11:00pm (EST)

1.  Market Summary

2.  Momentum Stocks Still Worth Watching     

3.  Can American Tower Power Higher?                 

4.  Aruba Networks Finding Strength

= = = = = = = = = = = = = = =  

1. Market Summary

Although the numbers don’t show it, the bulls took another step closer towards powering through resistance.  Trading was flat on Friday as Wall Street prepares for this week’s key events which include more earnings, the latest decision on monetary policy from the Fed, and the midterm elections.

The Dow gained 4 points on Friday to close at 11,118.  The index hit a high of 11,266 on Monday and we have been looking for a close above 11,200 to confirm a continuation of the bullish trend.  Although the index fell 14 points, or 0.1%, for the week, the blue-chips gained 330 points, or 3.1% in October, and are up 6.6% YTD (year-to-date).  We still think the index can trade up to 11,500-11,600 on a break above 11,200 with 11,000-10,800 acting as near-term support.

The S&P 500 fell less than a point and settled at 1,183.  The index hit a high of 1,196 but was unable to crack our 1,200 target as it gained less than a point and went nowhere for the week.  However, for October, the S&P popped 42 points, or 3.7%, and a run to 1,300 is in the cards if the bulls can break resistance while support remains in the 1,170-1,175 area with additional backup at 1,150.  YTD, the index is up 6.1%.   

The Nasdaq was the one index we did confirmation on for another leg up although Friday’s session was flat.  Tech closed above our 2,500 target and the index is at 2,507 after clearing this hurdle last Wednesday.  For the week, the Nasdaq added 28 points, or 1.1%, and for the month it gained nearly 140 points, or 5.9%.  We have our sights set on 2,600-2,700 over the near-term and support is at 2,450, but, the monthly close above 2,500 for the first time since May 2008 was big for the bulls.  The Naz is up 10.5% for 2010.

Many of the pros and talking heads are calling for a pullback following this week’s fireworks but we think there is a chance the bulls’ power through resistance.  If not, look for support to hold and if it doesn’t then the bears haven’t gone into hibernation just yet. 

= = = = = = = = = = = = = = = 

2.  Momentum Stocks Still Worth Watching

Since August, we have been highlighting certain companies as we expand our coverage of stocks and a company’s outlook in our Weekly Wrap.  Some of these stocks appear on our Watch List which is in our Members Area and they are companies we feel may be overvalued or undervalued.  We wanted to further expand on what to watch for in these particular names heading forward and just to remind you that sometimes buying or shorting a stock can make you pretty good returns as well.  We love to trade options but they are time sensitive and sometimes the story takes a little longer to play out which can affect the outcome or your trades.

Even though we may not recommend a specific trade when we profile a stock, our coverage of these individual companies are a great place to start as you begin to build your own trading strategies.  We wanted to do some quick reviews of some of the companies we have highlighted, where that stock is today, and where any future trade may lie.

We first brought you Best Buy (BBY, $42.98, up $0.08) on August 1, and said “Best Buy looks cheap at these levels and if we were stock buyers we would start half positions here under $35.”

The stock was at $34, then proceeded to get as low as $31 by the end of the month.  Since then the stock has vaulted higher into the pre-holiday season and is up 20%-25% depending on where you got in. That’s a real nice return compared to CD’s and there could be more upside as its 52-week high is $48.83.  We would continue to hold but would close the position if shares fall below $39.50.

On August 8, we initiated coverage of Baidu (BIDU, $110.01, down $2.16) when shares were $86.  Shares dipped to a low of $76 by the end of the month but have also returned 20%+ return in two months.  We waited for our entry pointy and were able to turn our homework into nearly a 50% return for our subscribers by using call options.  We mentioned in our Members Area that we expected a 20 point move after they announced earnings when the stock was at $100 and so far it has captured half it, hitting a high of $113.78 last Thursday.

We also talked about gold in early August, highlighting the SPDR Gold Shares (GLD, $132.68, up $1.38) as a way to play the metal, and why it would do well in October. Gold was at $1205/ounce and the GLD was around $117, now gold is at $1357 and the GLD is up 13%.  Folks, we may get a short term pullback in gold, but the story remains intact.  Gold is going to go higher as it is acting like another “currency” thanks currency wars that are currently going on. 

For the long-term, any dip could be viewed as a buying opportunity for almost all of the precious metals and we like silver as well.  The iShares Silver Trust (SLV, $24.17, up $0.17) is the way to play this metal and we are looking at some options on this one as well as Pan American Silver (PAAS, $31.92, up $0.58) which hit a fresh 52-week high on Friday.  PAAS has been on our Watch List off and on over the past few weeks.

In mid-August, we profiled Freeport McMoRan (FCX, $94.79, down $0.69) and said “If you believe that gold can go to $1,300/ounce and copper can go to $3.50/lb (at $1,214/ ounce and $3.25/ pound, respectively, at the time) then this stock could easily move back to the $80-$90 range.”  The stock sits above those targets and we highlighted it at $70.  This company has basically become a copper ETF and is volatile.  We have been mentioning strangle trades on this one although none have been official recommendations, yet, but if you bought the stock you are now up 35%.  We think shares can run to $120 but we would place stops in at $87.50 to lock in gains of 25%.

These are just a few of the stocks we have brought to you over the past few months and the most popular.  We have gotten the most emails on these so we wanted to cover them again and we will review a few more next week so you know where we stand with those stocks as well.  Today, we also bring you two new ones…

= = = = = = = = = = = = = = = 

3.  Can American Tower Power Higher?

American Tower (AMT, $51.61, down $0.13) is a wireless infrastructure company that owns, operates, and develops communication sites which consist of basic wireless towers.  They have over 20,000 towers in the U.S. and approximately 7,000 towers in Mexico, Brazil, and India.  The company recently added some towers in Chile as well. 

We have been talking endlessly about the mobile internet build-out that is occurring around the world and we cover several ways to play this theme in our option trading manuals, How to Trade Options on Momentum Stocks, and Momentum Stocks Watch List, by explaining what moves these sectors.

American Tower is right in the middle of this space and is a money-making machine with a sweet business model.  They build the wireless tower for a fixed cost, then sit back and collect the rent.  Mobile phone providers continue to add more and more transponders to those towers to handle the massive amount of increased traffic the smart phone revolution is already bringing to the networks and their current towers are like ATM’s with plenty of room for growth still ahead.

The company has been around since 1996 and went public in 1998.  The stock hit an all-time high of $54.71 in March of 2000, and has spent the last decade getting back to even.  The 52-week high is $52.34 which was hit in early October.

Last year, American Tower reported revenues of $1.7 billion, and the current market cap of the company is about $21 billion.  They are expecting full year 2010 revenues of $1.9 billion with earnings of $0.89 a share.

We will get third quarter earnings for this company on Friday with Wall Street expecting $0.20 a share.  Last quarter, analysts had penciled in $0.21 a share and the company blew those estimates away by reporting a profit of $0.25 a share.  The stock does have a spooky side.  It trades at almost 48 times next year’s earnings, which for any company is pretty lofty, but they are expecting revenue growth of over 20% next year.  

American Tower is committed to returning money to their shareholders, and they have been doing this through buybacks of their stock but we think it’s time they pay a dividend.  There has been talk of the company becoming a REIT which would send the stock surging but given their growth rate, we see shares trading above $60 over the 6 months, regardless.

= = = = = = = = = = = = = = = 

4.  Aruba Networks Finding Strength

Aruba Networks (ARUN, $21.93, up $0.44) is another Tech company that is surfing the mobile intent wave by connecting local and remote users to a company’s IT resources through distributed enterprise networks.  In other words, they help to get data from point A to point B swiftly and more secure with their AirWave Wireless Management Suite which helps manage wireless networks and prevent intrusion.

The company was founded in 2002 and went public in March of 2007 at $14.  Shares hit a high of $23 four months later and traded to a low of $2 in late 2008.  The stock has clawed its way back near its all-time highs and during that time, revenues have increased 85% and now stand at $266 million for 2010.  Next year looks even better with 2011 projected revenues of $350 million so they have been growing despite the tough economic environment.

Aruba just finished their fiscal 2010 year and they will announce 1Q 2011 earnings on November 18 with the expectation they will report $0.11/share.  You know the business is growing when their first quarter earnings are expected to exceed their previous full year’s earnings which is the case here.

Priced at 44 times earnings and with a market cap of $2.1 billion, the company is pretty well valued on the surface, as well.  If you go out a little further though, Aruba is expected to grow at a 25+% growth rate, and with 2012 projected earnings of $0.61/share, this gets the P/E back in the 30’s.  

We have mentioned the space they are in as being a great one, even in a recession.  Their products also boost productivity, which is music to corporate America’s ears.  As we go over these numbers and valuations, however, the one thing that continues to pop up in our mind because of the space they are in is “takeover target”.

We talk about finding these gems in our trading manual and at a 50% premium (or $30 stock price) this is only a $3 billion deal for a company that is growing like crazy.  Thanks to the Fed and free money, that kind of deal is possible for a wide variety of suitors.   

We doubt Aruba looks at their selves as an acquisition target because the company itself has been fairly acquisitive in the past.  They acquired the wireless security business of Network Chemistry in late 2007, and in 2008 they purchased Airwave Wireless.  This year, in May, they bought Azalea Networks in a cash and stock deal worth $40 million.  The company specializes in wireless outdoor networks.

We will be listening to the company earnings call to get more clues on where they are headed in a few weeks, but in the meantime, if we see an opportunity to trade options on this one, we will let our subscribers know.

= = = = = = = = = = = = = = = 

We will be back Monday morning at 9am (EST) with a look at the week ahead and what companies are reporting earnings.  We also want to remind you this is the last day to get a free 1-month membership to our Members Area with the purchase of our option trading manual.