Option Investor
Newsletter

Daily Newsletter, Monday, 9/21/2009

Table of Contents

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

Market Wrap

Investors Want More, Can The Market Deliver?

by Todd Shriber

Click here to email Todd Shriber
Stocks fell on Monday with the Dow Jones Industrial Average retreating from an 11-month high on the light volume that is typical following a quadruple-witching Friday. Monday's declines were similar to what the market delivered last Thursday when I was last visited with you. Nothing too alarming, at least on the surface, but the drop may portend more weakness to come. The Dow fell 41.34 points to close at 9778.96 and the S&P 500 gave up 3.64 points to close at 1064.66. The Nasdaq, as has been the case so often through this rally, was the ''shining star,'' gaining 5.18 points to finish the day at 2138.04. Eight of the 10 industry groups tracked by the S&P 500 declined on the day with healthcare and technology the lone gainers.

Stats Table

Again, speculation that stocks are overextended continues to be the reason most pundits attribute to these little declines that the market has been delivering. Of course, the other side of that argument is that the market rarely moves up on a straight line. Still, it appears that the camp expecting a pullback after such a voracious rally is growing and it might be reasonable to expect that investors want to see more than companies beating already anemic earnings estimates by slashing payrolls and cutting production. In other words, the chorus singing ''Show me the money,'' or in this case, ''Show me the growth'' is growing ever louder.

Last week's 2.5% rally for the S&P 500 bumped valuations to nearly 20 times reported earnings from continuing operations of the member companies, the highest level since 2004, according to Bloomberg data. If that does not convince you that stocks are richly valued at current levels, perhaps this next tidbit will. At the end of August, the P/E ratio for the S&P 500 was an eye-popping 129.2. That figure assumes the previous four quarters worth of reported earnings for the period that ended on June 30, 2009. And since the market is up since the end of August, it's safe to assume the S&P 500 P/E ratio now hovers in the mid to high 130s area. Probably not a sustainable level.

A press report I read over the weekend said the trailing four quarters showed S&P 500 earnings of $7.51. Two years ago, that figure was $84.92, but the P/E ratio then was less than 18. Another way of describing this scenario is to say what many already know: Stocks certainly benefited from earnings estimates that were pared, pruned and every other adjective that means cut to such low levels that most companies could not help but beat analyst forecasts.

S&P 500 P/E Ratio

All of that is useful information, particularly with another earnings season right around the corner, but it is bigger picture stuff and probably only played a small role in Monday's glum market action. With a Federal Reserve meeting looming on Wednesday, energy issues took it on the chin today. The October crude oil contract expires on Tuesday, so traders shifted their focus to crude for November delivery, which fell $2.56 to close at $69.93 a barrel, marking a third consecutive day of declines. Platts reported that Chinese oil demand tumbled 5.4% in August from July. Allow me to be candid: It is not a good sign for oil bulls if the Chinese are tempering their demand for black gold.

Not surprisingly, 33 of 40 energy names tracked in by the S&P 500 slid on the day leading to declines for ExxonMobil (XOM) and Chevron (CVX) and that of course weighed on the Dow as both stocks are Dow components. On a percentage basis, the two companies were down less than one percent each, but the oil services names endured steeper declines. Halliburton (HAL) slid 2.5%, Transocean (RIG) fell 2.2% and Schlumberger (SLB) and National Oilwell Varco (NOV) were both down well over one percent each.

Of course, oil's failure to hold $70 and make its way above $75 a barrel is not the best news for one of my favorite ETFs, the Oil Sevices HOLDRs (OIH). With Monday's close at $117.81, OIH is nearly as close to its 52-week high as it to its 52-week low. I don't know if that means anything, but it does appear that OIH needs to break $120 to induce some fresh buying. I have include the OIH chart and a crude chart to illustrate the correlation between oil services names and the underlying commodity.

Crude Chart

OIH Chart

When I wrote last Thursday's market wrap, I noted that the declines that day were not led by financials and materials stocks. The same cannot be said for Monday's action and as far as the commodities patch is concerned, it was fairly easy to predict a down day for the group after fertilizer giant Potash (POT) warned of lower 2009 profits after the close on Friday. Bad news on a Friday afternoon rarely turns into positive things the following Monday and Potash was no exception, falling 4.2% after saying it will earn $3.25-$3.75 a share this year, below analyst estimates and its own previous guidance of $4 to $5 a share.

Rival Mosaic (MOS), the second-largest crop nutrient maker in North America tumbled 5.2%. Fertilizer stocks have a deep correlation to oil prices as well and crude's drop did nothing to help the likes of Potash and Mosaic. Rather than rattle off all the agriculture-related names that were taken to the woodshed today, I will just mention the Market Vectors Agribusiness ETF (MOO), which holds names like Potash, Mosaic, Monsanto (MON) and Deere (DE). The ETF was down today and the chart might be saying the ETF could challenge support at the 50-day moving average of $37.84.

MOO Chart

As I mentioned earlier, investors may be starting to demand more from stocks and that means they want to hear some good news (finally) about top-line growth. One place where they are not going to find it is Caterpillar (CAT). The world's largest maker of construction and mining equipment said in an 8-K filing today that global sales were down 48% in August compared with August 2008. North American sales slid 57% in August. Not good news and even worse when considering the June and July sales declines were 47% and 48% respectively.

Then again, it appears that some of this dour news is priced into Caterpillar's stock as the shares are up about 65% in the past three months. That is correct. A stock whose sales have been falling by nearly 50% a month on a year-over-year basis for the past three months is up 65% in the same time. At its core, Caterpillar, a Dow component, is a good company, but it probably is not a good company right now. This would be a fine example of why many consider the current run in stocks to be a tad overextended.

And it is not really a true day of declines without the financials, which endured the biggest drop among the 10 S&P 500 industry groups. Bank of America (BAC) was in the spotlight on news that the largest U.S. bank will drop a loss-sharing agreement with the Treasury Department and Federal Reserve related to the acquisition of Merrill Lynch. Exiting the agreement will cost Bank of America $425 million.

Bank of America is also drawing the ire of a congressional oversight panel by missing a Monday deadline to provide the panel with documents pertaining to the Merrill Lynch acquisition. Bank of America officials will meet with the panel's chairman, Rep. Edolphus Towns (D-NY) on Tuesday. It is hard to speculate on what the outcome of those talks will be, but Bank of America shareholders, at least the long-term investors, can only hope that the Merrill buy will eventually pay dividends. In the near-term, the addition of Merrill is a real thorn in Bank of America's side.

And speaking of finanicals, there is an active Treasury auction schedule this week. Monday saw the auction of four and six-month bills and Tuesday brings an auction of four-week and one-year bills and two-year notes. A five-year note auction is slated for Wednesday and a seven-year note auction is scheduled for Thursday.

Normally, these Treasury auctions are not the biggest deal in the world. At this point, nearly everyone knows that Uncle Sam has an addiction to spending and that he needs a way to finance something in the order of $9 trillion in deficits, but what is curious is something I mentioned earlier this summer and that is who is buying the Treasury's various offerings.

I mentioned in a previous wrap that the Fed's balance sheet was rapidly expanding due to its rampant purchases of Treasuries, designed to give the impression that demand is more robust than it actually is. Well, I found more information over the weekend that indicates there is something to this theory. In fact, it is not a theory. In the second quarter, the Fed purchased $164 billion in Treasuries compared to a combined $130 billion for foreign entities and households. Foreign purchases of Treasuries declined 40% in the second quarter from the first quarter. Have a look at the chart below to see how bad the situation really is.

Treasury Purchases

With an eye toward Tuesday, it would not be surprising to see tepid volume as the Fed begins its two-day meeting and the economic docket thin. The Federal Housing Finance Agency is scheduled to release its July home price index at 10 A.M. EST. Economists are expecting 0.5% increase to follow up on the same increase in June.

There are a couple of earnings plays before the bell tomorrow. CarMax (KMX) is expected to post a profit of 18 cents a share. Carnival (CCL), the cruise operator, is expected to earn $1.18 a year and food maker ConAgra Foods reports as well. The average analyst estimate there is 34 cents a share.

Looking at the charts, Friday's closed hinted at a strong up move for the S&P 500 that did not materialize today, perhaps giving more ammunition to those that reside in the overbought camp. A string of closes below the 1068 area could take the index even further down, probably below 1060. The 1060 area should act as a support, but a violation of that level means 1045-1048 should come into play. From there 1022 becomes an issue.

Taking a fundamental and longer-term view, with the expectation that the financials will complete massive write-offs in the fourth quarter and that annual S&P earnings are expected to return to $41-$45 thereafter, a P/E ratio ratio of between 25 and 30 should be enough to get the S&P 500 above 1100, if not higher.

S&P 500 Chart

The Dow technicals paint a similar picture with patterns that usually mean a downside move is imminent turning quickly into upside breakouts. The 9820 area now appears to be acting as resistance though further closes below 9800 could bring the 9645 area into play. If the bulls can stave off all this overbought talk and break 9850, 9921 could be the next minor hurdle on the Dow's trip to 10000. If the Dow and S&P enter into consolidation patterns that could mean both indexes are vulnerable to downside breaks.

Dow Chart

The Nasdaq's Monday ''leadership'' likely does not mean much in the big scheme of things given the lukewarm increases, but the index's move to the psychologically important 2150 is worth watching. This is the next critical level for the Nasdaq to clear and if it fails there, a tumble down to 2122 could be in the works. For you indicator lovers, the 14-day RSI for the Nasdaq is just above overbought territory at 73.42 and the Stochastics show a steep overbought condition, residing near 96.

Nasdaq Chart

Tuesday will likely bring another lethargic day as a lack of scheduled catalysts and the Fed meeting will probably keep volume light. That said, the bulls do have an ideal opportunity to catch the bears sleeping and at least take back some of Monday's losses. If not, a second consecutive day of losses, even if those losses are muted, will only stoke the flames of the overbought/overextended crowd.

Keep in mind that since July 3rd, the S&P 500 has only declined for three consecutive two times, July 27-29 and August 31-September 2. In other words, this market is not accustomed to consecutive declines so it will be interesting to see if ''buy the dips'' holds up again tomorrow. I am filling in for Jim tomorrow, so I will see you again in 24 hours.


New Option Plays

Is The Correction Over?

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Best Buy Inc. - BBY - close: 38.45 change: +0.55 stop: 36.45

Why We Like It:
Shares of BBY have been under performing the retail sector and the S&P 500 the last several days but it appears the correction might be ending. The stock is bouncing from a test of its rising 50-dma and is relatively close to its long-term trendline of higher lows. This looks like a great spot to speculate on a rebound back toward the 2009 highs and beyond. I do consider this a more aggressive trade given BBY's recent weakness.

I am suggesting call positions now. Our first target to take profits is at $41.40. Our second target 46.50. The Point & Figure chart is bullish with a $54 target.

Suggested Options:
I am suggesting the October, November or December calls but my preference is for Decembers, specifically the December $40s.

BUY CALL OCT 40.00 BYY-JH open interest=6398 current ask $0.85

BUY CALL DEC 40.00 BYY-LH open interest=2992 current ask $2.40
BUY CALL DEC 42.00 BYY-LP open interest=1167 current ask $1.65

Annotated Chart:

Picked on September 21 at $ 38.45
Change since picked:       + 0.00
Earnings Date            12/16/09 (unconfirmed)
Average Daily Volume =        8.7 million  
Listed on September 21, 2009         



In Play Updates and Reviews

Still Waiting

by James Brown

Click here to email James Brown

Stocks pulled back on Monday but not enough to hit any of our triggers.


CALL Play Updates

Alcon Inc. - ACL - close: 140.29 change: +0.64 stop: 129.49

ACL displayed some strength and managed to close above round-number resistance at $140 in spite of the market dip. I would prefer to open new positions on a dip near $136 or $134. Our first target is $142.50. Our second target is $148.00.

Picked on September 10 at $136.75
Change since picked:       + 3.54
Earnings Date            10/21/09 (unconfirmed)
Average Daily Volume =        299 thousand 
Listed on September 10, 2009         


Allegheny Tech. - ATI - close: 34.87 change: +0.01 stop: 30.99

ATI bounced from its test of short-term technical support at the rising 10-dma. I'm not suggesting new positions at this time. ATI has already exceeded our first target. We're currently aiming for $37.00.

Picked on   August 31 at $ 30.25 *triggered         
Change since picked:      + 4.62
                               /1st target hit @ 33.85 (+11.9%)
Earnings Date           10/21/09 (unconfirmed)
Average Daily Volume =       2.7 million  
Listed on August 27, 2009         


Caterpillar - CAT - close: 52.46 change: -0.96 stop: 47.49

The pull back in the major averages was pretty light but CAT gave up almost 1.8%. I'm suggesting readers buy calls on a dip at $50.00. More conservative traders could try and hold out for a dip closer to $49.00. If we are triggered at $50.00 our first target is $54.50. Our second target is $59.00. FYI: The P&F chart is bullish with an $85 target.

Picked on September xx at $ xx.xx <-- TRIGGER @ 50.00
Change since picked:       + 0.00
Earnings Date            10/20/09 (unconfirmed)
Average Daily Volume =         10 million  
Listed on September 19, 2009         


CF Industries - CF - close: 89.02 change: -1.17 stop: 84.75

CF spiked lower this morning but found short-term support near $88.00. I would prefer to buy calls on dips near $86.00. Our first target to take profits is at $92.50. Our second target is $98.00. FYI: The P&F chart has a quadruple-top bullish breakout buy signal with a $99 target.

FYI: Agrium (AGU) is trying to buy CF but CF keeps rejecting the offer calling it too late. At the same time CF is trying to buy Terra Industries (TRA) and TRA keeps rejecting the offer calling it too low. Eventually one of these companies is going to give up or they're finally going to make a big enough offer or somebody else might step in and start bidding. There is a risk that someone bids too much and the market could think they overpaid, which might push the stock lower. This M&A dance has been going on for months and it will probably continue for months so I'm not expecting it to have much short-term impact on the stock. However, it's worth noting that CF recently filed a lawsuit to force TRA to hold their annual shareholder meeting. This way CF can try and vote some members onto the board of directors.

Picked on September 05 at $ 85.93
Change since picked:       + 3.09
Earnings Date            10/27/09 (unconfirmed)
Average Daily Volume =        653 thousand 
Listed on September 05, 2009         


Compass Minerals - CMP - close: 58.61 chg: -0.89 stop: 54.75

It proved to be a quiet session for CMP with the stock churning sideways. I would look for a dip back towards $56.00 before considering new positions. CMP has already hit our first target at $59.75. Our second and final target is $64.00. FYI: The Point & Figure chart has turned bullish with a $69 target.

Picked on September 03 at $ 55.55
Change since picked:       + 3.06
                               /1st target hit @ 59.75 (+7.5%)
Earnings Date            10/28/09 (unconfirmed)
Average Daily Volume =        415 thousand 
Listed on September 02, 2009         


Consol Energy - CNX - close: 46.98 change: +0.30 stop: 39.45

Hmm... CNX bounced from the $45.00 region and managed to close in positive territory. I'm tempted to buy small call positions right here with a tighter stop but for now we'll stick to the original plan.

I am suggesting readers buy calls on a dip at $42.50. If triggered our first target is $48.50. Our second target is $52.40. We'll plan to exit ahead of the late October earnings report. FYI: The Point & Figure chart is forecasting a $73 target.

Picked on September xx at $ xx.xx <-- TRIGGER 42.50
Change since picked:       + 0.00
Earnings Date            10/22/09 (unconfirmed)
Average Daily Volume =        3.0 million  
Listed on September 19, 2009         


Danaher Corp. - DHR - close: 67.66 change: -0.49 stop: 63.95

DHR is finally starting to correct. The stock has been short-term overbought for days. I would expect a correction toward the $65.00 level. Wait for the bounce before considering new positions. I'm upping our stop loss to $63.95. Our first target is $69.50. The Point & Figure chart is bullish with a $77 target.

Currently we only have half a position open to limit our risk given the aggressive entry point.

Picked on September 05 at $ 66.37 (buy 1/2 position)
               /originally listed at $65.76, gap higher entry @ 66.37
Change since picked:       + 1.29
Earnings Date            10/15/09 (unconfirmed)
Average Daily Volume =        2.4 million  
Listed on September 05, 2009         


Diamond Offshore - DO - close: 93.18 change: -0.81 stop: 88.49

DO dipped to $91.28 this morning and bounced. I'm surprised that this stock wasn't sold harder given the weakness in crude oil today. Readers can buy calls on this bounce or more conservative traders can wait for a bounce closer to $90.00. The plan was to use small position sizes.

We will take some money off the table at $99.90 (1st target). Our second target is $104.50. More aggressive traders can aim for $110. The P&F chart is forecasting a $114 target.

Picked on September 15 at $ 94.69 *adjusted entry point
Change since picked:       - 1.51
Earnings Date            10/22/09 (unconfirmed)
Average Daily Volume =        1.8 million  
Listed on September 12, 2009         


Flowserve - FLS - close: 98.18 change: +0.63 stop: 88.95

FLS displayed some relative strength with a rebound from its 10-dma and a close in positive territory. Our plan hasn't changed.

We want to buy calls on a dip into the $92.50-90.00 zone. More conservative traders can wait for the lower edge near $90.00. If we are triggered at $92.50 our first target is $99.25. Our second target is $107.50. However, we will plan to exit ahead of the late October earnings report. FYI: The P&F chart is bullish with a $128 target.

Picked on September xx at $ xx.xx <-- TRIGGER @ 92.50
Change since picked:       + 0.00
Earnings Date            10/28/09 (unconfirmed)
Average Daily Volume =        1.2 million  
Listed on September 19, 2009         


General Dynamic - GD - close: 63.64 change: -0.97 stop: 57.85

GD is still struggling under the $65.00 level. We're waiting for a dip to buy calls at $61.00.

Our first target is $64.90. Our second target is $69.00. Investors with a longer-term time frame may want to aim a lot higher. GD has produced an inverse H&S pattern that is forecasting an $85

Picked on September xx at $ xx.xx <-- TRIGGER @ 61.00
Change since picked:       + 0.00
Earnings Date            10/28/09 (unconfirmed)
Average Daily Volume =        2.3 million  
Listed on September 09, 2009         


Genesse & Wyoming - GWR - close: 31.93 change: -0.34 stop: 29.90

It was a quiet day for GWR with the stock trading sideways. I am still somewhat concerned by the relative weakness in the railroad sector. We've already taken profits once and our second target is $34.75. I am not suggesting new bullish positions at this time.

We want 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:      + 3.28
                              /take profits 09/16/09 @ 32.45 (+13.2%)
Earnings Date           11/03/09 (unconfirmed)
Average Daily Volume =       230 thousand
Listed on August 15, 2009         


Grainger W.W. - GWW - close: 90.04 change: -0.87 stop: 87.40

GWW spent most of the session trading sideways but there was a spike down about 30-minutes into trading. I suspect it's a bad tick but it looks like GWW spiked down to $87.90 three times between 9:55 and 10:00 this morning. The $88.00 level happens to be support bolstered by the rising 50-dma. I cautioned traders over the weekend that GWW would probably retest $88 again. Our first target is $93.50. Our second target is $97.50.

Picked on September 1 at $ 86.00 *triggered  
Change since picked:      + 4.04
Earnings Date           10/14/09 (unconfirmed)
Average Daily Volume =       635 thousand 
Listed on August 22, 2009         


Intl. Bus. Mach. - IBM - close: 121.57 chg: -0.54 stop: 117.75

Traders bought the dip at $120.88 this morning but that doesn't mean IBM won't slip lower toward $120.00. Broken resistance near $120 should be new support. I would look for dips near $120 as entry points. Our first target to take profits is at $126.00. Our second target is $129.75. We will plan to exit ahead of IBM's earnings report in mid October.

Picked on September 16 at $121.82
Change since picked:       - 0.25
Earnings Date            10/15/09 (unconfirmed)
Average Daily Volume =        5.3 million  
Listed on September 16, 2009         


iShares Financials - IYF - close: 53.22 change: -0.44 stop: 49.49

Financials led the markets lower in Europe today. When the IYF opened it gapped open lower near $53.00. I don't see any changes from my weekend comments. I would wait for a dip and a bounce from $52.00 or the $50.00 level before considering new bullish positions. Our first target is $57.00. Our second target is $60.00.

Picked on September 15 at $ 52.60 *triggered  
Change since picked:       + 0.62
Earnings Date            00/00/00
Average Daily Volume =        5.1 million  
Listed on September 01, 2009         


Mettler Toledo - MTD - close: 91.76 change: -1.11 stop: 86.95

After several days of gains MTD is starting to see some profit taking. Shares might have short-term support at $90.00 and then again at $88.00. MTD has already hit our first target at $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:      + 3.26
                             /1st target hit @ 93.50 (+5.6%)
Earnings Date           11/05/09 (unconfirmed)
Average Daily Volume =       234 thousand 
Listed on August 22, 2009         


Occidental Petrol. - OXY - close: 77.09 change: -0.06 stop: 73.75

I am surprised that OXY wasn't weaker given the sell-off in crude oil today. I would still wait for a bounce from $75 or $74 before launching new positions. OXY has exceeded our first target and we're currently aiming for $79.85 but I'm tempted to raise the second target toward $82.50. The P&F chart is bullish with a $92 target.

Picked on   August 27 at $ 72.00 *triggered         
Change since picked:      + 5.09
                    /1st target exceeded, gap higher @ 77.23 (+7.2%)
Earnings Date           10/28/09 (unconfirmed)
Average Daily Volume =       5.0 million  
Listed on August 26, 2009         


PPG Inds. Inc. - PPG - close: 59.69 change: +0.04 stop: 54.95

PPG managed to close in positive territory after traders bought the dip this morning. In spite of this strength the stock is still challenging resistance at $60.00. I would prefer to buy calls on a bounce from the $56-55 zone. PPG has already exceeded our first target and we're currently aiming for $63.00. The P&F chart is very bullish with a $90 target.

Picked on   August 28 at $ 55.65
Change since picked:      + 4.04
                             /1st target exceeded @ 60.05 (7.9%)
Earnings Date           10/27/09 (unconfirmed)
Average Daily Volume =       1.6 million  
Listed on August 27, 2009         


SPX Corp. - SPW - close: 62.91 change: -0.91 stop: 57.25

SPW is starting to retreat after a week of consolidating sideways. Our plan is to buy calls at $60.50. More conservative traders could try and wait for a dip near $58.50 instead. If triggered our first target is $64.00. Our second target is $68.50.

Picked on September xx at $ xx.xx <-- TRIGGER @ 60.50
Change since picked:       + 0.00
Earnings Date            10/28/09 (unconfirmed)
Average Daily Volume =        570 thousand 
Listed on September 12, 2009         


SOHU.com Inc. - SOHU - close: 68.86 change: -0.41 stop: 63.25

SOHU is still correcting and we could see the stock hit our trigger at $67.50 soon. More conservative traders may want to wait for a dip closer to the $66.00-65.00 zone.

Our first target is $72.50. Our second target is $77.00.

Picked on September xx at $ xx.xx <-- TRIGGER @ 67.50
Change since picked:       + 0.00
Earnings Date            10/26/09 (unconfirmed)
Average Daily Volume =        577 thousand 
Listed on September 15, 2009         


State Street (Bank) STT - close: 52.26 change: -2.13 stop: 49.45

Yuck! STT was weak the entire day. The banking sectors were down but only traded sideways after the initial dip. STT couldn't find the brakes to slow down. More conservative traders may want to exit early right here. I'm not suggesting new bullish positions at this time.

STT has already hit our first target. 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:      + 0.26
                             /1st target hit @ 55.00 (+5.7%)
Earnings Date           10/13/09 (unconfirmed)
Average Daily Volume =       5.3 million  
Listed on August 19, 2009         


United Health - UNH - close: 28.59 change: +0.01 stop: 27.49

It was a forgettable day for UNH with the stock trading in a narrow range.

Right now the plan is to buy calls on a breakout with a trigger at $30.55. If triggered our first target to take profits is $34.50. Our second target is $37.50.

FYI: Readers may want to consider a strangle or a straddle on this stock instead. That way you don't care what direction it moves. Just make sure you give yourself enough time.

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: 35.85 change: -1.27 stop: 34.95

Oil made headlines today. A bounce in the U.S. dollar pushed crude oil futures lower. When the stock market opened the USO gapped open lower to catch up with oil prices. The USO is now testing technical support at its 100-dma and the trendline of higher lows. A breakdown here would be pretty bearish. More conservative traders may want to raise their stops a little toward $35.50. We can buy calls on a bounce from here but the top of the gap near $37.00 is now short-term resistance.

Our first target is $39.95. Our second target is $42.50.

FYI: This pull back to support would make a good entry point for some sort of neutral strategy like a straddle or a strangle.

Picked on   August 31 at $ 36.50 
Change since picked:      - 0.65
Earnings Date           00/00/00
Average Daily Volume =      11.5 million  
Listed on August 15, 2009         


Waters Corp. - WAT - close: 56.30 change: +0.98 stop: 49.30

WAT is surging higher without us. The stock was upgraded this morning and shares hit $57.32 before paring its gains. We're still sitting on the sidelines waiting for a dip.

Currently the plan is to buy calls on a pull back at $53.50. If triggered our first target is $59.50. The P&F chart is bullish with a $69 target. We do not want to hold over the mid October earnings report.

Picked on September xx at $ xx.xx <-- TRIGGER 53.50
Change since picked:       + 0.00
Earnings Date            10/20/09 (unconfirmed)
Average Daily Volume =        809 thousand 
Listed on September 12, 2009         


PUT Play Updates

*Currently we do not have any put play updates*


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.)

Cigna Corp. - CI - close: 31.75 change: -0.09 stop: n/a

There is nothing new to add to my prior comments on CI. I would still consider new strangles on a dip in the $30.25-29.75 zone but readers may want to use November or January options instead.

The options I suggested were the October $35 calls (CI-JG) and the October $25 puts (CI-VE). Our estimated cost was $1.20. We want to sell if either option hits $2.50 or higher. The closer we can open this trade to $30.00 the better.

Picked on September 08 at $ 29.40
Change since picked:       + 2.35
Earnings Date            11/05/09 (unconfirmed)
Average Daily Volume =        3.8 million  
Listed on September 08, 2009