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Daily Newsletter, Saturday, 07/22/2006

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Table of Contents

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

Market Wrap

Dell Rings the Bell!

The market opened lower on Friday after Dell rang the earnings bell before the open with a strong earnings warning. Dell's weakness offset gains in Microsoft and sent techs sliding once again with the Nasdaq closing at a 14 month low. Slowing purchases by both corporations and consumers is producing growing weakness in the tech sector. The earnings picture is becoming clearer and the picture is not pretty.

Dow Chart - 180 min

Nasdaq Chart - Weekly

S&P-500 Chart - Weekly

This was a very rocky week for the markets. The Wednesday short squeeze was quickly forgotten and negativity began to increase its grip on the markets as the week came to a close. Inflation is rising despite hopes from the Fed that it will slow. Economic indicators are slowing and slowing more rapidly than previously expected. Fears are growing that stagflation, a period of rising inflation without growth, is on the way and the Fed cannot do anything about it.

The Fed says inflation will slow as the economy slows but the Consumer Price index posted a +0.3% gain in the core rate for the fourth consecutive month. Core CPI is up +2.6% for the year and over the Fed's comfort level. Bernanke led investors to believe that the Fed was nearing an end to the rate hikes but the CPI suggests they are not yet done. Bernanke indicated again that the Fed was data dependent for future hikes and the data indicates inflation is still rising. The Fed is also counting on an economic slowdown to further depress inflation. As long as inflation does slow along with the economy that would produce the highly desired soft landing. That scenario is showing cracks in the foundation due to high-energy prices, high commodity prices, falling home values and slowing consumer spending. Rising energy prices are rapidly slowing consumer sales and it appears the market is beginning to price in a crash landing.

Based on market reaction you would think the current earnings cycle was much worse than it is. With 30% of the S&P reported 66% have beaten estimates, 20% matched estimates and only 14% missed earnings. The missed percentage was well within normal ranges. The challenge is simply the high profile earnings misses in that 14% and the guidance for future quarters. As you can see in the table below the overall earnings growth for the S&P companies already reported has dropped substantially from just a week ago. The current 14% average should receive a boost next week as most of the energy sector reports. The sector is expected to post better than +30% growth and that will offset slower growth in other sectors.

EEarnings Snapshot Quarter to Date

The markets are reeling under earnings misses and more importantly lowered guidance. Better than expected reports from companies like Microsoft, Google, Caterpillar, Motorola, Nokia and United Technology are being overshadowed by results from companies like Yahoo, Intel, AMD, Capital One, Dell and 3M. The disappointing results from high profile companies are combining with weak expectations in retail, housing and autos to generally sour investor sentiment. Next week should not be any different with the exceptions of earnings from the energy and materials sectors.

Very few companies reporting decent earnings are seeing any benefit in their stock prices. Caterpillar was a prime example with earnings that beat the street by a dime and guidance that was very good. The CEO said business was very strong with record backorders through 2007. He also felt the boom had 2-4 years left to go. They had strong cash flow, better than expected sales, higher margins and raised guidance significantly. What more could you ask for? CAT closed down for the day and nearly -$3 off its highs.

Nucor Steel (NUE) beat estimates by +12 cents and said orders and backlogs across all product lines were healthy and earnings will continue to be "VERY" strong. NUE closed -$6.20 off its Thursday high.

CSX Corp, a leading transport stock, posted earnings that beat the street by 51 cents and was +127% over the same quarter in 2005. They also announced a 2:1 stock split, a 10 cent post split dividend (+54%) and a $500 million buyback program over the next 12 months. They said business was so strong they expected to raise prices up by +6% this year and again in 2007. They did receive some insurance payments related to hurricane losses that inflated earnings slightly but were roughly equivalent to the profits they would have made without the hurricanes. The company said business was booming for as far out as they could see. CSX lost -5.34 from the post earnings spike to Friday's close at $62. What is wrong with this picture? The fears of an economic slowdown and higher oil prices combined to push the entire transport sector lower. Transports hit a high of 4722 after the CSX news lifted the entire sector on Thursday but fell to 4362, or -7.6% to Friday's low, a -360 point drop!

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To put it as clear as I can the market is going defensive as growth slows and inflation rises. Investors are not just afraid of growth slowing in the US but across the globe. China saw its GDP grow by +10.9% in the first half of the year, +11.3% in Q2 alone. The Chinese central bank is reacting strongly to squelch that growth to a more reasonable level. This week they raised the reserve requirement for banks by +50 basis points to curb loan growth. They raised rates by 50 basis points in early July as well. Analysts expect the reserve requirement, currently 8.5% to rise to 10% by year end. By raising the reserve requirement it reduces money available for loans and slows growth. Analysts estimate that each 50-point hike removes 170 billion yuan in liquidity from the banking system. In the first five months of 2006 new bank loans had reached 87% of the governments target for the entire year. Investment in fixed assets rose by 30.9% compared to the target of 18%. Analysts feel current interest rates in China are at least -3% below what is going to be needed to slow growth to a reasonable pace.

China is the number one consumer of raw materials in the world. Any significant slowdown in growth would slow earnings at any company that is selling into that growth. That included companies like Caterpillar and Nucor Steel. The US is the largest consumer of finished goods. If the US is headed for a crash landing or the stagflation scenario then analysts are worried what that would mean for global growth. Currently there is very strong growth in almost every country and a ripple down wave from a crashing US economy could impact that global growth. This is the scenario analysts are painting and investors are fleeing. Defensive stocks like Colgate, Johnson and Johnson and Altria are benefiting from this flight to defensive issues while retail, housing, transports and tech stocks are getting pummeled.

Warnings from the housing sector grew even more negative last week. D.R. Horton (DHI) posted earnings that fell -12% and the CEO sent chills through the sector with his predictions. Don Tomnitz said the current downturn could be longer and deeper than we have all imagined. He said home sales in June fell off the Richter scale accompanied by very strong cancellations. Builders have given up trying to predict the bottom and Tomnitz said "the market is going to get softer going forward and that view is without any rose colored glasses." Analysts are now predicting a 17-20% drop in profits for 2006 and a 47-50% drop in 2007. Housing makes up nearly 25% of the US economy. Ryland also dampened expectations after saying it suffered a drop of -40% in new orders.

Dell shares fell to nearly a five-year low at $19 after cutting its Q2 outlook. Nearly $5 billion in market cap was erased. Dell said aggressive price-cutting and a slowing global market was to blame as well as slowing demand in the enterprise server market. More than 124 million shares were traded. Dell cut its profit estimate to between 21-23 cents compared to 32 cents expected by analysts. Projected revenue was only slightly below the $14.2 billion analysts expected with margin pressures accounting for the large drop in profits. Margins are expected to slide to the 15% range compared to 17.4% in Q1 and 18.6% in 2005. In another marked change from the past Dell elected to NOT hold a conference call to discuss the change in outlook. According to Gartner Group Dell is under pressure from other companies grabbing market share. Sales growth at Dell is rising only +11.6% compared to HPQ +13.8%, Lenovo +13.5%, ACER +34.7% and even Apple saw a +61% rise in notebook sales and its strongest unit sales ever at 1.35 million units. Dell has been able to leverage its low cost model for the last ten years but the law of decreasing returns has finally come home to roost. Other companies have finally mastered the model and the consumer is reaping the benefit. The profit available in Dell's current offering of a 2.5GHZ desktop PC with a 17" monitor for $299 is very slim. Shipping has got to run $50 at least and the Windows XP operating system another $50 bucks even with their volume discount. Add in another $50 for the Intel processor and that does not leave much for the rest of the components. That 15% margin encompasses all their products including the high margin printers, servers and gaming computers. That means they have to be selling those entry-level systems at or near cost as bait to get customers to the website. They hope you will switch once you see the higher priced toys. Unfortunately customers being pressured by high gas prices are buying the entry-level system.

Some financials are also being hurt by disappointing results. Capital One Financial (COF) lost -$8.47 (-9.7%) on Friday after posting results of +1.78 per share compared to consensus estimates of +2.06 per share. The company blamed the drop on fewer late fees as credit card customers paid their bills on time and higher reserves due to worsening credit in its overseas operations. The higher reserve impact to earnings was 16 cents. North Fork Bank, currently being acquired by Capital One, saw earnings fall -9% on a -20% drop in mortgage lending and rising interest rates. Analysts were not scared off and many reiterated their buy rating on COF, most with a 12 month price target of $100. COF closed at $77.71.

Capital One Chart - Weekly

The oil sector and oil prices have disconnected over the last week. Oil closed at $74.40 and -$4 off its high reached last Friday. Much of the volatility was related to the expiration of trading on the August contract on Thursday. The September contract (CL06U) became the front month contract on Friday. Profit taking as the contract expired and on the cooling fears that Iran and Syria would enter the Israel/Hezbollah conflict helped to push prices lower. With Israel poised to invade Lebanon this weekend the price of oil traded briefly over $75 but settled at $74.40. No hurricanes have appeared around the Gulf and supplies remain at high levels. Next week should be a critical week for oil prices as driving demand slows and traders decide what side of the futures trade they want to take going into August. Energy stocks benefited from the short squeeze on Wednesday but the bounce was brief. Stocks appear to be factoring in a fall from $75 oil despite continued analyst projections for $80 before summer is out. We are also seeing traders exit stock positions ahead of next week's energy earnings. After seeing the massacre many stocks experienced this week even after reporting decent earnings it appears traders are taking profits early.

Haliburton (HAL) continued its weeklong post split plunge to close at $30 on more than 50 million shares traded. HAL had been extremely weak since the split for no apparent reason. That reason appeared on Friday as HAL announced it was backing away from an IPO of its KBR unit citing weak market conditions. HAL said it could still do the IPO but it is no longer a first step in the process. HAL asked the IRS for a tax-free ruling on spinning it off to existing HAL shareholders. CEO Dave Lesar said HAL does not want to delay any longer the timing of the KBR separation. KBR has been under fire from several directions and it appears HAL now wants to dump it to avoid future liability. KBR is worth an estimated $8 billion so HAL still wants to extract that value in some form. Investors dumped HAL stock to the tune of -$8 since the $37.93 high last week. Sometimes the best laid plans of mice and men ultimately go astray.

Next week is another strong week for earnings and economic reports. The economic calendar is full but the only really important report is the Q2 GDP on Friday. Earnings will still take center stage and a repeat of this week's results is almost assured with more than 500 companies reporting. The graphic below shows the top 20 winners and losers on Friday.

Table of Winners and Losers

Weekly Internals Snapshot

The internals snapshot for the week shows volume rising into the Wednesday short squeeze and remaining strong for the two days following the rebound when the markets were weak. The lack of follow through and the quick return to the prior levels indicates a complete lack of confidence in the bounce. Note that the 52-week highs and lows had already returned to their pre bounce levels on Friday.

The Dow closed with only a -59 point loss on Friday held up mostly by the gains in MO, JNJ and Microsoft. Microsoft rose +$1 on its $40 billion stock buyback plan. With most of the big guns in the Dow already reported there may be little left in the form of additional earnings support. 3M is the most notable ahead and they report on Tuesday. They have already warned and are trading at strong support at $70. It would take strong new revelations of additional problems to push it much below $70. The Dow is probably going to be a follower rather than a leader next week and the leader will be the Nasdaq. The Dow was weak post bounce but thanks to the defensive issues not as weak as the Nasdaq. The Dow closed at 10870 with 10850 as intraday support. Without peace in the Middle East or a cure for cancer I find it hard to believe we won't retest 10700 next week.

The Nasdaq completely erased its midweek gains and returned to 2020 to close at a 14 month low. With most of the big techs already reported there is little in the way of a positive event in our future. The next support level is 1900 and we could reach that level quickly with a couple more high profile disappointments. The SOX is dragging the Nasdaq lower with AMD, Broadcom, Freescale and Marvell leading the list of losers. The SOX declined to close at 385 on Friday for a -174 drop from its 2006 highs or -31%. The good news is that 385 should be support but it may take a goal line stand to make that support hold.

SOX Component List

SOX Chart - Weekly

The S&P returned to past support at 1240 to wait out the weekend. The bounce to 1262 was quickly sold and the decline to 1240 simply put the S&P back into the bottom portion of its prior range. 1220 remains strong support and 1280 and 1290-1295 strong resistance. This is still well above the predictions by the Hirsch organization of 950 by year end. I believe we will see lower lows somewhere in the 1175 range but it is too hot today for me to drag my bear coat out of the closet for the proper attire to focus on 950. Let's take this one week at a time and let the market tell us where it is going.

Economic Calendar

It is too early to tell if this post bounce bearishness is just left over selling from the May dump or a symptom of a more serious disease. Friday was option expiration and we definitely saw plenty of options related volatility over the past week. The earnings next week should provide plenty of earnings volatility and we have a nice wide range in which to play ahead of the Fed meeting. Last Sunday I had hoped we would have a directional market by this weekend. The oversold rally I was expecting came right on schedule but its duration was far shorter than I expected. I figured we would have several days of hang time to plan our next move as earnings progressed. That hang time was measured in milliseconds on Thursday morning and it has been downhill ever since. The pause at support, S&P 1240 and Nasdaq 2020 was just enough of a tease to make me think the bulls are still alive and buying the dip. If those levels break on heavy volume it will be time to start backing up the cattle hauler for a run to the slaughterhouse. My bias is now bearish and will probably remain overall bearish until October. I am sure we will have several monster short squeezes along the way but there is little incentive for investors to buy and hold stocks today. After the Fed meeting volume should begin to decline even further as traders try to compress their unused vacation time into the remaining three weeks of summer.

The Fed meeting on August 8th is only 11 trading days away and I believe there will be plenty of positioning ahead of that meeting in hopes of a Fed pass or language indicating they are done. Any material dip between now and that meeting is sure to be bought. I would look to buy the dip for a pre meeting trade but be ready to bail once the meeting is over. After the meeting is when the summer doldrums will really appear. The next FOMC meeting is Sept-20th and after traders come back from vacation. Try not to trade the post meeting doldrums for many have tried and few have been successful. After the meeting we want to wait for the fall buying opportunity during the normal Sept/Oct dip. While waiting on the Fed you could nibble sparingly on recent gifts from the market. COF and HAL would be a couple that quickly come to mind. Avoid trying to catch those falling knives. Wait for signs of returning buyers.
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
None CME BOL
  OIH LLL
    MMM
    PD

New Calls

None today.
 

New Puts

Chicago Merc. - CME - close: 452.00 change: -11.00 stop: n/a

Company Description:
CME is the largest futures exchange in the United States and also owns and operates the largest futures Clearing House in the world. CME products fall into five major areas: interest rates, equities, foreign exchange, agricultural commodities and alternative investments. (source: company press release or website)

Why We Like It:
We are adding CME to the newsletter as a put candidate as a pure speculation play. The stock has been in rocket-mode since the April 2005 bottom near $164. Now shares of CME have produced what appears to be a bearish double-top pattern near $500 over the last couple of months. The stock is now breaking down from a short-term sideways consolidation and Friday's decline put CME under technical support at its 100-dma. Here's the plan. CME is due to report earnings on Tuesday, July 25th before the market open. Tomorrow (Monday) is our only time to buy puts and open positions in an attempt to capture any post-earnings sell-off. We want to remind readers this is pure speculation that given the chart's bearish posture (albeit in a long-standing up trend) and the market's weakness that investors will choose to sell the news no matter what CME says. If the stock bounces at all on Tuesday we'd expect a 100% loss on the play. We're not even listing a stop loss until we see the post-earnings reaction. FYI: The P&F chart points to a $408 target.

Suggested Options:
We are suggesting the August puts.

BUY PUT AUG 400 CMJ-TK open interest= 635 current ask $3.10
BUY PUT AUG 410 CMJ-TM open interest= 546 current ask $4.70

Picked on July 23 at $452.00
Change since picked: - 0.00
Earnings Date 07/25/06 (confirmed)
Average Daily Volume = 680 thousand

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Oil Serv. Holders - OIH - cls: 130.00 chg: -4.30 stop: 134.26

Company Description:
The OIH HOLDRs provides a chance to trade the oil services industry through a basket of stocks. Currently the OIH represents 18 companies.

(source: company press release or website)

Why We Like It:
The oil service stocks have been sinking in spite of record crude oil prices and a conflict in the Middle East. The last couple of weeks have seen the OIH holders breakdown under support near $140 and its 200-dma. Now the OIH is poised to breakdown under support at the $130 level and what appears to be the neckline to a bearish Head-and-Shoulders pattern (see below). We are going to suggest a trigger at $129.00 to open put positions. If triggered our short-term target is the $120.00 level. The Point & Figure chart points to a $106 target and the H&S pattern projects a $90 target so more aggressive traders may want to aim lower.

Suggested Options:
We are suggesting the August puts.

BUY PUT AUG 130 OIH-TF open interest=10206 current ask $6.00
BUY PUT AUG 125 OIH-TE open interest= 8901 current ask $3.90
BUY PUT AUG 120 OIH-TD open interest= 6492 current ask $2.30

Picked on July xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume = 11.6 million
 

New Strangles

Bausch Lomb - BOL - close: 47.40 change: -0.57 stop: n/a

Company Description:
Bausch & Lomb produces, develops, and markets a variety of eye-care products. (source: company press release or website)

Why We Like It:
There is no denying that investors can produce some sharp reactions to a company's earnings report. A strangle play can provide a great chance to capture any post-earnings volatility. If you look at shares of BOL is looks like the stock has been trading sideways while investors wait for the company's next earnings announcement, which is expected on July 27th before the market's opening bell. We are suggesting that readers open strangle plays in the $47.00-48.00 range, the closer to $47.50 the better. The goal is to open positions before the report on Thursday. At current prices our estimated cost is $2.15. Our goal will be to sell if either option rises to $3.25 or more. More aggressive traders may want to aim higher.

Suggested Options:
We are suggesting the August options for this strangle.

BUY CALL AUG 50.00 BOL-HJ open interest=2281 current ask $1.05
-and-
BUY PUT AUG 45.00 BOL-TI open interest=1682 current ask $1.10

Picked on July 23 at $ 47.40
Change since picked: + 0.00
Earnings Date 07/25/06 (unconfirmed)
Average Daily Volume = 2.2 million

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L-3 Comm. - LLL - close: 75.26 chg: +0.01 stop: n/a

Company Description:
Headquartered in New York City, L-3 Communications is a leading provider of Intelligence, Surveillance and Reconnaissance (ISR) systems, secure communications systems, aircraft modernization, training, and government services. The company is a leading merchant supplier of a broad array of high technology products, including guidance and navigation, sensors, scanners, fuzes, data links, propulsion systems, simulators, avionics, electro optics, satellite communications, electrical power equipment, encryption, intelligence systems, antennas, and microwave components. L-3 also supports a variety of Homeland Security initiatives with products and services. (source: company press release or website)

Why We Like It:
LLL did not move much on Friday. We suspect it's because investors are waiting for the company's earnings report due out this coming Thursday morning. Actually the stock has been trading sideways for several weeks and the next move, up or down, will probably be sparked by the company's earnings results and guidance. It is worth noting that while the weekly chart's technical indicators are hinting at a bullish move the weekly chart also shows that LLL has broken down under significant support and is just now retesting that support as new resistance. We want to try and capture any post-earnings volatility with a strangle play. We're suggesting readers open positions in the $74-76 range but the closer to $75.00 the better. At current prices our estimated cost is about $1.35. We will plan to sell if either option rises to $2.25 or more.

Suggested Options:
We're suggesting the August options.

BUY CALL AUG 80.00 LLL-HP open interest= 652 current ask $0.80
-and-
BUY PUT AUG 70.00 LLL-TN open interest= 252 current ask $0.55

Picked on July 23 at $ 75.26
Change since picked: + 0.00
Earnings Date 07/27/06 (confirmed)
Average Daily Volume = 1.2 million

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3M Co. - MMM - close: 70.72 change: -0.38 stop: n/a

Company Description:
Every day, 3M people find new ways to make amazing things happen. Wherever they are, whatever they do, the company's customers know they can rely on 3M to help make their lives better. 3M's brands include Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, Filtrete, Command and Vikuiti. Serving customers in more than 200 countries around the world, the people of 3M use their expertise, technologies and global strength to lead in major markets including consumer and office; display and graphics; electronics and telecommunications; safety, security and protection services; health care; industrial and transportation. (source: company press release or website)

Why We Like It:
Shares of MMM have seen a dramatic rise and fall from $70 to $88 and back to $70 over the last six months. Now the stock sits precariously on long-term support at the $70 level as investors wait for the company's earnings report. We want to try and capture any post-earnings volatility with a strangle play. The company is due to report earnings on Tuesday morning, July 25th, before the market open. That only gives us one day to open positions. We're going to suggest a $71.50-69.00 entry range to open positions but the closer to $70 the better. At current prices our estimated cost is about $0.75. We are planning to exit if either options rises to $1.50 or more. FYI: It might be worth noting that Friday's dip under the $70 level has produced a new P&F chart sell signal with a $52 target.

Suggested Options:
We are suggesting the August options.

BUY CALL AUG 75.00 MMM-HO open interest=6774 current ask $0.45
-and-
BUY PUT AUG 65.00 MMM-TM open interest=1155 current ask $0.30

Picked on July 23 at $ 70.72
Change since picked: + 0.00
Earnings Date 07/25/06 (confirmed)
Average Daily Volume = 3.7 million

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Phelps Dodge - PD - close: 77.20 change: -0.77 stop: n/a

Company Description:
Phelps Dodge Corp. is one of the world's leading producers of copper. The company is a world leader in the production of molybdenum, and the largest producer of molybdenum-based chemicals and continuous-cast copper rod. The companys two divisions, Phelps Dodge Mining Co. and Phelps Dodge Industries, employ more than 13,500 people worldwide. (source: company press release or website)

Why We Like It:
High-flying shares of PD have lost some of their steam over the last couple of months. The stock has fallen into more of a sideways trading pattern with support near its rising 200-dma and resistance with its descending 50-dma. This coiling pattern of higher lows and lower highs will inevitably result in a breakout. The question is which way? Fortunately, with a strangle play we don't care which way the stock moves. What we care about is the strength of the move. Right now we suspect that investors are waiting for PD to report earnings on Wednesday, July 26th before the market's opening bell. Odds are this earnings report will spark the next move. At current prices our estimated cost is $2.15 with the August $85 call and August 70 put. We'll plan to sell if either option rises to $3.15 or more. Traders might also want to consider using the August 80 calls and the August 75 puts but it will cost about $5.05 to open plays.

Suggested Options:
We are suggesting the August options.

BUY CALL AUG 85.00 DPB-HQ open interest=32013 current ask $1.10
-and-
BUY PUT AUG 70.00 PT-TN open interest=12811 current ask $1.05

Picked on July 23 at $ 77.20
Change since picked: + 0.00
Earnings Date 07/26/06 (confirmed)
Average Daily Volume = 7.8 million
 


Play Updates

In Play Updates and Reviews

Call Updates

Dominion - D - close: 77.72 change: +0.49 stop: 74.99 *new*

The major market averages continue to sink and that has investor turning defensive. D is both an electric utility and energy play that offers a decent dividend (about 3.5% right now). This seems to be good enough to draw some buying interest. The stock broke out above significant resistance at the $76.00 level on Wednesday and hasn't looked back. The bullish breakout has also produced a bullish breakout buy signal on the Point & Figure chart that now points to a $90 target. We would probably wait and watch for a pull back toward the $77.00-76.50 region before considering new call option plays. Our target is the $81.00-82.00 range although more conservative types may want to exit near $80.00. Please note that we do not want to hold over D's early August earnings report, which gives us about eight trading days. We're also raising our stop loss to $74.99.

Suggested Options:
We're not suggesting new call plays at this moment but if D dips toward support then we'd choose the August calls.

Picked on July 17 at $ 76.05
Change since picked: + 1.67
Earnings Date 08/03/06 (confirmed)
Average Daily Volume = 1.5 million
 

Put Updates

Alcon Inc. - ACL - close: 93.25 chg: -0.25 stop: 96.51 *new*

We warned readers to expect a bounce in ACL on Friday and the stock did bounce but fortunately the upward momentum faded a lot sooner than expected. ACL failed just above the $95 level and the trend remains bearish even though the technical indicators suggest that ACL is oversold. We have run out of time on this play. ACL is due to report earnings on Monday, July 24th after the market's close. It is our plan to exit near the closing bell to avoid holding over the report. Please note that we're tightening our stop loss to $96.51. More conservative traders may want to put their stop above the 10-dma around 95.70.

Suggested Options:
Time is up. We're planning to exit on Monday near the close.

Picked on July 13 at $ 95.61
Change since picked: - 2.36
Earnings Date 07/24/06 (confirmed)
Average Daily Volume = 805 thousand

---

Air Products Chem. - APD - cls: 61.41 chg: -0.31 stop: 64.01

We are running out of time with our play in APD. The company is due to report earnings on Wednesday, July 26th before the market's opening bell. We do not want to hold over the report so we're planning to exit on Tuesday afternoon at the close. Everything else appears to be in our favor. The stock produced a bearish reversal this past week with the failed rally under $64 and its 50-dma. Technicals remain bearish. Our target is the $59.00-58.00 range.

Suggested Options:
We are not suggesting new option positions in APD at this time.

Picked on July 09 at $ 62.95
Change since picked: - 1.54
Earnings Date 07/26/06 (confirmed)
Average Daily Volume = 1.2 million

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Apollo Group - APOL - close: 46.91 chg: +0.28 stop: 50.05

Shares of APOL almost hit our target in the $45.50-45.00 range on Friday with its morning dip to $45.74. Traders bought the initial dip but the oversold bounce faded near the $48 level and under its 10-dma. We remain bearish but we're not suggesting new positions at this time. The P&F chart's bearish target has moved again, this time to $36. FYI: Considering the long-term bearish trend in APOL more aggressive traders may want to aim for the $40 region.

Suggested Options:
We are not suggesting new put positions in APOL at this time.

Picked on July 09 at $ 49.92
Change since picked: - 3.01
Earnings Date 09/19/06 (unconfirmed)
Average Daily Volume = 1.4 million

---

IDEXX Labs - IDXX - close: 74.24 chg: -0.61 stop: 76.05

We are down to our last four days for this bearish play in IDXX. Fortunately the oversold bounce has struggled to breakout past the $75 level and its 200-dma directly overhead. It's also a good sign that IDXX produced a small bearish engulfing candlestick pattern on Friday, which suggest the stock is headed lower next week. We are not suggesting new plays and we're choosing to adjust our aggressive target from $72.00 to $72.50. Our conservative target at $75.25 has already been hit. We do not want to hold over the earnings report on Friday, July 28th.

Suggested Options:
We are not suggesting new put positions in IDXX at this time.

Picked on June 12 at $ 77.95
Change since picked: - 3.71
Earnings Date 07/28/06 (confirmed)
Average Daily Volume = 144 thousand

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Jacobs Engineering - JEC - cls: 69.90 chg: -1.87 stop: 74.01*new*

JEC almost hit our target at the $69.00 mark with Friday's low of $69.30. We're almost out of time on this play. JEC is due to report earnings on Tuesday, July 25th before the opening bell. We're going to exit on Monday afternoon at the close to avoid holding over the report but that's assuming JEC doesn't hit our target at $69.00 first. Please note that we're adjusting the stop loss to $74.01

Suggested Options:
We are not suggesting new put positions in JEC at this time.

Picked on July 16 at $ 73.75
Change since picked: - 3.85
Earnings Date 07/25/06 (confirmed)
Average Daily Volume = 583 thousand

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Manpower Inc. - MAN - close: 58.38 chg: -1.04 stop: 62.25

MAN is a new put play candidate from the Thursday night newsletter. The stock lost another 1.75% on Friday with above average volume, which is bearish. The only changes we see is a new bearish P&F target of $48 and that traders might want to wait for a bounce back towards $60 as a new entry point. Here's a copy of what we said on Thursday:

In the last two days MAN has produced a failed rally under its 50-dma and a breakdown under support at the $60.00 level. Both events occurred on big volume. The early strength on Wednesday was probably fueled by MAN's recent earnings report, which came in better than expected. Unfortunately, the buying spree was short lived. Now the stock is breaking down and the next level of support looks like the $55.00 region with its rising 200-dma (54.77). We are suggesting that readers buy puts with MAN under $60.00. Our target is the $55.50-55.00 range. The Point & Figure chart currently points to a $52 target.

Suggested Options:
We are suggesting the August and September puts. You choose which month and strike best suits your trading style. (currently there are no August 55 puts available)

BUY PUT AUG 60.00 MAN-TL open interest=115 current ask $3.00

BUY PUT SEP 60.00 MAN-UL open interest=173 current ask $3.80
BUY PUT SEP 55.00 MAN-UK open interest= 96 current ask $1.70

Picked on July 20 at $ 59.42
Change since picked: - 1.04
Earnings Date 07/19/06 (confirmed)
Average Daily Volume = 1.0 million


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Panera Bread - PNRA - close: 57.69 chg: -0.56 stop: 60.35 *new*

It seems to be a battle for every inch but the bears are slowly dragging PNRA lower. The stock has hit a series of consecutive lows over the last week and now shares look oversold and due for a bounce. The relative weakness is encouraging but we're running out of time. PNRA is due to report earnings on July 25th after the market's close. As you already know we don't want to hold over the report so we're going to exit on Tuesday afternoon near the closing bell. We want to reduce our risk so we're lowering the stop loss to $60.35, which is above Thursday's high. Our target is the $55.50 mark.

Suggested Options:
We are not suggesting new put positions in PNRA at this time.

Picked on July 18 at $ 59.49
Change since picked: - 1.80
Earnings Date 07/25/06 (confirmed)
Average Daily Volume = 494 thousand

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Union Pacific - UNP - close: 83.04 chg: -0.97 stop: 87.01

Our play in UNP is now open. UNP is a new bearish put candidate from the Thursday night newsletter. Shares continued to sell-off and the stock hit our trigger to buy puts at $83.75. We do not see any changes to our play description except that traders might want to look for a bounce back toward $84-85 as a new entry point to buy puts (and that the P&F chart's bearish target has dropped from $74 to $70). Here's a copy of what we said on Thursday:

The gap higher in shares of UNP Thursday morning was probably due to the company's earnings report. UNP reported earnings that came in 11 cents above analysts' estimates. Yet the rally reversed right at the $90.00 level and under its 50-dma. The selling continued throughout the session and UNP eventually broke down under technical support at its 200-dma with volume coming in way above the average. Thursday's move also produced a failed rally, a breakdown of support, and a new sell signal on the P&F chart, which now points to a $74 target. Normally you want to see some confirmation or follow through after a stock produces a big bearish engulfing candlestick pattern like UNP did on Thursday. That's why we're suggesting a trigger to buy puts at $83.75, which is underneath the June low. If triggered we're suggesting two targets. Our conservative target will be the $80.10 level. Our more aggressive target will be the $77.65 mark.

Suggested Options:
We are suggesting the August puts. Septembers are not available yet but if you're interested Novembers are available.

BUY PUT AUG 85.00 UNP-TQ open interest=1933 current ask $3.70
BUY PUT AUG 80.00 UNP-TP open interest= 565 current ask $1.40

Picked on July 21 at $ 83.75
Change since picked: - 0.71
Earnings Date 07/20/06 (confirmed)
Average Daily Volume = 1.7 million
 

Strangle Updates

None
 

Dropped Calls

Fortune Brands - FO - close: 70.69 change: -0.99 stop: 69.74

We are throwing in the towel on FO and suggesting that traders exit immediately. The stock has been unable to breakout past the $73 region and its 50-dma. Volume on Friday's bearish reversal was above average and the technical picture is turning bearish. Shares of FO do still have short-term support at the $70 level so more aggressive traders may want to stick it out. However, we believe that if the major U.S. indices continue to slide that FO will breakdown. Meanwhile the company is due to report earnings on July 27th.

Picked on July 06 at $ 71.30
Change since picked: - 0.61
Earnings Date 07/27/06 (confirmed)
Average Daily Volume = 674 thousand
 

Dropped Puts

None
 

Dropped Strangles

None
 

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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