Option Investor

Daily Newsletter, Thursday, 03/13/2008

Printer friendly version

Table of Contents

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

Market Wrap

"Complexity Is Exacerbated by Opacity"

Oh, yeah?

This quote was taken from Treasury Secretary Henry Paulson's address before the Press Club in Washington, D.C. today. Market participants desperately needed another "ity" word: clarity. They wanted clarity about the steps our government would or could take to support the U.S. dollar.


Amid uncertainty about the selection of a new head of the Bank of Japan, the USDJPY (U.S. dollar against the Japanese yen) dropped below 100 last night. The currency pair dropped to an overnight low of 99.76. This is the first time that the USDJPY currency pair has fallen below 100 since November, 1995.

Our futures followed the currency pair lower. Financial channels covering the Asian and European markets last night scrambled to include guest panelists to speculate on the causes and probable outcome of the decline. One speculated the dollar would eventually fall to the mid 90's against the yen.

Several currency specialists on two separate channels said concerted global action was needed to steady the dollar. Some said no actions taken now would be effective. Others said our Fed needed to limit any further easing, perhaps easing only 25 basis points next week and then stopping. Our Fed needed to let the recession, which a survey of economists today said is now a reality, play out as it will. That wouldn't go over so well, would it?

Although the topic is not discussed as much in our daytime financial coverage, neither is a falling dollar going over so well. As outlined in last Thursday's Wrap, even if our powers-that-be decided to act to support the dollar, the direction of the USDJPY is not entirely ours to decide. The actions taken by the Bank of Japan's governor will also impact the direction taken by this currency pair. Not only do we not know what those actions will be; at this point, we don't even know the identity of the new governor or that governor's stance on inflation, the economy and currencies.

The Japanese government this week rejected Deputy Governor Muto's nomination for the post. Governor Fukui leaves next week. Once the government decides on a replacement, how hawkish or dovish a stance will the central bank take under the new leadership? How much damage will be done in the meantime, with that central bank perhaps making decisions by committee rather than working under a strong and trusted governor?

No one knows at the moment. In addition, Japanese Finance Minister Nakaga's statements overnight were interpreted to suggest that Japan was not going to intervene in currencies by selling yen. Their equities and businesses also take a hit when the yen strengthens against the dollar, so our market participants are not the only ones calling out for something to be done.

Those hoping for a focus on the dollar during Treasury Secretary Henry Paulson's address this morning were disappointed. Many market watchers hoped that his address would go beyond the usual "I support a strong dollar" statements to a detailing of the measures that would be implemented to strengthen the dollar.

His address focused instead on the recommendations of the PWG, the President's Working Group. The PWG has listed its recommendations to resolve the current market turmoil and ensure that it does not occur again, at least in this particular form. The PWG feels that the current situation results from liquidity challenges and nonfunctioning credit markets.

Oh, yeah? We all know that by now and want something more. He said what we knew, though. These challenges resulted from the decline in value of complex mortgage derivates, derivatives so complex and layered that even Paulson himself admitted difficulty in deciphering them. Well, perhaps we didn't know that Treasury Secretary Paulson also finds them too complex to be easily understood. Actually, I took a little comfort in that revelation. I've been struggling for weeks to puzzle out all the implications of those complex and layered securities, especially as they relate to the various repurchase agreements and all the other fallout from them. However, I would have taken more comfort if he'd suggested what to do to protect the dollars I have in my savings from sinking in value.

We want more from our Treasury Secretary, especially when we're trying to figure out where markets are going next, what we need to do to protect our personal portfolios and whether the Treasury Department or any other government entity will be doing anything to provide succor for these weakened markets.

It was during Treasury Secretary Paulson's discussion of the PWG's recommendations that he uttered the "complexity is exacerbated by opacity" statement, going on to say that transparency and maybe even clarity and simplicity were antidotes. I was losing track of the "ity" words as I took notes. He did suggest several fixes for the current situation, too, including an "industry cooperative," a "differentiation in derivatives and corporate bond ratings," and a revision of dividend policies.

Neither equity nor currency traders seemed much assured. While he was still speaking, as soon as his focus became clear, the USDJPY briefly dipped below 100 again. As soon as he finished speaking, equities stuttered lower again, hitting what was to be the day's low. Those who would like to read his complete prepared statement can find it at this link.

The show-me-the-money impact doesn't end with the USDJPY, either. This time last week, Carlyle Capital Corporation was among several that had received margin calls on portfolios of mortgage-backed securities used as collateral in repurchase agreements with the financial counterparties. Carlyle, listed in Amsterdam and managed by the U.S.-based Carlyle Group, had at the time received margin calls from 7 out of the 13 financing counterparties after the values of those securities fell. Carlyle Capital had received one notice of default after not meeting some of those margin calls. Carlyle has since been negotiating with the banks holding its securities, attempting to avoid the liquidation of the fund's remaining $16 billion.

Now the fund is expected to default on all its debt. Carlyle Group was reportedly ready to add additional capital if Carlyle Capital could negotiate acceptable and sustainable terms with the financial counterparties. However, those counterparties then called for even more funds amid fears that the portfolio's value had further decreased.

As the open approached today, Carlyle said it expected the financial counterparties to seize its assets. Headlines on articles about Carlyle employing language such as "on verge of collapse" did nothing to improve the performance of our equity futures.

Another name from last Thursday's nightly OIN report, Thornburg Mortgage, said today that it had received a default notice from Morgan Stanley when it failed to meet a $9 million margin call. The information appeared in an 8-K regulatory SEC form. It was just last week that Thornburg was reporting in another SEC document that it had received a letter of default from JPMorgan.

Information like that had pushed prices lower this morning. It was into this climate that Standard & Poor's provided the hope that so many desperately wanted and Treasury Secretary Henry Paulson had failed to provide. S&P claimed that large financial institutions were probably approaching the end of the period that had seen so many write downs.

However, S&P estimates that subprime write downs might be $285 billion, a figure $20 billion higher than S&P's previous estimate about six months ago. S&P's credit analyst also warned that the crisis could spread into other portions of the credit markets.

Market participants seemed to feel that something hopeful had been offered them. If government officials and central banks weren't going to solve the problem, perhaps it would solve itself. They hung on the hopeful part of the S&P's report, not the warnings, and equities took off to the upside. Let's see how far they went.


Annotated Daily Chart of the SPX:

The SPX's 200-week exponential moving average is now at about 1322.50. That moving average did play a part in weekly support over several months, so it may now play a part in resistance on weekly closes. If the SPX should climb toward that moving average and even punch through it, be aware of the potential for it to drop back below it by the close.

The potential to rise into a 30-sma test would have been stronger if the SPX had ended the day above its 10-sma, but since last fall, that 10-sma has been less of a benchmark than it was previously. Because the SPX found resistance there at the close today, however, the potential to roll down immediately must be considered. If that should occur, watch for support at the green trendline and the bottom of the blue channel.

Another possibility exists: the SPX could again be coiling, this time ahead of next week's FOMC meeting. Intraday charts at the end of the article will mention large potential inverse (or reverse) head-and-shoulders formations that have been building the last ten trading days. Such formations, normally considered bullish when occurring near a recent bottom, can sometimes reform into triangles, recasting a bullish formation into a neutral one. Be aware of this possibility.

Annotated Daily Chart of the Dow:

A daily Keltner chart suggest that as long as the Dow can hang onto daily closes above about 12,135, it has the potential to rise toward about 12,430, which would be about the midline of that declining channel. A drop below that would open up the possibility of a decline down to March's low or, if that failed as support on a daily close, perhaps even about 11,600.

Annotated Daily Chart of the Nasdaq:

Nothing seen on this chart provides much of a prediction for next direction. For legibility reasons, I haven't included RSI, but it lingers near 50.27, a neutral level. This week's low was accompanied by bullish price/RSI divergence, but sometimes all that suggests is that it's time to bounce up within a declining formation, which the Nasdaq has done.

A climb toward the 30-sma, up toward 2310, and maybe even as high as 2346, look possible but not yet probable. Nothing has happened yet that precludes another rollover.

Annotated Daily Chart of the SOX:

Annotated Daily Chart of the RUT:

Because the decline of the dollar, especially against the yen, gains so much importance these days, I'm including a chart for tonight's Wrap.

Annotated Daily chart of the USDJPY:

Equity bulls want to see the USDJPY climb while bears want further declines. If it keeps declining, however, we're all going to have to turn out studies to alchemy, figuring out how to convert our greenbacks to gold bars.

Today's Developments

Initial and continuing jobless claims started off today's releases. Analysts had anticipated 357,500 initial claims, up from the original 351,000 figure from last week. Those claims are now listed as "unchanged" at 353,000. There's been a pattern the last few weeks of each previous figure being revised higher the next week. That apparently happened again this week, but the net effect this time is to see a decrease in the number of initial claims over what had been anticipated for this two-week period. The four-week moving average fell 1,250 to 358,500.

Continuing claims continue to rise, too. They climbed by 7,000. The four-week moving average of continuing claims still rises, this time by 24,500 to 2.81 million.

Also at 8:30 am ET, February's Retail Sales disappointed. Industry watchers had predicted a rise of 0.2 percent, a slight decrease from the previous growth of 0.3 percent, but instead sales dropped 0.6 percent. Moreover, November and December sales figures were revised lower. However, retail sales did increase 2.6 percent when compared with the year-ago level, the Commerce Department reported.

Digging underneath the headline figures showed that declining auto sales helped drive the retail sales figures lower. So did declining gasoline sales. Gasoline sales will be unlikely to decline this month, unless the higher prices have already driven consumers to cut back on driving.

In a climate in which many watch for confirmation or refutation that our economy has entered a recession, retail sales garner much attention. This report did little to negate fears that consumers have slowed spending.


Get 50% of your trades wrong and still make big profits in the stock market!

We'll show you exactly when to buy and sell stocks with a proven method used by professional traders to manage risk, nail short-term gains, and pile up amazing profits. Master short-term trading with our expert analysis, detailed technical charts, and precise trade setups including specific entry, stop, and target prices. Now Completely FREE for 30 Days!

CLICK HERE: http://www.hotstix.com/public/default.asp?aid=10383

During the same 8:30 am ET time slot, the Labor Department reported February's Import and Export Prices. In what is now old news amid newly soaring crude costs, prices for petroleum imports sank 1.5 percent. That meant that February's Import Prices rose only 0.2 percent. We all know what crude has done since.

Import prices have risen 13.6 percent year over year, driven higher in part by petroleum prices that have risen 60.9 percent in the same period. In the climate of currently rising crude prices, February's decline in crude import prices is likely to provide little cheer or little assurance that increases in import prices will be tempered.

U.S. export prices rose 0.9 percent, with higher prices on agricultural products being behind that strong rise. Agricultural exports rose 4.4 percent in February.

The 10:00 am ET time slot also produced a couple of reports. One was January's Business Inventories. Those inventories rose 0.8 percent, higher than December's 0.7 percent and higher than the predicted 0.5 percent.

At 10:30, the Energy Information Administration (EIA) released the last report of the day, the weekly natural gas inventories. Supplies fell 86 billion cubic feet in the week that ended March 7. This is the sixteenth consecutive week of declines, a MarketWatch.com article reported. Natural gas soared, breaching the $10.00 mark. Another energy complex futures contract, crude, hit an all-time high of $111.00 a barrel, although it was to end the day at lower levels.

Other news released during the day brought the attention back to mortgage and credit-crunch issues. Those included RealtyTrac's figures on February U.S. foreclosure figures. Those fell 4 percent in February but have risen almost 60 percent over the last year. RealtyTrac's CEO said that the peak of foreclosures had not yet been reached.

During the day, Representative Barney Frank offered his solution to help trim the number of foreclosures. He wants the government to set aside up to $300 billion in loan guarantees.

In addition to RealtyTrac's report, Freddie Mac released its weekly survey. The average interest rate for a 30-year, fixed-rate loan was 6.13 percent last week, higher than the previous week's 6.03 percent. It inched just under the year-ago level of 6.14 percent. All mortgage products showed higher rates. If the information from RealtyTrac was mixed, so was this. Freddie Mac's president and chief economist pointed out that the average interest rate for 30-year fixed-rate mortgages for the first 11 weeks of the year was still lower than 5.9 percent.

As occurs each Thursday, the Federal Reserve also provided information on outstanding commercial paper for the preceding week. This outstanding commercial paper gives us insight into the ease or difficulty that corporations have placing this short-term paper. These notes are typically utilized to avoid going to banks and pay higher fees. When the number decreases, as it did this week, we can surmise that corporations are finding difficulty placing that paper.

Last week, the outstanding paper decreased $15.1 billion on a seasonally adjusted basis. It's fallen now for three weeks out of the last five, with this week reversing a two-week trend of increasing outstanding paper. More disturbing, the decline was prompted by financials, both domestic and foreign. We need to see financials finding ready markets for their short-term paper (30 to 180 days) before we can feel any assurance that the credit crunch is easing.

Other developments today included a 99-to-1 Senate vote to include $341 billion in tax cuts in the new five-year budget plan. That's enough to continue some of the tax cuts President Bush enacted in his first term. The Senate could not agree on additional funds that would have been required to keep all of those tax cuts. The vote on extending the tax cuts will not occur until after the inauguration of a new president.

Bear Stearns (BSC) continued to suffer from persistent concerns about its future. Those concerns persist despite the company's and the SEC's offered assurances. Perhaps it's appropriate to note that BSC is one of the financial counterparties involved in Carlyle Capital's problems. Today, BSC was pushed to an intraday low of $50.48 before it began rebounding off that low. It closed at $57.35. Volume was huge, showing some institutional involvement in the bounce.

Tomorrow's Economic and Earnings Releases

Tomorrow unveils one of the most important numbers of the week, the February Consumer Price Index. That number will be released before the market open, at 8:30 am ET.

Across the globe, central banks have been worried about inflation trickling through to the consumer. Jim Brown noted this weekend that our FOMC members had been employing language that was a bit more hawkish the last week or two, too, coming down a bit more strongly when discussing inflation. Equity bulls still want the Fed to provide hefty rate cuts, and too much inflation may not allow them to do so.

Actually, equity bulls are in a bit of a quandary right now when debating the topic of how much of a cut is expected, appropriate or desirable. If today has done anything, it's alerted savvy bulls to the damage that the weakening dollar is doing. Do we now want hefty rate cuts or do we want our Fed to be a bit more judicious? I don't think anyone wants to see consumer prices too high, however.

I would watch tomorrow's March Consumer Sentiment, too, with that released after the market opens, at 10:00 am ET. I believe that consumer spending habits will become ever more important in this climate when everyone is worried about recession.

What about Tomorrow?

Most 15-minute charts show potential inverse (or reverse) H&S formations setting up beginning 2/29 when prices began dipping to form the left shoulders. The confirmation levels for those formations are setting up near potentially strong Keltner resistance levels, providing benchmarks to watch.

About inverse H&S formations: they're considered potentially bullish, and when they come at the bottom of a decline, they're generally considered more credible. However, they have a nasty habit of sometimes morphing from something bullish to something less so: a triangle. With an FOMC meeting coming up next week, such a process of morphing into a triangle would not be surprising.

Therefore, observe them, know what you're seeing, but don't count on confirmations or on upside targets being met if they are confirmed. Do watch whether they're confirmed or invalidated. Such actions provide you with vital information about the relative strength of bears and bulls at a particular moment.

Annotated 15-Minute Chart of the SPX:

If the SPX should test that 1308-1310 level first thing tomorrow morning, the current setup suggests that support should be strong enough to prompt at least a bounce attempt, if not more. If the SPX gaps below that aqua-colored Keltner line, however, as it did this morning, that converts it into probable resistance and all bets are off.

If you scan these 15-minute Keltner lines on this chart, you see that upper and lower boundaries and the aqua-colored midline often do serve as support or resistance, even in these crazy market conditions. In more normal times, the black-channel boundaries usually serve as strong support and resistance, too, and you can see that they might as well not exist in the current environment.

What does that mean for you and your trades? It signifies how crazy the trading conditions are. Try not to count on any target or prediction being met in this kind of environment. Take profits too early rather than too late.

Annotated 15-Minute Chart of the Dow:

Annotated 15-Minute Chart of the Nasdaq:

Annotated 15-Minute Chart of the RUT:

If futures indicate that indices will gap higher tomorrow morning, perhaps above the confirmation levels of their inverse H&S formations, realize that such action will create breakout modes on these 15-minute charts. Such breakout modes mean that momentum is strong, of course, and can sometimes continue for up to a day or so, but eventually momentum will wane, and bulls must be prepared for that eventuality. Typical oscillators such as RSI or others prove of little use, so the bears among you can not rely on bearish signals for entries.

We know this is an environment in which prices can reverse quickly, and that's particularly true of breakouts created in the first 15 minutes or so of trading. If such breakouts occur during the early minutes of trading tomorrow, be especially careful with your bullish profits and watch for signs of a pop-and-drop situation. You and I will not be the only people who have noted those inverse H&S's forming over the last ten days, and if buyers can't maintain early breakout attempts, be especially careful of your bullish profits. As soon as any such breakout has been well enough established, begin watching the 15-minute 9-ema's (or perhaps, the 30-minute version if you have a longer time frame and deeper pockets) as a benchmark for whether the climb is being sustained. You'll want 15-minute closes above or at that benchmark if bullish.

If indices instead turn down tomorrow, expect bounce attempts from the levels indicated--unless they're violated with an early gap down, at which time they would be support. After that, you'll just have to watch the setups, as Keltner signals will be reset.

Intermediate term? I don't know. I was feeling fairly optimistic about the prospects for at least a week or two of rallies when I began writing this article. I still think that's possible. However, upon reflection, I'm a little fearful that the current chart formation on the SPX may be morphing into a large right triangle (flattish bottom, descending highs) forming since late January. (Note: this is different than a much smaller and less important triangle that could form on the intraday charts, mentioned earlier.) I think it's possible we'll get a pop up through that triangle on the daily charts, if that's what it is, before any breakdown through its support, if that's going to happen.

However, in what may or may not be an option-related event, both the VIX and VXO gained today. Although their daily charts show the move to have created a doji in the middle of a congestion zone, rendering that climb somewhat less important, that's still weighing on the back of my mind, too, and there's all the uncertainty about dollar weakness.

I would want the SPX to be producing daily closes above the 72-ema, now at 1381.50 but still descending, before I consider that possible triangle formation invalidated. Next week, with option-expiration shenanigans, an FOMC decision, and lots of possible Carlyle-type announcements possible, could provide lots of excitement or a narrowing down into choppy price patterns.

New Plays

New Option Plays

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

New Calls

General Dynamic - GD - close: 86.10 chg: +1.48 stop: 82.99

Company Description:
General Dynamics, headquartered in Falls Church, Va., employs approximately 83,500 people worldwide and reported 2007 revenues of $27.2 billion. The company has leading market positions in mission critical information systems and technologies, land and amphibious combat systems, shipbuilding and marine systems, and business aviation. (source: company press release or website)

Why We Like It:
GD displayed some impressive relative strength today. I mentioned it as a potential bullish candidate last night in my play editor's note. Today's move is a bullish breakout over resistance at $85.00. The stock did so on above average volume, which is normally a good sign. The move over $86 produced a new Point & Figure chart buy signal with a $95 target. The $85 level has been resistance for weeks so I would expect some follow through. If you don't want to buy GD here then look for a dip near the $85 level again as an entry point. There is some potential resistance at the 100-dma around $86.75. We are setting two targets. Our first, short-term target is the $89.75-90.00 range since the $90 mark would be natural, round-number resistance. Our second target is the $93.00-94.00 zone near its highs. We do not want to hold over the late April earnings report.

Suggested Options:
We are suggesting the April calls.

BUY CALL APR 85.00 GD-DQ open interest=466 current ask $3.40
BUY CALL APR 90.00 GD-DR open interest=500 current ask $1.10

Picked on March 13 at $ 86.10
Change since picked: + 0.00
Earnings Date 04/23/08 (unconfirmed)
Average Daily Volume = 2.1 million


Mosaic - MOS - close: 108.93 change: +2.82 stop: 99.89

Company Description:
The Mosaic Company is one of the world's leading producers and marketers of concentrated phosphate and potash crop nutrients. (source: company press release or website)

Why We Like It:
Last night I mentioned that we were watching the fertilizer names as potential candidates and almost all of them rally sharply today. History would suggest that buying dips near MOS' rising 50-dma has been a great place to buy the stock. MOS pierced its 50-dma on Monday but bounced back sharply. Now shares are poised to breakout past its three-week trend of lower highs and price resistance near $110. Before we go any further I want to remind readers that this entire group of stocks can be very volatile and stop loss placement and risk control is always a challenge. Just today alone MOS had a $8.50 intraday swing. Options are going to be expensive because of this volatility. Plus, we still have a capitulation event looming over the market. When (if) it occurs MOS will not be immune and will probably be punished worse because it has been such a performer. We have to label this an aggressive, higher-risk play. Here's the plan: We are suggesting readers buy calls on MOS at $111.00. My first concern is just being whipsawed out of it on intraday volatility but at $111 it should be a clear breakout higher. We are listing two targets. Our first target is the $119.50-120.00 zone. Our second target is the $135.00-140.00 zone. Please note that we do not want to hold over the early April (unconfirmed) earnings report.

You may also want to consider bullish plays on CF, POT or TNH if they continue higher. We're watching MON but it seems to be lagging its peers.

Suggested Options:
Our suggested entry point is $111.00. We're suggesting the April calls. Trading note: the symbols below (from the CBOE) are not standard suffixes for $110, 115, and 120 strikes. Confirm with your broker.

BUY CALL APR 110 MOS-DY open interest=1363 current ask $ 9.50
BUY CALL APR 115 MOS-DU open interest=3019 current ask $ 7.50
BUY CALL APR 120 MOS-DZ open interest=3849 current ask $ 5.70

Picked on March xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/03/08 (unconfirmed)
Average Daily Volume = 7.0 million


Potash Corp. - POT - cls: 160.40 chg: +5.61 stop: 149.00

Company Description:
PotashCorp is an integrated producer of fertilizer, industrial and animal feed products. We are the world's largest fertilizer enterprise, producing the three primary plant nutrients: potash, nitrogen and phosphate. (source: company press release or website)

Why We Like It:
POT is another fertilizer name and probably the strongest in the industry. I won't go into fundamentals here but the company is thriving. The world is seeing massive demand for its products. Emerging markets will continue to fuel the boom for years to come. In the past buying dips near the 50-dma has been a good bet. Shares are bouncing from that area now. Today's move is a bullish engulfing candlestick pattern. We want to see some confirmation. We're suggesting readers buy calls on POT at $162.75. More conservative traders may want to wait for a new all-time high over $166.40. Our target is the $178.00-180.00 zone. We will consider adding a second, more aggressive target as the play progresses. We mentioned in the MOS play above that these stocks can be super volatile. POT had close to a $12 range today. That makes risk control and stop loss placement a real challenge. We have to label this an aggressive, higher-risk play.

You may also want to consider bullish plays on CF, MOS or TNH if they continue higher. We're watching MON but it seems to be lagging its peers.

Suggested Options:
Our suggested trigger for POT is $162.75. We are suggesting the April calls.

BUY CALL APR 160 PYP-DL open interest=2328 current ask $11.70
BUY CALL APR 165 PYP-DM open interest=2360 current ask $ 9.30
BUY CALL APR 170 PYP-DN open interest=2152 current ask $ 7.40
BUY CALL APR 175 PYP-DO open interest= 903 current ask $ 5.70

Picked on March xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 7.5 million

New Puts


New Strangles


Play Updates

In Play Updates and Reviews

Call Updates

Goldman Sachs - GS - close: 165.44 chg: +2.43 stop: 154.99

Thursday proved to be a volatile day for shares of GS. Additional weakness in BSC continues to weigh heavily on the sector plus we heard comments about one firm lowering their estimate on GS, who reports next week. Shares of GS gapped open lower at $160.44 and dipped to $156.76 before bouncing back and closing in the green. It continues to look like GS is trying to put in a bottom but we are running out of time because we don't want to hold over the earnings report! GS is due to report earnings on Tuesday, March 18th before the opening bell. We do not want to hold over earnings so we plan to exit on Monday at the closing bell. Our short-term target is the $178.00-180.00 zone.

Picked on March 11 at $163.07
Change since picked: + 2.37
Earnings Date 03/18/08 (confirmed)
Average Daily Volume = 12.5 million


Ingersoll Rand - IR - close: 44.28 change: +0.56 stop: 39.74

Bulls bought the dip in IR near $42 and its rising 10-dma. Unfortunately, volume was not very impressive. The short-term trend continues to look positive. IR is nearing potential resistance at its 100-dma and the $45.00 zone. Our target is the 47.00-47.50 zone.

Picked on March 09 at $ 42.87
Change since picked: + 1.41
Earnings Date 04/20/08 (unconfirmed)
Average Daily Volume = 5.5 million


Research In Motion - RIMM - cls: 105.65 chg: +4.26 stop: 94.49

RIMM turned in a bullish session. It didn't start out that way. The stock actually gapped open lower at $100.05 and dipped to $98.32 before bouncing back. The rebound is impressive. Shares have cleared short-term potential resistance at $105 and its 100-dma. More conservative traders will want to seriously consider tightening their stop loss toward $97-98. Our short-term target is the $110.00-112.00 zone.

Picked on March 11 at $100.74
Change since picked: + 4.91
Earnings Date 04/02/08 (confirmed)
Average Daily Volume = 25 million


Yahoo! Inc. - YHOO - close: 27.50 change: -0.95 stop: n/a

YHOO really under performed the market today. Instead of rebounding higher with the market this afternoon YHOO slipped to session lows. Pressuring the stock price was a rumor going around that a hedge fund was trying to unload a huge chunk of YHOO. We don't know why they wanted to sell. Considering all the hedge fund redemptions it's possible they just needed the cash. Again, this was just a rumor. We need to see a higher bid from MSFT before March expiration (unless you've bought the April calls). This remains a very risky, aggressive bet. Our suggested calls were the March $30 or March $32.50 strikes. If you want to speculate now we would choose the April strikes. MSFT's current bid is $31 a share and the street expects that they will raise their bid into the $33-35 zone.

Picked on February 17 at $ 29.66
Change since picked: - 2.16
Earnings Date 04/17/08 (unconfirmed)
Average Daily Volume = 54 million

Put Updates

Ambac Fincl. - ABK - cls: 6.63 change: -0.23 stop: n/a

ABK continues to sink. We don't see any changes from our previous comments. We are not suggesting new ABK positions at this time. This remains a very speculative play. We will definitely hold over the April earnings if we get the chance. Previously we had been suggesting the May out-of-the money puts ($5.00 and $2.50 strikes) and an optional speculative out-of-the money March ($20) call as a hedge should a bailout plan come to pass.

Picked on January 27 at $ 11.54
Change since picked: - 4.93
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 10.9 million


Cytec Ind. - CYT - close: 55.50 chg: -0.01 stop: 57.15 *new*

That's not a typo. Yesterday CYT was up one cent. Today it's down one cent. Yet the stock has been anything but mild. Shares are bouncing around the $54-56 zone. Early morning weakness retested the $54 level but the rebound never quite made it to $56. CYT is still trying with a bearish trend of lower highs. We are going to tighten our stop loss and try to reduce our risk. We're moving the stop to $57.15. More conservative traders might want to move their stop closer to the $56 region. The $50.00 level looks like nearest support so we are targeting a drop into the $50.25-50.00 zone.

Picked on March 09 at $ 54.72
Change since picked: + 0.78
Earnings Date 04/17/08 (unconfirmed)
Average Daily Volume = 601 million


Express Scripts - ESRX - cls: 57.89 chg: +1.01 stop: 63.55

The extremely oversold healthcare sector managed a dead-cat bounce today. ESRX participated with a 1.7% gain. Look for a failed rally here or in the $59-60 zone as a new entry point for puts. We have listed two targets. Our first, short-term target is the $55.50-55.00 zone. Our second, more aggressive target is the $51.50-50.00 zone. Currently the P&F chart is bearish with a $54 target. FYI: The most recent data listed short interest at 3.8% of the 251 million-share float, which is about 3.4 days worth of short interest.

Picked on March 09 at $ 58.51
Change since picked: - 0.62
Earnings Date 04/23/08 (unconfirmed)
Average Daily Volume = 3.7 million


FedEx - FDX - close: 87.07 change: +0.01 stop: 90.05

Strength in the transports doesn't make any sense here. Oil traded over $110. Plus, last night, UPS said that they saw volume falling across their business in February. UPS and FDX should have been down more sharply. The trend continues to look bearish but there hasn't been a lot of follow through lower yet. Our target is the $80.50-80.00 zone. FYI: The most recent data lists short interest at 3% of the 289 million-share float.

Picked on March 10 at $ 85.95 *triggered
Change since picked: + 1.12
Earnings Date 03/20/08 (unconfirmed)
Average Daily Volume = 3.1 million


Harley-Davidson - HOG - close: 36.80 chg: +0.51 stop: 40.26

Yesterday's failed rally at $37.50 looked like another sell signal but someone bought the dip at $35.00 today. This probably has a number of bears nervous about a short squeeze. Our more conservative traders may want to tighten their stop loss closer to the 50-dma (38.77) or the $38.00 level. We do have a very wide and aggressive stop at $40.26. Wait for the bounce to fade before considering new puts. Our target is the $30.50-30.00 zone although it wouldn't surprise me to see a drop closer to $25. The P&F chart is bearish with a bearish triangle breakdown sell signal. FYI: The most recent data lists short interest at 9.6% of the 236 million-share float. That is an above average amount of short interest and raises our risk of a short squeeze.

Picked on March 10 at $ 34.69 *triggered
Change since picked: + 2.11
Earnings Date 04/17/08 (unconfirmed)
Average Daily Volume = 3.1 million


MBIA Inc. - MBI - close: 11.57 change: -0.02 stop: n/a

There is nothing new to report here. MBI is still under performing the market and the financials. We're not suggesting new bearish positions at this time. We had been suggesting the out-of-the-money May puts (7.50, 5.00 and 2.50 strikes) and an optional March $22.50 (or $20.00) call as a hedge in case a bailout plan for the bond insurers does get done. We will definitely hold over the April earnings if we get the chance.

Picked on January 27 at $ 14.20
Change since picked: - 2.50
Earnings Date 01/31/08 (confirmed)
Average Daily Volume = 15.2 million


3M Co. - MMM - close: 79.08 change: +0.66 stop: 80.25

Just in case you missed it yesterday MMM is providing another entry point to buy puts near resistance at $80.00. Unfortunately, today's entry point looks a little more aggressive considering the bullish tone in today's market and MMM. The trend in MMM remains bearish and until it breaks $80 we're sticking with it. We have set two targets. The first target is the $72.25 level, just above the January 2008 lows. Our second target is the $68.00 level, which should be closer to the bottom edge of MMM's bearish channel. The P&F chart is currently bearish with a $62 target. FYI: The most recent data lists short interest at just 1.5% of the 707 million-share float.

Picked on March 09 at $ 76.51
Change since picked: + 2.57
Earnings Date 04/24/08 (unconfirmed)
Average Daily Volume = 4.3 million


NII Holdings - NIHD - close: 34.10 change: -0.55 stop: 40.05

NIHD under performed the market again with a 1.5% loss. The lack of participation in the rebound today is a good sign for the bears. We're not suggesting new positions at this time. NIHD has already surpassed our initial target in the $35.50-35.00 zone. Our aggressive target was the $31.00-30.00 range. The Point & Figure chart is bearish with a $19 target. FYI: The latest data lists short interest at 3.8% of the 171.7 million-share float, which is only about 1.5 days worth of short interest.

Picked on March 04 at $ 38.95 *triggered
Change since picked: - 4.85
Earnings Date 02/27/08 (confirmed)
Average Daily Volume = 3.3 million


Everest Re Group - RE - close: 93.37 chg: -0.11 stop: 98.26

Another round of weakness in AIG depressed the insurance stocks. RE managed to recoup most of its losses but the trend is still bearish. The stock is still trading under our early target at $93.50. We are not suggesting new positions at this time. Our second, more aggressive target is the $91.00-90.00 zone. FYI: The P&F chart is bearish with a $74 target.

Picked on February 28 at $ 97.93 /1st target surpassed 92.66
Change since picked: - 4.56
Earnings Date 04/23/08 (unconfirmed)
Average Daily Volume = 487 thousand


Sears Holding - SHLD - close: 94.58 change: +0.95 stop: 100.51

SHLD has bounced back toward resistance in the $95-96 zone. Technically today's move is a bullish engulfing candlestick pattern but it needs to see some confirmation. The trend in SHLD is still very bearish. If you're feeling cautious you could tighten your stop toward $96.00 and consider re-entering bearish plays if SHLD sees another failed rally near $100. Our target is the $85.50-85.00 zone. There are a lot of investors who believe SHLD is going lower. The most recent data puts short interest at more than 19% of the 65 million-share float. That is almost 7 days worth of short interest. Naturally that raises our risk of a short squeeze.

Picked on March 06 at $ 94.00 *triggered
Change since picked: + 0.58
Earnings Date 02/28/08 (confirmed)
Average Daily Volume = 2.8 million


Wynn Resorts - WYNN - close: 97.26 chg: +0.21 stop: 100.51

WYNN is trying very hard to put in a short-term bottom here. The action over the last three days could easily spook the bears. At this point we would expect the stock to challenge resistance near $100 soon. If you don't want to risk being stopped out at $100.51, which could happen tomorrow if the inflation data comes in lower than expected, then consider an early exit first thing tomorrow. We're not suggesting new put plays at this time. Our target was the $86.50-85.00 zone. The P&F chart is bearish with a $64 target.

Picked on March 04 at $ 94.27 *gap down
Change since picked: + 2.99
Earnings Date 02/26/08 (unconfirmed)
Average Daily Volume = 2.2 million

Strangle Updates


Dropped Calls


Dropped Puts


Dropped Strangles


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


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.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives