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Daily Newsletter, Thursday, 03/17/2005

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Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Market Wrap


New Plays

New Option Plays

Call Options Plays
Put Options Plays
CLF BZH
  IBM
  TOL

New Calls

Cleveland Cliffs - CLF - cls: 76.20 chg: +4.45 stop: 71.00

Company Description:
Cleveland-Cliffs Inc, headquartered in Cleveland, Ohio, is the largest producer of iron ore pellets in North America and sells the majority of its pellets to integrated steel companies in the United States and Canada. The Company operates six iron ore mines located in Michigan, Minnesota and Eastern Canada. (source: company press release)

Why We Like It:
Traders are buying the bounce in CLF. The rising costs of commodities don't hurt Wall Street's expectations for CLF's profits. The stock shows it too with a very strong run over the last several months. Traders have bought dips to CLF's simple 40 and 50-dma's before and they are doing it again. We also like how CLF's recent consolidation has already produced a new P&F buy signal. However, shares are long-term overbought and the major market indices are looking bearish. We're encouraged by CLF's relative strength today but this should be considered a higher-risk play. We will use a TRIGGER at $77.05, above current short-term resistance at $77.00. Our target will be the $85.00-87.50 range.

Suggested Options:
We are going to suggest April calls. Julys are also available if you feel you need extra time.

BUY CALL APR 70.00 CLF-DN OI=1742 current ask $8.20
BUY CALL APR 75.00 CLF-DO OI=1346 current ask $5.00
BUY CALL APR 80.00 CLF-DP OI= 956 current ask $2.65
BUY CALL APR 85.00 CLF-DQ OI= 594 current ask $1.35


Picked on March xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 02/16/05 (confirmed)
Average Daily Volume = 1.2 million
 

New Puts

Beazer Homes - BZH - close: 154.30 chg: -4.40 stop: 162.01

Company Description:
Beazer Homes USA, Inc., based in Atlanta, Georgia, is one of the country's ten largest single-family homebuilders with operations in Arizona, California, Colorado, Delaware, Florida, Georgia, Indiana, Kentucky, Maryland, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia. Beazer Homes also provides mortgage origination and title services to its homebuyers. (source: company press release)

Why We Like It:
The five-and-a-half month rising channel in the DJUSHB home construction index appears to be breaking down. The DJUSHB lost 1.79 percent on Thursday to close under its rising, simple 50-dma. Technicals are bearish on the sector index and the picture looks very similar on shares of BZH. BZH pulled back from its highs a week ago and have been consolidating near support at its own 50-dma near the $155 level. Today's decline is a breakdown of support at both the 50-dma and the $155.00 level. The P&F chart looks very bearish with a $134 price target. We're not sure investors will let BZH trade to $134. There are still a lot of bulls in the homebuilding sector and some of them would like a pull back to use as a new entry point. We would certainly consider doing the same especially with the spring and summer home selling season just around the corner! However, BZH and the sector are long-term overbought and due for a more significant correction. Today's decline looks like the beginning of the next leg lower. We are going to target the $140-144 region, which is where we expect BZH to find new support. More conservative traders might wait for BZH to confirm this breakdown with a drop under $152 before initiating positions. Readers should also know that BZH has an upcoming 3-for-1 stock split next week on March 23rd. Normally we would view a stock split as positive influence on shares but this time we believe the prevailing influence of a breakdown in the sector index (and the markets in general) will pull BZH lower.

Suggested Options:
We are going to suggest the April puts.

BUY PUT APR 160.00 BZH-PL OI= 677 current ask $11.10
BUY PUT APR 155.00 BZH-PK OI=1032 current ask $ 8.40
BUY PUT APR 150.00 BZH-PJ OI=1272 current ask $ 6.20
BUY PUT APR 145.00 BZH-PI OI= 437 current ask $ 4.60


Picked on March 17 at $154.30
Change since picked: - 0.00
Earnings Date 01/27/05 (confirmed)
Average Daily Volume = 742 thousand

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Intl Bus. Mach. - IBM - close: 89.86 chg: -0.79 stop 92.15

Company Description:
IBM is the world's largest information technology company, with more than 80 years of leadership in helping businesses innovate (source: company press release)

Why We Like It:
We have had our eye on IBM for weeks as it consolidated sideways above the $91-92 level but under a trend of lower highs. This bearish pattern came to fruition on Wednesday's breakdown but we chose to wait on bearish plays because IBM still had additional support at the $90.00 level, which was underpinned by its 200-dma. Plus, the $90 level also coincided with IBM's long-term trendline of support dating back to the 2002 low (see chart). Now that IBM has broken down under the $90.00 mark on above average volume we feel free to suggest puts. Our short-term target is the $85.00 region.

Suggested Options:
We are going to suggest the April puts.

BUY PUT APR 95.00 IBM-PS OI=27627 current ask $5.40
BUY PUT APR 90.00 IBM-PR OI=27013 current ask $1.70
BUY PUT APR 85.00 IBM-PQ OI=11249 current ask $0.35


Picked on March 17 at $ 89.86
Change since picked: - 0.00
Earnings Date 04/14/05 (unconfirmed)
Average Daily Volume = 4.8 million


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Toll Brothers - TOL - close: 76.81 chg: -3.69 stop: 81.50

Company Description:
(source: company press release)

Why We Like It:
Our play in TOL is based on the same strategy in BZH, except this time we don't have to worry about any upcoming stock split and the breakdown looks more dramatic. TOL has been a real winner for the homebuilders for months but the stock pulled back toward the bottom of its rising channel and support near $80.00 and its 50-dma a few days ago. Today's drop in the DJUSHB index under its 50-dma helped spur the breakdown in TOL on volume that was over twice the average. We are targeting a drop toward the $70.00 level.

Suggested Options:
We are suggesting the April puts.

BUY PUT APR 80.00 TOL-PP OI=4111 current ask $5.90
BUY PUT APR 75.00 TOL-PO OI=4222 current ask $3.40
BUY PUT APR 70.00 TOL-PN OI=4474 current ask $1.90


Picked on March 17 at $ 76.81
Change since picked: - 0.00
Earnings Date 02/23/05 (confirmed)
Average Daily Volume = 2.1 million
 


Play Updates

In Play Updates and Reviews

Call Updates

Hartford Financial - HIG - cls: 70.65 chg: -0.34 stop: 69.95

Another down day for insurance giant AIG weighed on the sector again. So far HIG is maintaining support near the $70.00 level but the short-term trend does not look good. Considering the trajectory of the IUX insurance index and the weakness in the broader market indices conservative traders may just want to exit here and sit on the sidelines. We look at HIG and see another do or die situation with support at the $70.00 mark. Traders can use a bounce over $72.00 as a new bullish entry point or even consider going short on a drop below $70.00.

Picked on February 06 at $ 71.17
Change since picked: - 0.52
Earnings Date 01/26/05 (confirmed)
Average Daily Volume = 1.2 million


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Parker-Hannifin - PH - close: 67.65 change: -0.15 stop: 63.99

Thus far PH has weathered the market downturn by consolidating sideways. Unfortunately, the technical oscillators are all starting to look bearish. The MACD looks like it wants to turn lower. Currently PH does have minor support at $67.00 and more support near $65.00 and its 200-dma. Traders may want to consider exiting here and just sit out while we see if the markets turn lower and if PH pulls back to retest these support levels. Or conservative traders could use a tight stop under $67.00 to yank them out of the play. Readers can always look for a new entry on a bounce from the $65.00 level. Right now we are not suggesting new plays.

Picked on March 03 at $ 68.11
Change since picked: - 0.46
Earnings Date 01/18/05 (confirmed)
Average Daily Volume = 1.0 million

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Progressive - PGR - close: 88.91 change: -1.17 stop: 87.49

No change from previous update. No big changes here. PGR has pulled back toward the bottom of its narrow rising channel as we expected it would. Look for the bounce back over the $90.00 level as a new entry point.

Picked on March 07 at $ 89.20
Change since picked: - 0.29
Earnings Date 04/21/05 (unconfirmed)
Average Daily Volume = 770 thousand


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Red Robin Burger - RRGB - cls: 50.10 chg: +0.36 stop: 44.99*new*

No change from previous update. This is the first close over $50.00 since January 3rd of this year. The relative strength is encouraging. We are raising the stop loss to $44.99.

Picked on March 10 at $ 48.00
Change since picked: + 2.10
Earnings Date 02/14/05 (confirmed)
Average Daily Volume = 199 thousand


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Texas Industries - TXI - cls: 66.00 chg: +0.85 stop: 63.49

No change from previous update. Readers may want to use this bounce as a new bullish entry point.

Picked on January 09 at $ 60.18
Change since picked: + 5.82
Earnings Date 12/16/04 (confirmed)
Average Daily Volume = 238 thousand
 

Put Updates

Allergan - AGN - close: 71.70 chg: -0.61 stop: 76.05

No change from previous update. AGN is nearing the February low (71.26) which could act as support. Watch for a possible short-term bounce.

Picked on March 13 at $ 73.09
Change since picked: - 1.39
Earnings Date 04/29/05 (unconfirmed)
Average Daily Volume = 777 thousand

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Apollo Group - APOL - close: 74.84 chg: +0.51 stop: 77.51*new*

No change from previous update. We are lowering the stop loss to $77.51.

Picked on January 23 at $ 77.61
Change since picked: - 2.77
Earnings Date 12/16/04 (confirmed)
Average Daily Volume = 2.4 million

---

Google Inc - GOOG - close: 179.29 chg: +3.69 stop: 185.01

We stated that GOOG was going to be a higher-risk, aggressive and volatile play when we started it. The yo-yo affect should be expected. We won't start to worry until GOOG trades over $182.50. In the news there was yet another story about GOOG insiders selling shares.

Picked on March 10 at $179.49
Change since picked: - 0.20
Earnings Date 02/01/05 (confirmed)
Average Daily Volume = 10.9 million

---

Ishares Dow Jones US Energy - IYE - cls 76.31 chg: +1.71 stop: 80.01

Okay, so now we're starting to grow a bit more concerned. There has been no follow through on the breakdown. Recent comments from OPEC that they are raising their forecast for global demand is 2005 don't do us any favors. If IYE trades above the $77.00 level tomorrow we will probably close this play early. We are not suggesting new positions. Readers can prepare to exit.

Picked on March 09 at $ 76.25
Change since picked: + 0.06
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 124 thousand

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Cheniere Energy - LNG - close: 71.66 chg: +0.65 stop: 75.01

No change from previous update.

Picked on March 11 at $ 69.49
Change since picked: + 2.17
Earnings Date 03/10/05 (confirmed)
Average Daily Volume = 517 thousand


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Mcgraw Hill Cos - MHP - close: 88.98 chg: +0.82 stop: 90.21

No change from previous update.

Picked on March 15 at $ 88.40
Change since picked: + 0.58
Earnings Date 04/26/05 (unconfirmed)
Average Daily Volume = 751 thousand


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Millipore - MIL - close: 43.89 chg: +0.16 stop: 46.05

No change from previous update.

Picked on March 16 at $ 43.95
Change since picked: - 0.06
Earnings Date 04/19/05 (unconfirmed)
Average Daily Volume = 358 thousand


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Oil Service Holders - OIH - close: 94.79 chg: +0.54 stop: 100.01

Our play on the OIH is the same as on the IYE. The lack of follow through is a problem. We are preparing an early exit if the holders bounce again tomorrow.

Picked on March 09 at $ 96.10
Change since picked: - 1.31
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 3.1 million
 

Dropped Calls

Barr Pharma - BRL - close: 47.32 chg: -1.60 stop: 45.99

In the absence of any other influences it seems like stocks, at least lately, are really over-reacting to any sort of broker upgrade or downgrade. That's what happened today with BRL. CSFB downgraded the stock from an "out perform" to a "neutral" and BRL gapped lower, bounced and then rolled over the $48.00 level to close down 3.27 percent. Volume was well above average and its MACD has reversed into a new sell signal. While BRL has not traded anywhere near our stop loss we're going to minimize our losses and exit here. More aggressive traders may want to consider hanging on one more day just to see if BRL bounces from the 50-dma.

Picked on March 01 at $ 48.53
Change since picked: - 1.21
Earnings Date 02/02/05 (confirmed)
Average Daily Volume = 800 thousand

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PACCAR - PCAR - close: 73.40 chg: -0.50 stop: 73.25

No surprises here. Another lackluster day in the markets let PCAR drift towards the 50-dma and the $73.00 level. We were stopped out at $73.25. However, considering the new bearish technicals it's probably a good thing we are out now. We will, however, be watching to see if and where PCAR bounces from the longer-term up trend.

Picked on February 28 at $ 75.25
Change since picked: - 1.85
Earnings Date 02/01/05 (confirmed)
Average Daily Volume = 1.0 million
 

Dropped Puts

None today.

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