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Daily Newsletter, Wednesday, 06/25/2008

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Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews
  4. Trader's Corner

Market Wrap

On the Inside

Do you know what Murphys Law is? Basically it is expecting one thing and getting the opposite. Last week I noted that it seemed as though the market always declines on the days I write the Market Wrap. Its a good thing I didnt trade that coincidence because the while the S&P 500, Russell 2000 and NASDAQ all moved up decent the Dow Jones Industrials barely scraped out 5 points. It was a busy news day so I will get right to the content of what I think made the markets move up today and what we might see tomorrow.

The internal review of the New York Stock Exchange begins with todays volume (1698 million) advancing above the 50 day average volume (1598 million shares). The increase in the volume over yesterday and above the 50 day average along with the increase in the NYSE (Symbol: $NYA) marks today as an accumulation day. Advancing Issues (2199) outpaced the Declining Issues (977) at a 2:1 ratio. The $TRIN or Arms Index at 0.99 was non-indicative of any direction. As for the NASDAQ internals, the Composite advanced 32.98 or 1.39% while my preferred NASDAQ Index, the NASDAQ 100 (NDX) moved up 30.12 or 1.58%. Strangely, there werent that many more Advancing Issues (1851) than Declining Issues (1051). The ratio isnt even 2:1. As for the Volume readings today posted 2133 million shares on the Composite which is barely above the 50 day moving average at 2078 million. Todays volume came in less than yesterdays and right in line with the average. Therefore it isnt enough to classify today as an accumulation day.

Market Movers

The 5 minute chart of the S&P Futures

The quick recap of today is that the market (S&P 500) started up and remained up until the last hour. The ES gapped up 4 points and ran to a peak of 1337.75 or up 22 at 3:00 PM and then proceeded to give most of the gains back by the close. If you hadnt heard the Federal Reserve met yesterday and today to discuss the current and future outlook of the Economy. As you probably know the Fed is concerned with inflation and has very little arsenal to curb the current causes. Those causes are namely energy and food related. The announcement had little downside affect and actually helped spur the advancement to the highs. This amount of volatility is normal on Fed days.

The Fed said overall economic activity continues to expand, partially due to "firming" in household spending. However, the Fed noted that labor markets have softened and financial markets remain under stress. The Fed expects economic growth will face the burdens of tight credit conditions, housing contraction and the rise in energy prices.


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The statement says that uncertainty over the inflation outlook remains high, although it expects inflation to "moderate later this year and next year." The FOMC feels that downside economic risks have somewhat diminished, while inflation risks have increased.

The Fed is likely to keep rates steady for quite a while, as economic growth will remain moderate at best for at least a few more meetings. Credit market conditions are also likely to remain fragile. These factors will inhibit any rate hikes. Addressing any increase in inflation will not come immediately, particularly as the Fed expects inflation to moderate next year.

Dallas Fed President Fisher was the only dissenting vote and preferring a rate increase of 25 basis points. Fisher dissented against previous rate cuts, citing inflation concerns. The Fed believes that they will eventually need to raise the Fed Funds rate from 2% in order to reduce the upside risks of inflation. Their conundrum comes from a tough jobs market and remaining risks in the financial sectors. The difficult part is that rates need to increase to help the fledgling dollar which would also help with the costs of commodities.

Other notable news came from Boeing (Symbol: BA) being added to the Conviction Sell list at Goldman Sachs. The sell rating is being attributed to a weakening economy and record fuel prices. BA closed down 5.39 or 7.21% at $69.64.

Other notable news is out on MasterCard (Symbol: MA) citing that they will be paying American Express (AXP) $1.8 billion after settling an antitrust suit claiming that MA had illegally blocked AXP from the U.S. bank-issued card business. MasterCard announced it has reached an agreement to settle its outstanding litigation with AXP. The form of the agreement calls for 12 quarterly payments by MA, beginning in the third quarter of 2008, of $150 million, contingent upon the performance of AXP's U.S. Global Network Services business. On a tax-affected net present value basis, the settlement payments are estimated to be, in the aggregate, approximately $1 billion. MA will take a charge for the settlement in the current quarter. The maximum nominal amount of the settlement is $1.8 billion. The stock closed up $7.72 at $289.79.

Monsanto (Symbol: MON) reported its earning pre open with Reports of 3rd Quarter earnings of $1.45 per share, $0.11 better than the First Call consensus of $1.34. The revenues rose 26.2% year/year to $3.59 billion versus the $3.71 billion consensus. MON raised its guidance for FY08 and estimates EPS of $3.40 vs. $3.39 consensus; which is up from $3.15-3.25. Monsanto now expects that its free cash flow for fiscal year 2008 will be $550 million. The co expects net cash provided by operating activities to be in the range of $2.6 billion. MON closed down $3.50 at $131.52 after hitting an intra day low of $126.31. The interesting thing about the dip today is that the stock opened at $131.75 or about the close. The stock also went down on volume three times the average and touched the 50 day exponential and simple moving averages. Obviously the upside momentum is faltering in the agricultural space. If the agricultural and energy stocks begin to turn over what sectors will benefit from the rotation?

In other headlines, Best Buy announced today that it is increasing its dividend 8% to $0.14 per share. Also, Countrywide stockholders approve transaction with Bank of America; merger is expected to close on July 1, 2008.

After the close Oracle (Symbol: ORCL) reported 4th quarter earnings of $0.47 per share, excluding non-recurring items. That is $0.03 better than the First Call consensus of $0.44. Revenues rose 23.8% year/year to $7.28 billion versus the $6.85 billion consensus. "Non-GAAP operating margins were up 200 basis points in FY08 to a record 43.0%. Non-GAAP earnings per share were up 29% for the year and non-GAAP EPS has tripled over the last five years. Oracle has delivered solid results year-after-year." "Oracle's application new software license revenues grew 38% in FY08, while SAP's new software license revenues grew only 13% in their most recent fiscal year. This is the third consecutive year we've taken applications market share from SAP." "Four years ago we publicly announced a five year plan to deliver non-GAAP earnings per share at a compound annual growth rate of 20%. During the past four years we exceeded our plan and delivered a non-GAAP EPS CAGR of over 26%." ORCL is down in after hours trading.

Research in Motion (Symbol: RIMM) 1st Quarter earnings of $0.84 per share were $0.01 worse than the First Call consensus of $0.85. Also revenues rose 19.1% year/year to $2.24 billion versus the $2.27 billion consensus. RIMM issued mixed guidance for the 2nd Quarter with EPS estimates of $0.84-0.89 versus $0.90 consensus and Revenues of $2.55-2.65 billion versus $2.44 billion consensus. RIMM Q1 (May) net Blackberry subscriber additions 2.3 mln vs. guidance of 2.20 mln. The revenue breakdown for the quarter was approximately 82% for devices, 13% for service, 3% for software and 2% for other revenue. "We are pleased to report another record quarter with revenue increasing 107% as the popularity of the BlackBerry platform continued to spread in business, government and consumer segments. Our comprehensive technology and business strategies continue to reap strong results in the market and RIMM is well positioned to build on its momentum throughout the remainder of fiscal 2009... As we prepare this summer to ship our 40 millionth BlackBerry smartphone, we continue to steadily scale our business and partnerships to support the opportunities ahead in this thriving sector." RIMM is down $9.50 in after hours trading at $131.

NYMEX Crude

Crude oil dipped down significantly after the weekly inventory reports surprised the market with an increase of 880,000 barrels versus an expected shortfall of 1.2 million barrels. At one point oil was down over five points and touched the 21 day EMA (green line). I may be wrong, but oil looks like it is running out of gas. Thats funny, right? A break of 131 will put the commodity down to 126 or the 50 day moving average. After that the June low of 121 will come into play. I have my fingers crossed.

The S&P 500

The above chart is the Daily chart of the S&P 500 as shown with various moving averages. I use a combination of simple and exponential moving averages to provide a more diversified perspective of multiple technical views. Some people use the simple moving averages and some use the exponential. If there is support or resistance at roughly the same price then there are that many more traders buying or selling, respectively, at those levels. Yesterday the SPX dropped to a low of 1304 before running up. While the market was actually positive yesterday it failed to close up on the day. Today was similar in that it closed down substantially from its lows. The Slow Stochastic oscillator has re emerged from below 20 as well as crossing above its own 3 bar moving average. This is actually a good long signal. Couple the Stochastic buy signal with the bottoming attempt over the last two days and the rest of the week should provide a nice bounce up to the resistance provided at the downtrend line depicted on the graph. If we had a stellar day tomorrow, that level would be as high as 1360. However, the market needs to clear a path above todays high before it attempts any move that aggressive.

Also re emerging the RSI closed today at 35.31, which is slightly above the oversold level of 30. The Fibonacci level (76.4%) at 1300 was the last level of support or else the market pattern would have continued downward. The sell off isnt over until the market can close above the 21 day moving average (green line). Actually, the decline below the 61.8% Fibonacci level is usually very bearish and may cause a lot of technical damage to the over chart pattern. It will take a remarkable event to help the market make it past the resistance of the downtrend line and the 21 day EMA. As the chart shows the markets price has ridden down the lower Bollinger band while the upper Bollinger band has declined very little.

The NASDAQ 100 (NDX)

The grey line on the chart above represents the 89 day simple moving average. While the market didnt actually touch it the relatively close proximity of the price to the line followed by a quick bounce provides some confirmation of support. The NDX was up over 40 points at its high today. As mentioned earlier it closed strong up 30 points. Also note that the Slow Stochastic has re emerged above the oversold 20 level and has also closed above the red line. The red line is the 3 bar moving average of the Stochastic and is helpful in providing confirmation. Over the long term, traders are most successful when patiently waiting for a confirmation of a change in direction. Traders lose money when trying to catch the bottom or top. Consistently getting the juicy middle is better that the ego of buying the absolute bottom and riding it up. Most likely the greed and the ego will cause one to hold the position too long and give up some or all of the profits.

The Bollinger band view of the NDX isnt as convincing that the market may have bottomed yesterday. In fact, a break below yesterdays low would put the 1849 gap into play. I am in the camp that believes that all significant gaps are filled, eventually. However, the RSI is convincing that me that some positive divergence is occurring. For instance, the low of the RSI was higher than the low of the RSI in early June. The market is indicating a down open as I write this. But things change fast overnight and overseas. The NDX ran up to the 21 day EMA and found resistance. This is going to be the first heavy level of resistance should the NDX begin to strengthen.

Open Interest

The Yellow highlighted levels indicate the peak levels above and below the current price that should provide resistance and support, respectively. The light blue level is the peak put open interest at the 1950 strike. Interestingly, the high today on the NDX touched the upper resistance level as indicated by the 1950 Call strike. The Calls have 6118 contracts open and 9916 contracts open at the 1950 strike level. Peaks in high put open interest on the option strikes close to the underlying indexs price represent bullish contrarian signals. The puts peak open interest, 7441 open contracts, is about 100 points lower at 1825.

There is support at 1300 as identified by the peak open interest off 91,531 contracts. There is quite a bit of open interest at 1325 but the $SPX closed just below there at 1321.97. There isnt much resistance until 1350 as indicated by the 82,265 call contracts open. However, the peak open interest is all the way at 1400. The Put/Call ratio is at 1.86 which indicates that there are almost 2 puts for every one call. The SPX is normally traded by institutions because of the leverage and size of the contracts. That means that the high call skew associated with retail investors is not a consideration of the Index Put/Call ratio contrarian signals.

The Economy and Earnings Tomorrow

The market will be looking at Lennar (LEN) for clues to how bad the new home market really is. Christopher & Banks (CBK) and Finish Line (FINL) are consumer discretionary stocks and may provide insight into the consumers shopping tendencies. Palm and Micron (MU) may provide decent news of the stealth expansion in technology related sectors.

Existing home sales along with the LEN news should provide additional transparency on one of the many sectors that are giving the economy trouble. Fridays PCE Core Inflation and Income and Spending reports are probably the most market moving news. Good trading.
 


The Contrarian

The CBOE Equity Put/Call Ratio

In case the concept of contrarian methodology is confusing to you I want to take this opportunity to point out a few points. It is important to understand that when viewing put and call volumes or open interest, for the purposes of Put/Call ratios, the contrarian assumes that all trading is on the buy side. The majority of option trading performed by retail option traders is on the buy side. The smart money generally positions opposite of the general consensus by selling at peaks in bullishness and buying at peaks of bearishness. The purpose of this newsletter is no open the door and peak inside to view what a reader calls the big guys see. We want to look for all three indicators to align before making a major directional play. If one or two pf the contrarian indicators are suggesting one signal while the other(s) are on another signal then we must be cautious when making investment decisions without a full confirmation.

The Signal: The equity markets have been troubled over the last six days. As of Tuesdays close the S&P 500 is down nearly 50 points from Tuesdays high. The S&P was up over 2 points at the high but closed up 7.68 points. The first tick down on the CBOE Equity Put/Call ratios 10 day moving average occurred on Fridays close. As mentioned last week The signal normally reverses to Neutral when the 10 day MA reaches 0.80 and then reverses you should be prepared for this signal to move to Neutral within the next few days. As mentioned on Mondays report, the signal has been changed to neutral. The 10 day moving average has continued down since Monday and therefore confirmed the Neutral Bias. The 10 day moving average of the CBOE Equity Put/Call ratio dipped to 0.769 from the Fridays recent high of 0.806. This indicates that there has been a peak in bearish investor sentiment. Since there is a skew toward call volume the peak in bearishness is reached when an average of 8 puts trades for 10 calls. Historically, the levels of these ratios have provided reliable signals. Bullish trade signals occur when there are about 10 calls to 6 puts traded, nearly a 2 to 1 ratio. A decline of the 10 day MA below the 20 day MA would signal a Positive (Bullish) bias signal. As of tonights close the 20 day moving average is at 0.755 or 0.015 from signaling Positive Bias. To lean the portfolio more neutral, I reduce short calls and/or add short puts. SIGNAL: NEUTRAL BIAS

The CBOE Volatility Index ($VIX)

As mentioned under the Put/Call section the market continued to break down further on Tuesday to lows not seen since April. This break has confirmed that the Negative Signal Bias was correct. However, the chart above shows that the 10 day moving average has begun to change course. A low well below the 20 day moving average may provide better timing to negatively bias ones portfolio.

The signal: The 10 DMA of the CBOE Volatility Index ($VIX measures front month implied volatility of S&P 500 options) closed down to 21.95 from a peak of 22.44 established last Thursday. The 20 day moving average closed up 0.10 at 21.45 from 21.35. The chart is showing that the 10 day moving averages downside As I mentioned last week Until the $VIXs 10 day moving average declines or it reaches resistance at about 25 the signal remains Negatively biased. We are now on a Neutral (flat/zero Delta) signal. The Signal has been changed to a Neutral Bias from a Negative Bias. The 20 day moving average is fast approaching the 10 day moving average and will signal a Positive (Bullish) Bias in the next day or so. SIGNAL: NEUTRAL BIAS

The Investors Intelligence Polls

About the Indicator: The Investors Intelligence polls do not actually poll individual investors. It polls investment newsletter writers all vying for individual investors subscription dollars. Therefore, there is a bias integrated into their writings set to attract subscribers since more people tend to read newsletters that are more optimistic. Most people are coded to look for the good in things and are generally long the markets. So they want a newsletter to make them feel justified with their long portfolios. That is why there is a bias toward bullish investors in each weeks readings. That should explain why the peak reading for a bearish signal (55%+ for bulls) is greater than that of the bullish signal (45% bears). We normally look for bearish triggers when the Bullish % peaks and bullish triggers when the Bearish % peaks. I like to see confirmation after the peaks. But there is usually a lag because this poll comes out once a week so at times I will estimate the tendency and move the signal early.

Except for this morning the Investors Intelligence readings that indicated a bearish has been correct. The number of bullish newsletter writers/advisors polled decreased another 2.6% to 33.7% from 36.3%. The percent of bearish newsletter writers/advisor polled increased nearly two percent to 39.4% from 37.4%. The spread declined slightly more to negative 5.6% from negative 1.1%. As I mentioned last week negative spreads normally indicate extremes in bearish sentiment and therefore call for a bullish signal. With the slight decline in the spread between Bullish and Bearish percent the signal is changed to a Neutral Bias. The signal will become Positive if it either drops to around the previous low of -13.8% on 3/19/2008 or ticks up in the next couple of weeks. SIGNAL: NEUTRAL BIAS
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
PCU None NUE

Play Editor's Note: Keep an eye on OSG and BRP. OSG has been showing relative strength compared to the market and the rest of the shipping sector. Today's bounce might be an entry point. BRP is bouncing from its 200-dma. Nimble traders might consider positions here with a tight stop.


New Calls

Southern Copper - PCU - close: 110.87 chg: +1.30 stop: 107.45

Company Description:
Southern Copper Corporation, based in Phoenix AZ is a mining operation. Its main product is copper followed by molybdenum, zinc, silver, lead and gold.

Why We Like It:
PCU broke through its trendline of resistance a few days ago. It doesn't hurt that the stock has a 3-for-1 split coming up on July 11th. We are tempted to buy today's bounce. However, futures are down in after hours tonight so the market could pull back Thursday morning. We're suggesting that readers buy calls in PCU on a pull back to the $109.00-108.00 zone. If triggered our target is the $119.00-120.00 zone. Post-split that will be $39.66-40.00. Remember that post split your option values will be reduce to 1/3 their previous value but you'll have three times as many contracts.

Suggested Options:
We are suggesting the July or August calls. It is up to you, the individual trader, to decide which month and which strike price best suits your trading style and risk.

BUY CALL JUL 110.00 PCU-GB open interest= 862 current ask $6.00
BUY CALL JUL 115.00 PCU-GC open interest=1455 current ask $3.60
BUY CALL JUL 120.00 PCU-GD open interest=1832 current ask $2.00

BUY CALL AUG 110.00 PCU-HB open interest= 32 current ask $8.60
BUY CALL AUG 115.00 PCU-HC open interest= 91 current ask $6.20
BUY CALL AUG 120.00 PCU-HD open interest= 152 current ask $4.20

Annotated Chart:

Picked on June xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 07/24/08 (unconfirmed)
Average Daily Volume = 1.8 million
 

New Puts

None today.
 

New Strangles

Nucor - NUE - close: 77.18 change: +0.05 stop: n/a

Company Description:
Headquartered in Charlotte, N.C., Nucor makes more steel in America than any other company. Nucor and affiliates are manufacturers of steel products, with operating facilities primarily in the U.S. and Canada. (source: company press release or website)

Why We Like It:
NUE has been edging closer to the conclusion of its neutral pennant pattern. Normally when the stock breaks out it resumes the previous trend, which would be up, but there is no guarantee. NUE produce a breakout relatively soon. We're suggesting that readers launch a strangle in the $77.00-78.00 zone.

Suggested Options:
A strangle involves buying both an out of the money call and an out of the money put. We don't care what direction the stock goes as long as it moves one direction. If it moves far enough one side of our trade will rise enough to pay for the entire trade and make a profit.

We are suggesting the July $85 calls and July $70 puts. You could try this same strategy with the July $80 calls and $75 puts but it would cost about $5.45. If you want more time consider this strategy with the August calls.

Our estimated cost is $2.50. We want to sell if either option hits $3.50.

BUY CALL JUL 85.00 NUE-GQ open interest=7456 current ask $1.15
-and-
BUY PUT JUL 70.00 NUE-SN open interest=5431 current ask $1.35

Picked on June 25 at $ 77.18
Change since picked: + 0.00
Earnings Date 07/17/08 (unconfirmed)
Average Daily Volume = 6.6 million
 


Play Updates

In Play Updates and Reviews

Call Updates

Bucyrus - BUCY - close: 74.14 change: -1.85 stop: 72.45

BUCY under performed the market today probably due to the sector-wide sell-off in coal stocks. BUCY sells a lot of coal-mining equipment. The general trend is up but momentum indicators do not look very healthy right now. The MACD has turned negative (actually about four days ago). BUCY is currently testing its 21-dma. Wait for a bounce before considering new positions. We have two targets. Our first target is $79.85. Our second target is $83.50. The Point & Figure chart is bullish with a $92 target.

Picked on June 15 at $ 75.41
Change since picked: - 1.27
Earnings Date 07/31/08 (unconfirmed)
Average Daily Volume = 2.4 million

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Cephalon - CEPH - close: 69.23 change: -1.33 stop: 67.95

Warning! Today's session in CEPH is very short-term bearish. The stock spiked just high enough this morning to fill the gap from Tuesday and then CEPH reversed lower. This is not healthy and CEPH was accelerating lower into the closing bell. More conservative traders may want to exit immediately! We would only consider new positions if we saw a strong bounce from $69.00. If you don't want to exit consider raising your stop loss. Our target is the $74.00-75.00 range. We do not want to hold over the late July earnings report. FYI: The P&F chart is bullish with an $83 target. The most recent data listed short interest at 18.6% of the 66.2 million-share float. That is a relatively high amount of short interest and raises the risk of a short squeeze, which would obviously be good for the bulls.

Picked on June 24 at $ 69.50 *triggered
Change since picked: - 0.27
Earnings Date 07/29/08 (unconfirmed)
Average Daily Volume = 1.4 million

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DIAMONDS - DIA - close: 117.91 chg: -0.03 stop: 116.99

The DJIA is struggling to maintain its bounce. At the end of the day and after the post-fed meeting news the DJIA and the DIA closed almost unchanged. I would hesitate to open new bullish positions at this time. Our target is the $121.50-122.00 zone.

FYI: Investors were not acting positively to most of the earnings announcements out tonight. The after-hours weakness suggests a lower open tomorrow. Of course that could change by tomorrow morning.

Picked on June 24 at $117.75 *triggered
Change since picked: + 0.16
Earnings Date 00/00/00
Average Daily Volume: 13.1 million

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SPDRs - SPY - close: 131.81 chg: +0.62 stop: 129.19

The market was drifting higher this morning and then spiked higher again following the Fed meeting but investors trimmed their gains by the closing bell. You could argue that today's session has produced a new bearish failed rally pattern under the 10-dma today. We're not suggesting new positions at this time. Our target is the $134.00-134.50 zone.

FYI: Investors were not acting positively to most of the earnings announcements out tonight. The after-hours weakness suggests a lower open tomorrow. Of course that could change by tomorrow morning.

Picked on June 24 at $130.50 *triggered
Change since picked: + 1.31
Earnings Date 00/00/00
Average Daily Volume: 200 million
 

Put Updates

Apple Inc. - AAPL - close: 177.39 chg: +4.14 stop: 182.55

AAPL rallied 2.3% and is nearing its three-week trendline of lower highs. However, the stock failed to breakout over its 50-dma. Meanwhile after the closing bell RIMM delivered its earnings and the market reaction was negative. AAPL's iPhone is challenging RIMM's BlackBerry for the smartphone market. RIMM was down more than $12 in after hours and AAPL followed with a $4.00 loss in the after market. A failed rally under $180 would look like a new entry point to buy puts in AAPL. This remains a very aggressive, speculative play. We're aiming for $166.00. More aggressive traders could aim for the 200-dma near $162.00. If AAPL were to test $160 we'd expect a bounce and consider buying calls for a short-term rebound.

Picked on June 22 at $175.27
Change since picked: + 2.12
Earnings Date 07/27/08 (unconfirmed)
Average Daily Volume = 34.2 million

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Caterpillar - CAT - close: 76.58 change: -0.06 stop: 80.25

CAT dipped to $76.00 before finally producing an oversold bounce. The new trend is bearish and the stock remains short-term oversold. CAT could bounce back to $78 or $80 before rolling over again. We're not suggesting new positions at this time. Our target is at $75.25 just above what is probably support near $75.00 and its 200-dma.

Picked on June 11 at $ 79.45 *triggered
Change since picked: - 2.87
Earnings Date 07/18/08 (unconfirmed)
Average Daily Volume = 6.2 million

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Deere & Co. - DE - close: 73.56 change: -1.78 stop: 78.55 *new*

We are suggesting that readers do some profit taking in DE. The stock is down almost $5 from our picked price. Shares really under performed today and closed near their lows for the session. We are adjusting the stop loss to $78.55. Our target is the $70.50 mark. The Point & Figure chart is forecasting a $72 target.

Picked on June 12 at $ 78.49 *triggered
Change since picked: - 4.93
Earnings Date 08/13/08 (unconfirmed)
Average Daily Volume = 5.4 million

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Electronic Arts - ERTS - close: 45.83 chg: -0.31 stop: 48.55

ERTS is still trying to bounce from the $45.50 region but it didn't do a very good job of it today. The trend is still bearish but we're not suggesting new positions at this time. The stock looks poised to make a run at its 2008 lows. Our target is the February lows near $44.50-44.00. FYI: Don't forget that trading in ERTS is at risk for headlines regarding its attempted acquisition of TTWO. Depending on the news the stock could go either way.

Picked on June 06 at $ 47.75 *triggered
Change since picked: - 1.92
Earnings Date 07/31/08 (unconfirmed)
Average Daily Volume = 3.7 million

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E*Trade - ETFC - close: 3.43 change: -0.01 stop: 3.81

ETFC under performed the rest of the financials today. Shares saw their bounce failed near $3.50. This could be a new entry point for shorts but we'd prefer to see another failed rally near the 10-dma instead. If you open positions now we would suggest a tighter stop loss. Be careful. Yesterday's session still looks like a short-term bullish reversal. We have two targets. Our first target is $3.25, which was hit on Tuesday. Our second target is $3.05.

Picked on June 17 at $ 3.68
Change since picked: - 0.25
Earnings Date 07/23/08 (unconfirmed)
Average Daily Volume = 20.8 million

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3M Co. - MMM - close: 72.57 chg: +0.14 stop: 75.26 *new*

MMM spent the day trading sideways. We are not suggesting new positions at this time. Please note that we're adjusting the stop loss to $75.26. The stock might bounce near its 2008 lows around $72.00 so readers may want to exit early near $72. We have two targets. Our first target is the $70.25-70.00 zone. Our secondary target is the $67.00-65.00 range. The P&F chart is bearish with a $69 target.

Picked on June 06 at $ 74.95 *triggered
Change since picked: - 2.38
Earnings Date 07/24/08 (unconfirmed)
Average Daily Volume = 4.0 million

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PowerShares QQQ - QQQQ - close: 47.57 chg: +0.76 stop: 49.05

The tech-heavy NASDAQ 100 index (NDX) rebounded today. The move could be the completion of a three-candlestick bullish reversal pattern. For the technical traders out there this looks like a potential "morning doji star" pattern. If the QQQQ trades above the 200-dma near $48.25 then readers may want to abandon ship. Or you could tighten your stop loss toward our entry point around $48.50. We're not suggesting new positions.

FYI: Investors were not acting positively to most of the earnings announcements out tonight. The after-hours weakness suggests a lower open tomorrow. Of course that could change by tomorrow morning.

Picked on June 17 at $ 48.54
Change since picked: - 0.97
Earnings Date 00/00/00
Average Daily Volume = 133 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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Amgen Inc. - AMGN - close: 46.82 chg: +0.46 stop: n/a

AMGN continues to rally and is starting to look a little short-term overbought. The exponential 200-dma near $47.50 and the simple 200-dma near $48.00 could be resistance. If the call options don't hit our target then you might want to exit anyway as AMGN nears $48.00. Speaking of targets we're adjusting our exit target to $3.00. We have less than four weeks left with the July options. We are not suggesting new positions at this time. The options in the July strangle are the July $45 calls (AMQ-GI) and the July $40 puts (AMQ-SH). Our estimated cost for the July strangle was $1.65. We want to sell if either option hits $3.00.

Picked on May 22 at $ 42.77
Change since picked: + 4.15
Earnings Date 07/24/08 (unconfirmed)
Average Daily Volume = 6.7 million

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Alpha Nat. Res. - ANR - close: 92.87 chg: +0.22 stop: n/a

It was another volatile day for coal stocks. ANR dipped to $87.52 before bouncing back into the green. In the last five days ANR has traded from $104 to $87. If this bounce fails it may be telling us that ANR is headed lower. We're not suggesting new positions at this time. This is a higher-risk strangle play with the options so expensive. The options we suggested were the July $105 calls (ANR-GA) and the July $85 puts (ANR-SQ). Our estimated cost was $9.40. We want to sell if either option hits $14.50.

Picked on June 15 at $ 94.25
Change since picked: - 1.38
Earnings Date 08/05/08 (unconfirmed)
Average Daily Volume = 3.7 million

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Fording Cand. Coal - FDG - close: 90.70 chg: -2.70 stop: n/a

FDG also endured a somewhat volatile day but traders bought the dip at $87.29. I suspect that the stock is forming a top. Actually I've been worried that the coal stocks were forming a top since June 19th. We're not suggesting new strangle positions at this time. The options we suggested were the July $90 calls (FDG-GR) and the July $75 puts (FDG-SO). Our estimated cost was $5.45. We want to sell if either option hits $ 8.00 or higher.

Picked on June 15 at $ 82.91
Change since picked: + 7.79
Earnings Date 07/21/08 (unconfirmed)
Average Daily Volume = 1.7 million

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Garmin Ltd. - GRMN - close: 43.67 chg: +0.48 stop: n/a

GRMN continues to bounce around without getting anywhere. That's exactly what we don't want to see if we're holding a strangle. We're not suggesting new positions at this time. The options we listed were the July $50 calls (GQR-GJ) and the July $40 puts (GQR-SH). Our estimated cost was $2.55. We want to sell if either option hits $ 4.75 or higher.

Picked on June 15 at $ 44.91
Change since picked: - 1.24
Earnings Date 07/30/08 (unconfirmed)
Average Daily Volume = 4.1 million

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Holly Corp. - HOC - close: 39.73 chg: +0.55 stop: n/a

More nothing from HOC. Crude oil slipped lower but the refiners didn't move much on the news. HOC is back to testing the $40.00 region. If you are tempted to open a new strangle we would do so in the $39.75-40.25 region. The options we listed were the July $45 calls (HOC-GI) and the July $35 puts (HOC-SG). Our estimated cost was $2.00. We want to sell if either option hits $ 3.00 or higher.

Picked on June 15 at $ 41.25
Change since picked: - 1.52
Earnings Date 08/07/08 (unconfirmed)
Average Daily Volume = 1.1 million

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KLA-Tencor - KLAC - close: 41.15 chg: +0.25 stop:

KLAC spent the session trading sideways. We're not suggesting new positions at this time. We listed two different strangles on KLAC.

KLAC Strangle #1) The options we listed were the July $42.50 calls (KCQ-GV) and the July $37.50 puts (KCQ-SU). Our estimated cost is $1.65 We want to sell if either option hits $3.00.

KLAC Strangle #2) The options we listed were the July $45.00 calls (KCQ-GI) and the July $35.00 puts (KCQ-SG). Our estimated cost is $0.70. We want to sell if either option hits $1.50.

Picked on June 22 at $ 40.07
Change since picked: + 1.08
Earnings Date 07/24/08 (unconfirmed)
Average Daily Volume = 3.7 million

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Tyco Intl. - TYC - close: 42.57 change: +0.13 stop: n/a

TYC is still hovering around its 200-dma. We are not suggesting new strangle positions at this time. The options we suggested were the July $47.50 calls (TYC-GW) and the July $42.50 puts (TYC-SV). Our estimated cost was $1.30. We want to sell if either option hits $1.95 (50% gain). FYI: The $42.50 puts hit $1.35 today.

Picked on June 03 at $ 44.89
Change since picked: - 2.32
Earnings Date 08/05/08 (unconfirmed)
Average Daily Volume = 2.9 million

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United States Oil - USO - cls: 108.50 chg: -2.45 stop: n/a

This morning's oil inventory report showed an unexpected build. Crude oil reacted by dropping to the bottom of its current trading range. Unfortunately for the bears oil bounced back to the middle of its range. We don't care what direction oil moves as long as it just picks a direction and runs. We would still consider new strangles in the $111.00-109.00 zone and the closer to $110.00 the better. We suggested two different strangles. The strangle with the wider strikes costs less but has higher risk.

USO Strangle #1) The options we listed were the July $115 calls (IYS-GK) and the July $105 puts (IYS-SA). Our estimated cost is $7.10 We want to sell if either option hits $9.75.

USO Strangle #2) The options we listed were the July $120 calls (QSO-GP) and the July $100 puts (IYS-SV). Our estimated cost is $4.10. We want to sell if either option hits $6.50.

Picked on June 22 at $109.14
Change since picked: - 0.64
Earnings Date 00/00/00
Average Daily Volume = 12.5 million

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Valero - VLO - close: 43.74 change: +0.58 stop: n/a

VLO is still not moving! We need VLO to pick a direction and go. We're not suggesting new positions. However, if you are looking for a new entry point then consider option positions in the $44.75-45.25 zone. The options we suggested were the July $50 calls (VLO-GJ) and the July $40 puts (VLO-SH). Our estimated cost is $1.89. We want to sell if either option hits $2.75 or higher.

Picked on June 15 at $ 44.84
Change since picked: - 1.10
Earnings Date 07/29/08 (unconfirmed)
Average Daily Volume = 10.8 million
 

Dropped Calls

None
 

Dropped Puts

None
 

Dropped Strangles

None
 

Today's Newsletter Notes: Market Wrap by and The Contrarian by Robert Ogilvie, and all other plays and content by the Option Investor staff.

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