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Market Opinion: The market has not shown much optimism from bullish employment figures last Friday. Strong resistance around 1280 on the S&P has made investors think the next move in the market is probably down, especially since we have yet to fill a downside gap at 1255. I believe gold has bottomed until Feb’18th but I would not play to the long side with SPDR Gold Trust ETF (NYSEARCA:GLD). Instead I would short ProShares Ultrashort Gold (NYSEARCA:GLL) or enter bear call spreads on the ETF. Euro weakness has lingered into tonight as the currency has broken into 1.26 territory, I fully expect to see the decline continue until 1.20.

Crude oil continues to trade near its three-month breakout line. The commodity could shoot up fast if at any time Iran tries to close the Strait of Hormuz. I’m seeing a lot of Dow 30 stocks overbought right now: Boeing (NYSE:BA), Disney (NYSE:DIS), General Electric (NYSE:GE), Home Depot (NYSE:HD) and Procter & Gamble (NYSE:PG). I think earnings will be telling for market direction. Below are a few stocks I’m interested in for next week.

Daily Data: Monsanto (NYSE:MON)

Monsanto recently reported and beat earnings estimates on Jan’5 (0.32 vs. 0.16 consensus). Revenue also beat expectations by 0.39 billion (2.44 vs. 2.05 consensus). Monsanto stock was rewarded by a pre-market gap up on Jan. 5 followed by two analyst upgrades on Jan. 6.

1. Monsanto price target raised to $90 from $85 at Sesquehanna

2. Monsanto price target raised to $89 from $81 at Citigroup

Investors have been waiting for this move on the stock for years. Monsanto has been trending neutral to bearish since 2009, but recently it completed a large inverse head-and-shoulder formation dating back to May. After earnings, Monsanto rocketed through its $75 resistance line and is now viewed as a stock that may continue higher. Let’s see what history has to say about Monsanto’s performance for the past 10 year from the Nov-Jan option expiration.

We can see again that Monsanto has always rallied in the period of Nov to Jan option expiration. This data is extremely bullish and given the historic performance of the stock, I calculated an implied high/low price of MON on Jan. 20th of $91.70 and $73.93. Unfortunately, the only bad news is that premiums are not as high as they used to be in Jan since the Nov-Jan option expiration time period is coming to a close. However, there is one trade I can still suggest for those who have some extra cash to stash away.

Suggested Trade: MON - Sell Jan'20th 72.50/70 put spread (Bull Put Spread)

Size - 10% of Giorgio's Corner Portfolio Size = (4 spreads)

Entry: Sell limit 0.14

Stop Loss: 1.35

Exit Price: 0.00

Max Return: 5.93%

Please note that this trade may not be possible to enter, but I think you need to earn a certain amount of money to make the trade worth entering. Now because the premiums for January are not that desirable, I investigated the returns for MON stock from the Dec to Feb option expiration time period.

We still see bullish data. With only a -9% draw down in 2003 the stock still managed to rally in the winter sell-offs of ’07-’08 and ’08-’09. Unfortunately, however the implied max low ($61.75) is too far OTM (out of the money) to recommend a trade. And the implied max high ($82.11) is near the highest option strikes available for MON in Feb (Feb MON options only go up as high as the 85 strike). Given the bullish data and the limited strike prices available, I can suggest the only following trade.

Suggested Trade: MON - Sell Feb’18 85 Strike Call Option

Size - 17% of Giorgio's Corner Portfolio Size = (1 contract)

Entry: Sell limit 0.50

Stop Loss: 2.60

Exit Price: 0.00

Max Return: 2.90%

I would like to suggest the Feb’18 85/90 bear call spread but the 90 strike is just not available, if the options chains change I would gladly suggest that trade instead.

Daily Data: Mosaic (NYSE:MOS)

Another agriculture related stock, Mosaic, which provides fertilizer products to farmers, just reported earnings on Jan. 4th. The company beat EPS estimates (1.40 vs. 1.30 consensus) but marginally missed revenue figures (3.01 B vs. 3.20 consensus) which was followed by a downgrade from Citigroup to neutral from buy. However, I’m not sure there’s too much to sell on MOS these days. The stock has been in a downtrend since August but the lows near $47.50 have held on the stock. The stock still beat EPS estimates, and if MOS can break above the 50 day SMA I think it has a great shot at heading towards $60. Let’s see what the Nov-Jan option expiration data has to say.

Just as with Monsanto, Mosaic shows a bullish bias for the Nov-Jan option expiration time period. I have calculated an implied max high/low for MOS of $75.06 and $49.68 for Jan. 20. Returns show a negative return only once during the Nov-Jan option expiration time period. Fortunately MOS is trading closer to its max low than MON, thus I can suggest a better trade than I did for MON for those interested.

Suggested Trade: MOS - Sell Jan'20th 50/47.50 put spread (Bull Put Spread)

Size - 10% of Giorgio's Corner Portfolio Size = (4 spreads)

Entry: Sell limit 0.35

Stop Loss: 1.35

Exit Price: 0.00

Max Return: 16.27%

Now that MOS has reported earnings it’s also important to know how the stock performs going forward so that we may position ourselves accordingly. The data below shows MOS performance from Dec to Feb option expiration.

The Dec to Feb option expiration time period is just as bullish as the Nov to Jan period. Given the data above I think it’s best to either enter another bull put spread or purchase some call options. I do not think the max low will occur this year, MOS was able to rally when the market was turbulent in winter ’08 and ’09. Given the data above I suggest the following trade:

Suggested Trade: MOS - Sell Feb’18th 47.50/45 put spread (Bull Put Spread)

Size - 10% of Giorgio's Corner Portfolio Size = (4 spreads)

Entry: Sell limit 0.43

Stop Loss: 1.35

Exit Price: 0.00

Max Return: 20.77%

This trade is a bit more prudent than the January expiration 50/47.50 bull put spread because it’s at a lower strike price, with the bonus of a higher total return. I’m seriously considering entering either one of these MOS trades next week especially since Goldman backed the stock Friday with a $59 price target and a buy rating.

Daily Data: IHS Inc (NYSE:IHS)

This oil well service company reported and beat EPS estimates (0.99 vs. 0.93 consensus) on Jan. 6. The stock sharply rose 2.56% last Friday as the SPY closed slightly in the red. The move may have come from a number of bullish statements after earnings such as:

1. Estimated margin improvements for 2012

2. IHS has signed a strategic alliance with IBM

3. Its M&A pipeline remains robust

I’m interested in the stock because it looms near its multi-year $90 resistance line. If the stock can break out we could see a big rally in this stock up to the $120 level. Let me show you the Nov-Jan and Dec-Feb option expiration data to help support my claim.

The Nov-Jan option expiration time period shows that IHS rallies the majority of the time and it rallies big. Only once has it declined 10% during this period. Unfortunately, since IHS is trading near the middle of its implied max high/low range I cannot make any recommendations by Jan. 20th. However, if we look at the Dec-Feb option expiration time period there does appear availability for a trade.

The Dec-Feb option expiration period shows less downside risk than Nov-Jan, but also average upside potential. Thus, if a large move occurs in the stock it will probably be in January. Based on an implied max high/low of $118.72/$81.92 for Feb. 18, I can suggest the following trade.

Suggested Trade: IHS - Sell Feb’18th 80/75 put spread (Bull Put Spread)

Size - 10% of Giorgio's Corner Portfolio Size = (2 spreads)

Entry: Sell limit 0.50

Stop Loss: 1.80

Exit Price: 0.00

Max Return: 11.11%

Note the options on IHS stock are not liquid, however I believe a market maker may take a sell limit of 0.50 if entered on a down day in the stock.

Daily Data: Netflix (NASDAQ:NFLX)

Let’s get off the topic of stocks that just reported earnings and talk about a headline stock. Netflix rose 8.81% last Friday. Investors were bewildered, but I think we have four reasons as to why the stock rallied last week.

First, Bank of America raised the price target on the stock to $85 from $80 on Jan. 5 (last Thursday). Second, we were warned on last Thursday’s episode of Fast Money that traders were buying plenty of call options up to the $100 strike area. For my third and fourth argument, I turn to the historic Nov-Jan and Dec-Feb option expiration time period.

Above we see that NFLX has been quite volatile in the Nov-Jan option expiration time period. I have calculated an implied max high/low on NFLX for Jan’20 of $121.77/$60.88. Interestingly the stock hit a recent record low around $60 in the end of November and is now heading up to close its October gap at $120. Now given that NFLX is trading in the middle of my wide implied range, I cannot make any trade recommendation on the stock for January. However, I can for the Dec-Feb option expiration time period. Let’s take a look at the data.

The Dec-Feb option expiration time period has also been a volatile period for NFLX, and the stock has returned widely different returns. Yet, notice the implied max high/low prices of $97.04/$57.25 for Feb. 18. The max high is considerably below that which was calculated for Jan ($121.77). Given the historic Dec-Feb option expiration date returns of NFLX since 2002 I can suggest two trades.

Suggested Trade 1: NFLX - Sell Feb’18th 105/110 call spread (Bear Call Spread)

Size - 10% of Giorgio's Corner Portfolio Size = (2 spreads)

Entry: Sell limit 0.80

Stop Loss: 2.70

Exit Price: 0.00

Notice the high stop loss on this position ($2.70). It’s because we must take into account the higher expected volatility of this stock. If you think NFLX is moving higher, then you may want to wait for a better risk-return (better selling price) before entering this trade.

Suggested Trade 2: NFLX - Sell Feb’18th 57.50/55 put spread (Bull Put Spread)

Size - 10% of Giorgio's Corner Portfolio Size = (4 spreads)

Entry: Sell limit 0.25

Stop Loss: 1.00

Exit Price: 0.00

Max Return: 11.11%

This is a prudent trade betting that the lows will hold on NFLX until Feb. 18.

Daily Data: J.P. Morgan Chase & Co. (NYSE:JPM)

J.P. Morgan Chase is a stock that is expected to report earnings this week on Friday Jan. 13. To my surprise bank stocks have rallied recently despite a potential sovereign default in Europe still looming. The reason for the recent rally has been due to a pop in existing homes sales last month and a drop in unemployment, implying that banks may be offering new lines of credit and generating more income. I did not find any data useful during the Nov-Jan option expiration on this stock, but I did during Dec-Feb.

We see that JPM has a historically bearish bias during the Dec-Feb option expiration time period. I calculated an implied max high/low of $38.30/$$20.89. JPM is currently nearing its max high and I do not think the stock will be able to rally much higher even after earnings due to technical resistance. JPM made price highs in both August and November at $37, the 200 day SMA is also trending at $37, which adds even more resistance. Based on historic performance and technical data I can suggest the following trade.

Suggested Trade: JPM - Sell Feb’18th 39/40 call spread (Bear Call Spread)

Size - 10% of Giorgio's Corner Portfolio Size = (10 spreads)

Entry: Sell limit 0.14

Stop Loss: 0.62

Exit Price: 0.00

Max Return: 16.27%

Apart from the MOS bull put spreads; I’m considerably attracted to this trade on JOM. I’d wait however to see if a better price than 0.14 presents itself before earnings.

Charts are courtesy of Finviz.com.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in JPM, IHS, MOS, MON over the next 72 hours.

Additional disclosure: We may short NFLX.

Source: 5 Stocks Ready To Move This Week