Option Investor

Daily Newsletter, Monday, 09/11/2006

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Table of Contents

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

Market Wrap

Weak Open Finds Mixed 9/11 Anniversary Close

Stocks opened lower in the U.S., led by a drop in Asian stocks after Japan's government said core private-sector machinery orders fell 16.7% in July after an 8.5% decline in June. The 16.7% decline was much sharper than the -7.5% month-over-month decline forecasted by economists.

Japan's Nikkei-225 fell 286 points, or -1.78% to close at 15,794.38.

The news out of Japan, combined with Great Britain saying producer price inputs fell 1.2% month-over-month versus economists' consensus for a modest 0.1% decline, sent gold sharply lower.

While the FTSE-100 slid 28.5 points, or -0.48% at its close of 5,850.80, the StreetTracks Gold (NYSE:GLD) $58.50 -3.52%, which mirrors spot gold prices (~585.00), plunged to close below its rising 200-day SMA ($58.75) as traders and investors shunned the yellow metal as they weigh the impact of cooling global economic growth rates and inflationary pressures on a broader scale.


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Energy prices were weak again today, but finished well off their midday lows. October Crude Oil futures (cl06v) settled down $0.64, or -0.97% at $65.61 having just undercut the $65.00 per barrel level during today's floor traded session.

Lending to oil's weakness was talk that Iran may freeze uranium enrichment, while OPEC said it would keep its production quota unchanged at 28 million barrels per day.

Multiple moments of silence were observed on the floors of many exchanges during the morning session as traders from around the world honored those who lost their lives on September 11, 2001.

U.S. Market Watch - 09/11/06 Close

Energy-related stocks as well as mining issues did have a negative impact for some of the major indices such as the NYSE Composite ($NYA.X), which finished in the red at 8,262.17. While I don't provide a lot of focus for the AMEX Composite (XAX.X), there are many lesser followed energy and mining names listed on this exchange, which fell 18.73 points, or -0.94% to 1,958.76.

This morning, I thought to myself ... "Will traders really let the majors finish in negative territory, on what should be a patriotic type of session?"

While stocks did seem to recover from their session lows by mid-session with Fed Governor Kohn and St. Louis Fed President Poole speaking, I didn't hear either Federal Reserve representative say much we haven't heard the past couple of months.

If anything, buyers seemed to keep their hands at their sides, honoring those that lost their lives on September 11, 2001, and then began showing the backs of their hands as the S&P 500 Index (SPX.X) clawed its way back to a fraction gain, with the S&P Depository Receipts (AMEX:SPY) $130.41 +0.09% rebounding from the $129.50 level.

S&P Depository Receipts (SPY) - Daily Intervals

Having come close to challenging a multi-year high close of $132.62 earlier this month, buyers have been standing their ground at the $129.50 level after the mid-August break higher above that level.

There wasn't any real "stock specific" news that might give insight into the economy today, and while oil's decline can arguably be tied to some slowing global economic reports, from feverish levels, the geopolitical premiums that are nearly quantitatively impossible to figure out are also coming into play.

Chip maker Texas Instruments (NYSE:TXN) $31.78 +2.51% did reclaims is rather flat 200-day SMA ($31.56) in today's session, but slipped to $31.43 in tonight's after-hours trade when the company gave its mid-quarter (Q3) update.

Company officials said they are now forecasting Q3 sales in the range of $3.71 billion to $3.87 billion, compared with previous estimate of $3.63 billion to $3.95 billion. Semiconductor revenue is expected to account for $3.53 billion to $3.67 billion of the total, the same range as before. The company expects EPS of $0.44-$0.46 versus its previous outlook of 42c-48c. Analysts had projected Q3 earnings of $0.45 a share on revenue of $3.8 billion.

While a drubbing in the energy sectors didn't help the S&P 500 (SPX.X) today, let alone the month of September, I think traders and investors will be keying in on some earnings reports and outlooks from the likes of Goldman Sachs (NYSE:GS) $151.00 +0.80% and Bear Stearns (NYSE:BSC) $129.36 +0.28% this week, as well as Best Buy (NYSE:BBY) $47.77 +3.15%.

S&P Industry Weightings - As of 09/08/06

Financials "dwarf" other industry/sector groups when it comes to how the S&P 500 is weighted.

Goldman Sachs (NYSE:GS) reports their earnings before tomorrow morning's opening bell with consensus at $3.10/share.

Best Buy (NYSE:BBY) $47.77 +3.15% finished off its session highs of $48.59 as it struggles with a trending lower 50-day SMA ($47.23). It too will report earnings before tomorrow's opening bell with consensus at $0.44/share. Close attention will be given to any OUTLOOK into the holiday shopping season, and any near-term trends that may, or may NOT be developing from a decline in gasoline prices.

Then on Thursday, before the market opens, Bear Stearns (NYSE:BSC) is slated to release its quarterly financials. Current consensus among analysts is for the broker to report earnings of $2.95 per share.

After taking a vacation last week, I updated myself, other traders, and investors in the OptionInvestor.com Market Monitor as to the status of various sector bullish % with Dorsey/Wright's Sector Bell Curve.

Dorsey/Wright's WALL street sector bullish % (BPWALL) is currently in "bear alert" status at 68.29% (bear alert is when a bullish % falls from above 70% to below 70%) having recent reached a very "overbought" (above 70%) measure of 80%.

Dorsey's RETA iling sector bullish % (BPRETA) is currently in "bear correction" status at 40%, having just reversed up from near-oversold (30% or lower is considered longer-term oversold) readings of 34%.

Securities Broker/Dealer Index - Daily Intervals

Institutional traders as well as "retail traders" should be returning from their summer vacations. Volumes at the NYSE have been VERY brisk relative to last summer, roughly 500 million shares per day on average more volume this summer at the big board than last summer and I'm looking for some "bullish confirmation" in this week's earnings from the likes of Goldman Sachs and Bear Stearns to create a "go long the brokers" on a move above the 212 level, which in my opinion, should trigger some broader bullishness for financials in general, and lift the SPX/SPY to new 52-week highs by year's end.

New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
None None None

New Calls

None today.

New Puts

None today.

New Strangles

None today.

Play Updates

In Play Updates and Reviews

Call Updates

Cymer Inc. - CYMI - close: 41.71 chg: -0.42 stop: 39.95

Once again the semiconductors lead the rally in tech stocks today. The SOX added over 2.3% but failed to breakout over resistance at its simple 100-dma today. Meanwhile shares of CYMI consolidated sideways and remains under resistance near $42.50. We do not see any changes from our weekend update that suggests readers wait for a move over $42.50 before considering new positions.

Picked on September 06 at $ 42.55
Change since picked: - 0.81
Earnings Date 10/24/06 (unconfirmed)
Average Daily Volume = 1.0 million


Omnicom - OMC - close: 91.23 chg: +0.26 stop: 87.84

OMC continues to inch higher following last Friday's bullish breakout over resistance. We do not see any changes from our weekend comments and continue to aim for the $96.00-96.50 range. The Point & Figure chart for OMC is very optimistic with a $131 target.

Picked on September 10 at $ 90.97
Change since picked: + 0.26
Earnings Date 10/24/06 (unconfirmed)
Average Daily Volume = 1.1 million


United Ind. - UIC - close: 51.93 change: -0.96 stop: 49.99

There are still no changes from our previous comments on UIC. The stock is drifting lower as we expected. We'd like to see a bounce soon but shares might continue lower until they test support near its 100-dma, 200-dma around the $50 level. We are not suggesting new positions in UIC at this time. The stock has already hit our primary target in the $54.75-55.00 range. Our secondary target is the $57.50 level.

Picked on August 27 at $ 51.77
Change since picked: + 0.16
Earnings Date 08/01/06 (confirmed)
Average Daily Volume = 198 thousand


VF Corp. - VFC - close: 72.77 change: +1.35 stop: 68.95

The rally in VFC picked up speed on Monday and shares added another 1.89% to close at another new all-time high. Volume improved to better than average levels, which is a bullish sign for the rally. We're not suggesting new plays at this time. We are aiming for the $74.00-75.00 range.

Picked on August 30 at $ 70.25
Change since picked: + 2.52
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume = 567 thousand

Put Updates

Boeing - BA - close: 73.82 change: +1.02 stop: 76.26

Traders came back from the weekend and decided to buy the new relative low in BA. The company had some news today about potentially getting a $5 billion contract from the U.S. military. On a technical basis the move today is a bullish engulfing candlestick pattern, which is typically seen as a bullish reversal. Our readers shouldn't be too surprised. We expected a bounce back toward the $75-76 levels, which is still a distinct possibility. We are not suggesting new positions at this time. Our target is the $70.50-70.00 range.

Picked on August 10 at $ 75.75
Change since picked: - 1.93
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume = 4.2 million


Burlington NorSantaFe - BNI - cls: 65.87 chg: -0.06 stop: 66.75

There is no change from our weekend play description on BNI. The transports produced a minor bounce in spite of another drop in crude oil today. We remain bearish but we're waiting for a breakdown under $64.00. We're suggesting that traders use a trigger at $63.74 to open positions. We are going to have two targets. We suggest readers sell part of their position at $60.25 then sell the rest at our second target of $57.00. The P&F chart is bearish with a $50 target.

Picked on September xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/24/06 (unconfirmed)
Average Daily Volume = 2.8 million


Chipotle Mex Grill - CMG - close: 49.10 chg: +1.18 stop: 51.55

CMG produced an oversold bounce on Monday with shares rebounding with a 2.4% gain. We are not suggesting new positions at this time but readers can watch for a failed rally under $50 as a potential entry point.

Picked on August 09 at $ 50.28
Change since picked: - 1.18
Earnings Date 10/30/06 (unconfirmed)
Average Daily Volume = 414 thousand


EOG Resources - EOG - close: 59.77 chg: -1.12 stop: 65.31

Oil stocks really took a beating today with crude oil sliding to its sixth decline in a row. Shares of EOG gapped open lower but managed to bounce back just enough to "fill the gap". Overall the stock looks short-term oversold and due for a bounce so readers can expect a rebound over the next couple of days. We're not suggesting new plays at this time. Our target is the $57.50-55.00 range.

Picked on September 06 at $ 63.85
Change since picked: - 4.08
Earnings Date 10/31/06 (unconfirmed)
Average Daily Volume = 3.3 million


Express Scripts - ESRX - close: 82.42 chg: +1.13 stop: 82.51

There is no change from our weekend play comments on ESRX. We're still waiting for a breakdown under support at the $80.00 level. It's our plan to capture the breakdown with a suggested trigger to buy puts at $79.85. If triggered our short-term target is the $75.50-75.00 range. It's worth noting that a move under $80 would reverse the P&F chart into a new sell signal.

Picked on September xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume = 1.6 million


Fluor - FLR - close: 81.23 change: -0.51 stop: 86.01

FLR continues to decline following Friday's breakdown below support at the $82.00 level. The stock did bounce from the $80.00 level (as we expected) so readers can watch for a failed rally under $82 as a new entry point to buy puts. Our target is the $75.50-75.00 range.

Picked on September 10 at $ 81.74
Change since picked: - 0.51
Earnings Date 11/06/06 (unconfirmed)
Average Daily Volume = 863 thousand


Johnson Controls - JCI - close: 68.84 chg: -0.78 stop: 75.51

JCI managed to tag another new relative low on Monday. The relative weakness is a good sign for our play. We're not suggesting new positions at this time. More conservative traders might want to tighten their stops toward $73.00. Our target is the $68.50-67.50 range. The P&F chart points to a $59 target.

Picked on August 22 at $ 72.96
Change since picked: - 3.84
Earnings Date 10/19/06 (unconfirmed)
Average Daily Volume = 1.3 million


Radian Group - RDN - close: 58.90 chg: +0.30 stop: 61.51

RDN produced a rather meager bounce on Monday. Shares struggled to make it past the $59 level. Readers can watch for another failed rally under $60 (or $59) as a new entry point to buy puts. Our target is the $55.15-55.00 range. The P&F chart points to a $50 target.

Picked on September 06 at $ 58.99
Change since picked: - 0.09
Earnings Date 10/18/06 (unconfirmed)
Average Daily Volume = 722 thousand

Strangle Updates


Dropped Calls

Cameco - CCJ - close: 38.10 change: -2.58 stop: 38.75

We have been stopped out of CCJ at $38.75. The stock was swept up in the commodity sell-off on Monday. Gold futures fell under psychological support at $600 an ounce and the XAU gold & silver index plunged 7% to breakdown below its simple and exponential 200-dma(s). CCJ is more of a uranium miner than a gold miner but investors sold first and asked questions later. The stock closed with a 6.3% loss and a breakdown below the $40.00 level.

Picked on August 22 at $ 40.33
Change since picked: - 2.23
Earnings Date 07/28/06 (confirmed)
Average Daily Volume = 1.9 million


Carpenter Tech. - CRS - cls: 94.09 chg: -5.15 stop: 97.45

We have been stopped out of CRS at $97.45. Normally M&A news helps prop up a sector and can many times inspire new buying activity. That didn't help CRS today. News that fellow steel maker IPS had announced a buyout of NSS failed to inspire any strength in the sector. Shares of CRS sold off and lost more than 5% as investors dumped stocks in the materials sector. The drop in CRS is a bearish breakdown below the $95 level and its simple 200-dma.

Picked on September 05 at $101.10 *gap higher*
Change since picked: - 7.01
Earnings Date 10/23/06 (unconfirmed)
Average Daily Volume = 847 thousand


Emerson Elec. - EMR - close: 80.96 chg: -0.21 stop: 79.99

Over the weekend we were very cautious on EMR but chose to keep the stock to see if shares would bounce from the 200-dma. Shares are still flirting with the 200-dma but EMR failed to bounce with the major averages on Monday. Therefore we're choosing an early exit, especially after the new MACD sell signal appeared. More aggressive traders might want to reconsider and keep the play open.

Picked on September 05 at $ 83.55
Change since picked: - 2.59
Earnings Date 10/31/06 (unconfirmed)
Average Daily Volume = 1.5 million


Freeport McMoran - FCX - close: 53.95 chg: -4.36 stop: 57.45

We have been stopped out of FCX at $57.20. FCX is another casualty of the commodity sell-off. Oil and gold plunged lower and that weighed on silver and copper futures. Copper fell 4.2% and this sparked a big sell-off in the copper miners like FCX and PD. Shares of FCX gapped open lower at $57.20, which was under our stop loss at $57.45. The 7.4% sell-off in FCX has produced a very bearish breakdown below its trendline of support and its 50-dma and 200-dma.

Picked on August 23 at $ 57.51
Change since picked: - 3.56
Earnings Date 10/17/06 (unconfirmed)
Average Daily Volume = 5.1 million


Phelps Dodge - PD - close: 84.05 change: -7.04 stop: 87.95

We have been stopped out of PD at $87.95. The sell-off in commodities hit the mining stocks pretty hard and shares PD gapped open lower at $88.50 and then plunged toward the $83 level. The move is a bearish breakdown below its six-week trendline of support and its 50-dma.

Picked on September 01 at $ 90.55
Change since picked: - 6.50
Earnings Date 10/25/06 (unconfirmed)
Average Daily Volume = 6.7 million

Dropped Puts


Dropped Strangles



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