FUQI have rallied right into resistance as I expected they would. I'm not a buyer of either unless we get either a pullback or a breakout above resistance. CRE pulled back a bit, and I'm watching that for a chance to get in on a further pullback. ROST held firm today, and I'm liking that in a similar setup to UTA and FUQI.

Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.

FUQI (Long)...

I had considered this pick for last night instead. Judging by today's 8% move in FUQI versus the flat performance of yesterday's pick, I made the wrong call. Oh well. Today's pick if Fuqi International, a Chinese company dealing primarily in jewelry and luxury goods. At last count, FUQI had ~70 jewelry retail locations in China, so there's plenty of room for growth.

FUQI scored strong interest from two screens and some interest in four others, for a total of six screens. It scored 100% on the James O'Shaughnessey screen, 93% on the Peter Lynch screen, 85% on the Martin Zweig screen, 80% on the Kenneth Fisher screen, and 79% on both the Motley Fool and John Neff screens. Basically, FUQI lit up the growth screens and is screaming growth.

Technically, FUQI's in a fairly pronounced downtrend. It topped out back in September around $32 and has now fallen under $20, despite today's $1.47 rally. Volume picked up today, too. Round number $20 will probably act as resistance for the time being, along with the 50-day EMA around $20.50. I do not believe the move up that began around Christmas is sustainable in that I don't believe FUQI will be able to generate enough momentum to break the downtrend. However, I believe FUQI eventually will break the downtrend, and I'll be right there waiting when it does. I'm ok with missing the absolute bottom because that means I didn't ride it all the way down. Plus, that way, I get better-defined risk.

FUQI does not pay a dividend and is not expected to report earnings again until March.

FUQI is optionable. The chain is liquid with decent volume and open interest, plus the strikes are tight. I like the March $17 calls as either an outright purchase or the buy leg of a call spread. I would still not rush to chase this name because I think it will yield a better entry in the coming days. I'm content to be patient here.



Position: none

Disclaimer: This is not a recommendation and is presented for informational purposes only.