Option Investor
Newsletter

Daily Newsletter, Wednesday, 8/18/2010

Table of Contents

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

Market Wrap

S&P 500 Tests 1100 Again

by James Brown

Click here to email James Brown

Market Stats

The S&P 500 posted its third day of gains this week but the rally failed near resistance at the 1100 level for the second day in a row. There was an absence of any significant economic data on Wednesday but investors continued to digest late season earnings news from the likes of Target, Analog Devices, and Deere & Co. The dollar managed a minor bounce after two days of declines. Bonds eked out a small gain. Commodities bounced back from their intraday lows with gold up $3.10 to $1,231.40 an ounce. Crude oil closed down 47 cents at $75.30 a barrel. The EIA reported that oil inventories declined by 800,000 barrels, which was much less than expected. We are quickly running out of oil storage at Cushing, Oklahoma.

Foreign markets were mostly lower. Japan and India were exceptions with the Japanese NIKKEI index edging up +0.9%. This follows a new eight-month low the NIKKEI set yesterday. Strength in the yen against the dollar makes Japanese exports more expensive in the U.S. and it's having an impact on the Japanese stock market. Meanwhile India's Sensex index delivered a +1.15% gain. The Chinese market was quiet. The Chinese Shanghai index slipped -0.21% and the Hong Kong Hang Seng fell -0.54%.

The 16-nation eurozone reported a better than expected rise in construction output for June, which rose +2.7% versus +0.7% in May. The data was buoyed by a +7.2% jump in Spain's construction. Germany, Europe's biggest economy, saw construction output fall -0.9% but that was better than the -1.9% decline in May. Unfortunately investors pretty much ignored the report. Overall banks and commodity-related stocks led the decline in Europe. The German DAX index fell -0.32%. The French CAC-40 lost -0.41%. The English FTSE gave up -0.89%.

Yesterday traders reacted to the PPI data and industrial production numbers. Today the only news was corporate earnings and the Potash/BHP deal. Shares of POT rallied another +3.3% to a new two-year high near $148 following yesterday's +28% gain on the BHP Billiton $38.5 billion takeover offer. As you know POT initially rejected the offer and now BHP has moved into hostile takeover mode. There was a lot of speculation about POT today and a few analysts are expecting the final bid price to reach $160 a share. Normally, merger and acquisition news is considered bullish for the market since it is a sign of confidence by management to spend your cash on acquisitions instead of hoarding it.

While on the topic of M&A news a Citigroup analyst issued his opinion that the homebuilders are poised for a significant round of mergers. The U.S. residential real estate market is still struggling with new home sales falling and building permits sliding after the expiration of the tax credit. In an effort to build up market share the major players may resort to acquisitions. Josh Levin is the analyst and he believes D.R.Horton (DHI), KB Home (KBH), MDC Holdings (MDC), and Pulte Group Inc. (PHM) are likely buyers. The potential targets are Beazer Homes USA Inc. (BZH), Meritage Homes Corp. (MTH), and Ryland Group Inc. (RYL). It is worth noting that the entire group appears to be rebounding from the bottom of a two-month consolidation near their 2010 lows. The DJUSHB home construction index rose +1.6% for the day.

During the session earnings were the major headlines. After Home Depot and Wal-Mart's earnings reports yesterday, Target (TGT) led the earnings parade. Target Corp. is the country's second largest discount retailer. They reported a profit of 92 cents a share on revenues of $15.53 billion this morning. The EPS number matched estimates but revenues were a little under estimates of $15.62 billion. Shares of TGT gapped open lower this morning but traders bought the dip as TGT's management sounded more confident about the second half of this year. Same-store sales rose +1.7% and gross margins inched up a tenth of a percent to 32.0%. TGT said traffic was strong and their credit card division did very well. TGT expects to earn 68 cents in the third quarter and $1.38 in the fourth this year.

Another retailer reporting today was BJ's Wholesale Club, the company competes with Costco (COST) and Wal-Mart's Sam's Club. Shares of BJ had surged +27% in the first three weeks of July but the stock has since cut those gains in half. BJ reported this morning and missed estimates by 6 cents with a profit of 67 cents a share. Adding insult to injury was negative guidance where BJ expects 2011 earnings to hit $2.40-2.50 a share versus Wall Street's estimates of $2.68. The stock gapped down near $41.50 at the opening bell but managed to trim its losses with a -2.7% decline to $42.14.

Yet another retailer making headlines today was American Eagle Outfitters (AEO). There is growing speculation that AEO, and its 1,000 apparel stores, might be a takeover target - at least that is what the option market is suggesting. There was a huge jump in call option activity. The busiest strike price was the September $13 calls. The stock rallied +4.2% on Wednesday to close at $12.84. The stock has been churning sideways in the $11.50-13.00 zone for over two months. AEO is due to report its Q2 earnings on August 25th before the opening bell. Wall Street expects a profit of 13 cents a share.

Deere & Co. (DE), the largest producer of farm equipment and an S&P 500 component, reported earnings before the bell this morning. Wall Street was expecting a profit of $1.22 a share on revenues of $6.5 billion. DE delivered $1.44 a share on revenues of $6.22 billion. This is a significant improvement from a year ago with profits doubling from Q2 2009. Unfortunately, DE issued some mixed guidance for the fourth quarter. Management expects Q4 revenues to come in at $6.24 billion, which is above analysts' estimates, but DE sees Q4 profits around $375 million, which is under expectations. Shares fell 1.8% today but that's pretty minor considering the +21% gain off DE's July lows.

The technology sector got some news from the semiconductor industry with earnings from ADI and AMAT in the last 24 hours. Analog Devices Inc. (ADI) reported earnings last night after the market's closing bell. The company reported earnings that were 5 cents better than expected with a profit of 65 cents a share. Revenues surged +46% to $720 million, besting estimates of $706.5 million. The company said their backlog continues to grow and management raised guidance. ADI now sees Q4 earnings in the 68-72 cent range on revenues in the $740-770 million zone. Wall Street was expecting Q4 results of 61 cents on revenues near $715 million. The stock gapped open higher and posted a +4.4% gain for the session. Shares remain inside their four-month old, $27-31.50 trading range.

The results from Applied Materials (AMAT) were more disappointing. The world's biggest manufacturer of semiconductor-making equipment missed estimates by 8 cents with a profit of 17 cents a share. The 17 cents might not compare to consensus estimates and Reuters is suggesting that AMAT actually beat expectations with a profit of 29 cents versus Wall Street's 25 cent estimate. Revenues did manage to beat expectations at $2.5 billion compared to $2.4 billion. AMAT offered some positive guidance for the third quarter, where the company sees revenues rising by 5%. AMAT's management raised their Q4 earnings guidance into the 28-32 cent range, above consensus estimates of 26 cents. The stock closed virtually unchanged on the session. Unfortunately, given last week's breakdown in AMAT's stock price the trend still looks bearish.

The major headline after hours tonight was General Motors filing for an IPO later this year. There has been speculation for months that GM would try and IPO right around the November elections. The company filed for an IPO with regulators today in what many believe is the next step in becoming an independent company again. The White House and GM both came under extremely heavy criticism when GM filed for bankruptcy and eliminated about $40 billion in liabilities. Yet bankruptcy wasn't enough to save the failing automaker and the U.S. government engineered a $50 billion bailout. Now the U.S. owns about 61 percent of GM. It is expected that the U.S. Treasury will sell a significant portion of its stake and reduce its ownership to under 50%. Analysts speculate that the Treasury will then slowly sell off its remaining shares over the next few years. The ticker symbol will be "GM" and the stock will be listed on both the NYSE and on the Toronto exchange in Canada.

The S&P 500 managed its third gain in a row this week but the index clearly failed at short-term resistance near 1100. That was the second failed rally in a row. I want to warn readers to stay cautious. This is just an oversold bounce from last week's sell-off. The path of least resistance is still down and I would look for the bounce to roll over in the 1100-1110 zone. I find it interesting that the rebound stalled at 1100. Not only is that round-number resistance but it's also the 50% retracement of the recent sell-off (see chart below). If you are a calls only or long only player I would wait. We might get a better entry point near 1040 or 1010 in September.

Hourly Chart of the S&P 500 index:

Chart of the S&P 500 index:

The NASDAQ doesn't look much better. It will probably fill the gap and trade back into the 2260-2270 zone but first it has to breakthrough technical resistance at its simple 50-dma. The NASDAQ has been struggling near the 2225-2230 area. Eventually I would expect a retracement back toward the July lows in the 2100-2080 zone.

Chart of the NASDAQ index:

The small cap Russell 2000 index doesn't look any different. The oversold bounce this week has thus far produced a 50% retracement of last week's sell-off. The index managed to tag its simple 10-dma midday before paring its gains. I would not be surprised to see the $RUT bounce toward 640 before rolling over. The question is, "will the July lows near 590 hold as support?"

Chart of the Russell 2000 index:

Looking ahead at Thursday stocks will react to the weekly initial jobless claims and then Friday will be impacted by earnings after the closing bell. The trend for the weekly jobless claims has been rising and that's a significant stumbling block for the bulls. If this economy is going to recover we need to see jobless claims going down. Unfortunately American businesses are unlikely to begin hiring again until after we see how the November elections play out and/or how the holiday shopping season shapes up. Tomorrow economists are expecting initial claims to come in at 475,000. We will also see additional economic data from the Leading Indicators report and the Philly Fed report. Analysts are estimating the Philly Fed will see an improvement from 5.1 to 7.5.

Thursday night headlines will be dominated by earnings from tech giants Hewlett-Packard (HPQ) and Dell (DELL). Investors are keenly interested in what HPQ will have to say following the unexpected departure of CEO Mark Hurd earlier this month. Wall Street expects HPQ to deliver a profit of $1.08 a share. Dell Inc. is the planet's third largest PC maker and it looks like investors have lost confidence in the stock and the management team. The stock is trading near one-year lows and with the huge bearish double top forming over the last several months it looks like DELL is headed for its 2009 lows near $8.00. The Point & Figure chart is forecasting a decline toward $7.00. Analysts are expecting DELL to report a profit of 30 cents a share.

School has already started for millions of students around the country but it still feels like summer on Wall Street. Volumes remain very low and they might stay low until after the Labor Day holiday. My market outlook hasn't changed. I'm still expecting a pull back toward 1040 or 1010 on the S&P 500. Maybe if the index can hold these levels we might see a bullish entry point for a late Q3, early Q4 rally. The U.S. still faces the rising risk of a double-dip recession and slipping consumer confidence and spending doesn't help. If we see a market breakdown then my long-term outlook is for a decline toward 950 on the S&P 500 index.

-James


New Option Plays

The Ag Sector in Heating Up

by Scott Hawes

Click here to email Scott Hawes


NEW DIRECTIONAL CALL PLAYS

Monsanto Co. - MON - close 58.97 change -0.19 stop 55.75

Company Description:
Monsanto Co. along with its subsidiaries, is a worldwide provider of agricultural products for farmers. The Company's seeds, biotechnology trait products, and herbicides provide farmers with solutions to produce foods for consumers and feed for animals. The Company operates in two segments: Seeds and Genomics, and Agricultural Productivity.

Target(s): 63.75, 65.90,
Key Support/Resistance Areas: 66.00, 62.30, 58.50, 56.00
Time Frame: 1 to 3 weeks

Why We Like It:
The agriculture sector is heating up and gaining momentum. Farmers want and need to grow more food to keep up with demand, especially from emerging markets. Many potash companies have seen significant gains in recent weeks because potash levels need to be replenished in farmland soil. MON is a downstream play in this space as they provide the seeds and herbicides to actually grow the crops. I also believe this stock and sector can do well in a down market. Technically, MON has been beaten down but is now showing signs of life. The stock is forming a bull pennant above its 20-day and 100-day SMA's and a key pivot level for the stock dating all the back to early 2007. I suggest readers take advantage of the gaining momentum and initiate long positions now. I'm looking for MON to make a run up towards its 200-day SMA and prior support area near $66.00, both of which are above our immediate targets (which are +6% and +10% higher). Our initial stop will be $55.75.

Suggested Position: Buy October $62.50 CALL, current ask is $1.84

Annotated Chart:

Annotated Weekly Chart:

Entry on August xx
Earnings Date 10/6/2010 (unconfirmed)
Average Daily Volume: 7.2 million
Listed on August 18, 2010


In Play Updates and Reviews

Stocks Sell Off Late Again

by Scott Hawes

Click here to email Scott Hawes

Editor's Note:
NOTE: James will be filling in for me the remainder of the week. I look forward to catching up with you on Monday. Current Portfolio:


CALL Play Updates

Cameron International - CAM - close 38.19 change -0.49 stop 35.45

Target(s): 40.50, 42.00, 43.95
Key Support/Resistance Areas: 45.00, 42.50, 41.00, 38.75, 36.00
Current Gain/Loss: +0%
Time Frame: Several weeks
New Positions: Yes

Comments:
8/18: CAM sold off early but finished well off of its lows. The stock has had a nice run since it bounced off of its 50-day SMA last week and simply looks like it is consolidating before pushing up towards its recent highs which is near our first target. My comments below remain valid.

8/17: CAM is pausing after its big move over the past few days. The stock closed above its 20-day and 100-day SMA's and looks like it is headed towards our first target of $40.50. The 200-day SMA is about $1 away so CAM will need to fight its way through some overhead resistance.

8/16: CAM gapped lower and the stock was bought the remainder of the day. September $40 were going for 95 cents at the open and they have gained +21%. CAM closed right on its 20-day and 100-day SMA's so we may get a pause or pullback at current levels. Any weakness would give readers who haven't entered positions a 2nd chance. If the broader market bounces from CAM should easily break through the moving averages and trade up towards our targets.

8/14: CAM was caught in the middle of the drama of the Gulf of Mexico oil spill. The stock has been beaten down because they built the blow out preventer (BOP) on the Horizon well. However, the BOP was heavily modified by RIG/BP so they don't really have any exposure to the damages. CAM is world's largest seller and manufacturer of BOP's so any new rules from the government means a lot of new business for Cameron. And the company recently reported over a $1 billion in new orders. I suggest we capitalize on the gaining momentum and initiate long positions now. Our stop $35.45 which is below Thursday's low, and the 50-day SMA. At a minimum I'm looking for CAM to retest its recent swing high and possibly charge up to its 52-week highs if the broader market cooperates.

Current Position: Long September $40.00 CALL, entry was $0.95

Entry on August 16, 2010
Earnings Date 11/3/2010 (unconfirmed)
Average Daily Volume: 4.6 million
Listed on August 14, 2010


FMC Technologies, Inc - FTI - close 63.73 change -1.33 stop 58.25

Target(s): 65.25 (hit), 67.00, 68.75
Key Support/Resistance Areas: 69.00, 65.50, 62.40, 59.00
Current Gain/Loss: +36%
Time Frame: Several weeks
New Positions: Yes, on weakness

Comments:
8/18: FTI gave back a good portion of yesterday's gains as traders took profits. There is intraday support at current levels and the stock remains above all of its daily moving averages and its upward trend line that began on 6/8. I'm not concerned about today's pullback as the stock is forming an ascending triangle and if it breaks above $66.00 our more aggressive targets should be reached. $65.25 was hit yesterday and still remains a valid target. We've got an October option in this position and suggest FTI give it some time and room to work.

8/17: FTI had a huge day and closed +3.57% higher. Our first target was hit today and we have a +63% gain in our position. I've added a third target of $68.75 but also suggest readers consider $67.00 as an area to exit positions, or at least tighten stops.

8/16: FTI also gapped lowered and was bought remainder of the day. The stock closed right on its 20-day SMA so we could get a pause or pullback. Any weakness will give readers a second chance to enter positions. I am looking for a move up towards FTI's recent swing highs which is just above our first target of $65.25.

8/14: This is another play on the Gulf oil spill as FTI stands to benefit from new regulations in underwater robotics. The company reported solid earnings results in July and this past week's dip is a buying opportunity. The stock is maintaining an upward trend line while the broader market has not, which is a sign of overall relative strength. I believe FTI should easily retest its recent swing high which is just above our first target of $65.25. Our more aggressive target is $67.00 but if the broader market is strong FTI could even make a run at its YTD highs. Our stop is $58.25 which is below the upward trend line and the 200-day and 50-day SMA's. I see some potential in this trade and am going to push the suggested option out to October, but that doesn't mean we can't take quick profits should FTI break higher soon.

Current Position: Long October $70.00 CALL, entry was at $1.10

Entry on August 16, 2010
Earnings 10/27/2010 (unconfirmed)
Average Daily Volume: 1.5 million
Listed on August 14, 2010


Human Genome Sciences - HGSI - close 26.41 change +0.06 stop 24.65

Target(s): 27.20 (hit), 27.70, 28.20, 29.20
Key Support/Resistance Areas: 29.80, 28.24, 27.80, 26.80, 25.00
Current Gain/Loss: -3.3%
Time Frame: Several weeks
New Positions: Yes

Comments:
8/18: HGSI was up big early in the day but gave back most of the gains late in the day. The candlestick printed today does not look pretty but the bullish case for HGSI remains in tact. Today's high was just about the same as on 7/26 which created a head and shoulders pattern of sorts. But I think the selling will be short lived and expect HGSI to move back up towards its recent highs, and possibly print new ones. I've added $27.70 as a target, which is just below the 200-day SMA, and suggest readers either take profits at this level or tighten stops to protect them. A move to this level should produce a +50% gain.

8/17: HGSI broke its intraday down trend line and looks poised to move higher from here. The stock has re-taken its 200-day SMA and now needs to get above the 100-day SMA.

8/16: HGSI broke down from its 20-day SMA but when the stock hit its 50-day SMA it bounced hard. The stock looks poised to bounce higher and should make a run at our first target if there is strength in the broader market.

8/14: We are long HGSI calls at 90 cents. The stock traded within yesterday's range so there not much to report. HGSI remains in its upward channel and above its 20 and 50-day SMA's. I'm looking for HGSI to bounce back up towards its 200-day SMA. My comments from below remain the same.

Current Position: Long September $28.00 CALL, entry was at $0.90

Entry on August 13, 2010
Earnings Date N/A (unconfirmed)
Average Daily Volume: 2.9 million
Listed on August 12, 2010


SPDR Gold Trust - GLD - close 120.22 change +0.47 stop 115.95

Target(s): 121.25, 123.00, 125.00
Key Support/Resistance Areas: 123.00, 119.10, 116.50, 113.50
Current Gain/Loss: +27%
Time Frame: Several weeks
New Positions: No

Comments:
8/18: GLD gapped lower this morning but was quickly bought the remainder of the day. GLD hasn't seen a close this high since June. I am looking for gold prices to move about $10 to $15 higher (about +1%) which should be enough in GLD to hit our first target of $120.25 (lowered 35 cents). This should give us a +50% gain and is an area where I suggest closing positions or tightening stops. This move could happen quick so I suggest planning your exit and sticking with it. I'm ready to get out of here with a nice gain.

8/17: GLD traded in an extremely tight range today and appears to be consolidating before a continued move higher. I could see a pullback to close yesterday's gap which is also near the 50-day SMA, but GLD should continue higher towards our targets in the coming days.

8/16: GLD is hanging tough and gained +1% today. The ETF broke above $119.15 which was a resistance point and I believe GLD should make a run higher from here. Our positions have gained +22% and I suggest readers begin to tighten stops or take profits as our targets approach. I've tightened our stop to $115.90 which is below the 20 and 100 day SMA's and GLD's recent upward trend line.

8/14: GLD is consolidating in a tight range above its 50-day SMA. We need a break above $119.15 which should spark more buying. If readers are not in positions a break above this level could be used as a more conservative approach. There is a swing high of $119.54 from December that may also act as resistance but I think the aforementioned level is more important. I also like GLD on any weakness.

Current Position: Long September $120.00 CALL, entry was at $1.80

Entry on August 12, 2010
Earnings Date N/A (unconfirmed)
Average Daily Volume: 12.4 million
Listed on August 10, 2010


UnitedHealth Group Inc - UNH - close 32.54 change +0.19 stop 30.35

Target(s): 33.40, 34.25, 35.00
Key Support/Resistance Areas: 35.00, 34.40, 33.50, 31.50
Current Gain/Loss: +6%
Time Frame: 1 to 2 weeks
New Positions: Yes

Comments:
8/18: UNH continued higher today. Our primary targets are $33.40 and $34.25. Take profits or tighten stops at these areas. My comments from below remain valid.

8/17: UNH bounced today and closed +1.4% higher. The stock is holding the upward trend line off of its 7/1 lows and looks poised to make a higher high. My comments from the play release below remain the same.

8/16: UNH is a relative strength play in a defensive sector that should do well in the current market environment. Technically, UNH recently broke out of a key pivot level near $31.50 and has retraced some the gains by turning back to re-test the pivot from above (see dashed line on chart), which is where the stock bounced today. UNH is above all of its major moving averages and is maintaining an upward trend line from the 7/1 lows. I think UNH is poised to retest its recent swing highs and possibly move up towards the $35.00 area. I suggest we initiate long positions now. Our stop is below all of the major moving averages which should provide support on any weakness, and we have realistic targets to book a nice winning trade should UNH bounce from here.

Current Position: Long September $32.00 CALL, entry was at $1.25

Entry on August 17, 2010
Earnings Date 10/19/2010 (unconfirmed)
Average Daily Volume: 8.5 million
Listed on August 16, 2010


PUT Play Updates

Apple, Inc - AAPL - close 253.07 change +1.10 stop 267.50

Target(s): 240.00, 233.00, 226.00
Key Support/Resistance Areas: 266, 258, 256, 246, 240, 231, 235
Time Frame: Several weeks

Comments:
8/18: AAPL double topped with yesterday's highs and is coming ever so close to our target to enter short positions. I like this short set-up but the more I think about it the more I think AAPL will make a run at closing the gap lower from 8/10 to 8/11. The stock's 50-day and 20-day SMA's are right there as well, along with its downtrend line. As such, I am going to adjust our entry in this position and push the recommended option out to October. Lets raise our trigger to enter short positions to $257.00. I expect to get filled on this sometime before the end of Monday's or Tuesday's session. Patience should pay off for us as I am looking for AAPL to make a run down towards its 200-day SMA.

8/17: AAPL came within 37 cents of our $255 trigger to enter short positions and then closed the day about $3 lower. Let's see how things play out in the coming days. I believe we will get triggered.

8/16: AAPL closed -0.60% lower while the broader market was relatively flat. Our triggers to enter short positions were not hit. I want remove the trigger to enter short positions on weakness at $245.95 because I do not want to get caught in a short lived dip. The market looks ready to bounce and AAPL should also bounce. If it does I like short positions in AAPL at $255 which is just below the 20 and 50-day SMA's and its recent down trend line. I am also going to suggest we change the strike to the September $240 put which should go for $3.20 at our higher trigger. My comments from below remain the same.

8/14: AAPL has been in a fuzzy cloud recently and I believe it looks vulnerable at these levels. Recent reports on smart phone market share point to the Android capturing 18% market share compared to Apple's 14%. Technically, AAPL had a daily and weekly close below its long term upward trend from its March 2009 lows for the first time this past week. I believe AAPL should test its 200-day SMA which is below our two most conservative targets. I also think this is a good hedge against some of our long positions in the model portfolio. I suggest we initiate short positions in AAPL on strength if it trades to $255 or on weakness at $245.95. This is a position that I suggest being quick to tighten stops and/or take profits.

UPDATED: An alternative strategy readers may consider on a short AAPL position is to buy a PUT spread. For example, buy the October $240 PUTS (current ask $5.05) and sell the October $210 PUTS (current ask $2.10) to finance the cost. This is a well defined risk strategy where your max loss is $293 (the amount you paid for the spread) and your max gain is $1,707 if AAPL closes at $210 at expiration.

Suggested Position: Buy October $230.00 PUT if AAPL trades to $257.00, current ask $5.05, estimated ask at entry $4.15

Entry on August xx
Earnings: 10/21/10 (unconfirmed)
Average Daily Volume: 23 million
Listed on August 14, 2010


Occidental Petrol. - OXY - close: 75.62 change: -1.21 stop: 81.05

Target(s): 74.00, 71.50, 67.50
Key Support/Resistance Areas: 75-74.00, 70.00, 65.00
Current Gain/Loss: N/A
Time Frame: Several Weeks
New Positions: Yes, trigger at $77.50

Comments:
8/18: OXY closed down -1.57% on the day and can't get out of its own way. The stock continues to look vulnerable. Let's keep our $77.50 trigger and see if we can get filled in the coming days. Otherwise, we'll most likely drop the play.

8/17: We are also getting close with our short trigger at $77.50 in OXY as the stock came within 35 cents of triggering our entry. Let's be patient and take advantage of any further strength.

8/16: Its a good thing we removed our lower trigger to enter positions as OXY hit $73.90 and bounced over $2 into the close. I'm looking for the stock to bounce a little more and suggest we initiate short positions at $77.50. We've chosen a further out of the money option than normal to limit risk.

8/14: Hope is not a good strategy when you are in a position, but I suppose it's OK if you're not in yet. I sure hope OXY bounces to $77.50 so our trigger to enter short positions is reached. All we want is a bounce in the stock so we can exploit it. There is so much overhead congestion, moving averages, trend lines, etc. to keep this stock in check. I want to remove the lower trigger to enter for now. If OXY breaks down prior to bouncing the stock could reverse on us so I don't want to get trapped. I like the short set up on strength and suggest looking for a quick move down to the adjusted targets above. I will also add that OXY could bounce higher than $77.50. It really just depends on the strength in the oil sector and how far the broader market can bounce. A bounce much over $79.00 doesn't seem likely.

Suggested Position: Buy September $70.00 PUT, current ask $0.99, estimated ask at entry $0.65

Entry on August XX
Earnings Date 10/21/10 (unconfirmed)
Average Daily Volume 4.4 million
Listed on August 7th, 2010


Procter & Gamble - PG - close: 60.75 change: +0.46 stop: 63.26

Target(s): 59.50 (hit), 59.20, 58.05, 57.25
Key Support/Resistance Areas: 59.00, 61.00
Current Gain/Loss: -25%
Time Frame: 2 to 3 weeks
New Positions: Yes, on strength

Comments:
8/18: PG gained 46 cents today and remains below all of its moving averages. If there is broader market weakness our targets should be reached again. Our gains from early in the week have turned into losses. My comments from below have not changed. All of the above targets are still valid and I suggest readers take profits (or at least protect them) if they are reached again.

8/17: Our +44% gains in PG were evaporated with today's strength. This is an example of how important it is to protect profits. All of the above targets are still valid and I suggest readers take profits (or at least protect them) if they are reached again.

8/16: I want to raise our second target to $59.20 to take profits in PG. Our target of $59.50 was hit in early trading today and this position could have been closed for a +70% gain in early trading. don't want this to turn into a loser and suggest readers begin looking for a exit. The broader market looks like it wants to bounce and the time value of our PG options could begin suffer as time is not on our side. $59.50 is still a valid target and where stops should be tightened to protect profits if PG shows any weakness in the coming days.

8/14: Rallies in PG keep getting sold into. We have a nice gain in this position and it could turn into a big winner if PG breaks below $59.00 which is below our 2nd target. I'm inclined to hang on to this position to see if the selling begins, however, that probably means enduring a bounce this week. PG is also a defensive play so the decline in the stock may take a while. If we get down to $59.05 I suggest tightening stops too see if we can get more out of the trade. If we do get to this level we should have close to a +100% gain. That's hard to beat.

Current Position: Long September $57.50 PUT, entry was at $0.36

Entry on August 10, 2010
Earnings Date 10/28/10 (unconfirmed)
Average Daily Volume 2.5 million
Listed on August 7th, 2010