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Daily Newsletter, Monday, 04/09/2007

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Table of Contents

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

Market Wrap

Railroaded

Friday's stronger-than-expected jobs data had equity traders anticipating an active trade for Monday, and while there was some action, the major indexes were little moved, as Treasuries, oil and transports provided some volatility.

The S&P 500 Index (SPX.X) 1,444.61 +0.05% finished fractionally higher, hard-pressed to hold gains above 1,445 as the S&P Regional Banks Index (BIX.X) 383.37 -0.51% price action since last Tuesday bounce has traders feeling their oats.

Bond traders were notably bearish in today's session, with selling concentrated on shorter-dated maturities. The 5-year Yield ($FVX.X) jumped 9.6 basis points to 4.660%, while the longest-dated 30-year Yield ($TYX.X) rose 4.8 basis points to 4.916%. The benchmark 10-year Yield ($TNX.X) finished up 7.1 basis points at 4.745%, but didn't find enough selling to pierce its 200-day SMA at 4.752%.

Shorter-dated maturities may well have been hit by the proverbial double-edged sword today.

Late last week, the "defensive" trader that had been buying/holding shorter-dated maturities may have been questioning the "defensive" nature of that position after Iran released the 15 British sailors.

Then on Friday, with bond/equity markets closed here in the U.S., the stronger jobs data was enough to have momentum bulls thinking twice about any Fed rate cut at the June 27/28 meeting at today's opening tick.

June Fed Fund futures (ff07m) were unchanged at 94.76, with traders here still forecasting no policy change at the June meeting. (100 - 94.76) = 5.24%. The FOMC's current target on Fed Funds is 5.25%.

In early March, August Fed Fund futures (ff07q) were trading just above 95.00, and forecasting the possibility of a 25 basis point cut to 5.00%, but here too have been pulling back to settle 94.81, with market participants rather uncertain of any Fed action.

U.S. Market Watch - 04/09/07 Close

While Treasuries were finding selling, oil prices also headed south for a fourth-straight session with Nymex May Crude Oil futures (cl07k) settling down $2.77, or -4.31% at $61.51.

After trading as high as $54.22 last Monday, the U.S. Oil Fund (AMEX:USO) $50.35 -3.19% fell as low as $50.02 late this afternoon.

News flows out of Iran kept traders on their toes.

Just after 11:00 AM EDT, oil prices reversed fractional losses to bid fractionally green after Iran's President said the country had entered an "industrial stage" in its production of nuclear fuel.

During a ceremony at an enrichment facility at Natanz, President Ahmadinejad said the country was now capable of enriching nuclear fuel using 3,000 centrifuges.

Some Iran-watchers question Iran's ability to currently product 3,000 centrifuges, which Iran stated is to be utilized to power the Natanz plant.

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Some continue to speculate Iran's enrichment program is for weaponry.

Citigroup Global Markets energy analyst Tim Evans said he an oversupply at the storage hub in Cushing, OK, while localized, had a disproportionate effect on prices and thought traders "simply woke up on the wrong side of the bed," adding that "somebody's alarm went off and it was time to sell May crude."

These notes out of Citigroup could well be meaningful into next week's (04/20/07) May Crude Oil (cl07k) settlement.

Energy traders have been less-than-willing to "roll" contracts from month-to-month due to cost, instead more willing to simply close out, then selectively buy forward-month's contracts to suit their strategy for managing larger positions.

I've (Jeff Bailey) been looking for a decent reentry point for a bullish oil trade and thought traders should dip their bullish hooves back in the pool today with a 1/4 position in the U.S. Oil Fund (AMEX:USO) at $50.64. The smaller initial position allows for a wider stop near-term at $48.80, with a bullish target of $56.00 later this summer. Look for signs of STRENGTH on a USO close above $51.05 and its WEEKLY S1 (support #1) of $51.03. The USO did see trade at WEEKLY S2 (support #2). After March's near-trade at MONTHLY R2, I think computers will be turned on for firm buying at April's MONTHLY S1 of $49.39.

U.S. Oil Fund (USO) - 60-minute interval chart

Lacking some type of geopolitical event, I do think the USO hard pressed to trade much above $53.30 this week, and the downward momentum built again today. As if, well, "somebody woke up on the wrong side of the bed this morning," and yes, the "alarm went off" on the break below April's MONTHLY Pivot of $51.78.

But I believe the MARKET is a forward-looking instrument and bulls will be nipping away (accumulating) bullish positions as summer driving season nears.

If my beliefs are correct, then we should not observe weakness much below MONTHLY S1 ($49.39), and eventual strength above WEEKLY S1 ($51.03), say $51.05 on a session closing basis.

Today's decline in oil certainly didn't hurt the Dow Transports (TRAN) 5,010 +1.89%, which surged as high as 5,069 in early morning trade. However, today's bid came well before oil's decline, with buyers looking aggressive after Warren Buffet's Berkshire Hathaway disclosed it has acquired a 10.9% stake in shares of TRAN component Burlington Northern Santa Fe (NYSE:BNI) $88.08 +6.47%.

Dow Transports (TRAN) - Daily Intervals

In late February, Mr. Buffett reported to shareholders all the company's holdings with a market value of more than $700-million at the end of 2006. At the time, Mr. Buffett teased investors, telling them there were two exceptions to the list with a value of $1.9 billion that he didn't itemize "because we continue to buy them." Mr. Buffett added, "I could, of course, tell you their names. But then, I would have to kill you."

According to recent filings, Mr. Buffett paid between $81.18 to $81.80 in three stock transactions on April 4 and April 5.

Mr. Buffett's Berkshire is not the largest shareholder of BNI. Denver-based Marsico Capital Management LLC, which owned 32 million shares for an 8.9% stake in December, is/was the second-largest holder.

If the name "Marsico" is familiar to investors, you may remember Thomas Marsico as having headed the Janus Twenty Fund, before starting his own mutual fund company. Mr. Marsico left Janus in 1997.

Banks still a wet blanket

With the Dow Transportation Index (TRAN) looking to confirm "Dow Theory" with their price action suggesting strong underlying economic trends, the broader S&P 500 Index (SPX.X) still feels a little heavy as it claws its way back to February's highs.

I don't know about you, but when I looked at my U.S. Market Watch this morning, and saw the BIX.X and fellow BKX.X in the red, even though fractionally so, I got the feeling the major indices, even the NDX/QQQQ that doesn't have a bank in the bunch, were still going to be hard-pressed for gains.

S&P Banks Index (BIX.X) - Daily Intervals

The transports make a bold move, but gains were focused on the rails and surrounded Mr. Buffett's recent buying.

The "crazy train" looks like it is leaving the station, full of bulls, which should bode well for the major indices, but I think bulls still need to see a strong move higher from the banks before buyers shout "all aboard!"

Since last Monday's close, the BIX.X is up a now fractional 0.60%, and to me, the SPX.X is "feeling" if not looking a bit tired. As if it (the S&P 500) is looking over its shoulder at the banks for a "lift from the bottom."

AMEX Securities Broker/Dealer (XBD.X) - Daily Intervals

Each day it seems like the brokers are ready to "launch," but as each day passes, I find myself looking at the BIX.X and saying, "they've got to get a move on, if the brokers are going to break 240 and send the SPX higher still."

S&P 500 Index (SPX.X) - Daily Intervals

Same SPX.X chart we looked at last week. Just from Tuesday benchmarking we can see some of the "impact" the BIX.X and XBD.X had as financial sectors, still the heaviest weighting for the SPX and S&P Depository Receipts (AMEX:SPY) $144.44 +0.13%.

There's been PLENTY of cash freed up by the SELLING in Treasuries, which finds their YIELDS higher.

Technically, there was/is NOTHING that should have stopped the SPX.X from trading its MONTHLY R1 of 1,451.81 today. Except of course, the weakness in the BIX.X, which each day, really seems to be a drag on the brokers.

If those two sectors make a move higher, then DON'T be short/put the SPX/SPY.

If they both fail (BIX.X and XBD.X) to make the move higher, especially the XBD.X at 240-242, there could be some rainy days ahead for bulls.

All aboard??
 


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

Advance Auto Parts - AAP - cls: 39.48 chg: -0.08 stop: 37.95

There is no change from our weekend new play description on AAP. The stock is still consolidating under resistance near $40.00. We are suggesting a trigger to buy calls on AAP at $40.05 to capture any breakout higher. If triggered our target is the $44.50-45.00 range. We do not want to hold over the mid-May earnings report. FYI: The P&F chart points to a $48 target.

Picked on April xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 05/17/07 (unconfirmed)
Average Daily Volume = 854 thousand

---

Apple Inc. - AAPL - cls: 93.68 chg: -1.03 stop: 89.49

Reversal alert warning! Shares of AAPL produced a failed rally and bearish engulfing candlestick pattern with Monday's performance. The stock's relative weakness (-1%) is a surprise following news that the company has sold over 100 million iPods. A couple of analysts firms deduced that means AAPL sold close to 11 million this last quarter, which suggests a strong performance for the company. We are not suggesting new positions at this time and given today's technical turnaround more conservative traders may want to exit early to lock in a minor gain or avoid any losses. We would expect a dip toward $92.00 and probably back toward the $90 level, which should be support. We do not want to hold positions over the April 25th earnings report and plan to exit ahead of the announcement. More aggressive traders wanting to ride any pre-launch excitement for Apple's iPhone may want to break this rule and hold positions for several more weeks.

Picked on March 19 at $ 91.01
Change since picked: + 2.64
Earnings Date 04/25/07 (confirmed)
Average Daily Volume = 35 million

---

Allegheny Tech. - ATI - cls: 113.34 chg: +2.48 stop: 105.75

ATI displayed relative strength on Monday. The stock spiked to a new all-time high ($114.34) before paring its gains and closing with a 2.2% gain. We don't see any changes from our weekend comments except that if you're looking for a new position consider waiting for a dip above $110. More conservative traders may want to use a tighter stop loss. FYI: The P&F chart points to a $123 target. We do not want to hold over the late April earnings report.

Picked on April 03 at $110.26
Change since picked: + 3.08
Earnings Date 04/25/07 (unconfirmed)
Average Daily Volume = 2.6 million

---

Boston Properties - BXP - cls: 118.74 chg: +0.65 stop: 114.49

Lack of follow through on last week's late failed rally under $120 is a good sign for BXP. Volume came in pretty low on today's rebound. We suggest sticking to the plan, which is to wait for a breakout over $120. Our suggested trigger to open positions is $120.75. More conservative traders may want to put their trigger above the 50-dma near $121.26. If triggered at $120.75 our target is the $127.00-130.00 range. Technical traders will note that most of the indicators are turning positive and BXP appears to have produced a potential double-bottom, which is bullish, with the two March lows. We do not want to hold over the April 24th earnings report.

Picked on April xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/24/07 (confirmed)
Average Daily Volume = 1.3 million

---

Caterpillar - CAT - cls: 67.34 chg: -0.29 stop: 65.45

CAT displayed some early strength and pierced resistance at $68.00 right after the open. The intraday high was $68.19 before shares reversed course and closed with a loss. Our suggested trigger to buy calls is at $68.55 so we're still on the sidelines. More aggressive traders might want to buy a bounce from here near its 10-dma. We suggest waiting for the new relative high (above $68.50). If triggered at $68.55 our target is the $73.00-74.00 range under the August 2006 highs. Traders should keep in mind that we do not want to hold over CAT's earnings report, which has recently been confirmed as April 20th. That gives us less than two full weeks to see the play triggered and run toward our target. It is very possible but each passing day makes it less likely.

Picked on April xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/20/07 (confirmed)
Average Daily Volume = 6.3 million

---

Cigna - CI - close: 147.66 chg: +0.04 stop: 141.39

The trend in CI is still up but momentum definitely slowed on Monday. We don't see any changes from our weekend comments.. Our suggested trigger to buy calls was at $147.75, above recent resistance near $147.50. Short-term technicals are turning positive again after the stock's five-day bounce. If shares do see any profit taking/consolidation we would watch for a bounce in the $145-144 region, which readers could use as a new entry point. Our target is the $154.50-155.00 range. We do expect some resistance near $150 but given the stock's momentum CI should be able to plow through it. We do not want to hold over the May 2nd earnings report.

Picked on April 05 at $147.75
Change since picked: - 0.09
Earnings Date 05/02/07 (confirmed)
Average Daily Volume = 910 thousand

---

Core Labs - CLB - cls: 87.30 chg: -0.05 stop: 81.95

It was a very rough day for crude oil. The commodity slid 4.3% and broke down under technical support at its 200-dma. The technical breakdown is a big concern and traders may want to think twice about launching new bullish positions in oil stocks - at least short-term. Long-term we remain bullish on the sector. CLB displayed some relative strength this morning with a rally to $89.12 but the stock reversed midday and gave almost all of its gains back. We would wait and watch for a bounce near $86.00 or worst case a bounce in the $82-83 range before considering new positions. The P&F chart is bullish with a $115 target. Currently we have two targets. Our conservative target is $92.00. Our aggressive target is the $97.50-100.00 range, which might be a too optimistic given our time frame. We do not want to hold over the late April earnings report.

Picked on April 08 at $ 87.25
Change since picked: + 0.05
Earnings Date 04/27/07 (unconfirmed)
Average Daily Volume = 275 thousand

---

ConocoPhillips - COP - cls: 68.42 chg: +0.46 stop: 64.85

COP turned in a volatile session. The stock hit an intraday low near $66.25 early this morning and then rebounded to hit a new one-week high over its 10-dma at $69.16 before paring its gains. Technically the move today looks like a bullish engulfing candlestick pattern, which is normally seen as a bullish reversal buy signal. Yet we would suggest caution given the big sell-off in crude oil and the technical breakdown in crude oil under its own 200-dma. We're aiming for the $74.00-75.00 range in COP. We do not want to hold over the late April earnings report.

Picked on March 20 at $ 66.31
Change since picked: + 2.11
Earnings Date 04/25/07 (unconfirmed)
Average Daily Volume = 12.1 million

---

Holly Corp. - HOC - cls: 61.20 chg: +0.44 stop: 57.45

Target achieved. HOC rallied midday and hit an intraday high of $62.34, which was above resistance at the $62.00 level. Unfortunately, the stock failed to hold its gains and slipped lower on the big sell-off in crude. Yet the intraday strength was enough to hit our original, more conservative target in the $62.00-62.50 range. We still have an aggressive target in the $64.75-65.00 range. We're not suggesting new positions at this time. The Point & Figure chart is bullish with a $74 target.

Picked on March 14 at $ 57.87
Change since picked: + 3.33
Earnings Date 05/07/07 (unconfirmed)
Average Daily Volume = 651 thousand

---

Infosys - INFY - cls: 52.56 chg: +0.73 stop: 49.79

INFY displayed relative strength on Monday with a 1.4% gain. Volume has been declining since earlier this month but still came in at respectable levels. We listed INFY as a speculative, higher-risk call play because shares were bouncing near round-number support at the $50 level, near technical support at its rising, simple 200-dma and near technical support at its 38.2% Fibonacci retracement level. Our target is the $54.75-55.00 range, where we expect shares to encounter resistance with the 50-dma and 100-dma overhead. We plan to exit on Thursday, April 12th to avoid earnings on Friday the next day. Given our time frame you may not want to open new positions.

Picked on April 03 at $ 51.69
Change since picked: + 0.87
Earnings Date 04/13/07 (confirmed)
Average Daily Volume = 1.6 million

---

Lockheed Martin - LMT - cls: 98.03 chg: +1.32 stop: 97.49

LMT showed some unexpected strength on Monday. The stock rallied to a 1.3% gain. Volume came in below average, so it's hard to put much confidence behind today's move. Our suggested trigger to buy calls is at $100.25. Our target is the $104.85-105.00 range. More aggressive traders may want to aim higher since the P&F chart aims at a $128 target. We do not want to hold over the late April earnings report.

Picked on March xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/26/07 (unconfirmed)
Average Daily Volume = 1.8 million

---

Nucor - NUE - cls: 67.50 chg: +0.99 stop: 63.89

Our new call play in NUE is now open. The stock actually gapped open at $67.45 this morning and rallied just above the $68.00 level before pulling back toward where it opened. Our suggested trigger to buy calls was at $67.55. Our target is the $72.50-75.00 range. We would aim higher but we don't have much time. Traders will need to exit ahead of the April 19th earnings report. FYI: We do expect some resistance at $70. Don't be surprised to see NUE bounce around the $67.50-70.00 range for a couple of days.

Picked on April 09 at $ 67.55
Change since picked: - 0.05
Earnings Date 04/19/07 (confirmed)
Average Daily Volume = 3.8 million
 

Put Updates

F5 Networks - FFIV - cls: 67.64 chg: +0.96 stop: 71.01

A positive day for tech stocks, in spite of AMD's earnings warning, helped FFIV rebound for a 1.4% gain. Volume came in above average and FFIV managed to close above short-term resistance at its 10-dma. This is not a good sign for the bears but we wouldn't panic yet. A failed rally under $69 or $70 could be used as a new bearish entry point to buy puts. Our target is the $60.50-60.00 range. We do not want to hold over the late April earnings report. FYI: FFIV can be volatile so expect a lot of up and downs in the option prices.

Picked on April 01 at $ 66.68
Change since picked: + 0.96
Earnings Date 04/25/07 (unconfirmed)
Average Daily Volume = 1.0 million

---

MDC Holdings - MDC - cls: 49.65 chg: +0.61 stop: 50.05

MDC is still bouncing and shares are heading toward the top of its two-week trading range near $50.00. Aggressive traders might want to consider buying puts on a failed rally under $50. We're sticking to our plan with a suggested trigger to buy puts at $46.95. If triggered our target is the $41.00-40.00 range. Prepare for some support near $45.00. The P&F chart looks very bearish with a $35 target. We do not want to hold over the mid-April earnings report so our target might be a little optimistic. Then again, stocks tend to drop faster than they rise.

Picked on April xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/19/07 (unconfirmed)
Average Daily Volume = 870 thousand
 

Strangle Updates

None
 

Dropped Calls

None
 

Dropped Puts

None
 

Dropped Strangles

None
 

Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.

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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