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Daily Newsletter, Tuesday, 07/15/2008

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Table of Contents

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

Market Wrap

Who Has the Ball?

It was a headliner day with all the major headline makers appearing before Congress to talk about the economy and the banking crisis. Competing sound bites were flying like bullets on a battlefield but it is still unclear whether any of those verbal bullets actually hit anything. When Bernanke, Paulson and Cox share the spotlight on the same day about the only thing guaranteed is gridlock. With all the banking news and the competing economic views clouding the airwaves it is tough to know who has the ball.

StockCharts Wilshire 5000 Chart - Weekly

The main topic of conversation may have been Fannie and Freddie but there were other topics making the news. The Producer Price Index (PPI) headline number spiked +1.8% in June following a 1.4% increase in May. Inflation at the headline level has risen +9.1% over the last 12 months and is rising at a +12.4% annualized rate today. That was the largest increase since 1981. Inflation was led by large price increases in food and energy. The core rate without food and energy rose only a minor +0.2% but that was enough to push the trailing 12-month rate to 3.1% and a current annualized rate of 4.5% and well over the Fed's comfort level. Core crude goods slipped -0.2% for the first decline in seven months but the trailing 12-month inflation rate for core crude goods is still 33.3% and the current annualized rate of 38%. Intermediate energy goods have risen 49% during the last six months while crude energy goods rose +133%. Inflation is rapid at all stages of processing and the Fed has to realize that just using the core rate in their decisions is the equivalent of burying their head in the sand. This was the producer report today and on Wednesday we will get the same report for on consumer prices.

Retail sales rose only 0.1% for June after a +0.8% rise in May. Declines in auto sales offset strong growth at gasoline stations. Sales excluding autos rose +0.8% after rising +1.2% in May. As you might have guessed sales at gasoline stations rose the most in June at a +4.6% rate. We saw gasoline rise from $3.75 to well over $4 in many areas and that powered sale volume enough to skew all the categories. Motor vehicles and parts dealers saw sales drop -3.3%. Furniture dealers came in second on the losing side at -1.4%. Year over year sales at gasoline stations were up +25% but sales at auto dealers were down -10%. Overall retail sales fell giving support to the idea that consumers were spending their tax rebates on gasoline and food rather than hard items like big screen TVs and washing machines. With talks increasing about offering another stimulus package it is clear the consumer is in trouble and spending is not going to increase any time soon.

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The New York Empire State Manufacturing Survey fell for the 3rd consecutive month and the 5th month out of the last six. The headline number fell to -4.9 but that was still better than the drop to -8.7 in June. Shipments improved to 13.5 from -6.5 and New Orders rose to 8.3 from -5.5. Unfortunately those were the only components with a positive change. The prices paid index rose to 77.9 from 66.3 indicating the strong rise of inflation at the manufacturer level.

Tomorrow's economic reports include the CPI, Industrial Production and the FOMC minutes for June.

Depressing markets this morning other than the continued Fannie and Freddie news was Bernanke's testimony to Congress. He said FOMC members expect gradual growth over the next two years as the housing problem ends and credit becomes more available for homebuyers. However, current FOMC members said considerable uncertainty surrounded their outlook for economic growth and viewed the risk to their forecasts as skewed to the downside. This is a change from the FOMC statement released after the June 25th meeting. In that statement they said, "Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased." Basically the "diminished downside risks" appears to have changed to "risks skewed to the downside." It is a confusing time for the Fed with growth slowing and inflation rising and nobody wants to mention the "S" word.

The combination of lackluster congressional testimony and confusing sound bites kept investors on the sidelines at the open and the Dow declined -227 points at its low. Helping to revive the indexes was a monster drop in oil prices from the morning high of $146.73 to the low of the day at $136.23. This better than a $10 drop eased by the close to about $6.50 but it was still enough to make the record books as the second biggest dollar drop in history. It was also enough to give the market a kick in the butt and help provide power for the rebound.

August Crude Oil Chart - Daily

Unfortunately the banking sector could not hold its gains and led the market lower at the close. Fannie and Freddie should have been the poster children for renewed buyer interest with all the government big wigs going to bat for them. Instead Fannie (FNM) fell -28% to close at $7 and Freddie (FRE) -26% to close at $5.29. Freddie traded one-third of its outstanding shares and Fannie 20% of their shares. Both closed at new decade lows. With everyone supporting the stocks and the CEOs themselves appearing on TV more than once with calming remarks you would think these stocks would rally. Both have claimed to not be in trouble and be fully capitalized but investors are still selling them.

After the IndyMac bank failure announced late Friday there was a flurry of analysts trying to pick which bank would be next to go under. Some of those interviews may have gone too far with reporters naming names and pertinent financial data. The worst thing you can do for a bank is to put them on a list of possible failures. Some of those reports and the negative reactions prompted several high profile retractions in the media. CNBC's Jane Wells had a piece on Monday where she named several banks high on the potential failure list and claimed RBC Capital had a list of 300 banks on the danger list. On Tuesday Jane was forced to qualify much of the report as pressure mounted. Everyone referenced as a source issued a qualification including RBC Capital. Instead of a list of 300 banks at risk RBC said we don't have a list but "as many as 300 banks" could fail. How do they know it is 300 if they did not have a list to count? On Monday Dick Bove, the bank analyst at Punk Ziegal, released a list of the top ten banks in danger of failing. The list was shown on CNBC with attribution to him. On Tuesday it was qualified by CNBC saying names on the list had higher ratios that matched ratios of banks that failed in the past but did not mean they were in danger today. FYI, Dick Bove was bullish on banks back in March. It was a day of backtracking all over the media and suggests there was an edict from on high saying essentially "what the heck were you thinking? Do you want to start a run on the entire banking system? Retract those comments now!" Unfortunately trying to remove the impact of negative news is like trying to remove one rotten egg from an omelet. It can't be done and the continued positive news on TV failed to keep the sector from closing lower again. I debated whether to post the list here but decided that subscribers may have money on deposit and would like to know. http://abcnews.go.com/Blotter/story?id=5374205&page=1

A new problem hitting the banking sector is the dumping by banks and funds outside the country. Foreign investors are not as complacent as those in the U.S. regarding our banking sector. It was reported that the top three banks in Japan have more than $45 billion in exposure to Fannie/Freddie. The top three banks in Taiwan have more than $20 billion in exposure. You can repeat that sentence as many times as you want and insert different countries but the key is simply the fear of the health of the U.S. banking system and their instant urge to exit. The foreign firms don't have stock exposure but debt exposure to Fannie/Freddie. With $5.5 trillion in mortgages they have issued more than $4 trillion in debt secured in some form by the mortgages. Some of these mortgages have been sliced and diced and exist in various forms in mortgage backed securities (MBS), collateral debt obligations (CDO) and structured investment vehicles or SIVs. As such the exposure is much larger than the face amount of the mortgages. Those CDO/SIV positions are highly leveraged to increase returns. Unfortunately leverage works both ways. Even though the news is improving in the U.S. those foreign firms are still dumping stock and debt. When they dump debt it depresses the value of the remaining debt outstanding. There are guarantees on this debt and some of those guarantees require a repurchase if the value declines to specific levels. This is the major headache for Fannie/Freddie and could be the straw that breaks their back even with all the government support. They are not going to fail but there could be major headaches ahead. Regulators appear to be moving to support the debt rather than the stock because they know that is the problem that can come back to haunt them and the banking system.

GM made news today with announced plans to raise/save $15 billion for 2009. They are planning on $10 billion in operational cost savings and will try to raise another $4 to $7 billion through the sale of assets and new loans. GM cut the dividend for the first time since 1922 in order to save $800 million through 2009. GM is trading at a 54 year low but GM gained +5% on the news. Bankruptcy rumors are making the rounds on Wall Street but the GM CEO said they had ample liquidity to meet 2008 funding requirements. Wagoner said today's moves would provide it enough liquidity to make it through 2009 as well.

Polaris Industries (PII) reported earnings that rose +7% on strong demand for side-by-side vehicles and strong international sales. PII reported earnings of 72 cents compared to analyst estimates of 68 cents. Polaris guided higher for the full year to $3.48 from $3.40 per share. Sales rose by 21% for the quarter and they are targeting +11% for the year.

Sprint (S) rallied +10% on news that it had been approached by Korea's SK Telecom (SKM) about a $22 billion buyout. Since SKM has a market cap of only $15 billion they will need to find some significant debt capability to swallow the bigger company. Sprint denied the rumor and said the companies were negotiating on technology issues and not a merger.

The first of the big techs reported earnings after the bell. Intel (INTC) reported a 25% increase in quarterly profits helped by strong sales of notebook processors. Intel reported earnings of 28 cents compared to estimates of 25 cents. Revenue was up as well although not as much as analysts had hoped because of lower margin notebook models. Intel said demand remained strong in all segments and all parts of the globe. Sales of mobile processors and chipsets both set records for the quarter. Total processor shipments rose from Q1 and were higher than normal seasonal trends. Intel spiked on the news then declined on the guidance but returned to close in after hours almost exactly where it closed regular trading at $20.81.

Railroad operator CSX reported earnings that rose +19% to 93 cents per share. This was above the analyst estimates of 90 cents. CSX said demand for coal, grains and fertilizer was very strong. CSX reiterated their full year targets but investors were not impressed and shares moved slightly lower in after hours despite a -$2.46 loss for the day.

Key earnings for the rest of the week include EBAY and WFC on Wednesday, IBM, MSFT, GOOG, MER, JPM, UTX and NOK on Thursday followed by Citigroup on Friday.

The Dow first closed above 11,000 on July-16th 1999. Today exactly nine years later the Dow closed under 11,000. The entire nine years of gains have been erased if you believe the talking heads on TV. Sure it is frustrating but investors had better brace themselves for the next leg down. The low for today was 10827 and the afternoon high 11123 for a 296-point range. The bad news was the continued selling of the rebounds. The +296 point rebound was sold hard knocking the Dow back -125 points from its high. Had the day lasted another 30 minutes we could easily have retested the lows. Every major chartist I heard today was predicting lower lows. Maybe that is bullish since nobody is expecting a bounce but time will tell.

The Wall Street Journal reported late this afternoon that short interest had hit another all time high. That should also be bullish since it represents a lit fuse on a huge amount of market dynamite. The VIX spiked to nearly 31 today and is nearing bullish territory. At least one analyst was calling today a capitulation day but although the internals were extremely bearish it just did not feel like capitulation. Granted we could be close but there are still problems.

I updated the market internals table from Sunday adding two more rows. Note that volume is rising but it was still only 2:1 negative and far from a capitulation rate of 8-10 to 1 negative. Note also that the new 52-week lows hit 1786 on Tuesday and 400 more than the 1381 peak set on the March 17th dip. You have to go back to the Jan-22nd dip for a larger number at 2389. That was also the day before a true capitulation bottom. On the second internals table for Jan-22nd note that the A/D volume did not indicate a capitulation on the 22nd when the new 52-week lows and the Dow itself were at their extremes. The actual capitulation in volume was on Jan-17th at nearly 8:1 declining. On Jan-23rd there was an opening dip to almost the same Dow low as the 22nd but the rebound began and pushed the volume to nearly 13 billion shares and 2:1 positive. Now look at the current table. On July 9th volume was 5:1 negative but very light. That is not capitulation. Nothing happens on light volume. You need strong volume for either a capitulation day or a rebound day and there needs to be a strong imbalance in the A/D volume. Today was close with the high volume and peak in new lows but the A/D imbalance was still only 2:1 negative. We could be setting up for a capitulation day or a rebound day and we will know it when it happens but watching the internals.

Market Internals Today

Market Internals around Jan-22nd

The chart shows the Jan-22 dip and the beginning of the rebound on Jan-23rd. That was a +1000 point rebound but it still needed to come back and test the lows again in March. This is another reason you do not want to be married to any rebound when it appears. Plan on the lows being retested between now and Halloween.

Dow Chart - Jan 22nd Dips

Today the Dow came within 127 points of my target of 10700 for this decline. We could easily hit that target this week and then begin a rebound. The problem continues to be the financial sector. As long as Bernanke, Paulson, Cox, Congress and the media continue running around like Chicken Little saying the banks are failing there will be no rebound. Bernanke said his main task today is supporting the banking system. Glad to hear that but if he is admitting his main job today is supporting the system then he is confirming it is broken. Look for a test of 10700.

Dow Chart from StockCharts.com

The Nasdaq actually closed positive ahead of the Intel earnings but that should not be construed as a bullish event. GOOG, RIMM and CSCO were hitting new monthly lows ahead of Intel earnings and even though Intel beat there was no reaction. If 2200 breaks the odds are very good we eventually test 2000.

Nasdaq Chart - Daily

Surprise, the S&P-500 dropped another 13 points. Of course that was probably not a surprise since the 21% of the S&P are in the financial sector. That should be a clue to our future. Until the financials find some love the S&P will continue to decline. If the price of oil declines further it will weaken the energy component of the S&P and that accounts for 18% of the index. The intraday low was 1200 and that is well below the June-2006 support lows making 1175 the next support target from October 2005.

S&P-500 Chart from StockCharts.com

Rather than continue beating this dead horse I think we simply need to short the failure of any rally until the financial sector recovers. We have earnings from COF, JPM, CMA and MER on Thursday and Citigroup on Friday. It is possible those companies will say something to entice investors to stick their tow back in the financial water but remember any bounce is questionable until proven to have legs.

Jim Brown
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
None None FWLT
    SBUX
    UYG

Play Editor's Note: There has been a lot of talk of a potential bottom. Volume is surging on the declines. Volatility is spiking. New lows are hitting extreme levels. Yet this doesn't appear to be a true capitulation. A lot of people want to call a bottom and that is actually bearish. We don't want to add new bearish plays when the market is so oversold and due for a bounce. Of course the other side of that coin is the old market maxim, "the trend is your friend". There is going to be a lot of investors looking for the bounce as a new entry point for shorts. Don't expect any market rebound to last longer than a week (if we're lucky it lasts that long). One signal to watch for that might change my tune would be a spike in the Volatility index to the 34-35-36 region.


New Calls

None today.
 

New Puts

None today.
 

New Strangles

FosterWheeler - FWLT - close: 61.24 chg: -2.96 stop: n/a

Company Description:
Foster Wheeler Ltd. is a global company offering, through its subsidiaries, a broad range of engineering, procurement, construction, manufacturing, project development and management, research and plant operation services. Foster Wheeler serves the upstream oil and gas, LNG and gas-to-liquids, refining, petrochemicals, power, pharmaceuticals, biotechnology and healthcare industries. (source: company press release or website)

Why We Like It:
FWLT can be a big mover. So far this month the stock has plunged from $75 to $60. We think there could be more fireworks ahead. I'm tempted to just buy puts with today's weakness after a four-day consolidation pattern. However, with the market so oversold, stocks could really go either way in a hurry. We're suggesting a strangle to capture any volatility in FWLT.

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 the stock moves far enough one side of our trade will rise in value and pay for the entire trade and make a profit.

We are suggesting the August options below. Our estimated cost is $2.60. We want to sell if either option hits $4.00.

BUY CALL AUG 70.00 UFB-HN open interest=1767 current ask $1.55
-and-
BUY PUT AUG 50.00 UFB-TJ open interest= 774 current ask $1.05

Picked on July 15 at $ 61.24
Change since picked: + 0.00
Earnings Date 08/06/08 (unconfirmed)
Average Daily Volume = 2.5 million

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Starbucks - SBUX - close: 13.58 change: -0.42 stop: n/a

Company Description:
Starbucks Corp. is the ubiquitous coffee shop and stand that seems to be around every corner.

Why We Like It:
Shares of SBUX have been in a slow freefall the last few weeks and shares just tagged a multi-month trendline of "support". I put the word "support" in quotes because it's a trendline of lower lows and lately these types of trendlines haven't been holding up. Volume was pretty strong on today's session, which might indicate a potential bottom. Bulls have not been very successful calling bottoms in this market so we're not going to try. Instead we're suggesting a strangle.

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 the stock moves far enough one side of our trade will rise in value and pay for the entire trade and make a profit.

We are suggesting the August options below. Our estimated cost is $1.38. We want to sell if either option hits $3.50 or more.

BUY CALL AUG 14.00 SQX-HK open interest=1086 current ask $0.73
-and-
BUY PUT AUG 13.00 SQX-TJ open interest=2531 current ask $0.65

Picked on July 15 at $ 13.58
Change since picked: + 0.00
Earnings Date 07/30/08 (confirmed)
Average Daily Volume = 14 million

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Ultra Financials - UYG - close: 14.75 chg: -0.90 stop: n/a

Company Description:
The Ultra Financials ProShares (UYG) is an exchange traded fund (ETF) that moves twice the performance of the Dow Jones U.S. Financials index.

Why We Like It:
If you think the financials have bottomed then UYG should be a good buy. If you think financials still have farther to fall then UGY should be a good short. The UYG moves twice as much as the DJ Financial index and today it fell 5.5% to a new low on record volume (about four times the normal volume). Is this finally a bottom or is it just picking up speed on the way down? Whichever way the financials move this should continue to produce big moves. We're suggesting a strangle. I suspect the financials will produce another big move in the next four weeks so we're picking some wide strikes.

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 the stock moves far enough one side of our trade will rise in value and pay for the entire trade and make a profit.

We are suggesting the August options below. Our estimated cost is $1.38. We want to sell if either option hits $3.50 or more. (We would have picked the August $10 put but they aren't available yet.) Strikes are available at $1.00 increments so it's easy to pick different strikes and create your own strangle. For example the Aug. $17 call and Aug. $13 put would cost $2.75.

BUY CALL AUG 20.00 UYG-HD open interest=1274 current ask $0.75
-and-
BUY PUT AUG 11.00 UUF-TM open interest= 90 current ask $0.70

Picked on July 15 at $ 14.75
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 27.3 million
 


Play Updates

In Play Updates and Reviews

Call Updates

CurrencyShares Euro - FXE - cls: 159.29 chg: -0.10 stop: 156.75

Intraday weakness in the U.S. dollar helped lift the FXE above the $160 mark but the rally petered out at $160.44. One of our suggested entry points was to buy calls on the FXE at $160.55 so we're still on the sidelines. We are suggesting two different entry points to get long calls on the FXE. Our first entry point is a breakout to new highs at $160.55. Our second entry point would be a pull back to $158.00. Our stop loss is at $156.75. If we get filled at $160.55 we'll adjust the stop higher. Our five-week target is $164.50. Our ten-week target is $169.50. We are suggesting the August and September calls. Strikes are available at $1.00 increments.

Picked on July xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 909 thousand

---

CBOE Volatility Index - VIX - close: 28.54 chg: +0.06 stop:

Target achieved! The VIX spiked to 30.81 this morning when the DJIA plunged more than 200 points and the S&P 500 dipped to the 1200 level. Our first target to take some profits was $29.50. Our more aggressive, higher-risk target is the $34.00 level but the way this market is moving (down) the VIX is definitely seeing some momentum.

Picked on June 30 at $ 23.95
Change since picked: + 4.59
Earnings Date 00/00/00
Average Daily Volume = n/a million
 

Put Updates

Apple Inc. - AAPL - close: 169.64 chg: -4.24 stop: 181.01

AAPL struggled today, which shouldn't be a surprise following yesterday's failed rally near $180. The intraday low was $166.39. Our target is the $165.00 mark just above the simple 200-dma. If AAPL does trade lower we'll be considering bullish trading ideas in the $164-160 zone.

Picked on July 09 at $174.25
Change since picked: - 4.61
Earnings Date 07/21/08 (confirmed)
Average Daily Volume = 31.4 million

---

Amazon.com - AMZN - close: 67.03 chg: +0.75 stop: 72.65

AMZN dipped to $62.99 this morning, setting new three-month lows, before bouncing back. The rally appeared to be running out of steam this afternoon. We had been suggesting that more conservative traders may want to think about an early exit near $65.00. Our target is $62.50.

Picked on July 10 at $ 69.75 *triggered
Change since picked: - 2.72
Earnings Date 07/23/08 (unconfirmed)
Average Daily Volume = 7.2 million

---

iShares Rus.2000 - IWM - cls: 65.88 chg: -0.28 stop: 68.60

As expected the IWM broke down from its consolidation pattern. We would still consider new bearish put positions here. This is a higher-risk play since the market is so oversold and due for a bounce. On the other hand what we're doing is essentially playing the trend. Our target is the $61.00 mark.

FYI: If you prefer a more neutral strategy see the IWM strangle we listed on Monday.

Picked on July 14 at $ 66.16
Change since picked: - 0.28
Earnings Date 00/00/00
Average Daily Volume = 90 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.)

---

Alpha Nat. Res. - ANR - close: 94.92 chg: - 3.80 stop: n/a

ANR lost 3.8% during the market's sell-off today. We have three days left for July options. We're not suggesting new strangle 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 are adjusting our target to exit either option at $4.00.

Picked on June 15 at $ 94.25
Change since picked: + 0.67
Earnings Date 08/05/08 (unconfirmed)
Average Daily Volume = 3.7 million

---

DIAMONDS - DIA - close: 109.30 chg: -1.20 stop: n/a

Investors are definitely getting worried. The DIA August $109 puts spiked to $3.95 intraday. Volume is rising on the sell-off and the VIX is hitting new relative highs. We are not suggesting new strangle positions on the DIA at this time. The options we suggested were the August $115 calls (DIA-HK) and the August $109 puts (DIA-TE). Our estimated cost is $4.35. We want to sell if either option hits $6.90 or more.

Picked on July 07 at $112.21
Change since picked: - 2.91
Earnings Date 00/00/00
Average Daily Volume = 15.5 million

---

iShares Brazil - EWZ - cls: 82.46 chg: -0.12 stop: n/a

There has been no real change yet in the EWZ. This ETF dipped to $80 and bounced. We are not suggesting new strangle positions. The options we suggested were the August $90 calls (EWZ-HR) and the August $75 puts (EWQ-TO). Our estimated cost is $3.95. We want to sell if either option hits $5.90.

Picked on July 03 at $ 83.06
Change since picked: - 0.60
Earnings Date 00/00/00
Average Daily Volume = 13.6 million

---

Corning Inc. - GLW - close: 19.83 chg: +0.01 stop: n/a

The afternoon bounce in GLW is rolling over. Today's move near $20.00 gave us another entry point. Try and open strangle positions as close to $20.00 as possible but we would use the $20.10-19.90 zone. The options we suggested were the August $22.50 calls (GLW-HX) and the August $17.50 puts (GLW-TW). Our estimated cost is $0.75. We want to sell if either option hits $1.50. Try and keep your investment balanced on both sides of the trade.

Picked on July 10 at $ 20.16
Change since picked: - 0.33
Earnings Date 07/30/08 (confirmed)
Average Daily Volume = 15.9 million

---

Garmin Ltd. - GRMN - close: 43.17 chg: +1.12 stop: n/a

GRMN out performed the markets today and closed up 2.6%. We didn't see anything specific to account for the news. Unfortunately, the stock remains stuck in its trading range. We're not expecting a breakout with just three days to go until option expiration. The options we listed were the July $50 calls (GQR-GJ) and the July $40 puts (GQR-SH). Our estimated cost was $2.55 and we have adjusted our exit to breakeven at $2.55.

Picked on June 15 at $ 44.91
Change since picked: - 1.74
Earnings Date 07/30/08 (unconfirmed)
Average Daily Volume = 4.1 million

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Internet Holders - HHH - cls: 48.41 change: -0.72 stop: n/a

Weakness in the Internet sector pulled the HHH to a new 52-week low of $46.80. Shares recovered by the closing bell. We had been suggesting strangle positions in the $50.50-49.50 zone. The options we suggested were the August $55 calls (HHH-HK) and the August $45 puts (HHH-TI). Our estimated cost is $1.65. We want to sell if either option hits $2.45.

Picked on July 03 at $ 50.50
Change since picked: - 2.09
Earnings Date 00/00/00
Average Daily Volume = 132 thousand

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iShares Rus.2000 - IWM - cls: 65.88 chg: -0.28 stop: n/a

IWM appears to have broken down from its consolidation phase and the bounce gave us opportunity to open strangle positions. We would still consider new strangles in the $66.00-65.00 zone. The options we suggested were the August $70 calls (DIW-HR) and the August $61 puts (DIW-TI). Our estimated cost is $1.84. We want to sell if either option hits $2.75. More aggressive traders may want to aim for more.

Picked on July 14 at $ 66.16
Change since picked: - 0.28
Earnings Date 00/00/00
Average Daily Volume = 90 million

---

KLA-Tencor - KLAC - close: 38.50 chg: +1.17 stop: n/a

The semiconductor stocks were bouncing ahead of Intel's earnings report out this evening. I haven't heard what Intel's numbers were yet. KLAC rallied to $39.60 before trimming its gains. We're down to our last three days before July options expire. Please note that we recently adjusted our exit targets. For strangle #1 we're moved the exit target from $3.00 to $2.25. For strangle #2 we're moved the target from $1.50 to $1.15. More conservative traders may want to move their targets to breakeven. We are not suggesting new positions at this time. We listed two different strangles on KLAC.

Suggested Options:
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 $2.25

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 $1.15.

Picked on June 22 at $ 40.07
Change since picked: - 1.57
Earnings Date 07/24/08 (unconfirmed)
Average Daily Volume = 3.7 million

---

MarketVectors Agribusiness- MOO - close: 57.05 chg: -1.24 stop: n/a

The MOO is still trading sideways. We're not suggesting new positions at this time. The options we suggested were the August $62 calls (MYV-HJ) and the August $50 puts (MOO-TX). Our estimated cost is $2.10. We want to sell if either option hits $3.15.

Picked on July 03 at $ 57.25
Change since picked: - 0.20
Earnings Date 00/00/00
Average Daily Volume = 745 thousand

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PowerShares QQQ - QQQQ - cls: 44.24 chg: +0.01 stop: n/a

The afternoon bounce in the NASDAQ appeared to fail under its trend of lower highs. We're not suggesting new positions at this time. The options we suggested were the August $47 calls (QQQ-HU) and the August $43 puts (QQQ-TQ). Our estimated cost is $1.80. We want to sell if either option hits $2.75 or more.

Picked on July 07 at $ 44.90
Change since picked: - 0.66
Earnings Date 00/00/00
Average Daily Volume = 148 million

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UBS Ag - UBS - close: 17.96 change: -0.68 stop: 20.75

Financial stocks continue to sink. UBS lost more than 3% today. We're not suggesting new positions at this time. We listed two different strangles.

UBS Strangle #1) This uses the August $22.50 calls (UBS-HX) and $17.50 puts (UBS-TW). Our estimated cost was $1.90. We want to sell if either option hits $3.00.

UBS Strangle #2) This uses the August $25.00 calls (UBS-HE) and $15.00 puts (UBS-TC). Our estimated cost was $0.90. We want to sell if either option hits $1.90.

Picked on July 13 at $19.49
Change since picked: - 1.53
Earnings Date 08/12/08 (unconfirmed)
Average Daily Volume: 7.3 million

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United States Oil - USO - cls: 112.39 chg: -5.09 stop: n/a

Concerns that global economic weakness will reduce demand sent crude oil to its biggest one-day point drop in years. Yet the sell-off in oil did not break the bullish channel. The USO closed with a 4.4% decline. We are down to our last three days before July options expire. We are not suggesting new positions at this time. 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 $9.00.

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 $4.10.

Picked on June 22 at $109.14
Change since picked: + 3.25
Earnings Date 00/00/00
Average Daily Volume = 12.5 million

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FinancialSector SPDR - XLF - cls: 17.17 chg: -0.55 stop: n/a

Investors continue to fret over the U.S. financial sector and the XLF lost another 3%. We're not suggesting new strangle positions at this time. The options we ended up with given the Monday morning open on the XLF were the August $21 calls (XLF-HU) and the August $17 puts (XJZ-TQ). Our estimated cost was $1.22. We want to sell if either option hits $2.85.

Picked on July 14 at $ 19.12
Change since picked: - 1.95
Earnings Date 00/00/00
Average Daily Volume = 128 million
 

Dropped Calls

Gold ETF - GLD - cls: 96.17 chg: +0.26 stop: 91.50

Target exceeded. Investors continue to worry about the U.S. markets and the financial sector. The U.S. dollar plunged intraday and gold spiked higher. The GLD hit $97.50 this morning. Our target to exit our calls was at $97.00. Volume was pretty high today and GLD closed off its highs, which is not a bullish signal. We are expecting resistance in the $97.50-100.00 zone.

Picked on July 09 at $ 91.50 /target achieved $97.00
Change since picked: + 4.67
Earnings Date 00/00/00
Average Daily Volume = 9.8 million

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Hess Corp. - HES - close: 103.66 chg: -7.59 stop: 107.24

Crude oil just got hammered today and HES followed it lower. We had grown cautious on HES following its failure to rebound and today's weakness was pretty ugly. The stock was one of the worst performers in the oil group with a 6.8% decline. Today's breakdown under the 100-dma is also very negative. The stock hit our stop loss at $107.24.

Picked on July 10 at $112.98 /stopped out 107.24
Change since picked: - 9.32
Earnings Date 07/30/08 (confirmed)
Average Daily Volume = 4.3 million

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Mosaic - MOS - cls: 137.18 chg: -8.51 stop: 135.75

The agribusiness and fertilizer stocks were caught in the market's widespread sell-off today. Shares of MOS plunged to $133.70 intraday hitting our stop loss at $135.75. The stock had previously hit our first target at $144.00. It looks like the entire group struggled to hold on to their afternoon bounce today. It doesn't look good for Wednesday.

Picked on July 08 at $133.57 *1st target hit $144.00
Change since picked: + 3.61
Earnings Date 07/28/08 (confirmed)
Average Daily Volume = 6.0 million
 

Dropped Puts

None
 

Dropped Strangles

Chevron - CVX - close: 89.42 chg: -3.38 stop: n/a

Target achieved. Crude oil delivered a one-day crash of $9 and CVX plunged 3.6% to break below its 200-dma and the $90.00 mark. The August $90 puts (CVX-TR) rose to our exit target at $3.85. They're currently trading $3.80bid/$3.90ask. While the puts have hit our target more aggressive traders may want to let it run and aim for more.

Picked on June 30 at $ 99.13 /target achieved (strangle)
Change since picked: - 9.71
Earnings Date 08/01/08 (confirmed)
Average Daily Volume = 13.3 million

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Eaton - ETN - close: 74.47 change: -5.42 stop: n/a

Target achieved and not quite achieved. It is decision time with our ETN strangle. ETN reported earnings this morning and beat estimates by 16 cents but then guided lower. The stock responded by gapping open lower and dipping to $68.75 before bouncing. If you bought the aggressive July options then we did great. Our estimated cost was $1.35. Our target to exit was $2.50. The July $75 puts opened at $3.30 (+144%) and traded to $5.60 (+315%)... so target exceeded! If you bought the August options, our preferred traded, we didn't quite make. The August $75 puts rallied to $7.60 (+70%) before paring its gains where it currently trades around $4.00. Our target to exit was $7.75. Now investors have a decision. Do you keep the play open and see if there is any follow through on the sell-off? Or do you abandon ship now and take a small loss on the August strangle. We're going to go with abandon ship. However, the market environment is negative and we still have more than four weeks left for the August options to turn profitable. You may want to hold yours.

The options we suggested for the aggressive July strangle, with just four days left before options expire, were the July $85 calls (ETN-GQ) and the July $75 puts (ETN-SO). Our estimated cost is $1.35. We want to sell if either option hits $2.50.

The options we suggested for the August strangle were the August $85 calls (ETN-HQ) and the August $75 puts (ETN-TO). Estimated cost with August options is $4.45. We want to sell if either option hits $7.75.

Picked on July 13 at $ 80.93
Change since picked: - 6.46
Earnings Date 07/15/08 (confirmed)
Average Daily Volume = 2.2 million
 

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

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