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Daily Newsletter, Wednesday, 07/16/2008

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Table of Contents

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

Market Wrap

Market Reel

The markets had a really nice day by the close. The S&P 500 closed up over 30 points, the Dow Jones Industrials closed up 276 points and the Nasdaq 100 closed up 45 points. But at the open the markets dropped while it had to disseminate the economic reports from 8:30 am. The June CPI rose by a larger than expected amount. The report pointed to high energy and food prices causing the report to spur a 1.1% month-over-month jump in CPI, which was higher than the expected increase of 0.7%. Core CPI rose 0.3%, topping the expected rise of 0.2%. Total CPI is up 5.0% year-over-year, which the media pointed was the largest increase since 1991. The futures initial reaction was negative but eventually found some stability pre-market. The FOMC Minutes were released at 2:00 PM and showed that some Fed officials favored a rate rise very soon, fearing an "upward drift in long-run inflation expectations." Rates were left unchanged at the last Fed meeting, although there was a dissention that called for a rate increase.

But the Futures were pointed upward prior to all of the above data because Well Fargo (WFC) reported better than expected earnings and raised its dividend. Wells Fargo reported second quarter earnings of $0.53 per share which were $0.03 higher than Wall Street's expectation. In addition, WFC raised its dividend by 10%, indicating it is in a solid financial position despite the current environment. The early commentary was pointing to the logic that a company in todays regulatory arena wouldnt increase dividends if it knew it would have to lower them soon to free up cash. WFC advanced over 30% today while the financial sector increased as a whole over 12% on positive earnings news from Schwab (SCH), Northern Trust (NTRS) and Marshell & Ilsley (MI). Looking at the Select Sector Financial Spiders (XLF), both the RSI and Stochastics have re emerged from oversold territory (see chart below) on a daily basis. The XLF needs to break above the late June consolidation high at $20.63 to confirm the financial sectors bounce up.

After dropping more than $6 per barrel Crude oil dropped another $4 again today. Todays low of $132.1 exceeded Crudes 50 day Simple Moving Average (SMA) and Exponential Moving Average (EMA) but closed above both at $134.60 a barrel. Crude hasnt actually come down far enough from its momentous run to touch the 50 day EMA or SMA since it broke below them in January 2008. A break below doesnt mean that the run in oil is over. The markets seemed to find relief in the decline in crudes price over the past two days. The S&P and Dow have to fight extra hard to move up when there is such a massive energy sector allocation in the respective indices. Financials obviously attracted capital as did consumer discretionary stocks and transportation related stocks. For instance, Ford (F) and General Motors (GM) both advanced strongly, as measured by percentages, on oils decline. Airlines surged 18% on oils decline.

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Market Internals

The New York stock exchanges advance decline ratio was 3:1 today with 2429 advancing issues versus 808 decliners. New 52 week highs, however, were out shadowed by new 52 week lows, with 13 New Highs and 201 New Lows. A simple explanation is that the markets actually declined in the first half hour of todays session. Todays volume was 2,229 million shares versus the 50 day moving average of 1,597 million. The only negative is that todays volume was less than yesterdays 2,335 million shares. The ARMs index or $TRIN closed at 0.80 indicating that there was more volume from advancing shares than declining shares.

The Nasdaqs internals were accumulative as well in that the advance decline ratio was also greater than 3:1 with 2262 advancing issues and 700 declining issues. There were 32 new highs and 216 new lows today. Similar to the NYSE overall volume declined from yesterday. There were 2,450 million shares traded today versus the 50 day moving average 2,141 million shares traded today.

The S&P 500 (SPX)

As mentioned earlier the SPX bounced up today from hitting a two year low yesterday. The decline yesterday to 1200 put the SPX just below the 127.2% Fibonacci level of 1207 we looked at last week. I have drawn a new range from the May high to yesterdays low to determine the price that the SPX may bounce to before finding resistance. There is price resistance at 1277 from the late June volatility highs. The first line of resistance is at 1257 from the 23.60% level and then 1292 from the 38.2% Fibonacci retracement level. There is also price resistance at 1292 from the failed bounce attempt on July 2nd. A move to 1292 will most likely be met with a lot of resistance because there are two resistance levels right there as well as the 1,300 strikes open interest resistance. But the SPX needs to break above 1250 where there the peak open interest (65,340 contracts) exists at that strike price. The peak open interest on the puts is at the 1200 strike price with 98,233 contracts. The minor support exists at 1225 with 47,020 options open.

The daily SPX chart above shows that the RSI and Stochastics have both re emerged out of oversold territory. The SPXs close of 1245.34 is just above the 8 day exponential moving average (EMA) of 1244.75. The 21 day EMA (green line) is at 1277 which is coincidentally at the same level as the next price resistance I covered a little earlier. When there are multiple arguments for resistance or support at the same price levels that verifies that the support or resistance is more established than when there is only one sample. Multiple samples at the same level mean that multiple technical methodologies are being represented. And that translates to more people agreeing on a particular price.

The Nasdaq 100 (NDX)

The NDX bounced up over 45 points today after testing the gap up low from March 21st or 1760. There is still a gap that needs to be filled at 1752. The NDX could continue to bounce higher to the 89 day SMA (grey line) at 1894. But before that MA is tested the NDX needs to break above 1871 1875. The support is at 1752 from the March gap. The 50 day SMA (blue) tried to cross above the 200 day SMA (red) in late June but could hold above while the NDX was trending down. With the 50 day MA less than the 200 day SMA the index is on a confirmed downtrend. However, that signal could be quickly changed if the price moved high enough to cause the 50 day MA to cross above the 200 day SMA.

The daily NDX chart above shows that the NDX crossed and closed above the 8 day EMA (magenta line) today. In addition, the 8 day EMA curled up from the bounce. The 21 day EMA (green line) is at 1862 and stands in the way of the NDXs ability to breakout to begin a new uptrend. Also required for a new short term uptrend is the 8 day EMA crossing the 21 day EMA. The short term EMAs provide trade entries and short term support and resistance levels to trade into. The 50 and 200 day moving averages mainly provide support and resistance to change the overall portfolios bias. For instance, with the price below the 50 and 200 day SMAs in addition to the 50 day SMA trading below the 200 day SMA the tendency is to only trade short positions by selling at resistance levels. I prefer to go long biased when the contrarian indicators confirm the bottom and not rely on short term technical analysis to pick a bottom. That doesnt mean it isnt ok to buy at oversold levels for a trade. Most money is made in the middle of the trend and lost trying to find the beginning of it.

The NDX open interest for August shows that there is peak open interest at the 1800 put strike and therefore support there. Conversely, there is resistance at 2025 from peak open interest (3940) in the calls. Another level of interest is 1850 on the calls with 2446 contracts open.

There is a lot of news coming out tomorrow which should provide for a volatile day. Good news from IBM could be offset by negative news from Microsoft. I am not making predictions on who will surprise positively or negatively. Other market moving stocks reporting tomorrow include Google after the close, Coca-Cola before the open, and JP Morgan in the morning, and a slew of bank stocks too long to list. However, I am particularly interested in what Capital One has to report since they are supposed to make money from the consumers willingness to pay interest on purchases made with their cards. United Technologies, a Dow component, is also reporting tomorrow morning. It looks like five of the thirty industrial stocks are reporting at some point tomorrow. I will be covering the EPS Volatility trade in the Option Writer tomorrow using GOOG. I prefer to sell the premium just prior to the close of option trading (15 to 30 minutes prior to 4:00 PM EST). I will insert the concept in tomorrows edition of Market Wrap so it is timelier.

Tomorrow is a slow day for economic reports as compared to today. I write that because a lot of the economic data was directly from Ben Bernankes mouth as he was testifying before the Senate today. His comments basically discounted the FOMC report released at 2:00 PM this afternoon. Housing is still very much a major concern for our and Europes economies. Why mention Europe? Because if their economy and housing market is suffering, then they arent going to want to buy houses here. They might buy businesses or invest in other vehicles that they actually have control over. The initial claims will give a clue to whether the increase in willing employed citizens from last week was just a seasonal fluke or the beginning of a trend in employment. More employed means higher wage inflationary pressures. That translates into the Fed raising the rates. It was interesting hearing one Senator question why the Fed practiced Liaise Faire (hands off) economics when it came to enacting new banking and lending practices while controlling rates and money policy with Keynesian (meddling hands on) techniques. Some of the comments from the Senate were outright accusatory and defamatory. If I had an opinion that mattered I would say rightly so. But my beliefs arent as important as the facts. We have a weak economy. How do we make money from the Fed if we think that the rates will move up before the election? If you trade currency or Fed Funds futures you can go long the dollar or short the Fed Funds futures. The rate increase/decrease argument can go either way and may have to be a surprise to make a difference. This concept is very similar to the capitulation topic. When will the capitulation occur when everyone is looking for it to occur? No one wants to be the sucker that marks the bottom. Of you are a contrarian like me, you have a friend that always buys the top and sells the bottom. When that person is talking about waiting for the capitulation it will only come after they sell. For instance, the shake out last week that placed two of my contrarian signals at a POSITVE bias. The VIX was the only indicator that hadnt confirmed the long bias. Yesterday the VIX spiked and then contracted into the close therefore confirming a short term capitulation had occurred. We will all have to see if the indicators confirm a shift in the bias. Good trading!
 


The Contrarian

The CBOE Equity Put/Call Ratio

The Positive Bias signal was obviously a little early. Last week I wrote the signal was shifted to a Positive bias last week when the 10 day MA dipped below the 20 day MA. The decline in the 10 day MA showed little conviction as compared to the decline from Marchs peak. But a cross is a confirmation. As the chart of the CBOE Put/Call Ratio shows below, the flat with a slight downward move did not provide the best Positive signal. On Thursday of last week the 10 day moving average of the Put/Call ratio (blue line) crossed back above the 20 day moving average (pink line) to signal the neutral bias. Then the breakout above the 0.806 high from 6/20/08 put the indicator back to a Negative bias. Yesterdays close of the Put/Call ratio of 0.8905 helped push the 10 day MA to 0.835 and the 20 day MA to 0.803. The last time the 10 day MA was this high was on April 15th when it closed at 0.843.

The Signal: We are currently on a Negative signal awaiting for a dip in the 10 day MA to put the signal back to a Neutral bias. SIGNAL: NEGATIVE BIAS

The CBOE Volatility Index ($VIX)

The signal: The chart above shows the CBOE Volatility Indexs (VIX) 10 day MA (green line) and 20 day MA (red line) are both aggressively moving higher. If you are new to the VIX concept it generally moves inversely to the underlying index (in this case the SPX). The underlying index for the S&P 100 (OEX), Nasdaq 100 (NDX), Dow Jones Industrials (DJX) and Russell 2000 (RUT) are VXO, VXN, VXD, RVX, respectively. Yesterday the VIX spiked up to an intraday high of 30.74 followed by a contraction to 28.54 or up 0.06 on the day. The high of 30.74 yesterday hadnt been seen on the VIX since March and may have been a short term high (a.k.a. capitulation). Because the 10 day MA broke above the March low the current high range of the VIX 10 day MA is being expanded to 27 from 24. Therefore, the signal is being changed back to a Negative bias until the 10 day MA curls over or spikes above 27 as it did in March. The signal will be changed to Neutral if the 10 day moving average curls over or the 10 day MA run up to the new resistance at 27. The 10 day MA closed up at 25.86 from 25.40 while the 20 day MA also closed up from 23.82 to 24.20. SIGNAL: NEGATIVE

The Investors Intelligence Polls

I dont mean to be repetitive but I want to make sure everyone reading understands the reason why I prefer to use the Investors Intelligence polls. As I mentioned last week I like have been using this indicator for about 10 years because of the integrated confusion that is associated with the Indicator. Confusion means some exclusivity. The confusion from this indicator comes from the fact that the service that provides the numbers actually polls investment newsletter writers. These newsletter writers are loosely referred to as Advisors. The percentage of bullish advisors is usually skewed toward bullishness due to the inherent nature of humans to be optimistic. In addition, since most investment newsletter readers are human and therefore optimistic (read bullish), advisors that are paid to write usually write about what will garner the most readers. As a contrarian I have to be an amateur psychologist. So the skew comes into effect with the range in which bullish signals are given versus that of the range bearish signals are given. For instance, the indicator signals Negatively Biased (bearish) when the Bullish Percent of Advisors exceeds 55% while the indicator signals Positively Biased (bullish) when the Bearish Percent of Advisors exceeds 45%. The skew I wrote about is the 10% difference. While I mostly look for strong confirmation from a reversal high levels of either Bearish or Bullish percents will cause me to make a shift in the signal prior to the confirmation.

Investors Intelligence polls from Wednesday morning show that the number of bullish newsletter writers/advisors polled continued to decrease 0.4 to 27.8% from 27.4%. The percent of bearish newsletter writers/advisor polled increased 1.6% to 48.9%. Last week we pointed out that the Bull/Bear Spread decreased to a low of -19.9%, a number lower than I had ever seen, until today. The spread is now at -21.1% and confirmed once again that confirmation is key to successful investment decisions.

As I have written before When the Bearish% reaches near 45% the market is usually oversold. It is unusual to see the spread in negative territory. Most of the times the spread declined below 0 the market (S&P 500) tends to bounce soon after. Negative spreads indicate extremes in bearish sentiment. Thus the contrarian move is to move to a bullish bias.

Last week I wrote In hindsight it would have been prudent to remain Negatively Biased until now but I cant go back now. With this extreme low in sentiment showing that the majority of the newsletter writers that will go bearish have turned bearish I am moving the signal to a Positive Bias. I believe I moved to a Positive bias one week early. It is probably wise to return to a Neutral bias until the spread actually begins to move up. But the spread indicator is very low and bearishness is very high. Since the indicator doesnt signal again until next week I am going to be brave and stay Positive. SIGNAL: POSITVE BIAS

Summary: Last week the summary was that two of the three indicators were on a positive bias. I mentioned that the VIX was the laggard and needed to decline significantly to signal a positive bias and bring about a strong buy signal. I believe that the signals that are Negative, the VIX and Put/Call, will be Neutral and then Positive soon. But I prefer to use all three indicators together to provide a signal with the most conviction. Dont go overall Positive until all three signals align. You should still be Neutral with a slight Negative bias.


Robert J. Ogilvie
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
None None BPOP
    GOOG

Play Editor's Note: The market rally today is great but remember we're only expecting a short-term bounce. It could last several days so don't be fooled. The overall trend in the market is still down. When we think the bounce is beginning to fail we'll start looking for shorts again.

It's earnings season so we're adding more strangles! If you're looking for more then consider an earnings strangle on MER or SLB.


New Calls

None today.
 

New Puts

None today.
 

New Strangles

Popular Inc. - BPOP - close: 5.82 change: +0.70 stop: n/a

Company Description:
Popular, Inc. is a full service financial services provider based in Puerto Rico with operations in Puerto Rico, the United States, the Caribbean and Latin America. (source: company press release or website)

Why We Like It:
BPOP is not a huge financial but there is still plenty of room to move when they report earnings on Friday morning. That means tomorrow is our only day to open strangle positions.

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 $0.65. We want to sell if either option hits $1.45 or more.

BUY CALL AUG 7.50 BQW-HU open interest= 20 current ask $0.25
-and-
BUY PUT AUG 5.00 BQW-TA open interest= 101 current ask $0.40

Picked on July 16 at $ 5.82
Change since picked: + 0.00
Earnings Date 07/18/08 (confirmed)
Average Daily Volume = 3.4 million

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Google Inc. - GOOG - close: 535.60 chg: +19.51 stop: n/a

Company Description:
GOOG is the titan of online search. They're so good at what they do the name of their company has become a verb.

Why We Like It:
We have been playing strangles on GOOG's quarterly earnings reports for years. Sometimes they work out amazingly well and there has been a few times they didn't. It's always a gamble but usually it's a good bet that GOOG will see significant volatility after its report. GOOG reports after the closing bell on Thursday (tomorrow) so we only have tomorrow to open positions.

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 $19.10. We want to sell if either option hits $30.00 or more.

BUY CALL AUG 590.00 GOO-HR open interest=1290 current ask $9.90
-and-
BUY PUT AUG 480.00 GOP-TI open interest= 726 current ask $9.20

Picked on July 16 at $535.60
Change since picked: + 0.00
Earnings Date 07/17/08 (confirmed)
Average Daily Volume = 4.5 million
 


Play Updates

In Play Updates and Reviews

Call Updates

CurrencyShares Euro - FXE - cls: 158.45 chg: -0.84 stop: 156.75

A bounce in the U.S. dollar weighed on the EURO and the FXE slipped to $158.27 near its rising 10-dma. There is potential support near $158.00 and we have an alternative entry point listed to buy calls on the FXE at $158.00. Our first entry point is a breakout to new highs at $160.55. 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 however we would prefer the September options. The FXE doesn't move super fast. 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

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CBOE Volatility Index - VIX - close: 25.10 chg: -3.44 stop:

The VIX plunged more than 12% following yesterday's spike above 30.00 that hit our first target. Some of the quote services are listing the intraday high for the VIX at 38.8 but it's a bad tick. We're not suggesting new positions and hope that readers took some money off the table yesterday. We do not have a stop loss listed but you may want to put a stop in under the 22 level. Our more aggressive, higher-risk target is the $34.00 level.

Picked on June 30 at $ 23.95 /1st target hit 29.50
Change since picked: + 1.15
Earnings Date 00/00/00
Average Daily Volume = n/a million
 

Put Updates

Apple Inc. - AAPL - close: 172.81 chg: +3.17 stop: 181.01

AAPL actually under performed the market. The S&P rallied 2.5%. The NASDAQ soared 3.1%. Yet AAPL only added 1.8%. That doesn't bode well and yet we probably wouldn't suggest new bearish plays until the current market bounces begins to fade. 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: - 1.44
Earnings Date 07/21/08 (confirmed)
Average Daily Volume = 31.4 million

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iShares Rus.2000 - IWM - cls: 68.30 chg: +2.42 stop: 68.60

This put play on the IWM is pretty much dead. We fully expect the bounce to carry over into Thursday morning and the IWM should hit our stop loss at $68.60 closing the play.

Picked on July 14 at $ 66.16
Change since picked: + 2.14
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.)

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DIAMONDS - DIA - close: 112.17 chg: +2.87 stop: n/a

After a 2.7% gain the DIA is almost back to where we started. If
you wanted to open up new strangle positions this is the spot. The same play opened today would only cost $3.49. 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: - 0.04
Earnings Date 00/00/00
Average Daily Volume = 15.5 million

---

iShares Brazil - EWZ - cls: 83.35 chg: +0.89 stop: n/a

EWZ didn't actually move much but the "trend" today was relatively bullish. The EWZ is still struggling with its 200-dma. 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: + 0.29
Earnings Date 00/00/00
Average Daily Volume = 13.6 million

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FosterWheeler - FWLT - close: 59.59 chg: -1.65 stop: n/a

Oil and energy sector stocks were dragged down by the weakness in crude oil. FWLT was painted with the same brush and the stock lost 2.5%. The drop to $60.00 allowed another entry point to open strangles. The options we suggested were the August $70 calls (UFB-HN) and the August $50 puts (UFB-TJ). Our estimated cost was $2.60. We want to sell if either option hits $4.00.

Picked on July 15 at $ 61.24
Change since picked: - 1.65
Earnings Date 08/06/08 (unconfirmed)
Average Daily Volume = 2.5 million

---

Corning Inc. - GLW - close: 20.06 chg: +0.23 stop: n/a

The bounce in GLW was a little anemic. Shares added 1% and just barely closed over the $20.00 level. 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: - 0.10
Earnings Date 07/30/08 (confirmed)
Average Daily Volume = 15.9 million

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Garmin Ltd. - GRMN - close: 46.49 chg: +3.32 stop: n/a

GRMN is finally starting to move, +7.7% today, after some positive analyst comments. Unfortunately, it's probably too little too late. 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 $ 44.911
Change since picked: + 1.58
Earnings Date 07/30/08 (unconfirmed)
Average Daily Volume = 4.1 million

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Internet Holders - HHH - cls: 51.08 change: +2.67 stop: n/a

The market's big bounce today was led by tech stocks. The Internet HOLDRs rose 5.5% and closed back above the $50 level and its 10-dma. We are not suggesting new positions. 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 $ 50.500
Change since picked: + 0.58
Earnings Date 00/00/00
Average Daily Volume = 132 thousand

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iShares Rus.2000 - IWM - cls: 68.30 chg: +2.42 stop: n/a

The small caps rallied sharply and reversed the previous downdraft. One could argue the group has produced a short-term bullish double bottom pattern. We are not suggesting new strangle positions at this time. 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: + 2.14
Earnings Date 00/00/00
Average Daily Volume = 90 million

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KLA-Tencor - KLAC - close: 38.99 chg: +0.49 stop: n/a

Time is almost up for this strangle on KLAC. 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 were:
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: - 1.08
Earnings Date 07/24/08 (unconfirmed)
Average Daily Volume = 3.7 million

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MarketVectors Agribusiness- MOO - close: 56.65 chg: -0.40 stop: n/a

We're still not seeing any movement in the MOO. It continues to trade sideways and it bounced near technical support at its 200-dma again. 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: - 0.60
Earnings Date 00/00/00
Average Daily Volume = 745 thousand

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PowerShares QQQ - QQQQ - cls: 45.34 chg: +1.10 stop: n/a

Tech stocks helped lead the rally today and the Qs surged almost 2.5%. The MACD on the daily chart is nearing a new buy signal. 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: + 0.44
Earnings Date 00/00/00
Average Daily Volume = 148 million

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Starbucks - SBUX - close: 14.34 change: +0.76 stop: n/a

SBUX produced a strong bounce from its trendline today. Shares ended up almost 5.6%. The options we suggested for the strangle were the August $14.00 calls (SQX-HK) and the August $13.00 puts (SQX-TJ). Our estimated cost was $1.38. We want to sell if either option hits $3.50 or more.

Picked on July 15 at $ 13.58
Change since picked: + 0.76
Earnings Date 07/30/08 (confirmed)
Average Daily Volume = 14 million

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UBS Ag - UBS - close: 19.83 change: +1.87 stop: 20.75

Financials stocks produced their best one-day move ever. Shares of UBS responded with a 10.4% gain and a break above its 10-dma. Yet shares remain under the $20.00 mark. 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: + 0.34
Earnings Date 08/12/08 (unconfirmed)
Average Daily Volume: 7.3 million

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United States Oil - USO - cls: 109.25 chg: -3.14 stop: n/a

Oil and the USO have produced some big moves in the last couple of weeks but they weren't big enough and they weren't directional enough. We only have two days left before July options expire. We are not suggesting new positions at this time. We suggested two different strangles.

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: + 0.11
Earnings Date 00/00/00
Average Daily Volume = 12.5 million

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Ultra Financials - UYG - close: 17.30 chg: +2.55 stop: n/a

It was a stellar day for the UYG, which moves twice as far as the Dow Jones financial sector. The UYG soared more than 17% and rallied back to its simple 10-dma. The three-day move has created a bullish reversal candlestick pattern. We are no longer suggesting new strangle positions at this time. The options we suggested were the August $20.00 calls (UYG-HD) and the Augsut $11.00 puts (UUF-TM). Our estimated cost was $1.45. We want to sell if either option hits $3.50 or more.

Picked on July 15 at $ 14.75
Change since picked: + 2.55
Earnings Date 00/00/00
Average Daily Volume = 27.3 million

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FinancialSector SPDR - XLF - cls: 19.42 chg: +2.25 stop: n/a

The XLF erased two days of steep losses with today's 13% gain. Volume was very strong. The XLF, like the UYG, appears to have built a bullish three-day candlestick reversal pattern. If you wanted to consider new strangle positions this would be the spot to do it in the $19.50-19.00 zone. 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: - 0.30
Earnings Date 00/00/00
Average Daily Volume = 128 million
 

Dropped Calls

None
 

Dropped Puts

Amazon.com - AMZN - close: 71.84 chg: +4.81 stop: 72.65

AMZN hit our stop loss today. It proved to be a very strong day for AMZN. We can probably blame the shorts running for cover to account for today's 7.2% gain. The stock's rally back above $70.00 and its 10-dma is short-term bullish. The stock surged just enough to tag our stop loss at $72.65 and close the play.

Picked on July 10 at $ 69.75 *triggered
Change since picked: + 2.09
Earnings Date 07/23/08 (unconfirmed)
Average Daily Volume = 7.2 million
 

Dropped Strangles

Alpha Nat. Res. - ANR - close: 104.93 chg: +10.01 stop: n/a

All hail the trading gods! Pure luck has saved this strangle play from expiration. There was news this morning before the opening bell that Cleveland-Cliffs (CLF) and ANR would be merging together. The way it's structured looks like CLF is buying ANR. Shares of ANR gapped open at $117.93 and hit $119.30 before trimming its gains. This pushed the July $105 calls (ANR-GA) to gap open at $12.90 and trade to $15.20 before falling. We had an adjusted target to exit if either option hit $4.00 so the opening trade at $12.90 would have taken us out. The options we suggested were the July $105 calls (ANR-GA) and the July $85 puts (ANR-SQ). Our estimated cost was $9.40.

Picked on June 15 at $ 94.25
Change since picked: +10.68
Earnings Date 08/05/08 (unconfirmed)
Average Daily Volume = 3.7 million
 

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

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