Option Investor
Newsletter

Daily Newsletter, Saturday, 8/28/2010

Table of Contents

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

Market Wrap

Intel Warns, Market Rallies

by Jim Brown

Click here to email Jim Brown

Intel warned on sales for Q3 and Bernanke failed to name any material change in policy but the market rallied contrary to analyst expectations.

Market Statistics

Navigating the market when actions and reactions are mismatched is always a challenge. Bernanke's speech on Friday was heralded as a make or break moment for the Fed if he did not announce some new plan. Analysts warned that a failure to disclose new plans would likely tank the market. So much for headline analysts knowing what they are talking about. Add in a revenue warning by Intel and the stock being halted and you would have expected another leg down for the market. Nope, didn't happen.

Friday did not follow anyone's expectations unless you were expecting short covering ahead of the weekend. Shorts were loaded up on expectations Bernanke would disappoint and when that did not happen on the scale they expected they were forced to cover rather than hold over the risky weekend.

Another data point that held considerable risk for the market was the GDP revision for Q2. Expectations had been for a revision down to 1.2% growth from the last update at 2.4% growth. Those expectations failed to appear although it was revised lower. The headline number dropped to +1.6% helped by a strong revision to corporate profits by +$73 billion. The majority of the decline was attributed to an upward revision to imports although some of the impact of the imports was offset by a rise in consumer spending.

According to the GDP the U.S. economic growth is continuing but at a drunken stagger rather than a sprint. The GDP is also a seriously lagging report with the period covered ending two months ago. Weak growth in Europe is weighing on the U.S. in the form of lower exports and that should get worse. Job growth remains a serious problem according to Bernanke and that will be a drag on GDP the rest of 2010.

Chart of Q2 GDP

The Final revision to the August Consumer Sentiment declined slightly to 68.9 from the first august release at 69.6. This was certainly not a major event but I would be very afraid of the next release on September 17th. The economic conditions have declined significantly in the last two weeks with the higher jobless claims and next Friday we are probably going to see another loss of jobs in the non-farm payroll report. We could see a material decline in sentiment on the 17th.

The factors impacting sentiment the most are jobs, stock market, gasoline prices and home prices. Of those factors only the price of gasoline is moving in the right direction. Weak consumer sentiment increases the risk to the economy due to weaker consumer spending.

Sentiment Chart

Next week is loaded with critical economic events. The highlights are the FOMC minutes for the August meeting, the national ISM and the Non-Farm Payrolls. The FOMC minutes will give analysts more insight into the squabbling that went on behind the scenes at the August meeting and a better idea what the Fed is actually expecting from the economy. The ISM is expected to decline in line with the regional reports but remain in expansion territory over 50.

The Non-Farm Payroll report is expected to show a loss of -100,000 jobs but it is unknown what impact if any will be seen from lingering census terminations. The headline forecast is for permanent job losses and does not include any census workers. Last month the economy lost -131,000 jobs but that included a loss of -202,000 government/census jobs and a gain of 71,000 private sector jobs. It is actually possible that we see a headline job gain if the census exodus is over. However, whisper numbers range from a loss of -50,000 to a loss of -200,000 jobs. A job gain would be a very unexpected surprise.

Jobless Claims has been a problem over the last four weeks with the prior week's number revised higher to 504,000 and last week's rate at 473,000. For the last four weeks the average has been solidly over 485,000 per week and that suggests the Non-Farm Payrolls are going to be negative.

Economic Calendar

All eyes were on Bernanke when he gave his 17-page speech Friday morning in Jackson Hole. While it is not normally a policy speech he did spell out some points that pleased the market. Essentially he took on the job as cheerleader of the economy at a time that most would find little to cheer about. Bernanke attempted to boost public confidence that the recovery still has enough staying power to survive until hiring and spending pick up in 2011.

He avoided indications the Fed was about to jump back into stimulus mode and in doing so he kept from fanning fears that the recovery is more fragile than it really is. Bernanke noted the recovery had lost some momentum but echoed the new Fed party line that growth is on track for a 2011 recovery. I said new party line because several Fed heads have stressed that point in recent speeches. The rebound point is no longer late 2010 but has moved into 2011.

Bernanke did make numerous points that were chosen to remind the market the Fed was ready, willing and able to provide additional stimulus if necessary. He said the Fed would continue to evaluate additional monetary easing and act accordingly. The issue is whether the benefits outweigh the costs. He reminded listeners the FOMC will strongly resist deflation.

He gave three solutions but stressed the Fed had plenty more at its disposal. The Fed can make additional purchases of long-term securities. They are expecting to buy $400 billion in 2011 as prior debt purchases are redeemed. By making these purchases they avoid a "passive tightening." Second the Fed can modify its communications. This means changing the "extended period" language to something less vague like "until unemployment returns to 8%." That is just an example not something Bernanke said.

A third option would be reducing interest paid to banks on reserves on deposit with the Fed. This has been discussed at length recently as a potential method for forcing banks to lend. If the Fed quit paying interest on the billions on deposit it would force the banks to withdraw those deposits and put the money to work elsewhere. Personally I think the banks would just buy short-term treasuries and continue to hold the cash in fear of a second dip.

Bernanke continued to stress that deflation was a "low risk" and inflation would remain subdued for sometime and was reasonably well anchored. That is Fedspeak for there is no inflation and we don't expect any. He calmed those worried about the U.S. by pledging to do whatever's necessary to resurrect the economy should "unexpected developments" stifle the recovery.

Overall the Bernanke speech offered something for everyone without offering any hard specifics that would roil any particular segment of the market. The stock market dropped sharply when the text was released but the dip was immediately bought even before the text could be analyzed. The initial drop was obviously a sell program timed to take advantage of any Bernanke induced sell off. The initial rebound was obviously a buy program scheduled to take advantage of cheaper prices from any sell off. The battling programs offset each other and left the Dow with about a +30 point gain.

After the speech concluded and the broadcasters had time to disseminate the text another buy program hit at 11:AM that powered the Dow to 10,100 and set the stage for the end of day short covering.

St Louis Fed President James Bullard seems to be toeing the party line and now believes there will be reasonable growth in the second half and the economy will pickup in 2011. He broke with tradition and appeared on CNBC several weeks ago for a two-hour stint and expressed various points of disagreement with the rest of the FOMC. He was pounding the table on the possibility of deflation.

In Friday's interview he was a changed person. Now he believes the economy is on track although growing slower than initially expected and it will pick up sharply in 2011. He believes the Fed has plenty of options to stimulate growth and expressed no difference of opinion with the rest of the FOMC. When questioned about deflation he said the economy still could be at "some risk" of declining prices although it is not yet a dire situation. This is a marked change over the last couple weeks and makes you wonder if he got his hand slapped by Bernanke and his peers on the FOMC for his prior comments.

The market rebound was even more unusual after Intel warned at exactly 10:AM that revenue would be less than previously expected. I though it was interesting that Intel chose to release their warning at exactly 10:AM and exactly the same time Bernanke's speech began and the text released. They were obviously hoping to capitalize on the confusion surrounding the speech in hopes of preventing a sharp decline in Intel's stock price. The ploy worked because Intel dipped to $17.81 on the news then rallied to close positive at $18.38.

Intel warned that revenue could come in as much as $1 billion below its prior guidance because of weaker than expected demand for personal computers. Their new guidance calls for revenue between $10.8B to $11.2B compared to its prior high range of up to $12B. Analysts were expecting $11.5 billion. Intel also said gross margins were going to be as much as 2% below prior estimates. With its warning Intel joined a long list of companies that have already warned on Q3.

Dell and Hewlett Packard warned last week that the back to school shopping season had been a little weaker than expected. HPQ said there was weakness in the laptop market and BTS shopping started later than normal. Several chip companies have warned that manufacturers have been canceling or delaying orders because of weak demand.

Long time chip/tech sector analyst Dan Niles said he was shorting anything with chips and he expected a continued slowdown in the economy and the tech sector. He said you could buy Apple and HPQ but only if you have enough chip shorts to offset short-term fluctuations in those longs. Dan said he expected a double dip over the next two quarters but he defined a double dip as a GDP of less than 1% growth. That seems to be a pretty safe bet with the second revision of the Q2 GDP already revised down to +1.6%. Q3 could easily be less than 1% growth.

Research in Motion (RIMM) lost ground despite the rally because of the continuing problems with India. The country in on track to shut down all the Blackberry devices in India if they can't reach an agreement on accessing the messages. Like the problem with Saudi Arabia a couple weeks ago India wants to be able to read the private emails for "security" purposes. RIMM has proposed several options but they have not reach an agreement with India as of Friday. RIMM has proposed a forum for law enforcement where selective message availability would be allowed. RIMM claims blocking the Blackberry network for all of India would be detrimental for Indian businesses and counter productive to the efficiency of local firms. There are more than one million Blackberry users in India.

RIMM Chart

Boeing (BA) stunned investors again when it announced on Friday it was delaying the delivery date on the 787 Dreamliner again until the middle of Q1-2011. The postponement was due to a delay in the availability of the Rolls-Royce Trent-1000 engine needed for the final phases of flight-testing the carbon-composite aircraft. Boeing uses both the Rolls Royce engines and GE engines in its test aircraft. This is the sixth delay Boeing has announced for the Dreamliner. The Dreamliner is 50% carbon composite and 15% titanium. Boeing has received orders for 850 planes, which can carry up to 330 people with nine abreast seating. Rolls Royce had an accident at its test site in Derby England on August 2nd when an engine blew up. This forced Rolls Royce to shut down the facility for repairs. That explosion suggests there will be some modifications to future engines including those already in use in the Dreamliner test program. Despite the news Boeing recovered from the initial dip to close up +1.84 for the day.

Norfolk Southern (NSC) completed its sale of $250 million in century bonds. These are 100-year bonds that will be due in 2105. Yes, year 2105. If you buy these bonds don't plan on being around to collect. These were added to an indenture dated March 2005. These are 6% senior notes paid semiannually. Demand was so strong that they bumped the offering from its planned $100 million to the $250 million total. NSC joins other companies like DIS, IBM, BNI, FDX, F and MOT in selling century bonds. For companies looking to lock in long term financing at historic low interest rates this is a deal. For institutions like insurance companies looking for long-term income this is a better rate than they can get on the open market. However, analysts warn that companies crowding into bonds today at these low rates are flirting with disaster.

Bond funds have seen cash inflows of $480.2 billion over the last 24 months. That is equivalent to nearly the amount of money spent by equity investors in the dot.com bubble. Treasury yields have not been this low since 1955. Bill Gross of Pimco warned investors last week that bonds have seen their best days and stocks look better now. This is especially true when almost every dividend paying S&P-500 stock is yielding more now than the 10-year treasury. More and more analysts are ringing the bell on the bond bubble and calling for an exit but every new offering either corporate or government is very over subscribed.

Fannie Mae reported on Friday that their 90-day delinquencies fell to 4.99% from 5.15% in the prior month. That was the fourth month that delinquencies declined. Hopefully that means we are over the hump but I am not holding my breath. We really won't know until March of 2011 and the start of the next buying season.

Natural gas futures expired on Friday at a contract low of $3.65. There is an excess of gas in storage and there have been no major storms in the gulf to shut down production. The excess shale gas production is depressing prices because producers can't afford to quit producing. Chesapeake shut down some production earlier in the summer in hopes of boosting prices but they could not hold out long enough to make it worthwhile.

Gas producers have leveraged themselves to the max in order to buy up increasingly large amounts of acreage. They have borrowed increasingly larger amounts of money to fund their drilling and fracturing. As long as they are punching holes at a faster rate the cash flow even at a smaller dollar per Mcf continues to flow. Because depletion of a shale well can be as much as 75% the first year they have to keep drilling to keep generating the high initial flows and generating cash to pay the bills. It is the perfect example of a hamster wheel. As long as they keep drilling the cash keeps flowing but the increased flows produce lower gas prices. This story is not going to end well. If Pennsylvania and/or New York outlaw fracturing the entire sector is going to implode when the cash flow machine stops. Meanwhile short-term gas supplies continue to increase while prices continue to fall.

Natural Gas Chart

Crude prices profited from a monster short squeeze after three weeks of declines totaling -$13. The price of crude spiked higher on two days of declines in the dollar and Friday's gains were accentuated by some serious short covering. The energy sector in general was setup for a continued decline on weak economics and was heavily shorted. Friday's rally after Bernanke and Intel sent shorts running for the safety of cash ahead of the weekend.

Crude Oil Chart

The number of Americans expected to travel during the Labor Day weekend this year will rise 9.9 percent from 2009 as some aspects of the U.S. economy show signs of improvement, travel and auto group AAA said Wednesday. Close to 34.4 million travelers will venture at least 50 miles away from home, compared with 31.3 million last year when the recession curbed holiday plans, AAA forecast. About 10.3 percent more Americans will go by car this holiday weekend, while the number traveling by air will rise by 4.6 percent.

Microsoft billionaire Paul Allen filed suit on Friday against Ebay, Yahoo, Netflix, AOL, Office Depot, Office Max, Staples, Google, Apple and Facebook and YouTube. The suit claims that Allen's Interval Research firm developed patents over Internet usage technology back in the early 1990s. Allen's suit claims the patents being violated are key to how e-commerce and search companies work. The patents described in the suit refer to technology used for such things as web browsing and sending alerts (popups) over the web. One concerns things like recommending products based on the products you previously viewed. You have seen the ads, "other shoppers bought these items as well." Two companies missing from the suit were Microsoft and Amazon. Since Amazon uses every advertising method known to man you wonder why they were not in the suit. A Google spokesman said, "This is an unfortunate trend of people trying to compete in the courtroom instead of the marketplace."

We are nearing the point in the cycle where the election will be a major factor in market sentiment and movement. Historically in a mid-term election cycle the market as reflected in the S&P declines 1% in the first ten months of the year. In the two months after the election the average gain is +4%. With hedge funds either negative or flat for the year and most heavily invested in cash there is a date between now and November 2nd that they will begin to buy in anticipation of the post election rally. Howard Present, founder of F-Squared Investments, said on Friday they are trying to build a 50% cash position going into September and they were not alone in the industry.

It does not seem to make a difference in the long term which party wins the election other than the results are better when the House and Senate are controlled by opposite parties. That recipe for gridlock is favorable to the markets and we have a good chance of that happening in 2010. That suggests the closer we get to November and the more that looks like a reality the more interest there will be in buying stocks.

Remember, part of the election cycle is the negative sentiment produced by the campaigns. The challengers will talk endlessly about how bad the economy is and why you should throw the bums out. The defenders will talk about how bad it is and blame it on the challenger's party in an attempt to poison sentiment towards the challengers. This is not a political statement, just a normal campaign process. The bottom line is a constant stream of negative campaign ads that will push sentiment lower. Eventually investors will swim to the top of the muck and see what they hope is light after November 2nd and start voting with their money and buy stocks as we get closer to the election.

The current economic conditions may not have changed on Friday and conditions appear to be declining but the Bernanke speech pacified some investors. Fears of an economy spiraling out of control may have eased with the feel good words of Bernanke saying we will do whatever is necessary to prevent a double dip or a deflationary period. The speech may have calmed the waters even though it was short on specifics and long on generalities.

Despite the calming influence there are still some critical economic events next week. Those short-term mile markers can resurrect the fear and dread if they come in sufficiently negative. While I would like to think that last weeks bounce off support was the end of the bearishness, I am far from convinced. In every bear market there are multiple rebounds from oversold conditions and Friday's buy program triggered short covering was one of those events. I doubt the bulls are ready to charge back into the market. There are significant headwinds for the economy despite the best hopes of the Fed. We will hear about some of those headwinds when the FOMC minutes are released on Tuesday.

One of the headwinds is the drop in stimulus spending. The amount of money being spent from the stimulus funds is drying up faster than ice cubes on Texas concrete in August. More than 80% of the funds have already been spent, canceled or postponed. I wrote last week that move then 40 states are suffering budget shortfalls that will mean further layoffs and service cuts. The rising jobless claims are an indication that stimulus projects are winding down. In theory the economy was supposed to have rebounded into self-sufficiency mode by now and would no longer need the stimulus money. Those "shovel ready" projects have ended but state and local governments have no money to keep those workers on new projects.

The corporate world is still in hunker down mode with the exception of the recent round of M&A activity. They are flush with cash and ready to rush into the next wave of expansion but that won't happen until there is a solid recovery. They were burned too badly in 2008 to over extend themselves again.

This leaves the market in the same shape as the corporations. Investors and funds are piling up cash for the next buying cycle but that buying is dependent on signs the economy is improving not declining. The post election rally should begin before the election but the start of that buying is also dependent in some part on the state of the economy. If it continues to appear that we are sliding into another hole then investors may wait until the polls close before taking a chance.

Art Cashin had an interesting view of the markets on Friday. He suggested the markets were being manipulated by the Dow 10,000 hat vendor at the NYSE. The Dow has crossed the 10K mark on 23 trading days so far in 2010.

With the big cap tech companies warning on falling computer sales it does not look good for the Nasdaq. The Semiconductor Index may have rebounded from a seven month low into positive territory after the Intel warning but it was short covering not a sudden rush to own chip stocks. The SOX is poised to retest that low at 310 and probably the 52-week low at 290 before the election rally begins. As the chips go so goes the Nasdaq.

Semiconductor Index Chart

The Nasdaq rallied back to strong resistance at 2150 and stalled there into the close. Ordinarily this rebound would have been bullish after two tests of initial support at 2100. The jury is still out until we see if there is any follow through to the short squeeze next week. Both dips were instantly followed with buy programs so at least one institution was bargain hunting. After Intel's warning it will be interesting to see if they are still interested in buying again next week.

Intel's warning was not an end of the world as we know it warning. For Intel to downgrade revenue by $500M to $1B when they are doing $11B per quarter is a haircut not brain surgery. When Intel upped their guidance with earnings there were quite a few analysts that scratched their heads and wondered what Intel was seeing that prompted them to raise guidance. With their warning on Friday they simply walked the numbers back down to where analysts expected them to be before the upgrade. They will still make a lot of money and the sales are still decent.

If traders take that into account then maybe chip stocks won't continue their downward slide next week. However, with Dan Niles saying, "short anything with chips" there is always a worry somebody might listen to him.

I think the key to the Nasdaq is resistance at 2160. If the tech index moves over 2160 we could see another run to 2200 but I believe it will only be a trade and not the beginning of a new bull market. Support is 2100 followed by 2060.

Nasdaq Chart - 30 Min

Nasdaq Chart - Daily

The S&P dipped to support at 1040 twice last week with a decent rebound both times. However, resistance at 1060 was a challenge until the buy program on Friday pushed the index over that level and triggered some afternoon short covering. Even though it closed over 1060 it is not out of the woods with the 1064 level acting to slow the advance at the close.

If the S&P does move higher the 1080 level should be a serious challenge. That is just far enough to remove the rest of the oversold indications and make the bulls start wondering about bailing with some profits. If the gloom and doom returns the next support below 1040 is the 38% Fib retracement at 1014 and the July lows. I think the S&P is in the neutral zone and could wander in either direction for 20 points without forcing traders to make a new trade decision. This would be a good range to wait out the payroll report next Friday.

S&P-500 Chart - 30 min

S&P-500 Chart - Daily

The Dow rallied past initial resistance at 10100 and not by a token amount like the S&P. This was a decent close 52 points over resistance. Of course it was mostly short covering of the index ETFs like the DIA, which had 25% more volume than on Thursday. Ten of the Dow 30 stocks gained over a buck with IBM, CAT and BA the leaders at nearly $2 each.

There was nothing really specific to the individual stocks but a solely a reaction to the short covering and the calming words of the Fed. Once economic reports begin popping next week we are likely to see some worry creep back into the index.

If the Dow can continue to find traction the next material resistance is 10300. The 300-point range between 10000-10300 could be a perfect range ahead of the payroll report next Friday. That does not require a major resistance breakout or a support breakdown. The Dow can wander without worry about levels as long as it stays within that 300-point range.

Dow Chart - 30 min

Dow Chart - Daily

In summary the markets rallied on Friday on short covering triggered by some buy programs and on fears of holding shorts over the weekend. How much enthusiasm will carry over into next week with a calendar full of critical economic reports is unknown. There are so many economic landmines that bulls wanting to climb the wall of worry will have to watch their steps very carefully.

The bigger question is whether the markets rally into the jobs report on expectations for a better report or sell off in advance on worries there will be more jobs lost than expected. The FOMC minutes, ISM, Challenger Report, Monster Employment and Jobless Claims will all have employment components that will telegraph numbers for the Friday Non-Farm Payrolls. Every interim report will be a landmine for the bulls to step over on their way to Friday. I am leaning towards a bad news bulls type of week where the indexes creep upward in hopes of better news. After all there is a ton of bad news already priced into the market.

Jim Brown


Index Wrap

Some Lift and Life in the Dow

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

Two indexes with price action encouraging for a further technical bounce are the Dow 30 (INDU) and the Russell 2000 (RUT). A potential double bottom in RUT and INDU found support in the 10000 area. These two charts are the most encouraging for the bulls.

I like the Dow for some more upside, ditto RUT. In general it now looks less likely that the major stock indexes are going to get pushed to under their late-June/early-July lows. RUT was a possible test for where perceived value is currently, as the Russell did touch its July low and rebounded.

I'm featuring the 21-day moving average this week on my charts, with upper and lower envelope lines set at 3 percent above (the 'center' moving average) and at 4-5 percent below the 21-day average. Given the lower volume and moderate to low volatility overall, it becomes helpful to use envelopes to better gauge areas where index levels are at relative 'extremes' and likely to reverse within 1-2 days; e.g., at 2100 in the Nas Composite (COMP).

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The chart remains bearish for the S&P 500 (SPX) but the end of week rally has lifted the Index above resistance it was hitting this past week in the 1060 area. We have to see what follow through (if any) there is but the pattern here suggests some further upside for this most recent bounce. Bullish sentiment, in terms of the jump in call volume, took a huge jump at the beginning of the week but SPX was weak for the next few days; no surprise there.

The important technical aspects to the chart are: the index remains within an overall downtrend; signs of support/buying interest show up on dips below 1050; in terms of SPX's percent dip below the key 21-day moving average, the Index got about to that extreme again as you can see in the chart.

An indicator often overlooked or not well used is the Relative Strength Index. My RSI setting is 21, a fibonacci number. When we get the kind of 21-day RSI low-end extremes seen below, it's been a good predictor in the recent past for at least a good-sized tradable rebound.

I've noted first support at the lower 5% envelope line, at 1029 currently. I doubt we'll see OEX even touch 1000. First resistance is at 1090 per the red down arrow, with even more pivotal technical resistance at 1110, the top of the downtrend channel .

MARKET SENTIMENT:

A big spike in bullishness occurred on the first day this past week in the CPRATIO number seen above. There was a Monday rally and then churning action that went on into the final hour when selling drove SPX to a Close below 1070 support but with strong call buying that day. Sure enough, the following day (Tues) saw a lower gap down opening with further weakness over the next 3 days, not surprising in terms of the aftermath sometimes of even a single day of such a spike in my indicator.

Bullishness in terms of my indicator's typical scale is still above mid-range: too high to suggest that a next rally might be a leg rather than a technical rebound. The chart pattern doesn't look encouraging for a reversal of the intermediate downtrend anytime soon. Rather, more of a 'technical' rally so to speak; e.g., back up to 1100-1110 in SPX and 2230-2250 in the Composite.

S&P 100 (OEX) INDEX; DAILY CHART

What I've wrote above for the S&P 500 in terms of the relevant bullish/bearishness of the chart and indicators. The intermediate trend is down until/unless there's a decisive upside penetration of the upper channel line. Beyond such a move would be the ability to also pierce prior highs in the 512 area and for the Index to advance beyond that. I discount the idea of a big 'breakout' move anytime soon.

While I don't see big rally potential, it does look like OEX may have bottomed for now and is due for an oversold rebound; back up to the 495-500 area.

I've noted near support around 480, then at 467. Assumed support is then at the prior 459 intraday low. Resistance is at 500-504, with fairly major resistance anticipated at 510-512. I would pay attention to any next low at or under the lower envelope line, as risk to reward on calls would look good.

DOW 30 (INDU) AVERAGE; DAILY CHART:

Among the major indexes, the Dow 30 Average (INDU) has been showing superior relative strength on the last rally. INDU then held up very well on brief dips below 10000. In terms of its prior tradable bottoms, the average got back again to the lower (4% under moving average) envelope line with signs of bottoming type sideways action. I see decent potential back up the 10400 area, resistance implied by the 21-day average.

Since the intermediate trend remains bearish, I anticipate limited rallies only. Bullishness is a bit 'too' high among option types like us for a big move and seasonal factors don't agree either. Not many would be too surprised at another sell off in this nervous market. However, the odds of another SHARP decline is low when the 13-day RSI gets to or near 30; one caveat is that weekly oscillators don't show overbought extremes and we're far from that.

I've noted support (up) arrows on my chart only at 10000, but support should extend to 9900 as well. Major support begins in the 9600 area. I've noted resistance (down) arrows at 10400 and then in the 10600 area.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) Index chart has an overall bearish pattern except that formation of the recent lows in the 2100 area suggests a bottom temporary or otherwise. I find it favorable that 2100 also was the level of the 5% lower envelope line. Prior recent months' lows that fell to 5% or more below the 21-day moving average have been followed by tradable rallies. Does this pattern HAVE TO repeat? Of course not. But, buying at the equivalent 2100 COMP level offered a good risk to reward; e.g., risk/exit point at 2050; upside 'reward' potential to 2250.

Key near support is at 2100, extending to the prior low in the 2060 area. Major support implied by the channel is nearing 1900. My down arrow resistances are at 2227-2230 and then at the upper channel boundary at 2250. Nothing changes the current bearish intermediate trend unless COMP can pierce the prior high in the 2300 area.

The lower channel line, at 5% under (the center moving average) is where COMP was at or close to bottoms since the May lows. The fact that the index got to this lower envelope line and then had the nice rebound on Friday is suggesting at least an interim bottom if not 'the' low. While a large further decline looks unlikely, upside potential may not be to more than the upper end of the bearish downtrend channel that COMP is in. If, against the odds, the short-term trend continues south there's plenty of 'room' on the lower end of the bearish channel!

MARKET SENTIMENT:

A big spike in bullishness occurred on the first day this past week in the CPRATIO number seen above. There was a Monday rally and then churning action that went on into the final hour when selling drove SPX to a Close below 1070 support but with strong call buying that day. Sure enough, the following day (Tues) saw a lower gap down opening with further weakness over the next 3 days, not surprising in terms of the aftermath sometimes of even a single day of such a spike in my indicator.

Bullishness in terms of my indicator's typical scale is still above mid-range: too high to suggest that a next rally might be a sizable up leg rather than a technical rebound. The chart pattern doesn't look encouraging for a reversal of the intermediate downtrend anytime soon. Rather, more of a 'technical' rally so to speak; e.g., back up to 1100-1110 in SPX and 2230-2250 in the Composite.

NASDAQ 100 (NDX) DAILY CHART:

While the intermediate trend is bearish for the Nasdaq 100 (NDX), as is seen visually in the various downtrend channel, a bottom temporary or otherwise may have been reached at recent lows and a 50-60, to 100 point rally is a feasible rebound objective from Friday's 1791 close.

Conversely, if NDX should fall under 1750 or makes a Close lower than 1767, I look for further selling and a key next day as to further weakness OR recovery. I've noted support also at 1730 and buying interest should extend to 1700.

Short-term I see some upside potential and traders may well go with that trading stance, but as a larger play I favor selling rallies (lightly) that carry up to anticipated resistance at 1850-1860, then selling more (heavily) in the 1890-1920 zone.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 (QQQQ) tracking stock may have reached at least a temporary bottom at recent lows in the 43 area. Upside potential could be up to 46. I'd like to take the short side in the 46 area, if reached.

Volume picked up briskly on the Friday rally, a real change in the typical pattern where volume picks up mostly on the downturns. Of course a good deal of the end of week strength could be due to short-covering buying, but some new buying was also coming in on the heels of the Fed announcements.

Near support: 43.0 - 43.25

Next support: 42-41.7

Near resistance: 44.5

Next resistance: 45.4-45.8

Major technical resistance begins at 46

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) is showing a possible double bottom, which is the Tuesday low relative to the early-July bottom. The rebound from these almost equal lows (588 vs. 587) culminated in a strong end of the week finish. Resistance in the 633 to 643 area could be a cap on a further advance building on Friday's strength.

Pivotal support is at 588-587 and the level of the current double bottom. It's worth also noting that technically to 'confirm' a double bottom is for the stock or index involved to go on to exceed its prior upswing high; in this case, at 672.

As for more major resistances, it looks unlikely to me that RUT will pierce prior highs at 672-677, at least not in the near-term but I am not expecting a new low either. If RUT should make new lows, a next potential technical support comes in around 550, at the lower trend channel boundary.



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

Breakout Candidate

by Scott Hawes

Click here to email Scott Hawes


NEW DIRECTIONAL CALL PLAYS

NVIDIA Corp. - NVDA - close 10.12 change +0.32 stop 9.38

Company Description:
NVIDIA Corporation (NVIDIA) is a provider of visual computing technologies and the inventor of the graphics processing unit (GPU). The Company's products are designed to generate graphics on workstations, personal computers, game consoles and mobile devices. NVIDIA serves the entertainment and consumer market with its GeForce graphics products, the professional design and visualization market with its Quadro graphics products, the computing market with its Tesla computing solutions products, and the mobile computing market with its Tegra system-on-a-chip products.

Target(s): 10.99, 11.39, 11.80
Key Support/Resistance Areas: 11.85, 11.45, 11.00, 10.25, 9.45
Time Frame: 1 to 2 weeks

Why We Like It:
NVDA has been absolutely obliterated after lowering guidance earlier this year. On 8/12 the company missed earning estimates but the stock has been bought ever since. NVDA is now forming an ascending triangle on its daily and intraday charts and looks ready to break out higher. After the broader market reversal on Friday I believe we may be in for a mini rally and this should catapult NVDA up towards our targets. The plan is buy calls if NVDA trades to $10.30 which is above the 8/23 high and its 50-day SMA. Our targets are +6.5%, +10.5% and +14.5% higher. Our stop is below the stock's recent swing low and the 20-day SMA which is starting to turn higher. Nimble traders may consider timing an entry in the $9.80 area.

Suggested Position: Buy October $10.00 CALL, current ask $0.74

Annotated daily chart:

Entry on August xx
Earnings 11/4/2010 (unconfirmed)
Average Daily Volume: 23.5 million
Listed on August 28, 2010


In Play Updates and Reviews

Will Stocks Follow Through?

by Scott Hawes

Click here to email Scott Hawes

Editor's Note:
Friday's reversal off of the morning lows was nothing short of amazing and I suspect we could get some follow through. I think a dip early in the week could be a buying opportunity and I suggest keeping a tight leash on short positions. Please email me with any questions.

Current Portfolio:


CALL Play Updates

Cameron International - CAM - close 37.97 change +1.69 stop 35.45

Target(s): 37.85 (hit), 38.40, 38.95, 40.50
Key Support/Resistance Areas: 45.00, 42.50, 41.00, 38.75, 36.00
Current Gain/Loss: -42%
Time Frame: Several weeks
New Positions: Yes, with later month options

Comments:
8/28: CAM gained nearly +5% and closed right on its 20 and 100-day SMA's. I've been saying use strength in the stock to close positions and Friday presented opportunities to do so. Considering the bullish reversal I think we may be able to get more out of the position so I am willing to give this a few more days. The stock closed above a recent down trend line and if the broader market continues higher this week we should be able to get a better exit. Ultimately, I'm looking for CAM to make a move up towards its 200-day SMA but with September options I still suggest selling into any further strength. There will probably be a retracement of some of the gains from Friday but I think the dips will be bought. Readers may want to consider a new entry on a pullback to the $37.00 area with October or November options.

8/26: It looked like CAM was headed higher today but the stock reversed and posted a minor loss. It outperformed the broader market signaling relative strength but it can't keep bucking the trend. My suggestion remains the same which is to use strength in the stock and consider exiting positions as time decay is starting to affect the option premium. CAM printed $37.15 today which is 87 cents higher than the closing price. $36.95 is a logical target to cut losses or tighten stops.

8/25: CAM came close to hitting our stop this morning but reversed. My comments haven't changed much. I suggest readers use strength in the stock and consider exiting positions as time decay will start to affect the option premium. Our targets were adjusted yesterday and remain the same except I have lowered the first target by 10 cents.

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

Annotated chart:

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 63.94 change +2.17 stop 58.80 *NEW*

Target(s): 65.25 (hit), 67.00, 68.75
Key Support/Resistance Areas: 69.00, 65.50, 62.40, 59.00
Current Gain/Loss: +5%
Time Frame: Several weeks
New Positions: Yes, with a tight stop

Comments:
8/28: FTI has a lot of support below and I am looking for the stock to head back up towards our targets. There is resistance in the $65.50 area which is above our $65.25 target that was reached on 8/17. If we get above this level we will have a nice winner, but readers should still consider taking profits or tightening stops to protect them at this target.

8/26: FTI closed just about flat on the day which is much better than the broader market. The bad news is FTI closed $1.50 off of its highs. The stock was up +2.5% early before imploding the remainder of the day. If the market breaks down tomorrow nimble traders may want to exit FTI early to preserve capital. Our official stop is below the 50 and 200-day SMA's but a tighter stop could be placed just under the lows of from Tue and Wed, perhaps at $59.90 which is also below the 50-day SMA. My concern with this is if we get a quick spike down stocks could just as easily reverse after they have taken out a bunch of stops.

8/25: FTI made a double bottom with Tuesday's lows and closed near its highs of the day. Broader market strength will do wonders for our position and the fact that crude oil gained today on bearish inventory data should be good for FTI. But now we need follow through. This is not a bad spot to open new positions with tight stops.

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

Annotated chart:

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


Panera Bread Co. - PNRA - close: 79.81 change: +0.66 stop: 76.90 *NEW*

Target(s): 82.95, 84.50
Key Support/Resistance Areas: 73.00, 76.00, 80.00, 85.00, 88.50
Current Gain/Loss: N/A
Time Frame: 1 to 2 weeks
New Positions: Yes, trigger $80.65

Comments:
8/28: Considering the broader market reversal on Friday I doubt we will get triggered in PNRA at $74.75. But with the broader market behind it PNRA looks on the verge of breaking out. The stock closed right on a downtrend line from its April highs and if it breaks through I believe buyers will step in. Further, the stock is forming an ascending triangle and is above all of its moving averages. If PNRA breaks out with the broader market behind it the stock should see $83.00 relatively quick. Let's use $80.65 as our trigger to buy October calls with targets at $82.95 and $84.50. Our stop will be $76.90.

Suggested Position: Buy October $80.00 CALL, current ask $3.60

Annotated chart:

Entry on August XX
Earnings Date 10/27/10
Average Daily Volume 562,000
Listed on August 21, 2010


Rackspace Hosting, Inc - RAX - close 10.87 change +1.53 stop 17.95

Target(s): 20.75(hit), 21.30, 23.00
Key Support/Resistance Areas: 23.50, 21.40, 20.00, 19.00, 18.00
Current Gain/Loss: +32%
Time Frame: 3 to 5 weeks
New Positions: Yes, preferably on a pullback

Comments:
8/27: Wow! RAX surged nearly +8% higher on Friday and is approaching our 2nd target. I think this stock has the potential of reaching its 52-week highs near our final target of $23.00. RAX is also being talked about as a potential takeover target in the cloud computing space which is why I have suggested the December options, i.e. to give this time to work. Readers may want to consider taking some profits off of the table and keeping the remainder of your position open to see if RAX rewards us.

8/26: RAX printed highs not seen since April and briefly broke out of its ascending triangle. My comments from the play release remain the same. Let's stick with the plan. Readers might want to consider new positions if RAX prints $19.00.

8/25: M&A activity is heating up in the tech sector. Dell and Hewlett-Packard are in a bidding war over a 3Par at a huge 160% premium over its closing price just a couple of weeks ago. Whoever loses the bid will most likely be looking for a similar firm to acquire and there seems to be none better than RAX. Regardless of whether RAX fits the bill for an acquisition they are in the red hot cloud computing industry which is outperforming the broader market. I suggest we take advantage of the momentum and initiate long positions now. Technically, RAX is above all of its moving averages and is forming an ascending triangle. Our stop will be $17.95 and I have three targets with the most aggressive being the YTD highs near $23.00. I envision this trade lasting several weeks or more but if the stock surges we won't hesitate to book profits.

Current Position: Buy December $21.00 CALL, entry was at $1.40

Annotated chart:

Entry on August 25, 2010
Earnings 11/9/2010 (unconfirmed)
Average Daily Volume: 1.75 million
Listed on August 25, 2010


PUT Play Updates

Abercrombie & Fitch - ANF - close 35.99 change +0.74 stop 38.40

Target(s): 33.25, 31.50
Key Support/Resistance Areas: 38.20, 37.25, 32.75, 34.00, 30.50
Current Gain/Loss: -24%
Time Frame: Several weeks
New Positions: Yes

Comments:
8/28: ANF is hanging on to its 50-day SMA and the broader market looks ready for a bounce. We may need to exhibit some patience with this play to see how far the bounce goes. There is lot of overhead resistance to keep things in check. A bounce up into the 200-day SMA and primary downtrend line could be a great entry point with a tight stop.

8/26: ANF traded in a tight range today so there is not much to report. Our plan remains the same except I have raised the first target to $33.25.

8/25: We are short ANF and I am expecting a move down to $33.00 and eventually $31.50. The broader market needs to cooperate and I think any bounces will be will be short lived. ANF has a lot of overhead resistance to keep bounces in check. My comments below remain valid.

8/24: We are back with a consumer name in the retail space. Retailers are weak and ANF looks ready for a drop if the broader market cooperates. This company is one of the more bloated retail names out there and trades at high PE ratio of 26. Technically the stock has broken out of a bear flag that formed in July and August off of the decline from its April highs. ANF is also consolidating below its broken trend line from the 11/08 lows (see dashed line) and volume is picking up which indicates sellers are overwhelming buyers. I suggest we initiate short positions now or on any strength in the stock. We'll use stop of $38.40. Our targets are $33.00 and $31.50.

Current Position: Long October $34.00 PUT, entry was at $2.10

Annotated chart:

Entry on August 25, 2010
Earnings: 11/11/10 (unconfirmed)
Average Daily Volume: 3.5 million
Listed on August 24, 2010


Apple, Inc - AAPL - close 241.62 change +1.34 stop 256.50

Target(s): 240.00 (hit), 237.50, 233.00, 226.00
Key Support/Resistance Areas: 266, 258, 256, 246, 240, 231, 235
Current Gain/Loss: -2%
Time Frame: Several weeks
New Positions: Yes

Comments:
8/28: AAPL underperformed again Friday gaining a meager +0.56% compared to broader market gains of +1.6% across the board. However, the market appears ready for a bounce so readers should consider keeping a tight leash on this trade. I am adding a target of $237.50 which is a $4 dip from current levels. This is support on the intraday charts and is the area readers should take profits or tighten stops to protect them. I still believe AAPL has a date with destiny at its 200-day SMA but I would rather not sit through bounce. If the broader market breaks down first though AAPL should easily hit our $233 target.

8/26: AAPL gapped higher at the open today and filled its gap lower from Tuesday as I suspected in yesterday's updates. The stock was immediately sold the entire day and closed more than $5 off of its high. Sellers are clearly overwhelming the buyers right now. Our targets are in the right place and AAPL could hit them fast if we get a sell off in the broader market. Be ready to take profits or tighten stops to protect them.

8/25: If the broader market bounces here AAPL will most likely rally up to fill the gap down from yesterday. But I think bounces will be short lived so I suggest we be patient and be ready to take profits when AAPL approaches our targets.

Current Position: Long October $230.00 PUT, entry was at $6.90

Annotated chart:

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


NUCOR Corp. - NUE - close 37.25 change +0.87 stop 40.55

Target(s): 36.05 (hit), 35.25, 31.90
Key Support/Resistance Areas: 43.00, 40.30, 37.00, 35.00
Option Current Gain/Loss: +2%
Time Frame: 4 to 6 weeks
New Positions: Yes

Comments:
8/28: It looks like NUE could be headed higher before resuming its downtrend. The chart looks terrible but the stock is oversold and it needs to work off some of the oversold conditions. Our stop is above 20 and 50-day SMA's and a downtrend line. Any move into this area could create a good short entry with a tight stop.

8/26: Yet another stock that gapped higher and was sold into the entire day. NUE traded to $35.71 on Tuesday and if the stock heads down to this level it could be viewed as a double bottom and bounce. Readers may want to consider taking profits at this level or tightening stops to protect them.

8/25: NUE opened lower and quickly traded to our $36.05 target. Positions could have been closed at $1.55 which would have been a +60% gain. NUE printed another 52-week low and continues to look vulnerable so I stick with the plan and give this some time to work, but we may have to be patient.

8/24: NUE closed at a new 52-week low today and looks vulnerable. We now have a +33% gain so protecting profits is suggested. Ultimately NUE looks headed towards our $35.25 target but taking profits on the way is a good idea. I'm going to add $36.05 as an immediate target.

Current Position: Long October $35.00 PUT, entry was at $0.96

Annotated chart:

Entry on August 20, 2010
Earnings Date 10/21/10
Average Daily Volume = 2.9 million
Listed on August 19, 2010


Occidental Petrol. - OXY - close: 75.42 change: +3.19 stop: 78.51

Target(s): 72.25, 71.60, 70.25, 67.50
Key Support/Resistance Areas: 75-74.00, 70.00, 65.00
Current Gain/Loss: -22%
Time Frame: Several Weeks
New Positions: Yes, on strength

Comments:
8/28: The rally in OXY on Friday may have been short covering, but regardless we are caught in the middle of it. It would be nice to see the stock turn lower at its 20-day SMA which is just overhead. If it does there is a good chance we will see a retest of last week's lows so I have added $72.25 as a near term target. OXY's chart looks weak but the broader market may have put inn a short term bottom and OXY could bounce along with it. Readers need to decide whether or not $72.25 is good area to consider closing positions or tightening stops if OXY gets there. Otherwise a tighter could be considered above last week's highs at $76.75.

8/26: OXY looks weak but it also looks oversold. $71.60 is prior resistance level from June 2009 and a prior support level from August 2009. That's why I have this target. Exiting positions at this level should produce a +20% gain. I've also added $70.25 as a target which is a support area from August 2008 and also happens to be the stock's 100-week SMA. I'm cautious on squeezing too much out of an oversold stock and suggest readers be defensive to protect gains.

8/25: Finally, OXY triggered our entry. I suggest we keep our target relatively tight on this trade and exit positions or tighten stops to protect profits if OXY hits our first target of $71.60. This is just above the 52-week low and the stock could bounce. I have also heard many of the talking heads on TV mention OXY as a buy, however, the sellers are in control right now. But the lower the stock goes it may interest buyers and I don't want to caught shorting a potential bottom.

Current Position: Long OXY November $70.00 PUT, entry was at $3.45

Annotated chart:

Entry on August 25, 2010
Earnings Date 10/21/10 (unconfirmed)
Average Daily Volume 4.4 million
Listed on August 7th, 2010


CLOSED BULLISH PLAYS


UnitedHealth Group Inc - UNH - close 32.37 change +0.52 stop 31.33

Target(s): 31.90 (hit), 32.25 (hit), 32.80, 33.15
Key Support/Resistance Areas: 35.00, 34.40, 33.50, 31.50
Final Gain/Loss: -24%
Time Frame: 1 to 2 weeks
New Positions: No

Comments:
8/18: It looked like we made the right call to exit positions at the open on Friday as UNH was headed much lower. But things reversed and UNH now looks like it could be headed back up towards the $33.00 area. Current levels look like good entry points but with later dated options. Time decay will start to hurt September options so I suggest selling and keeping tight stops, especially on strength 8/26: UNH came within 6 cents of reaching our $32.45 target so it has been lowered to $32.25. Regardless of the target I think the best strategy with UNH is to exit at the open tomorrow. I am cautious of holding this position through the weekend and would rather preserve capital. If you are a more nimble trader who can monitor the position, I suggest keeping a tight stop to see if UNH moves higher tomorrow.

8/25: UNH made a comeback today gaining nearly +3%. I'm still looking for an exit and have tightened the stop to $31.33. I've also narrowed our next target to $32.45 and would be inclined to exit if it is hit. This should get us to breakeven or better on the trade.

Closed Position: Long September $32.00 CALL at $0.95, entry was at $1.25

Annotated chart:

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


CLOSED BEARISH PLAYS

FASTENAL Co. - FAST - close: 45.96 change: +0.47 stop: 50.40

Target(s): 44.80 (hit), 43.50
Key Support/Resistance Areas: 50.00, 48-47, 200-dma, 40.00
Current Gain/Loss: +22%
Time Frame: 3 to 4 weeks
New Positions: Closed

Comments:
8/28: FAST traded down to our $44.80 target in early trading and this is where I suggested taking profits so we are flat the position for a small +22% gain. Friday's broader market reversal was quite impressive and looks ready for a more meaningful bounce which I would rather not sit through. FAST can probably be shorted again in the $47 to $48 area.

8/26: FAST gapped higher today as well but the strength was sold into the entire day. Our first two targets are the primary targets where I suggest taking profits, or tightening stops to protect them, especially if the stock heads lower prior to bouncing.

8/25: FAST closed down despite a rally off of the lows in the broader market. This is relative weakness and when things turn back down FAST should approach our targets quickly.

8/24: Our short positions were triggered at $46.50 in FAST this morning. The stock is well below its 200-day SMA and may bounce to retest it from below. This may provide another entry point. I've added $44.80 as a near term target and is an area to consider taking profits or tightening stops to protect them.

Closed Position: Long November $45.00 PUT at $3.05, entry was at $2.50

Annotated chart:

Entry on August 24, 2010
Earnings Date 10/12/10
Average Daily Volume = 839,000
Listed on August 19, 2010


Procter & Gamble - PG - close: 59.80 change: +0.26 stop: 63.26

Target(s): 59.50 (hit), 59.20, 58.75, 58.05
Key Support/Resistance Areas: 59.00, 61.00
Final Gain/Loss: -38%
Time Frame: 2 to 3 weeks
New Positions: Yes, with November options

Comments:
8/28: We got the sell-off early Friday but it stopped 5 cents short of our $59.20 target. PG simply refuses to breakdown and with options expiring in September it was time to close the position to prevent further time decay per Thursday's updates. I believe the market could bounce here so I think it was the right move. I do like the strategy of rolling current/or opening new positions in the November strikes to give this time to work. For now, we've taken the loss and are moving on.

8/26: Nothing much has changed with PG. The stock refuses to breakdown. We are near breakeven on the trade and I still suggest looking for an exit to prevent accelerating time decay. If we get a sell-off tomorrow that will be our opportunity. Otherwise, I suggest we close this position at the close. I've added $58.75 as a target on sell-off. This is near prior resistance from September and October 2009.

8/24 & 8/25: My comments from below remain the same. I suggest readers begin exit PG to prevent time decay from accelerating. Another strategy would be to roll current positions into the November strikes and give this time to work.

8/23: PG has a lot of support at $59.00 and our options will begin to suffer from time decay. PG looks like it has further room to the downside but time is not on our side. As such, I suggest readers begin to look for an exit using the targets listed above. Another strategy would be to roll current positions into the November strikes and give this time to work.

8/19: Shares of PG have been forming a top for over eight months now. If the stock breaks down under support near $59.00 it would forecast a drop toward $54.00. Readers can choose to open positions near $61-62 but I would prefer to see a breakdown under $59.00. Please note I have adjusted our exit targets to $58.05 and $55.25. FYI: If you launch new positions I would buy the Novembers.

Closed Position: Long September $57.50 PUT at $0.22, entry was at $0.36

Annotated chart:

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