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Calls Aplenty In Materials Space

Options Plays in The Materials Sector

[Image 1]The rows in the options matrix are as follows:

  • Curr Vlm = Current Option Volume for today
  • OpVol20 = 20 day Option Volume average
  • % Delta (sorted descending) = Curr Vlm/ OpVol20 * 100
  • Sym = Symbol
  • 20 HV 100HV 252HV = 20 day, 100 Day and 252 Day Historical Volatility
  • Slope = The slope of the historic vol
  • Delta = Change in slope
  • cOptInt = Call Open Interest
  • pOptInt =Put Open Interest
  • cVolum = Call Volume
  • pVolum = Put Volume

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Not A Time To Buy Retailers

The seasonality of retail stocks and the Retail HOLDRS (RTH) is now in a downward trend that ends in late January. If you are considering buying retail stocks in the RTH or the RTH itself, then wait until late January and you may get a bargain. Our charts this morning come courtesy of www.erlangerchartroom.com.

[Image 1]

On January 30th, the seasonal downtrend ends. The above chart is the seasonal pattern. The magenta line is the seasonal direction. The blue and orange shadings off the magenta line are the best and worst periods to be long or short.

The heat map is the background coloring and we get some red in January. Seasonality is only a setup so if RTH and retail stocks buck the negative seasonal trend we would be embrace such a trend but so far that is not happening.

Only three stocks that make up the RTH have a strong Erlanger technical rank. All three are defensive plays in that they are a drug store and two grocery stocks.

[Image 2]

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Let The Squeeze Begin In AMD

Advanced Micro (AMD) now has an Erlanger Short Ratio of 7.87 with Erlanger Short Intensity of  93%. The shorts have overstayed their welcome in this name and in semis as a sector. DELL holds their analyst meeting so watch to see if semis rip on any positive news from the conference.

Hedge funds will own this name now because it is a lottery ticket and they can no longer access insider information via expert networks. Valuation models like Holt or Ativo which we prefer over Holt see AMD price target at $5.58. That is more than a double if it gets there.

We note the Price/Sales is stupid cheap on this name at 0.28. Since this name will be one of the worst performers for 2012, those that play buying the biggest dogs at year end will be in this name.  The $64,000 question is can the company muddle through its hefty debt.

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Today’s Playbook

December 10, 2012

In After Hours Trading

Italian Prime Minister Mario Monti will step down.

What’s Happening This Morning

US futures: (S&P -3.20, DJI -23, NDX -6.50 with fair value higher) Asia higher and Europe lower. Copper and gold higher with WTI Crude Futures higher. $ is higher vs Euro, lower vs. Pound and lower vs. Yen. US ten-year Treasury Yield -.0205. Prices as of 7:50 a.m. EDT.

Earnings Expected

CASY ABM IRET TEA LDR PPHM SURG due after the close. Due Tuesday morning before the open DG PTRY.

Rags & Mags: Inside Wall Street

We are big fans of www.247wallst.com summary of the newspapers each day. Going forward we will link to their website so you can read their summary, Media Digest

Reported Earnings This Morning

FGP (+.04) AND CIS ( ).

Data Points

Yesterday saw 1642 stocks rise and 1347 fall on the NYSE. NASDAQ saw 1091 rise and 1241 fall. The S&P 500 is still below its 50 day moving average but back above the 200 day moving average. The 10 day spread moving average of breadth is positive and is now back to a buy signal. We are back to invested on the Madison Market Timing Indicator.

 

Economics

None of note today. Due this week PPI, CPI, retail sales and industrial production.

Politico

President Obama gives a speech on the fiscal cliff in Detroit today.

Conference & Analyst Meetings

Analyst Meetings LFUS TXN. Conferences of note Wells Fargo MLP & Energy Conference, Goldman Sachs Financial Services Conference and NASDAQ/OMX Morgan Stanley Investor Conference.

Conference of Note

American Society of Hematology Annual Meeting.

M & A News

AIG to sell its airplane leasing business to Chinese investors for $5.28 billion. Wanxiang wins auction for AONE in bankruptcy matter.

Key Upgrades and Downgrades

Firm Upgrades Downgrades
JP Morgan
Goldman Sachs CME
Morgan Stanley
Deutsche Bank
Citigroup MDU FBR
Barclays
Wachovia/Wells Fargo
Credit Suisse
Banc of America
UBS
Lazard
Merrill Lynch BBY

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Why You Should Vote For Our Content

Anyone can weigh in about stocks or the market and be right 50% of the time. The only way to take that batting average up to 70% is to have a disciplined systematic process that tracks the technicals, economic, fundamentals and  market intelligence. So far you have seen just a small amount of our process used by top managers and high net investors around the world.

Our work is for the professional who is looking for the additional edge. We hope that you the reader want to up your game. We can never make a bad trader but we constantly make good traders really good traders.  We hope you vote for substance over fluff.

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Intraday Changers For Short Squeezes and Long Squeezes

Below are the biggest changers in our Short and Long Squeeze categories that were short or long squeezes as of last Friday’s close. Our definition of a short squeeze is a name that is doing well technically over the past 100 trading days and a short ratio greater than 4.0 with a short intensity greater than 60%. A long squeeze is a stock that is weal technically over the past 100 trading days and a short ratio less than 4 with a short intensity less than 30%.

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Follow-up On P Comments From Yesterday

Yesterday we noted that Pandora (P) would report earnings after the close. Estimates were $.01 versus $.02. There is considerable upside to our price target, $11.28, which is based on Cash Flow Return on Investments (CFROI) as well as profitability and growth of assets. Trillions of dollars are managed on a CFROI basis. We note this is a purely quantitative ranking,

We  noted the short ratio was 9.79 which means if the company beats then the shorts will be running for  cover. Our upper bound target is $14.89. This name bottomed at $7.50 and has a gap down at $12.50 that needs to be filled.

So how did we recommend to play it? Aggressive traders buy shares before the close. Less aggressive traders could be a 1/2 position and add or not add on Wednesday morning.

Another strategy  which we recommended would be to buy the stock and buy a December $9 put for $1. If the stock rips, then you give up $1 of upside and are protected on the downside.  Options for December show a bias to the call side BUT there are lots of December 8 Puts with open interest at 16,959.

The result. So Pandora beat estimates by a wide margin $0.04 but warned on Q4 as companies are cautious on ad spending heading into a potential fiscal cliff. The CEO will be on CNBC at 11:40 a.m. EST.

The stock is now at $8.00 and we wrote this up pre market. It opened at $9.11 yesterday. The put is at 1.20 in value whic h is joke but shows the premium. We will take the $0.20 cents out and bring our cost down to $8.91. Let’s see where the stock trades post the CEO interview and whether to sell shares and move on or stay with it.

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After The Close & Morning Chatter Of Note

Below is a format we have created that keeps us focused on what will influence the open AND what could be catalysts for the trading day.

In After Hours Trading

AVAV (+.17), ASYS (-.88), MFRM (+.01), MIND (-.27), P (+.04), PLAB (+.03), POWL (+.34), SEAC (+.03).

What’s Happening This Morning

US futures: (S&P +4.80, DJI +51, NDX +4.50 with fair value flat) Asia and Europe higher. Copper and gold higher with WTI Crude Futures higher. $ is higher vs Euro, lower vs. Pound and higher vs. Yen. US ten-year Treasury Yield +.0043. Prices as of 7:55 a.m. EDT.

Earnings Expected

PBY CWST due after the close. Due Tuesday morning before the open BMO AZO TOL MTN BIG.

Rags & Mags: Inside Wall Street

We are big fans of www.247wallst.com summary of the newspapers each day. Going forward we will link to their website so you can read their summary, Media Digest

Reported Earnings This Morning

BFB ( ), FRAN (+.02), GIII (+.09 ), TTC ( ).

Data Points

Yesterday saw 1440 stocks rise and 1526 fall on the NYSE. NASDAQ saw 1165 rise and 1294 fall. The S&P 500 is still below its 50 day moving average but back above the 200 day moving average. The 10 day spread moving average of breadth is positive and is now back to a buy signal. We are back to invested on the Madison Market Timing Indicator.

 

Economics

ADP releases its November Jobs Numbers pre-market. October Factory Orders are due out at 10:00 a.m. EST and are expected to drop to 0% from 4.8%.

Politico

President Obama speaks to the Business Roundtable. The House Financial Services Committee reviews Dodd-Frank legislation.

Conference & Analyst Meetings

Analyst Meetings SBUX TYPE AEG CP LOW ACW ARG DOX. Conferences of note Wells Fargo MLP & Energy Conference, Goldman Sachs Financial Services Conference and NASDAQ/OMX Morgan Stanley Investor Conference.

Conference of Note

Qualcomm (QCOM) 3G/LTE Summit.

M & A News

Nothing of note.

Key Upgrades and Downgrades

Firm Upgrades Downgrades
JP Morgan
Goldman Sachs WM
Morgan Stanley
Deutsche Bank
Citigroup ADTN
Barclays
Wachovia/Wells Fargo
Credit Suisse
Banc of America
UBS
Lazard
Merrill Lynch
Jefferies
Oppenheimer
RBC
Bernstein
Stifel Nicolaus
CLSA
Keefe Bruyette
Friedman Billings PNC
Baird
Needham
Cowen
PiperJaffray
Thomas Weisel
RBS
Raymond James INTC

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Why The Value Lines Are Important, 50 Day Moving Average Getting Close & Retracements

Yesterday we noted that support on SPY was $140.88. It traded to $140.87 and then rallied into the close to finish at $141.21. Was this a coincidence? No way.

The high fregquency and algo guys knew this level and defended it. Did you? If not, then you should have. We will post the SPY value line levels today so that you are “in the know”.

The second point this morning is that the 50 day moving average on SPY is $142.12. On Monday we moved through this level but failed by day’s end closing at $141.45.

The third point this morning is that the retracements from the November 16th low to the high hit on Monday are now in play if SPY has peaked for the time being. The first test would be $139.71 (38.2% retracement), then $138.75 (50%) and finally $137.79 (61.80%). Remember the market is a series of two steps forward and one step back.

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Value Lines Are Problematic Intraday. Can SPY Hold $140.88?

Each day we calculate on the open resistance, pivot and support. Also key are the five minute opening range and the one hour range.

SPY opened the day below pivot and may challenge support at $140.88 sooner than later. It is important to pay attention to the value lines because if you are a buyer the last thing you want to do is buy when the market is about to get hammered. Same concept in reverse on the short side.

Intraday trends are also important for tracking whether a change of direction is about to take place. Last week ex Tuesday was a positive week for the bulls from an intraday perspective.  So far this week is not off to a great start thanks to the ongoing “fiscal cliff” that looms over the market.

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