Option Investor
Newsletter

Daily Newsletter, Thursday, 9/2/2010

Table of Contents

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

Market Wrap

Bulls Notch Another Win

by John Gray

Click here to email John Gray
I will be filling in for Keene tonight. He had a small emergency. He crashed his airplane - had to make a forced landing after the engine abruptly quit on him. He is OK, except for a bruised rib and wounded pride. I am having some issues as well. I have been without an Internet connection most of the day. I had to drag my laptop down to the local library (wireless connection) in order to finish this commentary. Jim assisted in the effort by adding charts.

The Markets bravely hung onto its gains from yesterday's massive rally, and actually added a few more notches in the bulls' column.

Market Stats

Pending home sales in July rose 5.2% from downwardly revised June levels, the National Association of Realtors reported Thursday, and the indicator shows the market for existing homes is still depressed after the expiration of a key tax benefit. As the availability of a home buyer tax credit worth as much as $8000 expired at the end of April, the pending home sale index plunged 29.9% in May and another 2.8% in June. The NAR had initially reported a 2.6% drop in June. The July index came in better than the 1% monthly drop that economists had forecast, though sales in July were nonetheless 19.1% below those during the same month 2009.

For the week ending August 28th, Initial Claims were 472,000, a decrease of 6000 from the previous week's revised figure of 478,000. The median consensus was for 470,000 and 456,682 initial claims in the comparable week in 2009. The four-week moving average was 485,500, a decrease of 2500 from the previous week's revised average of 488,000.

Factory orders increased a slim 0.1% in July, held down by declining orders for computers and machinery, the Commerce Department said Thursday. Orders for durable goods rose 0.4% in July on higher aircraft orders. This was revised up from the 0.3% gain estimated a week ago. Factory inventories rose 1%, the biggest gain since February.

According to the Bureau of Labor Statistics, non-farm business productivity was revised down to -1.8% in the second quarter from the original estimate of -.9%, due to a slowdown in business output after cutting labor cost to the bone. This followed the 3.9% jump in the first quarter. The market had forecast a -1.9% dip in the revised productivity.

There was also some good news from the retailers. Total August same-store sales rose 3.5%, topping analysts tempered estimates of 2.8% and marking the first positive surprise since March. More than two-thirds of the retailers beat expectations.

Dell, Inc. said Thursday morning that it will not revise its latest bid for 3Par, Inc., effectively ending the month-long bidding war with Hewlett Packard for the small data storage company. Dell says it is entitled to a $72 million break-up fee, under the terms of its agreement with 3Par.

Dell Chart

Burger King (BKC) has gained 50% in two days as the fast food chain announced that it had agreed to be acquired by the private equity firm 3G Capital for $24 per share.

Burger King Chart

Mariner Energy's Vermillion 380 oil rig, located about 80 off the coast of Louisiana, exploded today. Thirteen people are reported overboard and one was injured. Mariner reports that all wells are shut in and there is no oil spilling. The fire was not well related. Mariner said crews were maintaining the rig at the time, which included sand blasting and painting the structure.

The fire occurred around the living quarters and it was thought to have been caused by sparks igniting the fumes from the paint and solvent being used. The rig produces 1,400 barrels of oil and 9.2 mcf of gas per day. Mariner Energy is in the process of being acquired by Apache. Mariner shares dropped $4 on the news but quickly recovered the majority of those losses once it was determined there was no well fire.

Mariner Chart

The markets are basically on "hold" today ahead of tomorrow Non-Farm Payroll report. SPX has climbed slightly above 1080, which acted as resistance on August 23rd. The payrolls report tomorrow will no doubt provide the catalyst to extend this rally, or put an end to this exuberant run. Yesterday's rally left a huge gap below that will, undoubtedly get filled at some point. SPX has successfully tested 1040 three times before. Therefore that appears to be the "line in the sand" for the bulls. On the resistance side, SPX hit 1100 on August 17th and 18th before rolling over. Above that is the downtrend line from April at 1108, and its 200 DMA is currently resides at 1115.

S&P-500 Chart

September is historically the worst month of the year. So far, the first two days have been anything but bearish. However, the week leading up to Labor Day is usually bullish and, so far, it has not disappointed. When fund managers and traders return to their desks after the long weekend we shall get the full measure of their intentions.

The economic reports over that past week or so have been a mixed bag. Generally speaking, we are seeing an economy that is not improving as fast as many had hoped. Jobs (or lack thereof) are the elephant in the room. Until (and unless) businesses begin to hire again, none of the problems that plague the country (foreclosures, bankruptcies, lackluster retail sales, etc.) will go away. Unfortunately, businesses have learned to live with fewer employees, and they like it that way. They will not add staff until demand returns, and demand won't return until more people have jobs - it's a Catch 22. Personally, I am fearful that this is a process that will take years, not months, to solve.

The current estimates for the Non-Farm Payroll report on Friday range from a gain of 50,000 jobs to a loss of 150,000. The wide estimates are due to a lack of clarity on the number of census jobs left to terminate. Estimates vary up to 150,000 census jobs could have ended in August. The private sector is thought to have added 30,000 jobs for the month according to MarketWatch. This report will be critical for the elections. Candidates are actively campaigning all this month and they will be using Friday's jobs data in their speeches. A big headline loss will benefit the challengers and a gain will benefit the incumbents.

And, while we are on the subject of jobs, it does not matter if you are a Democrat, Republican, Independent (or none of the above) if you are honest with yourself; you realize that government can only do so much to create jobs. However, that is not going to stop angry voters in November from taking it out on the incumbents. Opinions vary, but I think the Republicans stand an excellent chance of retaking the House, but frankly I would be a little surprised if they took the Senate too. Wall Street kind of likes gridlock because that means they will get less accomplished (less is best). It reminds me of the plaque that I saw hanging on the wall above of a wise old trader's desk. It said, "No man's life, liberty, or property is safe while the Legislature is in session".

To say this market has been a challenge to trade would be an understatement. Hardly a day goes by that the market does not gap one way or the other. Wednesday was a 90% up day, the third 90% day in four days (two up, and one down). The problem is exacerbated by the fact that a large portion of the move occurs in futures trading before the markets are even open. Yesterday, for example, over half of the day's gain occurred before the opening bell. This makes holding positions overnight (long or short) dangerous.

And then there is the problem of volume. Most of the big rallies that have occurred this summer have been on extremely low volume. One might attribute that to simply slow summer trading, however the sharp declines that we have seen have been on much higher volume. These are not the kind of ingredients that the bulls want to see. Volume is the ally of the bulls.

Volume today was slightly better than some of the record low days we have had recently but nowhere close to the 8+ billion days on Tuesday and Wednesday. Volume today was 6.5 billion shares with 5.5 billion in up volume and only 973 million shares of down volume. Most shares were up fractionally and new highs were well below the new highs from Wednesday. It was a bullish day ahead of a major jobs report on Friday.

Considering the markets added to yesterday's +255 point Dow rally this could be considered a bullish day. Adding 50-points on top of that 255 ahead of the payroll report could also be additional short covering. The economic sentiment seems to be improving slightly and traders may be practicing common sense by not holding shorts over the report. The improving sentiment may also have induced some traders to position themselves in longs on hopes of a better than expected jobs number.

The Dow rallied over 10300 but remains under resistance at 10350. The majority of the Dow gains came in the last hour, which suggests short covering. Support is now 10260.

Dow Chart

The Nasdaq rallied back to resistance at 2200 after a strong two day gain in the semiconductor stocks. The SOX was severely oversold on Tuesday with a new 52-week low at 305. After two days of gains the SOX is back to resistance at 325. The majority of those gains were short covering.

The Nasdaq has decent resistance at 2200 and 2225 and I am sure that will be tested if we get a positive jobs report on Friday. After two days of gains support is now well below at 2100.

Nasdaq Chart

All the hourly ISEE readings today were well above 200, suggesting heavy call buying ahead of tomorrow's payroll report. It looks like everybody is leaning in the same direction. We could have a "sell the news" reaction. Be careful out there!

John Gray


New Option Plays

Breakout of Industrial Miner

by Scott Hawes

Click here to email Scott Hawes
Editor's Note:
In addition to the play below I have listed three other stocks on my watch list for potential breakout plays tomorrow if the employment report is favorable. These may or may not make it in the model portfolio but I thought I would mention them for readers interested.

EQR, VTR, BKCC - All are at pivotal levels and could breakout in a strong market. Otherwise, timing entries on a pullback is certainly an option.


NEW DIRECTIONAL CALL PLAYS

Stillwater Mining - SWC - close 14.75 change +0.40 stop 13.95

Company Description:
Stillwater Mining Company is engaged in the development, extraction, processing, refining and marketing of palladium, platinum and associated metals (platinum group metals (PGMs)) from a geological formation in south central Montana known as the J-M Reef and from the recycling of spent catalytic converters. The Company operates a smelter and base metal refinery at Columbus, Montana, which improve the mined concentrates into a PGM-rich filter cake. Besides processing mine concentrates, the Company also recycles spent catalyst material at the smelter and base metal refinery to recover the contained PGMs palladium, platinum and rhodium.

Target(s): 16.30, 16.95, 17.65
Key Support/Resistance Areas: 14.40 to 14.70
Time Frame: 1 to 3 weeks

Why We Like It:
Industrial metals such as silver and palladium that SWC mines are in demand and prices are increasing. SWC has broken out and closed above a key pivot level in the $14.50 area. I suggest readers buy SWC calls the stock trades to $15.05 which is above today's high of $14.98. If the broader market rallies on good a employment report tomorrow SWC should eventually trade up towards its 52 week highs. If the broader market sells off on a bad employment report we may consider entering at a lower price next week. There is a lot of support below. If triggered our initial stop will be $13.95.

Suggested Position: Buy October $15.00 CALL, current ask $1.10

Annotated daily chart:

Entry on September xx
Earnings 11/4/2010 (unconfirmed)
Average Daily Volume: 1.62 million
Listed on September 2, 2010


In Play Updates and Reviews

Big Winner and Small Loser Closed

by Scott Hawes

Click here to email Scott Hawes

Editor's Note:
Good evening. Tomorrow is the highly anticipated non-farm payroll report. A bad number could send the broader market plummeting very quickly and erase many of the gains experienced this week. If the report is bad and stocks begin to sell-off getting out of long positions is probably the right course of action. However, a good report may extend this rally further. There is one thing for certain and that is the indexes are approaching major resistance levels. I'm not so sure a good employment report will be enough for the indexes to break through overhead resistance but if it does watch out above. The S&P 500 is 10 points away from 1,100 resistance and 25 points away from its 200-day SMA at 1,115. I believe a good employment report will send the S&P 500 into this range tomorrow which puts us back in no man's land. Regardless, we may have some opportunities tomorrow to book profits. Please email me with any questions.


CALL Play Updates

Cameron International - CAM - close 38.63 change +0.34 stop 37.50 *NEW*

Target(s): 37.85 (hit), 38.40 (hit), 38.95, 39.15
Key Support/Resistance Areas: 45.00, 42.50, 41.00, 38.75, 36.00
Current Gain/Loss: -37%
Time Frame: Several weeks
New Positions: Yes, with later month options

Comments:
9/2: Tomorrow's tone will be set early with the employment report before the bell. Our stop is in if there is a sell-off, if not CAM should hit our final targets and I suggest closing the position to prevent further time decay which is really going to accelerate over the next two weeks.

9/1: The whipsaws continue. Another target was hit in CAM today but this time there could be follow through so I am content giving this a little room to work. I think it is prudent to close positions this week regardless of what happens to prevent further time decay. I've adjusted the targets with $39.35 as the final target underneath the 200-day SMA.

8/31: CAM has made a series of higher lows since 8/25 but the broader market weakness has held the stock back. I suggest using the above targets to exit positions or tighten stops on any strength and cut our losses on this trade. Our $37.85 target was hit on Friday and was probably the right time to exit.

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 65.91 change +1.12 stop 63.75 *NEW*

Target(s): 65.25 (hit), 66.25, 66.95, 68.25
Key Support/Resistance Areas: 69.00, 65.50, 62.40, 59.00
Current Gain/Loss: +30%
Time Frame: Several weeks
New Positions: Yes, with a tight stop

Comments:
9/2: FTI looks on the verge of breaking out but tomorrow's employment report will likely determine the fate of the breakout. Our first target has been hit and we have a +30% gain. Protect profits. Our targets above have been adjusted slightly down and the stop has been raised to protect against a hard reversal.

9/1: We now have a +23% gain in FTI and are back on track with options expiring in October. $65.25 has been reached once and I suggest not letting the stock reverse on us again. I've added a target a of $66.25 which will fill a long standing gap from 5/5.

8/31: The bullish case remains in FTI as it is maintaining an upward trend line from mid-July. The stock now needs to break out above its 20-day SMA and we should hit our targets. All of the above targets remain valid.

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


Int'l Business Machines - IBM - close 125.04 change -0.73 stop 121.90

Target(s): 127.75, 129.90
Key Support/Resistance Areas: 132.00, 128.00, 127,00, 123.00
Current Gain/Loss: -6%
Time Frame: 1 to 2 weeks
New Positions: Yes

Comments:
9/2: We are long IBM calls as our $125.25 entry was triggered. IBM traded within yesterday's range so there is not much report. Tomorrow's employment has the potential to hurt or help us. If the report is bad and the market sells off readers may want to consider placing a tighter stop in the $123.80 area.

9/1: We closed a short winner in IBM a couple of weeks ago and we are now back with a long play. I suggest readers take advantage of the 9 point wide channel the stock has traded within over the past 4 to 5 months. Today's reversal in the broader market was either a huge head fake or the start of a bigger rally. I think we go higher before breaking the recent lows. Let's use a trigger of $125.25 to initiate long positions and target a $2.50 to $4.50 move higher over the next one to two weeks. If triggered and our two targets are reached the profit projection is +45% and +75%, respectively. Our stop is below the recent swing low at $121.90.

Current Position: Long October $130.00 CALL, entry was $1.50

Entry on September 1, 2010
Earnings 10/18/2010 (unconfirmed)
Average Daily Volume: 5.5 million
Listed on August 28, 2010


NVIDIA Corp. - NVDA - close 9.57 change +0.17 stop 9.38

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

Comments:
9/1 & 9/2: More nimble traders may want to consider bullish positions in NVDA now as the stock is almost 7% below our plan to buy it on a breakout. Officially we will wait for the breakout but if that doesn't happen in soon the play will most likely be dropped.

8/28: 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 to 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.

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

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


Rackspace Hosting, Inc - RAX - close 20.91 change +0.79 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: +33%
Time Frame: 3 to 5 weeks
New Positions: Yes, preferably on a pullback

Comments:
9/2: This marks the second time our first target has been hit. My comments from below remain the same. Also, if tomorrow's employment report is bad readers should consider closing positions.

9/1: We are looking good here as RAX is above the key $20.00 support level and the ascending triangle that has been forming since June. Now we need follow through. If RAX spikes back up to our first target protect profits or consider taking a portion of your position off of the table.

8/31: RAX experienced a set-back today when Benchmark Co. cut its rating to hold from buy. The firm reiterated their price target of $22. RAX closed at $19.69 and if it goes to $22.00 we will be happy campers. Once this selling subsides RAX should turn back up. The stock is maintaining its primary upward trend line and is still above all of its major moving averages. For options traders we have December strikes so time is on our side for now. Readers may want to consider this pullback as an entry point.

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

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 35.16 change -1.42 stop 37.40 *NEW*

Target(s): 35.55 (hit), 34.35, 33.60, 32.15
Key Support/Resistance Areas: 38.20, 37.25, 32.75, 34.00, 30.50
Current Gain/Loss: -20%
Time Frame: Several weeks
New Positions: Only with tight stops

Comments:
9/2: There is obviously a big seller of ANF which makes me think the sell-off could continue in the stock. However, tomorrow is a wild card so I urge readers to be cautious with positions if the broader market rally continues. I've tightened the stop and adjusted the targets.

9/1: ANF rallied right up to its 20-day SMA but closed below it. There is a primary downtrend line and the 200-day SMA just above current levels which should provide resistance. I've added two lowered targets that I suggest readers use to consider exiting positions or tightening stops to protect capital.

8/31: ANF hasn't seen a close this low since 7/21 and is below all of its moving averages. We need the stock to break below $34 and our targets should get hit.

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

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 252.17 change +1.84 stop 256.50

Target(s): 246.50, 244.00, 240.00 (hit), 237.50
Key Support/Resistance Areas: 266, 258, 256, 246, 240, 231, 235
Current Gain/Loss: -59%
Time Frame: Several weeks
New Positions: Only with tight stops

Comments:
9/2: My comments below remain the same. Readers should consider exiting this position to preserve capital, especially if the broader market rallies on the employment report. If that happens, taking the loss is the right thing to do.

9/1: AAPL historically sells off in the ensuing days after their conference but the strong broader market reversal today has me very concerned. Readers should consider exiting positions to preserve capital. I've added 2 near term targets that are support areas and I suggest tightening stops or exiting positions as they approach.

8/31: AAPL has not been able to make it above the $246 level since breaking through it last week. The stock has been a strong performer the last couple of days, probably because of the hype surrounding a "music-themed" press conference tomorrow that Apple is hosting. Rumors have it that the company will announce a new iPod Touch and new iPod Nano at the event. Although there are no confirmed reports of any new products, Apple has repeatedly introduced new iPod models at their September press conference. This could produce a pop in the stock so readers may want to exit positions ahead of the conference. However, if the conference fails to impress the stock could experience a set-back. The targets above should be considered as exit points and readers may want to consider tighter stops in the $249 to $252 area. The 20-day SMA is $250.27 which should keep bounces in check but we are going to need to see broader market weakness for AAPL to reach our targets.

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

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


NUCOR Corp. - NUE - close 38.44 change +.48 stop 39.25 *NEW*

Target(s): 37.65, 37.05, 36.05 (hit), 35.25, 31.90
Key Support/Resistance Areas: 43.00, 40.30, 37.00, 35.00
Option Current Gain/Loss: -30%
Time Frame: 4 to 6 weeks
New Positions: Only with tight stops

Comments:
9/2: My comments below remain the same. I've adjusted the immediate target and tightened the stop, which is above the 50-day and downtrend line. This is the place for pullback but if we don't get it NUE could breakout higher so I suggest getting out of the way and protecting capital.

9/1: I've added a $37.40 as a target and suggest readers begin to look for an exit in NUE. The stock's 20-day, 50-day, and downtrend line are all just overhead which should provide a pullback and exit point, even it is a loss.

8/31: After hitting our target of $36.05 on 8/25 NUE has traded within a $1 range between $36.40 and $37.40. NUE is forming a bear flag and should break lower but the stock and broader market are simply not cooperating. Our stop is above the 20 and 50-day SMA's and a downtrend line. Readers should consider closing positions on any further weakness to protect profits or use a tighter stop to protect capital if there is a more meaningful bounce.

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.

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

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: 77.84 change: +0.98 stop: 78.85 *NEW*

Target(s): 75.80, 74.50, 72.25, 71.60, 70.25
Key Support/Resistance Areas: 75-74.00, 70.00, 65.00
Current Gain/Loss: -44%
Time Frame: Several Weeks
New Positions: Yes, on strength

Comments:
9/2: The melt-up continues in OXY and we are close to being stopped out. My comments from below remain the same. The 50-day SMA and the 8/10 high is our last line of defense. If OXY moves above these we need to step aside. I've raised the stop a 24 cents due to an unfilled gap in the area.

9/1: OXY ripped +5% higher today and closed right on a downtrend line, while the 50-day SMA is just overhead. If the stock breaks through these areas we need to honor our stops and step aside. However, I would be looking for a pullback to exit the position. I have provided two logical near term targets above.

8/31: OXY continued its slide today and has almost retraced all of the gains from Friday. We have small gains in the trade and suggest readers use weakness to consider closing positions. $72.25, $71.60, and $70.25 are the immediate targets. $72.25 is near last week's lows which is where OXY found support. $71.60 is just above the 52-week low at $71.44.

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

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


United Technologies - UTX - close 67.44 change +0.07 stop 69.11

Target(s): 66.60, 65.05, 64.00, 63.25 63.00
Key Support/Resistance Areas: 69.00, 68.50 67.50, 66.50, 64.75,
Current Gain/Loss: -12% Time Frame: 1 to 2 weeks
New Positions: Yes

Comments:
9/1 & 9/2: We got filled at the higher trigger in UTX so we are now long October $65 puts for $1.60. Considering the turnaround in equities today I suggest readers use caution in this position. I've narrowed the targets to account for the higher fill and suggest readers consider taking profits or tightening stops to protect them at these levels.

8/31: A strengthening US dollar is bad for multinational companies who derive income from abroad. After a sell-off in the dollar over the past couple of months it looks poised to break out higher and UTX looks poised to break down lower. The plan is to short UTX if it breaks down to $64.50 but I would also suggest shorting UTX if it trades up to close the gap from 8/24 at $67.00. If we get filled at the higher price our stop will be $69.11. If we get filled at the lower price our stop will $67.61.

Current Position: Long October $65.00 PUT, entry was at $1.60

Entry on September 1, 2010
Earnings: 10/20/10 (unconfirmed)
Average Daily Volume: 4.4 million
Listed on August 31, 2010


CLOSED BULLISH PLAYS


Panera Bread Co. - PNRA - close: 85.21 change: +2.26 stop: 76.90

Target(s): 82.95 (hit), 84.50
Key Support/Resistance Areas: 73.00, 76.00, 80.00, 85.00, 88.50
Final Gain/Loss: +87.9%
Time Frame: 1 to 2 weeks
New Positions: Closed

Comments:
9/2: PNRA surged higher again today on the back of takeover chatter in the restaurant industry after Burger King was acquired at a +50% premium to its stock price. Our final target was hit and we have taken profits of +87%. For readers who still have positions protect profits. Tighter stops could be considered at $83.90 and $81.90, the latter of which will wipe out a good portion of current gains.

9/1: PNRA closed +3.7% higher today and our gain in the position is currently +53%. Readers may want to consider taking some profits off of the table while a portion of the position open to see if hit our final target of $84.50. Our first target was reached today.

8/31: PNRA is performing very well during the recent broader market weakness. The stock is on the verge of breaking its primary downtrend line and is above all of its major moving averages. If the broader market gains strength PNRA should easily head up towards our targets.

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.

Closed Position: Long October $80.00 CALL at $6.20, entry was at $3.30

Annotated chart:

Entry on August 30, 2010
Earnings Date 10/27/10
Average Daily Volume 562,000
Listed on August 21, 2010


CLOSED BEARISH PLAYS

Limited Brands Inc - LTD - close 25.75 change +1.48 stop 25.40

Target(s): 23.90, 23.60, 22.70, 22.05
Key Support/Resistance Areas: 25.40, 23.85, 22.60, 22.00
Final Gain/Loss: -42%
Time Frame: 1 to 2 weeks
New Positions: Only with tight stops

Comments:
9/2: We were taken out on LTD as the stock gained +6% on the day. It broke through its downtrend line and all moving averages and looks like it is headed higher. I could see a retracement back to the $25.25 area which could possibly even be a good long entry in a strong market.

9/1: I've added a $23.90 as a target and suggest readers begin to look for an exit in LTD. The stop has been lowered to $25.40.

8/31: We are long October $24 puts as of today's open at $1.40. LTD ultimately lost -2.24% today and looks headed to our first target of $23.30. I suggest readers be prepared to take profits in this position on any further weakness, or tighten stops protect them. The 200-day SMA is just above $23.00 and LTD could bounce from there. My comments from the play release below remain valid.

Closed Position: Long October $24.00 PUT at $0.80, entry was at $1.40

Annotated chart:

Entry on August 31, 2010
Earnings: 11/17/10 (unconfirmed)
Average Daily Volume: 4.4 million
Listed on August 30, 2010