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Newsletter

Daily Newsletter, Thursday, 7/9/2009

Table of Contents

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

Market Wrap

A Quiet Pre-Opex Thursday

by Keene Little

Click here to email Keene Little
Market Stats

A few people commented to me today that maybe Wednesday was the head-fake day and that too many are becoming wise to the pattern of the Thursday prior to opex being a "misdirection" day. We've seen time and again where the initial move Thursday morning gets reversed and the direction for the following week is set by the end of the day. Today's trading was unusually quiet for the pre-opex Thursday, which begs the question: was Wednesday's down day the head fake (especially with the break and then recovery of significant support levels into the end of the day) or was today's rally the head-fake move?

And of course as we head into the heart of summer vacation we might find opex to be a very quiet trading period this time around--no games, no sneaky head fakes and just smooth tradable moves. I know, I can wake up now. As I'll cover in the charts, today's bounce had the characteristics of a corrective bounce which suggests lower prices dead ahead. That would say today's rally was a head fake. We'll see what that might mean.

Today started off bullishly and added to the gains from yesterday's "stick save" when the market rallied strongly into the close and got the major averages back to or above strong support lines. Most of the day's gains were held into the afternoon but some late-day selling took the market back down for a flat finish. The trading day itself seemed somewhat listless.

There were no significant earnings stories or economic reports to get either side excited this morning. The unemployment numbers improved somewhat with initial claims down by 52K to 565K, the lowest number since January but the continuing claims number rose another 159K to 6.88M which is twice the number from a year ago. This high number was in spite of losing 146K continuing claims because people's benefits expired.

The wholesale inventories fell -0.8% from May and the inventory-to-sales ratio dropped slightly from 1.29 to 1.31, which is a good trend for both. High inventories and slow sales leads to obsolete inventories and write-downs, bad for earnings and bad for stock prices. It looks like wholesalers will continue to draw down inventories into the 2nd half of the year and dropping inventories means less production and lower GDP, bad for stock prices. Looks like a lose-lose situation for a bit more for stock prices. The little green shoots are acting more like Punxsutawney Phil after seeing his shadow.

If the market can continue to rally into next week it may be setting up for a drop into August if history is to be any kind of guide. Citigroup noted some seasonal influence in this period and identified 9 years when the market rallied into July:
1982: DJIA having started to turn sharply lower had a short-term bounce which peaked at 843.80 on 21st July. But by 09 August it was nearly 9% lower.
1987: DJIA was in a solid bull market, which peaked at a new high of 2,520 on 17th July. By 21st July it was 2.7% lower and while it then rallied strongly we of course ended up with a stock market crash in October.
1990: DJIA was in a solid bull market, which peaked at 3,011 on 17th July. By 23rd July it was 5.25% lower and by mid October it was 20% lower.
1998: DJIA was in a solid bull market, which peaked at 9,413 on 17th July. By 28th July it was 6.6% lower and by mid September it was over 20% lower.
2001: DJIA hit a corrective high of 10,758 on 19th July (again a small miss of the magic date). By 25th July it was 5.5% lower and by the 21 September it was over 26% lower.
2002: DJIA hit a corrective high of 8,765 on 17th July. By 24th July it was 13% lower and by October lower still at the base of the bear market.
2007: DJIA hit a trend high of 14,022 on 17th July. By 01 August it was 6.3% lower and by mid August nearly 11% lower.
2008: DJIA had started to move lower but began a bounce on15th July. On 23rd July it had a quick 3 day fall of just under 5% It then rallied again into 11th August but we of course ended up with a stock market crash in October/November in a development eerily similar to 1987.

To quote Citi, "So if we look back over all these major years in over a quarter of a century (9 instances) in 7 of them the period from the 17th to the 21st July we have begun a significant move lower in equities. In the 2 instances (1987 and 2008) that we did not immediately head lower we ended up with stock market crashes later in the year...all in all an ominous set up."

Of course we can't trade historical patterns but it does provide a heads up about the period we're entering. With that let's look at the chart.

The weekly SPX chart shows price rolling over further from its downtrend line from May 2008 and the oscillators are rolling over as well. MACD has crossed down but has not dropped below the zero line. RSI has curled over but has not broken its uptrend line from October 2007 yet. So we have bearish signals but no confirmation of a breakdown yet. As shown in pink, the current pullback could lead to another rally leg through the summer with SPX making it as high as the 1000 area.

S&P 500, SPX, Weekly chart

The daily chart looks more bearish at the moment with MACD below the zero line and nowhere near oversold. RSI was rejected at the horizontal line that was support and now resistance (just above 50). RSI hanging around below 60 is usually indicative of a bear trend. But so far the pullback from the June high is only a 3-wave move and therefore potentially bullish if it can start pushing back up. A break above the downtrend line from May 2008, near 920, would be bullish. But until that happens I think SPX is vulnerable to a sharp drop down to the 823 area (H&S downside projection and a Fib projection for the move down from the June high).

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 920
- bearish below 900

I show a sharp bounce back up from there (if it gets there) but that's only a guess at this point. The wave pattern remains corrective rather than impulsive and that makes it more difficult to use the pattern for price projections. That's why I'll keep recommending short-term trades and taking profits (or losses) quickly. Rinse and repeat.

The top of the parallel down-channel drawn on the 120-min chart is actually the downtrend line from May 2008 and the parallel is attached to the first low (June 23rd). The decline on Wednesday stopped right at the bottom of the channel (in case you were wondering why it stopped where it did). I show downside price projections for equality in the two legs down from June 11th (864.55) and where the 2nd leg down would achieve 162% of the 1st leg down (822.91). I also show the H&S price objective which falls right on top of the Fib projection near 823. If the market turns lower again on Friday I think that's where SPX is headed into opex week.

S&P 500, SPX, 120-min chart

I also noted on the chart a potential turn window on July 14-15. This is based on the ratio between previous turns over the past month or so. Therefore if we see a rally (pink) or decline (dark red) watch for a possible reversal next Tuesday or Wednesday.

The DOW was showing some bearish non-confirmation this afternoon when it could not match the other indexes in making a new high above this morning's. It was instead struggling with the 8200 level which was resistance in April, support in May and now looking to be resistance again. If SPX makes it down to 823 by next week we'll probably see the DOW testing 7500 support. It takes a rally back above 8600 to turn the wave pattern at least short-term bullish. In the meantime it's a market to short the rallies rather than buy the dips. The oscillators are supporting the bears at the moment.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 8600
- bearish below 8200

The pullback pattern for NDX is very similar to the DOW's and SPX's but shallower. At yesterday's low it tagged the level where it had two equal legs down from June 12th (near 1399) and the bottom of a parallel down-channel (looks like a bull flag). Based on just these two factors it looks like it's a setup for another rally leg into next week if not August. But like the DOW and SPX I didn't see anything today to get me excited about the upside. Today's bounce looked like a 3-wave correction to the decline and based on that it looks like selling should resume. And if selling kicks back in tomorrow, especially if it breaks Wednesday's lows, we'll likely see strong selling. I show a Fib projection for NDX near 1338 but based on the size of the decline so far I think it could exceed that and head down to its 200-dma near 1293. A rally back above 1475 would be bullish.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 1475
- bearish below 1399

I had mentioned above that there is a potential Fib turn window on July 14-15 based on some shorter-term relationships between turns over the past month or so. I've shown the weekly NDX chart a few times before to show the Fib number of weeks between major turning points and that the next one (a Fib 34 weeks from the November low) is during the week of July 12th. I find it more than interesting that the short-term projections fall within this same week.

So I looked over the weekly chart of NDX to see what could be playing out if it declines into next week but not hard. The 50-week moving average could act as support next week and it will be near 1374 so keep that number on your chart if you watch this index. I've drawn in a rising wedge pattern but that's just a guess at this time. But if it's the correct pattern then it needs one more leg up to finish it (shown in pink).

Nasdaq-100, NDX, Weekly chart

The rising wedge pattern calls for a rally up to about the 1620 area in August which would also be a 50% retracement of the October 2007-November 2008 decline. I of course have no idea if this will play out but it's got some strong merits and I think it's worthy of consideration by those who have a hard time seeing (much less understanding) why the market should rally. This pattern supports the idea that we'll see a decline into next week but then a rally to follow. This would negate the expectations I showed for SPX and the DOW for a drop down to 823/7500 (although a sharp drop down that far could still be followed by another rally leg into August as depicted in pink on the NDX chart). Like I said, it's something to consider and another reason to play the market short term while gathering clues as to what's next.

The bearish perspective of what's going on with the techs comes from Walter Deemer, who writes "Market Strategies and Insights". He made a very interesting observation last week about volume. Specifically he watches the volume on the NASDAQ vs. the NYSE and then analyzes the ratio of the 4 and 52-week averages. He has noted that readings above 1.24 signal an excessive amount of buying interest in the techs (a measure of the "animal spirits" of the market where people are so convinced of the rally potential that they want to be in the sexier high-beta stocks). Think of it as a sentiment indicator.

He put together a chart (which is hard to read because I had to squish it down) that shows the NDX vs. this ratio going back to 2002. There was a big peak in late 2003/early 2004 and you can see price consolidated before heading higher. So it doesn't mean prices will necessarily decline hard but it does provide a heads up for danger once the ratio gets too high. The last time the ratio was above 1.24 was November 2007, identified by the solid vertical pink line towards the right side of the chart. The dotted line was when the ratio almost reached 1.20 in May 2008.

NASDAQ/NYSE 4/52 Week Volume Ratio, courtesy Walter Deemer

You can also see by the vertical lines how many times this ratio has identified the tops for the NDX. While no tool is foolproof, this one has "Danger Will Robinson" written all over it. That's for those who are old enough to remember the 1960s pre-Star Trek show "Lost in Space" with the robot flapping its arms while warning the Robinson family of approaching danger. The horizontal pink line on the chart is 1.17 and is the warning line. The red line at 1.27 is the Will Robinson Danger level. The sharpness of the spike up since March shows how gung ho people have been to buy the techs over everything else. It's time to be defensive in the market, even if there is to be one more leg up (or I should say especially after one more leg up if we get it).

Like the others, the RUT has a very similar pattern and not much else needs to be said about it. A break below Wednesday's low would be a confirmed break of its 200-dma which clearly provided support in June.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 520
- bearish below 473

In the YCMTSU (you can't make this stuff up) category, Morgan Stanley is back to their old games in selling crap, uh I mean, toxic waste, uh I mean more SIVs (why do I think "shiv" when I read that? Perhaps because I'd feel like I've been shivved if I buy a SIV, a Structured Investment Vehicle). Since it worked so well the first time, especially with the taxpayers bailing them out of trouble, MS has decided to try it again. In an article in Bloomberg.com yesterday, written by Pierre Paulden, Caroline Salas and Sarah Mulholland, they report "Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings..." Oh boy, give me some of that stuff.

Apparently MS plans on selling $87M worth of these securities once they get the AAA rating on what were Baa2 securities (the second-lowest investment grade by Moody's). The alchemy used to create AAA-rated products from horse dung has apparently not been discredited by the last credit crisis. Banks have been repackaging commercial mortgage-backed securities in recent weeks (will we ever learn??) and now MS is repackaging CDOs (collateralized debt obligations) of loans.

Sylvain Raynes, a principal at R&R Consulting in New York said, "You’re manufacturing AAA out of not AAA, therefore allowing those people who have AAA written on their forehead to buy." In other words, those pension and endowment fund managers who can only buy AAA products will line up once again to throw good money after bad into these very stinky products. Shame on them for not learning and shame on the banks for playing this game. Next we'll be hearing how AIG is selling insurance against these products.

This is being done at a time when many commercial mortgage-back securities are being downgraded. About $400B of commercial real estate debt is due to reset between now and the end of the year. They will have as much difficulty (if not more) refinancing their debt as home owners have had. To protect themselves against losses on these loans the banks have now created re-REMICs (resecuritizations of real estate mortgage investment conduits), the name given to the repackaged commercial loans that they're trying to sell. The name I've given them is Collateralized RealEstate Asset Products (CRAP). Goldman Sachs plans on selling about $217M of this repackaged commercial debt by carving up four bonds sold in 2006 which GS fears may be vulnerable to failure. It sounds like they're trying to pawn it off on some unsuspecting fund managers who only look for AAA rating and buy it no questions asked. It's true that some people never learn. Barnum and Bailey had it right.

Banks are in further trouble from the housing market as holders of subprime-mortgage bonds flood the market with foreclosed homes at prices that are much lower than where many banks are willing to sell them. The banks are facing the choice of keeping more homes on their books (and subjecting themselves to vandalization of the properties) or selling them at a steeper loss. A loss will of course have a negative impact on their bottom line. If they hold them on their books they will of course carry them at full value. Hmm, I wonder which one they'll choose.

So far the banks have been able to pull the wool over most investors' eyes and even the pullback from the May high has been shallow. I can look at this two ways: the bearish view is that the banks topped in May and were not able to rally with the broader market to new highs in June (which was a warning back in 2007); or the bullish view is that the pullback looks more like a bull flag or bullish descending wedge. The pink wave count is looking for a rally out of this pattern and a break above 113 would confirm it. Otherwise it may simply be getting ready for a strong breakdown in which case the Fib projection near 74 makes for a good initial target.

Banking index, BIX, Daily chart

The housing market continues to struggle. Whitney Tilson and Glenn Tongue of T2 Partners have updated their analysis on the housing and mortgage markets and have concluded that "We are in the 'middle innings' of the mortgage and foreclosure crisis. House prices have at least another 15%-20% to fall and won't bottom until the middle of next year. The recent signs of stabilization are the 'mother of all head fakes'." That's certainly not very encouraging for those home owners who have been holding onto hope that we've hit bottom. History shows we've unfortunately got a ways to go before we see a bottom in housing and the bottom will likely be 'L' shaped.

After holding for over a month above its support line near 206 (the early 2001 lows) the home builders index broke that support level this week. The next support level is near 182 where its uptrend line from November 2008 is located. If that holds next week (assuming the market declines into opex) there is the potential for another rally leg into August (supporting the idea for a rally described for NDX) to finish the upward correction off the November low. A move below 180 would suggest new lows, or a test of the November low, is the more likely move.

U.S. Home Construction Index, DJUSHB, Daily chart

If the housing and commercial real estate markets are in for some tougher times ahead it stands to reason that the REIT (real estate investment trust) market will not do well either. The Dow Jones Equity REIT index is showing a breakdown this week. The line of support near 120 broke Wednesday and unlike some of the larger indexes this one did not recover into yesterday's close or today. It tried but was rejected today at that support-turned-resistance line. It's a lopsided H&S pattern but it projects down to about 97, or back to the initial congestion area in March following the low.

DJ Equity REIT index, DJR, Daily chart

The Transports have an interesting pattern at the moment, outlined on the chart with the downtrend line from January 2009 and the horizontal support line near 2990 (where Wednesday's low found support). This is creating a potentially bullish descending triangle which calls for another up-down sequence, shown in pink, to complete it. A strong rally leg out of it into the fall would be the expected outcome. That kind of move is a little hard to swallow right now so I continue to lean towards a breakdown instead. However, I'll let price lead the way on this one.

Transportation Index, TRAN, Daily chart

Yesterday gold broke below the June low and tried to recapture that level today but couldn't hold onto the day's gains. It looks like a setup for further selling in which case a drop to its 200-dma near 878 could be next. Another rally attempt could have it testing its broken uptrend line from November-April, or potentially higher as shown in green. I think gold is headed lower, even if it first gets a slightly higher bounce first. And the reason it could get a bounce first is because of what I see for oil (chart after gold).

Gold continuous contract, GC, Daily chart

Oil stopped at the bottom of its parallel up-channel from February and RSI is looking oversold. The combination could be a good setup for a rally to start. The bullish wave count calls for a 5th wave up for the count from the February low. Back up to the top of the channel could have oil well over $80. The bearish wave count calls the June high the end of an a-b-c correction to the decline from 2008 and after perhaps a consolidation above the uptrend line we'll see a break of it as oil heads for new lows over the next several months. We should get some clues over the next week or two once the bounce pattern (assuming it will bounce from here) can be identified.

Oil continuous contract, CL, Daily chart

What the US dollar does next could help figure out what commodities, like oil and maybe gold, will do next. The price pattern has me thinking we'll see another rally leg out of its current sideways consolidation. As depicted on the chart, I see the possibility for a rally up the 82.71 Fib retracement (38%) level before turning back over and heading to a new low. That would give us a little throw-over above the parallel down-channel equal to the throw-under at the beginning of June (that kind of symmetry is very common). A rally above 83 would be bullish the dollar (bearish commodities and stocks). If the dollar breaks below 79.56 we could instead see a new low in July and then the start of a strong rally into the end of the year.

U.S. Dollar, Daily chart

Tomorrow's economic reports will be another light day and have virtually no impact on the market:

Economic reports, summary and Key Trading Levels

Normally opex week, which includes the couple of days prior to opex, are a little more volatile than usual. Today was not in that category and it might be an indication that we're going to have a quiet (boring) opex week. Tomorrow being a summer Friday could be even more quiet than usual. But if we see a decline get started, especially with the lower trading volumes we're seeing, then opex squaring could exacerbate the move down. If Wednesday's lows give way I suspect there are many stops now positioned as traders decide not to take another break of support and instead take profits off the table. I recommend the same if you're long the market.

I see the possibility for a quick (perhaps strong) decline into early next week (Tuesday/Wednesday) and then a reversal. That would meet some Fib timing windows. If the selloff does become strong keep an eye on SPX 823 for support. If we instead get a rally we could see a high on Tuesday/Wednesday instead of a low and then a resumption of the selling. SPX 917-920 will be key to watch to the upside since a break above that level could be an indication of a stronger rally into at least the latter part of the month. As always, because it's opex week coming up, be careful of low-volume spikes with no follow through. It's generally an unreliable time to initiate new trades for anything other than a day trade.

Lastly, what fun is life if you can't find the humor in any situation. With that in mind I thought I'd pass along the 10 ways you can identify a tough economy (these are not mine but I don't know the original author):

Ten ways you know the economy is getting tough...
10. You can now buy a corporate jet on Craig's list.
9. The IRS starts offering air-miles rewards for tax payments.
8. You get a pre-declined credit card in the mail.
7. People in Beverly Hills fire their nannies and learn their children's names.
6. Hotwheels and Matchbox cars are worth more than U.S. car company stocks.
5. The most highly-paid job is jury duty.
4. Mothers in Africa tell their kids, "finish your plate; kids are starving in America."
3. The Mafia starts laying off judges.
2. You buy a toaster oven, they give you a bank.

And number one way you know the economy is getting tough...
1. When your check is returned for "insufficient funds" you need to call your bank to ask if they meant you or them.

Good luck in the coming week and I'll be back with you on Monday (Todd and I will be switching nights as I'll be traveling the latter part of next week to attend my son's wedding--the 3rd and last one).

Key Levels for SPX:
- bullish above 920
- bearish below 900

Key Levels for DOW:
- bullish above 8600
- bearish below 8200

Key Levels for NDX:
- bullish above 1475
- bearish below 1399

Key Levels for RUT:
- bullish above 520
- bearish below 473

Keene H. Little, CMT
Chartered Market Technician


New Option Plays

Real Estate and Energy

by James Brown

Click here to email James Brown

Editor's Note:

My short-term bias for stocks is still down but the commodity sector is so oversold this looks like a lower-risk entry point to speculate on a bounce.


NEW DIRECTIONAL CALL PLAYS

Ultra-Short REIT - SRS - close: 22.67 change: +0.64 stop: 19.45

Why We Like It:
We've been hearing about how commercial real estate was the next shoe to drop for months. Well it finally looks like the sector is breaking down (along with the rest of the market). One way to play it is the SRS. This is a double-short ETF, which tries to move twice the daily inverse of the DJ U.S. real estate index. This index is full of REITs. The top ten components are: SPG, NLY, PSA, EQR, VNO, PCL, HCP, BXP, AVB, and HCN.

I'm suggesting readers buy calls on the SRS now but if we get the chance a dip in the $21.00-20.00 zone would be more attractive. This ETF can be somewhat volatile so I'm using a wide stop loss at $19.45. I suggest readers only trade half or less than their normal position size. Our first target is $26.00. Our second target is $29.50.

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

BUY CALL AUG 22.00 SAK-HP open interest=1074 current ask $3.10
BUY CALL AUG 25.00 SAK-HE open interest=1382 current ask $1.95
BUY CALL AUG 28.00 SAK-HU open interest=5981 current ask $1.25

Annotated Chart:

Picked on     July 09 at $ 22.67
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =           million  
Listed on  July 09, 2009         


U.S. Oil Fund - USO - close: 32.77 change: +0.20 stop: 31.95

Why We Like It:
I believe oil has fallen too far too fast. Crude has lost about 20% in less than two weeks and now futures are testing previous resistance and potential support at $60.00. I'm suggesting readers play the oversold bounce with calls on the USO oil ETF.

Buy calls now with a tight stop at $31.95. Our first target is $34.95. Our second target is $35.95. My time frame is less than two weeks.

Suggested Options:
Aggressive traders can use the July calls, which expire in six trading days. I'm suggesting the rest of us use the August calls.

BUY CALL JUL 33.00 UBO-GG open interest= 7819 current ask .90
BUY CALL JUL 35.00 UBO-GI open interest=15112 current ask .25

BUY CALL AUG 33.00 UBO-HG open interest=3099 current ask $2.20
BUY CALL AUG 35.00 UBO-HI open interest=2404 current ask $1.40

Annotated Chart:

Picked on     July 09 at $ 32.77
Change since picked:      + 0.00
Earnings Date           00/00/00
Average Daily Volume =      13.7 million  
Listed on  July 09, 2009         



In Play Updates and Reviews

Oversold Bounce Fails To Impress

by James Brown

Click here to email James Brown


CALL Play Updates

Express Scripts - ESRX - close: 65.65 change: -1.01 stop: 64.75

Readers may want to consider an early exit in ERSX. The stock did bounce from round-number support at $65.00 this morning but the bounce rolled over midday. We have a pretty tight stop loss so I'm willing to let it ride but if the S&P 500 rolls over again tomorrow I expect to be stopped out. Our first target is $69.90. Our second target is $74.75.

Picked on     June 22 at $ 65.25
Change since picked:      + 0.40
Earnings Date           07/29/09 (unconfirmed)
Average Daily Volume =       3.7 million  
Listed on  June 18, 2009         


Euro Currency ETF - FXE - close: 140.32 chg: +1.52 stop: 137.90

Weakness in the U.S. dollar breathed new life into the FXE, which bounced back above the $140 level. This looks like a new bullish entry point to buy calls. I would suggest using the August or September calls.

Our first target is $144.50. Our second target is $148.50. The P&F chart is bullish with a $168 target.

Picked on     June 23 at $140.76
Change since picked:      - 0.44
Earnings Date           00/00/00
Average Daily Volume =       461 thousand    
Listed on  June 23, 2009         


Lorillard Inc. - LO - close: 66.76 change: -0.67 stop: 67.30

I am about ready to give up on LO as a bullish candidate. After its last failed rally at $70.00 the stock has been steadily falling. If the stock doesn't bounce at $66.00 we'll drop it. We're still waiting for a breakout over resistance.

We have a trigger to buy calls at $70.10. If triggered our first target is $74.00. Our second target is $76.75. FYI: The Point & Figure chart is very bullish and currently forecasts a $92 target.

Picked on     July xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           07/27/09 (unconfirmed)
Average Daily Volume =       1.8 million  
Listed on  July 01, 2009         


UltraShort SP& 500 - SDS - cls: 59.92 chg: -0.24 stop: 55.90

If I was a bull today's 3-point bounce in the S&P 500 would be pretty disappointing. I'm still bullish on the SDS. Readers can buy calls now or wait for a dip near $58.00 as a potential entry point.

I'm repeating myself but the SDS can be volatile and readers may want to trade half or less than their normal position size. Our first target to take profits is the $64.00 level. Our second target is the $67.00 level. My time frame is several weeks (toward August option expiration) but traders might want to buy September calls instead.

Picked on     July 08 at $ 60.50 *triggered     
Change since picked:      - 0.58
Earnings Date           00/00/00
Average Daily Volume =        40 million  
Listed on  July 07, 2009         


Visa - V - close: 60.44 change: +0.95 stop: xx.xx

Visa did bounce and close back above $60.00, which is bullish but today's rebound wasn't very convincing. For now we have no entry point for Visa but I might be tempted to buy calls if Visa can traded above $62.00.

FYI: We initially listed V with a trigger to buy calls at $58.00 and then canceled the play before being triggered due to market weakness. We're keeping V on the play list as a prime candidate for new call positions if it can show some strength.

Picked on     July xx at $ xx.xx <-- Wait for a new entry point
Change since picked:      + 0.00
Earnings Date           07/29/09 (unconfirmed)
Average Daily Volume =       7.7 million  
Listed on  July 04, 2009         


PUT Play Updates

Agrium Inc. - AGU - close: 37.90 change: +1.17 stop: 41.65

After falling five out of the last six sessions AGU finally produced a little oversold bounce today. Shares gained 3.1%. I would watch for a failed rally in the $39.00-40.00 zone as a new entry point for puts. Our first target is $35.10. Our second target is $31.00.

FYI: Readers should note that AGU is trying a hostile takeover for CF Industries, which is itself trying a hostile takeover of Terra Industries.

Picked on     July 06 at $ 38.75 *triggered     
Change since picked:      - 0.85
Earnings Date           07/27/09 (unconfirmed)
Average Daily Volume =       4.2 million  
Listed on  June 30, 2009         


Core Labs - CLB - close: 82.94 change: +0.34 stop: 85.25 *new*

Traders have a decision to make on CLB. Technically today's gain following yesterday's bullish engulfing reversal candlestick pattern is a confirmation that the trend has changed. Bears could argue that today looks more like a failed rally under resistance at $85.00 and its exponential 200-dma. I'm siding with the bears on this one. Yesterday we lowered the stop loss to $85.25 and today's failed rally looks like a new entry point to buy puts. My bigger concern is crude oil. Oil futures have fallen to round-number support near $60.00 and after falling almost 20% in a little more than a week oil is due for a bounce. Readers may want to consider some sort of hedge, like calls on the USO in case oil does rebound.

CLB has already hit our first target at $80.25. Our second target is $76.00.

Picked on     July 01 at $ 83.16 /gap down entry
                              /originally listed at 84.53
Change since picked:      - 0.22
                              /1st target hit @ 80.25 (-3.5%)
Earnings Date           07/22/09 (unconfirmed)
Average Daily Volume =       232 thousand 
Listed on  July 01, 2009         


Compass Minerals Intl. - CMP - cls: 52.79 change: +0.73 stop: 56.26

Entry point! Yesterday I suggested looking for a failed rally under $54.00 as an entry point to buy puts and we got it. More conservative traders may want to tighten their stops. Our first target is $47.50. Our second target is $43.00.

Picked on     July 06 at $ 52.25 *triggered     
Change since picked:      + 0.54
Earnings Date           07/27/09 (unconfirmed)
Average Daily Volume =       792 thousand 
Listed on  June 29, 2009         


Costco - COST - close: 45.50 change: -0.52 stop: 46.10

Aggressive traders might want to consider bearish positions now. The stock produced a failed rally pattern as investors reacted to the -6.0% same-store sales data from COST this morning. I am suggesting readers stick to the plan and wait for the breakdown under $44.00.

Our plan is to buy puts at $43.90. If triggered our target is $40.25.

Picked on     July xx at $ xx.xx <-- see TRIGGER
Change since picked:      + 0.00
Earnings Date           10/08/09 (unconfirmed)
Average Daily Volume =      4.75 million  
Listed on  July 04, 2009         


ITT Educational - ESI - close: 88.64 change: -1.86 stop: 92.65

Our new play on ESI is now open. The stock broke down under support in the $89-90 zone and hit our trigger to buy puts at $88.99. Our first target is $81.00. We do not want to hold over the late July earnings report.

Chart:

Picked on     July 09 at $ 88.99 *triggered     
Change since picked:      - 0.35
Earnings Date           07/23/09 (unconfirmed)
Average Daily Volume =       902 thousand 
Listed on  July 08, 2009         


Freeport McMoran - FCX - close: 46.69 change: +1.59 stop: 50.51

We were expecting a bounce in FCX following AA's earnings. I am suggesting readers look for a failed rally in the $48-50 zone to launch new positions. Today's bounce didn't seem high enough. FCX has already hit our first target at $45.25. Our second target is $41.00.

Picked on     July 04 at $ 47.92 /gap down entry
                               /originally listed at $49.72
Change since picked:      - 1.23
                               /1st target hit @ 45.25 (-5.5%)
Earnings Date           07/22/09 (unconfirmed)
Average Daily Volume =        18 million  
Listed on  July 04, 2009         


L-3 Comm. - LLL - close: 64.69 change: +0.72 stop: 68.55

If you have not taken any profits yet I suggest you do so. LLL is trying to produce an oversold bounce and today's 1% gain could be the beginning of a multi-day rebound. We're not suggesting new positions at this time. LLL has already hit our first target at $66.00. Our second target is $61.00.

Picked on     June 16 at $ 71.75
Change since picked:      - 7.06
                               /1st target hit @ 66.00 (-8.0%)
Earnings Date           07/23/09 (unconfirmed)
Average Daily Volume =       976 thousand  
Listed on  June 16, 2009         


MetLife Inc. - MET - close: 27.63 change: +0.73 stop: 30.35

I don't see any changes from my prior comments. I would watch for a bounce or failed rally near $29.00 as a new entry point. Our first target is $25.25. Our second target is $21.75.

Picked on     July 04 at $ 28.04
Change since picked:      - 0.41
Earnings Date           07/30/09 (unconfirmed)
Average Daily Volume =       7.4 million  
Listed on  July 04, 2009         


NII Holdings - NIHD - close: 18.87 change: +0.51 stop: 20.10

Entry point! NIHD produced a failed rally under its 200-dma, which was exactly what we were looking for. Our first target is $16.15.

Picked on     July 04 at $ 18.61
Change since picked:      + 0.26
Earnings Date           07/23/09 (unconfirmed)
Average Daily Volume =       2.9 million  
Listed on  July 04, 2009         


Sears Holdings - SHLD - close: 58.13 change: -0.88 stop: 65.60

The RLX retail index managed a bounce (+0.4%) even though most of the same-store sales numbers released this morning were a disappointment. SHLD did not participate in the sector bounce, which is a good sign for the bears. Nothing has changed from my previous comments on SHLD. I suggested we open this play in two parts. Buy half your put position near $60.00 and then buy the second half if the stock bounces back into the $62.00-64.00 zone. Our first target is $55.10. Our second target is $50.50.

Picked on     July 07 at $ 59.75
Change since picked:      - 1.62
Earnings Date           08/27/09 (unconfirmed)
Average Daily Volume =       1.2 million  
Listed on  July 07, 2009         


United Parcel Serv. - UPS - close: 48.02 change: +0.14 stop: 51.55

I am suggesting readers wait and watch for a new failed rally near $50.00 or its 200-dma before launching new positions.

Our first target to take profits is $45.50. I am setting a secondary target at $43.00. We do not want to hold over the late July earnings report.

Picked on     June 26 at $ 49.50 *triggered     
Change since picked:      - 1.48
Earnings Date           07/23/09 (confirmed)
Average Daily Volume =       5.2 million  
Listed on  June 17, 2009         


Weyerhaeuser - WY - close: 27.88 change: +0.20 stop: 31.51

Today's bounce was just enough to erase yesterday's losses. I am not suggesting new positions at this time but a failed rally near $30.00 could be used as an entry point. Our first target is $26.00. Our second target is $23.00. The P&F chart points to a $24 target.

Picked on     July 04 at $ 29.51
Change since picked:      - 1.63
Earnings Date           07/31/09 (unconfirmed)
Average Daily Volume =       2.1 million  
Listed on  July 04, 2009         


Wynn Resorts - WYNN - close: 31.93 change: +2.02 stop: 35.25

The casino stocks were bouncing in what was probably more short covering than new bullish positions after the May gambling revenues showed that business was getting "less bad". I suspect the "less bad" news doesn't have the same punch it did several weeks ago and WYNN pared its gains by the close. I'm not suggesting new positions at this time. Our second target is $26.00.

Picked on     June 22 at $ 34.28
Change since picked:      - 2.35
                               /1st target hit @ 30.25 (-11.7%)
Earnings Date           07/30/09 (unconfirmed)
Average Daily Volume =       3.4 million  
Listed on  June 22, 2009         


CLOSED BULLISH PLAYS

Quest Diagnostic - DGX - close: 54.98 chg: -1.09 stop: 53.85

The action in DGX was pretty disappointing. The market staged a meager rebound and DGX under performed. Shares still have support near $54.00 but I'm not willing to bet this level will hold given the down trend in the major averages. I am suggesting an early exit now.

Chart:

Picked on     June 24 at $ 54.28
Change since picked:      + 0.70 <-- early exit (+1.2%)
Earnings Date           07/22/09 (unconfirmed)
Average Daily Volume =       1.1 million  
Listed on  June 24, 2009         


Edwards Lifesciences - EW - close: 65.40 change: -0.69 stop: 64.85

EW broke support at $65.00 and hit our stop loss at $64.85 on an intraday basis. The longer-term trend is up but shares look like they have produced a bear-wedge pattern. Readers may want to consider put positions on a drop below the 50-dma (near 64.50).

Chart:

Picked on     June 30 at $ 68.03
Change since picked:      - 3.18<-- stopped @ 64.85 (-4.6%)
Earnings Date           07/20/09 (confirmed)
Average Daily Volume =       369 thousand 
Listed on  June 30, 2009