Play Editor's Note: The market's strength today was great to see but we don't want to chase it here. There are a number of stocks that we do want to watch for potential entry points. We continue to watch FCX and PCU. Both made pretty big gains today. Both continue to look bullish. MMM is back to challenging resistance. A move over $81.50-81.75 might be a play. Steel and iron stocks are hot and NUE looks like it's trying to breakout from its sideways consolidation. Natural gas is breaking out and the UNG just closed over resistance near $50.00. DE just broke through resistance near $90.00. CHL is breaking out from its two-week trading range.
Google Inc. - GOOG - cls: 455.03 chg: +8.19 stop: n/a
Why We Like It:
BUY CALL MAY $500 GOP-EO open interest=8154 current ask $7.90
FYI: You could try the same strangle with the April $500 call and April $400 put and it would cost you about $3.00 instead of $14.00 but you'd only get one day (Friday, April 18th) as April options expire. Probably not a good bet. You'd be better off and have more fun in Vegas.
Picked on April 16 at $455.03
Ashland Inc. - ASH - close: 52.88 change: +1.53 stop: 49.85*new*
The widespread market rally has lifted shares of ASH to a 3% gain. The stock has cleared resistance near $52.50 and its exponential 200-dma and is nearing potential technical resistance at its simple 200-dma at 53.50. We are adjusting our stop loss to $49.85. Our target is the $57.00-58.00 range. We do not want to hold over the late April earnings report.
Picked on April 06 at $ 51.25
Baker Hughes - BHI - close: 76.89 chg: +1.74 stop: 71.45 *new*
BHI posted a 2.3% gain and broke through potential resistance at its exponential 200-dma. Shares closed at their highs for the session and did so on decent volume, which is a positive sign for tomorrow. We are raising our stop loss to $71.45. Our target is the $78.50-80.00 range. We do not want to hold over the April 22nd earnings report.
Picked on April 10 at $ 72.76
CH Robinson Worldwide- CHRW - cls: 59.83 chg: +1.58 stop: 56.89
Transportation stocks ignored another high in crude oil and rallied on the strong CSX news from last night. Shares of CHRW posted a 2.7% gain. We don't see any changes from our Tuesday comments. Our target is the $62.00-62.50 zone. We do not want to hold over the April 22nd earnings so this is a short-term play.
Picked on April 15 at $ 58.25
CONSOL Energy - CNX - cls: 84.28 chg: +5.26 stop: 76.85 *new*
The rally today was lead by anything commodity related. Coal stocks continued to shine. CNX posted a 6.6% gain and a new closing all-time high. We are raising our stop loss to $76.85. Our target is the $88.00-90.00 zone. Remember, we do not want to hold over the late April earnings report, which does not give us much time left.
Picked on April 15 at $ 80.55
DryShips Inc. - DRYS - close: 74.64 chg: +4.32 stop: 67.45*new*
DRYS also enjoyed a very strong session. The market's bullish attitude allowed DRYS to sail higher posting a 6.1% gain and on slightly better than average volume. The stock has cleared potential resistance at the April high and its 100-dma and has broken through its longer-term trendline of lower highs. If you don't want to chase it here, and we wouldn't, look for a dip back into the $71.50-70.00 zone. We're raising our stop loss to $67.45. Our target is the $79.00-80.00 zone.
Picked on April 15 at $ 70.32
Fluor - FLR - close: 159.00 chg: +9.10 stop: 146.49 *new*
Target achieved. FLR just exploded higher with a 6% rally straight to resistance near $160.00. The intraday high was $159.25. Our first target is the $159.00-160.00 zone. After such a strong move and a close under resistance we would expect some profit taking. We're not suggesting new positions at this time. We are raising our stop loss to $146.49. We strongly suggest readers take some profits here and more conservative traders may want to use a higher stop. Our second target is the $168.00-170.00 zone. We do not want to hold over earnings in early May. FYI: The P&F chart is bullish with a $184 target.
Picked on April 01 at $146.50 *triggered /1st target hit $159
CurrencyShares Euro - FXE - cls: 159.86 chg: +1.90 stop: 156.45
The U.S. dollar continues to sink and the Euro jumps to a new high. The FXE Euro ETF is now trading just under potential resistance at $160 but it also marked a new all-time high and broke through resistance in the $159.00 area. Our target is the $164.00-165.00 range. Our time frame is three to five weeks.
Picked on April 13 at $158.57
Essex Prop. - ESS - close: 117.35 chg: +5.28 stop: 109.45
As expected shares of ESS rallied from support. Shares added 4.7% today and cleared the simple 10-dma, its short-term trendline of lower highs, and potential resistance at $115.00. Our target is the $119.50-120.00 zone. More aggressive traders could aim much higher, maybe $125 or $130. The P&F chart points to $154. We do not want to hold over the April 30th earnings report.
Picked on April 15 at $112.07
Hovnanian - HOV - close: 11.86 chg: +0.85 stop: 10.45 *new*
If we had stuck to our original plan and suggested entry point at $10.50 instead of changing it to $10.25 we'd be looking pretty good right now. Shares of HOV bounced sooner than we expected and given the market's bullishness it could continue to run. We are altering our strategy and suggesting that readers buy calls on HOV now or on a dip in the $11.50-11.00 zone. We're moving the stop loss to $10.45. Our first target is changed to the $13.50-14.00 zone. Our second, more aggressive target will be the $14.75-15.00 zone.
Picked on April 16 at $ 11.86
Joy Global - JOYG - close: 73.65 chg: +2.87 stop: 68.45
Market-wide strength inspired some buying in JOYG and the stock broke through resistance near $72.50 to hit new all-time highs. We were suggesting that readers buy calls at $72.55. The play is now open. Our target is the $79.50-80.00 range. The P&F chart is already bullish with an $88 target.
Picked on April 16 at $ 72.55 *triggered
Lincoln Elec. - LECO - cls: 72.40 chg: +2.52 stop: 68.74
LECO turned in a strong day with a 3.5% gain and a breakout from its recent trading range. Our first target is the $74.85-75.00 range. Our second target is the $78.00-80.00 zone. The Point & Figure chart is bullish with a $91 target. We do not want to hold over the late April earnings report.
Picked on April 07 at $ 73.73 *triggered/gap higher
Ultra Petrol. - UPL - close: 85.44 chg: +1.59 stop: 79.45 *new*
UPL continues to look strong. Traders bought the dip near $82.00 today and then the stock raced to a new high. We are inching up our stop loss to $79.45. Our target is the $89.50-90.00 zone. The P&F chart has broken through resistance and points to a $95 target.
Picked on April 10 at $ 81.50
United States Oil - USO - close: 92.15 chg: +0.71 stop: 86.49
Take some profits here! The weekly oil inventory numbers showed another decline in inventory and crude oil topped $115 a barrel. This lifted the USO and honestly we were expecting the USO to hit our first target at $92.50. This ETF only hit $92.30. We are strongly suggesting that readers take some profits right here and only keep a small position (if any position at all) as we aim for the $97.50-100.00 zone.
Picked on April 07 at $ 86.49 *triggered/gap higher
ExxonMobil - XOM - cls: 92.89 chg: +2.09 stop: 87.95
Another record high in crude oil and a widespread market rally lifted XOM to a 2.4% gain. The stock is halfway to our target. Our target is the $94.85-95.00 range. We do not want to hold over the May 1st earnings report.
Picked on April 15 at $ 90.80
Ambac Fincl. - ABK - cls: 5.30 change: +0.25 stop: n/a
Today's 5% jump in ABK is probably just short covering due to the market's bullishness and not directly related to ABK. We don't have a stop loss on this play because the stock has been so volatile in the past. However, we're considering a stop loss at $6.51 to close the play on any unexpected strength. We are not suggesting new bearish positions in ABK. 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).
Picked on January 27 at $ 11.54
Capital One - COF - close: 46.25 chg: +0.28 stop: 51.51 *new*
Shares of COF under performed the market because investors are concerned about the upcoming earnings report and probably should be concerned. We are deciding to hold over the earnings report. More conservative traders should not hold over the earnings report. There are plenty of unknown variables related to an earnings announcement that could move the stock against us. We are going to inch our stop loss down to $51.51. The company reports on April 17th after the closing bell. Our target is the $41.50-40.00 zone. The Point & Figure chart is bearish with a $38 target.
Picked on April 13 at $ 48.30
Fannie Mae - FNM - close: 27.78 chg: +1.83 stop: 30.26
A pop in mortgage applications and some better than expected earnings out of financials helped FNM rise about 7%. The stock is now challenging its simple 50-dma. Look for a failed rally under $29.00 before considering new shorts. FNM has already exceeded our target at the $25.25 mark. Our second target is the $21.00-20.00 zone.
Picked on April 08 at $ 29.00 /1st target exceeded 25.25
Humana Inc - HUM - cls: 42.26 chg: -0.60 stop: 45.76
Hmm... bears should take note that HUM under performed the market today. The stock actually hit its simple 10-dma and rolled over. This is definitely good news for the bearish. Our target is the $40.50-40.00 zone. More aggressive traders may want to aim lower. Currently the P&F chart is so bearish it points to a target of zero ($0.00).
Picked on March 30 at $ 45.20
iShares Financial - IYF - close: 83.88 chg: +2.41 stop: 85.55
Today's move in the IYF also looks like some short covering. The IYF gapped open higher at $83.12 and rallied to a 3% gain. Watch for a failed rally under $85 as a new entry point for shorts. Our target is the $76.00-75.00. We're adding a second target in the $71.50-70.00 zone.
Picked on April 13 at $ 82.51
iShares Fincl.Servcs. - IYG - cls: 88.41 chg: +2.92 stop: 92.26
It's the same story here in the IYG. The market-wide rally and some decent earnings out of financials sent the IYG to a 3.4% short covering rally. Look for a failure near $90.00 as a potential entry point. More conservative traders may want to tighten their stops toward $90.00. We have two targets. Our first target is the $82.00-80.00 zone. Our second, more aggressive target is the $76.00-75.00 zone.
Picked on April 13 at $ 87.26
Juniper Networks - JNPR - cls: 23.61 chg: +0.88 stop: 24.55
Intel's earnings last night jump started the tech sector. The NASDAQ soared to a 2.8% gain. JNPR out performed with a 3.9% rally. More conservative traders might want to tighten their stops toward $24.25 or $24.00. We're not suggesting new positions at this time. We do not want to hold over the late April earnings report. Our target is the $20.15-20.00 zone.
Picked on April 09 at $ 22.95 triggered
MBIA Inc. - MBI - close: 11.65 change: +0.12 stop: n/a
There is still not a lot of enthusiasm for the bond insurers. MBI definitely under performed the market and the financials today. We are 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).
Picked on January 27 at $ 14.20
(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)
Goldman Sachs - GS - cls: 169.05 chg: +4.85 stop: n/a
GS delivered a decent bounce today but the general trend is still down. We are not suggesting new strangles at this time. The options we suggested for this strangle were the May $190 calls (GPY-ER) and the May $160 puts (GPY-QL). Our estimated cost was $8.70. We want to sell if either option trades at $14.50 or higher. FYI: The May $160 puts hit a high of $7.70 today.
Picked on April 06 at $175.40
Merrill Lynch - MER - cls: 44.89 chg: +1.55 stop: n/a
MER ended the session with a 3.5% gain but it was a rocky day and the dip to $43.50 midday was another opportunity to open strangles. Tomorrow is the big day. MER reports earnings on Thursday morning (April 17th). Wall Street expects a loss of $1.99 a share (-1.99 EPS). Please note that we are no longer suggest new strangle positions. Today was our only opportunity to do so ahead of earnings.
We have a very aggressive, high-risk April strangle and a May strangle. The options we suggested in the April strangle were April 47.50 calls (MER-DW) and the April 37.50 puts (MER-PB). Our estimated cost was $0.90. We want to sell if either option hits $1.80 or more. However, we have to exit before Friday's close because of April option expiration.
The options we listed in the May strangle were the May $50 calls (MER-EJ) and the May $32.50 puts (MER-QA). Our estimated cost was $1.76 and we want to sell if either option hits $3.00 or more.
Picked on April 15 at $ 43.34
Bunge Ltd - BG - close: 120.34 chg: +11.76 stop: 102.45
Target exceeded. Almost anything agriculture related was on fire today. Shares of BG soared more than 10% and hit an intraday high of $122.72. The group could have gotten a boost from Potash (POT), which said they raised prices today. Plus Goldman Sachs upgraded their earnings estimates on Monsanto (MON). Our target on Bunge was the $114.50-115.00 zone.
Picked on April 14 at $105.25 *target exceeded (114.50:122.72)
Arcelor Mittal - MT - close: 88.65 chg: +3.70 stop: 79.45
Target achieved. A bullish market and some positive analyst comments helped MT close up 4.3% and hit an intraday high of $89.00. Our target was the $89.00-90.00 zone. Shares look like they'll rally closer to the $90.00 level tomorrow but the play is closed for us. We remain bullish on MT and will keep an eye open for a dip back toward $85 as a possible entry point for new call plays.
Picked on March 31 at $ 82.03 *gap open /target hit $89.00
Potash Corp. - POT - close: 198.26 chg: +13.85 stop: 159.90
You've probably heard of buyer's remorse. Well we regret not buying POT when shares broke out on April 3rd. At the time, April 3rd, we felt pretty confident that POT would dip after a $17 rally from the $150 zone. Shares have not dipped and now we missed a $30 run. We remain very fundamentally bullish on POT and the industry. However, we didn't want to chase POT at $167 and we definitely don't want to chase it here. The $200 mark is likely to be round-number resistance so it's time for some profit taking. If you really wanted to trade this we'd consider buying puts with a tight stop above $200.00 and try to scalp a few points but you could get blown out of the way pretty easy. We'll definitely be watching for a new entry point but it could take weeks before we see another set up.
Picked on April 03 at $ xx.xx *never opened
eBay Inc. - EBAY - close: 32.12 chg: +0.54 stop: 32.26
The strength of the market's rally this morning probably spooked some short covering in EBAY and the stock hit our stop loss at $32.26 ending our play ahead of earnings. It had been our plan to hold over the earnings report. EBAY did report after the bell. Estimates were for $0.39 a share. EBAY beat by 3 cents and beat the revenue estimates but guidance was only inline with estimates. The stock is seeing a lot of volatility after hours with a high above $33.00 and a low near $31.00. Currently, in after hours trading, EBAY is about $32.26. We're going to keep an eye on the stock for a drop under $30.50 or $30.00 as a potential bearish entry point.
Picked on April 13 at $ 30.87 *stopped 32.26
Until an OI Subscriber e-mails me with a question or two, I'll keep writing on things that interest me, although I'd rather be sure that these are topics that also interest YOU; I'm doing the best I can in the meantime.
What interests me is always about 'beating' the market and right timing on trades; i.e., trades that make money. It's been so long since the market has been in a more or less reliable trading range, that I'm not used to how fantastically accurate buying and selling the high and low (overbought and oversold) extremes can be for this one 'golden' indicator when applied to hourly charts of the indexes.
I'm talking about the Relative Strength Index (RSI) which is one of the 'oscillator' type (scale is between 0-100) indicators of market momentum. Moreover, I use a 'length' setting of 21, a fibonacci number, so that the RSI uses hourly closes encompassing twenty-one hours, which is of course around 3 days worth of hourly data.
While you in your trading activities may not be taking outright (call and put) positions on the indexes, this timing tool is still very useful, especially when trading 'bellwether' big cap stocks that trade much in lockstep with the overall market, be it the Nasdaq or the NYSE-related indices like the S&P.
I wrote last week about the 21-hour RSI providing a strong sell 'signal' at the recent top and I showed hourly charts of the Dow 30 (INDU) and the Nasdaq Composite to illustrate. I went on to speculate in my weekend Index Trader column that the next oversold extreme in the 21-hour RSI might be a next buy point. I also said some other things that indicated my caution about jumping into calls again too soon, but my prattle was not nearly as accurate as just taking the plunge and buying the recent oversold extreme once again. That PLUS the double bottom in OEX got me in.
You wouldn't think this true in a bear market cycle, but there have been fewer oversold periods, according to this RSI model, than 'overbought' ones. Buying the oversold points have been very profitable. Go figure. The market may be finding an intermediate to longer-term bottom, which is what I suspect from a possible rounding bottom (plus some long-term trendline considerations in SPX and NDX) and illustrated further on with the INDU daily chart. Extreme bearish sentiment has been another bullish backdrop for me in a contrarian sense, but that's another story for another time and which I cover each week in my weekend Index Trader piece.
What we saw in the S&P 100 (OEX) most recently here was a picture perfect double
bottom, as seen in the hourly chart, AND another oversold
When the 21-hour RSI has gotten to between 60 and 60 in the major market indexes they have had trouble making further headway; 60-65 or above, has marked a so-called 'overbought' zone at least on a short-term basis. Conversely, RSI readings down in the 30 to 35 area have defined a place where the major market indexes have been 'oversold' and have potential for a rebound of a size to make it worthwhile to trade, especially if you have the fortitude to jump in BEFORE it's apparent to all that the market trend has shifted. This is where exiting stop points are also key.
In the Nasdaq Composite chart below, the most recent low was in the area of or just above its prior low. The upside gap had been 'filled in' which is sometimes an indication that another rally will set up. Besides the second low holding above the prior bottom, the key factor was the dip into the oversold zone. Putting the two aspects together: favorable bottoming (price) pattern and oversold RSI reading, the risk to reward potential in NDX calls (around 1780) was favorable; assuming the use of stop-loss protection of course, such as an exit at 1770.
Of course not everyone can check in to unfolding price action intraday even if what you are following is a slower moving hourly intraday chart and hourly RSI indicator set to a longer setting (21)...sometimes I can't check in that often and have other work commitments. With the use of the 21-hour oscillator however, most often a twice-daily update of prices is enough. It was apparent last night that my hourly RSI was in an oversold area and it was then a matter of seeing if COMP was going to hold 2260. If it did, I was going to base an NDX call buy off of that.
ROUNDING BOTTOM PATTERN CONSIDERATIONS:
The Dow 30 (INDU) daily chart updated from last week (below) has what could be a 'rounding bottom' pattern highlighted. I'm always struck by this chart pattern when I see it, as it's often been a reliable predictor of broad bottoming action. You don't see rounding bottoms all that often, although it more often occurs in stocks than in the commodities markets.
This (rounding) pattern has a fairly good record of predicting the formation of an intermediate to longer-term bottom AS LONG AS subsequent pullbacks don't start breaking below the circular line; e.g., currently suggesting current INDU support in the 12050 area. The tendency for rallies, such as seen today, could be an indication of a market that has bottomed or is bottoming. It would be illuminating to see another pullback to the circular support line seen below, followed by a rebound. Such price action would give some added credence to this chart pattern being a reflection of a market that is finding support and a RISING support at that.
The question becomes: 1.) Are we in trading range market and every rally to the 'line' of resistance that has formed in the 12733-12767 area should be SOLD...OR, 2.) is that line of resistance going to be pierced to the upside. I've found more often than not, that 3 or more highs in the same area is a resistance that will be pierced at some point.
How far any such breakout can carry is another matter. It's possible, based on the 'width' of the base added to the line of resistance and projected upward; upside potential (emphasis on 'potential') might be back to the prior 13780 Dow high. That's a pretty bullish projection given how rallies keep making limited headway. However, pullbacks are modest too, so we'll see won't we.
If the Dow falls back to lower than 12050 or wherever the intersection of the circular line is on out into the future, such action would suggest that a bullish rounding bottom is NOT a valid chart interpretation. If a bullish pattern is negated, it is another demonstration, this one technical, of renewed selling interest.
GOOD TRADING SUCCESS!
Today's Newsletter Notes: Market Wrap by Keene H. Little, Trader's Corner by
Leigh Stevens, and all other plays and content by the Option Investor staff.
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