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Daily Newsletter, Monday, 04/28/2008

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Table of Contents

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

Market Wrap

Wilshire 5000 Tests Downward Trend

Stocks mirrored much of last week's trade on Monday, finishing mixed-to-higher, where the bulk of today's action was concentrated in a few select names.

As I return from a week in remote parts of Kansas, I'm getting caught up on some of the major technicals at this point, and after covering some of today's stock specific news and revelations, I'll be reviewing some of the major technicals that will be grabbing trader's attention into Wednesday's plethora of economic data.

Economic news released here in the U.S. was regional.

The Fed Bank of Chicago says its manufacturing index fells to a seasonally adjusted level of 107.6 in March, from an upwardly revised 108.4 in February, pressured by another sharp decline in auto production.

Tomorrow we'll get a look at consumer confidence for April. A Dow Jones Newswire survey has economists looking for a reading of 61.5 versus 64.5 in March.

I think that (61.5) might be a little low.

Today's economic news out of Germany showed the mood among German consumers improved markedly in April. Their consumer confidence indicator for May jumped to 5.9 (versus a forecast of 4.6) after a revised 4.8 points in April.

The Gfk consumer climate study noted that it was striking that the economic outlook indicator, income expectations and the propensity to buy readings all climbed significantly.

While not a double from Friday's close, it was a "double your pleasure, double your fun" day for traders and investors that held shares of Wrigley (NYSE:WWY) $76.91 +23.15% at his morning's open. The stock surged after candy maker Mars Inc. said it was buying the company with some financing help from Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) $128,460.00 +1.24% for an estimated $23 billion in cash. Berkshire will purchase a $2.1 billion minority equity interest in the Wrigley subsidiary once the deal is completed. Berkshire also offered $4.4 billion of subordinated debt to fund the deal.

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Wrigley executives said family owned Mars first began eyeing Wrigley in January and approached the company with their unsolicited bid in April. Since that time, the two sides have haggled to reach an $80-per share offer.

"A good time to buy a really great business is when you can do it," Warren Buffett said, adding that he understands Mars and Wrigley's balance sheets better than most of the major banks.

Credit market watchers noted that Mars' decision to turn to Warren Buffett to help fund the purchase shows a growing role that nontraditional sources of financing play in making deals, as the credit markets remain tight.

Shares of Ford Motor (NYSE:F) $8.21 +9.46% were atop today's list of most actives after billionaire investor Kirk Kerkorian said he has accumulated a 100 million-share stake in the auto maker and offered to buy 20 million more shares at $8.50 per share.

A couple of weeks ago I noted for several days that the stock was "suspiciously" showing up in the most actives. I'd look to book, or protect bullish gains here.

NASDAQ-100 (NDX.X) 1,923.26 +0.24% heavyweight Microsoft (NASDAQ: MSFT) $28.99 -2.81% fell for a second-straight session and weighed on the Software HOLDRs (SWH) $40.14 -1.01% after Citigroup's Mark Mahaney asserted that there is a 45% chance that the software giant may reach a deal with Yahoo! Inc. (NASDAQ: YHOO) $26.43 -1.38% at a higher price than $31.00/share and a 40% chance that Microsoft goes hostile at the current offer of $31.00 a share. Mr. Mahaney said he thought there was a 10% chance Microsoft walks; and a 5% chance they cut a deal at the current price.

While traders contemplate the MSFT/YHOO acquisition, shares of Sohu.com (NASDAQ:SOHU) $70.81 +14.50% surged to an all-time higher after the Chinese Internet firm reported upside earnings.

U.S. Market Watch - 04/28/08 Close

Again, a rather mixed session for the major averages and sector action was very mixed.

Dow component Verizon (NYSE:V) $27.79 +2.02% gained $0.75/share after the telephone company said it earned $1.64 billion, or $0.57 a share in its recently completed first quarter. The company said its wireless business continues to offset its weaker land-line business with total revenue rising 5.5% to $23.38 billion.

After today close, shares of Visa (NYSE:V) $75.63 +0.70% slid to $71.00 in the extended session after the credit card giant reported net income of $314 million, or $0.39 a share, in its first quarterly report as a public company.

Wilshire 5000 Index ($DWC) - Daily Intervals

One of the primary technicals I wanted to point out in tonight's Market Wrap is that the VERY BROAD Wilshire 5000 (DWC) is did test its longer-term downward trend in today's session, and this will likely be a tough level to eat through near-term.

While there are few traders/investor that will actually trade any product this BROAD, this index will be utilized by technicians as a further indication of PRICE strength and weakness..

Be VERY selective in "new bull" entries, instead looking for pullback points like 13,750.

SSPY and IWM Montage - Daily Intervals

I need to wrap things up to meet our new 08:00 PM EDT deadline, but the also "broader" indices using the S&P Depository Receipts (SPY) and Shares Russell 2000 (IWM) would have the IWM working its way above downward trend, but volume isn't all that heavy, and for bullishness, I'd really like to see more volume than we've had. The SPY, a "broad" index with more LARGE CAP names, and heavily weighted in the FINANCIAL arena lags.

Need those financials to really start participating more..
 


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

Aracruz Celulose - ARA - cls: 79.67 chg: +0.95 stop: 74.75

ARA shot higher on Monday morning and broke through resistance near $80.00 on an intraday basis. Our suggested trigger to buy calls was at $80.25 and ARA hit $81.82 before reversing. The play is now open. However, while ARA closed up 1.2%, the reversal is bearish. We would either wait and watch for a bounce near $77.00 or wait for a new rally over $80.25 again before initiating new bullish positions. We have two targets. Our first target is the $84.50-85.00 range. Our second target is the $88.50-90.00 zone. As expected the rally over $80.00 did produce a new P&F chart buy signal, which currently points to a $94 target.

Picked on April 28 at $ 80.25 *triggered
Change since picked: - 0.58
Earnings Date 04/07/08 (confirmed)
Average Daily Volume = 481 thousand

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Alliant Tech - ATK - close: 110.21 chg: +0.03 stop: 105.99

We do not see any changes from our weekend comments on ATK. On Friday the stock hit our first target in the $109.90-110.00 zone. We would not be surprised to see ATK pull back into the $109.00-108.00 region before moving higher again. More conservative traders may want to use a tighter stop in the $107.50 region. Our second target is the $114.00-115.00 range. FYI: As expected a rally over $110 has produced a new P&F chart buy signal that now points to a $133 target. We do not want to hold over the May 8th earnings report.

Picked on April 21 at $106.00 /1st target hit $109.90
Change since picked: + 4.21
Earnings Date 05/08/08 (confirmed)
Average Daily Volume = 246 thousand

---

Cytec Ind. - CYT - close: 60.75 change: +0.11 stop: 57.95

While CYT did not move much today the posture is still bullish. Traders bought the dip near $59.50 and CYT closed near its highs for the session. We're starting the play with a stop loss at $57.95 but you could probably try a stop at $58.45 instead. We have to label this a more aggressive play because the spreads on the options are pretty wide. There isn't much we as traders can do about that except try to minimize its impact with good entry and exit strategy. The P&F chart is bullish with an $83 target but CYT is trying to push through resistance on its P&F chart and hasn't quite done it yet. We think that could happen this week. We're listing two targets. Our first target is the $64.75-65.00 range. Our second target is the $68.00-70.00 zone.

Picked on April 27 at $ 60.64
Change since picked: + 0.11
Earnings Date 04/17/08 (confirmed)
Average Daily Volume = 556 thousand

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Express Scripts - ESRX - close: 73.56 chg: -0.15 stop: 69.99*new*

Time is almost up. Tomorrow is our last day for this bullish play on ESRX. The company reports earnings on Tuesday after the closing bell. We are suggesting that readers take profits at this time. Please note if you choose to wait until tomorrow afternoon to exit we're moving our stop loss up to $69.99. ESRX has already exceeded our first target at $72.50. Our second target is the $74.85-75.00 zone.

Picked on April 21 at $ 67.50 *1st target achieved 72.50
Change since picked: + 6.06
Earnings Date 04/29/08 (confirmed)
Average Daily Volume = 3.1 million

---

Fluor - FLR - close: 158.84 chg: -2.63 stop: 152.49

The action in FLR today was not very bullish. Shares reversed lower after hitting $163, which was where the stock topped out last week. This is a short-term negative and potential double-top pattern. If you haven't taken any profits yet we suggest you do so now. The stock has already hit our target at the $159.00 level. 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
Change since picked: +12.34
Earnings Date 05/12/08 (confirmed)
Average Daily Volume = 2.3 million

---

HSBC - HBC - close: 85.85 change: +0.07 stop: 83.90

We've got good news and bad news with HBC. The good news is that the stock rallied higher today gapping open at $86.19 and trading to $86.42 above resistance near $86.00. Our suggested entry point to buy calls was at $86.15 so the play is open. The bad news is that HBC gave back almost all of its gains and closed under $86.00 again. This sort of move can be a bull trap pattern. At this point we would wait for a bounce near $85.50 or $85.00 or wait for a new rally over $86.25 before initiating new positions. In the news today HBC reported earnings for their Mexican operations, which saw its earnings rise 56% and its customer base increase by 1.1 million accounts. We have two targets. Our short-term target is the $89.75-90.00 range. Our more aggressive, longer-term target is the $94.00-95.00 zone. The P&F chart is bullish with a $113 target.

Picked on April 28 at $ 86.19 *triggered/gap higher
Change since picked: - 0.34
Earnings Date 03/08/08 (confirmed)
Average Daily Volume = 1.7 million

---

Hovnanian - HOV - close: 12.04 chg: +0.19 stop: 10.45

Homebuilding stocks were mostly higher today although the sector-related indices definitely pared their gains. HOV hit $12.43 intraday. It will be interesting to see if this sector will rally following the FOMC's decision and comments on Wednesday. We're not suggesting new bullish positions at current levels. Wait for a dip or a bounce near $11.00 before considering calls. We have two targets. Our first target is the $13.50-14.00 zone. Our second, more aggressive target is the $14.75-15.00 zone. FYI: The P&F chart is bullish with a $25 target. HOV still has a high amount of short interest. The most recent data listed short interest at almost 65% of the 37.2 million-share float. That really raises the odds of a short squeeze, which would be great for us.

Picked on April 16 at $ 11.86
Change since picked: + 0.18
Earnings Date 05/29/08 (unconfirmed)
Average Daily Volume = 4.1 million

---

Intl.Bus.Mach. - IBM - cls: 121.69 chg: -1.39 stop: 118.49

IBM could hit our entry zone soon. The stock under performed the market today and fell out of its $122-125 trading range. Our suggested entry range is the $120.75-120.00 zone. If triggered we'll have two targets. Our first target is the $124.90-125.00 range. Our second target is the $128.00-130.00 zone.

Picked on April xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 04/16/08 (confirmed)
Average Daily Volume = 8.8 million

---

iShares Russ.2000 - IWM - cls: 72.38 chg: +0.48 stop: 69.49

The IWM is breaking out higher and hit $72.70 this afternoon. We were suggesting a trigger to buy calls at $72.55 or a dip near $70.50. The play is now open. Our four to six-week target is the $77.50-80.00 zone. The P&F chart is bullish with an $87 target.

Picked on April 28 at $ 72.55 *triggered
Change since picked: - 0.17
Earnings Date 00/00/00
Average Daily Volume = 84.6 million

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iShares DJ Transports - IYT - cls: 92.44 chg: +0.96 stop: 87.79

Transports continued to rally even as oil continues to hover around $120 a barrel. The IYT added just over 1%. We don't see any changes from our weekend comments. This isn't a fast-moving equity but the trend is pretty clear. We'll try and limit our risk with a stop loss under $88.00. We have two targets. Our short-term target is the $94.85-95.00 range. Our longer-term eight-week target is the $98.00-100.00 zone.

Picked on April 27 at $ 91.48
Change since picked: + 0.96
Earnings Date 00/00/00
Average Daily Volume = 1.4 million

---

Joy Global - JOYG - close: 76.90 chg: +1.21 stop: 69.95

JOYG continues to out perform. The stock hit another all-time high today at $77.67. More conservative traders might want to raise their stop toward $72.00. 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
Change since picked: + 4.35
Earnings Date 05/29/08 (unconfirmed)
Average Daily Volume = 2.3 million

---

Nike Inc. - NKE - close: 67.82 chg: -0.92 stop: 66.74

NKE under performed today with a 1.3% decline. Shares slipped to their 10-dma. Technically today's session is negative with a bearish engulfing candlestick pattern. We would buy a bounce from here but more conservative folks may want to wait for a rally over $69.00 or $70.00. More aggressive traders may want to use a stop under true support near $65.00. Our target is the $74.00-75.00 range. The P&F chart is bullish with an $83 target.

Picked on April 27 at $ 68.74
Change since picked: - 0.92
Earnings Date 06/26/08 (unconfirmed)
Average Daily Volume = 4.0 million

---

Nucor - NUE - close: 77.00 change: +1.27 stop: 69.75

NUE displayed relative strength. The stock broke through short-term resistance near $76.00 and closed at a new high. More conservative traders may want to consider a stop closer to $72.00 instead. Our initial target is the $79.50-80.00 range. Our second, more aggressive target is the $84.00-85.00 zone. The Point & Figure chart is bullish with a $93 target.

Picked on April 22 at $ 74.63
Change since picked: + 2.37
Earnings Date 04/17/08 (confirmed)
Average Daily Volume = 5.6 million

---

Public Storage - PSA - cls: 95.50 change: -1.29 stop: 91.95

PSA seeing some profit taking today after hitting new relative highs last week. Look for a bounce near $95.00 and its 10-dma as a new bullish entry point. Our target is the $99.50-100.00 range. We do not want to hold over the early May (unconfirmed) earnings report. Note: the May earnings report is still a mystery. One source is suggesting PSA reports on May 1st while another is suggesting the company reports in the May 5th-10th range. If we don't see something soon to confirm an announcement date we may end up closing the play early just to be safe.

Picked on April 22 at $ 94.10
Change since picked: + 1.40
Earnings Date 05/01/08 (unconfirmed)
Average Daily Volume = 1.6 million

---

Textron - TXT - cls: 61.08 change: -0.31 stop: 58.90

The rally in TXT paused on Monday. Overall we don't see any changes from our weekend comments and would still consider new positions here. Our short-term target is the $64.85-65.00 zone. Our secondary, more aggressive target is the $68.00-70.00 range. The Point & Figure chart is bullish with an $83 target.

Picked on April 27 at $ 61.39
Change since picked: - 0.31
Earnings Date 04/17/08 (confirmed)
Average Daily Volume = 2.1 million
 

Put Updates

United States Oil - USO - cls: 95.69 chg: +0.03 stop: 96.55

USO traded in a narrow range on Monday. Crude oil continues to flirt with the $120 level. The intraday high for the USO was $96.24. At this point you could open positions with relatively little risk given our tight stop but we'd prefer to see the USO move lower and trade under $94.00 before initiating positions. Our first target is the $88.50-88.00 zone.

Picked on April 21 at $ 94.38
Change since picked: + 1.31
Earnings Date 00/00/00
Average Daily Volume = 5.9 million
 

Strangle Updates

(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.)

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Goldman Sachs - GS - cls: 190.24 chg: -1.76 stop: n/a

After last week's big rally GS suffered a little bit of profit taking. Don't be surprised if GS pulls back a bit as the stock digests its recent gains. We only have three weeks left for May options so we need to see GS continue higher. We're not suggesting new strangle positions. 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.

Picked on April 06 at $175.40
Change since picked: +14.84
Earnings Date 06/12/08 (unconfirmed)
Average Daily Volume = 14.5 million

---

Merrill Lynch - MER - cls: 49.80 chg: +0.16 stop: n/a

Banking and broker-dealer stocks traded sideways on Monday. MER was no exception. We're not suggesting new strangle positions at this time. 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
Change since picked: + 6.46
Earnings Date 04/17/08 (confirmed)
Average Daily Volume = 30.6 million
 

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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