Option Investor
Newsletter

Daily Newsletter, Tuesday, 9/1/2009

Table of Contents

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

Market Wrap

Trader, Do You Want To Step Outside?

by Jim Brown

Click here to email Jim Brown

September, the worst month of the year for the stock market, showed up for work this morning with a bad attitude and a chip on it's shoulder.

Market Stats Table

You would have thought today would have been a strong day for the bulls with blowout economic results. It appeared on the surface there were a lot of traders ready to sell on the news rather than buy the breakout. Appearances can be deceiving.

The morning opened with the ISM Manufacturing Index for August coming in at 52.9 and well over the consensus estimate for a rise to only 50.5. This was a strong gain from the 48.9 posted in July and the first time in expansion territory since January 2008 and the highest level since July 2007. This was 10.3 points above its average for Q2.

The internals were very strong with new orders spiking nearly 10 points to 64.9 from 55.3 and production rose to 61.9 from 57.9. Even exports rose to 55.5 from 50.5. This was a strong report that should have had the bulls cheering. Since the December low of 32.9 the ISM headline number has risen +20 points and the trend is accelerating.

However, a lot of the increase came from the restart of automobile production so a lot of the gains came from the auto sector. The employment component rose to 46.4 fro 45.6 and that minor gain suggests the Friday Non-Farm Payrolls may not be as good as some had hoped.

ISM Chart for August

Another bullish report was the Pending Home Sales for July. This is a lagging report but it did show an increase of +3.2% from June. This is up +12% over the same period in 2008. It was also the highest level since June 2007. The biggest gains came from the western region where contract signings rose +12.1% for the month. The current six-month string of gains is the longest string since the index was created in 2001. Existing home sales rose +7.2% and the largest monthly increase on record.

The flood of cheap homes in foreclosure and the first time buyer credits are producing a boom in existing home sales. The National Association of Realtors said two million first time buyers have bought homes this year and 350,000 of those would not have purchased a home without the tax credit. They estimate one third of the July sales were first timers.

That FTHB stimulus program expires in November and NAR believes sales will fall dramatically for the rest of the winter before picking up again in the spring. As with any stimulus rebate program the majority of sales are pulled forward from future months in order to take advantage of the program. Once the program ends the future months are devoid of activity. We are already seeing this in auto sales now that the cash for clunkers program has ended. Dealers are reporting sharply reduced traffic and sales.

Construction Spending declined -0.2% for July but this report was ignored given the better news in the ISM and Pending Home Sales. Weekly Chain Store Sales fell -0.5% as the back to school shopping season passes.

Auto sales for August spiked to 14.0 million units on an annualized basis. This was the highest pace of sales since May 2008. Cars made up 57% of sales and the highest percentage since 1996. Obviously this was a clear result of the cash for clunkers program. Japanese automakers benefited the most from the C-F-C program with 39% of all vehicle sales and the highest on record. Reportedly there were 625,000 cars purchased under the C-F-C program. Annualizing that and applying a seasonal adjustment shows that 6.8 million of the 14.0 million headline number was related to the C-F-C program. That means that September is going to be extremely poor for sales as those 6.8 million annualized sales are removed.

If the economics were so good why did the market sell off? The drop was led by the financials with the fab-4 taking a serious hit. By the fab-4 I am referring to AIG, C, FRE and FNM. These overbought financials had been the favorites of the day traders with volume in those four exceeding 1.5 billion per day in total. I get emails daily asking me why those stocks are going up so dramatically. It is just another bubble that defies explanation.

This morning Sanford Bernstein downgraded AIG to an underperform. That is a polite way to say sell. The reminded everyone that their price target is still $10 because there is no plan on the table to pay back the $80 billion in Federal loans. The company may have avoided bankruptcy but they are just a shell of their former self. AIG had risen to $55 last week on short covering after the reverse stock split and AIG lost -9.33 (-21%) today alone to close at $36. With a $10 price target and day traders fleeing the stock now that it trades for more than a buck the outlook here is grim.

Citigroup (NYSE:C) has also taken it on the chin. Citi traded as high as $5.43 last week and closed at $4.54 today on volume of 1.26 BILLION shares. Various print articles today compared Citi with AIG and the similar risk of devaluation because of the monster government loans. The articles also compared the lack of any meaningful business plan to pay off those loans and return to profitability. Citi had been moving higher on hopes of a reverse stock split like AIG and day traders had been hyping the potential at every turn. If Citi does a 1:20 reverse split like AIG it may get a big pop as the shorts cover but the board is just going to dump another $20-$30 billion of government loans and preferred share conversions back into the common and the dilution will be ugly. I said a month ago that I thought Citi was dead money. Since then John Paulson bought a 2% stake and the stock has nearly doubled. I have not changed my view and the jury is still out on whether Paulson made a good deal or a deal with the devil.

Fannie and Freddie (FNM/FRE), both up +200% in August, are prime candidates for a decline. There is not likely to be a reverse stock split because the government owns them and the stock is worthless despite the August spike. There have been numerous articles on why the SEC should stop trading in FRE/FNM because the stock has no inherent value as a public corporation. The parents are hundreds of billions in debt to the government and in fact have become wards of the state. This is a case like GM where the stock continued to trade on rumor despite the bankruptcy and the eradication of shareholder equity. The SEC repeatedly warned traders the stock had no value. Today FRE/FNM are simply day trading vehicles and they have no relation to the value of the companies. FNM/FRE both lost -17% today.

EBAY rallied to a new 52-week high at $23.18 this morning but ended the day with a loss after they announced they sold 65% of Skype for $1.9 billion to a group of private investors. Ebay paid $3.1 billion for Skype in 2005. Skype never lived up to Ebay expectations despite increasing users in 2008 by 47% to 405 million and seeing revenue increase +44% to $551 million. By selling Skype it frees the company and the new management to make a name for itself away from Ebay.

It also suggests Ebay may want to spin off PayPal to enable that company to expand its growth. As a part of Ebay it has a stigma attached that prevents some online retailers from using it for fear of customers somehow migrating to Ebay. PayPal processed over $60 billion in transactions in 2008 and they collect about 3-4% in charges for each transaction. It has grown to the largest payment processor other than MC/V on the Internet. The ecommerce market is expected to grow by 33% to $1 trillion in 2011 and PayPal will capture a large portion of that pie. If they were separate from Ebay they could capture a lot more. I would buy that IPO.

Google's new browser Chrome will be installed on new Sony Vaio laptops. Sony said user acceptance of the browser has been outstanding and they are going to make it available to more people. Google controls 67.5% of the search market with 76.7 billion searches on Google in July. According to ComScore there were 113 billion searches in July. Yahoo received 19.3% share, Microsoft 8.9%, Ask.com 3.9% and AOL 3.1%. Google suffered some downtime today with the majority of Gmail users unable to access their accounts all day. A message on Google's website gave no reason for the outage but said they hoped to have it fixed by Tuesday evening.

Bank America may be close to paying back $20 billion of the $45 billion in TARP loans. The $20 billion it is planning on returning to the government is the $20 billion the government gave them to ease the takeover of Merrill Lynch. Ken Lewis has repeatedly said they could pay back all the $45 billion at any time but were waiting for some government conditions to be fulfilled. Bank America has some significant loan exposure from its takeover of Countrywide and I suspect the government regulators would like them to keep the $45 billion to prevent backsliding if foreclosures increase. Wells Fargo also made comments about paying off the TARP soon but the stock still lost -5%.

Bank America Chart

Petrochina (PTR) announced it was acquiring a major 60% stake in two oil sand projects in Canada for $1.7 billion. The agreement with Athabasca Oil Sands Corp will give China a 60% working interest in the MacKay River and Dover projects in northern Alberta. Reportedly there are about 5 billion barrels of recoverable reserves and peak production from the two sites is expected to reach 300,000-500,000 bpd with first production in 2014. As part of the deal PetroChina has agreed to provide up to $20 billion in financing for the projects. Sinopec (SNP) recently bought 10% of a Total (TOT) project and CNOOC (CEO) bought 17% of a privately owned oil sands project.

I wrote about the commodity ETFs on Sunday and they are still making news today. Deutsche Bank announced this afternoon they are going to close the Crude Oil Double Long ETN (DXO). DB said the limitations imposed by the exchange have resulted in a "regulatory event" and DB will redeem all the shares. They are going to provide notice of the redemption on Sept 9th. However, just announcing they are going to close the ETF pushed it lower in after hours. I hope everyone long this ETF took my advice over the weekend to add a tight stop in case of a decision by regulators to limit positions. I would avoid any other commodity ETFs now that the dominos have started to fall. Wait until after the fire sale and see what is left on the market.

The bears came out of their caves today and made a nuisance of themselves on stock TV. Nearly every person interviewed was predicting a September to remember. The six month rally from the March lows was the third strongest on record. According to the bears that sets up September for a major decline. Citing historical precedents when August produced strong gains those gains normally were followed by strong losses. Today concluded the biggest 4-day decline in two months.

Doug Kass was on CNBC touting his market topped call again and talking about a 10% decline or more. The interviewer was sharp enough to ask him in the closing segment if he was short already to which he replied strongly yes. "Then you are talking your own book?" Gotcha!

The banks were the loss leaders today but they had been telegraphing weakness for the last three weeks. Even with the -5% loss in the banking sector the banking index failed to return to decent support at $44 from early August. It is only profit taking until that support is broken then it will turn into a sell off.

Bank Index Chart

I don't believe today's selling was broad based. We saw the market open higher until the three major economic reports were released at 10:00 and then the bottom fell out. In the intraday chart below there was clearly a sell program from 10:30 to 11:30 and the rest of the day was sympathy selling. If you have a big long portfolio with no stops and the bottom falls out you tend to look for the first bounce to see if it is just temporary before you start liquidating. When the first bounce (green candle just past 11:30) failed to gain any traction the retail traders began to liquidate. You can see where some dip buyers tried to pick up some bargains several times for the rest of the day but the shock of the decline from the sell program had soured sentiment and there was not enough dip buyers to make any difference.

S&P Chart - 3 min

We have not seen a major sell program like this in months. About half way through it I started thinking about the Cerberus liquidation. There were some rumors in the market this morning that Cerberus was seeing liquidation in other funds and may be facing a default. Cerberus quickly dismissed speculation about a default but the rumors continued the rest of the day. Cerberus has $24.3 billion under management in a dozen funds and investors have requested withdrawal of $5 billion out of its two flagship funds. Cerberus said it was putting those assets in a special vehicle that will liquidate them and return investors money over the next four years. I still wondered if Cerberus needed to raise some fast cash and launched a sell program to do it.

This selling started in the banks and insurance companies but quickly broadened across all indexes. That is also a clear indication that it was an ETF or futures related sell program and NOT a retail event. You can't tank 5,000 stocks all at once with retail selling.

This could also be a case of "If its September then expect a decline." Everyone was lined up on in the back of the plane with their parachutes on and expecting a signal to bail out. When the sell program hit traders were already expecting to sell so everyone jumped in reaction to the sudden dip. The plane may survive the turbulence and continue on its way but the knee jerk traders are now in cash on the sidelines and wondering what happened.

The S&P failed exactly where it should have failed. I talked about the 1020 level as critical support in my weekend commentary and it broke dramatically. That brings up the 990 level as the next test but 980 is the next critical level. I would be a buyer for a trade on a rebound from either 990 and 980. I believe if 980 fails we could go a lot lower very quickly. S&P 944 has been mentioned many times as the ultimate target for any September decline.

S&P-500 Chart - 60 min

The Dow declined to 9316 by 11:30 and then traded in a 40-point range for the rest of the day just over 9300 with a close at 9310. I don't view 9300 as major support and should the selling take on a life of its own the next material support is 9200 and then 9000. The 9200 level would be just under a 5% decline from the highs and a decent level for buyers to return. If we do go to 9000, about a -7% drop that level must hold or the next stop could be 8600 and a full 10% correction.

Dow Chart - 60 min

I have been saying for a couple weeks that the Nasdaq scares me. In reality the good news coming from the chip and PC sector should be a bright light for investors but it can't seem to hold its gains. Just like a drunken sailor the Nasdaq has been running around and bumping into things with no apparent direction. The rally the third week of August rescued it from a potentially nasty fall but it has come right back and only a couple steps from the cliff once again. If support at 1965 and then 1930 fails it could be a very long drop to the bottom. And if September trading cycles return it could be a very sharp drop. I would like to think that investors will be focused on the guidance upgrades from Intel instead of peering over the cliff's edge into the abyss.

Nasdaq Chart - 90 Min

Russell 2000 Chart - 90 Min

The volume on Tuesday was huge at just over 12 billion shares with 11 billion of that in down volume. That qualifies as a 90% day and one that has been known to trigger reversals. The TRIN closed at a whopping 3.56 and also a reversal indicator. However, since it keys off volume we can't really claim it tonight.

It appears on the surface that traders entered September nursing a definite fear of heights. I want to believe that the sell program on Tuesday was a one time event but this is September and the month known for big declines. One thing for sure the bears are backing up the truck to fill up on shorts and a sudden change of heart could erase these four days of declines in a couple hours if the event was big enough to produce a decent short squeeze.

On Wednesday the big event is the FOMC minutes of the August meeting at 2:PM. There is also Factory Orders, Productivity and the Challenger Employment Report. The Challenger report is a prediction of the Friday Non-Farm Payrolls, which remains the key report for the week.

My last recommendation was to go short under SPX 1020 and look to buy a bounce at 1000 and 980. That 1000 level was tested today and the market on close orders forced a dip to close at 998. That is close enough to 1000 to warrant a trading buy on any move higher on Wednesday. However, if we move below that 1000 level the next key level is 980 and I would be waiting there for a potential bounce as well.

Jim Brown


New Option Plays

Financials & Education

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

iShares Financials - IYF - close: 49.36 change: -2.43 stop: 44.90

Why We Like It:
The financials are what led the market higher and today they led the market lower. When the market bounces again there will be another flood back into the banking stocks. I'm suggesting we buy calls on the IYF at $47.00 (or the $47.00-46.00 zone). If triggered our first target is $51.50. Our second target is $54.50.

Suggested Options:
Options are available at $1.00 increments. I'm suggesting the October calls. Trigger @ 47.00.

BUY CALL OCT 45.00 IYI-JS open interest=  0  current ask $5.50
BUY CALL OCT 50.00 IYF-JX open interest= 29  current ask $2.30

Annotated Chart:

Picked on September xx at $ xx.xx <-- TRIGGER @ 47.00
Change since picked:       + 0.00
Earnings Date            00/00/00
Average Daily Volume =        5.1 million  
Listed on September 01, 2009         


NEW DIRECTIONAL PUT PLAYS

Apollo Group - APOL - close: 63.63 chg: -1.21 stop: 66.55

Why We Like It:
APOL has been under performing the market for weeks. Shares have developed a top and are now beginning to breakdown. I'm suggesting puts here with the stock under $65.00. Our first target to take profits is $57.50. Currently the Point & Figure chart is bearish with a $56 target.

Suggested Options:
This could be a quick play so I'm suggesting the September puts, which expire in less than three weeks.

BUY PUT SEP 65.00 OAQ-UM open interest=2042 current ask $2.65
BUY PUT SEP 60.00 OAQ-UL open interest=1866 current ask .70

Annotated Chart:

Picked on September 01 at $ 63.63 
Change since picked:       + 0.00
Earnings Date            10/28/09 (unconfirmed)
Average Daily Volume =        1.9 million  
Listed on September 01, 2009         

In Play Updates and Reviews

Dip Getting Deeper

by James Brown

Click here to email James Brown


CALL Play Updates

Apple Inc. - AAPL - close: 165.29 change: -2.91 stop: 163.40

Analysts and most investors are still bullish on AAPL and many are expecting a new iPod model to be launched soon. Yet that's not going to stop traders from taking profits with the market down sharply. AAPL gave up 1.7% and is now testing short-term support at $165.00 again. If there is any follow through by the market tomorrow we will most likely be stopped out at $163.40. I am not suggesting new bullish positions at this time. We'll see if stocks can hold up on Wednesday. Our first target is $174.00. Our second target is $179.00. FYI: The P&F chart points to a $231 target.

Picked on   August 26 at $166.50 *(small positions 1/2 to 1/4)
Change since picked:      - 1.21
Earnings Date           10/21/09 (unconfirmed)
Average Daily Volume =        14 million  
Listed on August 25, 2009         


Allegheny Tech. - ATI - close: 29.27 change: -1.10 stop: 27.95

Material and commodity-related stocks were rattled today over concerns about China and a rising U.S. dollar. ATI broke down under the $30.00 level, which is bearish. More conservative traders may want to exit early or tighten their stops. If there is any follow through lower by the market tomorrow we'll probably get stopped out.

Our first target is $34.50. Our second target is $39.00. Time frame on the first target is only two or three weeks. The $39 target could take several weeks.

Picked on   August 31 at $ 30.25 *triggered         
Change since picked:      - 0.98
Earnings Date           10/21/09 (unconfirmed)
Average Daily Volume =       2.7 million  
Listed on August 27, 2009         


EOG Res. Inc. - EOG - close: 70.62 change: -1.38 stop: 69.90

Oil is contracting thanks in part to the rising dollar and general profit taking. EOG closed under its 50-dma, which is bearish but still closed above its 100-dma and the $70.00 mark, which should offer some support. If the market continues to show weakness tomorrow we will probably get stopped out at $69.90.

Our first target is $79.50. Our second target is $88.00. The daily chart is building an inverse H&S pattern that is forecasting a rally toward $100.

*The plan was to trade small from the beginning to cutting our position in half now should leave us with a very small position.

Picked on   August 26 at $ 73.25 /gap down entry point 
                               /listed at $73.98
Change since picked:      - 2.63
Earnings Date           11/03/09 (unconfirmed)
Average Daily Volume =       2.4 million  
Listed on August 22, 2009         


FISERV Inc. - FISV - close: 47.55 change: -0.70 stop: 46.60

The action in FISV this morning looks bearish with traders selling the early morning bounce pretty hard. More conservative traders may want to exit early. I'm suggesting we hold on since the $47.00 level was decent support in August and FISV still has the rising 50-dma to help it. Look for a bounce before initiating new positions. Our first target to take profit is at $52.50. I'm setting a second target to exit completely at $54.00.

Picked on   August 21 at $ 48.60 *triggered         
Change since picked:      - 1.05
Earnings Date           10/28/09 (unconfirmed)
Average Daily Volume =       1.5 million  
Listed on August 19, 2009         


Goldman Sachs - GS - close: 165.46 change: +1.04 stop: 159.00

There's a lot of people watching GS for leadership and today's failed rally at resistance near $166.00 could be a signal for the bears. Readers may want to consider some speculative out of the money puts just in case GS does drop toward the $150 level, which is where it should find some support.

Right now our plan to buy a breakout is still in place. I'm suggesting readers open small call positions (smaller than our normal trade size) at $166.75. If triggered our first target is $179.00. FYI: The Point & Figure chart is bullish with a $228 target.

Picked on   August xx at $ xx.xx <-- TRIGGER @ 166.75
Change since picked:      + 0.00
Earnings Date           10/13/09 (unconfirmed)
Average Daily Volume =       8.8 million  
Listed on August 29, 2009         


Genesse & Wyoming - GWR - close: 30.33 change: -1.05 stop: 28.90

GWR finally gave into some profit taking after the morning rally failed at $32.00. Shares are testing round-number support at $30.00 and could easily see a dip to $29.00. Wait for the bounce before considering new bullish positions. Our first target is $32.90. Our second target is $34.75.

FYI: The plan was to use small position sizes to limit our risk.

Picked on   August 15 at $ 28.66 /gap down entry
                               /originally listed at $29.30
Change since picked:      + 1.68
Earnings Date           11/03/09 (unconfirmed)
Average Daily Volume =       230 thousand
Listed on August 15, 2009         


Grainger W.W. - GWW - close: 86.28 change: -1.19 stop: 84.75

GWW's pull back dipped to its 50-dma and the $85.65 level. Our trigger to buy calls was hit at $86.00. If you did not open positions yet I'd wait for a bounce considering the market's bearish tone this week. Our first target is $93.50. Our second target is $97.50.

Chart:

Picked on September 1 at $ 86.00 *triggered  
Change since picked:      + 0.28
Earnings Date           10/14/09 (unconfirmed)
Average Daily Volume =       635 thousand 
Listed on August 22, 2009         


Legg Mason - LM - close: 26.78 change: -1.98 stop: 25.95 *new*

The broker-dealers were some of the worst performers today and LM was right out in front with a terrible 6.8% decline. Shares should find support at the long-term trendline of support and its 50-dma at $26.40. Our stop loss is currently at $26.40 and that's too tight. I'm adjusting our stop loss to $25.95. I'm not suggesting new positions at this time. The plan was to use small position sizes.

Our first target is $32.45. Our second target is $34.85. FYI: The P&F chart is bullish with a $39 target.

Picked on   August 28 at $ 29.50 *triggered               
Change since picked:      - 2.72
Earnings Date           07/20/09 (confirmed)
Average Daily Volume =       3.4 million  
Listed on  July 25, 2009         


Mettler Toledo - MTD - close: 86.41 change: -0.99 stop: 84.99

MTD produced another new high and another new failed rally. More conservative traders may want to exit early now or raise their stops toward the $86.00 level. I'm not suggesting new positions at this time. Our first target is $93.50. Our second target is $99.00. I am labeling this an aggressive play because volume is pretty light for this stock.

Picked on   August 27 at $ 88.50 *triggered  (1/4 normal size)
Change since picked:      - 2.09
Earnings Date           11/05/09 (unconfirmed)
Average Daily Volume =       234 thousand 
Listed on August 22, 2009         


Newmarket Corp. - NEU - close: 80.95 change: -2.17 stop: 79.00

NEU followed the markets higher this morning and lower midday. The stock is testing support near $80.00 and shares have hit our trigger to buy the second half of our call position at $80.50. If you're not comfortable buying the dip then wait for a bounce from the $80 level or wait for a bounce over $82.00 again.

Our first target to take profits is at $88.50. Our second and final target is $92.50. FYI: The Point & Figure chart is bullish with a $116.00 target.

Picked on   August 24 at $ 84.33 <- buy half now 8/24/09
                    /originally listed at $83.54, gapped higher @ 84.33
Change since picked:      - 3.38

Picked on September 1 at $ 80.50 *triggered 2nd half
Change since picked:      + 0.45
Earnings Date           10/27/09 (unconfirmed)
Average Daily Volume =       141 thousand 
Listed on August 24, 2009         


Occidental Petrol. - OXY - close: 72.23 change: -0.87 stop: 69.45

OXY held up reasonably well but if the market continues to correct we can expect OXY to follow it lower. OXY might see another dip near $70.00 and I'd use a bounce from $70 as our next entry point. Our first target is $77.00. Our second target is $79.85.

Picked on   August 27 at $ 72.00 *triggered         
Change since picked:      + 0.23
Earnings Date           10/28/09 (unconfirmed)
Average Daily Volume =       5.0 million  
Listed on August 26, 2009         


PPG Inds. Inc. - PPG - close: 54.08 change: -1.32 stop: 52.95

PPG's close under $55.00 and its 30-dma is short-term bearish. If the market keeps falling PPG will probably hit our stop loss tomorrow. I'm not suggesting new positions at this time. Our first target is $59.80.

Picked on   August 28 at $ 55.65
Change since picked:      - 1.57
Earnings Date           10/27/09 (unconfirmed)
Average Daily Volume =       1.6 million  
Listed on August 27, 2009         


State Street (Bank) STT - close: 50.14 change: -2.34 stop: 49.45

Banking stocks led the sell-off on Tuesday with the BIX and BKX banking indices down 5.2% and 5.7%, respectively. STT gave up 4.4% and plunged to short-term, round-number support at $50.00. A bounce from here would be a new bullish entry point. If stocks keep falling we should be stopped out pretty quickly at $49.45.

Our first target is $55.00. Our second target is $59.80. Currently the Point & Figure chart is bullish with a $62 target.

Picked on   August 31 at $ 52.00 
Change since picked:      - 1.86
Earnings Date           10/13/09 (unconfirmed)
Average Daily Volume =       5.3 million  
Listed on August 19, 2009         


United Health - UNH - close: 27.33 change: -0.67 stop: 27.49

We are still on the sidelines with UNH. The plan is to buy a breakout with a trigger at $30.55. However, we might want to reconsider and buy calls if UNH finds support near $26.00. If triggered our first target to take profits is $34.50. Our second target is $37.50. My time frame is about eight weeks.

Picked on   August xx at $ xx.xx <-- TRIGGER @ 30.55
Change since picked:      + 0.00
Earnings Date           10/20/09 (unconfirmed)
Average Daily Volume =       9.2 million  
Listed on August 29, 2009         


U.S. Oil Fund - USO - close: 35.27 change: -0.78 stop: 34.49

Our more aggressive entry point at $36.50 is not paying off. We should have held out for the dip toward USO's longer-term trendline of support near the 100-dma. That's where this ETF is headed. If we see the USO bounce from this level I'd use it as a new entry point for calls. Our first target to take profits is at $39.95.

Picked on   August 31 at $ 36.50 
Change since picked:      - 1.23
Earnings Date           00/00/00
Average Daily Volume =      11.5 million  
Listed on August 15, 2009         


PUT Play Updates

First Solar - FSLR - close: 114.98 chg: -6.60 stop: 131.00 *new*

FSLR is sinking to new relative lows. The stock lost 5.4% today and is now within striking distance of our final target at $111.00. I'm lowering our stop loss to $131.00. More aggressive traders may want to aim for the $100.00 level. FSLR has already hit our first target at $122.50.

Picked on   August 17 at $135.88 *triggered/gap down entry
Change since picked:      -20.90
                               /1st target hit @ 122.50 (-9.8%)
Earnings Date           11/03/09 (unconfirmed)
Average Daily Volume =       3.5 million  
Listed on August 15, 2009         


Strangle & Spread Play 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.)

Research In Motion - RIMM - close: 73.54 chg: +0.48 stop: n/a

The action in RIMM is definitely growing more bearish with another failed rally today. Our entry zone to launch new strangles is the $74.50-75.50 range. The options suggested were the September $80 calls (RFY-IP) and the September $70 puts (RFY-UN). Our estimated cost was $2.64. We want to sell if either option hits $6.00 or higher.

Picked on   August 25 at $ 75.56
Change since picked:      - 2.02
Earnings Date           09/24/09 (confirmed)
Average Daily Volume =      11.7 million  
Listed on August 25, 2009         


Schlumberger - SLB - close: 54.91 change: -1.29 stop: n/a

SLB is slipping back to support in the $55-54 zone. I am not suggesting new strangle positions at this time but readers might want to consider directional call plays.

The options we suggested were the September $60.00 calls (SLB-IL) and the September $45.00 puts (SLB-UI). Our estimated cost is $1.00 and we want to sell if either option hits $2.50 or higher.

Picked on   August 15 at $ 52.00 /gap down entry Aug. 17th
Change since picked:      + 4.20
Earnings Date           10/15/09 (unconfirmed)
Average Daily Volume =       9.2 million  
Listed on August 15, 2009         


CLOSED BULLISH PLAYS

CF Industries - CF - close: 80.00 change: -1.66 stop: 79.75

I am dropping CF as a bullish candidate. The stock produced a bearish reversal today and looks poised to breakdown under $80 soon. While the new direction looks down I wouldn't buy puts. CF could have a lot of support with a cloud of moving averages between $80 and $75. If it breaks $75 then I might consider bearish trades. The stock never hit our bullish trigger to buy calls at $85.25.

Chart:

Picked on   August xx at $ xx.xx <-- TRIGGER 85.25
Change since picked:      + 0.00               *never opened*
Earnings Date           10/27/09 (unconfirmed)
Average Daily Volume =       872 thousand 
Listed on August 24, 2009         


Fluor Corp. - FLR - close: 51.48 change: -1.42 stop: 49.95

FLR still has potential support at $50.00 but today's action looks bearish. The stock's weakness pushed shares under their 50-dma and closed under the long-term trendline of support. I am suggesting an early exit now. Keep FLR on your watch list for a bounce from the 100-dma.

Chart:

Picked on   August 17 at $ 51.00 *triggered            
Change since picked:      + 0.48 <-- exit early @ 51.48 (-0.009%)
                           /1st target exceeded @ 55.10 gap open (+8.0%)
Earnings Date           08/10/09 (confirmed)
Average Daily Volume =       2.4 million  
Listed on  July 25, 2009         


Flowserve - FLS - close: 82.81 change: -3.44 stop: 84.75

FLS suffered two heavy days of profit taking and today's nearly 4% decline was enough to hit our stop loss. If the stock continues to correct we can look for possible support and potential bullish positions on a dip near $75.00 or its long-term trendline of higher lows.

Chart:

Picked on   August 26 at $ 87.50  (1/2 pos)
Change since picked:      - 2.75<-- stopped @ 84.75 (-3.1%)
Earnings Date           10/28/09 (unconfirmed)
Average Daily Volume =       1.1 million  
Listed on August 17, 2009         


IDEXX Labs - IDXX - close: 49.41 change: -1.35 stop: 49.75

IDXX is breaking down from its multi-week trading range. The stock hit our stop loss at $49.75 closing the play. Keep an eye on the rising 50-dma, which has been support in the past.

Chart:

Picked on   August 25 at $ 51.75 *small position sizes (1/2 to 1/4)
Change since picked:      - 2.00 <-- stopped out @ 49.75 (-3.8%)
Earnings Date           07/24/09 (confirmed)
Average Daily Volume =       383 thousand 
Listed on  July 25, 2009         


Valmont Ind. - VMI - close: 79.40 change: -2.93 stop: 79.45

Our brand new buy-the-dip play in VMI has already been stopped out. Support at $80.00 and the 30-dma didn't hold. Shares slipped to $78.93. Our stop was at $79.45. I do think VMI offers potential so keep an eye on it and see if the $75 or $70 levels offer stronger support.

Chart:

Picked on   August 31 at $ 82.00
Change since picked:      - 2.55<-- stopped @ 79.45 (-3.1%)
Earnings Date           10/15/09 (unconfirmed)
Average Daily Volume =       315 thousand 
Listed on August 29, 2009