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Morning Update

Last week the market rose on optimism that there will be resolutions to the debt crisis in Europe, the fiscal cliff in the US, and conflict in Israel. However, no real solutions were actually found to any of those problems last week. Therefore, we remain cautiously long in this market and are watching the price action in the S&P closely. There appears to be major headline risk in this market, and it will only take one comment from a congressman about not compromising to send this market lower. The focus this week will be on congress, durable goods orders, and GDP and the levels we are watching in the S&P 500 futures are support at 1390 and resistance at the 100-day mobbing average at 1405.

One stock that saw a surge of interest and high trading volume during Friday’s abbreviated trading session was RIM. Shares closed up over 13% on the day following an analyst upgrade and upward price target revision to $15. On trader bought 11,055 March 18 calls for $0.47 with the stock at 11.57. This is a bullish bet that the stock will climb at least 33% over the next 109 days.

Why so bullish? It all comes down to expectations for BB10, RIM’s newest operating system. Earlier last week Jefferies upgraded the stock after a survey showed “a much more positive view of BB10 then we expected.” National Bank Financial upgraded the stock Friday because they expect BB10 to launch in multiple countries on January 30th, with shipping starting soon after. They said most analysts earnings estimates reflect a March launch date.

While some stock and option traders may be jumping into the stock here ahead of the launch, I am still hesitant. First, this could be a buy the rumor, sell the news scenario. RIMM is already up 87% off its 52 week low made on 9/26 meaning the company will need fantastic earnings in order to stay ahead of expectations. The company’s last earnings report showed significant declines in years over year EPS and revenues so buying into the stock now is a complete bet on BB10 turning the company around. It is important to note that BB10 will be releasing after the important holiday shopping season, which will further disadvantage it to competitors Google and Apple. If you do think BB10 will be a success, then buying the March 18 calls like this trader did is the way to go. Risk is limited in this trader to the $0.47 premium paid, but the returns in the event RIMM shows earnings growth could be huge.

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