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Portfolio Activity - CLF/CAI

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A Key Moment...

Our new position in Cleveland-Cliffs (NYSE:CLF) moved on to the "watch" list Wednesday after the issue fell another 2% in a third consecutive day of losses. The stock has been in a downtrend since Monday when the steel sector was downgraded by Goldman Sachs analysts, who noted that prices could stay below $500 a ton through summer due to the U.S. dollar's recent rise and high inventories. The stock is now at a "key" moment as it tests long-term technical support (at the 150-DEMA) and any further downside activity would suggest an early-exit in the position. Since the initial stop-loss point is only a few cents below the current price, we recommend that traders who want to remain in the position consider adjusting the exit order for tomorrow's session, to allow for additional volatility (and possibly a rebound) in the underlying issue. Readers with a more conservative outlook may want to close the spread at the existing debit to limit potential losses.

Another position of concern is CACI International (NYSE:CAI), which has moved higher in the wake of two unexpected contract announcements. The company has been awarded a five-year agreement worth up to $150 million to provide information technology services to the GSA's public buildings services division, as well a $25 million contract to support the U.S. Army's ammunition management system. Now the issue seems destined to test the upper limits of the recent trading range and the company's fiscal year guidance, expected Thursday at 9:00 AM ET, is probably the only event that can derail the near-term bullish activity. Since a favorable conference call will likely improve the outlook for the underlying stock, traders should considering using a "covering" order, which involves the purchase of longer-term (SEP-$65) calls, to adjust the position. A "buy-to-open" order, contingent on the stock price moving above $65, would be a viable strategy to attempt to profit from the change in (technical) character. If the event results in a "sell the news" mentality among investors, we will remain in the original spread and watch for confirmation of a continued lateral trend. In either case, readers should monitor the activity of the stock and be ready to make a timely trade as the share price may be volatile near the opening bell.

MCM Staff

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