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Daily Newsletter, Wednesday, 07/23/2008

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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

Where Do I Begin?

It was an active day on Wall Street as buyers and sellers fought for position as earnings, economic data and falling energy prices had traders on their toes and volume heavy at both major exchanges.

After a notably light volume session on Monday, which gave pause to a strong rebound into last week's expiration, traders have turned up the volume since with the big board churning well in excess of 6 billion share, while 4 and 5-lettered stock symbol trader push NASDAQ volume well above its 50-day average daily volume churn rate of 2.22 billion shares.

Despite broad gains for the major indexes, advancers never were able get an upper hand over decliners in Wednesday's session, but short covering persisted with 104 new lows being recorded at the big board, while 83 stocks found a trade at a new 52-week low.

These volume tell us their is great interest in equities and great disagreement between buyers and sellers, but the notable lack in new 52-week lows since Thursday suggests strongly that shorts are locking in gains and asking questions later.

Just today the NYSE 10-day NH/NL ratio reverses back higher after last Tuesday's horrific daily reading of 26 new highs and climactic 1,161 new lows.

Pre-market earnings from Dow Components and S&P 500 heavyweights found a mixed response to the closing tick.

Shares of AT&T (NYSE:T) $33.06 +3.89% rebounded from yesterday's 52-week low after the communications giant met its revised Q2 profit estimates. The company reported Q2 net income of $3.8 billion, up from $2.9 billion in the year-ago period. Revenues rose 4.7% to $30.9 billion.

McDonald's (NYSE:MCD) $59.66 -0.76% traded off 46-cents but holds above 21-day, 50-day, 200-day and 150-day SMA's after reporting diluted earnings of $1.04 per share on revenue of 6.07 billion.

Aerospace behemoth Boeing (NYSE:BA) $66.72 -3.66% shed $2.54/share by the close after reporting Q2 net income of $0.9 billion, or $1.16/share on revenue of $17.0 billion. Despite charges for the Airborne Early Warning & Control program and lower profitability due to mix and timing in commercial airplanes, company executives reaffirmed 2008 EPS guidance of between $5.70 and $5.85 as well as 2009 EPS guidance of between $6.80 and $7.00.

Pharmaceuticals giant Pfizer (NYSE:PFE) $19.07 +3.92% made a bold looking move above $19.00 resistance at the opening tick. The company said Q2 net income came in at $2.8 billion, or $0.55 per share on revenue of $12.1 billion, an increase of 9% compared with $11.1 billion in the year-ago quarter. Pfizer attributed $800 million or 7% of total revenue to the positive impact of foreign exchange rates.

It would be impossible to cover all earnings reports, but that's a taste of pre-market reports. I have not had time to fully read some of the major reports, but the overall theme is input price pressures, anemic U.S. growth, and stable overseas trends still intact.

The Mortgage Bankers Association reported its weekly application survey results. The overall index fell 6.2% to 489.6 as the sub-indexes either extended the prior week's decline, or gave back sharp gains.

The purchases index fell 6.7% after prior-week's 1.7% decline to 335.6. The 4-week average edged up to 351.0 from 350.4. I also tabulate a 12-week average (roughly one quarter) and it slipped to 351.3 from 355.5. I like to use these observations as a "pulse" on sales of new and existing homes.

The refinance index fell 5.6% for the week ended 07/18/08 after three weeks of advances (+4.7%, +8.7% and +6.9%) to 1,392.7. The average rate for a 30-year fixed rose to 6.59% for the week ended 07/18/08, while the average contract interest rate for a one-year ARM was unchanged at 7.16%.

The Dow Jones Home Construction Index (DJUSHB) 304.01 +3.40% sputtered at the opening tick, but closes at its highest level since 06/05/08 when the MBA's purchases index was reported at 333.6 on 06/04/08 for the week ended 5/30/08.

Across the pond, French consumer spending fell 0.4% M/M, which was "better" than forecast for a 0.6% decline.

One economic report that is a little closer to home came from north of the border with Canada's Consumer Price Index (CPI) rising 0.7% M/M, which was above expectations for a 0.5% M/M gain. The core rate (excludes food/energy) rose 0.1% and was below the 0.2% forecast.
Whew! That's before the opening bell.

Global Equity Indexes, Currencies, Oil, Gold & $HUI.X

Since our last visit on Monday (07/14/08) equities across the major indices have tracked mostly higher, and those little small-caps in the Russell 2000 have been doing their best to keep bears "with the long held belief" of doom and gloom on their heels.

Can't keep tabs on the BIG guns of the INDU, S&P 100, NASDAQ-100 and S&P 500 stocks, that have roughly 20 analysts covering each stock?

Try the barely covered small caps, where you're lucky to find two or three analysts checking channels, making revenue and earnings estimates.

Certainly the easing in oil prices as depicted by the US Oil Fund (USO) $100.12 -3.09% today hasn't hurt a bull's case for optimism!

Today's weekly EIA report continued to show strong builds in refined products, and a sharp decline in inputs at the U.S. refinery level kept buyers at bay.

The EIA said crude oil stockpile fell by 1.56 million barrels to 295.3 million, which is down 15.87% from year-ago level. Meanwhile, refiners continue to crank out product with total gasoline stockpiles building by 2.84 million barrels in the latest week, now +6.34% from year-ago levels. Distillate inventories (diesel, heating oil, jet fuel, etc) rose for an 11th-straight week, up 2.42 million barrels and just like that, up 3.6% vs. year-ago levels. With fall just around the corner, heating oil stockpiles showed a build of 1.23 million barrels, but remain 9.54%, or 3.28 million barrels below year-ago stockpile levels.

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The "shocker" came from the demand side of things as weekly crude oil inputs fell by 355,000 barrels/day in the latest week as refiners used 15.11 million barrels/day.

In the above table, I want to once again point out what we'll also see in the relationship between a commodity (like gold=GLD) and a sector/index of stocks that may produce the commodity.

You can't pick this up on a 5-minute interval chart, or even a 60-minute interval chart, but you'll note tonight the "difference" between GLD and the equity-based $HUI.X when comparing percentage moves.

Before we look at tonight's U.S. Market Watch, I need to tell you that on Monday, several index/exchanges had problems with networks and data feeds were down to many service providers.

Then on Tuesday, QCharts (which I use for U.S. Market Watch and bar charts) had severe outages at its server farms.

So, when looking at the 5DyNet% changes, I must warn you that relative strength/weakness comparisons can't be used this evening. I have not had time to check 20DyNet%.

At a minimum, please use the above Global Equity Indexes as more accurate date-to-date comparisons.

I will note that the 5DyNet% changes should be -

INDU since 07/16/08
DIA since 07/18/08
SPX since 07/15/08
SPY since 07/21/08
OEX since 07/15/08
NDX/QQQQ since 7/18/08
RUT since 7/15/08

U.S. Market Watch -

Just before 02:00 PM EDT, we also got a look at the Fed Beige Book report, which is an anecdotal report written by the Fed's twelve districts. These are "general" yet useful observations (from 06/03/08 to 07/14/08).

In summary, the Federal Reserve said the U.S. economy slowed in June and early July, while price pressures were elevated (see commodities), with some manufacturers planning to charge more for good. (see DD and DOW a couple of weeks ago). Uncertainty over the economy and inflation suggests that the central bank might leave interest rates unchanged for awhile. (see dollar and bond yields).

CRB Index (CEC:CRY) - Daily Intervals

While energy prices have gotten the bulk of the "commodity" headlines this year, and oil is the most heavily weighted commodity in the CRB Index, there's not a lot of products that can't be manufactured here in the U.S., or abroad that don't start with oil, natural gas, coal, or electricity.

Even as each Beige Book is release, we can understand that while VERY useful and important, as the observations will go into decisions made about monetary policy, they are observations.

I'd still have to say that "commodity prices" are elevated as long as the CRB Index holds UPWARD trend, and 407 level.

Recent high was recorded on 07/03/08.

Still using a 12/31/07 end of 2007 benchmark as a point in time that is easily understood.

US Oil Fund (USO) - Daily Intervals

Oil as depicted by the US Oil Fund (USO) $100.12 -3.09% (when T. Boone Pickens said oil won't trade $100.00 again, he was talking about oil futures), has broken below a very AGGRESSIVE upward trend, and the point and figure chart's BEARISH vertical count ($0.50 box to match scale of futures) suggests some longer-term downside to $88.50. The BEARISH vertical count would currently be negated should the USO trade $107.00.

Certainly the recent decline has helped broader market sentiment.

Especially in the Airlines as depicted by the XAL.X 22.59 +8.50%, where not unlike some of the banks, the airlines rise has made oil's decline look marginal.

Here too, gold prices ease, yet gold "stocks" drop a much faster percentage.

Oil prices ease, yet airline stocks act more like rockets.

US Natural Gas Fund (UNG) - Daily Intervals

Now this is a pullback. Natural Gas is in its usual seasonal bearish period, but a good one to monitor as some see it as a viable and cleaner burning fuel than oil. Domestic reserves of natural gas more "plentiful" than oil too. Further declines not out of the question and "hurricane" season is upon us.

Nat. Gas bid intra-day on reports of "Dolly" coming to shore at Texas/Mexico border, then storm downgrade had buyers vanishing quicker that you could say "goodbye Dolly!" Oil followed.

Bull Confirmed!

Tonight, I'm now seeing Dorsey/Wright's Bullish % for All (BPALL) reverse back up to "bull confirmed" status at 32.83% (32.00% on chart)! This follows reversals back up in the BPSPX, BPOEX, BPNDX and BPDJIA from 07/17/08 and strongly suggests that demand for equities is returning at very low RISK levels.

This is the MOST IMPORTANT chart I can show you this evening.

Bullish % for ALL U.S. (BPALL) - 2% box

There are few times when we see such attractive supply/demand for new bull entry points. STRONG bullish divergence from the internals here as despite some undercutting of this spring's PRICE lows the BPALL shows FEWER stocks (about 6,000) actually were holding above prior lows, refusing to give "sell signals."

Now we're observing more stocks starting to give "buy signals" and past levels of resistance being broken to the UPSIDE.

The also broad NYSE Bullish % (BPNYSE) reversed up at yesterday's close to 32.27% and saw another 3.74% gain (roughly 3,000 stocks total), or 112 stock to reversing higher point and figure buy signals. This has long been the "bible" of internal measures for the institutionally follow Dorsey/Wright bullish % to dictate if the OFFENSIVE, or DEFENSIVE team is on the field. OFFENSIVE here!

And understand my 07/14/08 "index chart of the WEEK" and "cramp and ramp" that took, or has taken place.

Russell 2000 Index (RUT) - 4-point box

The "blue boxes" were where we were on our last visit, and the RUT.X did give another "sell signal" at 656, fell to 648, but then whipped higher and gave a reversing "buy signal" at 684 on July 16th (last Wednesday).

S&P 500 Dep. Receipts (SPY) - $2 box

The SPY is a security that tracks the SPX.X itself, and a security that traders flock to (bulls and bears). With several of the major market bullish % reversing back up, I think BULLS can take 1/3 positions (If $3,000.00 is a "full position" then $1,000.00 is 1/3 position) from the long side here, and the 1/3 position allows some RISK management with a stop at $118.

That's RISKing $10/share. At this point, we do NOT have a bullish vertical count to assess REWARD to, but $138 looks achievable near-term.

Keep an eye on the RUT.X at its BEARISH resistance trend (blue dots) as that trend may hold institutional sellers. If the RUT.X breaks above that trend, SPY should pick up some steam to its BEARISH resistance trend (blue dots) currently at $142.

Maybe dip a bullish toe in the water.

One stock I thought traders might look at from the BULLISH side today were Yum Brands (NYSE:YUM) $35.95 +0.55% and RISK can be reduced with a CALL option where one (1) of the YUM Sep $35 Calls (YUM-IG) $2.25 x $2.40 gives the trader exposure to 100 shares for a cost of $240.00.

The RESTaurant sector bullish % (BPREST) reversed up to "bull alert" status at 16% today.

With gasoline prices easing, consumers might have an extra $4, or $5 in their pocket in comings weeks. With natural gas prices falling, YUM might find some vastly improving margins as their costs to fuel stoves, ovens eases.
 


The Contrarian

The CBOE Equity Put/Call Ratio

The Put/Call ratio helps identify the overall consensus of option traders. The assumption is that retail investors trade equity options more often than institutional investors. At peaks in put option trading it is assumed that most of the volume has been from portfolio managers hedging their bets or speculators betting that the market will be going down further. While the traders might end up being right on occasion, the idea behind the sentiment indicator is that peaks followed by a contraction in put volume identifies times when traders panic and run for the exits. However, instead of massive selling of stocks with high volume the option trader buys puts to show their panic. As a contrarian, points in time where the majority of investors are negative on the market the best trade is to go long. Because if everyone is assumed to be Negative on the market, (bearish) the assumption is that they have already sold. Then who else is left to sell?

On Fridays close the 10 day moving average (DMA) of the CBOE Equity Put/Call Ratio declined from Thurdays high of 0.838. As of Tuesdays close the 10 DMA closed at 0.808 and the 20 DMA closed at 0.791. The 20 DMA peaked last Wednesday at 0.804. I sent out an alert earlier in the week to acknowledge the decline in the 10 DMA. This suggests that the trend in option trading is contracting and that bearishness has peaked. I wrote in last weeks article that We are currently on a Negative signal waiting for a dip in the 10 day MA to put the signal back to a Neutral bias. The Signal: Therefore we are now Neutral; but look for an update for a Positive bias signal if the 10 DMA closes below the 20 DMA. SIGNAL: NEGATIVE BIAS

The CBOE Volatility Index ($VIX)

The signal: On 7/16 the CBOE Volatilty Indexs (VIX) 10 DMA peaked at 26.00 and has continued to decline. The VIX hit a high of 30.74 last Tuesday and closed at 21.18 today. With the VIX declining the signal has been changed to a Neutral bias. A close of the 10 DMA below the 20 DMA will result in the signal becoming a Positive (bullish) bias. With the VIX now at its low range a short term sell signal might occur once the VIX begins to move back higher. Basically it is a short term overbought capitulation that can be traded until the VIX touches the 20 DMA. However, the purpose of this commentary is to provide an insight into the sentiment of the investor and adjust ones portfolio bias to lean more positive or negative. Last week I wrote that 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 down to 25.37 from 25.57 while the 20 day MA closed down 0.08 to 24.59. SIGNAL: NEUTRAL

The Investors Intelligence Polls

As the chart below shows the Bullish Percent of newsletter writers has increased for the second week in a row. However, the poll only increased 1.4% to 29.2%. The Bearish Percent poll also showed an increase in advisors that are bearish. Of those polled, there were only 0.5% more that were bearish than last weeks 48.9%.

The net result is that the Spread increased 0.9% from last weeks -21.1% low. I dont believe I have ever witnessed this level of Bearishness in the time that I have been tracking the Investors Intelligence polls. I recall watching CNBC ten years ago awaiting for Bob Pisannis mid day report on Thursdays that sometimes included the Investors Intelligence polls. That is how I learned about the indicator. The market swings of the late 90s and into 2000 and 2001 remind me of the current volatility. At times when the spread between those bullish and those bearish decreases below 0 the market is usually near a bottom. This is because those that write about the market are the often the last to capitulate. In addition, when the majority of investors are bearish the market is near a bottom. The proper way to trade this indicator is to lean ones portfolio according to the reported bias. However, initial changes in the signal can be traded but I am not making that recommendation. Last week I admitted that 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. Luckily I was correct in being early. Confirmation is key to using these indicators but sometimes history helps anticipate a change in bias so that the delay of the indicator doesnt result in too much opportunity cost. The signal remains positively biased unless the spread declines next week. SIGNAL: POSITVE BIAS

Summary: We have two indicators that are Neutral and on that is Positive. The overall bias is still Neutral with a slight positive bias. The S&P 500 has rebounded about 90 points from last Tuesdays low and is primed for a slight retracement. Stay alert for the $VIX to spike up to its 20 DMA for a better entry into a more long biased portfolio. Last week I wrote that 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. Again do not go overall Positive until all three signals align.


Robert J. Ogilvie
 


New Plays

New Option Plays

Call Options Plays
Put Options Plays
Strangle Options Plays
USO None LM
    NFLX

New Calls

United States Oil - USO - cls: 100.02 chg: -3.30 stop: 96.99

Company Description:
The USO is an exchange traded fund that tracks the performance of West Texas Intermediate (WTI) light, sweet crude oil futures.

Why We Like It:
The sell-off in crude oil is looking overdone. The USO has fallen from $120 to $100 in two weeks. The $100 region is the 38.2% Fibonacci retracement of its 2008 rally. It would be tempting to buy it here at $100 but we could see a dip to technical support at its 100-dma near 98.50. We are suggesting readers buy calls on the USO in the $98.75-98.50 region. We're listing a stop loss at $96.99. More conservative traders may want to use a tighter stop. The May 15, 2008 low was $97.69 so a stop under this price could work. Our short-term target is the $106.00 mark. This is a very aggressive trade. We're trying to pick a short-term bottom during a sell-off. I strongly suggest that readers wait for signs of a bounce first before initiating call positions.

Suggested Options:
We are suggesting the August calls. Strikes are available at $1.00 increments.

BUY CALL AUG 100.00 IYS-HV open interest=1952 current ask $5.10
BUY CALL AUG 105.00 IYS-HA open interest=1679 current ask $3.10

Picked on July xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 00/00/00
Average Daily Volume = 14.6 million
 

New Puts

None today.
 

New Strangles

Legg Mason - LM - close: 40.20 chg: +3.48 stop: n/a

Company Description:
Legg Mason is a global asset management firm, with approximately $950 billion in assets under management as of March 31, 2008. The company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland. (source: company press release or website)

Why We Like It:
Shares of LM have been rising sharply with the rebound in the financials. Volume on today's 9% gain was way above the norm. Expectations may be improving for the company's upcoming earnings report due out Friday morning. Wall Street estimates are at 13 cents a share. We suspect that LM could see some big moves post-earnings. We're suggesting a strangle to capture any volatility. Try and keep your entry point in the $41.00-39.00 zone. The closer to $40.00 the better. Tomorrow (Thursday) is our only day to open positions ahead of the announcement.

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 $3.15. We want to sell if either option hits $4.85 or more.

BUY CALL AUG 45.00 LM-HW open interest= 931 current ask $1.55
-and-
BUY PUT AUG 35.00 LM-TG open interest=4136 current ask $1.60

Picked on July 23 at $ 40.20
Change since picked: + 0.00
Earnings Date 07/25/08 (confirmed)
Average Daily Volume = 3.1 million

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Netflix - NFLX - close: 27.98 change: +0.76 stop: n/a

Company Description:
Netflix, Inc. is the world's largest online movie rental service, with more than eight million subscribers. For one low monthly price, Netflix members can get DVDs delivered to their homes and can instantly watch movies and TV episodes streamed to their TVs and PCs, all in unlimited amounts. (source: company press release or website)

Why We Like It:
NFLX has a history of producing some decent moves on its earnings report. The last earnings report, back in April, saw a massive sell-off. Investors have been waiting for the upcoming report and shares have coiled into a neutral pennant-pattern as Wall Street waits for the results. Estimates are running at 40 cents a share. NFLX reports on Friday morning so tomorrow (Thursday) is our only day to open strangle positions ahead of the announcement. Try and keep your investment balanced on both side of the trade. If we don't see a big enough move on Friday we might bail out early to try and cut our losses.

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 $1.20. We want to sell if either option hits $2.20 or more.

If you don't like the options we chose you could use the $30 calls and $25 puts or do a $27.50 straddle.

BUY CALL AUG 32.50 QNQ-HT open interest=10273 current ask $0.70
-and-
BUY PUT AUG 22.50 QNQ-TX open interest= 314 current ask $0.50

Picked on July 23 at $ 27.98
Change since picked: + 0.00
Earnings Date 07/25/08 (confirmed)
Average Daily Volume = 1.3 million
 


Play Updates

In Play Updates and Reviews

Call Updates

Intl. Bus. Mach. - IBM - cls: 129.52 chg: -0.48 stop: 124.95

A morning spike to $130.33 was enough to hit our trigger point and open this call play on IBM. The failure to hold its gains over $130.00 is short-term bearish and could be seen as a "failed" rally. Yet traders were buying the dip intraday near $128.30. We would wait for another new relative high (130.35) before initiating new call positions. We have two targets. Our first target is $134.75. Our second target is $139.00. We are now suggesting the August or September calls.

Picked on July 23 at $130.25 *triggered
Change since picked: - 0.73
Earnings Date 07/17/08 (confirmed)
Average Daily Volume = 7.7 million
 

Put Updates

Freddie Mac - FRE - close: 10.80 change: +1.10 stop: n/a

FRE and FNM surged today on legislative news. The Congress passed a huge rescue bill for housing and the GSEs and the White House dropped their threat to veto it. The new bill provides emergency funding for FNM and FRE who underpin the U.S. mortgage market. Shares of FRE spiked higher at the open and then went flat but closed the day up 11.3%. At this point we'd wait for a new decline under $9.15 before considering new shorts. This remains a very aggressive play and we might regret not putting a stop loss on this lottery-ticket speculation. Our short-term target would be a move back to $5.00. More aggressive traders may want to aim lower.

Picked on July 20 at $ 9.18
Change since picked: + 1.62
Earnings Date 08/28/08 (unconfirmed)
Average Daily Volume = 45.5 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.)

---

Apple Inc. - AAPL - close: 166.26 chg: +4.24 stop: n/a

AAPL has now completely erased the post-earnings gap down. Where it goes from here is a good guess. There are still worries about the health of Steve Jobs and AAPL isn't doing a very good job of assuaging those fears but that's not stopping the bounce. We are no longer suggesting new strangle positions. The options we suggested were the August $180 calls (APV-HP) and the August $150 puts (APV-TJ). Our estimated cost is $8.90. We want to sell if either option hits $14.50 or more.

Picked on July 20 at $165.15
Change since picked: + 1.11
Earnings Date 07/21/08 (confirmed)
Average Daily Volume = 31.7 million

---

Popular Inc. - BPOP - close: 7.36 change: +0.56 stop: n/a

BPOP rallied sharply again on Wednesday and out performed the financial sector with an 8.2% gain. The stock is now above potential resistance at the $7.00 level. We're no longer suggesting new plays. The options we listed were the August $7.50 calls (BQW-HU) and the August $5.00 puts (BQW-TA). Our estimated cost was $0.65. We want to sell if either option hits $1.45 or more.

Picked on July 16 at $ 5.82
Change since picked: + 1.54
Earnings Date 07/18/08 (confirmed)
Average Daily Volume = 3.4 million

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DIAMONDS - DIA - close: 116.23 chg: +0.53 stop: n/a

The DIA is still inching higher. The DJIA is getting closer to potential resistance in the 11,700-12,000 zone. The bounce could be running out of steam. We are not suggesting new strangles. 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: + 4.02
Earnings Date 00/00/00
Average Daily Volume = 15.5 million

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iShares Brazil - EWZ - cls: 80.20 chg: -1.23 stop: n/a

The action in the EWZ over the last couple of days has grown more bearish. It looks like this ETF may break down from its consolidation pattern. We're not suggesting new positions at this time but with the EWZ so close to $80.00 readers may want to consider the August $85 call/$75 put strangle for an estimated cost of $2.75. The options we suggested back in early July 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: - 2.83
Earnings Date 00/00/00
Average Daily Volume = 13.6 million

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FosterWheeler - FWLT - close: 56.73 chg: -1.64 stop: n/a

Another down day for oil is weighing on FWLT. We are not suggesting new strangle positions in FWLT at this time. 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: - 4.51
Earnings Date 08/06/08 (unconfirmed)
Average Daily Volume = 2.5 million

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Corning Inc. - GLW - close: 20.12 chg: +0.02 stop: n/a

We're not seeing any movement in GLW and that's bad news for our strangle play! We had previously suggested readers open strangle positions in the $20.25-19.75 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: - 0.04
Earnings Date 07/30/08 (confirmed)
Average Daily Volume = 15.9 million

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Google Inc. - GOOG - close: 489.22 chg: +12.11 stop: n/a

GOOG posted a second day in its oversold bounce. It will be interesting to see if GOOG can rally over the $500.00 mark. We're not suggesting new strangle positions in GOOG at this time. The options we listed were the August $590 calls (GOO-HR) and the August $480 puts (GOP-TI). Our estimated cost was $19.10. We want to sell if either option hits $30.00 or more.

Picked on July 16 at $535.60
Change since picked: -46.38
Earnings Date 07/17/08 (confirmed)
Average Daily Volume = 4.5 million

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Internet Holders - HHH - cls: 48.56 change: +0.18 stop: n/a

The HHH spiked higher this morning but it failed near the trendline of lower highs. If we don't see another big move by the end of this week we're going to be considering an early exit! 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 $ 50.50
Change since picked: - 1.94
Earnings Date 00/00/00
Average Daily Volume = 132 thousand

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MarketVectors Agribusiness- MOO - close: 55.45 chg: -1.26 stop: n/a

Many of the fertilizer related stocks were down sharply today. Shares of the MOO rolled over and closed back under their 200-dma. 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: - 1.80
Earnings Date 00/00/00
Average Daily Volume = 745 thousand

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PowerShares QQQ - QQQQ - cls: 45.37 chg: +0.59 stop: n/a

The Qs traded back toward short-term resistance near $46 on Wednesday. The NASDAQ-100 index acts like it wants to go higher. 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: + 0.47
Earnings Date 00/00/00
Average Daily Volume = 148 million

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Starbucks - SBUX - close: 15.42 change: +0.29 stop: n/a

SBUX spiked to $16.03 this morning but eventually trimmed its gains to close up 1.9%. The August $14 call hit $2.10 intraday. We warned readers yesterday that the $16.00 level was the next zone of overhead resistance. We are not suggesting new strangle positions at this time. 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: + 1.84
Earnings Date 07/30/08 (confirmed)
Average Daily Volume = 14 million

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UBS Ag - UBS - close: 22.60 change: +0.18 stop: n/a

The rally in the financials seems to be slowing down. That's not a good sign with less than four weeks to go before August options expiration. If UBS doesn't clear the $23.25 level soon more conservative traders might want to consider an early exit. 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: + 3.11
Earnings Date 08/12/08 (unconfirmed)
Average Daily Volume: 7.3 million

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Washington Mutual - WM - close: 4.65 chg: -1.17 stop: n/a

The last few days have been very volatile for WM and today was no exception. The stock hit $6.39 this morning and then fell off a cliff. The change from today's high is a 27% loss. Volume was huge at more than 207 million shares. That's approaching four times average volume on WM. We are not suggesting new positions at this time. The options we suggested were the August $8.00 calls (WM-HV) and the August $4.00 puts (WM-TH). Our estimated cost is $0.72. We want to sell if either option hits $2.25 or more.

Picked on July 20 at $ 5.92
Change since picked: - 1.27
Earnings Date 07/22/08 (confirmed)
Average Daily Volume = 57 million
 

Dropped Calls

CurrencyShares Euro - FXE - cls: 157.24 chg: -0.95 stop: 157.75

A rally in the U.S. dollar sent the Euro lower and the FXE broke down past the $158.00 level and hit our stop loss at $157.75. The next level of support for the Euro is the $156-156.50 zone. If the Euro breaks down under its rising 100-dma, it might be a bearish candidate.

Picked on July 21 at $159.35 /stopped out 157.75
Change since picked: - 2.11
Earnings Date 00/00/00
Average Daily Volume = 909 thousand
 

Dropped Puts

None
 

Dropped Strangles

Wachovia - WB - close: 17.65 change: +0.86 stop: n/a

We are suggesting readers exit their WB strangles immediately. WB was one of the exceptions in the financial sector today. The stock out performed most of its peers with a 5% gain and that was after it pared its intraday gains. Shares hit $19.55 intraday. The August $15 calls traded at $3.30 intraday and are currently at 3.20bid/3.40ask. Our target to exit was $3.50. While the option hasn't quite hit our target yet we'd rather take profits and run after the sharp pull back from the $20 level and WB's 50-dma. If you think the financials will continue to rally then you'll want to hold on to your calls. The options we suggested were the August $15.00 calls (WB-HC) and the August $10.00 puts (WB-TB). Our estimated cost is $2.00. We want to sell if either option hits $3.50 or more.

Picked on July 20 at $ 12.97 (exiting early, possible +65%)
Change since picked: + 4.68
Earnings Date 07/22/08 (confirmed)
Average Daily Volume = 64 million

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FinancialSector SPDR - XLF - cls: 22.46 chg: -0.03 stop: n/a

After a 37% rally off its July lows some are beginning to wonder if the bounce in the financials is starting to fail. The August $21 calls hit an intraday high of $2.52 and they're currently trading around $1.98bid/$2.16ask. That's still a 62% gain on the play. I strongly suggest that readers consider taking some profits here so we're closing the play early. If you think the financials will continue to rally then you'll want to keep your position open. The options we ended up with given the Monday, July 14th, 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 (exiting early, possible +60%)
Change since picked: + 3.34
Earnings Date 00/00/00
Average Daily Volume = 128 million
 

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

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