Option Investor
Newsletter

Daily Newsletter, Saturday, 5/22/2010

Table of Contents

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

Market Wrap

One-Day Rebound Or Reversal Of Downward Trend?

by Todd Shriber

Click here to email Todd Shriber
U.S. stocks rebounded from Thursday's down draft, the biggest losing day in a year, on news that Germany approved its share of the $1 trillion European bailout package and investor sentiment that indicated recent selling was a bit overdone.

After losing 376 points on Thursday and seeing all 30 of its constituents finish that day lower, the Dow Jones Industrial Average gained 125 points on Friday to close at 10,193.39. The only Dow components to finish the day lower were AT&T (T) and Microsoft (MSFT). The S&P 500 gained 16.1 points to settle just below 1088 and the Nasdaq finally showed some signs of life, adding 25 points to close at 2229.04. All around, a good one-day performance, but not enough to keep the Dow and S&P 500 from losing more than 4% on the week. The Nasdaq was down more than 5% for the week.

Stats Table

As I have been saying all week, riskier assets have not been in favor, but for one day at least, they seemed to be back in vogue. The Euro rose the most in eight months against the U.S. Dollar as forex traders unwound bearish positions on the pair. The Euro had been hovering near four-year lows against its American counterpart for most of the weak and plenty of pundits were calling for a technical bounce.

Short-covering was another catalyst to boost the Euro on Friday. It is hard to be short any security that can be considered ''high beta'' heading into the weekend these days. After all, you never know what kind of news is going to emerge from the Eurozone. That said, short-covering and a technical bounce do not represent changes to the Euro's fundamentals. In other words, the common currency is far from out of the woods and it could be just stabilizing or consolidating before another leg lower starts to form.

There are other interesting goings on among other major currencies as well. Both the Australian Dollar and Swiss Franc saw substantial declines this week, prompting speculation that the central banks in those countries intentionally intervened in the currency market. The difference being the Reserve Bank of Australia would do so to prop up its currency while the Swiss National Bank would move to weaken the Franc against the Euro.

Euro/Dollar Chart

Speaking of riskier assets, the one-day respite from fretting over Europe and the strength of the global economic recovery helped select commodities enjoy some bullish trade on Friday. In the case of crude oil, the trading was just less bad (and only moderately so) than it had been over the past several days. The July contract made its debut on Friday, falling 76 cents, or 1.07%, to $70.04 per barrel. For those bullish on oil, seeing crude futures continue to tumble on day when stocks moved higher is not an encouraging sign.

Decoupling of equities and oil is problematic for oil bulls because the two asset classes share an intimate correlation with each other, at least a fair amount of the time. Remember oil prices plunged along with stocks in late 2008 and early 2009 only to rebound with equities off the March 2009 lows. More recently, the S&P 500 and crude prices moved in tandem about 90% of the time in the past month, according to Bloomberg News.

That is below the 94% correlation level seen in mid-March, but you get the picture. Actually, this is really a case of what comes first, the chicken or the egg? Energy stocks account for about 11% of the S&P 500's sector weight and the index is cap-weighted, meaning the companies with the biggest market caps account for the biggest percentages of the index. That means Exxon Mobil (XOM) is the most prominent member of the index.

Bottom line: Do not expect a lot of days of stocks moving higher while oil moves lower and vice versa.

Oil/Stocks Correlation

Copper prices did catch a bid on Friday, rising the most in three months on news that China will continue its voracious appetite for the red metal. The world's largest country imported almost 310,000 tons of copper last month, but copper prices had been hammered as risk appetite waned due to the European debt crisis.

Copper for July delivery gained 11.65 cents, or 4%, to close at $3.061 on Friday, but copper futures are still down almost 9% this year, due in large part to declines in China's equity markets.

Copper Chart

There was plenty of positive trade to go around in the materials sector on Friday, a welcomed change for a group that has suffered mightily at the hands of Europe's debt contagion. In the past month, the iShares Dow Jones US Basic Materials ETF (IYM) and the Materials Select SPDR (XLB) are down about 12% while the Market Vectors Coal ETF has been thrashed to the tune of 20%. All three were up at least 2.46% on Friday.

In terms of individual materials names, Bucyrus (BUCY) was up almost 6% while Cliffs Natural Resources (CLF) and Joy Global (JOYG) gained almost 7%. The materials sector was so strong that even embattled Massey Energy (MEE), whose executives were on Capitol Hill earlier this week attempting to atone for the Upper Big Branch mine tragedy, gained almost 4%. Not to be outdone was one of my old favorites, Freeport McMoRan (NYSE: FCX). Freeport gained 5.3% on Friday, but that does not hide the fact that the stock was flirting with $90 in early April. The shares closed at $67.01 on Friday now reside almost exactly in the middle of their 52-week range.

Freeport McMoRan

Financials were another sector seeing some relief on Friday. The Senate passed its version of the financial reform bill on Thursday night, putting Congress on the doorstep of passing the most substantive reforms for this industry in seven decades. The House and Senate must reconcile their bills and press reports are saying Democrats hope to have the bill on President Obama's desk by early July.

Financials' move higher on Friday was a case of markets liking clarity mixed in with some buying in yet another sector that may qualify as oversold. Bank of America (BAC), JPMorgan Chase (JPM) and Goldman Sachs all traded higher by at least 3.3% on Friday despite the fact that this bill does propose a host of tighter controls on the banking industry.

At the least industry now knows reform is imminent and the market can price that into these stocks if it has not done so already. The House version of the bill seeks to collect $150 billion in fees from banks for use in liquidating a failed financial version, but at their core, both the House and Senate versions are attempting to make sure if another Lehman Brothers scenario occurs, the failed institution will not roil markets the way Lehman's collapse did.

The Senate bill does place tighter restrictions on proprietary trading, a major source of revenue firms like Goldman and JPMorgan, and other speculative activity and instruments like credit default swaps, so it may have been surprising to see that financials were the biggest gainers among the S&P 500's 10 industry groups on Friday. At the end of the day, the banks know what they have to deal with and that was apparently worth something on Friday. Shares of Mastercard (MA) were even upgraded by Oppenheimer to ''buy'' from hold'' following the news and that helped the stock gain 4.1% on the day.

XLF Chart

Adding to the Friday cheer was some mergers and acquisitions news. I guess the companies involved could not wait a few more days to announce the news on Merger Monday, but that is their pregogative and by Friday, the market could have used good news in any form. Sanford C. Bernstein published a research note at the end of 2009 indicating that global M&A activity would pick up by about 35% this year and while I am not sure exactly what the pace is on a percentage basis thus far in 2010, M&A activity has been brisk and is rebounding from a recession-induced decline.

M&A Activity

On Friday, Abbott Laboratories (ABT) said it would acquire India's Piramal Healthcare, a generic drug producer, for $3.7 billion. Abbott will pay $2.12 billion to start then $400 million a year for four years. Acquiring Piramal makes Abbott the top pharmaceutical firm in India, Asia's second-fastest growing economy and the second-largest country in the world by population, with a 7% market share. The company expects $8 billion in sales from India this year and for that total to double by 2015.

Abbott will use some of its free cash to fund the purchase and the company said it did not expect the transaction to affect earnings estimates. This is Abbott's second major international purchase this year after acquiring Belgium's Solvay Pharmaceuticals for $6.2 billion in February, another purchase aimed bolstering Abbott's presence in emerging markets. Emerging markets now account for about 20% of Abbott's sales.

Most of the major European and North American pharma companies are pushing their way into emerging markets these days. A smart and necessary move given increased competition from generic pharmaceuticals firms, weak new product pipelines and the long list of expiring patents big pharma companies have to contend with.

Abbott Chart

In other M&A news, auto parts maker Johnson Controls (JCI) offered $1.25 billion for rival Visteon (VSTNQ). Notice the ''Q'' in the ticker there. That means Visteon is currently in Chapter 11 bankruptcy. Johnson Controls said the deal, if an accord is ever reached, would help it boost its presence in China.

Visteon is apparently leery of the offer, saying information on critical details is lacking and it could just be a way for Johonson Controls to drag a vulnerable rival out of bankruptcy. Visteon call the offer ''highly conditional and vaguely defined.''

Visteon said it has had ''difficult'' dealings with Johnson Controls in the past and that it is possible that the latter is trying to muck up the former's bankruptcy proceedings, which according to Visteon are at a critical point. I never thought of the auto parts sector as one with a flair for the dramatic, but that may be changing.

Johnson Controls Chart

Another sector benefiting from the ''it may finally be time to do some buying'' theme was the oil services group. Diamond Offshore (DO) was another name that Oppenheimer upgraded on Friday, helping the shares gain almost 4%. Oppenheimer said the recent tumble by oil services names ''could represent a buying opportunity.'' That helped the Oil Services HOLDRs ETF (OIH) jump $2.70, or 2.68%, to $103.52. The ETF has lost more than 20% since the April 20 explosion at the Deepwater Horizon rig in the Gulf of Mexico.

OIH Chart

In earnings news, semiconductor maker Marvell Technology (MRVL) added $1.48, or 8.3%, to settle at $19.32 after the company reported firs-quarter results that handily beat Wall Street estimates. The maker of circuits used in the BlackBerry mobile device also surprised investors by forecasting second-quarter revenue of $900 million to $930 million, well above the Street estimate of $864.8 million. Marvell said new products from BlackBerry maker Research In Motion (RIMM) are helping drive second-quarter growth.

Marvell Chart

Looking at the charts, it looks like the lows brought about by the May 6 flash crash acted as support on Friday because the major U.S. indexes did open lower and it looked like Friday was going to be another bloody day. In fact, the Dow was down by triple digits early in the session before reversing course. Friday's gain was still not enough to get the Dow back above its 200-day moving average at 10,262, which is likely the next resistance point.

From there, previous support levels that we previously discussed are likely to turn into new resistance. I am talking about 10,350, 10,500, 10,750, etc. Of course that assumes that the bulls are ready to take control again. If the Dow does not hold above 10,000, I would still be looking at 9850-9875 as I mentioned on Thursday.

Dow Chart

Similar comments can be made about the S&P 500. The 1100 area faltered as support, but the index was able to move above 1085 yesterday. Assuming that old support area turned into new resistance, it was a positive sign to see the index move back above that level. Now 1100 needs to be dealt with again. The S&P 500 had some problems just over 1100 in January, but took out that resistance relatively easily in March, but I am not betting on an easy road back to 1200 this time around.

The best thing that can be said about the index's behavior on Friday is that a bounce of 1065 was seen and 1050 was never in question.

S&P 500 Chart

At least the Nasdaq was able to reclaim its 200-day line on Friday, though it is probably little compensation for tech bulls that have been punished mightily in recent weeks. I am very apprehensive about suddenly turning bullish on tech just because of one decent day and even if the Nasdaq can find its way back above 2250, the index is going to face formidable resistance at various points if it hopes to add another 100 points from there. Overall, if the market weakens against next week, I still think 2185 is going to come into play.

Nasdaq Chart

As for small-caps, I noted on Thursday that the Russell 2000 needed to find support at its 200-day line or risk being punished even more. Well, the index did bounce off that area, around 628, and closed just below 650, which could prove to be a new resistance point. I would be very cautious around the 650 area on the Russell 2000. No matter how you slice it, the index gained just over 1% on Friday after shedding more than 5% on Thursday and that is not a bullish two-day trend.

Russell 2000 Chart
%IMG15

We all know the old expression that stocks do not move up in a straight line and they do not always fall without some faint attempts by the bulls to stop the declines. The selling was probably a tad overdone heading into Friday and there were some headlines for stocks to benefit from, along with an options expiration day. I am going to wait for confirmation that a real rally is starting again before changing my tone. As I said earlier, unless oil starts to firm up, any move higher for equities could be short-lived.


Index Wrap

Possible Double Bottom

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

I noted last week that a second bearish down leg often carries farther than lows seen on an initial decline. Another common occurrence is for prior lows to be re-tested with a subsequent rebound setting up a possible double bottom.

In this past week, my closely followed technical model of market sentiment finally flashed its first 'cry uncle' daily sentiment reading. The CBOE daily equities call to put volume ratio finally tipped to a bullish 'oversold' extreme with almost as many puts bought on Thursday as calls. Now that the market has retraced ALL of its first down leg, traders are now brilliantly poised for the next 1000 point decline! As brilliantly poised as they were ready for the Dow to move to 12000.

I suspect a double bottom low has sat up. Time will tell on that score. The second down leg, possibly still in progress, could go lower still and fulfill the common pattern where down leg 'c' is longer than the first (the 'a' portion) sell off; sometimes as long as a fibonacci 1.6 times the first decline.

Given the (so far) successful retest of prior lows, the recent oversold (extreme bearishness) sentiment reading and the low Relative Strength Index (RSI), the odds of another down leg from current levels is slim. At least not without a period of sideways consolidation and some attempt(s) to rebound.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) is bearish in its pattern, with potential for a double bottom low assuming there's no decisive downside penetration of Friday's 1056 low; a level a bit under the early-May intraday bottom, with anything that close a possible double bottom nevertheless. Double bottoms are only proven over time, so there has also has to be some tendency for buying in the area between the Friday 1087 close and the recent 1056 low.

Near resistance is 1120, then up in the 1150-1160 area.

Near support is 1066-1070, with next support assumed in the area of the 1045 early-February low.

Both the RSI and my Sentiment indicator hit fully oversold extremes and now may not be the exact time to buy but it's no time to short this market either.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) continues bearish but with the same potential for a double bottom to be in place or to be forming. To date there have been three important lows made around 481-482. If the May lows hold up, the chart would suggest a February-May double bottom. A secondary double bottom would be if the two May declines having the same approximate low, plus or minus a couple of points. The chart pattern, along with the recent oversold extreme seen on the 13-day RSI, would suggest a sideways to higher move near-term.

Near resistance is at 500, a prior key support, and next up in the 520 area.

Near support is in the low-480 area, with next lower support at 440-447.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) chart is bearish like the others and with the same potential for a double bottom. I noted last week that of the 30 INDU stocks, only BA, HD, KFT, and MCD looked capable of mounting much of a rally; and that small pocket of 'strength' much due to buying of consumer defensive stocks. Sure enough, further selling tipped the Average south again big time this past week.

It happens with INDU, unlike SPX and OEX, that the recent Dow low was a bit above its prior (reported) low; a potential double bottom anyway. It’s probably safe to say (as much as anything in this volatile period) that dips under 10000 will bring in buying interest in key INDU stocks and will support the Dow.

Near support at my green support up arrow is at 9870, but I should also note the 10000 area as immediate expected support.

Near resistance looks like the 10400 area, then at 10500.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) Index has the same potential for a double bottom low, perhaps more so than the S&P. This is potential only at this point within a bearish chart. There is the possibility of a further slip back to the 2100 area and a retest of the February bottom.

For the double bottom possibility, COMP should continue to hold its recent low to 2186. I've noted initial support at 2186, with next key chart support at 2100.

Near resistance begins in the 2250 area and extends to the top of the recent downside chart gap at 2270. Next resistance then begins around 2350.

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) chart mirrors the Composite as mixed: the chart is bearish, but there's a recent low that's a bit above the low of the first sharp downswing. Given that the first decline was under clouded trade circumstances so to speak, NDX 'held' where it needed to in terms of suggesting that NDX has seen the low end of a trading range for now.

Buying interest at 1890-1900 caved and the slide continued mid-week until buying interest surfaced below 1800. It seems that 1770 to 1755 is the sweet spot for those looking to buy the dips.

Tough resistance is seen at 1850 at the top end of downside gap, then at 1900. A couple of closes above 1900 is needed to suggest NDX had begun to reestablish a bullish footing.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq tracking stock (QQQQ) continues in its bearish pattern but the chart now offering up the possibility that the 44-43 zone is going to be the low end of upcoming trading; e.g., looking out into mid-June.

Support is at 44, extending to 43. Resistance begins at 45.5 and extends up to the 47 area.

The On Balance Volume (OBV) line turned up on Friday along with prices. A possible secondary signal for at least a temporary low.

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) is no longer the hold out index with a still-bullish pattern. In the case of RUT, the index finally broke under its long-term up trendline, reflecting its declining upside momentum.

So far, support has developed on dips toward its 200-day moving average, an area that money managers would favor with the generally still-favored (as a 'theme') small to mid cap universe.

Support at the moving average comes in around 628, with next support at 620, then down to as low as 580.

Near RUT resistance is at 660, 670, with pivotal resistance at 700.

GOOD TRADING SUCCESS!



NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS

CHART MARKINGS:

1. Technical support or areas of likely buying interest and highlighted with green up arrows.

2. Resistance or areas of likely selling interest and notated by the use of red down arrows.

I WRITE ABOUT:

3. Index price areas where I have a bullish bias or interest in buying index calls, selling puts or other bullish strategies.

4. Price levels where I suggest buying index puts or adopting other bearish option strategies.

5. Bullish or Bearish trader sentiment and display the graph of a CBOE daily call to put volume ratio for equities only (CPRATIO) with the S&P 100 (OEX) chart. However, this indicator pertains to the market as a whole, not just OEX. I divide calls BY puts rather than the reverse (i.e., the put/call ratio). In my indicator a LOW reading is bullish and a HIGH reading bearish, consistent with other overbought/oversold indicators.

Trading suggestions are based on Index levels, not a specific option (month and strike price) and entry price for that option. My outlook often focuses on the intermediate-term trend (next few weeks) rather than the next several days of the short-term trend.

Having at least 3-4 weeks to expiration tends to be my guideline for trade entry choice. I attempt to pick only what I consider to be 'high-potential' trades; e.g., a defined risk point would equal in points only 1/3 or less of the index price target.

I tend to favor At The Money (ATM), In The Money (ITM) or only slightly Out of The Money (OTM) strike prices so that premium levels are not as cheap as would otherwise be the case, which helps in not overtrading an account. Exit or stop points, as well as projected profitable index price targets, are based on my technical analysis of the underlying indexes.


New Option Plays

Long and Short Candidates

by Scott Hawes

Click here to email Scott Hawes


NEW DIRECTIONAL CALL PLAYS

Morgan Stanley - MS - close 27.11 change +1.47 stop 26.50

Company Description:
Morgan Stanley is a financial holding company. Through its subsidiaries and affiliates, the Company operates as a global financial services company that provides its products and services to a diversified group of clients and customers, including corporations, governments, financial institutions and individuals. It operates through three business segments: Institutional Securities, Global Wealth Management Group and Asset Management. In May 2009, it divested all of its remaining ownership interest in MSCI Inc. During the year ended December 31, 2009, Morgan Stanley disposed its former real estate subsidiary, Crescent Real Estate Equities Limited Partnership. On May 31, 2009, the Company and Citigroup Inc. (Citi) consummated the combination of the Company's Global Wealth Management Group and the businesses of Citi's Smith Barney in the United States, Quilter in the United Kingdom and Smith Barney Australia. The combined businesses operate as Morgan Stanley Smith Barney Holdings LLC. (source: company press release or website)

Target(s): 28.50
Key Support Areas: 26.40, 25.64
Key Resistance Areas: 27.25, 28.00
Time Frame: 1 to 2 weeks

Why We Like It:
This trade is a counter trend play on the financial sector and MS which are both extremely oversold. With the financial regulation bill finally moving forward the sector has more clarity and I believe the financials are due for a bounce along with the overall market. MS created a huge green candlestick on Friday and I believe the stock is poised to move higher in the coming days. I would like to see MS retrace some of the gains from Friday prior to entering so I have listed a trigger at $26.60 to initiate long positions.

Suggested Position: June $27.00 CALL if MS trades down near $26.60, current ask $1.54, estimated ask at entry $1.30

Annotated Chart:

Entry on May xx
Earnings Date: More than 2 months (unconfirmed)
Average Daily Volume: 25 million
Listed on 5/19/10


NEW DIRECTIONAL PUT PLAYS

IAC/Interactive Corp - IACI - close 21.48 change -0.00 stop 23.10

Company Description:
IAC/InterActiveCorp. (IAC) is an Internet company with more than 50 brands serving consumer audiences across more than 30 countries. The Company operates in four business segments: Search, Match, ServiceMagic and Media and Other Businesses. The Company’s Search segment consists primarily of Ask.com and other destination search Websites through, which it provides search and related advertising services. The Company is a provider of subscription-based online personals services in the United States and various jurisdictions abroad. ServiceMagic is an online marketplace that connects consumers, by way of technologies, with home and other local service professionals, all of which are pre-screened and the majority of which are customer-rated. The Company’s Media and Other segment consist primarily of Shoebuy, Pronto, Connected Ventures, Evite, Gifts.com, InstantAction.com, The Daily Beast and Electus. (source: company press release or website)

Target(s): 20.50, 20.05
Key Support Areas: 21.15, 200-day SMA
Key Resistance Areas: 22.04, 22.30, 22.80
Time Frame: Several Weeks

Why We Like It:
IACI's chart looks bad and it is barely hanging on to an upward trend line that began in March 2009. I'm expecting a bounce in the stock but I think the bounce will be short lived and I suggest readers initiate short positions when that happens. I have listed two areas for possible entries of short positions: If PCS retests its highs from Thursday near $21.90 or if the stock fills the gap down from Wednesday to Thursday (5/19 to 5/20) near $22.25. I have listed 3 targets that I expect IACI to trade down to in the coming weeks: $20.50, $20.05, and $19.50. I also like the 2:1 risk/reward ratio of this trade set-up: depending on the entry/exit prices, we are essentially risking about $1.00 to make $2.00 or more. Our stop is $23.10 which is 50-day SMA. It will take a monumental effort for IACI to get back up to this level.

Suggested Position: June $22.50 PUT, current ask $1.60, estimated ask at entry $1.25.

Annotated chart:

Entry on May xx
Earnings More than 2 months (unconfirmed)
Average Daily Volume: 1.4 million
Listed on May 22, 2010


In Play Updates and Reviews

Nice Payday From Our Puts Last Week

by Scott Hawes

Click here to email Scott Hawes

Editor's Note:

Good evening. Last week was extremely volatile which forced us to close most positions in our portfolio due to targets and stops being hit. The volatility is making things extremely difficult to manage and also making our time in the trades quicker than we anticipated. But the volatility also brings opportunity with it. Our winners gained much more than our losers last week. We are now biased more to the long side, at least early this week, as I am anticipating a relief rally in the markets. I am in the camp that we will be in a trading range for several weeks if not months and that we are currently near the bottom of that range. In the S&P 500 I think 1,050 to 1,115 or slightly higher is the shorter term range to focus on. Please feel free to email me with any questions.

Current Portfolio:


CALL Play Updates

EMC Corp. - EMC - close 17.96 change +0.28 stop 16.95

Target(s): 18.20, 20-day SMA, 18.70
Key Support Areas: 17.65, 17.55, 17.45, 17.10
Key Resistance Areas: 17.80, 18.00, 18.50, 18.85
Current Gain/Loss: +8%
Time Frame: 1 to 2 weeks
New Positions: Yes, on weakness with a tight stop

Comments:
EMC gapped down with the rest of the market on Friday but immediately rebounded and closed near its highs of the day, +1.58% higher. The stock is now battling its long term pivot level dating back to June of 2007 at $18.00. EMC is finding support on a trend line that began with the 9/3/09 lows to 2/5/10 lows, and finally the flash crash lows on 5/6/10. But the stock still faces overhead congestion like many others. If EMC can get over $18.00 we should hit our first target at $18.20. Our more aggressive second target has been lowered to $18.70 which is just below the stock's 50-day and 20-day SMA's. I've also listed the 20-day SMA as a target and urge readers to exit positions if the stock trades anywhere near this level. If EMC trades to $18.20 our options should be worth about 83 cents which is a +27% gain. I suggest taking profits or tightening stops at this level to protect capital and protect against a reversal. EMC could trade up to its 50-day SMA if the bounce in the overall market can continue this week. With the extreme up and down volatility and oversold conditions we could easily see a continued short covering rally creating a sharp move higher and if that happens I suggest taking profits.

Current Position: June $18.00 CALL, entry at $0.65.

Annotated Chart:

Entry on May 20, 2010
Earnings Date: More than 2 months (unconfirmed)
Average Daily Volume: 25 million
Listed on 5/19/10


Hewlett Packard Co - HPQ - close 46.58 change +0.63 stop 44.60

Target(s): 48.20, 48.60, 49.70
Key Support Areas: 46.00, 45.11, 44.80
Key Resistance Areas: 46.75, 48.25, 48.70, 50.00
Current Gain/Loss: -7%
Time Frame: Several weeks
New Positions: Yes, on weakness with a tight stop

Comments:
I'm expecting follow through to the upside in HPQ after Friday's price action. But we are not trying to hit a home run here. I want to book a profit when the opportunity presents itself. Our targets listed above are logical exit points. I am also keeping an eye on the declining 20-day SMA. HPQ has not touched this SMA since 4/27 and it is overdue to get there. It appears this is going to correspond nicely with our targets or $48.20 and $48.60. If HPQ can continue the bounce to these levels our options should be worth north of $2.00 which would represent a +40% to +50% gain. I will gladly take profits at those levels. HPQ closed right at a key level for the stock near $46.60. If it can breakout above this level we should be on way to reaching our target. There is support below at $46.00. HPQ is a quality company and that has great fundamentals and is trading at 11 times forward earnings estimates. I'm viewing the recent pullback as opportunity to enter a quality name that may catch a bid as investors flee from more speculative names.

Current Position: JUNE $47.50 CALL, entry was at $1.47

Annotated Chart:

Entry on May 19, 2010
Earnings Date More than 2 months (unconfirmed)
Average Daily Volume: 16 million
Listed on May 18, 2010


PUT Play Updates

NONE. All PUTS CLOSED THURSDAY ON MARKET WEAKNESS.